Page 15 - ISQ UK_October 2017

APRIL 2019

Wall Blocked?

Given that Congressional funding for
border security was ultimately lower
than requested ($1.375 billion vs.
$8 billion requested), President
Trump declared a national
emergency by executive order. In
doing so, he hopes to secure
additional funds from the
Department of Defense and the
Treasury to cover the $6.625 billion
shortfall for the construction of a
border wall.
EMERGENCY
DECLARATION

“ Ultimately, we believe it was the
economic worries (and airline travel

delays) that prompted the president to spending, especially as we hit the September 30 deadline for the
relent and allow Congress to come up fiscal year 2020 spending bill, its passage would become more
complicated – a development Federal Reserve Chair Jerome
with a bipartisan compromise package. ” Powell describes as having “possibly large negative effects.” We
will be watching to see how the market reacts if the debt limit
becomes the next fiscal battle. In the past, we have seen markets
react negatively the first time the Obama administration and
believe it was the economic worries (and airline travel delays) Congressional Republicans needed to strike a deal, but largely
that prompted the President to relent and allow Congress to ignored the subsequent debates. A potential wild card is the
come up with a bipartisan compromise package. The market sold political climate surrounding the 2020 Presidential primaries.
off hard in December around and during the shutdown, recession
concerns had hit the market, and there were repeated warnings
that if the shutdown continued for much longer, there was real NATIONAL EMERGENCY DECLARATION –
risk of a negative gross domestic product in the first quarter. WHAT DOES IT MEAN?
Bipartisan Congressional negotiators successfully reached a deal
on a spending package to avert a second government shutdown
WHAT ABOUT THE DEBT CEILING?
over border security. However, the agreed $1.375 billion for border
The dynamics around the government shutdown demonstrated barrier construction was not seen as sufficient by the President and
both Democrats and Republicans are willing to take negotiations prompted a declaration of a national emergency to tap into
to the edge before finding a resolution. This raises concerns about unallocated government funding sources. The Congressional
the next fiscal challenge on Washington’s agenda: the extension spending package was seen as politically damaging for the
of the debt ceiling. The debt ceiling was formally reinstated on 2 President because it did not deliver the win he sought on border
March, at which point Treasury Secretary Steven Mnuchin security, prompting a national emergency declaration. According
informed Congress “extraordinary measures” will be utilised to to administration sources, the White House plans to use reserve
maintain U.S. borrowing below the limit until Congress acts. A military construction, Defense Department, and Treasury funds to
recent Congressional Budget Office analysis estimates the access up to $8 billion for border barrier construction (up from the
Treasury can sustain borrowing through early fall. If raising the $5.7 billion initially requested by President Trump from Congress).
debt limit becomes an avenue for a broader fight on domestic

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