The One Single Reason Why We're Going Over the Fiscal Cliff

Phoenix Capital Research's picture


Given that we’re a mere days away from the US going over the fiscal cliff this is worth a reprint.


I’m going to lay out everything you need to know about the fiscal cliff negotiations. After reading this, you can ignore all of the media’s coverage of this topic as well as various politicians’ announcements pertaining to this subject.


All you need to know consists of just one sentence.


Politicians are in charge of this issue.

These are the same folks who haven’t even produced a budget in four years. The same folks who have run $1+ trillion deficits for four years. The same folks who rarely if ever leave office as a result of their fiscal mistakes.


In simple terms, none of the people in this group will likely suffer any consequences if we do go over the cliff. Indeed, as far as options go, their best option would be for us to go over the cliff and then implement some targeted tax breaks in late 2013 early 2014 as they go into the 2014 Congressional elections.


Let’s take the side of the Democrats.


Obama was largely re-elected based a solid turnout for the Democrats and a lack of voter turnout for the GOP. If you want to argue about voter fraud the fact remains that if there was widespread voter fraud the GOP let the Democrats get away with it. So for simplicity’s sake, Obama won based on a strong turnout while the GOP lost based on a weak turnout (Romney took less votes that McCain!).


With this in mind, Obama and the Democrats can easily argue that they have the mandate of the people for their policies. If the GOP proves unwilling to go along with their proposals, Obama and the Dems can simply take us over the cliff, increase taxes on the wealthy (which would appease their voting base) and blame the failure to reach a solution as well as the ensuing economic mess on the Republicans (much as the Dems and Obama have blamed the terrible economy on Bush).


So, truth be told, Obama and the Dems really have very little to gain politically from solving the fiscal cliff.


On the GOP side, there is little incentive to solve the fiscal cliff either. If they kowtow to Obama’s wishes, they’ll infuriate their base. And there’s no chance that they’ll convince Obama and the Dems to meet their demands of cutting spending (they sure haven’t done anything of this nature in the last two years). So the best thing they can do is simply refuse to address the problem, go off the cliff and then maintain a “we fought the best we could against insurmountable odds” stance.


So… neither the Dems nor the GOP are incentivized to solve the fiscal cliff.  Both parties are best off from a political standpoint having us go over the cliff and then fighting for some kind of tax breaks/ tax relief for their bases sometime in late 2013/ early 2014.


With that in mind, we’re very likely going over the cliff in a month’s time. The whole situation has echoes of the failed debt ceiling talks and subsequent market collapse of 2011.


Indeed, the market is even mirroring its Debt Ceiling talk’s action:


Here’s the S&P 500’s recent action:



Here’s what the market looked like going into the Debt Ceiling talks of 2011.



Here’s what followed:



I highly suggest preparing in advance.


On that note, we’ve recently prepared a Free Special Report outlining how to prepare for this as well as the coming economic collapse. It’s called: Preparing Your Portfolio For Obama’s Economic Nightmare and it outlines several investments that will profit from Obama’s misguided economic policies, including one targeted at potentially huge returns when the US Debt bubble bursts.


You can pick up your FREE copy here:


Best Regards


Graham Summers



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Walt D.'s picture

Been there, seen that.

So Boenher caves and we raise taxes on the "rich".

What happens next? The CBO using phony static analysis assumes that, for the sake of argument, $100 billion of new tax revenue will come in.

Congress, in anticipation, spends the extra $100 billion plus a lot more.

Then, guess what? The $100 billion does not come in - only a fraction of it.

Then there are the food stamps and unemployment benefits to pay the people in small business who lost their jobs.

Then there are the FICO payments that do not come from workers who lost their jobs or were cut down to part time, or from the employers who laid them off or went out of business.

Plus there is no revenue from the overseas businesses that would have located here, but instead chose a more friendly tax and regulation country.

Just remember that it takes $1.3 million to open a new restaurant. Since a bank will not lend money for this - it is too risky, this money has to be saved up. This can not be done if it is taxed away.

the grateful unemployed's picture

the gorilla in the room is the DOD HSA budget, and both parties want to keep their lobbyist perks going. and both sides are ready to screw medicare recepients, (lets reform healthcare, i know we'll make the poor suckers pay for their overpriced medical services ahead of time! we hate that obamacare, HO HO HO. Yes you sure do, now all Santas helpers need to fill the sleigh with money for wall street because those nasty grinch states took away their welfare..HO HO HO)

too many Ho's in Washington

shovelhead's picture

Buncha cultural troglodytes...

Why can't you just sit back and enjoy a little political theater?

These guys work hard to bring you a show and you keep throwing rotten tomatos at the players.

