Cliff Notes: A Confederacy of Dunces

Yesterday in an interview with CNBC, Treasury Secretary Timothy Geithner said that the Obama administration is “absolutely” prepared to go off the cliff if Republicans don’t budge on raising tax rates for those making more than $250,000 a year.  On the same day, the White House told the Pentagon to start planning for across-the-board spending cuts if Congress fails to act.  Sounds like a far cry from the “grand bargain” that President Obama predicted in an interview with the Des Moines Register in October.  But keep in mind that this is the same administration that (just a few months earlier) confidently promised the American people that the sequestration “will not happen” and issued letters to defense contractors telling them not to issue layoffs.  With the House focused on eliminating the word “lunatic” from federal law while Speaker Boehner says talks are going “nowhere,” it’s not surprising that the American people are losing whatever little confidence they had in Washington.

OBAMA ADMINISTRATION SAYS IT’S “ABSOLUTELY” PREPARED TO GO OFF THE CLIFF

Is The White House Prepared To Go Off The Cliff? “Absolutely”:

“President Barack Obama’s administration will ‘absolutely’ let the United States fall off the fiscal cliff as scheduled, unless Republicans give in to his Obama’s demand to raise tax rates at upper income levels, Treasury Secretary Timothy Geithner said Wednesday.” (“Geithner: Obama Administration ‘Absolutely’ Willing To Go Off Fiscal Cliff,” Associated Press, 12/6/12)

BUT MONTHS EARLIER THEY WERE TELLING DEFENSE CONTRACTORS THE EXACT OPPOSITE

President Obama Has Said For Months That Sequestration “Will Not Happen.” Administration Told Businesses Not To Issue Layoffs:

“Obama: Defense Sequester ‘Will Not Happen.’” (Lori Montgomery, “Obama: Defense sequester ‘will not happen,’” Washington Post, 10/22/12)

The White House Sent Letters To Defense Contractors Pressuring Them Not To Plan For The Fiscal Cliff. “The Obama administration issued new guidance intended for defense contractors … reiterating the administration’s position that the companies should not be issuing layoff notices over sequestration.” (Jeremy Herb, “Obama administration tells contractors again: Don’t issue layoff notices,” The Hill, 9/28/12)

The Labor Department Called Preparing For Sequestration “Inappropriate.”  ”The Labor Department issued guidance in July saying it would be “inappropriate” for contractors to issue notices of potential layoffs tied to sequestration cuts.”  (Jeremy Herb, “Obama administration tells contractors again: Don’t issue layoff notices,” The Hill, 9/28/12)

The Office Of Management And Budget Promised Compensation. “Friday guidance from the Office of Management and Budget raised the stakes in the dispute, telling contractors that they would be compensated for legal costs if layoffs occur due to contract cancellations under sequestration — but only if the contractors follow the Labor guidance.” (Jeremy Herb, “Obama administration tells contractors again: Don’t issue layoff notices,” The Hill, 9/28/12)

Des Moines Register: “Obama Confident Of ‘Grand Bargain.’“ “President Barack Obama told The Des Moines Register this week that he thinks he can reach a ‘grand bargain’ with Republicans in the first six months of winning a second term that will decide the question of what government will do and how to pay for it.” (Kathie Obradovich, “Obama confident of ‘grand bargain,’” Des Moines Register, 10/25/12)

Now The White House Is Telling The Pentagon To Prepare For Across-The-Board Cuts:

“The Pentagon said on Wednesday the White House budget office has directed it to begin planning how to implement billions of dollars in across-the-board spending reductions if Congress and the president fail to agree to avert the cuts before January 2.” (David Alexander, “After months of delay, Pentagon told to plan for ‘fiscal cliff’,” Reuters, 12/6/12)

WHILE WASHINGTON DEBATES “LUNATICS” AND “IDIOTS,” FISCAL CLIFF TALKS GO “NOWHERE”

House Votes Overwhelmingly To Remove The Word “Lunatic” From Federal Law (“Idiot” Remains). “The U.S. House voted to remove the term ‘lunatic’ from sections of federal law, while the word ‘idiot’ would remain. The bill, which passed 398-1, would amend a section of the U.S. Code that defines the meanings of certain words used in acts of Congress.” (Timothy R. Homan, “Congress Erases ‘Lunatic’, Keeps ‘Idiot’ in Federal Law,” Bloomberg, 12/5/12)

House Speaker John Boehner: “Right Now I Would Say We’re Nowhere. Period. We’re Nowhere.” (Greg Clary, “Boehner ‘Flabbergasted’ At Fiscal Cliff Proposal,” CNN.com, 12/2/12)

MEANWHILE, SHOPPERS AND BUSINESSES PREPARE FOR THE WORST

New Survey: Shoppers Across The Country Are Already Cutting Back, Holiday Spending “Virtually Flat” Amid Fiscal Cliff Concerns:

“Despite more economic optimism compared with a year ago, the CNBC All-America Economic Survey finds holiday spending will be virtually flat as uncertainty and fiscal cliff concerns weigh on consumers.” (Steve Liesman, CNBC’s Squawk Box, 12/6/12)

Businesses Are Rapidly Moving To Shield Themselves From The Fiscal Cliff Fallout:

Businesses Have Held Back On Buying Capital Goods Until The Outcome Of Negotiations In Washington Becomes Clear. “’The impacts of the potential cliff are already being felt,’ Brian T. Moynihan, CEO of Bank of America Corp.’s, said. In the bank’s survey of chief financial officers, ‘the number one issue they see is the fiscal cliff. They tell us it’s affecting their business plan. That uncertainty continues to hold back the recovery. Simply put, our clients tell us they will not be aggressive in times of uncertainty.’” (Hugh Son, “BofA Chief Moynihan Says Fiscal Cliff Already Hurts Economy,” Bloomberg, 11/13/12)

Corporate Executives Say They Are Slowing Or Delaying Big Projects To Protect Profits Amid Easing Demand And Rising Uncertainty. “‘The whole world is looking for stability and clarity from the United States,’ said David Seaton, chief executive of Fluor Corp., a large engineering and construction firm. If uncertainty isn’t removed, he said, ‘People will sit on their war chests of cash and return it to shareholders. You’ll have a retarded growth trajectory.’” (Sudeep Reddy and Scott Thurm, “Investment Falls Off a Cliff,” Wall Street Journal, 11/18/12)

Business Owners And Investors Are Rapidly Maneuvering To Shield Themselves From The Prospect Of Higher Taxes Next Year, A Strategy That Is Sending Ripples Across Wall Street And Broad Areas Of The Economy. “’In my 30 years in practice, I’ve never seen such a flood of desire and action to transfer a business and cash out,’ said Kenneth K. Bezozo, a partner in New York with the law firm Haynes and Boone. ‘We’re seeing a watershed event.’” (Nathaniel Popper and Nelson D. Schwartz, “Investors Rush to Beat Threat of Higher Taxes,” New York Times, 11/18/12)