The Three 'P's Of The Fiscal Cliff

Tyler Durden's picture

On the basis of a joint press conference following a one-hour chat, the S&P 500 is up over 2.5%; it seems there is little doubt that the fiscal cliff is front-and-center in people's minds. And yet, positioning is far from biased towards negativity and sentiment remains positive - the 'they will fix it; they have to, right?' meme is everywhere. As Morgan Stanley notes, however, a smooth resolution requires some of the same public officials who created the cliff to cooperate to avoid it. As far as hope of a short-term solution, Obama's Burma trip aside, Speaker Boehner has already indicated that it would be inappropriate to pass comprehensive legislation in the Lame Duck session, given that more than 100 current members of the House will not be returning next year; and as for any actual substantive change: the sequence most talked about is patch (stop-gap legislation) and promise (ten-year budget reduction), followed by a plan. In that regard, politicians’ solution to the 2012 fiscal cliff will be to create another one in 2013. Thus, only a portion of the uncertainty about policy will be resolved by the patch and promise, as much could go wrong with the plan.


Via Morgan Stanley's Vince Reinhart:

US politicians have purposely put the economy in harm’s way. On January 1, 2013, the federal budget contracts the equivalent of 5 percentage points of nominal GDP for the entire calendar year. This is not an act of nature but the accumulation of poorly drawn legislation, accounting gimmicks, and failed attempts at budget discipline. Added to that budgetary mix—which is all about flows of spending and taxing—is the need to increase the statutory limit on the stock of public debt. Without a hike in the debt ceiling, the Treasury will run out of cash in mid-February.


A smooth resolution requires some of the same public officials who created the cliff to cooperate to avoid it. If there is no such cooperation, then the budget lurches into contraction, at least until constituent pressure, adverse financial market dynamics, or the debt ceiling forces agreement.


As for timing, the mid-February debt ceiling is a binding constraint, so the two windows for action are the post-election, pre-year-end Lame Duck session of the Congress and the first 45 days or so of 2013.


As for substance, the sequence most talked about is patch and promise, followed by a plan. The patch would be stop-gap legislation extending most features of the current system accompanied by the promise of significant ten-year budget reduction legislated by a certain date later in 2013. In that regard, politicians’ solution to the 2012 fiscal cliff will be to create another one in 2013. Thus, only a portion of the uncertainty about policy will be resolved by the patch and promise, as much could go wrong with the plan.


Recognizing that there is significant overlap in the major consolidation programs in play, the negotiators could cut to the plan immediately. However, Speaker Boehner has already indicated that it would be inappropriate to pass comprehensive legislation in the Lame Duck session, given that more than 100 current members of the House will not be returning next year. Cutting straight to the plan probably means going over the fiscal cliff. In that scenario, elevated concern about falling off the cliff in 2013 could quickly turn to relief at the announcement of a comprehensive plan.


Here is the complication: An early plan most likely requires going over the cliff. However, the converse does not necessarily hold, in that going over the cliff does not guarantee a comprehensive plan. Confrontation and recrimination at the start of 2013 could give way to a quick patch with the promise of a plan later in the year. That is, sound and fury with no reliable output.

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bania's picture

Austrian School graduate Felix Baumgartner

slaughterer's picture

"Patch, Promise and Plan."  Keeping Hopium Alive Since 2008.  

TruthInSunshine's picture

*AHEM* I've said it before, and it bears repeating, IMHO.


Where do all these people come from claiming "things are likely to get worse" before a "resolution of the fiscal cliff" is established," when in reality, things are going to get worse from a fundamental, macro & micro economic vantage point no matter what or what doesn't happen regarding the "fiscal cliff?"

The "fiscal cliff" is immaterial. It's a non-issue. It's a fruit fly or even smaller gnat on an 800-lbs Gorilla's ass. It's a sell-sider's straw man AND a sell-sider's red herring.

We're actually in an economic depression that's merely being hidden by deficit reliant government spending and a GDP bump that is an illusion as it's generated by debasement of currencies/fiat printing (real consumption& aggregate demand are falling, but because prices are rising in real terms at a rate higher than official BLS garbage in-garbage out equations indicate, GDP can still be shown to be flat or expanding, even if real consumption, aggregat deman AND real productivity are falling...).

