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Friday, December 21, 2012

Mayans Forecast Boehner Fail?

 

 

Is it possible that the Mayans, in their infinite wisdom, somehow anticipated that Boehner would fail to bring any legislation that might patch the cliff? The Boehner “fail” happened last evening, it was already 12/21 in Asia. So far, the Mayans’ timing for the Beginning-of-the-End is spot on. The cracks in the system have been spreading ever since the fateful no-vote in Congress last night. At this point, we are faced with the very real prospect that those cracks will get longer and wider in the next few days. If this happens, people will start falling into the widening rifts.

 

I have watched, read and listened to almost all of the endless discussion on the topic of the cliff. I’m convinced that there is not a single commentator that has properly evaluated the economic consequences of failure to address the deadline that is now just days away.

 

All the analysis I’ve looked at considers the consequences to the 2013 economy of changing tax rates and reduced spending that will occur if no deal is reached. But this does not include the consequences of the retroactive tax increase for 2012 that will take place.

 

I wrote about this on November 14 (Link). To repeat, if we go off the cliff, as many as 60 million taxpayers will be forced to file a separate Alternative Minimum Tax form (unbelievably complicated). Of the 60 million, as many as 33 million will be faced with a higher 2012 tax bill. This will result in some folks digging into their pockets to pay Uncle Sam the extra $3,000 to $4,000 this will cost (a disaster for some). Others, will get a smaller refund that they think they are due (bye-bye to that trip to Disneyland). The numbers are big. The “surprise” 2012 tax that the cliff will bring comes to a very lumpy $100-120 Billion.

 

The drag from the 2012 AMT look-back will be felt in the first quarter. It will “feel” as if this is a 2.5% reduction in 1stQ GDP just from the AMT. By itself, the retroactive AMT tax will produce negative economic growth. ADD to this, the fiscal consequences that kick in on 1/1/13. If spending is adjusted by this much, it will translate into fall in economic activity in excess of 4% in the 1stQ.  If the year gets off to such a dismal start, the US will face a technical recession in the first half of the year, the full year will be lucky to breakeven.

 

A very steep drop in activity in the USA for the next three-months is not in the market’s mind today. It’s as if investors have forgotten that Europe and Japan are already in recession and China is still a question mark. Now we face the prospect of a very hard landing for the US.

 

Maybe the Mayans had it right all along…..

 

Comments

  1. good point. nobody else i know of has pointed this out.

    i stick with my original forecast.

    there will be a deal eventually and it will raise taxes and the any cuts in spending will be as phony as a three dollar bill. I guess i don’t exactly have to be a genius to make this forecast, because its what they always do.

  2. Agree on the risks. Curious, though, that you chose to suggest that a trip over the cliff will be a Boehner fail. Apparently you don’t consider Obama’s opening stonewall as to earners of more than $250,000 a fail. Libs like to try to blame GWB for what happened during the last two years of his second administration when he faced Dem House and Senate. Obama has a Dem Senate, but you blame the Speaker of the Rep house? Disappointing at best.

    • Obama has always identified himself as a victim of some vast conspiracy. He has never taken personal responsibility. That is why he is only president on paper. Real leaders take command and lead their entire group to a better position (not just the extreme right or the extremist left, like the last two wanna-be presidents).

      Mr Krasting is just mindlessly parroting the media — except for Fox news, the media makes no effort to conceal their extreme left wing bias. Another EPIC FAIL on your part Bruce.

      Lets be honest here — this inability of the US government (ALL OF IT) to live within their means is the result of failed leadership across the board. Raising $40 billion of new taxes on “the rich” as Obama wants is not going to solve a perennial (on-going) $1.3 trillion spending deficit that is expected to grow as the baby boomers “retire”. Mr Obama is numerically illiterate, lying or both. Mr Boehner talks a big game about cutting spending (yeah!!) but then he has no specifics. Some vague ten year plan that someone with more cahones than the current losers is going to do something sometime in the future. He wants to “lead us” to follow something, sometime by someone else? WTF? Neither of these idiots is qualified to lead a group of children into an ice cream store.

