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Eat Peas and get Confidence – Not!
Obama said some interesting things at his press conference yesterday.
Central to his words was the theme that when the USA get its hands on
the debt ceiling crisis and establishes a framework for a return to
fiscal reality there will be a resumption of confidence. With that
renewed confidence would come more consumer spending, more business
spending and investment, investors (both in and out of the country)
would be looking for new opportunities to put money to work. The
confidence that would come from a resolution of the budget dilemma
would, by itself, be the tonic the economy needs to get moving forward
again.
I think that is all rubbish. I will try to make the
case that exactly the opposite will happen. There may very well be a
relief rally for a bit after news of a deal. But I say that relief will
turn to fear in a matter of months. Start with the President's words
that I thought were important:
He made it clear on several occasions; The time is now.
We have to eat our peas.
But no sooner did he make clear his commitment to tackling the problems he said this:
I want to be crystal clear. Nobody has talked about increasing taxes now. Nobody has talked about increasing taxes next year. We’re talking 2013 and the out years.
This reconfirms old news. Anything that will come as part of the Plan will not be effective until 2013. No cuts, no tax increases.
This next part confirms what I (and others) have been saying. As part of
the deal to raise taxes and cut spending in future years there will be a
short-term stimulus program. The President made clear what will be a
part of the package:
(cuts in FICA payroll taxes) would be a component of this overall package.
Now take a big leap and assume that this happens. What will we have?
*In 2012 there would be an expansion of the (one time only) reduction in payroll taxes.
Employees would get an additional 2% reduction (total 4%) and employers
would get a 3% cut. This reduction would be tied (in part) to job
creation.
*In 2012 there would be no other changes of substance to the current 2012 budget. The total additional stimulus would be $350 billion (all through FICA reductions). The new stimulus would provide a boost to GDP of about 1.5%.
HOWEVER
Starting in January 2013 the roof will cave in. The short-term stimulus will have ended. The cuts and new taxes will be kicking in.
*Workers will get hammered. They will face a 4% increase in
payroll taxes (versus the December check). That comes to $2,000 per year
for the average family. That’s a very big number and it hurts the
bottom end of wage earners the hardest. The YoY change will result in an
increase in worker's FICA taxes by $240 billion!
*Business FICA taxes will also go up $120 billion. With that increase (reversal of the “one time” holiday) will go any incentives for hiring new workers.
That’s just a reversal of the
short-term stimulus that returns us to “normal”. Then there would be
those new tax increases/spending cuts.
*The Bush tax cuts on +250k will be gone. That will be another $50b that gets transferred to the Feds.
*The AMT is going to have to be re-indexed. This hideous tax will
hit millions of taxpayers in 2013. It will cause homeowners with
children to scratch their heads in dismay. Family incomes above $105k
will all pay higher taxes as a result. Call that another $50b.
*Corporate taxes are going up. This will not add up to much. Maybe $20b guts sucked away from the fat cats.
*Speaking of fat cats, the Hedge Fund crowd will lose their special tax position. Their income will be treated as “Ordinary” versus “Capital”. That’s another $10b or so out of circulation.
*Taxes on dividends and capital gains are headed higher as well. This will be phased in over time in an effort to appease the big Wall Street donors. It could add up to $20b in 2013.
*Deductions of all sorts are going to be getting phased out. This will not be a big $ item in 2013, but anyone looking at the future will realize that most “prized”
deductions will be lost in less than five years. This too will change
the mood for investing in something like a house. It might even change
one’s plans for having a child. There won’t be any deductions for the
$400,000 it costs to raise a kid these days.
*The rate of automatic increases (COLA adjustments) for Social Security will be altered.
Those on SS will not see a lower check in Jan. 2013. But they can
expect to see that the checks will not grow anywhere near as fast as
inflation for the next twenty years or so.
That will scare the crap out of a bunch of them. How will they respond?
Trying to cut back on some more spending is the only way. It’s
impossible to measure this reaction, but it surely will be felt to some
extent. This too will be a drag on GDP.
*The rate of increases in Medicare/Medicaid disbursements will be altered.
Instead of running full speed into financial oblivion these programs
will lower the trajectory of expenditures to a walk. Whatever
expectations you now have regarding the growth of the health care
industry, you have to take them down a notch or two post 2013. That’s a
massive change in thinking. Every hospital, doctor and
treatment/diagnostic facility will be gearing down future plans.
I could go on for a fair bit. I hope you get the picture. The Plan that
Obama outlined is going to result in a massive YoY adjustment in 2013.
The reversal of the FICA (one time) tax holiday is $350b. Other tax
increases could easily add up to another $100b. This is equivalent to a
3% immediate hit to GDP. I can’t think of a bigger historical YoY shift
in taxes.
As I suggest, there are many other factors that will come into play.
Consumption patterns and investment decisions will be altered. It all
adds up to a very murky economic picture starting in 2013.
Obama is right when he says that confidence is a critical component of economic expansion. My question is:
“How are people going to be feeling a few months from now when the euphoria passes and the reality sets it?”
The press will have a field day with the story. Every blue chip
economist and Wall Street pundit will be pointing to the same charts and
concluding:
A recession is likely in 2013
Fear of the future is a powerful force. People will have a year to worry
about the changes that are coming. They will worry over how those
changes will affect their pocket books. I can’t think of a more
depressing scenario.
