More fear and loathing.

I enjoy studying the language people use, to determine their true intention. Pay attention to the following quote from the Dallas Fed:

“Corporate and small-business taxation is another murky area, as many of you know. And, despite recent actions taken on Capitol Hill, certainty remains evasive. Certain S corporations, for example, still fear being assessed a 15.3 percent payroll tax in the future.”

The Dallas Fed's Richard Fisher here, without stating who he was directing this message to, implied that he was talking to business owners, when he said, “as many of you know.” It turns out that he was talking to the San Antonio Chamber of Commerce (yes, I came to the conclusion before scanning the subtext of the speech.)

But hey, look at it again.

What he's doing, is redirecting his audience to agree with him, by way of insinuating that if you're smart like those of us in the know, then you'd agree that taxation for corporations and small businesses is murky.

What's more, you can tell that he's long held a political opinion that will not waver, by saying, “despite recent actions taken on Capitol Hill, certainty remains elusive.” Some people speak plainly, others obfuscate what they're trying to say. Is he saying that Congress hasn't done enough to stabilize uncertainty despite their actions, or is he saying that Congress under a Democratic regime, can not bring certainty?

I think he speaks to the latter, because he's addressing a chamber of commerce, which frequently opposes any legislation of regulation or higher taxes from Democrats. And the alternative is, that Fisher wishes that Congress would do more rapidly (to bring certainty) except that we already know that Conservatives support a supply-side policy; to push Democrats into greater demand-side policies would be contrary to Conservatives, and you'll never get a majority of Democrats to agree to supply-side economics.

Of course, this is all folly. Every year, Congress changes the tax code in big ways. Congress is neither more nor less predictable today than it was six years ago, which is to say, that changes will always occur. When someone says that businesses are waiting for certainty, what they're really saying, is that businesses are waiting to see how best to increase their profit by moving their money appropriately once Congress makes changes. You cannot tell me, that smart people would have not hedged their bets by now, knowing that Bush's tax cuts were set to expire against a rising federal debt.

And speaking of the federal debt, Fisher gets into that too:

“To be sure, when the chips are down, deficit spending is considered an orthodox practice in order to stimulate economic recovery. And the United States enjoys unique advantages that insulate it to some degree from the deleterious effect of deficits. But such insulation could and likely would be eroded over time if our fiscal imbalances swell to the extent currently predicted. By latest accounts, under the least felicitous conditions (what the Congressional Budget Office recently called an “alternative fiscal scenario”), publicly held debt bests the all-time high of 109 percent of GDP around 2025 and reaches a staggering 185 percent of GDP by 2035—more than twice the level of debt at which some economists believe significant crowding-out of private-sector economic activity occurs.”

Now, you have to parse that previous quote to get an understanding of the debt fear that Fisher is referring to. He has no choice but to admit that, in fact, despite the high debt (which by the way, using the standard measure, we're sitting at 59% of debt/GDP) Treasury yields are sitting at extremely low rates (2.94% on 7/30/2010). Thus, he is referring to very long term trends called out in the CBO report, that projects the debt/GDP in 2025 to be 109%.

But you have to be careful with the CBO report, because the numbers that Fisher is referring to, is primarily affected by the extension of George Bush's tax cuts, the adjustment of the AMT, and changing of Medicare reimbursements to doctors. In fact, if we did nothing to change the laws and allowed the Bush tax cuts to merely sunset as expected, by 2035, debt to GDP would be 79%, which is quite the stark contrast to the 181% Fisher is referring to, under the CBO's Alternative Fiscal Scenario.

Where do you think we're headed?

Now, here's the disconnect.

People have been talking about high interest rates that are to come, because of sovereign debt fears. But when you look at where we are now, where we were before and where we would be in the future, relative to countries like Greece, you come to understand that, no doubt 20 years out, we've got a problem. Today? No.

So when it comes to fiscal conservatives, it's like a white lie, because they know the problem is out there on the horizon, but they're not telling you how far out that horizon really is. Of course, no one really knows what will happen in the future; if we did, we'd never have asset bubbles or so called business cycles. Nonetheless, fiscal conservatives are relying on a white lie to push the majority opinion in the US, and that's a dangerous thing.