Moments ago, Boehner voted to enact "Obama's tax cuts", which is the new de facto Bush tax cuts (which expired yesterday), and which will raise the budget deficit over the next decade by $4 trillion, yet which at the same time paradoxically also hiked taxes on nearly three quarters of Americans with an emphasis on the wealthiest 1%. Now, Boehner also issues a statement to advise his constituency just what issue he will cave on next: spending.
They came; they spoke; they voted...
- *HOUSE BEGINS VOTE ON AVERTING TAX INCREASES FOR MOST WORKERS
- *HOUSE HAS ENOUGH VOTES TO PASS BUDGET BILL; VOTE CONTINUING
- *CANTOR VOTES NO ON BUDGET BILL
- *PAUL RYAN VOTES YES ON BUDGET BILL
- *BOEHNER VOTES YES ON SENATE BILL
- Republicans: Yea 85 - 151 Nay
- Democrats: Yea 172 - 16 Nay
'Cliff'-Off (for now)...'Debt-Ceiling'-on. Time to start buying March vol steepeners? But the bottom line is simple: the Bush tax cuts are dead. Long live the Obama tax cuts.
UPDATE: Sure enough - *COLE SAYS MAJORITY OF REPUBLICANS TO VOTE FOR SENATE BILL ... and the market is rallying
Following Monday's fiscal-cliff-gasm in markets in the US, the Australian stock market is the first indication of the post-cliff on-again-off-again reaction to the reality that is a stymied House and stubborn Senate. Some are noting the fact that it is 'up' as a signal of confidence - however, given its 'catch-up' nature, it is actually signalling considerably less confidence than US stocks showed at their close. Why is this important? Because all that matters is the market...
"Everyone knows once the markets open tomorrow our courage drops in direct proportion to the market fall," said one Republican lawmaker
Of course, this could all change based on the next flashing red headline.
Ironically, the very success of stock market manipulation only thins the market of legitimate participants and thus increases the probability that risk that has been suppressed for years will erupt uncontrollably. That the stock market is manipulated is no longer in question. One explicit goal in the Fed's zero-interest rate policy (ZIRP) is to drive capital into risk assets such as stocks. That is a first-order, transparent policy of manipulation, i.e. a centrally managed policy aimed at managing markets to meet a key central-planning goal: creating an illusion of prosperity via an elevated stock market and the resultant "wealth effect" for the 10% who own enough stocks to matter. Indirect manipulation is hidden from public view lest the rigging of the market taint the perception that a rising market is "proof" that Federal Reserve and Administration policies are "succeeding." Indirect manipulation is achieved via Federal Reserve quantitative easing operations, unlimited liquidity and lines of credit to fund bank speculations and masked buying of market futures. This multilevel manipulation creates a Boolean either/or for any Bear market: either it is a planned "panic" that profits the banks or a systemic failure of the orchestrated campaign of market manipulation.
From 9/11 on, Gold and the world's central bank balance sheets were as correlated as over-consumption and a hangover (and linked just as causally we suggest). Then a funny thing happened in 2008 - gold slid as the central banks went extreme. Of course, as this divergence occurred, the world's stock markets imploded almost as if the central banks knew their status quo was about to go entirely pear-shaped. From 2008 until November of 2011 (when the world's central banks began their coordinated ease-fest) the correlation went limit up once again. Since then, Gold and CB largesse once again decoupled as liquidity is flushed around the world's markets to suspend reality just a little longer. While this divergence is not as extreme as in 2008, something is afoot.
We can’t predict the future – if it was actually possible fortune tellers would all win the lottery. They don’t, we can’t and we aren’t going to try to. However, we can analyze what has happened in the past, weed through the noise of the present and try to discern the possible outcomes of the future. For every almost every positive tailwind there is an opposing headwind, and in the coming year, the political and economic decisions domestically, and globally, will define the coming landscape.
UPDATE: *LATOURETTE SAYS CANTOR WON'T SUPPORT BILL 'IN CURRENT FORM'
It seems all is not going according to plan in D.C.. Perhaps it was the $4 Trillion deficit rampage the CBO just scored, or that the Republicans awoke from their slumber but as House meetings end, it appears Citi's worst case scenario is about to take place - the bill is going back to the Senate with spending cut amendments. As Politico notes, amending the bill would throw into serious flux the carefully negotiated agreement between Senate Minority leader Mitch McConnell and Vice President Joe Biden. While headlines noted the possibility, Rep Spencer Baucus (via Robert Costa) just confirmed the deal will "go back to the Senate."
- *BACHUS SAYS HOUSE REPUBLICANS 'THERE' ON TAX PROVISIONS
- *BACHUS SAYS HOUSE MAY SEND BILL BACK WITH SPENDING CUTS ADDED
One thing is clear, Politico adds: there is serious disdain among House Republicans for what the Senate did in the middle of the night. Retiring Rep. Steve LaTourette of Ohio asked House Republicans why the House would “heed the votes of sleep deprived octogenarians,” according to a source in the meeting.
