Previewing Four More Years Of The Divided States Of America

Tyler Durden's picture

Do not expect any changes to the trends of polarization and party non-conformists is the message from JPMorgan's CIO Michael Cembalest. As he explains moderates like Blue Dog Democrats and Rockefeller Republicans are now artifacts in the Natural History Museum, having given way to their more ideological offspring (through retirement or after having been beaten in primaries).


If anything, Cembalest believes the House may become even more partisan after apparent losses by moderates in both parties.


After a better than expected night for Democrats given Senate results, the fiscal cliff looms...

With the status quo maintained, a divided government goes back to work to solve the Mutually Assured Fiscal Destruction problem. The President may have picked up some leverage over House Republicans who still have to run again, but we’ll see. The fiscal cliff does not have to get resolved by December 31, since some items can be resolved in the spring and back-dated. Defusing the cliff (see options #1 and #2) would help growth in 2013, and perhaps reignite business capital spending, which has stalled (see chart).


It would also help avoid a relapse in personal consumption, which is growing at a 2% real rate before any fiscal belt-tightening.


However, defusing the cliff contributes to rising Federal debt unless the growth payoff is huge. In recognition of that reality, 80 US CEOs published a letter calling for Washington to strike a long-term fiscal “grand bargain” that includes higher tax revenues (but not in 2013). Here’s our latest Federal debt chart as a way to visualize the problem. The contours show the Congressional Budget Office Baseline Case and Alternative Case. As explained last week, while the Baseline Case represents “current law”, it has become increasingly preposterous, since it includes items that Congress passed but has been deferring for a decade (changes to the Alternative Minimum Tax and Medicare), and a wholesale resumption of 2001 tax rates that Congress has no intention of implementing. The CBO should put a unicorn next to it as an indication of how likely it is to happen.

What might a second Obama administration do on the debt?

Nothing is urgent now, given plenty of public and private sector demand for Treasuries at sub-2% rates. However, we will have to watch how rating agencies react if the Budget Control Act Sequester is unplugged. The President’s proposal (purple square above) stabilizes the Federal debt over a ten-year horizon as per CBO forecasts, almost entirely through higher taxation on those with more than $250k in adjusted gross income (via tax increases and large reductions in allowable deductions and exemptions). The plan does not appear politically feasible given Republican control of the House. If the President only passes increases in tax rates on the top two brackets, then as shown by the green diamond, the debt does not stabilize.


House Republicans could push for more discretionary spending cuts along with tax increases, but after the caps set in the Budget Control Act, discretionary spending is already projected to be very low (chart above).


The elephant in the room is the chart above: close to 100% of US tax revenues are already eaten up by mandatory spending on entitlements and other programs, and interest. However, electoral results suggest the country is in no mood to address entitlement issues right now, will defer them to another day, and continue to shift towards a high-Federal debt economic model that bears some resemblance to Europe and Japan.

As noted last week, in the 1950’s, the solution to 80% Federal debt was not taxation, austerity or inflation, but growth. Will the President pursue a pro-growth agenda? George McGovern, who passed away recently, wrote a 1992 editorial about a post-Senate investment in the Stratford Inn (“A Politician’s Dream is a Businessman’s Nightmare”), its bankruptcy, and how he wished he had known more about the private sector and the impact of government before he took office. He wrote:

“Today we are much closer to a general acknowledgment that government must encourage business to expand and grow. Bill Clinton, Paul Tsongas, Bob Kerrey and others have, I believe, changed the debate of our party. We intuitively know that to create job opportunities, we need entrepreneurs who will risk their capital against an expected payoff. Too often, public policy does not consider whether we are choking off those opportunities.”

The capital spending decline and piles of corporate cash suggest that businesses are reacting to a slow-growth world, but may also be waiting to see which strain of the Democratic Party is embodied by a 2nd Obama administration, and its partners in the Senate. Something tells me that the ghost of the now-disbanded Democratic Leadership Council, composed of pro-growth centrists like Nunn, Robb, Breaux and McCurdy, is not about to reappear.


Full 'Eye On The Money' article PDF here

Source: JPMorgan

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Shizzmoney's picture

This gridlock will only lead to investment houses shorting US Treasuries, shorting corporate stocks (who will start to slowly ante off their cash coffers), and of course, those who are long Gold and Silver.

The gridlock is what the establishment investment class wants.  They want to ante off America.  They can't do that if we work together. 

AssFire's picture

investment houses shorting US Treasuries


They will make it illegal- just like their Socialist brethren in the EU.

GetZeeGold's picture



So who wins the next Ambassador slot in Libya?

MillionDollarBonus_'s picture

One thing I would like to see from Obama during his second term, is stronger gun control measures. The disturbing increase in firearm sales in America has been accompanied by lax regulations of the sale and distribution of guns and gun parts. Last year ebay ended its ban on firearm sales and now permits the sales of firearm parts to potential criminals all over America. This is despite the fact that over 500 children are killed every year in firearm accidents. It is absolutely appalling that some outlets continue to profit from the sale of dangerous weapons to Americans.

