The old line on Wall Street is: “Buy on the rumor and sell on the news.” So, what happens when there are couple of major, upcoming events that many have warned us may severely affect our economy, not to mention the politics and the related discourse about it?
Most Democrats and many like-minded, progressive “New Keynesian” economists (who should not be confused with “Neo-Keynesians”), including Paul Krugman and Joseph Stiglitz and on down the economic punditocracy food chain, are warning that this trouble is just ahead for the U.S. if we follow through with the “Austerian,” $1.3 trillion in legislated budget cuts scheduled to be enacted as of January 1st, 2013.
In the blogosphere, New Year’s Day is now being referred to by some as “The Fiscal Cliff.” Naked Capitalism’s Yves Smith covered this story in a post early on Friday which I republished here a few hours later, entitled: “Will the Fiscal Cliff Eat the Recovery, Such as It Is?”
So, in anticipation of severe political/economic weather just ahead, and/or related adverse events, what this translates into with regard to our highly politicized, corporatocratic economy is the reality that Wall Street and the other players that comprise the one percent are, inevitably, taking a second-look at modest expansion plans they might have in the U.S. in coming months (if any), and they’re reconsidering what many have noted are, already, only nominally proactive efforts to date, such as: increased manufacturing production planning, hiring, and so on; and they prepare/adjust accordingly. Many would argue that this behavior is deliberate in its intent, and pointed in its support of a Republican victory in November.
In other words, the (already) intensively-politicized uncertainty regarding how our government will resolve (or, not) the upcoming budget ceiling fight in the Fall, combined with what many regard as extremely ill-timed government spending cuts at the outset of 2013—i.e.: a New Keynesian’s worst nightmare--feeds upon itself.
Regrettably, this highly partisan, “circle-the-wagons” mentality--and how it already may be adversely affecting our economy, ahead of schedule and just in time to undermine President Obama’s re-election bid--is precisely what Barry Ritholtz is referencing in his headline, from earlier today, on his Big Picture blog, as he brings us James Bianco’s commentary about the upcoming budget ceiling fight which is scheduled to play out in the Fall, just before the election; and, subsequently, as it directly concerns the scheduled $1.3 trillion in “Austerian” federal budget cuts set to go into effect on January 1st, 2013, in: “Is The Fiscal Cliff Coming Before The Election?”
First, here’s Reuters’ Jonathan Spicer setting the stage (Ritholtz joined these sentences all together as one big paragraph; I’m keeping it real)…
'Fiscal cliff' makes U.S. Fed queasyHere’s more, this time from Bianco via Ritholtz…
By Jonathan Spicer
Wed, Apr 25, 2012 12:11 PM SGT
NEW YORK (Reuters) - Federal Reserve policymakers are sounding the alarm over a "fiscal cliff" at the end of this year, when scheduled U.S. tax hikes and spending cuts could pose a big threat to the fragile economic recovery.
Along with its official mandate of watching unemployment and inflation, the U.S. central bank is keeping a close eye on a potentially debilitating political fight over how to fix the budget deficit.
If lawmakers in Washington do not get rid of the tax hikes and spending cuts due to take effect in early 2013, the country could easily careen into another recession. Any moves by Congress, however, aren't expected until after the November 6 presidential election.
The Fed is worried that individuals and companies could hunker down and curb spending, making markets antsy as the country awaits the outcome of an election that could pave the way for new tax and spending policies.
Though few expect Washington to do nothing while fiscal policies push the economy into another downturn, partisan politics could undermine the Fed's unprecedented actions to revive the economy.
"I have been disappointed that the president and Congress are not taking action until after the election," St. Louis Fed President James Bullard told reporters in Utah last week.
"I'm also worried that markets will react badly to the fiscal cliff at the end of this year. Markets might start to speculate about what might or might not happen ... after the election," he said…
Is The Fiscal Cliff Coming Before The Election?LINK TO CHART (from Bianco Research): The Debt Ceiling
By James Bianco
The Big Picture Blog
April 30th, 2012, 10:30AM
As the chart below shows, the debt ceiling should be hit around Labor Day. Why not 2013 as projected? Bluntly, the deal negotiated by the super committee (remember them??) did not raise the debt ceiling enough to push this issue off until after the election. How is this possible? The federal government is spending money faster than originally projected. On Meet The Press on April 15, Geithner said the U.S., “won’t hit its debt limit again until late in the year.” 2013 is off the table.
Once this ceiling is hit, Geithner can steal borrow from some government trust funds to help fund the government. In 2011 Geithner borrowed enough from trust funds to keep the government going about eight weeks before the debt ceiling had to be raised (see “May 16″ below).
How long do we go after we reach the debt ceiling later this year? If Obama thinks it is in his best interest to push the issue, Geithner will say the Treasury has “run out of options” by mid-October and let it explode in the Republicans’ faces. If Obama decides it is not in his best interest to push the issue, the administration will find ways to fund the government through the election. This gives the Republicans an opening to hammer Obama on fiscal responsibility. Remember that this issue helped form the Tea Party, who in turn helped the Republicans win 61 House seats in 2010 (the most in 70 years). Either way, this will be an issue for the November election.
All the talk about a “fiscal cliff” is both right and wrong. It is right in that there is one coming and it has to be dealt with. However, many incorrectly believe this will only be an issue after the election. As the chart below shows, current rates of spending could make this a critical issue just prior to the November elections…
This is, essentially, all about what I’ve referenced in recent posts about our country’s impending trainwreck, available via links here, “Joseph Stiglitz via The European Magazine: “Austerity and a New Recession” (Breaking Update)” (4/25/12), and here, “No End In Sight” (4/27/12).
Democrats directly confronting what I've reported upon, right here, is as practical as it gets this election cycle, IMHO.
Does our Party have the spine to not capitulate when it matters most?
I could easily speculate upon the answer to this question (and my response would be extremely pessimistic, as I'm sure many reading this would not be surprised to learn--frankly, have we not already done this, legislatively?), but I'll let you do that in the comments, instead...