Economic Outlook: Goodbye logic

By ANTHONY HALL, United Press International  |  Dec. 31, 2012 at 10:53 AM
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Lawmakers in Washington got closer to a deadline, closer to a deal and further, it would seem, from logic, reason and sanity.

It was two weeks back that The New York Times reported the "philosophical quibbling" was over and the negotiations between House Speaker John Boehner and President Barack Obama had gotten down to a shoving contest on numbers. At that point, there's half a chance that either party could explain the final tax agreement by saying it wasn't what they wanted but it was a sensible compromise. At that point, either party could have made a smilar statement about spending cuts.

There was some horse trading going on Sunday during a debate in the Senate, The Wall Street Journal reported.

Considered one of the most contentious issues in the debate over the nation's next budget, President Barack Obama set the tax threshold at $250,000. If a household earned more than that, taxes would rise. If the occupants earned less, the generous Bush-era tax cuts -- the too-generous tax cuts – would continue.

The counter-proposal from Republicans was to set the threshold at $550,000. Democrats then allowed that they would accept $450,000 as the threshold.

All this sounds maddeningly delightful. Settle at $500,000 and go home.

No can do, apparently. The underlying debate concerns how the tax increases are used.

Republicans expect the hikes would be used to reduce the federal deficit. That was the issue that started this whole mess in the first place, was it not?

Democrats expected the additional taxes would be used to offset spending cuts. In other words, as inexcusable as it was for Republicans to push an agenda of reducing debt without tinkering with revenue, the Democrats have an equally disastrous strategy of reducing debt without any pain felt by their constituents.

What is the real difference here? It seems part of the difference is cultural. President Obama insists on using words like "wealthy" and "rich" hoping, in part, to demonize the people behind the country's success stories.

Reports say the president has built in a few fail-safe mechanisms.

One is to allow the country to hit the "fiscal cliff" and to quickly submit a bill in January that would excuse the middle-class from the tax increases that are set to take effect Tuesday.

Another is to use his inaugural address and his State of the Union speech to humiliate the GOP, casting blame on their devotion to the rich.

Markets opened higher on Monday, showing an odd resilience to the budget impasse, but make no mistake about it, stock markets are where gridlock is felt first. Investors adjust routinely to future expectations, so when the worst comes about, they are ready for it.

In international markets, the Shanghai composite index in China added 1.61 percent. The Hang Seng index in Hong Kong was flat, falling 0.04 percent, and the Sensex in India added 0.09 percent.

The S&P/ASX 200 in Australia fell 0.48 percent.

In Japan, markets were closed for a bank holiday.

In midday trading in Europe, the FTSE 100 index in Britain dropped 0.47 percent while the DAX 30 in Germany fell 0.57 percent. The CAC 40 in France gained 0.56 percent and the Stoxx Europe 600 gained 0.2 percent.

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