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The US Fiscal 'Moment': Cliff, Slope, Or Wile E. Coyote?

Tyler Durden's picture




 

The overhwelming majority of investors seem to believe that some compromise will be reached to resolve the looming fiscal drag, and as we noted here, this fact is more than priced into markets. As Barclays notes however, a big deal that encompasses entitlement and tax reform is very unlikely before year-end. Hence, if the ‘cliff’ is avoided, it will be because Congress extends all expiring provisions for some time while it works on a bigger deal. Such an 'extension/compromise' move would not reduce investor uncertainty if it were only for a few months; bond markets would simply start counting down to the new date. More importantly, the discussion about the fiscal cliff misses a broader point: the US will probably have significant fiscal tightening over the next decade that is a drag on medium-term growth. Yet more investors dismiss last year's reaction to the debt-ceiling debate - a 17% decline in 2 weeks - as any kind of precedent, claiming (falsely) that this was more due to European financial difficulties. We expect fiscal issues to be the defining drivers of the next several quarters and as BofAML notes, Washington's view of this 'process' as a 'slope' combined with the dangerously negative election campaign (which will need a 180-degree reversal for any compromise) means the likelihood of a Wile E. Coyote Moment is considerably higher than most expect.

The S&P 500 plunged by 17% between July 25th and August 8th and between the fiscal cliff, the debt ceiling, and the election - uncertainty remains high...

 

but this was not about Europe (as many prefer to believe) as this chart from Goldman shows

"...positive developments by the ECB narrowed the spread between Spanish and German ten-year bond yields by roughly 100bp (from 380 bp to 290 bp) while S&P 500 fell by 11% during those days, including nearly 7% the day after S&P lowered the US credit rating."

 

 

 

and what of compromise or small adjustments?

Via BofAML's Ethan Harris: A Wile E. Coyote moment

One of the best known moments in US cartoon history is when Wile E. Coyote accidentally runs off a cliff. Initially he remains suspended in air – and for a moment starts to believe he will be okay – but then plunges to the canyon floor.

Some in Washington are now contemplating a Wile E. Coyote moment around the fiscal cliff. In their view, the cliff is a fiscal “slope”, or “hill.” They say, going over the cliff initially has very little impact on the economy. The IRS could decide not to change tax withholding tables. The Alternative Minimum Tax doesn’t need to be paid immediately. Government agencies could spend down their cash balances. Households could draw down their savings. And even if policy does tighten, the fiscal cliff cuts spending and raises taxes by only about $2 billion per day and people will “know” politicians are bluffing. So what’s the harm?

In our view, this is a very dangerous way to look at the cliff. After a highly negative election campaign, both parties will need to do a painful 180-degree turn and negotiate a series of compromises. If politicians believe going over the cliff has no real consequences, then they will have little incentive to negotiate as the cliff approaches. Moreover, if the laws of gravity are suspended for weeks or months, why not keep debating after going over the cliff? In our view the end game – the ultimate game of brinkmanship – is a plunge in confidence and markets, and significant damage to the economy. We also believe the Wile E. Coyote moment won’t last long; by the time we go over the cliff, the dysfunctional debate in Washington will have already softened up the markets and the economy.

This reminds us of Summer 2011

A popular view last summer was that a temporary suspension of 25% of government outlays or a few missed Treasury debt payments was a reasonable price to pay to get a sensible deficit reduction plan. That didn’t work out so well. Despite a last minute deal, this brinkmanship contributed to a weak stock market, a downgrade of the US credit and then a large 6.66% one-day plunge in the market. In the end, the “sensible deficit reduction plan” that emerged was to add $110bn in across-the-board spending cuts to the fiscal cliff.

We can only wonder what would have happened to the markets and economy last summer if they had not reached a last-minute deal. Unfortunately, there is a growing risk that we could complete that experiment in January. Keep in mind that the stakes are much bigger this time. Last summer they had only the debt ceiling to deal with. This time there is the debt ceiling, the Alternative Minimum Tax ($120bn), tax extenders ($20bn), the Medicare doc fix ($20bn), the payroll tax cut ($120bn), extended unemployment benefits ($40bn), the sequester ($110bn), the Bush tax cuts ($180bn), Obama Care taxes ($20bn) and a number of other expiring programs ($90bn). Two billion dollars per day may not sound like much, but it is more than 4.5% of daily GDP.

Negotiations should occur before the cliff

Some of the arguments for going over the cliff are well intended: we do not want to rush into a bad deal. However, if the US is to avoid a major shock to the economy and markets, we think such negotiations should occur before the cliff arrives or after extending the cliff. The process matters as much as the outcome.

 

Using the cliff as a motivating mechanism would be a major mistake, in our view.

 

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Sat, 10/13/2012 - 15:49 | 2885458 SGS
SGS's picture

3 words: BEN SHALOM BERNANKE

Sat, 10/13/2012 - 16:01 | 2885479 Tijuana Donkey Show
Tijuana Donkey Show's picture

Nope, he's just a puppet. Someone else behind him tells him what to do. cough - feed banks - cough

Sat, 10/13/2012 - 16:05 | 2885485 markmotive
markmotive's picture

Remember the last time there was a budget issue? US ended up getting downgraded and markets tanked. And many politicos would have you believe that was a 'bipartisan success', right?

 

Sun, 10/14/2012 - 00:09 | 2886140 Stock Tips Inve...
Stock Tips Investment's picture

Solving the deficit problem in the U.S. economy will bring negative consequences. Now or later. Pretender correct this serious problem, assuming no cost, is just an illusion. The more we delay we face, the greater the consequences. But deep down, our biggest problem is that we are leaving this responsibility in the hands of the government. The government originated the probleam, that solves it. That did not happen. We regresasr our origins. Private enterprise and individual initiative must regain control of our economy. A government smaller and more efficient. A larger private sector and dynamic. More freedom in business, fewer regulations and less political decisions. Government spending should not be the engine of our economy.

Sun, 10/14/2012 - 13:40 | 2887817 fockewulf190
fockewulf190's picture

There is no painless way out of this disaster, and the longer this insane spending goes on, the more painful it is going to be. How many times have I read that statement in one form or another over the past decade.

Everybody knows the debt levels and the uncovered liabilities will be coming home to roost. Everyone knows the longer the ponzi runs, the more destruction it is going to cause. Everyone knows we are buring both ends of the candle with blowtorches.

