PeakTrader.com

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PeakTrader:

Obamacare will shift consumption to health care, from other goods (the top 20% of households account for 40% of consumption), unemployment benefits may not be extended, and interest rates will rise, to induce saving and reduce consumption. We can expect a continuing decline in living standards (e.g. represented by smaller houses and autos).

However, household debt and unemployment have been reduced, somewhat, over the past few years. For example, lower interest rates induced consumption and reduced saving, for the masses, to raise employment and income.

A $5,000 per worker tax cut in 2009, or $750 billion for the 150 million workers at the time, would've likely jolted the economy into a self-sustaining cycle of consumption-employment, to raise both consumption and saving. Instead, we had small and slow tax cuts, which basically placed a floor on consumption.

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I think, QE3 or “QE-Infinity, which began in late 2012, offset much of the contractionary fiscal policy in 2013.

It should be noted, the recession that began in 2008, or when the economy peaked in Dec ’07, was caused, initally, by restrictive monetary policy (the Fed raised the Fed Funds rate to 5 1/4% and left it there too long, until Sep ’07) and contractionary fiscal policy (the 2007 federal budget deficit shrank to $161 billion).

However, we were on the path to a mild recession, e.g. because of the Bush tax cut in early ’08, until Lehman failed in Sep ’08, which caused the economy to fall off a cliff.

Also, it should be noted, the much smaller U.S. trade deficits over the past few years have made the U.S. “recovery” look stronger, since shrinking trade deficits add to U.S. GDP. Real GDP growth has been much higher just because the U.S. is consuming less than producing in the global economy, which reflects stagnant living standards at best.

U.S. Real GDP Growth

2010: 2.5%
2011: 1.8%
2012: 2.8%
2013: 1.7% (projected for full year)
2014: 2.5% (projected)

It has been, and continues to be, a very weak recovery from the severe recession. Consequently, the U.S. economy is underproducing by about $1 trillion a year.

The U.S. had a massive tax increase in 2013 – almost $500 billion. The federal budget deficit shrunk from $1.089 trillion in fiscal year 2012 to $680 billion in fiscal year 2013 (ending Sep 30th), or around $400 billion.

• The expiration of the so-called “Bush tax cuts” enacted in 2001 and 2003 and extended to December 31, 2012 will draw $165 billion out of the economy.

• The renewal of the regular payroll tax, back to 6.2% from the temporary 4.2% extended to December, will draw another $125 billion out of the economy.

• The expiration of the Alternative Minimum Tax (AMT) “patch” designed to protect middle-class taxpayers from this “wealthy-only” tax will now apply to them as well and will extract another $119 billion.

• The expiration of numerous other tax cuts, tax cut extenders, the reimposition of the “death tax” and the elimination of 100% “expensing” for business investment will withdraw an additional $51 billion, and

• The imposition of five of the thirteen new taxes imposed by Obamacare effective January 1, 2013 will be responsible for the balance.

Grand total: $494 billion, or almost four percent of the country’s gross domestic product to be extracted and transferred to the federal government.

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