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A Grim Reality Lies Beyond Fiscal Cliff


[Turns out it was our own Doug Behnfield  — good friend, astute financial advisor and occasional contributor to Rick’s Picks  — who in June 2010 coined the term “fiscal cliff.”  Readers may remember his essay, which took its inspiration, metaphorically speaking, from the suicidal ending of the film Thelma and Louise.  In the guest commentary below, with the U.S. a literal inch from the cliff, Doug describes a likely outcome. One thing’s for sure, he notes: No amount of political squabbling will spare us the very real economic pain it will take to bring the national budget into balance. RA]

Recently, I was back in Connecticut visiting my mother. She doesn’t have a computer and hence, no internet. As a result, I relied on my Smartphone and an “app” to check in on financial news most of the time. On one particular day, I noticed that every single news item contained “Fiscal Cliff” in the title or the text. It reminded me that it is rarely the problem staring us in the face that affects the markets. It is the one lurking in the shadows, grasping a two-by-four. Lately, mainstream economic forecasts for economic growth for the current quarter have dropped below 1%. The recession may have begun. An agreement not to do anything right now on tax increases and spending cuts has probably been priced into the market. A recession has not.

I also recalled that I had used the Thelma and Louise analogy some time ago in one of my quarterly commentaries. [Note: It ran here in June 2010 under the title Thoughts on the Great Society.]  Apparently, I was the first one to coin the term, more than a year before Alec Phillips came up with it and almost two years before Ben Bernanke popularized it.

“The fiscal cliff is a term that was first used in a report dated October 21, 2011, written by Alec Phillips, a Goldman Sachs economist, then popularized by Chairman of the U.S. Federal Reserve Ben Bernanke as a way to refer to the effect that could result if the number of laws in place currently are not changed before the beginning of 2013.” (Boston Globe.)

‘Way Too Optimistic’

Actually, my reference was to the growing fiscal crisis rather than the agreement that resulted from the “Super Committee’s” miserable failure. They did not exist in June, 2010. And in retrospect, my comments were probably way too optimistic. Here we are, days from the current version, and President Obama vacationing in Hawaii, and absolutely nothing has been accomplished beyond “kicking the can down the road.” However, the survival of the nation’s financial system is dependent on a dramatic reduction in our budget deficit, and quickly. If we do not get ahead of it, we will become a banana republic. The interest on the national debt will double between now and 2020 even assuming that borrowing rates stay right where they are, according to Lacy Hunt of Hoisington Management. I spoke to him at length recently to pick his brain on the dilemma facing policymakers. Lacy is one of the economists who believes that we are either in, or headed for recession and he has written quite a bit on the economic impact that spending cuts and tax increases have on growth.

The political debate pits spending cuts against tax increases and because both issues are painful and abhorrent, little progress has been made. Like most things political, emotions run high. Here are some of the points that Lacy made in our conversation (with permission). They relate to the multiplier effects that various policy actions have on the economy.


•           Raising marginal tax rates has  a negative multiplier effect of 2 to 3 times

•           Spending cuts in the form of transfer payments have no negative impact

•           Raising sales taxes has a negative effect of 1 to 1

•           Reducing or eliminating deductions while lowering marginal rates (like Ronald Reagan/Tip O’Neill did in 1986) had a negative impact of 0.5 times

•           Increasing spending and lowering taxes has the opposite effect

Several tax increases are already booked for 2013 or that require legislation to avoid, even if the Fiscal Cliff is postponed:

•           3.8% Obama Care investment income surtax and Medicare hike for “millionaires and billionaires” — $50 billion

•           2% (revenues) medical device excise tax — $25 to 40 billion

•           Medicare reimbursement rates for doctors — $20 billion

•           Expired deductions and credits (tax extenders) — $30 billion

•           Changes to estate tax rates and exemptions — $35 billion

•           California state income tax hike (retroactive to 1/1/2012) — $50 billion

•           Alternative Minimum Tax “patch” — $100 billion

A New Paradigm

These numbers, both the multipliers and the tax increases, are estimates. The reason they are somewhat simplistic is because it is hard to model anything in the relatively new paradigm of credit contraction and low organic consumer demand that we currently suffer from. However, one thing seems clear: Higher tax rates are more likely to hurt the economy than spending cuts. Less clear is whether a stronger economy would make up for the human cost of reduced transfer payments to the recipients of food stamps and unemployment benefits, not to mention Social Security and Medicare. The dilemma is that if the economy is already weak or contracting on its own, sacrifices on the budget can actually result in bigger deficits, because households experience a reduction in income, people lose jobs and tax revenues tank.