Future generations of humans, not just Americans, are going to inherit the biggest pile of festering economic shit ever known to man. We are truly heading towards mass deevolution, the seeds of which have long since germinated.

Those being born today will be the cannon fodder of the 21st Century; just like those who were born twenty or so years before the First and Second World Wars. The generations of the damned.

Sun, 10/14/2012 - 00:09 | 2886053 Radical Marijuana
Radical Marijuana's picture

The tunnels of deceit that control these things are practically infinite. There are many, many onion-like layers to ways of controlling civilization through lies, backed by violence. Just as the publicly perceivable layers exist, there must be at least an equal number secret layers, which are hidden. The important questions are whether, or when, those who secretly or covertly control the public, or overt government of the USA, decide that they think it is time to do something, for their own secret reasons. The government of the USA is obviously a puppet show. The magnitude of how bad that IS got displayed by the facts that the American money supply was privatized, and that system has been centrally controlled for a Century, with accumulating consequences. That the American government is a puppet show was even more horribly demonstrated by the events on 9/11/2001 being a successful false flag attack, which deliberately destroyed symbols of the American financial system. GIVEN THOSE FACTS that the American system is already so far gone into being secretly controlled, that a Century ago its money supply was privatized, and a decade ago some shadow government system was able to mass murder Americans, and not only get away with that, but also use that to advance their global agenda, THEN, the issue of the puppet show politicians making decisions is laughable, if you have a sufficiently macabre sense of humour.

Therefore, while there may well be public reasons to believe the likelihood of a Wile E. Coyote Moment is considerably higher than most expect ...  it remains relevant, although wild speculation, to try to guess at what the secret shadow government of the USA wants to do, or when do they want to do that ... I have no doubt that the Federal Government of the USA is a puppet show. I have no doubt that there must be some hidden upper levels of puppet masters, upon puppet masters, pulling strings. Therefore, the American Wile E. Coyote Moments are actually more under the control of those puppet masters, than what we can perceive in the public puppet show of politicians. Since I basically believe that those puppet masters are planning to finish destroying the American democratic republic, it is not impossible that they would finally decide to enable Wile E. Coyote Moments to happen, when it suits their hidden agenda for that to occur.  

Sat, 10/13/2012 - 16:02 | 2885482 Stackers
Stackers's picture

Wile E Coyote. just waiting for enough people to look down.

Sat, 10/13/2012 - 16:19 | 2885499 Goldilocks
Goldilocks's picture

Wile E. Coyote falls off cliff
http://www.youtube.com/watch?v=Gq_bjaI0NTo (0:17)

road runner & wile e coyote - sugar and spies
http://www.youtube.com/watch?v=YcR6Uw2UL7c (6:21)

Road Runner & Wile E. Coyote cartoon collection - Zoom at the Top
http://www.youtube.com/watch?v=fsD-sePT3tY (6:34)

Sun, 10/14/2012 - 00:35 | 2886164 Radical Marijuana
Radical Marijuana's picture

Of the many Wile E. Coyote Moments, I like the one at the 1:30 mark of this:

http://www.youtube.com/watch?v=wjndtb4V7YY

The Solid Tin Coyote

Coyote steps around the back of a bizarre mirror, only to then discover he has walked off the cliff.

Sat, 10/13/2012 - 16:46 | 2885550 greensnacks
greensnacks's picture

95% of the population hears "fiscal cliff" and identifies it with a moment of fear and panic. They think, "No one wants to drive off cliffs!" And the framework is set to get political buy in for building an even higher cliff and kicking the can even further down the road. It seems both republicans and democrats are playing this game. If it were called something like, "responsible spending act", maybe there would be more public outrage for the deficits being run up by our elected officials - but fiscal cliff ... come on! that's scary and why there will not be a coyote jumping moment in January.

Sat, 10/13/2012 - 16:37 | 2885530 kliguy38
kliguy38's picture

Aren't we getting some new judges on American Idol this season?

Sat, 10/13/2012 - 19:56 | 2885810 DeadFred
DeadFred's picture

Focus more on reality. Why do you worry at all about American Idol when Dancing With the Stars is on?

Sat, 10/13/2012 - 20:18 | 2885855 Pure Evil
Pure Evil's picture

Personally I prefer the old fashioned bread and circuses with a little blood letting in the colesseum. Bankers being hacked to bits anyone?

Sat, 10/13/2012 - 15:50 | 2885460 FL_Conservative
FL_Conservative's picture

I would rather us "go off the cliff" than kick this can one more time.  Enough is enough.  Solve the fucking problem or get out of the fucking way.

Sat, 10/13/2012 - 16:40 | 2885540 a growing concern
a growing concern's picture

And stop trashing my purchasing power.

Sun, 10/14/2012 - 15:10 | 2888046 GeezerGeek
GeezerGeek's picture

My silver buys more now than it did in 1962. Maybe you just use the wrong stuff to store purchasing power.

Sat, 10/13/2012 - 16:55 | 2885564 disabledvet
disabledvet's picture

Amen brother. Still..we're looking at the wrong asset class. The tell...yet again...is Senator Schumer. He's now ready to blow up the treasury complex to make sure REAL ESTATE prices don't reset...not treasuries as is presented here. What the USA is suffering from is no CARRY to the rates (Senator Schumer yet again...threatening the Fed Chairman no less!)...so somehow he will now dictate the price of the New York City skyline? Really? When I can have a better building built brand new by Jamie Dimon for 30 million? I mean that is the maximum amount any sane person should pay yes, yes? And that's for the whole building, yes? Obviously yes. The timeline is all wrong at Zero Hedge. This crisis started in Qatar...not New York. Then it spread to commodities...then it hit the Middle East in general, then it hit Japan, then it smashed in the EZ, the Social Media space and now it's smashing into China. All of this is liquidity annihilation...and has happened with SHOCKING speed. Where is the return on one's capital going to come from? Soaring tax rates? Only energy, tech, the transportation sector, large scale insurance and "micro financing" offer the possibilities of "finding the ever elusive Alpha." and the actual places where this is being generated (North Dakota, northern California, Houston, Alaska, possibly Wisconsin, possibly Ohio, possibly Western Pennsylvania, possibly Upstate New York) are too small to generate the growth numbers the overall US economy needs to power ahead "and start paying for things." if there is a collapse in media pricing en toto as there appears to be and I say "look out below" economy.

