Fiscal Cliff Predictions

They will punt. 3 to 6-month patch on sequestration, hold off on taxes. People forget that the tax increase is for the 2013 tax year, meaning your taxes wouldn't go up when you pay next spring, but rather, the year after. That means they really have until 12/31/13 before things get ugly. That's my guess, at least.

POMPATUS OF LOVE wrote: I also predict most people will be stupid enough to view the "fiscal cliff" as some sort of unpredictable tsunami that Barry is bravely fighting off, not as the trainwreck actually caused by barry & co...

This is incorrect. While there most certainly are a number of contributing factors - and the Obama administration is not completely immune - the G.W. Bush tax cuts are at the basic root of the problem.

not my first rodeo wrote:

They will punt. 3 to 6-month patch on sequestration, hold off on taxes. People forget that the tax increase is for the 2013 tax year, meaning your taxes wouldn't go up when you pay next spring, but rather, the year after. That means they really have until 12/31/13 before things get ugly. That's my guess, at least.

I think that's a reasonable scenario. Obama may not perceive political risk, but he has legacy risk, and going over the cliff will put us in recession, if not already there (we will wait to see when NBER declares it). On the other hand, he is an economic illiterate who has turned over his council of advisors more than once and only cares about what he perceives to be "fair," so he may be unrelenting on his anti-growth tax hikes (which are only the beginning, not the end), when he should agree to cutting subsidies and exemptions, thereby broadening the base without punishing growth. Hillary would've gotten this done. Shame she's not in the WH. Anyone with a triple digit IQ knows we need fundamental tax reform, entitlement reform, and we need to cut spending (capping it would be a start) significantly, though not all at once.

not my first rodeo wrote:

People forget that the tax increase is for the 2013 tax year, meaning your taxes wouldn't go up when you pay next spring, but rather, the year after. That means they really have until 12/31/13 before things get ugly. That's my guess, at least.

No, this is a mis-characterization of what will happen. Payroll withholdings beginning in January will increase to the new rates (the Clinton rates) across the board. Wealthy individuals (net worth > $5mil) that die in January will be faced with significantly higher estate tax liabilities. Folks on extended unemployment benefits will no longer receive deposits. Several tax credits including the child tax credit will decrease significantly or fall to zero. The tax effect doesn't even include the beginning of sequestration cuts to federal spending, although the tax effects outweigh sequestration 6:1 on a dollar basis to the economy. The markets and market analysts will correct all their consumption models to account for this decline in spendable income and there will be a rather large shock. If Congress doesn't get its act together shortly after the Jan 1 cliff, the shock will induce economic contraction that will likely result in recession.

Oh, there will absolutely be market shock - didn't mean to downplay that. However, all of those other things (estate tax, child tax credit, mortgage interest deduction, other typical "extenders" that happen at the end of the year) can be retroactively taken care of. Bad, bad policy, but they do this with some frequency. FWIW, I would like to see a deal, but I believe it will be a bad one for taxpayers - even those who aren't "wealthy."

not my first rodeo wrote:

They will punt. 3 to 6-month patch on sequestration, hold off on taxes. People forget that the tax increase is for the 2013 tax year, meaning your taxes wouldn't go up when you pay next spring, but rather, the year after. That means they really have until 12/31/13 before things get ugly. That's my guess, at least.

Let's asuppose they push back the sequestraion on expenses.

Mind you, they have to agree and vote on that but it can be done separately from a tax deal.

Without an agreement on taxes, withholdings change imediately.

Payroll tax goes up 2% and everyone has higher effective income rates.

The average person that gets paid every two weeks will get paid $50 - $100 less in their first paycheck in January.

That will get a little ugly fairly quickly with each pay check.

Maybe that is fair tax but people have adjusted their budgets to these lower rates and will be squeezed a bit.

They can come to an agreement in Jan or Feb and retroactively apply it. But it will be messy.

In any event, I don't see the final agreement keeping today's rates the same accross the board.

And they have to agree to raise the debt ceiling as well.

you're an idiot. The deficit in just 1 year was $1.3T! cutting a "damn super jet" wouldn't make a dent in what we owe.

