Watcher’s Forum: The Fiscal Cliff – Let It Happen Or Grand Bargain?

JoshuaPundit:

Every week on Monday morning , the Council and invited guests weigh in at the Watcher’s Forum, short takes on a major issue of the day. This week’s question: The Fiscal Cliff: Let it happen or Grand Bargain?

For those of you whom may not be aware, ‘the Fiscal cliff’ refers to automatic and draconian spending cuts and the end of the Bush-era tax cuts and a general hike in taxes as many Americans now exempt form the Alternative Minimum Tax become subject paying it. This was agreed to the last time by both parties as part of a deal to raise President Obama’s credit card limit ( AKA the debt ceiling) last year. It goes into effect January 1st, 2013 if there’s no agreement between President Obama and the House Republicans on taxes, the debt limit and spending. The president wants to raise taxes on ‘the rich’, another binge of stimulus spending, an increase in the nation’s debt ceiling and sole authority to raise the debt ceiling as he sees fit. The Republicans say they’re open to some tax increases but want significant cuts in spending as part of any deal and are not willing to see another stimulus or give the president the authority he wants to raise the debt ceiling unilaterally.

The Razor: Republicans have put themselves in a position where “heads you win tails I lose.” Given this option we have to look at what concerns the GOP House, the ones who must actually make this bargain.

These members, many elected with Tea Party support in 2010, are ideological and concerned about their reelections. Any compromise the Democrats will offer at this point will be ideologically repugnant. The Democrats and their propaganda wing in the mainstream media have fabricated this November’s election into a progressive landslide even when in reality it was anything but. They will not compromise enough to help these members of the GOP at all, and are on a “mission from g-d” or whatever the equivalent is for fired up atheistic liberals.

So the choice is whether to accept a package of tax increases with minimal if any entitlements cuts IF the Democrats offer such a thing, or allow the country to go off the cliff. That’s a big IF at this point, whether the Democrats will offer anything; I half expect them to keep demagoging the issue in the Press to beat up the Republicans through December while failing to negotiate in good faith. The other choice is to stick to their beliefs, fully aware that the Democrats are likely not serious about negotiations. These members will be pilloried by the Press in January, but they are going to be attacked by the MSM no matter what. At least when the primaries come around in a year they will won’t face Tea Party challengers who claim they sold out to the Dems on the tax issue.

Given such a Hobbesian choice, if I were a conservative member of Congress I would publicize the fact the Democrats have not negotiated seriously because they believe the election was a landslide. I would point out that it wasn’t, and as a consequence cannot offer any compromise on my part because it takes two to reach a deal. Every time I was in front of a microphone I would repeat this mantra. I full expect John Boehner to wobble on this issue and I would resist his calls for my vote. After January I would actively work to unseat him.

The Democrats believe the GOP will take the hit if we go off the cliff, but managed properly, I believe it is still possible to portray the Democrats as overreaching. Besides, by the time these members are up for re-election the country will be more receptive to fiscal conservatism than it is today. In the meantime, unfortunately, the half of the voting public that re-elected Obama needs to be taught that elections have consequences and that handing Democrats money is like giving heroin to a junkie.

The Independent Sentinel: President Obama wants to go over the fiscal cliff. It’s a win-win for him. He gets automatic cuts (he wants the military cuts), higher taxes. and he can blame the Republicans, eliminating them once-and-for-all.

In an interview with The Des Moines Register before the election, which he immediately after asked the paper not to print, he spoke about sequestration and the end of the Bush tax cuts ( Clinton tax hikes) as if they were a done deal.

He always makes the political decision over what is right for Americans. His ideology trumps all.

The deal he offered to Republicans yesterday not only didn’t cut anything, it increased spending and it even has a new stimulus. It caused Mitch McConnell to burst out laughing when he saw it. It was more an insult than a joke however. The Republicans can’t even use it as a starting point.

We did vote for revenge as Obama asked.

We should plan to go over the cliff unless Obama extends the artificial deadline until March.

I think he has made it perfectly clear – no compromises!

JoshuaPundit: In politics, perception is always more important than reality. So let’s start with a little bit of reality. The $1.2 trillion of deficit reduction we’re taking about as the Fiscal Cliff works out to $153 billion over ten years. The federal government borrows that every month.

That said, it’s important to remember that there’s no incentive for President Obama to make any compromises. He wants to raise taxes anyway, many of the mandated cuts will come out of our military budget and best of all, he feels he can blame Republicans for it. This makes absolutely no common sense but the way the president sees it, it makes political sense and he sees it as a win-win situation: either they’ll knuckle under and give him what he wants, or they won’t, and he’ll make political capital out of while getting some things he wants anyway.

