Next Steps: Fiscal Cliff

Tyler Durden's picture

Tonight it's all Obama-corns and Biden-faeries but the market is already 'adjusting' to the new old new normal regime. Unfortunately in 'Obama II - This Time Its Different' the odds of going over the Fiscal Cliff just got real. As we noted here (and in more detail here and here), there is now a 55% chance we go over the cliff (given the status quo of no compromise) and the market is a long way from pricing that kind of GDP shock...




As for what comes next, here's a hint: "Extended Alternative Fiscal Scenario"

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John_Coltrane's picture

No Wilson was in office when the FED was formed in 1913 and the income tax was established-he and the demoncrats pushed both through.  This allowed unlimited debt creation and a debt backed money.  This was the beginning of the end.  The next signficant event occurred when Americans foolishly voted in LBJ instead of Goldwater in 1964 and he established the two programs currently responsible for all of the fiscal deficit;  medicare and medicaid (and foodstamps).  He "financed" those programs and the Vietnam war by intergovermetal borrowing from SS.  Those are the only two political events of importance in the last century.  The rest is all noise and futile attempts at damage control.  Get rid of the FED and the income tax, and let the welfare state wither on the vine.  Survival of the fittest-just as in evolution.

GernB's picture

I wouldn't be quite so harsh. I'd say that those who benefit from those programs may find they would have been better off with private sector charity than forcing people to engage in charity through government.

Yogieu's picture

Talk to homeless people about private charity organisations. These are often scams too.

Ayn NY's picture

Don't forget FDR and social security. If it wasn't for that program LBJ would have never been able to implement the Great Society.

Watauga's picture

JC--You are correct about all.  There is, of course, much to add.  The short version is this:

(1) Republic established under compromises that all but guarantee Central Govt abuses;

(2) Further compromises in the interest of the almighty dollar, expansion through war, expansion of Central Govt;

(3) Lincoln's War turned it all in favor of absolute Statism, as he established that the Central Govt could kill hundreds of thousands of people and get away with it;

(4) Wilson's Fed and income tax schemes; not to mention govt intrusion into even alcohol consumption; not to mention globalist ventures such as WWI;

(5) FDR's massive expansion of Central Govt power; he was Obama before Obama;

(6) LBJ's scheme to secure Statist power forevermore--civil rights + the Great Society + war + immigration reform = permanent Statist power;

(7) Obama's vast expansion of the Central Govt into the true Leviathan that it now is.

In between all of these were monsters like RMN and idiots like GWB, Jimmy Carter, and Bill Clinton.  The bottom line is that our Founding Fathers (who truly were great men) established a Constitution that was subject to being abused (the most accurate image being the current occupant of 1900 Pennsylvania Ave using it for paper to wipe himself then flush it down the toilet).  What we have to day we were always going to have.  The Founding Fathers failed to account for the extent of evil in some men willing to do anything to gain wealth and power.  Those men have created, out of a Republic, a great tyranny, and most Americans, of whatever ilk, have no idea.  And that is both why they have been able to succeed and also why it will only get worse.

Recommended reading:

Nick Jihad's picture

Crucially, women's suffrage came in at the same time as the income tax. That sealed our fate, because women will always vote for bigger government. Consider, what is the very first thing the ladies did, once they had the vote, besides the federal income tax? That's right - Prohibition. Welcome to the Nanny State.

AC_Doctor's picture

Bet you Brits' bus blows up first.  At least we have room to hide from all the natives...

Urban Redneck's picture

All depends on which vault Geraldo's doppelganger finds and cracks open first- the BoE or NY Fed

Raymond Reason's picture

You'd have more credibility if you were Greek. 

samcontrol's picture

like living in that shit island of yours is any

samcontrol's picture

like living in that shit island of yours is any

samcontrol's picture

like living in that shit island of yours is any

samcontrol's picture

like living in that shit island of yours is any

samcontrol's picture

like living in that shit island of yours is any

TruthInSunshine's picture

There is no actual "cliff."

Both Obama and Romney would have (and Obama will) cave & work a deal out to ensure that the Military-Bankster-Wall Street complex not only doesn't suffer any loss of taxpayer subsidies, but that this racketeering alliance gets huge bumps in taxpayer transfers (from The Bernank's debt enslavement scheme).

Zero Bid's picture

you been talking with Brian Wesbury lately?

gjp's picture

+1 nobody will stop the fed. They're all in, and the restraint button has been broken for decades. The stakes will be raised in accelerating fashion right up to the inevitable moment of collapse

Offthebeach's picture

You barbarian you! There is no cliff, of is just a accounting thingy.
Full employment and steady prices! ( / sarc )

Ayn NY's picture

My Econ class with professor Keynes is going to be unbarable today. More unbarable than usual....

