Don’t Open that Gift if from Obama, Reid and Boehner!

The political debate in the USA over the extension of payroll tax cuts and the unemployment benefits (Extensions) is as hot as it is wrong-headed. It’s like two caged female dogs in heat. They both have incredible passion but they have no real ability to make the transaction work. Please no angry letters from dog lovers or my lesbian relatives and friends. No insult is intended.

Anyway, this Extensions fiasco reveals what is so wrong with politics now. Consider first that both parties seem to agree that the extensions are necessary.  They disagree about how to pay for them but they seem to say over and over and over and over and over – getting irritated? – and over that they want to extend the cuts but the extensions must be paid for. The guys wearing stripes think the rich should pay for them while the guys in the polka dots believe it has to come out of other spending.

Like the two dogs in heat, this dog won’t hunt. That’s not the metaphor I was after but I think you know what I mean.  Both sides seem to agree that without these extensions, the US economy is going to go careening off the ends of the earth.  Like driving on the right and eating foot-long chili dogs with ROC-CO-COLA, one cannot question the validity of this truth.  Either we do the EXTENSIONS or the US economy is going to slide head-first into the outer atmosphere.

But we do drive on the left on one-way streets and we sometimes eat foot-long Philadelphia Steak and Cheese sandwiches, so it might be possible to think a teeny-weeny little bit about what might happen if we did not do the extensions. Will the US really slide off the planet? First and foremost it is possible that if we did not make these extensions we would find that US government and other bonds would increase in value. The very thought of increasing government spending right now in a time of huge government deficits could be taken as another sign that the US government cannot govern. This would be true whether or not we enact means to pay for these Extensions. Notice where we are today. It is not yesterday it is today. Today we have failed yet another time to do anything about a solution for government debt and deficits. We can't even find a solution for next year's budget. Not only did the special committee not come to a decision, but now we are being told that the so-called automatic cuts are going to be undone. So let’s be honest here—in financial terms we are looking like the guy who applies for his tenth credit card after maxing out the other nine.

Okay – it’s just another $100 billion or so. To some it seems like nothing. But they are living in yesterday. Yesterday was when love was such an easy game to play. Now I need a place to hide away. Oh yesterday came suddenly. Anyway, the Beatles were right-on in many ways. $110 billion three years ago might have been okay. But now we are on our 10^th credit card. Pass these extensions with or without a tax on the rich and the credit markets are going to chew up our bonds and precious dollar as if they were a male dog coming between those females in heat.

What that means is that interest rates will soar, net worth will decline, and spending will come to a halt. Some of you will say it is worth taking the risk. You will say that by not doing the Extensions we have two major sure-thing problems – the average family will lose income per month and those families will curtail their spending. You will conclude that stopping the extensions, then, is both unfair to the average family and will lead to reductions in national spending.

But let’s put these two points together. Let’s suppose that the average family understands that when financial markets look down their collective snoot at the US demand for a 10^th credit card, all hell will break out. Let’s suppose this makes the average employed or unemployed worker worry even more worried about the economy. I am guessing that those workers will not readily part with their extension money. They will become even more judicious about how they spend because they need to make sure they continue to have some spending power in the future – as this stupid economic policy makes sure the economy stays weak for a long, long time. Notice that the extension plan does two things – (1) it initially gives more income to some Americans but they will prudently reduce their spending anyway; and (2) it creates a gigantic financial disturbance that will reduce even more spending by all Americans.

So call me insensitive if you want. But the fact that both parties are saying we need these Extensions is exactly the reason you should believe we don’t. Do you really believe these guys? They are continuing to do what they have been doing for years --- avoid the real solutions and pander to people who they think are easily fooled – you and me. Can you imagine what you will get when a smiling trio of Obama, Reed, and Boehner hand you your Christmas gift. I suggest you leave it on the ground and run like hell!

It seems to me that we would all be better-off without this cut...or more succinctly, without this cut in isolation. What we really need is an overall solution for the debt/deficit/growth issues. The special committee failed but Congress could do it tomorrow. Part of that overall solution could include these Extensions but in a responsible fashion whose goal is to deal with deficit/debt/growth.