With a deal near complete, at the 11th hour, Trump decided to pull the rug out of negotiations to recapture the political narrative. On the face of it, it seemed a rush to judgement and erratic move by Trump. However, beyond the cognitive threshold, further analysis of both the political and economic spectrum is showing that Trump, McConnell and Mnuchin acted strategically over both political and economic concerns along with what they see as advantages at play.
The market was sold on stimulus and was ‘overheating’. The day’s key E-mini level was 3420 with the market gaining momentum and not coincidentally, Trump (or his aide) tweeted out the end of stimulus negotiations right at that level before breaking it. Had stimulus been announced, the market would have seemingly had nearly priced it in and removed Trump’s market upside advantage.
As for the political angle, McConnell is no amateur and he clearly saw that Pelosi was moving into a position of advantage and wanted to kill it before it was too late. It was very much a now-or-never moment and Mitch submarined the deal in order to allow Trump to re-capture the narrative of who is responsible for the market upswing. Initially, this was seen as a risky move this late into the election cycle, but with Airline workers payroll help, PPP and Stimulus checks already agreed upon by Pelosi, Trump decided to change the field position and put her on the defensive.
Believe it or not, this will likely now put extreme pressure on Pelosi to relent and pass those 3 standalone bills or come back to the negotiating table with less leverage. If she chooses to dig her heels in, she risks not only House and Senate races for those exposed red-state Dems, but her speakership will surely end.
There will be more clarity over the next 36 hours on which way Pelosi and McConnell go. It is both a complex situation and huge optical risks for the election.
Furthermore, it should be noted that Trump likely has more than enough funds available from the Treasury General Account to pay for the above via Executive Orders, should he need to.
Some have already asked whether he can do so. Although he cannot use all of the above, he likely has enough cover for the stimulus measures planned, and there is recent precedence for the use of the Treasury General Account from the following: