by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
April 16, 2020
WASHINGTON’S DISGRACE: Medical personnel are heroic, the Federal Reserve has been bold, and the American public has largely complied with draconian restrictions. But only in Washington could a pandemic become a bitterly partisan brawl.
Here are the two key issues that have Washington gridlocked:
1. Fiscal policy: Money for small business aid will run out today. Efforts to add $250 billion to the fund have stalled, as Democrats insist on $250 billion more for state and local governments, hospitals and food stamps. Republicans want only the $250 billion for small businesses, and neither side has budged.
It’s possible that Treasury Secretary Mnuchin will eventually iron out a compromise, but a lone dissenter could block unanimous consent, requiring members of Congress to return to Washington. Incredibly, funding for small businesses will run out, and state governments face a dire revenue shortage. If you’re hoping for a V-shaped recovery, this is a major concern.
2. Reopening the country: The politicization of this issue was clear yesterday in Lansing, Michigan, as mostly right-wing protesters demanded an end to the lockdown and the re-opening of businesses. Gov. Gretchen Whitmer, a Democrat, was the target.
Virtually all of the nation’s Democratic governors are leery of re-opening on May 1; they agree with Dr. Anthony Fauci that more testing is necessary. But the White House response is that testing is up to the states — and if the country doesn’t open up in May, the governors and the scientists will will get the blame.
Yet even most of the business executives who joined conference calls with the White House yesterday insisted on more testing before they re-open their companies — and the White House reaction yesterday evening was that testing is the governors’ responsibility.
Slightly less than 1% of Americans have been tested, and the disease clearly has not peaked in some regions, but that won’t stop some states like Nebraska from opening up by May 1, even though rural America is suddenly experiencing clusters of infection.
BOTTOM LINE: Volatility may persist not just in the markets but in the country generally as May approaches, with Democrats warning of a second wave of infections and Republicans insisting that businesses have to re-open. If there are new infections, Republicans will get the blame; if the economy languishes, Democrats will get the blame.
THERE’S A MIDDLE GROUND that would rely on social distancing and face masks — and prompt new aid from Congress — but as with every issue in this gridlocked city, the middle ground is thinly populated.
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This post was first published at the AGF Perspectives Blog.
