Bloomberg’s Tom Keene: What are you watching this week in the bond markets?
Pond: Well, one of the things that we’re watching is the payroll tax extension, and the signals that we’re getting from Washington as to whether we get that extension. Because if we don’t, our growth forecast frankly will probably be dropped down from about two and a half percent in Q1 down to around one percent. It’s that big…
Keene: Woah, say that again. That big a number?
Pond: It could have that big of an impact if we don’t get the payroll tax extension. The unemployment benefit extension is also important, but it’s the payroll tax extension that’s worth about $250 billion to the economy…. If consumers need to pay more tax, they’ll spend less. It’s really as simple as that.
The problem is, this is just what the Republicans want – another Christmas hostage. The GOP cannot admit that a Democratic proposal is helping the economy to this degree, and politics – and especially next years election – is more important to the Republicans than the well-being of our economy or our citizens. They’re willing to take hostages in the expectation that our President will blink. Which only motivates them to take more hostages in the future. Will the President blink? He says he’s had enough of the GOP’s games, and he’s certainly singing a new tune, in terms of finally fighting back hard against the GOP and calling them out by name. The battle over the payroll tax extension may be the President’s first big test in putting his new approach into action.
(H/t Greg Sargent)