I hold no particular allegiance for the Republican Party except as (in some respects) an alternative to what I see as ruinous policies. So my main concern now is the coming midterms and 2016, which means the GOP needs to take steps to make sure their fingerprints aren’t on the coming debacle, especially since the non FOX media will side with the president in pushing his narrative.

If I were John Boehner, I’d go on national TV (or have someone who’s a much better speaker do it) and tell the American people in plain terms exactly what’s going on, and why the GOP can no longer support this irresponsible and childish behavior. And I would directly point the finger at the president, in no uncertain terms, including his failure to present any kind of meaningful compromise.

Finally, I would draw a line in the sand and offer Simpson-Bowles, (the plan of the president’s own bi-partisan commission that he later rejected) as the Republican’s final offer. And walk away.

As an even more extreme alternative, I might even tell the American people that if the president failed to come up with a reasonable offer to get our financial house in order, every Republican legislator was going to vote ‘present’ on President Obama’s proposals, in protest. I would tell the American people that Republicans have no intention of allowing this president to blame his failures on others again.

Make him own the Obama economy.

The Noisy Room: In response to this week’s question: ‘The Fiscal Cliff: Let it happen or grand bargain?’ I wholeheartedly say to the Republicans, jump off the cliff! When this whole monstrous mess started, I predicted it would come to this. I don’t know how anyone can be surprised at the outcome. The two choices are now bend over and take massive tax hikes with no meaningful spending cuts, or go off the cliff. I say take the plunge. It’s the only sane choice at this point.

If the Republicans agree to raise taxes, they will lose what little support they have with conservatives and will go the way of the Whigs. And those spending cuts, well… Reagan never saw the ones he was promised when he raised taxes and the Republicans have just about as much chance of seeing these newly promised ones as North Korea has of verifying their unicorn lair. We are sick to death of the Charlie Brown Party. Read my lips: Progressives lie.

Either way, the Left and the media will make the Republicans out to be the bad guys. So, in the face of that, just do the right thing. Stick by conservative principles, close your eyes and jump. I hear the water is fine. It will give the Republicans time to find their moral bearings, grow a spine and start righting the USS Titanic. Make the message about cutting spending which is the real problem anyway. There is no way to tax your way out of this hole.

Do real financial reform… Cut the hell out of government spending, cut taxes and bring America back to greatness. It will create jobs and prosperity. It will create confidence and freedom. It will free us from the shadow of Marxism. It’s an easy choice; it’s the right choice – the question is, does anyone up there have ‘tener cojones’ to do the right thing anymore? They will if they care more about Americans and the Constitution than their crappy political careers.

To do what Obama and the Liberals want is madness. Raise taxes while increasing spending will speed up America’s death spiral. Want massive growth? Go over the fiscal cliff, do away with the IRS and go to a flat sales tax, let small businesses do their own thing and watch America catapult once again into the strongest nation on earth. Or, compromise and push millions into poverty, slavery and violence. I say, let the cliff diving begin!

The Right Planet:It looks to me like the Republicans are faced with a no-win scenario. This became abundantly clear to me when I saw Robert Reich state on Twitter that the Republicans want to “hold the middle class hostage” by denying 98% of Americans a tax cut. Obama is trumpeting a similar theme. (Funny how all of a sudden the progressives are for Bush-era “tax cuts.”) If I understand correctly, the Obama Administration is proposing freezing the tax rate for 98% of Americans for one year if the Republicans agree to raising taxes on the top two tax rates. A number of conservative pundits, like Rush Limbaugh and Charles Krauthammer, are urging the Republicans to just “walk away” from the deal. The problem I have with this approach is it gives Obama everything he wants. It even lets the president raise the debt limit at will, thereby taking away more power from Congress to control the purse strings.

So, if the Republicans walk away from the deal, the liberal media and the Obama Administration will accuse the GOP of raising taxes on the middle class in order to protect “the rich.” But if the Republicans agree to raising taxes on the wealthy, while agreeing to freeze tax rates for the middle class, then they will be accused of selling out. The only reason I believe the Obama Administration is offering to freeze the tax rate on the middle class right now is simply for political expediency; it serves their agenda and backs the GOP into a corner. Looks like Obama and ilk are holding the Republicans hostage.

What’s particularly odious about the maneuvers by the White House et al. is the fact the Obama Administration has not passed a budget in the entire time it has been in office. Obama has offered no serious proposal to reduce any federal spending. As a matter of fact, he wants another stimulus out of the deal. The fact is taxes are going up, period. And I wouldn’t be surprised if the Republicans get all the blame.

