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August 3, 1990
Iraq's invasion of Kuwait has interrupted a decline in interest rates, as fears of much higher oil prices demolished the bond market on Thursday.
However, new economic data suggest that a recession started in July, and the Fed will probably be forced to drive rates lower.
This morning's July job data showed a .3% jump in Unemployment to 5.5%, and NonFarm Payroll contracted by 219,000. The other recession warning was the July Purchasing Manager's Index in a plunge from 51.1% to 47.4%, its steepest fall in six years.
Leading Economic Indicators and Construction Spending were unchanged in June, and Consumer Spending gained a meager 1%. Factory Orders dipped 1.5%. Aside from Mideastern mayhem and recession, the main story affecting interest rates is the fate of budget negotiations. Good government in Washington had a worse week than Kuwait.
President Bush is at all accounts a nice guy. He holds the oldschool belief that you can get more done with your adversaries if you keep the temperature down: don't question their motives or morals, avoid rigid doctrine, negotiate in private, and be prepared to offer the first concession toward compromise.
Bush retreated from ten years of Republican antitax theology in hope that an injection of common sense would break a deadlock. Democrats screeched Itoldyousos, and fellow Republicans acted like Bush swiped the collection plate. Turning the other cheek is laudable, but not productive with Congressional Mike Tysons.
The Democrats have made no corresponding concession. No one knows what their inside strategy is, and they aren't talking.
There is real tension in this nondeal. This is an election year. On October 15, three weeks before the vote, the GrammRudman legislation forces automatic budget cuts of $110 billion. We are about to have a recession, and cutting spending or raising taxes may be dumb.
Bush is under Republican pressure to take the gloves off for the first time since '88, and it seems that Democrats have forgotten how that one turned out.
There is a fine edge of anger, too. Voters are annoyed with incumbents of both parties because of the S&L black hole, and campaign contribution footsy. If Steinbrenner can be thrown out, imagine what November could hold for Congress.
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