B+

Following Cantor's explanation of the 'bill', we thought it useful to consider a quick-and-dirty scenario outline for the FX (and implicitly market) implications of today's 'Plan B' vote.

The "worst case" in the sequence of events forecasted two days ago in "The Most Critical 48 Hours In The Fiscal Cliff Melodrama Have Begun" is  taking shape, with Obama and Boehner not even remotely close to a compromise despite what the media and fly by night sellside analysts will have you believe. Instead what looks almost certain to happen is a House vote on the GOP-proposed Plan B where it will pass, only to be voted down in the Senate, especially with the pre-veto treatment by Obama. The House vote will be preceded by a Boehner press conference in which he will prepare the general public for this one final PR gambit before the House essentially shuts down for the year, as any hope of further Cliff discussion in the Christmas week can be abandoned. So from a timing standpoint:

• House republicans meet at 12:00 pm to discuss the final act of the 2012 season of the Fiscal Cliff miniseries.
• Boehner holds press briefing at 1:15 pm Eastern
• House scheduled to vote on "Plan B" between 7:30 pm and 9:30 pm

Shortly thereafter Senate votes Plan B down and chaos ensues.

Very much in keeping with the tradition of Japan's now monthly QE8 (September) and QE9 (October), last night's announcement of what is effectively QE10, left a bitter taste in the mouth of salivating habitual gamblers (f/k/a traders), after Shirakawa showed he would not bend over to Abe's political demands just yet, and left out any mention of inflation targeting, whether 2% or 3%, out of the QE10 announcement. What he did include was yet another JPY 10 billion increase in the total asset purchase fund to a total of JPY 76 trillion, increasing the size of eligible JGB and Bill purchases by JPY 5 billion each. However, since this approach has proven to be a total failure in recent months, the market immediately faded the move and the USDJPY tumbled to under 84.00 overnight. Of course, this an all other overnight news items are, of course, completely irrelevant, as the market now observes the Cliffhanger drama in what may be its last day. As we expected several days ago, if the GOP indeed proceeds to vote Plan B in the House today (and is subsequently voted down by the Senate), you can drop any hope of a compromise deal in 2012.

What causes hyperinflations? The answer is: Quasi-fiscal deficits (A quasi-fiscal deficit is the deficit of a central bank)! Why have we not seen hyperinflation yet? Because we have not had quasi-fiscal deficits! Essentially, hyperinflation is the ultimate and most expensive bailout of a broken banking system, which every holder of the currency is forced to pay for in a losing proposition, for it inevitably ends in its final destruction. Hyperinflation is the vomit of economic systems: Just like any other vomit, it’s a very good thing, because we can all finally feel better. We have puked the rotten stuff out of the system.

Wondering where to place your hard-earned cash next year? Feel like playing the global game of equity market Russian Roulette? The following matrix covering every sector in all developed country stock markets provides just the color you need. Based on price-to-book, US and German stocks are, in aggregate, the most expensive; and EM and South Korea are cheapest currently relative to historical P/B. Oil & Gas seem the cheapest sector overall (on the P/B basis) while Retail, Real Estate, Media, and Tobacco sectors appear richest.

Yesterday, while the market was absolutely euphoric that a Fiscal Cliff deal was imminent in the aftermath of the release of PR theatrics also known as "Plan B" we said:

GOP plan passes Congress, is blocked in Senate and Boehner can say it is the Democrats fault US is going over the Cliff

— zerohedge (@zerohedge) December 18, 2012

Moments ago, Boehner confirmed that, at least as of this moment, this is precisely the plan, when he said that tomorrow the House will pass legislation extending tax cuts on those with incomes over $1 MM. He added next that Obama can either convince the Senate to pass "Plan B" (which won't happen) or be responsible for the largest tax hike in history. And now the ball is in Obama's court, where things look increasingly bleak that any further compromises are imminent, and the only thing that Obama will retort with is a veto to the House's vote.