Pretty soon you'll be wishing for the good old days when they at least tried to fool you about their 'concern' over the budget.

rsnoble's picture

Let's if this event mirrors 2011 and we have a 225point SP drop that's the end of the world?  Who gives a fuck.  With todays HFT ramps we'll having nothing but "most massive rally in wallstreet history" news for 2 weeks straight.

Real people aren't going to be affected by this.  The economy has already detached from the market(or vise versa) and average people are getting assfucked left and right regardless of what the digital god monitors are flashing.

NEOSERF's picture

Completely right...don't ever count out the last minute bill to "extend the cliff timing by 30 days so we can continue to bugger around on this" rally too.  The cliff whether it happens or not doesn't really matter.  The HFTs are just hanging around waiting for the optimistic headline so it pump a momentum driven rally over "an all time high on our way to 15K".  Reality is that Main St. isn't purchasing, nor are corporations, real inflation is running at 6% and every day 10K more boomers enter retirement, cut their spending and contemplate selling their home to move somewhere cheaper.  We are in the early stages of Japan and the sooner we realize it the sooner we can try to prepare our kids.

The.Oracle's picture

Just no. I'm sure there's many ZH'ers who could write better articles. There should also be a 'this isn't guaranteed and I'm commonly wrong' note somewhere in the article as well.

Orwell was right's picture

Overly simplistic article, ending with a pitch to "come see my free special report".     Hope ZH got paid for this ....  ( I don't begrude a few worthless articles as long as they pay for the priviledge, and ZH gets some cash).

BandGap's picture

Why is all the attention focussed on the high end of the curve? If all these "laws" take effect, won't there be less "free" stuff?

Oh, this is going to be good. I'm pretty sure I can make it, but when the low end of the curve has to cut back further there is going to be hell to pay. Thank God for Youtube.

tony bonn's picture

"...Romney took less votes that McCain!)..."

i remember the newsfakers grunting as though on the verge of a massive bowel movement that the republicans had to nominate romney because he was "electable."

the republicans will cave....they always do....that's their motto - first to cave.....

of course boehner is a blowhard one has any intent to "fix" anything - it is all a run up to martial law....

Element's picture

Is this THE FISCAL CLIFF? ... or a fiscal cliff? ... my guess is it's the latter.

steveo77's picture

This worked well last year....bought a wicked good telescope, hope people will check out some of the pictures and klik some adz.

See the end of the world, close up, LOL

are we there yet's picture

Strangely, the government agencies my company sells to do not seem to be worried about their budgets being reduced. What do they know?

Here is a link of a magician who shows how congress manipulates things.
sosoome's picture

HaHa! Worth the watch. The guy is good.

TheObsoleteMan's picture

First of all, we went over the cliff back in 2008. Everything since, has just been posturing. Secondly, when you speak of the Dem's and GOP's bases, I am assuming you are speaking of their top contributors? It sure as hell isn't the voter. They forgot about him/her a long time ago.

Nimby's picture

I have to disagree with your assertion that there was not GOP turnout.  How do you know that previous McCain voters did not vote for Obama this time around?

JimS's picture

Not to belabor the fact that the man lost, but what did Romney actually stand for? On 90% of the issues in the last election. he was either against/for, before he was for/against, any of them. At least McCain was, generally consistent.

northerngirl's picture

Good point, that could be more true than anyone would like to admit.  Especially when you look at the GOP leadership as a whole.

Lord Koos's picture

The "fiscal cliff" is a bullshit meme promoted by the fecal stiffs.  The world will not end if taxes go up and the military budget is cut, and the whining about "fiscal uncertainty" will stop.

sitenine's picture

Sounds like you're stuck on a semantic difference between open austerity measures and "the fiscal cliff". There are bills that need to be paid, and some form of austerity must happen to keep the current fiat system plausible (investors, pensioners, etc need to at least feel some sort of effort is being made to pay them back), but a politician dare not say the word. There is no difference between the two except the method of announcing it. Once you understand that, the rest falls into place. In the end, there will be austerity, but the government doesn't have to admit that's what it really is, and both sides get to score political points in their own twisted little worlds they live in. Going beyond that, as we see plainly in all of Europe, austerity will not do enough for the public perception of their future well being to make a difference in the long run anyway - promises WILL be broken. It's all about 'when'. 'If' is no longer a question. Check this video out if you haven't seen it yet: "An Hour In The Company Of Kyle Bass"

Bobportlandor's picture

One problem Debt Ceiling Limit is at hand.

sitenine's picture

I saw the greatest comment on that very subject earlier today:

"Isn't it ironic how one can fall off a cliff and still manage to hit the ceiling."

h/t Smuckers

gaoptimize's picture

It's called a "roof" on that side.