Over the weekend, both Republicans and Democrats voiced confidence that the two opposing sides could strike a deal and avert falling off the fiscal cliff.
However, details on how policymakers will do so remain unclear.
Key sticking points that have kept the two parties at odds is that Democrats widely favor increasing taxes on wealthy Americans, while Republicans maintain that the answer to the bulging fiscal deficit is to slash federal spending.
With just weeks until the cutoff date, it appears each side is ready to make some concessions.
Tennessee's GOP Sen. Bob Corker acknowledged Sunday on Fox News that the nation's wealthiest should shell out more in taxes. But, he added, the increases should come from closing loopholes instead of boosting tax rates. Corker added that cuts to entitlement spending would also need to be considered for Republicans to approve any pact.
"I'm optimistic on a deal," the Senator said. He went on to say he thought a "basis for the deal" was in place.
Corker continued, "I think finally, Democrats are willing to accept-and I don't mean this pejoratively, but I think they know that Republicans really are willing to put revenues on the table if we can do it in a pro-growth way, and there is a way of doing that."
In addition, David Axelrod, a senior adviser to U.S. President Barack Obama's re-election campaign said Sunday on CBS's "Face the Nation" he believed the Republican comments regarding the fiscal cliff are "encouraging."
what is the fiscal cliff
Article Index
The Fiscal Cliff is a Mole Hill Compared to This
Everyone is afraid of falling off the "fiscal cliff." But there's another dangerous countdown clock about hit to zero.
And no one is talking about it, even though it will spell even more financial problems for us all.
At midnight on December 31, 2012, the Transaction Account Guarantee (TAG) program will expire.
The TAG program was initiated at the height of the credit crisis when depositors were fleeing banks for fear they would go under.
To quell what was turning into a run on banks, the FDIC upped regular deposit insurance from $100,000 to $250,000 and under the TAG banner initiated unlimited insurance for all non-interest bearing transaction accounts.
It's the second part that's important because that's the piece that will soon come to an end.
When the unlimited insurance expires, corporations, businesses and depositors -- whose soon- to- be- uninsured deposits, which total some $1.4 trillion, are likely to flee smaller banks -- will rush into money market funds and seek the safety of short-term U.S. Treasuries.
This will create serious negative repercussions affecting our economic future.
And no one is talking about it, even though it will spell even more financial problems for us all.
At midnight on December 31, 2012, the Transaction Account Guarantee (TAG) program will expire.
The TAG program was initiated at the height of the credit crisis when depositors were fleeing banks for fear they would go under.
To quell what was turning into a run on banks, the FDIC upped regular deposit insurance from $100,000 to $250,000 and under the TAG banner initiated unlimited insurance for all non-interest bearing transaction accounts.
It's the second part that's important because that's the piece that will soon come to an end.
When the unlimited insurance expires, corporations, businesses and depositors -- whose soon- to- be- uninsured deposits, which total some $1.4 trillion, are likely to flee smaller banks -- will rush into money market funds and seek the safety of short-term U.S. Treasuries.
This will create serious negative repercussions affecting our economic future.
To continue reading, please click here...
What's Next for the Fiscal Cliff?
With both parties viewing the results of Tuesday's election as a mandate from the American people to address the major economic problems, Congress and the Obama administration will focus first on not having to cross the fiscal cliff.
Clearly, neither party wants the American economy to ever look anything like it did in 2008 and 2009. Towards this end, Congress has gone back into session to reach an agreement to move the economy forward.
Drawing a line, House Speaker John Boehner, R-OH, said Thursday that, "Raising tax rates is unacceptable. Frankly, it could not pass the House. I'm not even sure it could pass the Senate."
Democrats have taken upon the victory on Tuesday to urge a strong line be taken in budget negotiations.
Speaking today (Friday), President Obama kept his call for greater taxes on higher income earners.
"As I've said before, we can't just cut our way to prosperity," President Obama said Friday. "If we're serious about reducing the deficit we have to combine spending cuts with revenue. That means asking the wealthy to pay a little more in taxes." //
Clearly, neither party wants the American economy to ever look anything like it did in 2008 and 2009. Towards this end, Congress has gone back into session to reach an agreement to move the economy forward.
