Washington Gridlock Explained

jb
Compromise does not work in Washington, as demonstrated by this man, John Boehner

If the fiscal cliff debates have taught me anything, it’s that John Boehner is fucked. Republicans and Democrats mostly want the same things:

  1. Kick the defense budget debate into 2013 and end automatic cuts
  2. Kick other government spending cuts into 2013 as well, avoid cuts to government workers
  3. Permanently adjust the Alternative Minimum Tax rules so inflation is always accounted
  4. Raise government revenue

It is item number 4 that is the big problem. Both sides are OK with reducing tax reductions (like charities) for all Americans, which is speculated to raise between $400-800 billion over 10 years. The difference is Democrats want to raise additional revenue on those who make more than $250,000 a year, and Republicans don’t want to raise any additional revenue from taxpayers. Here is where things get really funny.

John Boehner created a fallback plan, “Plan B” where he will allow tax increases for those who make more than $1 million a year. Obama and almost all Democrats denounced this plan and said they would not pass it. Boehner, insistent on this compromise went ahead and tried to pass it in the House, as kind of a political theater to show there was interest in this bill. The only problem, Republicans didn’t want this either! Tax increases on those who make more than $1 million won’t fly past Republicans.

Additional to this clusterfuck, Obama has compromised and agreed to increase the income from $250,000 to $400,000, which the Republicans obviously denounced because it is an increase on taxes for citizens. However, Democrats are complaining that Obama pledged that taxes should go up on incomes greater than $250,000 – not $400,000. So Obama’s party is pissed that he’s breaking a campaign pledge. Now Obama has to fear that his own party will not be willing to pass this legislation, since it is not what he promised.

Ultimately, there will have to be compromise. Obama has the least to lose really – he’s already been elected to the last 4 years of his political career. Boehner is fucked though. His willingness to compromise on taxes is going to kill him in his party. To get a bill passed, he and a few other Republicans will have to give in on tax revenue to while getting the Democrat minority in the House to pass the bill. Democrats will ultimately compromise on Obama’s compromise, because backing the President is the best thing for their party. Democrats have the most to gain if we go over the cliff, because if there is not compromise, then taxes are increased for ALL incomes – which means Republicans have a lot to lose if there is no compromise. The big question is if a few key Republicans are willing to swallow their pride and raise rates for the minority of citizens, so the majority can keep their current tax rates.

Apple to Manufacture PCs in the US – Big Mistake

This is how PCs are made!

Apple has recently announced that it will move manufacturing production of one of its PC lines exclusively to the United States in 2013. The speculation is the iMac line, as some of the newer units have already been labeled with “Assembled in USA”. The cost of this move is going to cost the electronic behemoth $100 million. Even though it is a wonderful PR move for Apple, it reeks of financial disaster. Investors already know this, which is why the stock dropped 5% the day before the announcement. It’s a terrible idea for two reasons: 1) this will undoubtedly lower the margin of profit per PC or it will 2) raise the price of PCs. Apple already charges a premium on its PCs relative to the rest of the commercial computer industry, so raising its prices could be harmful. Not raising the prices of the PC line will lead to smaller margins, which will hurt Apple’s bottom line. Throw in the $100 million capital to jump start this effort, and you are creating some real pain for investors.

On the contrary, Apple has so much cash that it uses 100-million-dollar-bills as toilet paper. Apple also makes the majority of its money from iPods, iPhones, and iPads – so sacrificing one of its desktop production lines for good PR might actually make it a pretty reasonable marketing move. All in all, the move will probably end up being a wash for the company and have very little or no impact on the company. So… sorry for wasting your time reading this post. Email your rage at stepasideshow@gmail.com

The Tax Battle and the Consequences for Grover Norquist

Grover Norquist

The last few weeks and for the next couple of weeks the pundits of the world will be talking about the speculative congressional/White House fiscal deal and its consequences on the Grover Norquist Republican tax pledge. Democrat pundits are giddy because it could be the end of irrationally not raising taxes while Republican pundits are trying to say its not a big deal if revenue is raised by closing loopholes and ending tax incentives; as long as rates are not increased. It’s all very annoying and stupid, let me tell you why.

