The ongoing fiscal cliff foolishness continues to be a parade of bad data, ignorant commentary and media hype. The latest silliness: THIS IS JUST LIKE TARP.

Only its nothing like TARP. Indeed, in nearly every significant way that we can c0mpare the two, they have almost no similarities:

Economy: During the TARP vote, the US economy had been in a recession for nearly a year. It would turn out to be the worst Recession since the Great Depression, and would not end until 9 months after the TARP vote took place.

Currently, GDP was just revised up to 3.1%, income and spending are rising. The economy is not anywhere near full capacity, it is at least expanding modestly.

Markets: As of the close the day before the GOP revolted, the S&P500 was up 15% (17% TR) for the year. All major US markets had done well (Futures suggest that may change a bit today).

2008, on the other hand, was a full blown market debacle. When TARP vote came up, 6 of the prior 9 months the SPX was negative. September ’08 alone saw a market dive of nearly 10%. And the S&P500 ended the full year down 38.5%, the worst showing in decades.

• Employment: TARP was voted on in a terrible, near panicky jobs market. The prior year had seen huge monthly drops in NFP — down 489,000 in October 2008, a 432,000 loss in September, and down 274,ooo in August (BLS). Only one month in 2008 had any job gains at all, and that was for a mere 41k. For the calendar year of 2008, we lost over 3.5 million jobs, averaging minus 300, 000 jobs per month.

In 2012, we have been adding between 100,000 – 200,000 new jobs each month. The prior 12 months have added almost 2 million jobs, averaging 157,000 new jobs per month.

Timing: TARP was voted on a month before a presidential elections, with no incumbent running.

The current vote is occurring a month after the incumbent won by a big margin 51% to 47%, with a 332 to 206 electoral college victory, picking up seats in both the House and Senate, and winning a majority of votes cast in Congress.

Leadership: I may not have agreed with what Hank Paulson and Fed Chair Bernanke were doing, but they were out front, and very public in pronouncements. George W. Bush had delegated dealing with the TARP to his economics team, and they showed real leadership.

Currently, Bernanke has said its its outside of the Fed’s purview — and therefor its up to Congress to resolve this. The GOP position — no new taxes or rate increases, regardless — ultimately leads to a tax increase as the Bush cuts expire.

Add to this a power play going on behind the scenes, with Boehner’s chairmanship at risk.
Repercussions for failure: The threat of failure of TARP was pretty dire: Firms like McDonalds and GE would not be able to maker payroll. ATMs might stop working, and there was even fear of having to impose Martial Law.

If Sequestration occurs, we end up with $500B out of 16 trillion economy getting cut; add tax rates going up 3%, returning to 1999 levels. The impact of these are across all of 2013 — not just Jan 1.

Let’s see, 3% tax bump versus Martial Law: Yeah the Sequestration is exactly like TARP.

The best part about the fiscal cliff is how revealing it is of the scaremongers, fools and charlatans, Make your list of fools now, and save it for a future date. You may find it productive.

 

 

 

Previously:
The Price of Paying Attention  (November 3rd, 2012)

Apprenticed Investor: Lose the News (The Street.com, 06/16/05)

Category: Markets, Politics, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “The Sequestration Vote Is Nothing Like the TARP Vote”

  1. gkm says:

    Unrelated to this article, I just wanted to point out that one of the biggest issues with applied economics is who is “applying” economics. As another example today, you have Josh Barro of Bloomberg. Apparently his degree in psychology is sufficient to make him an expert and expound on chained CPI or austerity versus stimulus.

    At least if you’re going to be critical of economic thought, be sure you’re even listening to someone with the background that suggests they may have something relevant to say. It seems now that the “science” of economics has been rebuked, any witch doctor can concoct a notion of applied economics and gain the platform for broadcasting. Definitely, this must be the dark ages.

  2. VennData says:

    Supply side tax cuts bring in more revenues.
    If you are rich, no matter what, you are job creator. If you are not, your spending/investing does not create jobs.
    Real Americans want less government, no matter what.

  3. ByteMe says:

    If Sequestration occurs, tax rates go up 3%, return to 1999 levels, and about $500B out of 16 trillion economy gets cut over all of 2013.

    BR, you have your terminology wrong. “Sequestration” has nothing to do with the tax rates. Sequestration is the part where there’s automatic “across the board” (tilted against defense) spending cuts.

    The other part of what’s scheduled to happen is the tax rates going up, and that’s just the expiration of all the tax cuts that have been timed to expire at the same time. But that’s not part of the sequestration.

