Well, it appears if you are watching the TV about now, that Boehner walked out of the debt ceiling talks after President Obama apparently sprung a $400 billion tax increase "surprise" on the discussions at the last minute.
The problem is that we were told the numbers were somewhere around 2:1 or even higher on tax cuts .vs. tax increases. History, however, says that the tax increases come immediately and the spending reductions never. With the "surprise" it was close to 1.3:1 - essentially, trying to get rid of the spending reductions by increasing taxes instead.
But let's be straight on this: Even if that deal was negotiated, it still wouldn't matter as it amounts to less than $300 billion in change to the deficit annually and is thus less than ONE FIFTH of the size it must be to close the gap.
$3 trillion over 10 years also won't prevent a downgrade, if you believe S&P. Of course if you don't believe their threat is real then none of this matters.
I, incidentally, believe it's real but not because S&P will downgrade - if they don't the market will, and that's just as bad at the end of the day if not worse.
Next week is going to be very interesting, and the "interesting" is likely to start Sunday night when the futures reopen for trading. I don't expect a big drop at the open absent something ugly out of Europe over the weekend, but clearly the pressure will ratchet up all week, since next week is pretty much "do it or don't" time.
Incidentally, while many will say that "don't" is not an option, it most-certainly is. Doing nothing would force an immediate 40% spending reduction. This would, in turn, result in a roughly 12-15% GDP contraction (and maybe as much as 17-18%.)
But despite what people are trying to BS you with in this regard, the fact remains that we're in this reality right now, whether the government is covering it up or not - and they are.
No comments:
Post a Comment