In the final analysis, both sides in the political negotiations are unlikely to give in when faced with the time clock running out and even less likely if there is clear evidence that we have entered a recession. So a reasonable sequence of events is that for a variety of reasons, compromise fails in the lame duck session so they extend the current budget for six months and the new Congress goes to work on a thoughtful attempt to come to some sort of resolution. But by April, the recession that may have begun last quarter (Q3 2012) finally shows up in the revised data. Hasty, forced austerity is abandoned in favor of crafting meaningful tax and entitlement reform, combined with streamlining of federal bureaucracy, isolationism and protectionism. While were at it, the recession ends in a couple of years and so does the secular bear market in stocks and the accompanying extension of the secular bull market in bonds (decline in interest rates). It is hard to imagine that we turn the corner without a meaningful improvement in the national balance sheet, and it is going to cost us, both in time and money.

Lacy Hunt pointed out that Thomas Hobbes, the great 17th Century thinker, said that income is a measure of what one contributes to society and consumption is a measure of what one takes. His point is, from an entirely economic (rather than political) perspective, tax increases and spending cuts that target spending rather than income will be far more effective in solving our nation’s fiscal crisis.


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  • Brian Hemeryck December 27, 2012, 7:50 pm

    It is interesting for a Canadian to hear the American Story that is so similar to what happened to us in the 1990’s. We were fortunate to have a finance minister in our nation’s capital who prepared us for tax increases and for huge spending cuts that had the left wing screaming about the loss of their entitlements. We crawled out of the abyss with a great deal of pain and agony.

    What continues to happen is the push to continue deficits (especially at the provincial levels) and similar to your Sates we have some local governments seeing unsustainable debt levels.

    I’m just a simple accountant from a farm background who has grown up with the belief that income needs to exceed expenses over the long term.

    I would agree that the takers are in danger of taking over our system as well. Best wishes to all my American Friends and remember that it is our obligation to stand up and make our voices heard

    Happy New year to all.

  • mario cavolo December 27, 2012, 5:16 am

    Unbelievable! Geithner will “make accounting moves to create headroom”!

    If a private struggling business owner told the IRS they were doing that because they were piling up too much debt, they would start an audit and threaten criminal charges, eh?

    • VegasBob December 27, 2012, 11:06 am


      The US government itself has become a criminal enterprise. The destruction of the rule of law under Bush the Dumber and Barack Obummer spells the end of this country’s greatness. The USA has become the biggest police state in world history. The US government routinely spies on its citizens in ways that would make Stalin, Mao or Hitler envious.

    • John Jay December 27, 2012, 3:47 pm

      We have only one play left in our playbook.
      Green 23.
      Keep printing and hope the rest of the world implodes before we do in so that money flows to us as the least bad alternative.
      I watched a nice Kyle Bass presentation where he said, as we all know, Ben can never raise rates again beyond a pretend .25% hike, he has locked our economy in the ZIRP box.
      But he also said that the banks in Europe are in much worse shape than the banks here, if you can believe that.
      And he said Japan is approaching the end game with their decades long ZIRP policy.

      I am beginning to think the CIA etc. have become an arm of the Federal Reserve.
      Their task is to create chaos and instability worldwide, since a flight to safety is the only hope left for our economy.
      I am now to the point where I actually hope Green 23 works out for Ben, considering the alternative of societal collapse.
      There is no other option for us.
      The percentage of Americans living paycheck to paycheck seems to being growing ever higher, 70% was the latest figure I saw.
      Scary, scary, scary.

  • Don December 27, 2012, 5:09 am

    Ineptocracy…..we are here.

    Current regime is good for hard metals.
    Best to all of you for New Year.

  • gary leibowitz December 27, 2012, 4:33 am

    One last point. While I agree that deflation will cause the onset of the next great depression, it will most likely only last 12 to 18 months, based on hisory. In the end this government should be able to inflate their way out. A not so tidy outcome, but one I believe is the most logical.

    Sorry for the many posts hogging this site. Will be much more sparing on you folks in the future.

  • DK December 26, 2012, 10:34 pm

    Tony Robbins deconstructing the national debt.


    There are obviously more points to consider here but it gives even those who consider themselves completely economically illiterate a better idea of what is in store for us.


    Thanks for this post, DK. Robbins puts Obama’s soak-the-rich scheme in perspective. Turns out, if you confiscate 100% of the income of every American earning $250k or more, you’ve raised enough to finance Government Spending for just a few weeks (and killed off “the rich” in the process). RA

  • Jacques Redou December 26, 2012, 7:00 pm

    I was talking to a Spanish guy in Taos a couple of years ago. He was active in pro immigration issues; had a ‘La Raza’ attitude.

    His ancestors were apparently in the Southwest before my ancestors hit the East Coast in the

    I asked him about assimilation. He talked about the rainbow and diversity. Street signs in two languages.

    Finally, I asked. “If they come that is one thing, but if they bring Mexico with them – where are your kids going to to work?”

    He just stared at me with a blank look.