Drawing a line, House Speaker John Boehner, R-OH, said Thursday that, "Raising tax rates is unacceptable. Frankly, it could not pass the House. I'm not even sure it could pass the Senate."
Democrats have taken upon the victory on Tuesday to urge a strong line be taken in budget negotiations.
Speaking today (Friday), President Obama kept his call for greater taxes on higher income earners.
"As I've said before, we can't just cut our way to prosperity," President Obama said Friday. "If we're serious about reducing the deficit we have to combine spending cuts with revenue. That means asking the wealthy to pay a little more in taxes." //
To continue reading, please click here...
Fiscal Cliff: Are We About to See Compromise in Washington?
Now that Election 2012 is over, Washington is readying for its next battle: the fiscal cliff.
U.S. President Barack Obama's victory in Tuesday's election has upset the Republicans' political calculus. The purpose of four years of obstruction was to deny the president any legislative achievements and thereby prevent his re-election.
It didn't work.
With the election behind us, the politics of obstruction has lost its meaning. There is nothing to be gained from obstruction for obstruction's sake.
Boehner made that abundantly clear when he read a statement Wednesday afternoon in which he opened up the possibility of compromise in order to avoid the looming fiscal cliff at the end of the year.
"For purposes of forging a bipartisan agreement that begins to solve the problem, we're willing to accept new revenue, under the right conditions," Boehner said.
"The president has signaled a willingness to do tax reform with lower rates," Boehner continued. "Republicans have signaled a willingness to accept new revenue if it comes from growth and reform. Let's start the discussion there."
U.S. President Barack Obama's victory in Tuesday's election has upset the Republicans' political calculus. The purpose of four years of obstruction was to deny the president any legislative achievements and thereby prevent his re-election.
It didn't work.
With the election behind us, the politics of obstruction has lost its meaning. There is nothing to be gained from obstruction for obstruction's sake.
Boehner made that abundantly clear when he read a statement Wednesday afternoon in which he opened up the possibility of compromise in order to avoid the looming fiscal cliff at the end of the year.
"For purposes of forging a bipartisan agreement that begins to solve the problem, we're willing to accept new revenue, under the right conditions," Boehner said.
"The president has signaled a willingness to do tax reform with lower rates," Boehner continued. "Republicans have signaled a willingness to accept new revenue if it comes from growth and reform. Let's start the discussion there."
What is the Fiscal Cliff?
What is the fiscal cliff, and how do we avoid it?
The fiscal cliff will be crossed on Jan. 2, 2013 when $530 billion in tax increases and spending cuts at the federal level take place due to a previous budget agreement between Congress and the Obama administration.
Since Congress and the Obama administration could not reach an accord to reduce the federal budget deficit, a series of automatic tax hikes and decreases in spending will take place instead to achieve the necessary savings.
This is much like the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act from 1985. The fiscal cliff will pack a one-two punch to U.S. cities that are already burdened by heavy debt loads, and raise taxes on U.S. households struggling to recover.
That will have a tremendous negative impact on the global economy as Europe is in a recession and economic growth is slowing in China and India.
Based on the 320-point drop in the Dow Jones Industrial Average the day after President Obama's re-election, Wall Street is not bullish about the future of the economy.
The fiscal cliff will be crossed on Jan. 2, 2013 when $530 billion in tax increases and spending cuts at the federal level take place due to a previous budget agreement between Congress and the Obama administration.
Since Congress and the Obama administration could not reach an accord to reduce the federal budget deficit, a series of automatic tax hikes and decreases in spending will take place instead to achieve the necessary savings.
This is much like the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act from 1985. The fiscal cliff will pack a one-two punch to U.S. cities that are already burdened by heavy debt loads, and raise taxes on U.S. households struggling to recover.
What is the Fiscal Cliff Effect on the U.S. Economy?
According to the Congressional Budget Office, a non-partisan organization, if there is no other agreement and the fiscal cliff is crossed on Jan. 2, the United States could fall back into a recession in 2013.That will have a tremendous negative impact on the global economy as Europe is in a recession and economic growth is slowing in China and India.
