No Spending Problem

It's a quiet morning as the Street grapples with all the Sunday talk show stuff, yet another shot across the bow from President Obama on the notion of government cutting spending. Toss in comments from Nancy Pelosi on the fact $600.0 billion in taxes isn't enough, and somehow democrats will extract more from the pockets of Americans.

Therein is the real story; this government's voracious appetite for spending means it must go after people that are decidedly middle income.

The way it will work is there will be an attack on taking away tax breaks for oil companies, breaks awarded to companies for hiring Americans, and other small potato taxes as cover. That cover or smokescreen will be just like the one that saw a fiscal cliff deal to take from the rich and smack everyone with higher taxes via the hike in payroll taxes. Also, keep in mind there was another big tax on families earning $300,000. The loss of personal exemptions of $3,800 per family member equals a 4.4 percentage point tax hike on a family with two children and 6.0% on a family with four children.

At the same time, according to Stephen Moore's piece in today's Wall Street Journal, Speaker Boehner has drawn a line in the sand on more tax hikes, flatly saying there will be no more during the next two years. Instead he plans to fight for spending cuts, perhaps focusing on the sequester as the battlefield is in a twist because everyone thought this was an area republicans would vigorously defend. There are many republicans that also want to use the debt ceiling as the backdrop for a more sensible approach to fixing the dark clouds on the horizon. While others think it's the continuing resolution.

In the meantime, that same article notes President Obama doesn't think America has a spending problem.

I hope you had a good New Year start because it's back to the anxiety and concern from Washington.

A Cautious Start to the Session
Carlos Guillen

Equity markets are beginning the first full trading week of the year on a very cautious note as reflected by Dow Jones Industrial Average futures, which are indicating a slightly negative start, down 17 points.

Last week, we saw the culmination to the Fiscal Cliff dilemma, and stocks rallied as a result, but the fight in Washington is still not over as politicians will now face the next challenge, the infamous debt ceiling. As its name would suggest, the debt limit is simply the maximum amount that the U.S. government can borrow at any given time. Currently, the limit is set at $16.394 trillion. In the next few weeks, Congress must decide whether to raise the debt ceiling. Under law, the debt ceiling limits the U.S. Treasury's authority to borrow money to pay for decisions already enacted by Congress and the president. In other words, the government needs Congress's approval to raise money to pay its bills.

If Congress fails to raise the debt limit, America will once again face default. Back in 2011, the debate over raising the debt limit caused Standard & Poor's to cut America's credit rating down a notch from AAA, and this resulted in markets around the world spiking lower. Similar to the Fiscal Cliff debates, we can expect the Debt Ceiling fight to get progressively intense all the way to the very end, once again causing equity markets to gyrate.

Tomorrow marks the beginning of the next round of earnings season. Given the entire fiasco with the Fiscal Cliff, the elections, and some of the consequences of the Sandy Super-storm, we can expect earnings to land all over the place. As it stands, earnings growth estimates for the S&P 500 have been ramping lower for the fourth quarter to 2.7 percent from 9.2 percent. Quite remarkably, markets have made gains despite the negative trend in growth expectations for the fourth quarter. The question now is, will markets keep these gains as companies surprise on earnings results and as the Debt Ceiling debates unfold? That remains to be seen.

We can make all kinds of smart quips. ‘Spending problem? I have it, I spend it, no problem’. Obama’s only problem (in his mind) is he doesn’t have enough to spend. That’ why it’s no problem. He’ll not slow down until he’s gone. The Republicans are no better. Once a program is in place it will never be touched. You’ll hear the GOP whine for the cameras, but to be honest, what have done that we can point to? Obamacare hasn’t had any focus since the Supreme Court decision. Oh, we here about all the added costs, but is anyone trying to make a change? I haven’t seen it. So, the GOP now says, ‘We’ll fight for spending cuts’. Um. I doubt it. Thanks guys (and gals) of both Houses. I hope we don’t bother you too much. You see, $100 per month for me is a lot of money. With the payroll tax I now have that much less each month. I budget. Mr. Obama, where should I cut my expenses? Food? Mortgage? Utilities? Wish I could have had some notice. Maybe you were too busy. It’s the thought that counts.

Cutting taxes will not reign in spending as long as they can continue to borrow and the Fed is willing to monetize the debt. There are 4 approaches to dealing with the debt crisis.

Cut Spending. Spend less and you reduce the amount of borrowing. Cut enough and you can reduce the debt.

Raise taxes. Bring in more revenue and you have to borrow less, unless you spend more. The other problem is that the increased revenue only lasts until the taxpayers adapt to the new taxes. The liberals will point to the Clinton Budget surpluses as “proof” this works. Ignoring the fact that Clinton was in office during the Internet bubble and prior to 9/11.

Grow the economy, this is difficult when you increase taxes and regulations. But this also works 100% of the time because it increases the tax base and reduces the outflows of government assistance. This is the real reason for the Clinton budget surplus. With the internet bubble we reached almost full employment and maximized revenue. But, alas it was a bubble. The economy grew between 1995 and 1999 not because of Bill Clinton, but in spite of Bill Clinton.

Devalue the currency. Reduce the value of the currency reduces the value of the debt. Problem is this causes hyper-inflation - the worse tax of all. It devastates the economy and eventually results in more government spending to address the problems it causes, or as we’ve seen in Latin America, a socialist/communist revolution.

I’m afraid that this last election has sealed our fate. 51+% of the voters owe their subsistence to the government and the protectors of their programs, the Democrats. They allowed public workers to unionize, illegal immigration to continue unabated , voter id laws to be blocked, seized 1/7 of the US economy through Obama Care. Don’t be fooled, the penalties for employers not providing health care was purposely kept low. Not to help small business but to incentivize large businesses to dump healthcare. This will result in employee paid health care to wane and a single-payer plan to take hold. It may take 15 years but it will happen. Healthcare will be rationed and senior citizens denied life extending treatment for the ‘greater good’. Liberals already pro-rate the value of human life from conception to birth they will have no issue pro-rating the last few years. Remember, the Nazis were Socialists first, insane tyrants second.

Now they will take the guns.

Face it everyone - the game is over and we lost. We can’t win another Presidential Election and the Republican’s in Congress have no backbone to stop the inevitable..

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