The Economic Deception At The Heart Of The Fiscal Cliff

Truth Testing The Narrative

Among many politicians and much of the media there is an accepted narrative about  deficits, taxes and the so-called "Fiscal Cliff". It goes something like the following:

"The United States is running massive deficits that are bankrupting the country.  These deficits are so high because of the Bush era tax cuts.

So if we just end the tax cuts that caused this deficit in the first place, and make the rich return to paying their fair share of taxes, then much of the deficit problem is solved."

For millions of people in this country this is a compelling narrative, and understandably so. Because if we're so heavily into debt because of tax cuts that were given to the privileged, we need to just end the tax cuts and then the downward spiral ends -- which seems fair enough.

There's only one problem with this narrative – it isn't true.

READ MORE:  http://danielamerman.com/articles/2012/FiscalC.html

Two-thirds of Americans Sit with Less Than $25K in Savings, Investments

~ by Michael Lombardi, MBA

Consumer spending, which is so desperately needed, only increases when consumers are happy—when they are confident about their jobs, savings, investments, and overall wealth.

Right now in the U.S. economy, none of that is present. For consumer spending to increase, you need consumer confidence in the U.S. economy to increase. I don’t see it, even after multiple rounds of quantitative easing and the government adding a significant amount of debt. Consumers are worried about the economy and are hesitant to spend.

A recent survey by Employee Benefit Research Institute proves the point. According to the national survey, Americans are losing confidence in their ability to retire comfortably. Their biggest concerns include job uncertainty and debt, with 42% of the respondents believing that job uncertainty is the biggest hurdle to their financial success. Likewise, 60% of the workers reported that they have total household savings and investments of less than $25,000. (Source: Employee Benefit Research Institute, March 13, 2012.) How can there be consumer spending growth under these circumstances?

The demand for most basic goods by consumers isn’t there either. As an example, the demand for cheese in the U.S. has been softening as we approach the holiday season. The Chicago Mercantile Exchange (CME) spot prices for cheese declined significantly during the week of November 5. Cheddar blocks fell by $0.19 a pound (lb) to $1.92/lb—more than nine percent. (Source: Milk Producer Council, November 9, 2012.) Weak cheese sales are a clear indication that consumer spending is pulling back.

And some 100 California farmers are closing down, because they are facing financial hardships due to weak demand for milk and lower profit margins. (Source: “Milk Price Fight Boils Over,” The Wall Street Journal, November 12, 2012.) What do we make of this pullback in consumer spending on milk?

After looking at all this, how can I possibly believe that consumer confidence is increasing? Just the three above facts are more reason for me to believe there isn’t any consumer confidence. The U.S. economy is still in a dire state, and millions of Americans are still suffering.
After the financial crisis hit in 2008, we saw a brief period of increased consumer spending and consumer confidence. But now, with downward pressure on the global economy, consumer spending, which accounts for 70% of U.S. gross domestic product (GDP), is back on hold.
For this coming “Black Friday,” the biggest shopping day of the year, I expect sales at retailers to pull back from last year’s levels, as consumer spending is tighter this year than in 2011.

Michael’s Personal Notes:
Still not convinced about an economic slowdown in the global economy? A significant number of countries are going through economic slowdowns that are picking up steam. One country after another is getting into financial trouble. Declining exports, stagnant local demand, slow business spending, and rising currency value are just a few of the problems faced by a growing number of countries in the global economy.

Yes, we all know how badly the eurozone has been affected by the economic slowdown and how the U.S. economy is nowhere close to seeing economic growth. These pages are filled daily with such evidence.

But what is worrisome is the pace at which other countries are suffering.
Australia is witnessing an economic slowdown similar to the one it experienced in 2009, if not worse. The National Australia Bank’s index of business conditions has fallen to levels that were last seen when the global economy was almost collapsing in 2008. The index tracks goods orders, employment, and the profitability of companies in Australia. (Source: “Australian business conditions weaken, says NAB,” MarketWatch, November 13, 2012.)

Mexico is also experiencing an economic slowdown, as the overall global economy is flattening. The Mexican economy is expected to grow at only 3.6% next year, its slowest growth rate since 2009. (Source: Bloomberg, November 12, 2012.)

In the global economy, it just takes one region to get into trouble and the world experiences ripple effects. In January of this year, I started talking about the eurozone and how its economic slowdown would eventually reach North American shores—while others said the eurozone’s troubles would be isolated to the eurozone. It’s a global economy; as the eurozone economic slowdown deepens, the global economy will suffer.

Currently, the global economy is on pace to grow 3.2% this year. Next year, the global output is expected to decline almost six percent to three percent. (Source: Conference Board, November 13, 2012.)