Sat, 10/13/2012 - 17:16 | 2885598 HurricaneSeason
HurricaneSeason's picture

The crisis started when they went to offer mortgage backed securities for auction and got bids of 20 cents on the dollar due to ridiculous loans and jobs going to China. The housing market was a fake economy to cover jobs going to China and now wars are the fake economy.

Sat, 10/13/2012 - 20:48 | 2885901 KickIce
KickIce's picture

Spot on, but now you also have to include the national police force, er Homeland Security and the TSA.

Sun, 10/14/2012 - 09:15 | 2887033 HurricaneSeason
HurricaneSeason's picture

Yes, don't forget solar and green initiatives and ethanol.  I imagine a cheeseburger, and gallon of gas, both cost $500 in Afghanistan.  It's hard for Apple to compete with that as far as creating an economy out of thin air.

Sat, 10/13/2012 - 20:51 | 2885903 KickIce
KickIce's picture

dup

Sat, 10/13/2012 - 15:53 | 2885463 LetThemEatRand
LetThemEatRand's picture

Hmm.  I don't remember climbing up a mountain when the Bush tax cuts went into effect, but now I'm supposed to believe there is a cliff associated with their expiration?   I just remember a bunch of rich people getting richer while the economy went down the toilet because trickle down doesn't work and "free trade" sent what was left of our manufacturing base to China for the cheap labor and non-existent environmental laws.

Sat, 10/13/2012 - 16:03 | 2885483 Tijuana Donkey Show
Tijuana Donkey Show's picture

The tax cuts were to hide the loss in wages and purchasing power. 

Sat, 10/13/2012 - 16:12 | 2885490 LetThemEatRand
LetThemEatRand's picture

Perhaps in a small way, but they were designed primarily to benefit the wealthy.  More than half of the dollars saved are saved by .1% of the population.   The little people were thrown some crumbs so they could be told that everyone was benefitting.  Most people spend more on cellular phone service over the course of a year than they save in taxes from the Bush cuts.

Sat, 10/13/2012 - 16:12 | 2885491 Sofa King
Sofa King's picture

Why is it that brainwashed liberal morons refuse to admit that the problems we have are a direct result of the decidions made during the Clinton.

I am not saying that because of my political affiliation, I am saying that as an American. The only think the Clinton Dynasty has and continues doing, to this day, is poison our country.

Blame Bush all you want but it takes time for poison to work its way through a system and Buba introduced it.

Sat, 10/13/2012 - 16:19 | 2885495 LetThemEatRand
LetThemEatRand's picture

Are you a brainwashed conservative moron, or do you just like calling people names over views they do not have.  I blame all of the politicians going back to Reagan who started this whole nonsense of trickle down economics aka redistribution of wealth from the middle class to the uber rich.  Clinton gets plenty of credit and he used his Democratic credentials to sell an oligarch friendly and middle class destroying trade policy that probably would have been impossible for a Republican to sell at the time.  Both parties serve the bankers, the defense contractors and oil sector, and the mega companies that own them.  You can stick a blue tie or a red tie on any of them and they all do basically the same thing -- implement policies designed to increase the wealth at the top while we are told the rest of us will benefit.   They say different things, but their policies in action are almost identical.  Amazing that most people believe one of the ties when the proof is right before their eyes that neither party gives a damn about them.

Sat, 10/13/2012 - 16:26 | 2885509 FreeMktFisherMN
FreeMktFisherMN's picture

Hey LTER,

I just want a free market, i.e., only voluntary actions, and one in which people can be left alone. You are caught in the cognitive dissonance of trying to stopgap problems that were CAUSED by the govt intervention in the first place. Regulation solves nothing. Capitalism rewards things of value and purges the worthless. That mechanism has been interfered with by the Fed and pols who prop it up with funds that enslave the current and future serfs.

 

Most here know that the Left/Right is a false, dichotomous choice. Conservatives generally at least value people working their way up and earning one's keep instead of just going the 'victim' route and showing envy with class warfare. 

 

I don't care about what you want to call these things. It's all semantics. Trickle-down indeed is a farce if it is not a true free market, but rather govt picking winners and losers and with big businesses getting onerous compliance costs to go on competitors so they can't compete. In general, yes, with capitalism there will be some uber rich. But to get rich, they had to figure out what people want/value, and then give it to them such that the inputs are less than the revenue, so they make ends meet and profit. I despise cronyism, so don't try to pigeon hole me in that light. 

 

Sat, 10/13/2012 - 16:38 | 2885525 LetThemEatRand
LetThemEatRand's picture

You and many others misunderstand me in believing that I don't get your point.  As I have said over and over on ZH, I am in favor of much smaller government and getting money out of our elections process including ending the two party system completely.   I also abhor the police state and prison industrial complex we've become.  Where I differ with many here is that I believe government has an important role in things like health care, education, roads, bridges, science (e.g., that GPS system you use is there because of NASA, a government funded entity), airports, pooling of resources for the poor, environmental regulation, anti-trust regulation, courts, etc.  I believe there is no such thing as a true free market.  Powerful forces will always take over and cheat.   By the same token, there will always be "force" used by someone against someone else.  Ask BP about whether they got permission from everyone on the Gulf of Mexico to have an oil spill there.  Ask Standard Oil about what it did to competitors.  Ask mine workers in the 1800s how free they felt.  An elected government that requires taxes to run is much better than oligarch rule.   Oligarchs, King, Queens, etc demand tribute too.   But we can agree to disagree on all that.  I suspect most libertarians would be much happier if my world view came to pass than the status quo and quite frankly I don't ever see the majority of the population getting behind libertarianism.  

Sat, 10/13/2012 - 17:12 | 2885593 disabledvet
disabledvet's picture

Again this is a sime technical issue...has nothing to do with politics actually. "we're so big we don't pay taxes" is the problem...and REIT conversions are the issue. With trillion dollar deficits you have to stick it to real estate as the only thing they produce are liabilities.

Sat, 10/13/2012 - 17:22 | 2885602 FreeMktFisherMN
FreeMktFisherMN's picture

People can voluntarily chip in and pay for things like space exploration, and they do it more efficiently too due to having private ownership, i.e., direct skin in the game. Also, voluntarily paying for private roads would work better, and those who don't pay don't get to take them or whatever rules the owner wants. There is no authority in the Constitution given to the government to be involved in 'education', either. And just look at the results: most money spent per capita, yet lousy raw skills let alone the inability to think for themselves due to the John Dewey dream system of secular, atheistic, state-is-god Marxist indoctrination. 

