Economic Outlook: Budget squawking in D.C.

By ANTHONY HALL, United Press International  |  Nov. 30, 2012 at 9:52 AM
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"It's going to be a rough evening -- everybody saying a lot of pleasant things to each other."

That quote sets the tone for the polite tension in Alfred Hitchcock's 1954 classic "Dial M for Murder." It sprung to mind after reading a quote attributed in The Wall Street Journal to Rep. Rob Andrews, D-N.J., concerning budget talks taking place in Washington.

"There's the public choreography, then there is the real choreography. To reach a deal, it has to look like there was a lot of fighting before the deal was reached," Andrews said.

Be that as it may, investors will react to the artificial pleasantries and the tough-guy posturing in Washington for the next few weeks while Republicans and the White House punch out a budget meant to avoid the "fiscal cliff."

The fiscal cliff has received an almost comedic amount of attention in recent weeks, with many dissecting the metaphor as judiciously as possible.

On "The Daily Show with Jon Stewart," it was called a "fiscal slope" to indicate that "cliff" was overly dramatic. The odd budget predicament set to kick in Jan. 1, might be disagreeable, but hardly as frightening as jumping off a cliff, various pundits implied.

In that sense, what do our elected officials know that they are not telling?

The U.S. gross domestic product stumbled forward in the third quarter, the Commerce Department said, growing 2.7 percent compared to the second quarter with most predictions placing growth in the fourth quarter as far slower than that. That puts the recovery in a precarious position, not steady enough to avoid a derailment if the right jolt came along.

With that in mind, the White House proposed a budget plan Thursday that included all the unfortunate pleasantries that investors do not want to hear. The Journal called it the "first salvo" in the budget debate, making note that both Republicans and the White House know what compromises they are willing to make but are afraid to be the first to say so, as that might sacrifice some leverage.

It's enough to make a grown man cry.

The nation's economic health is in the hands of essentially the same folks who played chicken with the deficit ceiling in 2011 to the point that the country's pristine AAA credit rating was, for the first time ever, brought down a notch by rating agency Standard & Poor's.

Four weeks away from a similar disaster, lawmakers are again playing chicken with the the nation's credit rating and, economists warn, a second recession on the table. It is disheartening beyond words.

The current play: The White House opened the debate with a plan to raise $1.6 trillion in fresh tax revenue and spend $50 billion on infrastructure in 2013. As an added measure, the White House proposed to take away from Congress the right to raise the debt ceiling.

The White House also proposed extending the payroll tax cut and raising $1 trillion over 10 years by returning households that earn $250,000 or more per year to tax rates that were in place before the Bush-era tax cuts came along.

In addition, the plan calls for restricting a few tax options favored by the wealthy that would raise an additional $60 billion per year for the next 10 years.

The response from House Speaker John Boehner, R-Ohio was fairly concise: The White House "has to get serious," he said.

The good news: Neither side has yet decided to walk away from the negotiating table. The bad news: That kind of maverick irresponsibility is just around the corner.

In international markets Friday, the Nikkei 225 index in Japan rose 0.48 percent and the Shanghai composite index in China added 0.85 percent. The Hang Seng index in Hong Kong climbed 0.49 percent and the Sensex in India gained 0.88 percent.

The S&P/ASX 200 in Australia rose 0.63 percent.

In midday trading in Europe, the FTSE 100 index in Britain added 0.28 percent while the DAX 30 in Germany gained 0.34 percent. The CAC 40 in France climbed 0.21 percent and the Stoxx Europe 600 rose 0.14 percent.

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