(9 am. – promoted by ek hornbeck)
I’ll keep this short and to the point.
First of all, the stock market had a horrible day BECAUSE of the budget deal.
MARKET SNAPSHOT: U.S. Stock Losses Intensify After Senate Vote
I’m watching the numbers now, and stocks will be closing near their lows of the day. People are putting their money where their pocketbook is and saying that the budget deal will hurt the economy.
How much will it hurt the economy?
JPMorgan Chase has an early answer to that question.
As such, regardless of how the Committee fares, it appears that a first rough estimate is that the total tightening implied by the recent legislation would subtract about 0.3%-point from GDP growth next year.
This drag may appear fairly small, but it is on top of the substantial tightening that was already in place prior to the passage of the debt deal. Most of that fiscal tightening comes about through the automatic expiration of temporary stimulus measures. The table below details those measures, the largest of which is the one-year 2%-point payroll tax holiday, which expires next January. Other large programs that are scheduled to expire or phase out are emergency unemployment benefits, accelerated depreciation, increased transfers to the states, and much of the remaining spending associated with the 2009 Recovery Act. All in all, by our estimates federal fiscal policy will subtract around 1-3/4%-points from GDP growth next year. Given that GDP growth has been 1.6% over the past four quarters when fiscal policy has been much less of a drag, this doesn’t bode well for next year. There are elements of uncertainty in our 1-3/4%-point drag estimate, and the largest such uncertainty is probably political, as some measure could get extended.
In other words, JPMorgan Chase is expecting GDP growth to flatline this year and next year at near zero levels.
If you want to know what is coming down the line, just look across the pond to Britain. Remember Britain and their new conservative government? They were going to dramatically cut everything the working class and poor might want, and still have economic growth. Does that sound familiar?
Some government departments are seeing their budgets cut by a quarter, welfare payments are to be cut, and capital expenditures are being postponed. Libraries are closing, and local governments are preparing mass redundancies.
With a budget deficit of more than ten per cent of G.D.P., Britain clearly had to address the public finances. But rather than following the Obama model of introducing a short-term fiscal stimulus to revive growth and tax revenues, Osborne and his boss David Cameron opted for the cut-and-slash policy methods of Andrew Mellon and Philip Snowden-in an effort to balance the budget by 2015. At the time, I and many other observers said that the likely outcome of this absurd exercise in self-flagellation was a sharp dip in growth, and possibly even another recession.
So how’s that working out for you guys? The WSJ reported on that today.
According to a survey of purchasing managers at U.K. factories, manufacturing activity contracted in July for the first time since June 2009.
If this contraction carries over into other parts of the economy, it raises the possibility that the U.K. will end September of this year with a gross domestic product not much greater than in September 2010, and possibly even lower.
And there is good reason to suppose that manufacturing isn’t the only weak spot. According to a European Commission survey released last week, confidence among service providers and retailers weakened even more sharply than among manufacturers during July….
And the big cuts in public-sector spending and jobs have yet to come, though higher taxes on consumption and incomes have already been put in place. Overall, what’s happened so far is austerity-light, the prelude rather than the main event.
So the entire Anglo-world is embracing austerity in the teeth of a double-dip recession and against all evidence that it will work.
But we must do whatever it takes to protect the TBTF banks. Even if it means gutting the real economy to pay interest on bad debts.
Meanwhile the Fed is considering printing some more money to throw at the economy, and gold is responding to this by hitting new all-time highs.
Who could possibly have anticipated something like that?