Oh, what a world, what a world! While media chatterheads go on about Libor and other financial chicanery, this sneakily one of the most depressing financial news stories in some time:
Firms Pass Up Tax Breaks, Citing Hassles, Complexity – John D. McKinnon
But executives, particularly at small and medium-size companies, complain that many of the tax deductions are either too cumbersome or too confusing. In some cases, the cost of obtaining the tax benefit is greater than the benefit itself—a wrinkle that has helped spawn a cottage industry of tax-credit consultants. Also problematic is the threat of pushback from the Internal Revenue Service.
The result: many companies are saying “no, thanks” and are likely paying more taxes than legally required. And corporate breaks that Washington hopes will boost the economy often prove ineffective.
You’re thinking, well, of course they’re talking about Greece. No! The US ! A world where the tax code is so convoluted that small businesses pass up tax breaks in the world’s breadbasket of capitalism is a miserable world indeed. It also starkly displays how, 10 years hence from Sarbanes-Oxley, big firms with big accounting and audit budgets have an advantage over smaller firms… all due to a bloated tax code.
Goodness knows technocrats are not among my favorite folks, but Mario Monti, Italy ’s current PM, has been an unlikely voice of reason lately—proclaiming a pro-growth policy featuring lower spending, lower taxes, and even easing of labor laws.
Wow! There’s hope for Italy yet.
This story is a microcosm of a growing chorus of boos and hisses about this rule globally. Whatever you think of the morality or potential buttressing of the financial system the Volker Rule would provide, the simple reality is that we live in a global world and a rule like this needs near universal uptake. Without it, all you do is create a competitive disadvantage for the country with the new, onerous, rules.
Interest payments will cost the government 3.1 percent of gross domestic product this year, according to Office of Management and Budget and International Monetary Fund data compiled by Bloomberg. That’s down from 4.8 percent in 1991, the highest in the past 50 years, during George H.W. Bush’s presidency. Since 1980, the only incumbent with a lower ratio than Barack Obama was George W. Bush in 2004.
I’m as for fiscal restraint as anyone, but as this blog has maintained for awhile, the notion the US is headed for imminent ruin tied to the deficit/debt simply isn’t true. With interest payments heading down, and near lows, insolvency isn’t on the table—heck, it’s not even the campaign issue it once was.
For a cogent synopsis on the current market environment, check out Fisher Investments’ newest Stock Market Outlook. Click here.
Around my office the last few weeks we’ve joked that—once this debt ceiling drama is finally resolved—politicians would take credit for “saving the world”. Well, it turned out not to be a joke:
Forget about the ideology and bombastics of these types of statements (which, by the way, come from both sides of the aisle). What this really demonstrates is the wanton and venal quality of the beltway: that this is in fact mostly a drama being played out on the public stage to use as a fundraising and general election issue.
To get the real skinny on the US debt, deficit, and debt ceiling situation, head to Marketminder.com and read these:
Back in April, I highlighted a phenomenon scrambling investors’ minds by the score: people were seeing so-called “black swans” everywhere:
Sorry, but Japan’s earthquake (devastating as it was in human terms), or the problems of the Middle East are not only NOT Black Swans, they’re not all that uncommon. I challenge someone—anyone—to find a year where some major geopolitical, geological, financial, or otherwise big scary event didn’t happen. The world is full of them through history—now is no different than any other, though folks always feel the present moment is “different this time”. Goodness gracious, 1998—a fabulous year for stocks—was also the year of Long Term Capital Management, among other things like the Russian Ruble problems and Asian banking issues.
As I said on Fisher Investments’ MarketMinder months ago, the whole point of a real black swan (if they exist at all) is that they’re hugely rare. Note that recent events did not crater the markets—they were grey pigeons.
To my mind, the issue of the US debt ceiling is archetypal Grey Pigeon drama—one that’s played itself out scores of times in US history, has never sunk global markets, yet folks fret about it often. Now we’re getting theories about Swans hopped up on some kind of hallucinogen to make them glow: Forget About Black Swans, the One Floating Ahead is Neon.
Scary as it might feel, today’s US debt ceiling drama is a classic, not a new thing. Grey Pigeons are flying again.