brucekrasting.com / By Bruce Krasting / December 29, 2012
The following are my thoughts about things that might happen in 2013. This (Link) takes you to a discussion of my forecasts for 2012. I got a number of things right, and some important things wrong.
- The bulk of the fiscal cliff issues will be pushed into 2013. This sets up a showdown in March when the debt limit can no longer be extended.
Americans will be exhausted by this process. The poll ratings for the Senate, House and Obama will fall to record lows. The commentary from every segment of society will be against the ineffective government the country has. The ratings agencies will chime in with more warnings that the US credit ratings are at risk. Foreign leaders will speak openly that the USA is losing its position of leadership. The foreign and domestic press will have a field day.
The threat of a government shutdown, and a chance for a “Hoover Legacy”, will force the President to fold in March. The resulting “Deal” will bring modest increases in taxes ($800b over ten-years) and introduces real cuts in both Medicare and Social Security (age eligibility, means testing benefits and changes in inflation adjustments). The debt limit will be extended until January of 2015 (after mid-term elections).
Liberals will hate this result, so will conservatives. The reality will be that the steps taken will have very little consequence to the economy, budget or debt profile in the first few years. A set of future promises will have been made to right the ship, but the “Grand Deal” will be well short of what is needed. What will come will be just another kick of the can down the road.
- Frustrated by the lack of results on the economy, Japan’s Abe will push for the ultimate financial measure; he will call for the Central Bank of Japan to “extinguish” 20% of Japan’s public sector debt. This will be the first official step toward the “Platinum Coin” solution to debt. This will be very controversial on a global scale. Liberal economists will love the idea, while conservative thinkers on money will hate it. This defining moment in modern finance will not happen in 2013, but the year will end will the prospect that it will.