Investor Strategy

Donald Trump just kicked the US economy in the teeth

Trump tongue out at rally

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President Donald Trump just kicked the US economy in the teeth.

On Tuesday afternoon he tweeted that he had ordered the White House to cease negotiations with Democrats for another coronavirus economic aid package until after the November election.

The stock market which — after a miserable September — had been rising on the hope that there would be stimulus, quickly took a nose dive. The economy has been recovering from the initial hit of the coronavirus pandemic, but that recovery is getting slower by the week. There are still 11 million fewer Americans employed compared to before the pandemic hit in February and the pace of job growth is slowing.

Trump’s declaration came the same day that Federal Reserve Chairman Jerome Powell reiterated his call for more economic aid, saying that the recovery will be painstakingly slow without it. Economists have warned that we need a stimulus to ward off the threat of a double-dip recession. 

And you would think that nothing would delight President Trump more than sending out another round of checks to voters before the election. According to a New York Times/Siena poll, a whopping 72% of Americans want to see Congress pass another stimulus package. But no, the politics Trump and the GOP are playing here are bigger and nastier than all of that.

As a result state and local governments — crippled with lost tax revenue and still using their first responders and other resources to control the virus — will continue to twist in the wind.

In a recent survey, 40% of restaurant respondents said they were on the verge of closing — a stimulus bill would have helped them. Airlines, which have been warning that they were on the financial brink, will likely begin furloughing or laying off employees. People receiving weekly unemployment benefits will not receive a boost to their checks as Democrats, and Treasury Secretary Steven Mnuchin, had proposed.

Don’t hold your breath

Trump is denial about COVID. He refuses to acknowledge both its physical and economic impacts. And if you think the GOP is going to pass a stimulus just-like-that after the election I have a bridge to sell you that goes all the way to Candy Land. Promise.

The House has had a stimulus bill written since June, and has been ready to negotiate with Senate Republicans since then. Unfortunately, Senator Majority Leader Mitch McConnell has never given any indication that he wanted to get serious about making a deal — instead trying to pass piecemeal bills or bills with handouts to corporations.

Plus, according to reports, his members seemed to hate the idea of passing any real stimulus at all. The New York Times reported that a closed-door meeting discussing the passage another bill back in August turned into a shouting match.

McConnell’s real goal is clear. He wants to confirm Judge Amy Coney Barrett to the Supreme Court. He knows he’s running out of time to do that before the election. Plus two of his members are opposed to her nomination, and three more are infected with the coronavirus, adding difficulty to his task.

With respect to passing another stimulus the malleable one in the GOP has always been Donald Trump, but he simply does not have the final say here. And given the outlook for his reelection, his power over the party will continue to wane while McConnell will still hold all the cards until a new government is put in place.

In the meantime the lack of stimulus will suck the wind out of the stock market and corporate earnings estimates going forward. The recovery will grind on even more slowly. First responders, teachers, small businesses, and local restaurants will suffer leaving only big players to survive. The gap between rich and poor will continue to widen. And the economy will look more and more like a lobbyists dream. Maybe that what’s Mitch McConnell wants.

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