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