By Dees Stribling, Contributing Editor
At the Rose Garden on Monday, President Obama unveiled his plan to cut federal deficits, which was an exercise in demonstrating Pavlovian psychology as much as proposing economic policy. That is, the president sounded a bell called “tax increases,” which is guaranteed to evoke an immediate, conditioned response among Congressional Republicans denouncing any tax increases for anyone, and sounding their own bell called “job killing!” And so it happened. The president proposed the plan, including a veto threat, and Republicans objected in no uncertain terms a few seconds later.
The devil is in the political details. The president’s plan includes tax increases mostly for households making $250,000 a year or more and large corporations, which is a fairly popular notion that the president is bound to make a major talking point in his re-election bid next year. On the other hand, the plan also calls for cuts in Medicare and Medicaid, which are considerably less popular suggestions, whomever suggests them. All together, the White House asserts that the plan would cut $3 trillion or so out of federal deficits during the next 10 years, though that includes a less-certain $1.1 trillion saving from ending U.S. military involvement in Iraq and Afghanistan.
The proposed budget cuts and tax increases further add to the complexity of the task facing the supercommittee created with the raising of the debt ceiling during the summer. That committee has until November 23 to come up with $1.5 trillion in cuts, or unpopular automatic cuts will occur for Medicare, the U.S. Department of Defense and other touchy areas.
Homebuilders still down in the dumps
The National Association of Homebuilders said on Monday, to the surprise of few, that homebuilder confidence in September was generally as poor as has been for the last six months. The NAHB/Wells Fargo Housing Market Index (HMI) dropped a point to 14, according to the latest reading. The HNI has floated morosely between 13 and 16 for six months now.
Each of the HMI’s three component indexes recorded declines in September. The component gauging current sales conditions slipped one point to 14, while the components measuring sales expectations in the next six months and traffic of prospective buyers each declined two points, to 17 and 11, respectively. Any index number over 50 indicates that a majority of builders see conditions as good rather than poor, but none of the indexes have seen that level since Hector was a pup.
“Very little has changed in terms of housing market conditions so far this year,” NAHB chairman Bob Nielsen, said in a statement. “Builders continue to confront the same challenges in accessing construction credit, obtaining accurate appraisal values for new homes, and competing against foreclosed properties that they have seen for some time. Beyond this, both builder and consumer confidence took a hit in recent weeks with the market disruptions caused by the S&P downgrade and Congressional gridlock on the budget deficit.”
The never-ending Greek drama
The latest ill-tidings from Greece give new meaning to “Greek drama,” this time referring to “economic problem that refuses to die.” Investors worldwide are worried once more, in the face of stalled discussions by euro-zone financial panjandrums, that Greece is going to file for the nation-state equivalent of Chapter 11. According to people who understand these things, the market for credit default swaps—essentially a form of big-ticket gambling on the health of bonds—is apparently pricing in a nearly 100 percent chance of default by Greece on its pesky sovereign debt.
What then? The last time there was a sovereign debt default was in 2002, when Argentina decided that enough austerity was enough, and defaulted. It didn’t cause a panic. But the world was different then. Less panicky. Now the dreaded “contagion” hangs over the euro-zone, and buzzards are circling other economies, such as Portugal and Ireland.
Wall Street seemed to be paying attention to the Greek drama on Monday, with the Dow Jones Industrial Average skidding downward by 108.08 points, or 0.94 percent. The S&P 500 lost 0.98 percent and the Nasdaq was down by 0.36 percent.