We are headed for the cliff.

 
 

"Late Thursday, House Republicans said they rejected an offer from the Obama administration that was presented by Treasury Secretary Tim Geithner and White House Congressional Liason Rob Nabors in meetings with lawmakers on Capitol Hill. The $4 trillion offer would have raised taxes $1.6 trillion over a decade and cut $400 billion from Medicare and other entitlements, to be worked out next year. It would also have extended the payroll tax cut, raised the estate tax to 45 percent on inheritances over $3.5 million, kept Medicare reimbursement rates from being cut (the "doc fix"), extended unemployment insurance and added $50 billion in infrastructure/stimulus spending in the first year, with more such spending in the future. House Republicans characterized the offer as a joke. Senate Republican Leader Mitch McConnell, R-KY, called it a "step backward, moving away from consensus and significantly closer to the cliff, delaying again the real, balanced solution that this crisis requires."   CBS News

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I am coming to the conclusion that neither party wants a solution to the "fiscal cliff" dilemma.  If they did they would make a deal and they would do it today.  Instead, the parties seem to see an advantage in allowing the various disasters to occur.  If they do that then it becomes theoretically possible to blame the other side for; higher taxation, higher unemploymet, lower securities markets, etc.  If that is what they are doing it is a reprehensible and risky idea.  pl 

http://www.cbsnews.com/8301-250_162-57556312/obama-taking-fiscal-cliff-fight-to-the-public/

Comments

[jonst]

Anything that dramatically cuts Def, and Homeland Security spending, raises taxes, back to Clinton era rates, and does this without raising the eligibility age for Medicare/caid, and without touching SS, can't be all bad. I'm for it.

We can go back and fine tune, at least in theory, if we have to.

[r whitman]

I think the whole thing is overhyped. This is another Y2K. Remember, when the market crashes buy, buy , buy. There will be bargains. Life will go on. We will still need tortillas, gasoline and toilet paper.

[zanzibar]

Pat

I am cynical about the "fiscal cliff" just as I was when everyone was elated with the Tahrir Square "twitter" revolution.

I am willing to wager a bottle of Lagavulin that taxes will go up and federal government spending will not be reduced and that government spending relative to the size of our economy will continue to rise. Although much will be made and many column lines of ink will be spilled and the bloviators will be all over the boob tube noting how we were saved from Armageddon, at the last minute, of course to increase the drama.

The real financial cliff is coming however. When the psychology changes and the recognition arrives that the financial promises we have made cannot be paid, the denouement will be swift. Unlike what the economic professoriat claim - when that psychological state arrives, money printing at warp speed to pay claims denominated in dollars will only accelerate and deepen the panic.

As an investor I am singularly focused on the preservation of the purchasing power of my capital. I am not very hopeful about success in that endeavor with the professoriat's ivory tower experiments as policy and the unprecedented and arbitrary interventions by governments.

[E L]

Colonel: Welcome to reality. The 2014 Congressional and 2016 Presidential campaigns began on November 7, 2012 @ 6 am EST. Cable TV, the Internet, the decline of the Oxford comma, and the tragic demise of the Pony Express are to blame. So it goes....

[Lars]

First of all, this does not resemble a "cliff", as much as a downward slope. The congressional Republicans have put themselves between a rock and a hard place here. Their donors do not want higher taxes but their voters do not want to see their taxes go up to protect those donors.

Regarding the "sequester", none of the congress critters ever thought at the time they passed it that it would one day become reality. Now it might.

In the meantime, enjoy the political theater.

[DH]

Kabuki theater.

[twv]

Obama WANTS to go over the "cliff."
He gets to cut defense, raise taxes and......
....blame the Republicans (the STUPID party).
Remember, long term, Obama's stated goal is "transformation" AND he's faced his last election; not that that would make much of a difference.
Massive debt, defense cuts and permanent recession are just bumps in the road on the way to Belgium without the chocolates.

The Republicans should vote "Present", give him what he wants and go home.
The dopey voters voted for their free ice cream; give it to them.
When the economy goes in the toilet (not from where it is now), well...
Elections have consequences.

The Democrats are socialist wannabes ("redistributionists" for literal academics); the Tea party is about purist self-destruction and the Republicans are clueless.
Great country.....America.
At least it used to be.

[toto]

"and that government spending relative to the size of our economy will continue to rise."

Actually, Federal spending in proportion to GDP has been extraordinarily flat since the 50s. Even the Bush-Obama, two-wars-and-a-stimulus era was only a minor blip. And, yes, I said "was" - it's going down again.

Source:

http://www.usgovernmentspending.com/past_spending

[greg0]

I am one of those who think nothing will be done this year. It's great theater for the politicians who put themselves in this position. With the next Congress, tax rates can be adjusted retroactively, as well as spending too much.
The Republicans aren't just shocked by the election results, they are now shocked by Obama not giving them what they want!

[Norbert M. salmon]

off topic, with propable major effect on USA:

Asharq Alawsat reports that King Abdullah is clinically dead.

The citation is from Indian Punchlie:US lurching toward Middle East quagmire
by M K Bhadrakumar via Asia Times online

[Charles I]

Plan for the Dow at 5000 to 3000 and you'll be fine.