JPM Hater001's picture

Hey, I just realized that this means there are not 1, not 2, but 3 Romneys that have failed to steal the presidency.  If you cant win for dad when you own the voting box what was the point of mom's labor?

Zer0head's picture

Just wait and see what Obama offers to Romney - Treasury Secretary?  My guess he offers him a major role and my guess is Mittens will take it.

Obama's priority now is his legacy (and setting Michelle up for 2016 and 2020 - cause Airforce 1 is a heck of way to get to the vacation house and the links of Hawaii

Flakmeister's picture

My fuck, you are hilarious...

TrulyBelieving's picture

   Would you, MDB, please show where in the U.S. Constitution that the Fed. gov. has any authority to write law infringing upon gun ownership in any form or fashion. Or tell us MDB, are you of the ilk that thinks it's a good idea that our lawmakers break our own laws.?

Overfed's picture

I know that MDB's posts are firmly tongue in cheek, but you can bet that more gun (people) control measures will be coming down the pike.

I'm also betting on a drone strike in the US before 2013 is out.

TPTB_r_TBTF's picture

that sounds like a wager for intrade...

Theosebes Goodfellow's picture

Holy crap, MDB, where the hell do you come up with this stuff? First off, if you want to cut down on the number of children killed with guns, stop glamorizing homicide on television. It's just about all that is on TV these days. "Thou shall not kill" doesn't exist on TV. It is ubiquitous, along with violence against women. The problem with guns is not legal gun owners, it's guns in the hands of criminals.

And please, spare me the "500 children" bit. If you really care about children dying, then let's hold the discussion about the over one MILLION children who never even get a chance to be born because their mothers abort them, 93% due to the child being unwanted by their mother, or worse yet, considered "inconvenient".

Lastly, you do appear to have your "I'm a moron" on full display today. What is appalling about the sale of anything? We are a capitalist free market. Up until Obamacare nobody could force anyone to buy anything. The fact that the republic is in its death throws means we need the sale of weapons now more than ever. And WTF do you mean by "dangerous weapons"? Is that to posit that there are "safe weapons"? Safe for whom? Last time I checked, describing something as a weapon implied that it was dangerous. Were you thinking we should all cowboy up with butter knives or maybe nerf bats?

TPTB_r_TBTF's picture



We are a capitalist free market.



Buckaroo Banzai's picture

<--- moving to ID, TX, MT, WY, or OK

<--- Staying put

JPM Hater001's picture

<----Colorado is looking very appetizing

<----Where are the chips?

DaveyJones's picture

come to Washington, smoke a joint and we'll get married

Flakmeister's picture

Can you meet me in Point Roberts?

WhiskeyTangoFoxtrot's picture

American Redoubt looking pretty appealing right about now. For now, I'm stuck on a blue island in a sea of red.

Spastica Rex's picture

I'm here, dude!

Unfortunately, I see that I still can't grow my own and I'm too poor to ever afford comercial bud; I would have to start letting my kids get free and reduced lunch at school to have enough cash!

Oh, well - cheap bourbon for me.

I'm already married (20 yrs) and not gay, so teh gay marriage thing isn't that attractive, either.


DaveyJones's picture

there are still tricks to growing your own. Is your wife a doctor?

mess nonster's picture

Thank you for not moving to Alaska.

Spastica Rex's picture


Well - enjoy!


Former Idahoian

Spastica Rex's picture

No, but Sun Valley is very nice.

I lived in Idaho long before I became destitute.

Buckaroo Banzai's picture

LOL, feel free to share your experience with the rest of the class.

Spastica Rex's picture

Well, I have many stories, but you could watch a few episodes of the old "Twin Peaks" television series to get an entertaining idea of what Idaho is like.

And frankly, dysfunctional government isn't the province of any particular party, and Idaho raises political dysfunction to a high art.

"No matter where you go, there you are."

Buckaroo Banzai's picture

True enough. I have no illusions about human nature. But at least I won't be surrounded by a majority of people who consistently vote for the TAKERS and not the MAKERS.

That has to count for something.

Spastica Rex's picture

Idaho is very Republican, that's for sure, except not so much in Boise, where almost all the people live. The rural parts (virtually 100% of the state) have kept their gene pools very... tightly knit.

Hayden Lake is beautiful in the Spring time, although its home to a "Peace Park" now.

Flakmeister's picture

Funny how that where people have to actually live close by to other people that the Democrats seem to do much better....'s picture

There must have been scads of democrats in the holds of slave ships.

Spastica Rex's picture

Master and servant: pretty much what it's all about, in the end.

