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March 24, 1995
Surprisingly weak orders for durable goods have pushed mortgage rates back to their lows. Thirty year loan rates are around 8.625% at zero and zero, depending on house, credit, income, down payment, and moon phase.
In the embarrassing aftermath of the defeat of the balanced budget amendment, markets all over the world are watching the budget deliberations in Washington. Though the fall in the value of "el peso del norte" is not an emergency (yet), it was no accident that the recent decline picked up speed in the days following the defeat of the amendment.
The defeat might have meant a return of gridlock -- dangerous, now. Instead, the failure seems to have humiliated Congress into action. Deficit cutting is temporarily stalled by a Republican tactical error, but it is only a matter of time until the serious hitters in the Senate force progress.
Most observers have expected the Contract with America sooner or later to trip the doctrinaire Republican leadership in the House. Sure enough, soon enough: the tactical (if not spiritual) mistake was to press for a tax cut for incomes up to $200,000 while attempting to limit welfare, and super-sensitive items like school lunches. No easier shot could be given to the Democrats: "Aha! Tax cuts for the rich paid for by hungry children!"
Mr. Gingrich lurches on, saying that tax cuts are the "crown jewel in the Contract." He is about to be crowned all right, bonked on the head by his own party and the people.
Something in the budget amendment collapse seems to have embarrassed the American people as much as Congress. The people seem aware, finally, that gridlock has been caused by their own wishes to tax the other guy, and cut somebody else's benefits. By great margins, they are now telling Congresspersons to knock off the competition for tax cut giveaways. They know the country can't afford them, and they are suddenly impatient with pandering by either party.
Constituents are focused on cutting the deficit. When they are focused, they get what they want.
Last weekend, the entire Senate Finance Committee, both parties, was joined by Treasury Secretary Robert Rubin for a retreat to discuss the budget. Mr. Rubin wisely refused comment, but it's not hard to imagine what the former head currency trader at Goldman, Sachs had to say to the Senators. Something like "Šor else," in reference to deficit cutting and world markets.
Senator Daniel Patrick Moynihan (D, NY) afterwards described the Senatorial deficit cutting consensus: "Now. And with great emphasis at this meeting. Now."
Go get 'em, Dan'l!
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