Uncertainty over the massive tax hikes and spending cuts scheduled to take effect next January is already weighing on the economy, according to a report released Wednesday by a Treasury advisory committee made up of executives from JPMorgan, Goldman Sachs, Bank of America and other firms.
“Since the Committee last met in early August there has been no progress in addressing the year-end fiscal cliff issues, even though policymakers are aware that grave economic risks attend to the failure to take action on these issues. A timely and orderly resolution of this uncertainty would contribute meaningfully to an improvement in the economic outlook,” the report said.
The Treasury said Wednesday that it is taking steps to postpone the need to raise the debt ceiling again to give Congress more time to negotiate a resolution of the fiscal cliff problems. That will be necessary to forestall a default on U.S. borrowing well into 2013.
As of Monday, the U.S. Treasury was $235 billion below the $16.4 trillion statutory ceiling on the amount it can borrow. The Treasury is currently on track to reach the debt limit at the end of the year unless it takes extraordinary actions. - Read more at Reuters
COMPANIES ANNOUNCE DIVIDENDS TO GET AHEAD OF TAX HIKES Some companies are already announcing special dividend payouts to get ahead of the massive tax hikes scheduled to take effect in January unless Congress blocks them. Among the scheduled tax hikes is an increase in the top marginal rate on dividends, which is set to rise from 15 percent to 43.4 percent.
The Wall Street Journal’s Jonathan Cheng reports that at least four Standard & Poor's 500 companies have announced special payouts, including a $750 million payout by casino operator Wynn Resorts Ltd., WYNN +0.98% a $1.1 billion dividend from hospital operator HCA Holdings Inc. HCA -10.14% and a $1.6 billion dividend from Lyondell Basell Industries NV, LYB -1.17% a New York-listed chemicals group, within the past two weeks.
Investors are closely watching companies that have issued special dividends in the past, especially those with greater insider ownership, since they would more likely have an incentive to dodge higher taxes. - Read more at The Wall Street Journal
FEINSTEIN: SEQUESTER WILL MEAN MASSIVE JOB LOSSES Sen. Diane Feinstein, D-Calif., said going over the fiscal cliff would “hurt California very badly” while speaking to a crowd at the Maddy Institute in Fresno on Tuesday. Citing a recent George Mason University study, Feinstein said the sunshine state could lose more than 225,000 jobs in 2012 and 2013, including 135,000 defense jobs if the sequester goes into effect at the beginning of next year. - Read more at The Times Union
THE BRIGHTER SIDE OF THE CLIFF More and more experts are looking beyond the gloom and doom of the fiscal cliff and pointing to the bright side of a weakening economy -- a strengthening dollar. Money Morning’s Keith Fitz-Gerald writes, “History shows that bankers from Shanghai to Milan and all points in between run to the dollar when global instability raises its ugly head and the fiscal cliff or cliffs would certainly constitute instability.”
According to Fitz-Gerald, as the dollar goes higher, U.S. based stocks and bonds should go along for the ride if not in terms of absolute gains, then in terms of stability. However, he points out that this is also good news for China, which sits on an estimated $3.2 trillion in trade reserves and an estimated $1.169 trillion held in U.S. dollar denominated debt. - Read more at ETF Daily News
GOING OVER THE CLIFF IS ‘A FORM OF INSANITY’ Steve Bell, senior policy director at the Bipartisan Policy Center, told the Columbus Dispatch that letting the nation drive over the fiscal cliff is a “form of insanity.” He blames both President Obama and Congress for waiting too long and for failing to come up with solutions for reducing the nation’s $16 trillion dollar debt. “This is really like children playing with nitroglycerin, saying, ‘It hasn’t gone off yet,’ ” said Bell, a former Senate Republican adviser. “It’s astonishing to me.” He blamed the economic uncertainty for thwarting the country’s gross domestic product by half a percentage point. “Companies aren’t expanding because of the uncertainty.” Read more at The Columbus Dispatch
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