    The combination is the “cliff” that’s more like a curb on a cracked sidewalk and we know we want to get to the other side of the street where the shops are nicer.

    ~~~

    BR: I have been using the terms to describe everything that will; occur, mostly because the phrase “fiscal cliff” is a misleading slice of propaganda

  4. VennData says:

    This explains where the GOP has been in the last twenty four hours.

    “…Marijuana can be smelled in suburban backyards in neighborhoods from Hollywood to Topanga Canyon as dusk falls — what in other places is known as the cocktail hour — often wafting in from three sides. In some homes in Beverly Hills and San Francisco, it is offered at the start of a dinner party with the customary ease of a host offering a chilled Bombay Sapphire martini…”

    http://www.nytimes.com/2012/12/21/us/politics/stigma-fading-marijuana-common-in-california.html

  5. contrabandista13 says:

    Howdy Barry: As I see it, it’s all about decoupling this mess and dealing with it one issue at a time…

    As for the fear mongers….. MSNBC, CNBC , CNN, FOX just for starters…. “idiotas y come mierdas”, are the only words that come to mind….

    Best regards,

  6. PeterR says:

    Excellent post.

    Europe, SPX futures, and AAPL in Frankfurt all may be bottoming as we speak.

    Winter Solstice Santa Rally TBD.

  7. VennData says:

    Byte Me,

    No, BR is right. Sequestration is part-and-parcel of the whole sheebang with tax rates going up too. That is what the Tea Party’s price to move forward while they were demanding we default on our debt. remember.

    No Sequestration without Taxification.

    Stop being so angry, chill, stop being so old and white and male. Turn your flag right-side up. Listen to some tunes and turn off the right wing radio. Here, have a hit of this.

  8. ilsm says:

    Boehner is the giant white orc (controlled by the necromancer Norquist) defending the 1% from those troublesome little people.

    Cutting a $100B from war is a tiny drop in that trough.

  9. gordo365 says:

    If “cliff” is the only feasible way defense spending gets cut, I’m all for the cliff…

  10. grandwazoo says:

    I have to say I am sort of for the cliff as well, I feel defense should bare the brunt of any spending cuts put forth, it’s time to stop feeding that beast. Overall I don’t think it will be a big deal either it’s a pretty small % of GDP. I would go one further and think there should be a wealth tax or higher consumption tax on high net worth people or on luxury goods but that will never happen.

  11. VennData says:

    Hey? Hey Farmboy! Enjoying that GOP vote for incompetence now? Like listening to right wing radio about how government is bad now?

    Put solar panels on your barns, smoke dope, and turn your flags right-side you you hillbillies.

    http://www.nytimes.com/2012/12/21/us/milk-prices-could-double-as-farm-bill-stalls.html

  12. svarada says:

    Barry must be overweight equities !!

    ~~~

    BR: Equal weight

  13. Bill Wilson says:

    “scaremongers, fools and charlatans…”

    I remember a few of those during the TARP negotiation, but I agree, the stakes aren’t the same.
    The TARP vote was an example of why so many voters hate compromise. A compromise could have meant pre-packaged bankruptcies, corporate officers losing their jobs, etc. In other words, compromise should have meant pain being felt by the irresponsible.
    What did we get instead. Compromise meant that a couple of swing voting congressmen got greased with spending for their districts.
    We were much too afraid to do the right thing in 2008. Elizabeth Warren said it best. What is the strength of America? Is it 10 big banks or 100 million households.

  14. constantnormal says:

    I’ll bet that if you look closely as we approach it, there at its base will be chiseled the letters PATENT PENDING – ACME CORP.

    This sure is some damfine-magnificent kabuki theater, taking our taxes back to where they were in 1999, and giving the goobermint an across-the-board Procrustean haircut … right-sizing it with our shrunken economy, as it were.

    And Boehner and his buddies get to take their ball and go home for the holidays … what could be finer?

    Absolutely, without question, THE FINEST GOVERNMENT AVAILABLE, AT ANY PRICE.

    Do I hear an opening bid?

