TO: House Republicans
FR: Eric Cantor
DT: August 17, 2011
RE: Economic News & Uncertainty
Buried under all of the 24/7 media coverage of the stock market last week, there were a number of additional reports worthy of our attention as we think about our solutions to the economic and jobs crisis.
Last Tuesday, the Treasury Department sold $32 billion in 3 year notes at 0.5% yield -- the lowest ever for that maturity. The very next day Treasury sold $24 billion in 10 year notes at 2.14% yield, the lowest level ever recorded. These records were set after S&P downgraded the U.S. debt. NOTE: After.
On Wednesday, a report from MarketWatch and FactSet Research revealed that cash and short-term investments for 24 of the 30 companies in the Dow Jones Industrial Average surged 18% to $256 billion from a year ago.
So what does all this mean and what does it have to do with jobs?
It is clear that there is a “flight to safety” in the markets. Gold (which set new records last week) and Treasuries benefitted from being viewed as safe investments. For major companies, ready cash is the safest way to ride out whatever lies on the road ahead.
To be clear, there is no single explanation for what is causing this flight to safety. Investors and businesses alike are clearly concerned about a double-dip recession, the sovereign debt problems (and their impact on banks) in Europe, and, yes, our own debt crisis here at home. But it is also the case that policy uncertainty in Washington is contributing to the unease about the economy and the future. People lack confidence in the economic policies of the Obama Administration.
I am reminded of Amity Shlaes recounting in her book The Forgotten Man of how President Roosevelt – while still in his robe and enjoying breakfast – would arbitrarily set the price of gold (and thus the value of a dollar) – up or down. This was based on nothing more than a hunch that yesterday’s exercise didn’t do the trick, so it must be time to try something different. This type of completely unnecessary policy uncertainty deepened and lengthened the Great Depression.
To be fair, few of my constituents are coming up to me and using the phrase “policy uncertainty.” But they are talking about the mess in Washington, the constant sense -- fueled by those maniacal countdown clocks on cable TV -- that we are “THIS CLOSE” to going over the cliff. People feel like they have no idea what Washington will or won’t do next.
Now in our system of government, there is always some degree of policy uncertainty – especially when there is divided control of government. And it is also the case that this type of uncertainty is often better than the certainty of bad policy (we would be worse off, for example, with permanent but higher tax rates). But it is critical that in the days and months ahead we do our best to minimize unnecessary uncertainty.
As we begin preparing for the fall, there are a number of areas where I think we can work to minimize uncertainty.
Fiscal Year 2012 Appropriations: While all of us would like to have seen a lower discretionary appropriations ceiling for the upcoming fiscal year, the debt limit agreement did set a level of spending that is a real cut from the current year level. I believe it is in our interest to enact into law full-year appropriations bills at this new lower level.
Deficit Reduction Committee: it is in everyone’s interest – especially small business job creators – for the deficit reduction committee to report and for Congress to enact at least the $1.5 trillion in spending reductions called for without a tax increase. I have heard some assert that certain sectors would be better off under the sequester. I believe this is false and would unnecessarily induce more uncertainty and a worse policy outcome. The Speaker has made strong selections to represent us on the Joint Committee. I am confident that they will be successful and think it is critical that their efforts enjoy the full support of our Conference.
Finally, we must put an end to the policy uncertainty constantly being driven by this Administration. That means stopping the constant threat of new regulations that add unnecessary costs to employers. That means stopping the discussions of new stimulus spending with money that we simply do not have.
People expect their leaders to lead. That means moving past the class warfare and the divisive politics and instead doing what is needed to get people working again. That means delivering results, not simply speeches. We only control slightly more than half of one-third of Washington. Despite that, we have focused on jobs since day one, and finally begun to stop Washington from spending money that it doesn’t have. As we return this fall, let us commit to keeping focused on what is most important to the people and families that sent us here – jobs and economic growth.