People should be able to educate their children according to the dictates of their own conscience. This university paradigm is a disaster, too. I would rather pay some business guy to let me be an apprentice for a few years and learn the ropes rather than go to these racketeering projects called universities.

So many like to champion these govt programs, when, aside from their unconstitutionality, which is the major principle anyway, they're all BROKE!  Not to mention the moral hazards they create, like harming the responsible people who pay down their debt and save and are on time with mortgage payments, or who actually run profitable companies, by bailing out the spendthrift and the speculators. Things like 'the money has been paid back by GM' are fairy tales, and even if they were to 'break even,' which, again, is not the case, it's not worth the moral hazard of intervening in the marketplace and is also anti-Constitution. 

Sun, 10/14/2012 - 07:15 | 2886651 northerngirl
northerngirl's picture

As a country we need to do more to move aways from the, "Believe there is no such thing as a true free market", and the elements that support an over reaching government and crony capitalism.

Sun, 10/14/2012 - 18:08 | 2888703 Overfed
Overfed's picture

The role of government needs to be limited as everything they touch turns to shit.

Sat, 10/13/2012 - 16:39 | 2885537 bookwurm
bookwurm's picture

(((DING))) "Give that man a Qewpie Doll.."

Sat, 10/13/2012 - 17:08 | 2885583 disabledvet
disabledvet's picture

This is a technical issue involving almost entirely the ability to securitize debt and insodoing "maintain pricing power." that has completely collapsed...and has stayed collapsed going on 4 years now. Every time the Fed says "monetize" the debt markets go crazyand buy ahead of the curve. This may make the Fed feel good about itself...but what happens when the market decides not to do that? This has nothing to do with one's political persuasions whatsoever...but instead how one views debt creation and whether or not such a policy will...as it should...cause lending to surge. One look at M2 says "we're dead." so while the heroin shot the Chairman is giving to himself and his fellow Committe members feels good...at some point either growth or inflation...or both...must return. Indeed since we know Governments under report inflation massively...well, let's just say interest rates do not have to move up far formthat to be considered "statistically significant." the problem isn't the trillion in deficit per se but the inability to drive asset prices "at large" higher thus as a consequence "paying for things." hence "The Confidence Game"'is still playing out.

Sat, 10/13/2012 - 22:47 | 2886047 oldman
oldman's picture

LTER,

Bravo, Sir,

I remember walking out of a meeting in 1980 or 1981 where Laffer was explainig 'trickle down'. It sounded like bull shit then and after Clinton finished his at-bat, everyone knew it was bull shit. It should hae been referred to as 'gushing up' and not 'trickle down'.

The meal is finished, the check is in the middle of the table and no one is fubling in his pocket for the money to pay, the last one to go to the pisser is stuck with it all.

Many of us have been wondering for three decades-----who will be the last man out      o

 

Sat, 10/13/2012 - 15:53 | 2885465 ZFiNX
ZFiNX's picture

This concern presupposes that some war won't break out that gives congress a reason to expedite a raising of the fiscal cliff.

Sat, 10/13/2012 - 22:04 | 2885468 SilverFish
SilverFish's picture

They will kick it down the road as long as they need to. All they care about is making sure it doesn't happen on their watch.

 

This is their only concern. As simple as that.

Sat, 10/13/2012 - 22:28 | 2886019 ZeroAvatar
ZeroAvatar's picture

Agreed, SilverFish.  If Oblowme was any kind of President, he'd be working on solving the problem NOW!  Instead, not only has he not given it any attention, but he's PUTTING OFF giving it any attention until AFTER the election......he may not need to deal with it at all, so why start now?

 

Long golfing communists.

Sun, 10/14/2012 - 21:11 | 2888982 Breaker
Breaker's picture

He's not putting it off. He has no interest whatsoever in reducing even the rate-of-growth of federal spending. He isn't interested now. He won't be interested if he is reelected.

Sat, 10/13/2012 - 16:07 | 2885486 GOSPLAN HERO
GOSPLAN HERO's picture

Collapse, female dogs!

Sat, 10/13/2012 - 16:43 | 2885542 a growing concern
a growing concern's picture

bitchez.

Sat, 10/13/2012 - 16:08 | 2885488 Inthemix96
Inthemix96's picture

I remember a while ago when the US reached the 5 trillion mark in debt and thought "this is it, no fucking way they can delay this epic crash", now that was some time ago.

Now the number is closing on 17 trillion in debt????

How much longer can these mother fuckers keep this up?  When this goes down it will be the end of the world as we know it.  These numbers are so large and so unbelievable to your average joe, when it does come down who in gods green earth knows what the fuck will happen?

Lets be hoping ben "shalom" bernank gets his though, the poisoned fucking dwarf.

Sat, 10/13/2012 - 16:13 | 2885493 Clinteastwood
Clinteastwood's picture

Fiscal "cliff" my ass.  There will be no Wile E. Coyote moment.  Congress and president zero will spend beyond belief.  

 

There will be no improvement in morale until the beatings continue.........er..........or until Congress, president, supremes, and fed bureaucrats live by the same laws they expect everyone else to live by.

 

(Can I get a Social Security amen?)

Sat, 10/13/2012 - 16:33 | 2885521 Goldilocks
Goldilocks's picture

The Solid Tin Coyote
http://www.youtube.com/watch?v=wjndtb4V7YY (6:17)

Coyote and RoadRunner - Out and Out Rout (29.01.1966)
http://www.youtube.com/watch?v=HO_MzWsJgpM (6:01)

Sat, 10/13/2012 - 16:50 | 2885558 syntaxterror
syntaxterror's picture

Well said. President "I'll cut the debt in half" Oblahblah knows how to do one thing well: spend.

Sat, 10/13/2012 - 20:13 | 2885848 OneTinSoldier66
OneTinSoldier66's picture

Socialist InSecurity amen.

