Will 2019 Be Happy? It Depends On How Washington Handles These 6 Challenges

The New Year: It goes without saying that 2018 was a tumultuous year. Republicans lost control of the House. Trump imposed sweeping new tariffs. The Mueller investigation dragged on. The stock market plummeted in December, amid increased worries about the economy. Trump hatred reached new lows. And Democrats debased themselves and the nation with their vicious attacks on Justice Brett Kavanaugh.


But there was also plenty of good news, even if the Trump-obsessed media ignored it. The unemployment rate hit lows not seen since 1969. It’s likely that GDP will have climbed 3% for the year — for the first time since 2005. And Kavanuagh is now the newest member of the Supreme court

Next year will only be more tempestuous. House Democrats promise to attack Trump at every turn, and mount multiple investigations into his administration. Quite possibly, they will move to impeach him. The economy will start the year on uncertain terms. The nation’s fiscal picture will continue to deteriorate. The Mueller investigation will — hopefully — reach and end. The year, in short, will have its share of major challenges.

Here are six areas that could make or break next year.

Federal Reserve

The Fed has raised its benchmark funds rate eight times over two years in pursuit of a “neutral” rate. Its most recent rate hike, coming about a week before Christmas, was followed by a steep decline in stocks and growing concerns that the economy might fall into recession next year if the central bank follows through on its plan to raise rates at least twice more.

It’s of more than academic interest that all 11 of the U.S. recessions since World War II were preceded by a sharp run up in Fed rates. Every one of them. It’s not a record of which to be proud.

Some Wall Street analysts worry that, after nearly a decade of zero-percent interest rates and trillions of dollars in quantitative easing, the economy has become addicted to the low-rate environment. Corporate balance sheets and household finances alike will be hit with higher credit costs. The Fed in 2019 faces a dilemma: Act now to head off so-far-nonexistent inflation, or hold the rate hikes and give the economy continued room to grow.


Despite bitter criticisms, President Trump successfully concluded a “new Nafta” deal with both Canada and Mexico covering $1.3 trillion in trade. The deal closes a number of holes in the old Nafta, increasing U.S. access to Canadian dairy markets, for instance, while also making cars tariff-free if 75% of their parts are made in the U.S., Canada or Mexico. All three countries signed off on the deal. The only question is, will it ever go into effect?

With Democrats controlling Congress and just six months for the trade deal to go into effect, some worry that major changes will be requested. President Trump has asked that either the new U.S.-Mexico-Canada Agreement be approved outright, or revert to the pre-Nafta trading rules. Congressional Democrats may even challenge Trump’s right to make a deal, putting the so-called USMCA in limbo. Stay tuned.

And, of course, there’s China. Trump has already slammed China with 10% tariffs. Those were scheduled to rise to 25% on Jan. 1 on more than $500 billion in goods. But that was before Trump agreed to postpone the increase to give China and the U.S. time to come up with a deal. China has been largely conciliatory, ending or reducing tariffs on many U.S. goods. But the U.S. has suggested it wants broader changes in China’s policies, including greater protection for U.S. copyrights and trade secrets, and more purchases by China of U.S. goods.

The U.S. and China have more than $700 billion in total trade, but it’s lopsided, with U.S. exports to China of $187.5 billion in 2017, and imports of $522.9 billion. Trump hopes to balance that out. Trade rumors have roiled markets in recent months, so a deal could have a powerful impact on stock prices.


President Trump brashly told Rep. Nancy Pelosi and Sen. Chuck Schumer, “I’m proud to shut down government” if Congress doesn’t approve of funding for a border wall. He got his wish. Now what? The partial government shutdown, which affects no essential government functions, may be a nonevent as far as the public is concerned. If so, Trump may have leverage to get funding for the wall, one of his signature promises during the 2016 election campaign.

With Americans eager to control immigration, as polls repeatedly show, Democrats may decide that negotiation rather than confrontation is a better tactic. That could mean a deal for a pathway to citizenship for the millennial illegal immigrant “dreamers,” many of whom have lived in the U.S. for most of their lives despite not having citizenship. With an estimated 22 million illegals in the U.S., many states are eager to gain some stability in our immigration policy.

Coming Budget Battle

This year’s budget battle over funding the wall will likely pale in comparison to next year’s. The continued growth in entitlements, compounded by the sharp rise in interest payments, thanks to the Fed’s rate hikes, will balloon the deficit. The Congressional Budget Office’s last official projection pegged the deficit for 2019 at $981 billion. It will likely end up topping $1 trillion.

Democrats will blame Trump’s tax cuts for the red ink and push for hiking taxes on the “rich.”

But as we’ve pointed out many times, the problem isn’t tax cuts, it’s the unwillingness of anyone in Washington — including Trump — to deal with entitlement programs that have swamped the federal budget. Trump and the GOP will have to stand firm on taxes next year, while grappling with a rising tide of debt that will soon surpass $21 trillion.

Slaying The Regulatory Dragon

Trump made good inroads on deregulating the economy, not just through executive actions, but by signing the partial repeal of the disastrous Dodd-Frank bill. But those were dents in the regulatory state, and Trump can’t lose focus on this issue in 2019. Federal regulations amount to a massive, hidden tax on Americans — costing them $1.9 trillion a year. They are a millstone around the neck of the economy. Most federal regulations, particularly the most expensive ones, produce few tangible benefits for their costs. And every day, regulators are working on thousands more. Trump, along with the Republicans in the House and Senate, need to make regulatory reform a top issue in 2019, particularly if the economy shows signs of weakening.

Fixing Health Care ‘Reform’

ObamaCare limped along for another year, with premiums for 2019 falling, overall, after years of massive double-digit increases. Trump took several steps to improve ObamaCare. The most important fix was to breathe life back into the short-term insurance market that President Obama tried to snuff out to protect the ObamaCare exchanges. Unfortunately, since Republicans blew their chance at repeal, the best we can hope for is that Trump will continue to tweak the law where he can. But he shouldn’t shy away from fighting for more free-market reforms. Should Democrats resist, or start pushing for socialized “Medicare for all,” it will create an opportunity for Trump to paint Democrats as big-government extremists.


The coming year will be eventful, with many of Trump’s main initiatives set for action by Congress — a Congress, as we noted, that won’t be as friendly to Trump as the last one. Whether Trump and the Democrats can, as the bumper sticker says, coexist, or whether the Trump agenda founders on a never-ending stream of congressional investigations and hearings on the White House, remains to be seen. We guarantee it won’t be boring.


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Originally posted 2019-09-19 23:29:30.


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