December 30, 2012

Descent Trajectory 2013-2016

I've been game theory playing out some of the scenarios for the fiscal cliff negotiations and I could not come to any outcome where the negotiations were successful prior to hitting the cliff deadline.  What I was able to conclude, was that it's not a cliff.  If it truly were a cliff, there would not be negotiations, only action to halt it. If you were in a car headed towards a cliff, you would not be in a debate about whether to turn the steering wheel or hit the brakes.  So take as a given that a deal does not get reached - barring complete capitulation by the Republicans, which seems to be not entirely out of the question.  Indeed at this point even if enough Republicans were to side with Democrats, it's too late to stop the car going over the cliff Thelma and Louise style.

But it's not a cliff.  The cliff still looms a little further down the road. This is more of an Evil Knieval bus jump, destined to end in a broken collarbone with the car still careening towards the real cliff of US government insolvency.  But this deal does not get done and the automatic cuts get made.

The economy, supposedly in a recovery will not react well to this, combined with the looming Obamacare impacts and the draconian foolishness of Dodd-Frank.  The anemic recovery will stall. A second recession could very well occur.  When that happens, and probably not sooner, look for Obama to try to pull off a White Knight routine - here's my plan to fix this, you'd better enact it.  By then it may be too late for him to escape the idea that this  is indeed his economy not that of Congress or Bush.

All the while Obama will be stockpiling national debt at a rate at least equal to his last four years.  Unemployment will remain at a high level and foreign unfriendlies, seeing the mess will become increasingly bold.  In other words the descent trajectory will continue as it has for the past four years but it will be visible to more people who previously were blissfully impervious to the facts.  Switching metaphors from Thelma and Louise, if the wings don't rip off the plane on the way down, maybe by 2016 America can pull the airplane out of its dive.
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