Fiscal Cliff Predictions

oh, I see. The $6T in deficit spending the last 4 years is the Republicans fault...and "the rich" for not paying their fair share. Do go on.....this is asscinating!

Not that the GOP isn't at fault. They are just less radical democrats, really, but to present Obama as a wise negotiator, earnestly attempting to solve a crisis (that he engineered!) is silly.

See the CBO projection I linked above, and in particular the stark differences on page 3 of that projection between making cuts and not making cuts. And if this allows us to avoid being Greece 10 years from now, I say go for it.

coach d wrote:

See the CBO projection I linked above, and in particular the stark differences on page 3 of that projection between making cuts and not making cuts. And if this allows us to avoid being Greece 10 years from now, I say go for it.

I don't tend to find the CBO reliable. Nonetheless, there are many ways to go about this. The best probable way is to take our medicine now and make cuts, but not too aggressively, to broaden the tax base and enact fiscal reform to promote growth rather than merely punish savers and investors (or we could do a consumption-oriented tax that's not overly regressive) in the name of "fairness," and to make big time reforms to untenable entitlement programs, the cost of which the CBO vastly underestimated. One possibility is we won't do anything right until we are absolutely forced to, and the Fed, fearing the Greek scenario, will turn us into Japan. The game theory here is absolutely fascinating, what with simulated currency devaluations and economic and military brinksmanship.

The Fed CANNOT turn us into Japan. The Japanese owe that money to themselves, not outside investors, and the USA could not get anywhere near 170% GDP in public debt without major international ramifications (i.e., no purchases of debt except at much higher rates).

More on the cliff not being exactly the end of the world:

http://www.latimes.com/business/money/la-fi-mo-fiscal-cliff-economic-forecast-20121128,0,7080142.story

I think the investment theory ramifications are "buy the rumor, sell the fact". They (companies and investors) have been in the process of "buying the cliff", just like they bought the Obama reelection and sold immediately upon the fact coming true.

I'd dearly love to know what Mr. Buffet is doing (not saying) right now, but it looks to me like a bunch of folks who should know better are in the process of dumping some of their winners. Personally, I'm hoping to buy some good companies at fire sale prices.

Assuming for moment you are right. So what? Most people haven't benefited much from a raising corporate profits and GDP anyway over the past 30 years. I'm not saying doing nothing is the right thing. But the current tax and spending system isn't the right thing either and letting some of it expire is just not that big of deal. It just isn't. What needs to happen is a real discussion about closing tax loopholes on a massive scale, a VA tax, raising the standard deduction, cutting payroll taxes. But that is no where on the radar screen of either major party. At least not with the people who control the parties on a national scale.

As a matter of strategy, I agree with you. As far as what I want to see though, I believe more cuts need to be made, including moving ages out for both Social Security and Medicare.

Barry has proposed nothing. He does not want it to come back on him. Falling off the cliff at this point will be best for all us - if the alternative is raise rates on only the the job creators. I employ 40 peolple and my small business does allow me to claim more than > 250K. However, the vast majority of that money remains in the business, yet I still have to pay taxes on it. Raising my tax rate will force me to make cuts in payroll.

Starting to have some good dicussion here.

The Republicans just made an offer that was shot down.

"Their plan offered Monday proposed $800 billion in deficit savings through tax reform, including an unspecified amount of revenue raised by eliminating tax deductions and loopholes."

I think "unspecified" is the key word here.

Is that really an offer?

The Senate passed a bill that was specific.

All tax cuts extended escept for the top two percent.

Boehner will not bring this to a vote in the House.

Pelosi is pushing for a discharge petition to bring the Senate bill to a vote.

They way I read it, she needs a majority vote of the members to bring the bill to an official vote where the again need a majority of members ot pass the bill.

Strange process.

To get the 218 votes needed, 26 House Republicans would have to support it.

This bill was also submitted over the summer but of course they prefer the drama of the last minute deal and like keeping the economy in a fragile uncertain state, so it was shot down then.

I think they were betting on the election at the time to determine their leverage.

Of course I'm using Japan as a bit of a metaphor in that they do not possess the world's reserve currency, their savings rate has historically been much higher than ours, their demographic situation is much worse (though we are headed there), and they import all of their oil. However, they are still suffering the aftermath of massive overleverage and failed Keynesian policies of one stimulus plan after another and QE-to-perpetuity.

I believe the CBO baseline projections on growth to be overly optimistic, and our ratio of debt to GDP could skyrocket in a hurry. Yes, there could be a bond market revolt, but the Fed would merely double down with probably unsterilized money printing in that case. Our total debt to GDP ratio, including entitlements, is roughly 350%, and I'm not sure how that compares to Japan. Of course, we will see massive entitlement cuts and reform if the bond vigilantes start acting up as we need to service the cash flow obligations to appease our creditors.

