Monday, 12 November 2012

Best stimulus for the global economy is a US budget deal

There is no shortage of economic news this week. How much of it, including the appointment on Thursday of Hu Jintao’s successor, Xi Jinping, and other members of China’s new leadership, will be market moving is another matter. But what happens on Friday will matter big time for equity markets, as this is when the US President is scheduled to meet with John Boehner, the House Speaker, and the other leaders of Congress to talk about how to move forward on a deal that avoids the fiscal cliff.

How’s this for an opener?

‘For purposes of forging a bipartisan agreement that begins to solve the problem, we’re willing to accept new revenue, under the right conditions.’

That was John Boehner, the Speaker of the US House of Representatives, talking. He said this shortly after the re-election of President Obama. Like everyone, Boehner wants a growing economy, except he wants it ‘energized by a simpler, cleaner, fairer tax code, with fewer loop holes, and lower rates for all.’ He also wants a growing economy supported by ‘concrete steps that put [the] country’s entitlement programs on a sounder financial footing.’ For Boehner, the right conditions are a restructuring of the tax code and a reform of entitlement programs.

Late last week President Obama responded with his own ‘right conditions’. Sure, the President is prepared to compromise, but that is so long as a deal includes a tax increase for the wealthy. As the President put it, ‘If we’re serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes.’  More>

Mike Lenhoff
Chief Strategist

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