MAYBE THERE’S SOMETHING IN THE WATER: Key members of Congress are talking openly about deals, breaking stalemates on Joe Biden’s Build Back Better bill, imposing modest new gun reforms and even bringing Russia and Ukraine to the bargaining table.
ANYTHING’S POSSIBLE — and there’s growing frustration over gridlock — but the next crucial deadline doesn’t come until the August recess.
EXCITEMENT OVER DEALS began last week, when the Axios web site reported that Sen. Joe Manchin, the Democrats’ publicity-hungry maverick, had resumed negotiating with Senate Majority Leader Chuck Schumer on spending more money for environmental programs, pre-kindergarten education, prescription drug price controls, etc.
A KEY TO MANCHIN’S SHIFT is that the federal budget deficit is plunging — not because of any sudden spending restraint on Capitol Hill, but because of an explosion of receipts that have filled coffers in Washington and states like California (which is projecting an astonishing $100 billion surplus this year).
MANCHIN COULD CLAIM VICTORY on deficits, which theoretically might reduce inflation and open the door for other provisions, including tax hikes on wealthy individuals and highly profitable companies, while imposing a minimum global tax on business. But this is opposed by another unpredictable Democrat — Sen. Kyrsten Sinema of Arizona.
BOTTOM LINE ON THIS BILL: There’s only a 35% chance of passage. because of the enormous number of congressional vacation days in the next few months, which will preclude consideration of most bills. But the revival of tax hikes as an option — even if chances are below 50-50 — is something the financial markets will have to carefully monitor.
HANDICAPPING OTHER DEALS: Chances of a modest gun bill that would establish a “red flag” process to identify potential shooters: 40%. Chances of a deal on student loan forgiveness, probably capped at people making $100,000 or less: 60%. Chances of passing the Secure Act 2.0, which would reform the retirement system: 75%.
THE BIGGEST DEAL, OF COURSE, would be a truce in the Ukrainian war. The leaders of France, Germany, Italy and other wealthy countries fear a cold winter with food shortages, so they are desperate to bring Russia and Ukraine to the bargaining table. We’re hearing that the combatants may be willing to talk through intermediaries.
BUT NEGOTIATORS WILL ENCOUNTER TWO HUGE OBSTACLES: Russia wants all sanctions removed, while Ukraine wants pre-war borders restored. Both demands are non-starters.
THE FOCUS HAS BEEN ON STAGGERING RUSSIAN LOSSES, but much of Ukraine is in ruins, with its troop losses also soaring as the momentum on the battlefield seemingly tilts toward Moscow. But the Russian economy is plummeting, with its oil and gas revenues likely to fall significantly as the quality of living deteriorates in Moscow.
A UKRAINIAN DEAL WOULD BE AN INSTANT GAME CHANGER for the global markets, with commodity inflation subsiding, but both sides are bringing more lethal weapons into the war, which probably will grind on for months. A huge game changer could be Vladimir Putin’s health, which is becoming a legitimate issue.
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