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  • Another Budget & Debt Ceiling Fiasco Starts Now

    With the Fed's surprising decision not to "taper" its monthly QE bond and mortgage purchases, at least for now, the markets' attention now will focus on the upcoming federal budget and debt ceiling battles. Either one could lead to a government shutdown, and even if a shutdown is avoided, it will be a nervous few weeks in the markets just ahead.

    Fiscal year 2013 ends next Monday, and FY2014 begins on Tuesday. Not surprisingly, we do not have a federal budget for FY2014, so last Friday the House of Representatives passed a temporary "continuing resolution" to fund the government through mid-December. However, that resolution contained a provision to cancel funding for Obamacare indefinitely.

    That provision will definitely not survive in the Senate, so it remains to be seen what happens between now and next Tuesday. Almost certainly, we'll see another political battle and the threat of a government shutdown. Then two weeks later, we will see another political circus over raising the debt ceiling, which could also trigger a government shutdown.

    President Obama has repeatedly warned recently that he will not negotiate with House Republicans on raising the debt ceiling, so another political fiasco is virtually assured around the middle of October when the Treasury will run out of money to pay the nation's bills. This fight will not be good for the stock markets. Here we go again.

    Finally, the Congressional Budget Office just released a new report which warns that our spiraling national debt is "unsustainable." Imagine that! We'll take a look at the report's latest findings as we go along.

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  • CBO Warns of Recession in 2013

    The non-partisan Congressional Budget Office (CBO) has calculated the expected negative effects on the US economy if the Bush tax cuts expire at the end of this year. Their numbers just released last week are eye-opening! To give us some perspective, US Gross Domestic Product rose by 2.2% (annual rate) in the 1Q of this year.

    The CBO now forecasts that if the Bush tax cuts expire at the end of this year, GDP in the first half of 2013 will plunge to-1.3%. Think about that. We don't know what the economy will do for the rest of this year, but the consensus expectation is that GDP will probably average around 2.5% for 2012, barring any negative surprises. So a drop from around 2.5% this year to negative 1.3% in the first half of next year – if the Bush tax cuts go away - is HUGE!

    For all of 2013, the CBO forecasts GDP growth of only 05.% – if the Bush tax cuts go away, and even that may be too optimistic. I wrote at length on this news from the CBO in my blog last Friday. I will give you a link to that blog posting at the end of today’s E-Letter so you can read it.

    What we want to focus on today is why this economic recovery is so weak. We will look at the latest economic reports and ponder why they aren’t stronger. We’ll look at the latest news on the housing market and find that there are some signs of improvement. I will also bring you an independent analysis of why the recovery is so weak (and what caused it) that I think you’ll find very interesting. It’s a lot to cover in one letter, so let’s get started.

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  • CBO’s New Forecasts & The Unemployment Report

    Today we begin by focusing on the Congressional Budget Office's (CBO) latest long-term economic forecasts. Actually, we will focus most of our attention on the CBO's 2012 and 2013 forecasts, since going beyond the next year or two is really just speculation in these uncertain times. There is a lot to consider in the CBO's latest forecasts.

    From there we move on to some scintillating news that many federal workers, including at least 36 members of Obama's own White House staff, are far behind in their income taxes owed to the IRS. How far behind? Can you say $3.4 billion? Yes, $3.4 billion and counting. President Obama says we all need to pay our "fair share" (ie - higher taxes on the rich), but I would suggest that he focus on those in his Administration and Congress that are behind on their tax payments.

    Finally, I will examine last Friday's unemployment report which surprised just about everyone. There is a reason the unemployment rate is going down, but you may be surprised to learn why. I'll give you the straight story, plus I will review the latest economic reports at the end. Let's get started.

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  • Income Inequality and the Top 1%

    This week we're going to dive head-first into the discussion about the top 1% of households by income. While there have been various definitions of the "rich," that should be taxed at higher rates, the Occupy Wall Street crowd has definitely honed in on the top 1% as the embodiment of everything wrong with America in general and capitalism in particular.

    First, I have reprinted an excellent article by Alan Reynolds that brings a recent CBO report about income inequality into a much better focus. It seems that the CBO cherry picked some data to show income disparity is growing when, in reality, it has diminished over the last two years.

    I will then provide a further analysis on the long-term capital gains and dividend tax rates which are drawing criticism based on pleas from Warren Buffett to be taxed at higher rates. I'll then end up with a dozen of the most popular tax breaks that are available to virtually anyone reading this E-Letter, as well as the cost of each in lost revenue. The unfortunate result of my analysis is that higher taxes for the top 1% of households isn't likely to make a meaningful dent in federal budget deficits and could cost jobs.

