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How many politicians does it take to screw up an economy?
One.
No, two.
Wait, let me think about this some more — how about 535, as in 435 House member plus 100 Senators.
Hold on, I forgot to include President Obama. Can you give me a couple more weeks to answer?
What is happening in Washington right now is a joke — and a badly constructed one at that. Obama proved that yesterday afternoon by going in front of reporters at a White House press conference — all smiley and flip — despite the fact that serious negotiations were supposed to be going about the financial fate of our country.
Just back from their ill-deserved Christmas break, our leaders spent yesterday trying to cobble together a last minute, half-assed compromise that’ll keep full-blown tax increases and spending cuts from going into immediate effect.
The agreement, as it was being reported as I’m writing, won’t address any cuts in expenditures, but it will increase taxes on enough people — those married folks with incomes supposedly more than $450,000 a year, for instance — to allow our leaders to say they did something without really doing anything.
Oops. It turns out as of last night that they really did do nothing. The hard work will be left to the new Congress — which also will eventually decide to do nothing about our financial problems.
But Washington will be forced to increase the nation’s debt limit in the very near future. And the finger-pointing that will go with that discussion will cause more problems.
Meanwhile, our nation’s $16 trillion-plus debt level will continue to rise, and tax receipts paid to the government will probably decline thanks to the fear instilled in consumers and businesses by the so-called “fiscal cliff” and debt-limit negotiations.
This year’s federal deficit probably won’t be improved one nickel. Nice work, guys!
Three things will get Washington’s attention, and I hope all of them don’t happen at the same time.
First, the stock market could crash. Headlines like that seem to wake elected officials from their slumber, probably because they and their campaign contributors have assets invested on Wall Street.
Ben Bernanke’s Federal Reserve has been propping up the stock market, as you know. Interest rates are so low that anyone who needs to show a return on his or her investments is being forced to turn to Wall Street.
At some point, though, fundamentals like corporate earnings will take over, and this gamble will become too risky. And professional investors will take a hike.
The second shocking event would be if credit-ratings agencies downgraded US debt, as they’ve been threatening to do. That move would, at least theoretically, bring to Washington international embarrassment and cause the government to pay more to borrow money.
The third thing that could happen? The economy could go into a recession.
Official declarations of recessions are tricky things because they usually happen well after the fact. The last recession started in Dec. 2007 and lasted until June of 2009, according to the National Bureau of Economic Research, a private group.
But growth coming out of that recession has been so weak that job creation is very subpar. That slow growth is also causing Washington’s tax revenues to be weak at a time when money is needed to fight unemployment and wars.
In the July-through-September quarter the nation’s gross domestic product expanded at a mediocre 3.1 percent pace, up from just 1.3 percent in the spring quarter. Neither of those figures is trustworthy, because the government has a habit of using lower-than-realistic inflation figures to prop up economic growth.
And growth in the quarter that ended yesterday — which has not been tabulated yet — was probably hurt by the inability of the two political parties to play nicely on the fiscal cliff. Consumers shopped scared this Christmas, and companies couldn’t have felt much better.
Today is the start of a new year, so I’d like to wish you a happy 2013, despite the fact that it is starting on a somber note.