As the global economy becomes infested with more crises, what this ultimately means is that the recovery for the U.S. economy will be deferred until further down the road. We still haven’t recovered from the financial crisis of 2008–2009. Now another economic slowdown, this time on a global scale, will send the U.S. further away from its path to economic growth.

Where the Market Stands; Where It’s Headed:
Because of Thanksgiving, not much is happening this week. I see the lack of trading volume in the markets as an indication that many traders have already put this week behind them.
This morning, the Dow Jones Industrial Average sits 6.4% below its 2012 high. Given the sharp correction stocks have taken over the past two weeks, it’s a negative that the usual “snap-back” from oversold levels hasn’t happened.

I continue to be negative on stocks, given that I see very weak U.S. economic growth in 2013, while corporate earnings growth is evaporating, the eurozone’s worst days could still be ahead, and China’s economy continues to deteriorate.

Demand Grows At Framingham Food Pantry

FRAMINGHAM (CBS) – It’s one of the most highly anticipated deliveries of the year, the turkeys at Pearl Street Cupboard and Café in Framingham. But three days before Thanksgiving, the food pantry is coming up short of turkeys for everyone who walks through the door.

It’s the first time Criseida Hernandez has asked for one. “It’s a little hard because I’ve been able to get one myself without going any place to ask for it. But I’ve been unemployed for the last year,” she said.

It’s the busiest time of year for food distribution and at Pearl Street, requests for help are up 400 percent over last year. “These are folks you wouldn’t normally expect to be needing help, on top of those always in need, it’s a big group and a big deal,” said Paul Mina president of United Way Tri-County, which runs the food pantry. 

READ MORE:  http://boston.cbslocal.com/2012/11/19/demand-grows-at-framingham-food-pantry/

Dreaded Yellow Light May Be Trap for Traffic Violations

The National Motorists Association has a warning for the millions of drivers hitting the road for the busy holiday travel season: Beware of the yellow lights.

The timing of yellow lights on traffic signals at many intersections is purposely set to a minimum so more drivers can be ticketed for running red lights, says the 30-year-old activist group based in Waunakee, Wis.
This past summer in New Jersey, the transportation department ordered 21 cities and towns to suspend the use of red-light cameras at 63 intersections because the timing of yellow lights at those locations was below the minimum established by state law.

Other cities—including Dallas; Chattanooga, Tenn.; and Union City, Calif.—have been caught shortening yellow lights in the past decade as red-light cameras have become sources of steady revenue. The cameras snap photos of license plates on any vehicles in an intersection while the light is red, and citations, often carrying fines of $100 or more, are mailed to the registration’s address.

READ MORE:  http://www.nationaljournal.com/domesticpolicy/dreaded-yellow-light-may-be-trap-for-traffic-violations-20121121?mrefid=mostViewed

Does Governor Markell deserve a "D"?

11/9/2012

In their recent “Fiscal Report Card on America’s Governors,” the CATO Institute gave Delaware’s Governor Markell a “D”. The basis for the grade was that over the past four years the Governor has increased taxes (i.e., personal income, gross receipts, corporate franchise, cigarettes) while plunging ahead on state spending. 

 

Is a “D” a fair grade?

 

First, the responsibility for the grade of “D” must be shared equally with the state legislature. The legislature passed all the tax increases and all the state budgets. And other constituencies in Delaware share part of the responsibility as well. The Delaware State Chamber of Commerce, for example, did not oppose any of the tax hikes.

 

Second, is an increase in taxes such a terrible thing? Every credible analysis of the differences among states’ economic growth rates shows that relatively higher taxes deter growth. Analysis of 20 years of Delaware data by the CRI produces the same result.

 

Over the past two decades every increase in Delaware’s top personal income tax rate has subsequently decreased employment and every decrease has spurred employment. Based upon average relationships, the 17% hike in the state’s top personal income tax (from 5.95 to 6.75) will over time reduce employment by 7%, or 28,000 jobs, all other things being constant.

 

Similarly, over the past two decades every increase in Delaware’s gross receipt tax rate for retail trade has subsequently reduced employment throughout the state and every decrease has been followed by gains in employment. Again, based upon average relationships, the 31% increase in the retail trade gross receipts tax rate (from .576 to .7543) will eventually lead to a 15% drop in employment, or over 60,000 jobs, all other things being constant.

 

This is why the CATO Institute looks dimly on states that raise taxes, especially during recessions.

 

Third, can state government be expected to cut spending when so many state services are essential? The reality is that Delaware state government has been on a spending binge. Over the past decade (FY-03 to FY-13) state spending from Delaware General Fund has risen 50%.