    • mario cavolo December 27, 2012, 5:13 am

      Hi Jacques, that’s a cool point you’re making and it reminds me of my family’s immigration from Italy to America. They made a specific effort NOT to bring their country with them to the new country. Once arrived in America it was to start fresh and leave the old behind, even to the extent that as a rule they did not teach us children our native Italian language. In terms of art/language/learning, this is now an unfortunate regret, but at the time its meaning was clear. What the heck are you leaving for if you want to recreate your own country all over again. Its like, actually they are trying just to hijack the land and use it for their own purposes, including sucking the system dry as best they can. Looked at from this point of view, we can begin to understand government’s important role in sensibly controlling its borders…

      Cheers, Mario

  • mario cavolo December 26, 2012, 11:19 am

    What the…?? Hedge fund guy John Thomas’… “When I picked up the truck at U-HAUL, the lot was absolutely packed with returned vehicles, and there were more parked on both sides of the streets. The booking agent told me there is a massive influx of people moving into California from the Midwest and the Northwest, with the result that lots all over the San Francisco Bay Area are filled to capacity….California is experiencing a resurgence of hiring and new economic growth.”

    How can he possibly be reading it this way with all the municipal level problems California is having?…Yesterday I was reading the California nightmare by JJ especially about how most welfare recipients are in that state. I keep thinking the same schism theory…throngs of people are doing far worse while a big group are doing well…SPLIT country!

    Cheers, Mario

    • Cam Fitzgerald December 26, 2012, 11:54 am

      Maybe we all need to go back and read John Steinbeck’s classic “The Grapes of Wrath”. Things might be a little different this time around but the movement of large numbers of people from the center of the nation to the West Coast is a familiar theme in American history.

      Everyone is looking for opportunity and salvation in a time of urgency and economic despair. They won’t find it by going to a Bankrupt State but many thousands will no doubt give it a try while displacing others who have made their homes there for decades.

      Here is a quote from the book”

      “It ain’t that big. The whole United States ain’t that big. It ain’t that big. It ain’t big enough. There ain’t room enough for you an’ me, for your kind an’ my kind, for rich and poor together all in one country, for thieves and honest men. For hunger and fat.”

      I think we are seeing a repeat of the past and its roots are found in joblessness, State aid programs and a lack of hope in the systems that have kept us all grounded until now.

      Another great migration may be underway.

      But will there be a dustbowl to accompany the social refugees this time around who come by motorhome and rental truck rather than creaky Model T’s and railcoach?

      That future is writing itself as we speak. I believe we have entered a secular dry period and drought that will encompass much of Canada and the US for the next few years. A dustbowl may be less likely as agricultural practices have improved substantially; however a drought still leads to large movements of people in times of stress and we may be seeing that in its infancy already.

    • John Jay December 26, 2012, 2:46 pm

      People moving in U Hauls from the Mid West don’t seem well heeled to me. Especially moving to the Bay area where housing costs are so high and you don’t have the huge sprawl of Ventura to San Diego to pick the lowest cost place to live. But who knows, I never lived up there, just around Los Angeles and Orange County. And Silicon Valley is its own little world I imagine. To me me Southern California has become one vast refugee camp. Los Angeles is cutting back on the Civil Court system, but spends about $1 billion a year on welfare for illegal aliens, so you can see where government priorities lie.

      When I first moved out here in 1976 I worked for the old Burroughs Corp. at their downtown LA office a couple of blocks from Mac Arthur Park. Back then it was a funky collection of burnt out hippies, street characters, and more young blind people than I ever saw in CT. All attracted by cheap housing there, I imagine. Gritty, but you knew you were in the USA.

      Now, forget about it down there. Emergency Rooms have shut down due to the overload of uninsured illegals to the the point where I think LA has the worst ratio of population to ERs in the country.
      The consequences of decades of unrestricted illegal immigration and the associated costs of generous welfare have arrived. I could go on and on about the consequences, but you get the picture.
      And to anyone who thinks I am a misanthropic old racist, I will create an itinerary for a Southern California road trip, and you can judge for yourself about the benefits of open borders.
      It has bankrupted this State.

  • DK December 26, 2012, 9:20 am

    “Most on this board refuse to believe the economic engine is still running.”
    I don’t find that to be accurate at all. In fact, I think most people on this board realize that the economy is on its last legs and is struggling to stay upright amidst all of the turmoil it has been dragged through for 6, 18, or 100 years now. The American economy has proven to be amazingly resilient as has the mettle of its “producers” and entrepreneurs. I think people on this board recognize that this economy is basically running on fumes (QE ad infinitum, what have you). That is where your assumptions fail just like your assessment of everyone on this board (except you, Jill, and Martin) being a right-wing neocon lunatic.