Sat, 10/13/2012 - 16:25 | 2885507 Yen Cross
Yen Cross's picture

Tyler, I worked through your first set of charts. I think there is a strong possibility of a credit downgrade even if the "fiscal cliff" deal is done before February. That debt ceiling debacle is really the "canary in the coal mine", issue. The longer the fiscal cliff issues drag on, just exacerbates the "debt ceiling" issue.

 I wouldn't be surprised to see a downgrade, right after the "fiscal cliff" is resolved. The excessive spending will/has to continue s/t, and the debt ceiling has to be raised.

Sat, 10/13/2012 - 17:15 | 2885596 fonzannoon
fonzannoon's picture

S&P has to downgrade, and they will. This time though instead of the media screaming the sky is falling they will scream who gives a shit. They will point to the last debt rating downgrade as their evidence it does not matter. Hell it will probably be fodder for them to dismantle the ratings agancies. People will wake up slowly, one at a time, until one day too many are awake and can't deny reality and thats when we hit the ground face first.

Sat, 10/13/2012 - 17:41 | 2885637 ebworthen
ebworthen's picture

So will the S.E.C. go after S&P the way they did Egan-Jones or is S&P "o.k." because they get ca$h from those they do the ratings for?

Will the S.E.C. go after the B.L.S.?

Will they go after Jon Corzine?

NAH!

Sat, 10/13/2012 - 23:28 | 2886093 Yen Cross
Yen Cross's picture

Lay off the  Fonz. ebworthen    

    I could pull up some of your early comments!

    

Sat, 10/13/2012 - 23:37 | 2886098 ebworthen
ebworthen's picture

The Fonz is selling reverse mortgages (Henry Winkler - Fonzy from the T.V. show "Happy Days").

Early comments?  Have I evolved or are you inferring de-evolution?

If I were going to pay for ratings it would be Egan-Jones.

Jon Corzine should be busting rocks.

Sat, 10/13/2012 - 23:44 | 2886107 fonzannoon
fonzannoon's picture

thanks Yen. ebworthen has a point with the ratings agencies. i linked a bloomberg article up before that was arguing the US should be upgraded. it's insanity.

Sun, 10/14/2012 - 00:11 | 2886142 Yen Cross
Yen Cross's picture

 Non the less, lay off the Fonz.  The kid is just asking Q/A.   Ask me a question  "ebworthen".  I'll admit you are intelligent.

 Let's test life skills.

Sun, 10/14/2012 - 01:35 | 2886217 ebworthen
ebworthen's picture

Oh, that fonz, fonzanoon.

S&P may downgrade the U.S., but only in an attempt to remain credibility to prop their other bullshit ratings of banks and other "corporations".

S&P stands for "Support the Ponzi".

Sat, 10/13/2012 - 18:07 | 2885680 kito
kito's picture

obama wins, they downgrade pronto............mittens wins, they give him some breathing room.....perhaps 6 months...........i cant see s&p raining on mittens parade.......not a good way to kick off the party.....then again i know nothing as evidenced by my poor call on qe coming after elections.................

Sat, 10/13/2012 - 19:14 | 2885773 Nick Jihad
Nick Jihad's picture

I think that you are correct about S&P giving Mitt a breathing space, if he wins. But, consider also what the mainstream media will do if Mitt wins. After Mitt wins (and probably even before he takes office), bad economic news will no longer arrive "unexpectedly", will no longer be relegated to page 16 of the Sunday edition. A Mitt victory means the MSM will stop being cheerleaders.

Sat, 10/13/2012 - 23:51 | 2886116 jimmyjames
jimmyjames's picture
evidenced by my poor call on qe coming after elections

***************

Gave you a green for honesty--well--partial honesty-

Gold double bottomed and confirmed primary bull market trend-4 months prior to QE-

You forgot to mention your call on that one-

Sun, 10/14/2012 - 01:10 | 2886195 kito
kito's picture

My only call on gold price-wise was that it would never reach $2000/oz without qe3...so technically I was correct.......

Sun, 10/14/2012 - 01:55 | 2886227 jimmyjames
jimmyjames's picture

My only call on gold price-wise was that it would never reach $2000/oz without qe3...so technically I was correct.......

********

Really--did M2 turn back up-whatever that means-

Gold does not need QE or dollar weakness to make it to 2000 and will not need either to break 2000-

Gold did just fine before QE was in vogue and dollar printing was benign-

Damn it man--you're a deflationist and still can't understand that it's "credit/debt risk" that gold is and has been responding to since 01-

The dollars in circulation are so tiny when measured against debt-

Sat, 10/13/2012 - 18:19 | 2885694 LMAOLORI
LMAOLORI's picture

 

 

If we actually had credible debt ratings agencies or agencies that weren't fearful of our government we would have already been downgraded. 

" The US bias likely stems from the fact that this nation’s very own Securities and Exchange Commission decides which rating agencies qualify for status as a Nationally Recognized Statistical Rating Organization (NRSRO), an essential designation for making a credit rating agency relevant to investors."

SEC Sues the One Rating Firm Not on Wall Street’s Take

The credit rating agencies: Power, responsibility and accountability

Sat, 10/13/2012 - 16:28 | 2885511 lolmao500
lolmao500's picture

Boehner said no deal before the new congress is in...so.........

Sat, 10/13/2012 - 18:44 | 2885743 stocktivity
stocktivity's picture

......so....they just extend it

Sat, 10/13/2012 - 16:28 | 2885514 debtor of last ...
debtor of last resort's picture

The so called fiscal cliff is just a small step in the ponzi circus. Time for the lions to enter the arena. I believe they are hungry.

Sat, 10/13/2012 - 16:36 | 2885529 lolmao500
lolmao500's picture

 

Despite a last minute deal, this brinkmanship contributed to a weak stock market,

Which is in a bubble.

a downgrade of the US credit

Which was way overdue.

and then a large 6.66% one-day plunge in the market.

Large... not large since most of the stock market is in a bubble.

In the end, the “sensible deficit reduction plan” that emerged was to add $110bn in across-the-board spending cuts to the fiscal cliff.

Which is NOTHING compared to what REALLY needs to be done...

Sat, 10/13/2012 - 16:44 | 2885546 Schmuck Raker
Schmuck Raker's picture

I couldn't help but notice -

"Figure 4: Realistic Debt/GDP projections for various savings targets"

- certainly seems to begin with Debt/GDP around 76-77%, and we're already(late 2012) actually at 100%.

What's realistic about that?!