The Glittering Eye: I’ve posted on this very subject several times this week. I find both the White House’s and Congressional Republicans’ positions on this subject very frustrating. Both sides are taking positions that appear purely political to me. They appear to be taking an unnecessarily zero-sum view of the negotiations.

Since I opposed the “Bush tax cuts” in 2002-2003, opposed their renewal in 2010, and am still opposed to them as being the wrong taxes to cut, I have no particular fondness for renewing them now. However, I find the notion that raising taxes on just the highest income earners will do much about income inequality, balancing the budget, or much of anything else for that matter pretty far-fetched.

I’d like to see good faith negotiations from both sides. I have no real hope that’s going to happen. I’d also like to see a pro-growth agenda but I have no greater hope that will happen, either.

I don’t think that any nation in the history of the world has either taxed or cost-reduced its way to greatness or prosperity.

Bookworm Room: The Republicans, who still control the house, have three choices: (1) Give Obama everything he wants; (2) Give Obama nothing; and (3) Compromise. Believe it or not, I prefer option (1).

To begin with, compromise is out. Any type of compromise will work to Obama’s benefit. Obama understands this, which is why he presented the Democrats with a laughable compromise offer, one that gives fiscal conservatives absolutely nothing. If the Republicans actually try to negotiate and he slides a little in their direction, he still wins. Obama knows that, with an utterly compliant press, he will take credit for any slight upticks in the economy, while lambasting the Republicans for the economy’s continued slide.

Giving Obama nothing is no better. The Republicans in the House can hark back to the Reagan era and “just say ‘No.’” The problem with that course of action is that it will result in a stalemate. Unfortunately, this stalemate has ticking bombs in it — sequestration and tax increases. Once these happen, the compliant media will again blame the Republicans, while Obama walks away spotless.

The only approach that offers some hope for long-term American stability and fiscally-sound, constitutional capitalism is the most painful one: The Republicans should give Obama everything he wants. They should turn to the American people and say “By re-electing Obama and keeping the Senate majority Democrat, this is what you asked for, so this is what you’ll get. We wash our hands of it. This is truly Obama’s economy now.” Things will happen quickly (and badly) under this scenario, but the Republicans will have kept their noses clean and will have spelled out very clearly for Americans the differences between socialism and constitutional capitalism.

In the short term, these are all Hobson’s choices, since they are all awful. However, it’s only Option (1) — saying to Obama “you own the economy” — that will provide a short, sharp shock sufficiently horrific to scare people away from a Fabian slide into perpetual socialism.

Well, there you have it.

Make sure to tune in every Monday for the Watcher’s Forum. And remember, every Wednesday, the Council has its weekly contest with the members nominating two posts each, one written by themselves and one written by someone from outside the group for consideration by the whole Council. The votes are cast by the Council, and the results are posted on Friday morning.

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BANK OF AMERICA TO CHARGE $5 MONTH FEE FOR USING DEBIT CARD

NEW YORK (The Blaze/AP) — Bank of America plans to start charging customers a $5 monthly fee for using their debit card to make purchases. The fee will be rolled out starting early next year.

A number of banks have already either rolled out or are testing such fees. But Bank of America’s announcement carries added weight because it is the largest U.S. bank by deposits.

Anne Pace, a Bank of America Corp. spokeswoman, said Thursday that customers will only be charged the fee if they use their debit cards for purchases in any given month. Customers won’t be charged if they only use their cards at an ATM.

The fee will apply to basic accounts and will be in addition to any existing monthly service fees. For example, one of the bank’s basic accounts charges a $12 monthly fee unless customers meet certain conditions, such as maintaining a minimum average balance of $1,500.

A fee for using debit cards is still a novel concept for many consumers and was unheard of before this year. But there are signs it may soon become an industry norm.

SunTrust, a regional bank based in Atlanta, began charging a $5 debit card fee on its basic checking accounts this summer. Regions Financial, which is based in Birmingham, Ala., plans to start charging a $4 fee next month.

Chase and Wells Fargo are also testing $3 monthly debit card fees in select markets. Neither bank has said when it will make a final decision on whether to roll out the fee more broadly.

 

“I might use all cash. Or go back to writing checks,” he said.

The debit card fee isn’t the only unwelcome change for checking account customers are seeing either. The banking industry has been raising fees and scaling back on rewards programs as they adjust to new regulations that will limit traditional revenue sources.

Starting Oct. 1, a regulation will cap the fees that banks can collect from merchants whenever customers swipe their debit cards. Those fees generated $19 billion in revenue for banks in 2009, according to the Nilson Report, which tracks the payments industry.