    “Clearly if inflation was a big problem today spending will be affected as will savings and debt levels. So far the consumer is actually doing better than he has for a while now. ”
    You are higher than a satellite, either purposely (can’t say I’d blame you there) or someone spiked your Kool-Aid with 151. Spending has all but dried up and if you’re not worth several million then you’re feeling the pain, as John Jay mentioned above. Let us have a look at personal bankruptcy rates a year from now (currently around 1.36+M?). If you’re right then you can have fun rubbing all of our noses in it.
    Everyone, well obviously not quite everyone, is nervous about future earnings, including corporations themselves. As VegasBob noted above, Q1 and Q2 2013 will be showing a new round of layoffs. Companies such as BA, LMT, IBM, MDT, RIMM, SVU, and CAT (just to name a few) have already greased the skids for this. Unfortunately this comes at a time (coincidence? hardly.) when the largest tax increase (per Justice Roberts) in history is about to take place. Again, let us take a look at personal bankruptcies in a year.

    If we are doing so darn well, why is the service sector looking like a junkie at a methadone clinic?

    What category do school loans fall into for Consumer Credit, Gary? Last I checked it was nonrevolving. The latest rebound from August (November, 9.2%) occurred primarily because of college tuitions; note the timing! Even with that as part of the equation, Consumer Credit, as “reported,”is up only, what, 5%?

    Into the mix, we can always go back to the same point RA has been making for as long as I can remember now (must be tiresome), that money is NOT holding its value (see YOY M1 & M2, and especially M3 if you can stumble around and find it) and those aforementioned school loans are put up by 2 working parents armed with HELOC.

    • Cam Fitzgerald December 26, 2012, 10:49 am

      Well there is no doubt that deflationary pressures are still the overriding concern of most Western nations. That deflation itself is at our gate is hardly…..


      Cam, this was a great post. I’m going to publish it in its entirety as a guest commentary, since it deserves a bigger audience than it would get in this forum.

    • gary leibowitz December 26, 2012, 10:19 pm

      I could have sworn I heard all this before. Oh yeah, years ago. Guess we are in some sort of time-warp.

      My point is a rather easy one to follow. All things that affect the economy also affect the stock market. Ergo spending, borrowing, lending, earnings, profits, etc… To suggest otherwise has no basis in past historic data. While it is true that there are extremes at both ends, the data points will show these extremes. So far there is no data point to show any extremes. It could change in as little as 3 months, but until it does why suggest “this time is different”.

      I hope you will not be too disappointed if I am diverted away with family business for a while. Perhaps Mario or Jill can be the fall guy until I return.

    • Cam Fitzgerald December 27, 2012, 7:37 am

      Sure, no problem Rick. Best of the season to you and your family. I thought you put in a really impressive year by the way. Some of your calls were downright eerie in their accuracy. You have a hotline to DaBoyz by any chance?


      DaBoyz are the unwitting lackies of Hidden Pivot metaphysics, Cam. RA

  • gary leibowitz December 26, 2012, 6:41 am

    The debate….



    I’ve withheld your post, as I’d said I would, until you make clear what bets you made for the big end-of-year rally you’ve been promising us. Although you did say a while back that you bought 3x ETFs on the S&P 500, you didn’t say when you initiated the position or at what price(s). I have asked you no fewer than six times to provide this information, but you have dodged the question each time.

    I am not seeking hard evidence that you actually did the trade, only such details as will suffice to demonstrate that your idea was a loser. If there is some stupid reason you’d like to give for withholding this information, by all means embarrass yourself by telling us what it is.


    ps: Below, DK has responded to the Gary post I deleted. Henceforth, I’d recommend ignoring Gary’s posts if they happen to appear on the board fleetingly before I can excise them.

    • gary leibowitz December 26, 2012, 10:09 pm

      Well here goes. Made 2 bets on two different dates.
      SPXL – Nov 8 – 400 at 82.4, and Nov 19 500 at 79.6
      UGL – Nov 19 – 200 at 91.9

      I am still waiting for the final corrective phase to prove out.

      I seem to be the only person on this board you require actual data from. Does anyone find that strange? I am also criticized for making multiple responses and for off-topic comments. No wait, I believe Jill is another person that seems to be singled out.

      I am sure you will find everything i say as false, since it doesn’t conform to your world view. I also find it ludicrous that most on this board site doom and gloom at every opportunity with the most preposterous thoeries but don’t have to “prove” their point.

      As for the notion that taxing the wealthy is absurd, you go out of your way to ignore facts. These facts are so glaring a 5 year old can see the connection. Your solution is to get rid of the middle class and poor’s freebies, therfore ensuring your doom and gloom prophesy. I guess this was “off topic”.

      I can only guess what you will do with this information. Have a good one and will “try” to post my next bet.

      Your circular logic alludes me when it comes to explaining away the markets long run, NRA stance, and a whole bunch of conspiracy theories. Just remember boys and girls guns don’t kill, people do.


