US econ­omy in peril as un­em­ploy­ment pay­ments ex­pire

Talks on stim­u­lus pack­age to re­sume on Mon­day with political par­ties still far apart


US law­mak­ers are fac­ing in­creas­ingly shrill warn­ings over the dan­gers to the econ­omy as Congress and the White House strug­gle to reach a deal on a new fis­cal stim­u­lus pack­age, leav­ing mil­lions of Amer­i­cans with­out vi­tal safety net pay­ments and risk­ing not just the US but also the global re­cov­ery.

Mark Mead­ows, White House chief of staff, on Sun­day said the two sides were still far apart, de­spite progress over the week­end fol­low­ing the ex­piry of emer­gency un­em­ploy­ment ben­e­fits.

The im­passe on Capi­tol Hill has echoes of other US bud­getary stand-offs in the past, which were also marked by mo­ments of political brinkman­ship, but with much higher stakes given the re­ces­sion trig­gered by the coro­n­avirus pan­demic.

“We still have a long ways to go,” Mr Mead­ows said on CBS’S Face the Na­tion. Mr Mead­ows, who has been lead­ing talks on the Trump ad­min­is­tra­tion side with Steven Mnuchin, Trea­sury sec­re­tary, said a ses­sion on Satur­day had gone well but he was “not op­ti­mistic” that there would be an agree­ment “in the very near term”.

The fail­ure to reach a com­pro­mise by July 31 has left more than 25m peo­ple in the world’s largest econ­omy grap­pling with sud­den aus­ter­ity, af­ter the ex­pi­ra­tion of ben­e­fits worth $600 a week.

Democrats have wanted to re­new them at the same level un­til early 2021, but Repub­li­cans have re­sisted, ini­tially ar­gu­ing that new stim­u­lus was not nec­es­sary and then push­ing for much smaller pay­ments, mak­ing it one of the big­gest and most eco­nom­i­cally con­se­quen­tial stick­ing points in the talks.

The cur­rent stand-off stands in sharp con­trast to March and April, when the White House and Congress rapidly con­verged on $3tn in fis­cal sup­port to sus­tain the econ­omy dur­ing the first lock­downs, help­ing prop up US and global mar­kets.

Now the lack of a deal has caused anx­i­ety at the Fed­eral Re­serve, whose chair, Jay Pow­ell, has re­peat­edly nudged Congress to of­fer more sup­port for the econ­omy.

The me­dian fore­cast of top US cen­tral bank of­fi­cials is for the US econ­omy to shrink by 6.5 per cent this year, but the down­turn could be deeper if stim­u­lus is with­drawn. A stunted US re­cov­ery would also neg­a­tively af­fect the global econ­omy, which is ex­pected to shrink by 4.9 per cent this year ac­cord­ing to the IMF.

“Glob­ally, other economies have ben­e­fited from their own re­gional and do­mes­tic fis­cal and mon­e­tary poli­cies more than from spillovers from the US,” said Dou­glas Rediker, a former se­nior Trea­sury of­fi­cial in the Obama ad­min­is­tra­tion but “US ag­gres­sive lead­er­ship was im­por­tant as a sig­nal, as much as it was to pro­vide in­di­rect global stim­u­lus”.

US econ­o­mists have warned that un­less a deal is reached on un­em­ploy­ment ben­e­fits, there could be ad­di­tional job losses at busi­nesses hit by a drop in con­sumer spend­ing, fur­ther widen­ing the hu­man suf­fer­ing.

“Peo­ple are go­ing to get evicted, they are go­ing to be un­able to feed their fam­i­lies,” said Martha Gim­bel, the man­ager of eco­nomic re­search at Sch­midt Fu­tures. “Think about the mas­sive amount of money that has been sucked out of this econ­omy, the govern­ment should des­per­ately be try­ing to put it back in,” she added.

On Sun­day, Mr Mnuchin said he re­mained hope­ful for a deal, with a new round of ne­go­ti­a­tions ex­pected on Mon­day. “The pres­i­dent wants us to get a deal done quickly be­cause this is im­por­tant to the Amer­i­can peo­ple,” he told ABC’S This Week.

“Across both par­ties, there are dif­fer­ent things that are very con­tentious,” he added, al­though he said there were also ar­eas of agree­ment, such as on ex­tend­ing an aid pro­gramme for small busi­nesses.

The fail­ure to reach a com­pro­mise by July 31 has left more than 25m Amer­i­cans fac­ing sud­den aus­ter­ity, af­ter the ex­pi­ra­tion of ben­e­fits worth $600 a week © Ste­fani Reynolds/bloomberg

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