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Trust in America – Not

Bruce Krasting's picture




 

 

 

I wish I could have been a fly on the wall at the G8 summit at Camp David this weekend. The final communiqué from the global big shots talks about keeping Greece in the Euro and a shift away from austerity and a move towards growth oriented policies. Forget the Happy Talk, I want to know what they were really saying.

 

 

Obama must be praying for a miracle with the other members of the G8. If we get a “Grexit”, there will be months of turmoil in the global capital markets before the dust settles. The last thing the Big O wants to have is a recession in Europe that infects the USA with lower growth and higher unemployment when Americans are going to the polls in six months. For the same reason, Obama needs Japan to keep QEing and spending money it does not have.

 
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Obama may be a slave to what happens outside of our borders during the period prior to the election, but those same foreign leaders are completely at the mercy of the USA and the next President after the election. It won’t matter what the UK, Germany, France or Japan does with stimulus in their countries; what’s on the table in the USA will overwhelm any of those efforts.

The USA is months (220 days) away from initiating fiscal policies that will trigger a recession in the US that will be at least as severe as that experienced in 2008. With the rest of the world already teetering on recession, America is set to push the global economy right into the tank. The non-US members of the G8 are well aware of these facts. They must be crapping in their pants at the prospects.

I think those concerns are completely justified. Any foreign leader who is banking on the hopes that America will end its political stalemate and put forward a credible economic plan that puts the US and global economies on a better footing is a fool. If you want proof of just how far away viable compromises are, consider some legislation put forward by Republican leaders this week.

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House Representative “Buck” McKeon (R.Ca) runs the powerful Armed Services Committee. He has come up with a fiscal 2013 spending plan for the military. The CBO looked at H.R. 4310, so did the White House. It’s a joke.

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$637 billion! That’s a lot of loot for a country that’s tapped out. This is not a compromise. This is an insult. The following chart shows that the 2013-spending plan proposed by Republicans has no reduction from the historic highs of the past few years.

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What does the White House have to say about H.R. 4310?

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When it comes to military spending, the Republicans want to bust the law that led to the increase in the debt limit. They propose legislation that would renege on the deal that they fought for last summer. The fight over the debt limit brought the economy and the markets to its knees. It cost the USA its AAA. And now the Republicans propose to kiss it away.

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Obama had lunch with House Speaker Boehner last week to discuss the political impasse and the critical issues the country faces. To make it look like B&O are just a couple of regular guys they went for a bite to a local sandwich shop. I’m thinking there must have been 300 Secret Service types outside. There is nothing regular about these guys. Did the “deciders” at the hoagie shop agree on anything? Not a chance.

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There is a near zero chance for America to address the fiscal cliff that is coming on Jan 1 before the election. I think there is also a zero chance that it will get resolved in the six-weeks following the vote. Those G8 leaders have every reason to be worried. So should the markets.

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Mon, 05/21/2012 - 10:33 | 2447461 Mercury
Mercury's picture

I like gridlock and I'm not an oligarch.

We'd be in a lot better shape if congress had been gridlocked since...like 1984.

Sun, 05/20/2012 - 10:54 | 2445049 DeadFred
DeadFred's picture

I think you need to be a lot more paranoid to get closer to the reason.

Sun, 05/20/2012 - 14:07 | 2445394 CIABS
CIABS's picture

Let's have it, DeadFred.

Sun, 05/20/2012 - 21:57 | 2446198 illyia
illyia's picture

Yeah, Dead Fred. Let's have it. My 2 trillion?:

I am struck by the chart Bruce shows above. It appears that the Bush-Cheney gang came to a spending conclusion, and that conclusion has been shared by their successors - perhaps of both parties. That chart is so extreme. The situation is so extreme. Paranoia is not necessary to see the facts on that chart. And the "we just didn't know" junk is so transparent - maybe the only thing that is so transparent. It reminds me to reread Iron Mountain...

9-11 be damned. There is certainly something fishy and it is going on right now.

Sun, 05/20/2012 - 09:41 | 2444928 XitSam
XitSam's picture

"The fight over the debt limit brought the economy and the markets to its knees. It cost the USA its AAA. And now the Republicans propose to kiss it away."

The fight was between 'spend a lot more' and 'spend not-quite a lot more'. They have a deal, has it restored the AAA rating? No, so the fight wasn't the problem. The downgrade was not because Congress and the Administration had disagreements over the debt ceiling, it was because the agreement fell short of dealing with the problem.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement. source

 


Sun, 05/20/2012 - 13:45 | 2445337 JeffB
JeffB's picture

+1 for an important clarification.

But, I think the gist of what he's saying is still quite true. S&P warned, rightly so I think, that the fiscal diet they agreed to was insufficient to bring our morbidly obese budget to an acceptable level in a reasonable amount of time.

But now, it looks like the Republicans are ordering a lot more from the menu than the original (insufficiently austere) diet they had hammered out with so much vitriol a short time ago.

They're apparently, in effect, throwing that diet out the window in much the same manner the Greeks and French are rejecting the austerity plans that would be necessary to have any sort of chance to actually make good on all the I.O.U.s already on the table.

The debts are already so large, and growing at such a rapid rate, that the status quo is obviously untenable for very long. The options to address the imbalance are:

1). A "voluntary" massive austerity program, as a combination of tax increases & spending cuts.

2). Default

    A). Defacto via printing money -> inflation/hyper-inflation, an eventual collapse of the money -> severe austerity

   B). Outright default via haircuts

The U.S. doesn't seem to be any more capable of option #1 than the countries in Europe that are teetering on the edge of chaos.

 

Mon, 05/21/2012 - 09:44 | 2447179 Augustus
Augustus's picture

The "fight" over the debt limit did not bring about the downgrade.  It simply brought temporary focus to the situation of the rapidly growing debt.  Nothing that Obama has proposed includes any spending cuts.  So there will again be more focus on the unsustainable deficits.  Evidently Obama has advised the EU countries to order more printing presses and run those dificits, no worries.

Today I heard a Democrat pol state state something to the effect that the debate was going to again be about whether the US will default on the Govt. debt.  Of course, there is not now any reason to expect default.  There is ample tax cash income to pay the interest and roll the rest.  However it makes the discussion more dramatic and is an attempt to shift blame for growing spending to the other party.

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