more on the cliff

Stocks down again yesterday but interestingly bond yields up a tad, dollar down a tad, oil and metals up, and even long BMA ratios holding steady, etc.

The cliff isn’t nearly as large and threatening as the debt ceiling cliff would have been in 2011 if that thing hadn’t been extended, and we’d gone cold turkey into an immediate and forced balanced budget. But that event is the stock market’s ‘recent memory’ of stock market reaction functions.

And this time GDP is being supported by a private sector credit expansion/housing expansion, with private debt service ratios substantially lower due to cumulative federal deficits adding to nominal ‘savings’. And the federal deficit remains well above 5% of GDP, which historically has been more than enough to reverse a recession.

And then there’s the election factor. Post election I’m hearing (anecdotally) distraught Romney supporters thoroughly convinced the President is a ‘socialist’ bent on destroying capitalism, taxing the rich ‘job creators’ and giving it to what Romney called ‘the 47%’ dependent class, etc. etc. etc. Merits of this ‘belief’ aside, it looks to me it’s driving portfolios to shift out of equities. However, if not supported by an actual decline in earnings, which is how I see it, it’s all a case of ‘pushing on a spring’.

Yes, the euro zone is a problem, with Q3 GDP just reported at -.1%. But that’s an ‘improvement’ from q2’s -.2% as larger deficits are acting counter cyclically to cushion the austerity driven decline. And Rehn was just quoted on Spain favoring not adding to austerity measures, perhaps indicating a move to ‘let it be’ for a while, which will allow GDP to stabilize at modestly positive levels.

And China is no longer going backwards, so that negative has been reversed as well.

Back to the cliff, in fact letting tax rates go up for high income earners should have little effect on GDP, as the marginally propensity to spend for that segment is reasonably low. (of course that means there’s no point in taxing that income in the first place, but that’s another story). Nor does it mean investment or employment will suffer since investment is driven by sales prospects. And with higher tax rates, and business expense tax deductible, the after tax cost of investment goes down with higher tax rates. For example, in the 70’s, when my tax rate was around 70%, I clearly recall making very high risk investments figuring it was better than giving 70% to the govt. Point is, taxing income and savings that isn’t going to be spent is about social engineering, and not ‘funding the deficit’ or altering aggregate demand, and is intellectually honestly framed as such. So point here is, I score the effect of raising the highest tax rates at 0 regarding aggregate demand.

This all supports my take that the stock market has over discounted the cliff, partly for ideological reasons, partly due to the recent memory of what stocks did during the debt ceiling debacle, and partly from fear of what’s going on in the rest of the world.

So as we get through it all with modest top line and earnings growth continuing, I’m looking for valuations to quickly return to at least where they were before the election.

Whitney Tilson: ‘I Love the Fiscal Cliff’

A bit of equal time for the Democrats, as they join forces with the Republicans to hike unemployment and lower GDP, with all forecasters in agreement.

But I do thinks markets and the economy have already discounted at least most of it:

Whitney Tilson: ‘I Love the Fiscal Cliff’

By Bruno J. Navarro

November 9 (CNBC) — The so-called “fiscal cliff” is a good thing for Washington because it will force both Democrats and Republicans to cede ground on core issues, Whitney Tilson of T2 Partners said Friday on CNBC.

Tilson, a supporter of President Barack Obama and fundraiser for his re-election campaign, said that he expected resolution of the “fiscal cliff” would involve increasing taxes and eliminating deductions, as well as one important area: “Democrats are going to have to touch the third rail for them, which is entitlements, and Obama, I think, is willing to do that,” he said on “Fast Money.”

“Every Democrat I talked to is willing to do that, but only in the context of Republicans giving on the tax and deductions side aimed more at wealthiest folks in this country who are the ones that can afford to give more.”

USVI Election results

Unfortunately, looks like a clear case of election fraud.