Sat, 10/13/2012 - 17:04 | 2885577 Yen Cross
Yen Cross's picture

 As of May, 2012 101.5%. http://www.zerohedge.com/news/total-us-debt-soars-1015-gdp.   I think it's closer to 105% now.

Sat, 10/13/2012 - 16:45 | 2885548 syntaxterror
syntaxterror's picture

Japan's Debt-to-GDP is now over 200%. ObamaCorp's is a paltry 100%. This bull market has legs!

Expect the Masters of Extend-and-Pretend to do what they do best: more war, more banker welfare, more foodstamps, more schemes to prop-up mortgage debtors, more pouting about China, more Fed debt monitization, more student loans, more deep-subprime car loans, more bridges to nowhere, more public union pension welfare, and more dollar devaluation.

Seems to be working because the fools keep getting re-elected, don't they?

Sat, 10/13/2012 - 16:49 | 2885557 PUD
PUD's picture

Yep, It all works until it doesn't

Sun, 10/14/2012 - 03:46 | 2886279 Peter Pan
Peter Pan's picture

Of course it will explode one day. Read the story of Thomas Midgley Jr who was hailed as a brilliant inventor etc and who was responsible for TEL in gasoline and CFC's in refrigeration both of which proved to be quite harmful. In later life he was stricken by severe polio so he invented an elaborate system of strings and pullies to enable him to get up from bed. One day he became so entangled in its strings that he wa strangled to death by his own contraption.

This is what will also happen to those who have twisted the economy and crippled the free market.

Sat, 10/13/2012 - 16:47 | 2885551 PUD
PUD's picture

The only "growth" that continues without check in nature are tumor cells.

We cannot have perpetual compound "growth"

We cannot borrow prosperity

We cannot "grow" money at a compound rate for all money is debt.

There is no "fix" coming. Either spending matches income or parabolic debt creation continues to its logical conclusion.

Either way it ends the same...massive re-adjustments of living standards for the western world...slowly, methodically with protracted shared sacrifice by all or all at once with everyone going down at free fall speed.

If there was a "fix" it would be "fixed"

It isn't and there isn't

Sat, 10/13/2012 - 16:52 | 2885561 syntaxterror
syntaxterror's picture

With the IMF's new Law of Keynesian Spending Multipliers, it will now be against the "laws" of economics to cut any government spending.

Sat, 10/13/2012 - 16:54 | 2885563 kito
kito's picture

Why does tyler bold analysis that runs contrary to his belief like "significant fiscal tightening"........last I checked I thought tyler was calling for the u.s. to take the easy road to hyperinflation???????

Sat, 10/13/2012 - 17:23 | 2885611 fonzannoon
fonzannoon's picture

Kito I say they pull a Draghi and announce in late Dec that they have set the groundwork for the awesome plan that they have come up with. They will give it a cool name like "fiscal awesomeness". They will march democrats and republicans out together and shower them with rose petals in the grand ceremony. The market will rocket to dow 15k. They can punt the tax cuts and raise the debt ceiling because they have a plan, so it's cool. It will take months for the plan to slowly come undone as certain aspects just can't be agreed upon. It will be glued together and pried apart over several years....and on and on.

What do you think? I think this theatre can go on for a long time.

Sat, 10/13/2012 - 17:43 | 2885642 kito
kito's picture

as i said before fonz, im burning out, ive become too jaded.......too judgemental of the masses..of my family and friends...of their unabashed willful ignorance...........telling me that ive lost it, that im too much of a pessimist............that my chicken little warnings are irksome........... i want back into the matrix:

 

http://www.youtube.com/watch?v=Z7BuQFUhsRM

 life was less complicated before understanding how we are all led along, grazing, unaware.......i want the 80s back.........those were good times...........

 

 

Sat, 10/13/2012 - 17:48 | 2885648 ebworthen
ebworthen's picture

Go on, click on it, I dare you (opens in new window).

http://www.youtube.com/watch?v=UGS8re8cIVI&feature=plcp

Sat, 10/13/2012 - 17:59 | 2885668 kito
kito's picture

oh lordie ebworthen....................perhaps my real problem is nostalgic amnesia..........................

Sat, 10/13/2012 - 18:23 | 2885705 fonzannoon
fonzannoon's picture

I think we have our answer boys. You just can't make this shit up. Kito let's go insane, or have we already?

http://www.bloomberg.com/news/2012-10-09/u-s-downgrade-seen-as-upgrade-as-u-s-debt-dissolved.html

Sat, 10/13/2012 - 18:46 | 2885746 kito
kito's picture

well then, that solves it....WHAT THE FUCK IS WRONG WITH THIS WORLD!!!!!!!?????????????????????HOW THE FUCK IS THAT EVEN CONSIDERED CREDIBLE NEWS??????????????????????? HOLY FUCKING ORWELLIAN TWISTED BULLSHIT!!!!!!!!!!!!!!!!!!!!!!!!!

in other news, scientists have now perfected a new procedure where the overall distribution of the body fat of a person is reduced, and therefore making them healthier, by stuffing all the fat into the buttocks..........

http://2.bp.blogspot.com/-Ofzs10FwtKM/TgZtlC7-RnI/AAAAAAAAAJ0/R755XaYXLM8/s1600/Butt.jpg

scientists say that there is no danger in the massive buildup of the federal govt debt, uh, i mean, of the buttocks fat causing any serious harm to the body because the overall body, on average, has reduced its body fat.........

Sat, 10/13/2012 - 23:27 | 2886090 StychoKiller
StychoKiller's picture

Blecchh!  Someone OD'd on teh Koolaidz!

Sat, 10/13/2012 - 18:07 | 2885679 Dr. Engali
Dr. Engali's picture

I'm going to bet the market is much lower come January. I don't believe for a moment that they can come together for some sort of "grand plan". Maybe they do some temporary extentions, I hope not.If we are here six months from now talking about the same points I think I'll throw in the towel and say "fuck it I can't take it any more". I'm really getting sick of this slow bleed.

Sat, 10/13/2012 - 18:10 | 2885685 fonzannoon
fonzannoon's picture

Doc I think the rumor bullshit can go on for a long time, but I am totally and squarely in your camp. I will probably throw the towel in and join you and kito in the matrix. Kito hang in there. I am a big Pat Tillman guy. This was one of his favorite quotes. Check out "Self Reliance" at some point. Great read.

