The 5 Worst Possible Shocks To The Economy; From Washington, D.C.

My Comments: Fixing what ails us ain’t going to be easy. Especially when the two political parties are more intent on having the other fail than doing what we hired them to do in the first place.

My future is limited while that of my children and grandchildren has decades to run. Economics, despite it being hard for most of us to understand, is at the heart of a credible financial future for the vast majority of us. What follows are five things that must not happen.

Stan Collender, Forbes Contributor / Mar 5, 2017

What had been widely expected to be sure bets and slam dunk policy changes has quickly turned into multiple missteps and infighting as the White House and congressional GOP find it difficult to shift from opposing and resisting to legislating and governing.

Yes…as it planned…Congress did adopt a fiscal 2017 budget resolution in January. But that first (and by far easiest) step in the Trump/GOP economic strategy is the only one it has completed. The January 27 deadline Congress set for itself on the Affordable Care Act has long since been passed with no action by either the House or Senate and none expected anytime soon.

Meanwhile, the ACA repeal and replace saga is about to run smack into a series of economic events and requirements that will force the White House and Congress to devote their time, energy and political capital to other issues. This includes the soon-to-expire suspension of the national debt ceiling, the Trump fiscal 2018 budget that presumably will be released the middle of March (we’ll see), a continuing resolution that if not dealt with by April 29 will cause a government shutdown and a 2018 congressional budget resolution fight that could greatly complicate both repeal and replace/repair/rename and tax reform.

In a bout of irrationally optimistic expectations, investors and their advisors still seem to be assuming (or is it wishing and praying?) that it somehow will all come together. And the Trump/GOP economic policies may indeed all still happen even if they don’t occur as originally planned.

But in light of the unexpected that’s already happened, several new possibilities need to to be added to Wall Street’s calculus.

There are 5 economic policy-related events that aren’t currently being priced in by investors that will send severe shockwaves through the markets if they occur. Instead of a wrench, any of these 5 will throw a nuclear bomb into the GOP’s economic policymaking efforts.

1. No Tax Reform
As I’ve posted before, the corporate tax reform that seemed to be such a sure thing right after the election is now in trouble substantively, conceptually, procedurally and politically. It’s already hard to see it being enacted and going into effect in 2017, and it may still may not be in place in 2018. If the GOP loses House seats in the 2018 election, tax reform may have to wait until after 2020.

2. OMB Director Mick Mulvaney Resigns Or Is Fired
Trump’s budget plans are at odds with the preferences of the House Freedom Caucus, the group of 30-50 ultra fiscally conservative House Republicans who have the power to stop the president’s economic plans dead in their tracks. Before becoming Trump’s OMB director, Mick Mulvaney was a HFC leader and his at least tacit approval of the spending, tax and deficit changes the president wants will be one of the biggest reasons they’re enacted.

But as a member of Congress, Mulvaney specifically rejected much of what Trump is going to propose. If those plans or the compromises needed to get them adopted become more than he can stomach, it’s not hard to imagine Mulvaney leaving the cabinet. That would give the House Freedom Caucus license to oppose the president’s economic agenda.

3. Congress Refuses To Raise The Debt Ceiling
As noted above, the current suspension of the national debt ceiling expires shortly…on March 15. The Bipartisan Policy Center said last week that the Treasury will be able to manipulate the federal government’s cash balances until sometime this fall. What happens then, however, is anyone’s guess.

The common assumption is that congressional Republicans, who routinely opposed debt ceiling increases during the Obama administration, will hold their noses and vote to increase it this time when it’s needed. But that’s anything but certain, especially if the House Freedom Caucus feels that it has given up enough on everything from repeal and replace to tax cuts and military increases that aren’t offset with spending reductions elsewhere.

And just to complicate the situation further, OMB Director Mulvaney (see #1) steadfastly opposed raising the debt ceiling when he was a member of Congress.

4. An Annual $ Trillion Deficit
It’s both conceivable and likely that, in spite of the guarantees given during the campaign, the Trump economic and budget policies coupled with the now seemingly inevitable tightening of monetary policy by the Federal Reserve will lead to an annual budget deficit of $1 trillion or more as early as fiscal 2019. The total increase in the national debt during the first 4 years of the Trump administration could range between $4 trillion and $5 trillion.

5. A Downgrade Of U.S. Debt By The Rating Agencies
The last time the federal government’s credit rating was downgraded was in August 2011 when Standard & Poor’s said it was taking the action because the U.S. needed to raise the debt ceiling and have a “credible” plan to deal with long-term debt. S&P also said the government had become less effective or predictable.

Since then the U.S. debt held by the public has increased by about $4 trillion. And all of the same factors that convinced S&P to downgrade in 2011 will be present again in 2017.

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