These results were nowhere near the surveys I saw and I got less than half the votes as last time even as it was clear a lot more people were voting for me and the anti incumbent atmosphere was intense.

And as the votes came in her % stayed the same throughout.

Will know more soon.

:(

USVI election update

I was told a recent poll of 300 showed:

Democrat incumbent: 48%
Warren Mosler Independent MMT candidate: 42%
Total others- Republican, Green, Indenpendt: 10%

And ‘momentum’ moving my way as my % has been continually rising.

Down here you need to get 50%+ to win, anything less triggers a runoff, where I’d be favored.

Looking forward to Tuesday, but starting to feel like I’ve volunteered for Afghanistan…

Many thanks to all the contributors!

And still time to send in a few bucks if you want to be part of the cause- will increase the advertising that much more thanks!

Best!
Warren

Mosler for Congress

FedEx Says Economy Is Worsening, Cuts Outlook

Not a bad indicator. Might be we’re already starting to go over the fiscal cliff. Probably a lot of contracts delayed pending congressional approval. And the anticipation of higher taxes and lower demand doesn’t help either.

Fortunately for Obama, Romney’s moved the debate away from the economy.

Good news down here is our highly informal polling shows me at 50%+ in my Congressional race! Looking forward to straightening them all out in DC!
;)

FedEx Says Economy Is Worsening, Cuts Outlook

September 18 (Reuters) — FedEx lowered its fiscal 2013 profit target on Tuesday, saying earnings could slide as much as 6 percent for the year, as a weakening world economy prompts customers to shift toward lower-priced and slower shipping options.

The world’s second-largest package delivery company said it now expects profit for its fiscal year, which ends in May, to come to $6.20 to $6.60 per share, below its prior forecast of $6.90 to $7.40 a share.

Wall Street had expected a full-year profit of $7.03 per share.

FedEx’s shares fell 2 percent in premarket trading from Monday’s close on the New York Stock Exchange.

“Weak global economic conditions dampened revenue growth (and) drove a shift by our customers to our deferred services,” Chief Financial Officer Alan Graf said in a statement.

Ryan and Greenspan on Social Security

If any of you know Mr. Ryan kindly remind him of this exchange, thanks:

PAUL RYAN: “Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?”

ALAN GREENSPAN: “Well, I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”

Republicans Eye Return to Gold Standard

Just when you think it can’t get any worse:

Republicans Eye Return to Gold Standard

By Robin Harding and Anna Fifield

August 23 (FT) — The gold standard has returned to mainstream U.S. politics for the first time in 30 years, with a “gold commission” set to become part of official Republican party policy.

Drafts of the party platform, which it will adopt at a convention in Tampa Bay, Florida, next week, call for an audit of Federal Reserve monetary policy and a commission to look at restoring the link between the dollar and gold.

The move shows how five years of easy monetary policy — and the efforts of congressman Ron Paul — have made the once-fringe idea of returning to gold-as-money a legitimate part of Republican debate.

Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of the platform committee, said the issues were not adopted merely to placate Paul and the delegates that he picked up during his campaign for the party’s nomination.

“These were adopted because they are things that Republicans agree on,” Blackburn told the Financial Times. “The House recently passed a bill on this, and this is something that we think needs to be done.”

The proposal is reminiscent of the Gold Commission created by former president Ronald Reagan in 1981, 10 years after Richard Nixon broke the link between gold and the dollar during the 1971 oil crisis. That commission ultimately supported the status quo.

“There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity,” said Sean Fieler, chairman of the American Principles Project, a conservative group that has pushed for a return to the gold standard.

A commission would have no power except to make recommendations, but Fieler said it would provide a chance to educate politicians and the public about the merits of a return to gold. “We’re not going to go from a standing start to the gold standard,” he said.

The Republican platform in 1980 referred to “restoration of a dependable monetary standard,” while the 1984 platform said that “the gold standard may be a useful mechanism”. More recent platforms did not mention it.

