It was nonstop politics last week, and much of it boded well for the municipal bond market, one way or another.
Gov. Bill Clinton of Arkansas received the Democratic presidential nomination he had clinched weeks earlier, and his economic plan, with its emphasis on infrastructure and education, appeared certain to benefit munis over the next several years - if he wins in November. Democrat after Democrat last week called for rebuilding America by shifting money from military spending to domestic needs, a shift that would would mean more municipal bond issuance.
The next few months should be good for the bond market as well. President Bush, faced with continuing dreary economic news, seemed likely to pressure the Federal Reserve to lower interest rates one more time before November. And, with inflation tethered and money supply anemic, the central bank may well oblige.
Ross Perot took another look at the two major parties and decided last Thursday morning to quit the race. As intriguing as his presence has been, his withdrawal won't affect the credit markets much, although pundits say that in the long run Mr. Bush will benefit more than Mr. Clinton. If so, that might decrease pressure marginally for another interests rate cut.
The latest polls, however, show Mr. Clinton in great shape, though with 106 days still to go before the election. An ABC News/Washington Post poll, announced the day before Mr. Perot's withdrawal, showed Mr. Clinton at 42%, Mr. Bush at 30%, and Mr. Perot at 20%. Among likely voters, Mr. Clinton's lead over Mr. Bush was 17 points. Those figures give Mr. Bush ample reason to keep pushing the Fed.
Of all the hours and hours of political talk last week, one paragraph of great import for the credit markets stood out, spoken eloquently and clearly late last Monday by Barbara Jordan. Here is what the former congresswoman, a liberal Democrat, told the delegates:
"We must frankly acknowledge our complicity in the creation of the unconscionable budget deficit, acknowledge our complicity and recognize, painful though it may be, that in order to seriously address the budget deficit, we must address the question of entitlements also. That is not easy. That is not easy, but we have to do it."
These serious remarks drew no wild cheers, and it remains to be seen if Democratic politicians will acknowledge the party's partial responsibility for the deficit or if they will confront entitlements squarely. If Mr. Clinton wins (the outcome suggested by last week's ABC/Post poll) and if both the House and Senate retain Democratic majorities (as seems likely), they all better respect Barbara Jordan's wisdom, and if they do, the credit markets will prosper.