Cosimo de Medici's picture

The only way Congress and the White House ever work together to accomplish something is when the crisis is both extremely severe and unavoidable.  Only then does their true level of incompetence rise to the surface.

Assetman's picture

Simpson-Bowles shoud be the template for any long-run resolution on righting the Fiscal Ship.

However.... Here's what the fiscal cliff resolution in napkin form will look like:

Republicans will get the tax breaks they wanted.

Democrats will get the spending increases they seek.

Chairman Bernanke will get to turn on the QE until we go plaid.

See?  Wasn't that easy???  

They did the same crap-o-matic resolution in 2010.  This is what 'status-quo' gets you.



GernB's picture

There is no righting he fiscal ship. It's sad that the public thinks there is. Learn to use an abacus and it's not hard to figure out how screwed we are.

Watauga's picture

"Simpson-Bowles shoud be the template for any long-run resolution on righting the Fiscal Ship." Please explain.

geologyguy's picture

55%?  I could have swore there was a post earlier today stating the mathematical certaintity that whoever won....would 100% certainly captain the ship into the iceberg?

Matt's picture

Why do they need 60 Senators?

Flakmeister's picture

Crash and burn....

The Tea Party has no idea what it is biting off...

GernB's picture

I don't think you understand. This isn't a battle over which America we want it's a battle over crashing the system or not crashing the system. Reality does not care which party you belong to or what your idealogy is. Reigning in spending is the only chance we have (if we even have a chance any more) of preventing a crash. The tea party is the only group fighting to reign in spending and prevent a crash. The tea party is fighting to prevent us from driving off a much bigger fiscal cliff than a meer debt ceiling deal. That is what they are biting off, and if they fail then you will regret it... eventually.

odatruf's picture

+ everything.

I'm sorry not enough people see this.

Flakmeister's picture

Well, the Tea Party demographics suggest that these guys want $1 worth of benefits for 20 cents... i.e. "Dont touch *my* medicare"....

And just where was the Tea Party when W. was "hiding" the cost of two wars, increasing entitlements and cutting taxes...

I think that the major focus of the Tea Party was they were not quite ready for "a colored fella" to run the country...

Ryan, as the de facto spokesman, has zero credibility, not to mention he has shown himself to be a pathological liar...

Sorry that dog don't hunt....

Clowns to the left_ jokers to the right's picture

Don't blame me, I wrote in Nixon. A dead corrupt politician that helped start this mess is no worse than a living one that continues the madness on steroids.

sadpanda's picture

Might want to rework those debt ceilings numbers. So we aren't hitting the fucker every 3 to 6 months. It distracts the sheep from bread and games. I'm guessing 30 trillion debt by year 7. Unless the rest of the world is mind numbingly fucking retarded and still using dollars for trade.

caimen garou's picture

I'll raise your guess ten trillion even with some countries bypassing the dollar!

TruthInSunshine's picture

The debt ceiling should be turned into a moonroof, because that will spare us much useless rhetoric, hyperbole & drama.

GernB's picture

We won't get that far because the forces of deflation will overwhelm the system long before we are able to get to that point.

Ayn NY's picture

I'm betting on hyperinflation - which we are already seeing, but why do you think deflation?

Kreditanstalt's picture

Listening to the ABC media today you'd think the fiscal cliff problem would be easily "solved" if the stupid Republicans just allowed "moar revenue" to be raised.  The talking heads want everyone to be "reasonable" and "compromise" to "get things done".

But what about the MATH?

Flakmeister's picture

No, I don't think it is...

But the black memorial band is highly suggestive...

NidStyles's picture

They couldn't do the math if you taught them how to, that's why they are in the Media after all. Liberal Arts that are not economics FTL.

GernB's picture

Again, reality does not care which party you belong to. Raising taxes may reduce revenues rather than increase them (as it often has) accellerating a crash. What will happen won't be affected by who wins which election or who wins which debate.

endicott glacier's picture

The diagram says 55% chance no cliff, that means only a 45% chance we go over the cliff. Why is the author of the article interpreting it differently?

The Master's picture

Pretty sure it was an honest mistake. But 45% is still terrifying. Hell, anything over 0.000000000001% should be fucking terrfying.

odatruf's picture

Totally wrong. Letting everything baked in the cake for Jan 1 happen is the best outcome possible.

TulsaTime's picture

You know, the 'big' thing about the cliff was supposed to be the part about falling into recession.  How does that happen when the real economy has never left recession?  How does that happen when all the 'spontaneous' market forces are chained and gagged in the sub-basement?  This is just more manufactured crisis bullshit that attempts to keep the panic ball rolling.  I wonder when the capital controls will crawl out from under a rock?