Grover Norquist is the president of a *lobbyist* group called Americans for Tax Reform. He formed it 20 years ago after George H. W. Bush promised not to raise taxes, but then went ahead and raised taxes. Norquists thought was that if he could get every elected republican to sign his pledge, then taxes will not be increased because they would have the backing of his lobby. It’s a brilliant financial move on his part: reach out to wealthy political donors and tell them “I stand for never raising taxes” – pretty easy sell really. Then, offer all this donor money to campaigns, as long as the person running for office signed the pledge – easy sell for the person running for office too. The problem is, the elected officials really wanted to live by this pledge because at the time, they thought it was a good idea. However, a lot of them are now realizing it was unrealistic because its simply not fiscally responsible to only ever lower taxes.

So, now pundits are having a field day because they can talk about what the consequences of a signed deal will mean for Grover Norquist. Democrats think it is the end of the tax pledge days and Republicans are hoping Norquist does not take a serious blow if tax rates happen to go up January 1st. Well let’s put all the speculation to bed right now, because I can see the future and I know exactly what will happen regardless of the details of a potential fiscal deal: nothing will fucking change. That’s right, you heard it here. You know why nothing will change? Because business will still be booming for Grover Norquist. There will still be rich people that will want to donate to his lobby because they do not want more taxes. And new Republicans running for office will still sign the pledge because then they get those fat lobby dollars. Pundits will continue writing about Grover into the new year and speculate his future, all the while his bank account will continue to grow and remain secure. Sure, he might lose a few big donors in the process because some Republicans will break the pledge, but they will be easily replaced by new donors.

The sickening thing here is not the outcome of any fiscal scenario – it’s the fact that everyone knows Grover Norquist runs a lobby, that Republicans get into its pocket if they sign a pledge, and in doing so it completely effects the legislation they are willing to pass. It has NOTHING to do with what is the right thing to do with the country and EVERYTHING to do with where their campaign contributions are coming from. And this is just a public pledge; imagine how many under-the-table pledges exists between lobby’s and candidates on both sides.

Sheldon Adelson – A Strange Rich Dude

.001% of his wealth is more than I will make in my lifetime

Sheldon Adelson is the CEO of the Las Vegas Sands Corporation. In other words, he’s worth about 22 billion dollars. Adelson is also famous for giving a lot of money to republican elections – A LOT! In 2012, his political donations topped $100 million, twice as much as 2008 and half as much as he plans on spending in 2016. Now you would think if someone is willing to throw so much cash at a losing effort (7 out of 8 of the candidates he backed, lost – including Mittens) that he must be a crazy conservative nut job. Well, that might not be the case. In a recent Wall Street Journal article, Adelson claims to be pro-choice on abortion, pro-stem cell research, and even pro socialized health care. So then why would a man with such liberal viewpoints be giving so much money away to republican campaigns? Only one reason: he’s anti-union. Yes, those pesky groups of organized workers that fight for basic rights in the workplace, that is the reason Adelson donates so much of his hard-earned cash to conservative campaigns.

It seems strange to me that Adelson could be so left of the GOP base in terms of healthcare, particularly in the 2012 election, and still have contributed 9 digits to republican campaigns. It makes me wonder if he possibly takes those left positions to make himself look more grounded than he really is. That, or he is just another rich nut-job who really hates unions.

SEC Investigating Exchanges for Unfair Advantages

The amount of porn these displays could support…

The Securities and Exchange Commission is investigating a number of stock exchanges, because they feel the exchanges might be offering unfair advantages to certain clients over others. Basically, the exchanges are believed to have given an in depth view of the exchange internals (with respect to order types) to clients that spend more money.   These clients are told exactly how the exchange processes certain orders, or in other words, the exchange algorithms. Thus, the clients that spend more money at the exchange get better positions because of this extra knowledge that smaller clients do not get. The surprising thing here isn’t the fact that the exchanges are giving their high paying clients this information, it’s that the SEC is just realizing it now!  Holy shit! Next, you’re going to figure out that high frequency trading gives clients that trade with servers at the exchanges have an unfair advantage to those who trade remote. Only 10 years late to the party SEC!

WSJ: Exchanges Get Closer Inspection

The Latest Romney Gaffe – Or is it?

mitt romney
What do you mean “those” people??

If you haven’t heard the latest Romney “gaffe” by now, you probably live in a bubble. The presidential hopeful earlier this year at a high-priced fundraising event said something to the effect of “47% of people are dependent on government, don’t pay taxes, feel they are victims and will probably vote for Obama no matter what.” Leftists are loving these comments, because they think this is the “proof” that Romney secretly hates poor people. Realistically though, this is no different than the normal political gospel he preaches on an everyday basis, just worded a bit more directly.

