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The US's "EU Style" Negotiations Will Take Us Right Over the Cliff

Phoenix Capital Research's picture




 

 

 

Ever since the EU Crisis began in earnest in January 2010, EU leaders have maintained the following strategy:

 

  1. Engage in endless meetings/ discussions, none of which resolve anything.
  2. Announce that the situation is resolved.
  3. Wait for the world to realize nothing has been fixed.
  4. Repeat.

 

The prime example is Greece. There have been no less than 30 “Greece is saved” press releases/ announcements, accompanied by market rallies only to discover that Greece is not saved and in fact is worsening by the week.

 

We’ve now had two formal Greece bailouts. We’re currently working on a third/ debt buyback program, the stated goal of which is to get Greece’s Debt to GDP ratio to 120% by 2020.

 

Again, the goal for the current proposal is to get Greece to the point at which it will still be totally broke in eight years. It’s amazing no one laughs out loud at EU meetings.

 

Actually they did… the below came from a recent Q&A session with Jean-Claude Juncker, current Prime Minister of Luxembourg.

 

 

Question: Is the goal still to get Greece's debt to 120%?

Juncker: The fact is that the target of 120% will remain, but the target as far as the time frame is concerned has been postponed to 2022.

[Laughter in the room]

Juncker: That was not a joke!

            Source: ZeroHedge

           

The reality is that no politician wants to implement actual solutions (total default, wipe out of all bad debt, and massive economic structural changes) because all of them are 100% politically toxic.

 

Meanwhile Greek unemployment worsens while its GDP continues to collapse. Indeed, from peak to today, Greek GDP has fallen nearly 20%. This collapse is equal to that of Argentina in 2001, when it had a full-scale systemic implosion.

 

Again, this is the country that political leaders and financial luminaries claim has been “saved” dozens of times.

 

US leaders see that this strategy has worked for EU leaders (those who went along with it are still in office, those who didn’t have been kicked out). And so they are now adopting a similar strategy with discussions on the fiscal cliff.

 

President Obama is out campaigning the notion that we need to increase taxes on those who earn more than $250K per year.  According to the Congressional Budget Office, Obama’s current proposal would raise an additional $83 billion in taxes per year.

 

The US budget deficit is over $1 trillion. It has been ever since Obama took office. So his proposal would not even cover one month of deficit spending. And this is supposed to represent a “solution.”

 

Mathematically, the only way to cut the Federal deficit would be to either raise an additional $1.2 trillion in taxes (politically impossible, no one would go for it) or cut Federal Spending by $1.2 trillion (again, politically impossible).

 

Indeed, the US’s fiscal problems are so great that tackling them would require truly impossible measures. For instance, consider that the top 1% of income earners (the very folks Obama is targeting) paid $318 billion in income taxes according to the most recent data.

 

So, even if we doubled their taxes, we’d only raise enough money to cover about six months of the US deficit.

 

So, in order for us to close the deficit in the US, we’d have to both double the taxes paid by the top 1% AND cut spending by $600 BILLION. Now imagine trying to get the American people to go along with this.

 

My point with all of this is that the US budget talks are really just an American version of the various EU crisis talks we’ve seen over the last two years: a lot of discussion over phony “solutions” all of which fail to address the try size of the problem.

 

As a result, we’re likely going to experience something very similar to the debt ceiling talks in July-August 2011: a lot of talks which fail to go anywhere followed by a market collapse.

 

For more market commentary, investment ideas, and macro-economic research swing by www.gainspainscapital.com

 

Best Regards,

 

Graham Summers

 

PS. We also offer a FREE Special Report detailing the threat of inflation as well as two investments that will explode higher as it seeps throughout the financial system. You can pick up a copy of this report at:

 

http://gainspainscapital.com/gpc-inflation/

 

 

 

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Tue, 12/11/2012 - 02:55 | 3051239 Sandoz
Sandoz's picture

It's called negotiation for a reason. When each party has strongly held beliefs negotiations can be messy, complicated, slow, etc... It kinda sucks, but it's a lot better than the alternative.