 

Over this same decade Delaware personal income has increased 45%, with earned income up only 32% and transfer payments up 116%. Total employment in Delaware has been flat and inflation (prices) is up only 30%. In other words, spending from the General Fund has out-stripped inflation, population (a 10% increase), and the economy.

Wouldn’t it be difficult to identify areas of state services that might be candidates for cuts? Over the decade just four areas of state government have accounted for more than 83% of the absolute dollar rise in General Fund spending.

 

The Department of Health and Social Services led the pack with an increase of $415 million. Especially notable were the 97% increase in General Fund Medicaid spending ($306 million), a 120% jump in spending on facility operations, and a 780% increase in welfare (Temporary Assistance to Needy Families).

 

The $374 million rise in General Fund spending by the Department of Education was accounted for primarily by a 118% jump in personnel costs. This is unusual given that total public school enrollment fell over this decade and inflation was only 30%.

 

State debt service, excluding schools, soared from $3 million to $146 million as Delaware hit the top five among all states in debt per capita.

 

Finally, personnel costs in the Delaware Department of Corrections rose 48% and spending on medical services jumped 117%.

 

While state employees in the Delaware Office of Management and Budget and the Department of Finance are far more qualified to identify specific areas of spending that seem to be substantially out of control, just a cursory examination raises some questions.

 

What about going forward? Has state government learned some lessons? Perhaps.

 

State spending for the current fiscal year is expected to go up slower than the expected tax revenues flowing into the General Fund. Borrowing is projected to ease up. On the other hand, no serious efforts are underway to deal with neither runaway Medicaid costs nor looming health care costs for retirees and a rising pension fund shortfall.

 

At the same time, the Governor and legislature are entertaining delays in the roll backs intended to occur in both the top state personal income tax rate and the gross receipts tax rates. Hopefully, this will just end up being talk.   

 

As the CATO Institute observes, “Intense global economic competition makes it imperative that states improve their investment climates.” This includes broad based tax reform, holding the line on spending, addressing future state employee benefit liabilities, and serious school reform.

 

 

Dr. John E. Stapleford, Director

Center for Economic Policy and Analysis

6,125 Proposed Regulations and Notifications Posted in Last 90 Days--Average 68 per Day

(CNSNews.com) – It’s Friday morning, and so far today, the Obama administration has posted 165 new regulations and notifications on its reguations.gov website.

In the past 90 days, it has posted 6,125 regulations and notices – an average of 68 a day.
The website allows visitors to find and comment on proposed regulations and related documents published by the U.S. federal government. "Help improve Federal regulations by submitting your comments," the website says.

The thousands of entries run the gamut from meeting notifications to fee schedules to actual rules and proposed rule changes.

In recent days, for example, the EPA posted a proposed rule involving volatile organic compound emissions from architectural coatings: “We are approving a local rule that regulates these emission sources under the Clean Air Act (CAA or the Act),” the proposed rule states. “We are taking comments on this proposal and plan to follow with a final action.”

READ MORE:  http://www.readability.com/read?url=http%3A//feedproxy.google.com/~r/DrudgeReportFeed/~3/HKJyS_NJml8/6125-proposed-regulations-and-notifications-posted-last-90-days-average-68-day

Marc Faber: Prepare for a Massive Market Meltdown

The markets are going to go into meltdown soon, so expect stocks to lose 20 percent of their value, Marc Faber, author of the Gloom, Boom and Doom report told CNBC on Tuesday.

“I don’t think markets are going down because of Greece, I don’t think markets are going down because of the ‘fiscal cliff’ — because there won’t be a ‘fiscal cliff,’ ” Faber told CNBC’s “Squawk Box.” “The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20 percent, in my view.”

Faber, who is known for his bearish views, cited tech giant Apple [AAPL  558.2199    30.5419  (+5.79%)   ], a company whose disappointing earnings have caused its stock to fall 20 percent from its September highs and 14 percent in the past month. 

READ MORE:   http://www.cnbc.com/id/49802535

Special Report: How a vicious circle of self-interest sank a California city

(Reuters) - When this sun-drenched exurb east of Los Angeles filed for bankruptcy protection in August, the city attorney suggested fraudulent accounting was the root of the problem.

 The mayor blamed a dysfunctional city council and greedy police and fire unions. The unions blamed the mayor. Even now, there is little agreement on how the city got into this crisis or how it can extricate itself.
"It's total political chaos," said John Husing, a former San Bernardino resident and regional economist. "There is no solution. They'll never fix anything."