However, I still see deflation/disinflation as the most serious threat, which is why growth is anemic and yields far out on the curve are so low (and likely headed lower). We are already on our second lost decade, the Fed is out of ideas, except pulling out the bazookas, and somehow the whitehouse thinks merely returning to "Clinton-era" rates and cutting spending by a mere $4 trillion over a decade will get the job done. Talk about being out of touch. We really almost need to go over the "cliff," because it's a start, and if we merely do a patch, we will be facing another downgrade (though, truthfully, we're already there). Once the Euro-Zone starts to really suffer the fate of its own failed Keynesian policy, the sovereign debt crisis will reach our shores. But we are not there yet.

Where's the "Gang of Six" when we need them?

"Forget the Fiscal Cliff: it is merely a much needed economic distraction for the next 3-4 months (distracting from what? Why Europe of course). Yes, it will be resolved, and yes taxes will go up, and yes, debates over it will most likely be carried over into 2013 and nothing will be compromised until the ultimate debt ceiling deadline (because it is really a Fiscal Cliff-Debt Ceiling package deal) is hit some time in March 2013, but eventually one or both parties will cave, right after the market plunges to put it all into the proper perspective as it did around the time of TARP and the August 2011 debt ceiling debate, and a resolution will materialize. The bigger issue has nothing to do with the Fiscal Cliff, which is indeed a sideshow. The bigger issue, as Art Cashin explains, has everything to do with a secular decline in the US economy, where a 1% growth rate will soon be the "New Killing It", where millions more (in part-time workers) will soon be let go, and where businesses no longer generate the cash flows needed to stay open. Art Cashin explains."

Here you go:

Via Mark J. Grant, author of Out of the Box,

In the piece I wrote over the weekend and subsequently published as an “Out of the Box” yesterday I touched upon the Fed’s buying and what it will mean for the bond markets. Today I wish to concentrate on the implications of what the Quantitative Easing will do to the fixed income markets and, to a lesser extent, to the equity markets. Many people, and erroneously, think that all of the purchasing by the Fed will go to both markets in equal amounts but this is not the case. More money for the stock markets would have to come from asset reallocations by money management firms, insurance companies, pension funds and the like and this is not going to happen anytime soon given the 2008/2009 experience. Consequently the greatest flows generated by the Fed’s recent and forward actions will affect the bond markets much more than the equity markets. What this means is a massive compression of available securities against Treasuries which continues what has been underway since early last year. The demand for Treasuries will also push down absolute yields so that my springtime prediction of a 1.25% ten year Treasury yield, the actuality is 1.38% so far so I was close enough, will be breached in 2013 as the Fed takes in and monetizes somewhere between 80-100% of all new Treasury issuance.

http://www.zerohedge.com/news/2012-12-04/monetization-america

This doesn't help matters.

http://newsbusters.org/blogs/matthew-balan/2012/12/03/cbs-cheesecake-factory-ceo-warns-obamacare-will-be-very-costly

the roadrunner will stop just short of the cliff and the coyote will keep going dropping down and causing a plume of dust, then an acme anvil will fall and cause additional harm...its just a guess.

Here's a pretty good article on the subject from Foxnews:

http://www.foxnews.com/politics/2012/12/06/obama-to-gop-dont-dare-give-me-what-asked-for/

There are three things in play:

-The tax rates

-The scheduled spending cuts

-The debt ceiling

The tax rates on the top two percent seem almost certain to go up at this point.

It's not negotiable on the president's side and he has leverage on that as it will happen if nothing is signed.

So they either agree to extend the tax cuts on all but the top 2% in the next couple of weeks or they let everyone's rates go up in Jan.

At that point they have to negotiate to go back and lower the rates for the bottom 98%.

And Republicans can keep their pledge of technically not voting to raise taxes.

At that point they will be negotiating the spending cuts and debt ceiling as well.

If the Republicans go ahead and pass the Senate's bill that bumps up the top rates now, then they may have more leverage on the spending and debt ceiling later.

Obama has suggested a bill that gives the president the power to raise the debt ceiling and Congress the opportunity to vote it down. That pretty much just says the president can raise it whenever needed at this point since Congress cannot agree on anything.

A lot of moving parts going on.

I am now leaning more to the possibility that the tax part will be resolved by year end and it will resemble exactly what the president campaigned on. The payroll tax cut or some new credit will be involved as well.

The spending and debt ceiling may spill into next year, more likely the debt ceiling than the spending.

$800B was what barry asked for last time around. So this time Bohner & the GOP give him what he wants (those guys are brilliant negotiators, huh?), but barry just says 'no thanks' and now says he wants $1.6B in tax increases. What a clown you idiots voted for. You think barry gives a sh&t is the economy tanks? Why? That just gives him yet another occasion to come to the rescue with more govt in your face and in your wallet & more control for him.

Look, barry thinks the USA needs to be dropped down a few notches. He resents America for - in his twisted view - becoming great by being so "unfair" to many people. He sees himself as the great playing field leveler. He wants to punch America in the nose a few times & bring her down to a level he feels more comfortable with. There is no love for America for this guy. It's debatable that he even considers himself an American. Look at the people he chose as mentors and their radical America hating agenda. Why can't you clowns get this?

