Here are the market implied odds of a fiscal compromise (higher deficits now in exchange for more pain later). The stock market has priced in a 98% chance of compromise. In other words, don't look for a huge bounce once this charade is resolved - it is already priced in.
There is something much more important coming down the pipeline the following year that will begin to have an impact on the economy soon; the massive economic weapon of mass destruction known as Obamacare. This time bomb has already been pushed through and unless something drastic happens it will be unleashed on the shores of America January 1, 2014.
What does this entail for the economy in simple terms? Companies who employ full time workers will be taxed severely in order to provide these workers with Obamacare. Estimates range from $3,000 to $11,000 per year based on the number of people in the worker's family. Sounds like a small amount right? Seems like something big corporate America should handle no problem?
That is true, big corporate America will have less of a problem with this. It will be the small businesses, that employ the vast majority of workers in the country, that will be devastated.
Hit the hardest will be low income workers. Do you think a small company still in the early stages of growth will see a difference between paying someone $29,000 per year vs. $40,000 per year? The business owner will not go through the process of hiring the worker only to have to declare bankruptcy as Obama hopes. One of two things will happen:
1. The small business will cut the hours under 32 to make the worker part time (excluding them from Obamacare) The worker's check will be reduced significantly.
2. The company will not hire the worker at all. The worker's check will disappear.
Perhaps to counter this Obama will demand that even part time workers be included under Obamacare. Then all employers will chose option 2. Please read the book Atlas Shrugged for a fictional (and soon to be real life) story of how this plays out.
Darden Restaurants, the owner of Olive Garden and Red Lobster, is already rolling out test programs in regions of the country to bring workers below 32 hours per week.
There is no economic benefit to the program, other than the business some portions of the health care industry will receive. It will shrink the economy, shrinking the size of government tax receipts, and cause the deficit to mushroom further.
The positive benefit to the program is that there will be some workers who will not be brought down to part time or laid off completely that will receive health care when they otherwise would not have.
I am of the ultimate belief that a few years down the road, when America reaches its debt crisis moment, the government sponsored health care program already in place will move toward rationing. That is not some immoral statement that "could never happen," it is just common sense for anyone with a calculator beyond the 5th grade math level.
But we look to the future here. In the mean time, enjoy those debates and promises of no pain today.