One can always strive to be "in the world, but not of it," but then that leads to crazy things like communist Hutterite colonies springing up all over the country side, and we can't have that.

DaveyJones's picture

It's when masters become materbaters that problems really start to rise

Buckaroo Banzai's picture

Pitting the city against the country has been the way politics has worked since 1830. The city people have an unbroken string of wins, so of course they are more prosperous. They've looted the shit out of the rural folks.

That was the REAL reason for the War Between The States, and we've been living with that for almost 200 years.

Spastica Rex's picture

Well, enjoy your new life in Garden Valley, ID. You won't find much "making" going on there, but lots of anger directed at the Democrats in the Treasure Valley. As a bit of advice, don't speak too much for the first two years you live there, and avoid eye contact - as an outsider, the folks will perceive you no more favorably than a Democrat. Stick it out for a couple of years, and you might be accepted into your new home. At that time, you will be given pointers on how to screw the government out of the money to maintain your snomobile and quad, your shack in the wilderness, and its five associated aces of timber. Poaching is fun all year; make sure you dump the carcasses down on the Payette River - better to eat the burgers at the cafe. They accept EBT, now.

I come from the rural Idaho gene pool.

Totentänzerlied's picture

Funny in a tragic, predictable, cannot-be-otherwise sort of way.

redd_green's picture

Buck, old boy, I bet you couldn't distinguish the takers from the makers if you tried.

Lewshine's picture

Look at this market...George Bush STILL fawking with Obama's star power rule!!

Nehweh Gahnin's picture

You're gonna get some down arrows from those staying put in "ID, TX, MT, WY, or OK".  But hey, so far there only appears to be 22 newbies rolling in...

Buckaroo Banzai's picture

Ferfal's testimony. Heed his words.

"He came out of nowhere but you still voted for him because you wanted change. Between you and me, at first you could hardly spell his full name. Somehow he managed to win the elections and become President. He did appeal to the masses. He talked a lot even without saying anything meaningful. He had made lots of promises, but didn’t deliver any of them.

When he became president, instead of doing anything to improve the situation of the people, he did everything to improve his own position so that he could stay in power. He was supposed to stand for the little guy, but the big corporations he preached against were the ones he benefited instead. Kids would chant his name in schools like some mantra. Supporters would say his name again and again like brain dead zombies. No one understood what he was really all about, he never said it in the first place, but charisma, millions in campaign marketing would do the trick.

The man who was supposed to bring change and for once take the side of the working class ended up repeating socialist blabber on one side, and handing tax payers money to mega corporations on the other. He made sure to milk the middle class as much as possible so as to redistribute it fairly. To him, that would mean giving the biggest chunk of the pie to corporations and then throwing scraps through welfare programs that benefitted him politically, forcing the will of the people with handouts. Whenever he could he would strike against individual liberties. Any form of criticism was no longer considered a natural consequence of debate and observations, but an unpatriotic act that shouldn’t be accepted. Soon enough, you noticed that less and less people criticized him. Even celebrities didn’t dare speak against him, some afraid of being shunned by their peers, who would never accept someone “from the other side”, others were simply in his payroll in one way or another.

When the time came to vote again, people just didn’t learn the lesson. Some couldn’t live without uncle sugar´s money, he made sure of that during his first term. It didn’t matter that the opposition had been demonized, that he had created a new kind of politics, of hatred and revenge. It was as if no one noticed that he had turned a once proud nation into a shadow of its former, glorious self. He simply was unworthy of the Presidency he held. Seems people wanted more of that, and went out and chose that again through their vote. The damage done will take decades to undo. In the end, we got the country we deserved.

His name was Nestor Kirchner and he destroyed my country."

Ident 7777 economy's picture



Bears repeating: "He came out of nowhere but you still voted for him because you wanted change. ..."


prains's picture


You speak as if something else was going to happen instead????

MItts is Big Oils boy with the same coporate control agenda as Obama's agenda is for Wall Street just different rulers for four years. What were you expecting?

You got the same fours because the other four years are no different and probably worse as the Pubs love to false flag their economic stimulus plans more than the dems.


sickofthepunx's picture

you're showing your true colors TD>

this false equivalency of both parties being extreme and obstrucitonist is pure fantasy.

say what you want about policy, but this administration bent over backwards to include the gop in the process.

the fact that they acted like 2 year olds and said no to everything finally caught up with them



SheepDog-One's picture

OMG fuck off seriously, head back to Yahoo!Finance why dont you....way too easy to comment on ZH these the old days you'd have been ripped to shreds.

GetZeeGold's picture



Make sure he gets his Nobel prize before he heads back there.

Zer0head's picture

Hey Sicko

WTF you doing here so early?

must be a bummer not getting any skin after the big win last nite

RSloane's picture

Yup. Well said, as usual.

e_goldstein's picture

<---- reintroduce CAPTCHA

<---- fuck math