WHAT THE SUPERCOMMITTEE’S FAILURE MEANS
I touched on this yesterday, but it’s important to put some figures with the broader facts. The supercommittee’s failure means there is now a substantially higher chance of the payroll tax and unemployment benefits expiring. As Goldman Sachs notes, this could have a material impact of -1% on GDP. In an environment of meager growth, this might just be enough to push us into official recession. More via Zero Hedge:
“Super committee failure means that (1) there is greater risk that the payroll tax cut expires, though there is still a chance this could be attached to a year-end spending bill; (2) spending cuts in 2013 will be more severe than they would have been under a super committee agreement; but (3) spending in 2012 will remain unchanged versus previous expectations.
…The payroll tax cut and emergency unemployment benefits expire at year end, unless Congress acts to extend them. The most obvious means for extension has been inclusion in the super committee package and failure to reach agreement has reduced the likelihood of extension of these provisions, for two reasons: (1) offsetting the cost of a payroll tax cut ($110bn/yr) and/or emergency unemployment benefits ($50bn/yr) extension is more difficult to do outside of the super committee process, where “creative accounting” such as the use of war savings would have been more easily tolerated by both parties, and (2) the political debate is likely to get more acrimonious following super committee failure, which could make it more difficult to agree on other items.”
As I posted here (Roubini’s party announcment) 3Q GDP revised down to 2%. roubini said 1.5%, we’ll forgive him for that:-)
That’s a really useful table. I didn’t realize what a drag Federal and State spending has been on GDP.
I believe it’s their lack of spending that is dragging growth. Spending more (a la 2009) would push those numbers into the positive. I read the chart as mitigating damage.
Sorry, yeah, I did mean the degree to which the *lack of spending* has been the drag.
Take a look at YTD equity returns US and world (lower in table) you will see that us is down less than 3% and elsewhere it is down close to 20%. it is true that the us may be the cleanest dirty shirt but there is room for some staining. What I am trying to say is that you may see other markets bouncing up a bit and that does not necessarily means the us will go up/won’t fall.
http://news.morningstar.com/index/indexReturn.html
No worries, folks. There is still around $200 billion of room left under the current debt ceiling, plus an additional $1.2 Trillion of borrowing authority even in the absence of a deal. So I wouldn’t expect any debt ceiling shenanigans in the near future.
Unfortunately, my gut tells me the tax cuts will be endorsed but not without a fight to pay for them someway and the unemployment benefit extension will not get endorsed. The latter is because of the Republican stance that there are jobs out there………this is the road to social unrest. But it had to start sometime.
Sounds right to me. Good (though bad) observation…
YTD the S&P is off about 5%. What ever happened to the pre election cycle? All the experts were looking for the market to be up 10-15%. Wrong !!!
The same experts were looking for the 10 yr to blow out to 5% two years ago. Wrong !!!
The experts also thought the Jets vs Tim Tebow were a lock last week. Wrong !!!
I’ll listen to Bob Farrell when all the experts agree the opposite usually happens. Were in Deflation and Income is paramount. Wake up people !!
Come on guys, when have you seen a govt. program that was done efficiently and that improved society? Well, at very LOCAL levels, yes. Why? because the actors were local and KNOWN and you could influence the outcome yourself.
Big govt. has the same basic problem as communism. We practice communism in our families. From those who can, provide; to those who need, accept. Why does it work? Because it is a small group and everyone is interactive.
When you excede a few dozen people, there is mistrust.
Small govt is good govt.
Highway system? Social Security? Medicare?
Anyway, if you like small government more than bigger one, great! Call up your Congresspeople, tell them to hang the stupid counterproductive deficit-hysteria and give you your gosh-darned tax cuts.
Obama White House: A Div. of Goldman Sachs
nice summary here
http://www.economist.com/blogs/freeexchange/2011/11/austerity-auto-pilot