There is no similar cap on the fees that banks can collect from merchants when customers use their credit cards, however. That means banks may increasingly encourage customers to reach for their credit cards, reversing a trend toward debit card usage in the past several years.

An increasing reliance on credit cards would be particularly beneficial for Bank of America, which is a major credit card issuer, notes Bart Narter, a banking analyst with Celent, a consulting firm.

“It’s become a more profitable business, at least in relation to debit cards,” Narter said.

This summer, an Associated Press-GfK poll found that two-thirds of consumers use debit cards more frequently than credit cards. But when asked how they would react if they were charged a $3 monthly debit card fee, 61 percent said they’d find another way to pay.

If the fee were $5, 66 percent said they would also change their payment method.

Bank of America’s debit card fee will be rolled out in stages starting with select states in early 2012. The company would not say which states would be affected first.

Bank of America shares rose 9 cents, or 1.5 percent, to $6.25 in afternoon trading.

h/t to the Blaze

Dodd-Frank: The End Of Free Checking?

On Sat., Oct. 1, new regulations from the Dodd-Frank financial overhaul go into effect on debit cards. Specifically, they impose price controls on “interchange fees,” the fees that banks and credit unions charge to retailers on debit card transactions.

The average interchange fee is about 44 cents. The new rules limit the fees to 21 to 24 cents.

“The costs of processing debit card transactions doesn’t go away because you limit the price,” said John Berlau, director of the Center for Investors and Entrepreneurs at the libertarian Competitive Enterprise Institute. “That shifts the costs to consumers.”

These fees are used by banks to offer free checking and rewards programs. But now those programs may be be coming to an end. Just 45% of noninterest checking accounts are now free, down from 65% last year, according to a recent survey by Bankrate.com. The average monthly fee for those accounts has risen 75% in

the last year to $4.37.

Bank of America (BAC) just announced a $5 monthly fee for debit cards, starting early next year. BofA cited regulatory costs. Wells Fargo (WFC) and Chase (JPM) has experimented with $3 fees in some markets. Earlier in the year, SunTrust (STI) bank ended its debit card reward program.

Berlau notes other consequences:

Much of these costs will be transferred to consumers in terms of loss of free checking and debit card rewards, new charges for using an ATM, and other fee hikes and service cuts. In its rule, the (Federal Reserve) almost invited banks and credit unions to do this, “helpfully” pointing out that “the interchange fee standard would not limit the ability of an issuer to earn revenue from other sources, such as charging fees to cardholders.”

And there may be other nasty surprises, such as job losses. A Wall Street Journal editorial blamed at least part of the 40,000 Bank of America job losses on the loss of revenue due to the Dodd-Frank price controls. And late last week, Texas-based International Bancshares announced that due to the revenue loss from the price controls, it was closing 55 branches in grocery stores and shedding 500 jobs.

Even retailers may not get the full benefit they are expecting. According to one article, debit card processors can charge an additional fee when merchandise is returned, and that fee may not be covered by the regulations. Processors also may charge flat fees on transactions rather than a percentage-based fee, meaning retailers may pay more on small sales. Expect more processors to do that as the regulations take hold.

By David Hogberg   -  Thu., Sept. 29, 2011 11:30 AM ET  -  Capital Hill  -  h/t to Jean Stoner

Related:

The Secret Gov’t Bank That’s Financing More Solyndras

And at the core of this guy’s fiscal policies…

The Three Missteps in President Obama's Economic Turnaround Plan

U.S. President Barack Obama’s speech to the joint session of Congress late Tuesday was a beautiful performance. His language was exquisite, his delivery was superb, his rhetoric - at times - truly uplifting. It no doubt reflects a fault in my makeup that I found it not entirely convincing - but then I’m a math major and a former banker.

The speech - which took the place of the State of the Union address since it’s Obama’s first year in office - concentrated almost entirely on economics, and in particular on the financial and economic crisis currently facing the United States. President Obama’s comments were least convincing when they focused on the financial aspects of the crisis.

That’s probably why he “won overwhelming … approval” on Main Street even as he failed to “wow” Wall Street, such news agencies as the Voice of America and ABC News reported.

But according to my own analysis, President Obama made three notable missteps, including an error in strategy and goal setting serious enough to nudge the U.S. economy back into a recession, should his stimulus plan and banking-rescue program create a near-term economic recovery. Let’s look at all three of the miscues I’ve identified.

Mistake No. 1

President Obama’s first mistake was one of assessment - in that he blamed the entire current situation on Wall Street. That’s attractive, populist rhetoric, but where was the acknowledgement of the U.S. Federal Reserve’s role in the debacle, inflating the money supply 70% faster than gross domestic product (GDP) for more than 13 years, so that asset bubble after asset bubble caused the incentive structures on Wall Street to go haywire?

