After watching the Sunday talk shows, it is clear the administration is looking for something that could only look "smart" through a skewed prism and odd sense of beauty. It felt like everyone on the Democrat side of the aisle should have been sporting Mike Tyson's Maori-inspired face tattoo - they came with bad intentions. But, they have the upper hand, so the question remains what kind of knockout we should brace for.
There is no way Republicans will go for $1.6 trillion and $50.0 billion stimulus or tax hikes as proposed. (By the way, a stimulus project in my town is finally completed. The tiny bridge is rarely used and as far as I could tell was in good shape. The job took three years or the same amount of time foreign countries need to erect buildings two to three times taller than the Empire State Building. Interestingly, the project and giant billboard promoting it were done after the election.) But there will be higher taxes when indeed they should actually be lowered. In many ways, it doesn't matter because even if the entire Draconian package were passed it would be the tip of the iceberg.
Free markets will continue to have to deal with a government with an insatiable appetite and sharp elbows... and the keys to the rules book.
This dual existence cannot be good for the economy but as usual I have to stress I don't think it means the wheels come off immediately. On the contrary, we are talking about the greatest nation in the world. Greece was able to make this junk-economic approach look palatable for decades. Although Grover Norquist took most of the punches on Sunday, there is no doubt the GOP woke up in pain this morning. (For the record, I'm not a fan of pledges beyond the oath of office for elected officials, even if it's for a great cause like not destroying the nation with an avalanche of taxes that fuel the dependency economy.)
In addition to more fiscal cliff drama, this is week is chocked full of scheduled economic reports finishing with Friday's employment report. I'm not sure to what extent Sandy will sway the numbers, but it will be a convenient excuse if things aren't up to snuff. Hearts and stuff are rare in Washington, and it looks like another week of daggers and spears. I suspect the market thinks a deal is forthcoming, albeit probably something akin to kicking the can into the new Congress.
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