"What I must do is all that concerns me, not what the people think. This rule, equally arduous in actual and in intellectual life, may serve for the whole distinction between greatness and meanness. It is the harder, because you will always find those who think they know what is your duty better than you know it. It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude."

Sat, 10/13/2012 - 18:41 | 2885733 Dr. Engali
Dr. Engali's picture

You mentioned the matrix and that made me think. There is a line on the movie when Moropheus is talking to Neo. It goes something like this..." Their world is built on logic and reason. They have rules. Rules can be bent or even broken" ... Anyway I started thinking that maybe we are binding ourselves in our own matrix. We think things should be a certain way. For example... Debt should have some point where isn't no longer sustainable. That sounds logical to me.. But clearly that's not the case( at least not as of yet). Another example... Money continues to flow out of the market and earnings are decelerating yet the market climbs higher. Clearly illogical but it's a fact nonetheless. I think we are, or at least I am, binding ourselves by our own logic and reason, while the system we call the matrix bends and even breaks them on us.

Sat, 10/13/2012 - 18:51 | 2885752 fonzannoon
fonzannoon's picture

i have never put it in those terms, but i think thats true. when laws of physics is not bashing sheep around on here he likes to say "beating expectations all the way down". i think thats right. the market and the real world have nothing to do with each other. i am still trying to accept that. but it depends on what side of the line you are on. if you are getting by it's easier to accept the bullshit. the second you can't put food on the table it's a whole other world. literally.

Sat, 10/13/2012 - 19:23 | 2885781 kito
kito's picture

+111111111111111111............................so true doc......

Sat, 10/13/2012 - 17:12 | 2885592 ebworthen
ebworthen's picture

There will no doubt be words and promises, hollow statements, commissions, committees, meetings, all catered and attended by hacks from both parties with exorbitant benefits and retirement plans, Cadillac health insurance, and bribes from banks and corporations.

Sooner or later they will agree to continue the ponzi; to reward banks and corporations and rob the citizens of already taxed entitlements, confiscate more of their savings and assets, and allow the skullduggery of Wall Street and Washington to continue unabated in the U.S.S.A.

That is what you can count on; and death and taxes.

Sat, 10/13/2012 - 17:38 | 2885632 Whoa Dammit
Whoa Dammit's picture

"Households could draw down their savings."  BofAML

Bwahahaha! What do they think people have done already? Most households no longer have savings.

The only thing that is keeping the bankers' economic facade together is the fact that most people still believe, as happened in years past, that the economy will recover and they will be okay financially again if they can just hang on for now.

The Wille-E-Coyote moment is going to be when J6P figures out that our rigged economy is never going to get better, only worse, and its not his fault that he has fallen behind in this economy, but is instead the fault lies with TPTB.

Sat, 10/13/2012 - 17:41 | 2885639 vote_libertaria...
vote_libertarian_party's picture

Here is how it will play out:

 

A lot of screaming and finger pointing.  

12/31 1 week extension

1/7 1 week extension

1/14 6 month extension

June 2013  All agree on some vague cuts starting in 2023

 

Prest-o change-o everything is 'fixed', market rallies 10% in 1 day 

Sat, 10/13/2012 - 17:43 | 2885641 fonzannoon
fonzannoon's picture

That is a very good guess.

Sat, 10/13/2012 - 20:59 | 2885924 CrashisOptimistic
CrashisOptimistic's picture

No, guys.

You are not factoring in The Tea Party.  They are going to add seats and hold what they won.

It is THEY who would not let Boehner cave in and give away everything.  It was THEY who created the 1.2 T Sequester.  The rule was absolute -- Every dollar of debt ceiling raise must have a dollar of baseline budget spending cut, and that's what the Sequester gives.

The tax issue is irrelevant.  The real issue is spending.  CUT SPENDING.  CUT IT ALL, INCLUDING DoD.  Not especially DoD.  Including DoD.  Do a 10% axe across the board.  Every department.  Every agency.  If this means it lowers a project below functioning, then that's the end of that project and we save even more.

The Tea Party is not going to sit back and let this all fade away.  They are going to be emboldened after this upcoming election.

Don't plan on GDP growth next year.

Sun, 10/14/2012 - 20:36 | 2887278 odatruf
odatruf's picture

Speaking of optimistic...

I hope, pray and beg you are even a fraction right.

Sat, 10/13/2012 - 18:49 | 2885750 new guy
new guy's picture

If you are a private sector, non union worker you are allowed to vote for the candidate of your choice but you have ZERO representation in government.

I was brought up to believe that taxation without representation was a bad thing.

Is that still true?

Sat, 10/13/2012 - 23:31 | 2886095 StychoKiller
StychoKiller's picture

Taxation WITH representation ain't so hot either!

Sat, 10/13/2012 - 18:52 | 2885754 q99x2
q99x2's picture

The fiscal cliff is a attention grabber word phrase. Its use is to simplify and consolidate numerous issues with political support of the crimminal banking cartel and then to resolve those issues succinctly so that all can see the FED is doing its job. For instance the debt was 1.2 trillion two weeks ago and the FED miracuously proved it was only 1 trillion this last week. So "Fiscal Cliff" means attempt at controlling the people by the politicians and banksters. Remember since the rule of law has been removed we are dealing with one thing now fraud and until the fraud is overcome there is nothing except us against them.

Sat, 10/13/2012 - 18:55 | 2885756 polo007
polo007's picture

http://brucekrasting.com/evidence-qe3-is-working-and-other-lies/

Ben Bernanke also says that the Fed will, “gradually sell securities or let them mature”. Think of what this statement means.

The Fed has Twisted away most of its holdings of sub 5 year paper, so the issue of normalizing the Fed’s balance sheet by allowing securities to mature would be pushed off for 7-10 years. That’s not monetary policy. That’s a biblical kicking of the can past the horizon.

So Bernanke is telling us the Fed can/will normalize its balance sheet by selling some bonds. This is a joke.

Take Ben on his word; at some point the Fed will normalize its balance sheet, it will do it by selling bonds to the market on a gradual basis. What does that mean? It means that Bernanke would have to sell $60Bn of bonds every month for three years! What would that do for the capital markets? What will the market reaction be to this headline when we get it?

Ben is lying to us when he says that QE can be reversed without tremendous pain. Bernanke will be long gone as head of the Fed when the bill for QE is finally presented. Ben’s successor will be mired in the mess than he created.