Based on the 320-point drop in the Dow Jones Industrial Average the day after President Obama's re-election, Wall Street is not bullish about the future of the economy.
As We Near Fiscal Cliff, Avoid These Vulnerable Stocks
According to a recent study by CEO organization Business Roundtable, major corporations are preparing for the Jan. 2 onslaught of the fiscal cliff.
Unless an accord is reached, the fiscal cliff could lead to negative U.S. economic growth for the first half of 2013 and unemployment soaring to 9.1%, according to research from KBW.
The fiscal cliff will deliver a market-wide impact, but the brunt of vulnerability will be placed on a lot of the same sectors and companies that suffered during the Great Recession.
The good news for many of these stocks is they've all enjoyed good runs this year, delivering healthy returns for investors.
The bad news is that could all change by Jan 2.
Fiscal Cliff Danger Zone: Three Stocks to Avoid
Defense, housing and finance stocks are sure to be clobbered if the fiscal cliff is crossed.
Federal spending is the lifeblood of the defense industry, which will feel the most pain from fiscal cliff spending cuts. Many of these companies do not have the diversity in business operations to survive.
Lockheed Martin Corp. (NYSE: LMT) is particularly exposed as it is the nation's largest defense contractor.
Already Lockheed Martin has created fiscal cliff survival plans. According to its Chairman and Chief Executive Officer, Robert Stevens, Lockheed Martin has slowed down hiring new employees and is prepared to lay off workers.
LMT's share price fell about 50% from September 2008 to February 2009 due to the Great Recession, but the fiscal cliff effect could hit it much harder since defense spending was still strong during the stock's last tumble. Lockheed is up almost 17% this year to over $94, and 50% since 2009.
Editors Note: [ppopup id="70925"]Bypass these risks altogether with this fiscal cliff-proof profit play [/ppopup]
The fiscal cliff spending cuts affecting the defense sector will have a ripple effect into related markets. That includes the Washington, DC housing market which won't be able to continue a recovery if people in the region start losing jobs.
That's why home builder NVR Inc. (NYSE: NVR) is in trouble.
Building luxury homes in the Washington, DC area, NVR had to file for bankruptcy back in 1992 due to adverse economic conditions in the mid-Atlantic region at that time.
Unless an accord is reached, the fiscal cliff could lead to negative U.S. economic growth for the first half of 2013 and unemployment soaring to 9.1%, according to research from KBW.
The fiscal cliff will deliver a market-wide impact, but the brunt of vulnerability will be placed on a lot of the same sectors and companies that suffered during the Great Recession.
The good news for many of these stocks is they've all enjoyed good runs this year, delivering healthy returns for investors.
The bad news is that could all change by Jan 2.
Fiscal Cliff Danger Zone: Three Stocks to Avoid
Defense, housing and finance stocks are sure to be clobbered if the fiscal cliff is crossed.
Federal spending is the lifeblood of the defense industry, which will feel the most pain from fiscal cliff spending cuts. Many of these companies do not have the diversity in business operations to survive.
Lockheed Martin Corp. (NYSE: LMT) is particularly exposed as it is the nation's largest defense contractor.
Already Lockheed Martin has created fiscal cliff survival plans. According to its Chairman and Chief Executive Officer, Robert Stevens, Lockheed Martin has slowed down hiring new employees and is prepared to lay off workers.
LMT's share price fell about 50% from September 2008 to February 2009 due to the Great Recession, but the fiscal cliff effect could hit it much harder since defense spending was still strong during the stock's last tumble. Lockheed is up almost 17% this year to over $94, and 50% since 2009.
Editors Note: [ppopup id="70925"]Bypass these risks altogether with this fiscal cliff-proof profit play [/ppopup]
The fiscal cliff spending cuts affecting the defense sector will have a ripple effect into related markets. That includes the Washington, DC housing market which won't be able to continue a recovery if people in the region start losing jobs.
That's why home builder NVR Inc. (NYSE: NVR) is in trouble.
Building luxury homes in the Washington, DC area, NVR had to file for bankruptcy back in 1992 due to adverse economic conditions in the mid-Atlantic region at that time.