Would you rather that the "solution" be dictated? I mean seriously, can you honestly think of a better way to work out this enormous problem involving the interests of lots of people?

Tue, 12/11/2012 - 04:06 | 3051288 Ham-bone
Ham-bone's picture

There is no "negotiation" going on...this is theater, plain and simple. 

If there were to a solution you would need to start by identifying the issues and then working to resolve them.  This show in DC is going out of their way to avoid the issues and only play politics with an eye on the next mid term.  To start a real discussion we need to acknowledge a $4T to $7T annual deficit with unfunded and deficits...claiming a $1T "problem" and then focus on raising $85B in new tax revenue...simply a straight out joke from both R's and D's.

Misdiagnose, mistreat, and claim patient is cured.  That is our "negotiation"

Tue, 12/11/2012 - 03:51 | 3051282 Ghordius
Ghordius's picture

hey, it's "EU Style" negotiations. can't be good, per definition /s

Tue, 12/11/2012 - 01:54 | 3051170 SAT 800
SAT 800's picture

Oh Lord it will be a wonderful day when the last offer of a free report from Phoenix Capital Research is published on this page. May it come soon; soon, oh Lord. For lo, we grow weary under this relentless barrage of bullshit.

Tue, 12/11/2012 - 01:59 | 3051178 akak
akak's picture

It could be worse .... remember Leo?

Tue, 12/11/2012 - 02:27 | 3051216 SAT 800
SAT 800's picture

Indeed, indeed; you speak the truth. compared to Leo this is perfectly sensible.

Tue, 12/11/2012 - 07:59 | 3051415 smlbizman
smlbizman's picture

still better than robert brusca....he presented his commentary from behind a chicken wire screen so it would block the tomatos and beer bottles being hurled at him from the zh community...

Tue, 12/11/2012 - 08:15 | 3051433 akak
akak's picture

Yes, Bruschetta did give Leo a run for his money in the "token idiot" slot on ZeroHedge, didn't he?  I guess having the position left permanently vacant was too much to hope for, though.

That must be why Tyler(s) allowed RobotTrader back in.

Tue, 12/11/2012 - 09:31 | 3051535 smlbizman
smlbizman's picture

trader is back?...have not noticed yet....and maybe you can enlighten me on what one has to do to get banned from here...i personally am somewhat dissapointed that anyone would get banned here...even the most biggest of the assholes...any insight would be appreciated...

Tue, 12/11/2012 - 17:09 | 3053095 akak
akak's picture

smlbizman, I have no idea what it takes to get banned here on ZeroHedge --- I only know that I have seen it happen maybe six or eight times in my almost three years here.  In each case, though, there was a long history of grossly trollish behavior, i.e., gratuitously inflammatory, confrontational, antagonistic and thread-swarming posting.

Tue, 12/11/2012 - 05:59 | 3051341 falak pema
Tue, 12/11/2012 - 01:54 | 3051167 TraderTimm
TraderTimm's picture

Someone wake me up when "I've got you, babe" isn't playing anymore.

Time to take the radio and dump it in the bathtub - I don't want to 'live' out this day, lets jump ahead.

Tue, 12/11/2012 - 00:49 | 3051060 Sambo
Sambo's picture

The political establishment in EU has come to a shocking realisation that they themselves are the 'wolves' that they were trying to protect Greece from back in summer 2010. Welcome to reality!

Tue, 12/11/2012 - 00:43 | 3051045 stormsailor
stormsailor's picture

or another market spike when they claim the problem is solved

Tue, 12/11/2012 - 07:56 | 3051410 smlbizman
smlbizman's picture

only the pos in dc could turn 83 billion into chump change.......

and when did debbie stabinow become ceasar romero as the original joker....

Do NOT follow this link or you will be banned from the site!