The only real gaffe is the fact that he added this tidbit – “My job is not to worry about those people.” This, in my opinion, is a harsh statement (although not as bad as his hate on the environment). As the nominee for president, I think he should probably be more focused than just with 53% of the population.

Additionally – 47% of people are not dependent on government, the figure is probably more like 99% when all things are considered (police, fire, education, defense, etc).

Should the US Sell GM Right Now?

United States of GM
United States of GM

Executives at General Motors are urging the United States Treasury department to sell its remaining shares of the once (and probably still) fledgling US automaker. The reason? Because GM claims that the restrictions (like executive pay) are making it difficult for the auto-giant to attract quality talent for its high ranking management staff. If the government were to sell its share today, with the current share price, the government would lose a total of $15 billion. For the US government to break even on the bailout, the share price would have to climb to $50 a share, more than double the current price. With a P/E of only 8.5, $50 is not an entirely laughable target, but can GM reach that target without removing the executive pay restrictions? I actually think so, and I also think it is quite ballsy of GM to even ask the government to sell its shares right now at a cost of $15 billion to the taxpayers.

I suppose at the same time, this guy at Forbes predicts GM will be bankrupt in a years time, so perhaps it is a good time to sell..

Mutualize European Debt: Round 12 – “Human Sacrifice, cats and dogs living together, mass hysteria!”

peter vernman
“We came, we saw, we kicked its ass!”

Let’s finish this once and for all.

You do a great job summarizing the dual-mandate (seriously), however I still fail to see how they can influence unemployment, as this really is a function of the free market. Yes, they can encourage lending by lowering the interest rates to zero (or less), but this does not create organic growth. This kind of dangerous lending can lead to seriously over-manufactured growth, which creates bubbles and ultimately recessions depending on the rate of default. In fact, this sort of thing may have happened recently in the form of mortgages, perhaps you heard about it?

Mutualizing European debt and financial Armageddon are not the only two options on the table (you’re really starting to sound like a professional pundit though, so congrats). You’re forgetting the very simple, very boring middle-of-the-road option of bailing out smaller country’s with short-term payback programs – no real unification and no Armageddon. This will spur a raging amount of mediocre growth over the next 5 – 10 years, after which will be coined “The Lost Decade – European Edition”. I suppose the argument can be made that it’ll bring Europe closer together in the short-term, as Germany will want to make sure as hell Greece and Italy and Spain pay back the loans, but they will in no way be set for the long term.

The reason for my prediction is fairly simple, and that is that there is not enough at stake for unification to take place. Meaning, too many people will make more money in the short term if unification does not happen and too many lifestyle’s will be disrupted if unification were to happen. For instance, Germany would want to impose certain tax laws that other country’s (*cough*Greece*cough*) wouldn’t/couldn’t enforce if they wanted to, and Germany would not be willing to take on the debt burden without said reassurances. Like I’ve said from the beginning, the vast differences in ideology will prevent a European unification. They may get close, I could see them bundling the debt of the weaker country’s like Italy, Spain and Greece – but what happens when you pile shit with more shit? You’re just left with a bigger pile of shit.

I think we’ve exhausted the topic thoroughly at this point, spinning our wheels and re-iterating the same points over and over. We both clearly agree that a unified Europe is better for the world, we just disagree on the timing and the ramifications it will take for Europe to take the steps into unification. This will almost certainly be an interesting read one year from now (maybe even one month as you suggested), as who knows what the ensuing months have in store for us. Ultimately though, the most timeless aspect of these arguments have no doubt been the references to the wonderful movies of our generation, so let’s end it all with a classic…

rodney dangerfield caddyshack
“Hey everybody, we’re all gonna get laid!”

Mutualize European Debt: Round 11 “Get to the Chopper!”

 

” Do it Now!”

EAT MY BALLS, Steve. First, yes Europe will mutualize their debt in the near future, or the Euro will fail and Armageddon will rein. Second, there is no case in which a pure austerity plan has worked when not in conjunction with a stimulus plan or some other outside financial windfall. Third, the free market does not exist in a vacuum. Without a Central Bank and a strong federalized government or a trading partner with another capitalist state, capitalism wouldn’t work nearly as well as you think it does. The freemarket is like Tom Cruise, sure he looks nice and works hard but I am not going to leave him alone with my kids or my wife.