Barry's policies & the polcies of democrats - and some republicans - before him caused this trainwreck. Now he comes to the American taxpayer and says we are to blame & we're gonna pay to fix the mess he & his created.

And you mouth breathing idiots sit there slack jawed & glassy eyed, buying into the con.

Wow. Thanks for making it so clear.

And I thought the law that resets the tax rates was made in 2003, before Obama was president or even a senator.

And I thought that the economy crumbled in 2008, when housing bubble burst, Lehman went out of business, and the whole financial system had to be rescued.

Boehner's $800B did not have details and Obama campaigned in 2008 and 2012 on the exact same thing he is asking for now.

yes, I know what you thought - pieces of the truth mixed with a lot of propaganda for your naive mind..

The deal that Bohner offered - that barry rejected - had nothing to do with tax rates. It was about eliminating some deductions - now conveniently called "loopholes" of course. $800B was what barry had asked for in previous talks. Neither those talks not the current ones were serious discussions - just agenda manuevering & jockeying for propaganda points

Yes, the econ took a dive in 2008 because of the housing bubble bursting - a democrat caused policy problem that the democrats slithered away from because dolts like you let them.

Details? WTF is wrong with you people? There are probably a few trillion $$ of deductions that could be eliminated. What - Bohner has to cite which ones? Why? So barry & co. can twist it around & proclaim how the GOP wants to take away your mortgage deduction, which will cause you to lose your house & make you live under a bridge?

Stop being so damn weak minded & think for yourself.

Actually there is more than that at play. But coming from Fox News I understand why they wouldn't give that to you. Its not just tax rates. Its payroll taxes that will go up and various tax credits are set to go down. (i.e. child tax credit, and an education credit) I'm not sure what the political status of those tax credits are. But what most Americans don't know is that payroll taxes are assuredly going back up. There is such broad bi-partisan agreement on it that its not even being reported in the news because politicians aren't arguing about it. Closing various tax loopholes are also at play. A note about spending. There seems to be general broad agreement that social security and medicare benefits will be cut in some way. Also, the NY Times reported today there is bi-partisan support to cut food stamps associated with a pending farm bill.

What the GOP needs to point out is that Obama agreed with closing loopholes only as recently as 2011 and he didn't want to hike rates because growth was so slow. What has changed, besides the fact that we're on the cusp of a recession, or, at best, a slowdown to anemic growth @ 1%? They should also point out that he spent more on green stimulus boondoggles than he would collect in extra tax revenue and point out that it is only $89B on a $1.6 T deficit, while he proposes no cuts and is now asking for unilateral control of the debt ceiling.

The problem with the Republicans is that they spend time and political capital arguing old talking points, instead of jumping ahead of the situation, while the Dems overload them with more. At least the Republicans did put $2.2 trillion on the table, much of it based on Erskine Bowles' initial plan that Obama seemed to agree with at a point in time (and more if you use the chain-weighted measure of inflation (instead of the archaic CPI) as the Dems did in their own package in 2010.

I will say that the Republicans are probably going to need to put out a sacrificial lamb to pander for show... Maybe agree to raise taxes on people making 1-2 million a year+. That way, it will look like they are embracing Obama's plan without hurting small business owners and people making $250,000 in cities where it costs almost $1 million for a two-bedroom condo, while hitting Hollywood celebrities and Wall Street Oligarchs (even as these people will merely shift allocations to generate less revenue for the government). But only do it in exchange for agreed-upon cuts.

Frankly, if they agree to his demagoguery and hike taxes without anything significant on the spending side, they have no cajones. I say, let us crash. Let us go over that cliff Mr. President. Yes, you can (inaccurately) blame the Republicans short term, and the media and your gullible supporters will eat it up, but it will be your legacy ultimately as we are stuck in the mud and going nowhere fast. The small business owners who get caught in your web will be forced to lay off even more employees, and either the unemployment (and food stamp) rate will go up, and/or the labor force participation rate will go down.

However, Mitch McConnell did ask for an up or down vote in the Senate yesterday and Reid blocked it….. so unpredictable. Even the Chicago Trib isn't convinced the President has the mandate he thinks he has:

http://www.chicagotribune.com/news/opinion/editorials/ct-edit-cliff-20121205,0,2354777.story

This is what I'm seeing - tax rates are going up as a matter of law, regardless of what Congress decides or is amenable to agree to. The choice for the Republicans is not whether they'll agree to taxes going up but whether they'll support legislation to make permanent the bottom four rates for folks with taxable income

This is what I'm seeing - tax rates are going up as a matter of law, regardless of what Congress decides or is amenable to agree to. The choice for the Republicans is not whether they'll agree to taxes going up but whether they'll support legislation to make permanent the bottom four rates for folks with taxable income