Where, too, was the (admittedly subsidiary, maybe No. 3 after the feckless Fed and the greedy bankers) role that Congress played over decades, messing up the housing market by creating unregulated irresponsible government guarantee monopolies in Fannie Mae (FNM) and Freddie Mac (FRE), an extra excrescence that no other advanced economy has found necessary to finance housing?

Bashing bankers is good rollicking stuff for a campaign speech, but it is less appropriate here, when the problems must actually be fixed. This rhetoric actually obscures the reality of the current problem, and diverts attention from the still-dangerous presence of U.S. Federal Reserve Chairman Ben S. Bernanke, whose role in creating the disaster is in danger of being exceeded by his role in perpetuating it. If Bernanke’s current rapid expansion of the money supply leads to violent inflation, as is likely, the crisis will indeed be prolonged for a decade, as Obama claimed was possible without government action.

Mistake No. 2

President Obama’s second inaccuracy - or misstep - on the financial side in Tuesday’s speech was in diagnosis. Lending in the U.S. economy has not seized up. It did seize up for about two months after the September crisis, but even by the end of the year loan growth had resumed, as figures from the major banks show. The commercial paper market has reopened and the investment-quality bond market has run at high volumes since the beginning of January.

Only one major source of “easy money” in past lending markets has disappeared - the securitization business: Almost nobody will now invest in securitization structures, and with good reason. However, as my investigative analysis of the nation’s Top 12 banks last week demonstrated, most of the major U.S. banks are in better shape than we believe, and are actually making money.

Their profitability has been greatly increased by the disappearance of competition from securitization - loan margins at the healthy US Bancorp (USB), for example, increased from 3.7% to 3.9% in the fourth quarter of 2008, and will have increased still further now.

Other than a few huge “zombies,” most banks are now making good money the old-fashioned way, through the interest margin between borrowing and lending rates. They will continue to do so, provided the government doesn’t (as President Obama and U.S. Treasury Secretary Timothy F. Geithner are currently readying to) introduce artificial competition, by inventing new taxpayer-funded vehicles to make consumer loans and drive margins down.

Yes, loans need to remain available for houses, automobiles and other purchases, but there’s no reason why they should not be somewhat more expensive - to rebalance the U.S. economy, the U.S. consumer needs to save more, not borrow more.

Mistake No. 3

Given that his first mistake was in assessment, and the second was in diagnosis, it’s no surprise that his third mistake was in goal-setting: One of the central objectives he established in his speech was a promise to pursue multiple objectives - even as he slashed the deficit in a big way.

In fact, as well as appearing to be a bit shaky in his knowledge of banking, President Obama made me question both his math, and his choice of economic objectives.

Reducing the budget deficit from 10% of GDP, its level in 2009, to $500 billion, or about 3% of GDP by 2013, is a hell of a task.
And quite possibly a hell of a risk, too.

That 7% swing in the budget balance is almost double the largest four-year swing ever achieved since the end of World War II - the 3.8% swing achieved from 1996-2000. Even during the 1990s economic cycle as a whole - a period of exceptional economic good fortune and budget thriftiness - the swing in the eight years from 1992 to 2000 was only 7.1% of GDP.

The problem with trying to tighten fiscal policy so rapidly is the negative “stimulus” effect it would cause. If the U.S. economy does anything in mid-2010 but zoom like a Saturn V rocket roaring off the launch pad, sucking 7% of GDP out of government demand over so short a period is likely to abort the recovery and push the economy back into a depression. Furthermore, Obama intends to do this without raising the taxes by one penny on anybody earning less than $250,000, and while increasing the size of the armed forces, their pensions, and spending more on energy, healthcare and education.

Maybe I’m a grouchy old skeptic, but it doesn’t look to me as if the math adds up.

Look, President Obama is a wonderful speaker, he really is, and he gave quite a performance in his address to Congress Tuesday night. As a gnarled old Republican, I’m prepared to admit he’s as good as late President Ronald W. Reagan, I may even nurse a faint suspicion that he’s better than Ronald Reagan.

And don’t forget: Reagan was known as “The Great Communicator.”

But to be a great president, Barack Obama will need to pursue policies that are sufficiently middle of the road so as not to destroy the superb private sector that’s the backbone of the U.S. economy, and that are also cleverly designed to work properly. It’s the math, the economics and the finance, not the language, the arts and the humanities, where there are still doubts. 

By Martin Hutchinson
Contributing Editor
Money Morning