There was never any doubt that a deal would be done before Armagedon. The question was: what kind of deal. The Presidenbt got what he wanted: more borrowing room during a time frame that included his possible re-election. The Tea Pary got what it wanted: no new taxes and considerable cuts in spending. The Democrats got a new committee that will structure how the cuts will bite and even get some input on new revenues. The Democrates were the big losers in that there may be some considerable cuts in programs that they consider fundamental to Democratic ideology. For that, Obama may pay the ultimate price. Some Democrats may move away from supporting him and some undecided but left leaning moderates may swing the other way. The only saving grace is that the Republicans have mounted, so far, an exceedingly weak candidate list. A strong candidate could change the calculus significantly.
Wall Streed reacted with a sell off of healthcare and pharmaceutical stocks. Cuts to Medicare will have a profound effect on this sector. There is slmost no doubt that most doctors will no longer take Medicare reimbursement and charge full fare to the elderly. Medicade will suffer the same fate. So the poor and the elderly will be big losers.
Spending cuts, be they military or otherwise, will have a negative effect on job creation. There will be considerable downsizing of industries that were, previously, dependent on government spending. This at a time when the US desperately needs new jobs. The government will have to curtail its spending on stimulus items such as infrastructure spending. This will cost jobs as well. So, I think that the deal that was done on the spending side will get no traction in helping a recovery of the US economy.
One of the items that was not discussed is how to liberate the trillions of dollars that are locked up in corporate treasuries. Most of these funds are held offshore and suffer a tax penalty if they are brought back into the US. Bringing these funds home through a a reform of the tax legislation would do more for job creation than any money that the government can spend. Canada repatriates foreign source active income at no tax cost. The US should follow suit.
Think of it. There is really not much a government can do create jobs. In the short term they may build a few roads or airports but once these funds are expended the jobs usually go away. It is true that these funds work their way through the economy and give about a three for one boost to peripheral business. However, most small businesses cannot hire unless inventories and accounts receivables can be financed. Most of the banks in the US refuse to lend to small business. So, the only thing that spending cuts can do is to take money out of the economy and create a large degree of uncertainty that business translates into no jobs.
Today the US stock exchanges spoke truth to power. An over 200 point drop in the Dow was the report card that the economy sent to the politicians. An F-. Because the government borrows 40 cents on every dollar it spends it will still rely heavily on borrowing from foreign lenders, viz the Chinese. The Chinese cannot get the warm and fuzzies when they look upon the pitiful performance of both houses of Congress and the President. The US government can't borrow its way to prosperity.
What the US needs is the kind of government that forms in wartime--a coalition of both parties and the President for the welfare of the state at large. That is not likely to happen given the current state of American politics. Until then get used to many minus 200 point days on the Dow.
No comments:
Post a Comment