      We don’t have to show you no stinking badges, Gary. I didn’t create this forum so that politically liberal bloviators like you, Jill and Martin would have a place to spew your ignorant, statist-progressivist bilge. Lately, and most offensive of all, is the pernicious politics-of-envy idea — zealously promoted by our closeted-commie, jihadist-sympathizing President — that $200k earners are ‘wealthy’ and that raising their taxes will somehow help reduce the deficit. RA

    • gary leibowitz December 26, 2012, 10:28 pm

      Sorry posted in reverse order.
      Nov 8 – at 82.4 and Nov 19 – at 79.6


      Required viewing for you, Jill and Martin — a Tony Robbins primer on what “taxing the rich” would accomplish:


    • gary leibowitz December 27, 2012, 4:25 am

      Facts do speak for themselves. Every depression happened when the largest disparity between rich and poor occurs. The last decade had such a huge dispparity that it trumped any before it.

      Govenment sudsidies clearly went to the upper end, as they decided to go into a black hole deficit to support the rest with handouts. This government, like most, did the most expedient thing, make everyone happy.

      Solution: start with fairness and bring back the disparity to “normal” levels. Reign in the bloated spending and create a litmus test for government support. Increase individual medicare premiums based on income/savings, increase age of social security, promote savings with special tax deductions for those that are in a certain bracket.

      You want to label me, go ahead, but hear my words.
      Fairness and empathy are my mantra. I do believe government has a role to “safeguard” individuals against their own greed and ignorance. Thats why we have traffic laws, inside trading rules, etc…

      I don’t believe in taking from the government that which he/she does not need. Over spending? you bet. The military is a great example of bloated government, yet no party dare bring that up.

      Sorry, I don’t fit a black or white, liberal or conservative label. Just fairness and empathy are my guidelines.

      As for the market, explain it away for the last 3 to 4 years, and label me naive and unrealistic. Explaining to me why this market should have already been done for is absurd. In this world we live in, it is still standing. You can’t “force” your will on the market. It is unemotional and will rise and fall on unemotional data. To explain away the last 4 years as a government manipulation you would also have to include the ability to increase private corporations ability to make money. Even if that was true, you “must” play this game as it is dealt.

  • mava December 25, 2012, 7:09 pm

    Most everyone is being disappointed by the times we are living in. Sadly so. Because, we happen to live in truly exclusive moment in history, a moment the likes of which only happens once in a great while.

    Most of the time, for hundreds of years, all one can see is theft, ravage and injustice. The deserving is being taxed while the undeserving is being rewarded. Well, not at this particular moment. We are about to step in to a short window of history where justice actually prevails.

    We are about to see most of those glued to someone’s back as a parasite finally go homeless and go hungry. Those working for the government going unemployed, undesirable and without much expected stolen loot of a pension. The lying snakes politicos going unwelcome, their nest broken and their connections swept away in a turmoil of new reality.

    So, rejoice this holidays in understanding that it is not a bad thing that is happening and is still about to happen. It is instead a rear moment of justice that you should treasure.

    Merry Christmas to you and let the justice begin to assert its right.

  • Rick Ackerman December 25, 2012, 2:04 am

    I completely agree. Considering the frugality that The Great Recession has imposed on virtually all households and businesses, there can be NO valid reason for increased government spending. This is particularly true of education, for the reasons you’ve noted.

    Boulder, CO, has just raised taxes for street maintenance because sales tax ‘revenues’ used for that purpose have fallen. The sales tax ‘shortfall’ is going to be a growing factor for a lot of towns, but we shouldn’t hold our breath waiting for them to adjust by reducing employment.

    In San Francisco, where I lived for 22 years, I can recall a budget-cutting jihad to close branch libraries or reduce their hours, and to cut back on book-acquisition budgets. At the same time, the city was building a new, $160m library to keep the trade unions busy. San Francisco’s payroll has always been obscenely bloated with $100k-plus sinecures, but it would take a full-blown Depression to even put a dent in that hallowed political tradition. If such an outcome is indeed possible, though, then extremely hard times can’t come soon enough.

    • John Jay December 25, 2012, 2:50 am

      It’s already too late in California.

      “With all the votes counted, one party has garnered enough seats in both houses of California’s legislature to now govern the state with a supermajority that can overturn a governor’s veto.”

      (As if Moonbeam would veto any tax increase!)

      “Democrats now hold 54 seats of California’s 80-seat assembly and 25 of the 40 state senate seats. With a supermajority, Democrats will no longer need Republican support to pass tax increases. Article 13A of California’s constitution notes that “any change in state statute which results in any taxpayer paying a higher tax must be imposed by an act passed by not less than two-thirds of all members elected to each of the two houses of the Legislature.”