To continue reading, please click here...
Don't Let Fiscal Cliff 2013 Scare You from Dividend Stocks
Amid all the talks of fiscal cliff 2013, which we'll hit Jan. 1 if Congress doesn't act, some analysts are warning of the impact on dividend stocks.
That's because some of the tax increases associated with the fiscal cliff could deliver a hefty tax hike to dividend income.
But the possibility of higher dividend taxes doesn't mean you should ignore the sector altogether.
History shows that dividend-paying stocks have outperformed non-dividend shares even at a time when taxes were much higher. For income-seeking investors, any pullback in dividend-paying stocks as the fiscal cliff approaches may just be a buying opportunity.
Investors early to the game will enjoy dividend payments and also benefit from these companies' healthy market performance.
Fiscal Cliff Effect on Dividends
If nothing is resolved before year-end and Congress fails to take action, dividends received will be taxed as ordinary income instead of the current maximum 15%. Ordinary income tax rates are scheduled to revert to pre-2003 levels, with a maximum of 39.6%.In addition, a new 3.8% tax will be tacked on to help pay for the Affordable Care Act. For some taxpayers, dividend taxes would nearly triple.
But remember, before investors enjoyed the 2003 dividend tax breaks that put dividend taxes on par with capital gains taxes, payouts had been taxed for decades at ordinary income rates. For some, the tax was as much as 91% in the late 1950s and early 1960s, 70% in the 1970s and 50% in the early 1980s.
Despite those lofty tax rates, dividend stocks continued to maintain a prominent position in portfolios of income oriented investors, and these stocks continue to share their wealth with satisfied shareholders.
From the end of 1979 through July 2012, dividend-paying stocks in the Standard & Poor's 500 Index carried an annualized total return of 12.1%. That compares with a 10.7% return for nonpayers, according to data from research firm S&P Capital IQ.
MarketWatch did the math and calculated that an initial investment of $10,000 in the dividend bunch would have morphed to a whopping $408,000 over that time frame compared to $271,000 for the nonpaying group.
To continue reading, please click here...
Fiscal Cliff 2013 Will Bury Debt-Ridden U.S. Cities
With fiscal cliff 2013 approaching on January 2, it is struggling U.S. cities that stand to suffer the most if Congress fails to help.
These U.S. municipalities are already in terrible fiscal shape due to the effects of The Great Recession. Now they're facing the effects of automatic tax increases and deep spending cuts of 9%, about $560 billion in total.
Like Gramm-Rudman-Hollings from 1985 that imposed automatic spending cuts, these powerful one-two combinations will floor cities that have unwisely come to rely on federal aid.
"Cities are going to be facing very rough waters for the next couple of years," predicted Michael Pagano, dean of the College and Urban Planning and Public Affairs at the University of Illinois-Chicago.
These U.S. municipalities are already in terrible fiscal shape due to the effects of The Great Recession. Now they're facing the effects of automatic tax increases and deep spending cuts of 9%, about $560 billion in total.
Like Gramm-Rudman-Hollings from 1985 that imposed automatic spending cuts, these powerful one-two combinations will floor cities that have unwisely come to rely on federal aid.
"Cities are going to be facing very rough waters for the next couple of years," predicted Michael Pagano, dean of the College and Urban Planning and Public Affairs at the University of Illinois-Chicago.
Fiscal Cliff 2013: Global Concern is Growing
It's been a couple months since the Congressional Budget Office shared some negative news about the looming "fiscal cliff" - even suggesting a possible 2013 recession - and investors worldwide are starting to take the warning more seriously.
The fiscal cliff is the coinciding action of tax increases and spending cuts that will activate on Jan. 1, 2013 unless Congress and the White House take some action to either delay or change them.
Should these two actions combine, you'll watch $7 trillion be tagged onto the nation's debt over the next decade. This would come out to around $500 billion next year,according toCNN.
Not helping matters is that we've unofficially hit the middle of summer; the clock is ticking louder for the fiscal cliff as expectations for political stagnation instead of a resolution have increased ahead of Election 2012.
A recent Morgan Stanley (NYSE: MS) survey highlighted the fiscal cliff concerns.