The role of the Federal Reserve is to stabilize wages and prices and maximize employment; this is often referred to as the dual mandate. The problem is that while it is possible to stabilize prices or maximize employment by themselves it is nearly impossible to do both at the same time. This is why it appears that the Fed cannot create jobs as if it were a anglo-teenaged wizard conjuring up breasts on his flat-chested best mate (look for Harry Potter and the Tits of Hermione on book shelves this Christmas). “create jobs” is a completly misunderstood term in the modern lexicon, let’s say instead encourage private sector growth.

Basically what a government and a Central Bank have to do to encourage private sector growth is incentivize investments in the right areas and discourage investments in others. One way this is accomplished is by lowering interest rates. What’s that you say, they are already near zero? Well, let’s make them negatives. Oh, you think that can’t be done? Well then, what if inflation rises, that would mean that money invested would be devaluing at the same rate it is gaining interest, or worse, faster, thus creating a short term negative interest rate. The only safe place to put money would be in long-term investments in physical and human capital, thus createing growth. However you may have noticed in this model I had to raise inflation, but inflation today is a damn site closer to the Fed’s target (2%) than the unemployment target (7%). But the Fed doesn’t actually raise inflation nor does the market really; this model just runs a higher risk of raising inflation.

The Fed’s current M.O. is to target inflation, over unemployment, hoping that stable wages and prices will eventually lead to increased growth. The Fed has the power to increase employment but it is not willing to if it means raising their inflation target. For one, they will lose credibility and two, fuck, what if inflation raises faster than employment? Hey, what the shit, I thought we were talking about Europe.

These are my last words on the subject. Germany has pledged to save the Euro, and since the Euro can’t stand without a higher level of cooperation in the European economy there is no choice but to mutualize their debt. It’s not the best choice, it’s the only choice. Seriously, spell out for me, Brooklyn Steve, how the fuck the Euro survives without a mutualization? And if you think that the Euro will collapse then tell me what happens next, who will stop runs on banks, who will be able to print and distribute new currency without panic, hording, or rapid inflation? Save the Euro, mutualize debt, and unite Europe, it’s the only way.

Of course there are those who don’t want to because it is not profitable for them or it goes against their ideology, but being a player in the global economy means doing things that need to be done. It is Ironic to me to think of Germany in this position, maybe because it was their depression that gave rise to Hitler in World War II tried and failed to bring all of Europe to its knees before him. And now Germany is a economic phoenix that rose from the ashes of despair and austerity to save Europe.

The Paul Ryan Debate

paul ryan in little car
Driving his way to the White House

Vice Presidential Candidate Paul Ryan believes in small government and big business; in other words he doesn’t fall far from the standard Republican tree in terms of ideology. Where he does differ from his peers is his ability to materialize the ideas needed to create a smaller government while providing wonderful benefits to large company’s and lowering the country’s debt over a period of about 30 years. Sounds great, right?

The truth is it sounds great depending on what you truly would like to see for American society. The downside to the Ryan budget is a huge cut to medicare, social security, welfare, and medicaid after 10 years from the enactment of his plan. Why 10 years? Probably so he doesn’t become unpopular with the poor and senior citizens while he’s in office, and hopefully those affected in 10 years will forget who is responsible for their lack of care. Ryan has also mentioned increase in tax revenues via the closing of tax loopholes, but his bills fail to mention explicitly which loopholes will be closed. If you want to know what a Paul Ryan economy looks like, just read some American history books about the era prior to Lyndon B. Johnson’s “The Great Society” times.

The Romney campaign has already clearly stated that the Ryan budget is not the Romney budget, even though Ryan has had two drafts successfully pass in the Republican controlled House of Representatives. Ryan is however a powerful figure among the conservative base, which is exactly what Romney needs right now. Unlike my cohorts here at the Step Aside Show, I believe Paul Ryan gives Mitt Romney the best chance he possibly could have at his run for presidency. Not because Paul Ryan’s budget is widely favored by the country (I believe more people would dislike Ryan’s budget once they understand everything that is in it), but because he is a man that thinks outside the box and is able to put ideas on paper, a trait most congressmen lack. Ryan also helps solidify the republican base while attracting a number of independent voters who will like him for being an “idea’s” guy, both things which are huge for a presidential candidate.