      There you have it.
      And the Republicans in DC are going to back some sort of Amnesty in the bizarre belief that they will somehow pick up votes in the Hispanic community.
      More Producers will flee California for Texas, Nevada, etc.
      And the Takers will be fighting over an ever shrinking Tax pie.
      The Solution?
      Sell more munis that raise 100 million dollars and require a 1 billion dollar payback down the road, just like the Poway School District did.
      Perhaps welfare will pay so well in California that we can go from 33% of welfare recipients to 100%.
      Sort of like the “Bad Banks” that are sometimes created to dump all the bad loans into after a S + L type debacle.
      Should be most amusing going forward here!


      As Rahm Emanuel would say, never let a good crisis to go to waste. In this case, California’s looming, catastrophic collapse will make it impossible for Americans to remain in denial about what’s coming for the rest of us. Ultimately, “Washington” is in worse shape than California. RA

    • Cam Fitzgerald December 27, 2012, 8:03 pm

      Interesting that this same story repeats again and again in so many different places. In my own town up here in Canada the city had elected to give away up to 10% of the purchase price of a condo as a nonrepayable grant or alternatively to fund 5% of the downpayment on a home worth up to 300,ooo dollars. The idiocy of it is that as they were announcing this lavish program the very same group of geniuses were looking at cutting libraries, reducing bus shcedules and hours and increasing parking meter rates to make up for a shortfall in municipal revenues. And this is when times are still good. I wonder what they will dream up after prices take a little bit if a dive (like they are doing now).

  • John Jay December 24, 2012, 11:59 pm

    Re: Calpers
    That is exactly why I expect a full on assault on Prop 13 out here as soon as Obama can ram through some manner of amnesty.
    Once the erstwhile illegals can vote I think Prop 13 will get voted out, and the have nots and public employees unions will work together to confiscate all the wealth they can to fund union pensions and welfare.
    California can surpass NJ in property taxes and lead the nation in all taxes, A to Z!
    California, has 12% of the USA population, and 33% of the USA’s welfare recipients!
    It’s “For the Children” don’t you know!

    • VegasBob December 25, 2012, 12:14 am

      Government always views tax hikes as a *FIRST* resort. If it isn’t “for the children” (the teachers), then it’s for “the cops” or “the firefighters” or “the libraries,” usually in that order.

      We’ve been throwing money at teachers on an exponential scale for 50 years, and educational test score results just keep getting worse. Government education is an epic failure.

      In too many areas of the country, “the cops” are just grossly obese bullies, thugs and psychopaths who are no better than the criminals they purport to chase. And I have yet to encounter a situation where a cop was readily available in a time of need.

      As for “the firefighters,” firefighting used to be a volunteer activity in most areas of the country. Now, in most jurisdictions, “the firefighters” are paid 30-50% more than the average salaries in their communities. While it is true that they risk their lives, the majority of a firefighter’s shift is spent idling, waiting for the fire bell to ring.

      While I do like the availability of libraries, the reality is that there is so much content on the web that perhaps the entire concept of libraries is becoming obsolete.

      I think it’s time for taxpayers everywhere to JUST SAY NO to all government requests for more taxes.

  • Doug B December 24, 2012, 10:38 pm

    Dear Cam,
    We’re talking about it.

    • Cam Fitzgerald December 25, 2012, 8:38 am

      Good to see you are keeping your sense of humour. My own Mom is connected at 82 and she thinks the internet is better than sliced cheese. Another nice article from you today, by the way. All the best for the Christmas season.

  • Cam Fitzgerald December 24, 2012, 8:38 pm

    Doug…..don’t you think it’s time you got your Mother a computer? This is Christmas after all. Let’s consume a little. Come on….you can afford it!


  • DG December 24, 2012, 7:39 pm

    What’s mind-blowing is the public’s ability to ignore the warning signs that are everywhere: San Bernardino BK and the judge sides AGAINST CALPERS. Greece has enormous unemployment, taxes cannot be raised, civil servants are forced to austerity and THEY- judges and police- are protesting. The cost of college in the US is so high that any honest accounting cannot rationalize the expense for 95% of the students. The fiscal cliff will punish wage earners the most….not the rich….
    and the Leader In Chief feels comfortable vacationing in Hawaii…..

    Folks need to wake up. This will not get resolved neatly. There cannot be a deal. It as if we are so drunk that we cannot become instantly sober. We have to get ill, we have to go through the hangover.

    All debts, including any entitlement will go through a BK process. You just saw what happened to CALPERS…..and it was right. Of course, this may just go through a process of inflationary erasure…..but what will happen to asset prices when the govt component is removed from the economy…Consider that for the last 10 years our government has spent money it couldn’t afford to spend, creating a fictitious GDP….what realistic contraction are we looking at when that goes away? 10%? 30%? It is a number. Folks need to prepare for what is obviously going on around them….
    Our leadership has given us financial cancer. And now we are all going through a very painful chemo and radiation therapy to eradicate it. I just hope folks know what really caused this. Politicians whoring themselves to people whoring themselves (selling others out for their benefit)…If you feel like you have a great deal, provided by the State, YOU are the cancer. This includes direct beneficiaries and the massive industrial-State complex — from healthcare to defense to academia and many industries…who is your ultimate customer and financier?….cui bono?….

