USA: Trump gives ground again to prevent a “shutdown”

A stop-gap spending bill is now in place to ensure the US government is able to pay its bills until the current fiscal year ends on 30 September. The details will be thrashed out in the course of this week and should then be approved by Congress, namely by both the House of Representatives and the Senate in the form of a budget bill. In order to gain the necessary majority of 60 percent of the votes in the Senate, concessions had to be made to the senators who are Democrats. What is for certain is that the budget will be expanded by some USD 20 billion and that no cuts at all will be made. At least from the short-term viewpoint, what is decisive is the fact that the US government will not become insolvent, spelling a so-called “shutdown”. This was last the case in 2013 for no less than 16 days, forcing some federal agencies and other institutions to close their doors temporarily. At that time, a Republican majority in Congress blocked Democrat President Barack Obama’s budget proposal.

The latest fiscal compromise leads us to fear that only a very few members of Congress actually have the serious will to make savings. It is hoped that the absence of any savings efforts is the product of the severe time pressures this time round and will therefore remain a temporary phenomenon. What is a cause for concern, however, is that only a few days ago when President Trump presented his tax reform plans, we also gained the impression that at the federal level the Americans have put any wish to cut government spending on hold. In the medium term, we believe that the constant expansion of the government budget should not be an option for finding a political consensus.

The latest compromise spells yet another defeat for President Trump. Even if an additional USD 1.5 billion was included for border controls, the larger border security budget is explicitly “not” to be used for the construction of the wall along the border to Mexico that Trump repeatedly promised during his campaign and since then as President. From the Republican point of view, the clear increase in the military budget by an impressive USD 15 billion can on the other hand be considered a success. The Democrats in Congress, for their part, averted the planned cuts to social welfare that unsurprisingly were largely designed to financially undermine Obamacare. Moreover, the Democrats also warded off the abolition of consumer protection for financial transactions as stipulated by the “Dodd Frank Wall Street Protection Act”, which came into force only a few years ago.

So how should this latest development be seen on balance? The most important goal, namely a stop-gap spending bill for the next few months, has at least been put in place. However, there is still no discernible common thread to the new administration’s fiscal policy. This stokes fears that government debt may increase drastically in one of the world’s leading economies.

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