Messy Trump-Biden transition will derail desperately needed stimulus

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There is a precedent for political rivals teaming up during a crisis.

“I feel an obligation to my successor,” Bush said at the time. “I think it is good policy not to cause him to fall into a major disaster on his first day in office.”

President Donald Trump could help millions of Americans by securing a major economic stimulus package that prevents a wave of layoffs and bankruptcies before Biden takes office.

Vaccine could arrive, but Covid economy still desperately needs a boost
Unfortunately, this transition promises to be the most turbulent of modern times, casting doubt on the prospects for a recovery plan and coordination essential to the national response to the pandemic.

“2008 is a good example of how this is supposed to work,” said Eric Winograd, senior economist at Alliance Bernstein, now known as AB. “It is clear that this is not the model we are going to follow this time around.”

Failure to provide more tax breaks could backfire as the pandemic worsens. With coronavirus infections soaring, states and cities are imposing new health restrictions that will only add to the pain of restaurants, movie theaters, retailers and small businesses. Not to mention the lingering reluctance of many Americans to get on a plane, stay in a hotel, or go anywhere the crowds might be.

Trump did not concede the race, or recognize the election as legitimate. There are no plans to invite Biden to the White House, a long-standing tradition, including when Trump met Obama two days after the 2016 election.

“There is broad agreement that the revival must be made,” Winograd said. “But if people don’t cooperate on the bases, it becomes difficult to see how they can cooperate on the stimulus.”

Bush worries about automatic collapse

In contrast, the 2008 Bush-Obama transition is seen as the model – even though Obama has campaigned aggressively against Bush’s record. Yet Bush was determined to avoid repeating the mistakes that slowed down the early days of his administration, which got off to a late start due to the 2000 recount.

During Obama’s first private meeting with Bush, he urged the outgoing president to help the auto industry. The Bush and Obama teams then met at the Treasury Department to work out options for providing aid to the auto industry.

Presidents George W. Bush and Barack Obama were credited with an almost flawless transition that included granting loans to keep GM and Chrysler afloat during the Great Recession. The two met in January 2009 before Obama took office with President Bill Clinton and Bush's father, President George HW Bush.

But in December, Senate Republicans rejected an auto industry bailout. With frozen financial markets and the Great Recession underway, GM and Chrysler were on the verge of bankruptcy and possibly liquidation that would have wiped out millions of jobs and decimated auto suppliers. Even rival Ford was asking for immediate government help to save GM and Chrysler.

Even though the auto bailout went against Bush’s free market instincts, he ultimately approved of the use of TARP funds to keep GM and Chrysler afloat.

“I’m worried about a messy bankruptcy and what that would do to psychology and the markets,” Bush said at the time.

Rescue ‘bought time’ before Obama came to power

Steven Rattner, the Wall Street banker who led the Obama administration’s auto rescue, praised the move in his 2010 book “Overhaul.”

“The loans saved time, not just until January 20, the day of the inauguration, but at least until March 31, giving us a bit of a break,” Rattner wrote in the book.

Obama finally decided to provide enough taxpayer funds to save the two GM (GM) and Chrysler. GM alone received a $ 49.5 billion bailout. Taxpayers lost about $ 10.6 billion on GM’s bailout and $ 1.3 billion on Chrysler.
However, allowing GM and Chrysler to go bankrupt would have been much more costly due to lost tax revenue and unemployment assistance, according to a study by the Center for Automotive Research, a Michigan think tank. A total collapse would have cost the federal government between $ 39 billion and $ 105 billion, the think tank estimated.

“It’s very clear that the rescue was a success,” AB’s Winograd said. “He has preserved an industry which is a large employer and which has a significant impact on the economy in general.”

‘Acrimonious transition’

Today Trump is squarely focused on his legal war on election results.

Stephen Moore, Trump’s economic adviser, sees little chance that Trump will back a major stimulus package – even though the president defended a $ 2 trillion deal ahead of the election.

“It’s a whole new world. Elections change a lot,” Moore told CNN Business.

Moore, who said he had not spoken to Trump since the election, pointed to the strong October jobs report as proof that the United States did not need an expensive stimulus package.
From Wall Street to Trump: it's over. This is not a repeat of 2000

“I would say,” Mr. President, you don’t want your last act as president to be signing a $ 2 trillion debt bill. It’s going to be a stain on your record, ”said Moore, who added“ we’re not dropping the election yet ”.

Of course, Trump’s spending spike and tax cuts put the United States in a $ 1 trillion deficit even before the pandemic broke.

And in any case, economists say the focus should be on getting the economy going, not on budgeting.

“The US federal budget has been on an unsustainable track for some time,” said Powell, the Fed chief, in a recent speech. “Now is not the time to prioritize these concerns.”

Moore said Trump could agree to a “fairly squeezed” stimulus package that provides money for unemployment and small business, but no help for state and local governments ravaged by the pandemic.

Greg Valliere, chief US policy strategist at AGF Investments, warned of a “very acrimonious transition” between Trump and Biden.

“You have a president who has shown his willingness to be vindictive,” Valliere said, highlighting Trump’s Monday dismissal of Defense Secretary Mark Esper. “Therefore, I am afraid that the stimulus bill, which we need, will arrive later than soon.”

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