Mike Shedlock

The word of the day is "stalemate".

Last year the Republicans had a chance to accept spending cuts to tax hikes at a 10-1 ratio. They declined. Now president Obama does not want to bargain. Who can blame Obama (except Republicans)? We may disagree, but that is part of the platform that got him elected.

The Republicans do not want to bargain either. And who can blame them (except Democrats)?

Regardless, Republicans blew a golden opportunity last year and that chance is gone. Obama has the upper hand now, and nothing will change that setup.

I certainly am opposed to tax hikes without something substantial in return.

Yet, if Obama holds his ground, the only way to have some cuts across the board right now is for the fiscal cliff to happen.

Could it be that the best political outcome may actually be the dreaded "fiscal cliff"? The fiscal cliff will hit military spending but why shouldn't it? The US could easily defend itself on half its current budget actually.

While pondering those questions and thoughts, please consider Obama Warns of Prolonged Talks as Republicans Rebuff Plan.

President Barack Obama and House Speaker John Boehner stood their ground with opposing plans to avert the fiscal cliff and warned there was no quick path to a solution.

Obama has proposed a framework that would raise taxes immediately on top earners and set an Aug. 1 deadline for rewriting the tax code and deciding on spending cuts, according to administration officials.

It calls for $1.6 trillion in tax increases, $350 billion in cuts in health programs, $250 billion in cuts in other programs and $800 billion in assumed savings from the wind-down of the wars in Iraq and Afghanistan, according to the officials, who asked for anonymity.

Boehner said less than 30 minutes later during a news conference at the Capitol in Washington, that the proposal, presented to congressional leaders by Treasury Secretary Timothy F. Geithner, did nothing to move talks along.

“There’s a stalemate, let’s not kid ourselves,” he said.

Stalemate Solution

The stalemate "solution" comes with its own set of problems.

Contrary to popular belief, the risk is not that too much is done, but rather that both sides unwind nearly the entire "fiscal cliff", achieving no budget reductions at all.

Speaking of which, it's high time we "stop kidding ourselves" about what is happening. There are no budget cutbacks at all under discussion. Rather the discussion centers around reductions in assumed increases, and politicians are having a tough time even with that.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.
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