Yet on close examination, the city's decades-long journey from prosperous, middle-class community to bankrupt, crime-ridden, foreclosure-blighted basket case is straightforward — and alarmingly similar to the path traveled by many municipalities around America's largest state. San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers.

Little by little, over many years, the salaries and retirement benefits of San Bernardino's city workers — and especially its police and firemen — grew richer and richer, even as the city lost its major employers and gradually got poorer and poorer.

READ MORE:   http://www.reuters.com/article/2012/11/13/us-bernardino-bankrupt-idUSBRE8AC0HP20121113

Anti-austerity strikes sweep Europe

(Reuters) - Police and protesters clashed in Spain on Wednesday as millions of workers went on strike across Europe to protest spending cuts they say have made the economic crisis worse.

 

 Hundreds of flights were cancelled, car factories and ports were at a standstill and trains barely ran in Spain and Portugal where unions held their first ever coordinated general strike.
 

Riot police arrested at least two protesters in Madrid and hit others with batons, witnesses said, and in Rome students pelted police with rocks in a protest over money-saving plans for the school system.

International rail services were disrupted by strikes in Belgium and workers in Greece, Italy and France planned work stoppages or demonstrations as part of a "European Day of Action and Solidarity".

"We're on strike to stop these suicidal policies," said Candido Mendez, head of Spain's second-biggest labor federation, the General Workers' Union, or UGT.

More than 60 people were arrested in Spain and 34 injured, 18 of them security officials after scuffles at picket lines and damage to storefronts.

Protesters jammed cash machines with glue and coins and plastered anti-government stickers on shop windows. Power consumption dropped 16 percent with factories idled.

READ MORE:  http://www.reuters.com/article/2012/11/14/us-spain-portugal-strike-idUSBRE8AD00020121114

Yuan spot price per USD hits record high

BEIJING, Nov. 13 (Xinhua) -- The spot price of the yuan against the U.S. dollar rose to 6.2262 on Tuesday, marking a record high since China's foreign exchange reforms seven years ago.

Tuesday was the second consecutive day that the spot price of the yuan against the U.S. dollar hit a record high since China launched its foreign exchange reforms in 2005.

Enterprises and banks have been selling off foreign currencies in anticipation of the yuan's appreciation, pushing up the price of the currency, said Ding Zhijie, an economics professor at the University of International Business and Economics.

In China's foreign exchange spot market, the yuan is allowed to rise or fall by 1 percent from the central parity rate each trading day.

The People's Bank of China (PBOC), the country's central bank, set the central parity rate of the yuan against the U.S. dollar at 6.2891 on Tuesday, the highest since May 9. The central parity rate of the yuan was 6.2865 on May 9, and even lower, at 6.2804, on May 8.  

READ MORE:  http://news.xinhuanet.com/english/business/2012-11/13/c_131971563.htm 

Treasury Quietly Warns: 'Expect Debt Limit to Be Reached Near End of 2012'

(CNSNews.com) - The U.S. Treasury quietly warned at the end of a statement issued last Wednesday that it expects the federal government to hit its legal debt limit before the end of this year--which means before the new Congress is seated--and that "extraordinary measures" will be needed before then to keep the government fully funded into the early part of 2013.

On Aug. 2, 2011, President Obama signed a deal he had negotiated with congressional leaders to increase the debt limit of the federal government by $2.4 trillion. But, now, after only 15 months, almost all of that additional borrowing authority has been exhausted.

Although Treasury revealed in its statement on Wednesday that it was likely to hit the debt limit by the end of the year, Treasury Secretary Geithner failed to respond to a letter that Senate Finance Ranking Member Orrin Hatch and Senate Budget Ranking Member Jeff Sessions sent to him on Oct. 15 demanding that he notify them by Nov. 1 what he believes to be the exact date Treasury will hit the debt limit and the date he expects to begin using "extraordinary measures" to avoid it.

READ MORE:  http://cnsnews.com/news/article/treasury-quietly-warns-expect-debt-limit-be-reached-near-end-2012

Obama May Levy Carbon Tax to Cut U.S. Deficit, HSBC Says

Barack Obama may consider introducing a tax on carbon emissions to help cut the U.S. budget deficit after winning a second term as president, according to HSBC Holdings Plc.

A tax starting at $20 a metric ton of carbon dioxide equivalent and rising at about 6 percent a year could raise $154 billion by 2021, Nick Robins, an analyst at the bank in London, said today in an e-mailed research note, citing Congressional Research Service estimates. “Applied to the Congressional Budget Office’s 2012 baseline, this would halve the fiscal deficit by 2022,” Robins said.