      Lets say we somehow beam both Obama and Boehner off to whatever Mayan doomsday spaceship… is there anyone outside Washington DC actually gullible and stupid enough to believe the rest of these crooks would do the right thing? Two idiots (one from each party) were on the TV this morning, both of them throwing a temper tantrum because the other side wouldn’t give them everything they wanted, and of course both of them blamed the other side. If these were 3 year olds, we would send them to their rooms

      Debt growth is not real growth — that’s how we got into this mess in the first place. None of these crooks has a plan to put the USA back on track to real growth.

      Shame on Bruce and the crooks in Washington for putting politics above country.

  3. @Bubba – “Mr Krasting is just mindlessly parroting the media — except for Fox news, the media makes no effort to conceal their extreme left wing bias. Another EPIC FAIL on your part Bruce.”

    “Except for Fox” the media is biased?

    Can’t dispute that the media is hopelessly biased and politicized (ALL OF THEM). Shameful that Bruce is mindlessly parroting what the left wing networked told him to think. But Fox is unbiased?

    • @Rob — of course you are right… Fox is very biased to the right; I kind of thought that was a given

      The rest of the media is under the delusion that they are not also biased. They are all part of the general leadership crisis facing the country

  4. How can you call it Boehner’s fail? He moved much more than the opposition’s leader. This is the failure of congress to fulfill it’s constitutional obligation to pass a budget for the past 4 years.

  5. Increasing taxes on those over 250K is just a start. I’d bet an attempt will be made to lower that number.

  6. BRUCE, I hope you read this.

    Looks like your idea of the treasury getting involved in mortgage modifications is coming true.

    “Market Rate Modification Program,”

    “Significantly Underwater Borrowers” that is current on mortgage payments, they’ll need to do is provide a hardship affidavit with the loan application which is meant to prove a “reasonably foreseeable default” under mortgage securitization rules. And this would supposedly satisfy investors who might otherwise prefer their higher original yield. Each month during the five years after the modification took place, the Treasury would pay loan servicers the difference in interest between the borrower’s old rate and new. After the five years are up, the Treasury would stop compensating servicers, regardless of whether said loans were above water or not, and the borrower’s interest rate would remain at the lower rate

    http://www.mortgagenewsdaily.com/channels/pipelinepress/12202012-reverse-mortgage-libor.aspx

  7. Bruce, it is still possible this is what Congress and the Administration wants. It flips the debate on taxes. Instead of deciding what deductions to reduce and how high to raise rates, the AMT kicks in. Everything changes and the decision is then what deduction do we put back in and what rates do we choose. The lobbyist have a much more difficult task. This is a point Senator Coburn (r OK) has made.

  8. The problem with going over the Cliff is that Obama will get his tax increase and he will thereby veto any legislation going forward that will attempt to restore the Bush tax rates. The question is will people finally put the blame where it belongs? How long can this moron keep getting a pass from the voters? Its pathetic beyond belief.

  9. Major:
    You are so right. This President has redefined the term “teflon”. Benghazi massacre? That’s Hilary’s fault. Fiscal cliff? Of course, Boehner is to blame. Mortgage/banking crisis? Silly you, that was all Bush’s fault. Don’t you get it? The “Great One” has gotten where he is on the shoulders of someone else. That’s why, it is quite ironic when he uses the term, “you didn’t build that” because the very same charge can be levelled against him. He did not become President on his own merits, he was coddled and enable all along the way by all the affirmative action, guilt-ridden quota systems that liberals have constructed for us. Ain’t that just great?

    C.

    • When did four dead Americans equal a massacre? Talk about re-definitions!

      • Obama bin Biden says:

        If the dead were your family members, you’d regard it as a massacre. If not, then you’d accept the pablum coughed up by the Obama Administration about some obscure film on YouTube having caused riotous outbreaks throughout the Middle East.

        Can you imagine Dubya covering up the treatment of detainees at Abu Ghraib the way Obama covered up the death of a US ambassador in Libya?