Archive - Jan 2013

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.

US Vice President Biden and Senate Minority leader McConnell brokered an agreement that was approved by the Senate that seems to avoid the full fiscal cliff.  It now is before the House of Representatives.  

While the Jan 1 deadline is passed, the more significant one, we had argued was Jan 3, when a new Congress is sworn in.  A failure by the 112th Congress to finalize the legislation would mean that process would have to begin anew with the 113th Congress. 

After what is likely to be intense though short debate, the House of Representatives can either approve the same exact bill the Senate approved, which be the quickest resolution.  It can seek to amend the bill, in which case it must return to the Senate for their approval.  The process could be cumbersome and require reconciliation and would risk the Jan 3 deadline.  Alternatively, a majority of the House could fail to ratify the Senate bill, in which case, it will be up the next Congress to claw back from the other side of the cliff.

Two things:

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?

Banzai7 Institute presents the essential charts for hallucinating precisely WTF happened in 2012...and more

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".

Scenarios:

1. 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
2. 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.
3. 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.

One of those occasions when one picture really does speak a thousands words...

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.