    This is not hyperbole….this is simple observation of other countries, history….you can deny reality, but you cannot deny its effect. Unfortunately, by the time most folks feel the effect, the opportunity to avoid it or lessen its pain is gone.

    Buckle up. Just my stooopid 2c.

    • Jason December 26, 2012, 6:51 pm

      DG, your statement, “you can deny reality, but you cannot deny its effect. Unfortunately, by the time most folks feel the effect, the opportunity to avoid it or lessen its pain is gone.” is the most poignient I have seen regarding our fast approaching political/economic timebomb.

  • Pat December 24, 2012, 6:59 pm

    So this guy thinks the bear market in stocks ends in 2 years. Since when have we been in a bear market? Stocks have been in a huge bull market for almost 4 years now, so have bonds. So in 2 years all our problems are magically fixed, a new bull-bull market starts in stocks, investors dump bonds, interest rates rise and everyone lives happily ever after….LOL

    Brilliant !


    Don’t know what your track record is, Pat, but Doug’s steadfast position in T-bonds has been returning 20%-plus to his uber-wealthy clients for more years than you’ve been throwing darts in this forum.

    Concerning the bear market, if your charts show September’s highs — let alone October 2007’s — to have been exceeded, you need to switch data providers. As for what happens two years from now, Doug is not a “magic fix” kinda guy, nor would anyone who has read his guest commentaries infer something so simplistic of him.


  • ken horn December 24, 2012, 4:58 pm

    I have been saying for months that the “fiscal cliff” is really just a “straw man” discussion point that the media & other half-wits can grasp on to. Whatever is resolved (or not), in 2013 we will have higher taxes & will not bend the gov’t spending curve one iota. The rich will have higher tax brackets as well as surtaxes. The middle class will be gutted by the ACA which includes AT LEAST 21 imbedded taxes. The lower class will continue to receive a greater percentage of redistributed funds & the FED will be forced to keep the printing presses going to pay for it. We have a debt bomb that will not be resolved. (Resolution cannot happen in Washington as it now exists). Trouble is lurking down the road. The question is not “if” but “when”.

    • VegasBob December 24, 2012, 7:02 pm

      ken horn,
      As 2013 begins, I expect layoffs to begin ramping up significantly as employers begin to see the ACA tax ramifications of having 50 or more full time employees, and decide that their “small businesses” need to downsize their labor forces.

      My guess is that the Obummer’s ACA will prove to be the straw that breaks the back of the US economy, as its tax impact will make full time work unavailable throughout large swaths of the economy.

      Government under the Obummer will not be stopped, even as the private sector economy implodes. My guess is that the Obummer will use the implosion of the private sector to impose his communist vision of a centrally-planned economy on the country.

      in 2012, America crossed the rubicon into the world of Communist central planning. If our spineless judges say that the government can force individuals to buy health insurance from private corporations under threat of extortion (tax penalties), these same judicial buffoons will happily sanction the Obummer’s threats of outright seizure and expropriation to force reluctant corporations to conform with the Obummer’s economic edicts.

      Welcome to hell on earth, and Merry Christmas!

    • mario cavolo December 25, 2012, 3:27 am

      Hi Guys,

      Unfortunately what you’re saying sounds spot on. My family runs restaurants in Arizona. If I had a company that owned five restaurants employing more people and some weird regulation came out forcing me to pay more taxes, I would consider how to adjust the way I do business in a legal way to avoid those taxes. For every action there’s a reaction. I might register a second company and so split the size of my one larger company into two smaller companies, plus as has been said, start hiring more part time workers. Interesting and scary to see how this continues unfolding…

      Merry Christmas, Mario

  • PhotoRadarScam December 24, 2012, 3:50 pm

    “Actually, my reference was to the growing fiscal crisis rather than the agreement that resulted from the “Super Committee’s” miserable failure.”
    The Simpson Bowles Commission did NOT fail. The failure was in not listening to the recommendations.

  • VegasBob December 24, 2012, 1:58 pm

    While I’m more sympathetic to the Left than most on this blog, I do understand a few things about money. I managed to retire in 2007, and stay retired, despite the financial crisis. And I’m not collecting any government-guaranteed pension of any kind, as I’m not yet old enough to collect Social (In)Security. But if I do ultimately collect Social Security, any amount I do collect will probably prove to be worthless, given the rate at which the arch-criminal Ben “Bernokio” Bernanke is flooding the economy with his counterfeit electronic dollars.

    The only political statement I’ve heard recently that has made any sense to me came from Ron Paul, who basically stated that this country is too far gone to be fixed, and that all our politicians do at this point is argue about “who gets the loot.”

