The problem is too much short term thinking by the politicians. When the crisis began, the people in charge for the government were either investment banker alumni or those wishing to be investment bankers. Therefore, they saved the banks and the crooks who ran them. It was “Field of Dreams” logic. If we save the banks and promise not to prosecute the criminals, the banks will pull us out of the slump. Well, three years on and counting, it hasn’t happened. The same money devoted to infrastructure repair and enforcement of the existing trade laws would have left us in vastly better shape than we are.
the U.S. economy may need to go over this fiscal cliff and address some structural issues, or face other cliffs on multiple fronts if this imminent one is avoided.
And if the just released Gallup unemployment data is any indication, the amount of outright goalseeking by the fine folks at the BLS was nothing short of startling. Because after recording an adjusted unemployment rate of 7.4% in October, the November unemployment rate, based on a random sample of 29,308 adults, soared by a whopping 0.9% in one month to 8.3%, the most since the Great financial crisis itself! And furthermore, at 8.3% the unemployment rate is now the highest since May. Is it time yet for all those sellsiders to admit they were wrong weeks after producing beautiful pitchbooks of how 2013 will be “different this time” and the economy will soar? Or should we wait a few weeks first?
The unemployemnt rate per Gallup:
Reducing U.S. long-term deficits will inevitably cause economic pain, former Federal Reserve Chairman Alan Greenspan said.
“The presumption that we’re going to have a painless solution to this, I think, is fantasy,” Greenspan said Thursday during a “Bloomberg Surveillance” television interview with Tom Keene. “There are a lot of risks out there but the one thing I can be reasonably certain of is we won’t get through this whole issue without some pain.”
The U.S. faces twin fiscal challenges with more than $600 billion of spending cuts and tax increases scheduled to hit at the beginning of next year, threatening to send the economy into an austerity-induced recession, even as rising long-run deficits may prove unsustainable.
The Collapse Is Getting Even Worse: Goldman Slashes Q4 GDP Forecast To Just 1%, US Households Breached Their Debt Ceiling, Citigroup To Cut 11.000 Jobs As ADP JOBS REPORT FALLS TO 118K, And Britain’s Biggest Retailer Is Ready To Abandon Its US Expansion
Trim Tabs’ Charles Biderman states that the US economy will be immediately negatively impacted by higher taxes– with or without a fiscal cliff deal. He states the best deal we can expect will raise taxes by around $200 billion,which would result in an annualized 3% drop in after tax take-home pay! If no deal is reached, taxes will increase by $500 billion, which would result in a whopping and incredible 7.5% drop in after tax take-home pay for Americans! Biderman states this massive cut in American’s take-home pay will DEVASTATE both the US and global stock markets!
Biderman’s full update below:
Tangent Capital Partners Senior Managing Director James Rickards talks about the global currency war.
The primary market forces remain in play.
The markets are holding up on hopes of additional stimulus from the Central Banks. Some bulls are even calling for QE 4 at the upcoming Fed meeting, despite the fact that QE 3 was launched a mere three months ago and was open-ended (meaning it would not end until the Fed deemed it time).
This is extraordinary and proves point blank my concern that we’d reach the point at which additional monetary stimulus would no longer having a significant impact. This was always the End Game for the Fed’s response to the financial crisis: that by intervening as much as it did, eventually we’d get to the point that even extreme interventions had little if any impact.
2013 is shaping up to be an absolutely hellacious year. We have:
- The EU’s banking crisis.
- A global economic contraction.
- The implosion in corporate profits.
- Heightened inflation from the Fed’s money printing.
The counterparty risks and domino in this market are enormous.
Dec. 5 (Bloomberg Law) — The unregulated multi-trillion dollar derivatives market exceeds global GDP and poses a clear danger to the global economy, Chris Whalen, Senior Managing Director at Tangent Capital Partners, and Barry Ritholtz, CEO at Fusion IQ, tell Bloomberg Law’s Lee Pacchia.
“The fix is very simple,” says Ritholtz, “repeal the Commodities Futures Modernization Act and suddenly this becomes like every other financial instrument.”
Whalen notes that the financial industry is reluctant to change the way derivatives are managed because they generate large returns at a time when banks are less profitable than before. “The super normal returns that they earn from derivatives subsidize the rest of the business,” he says.
One way or the other, Ritholtz and Whalen believe the financial industry needs to get used to the idea of making less money.
Margin Debt Rises To 18 Month High As Net Free Credit Plunges To -44 Billion: Keep The Margin Calls Away
…Today we get the October data, and find that things have gone from bad to worse, because Margin Debt rose once more, this time to $318 billion, the highest in a year and a half, but more troubling is that Net Free Credit (i.e. real disposable cash to meet margin calls) sank even deeper into the red, at a whopping ($44) billion, the lowest since the summer of 2011.
This simply means that like last month, if and when the margin calls start coming in, speculators will have no choice but to commence liquidating levered positions as there is simply not enough cash to fund capital losses. Which probably explains the resilience of the S&P: one or two 1% down days and Congress will get a far greater impetus to get a Fiscal Cliff deal done. Which, paradoxically, is precisely what needs to happen.