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The U.S. Constitution gives Congress the power of the purse, but President Donald Trump interprets the foundational document differently. His acting budget chief issued a two-page memo, citing “wokeness” and “Marxist equity” as if they were spending line-items, that freezes what the agency says is $3 trillion in federal grants and loans. Even if only temporary, as the administration claims, the decision will upend financial planning for chipmakers, road builders, medical researchers and more. If no one stops the overreach, the economic consequences may be more dire.There was no advance warning that Trump would blatantly contradict the separation of powers. The vagaries of the edict, issued late on Monday, leaves fund recipients and civil servants vexed. Although the hold is only due to be in effect until Feb. 10, so that agencies can ensure that all programs are “consistent with” the president’s policies, it will set off harmful chain reactions. Entrepreneurs that depend on Small Business Administration loan disbursements might not be able to pay employees or suppliers. Bridge and highway repairs could grind to a halt. Renewable energy and semiconductor manufacturers rely on U.S. subsidies.Federal spending levels have for the most part hovered around a fifth of GDP for several decades. Throwing 40% of a $7 trillion budget into doubt for any extended period risks plunging the country into recession. For states, non-profit organizations and companies, any legal affirmation that the executive office can commandeer such appropriations would strand investments and jeopardize consumer confidence.Such damage perhaps can be contained if this is all just a publicity stunt that ends in two weeks. It may come down to the Supreme Court. Russell Vought, Trump’s nominee to run the Office of Management and Budget, told the Senate during his confirmation hearing that the president campaigned on the right to impound federal spending, despite the existence of specific statutes that ban the White House from withholding congressionally approved money.If that’s not the case, it would erode a big piece of the country’s rule of law. The VIX Index suggests that investors are completely unfazed, however; the volatility expectation measure ebbed nearly 5% on Tuesday morning and remains at a relatively low 17. At some point, however, the market may be forced to take Trump both literally and seriously.Context NewsThe U.S. Office of Management and Budget ordered a temporary freeze on federal grants and loans on Jan. 27, a decision that could disrupt state budgets, healthcare programs and myriad other initiatives that depend on billions of dollars in federal spending. The order, said to be temporary while the administration reviews existing spending programs, may run afoul of the 1974 Impoundment Control Act, which strictly limits the executive branch’s discretion to withhold spending that Congress has authorized.More By This Author:Masayoshi Son Picks Odd Time To Bet Big On OpenAI
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