There might be a month or two of renewed confidence following a budget
deal. By wintertime it will fade. It will be replaced with the exact
opposite. How could it not?
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Sighhh...peas for thee but not for me, meanwhile...
"First Lady Michelle Obama may have temporarily forgotten the lessons of her own anti-obesity campaign when she indulged in a sinfully caloric lunch Monday at a popular new hamburger restaurant.
but for Our Dear Michelle, they were skoshi' calories and didn't really affect the message nor Madame O ;-)
Seriously, how do we (no one else will do it!) (all us all, -- a Yankee reformation! ) reconcile: "food deserts", "Huge Obesity Rate", undernourished population (ya, walk through even normal Chicago, let alone South-Side), "Under-Nourished Children", etc. propaganda.
Bernays in play.
Wonderin'
- Ned
There is no doubt America has some of the fattest "poor" people on the planet.
This pea & bandaid crap brought a puss filled blister up on my skin that needs to be lanced here and now.
Just who the fuck does he think he is? He talks to adults like he's their "daddy"? WTF?!? Oh sweet prince, please grace us with more inane metaphors.
This is the guy who signed off on trillions in debt, voted present in Senate in order to get his current position, had his entire "team" of whackademic economists quit in a fit of Keynesian angst, plays golf as Rome burns, can't string two sentences together without a teleprompter and he attempts to come off as the responsible one in the room?
I'll give him one thing, he's the most tone deaf about his own incompetence that America has ever been treated to...the only one relieved in this whole affair is Carter.
Bruce, you too busy playing with graffiti pics to notice this graph???
http://2.bp.blogspot.com/-8LVw3-YXt_A/TdWj8nQyUkI/AAAAAAAAQ1w/wGI39TSyuj...
A tutorial of the graph for the uneducated whites just getting here from Rupert Murdoch's FOX:
http://www.cbpp.org/cms/index.cfm?fa=view&id=3490
Oh yeah Bruce, I forgot that graph doesn't go together with your "W" Bush's prescription drug plan, "W" Bush's TWO unpaid wars, and "W" Bush's tax cuts for wealthy---blame it all on the new black guy motif.
Oh well, I never was good at following manufactured fiction.
I agree. Obama's unfunded four wars, Iraq, Libya, Afghan and Yemen and spending quadruple is much better. Look around, the 18,000 new jobs for June is a smashing success! And didn't Zero Leadership sign off on the Bush Tax cuts just six months ago? Didn't he say "we couldn't raise taxes in a recession". Whats changed Teddy, you idiot O-bot?
So with Obama's continuing failure, what will the stupid fuck do for four more years? Nothing different as he is unwilling to do anything now. And WYSIWYG is perfection.
Oh, and only the REAL RACIST notices skin color as you do.
You're pretty good at just following, Spanky.
Depends on how many of us worthless eaters they kill off in 2012. They may be engineering a collapse scenario of Mayan proportions that will make anything afterward completely moot.
*adds another layer of tinfoil to the hat*
Progressives are firm believers in Eugenics and Margaret Sanger. Remember when Justice Ginsburg complained that it wasn't working as well as it was supposed to? Sure, 63% of Black babies in New York City are aborted now, but the effect on the needed voting base is terrible. The greatest Sanger Eugenicist remains Adolf Hitler.
WAD (Working As Designed)
So your telling me the problems happen after the election season and can be capped with a wave of hysterical bailouts, borrowing, pillage, and plunder to get the economy on track...where is the problem? Sounds like they know exactly what is wanted by the big players. Answering the age old question "How can I steal the public blind and get out the door with the loot?"
Wow! I never saw this as a campaign ploy that sticks it to everyone in 2013. Boy, he sure is crafty. Nobody woulda dreamed this clown could be so conniving...
Damned if we do, damned if we don't.
Yes. But all Obama is doing is recalling the very wise advice of John Lennon. Which, if you'll recall was:
Give Peas a chance.
I can't believe no one else got to that line before me!
Or we could all sing that other Fab 4 tune, "Please Peas Me"
What he really meant was "Gimme Your Money, Peas".
http://www.youtube.com/watch?v=QU0SwYK0vco
A woman appears before a judge, charged with shoplifting a can of peaches. The judge asks the woman how many peaches were in the can, to which she replies, "There were nine peaches in the can, sir".
The judge declares, "You can serve nine days in jail then, one for each peach".
A man stands up and says, "I am her husband, your honor, and she also stole a can of peas."
Is that how he qualified to be awarded the Nobel Peas Prize?
No, he hadn't tasted peas at the time of nomination.
He visualised whirled peas.
That's very punny!
Peas? More like Drink the Kool-Aid.
Absolute, community organized, bullshit.
Exactly!! It just shows how gullible he knows the electorate is!!
"Let me keep drinking for just 2 more years...I promise I'll stop drinking in 2013!"
Geez, Bruce ... even you seem to believe they plan to actually raise taxes and reduce spending in 2013! Hahahahahaha!!!!!!
Indeed, the 'economy' won't survive until 2013: They know it...I know it...You know it!
The plural of peas is piss. Trickle down economy saturates us in yellow rain.
Rev Jim Jones would have been proud.