Market Talk

This has got to be the emptiest threat I’ve heard in I don’t know how long, and I hear a lot of them these days.

From the Journal’s Damian Paletta:

WASHINGTON (Dow Jones)–Top White House economic adviser Lawrence Summers praised the White House’s tax-cut compromise with Republicans, but issued a defiant warning to Congress to not make some of these cuts permanent when major elements expire in two years.

“Compromises that were necessary with a weak economy in 2010 should be inconceivable as recovery accelerates in 2012,” Mr. Summers said in a speech at the Economic Policy Institute Monday.

Really? Oh, really, Mr. Summers? Let’s see if we can guess what the argument’s going to be in two years time.

If the economy’s good: low tax rates boost spending, which boosts economic activity, so raising rates would be a bad thing.

If the economy’s bad: the economy’s bad. Raising rates now would make it worse.

If the Democrats caved now, think they’ll have any more gumption in two years time? With Obama facing a bracing re-election fight against Sarah Palin? Good luck with that one. Face it, the tax rates are here to stay. Nobody cares about deficits in Washington, absolutely nobody, unless it’s to use them as a wedge against the other party.

You know what, I’ll be as happy as the next guy to see my paycheck get bumped up a bit next year, both because my taxes won’t be rising, and the reduction in the FICA tax. I’ll finally be able to complete my collection of racoon-proof garbage cans, and I can easily afford that new ice scraper for my car, and maybe I’ll buy a few Beatles songs at the iTunes store. Hell, I might even buy a new winter coat. The wife says my current one makes me look like the Unibomber.

But, I mean, come on! $860 billion? $860 billion?!

That’s what the Obama-GOP tax-cut deal is going to cost the US government over the next decade. Does that strike anybody else as, well, insane? Especially considering the bill effectively covers a two-year period? How’s that math work? You know what all those Congressmen and Congresswomen and the President should do with their savings? But some dictionaries. Turn to the first section, “A,” and look up “austerity.” It comes after “asinine.”

For two years, all we’ve heard out of Washington, and the GOP especially but even from the White House, has been this canard about how the government needs to straighten out its finances. Looming fiscal train wreck I believe is a phrase I’ve heard bandied about.

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The first line of this snippet I wrote for the wire this afternoon is killer. I’m not saying that because it’s mine; it’s not. It’s from Merrill’s Ethan Harris. But he kind of nails it.

“In Washington, compromise means each side, more or less, gets what they want,” Ethan Harris, head of Developed Markets Economics Research at BofA/Merrill, writes. “Yesterday, President Obama said he would agree to extend all Bush-era tax cuts in exchange for extending federal unemployment insurance and cutting the payroll tax by $120B for one year. Relative to our baseline forecast, the plan would add 0.3 to 0.6pp to 2011 GDP growth, while boosting the budget deficit by $200B or more. It also raises the risk of bigger long-term deficits.”

Obama wanted to extend unemployment bennies and the middle-class tax break, the GOP wanted to extend the upper-class tax break. So they struck the hard bargain to extend everything.

By the way, at 11 a.m. our call that today’s rally was a rally about nothing may have seemed silly. But take a look at the markets now: Dow’s up only 15, after being up 89 this morning, and plunging rapidly.

This morning’s smart rally is already showing some signs of flagging. Gold, up sharply earlier, has slipped into the red. Stocks are higher, but have given away some strength. Treasurys continue to sell-off, though. The fact is, this rally may have a short shelf-life, because in the end it’s not about much.

US stocks looking weak, even though the Wall Street spin on Friday’s jobs report — that it would spark a deal on the Bush tax cuts — seems to be playing out quickly.

Word out of DC is a deal is close that would extend the cuts for everybody, and also extend jobless bennies for an unspecified amount of time. Meanwhile, Bernanke suggested on “60 Minutes” last night that he could expand QE2, “if needed,” and Europe’s leaders are getting together to discuss expanding their bailout fund.

Is there any “austerity” in there, anywhere? Bueller? Bueller? Are the only people sharing the sacrifices the common schlubs in Greece and Ireland?

S&P futures down 3.80, DJ futures down 18. Ten-year yield down to 2.97%. Euro down sharply, lately at $1.3269.

Can you spare $12 trillion for an American down on his luck?

A few weeks ago, sitting in as a guest on Fox Business’ web show in the morning (sorry, don’t have the link,) we were talking about the $30B President Obama proposing spending to spur small-business growth. After saying I doubted it would work, Connell McShane asked me what I thought they should do with the money. “Put it toward the debt,” I said.

Connell, playing devil’s advocate, said something to the tune of aren’t most people arguing the opposite, spend money now, and worry about the debt later. I don’t think I had a very good answer to that, to be honest. I was surprised by the push-back.

There are two kinds of deficit hawks these days: people who use the national debt as a crutch to beat the current Democratic administration and Congress over the head, and people who are genuinely concerned about the national debt. I put myself in the latter camp.

It’s not an easy place to be; I don’t want to be lumped in with the Sarah Palin fanboys. But I really do worry that our $12 trillion debt, not even counting the unfunded mandates, or the states’ deficits, is something that needs to be addressed immediately. Not because the other party isn’t doing it, but because the long-run consequences are gut-wrenching changes.

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