Here’s the hot new meme: It’s almost time to start worrying about Washington DC again, and whether it will screw up the economy by risking a government shutdown.
Our Brett Logiurato wrote this week about how people are talking about the risk of a government shutdown due to the fight over the Export-Import Bank, whose charter will expire this year if Congress doesn’t act to renew it. The Export-Import Bank provides subsidized, federally-backed loans to foreign enterprises who purchase goods made by US manufacturers. The company helps a range of businesses, though from a dollar standpoint, the primary beneficiaries are big exporters like Boeing and Caterpillar. And critics of the Export-Import Bank (many of whom are Tea Partiers, though there are also critics on the left) see the bank as the epitome of crony capitalism, the government serving large, well-connected corporations.
Anyway, the bank isn’t the only source of trouble.
In a new note, Goldman warns of the depletion of the Highway Trust Fund, and what that could mean for state and local infrastructure spending. Warning, this isn’t good:
The federal highway program is financed out of a trust fund that takes in gasoline taxes, which are used to make payments to state governments for public transportation infrastructure projects. The highway program actually faces two deadlines: first, the program expires September 30 and must be renewed before then. However, Congress will probably need to act even sooner: gasoline taxes have not kept up with spending and the fund is expected to be depleted by August. To avoid disruption through year-end, Congress will need to transfer around $US10bn from another source. However, lawmakers have not yet agreed, in either chamber, on how to finance this and time is running short. The Department of Transportation has indicated it may begin to delay payments to states for infrastructure projects if the situation has not been addressed by late July. In similar situations in the past, states have pulled back somewhat on construction spending as a result of the uncertainty, and could do so again if the issue is not resolved soon.
This is awful news.
State and local spending on infrastructure got decimated during the economic crisis, and it still hasn’t recovered. This has represented an ongoing drag on the economy.
The good news is that there are signs that it’s about to turn around. A recent survey by Credit Suisse of people who sell Caterpillar equipment said that they believe public infrastructure spending has now finally “bottomed” and is ready to turn higher. If true, that would have all kinds of nice effects for the economy, both short and long term.
But now it looks like Washington DC is on the verge of screwing things up all over again.