The reality is that there is no viable exit strategy from QE. Ben knows this. So do all the other Doves. Shame on them.

Sun, 10/14/2012 - 10:16 | 2887112 andrewp111
andrewp111's picture

There will be no selling of QE holdings. The Fed will let everything mature over the next 30 years.  Most MBS will prepay before maturity, and roll off.  The Fed will refinance the Treasury by adding more short term holdings, and buy more MBS out to eternity, or until Fannie and Freddie are disestablished.  The Fed's balance sheet will never decrease much, and will be much larger 30 years from now.

Sat, 10/13/2012 - 20:55 | 2885915 Peter Pan
Peter Pan's picture

Let that Wyle E Coyote moment arrive anytime it wishes. Just strap yourself to a golden parachute with silver strings and things won't be too bad.

Sat, 10/13/2012 - 21:42 | 2885933 Yen Cross
Yen Cross's picture

Fuck that! I'm loading the S.S. "XAU Titanic", and sinking that bitch off the the biggest "ocean"cliff there is.

 Then I'll call that evil fucker "James Cameron", (commision a submersible), to dive down and retrieve my bounty when "armageddon" passes!

Sat, 10/13/2012 - 22:05 | 2885994 polo007
polo007's picture

http://yallpolitics.com/index.php/yp/post/33438/

Government meddling in market must stop

By Chris McDaniel, Mississippi Senator

Seeking to stimulate the economy, the United States Federal Reserve undertook another extraordinary monetary-policy measure in September (the “QE3"), embarking on a third dose of quantitative easing.

In theory, quantitative easing is a form of economic stimulus, differing from the stimulus passed in 2008 which cut taxes and raised spending by more than $800 billion. Simply put, QE3 is a dangerous monetary policy whereby the Federal Reserve purchases debt (bonds) from investors in an attempt to help them lend more money, while lowering interest rates. And with no end date being announced, it amounts to indefinite monetary meddling -- a stimulus without limit.

Studies demonstrate that quantitative easing does reduce borrowing costs but are less clear on how a reduction translates into real economic improvement. Despite a clear track record, desperate politicians allow such experimentation because bond-buying enables them to ignore looming fiscal problems by providing a dependable purchaser for the republic's ever-increasing debt.

Thus far, the central bank's policies have proven ineffective. Repeating efforts, therefore, are unlikely to create sustainable growth. The new action is little more than an admission that previous actions have not worked, demonstrating that monetary policy alone is unable to jumpstart the economy.

In response to the Federal Reserve's monetary policy, some are also calling for Congressional action by demanding another round of stimulus spending. It remains their hope that the central government, through a recycled plan complete with public works and increased spending, will magically revitalize the economy despite consumer uncertainty, emerging inflation and budget deficits.

However, the use of stimulus funds to create new public jobs is not an efficient way to encourage economic growth because government suffers from a critical weakness – it has no money or capital of is own, except that portion confiscated from the productive members of society.

Sat, 10/13/2012 - 23:11 | 2886073 Yen Cross
Yen Cross's picture

   Ya got my vote,  Chris. I suggest ya spice it up a bit though!   Are you mentally retarded?  Welcome to the game!

   Lay off the constituents, and visit "reality ranch"!   It's all about less, intrusiveness in small business. I'll bet a whole lot of "artsy fartsy" democrats file " LLP " or SUB Chapter S". Get to work or your "snap card" brethren will!

Sun, 10/14/2012 - 04:32 | 2886294 Olympia
Olympia's picture

When Barack Obama announced the US (2010) national budget for this year, we experienced unprecedented feelings. Never before had an imperialistic power moved them to pity. This is unthought-of. This year’s deficit is estimated to be $1.6 trillion and its foreign debt has gotten completely out of hand. It hits numbers that only mathematicians and astrophysicists knew existed few decades ago. There is no space for these numbers in the electronic boards so it is driven to add new elements on them.

 It all started with the big crisis of 1929. The American economy reached a deadlock because of its social "pathogenesis"; a deadlock that led it to economic crisis in a different - faster- pace than the rest of the industrial forces of that time. Important decisions had to be made - mostly social - and the Whites didn't like that, especially the Whites' rulers, the Anglo-Saxons.

 

www.eamb-ydrohoos.blogspot.com/2010/02/ten-plagues-of-pharaoh.html

Authored by Panagiotis Traianou

Sun, 10/14/2012 - 10:35 | 2887134 orangegeek
orangegeek's picture

Same old news.

 

It's not like these folks like Bernake don't know what's coming.

 

So where's the commentary about why Bernake is doing this?  (spare the cynicism - heard it all already).

 

Crisis generally brings around change that would, politically, be unpalatable.  So, specifically, what changes are coming?

 

A billion plus peasants run by a handful of communists - aka China - is not the answer.

Sun, 10/14/2012 - 11:29 | 2887262 percyklein
percyklein's picture

Net, net, if we just go over the "cliff" and absorb the scheduled spending cuts, and do nothing else, doesn't that put the country's defict and debt lines back on back on a sensible, downward slope?

Sun, 10/14/2012 - 20:27 | 2888902 Breaker
Breaker's picture

"A popular view last summer was that a temporary suspension of 25% of government outlays or a few missed Treasury debt payments was a reasonable price to pay to get a sensible deficit reduction plan. That didn’t work out so well. Despite a last minute deal, this brinkmanship contributed to a weak stock market, a downgrade of the US credit and then a large 6.66% one-day plunge in the market. In the end, the “sensible deficit reduction plan” that emerged was to add $110bn in across-the-board spending cuts to the fiscal cliff."

This is priceless. The point is not to have a strong stock market or even great credit as a nation. The point is to get the economy and the government operating on a sustainable basis. If we don't stop the 1.3 trillion a year deficits, and soon, we're at the cliff anyway. We need to radically reduce government outlays. And they will be reduced--either deliberately or reality will manage that for us. The later will be far more painful than doing away with some pork.

If it takes brinksmanship to bring that about. Great. In reality there was no actual brinksmanship going on last summer. The administration has no intention of even reducing the rate-of-growth of spending. And the oppositions most radical plan was a drop in the bucket of what is needed. 

As the cliff approaches, we will see a big show that results in "dramatic changes" that make no difference whatsoever.

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