Why don't you idiots ask where the $$ went? I have no idea where it is. Do you? $6T deeper in the hole in just 4 years? What was all that $$ spent on? Do you have a clue? Shouldn't you worry about that, given that barry says we don't have an expense problem - just a revenue problem?

Even assuming "the rich" don't adjust their behavior to shift income once the new tax rates come out - which they obviously will do - taxing them at the rate barry wants will generate something like an additional $9B/yr. How f'n stupid are you obamatons to support that! It' not about budgets or deficits for barry, it's about "fairness". Your boy is a marxist, plan and simple.

The media loves to play this stuff up like it's the next d-day. You know the real problem? 24 hours news channels and websites. These clowns need something to report on, so they make up a crisis, like how close the election was supposed to be. Then we drink the kool aid believing chaos ensues once we reach one these deadlines.

Here is what I am going to do and everybody I know will do: go about lives like any other day. And a good business will figure out to weather the storm like any adaptable should do.

While they are at it, can they just devalue the euro, dollar, and yen already? We all know these currencies are doomed for collapse. That would accelerate all these uncertainties, cause all sorts of chaos, and we can finally get on with the end of western dominance.

Markets are NOT going to crash if nothing is done! Or if they do, it will be because of Europe or China, which avoiding the fiscal cliff can't do much about.

Consider the following if nothing is done:

Most people except maybe the super wealthy are not going to be effected by capital gains or dividends going up. Most stock market wealth are in tax free vehicles that will not be effected by the changes.

Nobody should fear for their job under the threat that business owners will not invest. Wages are a tax deductible expense. Therefore the marginal tax rates don't matter.

The deficit is projected to dramatically go down. That is GOOD even if other stuff is bad. It strengthens the dollar and inflation should ease. The media is misleading you by saying the budget limit is going to be reached early next year. It will only happen quicker if tax cuts are renewed.

They'll keep punting it every 6 months for the next 50 years.

thanks for proving my point, idiot

If nothing is done:

Markets will crash, surely.

They crashed when they reached the limit on the debt ceiling summer of 2011. This is a worse scenario.

Most people will be effected.

Their freaking pay check will be smaller with adjusted withholdings.

Less money in people's pockets means less consuming which means smaller projected revenues which means companies will cut back on hiring.

And the programs that are being cut, defense included, will lead to job cuts.

Yes, the debt limit will be delayed, but a deficit will still be run so it will still come soon.

We may be able to withstand it, but we surely will all feel it.

They won't punt. What's going to happen is they're going to let us go off the fiscal cliff. Taxes will rise and spending will decrease. Once that happens, the Democrats and Republicans will both agree to lower taxes, but at a rate higher than now. That way the Republicans can't be held responsible for "raising taxes" because they never voted to raise taxes, only to lower them.

20 Second PR wrote:

They won't punt. What's going to happen is they're going to let us go off the fiscal cliff. Taxes will rise and spending will decrease. Once that happens, the Democrats and Republicans will both agree to lower taxes, but at a rate higher than now. That way the Republicans can't be held responsible for "raising taxes" because they never voted to raise taxes, only to lower them.

That's what I am saying is going to happen.

Payroll companies will be working hard to re-program their systems to conform with whatever they pass.

Even if they pass something right now it will be a pain to them.

Markets may very well crash if they don't raise the debt ceiling. That is a a whole different issue than the fiscal cliff.Most people will not be effected significantly when you net all the positives and negatives together. Yes, people's taxes will go up, but they will not go up that much and the deficit will go down too. Inflation should be more tame and counteract the tax increase. Moreover, tax rates going up has the benefit of increasing the value of tax deductions. Contributions to a 401K, mortgage interest, charitable deductions etc. In any case, what you don't hear in the media is that the payroll tax cut will not be renewed and entitlements will be cut. This almost will assuredly happen whether a deal is done or not. So a wage earner is screwed anyway. They shouldn't care about marginal tax rates going up. Moreover, the truth is that the effect of not renewing any of the Bush tax cuts will not be immediate. This "Fiscal Cliff" terminology has gotten completely out of control and is simply not accurate as a metaphor.

X-Runner wrote:

If nothing is done:

Markets will crash, surely.

