MNI EXCLUSIVE: Budget Expert: 'Very Scary' Budget Battles Loom

--Former CBO Chief Tells MNI That Congress Faces Difficult Fiscal Votes in

September

--Penner: 'Markets Haven't Absorbed The Reality of Washington Yet'

--Penner: 'Uneasy Feeling' That Stock Market Surge 'Will End Badly' 

By John Shaw

     WASHINGTON (MNI) - Rudy Penner, a former director of the Congressional

Budget Office and one of Washington's most respected fiscal policy experts, told

MNI Wednesday in an exclusive interview that he expects a "very scary" fall 2017

due to fiscal issues, with market-disrupting battles ahead on both the debt

ceiling and fiscal year 2018 spending.

     "There are so many politically hard issues and so little consensus on

budget and tax policy. I assume we'll somehow get through this, but not without

getting frightened on a regular basis," Penner said.

     "Probably the best we can hope for is muddling through the (FY 2018) budget

and the debt limit and getting very limited health, tax, and infrastructure

legislation. There is not going to be significant stimulus coming out of

Washington in the foreseeable future," he said.

     Penner has directed the Congressional Budget Office, worked at high level

posts in the White House budget office, and the Council of Economic Advisers. He

is currently a fellow at the Urban Institute and sits on the board of the

Committee for a Responsible Federal Budget.

     Penner said a "bipartisan negotiation is badly needed" to forge even a

limited FY 2018 spending agreement. But he's not certain this will occur.

     "Even a very limited spending agreement might be an impossible dream. We

may just stumble into a series of short-term CRs," he said, referring to

temporary spending bills to keep the government funded.

     The 2018 fiscal year begins on October 1, 2017 and extends until September

30, 2018. None of the 12 annual spending bills for FY 2018 have yet been

approved by Congress. 

     Penner said he believes it will be "very challenging" for Congress to pass

legislation this fall to increase the statutory debt ceiling. Treasury Secretary

Steve Mnuchin has asked Congress to lift the debt ceiling by the end of

September.

     Penner said a "plausible path" for dealing with the debt ceiling is to pass

legislation in September to suspend the debt ceiling until after the November

2018 mid-term elections.

     However, such legislation, he said, may have to be negotiated by an unusual

coalition assembled by House Speaker Paul Ryan, a Republican, and House Minority

Leader Nancy Pelosi, a Democrat.

     Penner said such an agreement "could put Speaker Ryan's job in peril" by

conservative Republicans who oppose it. He said he believes the debt ceiling is

"an incredibly stupid law that makes no logical sense."

     "It terrifies the world and frightens markets every few years--but does

nothing to actually control spending or cut budget deficits," he said. 

     Penner said he sees little Republican consensus on tax reform and expects

any package that emerges to include "some quite modest tax cuts" and the closure

of loopholes. He added that he remains "totally puzzled" by the surging stock

market, arguing that markets soar even as it becomes more evident that major

fiscal stimulus will not be coming out of Washington this year.

     "The markets don't seem to have absorbed the reality of Washington yet," he

said. "I have an uneasy feeling this will all end badly--that there will be a

very major market correction," Penner said.  

--MNI Washington Bureau; tel: +1 202-371-2121; email: john.shaw@marketnews.com

[TOPICS: M$U$$$,MC$$$$,MT$$$$,MX$$$$,MFU$$$,MGU$$$]