Friday, December 21, 2012

Fiscal Cliff is holding up Farm Bill and holding down consumer confidence

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Last night, Boehner's "Plan B" for helping avert the Fiscal Cliff, which really should be called the Austerity Bomb, failed.
This morning, Speaker John Boehner, R-Ohio, held a news conference to talk about the fiscal cliff, after his back-up plan–dubbed “Plan B”–did not even garner enough support to be voted on in the House.

“It’s not the outcome that I wanted, but it was the will of the House,” Boehner said Friday. ”We had a number of our members who just really didn’t want to be perceived as having raised taxes. That was the real issue.”
That's having all kinds of ripple effects.  First, it's likely to actually increase spending on agricultural subsidies, but not on all the food items people consume.  Reuters via Scientific American has more in Negotiators see glimmers of progress on farm bill
By Charles Abbott
WASHINGTON (Reuters) - With a week left to act, agricultural leaders in Congress are still deadlocked on two major issues for a new U.S. farm bill, cuts in crop subsidies and reductions in food stamps, said two of the four key negotiators on Thursday.

But the leaders of the House and Senate agriculture committees suggested that recent talks had yielded at least some progress.

Without reauthorization, U.S. farm policy would revert to the provisions of the Agricultural Act of 1949, the last "permanent" farm bill and one crafted for an entirely different U.S. economy.

Among other things, if lawmakers do not agree on a new bill, milk prices in U.S. grocery stores could double next month under terms of the fall-back statute which would also limit plantings while pushing up farm subsidies by billions of dollars.
Milk and other dairy products just happen to be one of the two most valuable agricultural products the U.S. produces, the other being corn.

That news was from two weeks ago.  Since then, the likelihood of the Farm Bill passing has declined just as much as a deal to avert the Austerity Bomb, as Time describes in Creamed by Congress: Farm Bill Inaction May Mean Higher Dairy Prices
Forget defense cuts and tax hikes. If Congress doesn’t act before Jan. 1, the price of milk will skyrocket, according to the National Sustainable Agriculture Coalition.

The federal government guarantees a minimum price for dairy under the Farm Bill, a bundle of food regulations including food stamps, crop subsidies, insurance, rural development, research and land conservation passed by Congress every five years. But since the 2008 Farm Bill expired September 30, and with Washington deadlocked on a temporary resolution, the U.S. Department of Agriculture is poised to revert to a 1949 law that would double the guaranteed rate for dairy products, leaving retailers with higher costs to pass onto consumers.

Rep. Collin Peterson, the top Democrat on the House Agriculture Committee, said Wednesday that Congress won’t consider a new Farm Bill until Feb. 27. “The uncertainty of not knowing what the policies are going to be will create difficulties,” Secretary of Agriculture Tom Vilsack said at an event sponsored by the U.S. Chamber of Commerce. “We need a Farm Bill and we need it now.”
MSNBC has more, including a price tag on not passing a Farm Bill.

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As you can see in the video, the realization that the U.S. will go over the cliff has pushed down the prices of stocks and crude oil, both of which are indications of recession.  Speaking of which, all this is having an effect on the U.S. consumer, as the University of Michigan reports consumer confidence plunges in December.
ANN ARBOR—Confidence plunged in December as consumers confronted the rising likelihood that political gridlock would push the country over the fiscal cliff.

Consumers were more pessimistic about their future finances and more pessimistic about the outlook for the overall economy and job prospects, according to University of Michigan economist Richard Curtin, director of the Thomson Reuters/University of Michigan Surveys of Consumers.

One in four consumers spontaneously mentioned hearing about prospects for higher taxes when asked to identify what economic news they had heard, the highest level ever recorded. While the Sentiment Index is still well above the August 2011 low associated with the congressional debate on taxes, spending and the deficit, if no resolution is reached the falloff could easily worsen in the weeks ahead, Curtin predicts. Discounted prices and record low interest rates have forestalled declines in buying attitudes but consumers are likely to reduce purchases if income or payroll taxes increase in 2013.
Here's the past six years of the consumer confidence index.

Merry Christmas and happy cliff diving!

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