    MERRY CHRISTMAS, EVERBODY … AND THE MOST PROSPEROUS OF NEW YEARS, all you analysts who predicted a “muddle-through upward” market in 2013 …

  15. constantnormal says:

    Tongue-in-cheek aside, I do believe that this is all orchestrated theater by our pols (Obama and the Congress) … that when they took this route to end the debt-ceiling nonsense (which was, quite frankly, getting a little threadbare), they had this specific conclusion in mind, where cuts in benefits and taxes both happen, and nobody has to lift a finger to vote on it, and best of all, EACH CAN BLAME THE OTHER SIDE …

  16. PlanadaBob says:

    If Sequestration occurs, tax rates go up 3%, return to 1999 levels, and about $500B out of 16 trillion economy gets cut over all of 2013.

    I’m not sure I get the 500b cut. Sequestration is 1.2t reduction over 10 years, or 120b in 2013.

    120b represents 3.2% of a 3.8t Federal budget, and only 75bps of a 16t economy.

    Defense must cut 60b from a 680b budget, or < 9%. Tough but doable IMHO.

    Maybe the 500b included the impact of tax increases?

  17. AHodge says:

    i keep a list of notfools
    its much easier

  18. AHodge says:

    constantnormal is of course right
    this is all political parties all the time media event of the day
    totally self generate dself inflicted
    to make each more important to their base via the struggle
    go away stop doing this shit
    and do your jobs for a change

    they are like bad children acting up for attention
    maybe ignoring them will make them go away–extinguish bad behavior

  19. Northeaster says:

    “It’s different this time” because we’re not being threatened with “Tanks in the street!”

  20. carleric says:

    So we go back to 1999 taxrates, curtail money down a rat hole at the DOD and the world goes on. This is much todo about nothing…..over the cliff I say and starve some of the pigs slurping at the trough

  21. James Cameron says:

    > I’m not sure I get the 500b cut.

    This is presumably an estimate of the impact on GDP for 2013 if the automatic enforcement procedures take place, tax cuts expire, etc. According to CBO:

    ” . . . if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of 2012 to the fourth quarter of 2013)—reflect-ing a decline in the first half of the year and renewed growth at a modest pace later in the year. That contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013.”

    Economic Effects of Policies Contributing to Fiscal Tightening in 2013, November 2012

    http://goo.gl/L15rt

    Whatever one thinks of these policies, if the political wrangling continues into January when people actually start to see the impact on their paychecks among other things this issue will become a whole new ball game. I happen to think the markets won’t be so favorable – up until now they’ve operated under the assumption a deal would be struck this year. But, this is all speculation for now . . . and we shall just have to see. However this plays out, a deal of some sort will be reached, that’s certain.

  22. This is an interesting post, but 20/20 hindsight makes things seem clearer than they seem today. Real-time data tell a different story.

    It is correct that: “During the TARP vote, the US economy had been in a recession for nearly a year. It would turn out to be the worst Recession since the Great Depression, and would not end until 9 months after the TARP vote took place. Currently, GDP was just revised up to 3.1%, income and spending are rising.”

    OK, today it is true that the latest GDP growth number has just been revised up to 3.1% from 2.7%, the previous quarter showing 1.4% growth.

    BUT, in REAL TIME, at the time of the TARP debate in late September 2008, the latest GDP growth number had just been revised up to — wait for it — 3.3% (!) from 1.9%, the previous quarter showing 0.9% GDP growth.

    It is also correct that: “TARP was voted on in a terrible, near panicky jobs market. The prior year had seen huge monthly drops in NFP — down 489,000 in October 2008, a 432,000 loss in September, and down 274,000 in August (BLS)… In 2012, we have been adding between 100,000 – 200,000 new jobs each month. The prior 12 months have added almost 2 million jobs, averaging 157,000 new jobs per month.”

    BUT, in REAL TIME, at the time of the TARP debate, the above numbers for September/October 2008, or for calendar year 2008, hadn’t been released, and, according to the real-time data, the economy had lost 84,000 (not 274,000) jobs in August 2008; for the 12 prior months, it had lost a total of 283,000 jobs (i.e., an average loss of only 23,000 jobs per month).

    FYI, the downward REVISION for August 2008 data is 190,000 jobs, and the average downward revision for the previous four months is 133,000 per month. And all of this was pre-Lehman.

    To be fair, hardly anybody is aware of these facts.

  23. ilsm says:

    US war profiteers consume >5% + of GDP. Up more than 2% of GDP from 2000.

    Germans are at 1.6% of GDP less than their 2% “treaty obligation” to NATO, Japan lesser % than Germans and the Japanese are worried on US war cuts.

    The Japanese won’t defend themselves, why should US citizens not have national health care while Japanese enjoy US war profiteers’ “cover”?