Hurricane Sandy sparked discussion on climate protection in the election after presidential candidates focused on other debates, HSBC said. A continued Republican majority in the U.S. House of Representatives means Obama’s scope for action will be limited, Robins said. Cap-and-trade legislation stalled in the U.S. Senate after narrowly passing the house in 2009.

North American discharges fell 1.3 percent last year amid slowing economic growth. In China, the world’s biggest emitter, greenhouse gases from fuel use rose more than 9 percent in 2011, according to BP Plc (BP/) statistics published on June 13.

READ MORE:  http://www.bloomberg.com/news/2012-11-07/obama-may-levy-carbon-tax-to-cut-the-u-s-deficit-hsbc-says.html

October Jobs Report Shows Incomes Continuing to Decline

One of the negative features of the current economic recovery has been declining incomes of average Americans.

This trend continued in October.

The Labor Department reported Friday that despite 171,000 jobs being added to nonfarm payrolls in October, average hourly earnings for such employees edged down by 1 cent to $23.58.
Average hourly earnings of private-sector production and nonsupervisory employees also dropped by 1 cent to $19.79.

This continues a trend reported by the Census Bureau in August finding that since the recovery began in June 2009, median household incomes have fallen 4.8 percent adjusted for inflation.

Read more: http://newsbusters.org/blogs/noel-sheppard/2012/11/02/october-jobs-report-shows-incomes-continuing-decline#ixzz2BXz8JhUF

Food Stamp Growth 75X Greater than Job Creation

With the latest jobs report, it is now the case that "Under Obama, Food Stamp Growth [Is] 75 Times Greater Than Job Creation," according to statistics compiled by the Republican side of the Senate Budget Committee. "For Every Person Added to Jobs Rolls Since January 2009, 75 People Added To Food Stamp Rolls."

Here's a chart detailing the growth:  (please follow link:  http://www.weeklystandard.com/blogs/food-stamp-growth-75x-greater-job-creation_660073.html)

Since January 2009, as the chart shows, a net of 194,000 new jobs have been created. During that same time, 14.7 million have been added to the food stamp rolls.

"Simply put, the President’s policies have not produced jobs. During his time in office, 14.7 million people were added to the food stamp rolls. Over that same time, only 194,000 jobs were created—thus 76 people went on food stamps for every one that found a job," says Senator Jeff Sessions, ranking member of the Senate Budget Committee. "This is a product of low growth. Post-recession economic growth in 2010 was 2.4%, and dropped in 2011 to 1.8%. This year it has dropped again to 1.77%. Few, if any, net jobs will be created with growth of less than 2%."  

READ ENTIRE ARTICLE W/GRAPHICS: http://www.weeklystandard.com/blogs/food-stamp-growth-75x-greater-job-creation_660073.html

Don't be Misled: Delaware is Not Number 1 in Education

Let’s be clear, Delaware was Number 1 in line for Race To The Top (RTTT) for money - not performance.

 

A recent television commercial would have us believe Delaware is Number 1 in education. Delaware achieves a C+ and ranks about 22^nd in the country.

 

Proficiency of Delaware pupils in fourth grade English is 35% and math 31%, eighth grade English is 36% and Math 32%, and an average SAT score that is 44^th among states - - plus a very poor showing as a country that ranks17^th  among 30 nations rated for education performance.

 

More disturbing is the lack of conversation about education by both parties in the 2012 Election. At least this particular commercial acknowledges education even though its misguided emphasis is on spending rather than effectiveness.

 

The lack of conversation is beyond disturbing for the over promised Black, Hispanic and a low income communities who consistently underperform by two to three grade levels in all categories. This low performance leads to high dropout rates, unemployment, crime, teen pregnancy, dependency and public assistance.

 

The lack of transparency with how RTTT money will be spent makes it difficult to determine effectiveness just as it has been with any of the others in a long list of  spending programs that have not improved performance but have increased the cost of education. What is clear is that RTTT funds run out in 2014.

 

States that are making progress have strong political leaders willing to confront special interest groups like the union that resist the change from the industrial model to a choice model that gives parents in all income levels the freedom to choose the best education and secure a bright future for their child.

 

The political conversation in Delaware must include transparency and accountability.

 

This fall, you have an opportunity to influence politicians when they not only want but need your support.

 

Ask them:

 

• How much of RTTT money will make it to the classroom?

 

• How will this round of spending improve the performance of my child?

 

• How will we know what isn’t working and how will we know the dollars have stopped flowing to these programs?

 

• How much will RTTT cost taxpayers of Delaware after 2014?

 

It is important to inform yourself and ask questions.

 

It’s your child. If you don’t, ask who will?

 

James E. Hosley

Director, Center for Education Excellence

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