Economic Impacts

 On Christmas Eve, the House Republicans objected to a unanimous consent motion to increase the Economic Assistance provision passed this week from $600 to $2,000. The President has indicated he may not sign the legislation with the $600 compromise. His party is not following his lead. This is beyond ironic, given how they are humoring him by not recognizing his loss to Joe Biden.

Next week, the government shuts down if the President does not sign the compromise legislation. Saturday, enhanced unemployment insurance expires. In a week, an eviction moratorium expires as well. The following Tuesday, there is a runoff election in Georgia, where two Senate seats and control of the Upper Chamber are on the line. I can almost hear the campaign ads denouncing Republican leadership now.

Not enacting an expanded stimulus is risky, but so is enacting one that is too generous. If the pandemic burns itself out soon, the economy will not only come back to life, but it will do so with significant price inflation. SARS-CoV-2 is everywhere. If all vulnerable people have been exposed, less is better. It is hard to see that now.

Republican leadership is afraid that the debt will balloon beyond the desire of the donor class to buy additional bonds. If this is the case, interest rates will go up, which will also increase net interest paid on the debt. The people who buy and sell bonds have many members on speed dial, so inside information may be flowing to and from Wall Street.

 A final concern is equity. The most often stated reason for rejecting a higher payment is that everyone does not need more money, just the jobless. This may not be true. The eviction moratorium was tempting to many who could not make ends meet in normal times. Many households are behind on their rent or mortgage payments. 

Extending the moratorium will make the problem worse, while leaving landlords and banks to provide housing without the ability to service loans, pay energy bills and keep staff employed. Money is not just an exchange of goods. All good result from labor. If some work while others do not, the economy is unbalanced.

Letting evictions happen is high risk and rather cruel. The threat may be causing some to raise the money to keep their homes - but during the pandemic, this is easier said than done. Triggering mass evictions will lead us to a tipping point. If too many people are out in the street, bills that are late will be uncollectable. 

This may be worse for the housing industry than the current uncertainty,  except for the bottom feeders who are ready to buy up foreclosed and empty properties. Giving them a license to steal turns equity on its head. The Federal Reserve will bail out the financial sector, but marginal renters will be much worse off - which puts the entire economy in danger - assuming things can get worse. They can always get worse. 

Conservatives think in terms of right and wrong. They consider those who do not pay their debts to be undeserving. Their leadership seems certain that Republican voters in Georgia believe the same thing. They are betting the farm on it. Liberals are seen as putting compassion before reality. Why they consider this to be just or good is beyond me, but I am not conservative. If enough Georgia voters are in dire straights, they may do the unexpected and send two Democrats to the Senate.

The real question is danger, not morality. What will collapse the economy? The rubber is about to hit the road. You know what is about to hit the fan, especially if Trump remains a wild card. Is it smarter to pump money into the system while putting off the day of reckoning? If the Republicans in Congress and the White House continue to play chicken, the day of reckoning is early next week. If the President signs the bill, the day of reckoning is delayed. 

The President is playing chicken. He is afraid that when he leaves office, he may lose his freedom and his fortune. He has too much faith in his own invulnerability. Had he won, he would already be under arrest. The federal bench in New York has made if fairly clear that the OLC memo on indicting him has no legal force. That he is a wild card with pardon power gives prosecutors enough pause to wait a month. Trump may be thinking that if he creates chaos, the nation will let him stay in power. This is insane, but for the President, they are merely what he thinks about on Thursday. 

The Wild Card is Vice President Pence. If Trump does not sign the relief/omnibus bill, it may be time to invoke the 25th Amendment. That may be the only way out. It will certainly cause the Dow to have record gains. It will also help us all to sleep better tonight.