    Republicans will not countenance cuts in their bloated “defense” programs and Democrats will not hear of reform to so-called “entitlement” spending. The people will not pay the level of taxes needed to pay for the level of government benefits they want, so the government borrows and prints money. And the electronic police-state supported by both parties continues to whittle away what used to be basic constitutional protections.

    So the US economy continues to circle the drain, descending down to the level of a third-world hellhole. If you don’t believe this country is turning into a third-world hellhole, try visiting Detroit, Cleveland, Killadelphia, Baltimorgue, parts of Los Angeles, or the Obummer’s home town of Chicago.

    • John Jay December 24, 2012, 2:28 pm

      Vegas Bob,
      The best description of Los Angeles I have ever heard was spoken by Gary Null when he said, “Los Angeles is 10% Paris, 60% Bombay, and the rest is in between.” The “Sanctuary City” mentality here has destroyed everything the illegals swarmed up here to take advantage of. Soon, they will face the same situation as they fled Mexico to escape from.
      No outstanding medical care to be had, violent, gang infested neighborhoods, a worthless school system and minimal social services.
      They have recreated exactly the society they ran away from in Mexico here in Los Angeles.

      Out in Chino there has been a huge dust up over a Mac Mansion that was turned into a birthing center for Chinese national females who came here just to have their baby on US soil to get the citizenship foot in the door. All of it perfectly legal according to DC.
      I think some of the brighter Americans are beginning to wake up, but it is too late of course.

    • Erin December 24, 2012, 3:00 pm

      Ron Paul was our only hope to even try to stop this madness and the majority of this country basically thinks he is a crackpot even after telling us years ago exactly what was going to happen to this once great country. That pretty much sums it up.

  • Erin December 24, 2012, 8:24 am

    All this talk of the fiscal cliff and all of our budget problems short and long term is really depressing if you truly understand the true state of things. We all know there is no fix except a full reset. Most Americans and others who live in this nightmare and understand the problems, are powerless because of the enablers at the fed. Even if we could vote to shut them down, there are too many takers that would not let that happen. We are outnumbered. The welfare state is just too large and getting larger every day and no one is going to fix it…

    Ben Franklin said…
    “When the people find that they can vote themselves money, that will herald the end of the republic”

    Can anyone argue with that? No! Anyone who has an ounce of common sense, knows that it is over.

    All these talks about the budget from our so called “leaders” is so stupid that it is pathetic. We are TRILLIONS in debt! Politicians continue to get wealthy from special interests and that is all that matters to them. Extend and pretend is all they can possibly do because there is no fix. What kind of moron could possibly believe that they have the best interests of the people on their minds?

    And you really think moving some billions here and there and playing this stupid shell game is gonna make any difference to this illusion of prosperity?

    Intelligent people have already checked out and now it’s just another bad reality show…

  • John Jay December 24, 2012, 5:58 am

    Nice overview of “another fine mess” that DC has gotten us into Doug.
    I am beginning to wonder when the general public will call BS on Bernanke’s “inflation is contained” Mantra.
    A couple of guys commenting at ZH complained as follows:
    One said a quart of Mobil 1 motor oil has gone from $4 to $10 in a couple of years.
    The other guy said the canned apple sauce his wife buys has gone from $.50 to $1.29 in the same time period as Mobil 1 oil.
    I now see a 16 oz box of pasta has gone from $.99 to $2 in the past few years.
    A six pack of 1.5 oz chocolate candy bars is now $1.50, when a few years back an eight pack of the same candy was $1
    The peanut butter I buy has jumped up $1 a jar, just like that.
    Anthem has announced they plan to raise my health insurance premium 20% starting March 2013.
    My utility bills are creeping up each month.
    No inflation, Ben?
    Diocletian could not control the inflation his debased currency triggered in spite of his wage and price controls in Imperial Rome days.
    And he ordered the death penalty for non compliance I believe.
    And it did not stop the inflation.
    The Death Penalty had no effect.

    In addition, I can see the State of California beginning to implode.
    Los Angeles has initiated severe cuts to the Civil Court system.
    Layoffs, Court consolidations, and no more Court Reporters supplied for Civil Trials.
    The waiting to see a specialist in the Medi Cal healthcare system is now months in some cases.
    It seems specialist MDs don’t like rushing to the ER to treat illegal aliens and getting stiffed by the State.
    So they are dropping out.
    Moonbeam keeps raising taxes, and the revenue keeps falling anyway.
    The City of San Bernardino, which has declared Bankruptcy, is now seeing a duel between Municipal bondholders and the City pension funds over who is at the head of the line to collect the limited funds available.

    If the dreaded “Fiscal Cliff” tax increases and budget cuts happen, it would not even be a down payment on the huge deficits we are facing.
    And they are arguing over even that tiny return to reality.
    How far we have fallen since the 1980s.
    This is really uncharted territory, who knows what market is going to blow up as a result of all this insanity.
    The State has indeed lost its mind!

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