First - it is no longer the "Bush (temporary) tax cut" - it is now the "Obama (permanent) tax cut", with a loophole for the 1%ers (whose big picture "impact" we showed previously)
Second - according to the just released scoring by the CBO, the total impact to the US budget deficit of said permanent tax cuts, will be a $4 trillion increase in the deficit over the next decade. In reality, due to the CBO's perpetual optimistic bias, this number will likely be orders of magnitude lower than what it ends up being.
Maybe the US can just increase the taxes on the uber wealthy some more, and pray that unlike Obelix, they have never heard of Belgium.
...That would be the far more important cliff to America's middle class, the "Welfare Cliff" as a result of which the country's workers, especially those that fall in Obama's middle class sweet spot - those tens of millions earning between $30,000 and $70,000, are perfectly agnostic if they make $29,000 or $69,000 as their net income and benefits amount to one and the same. Because being "aspirational and upwardly mobile" is so 1999, especially in a nation where it is more important to drag down the rich, than to become them. But hey - just toss this one too in the bin of perverted statist disincentives, along with all those other unintended consequences of central planning and a governmental power grab, not the least of which is the misallocation of trillions to satisfy immediate shareholder demands such as dividends and buybacks in a ZIRP world, instead of actually reinvesting in capital, growth, and hiring of workers: those things that capitalism, at least on paper, used to be all about.
Presented with little comment except to rhetorically ask (Tom Lee) - where's the value?
The return of inflation, in official Japanese liberal newspeak, will make the economy less sickly even if the strategy "has risks". One of these is war with China, if only as a (Japanese) crowd pleaser, and another is selling off Japan's over-one-trillion dollar holding of US Federal debt at exactly the right psychological moment to implode the US economy, already teetering on the brink of its fiscal cliff. Japan's endgame flirt with Neoliberal mindwarp, what we can call the "slogan based economy", has brought about a situation where War and Circuses is surely on the Japanese political agenda, along with Japan's threats to sabotage the global economy. The inventors of kamikaze suicide war now have an Old Guard of political deciders who are prepared to pilot the economy straight into the ground, while bleating about "national pride".
- A close vote before 6PM – Asian markets open up, catching up to the Monday S&P move; S&P futures probably have priced in most of the benefit of the fiscal cliff resolution. EUR CAD, and AUD have a bit of catching up to do with the S&P, but there should be little drama
- A rancorous debate that extends into the night – again the key will be whether the votes are there, however, reluctantly, but if it looks as if support is waning we will see sharp moves in markets. With brinkmanship the new normal, the sell-off will be partial on the view that a last minute rabbit will be pulled from a hat.
- Amendments or rejection – markets will sell off sharply. If it turns out that the House can’t vote ‘yes’ on an acceptable, yet inelegant fix, the confidence that has emerged in 11th hour fixes will dissipate and tail risk scenarios will shift into baseline outcomes. This would be USDJPY negative, but risk-correlated currencies now price in 80-90% probably of a successful fix in our view, so the downside pressures will be large.
On The New Definition Of "Rich", A $620 Billion Tax Hike Offset By $15 Billion In Spending Cuts, And Much MoreSubmitted by Tyler Durden on 01/01/2013 - 09:49
We greet the new year with an America that has a Fiscal Cliff deal. Actually no, it doesn't - not even close. What it does have is an agreement, so far only at the Senate level which voted a little after 2 AM eastern in an 89-8 vote (Nays from Democrats Bennet, Cardin, Harkin, and Republicans - Lee, Paul, Grassley, Rubio and Shelby), to delay the all-important spending side of the Fiscal Cliff "deal" which "can is kicked" in the form of a 60 day extension to the sequester, to be taken up "eventually", but hopefully not on day 59 at the 11th hour, the same as fate of the all important US debt ceiling, which remains in limbo, and which now effectively prohibits America from incurring any new gross debt as the $16.4 trillion debt ceiling was breached yesterday... What did happen last night was merely the legislating of the inevitable tax hike on the 1%, which was assured the night Obama won the presidential election, something not even the most rabid Norquist pledge signatories had hope of avoiding. This was the first income tax hike in nearly two decades. A tax hike which, regardless of how it is spun, will result in a drag in consumption. It was also the brand new definition of rich, with the "$250,000" income threshold now left in the dust, and $400,000 for individuals ($450,000 for joint filers) taking its place. Who knew that New Normal would also bring us the New Rich definition. What is generally known is that the Senate bill boils down to the folllowing: $620 billion in tax hikes over the next decade offset by $15 billion in spending cuts now. Hardly "fair and balanced." Anyone who, therefore, thinks this bill is a slam dunk in the House is a brave gambling man.