The House passed H.R. 5618 on Friday along party lines. This bill would
extend unemployment benefits to November 2010. To see if your
congressperson voted for this bad legislation see this list.
I have two major objections to the bill. First is that this is not “pay go” and second this is all about politics and an election.
The House bill was structured as an “emergency” spending bill. This designation allows for it to be exempt from the pay go rules. I am one of those who think that the biggest emergency the country faces is the size of the budget deficit. This bill would add $34 billion to our debt load. Here is how the CBO scored it.
If the Senate passes this bill it would extend benefits to the end of November. Gee, that is a convenient time. Just a few weeks past the critical bi-elections. This bill has little to do with structural unemployment. It is about buying votes and trying to sustain political control of Congress. Those that support/vote for it will say that they are doing so to help the unemployed. Actually it is just more bad legislation. This is about politics, not economics.
The Senate has gone on a ten-day holiday and will pick up the proposed legislation when they return. The vote will be on party lines. As of this weekend that means the White House has 57 of the 60 votes needed to pass. Olympia Snowe (R. Ma.) has indicated she will support it. Therefore they are two votes shy. If this deal clears the Senate and becomes law it would mean that two Republican Senators had their arms twisted, that or they had their political palms greased with some form of side deal. Washington at its worst.
Does it matter that we are adding another $34b to our debt load when the debt is already $14 trillion? Not really. This only increases our debt by a ¼%. It is equivalent to about 20 days of interest. We are in so deep at this point that $34b is a very small number. How is that possible?
I think the outcome of this legislation is important in a number of respects. It will influence markets and the economy.
-If passed, it will be a weight on the dollar. Outside of the US every country is singing fiscal conservatism. We stand out in the opposite camp. Passage of this bill will be reflected in the capitol markets.
-If enacted it will have some short-term beneficial impacts. It will keep consumption going for a bit longer. More I-phones will be bought, the number of defaults will be a bit less, there will be some monthly data released that will hide some of the weakness.
-The President’s fiscal commission will release its results on December 1st. The day after the extension of benefits will expire and three weeks after the election. There is no way this temporary extension will be extended at that point. Either we hit a wall then or we hit a wall now. The President and the legislative side of D.C. will not be able to avoid the recommendations of the fiscal commission.
-If this bill is not passed it will accelerate the slowdown that now seems to be coming at a frightening speed. Consider these two graphs of the number of people who will be impacted. By the end of July the number grows to 3.2mm. These are big numbers. This will show up on Wal-Mart’s sales. It will show up everywhere. Consumption will drop. Landlords will not get paid. Confidence will drop. Markets will drop. Federal and State revenues will drop. Deficits will rise. Debt will rise. These things will happen sooner versus later. H.R. 5618 just buys a few months.