WASHINGTON UPDATE: During a break from a dawn-to-midnight agenda of meetings at the White House, Treasury, Federal Reserve and Congress, Jude Wanniski phoned in the following initial key observations:
o Federal Reserve Chairman Greenspan is in a stronger-than-ever position to conduct monetary policy, thanks to David Gergen's support at the White House. Acting as Greenspan's champion, Gergen is stamping out impulses from inside the administration to blame the economy's miserable condition on Greenspan's supposed stringency.
o Rep. Charles Rangel remains the man on the margin in the current budget debate. Rangel continues to believe that the administration has no choice but to continue leaning on conservative Democrats, pushing the Black Caucus off the wagon. Jude's reading is that the stock market's strength reflects relief at the administration's likely inability to come up with a destructive package. There is at least a breath of interest at the White House in a bipartisan alternative, along the lines of the Angell plan, as a face-saving device once the tax plan fails. Sen. Dole is ready to assist in formulating a bipartisan alternative, even if it would mean saving Clinton's presidency.
o Sen. John Breaux's suggestion that the administration reduce the deficit-cutting target to only $400 billion has broken the ice for a bipartisan alternative. In addition, news that the administration's deficit estimate overshot by $50 billion takes the pressure off Clinton to deliver an unachievable $500 billion package, while undermining the plan's rationale. The Republican leadership is now saying that they might support a $350 billion package if need be.
More details tomorrow.
NIKKEI WATCH: An income tax cut has become a leading issue in next Sunday's general election in Japan, the Nihon Keizai Shimbun reported this morning. Although the ruling Liberal Democratic Party and the Finance Ministry bureaucracy are still opposing a tax cut, seven of the nine parties competing in the parliamentary elections support a tax cut, including the new Japan Renewal Party, which split off from the LPD last month. An important new factor to watch is that National Economic Council deputy W. Bowman Cutter is reported to have called upon Japan to implement a tax cut in the context of post-summit discussions, the first intelligent recommendation the U.S. has made to Japan in years. If Japan's political consensus shifts from Keynesian spending stimulus to tax reduction, the Tokyo stock market will soar. (DG)