After spending a few seconds earlier discussing gun law, President Obama discussed at length how Plan B is a no-go, how he has come more than half-way, and how Boehner seems happy to allow those earning $800k or $900k to 'get away' without paying more taxes. Speaker Boehner's rebuttal is due at 215ET... ES at 1437.5

Will there be a hint of Plan B angst in there? It seems RGR and SWHC shareholders are not too worried about what the President will say... yet...

There is now about 48 hours until the rubber hits the road. What happens in the next 2 days: in a somewhat surprising development earlier, the Republicans today managed to turn the tables on the president, and as reported this morning, proposed an alternative "Plan B", one which the president has already said he will not to accept as it extends the current Bush tax cuts on all those making $1 million or less (and thus not nearly punitive enough in the eyes of Obama's electorate). The reason for this strawman is that unless Obama settles on some compromise definition of 'wealthy' between his already adjusted definition which moved from $250,000 to $400,000 earlier, and the $1 million cutoff proposed by the republicans, republicans will take the Plan B proposal to the House on Thursday and pass it, only so it is immediately voted down by the Senate, but have the popular backstop of saying "they gave it their best" just as Ken Langone suggested to Rand Paul earlier today on CNBC. And as Reuters reported, it appears that the drop dead date for House majority leader Cantor is Thursday, at which point he will vote, and pass, Plan B. At that point the Fiscal Cliff debate for 2012 is as good as over, as the resulting animosity that develops in the subsequent days will guarantee no further compromises are achievable for the balance of the year.

Credit expansion, wrote the great Austrian economist Ludwig von Mises, is not a nostrum to make people happy. "The boom it engenders must inevitably lead to a debacle and unhappiness." That seems a pretty accurate summary of the current situation for the western economies: a debacle, and unhappiness. Von Mises also wrote that "The final outcome of the credit expansion is general impoverishment." And, "What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse." It seems to us that we may be fast approaching the tail end of a 40-year experiment in money. The conventional financial media continue to keep central bankers on their pedestal; such thinking is astounding for the rest of us who know the Emperor's new clothes when we see them.

Update - Pelosi chimes in: "Pelosi Says House Democrats Would Reject Boehner Plan B on Taxes"

Flashing red headlines which refute the market's favorable take of Boehner's words...

• REID SAYS BOEHNER'S PLAN B BUDGET PLAN CAN'T PASS CONGRESS
• REID SAYS BOEHNER PLAN NOT A BALANCED APPROACH
• REID SAYS BOEHNER SHOULD FOCUS ON LARGE-SCALE DEFICIT CUTS

... but risk no longer cares about the content, and like in the fall of 2011 with all headlines out of Europe, anything flashing and red is taken immediately as positive by the algotrons, who buy first and ask questions much later if ever.

As Plan B (or Plan ZZ) is back on the table, markets (in their infinitely efficient wisdom) have retraced all of the Obama spike from last night. GOP's Boehner takes the stand to explain Plan B, we presume, at 10ET. Live webcast here (calls or puts today?)

When the US has become the equivalent of a Eurogroup Belgian summit at 4 am, with interim red headlines the only market moving variable, all one can do is sit back and laugh. In the meantime, here are the obligatory headlines:

• BOEHNER SAID TO BE MOVING TO `PLAN B' ON FISCAL CLIFF
• BOEHNER SAID TO PLAN BILL WITH TAX HIKES ON INCOME OVER $1M
• BOEHNER SAID TO CONTINUE NEGOTIATIONS WITH PRESIDENT OBAMA

One wonders what Plan A was... Of course, Obama demanding $400,000 as the threshold, so we will by plan ZQX before this is all over. Perhaps it is time for Chained Employment to go alongside Chained CPI - just think of the savings? In the meantime, Obama's plan involves cutting spending at some point in the future, but first hiking it by $80 billion. We hope the Belgian caterers, made so filty rich thanks to an insolvent Europe, i) open a Constitution Avenue office, and ii) launch a 10x levered ETF.