Any commission on a return to the gold standard would have to address a host of theoretical, empirical and practical issues.

Inflation has remained under control in recent years, despite claims that expansion of the Fed’s balance sheet would lead to runaway price rises, while gold has been highly volatile. The price of the metal is up by more than 500 per cent in dollar terms over the past decade.

A return to a fixed money supply would also remove the central bank’s ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment over time.

My comments on my Jan 2003 ten year outlook

>   
>    Posted By Warren Mosler on January 15, 2003 at 13:04:00:
>   
>   Here’s what’s being set up.
>   
>   1. Bush tax stuff is way too small to turn the economy.
>   
>   2. Over the next 24 months the economy weakens as the deficit grinds its way to the usual
>   5% of gdp or more – $500 billion + – mainly through falling revenue as unemployment
>   rises, corporate earnings wither, etc.
>   

A month or so after this was written I met with Andy Card, Bush’s chief of staff, and told him much the same. He got it and they took immediate action to increase spending and cut taxes. It was shortly after that meeting that Bush was asked about the deficit and said he doesn’t look at numbers on pieces of paper, he looks at jobs, and did all he could to make the deficit as large as possible. It got up to 200 billion for Q3 or about 800 billion annually; enough to turn the economy enough to not lose the election.

>   
>   3. Hillary Clinton wins the Presidency by a landslide promising to increase taxes on the
>   rich to assist the poor and balance the budget.
>   

I forget why she didn’t run and/or lost to Kerry?

>   
>   4. After the innaguration the program gets passed while the federal deficit remains around
>   $600 billion.
>   
>   5. The economy recovers as it always does after a couple of years of 5%+ deficits restore
>   non govt net financial assets/savings/aggregate demand.
>   

This is pretty much what happened under Bush.

>   
>   6. Once again the Clintons ‘prove’ balancing the budget is good for the economy and win
>   two terms.
>   
>   7. Half way into her 2nd term the strong economy drives the budget into surplus further
>   proving Clintonomics.
>   

This happened under Bush as the strong economy driving by private credit expansion took the deficit down to 1% of GDP by mid 2006. Unfortunately the expansion included the sub prime fraud which was seriously unsustainable.

>   
>   8. The next president is Hillary’s VP who gets the votes counted in his favor this time.
>   
>   9. This next president gets clobbered with another economic downturn caused by the
>   previous surplus, and the federal budget goes into deficit.
>   

It happened during the last few months of the Bush administration. And Obama did get clobbered by it.

>   
>   This time they aren’t ‘fooled’ by Bush style tax cuts anymore, and try instead to again raise
>   taxes on the rich to assist the poor and balance the budget, but they do it too soon, before
>   the deficit is large enough to turn the economy, and it gets much worse.
>   

My timing was far from perfect, but not terrible for a 10 year forecast?
Any other 10 year forecasts from back then on record?

Romney Says Paul Ryan to Be His Republican Running Mate

A very hard right turn.

The right doesn’t like Romney, but would have voted for him any way just to thwart Obama. And, if anything, the right sees this as a Ryan ‘sell out’ which he’ll strive to show otherwise, hardening his positions on ‘fiscal responsibility’ and the rest.

What this does do, however, is frighten the ‘left’ that had abandoned Obama into now turning out to vote for him.

That is, this creates an anti Romney that hadn’t previously been there.

Romney Says Paul Ryan to Be His Republican Running Mate

August 11 (Reuters) — U.S. Republican presidential candidate Mitt Romney on Saturday said he has selected Congressman Paul Ryan, 42, as his vice presidential running mate.

Romney, the presumptive Republican nominee, announced that he has tapped the House of Representatives Budget Committee chairman at an event in front of the retired battleship USS Wisconsin – coincidentally named for Ryan’s home state.

The announcement marks the end a months-long search by Romney for a running mate to join him in facing Democratic President Barack Obama and Vice President Joe Biden in the Nov.6 election.