You’ve heard what the early (and slim) analyst reaction has been, now for what the blogosphere has had to say about the fiscal deal achieved.
A good rundown comes courtesy of Pragmatic Capitalism’s Cullen Roche:
- A deal was actually finalized. That’s good news. It looked like we might actually go into January without a deal and that the odds of no deal at all were rising.
- No one really won here. Congress is totally dysfunctional.
- There’s still a lot unanswered.
You just knew it was coming: chaotic brinkmanship, followed by a half-baked compromise that sees substantially all contentious issues kicked off to another day. Last minute Congressional agreement over tax rises, simply offers up spending cuts and the debt ceiling as the next two crisis points for US legislators.
So it’s Rally Time, but only sort of. Asian stock markets were up sharply, but that was at last partly down to the latest positive PMI data from China. In London, the Footsie — much more of a barometer for the US — was up 1.5 per cent or so at pixel. Read more
We’re trying not to get too caught up in the play-by-play of the negotiations between the President and Congress about the [rhymes with, um, driscoll spliff], thinking it better to wait until we start getting more definitive news. We recommend the NYT’s Debt Reckoning site to those who want frequently updated coverage.
But we recently came across a series of useful and well-constructed charts from Credit Suisse, and we wanted to highlight a couple of them: Read more
“Under current law, on January 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases.”
– Ben Bernanke, first usage of “fiscal cliff”, 29 Feb 2012 (Hat tip Kevin Drum) Read more
Rather late in his forlorn campaign, Mitt Romney introduced a tax policy idea that had bipartisan appeal: to cap the amount in itemised deductions that American tax filers can use.
The problem was that Romney was suggesting it as a way to help make his proposal to lower tax rates pay for itself, ie to be ‘revenue-neutral’ in the jargon. But there was no way to do that just by lowering deductions: the tax cuts were too big, and Romney never really explained just how he would offset them. Read more
Well we’re no longer off 300 points on the Dow. (Off 265, as we went to pixels.) But what went on here?
Democrats have a track record of getting fiscal legislation through a Republican-led House by cutting deals. Will they be able to pull off the same trick when it comes to averting a slew of budget cuts and tax increases that will otherwise kick in at the end of the year?
Macro-strategist Michael Hampden-Turner has some thoughts on this — the $600bn “fiscal cliff” — which he shared with us on Wednesday morning (video below). Read more
Excited about the election? Well, tomorrow you’ll have to face reality. Reality and ducks:
After US elections on November 6, Washington’s focus will shift to the fiscal cliff. The outgoing Congress will meet for another two months in what is traditionally called the ‘lame duck’ session.
And this one might prove more precipitous than its famous US cousin.
From the FT’s Ben McLannahan:
In an echo of worries in the US over the $600bn of spending cuts and tax increases due to take effect in January – the so-called fiscal cliff – Japanese politicians are at loggerheads over a bill that would allow the government to borrow the Y38.3tn ($479bn) it needs to finance this year’s deficit.
In attempts to explain why companies (particularly in the US) are so reluctant to invest and hire of late, the word “uncertainty” will usually make an appearance. “Policy uncertainty” is generally seen as the enemy of business confidence, and the combination of post-crisis regulatory reforms and ever-increasing partisanship in the US Congress make it a very big theme of late. Intuitively it makes sense that uncertainty would affect business decisions, but can that be separated from the effect of actual economic activity itself? Read more
This one from Goldman economists, showing the projected impact on GDP growth in each quarter from the various provisions. Click to enlarge.
Politics isn’t our bailiwick and as usual we could be wrong about this, but given the logistical hurdles it seems like Congress and the president(-elect) would be acting more sensibly by using this limited time to focus narrowly on the immediate fiscal cliff issues, which will be challenging enough, than trying in vain to arrive at a Grand Bargain. But to state the obvious, political reality and economic urgency don’t always align. Read more
It’s really hard to predict the eventual outcome of the fiscal cliff negotiations that will take place after the elections, but the media reports that there is little enthusiasm for extending the payroll tax cut (in place since January 2011) are starting to pile up.
Annie Lowrey in this morning’s NYT: Read more
New York, September 11, 2012 — Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the US government’s Aaa rating and negative outlook… Read more
Recently we’ve come across a few stories making the case that the looming fiscal cliff is already having an impact on the US economy, as companies are reluctant to invest given the possibility of severe fiscal contraction at the start of next year.
We began writing about the fiscal cliff last November (before it had the name, and we certainly weren’t the first). The outcome is still undetermined — and all indications are that it won’t be decided until after the election. It therefore seems reasonable to think that companies are pricing in some probability of a failure by the two parties to arrive at a deal before the end of 2012. Maybe they are. Read more
Caption if you wish. On the Libor front — asked if it’s reliable… Bernanke told senators that “I can’t give that assurance with full confidence”. (Testimony here) Read more
Most of the fear of what might happen if the US goes over the proverbial fiscal cliff has concentrated on the size of the economic drag it would produce.
But as you might have guessed for a blog that has long worried about the effects of a decline in safe assets on trust in financial intermediation, shadow banking liquidity, collateral shortfalls in money markets, etc… we also think it’s important to look at what it would mean for the corresponding decline in US Treasury issuance. Read more
The fiscal cliff and “Taxmageddon” are terms for what might happen at the end of this year, when various US tax cuts and benefits expire, and the automatic “sequestration” spending cuts agreed as part of last year’s debt ceiling/Super Committee deal are due to kick in. (Cardiff explained it in more detail back in November if you want a refresher on the scale and messiness of it all.)
There have been several estimates of how this might play out — Nomura for example forecast that the expiration of the Bush tax cuts alone would reduce GDP in 2012 by 1.5 percentage points. Now the Congressional Budget Office, a non-partisan agency, has published its own analysis, which paints a picture of all of the fiscal restraint measures and expiring tax cuts shaving a massive 4 percentage points off GDP growth in 2013, making for a recessionary first half: Read more
Last November, we pondered the various fiscal issues that might have to be confronted by the winner of the Presidential election and the lame duck Congress in the period between the elections and the end of the year — at least if they wanted to avoid further fiscal drag at a time when the economic recovery is likely to still be fragile.
That combination of issues — expiration of the Bush tax cuts, the payroll tax cut, and extended jobless benefits; the automatically triggered sequestration cuts; and once again avoiding a breach of the debt ceiling — has since come to be known as the “massive fiscal cliff”. Elsewhere it’s been labelled “Taxmageddon”. Read more