According to MarketWatch, 65% of global investors - 71% of U.S. respondents - believe that "the fiscal cliff will cause significant uncertainty in markets for the rest of the year, but think policy makers will ultimately agree to extend most or all of the expiring stimulus and tax measures."
But only 24% of global investors believe the risks surrounding it are overblown.
The fiscal cliff is the coinciding action of tax increases and spending cuts that will activate on Jan. 1, 2013 unless Congress and the White House take some action to either delay or change them.
Should these two actions combine, you'll watch $7 trillion be tagged onto the nation's debt over the next decade. This would come out to around $500 billion next year,according toCNN.
Not helping matters is that we've unofficially hit the middle of summer; the clock is ticking louder for the fiscal cliff as expectations for political stagnation instead of a resolution have increased ahead of Election 2012.
A recent Morgan Stanley (NYSE: MS) survey highlighted the fiscal cliff concerns.
According to MarketWatch, 65% of global investors - 71% of U.S. respondents - believe that "the fiscal cliff will cause significant uncertainty in markets for the rest of the year, but think policy makers will ultimately agree to extend most or all of the expiring stimulus and tax measures."
But only 24% of global investors believe the risks surrounding it are overblown.
To continue reading, please click here...
Fiscal Cliff 2013: IMF Warns of Global Impact
Worries over the looming "fiscal cliff" are spreading, and implications of the scheduled tax increases have become a growing global concern.
The fiscal cliff is the coinciding action of tax increases and spending cuts that will activate on Jan. 1, 2013, unless Congress and the White House change or at least delay them.
Everyone has an opinion on the matter, and this week the International Monetary Fund added its two cents.
The IMF issued a fresh report Tuesday warning that failure to avoid the fiscal cliff in 2013 could put the brakes on the U.S. growth rate, pushing it under 1%. Such a slowdown poses great risk to economies worldwide.
The IMF said the global implications for early 2013 are a negative growth rate with "significant negative repercussions on an already fragile world economy."
"It is critical to remove the uncertainty created by the "fiscal cliff" well as promptly raise the debt ceiling, pursing a pace of deficit reduction that does not sap the economic recovery," the IMF said in its annual health check of the U.S. economy.
Under current fiscal cliff terms, the proposed spending cuts and tax increases would minimize the deficit by approximately 4% of GDP in 2013.
Lawmakers should, the IMF counseled, replace the fiscal cliff with a program of small deficit reductions in the short-term with a longer term fiscal sustainability program.
Christine Lagarde, IMF Managing Director, said at a press conference Tuesday that a small deficit reduction means cuts amounting to 1% of GDP next year. The downside risks to the U.S. economy as well as worldwide financial systems have deepened, she noted.
"We believe that fiscal consolidation is necessary but not just any fiscal consolidation. It has to be sensible and certainly not excessive," said Lagarde.
The fiscal cliff is the coinciding action of tax increases and spending cuts that will activate on Jan. 1, 2013, unless Congress and the White House change or at least delay them.
Everyone has an opinion on the matter, and this week the International Monetary Fund added its two cents.
The IMF issued a fresh report Tuesday warning that failure to avoid the fiscal cliff in 2013 could put the brakes on the U.S. growth rate, pushing it under 1%. Such a slowdown poses great risk to economies worldwide.
The IMF said the global implications for early 2013 are a negative growth rate with "significant negative repercussions on an already fragile world economy."
"It is critical to remove the uncertainty created by the "fiscal cliff" well as promptly raise the debt ceiling, pursing a pace of deficit reduction that does not sap the economic recovery," the IMF said in its annual health check of the U.S. economy.
Under current fiscal cliff terms, the proposed spending cuts and tax increases would minimize the deficit by approximately 4% of GDP in 2013.
Lawmakers should, the IMF counseled, replace the fiscal cliff with a program of small deficit reductions in the short-term with a longer term fiscal sustainability program.
Christine Lagarde, IMF Managing Director, said at a press conference Tuesday that a small deficit reduction means cuts amounting to 1% of GDP next year. The downside risks to the U.S. economy as well as worldwide financial systems have deepened, she noted.