They crashed when they reached the limit on the debt ceiling summer of 2011. This is a worse scenario.

Most people will be effected.

Their freaking pay check will be smaller with adjusted withholdings.

Less money in people's pockets means less consuming which means smaller projected revenues which means companies will cut back on hiring.

And the programs that are being cut, defense included, will lead to job cuts.

Yes, the debt limit will be delayed, but a deficit will still be run so it will still come soon.

We may be able to withstand it, but we surely will all feel it.

Seems that this is how politicians from both sides operate now. They create a massive problem (which can be real or imagined) so that they can be the hero who fixes everything (while implementing their personal agenda).

lenny wrote:

Why should Obama offer more cuts? Republicans will reject ANY proposal. Let them counter offer and tell the American people exactly what programs they want cut. So far they have offered nothing.

I think Obama is just now learning how to negotiate with the Republicans. In the past, he offered what he thought was a fair deal, and the Republicans offered NOTHING. Obama probably would have preferred negotiating with Vladimir Putin.

Now, Obama has put on the table a very low-ball offer on spending cuts (and obviously much more on the tax side than the Republicans will accept)--but he put it on the table and forced Republicans to respond. And today, Republicans put on the table a low-ball offer on taxes, with much more spending cuts than Democrats will go for.

I think you can see that eventually there will be a roughly balanced package agreed to, but if Obama came out with that (again), he would end up with nothing (again).

However, see this projection from the CBO:

There are a lot worse possibilities than the fiscal cliff.

coach d wrote:

There are a lot worse possibilities than the fiscal cliff.

Yep, and they are pretty much a foregone conclusion at this point. The author takes the liberty to, accurately, condemn the Wall Street and government oligarchs alike, as well as the average ignorant, stoned, and brainwashed masses, but the following excerpts are too rich to be ignored. Of course, one has to define inflation and I think we are much closer to the Japanese model, exacerbated by the Fed:

"The pillars are crumbling. The $1.4 trillion wasted on two worthless wars of choice in the Middle East, the trillions wasted and liberties sacrificed for the never ending unwinnable War on Terror, the Keynesian spending frenzy that has driven the National Debt from $9 trillion to $16.3 trillion in the last five years, the looting of the American taxpayer by Wall Street and their co-conspirators at the Federal Reserve and in Congress, and the belief that ramping up the debt driven consumption that drives 71% of our GDP is our path to prosperity is absolutely freaking nuts. The pillars will not be abolished willingly. The ruling class depends upon their continued existence and expansion. There is the rub. The math doesn’t work. We’ve reached the point where continued expansion of debt and money printing no longer works. With a national debt to GDP ratio of 102% and a total credit market debt to GDP ratio of 350%, we have passed the Rogoff & Reinhart point of no return. This time is not different. A country cannot run trillion dollar deficits indefinitely and expect to not suffer the consequences. This is why those in power are increasingly resorting to propaganda, data manipulation, and outright lies to convince the masses of their omnipotence and brilliance in managing the fiscal affairs of the state."

"Through decades of mass media messaging the masses have been conditioned to believe whatever those in power want them to believe. To our invisible government rulers we are nothing but rats to be manipulated through food pellets and shock therapy. Pleasure and fear of pain are the drivers of our warped society. The ruling oligarchs truly think they know what is best for the masses and believe any means is worthwhile as long as the ends support their agenda. This is blatantly obvious to anyone with their eyes open and their brain functioning. Sadly, the government run educational system produces mostly drones that are barely able to tie their own shoes, spell Cat, or make change from a one dollar bill. Only 20% of all high school seniors score high enough on the SAT test to get a B minus in college and most of these kids come from private and parochial schools. This is exactly what those in power prefer. They want non-critical thinking, mindless consumers, who don’t understand the criminal nature of Federal Reserve created inflation or their enslavement in the chains of debt at the hands of their Wall Street slave owners. They certainly don’t want the masses to understand that real median household net worth is lower today than it was in 1969. Luckily for the oligarchs, 95% of the public couldn’t define the terms: real, median or net worth. Math is hard."

