Fiscal cliff update, the latest news

NBC News:

NBC News has confirmed that Obama and Vice President Joe Biden will meet with House and Senate leaders on Friday afternoon to try to revive negotiations to avoid tax hikes and spending cuts — together worth $600 billion — that will otherwise begin to take effect on Jan. 1.

Whether or not you agree with President Obama’s fiscal cliff position of offering up cuts to Medicare, it’s hard to argue that the President is not on the more adult side of this discussion.

Obama would be wrong to offer any cuts to the social system, since the deficit and debt is mostly the Republicans’ making (see: wars and tax cuts), but the GOP position is beyond crazy. Then again, crazy is exactly what the GOP base has become.  And that base wags the GOP dog.

During the last budget discussions, it was the Tea Party the forced today’s predicament of imminent budget cuts and tax increases taxes. They’re also so completely nuts that they would all rather raise taxes on 98% of the population, just so they can continue to defend the 2% who have profited the most from the reckless tax cuts that are actually a large part of the problem in the US.

And in any case, Caroline Baum of Bloomberg argues that the fiscal cliff has already come, and that it may not be such a big deal:

Here’s what I’m wondering. The economics profession worships at the altar of rational expectations theory: the idea that our behavior is based on expectations about the future, so the future is now, so to speak. It’s what drives the Federal Reserve’s communication policy. Policy makers believe that pledging to hold the overnight rate at close to zero until a certain date (old testament) or specific unemployment threshold is reached (new testament) will accelerate the economic recovery.

I have lots of issues with expectations theory. But if academics are correct, and the public expects the U.S. to go over the fiscal cliff, why is going over it such a big deal?

The thing is, the immediate impact of falling off the cliff may not be as draconian, as the long-term effects, that will worsen as the cliff-falling continues. The longer we fall, the longer that spending is cut, and the more demand sucked out of the economy.

And consumer confidence is already declining.  Some blame fears of the fiscal cliff for reports of a somewhat lackluster Christmas retail spending – Black Friday numbers were weak too this year. Others argue that spending was stronger than people think.

fiscal cliff panic

Panic via Shutterstock.

Wall Street is already starting to fret over a possible plunge over the fiscal cliff.  But seriously, have you ever seen a bigger bunch of nervous nellies then these guys on Wall Street?  No matter the crisis (or perceived crisis), Wall Street panics before the rest of the country.  For guys with such huge paychecks and bonuses, they sure do come off as a bunch of whiners.

OPM is already preparing for federal government furloughs.  And it’s not at all clear if furloughed employees will be paid for the time they’re forced to stay home.  And while that may sound nice, having a multi-week vacation, it’s really not if you suddenly lose your salary that month and are already living paycheck to paycheck.  And that will be an even greater hit on the economy.

The Republicans have always been there to defend those least in need, and now they’re not even hiding the fact. It’s all about rescuing the richest of the rich who have enjoyed the profits of the bad economic policies that started during the Reagan years.

Is it any wonder that Americans think much better of Obama and Democrats than Boehner and Republicans during this debate? For Republicans, though, it almost doesn’t matter. They’re more interested in sticking to their pledge of “I didn’t raise taxes,” rather than helping 98% of Americans.

Even worse, thanks to gerrymandering, the Republicans have little to worry about for the next ten years. As Nate Silver wrote about this week, there are fewer “swing” districts in play compared to the past, so the prospect of Republicans losing control of the House any time soon is increasingly remote.

An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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