Remember when I wrote this?
End the threat of Taxmageddon now. For a great many private sector companies in the US, June 30 marks either the mid-point or the end of the fiscal year. Right now they are making plans for the next fiscal year or assessing progress so far in the current one. Looming over all of that planning right now is the possibility of a return to the Clinton tax rates and hikes in income, dividend, and capital gains taxes. The implications for businesses and individuals are huge and the uncertainty around this issue will increasingly cloud business decisions the second half of the year if it is allowed to persist. I think failure to reach a resolution soon is going to drive the economy back into recession.
The much-bandied about “Fiscal Cliff” is already here, according to economists and investors, as businesses curb spending in anticipation of the higher tax rates and reduced spending set to be enacted at the end of this year.
“The fiscal cliff is not just a year-end story,” wrote Michelle Meyer and the economics team at Bank of America Merrill Lynch in a report to clients. “We expect the uncertainty shock to be realized in the coming months, escalating before the election.”
The economists argue in the report that businesses have already started to curb investment and hiring plans in the face of this tightening of fiscal policy, further cutting into GDP.
In fact, Bank of America believes that the first quarter economic growth of 1.9 percent will prove to be the best three-month period of the year. They see 1.5 percent annual growth in the second quarter and just a 1.3 percent GDP in the current quarter.
I think the economy will do far worse than what Bank of America is predicting the last half of the year, because it is not just the f*cked up policies and attitude from Washington that people are worried about.
It's obvious that Europe does not have the will or the ability to get its fiscal house in order. What form the implosion will take and what will be left is anybody's guess, but implode it will.
There's growing evidence that China's economy is headed for a hard landing. In fact, given the totalitarian nature of the regime, it's almost certain that things are even worse than what we know today. Totalitarian regimes lie, especially about bad news. Like the Soviet Union circa 1989 though, the actual depth of the rot and corruption won't be visible to us unless or until the current group of kleptocrats is forced from power. The potential for economic and political turmoil in China is growing right now and the potential economic and military threats from that are serious.
Then you can pick your poison when it comes to the Middle East. Egypt? Syria? Iran? The situation in any of those countries could blow up in such a way as to damage economies around the world.
There's an awful lot of uncertainty out there that is beyond our political leadership's control. All the more reason to remove the areas of uncertainty that they can control. Tax, budget, and entitlement reform are all such areas that we desperately need get in order and stabilize for the long term.
I don't see it happening in time though. I can't predict the future, obviously, but it seems to me there are way too many potential calamities out there. There always are some of one sort or another waiting in the wings, of course, but that's why you want to have a strong and resilient economy, to absorb such blows if they arrive.
Too bad we don't have one anymore.
(via THS)
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