"The average person is inundated on a 24/7 basis with pabulum from liberal network media talking heads, CNBC Wall Street shills regurgitating whatever their sponsors desire, Fox News blonde bimbos and neo-con war mongers programmed to spew Rupert Murdoch talking points, MSNBC tingling leg faux journalists, NYT intellectually corrupt Nobel prize winners, NAR nitwits repeating “best time to buy” on a daily basis for the last 12 years, and government agencies whose sole purpose is to manipulate data in a way that supports the agenda of those in power. The intellectually lazy and willfully ignorant masses are no match for those who control the message and the media. How else can you explain their ability to convince millions of drones to line up for hours in front of a store and stampede like crazed hyenas to grab a $5 crockpot, the Chinese produced gadget of the moment or a designer top made by slave labor in safety conscious Bangladesh factories? How else can you explain a population willing to be molested by government TSA dregs in the name of security from phantom terrorists, the passive acceptance of military exercises in US cities, unquestioning submissiveness as Presidential Executive Orders allow the government dictatorial powers based on their judgment, the monitoring of internet and voice correspondence of all citizens, and believing that FBI agents luring clueless teenage Muslim dupes into fake terrorist plots, providing the fake explosives, and then announcing with great fanfare how they saved us from another 9/11?"

But, the prize for boldest, most outrageous, blatant use of propaganda and misinformation to cover-up their criminal looting of America goes to Ben Bernanke, his cronies at the Federal Reserve, and the Wall Street banks that own and control our Central Bank. Having the gall to portray themselves as the stabilizer of our economic system over the last 100 years is a putrid joke on the dying and broke middle class. Their mandate has been stable prices, full employment, and avoiding financial crisis. It is a tribute to Bernays and the rest of the public relations swine that the average American actually believes inflation is a good thing and it is under control despite the FACT that 96.2% of their purchasing power has disappeared since 1900, with the most rapid decline occurring since Nixon closed the gold window in 1971.

The average American actually believes Ben Bernanke saved us from a Great Depression when in actuality he saved the owners of the Federal Reserve from accepting the losses they generated through the greatest financial fraud in history. His “solutions” have zombified our economic system, just as the Japanese Central Bank did 20 years ago. He has destroyed the concept of saving, while rewarding the indebted and profligate with his QE to Infinity money printing policies. And the ignorant masses have been convinced by the corporate media and their corrupt government lackeys that Ben did this for them. Kyle Bass knows otherwise. He knows how the Fed and their backers have preyed upon the masses through their understanding of human psychology:

“Humans are optimistic by nature. People’s lives are driven by hopes and dreams which are all second derivatives of their innate optimism. Humans also suffer from optimistic biases driven by the first inalienable right of human nature which is self-preservation. It is this reflex mechanism in our cognitive pathways that makes difficult situations hard to reflect and opine on. These biases are extended to economic choices and events. The primary difficulty with this train of thought is the bias that most investors have for the baseline facts: they tend to believe that the central bankers, politicians, and other governmental agencies are omnipotent due to their success in averting a financial meltdown in 2009.

Central banks have become the great enablers of fiscal profligacy. The overarching belief is that there will always be someone or something there to act as the safety net. The safety nets worked so well recently that investors now trust they will be underneath them ad-infinitum. Markets and economists alike now believe that quantitative easing (“QE”) will always “work” by flooding the market with relatively costless capital. Unlimited QE and the zero lower bound (“ZLB”) are likely to bankrupt pension funds whose expected returns happen to be a good 600 basis points (or more) higher than the 10?year “risk-free” rate. The ZLB has many unintended consequences that are impossible to ignore.

Our belief is that markets will eventually take these matters out of the hands of the central bankers. These events will happen with such rapidity that policy makers won’t be able to react fast enough. The fallacy of the belief that countries that print their own currency are immune to sovereign crisis will be disproven in the coming months and years. Trillions of dollars of debts will be restructured and millions of financially prudent savers will lose large percentages of their real purchasing power at exactly the wrong time in their lives. Again, the world will not end, but the social fabric of the profligate nations will be stretched and in some cases torn. Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusion. We believe that war is an inevitable consequence of the current global economic situation.” – Kyle Bass

"We want to be lied to because the truth is too painful. Hope and denial with a dash of delusion is the recipe the mindless masses prefer. The average person doesn’t want to understand the chart below. They want to believe the U.S. will dominate economically and lead the world for decades to come. We are still the bright shining beacon of democracy on the mountaintop. Even though the facts unequivocally reveal a declining empire, the masses desperately grasp at straws in the wind. The United States share of world GDP will be vastly lower in 2021, as the hubris of declining empires never allows them to take the necessary steps to reverse the decline (Rome, Great Britain)."

