Ho, hum, the Federal government is threatening to shut down next week, but I don’t think that will happen. Congress will most likely extend the payroll tax holiday, unemployment benefits, and (maybe) 100% write-offs for business capital investments. They’ll probably also extend a budgetary sleight of hand for Medicare that allows us to pretend that we’re going to pay doctors less in the future but actually maintain their reimbursement levels every year. I believe congress won’t raise taxes on millionaires and won’t raise Medicare premiums for them either. And we probably won’t speed up consideration of cross-country oil pipelines—never mind what the merits of any of those important decisions might be. And remember the super committee that was going to pay the bill for last August’s debt ceiling extension? We’re not one whack of the Speaker’s gavel closer to solving our long-term budget problems.
The notion seems to be floating around that next year’s general election will act as a referendum on the size of our government, the reconstituted Congress and newly elected administration—whether headed by the current president or some as-of-yet-unnamed alternative—and will have a mandate to straighten things out. Really? Your subsidy is still my incentive, and your tax burden is still my “price you gotta pay” for (A) national security, (B) education, (C) health care, (D) promised Social Security, or (E) all of the above—plus a bridge to nowhere.
Matters could be worse. We could be in Europe which, by virtue of imposing a common currency on a highly diverse collection of economies, political cultures and social expectations, faces a common problem—that is, a shared economic crisis—without institutions that have the authority, to say nothing of the political will, to take necessary actions. I continue to expect that the on-going mess will lead Europeans to build those institutions, much as state debt problems played a role in building the U.S. Federal Constitution on the wreck of the weaker Articles of Confederation. But events moved a bit slower 220-some years ago, and several hundreds of billions of euro sovereign and bank debt need to be refinanced in the first five months of 2012.
Someone recently said that Congress responds to two “c’s”: crisis and Christmas. Congress does seem about to reach a deal in time for their holiday vacation, and Europeans will probably find a way to avert a spring financial crisis. In the meantime, investors are experiencing conniptions.