"We believe that fiscal consolidation is necessary but not just any fiscal consolidation. It has to be sensible and certainly not excessive," said Lagarde.
To continue reading, please click here...
How to Fix the U.S. Housing Market
If this week's economic reports showed us anything, it's the fact that two years into what's supposed to be an economic recovery, the U.S. housing market remains on life support.
But here's what those reports didn't tell you: If the housing market isn't fixed soon, it's going to drag the rest of the economy down into a hellish bottom that will take years, if not decades, to crawl out of.
The housing market is our single-most important generator of gross domestic product (GDP) and, ultimately, national wealth.
It's time we fixed what's broken and implemented new financing and tax strategies to stabilize prices.
Contrary to the naysayers - and in spite of political pandering and procrastination - we can almost immediately execute a simple two-pronged plan to fix mortgage financing and stabilize U.S. housing prices.
I call it a not-so-modest proposal.
And without an effective plan to arrest the double-dip in housing, there's no bottom in sight.
Hope Now, an alliance of lenders, investors and non-profits formed at the behest of the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, counts 3.45 million homes being foreclosed from 2007 through 2010. Current estimates of pending and potential foreclosures range from another 4 million to as many as 14 million.
According to RealtyTrac, a real-estate data provider, the country's biggest banks and mortgage lenders are sitting on 872,000 repossessed homes. If you add in the rest of the nation's banks, lenders and mortgage-servicers, the true number of these REO (real-estate owned) homes is closer to 1.9 million.
These shocking statistics illustrate just how large the current overhang of bank-owned properties actually is (at current sales levels, REO properties would take three years to unload). And they help us to understand how the staggering number of yet to-be-foreclosed, repossessed, and sold homes will depress U.S. housing market prices for years to come.
But here's what those reports didn't tell you: If the housing market isn't fixed soon, it's going to drag the rest of the economy down into a hellish bottom that will take years, if not decades, to crawl out of.
The housing market is our single-most important generator of gross domestic product (GDP) and, ultimately, national wealth.
It's time we fixed what's broken and implemented new financing and tax strategies to stabilize prices.
Contrary to the naysayers - and in spite of political pandering and procrastination - we can almost immediately execute a simple two-pronged plan to fix mortgage financing and stabilize U.S. housing prices.
I call it a not-so-modest proposal.
The Worst Since the Great Depression
The facts are frightening: We are in a bad place. The plunge in housing prices we've seen during the current downturn is on par with the horrific freefall the U.S. housing market experienced during the Great Depression.And without an effective plan to arrest the double-dip in housing, there's no bottom in sight.
Hope Now, an alliance of lenders, investors and non-profits formed at the behest of the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, counts 3.45 million homes being foreclosed from 2007 through 2010. Current estimates of pending and potential foreclosures range from another 4 million to as many as 14 million.
According to RealtyTrac, a real-estate data provider, the country's biggest banks and mortgage lenders are sitting on 872,000 repossessed homes. If you add in the rest of the nation's banks, lenders and mortgage-servicers, the true number of these REO (real-estate owned) homes is closer to 1.9 million.
These shocking statistics illustrate just how large the current overhang of bank-owned properties actually is (at current sales levels, REO properties would take three years to unload). And they help us to understand how the staggering number of yet to-be-foreclosed, repossessed, and sold homes will depress U.S. housing market prices for years to come.
Please read on by clicking here ...
Special Report: How the Government is Setting Us Up for a Second Subprime Crisis
[Editor's Note: Shah Gilani, a retired hedge fund manager and noted expert on the global credit crisis, predicted this developing FHA debacle in a July 2008 Money Morning essay.] Is the government creating another subprime-mortgage bubble? The first time around, the three-headed federal serpent - the Bush administration, the Treasury Department and the U.S. Federal […]
The Slow Death of General Motors
By Martin Hutchinson Contributing Editor Money Morning U.S. President Barack Obama's firing of General Motors Corp. (GM) Chief Executive Officer G. Richard Wagoner Jr. may be the beginning of the final act of a long and sad drama - the slow death of GM. The company nameplate may soldier on in some form, but it […]