"The next two charts from Mike Shedlock again reveal truths the existing social order doesn’t want you to know. Even though the working age population has grown by 10 million people since 2008, the BLS expects critical thinking people to believe the labor force has only grown by 1.3 million people. You see, the unemployment rate is calculated using the labor force. If your economic policies don’t create jobs, just adjust the labor force dramatically lower based on nothing. In desperate economic times, people do not voluntarily leave the workforce. Only a non-thinking drone would believe that 8.7 million Americans voluntarily left the workforce since 2008, when only 4 million left the workforce from 2003 through 2007. It is not a coincidence that student loan debt, which was taken over by the Obama administration in 2009 rose by $300 billion. Those in power have doled out these billions with no concern for credit risk or academic credentials in order to reduce the number of people in the labor force. Unemployed union Twinkie workers seeking a new career in lesbian studies can get a $20,000 loan from the American taxpayer to sit in their basement along with the 500,000 other University of Phoenix enrollees. The future $300 billion taxpayer bailout was worth it to keep the unemployment rate low enough to insure Obama’s re-election."

"The Obama PR machine never fails to expound upon the fact that the economy added 4.9 million jobs since January 2009. In the same timeframe, uncovered employment rose by 6.6 million. Inquiring minds might want to know what an “uncovered” job entails. Selling your accumulated Chinese crap on Ebay is an uncovered job. Calling yourself a consultant while sleeping until noon is an uncovered job. Day trading Facebook and Apple stock is an uncovered job. Trash picking is an uncovered job. The truth is that real jobs are 1.7 million lower than they were at the depths of the recession, while bullshit jobs paying virtually nothing and offering no benefits have surged by 6.6 million. These facts don’t make a great campaign commercial. The number of employed Americans is at the same level as mid-2005, even though the working age population has grown by 18 million. Since 2008 there are 3 million less full-time jobs and 3 more part-time jobs. This trend is accelerating as small businesses react rationally to the oncoming Obamacare train, resulting in aggregate work hours declining and wage growth stagnating."

"Zero Hedge reveals more truth about our glorious jobs recovery with the following two charts. They obliterate the false narrative spun by liberal ideologues that the reason for the increase of those not in the labor force is due to Baby Boomers retiring. The truth is that while those in the 55-69 age brackets have gained nearly 4 million jobs under President Obama, everyone else has lost just over 2.5 million jobs. Is this a positive development or a sign of extreme desperation among older Americans who have seen their interest income vaporized by Ben Bernanke and there food, energy, and healthcare expenses skyrocket?"

"The accumulation of material possessions through the use of consumer debt, peddled by bankers and reinforced through relentless corporate marketing propaganda has left the country’s citizens weary, miserable, greedy, indebted and sick. Our obsession with technology has merely provided another means of distracting ourselves from confronting the dire challenges that must be addressed. We can ignore the facts but that doesn’t mean they do not exist. The abnormality that grips this nation is breathtaking to behold, as the status quo cheer on and encourage consumers to buy more things with money they don’t have in order to support an economic recovery that is dependent upon zero interest rates for Wall Street banks, QE to infinity, and the delusional desire for a miraculous return to the good old days when getting something for nothing was possible. We can no longer deny reality. If we want to add 30 million people to Medicaid, it must be paid for. If we want to wage never ending wars and police the world, it must be paid for. If we want a Federal government to spend $3.8 trillion per year, it must be paid for. Nothing is free in this world, but more than 50% of Americans seem to believe that to be true."

FP,

Boehner knows he'll have to accept tax hikes on >$250K people eventually, but if he gives that up right now what will Obama ask for next? It is called negotiation.