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  • On the Economy & the Fed - Now What?

    We touch on several bases in today’s letter. We begin with Fed Chairman Ben Bernanke’s key speech at the Fed symposium in Jackson Hole, Wyoming last Friday, which proved to be a yawner despite all the anticipation beforehand. Next, we look at last Friday’s disappointing GDP report which was revised lower, alonng with other recent economic reports.

    Following that, we look at the latest long-term budget forecasts from the Congressional Budget Office. As I will discuss below, the CBO uses so many optimistic assumptions in these forecasts that one wonders if they are even relevant anymore. In any case, I’ll give you the latest numbers.

    Next,I make the case that the US economy has now drifted once again into “stagflation” – defined as slow growth and rising inflation. Expect to hear more references to stagflation in the days and weeks just ahead, but you heard it here first. Finally, we look at the latest chaos in the stock markets.

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  • CBO: U.S. Debt Crisis On The Horizon

    Introduction

    The non-partisan Congressional Budget Office (“CBO”) released a very troubling new report in the last week of July. The new report is entitled “Federal Debt and the Risk of a Fiscal Crisis” and warns that we will face financial calamity if we do not get our massive budget deficits under control.

    The CBO report points out that the national debt, which was 36% of the gross domestic product three years ago, is now projected to be 62% of GDP at the end of fiscal year 2010 on September 30. And it continues to ratchet up every year thereafter, even in the CBO’s “baseline” (more conservative) projections.

    The CBO specifically warns that our out-of-control deficits could lead to the ultimate debt crisis when buyers of Treasury securities lose faith in the government’s promise not to default on these most trusted financial instruments. No kidding!

    I have been writing about the perils of increasing our national debt year after year since back in the 1980s when I criticized President Ronald Reagan for doing so, and every president since him. The concern was that in 20-30 years, the ultimate debt crisis would come. Guess what: it’s now been 20-30 years, and even the CBO now warns that the day of reckoning is on the horizon.

    This week, I’ll summarize the latest CBO report. After reading about it, you need to think seriously about how you will protect your assets when the day comes where US Treasury securities are no longer trusted – think sharply higher interest rates! This will be a continuing theme in the weeks and months ahead.

    But before we jump into the latest troubling CBO report, let’s take a quick look at the latest economic reports, most of which have not been favorable. It has been several weeks since I wrote about the economy specifically, so let’s get caught up.

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  • Interesting Articles of Late

    For this week's E-Letter, I have chosen to reprint four of the most interesting articles I have read over the last week. The first two articles are from well-known writers that have come to agree with me that we are headed for another financial crisis if President Obama continues his plan to double the national debt over the next decade.

    The third article is from Larry Kudlow, well-known economist and host of CNBC's The Kudlow Report, who argues that Obama's latest plan to use TARP money to bail out homeowners who are about to default is just plain wrong and unfair to those lower and middle class families who are working extra hard to make their mortgage payments.

    The final article is a column by George Will of ABC News' This Week. As you may know, Obama plans to take up immigration reform very soon, as he is in desperate need of some new voters. George Will makes a brilliant suggestion for how to solve the illegal immigration problem once and for all that I'll bet you haven't thought of.

    I will be back to our usual format next week. I hope everyone had a great Easter holiday. I sure did!...
  • On The Economy & The CBO's Credibility

    I felt really bad about sending out last week's E-Letter in which I predicted that we will face another serious financial crisis and perhaps another depression sometime in the next several years. But later that same day, the latest poll by Fox News/Opinion Dynamics showed that 79% of registered voters believe that an economic collapse is still possible. 84% of Republicans, 80% of Independents and 71% of Democrats all agree that the worst may not be over. Obviously, there are a LOT of Americans that agree with me that Obama's trillion-dollar deficits and the skyrocketing national debt represent the biggest threat to our economic and financial futures.

    This week, we take a look at the latest economic reports, most of which suggest that growth this year will fall well short of the 5.6% rise in GDP in the 4Q. We also review the recent actions in the stock and bond markets, both of which have had their share of surprises. And finally, we will review how the non-partisan Congressional Budget Office 'scores' major pieces of legislation in terms of their overall cost. You may be surprised to learn that Congress can game the system and get just about any CBO score they want - as was the case with ObamaCare.

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