[rjj]

Guignol.

[Norbert M. Salamon]

MAJOR Defense cuts are way overdue [and ending wars -monetary necessity] as are higher taxes on the top 5% or so [as expressed by the Oracle of Omaha] the biggest issue in my view is the necessity of overhauling the health care system to a single payer option to cut the 12-15% pressure on GDP to a reasonable rate within OECD ratio.

The way the Democrats handled the finacial wizards, the creators of the WORLD WIDE [sans China and a few others] recession does not sspeak of socialism, rather from the point of naked laisse faire.

[harry]

Indeed.

But also amusing Kabuki.

I am pretty sure Obama wants to cut entitlements, but wants to be able to say it was forced on him as a price of a deal. I am also pretty sure that the Republicans opposition wants to maintain high levels of goverment spending on certain areas but wants to be able to blame big government on Obama.

Seems like plenty of space on both sides for a deal. But both sides love the haggling too much.

Kabuki Souk!

[elkern]

I think Obama & the Dems DO want a solution. Their initial proposal is a very reasonable way to start negotiations (my favorite part is the $50B for Infrastructure).

The R's are less interested in a solution. They are blinded by their own propaganda, thinking that the rest of us still believe that more tax cuts for the rich will fix everything. They think they can still browbeat the Dems into capitulation. Calling the propsal "a joke" does not indicate a willingness to negotiate.

The Dems are awakening from decades of Stockholm Syndrome. They may over-react a bit; I'm kinda rooting for that. The last decade or so has proven that the modern Republican party cares little for facts, reason, and the people of our country. There's little chance that a smack in the face will wake them up, but it sure will feel good.

[Joe]

We have to see if congress remembers how to negotiate. I am not sure they remember how to tie their shoes so this will most likely fail.

[WILL]

According to Intrade there is only a 1 in 5 chance we will be in a recession in 2013. Hence, contrary to appearances, the oddsmakers say we will not fall of the CLIFF: http://www.intrade.com/v4/markets/contract/?contractId=755863

[r whitman]

If that happens, I am a major, major buyer. Stocks at a 75% off sale.

[jdledell]

A Pox on both Republicans and Democrats. They seem to approach governance as a game. Each side has their ideological points and whichever party gets the most of their points in legislation is declared the winner. It doesn't matter if the legislation is good for the country or the people, it's which party is the"winner". I swear politicians from both parties are more loyal to their party than they are to America.

[steve]

Taking timeout from shoveling trillions of taxpayer dollars into his vault, his Lordship, Lloyd Blankfein, ceo of Goldman Sachs---was out and about yesterday lecturing the peeps about shared sacrifice, the free market, and the necessity of cutting social security.

Employer funded pensions had a boom in the 50s and 60s, and much of that was invested in the stock market or other private financial instruments. I suspect the ultimate goal is to allow Wall Street to heist the social security system, with management fees beyond its wildest dreams.

You talk about too big to fail, wait until the government bails out Wall Street when a crash comes and the private sector cannot pay off the social security obligations.

[JohnH]

The American people are going over the cliff.

The rich will have parachutes.

[zanzibar]

toto

I don't know what you saw on the web site that you linked to. Let me quote from the opening sentence on that page under the title A Century of Government Spending: "Government spending in the United States has steadily increased from seven percent of GDP in 1902 to 40 percent today."

Let's look at federal government spending as a percent of GDP. In 1950 it was 15%; in the recently completed FY2012 it was 24%. Not flat to declining as you assert but a 60% increase.

http://www.usgovernmentspending.com/spending_chart_1950_2012USp_13s1li011mcn_F0f

As you know, state and local governments too spend current taxpayer's dollars as well as future taxpayers' dollars through borrowing. So when you look at total government spending as a percent of GDP, you will see that in 1950, we had a population of 151 million and total government spending represented 24% of our $294 billion GDP. In 2012, our population had increased to 314 million and total government spending represented 40% of our $15,600 billion GDP. A 67% increase. So while our population doubled in this 62 year period and our GDP grew 53 fold; our government spending grew even faster - 88 fold!

Government spending is enabled through a tax on the private sectors current and future earnings streams. Now some argue this growth in the size of our government is a great thing and we should continue on this path to Greece at 46% or France at 52% or even Zimbabwe at 97%. Others argue we should go the other way to Hong Kong at 18% or God forbid the USA in 1902 at 7% or even 1950 at 24%.

My argument is quite simple. The financial claims on our productive capacity are too large to be paid. Many are going to get a haircut. We have not yet arrived at the recognition phase. It will come because it is about arithmetic. Shell games can only be played for so long.

[zanzibar]

That is not a fat pitch bet I would be willing to take. Helicopter Ben is already sending signals that he is going to print up $85 billion a month starting in January. That could be another trillion dollars conjured up in 2013.

[William R. Cumming]

DH! Not Kabuki but NOH!

[JustPlainDave]

Financial Times reporting as of 28 November that King Abdullah had appeared in public for the first time following his surgery (prime mover on the previous AT reporting slugged the 27th). My guess would be it's about the same quality as the reporting that Prince Bandar had been killed (i.e., wrong).