The Fiscal Cliff weighs on EU Crisis

Burkhardt's picture

The Fiscal Cliff weighs on EU Crisis

Justin Burkhardt |

With the EU searching for any foothold, the U.S. looks poised to follow the Europeans into the fiscal abyss. The U.S. election season is over and the markets have refocused their attention to the looming “fiscal cliff”. Essentially the Bush tax cuts are set to expire along with sequestration cuts coming online. Both at the same time are almost certainly going to toss the U.S. back into recession.
Europe's continual game of 'we have to pay for this?' is also rattling the markets. Greece's ongoing saga of the 120% debt target has been delayed to 2022. Juncker may not think it is a joke, but the market certainly does.
The scenarios for the fiscal cliff are not promising. Undoubtedly a deal will get done, but the shape of it remains to be decided. The brinkmanship over the debt ceiling fight is sure to make a return as parties jostle for position. Beltway wisdom has the Democrats in a better position to get revenue increases, the new buzzword for tax increases. The GOP pundits have already signaled they are willing to give on the wealthy tax increases in return for broader tax and entitlement reform.
What is almost a certainty is that the can will be kicked in the lame duck session. Small extensions of the status quo are the likely outcome before Christmas. Once the new Congress is seated the real fight will begin. Republicans still reeling from their losses last week will use their control over the House to try and force some sort of a grand bargain.
Meanwhile in Europe, one has to wonder how many cliffs they can fall off of until they cease to exist. Just when you haven't heard anything on Greece in a few weeks they pop up and yep, they want money. They are like that delinquent family member that always asks to borrow cash.
Toss in Spain's fiscal woes, Italy's struggling economy and you have all the trappings of a continual bailout. When they used to talk of a moral hazard in 2008, you have to wonder if they ever envisioned this?

<<Click Here to Gain Further Insight>>

Your currency analyst,

Justin Burkhardt

Screen Shot 2012-08-17 at 1.25.23 PM

Disclaimer: I have no positions in any of assets mentioned, but may initiate a (long or short) position in the EURUSD over the next 72 hours

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
new game's picture

game of zeros-a billion is now a trillion and we are now conditioned to the new norm of a tril.

kinda like year 2000 w/o the generator. no cliff, no fall, no smell of diesel, just 10 years at 1.5-1.7 as long as

qe infinity will work.  just an errosion of value til china says we gotta a plan and here is your shit sandwich you fuckin idiots.

we have a gold backed currency that iran, sa, and russia likes a lot and the new petro yaun is in place and oh by the way we have 2 tril of treasuries that is waiting for your compliance - meet the new boss, not the same as the old boss...

better get that frackin machine in overdrive and nat gas conversion kits installed pronto, cause that will be the scramble of the decade.

big change a commin and these leaders are clueless



falak pema's picture

those who don't have golden parachutes and private dinghy boats  are the fools in this game on the titanic. 

That is the verdict the 0.1 % impose on the 99.9 %

And this first world train is now unstoppable, if you don't like the boat analogy as its sooooo 2008! 

In this world casino game the EUrozone as the FED feel that their debt is eternel and their fiat Unsinkable Molly Brown!

Peter Pan's picture

If there is one thing that is guaranteed to sink the US and European financial landscape, it would have to be the fact that all governmental debt issuance is unbacked with anything other than the good faith of each nation and future tax receipts.

This formula is destined to fail due to ongoing deficits, ever increasing unfunded liabilities, demographic trends and balance of payments problems.

So, as some commentators have already stated, we are already over the cliff and its only the distance to the bottom that is the issue.


"Cowabunga, dude, we're gonna surf that big 'ole fiscal wave as it crashes over Europe, and fly right over the Rocks of Fiscal Disaster, and step right on to the white sand Beach of Unicorn Skittle Shit."

USA ! USA ! USA ! 

Zero Govt's picture

Wasn't Bumma telling Europe to "hold off on the bad news" until after the election?

..."KABAM" and here we are Bumma sending a fiscal bomb of bad news across the Pond only minutes after

Boris Alatovkrap's picture

Q: How many is Republican Congress can screw incandescent bulb?

A: None is matter for "do nothing" Congress

(Boris is not sure funny, but is repeat joke from Liberal friend met at bar)