The U.S. and many developed & emerging economies are contracting, and have been, for some time.

To understand what this now clearly entrenched, long term trend does to equity markets, pull up a chart of the Nikkei, circa-1989 forward.

There aren't/can't be any exceptions to what you'll see; the product of debt dependent "faking the numbers" until reality calls the bluff.


Somewhat off topic (but also somewhat related):  Take a look at just one piece of evidence I found this morning, that when taken together with many other factual examples (that one can compile consistently & nearly daily), supports a strong case that any alleged GDP growth or soft recovery during the last 4 years is an illusion based on debt re-leveraging:

Delinquencies Rise as Consumers Load up on Debt

Americans cranked up their use of credit cards in the third quarter, racking up more debt than a year ago, while also being less diligent about making payments on time, an analysis of consumer-credit data shows.


The average credit card debt per borrower in the U.S. grew 4.9 percent in the July-to-September period from a year earlier to $4,996, credit reporting agency TransUnion said Monday.

Even with record direct tax transfers to the American People, in the form of EBT/SNAP, UI/xUI, Social Security, SSI, Medicare, Medicaid, etc., they are resorting to credit card debt once again to bridge the gap between what they have and can't afford, in many cases just to meet the basics.

There's a brick & mortar massacre under way. JC Penney & Best Buy are not the exceptions to the new rule, but the examples of this now deeply entrenched trend born out of economic reality that can't be delayed any longer.

Cliff Claven Cheers's picture

I work in credit card collections for one of the tbtf banks .  I see it first hand.  There are so many delinquint borrows I can work 12 hrs a day every day taking one call after another.  I have talked to people from every corner of the country.

catacl1sm's picture

What's your address? I want to send you a gift.

infotechsailor's picture


I could not think of a better picture to accompany America's leap off the fiscal cliff than felix jumping out of his space capsule.

Thanks Tyler. I just spilled five bernanke bills worth of starbucks coffee.

The Alarmist's picture

Felix fell to the earth because the laws of physics (gravity) cannot be violated.  Ben can print to the moon because the "laws" of economics have no such rationale constraints.

TruthInSunshine's picture

Ben "Icarus" Bernank, who flew to close to the sun on wings made of cotton fiber & linen.

Ruffcut's picture

Fucking fiscal cliff buzz term. The main street media abounds of bullshit.

Unprepared's picture

Yeah, I'm waiting for the "monetary hangover" to take over the headlines.

redpill's picture

Congress shouldn't even meet after the election, the last thing we need is 100 fired congress members trying to pass whatever pieces of pork or political paybacks they can before they are run out of town.

Matt's picture

Why do Americans need months for the peaceful transition of power?

redpill's picture

Historically it was in November because it was after harvest and before the harshest months of winter.  And election day is always on a Tuesday so that rural farmers would have time to travel to their polling places on Monday and not be forced to travel on a Sunday sabbath.  America is great at preserving traditions that are completely meaningless and obsolete.  It's only the important ones, like THE CONSTITUTION, which we have completely shat on.

The Alarmist's picture

Historically it occured much later in the year due to the harshness of the winters.  They moved it up to January to reflect modern transport, but they didn't want to move it up so much that it would screw up the most important of our holidays, like Black Friday.

SheepDog-One's picture

Sure they'll just 'fix it', they 'have to'....$16 trillion in debt will just be 'fixed' by adding $10 billion new debt daily while raising your taxes. Good luck with all that. OH and heres a prayer, for whatever thats worth, that Chinamart employees actually do go on strike for Black Friday.

BraveSirRobin's picture

Sure am glad we have him looking after things.

Titus Flavius Caesar Vespasianus Augustus's picture

Just you wait - there's going to be a new Treasury Secretary, and he's going to, for sure, be at least 2 things:


1. Worse than Geithner;

2. Jewish.



BraveSirRobin's picture

You are such a raving anti-semite.

To find solutions, you may want to look for problems beyond Jews. Seriously, you are being blinded by your bigotry.

Titus Flavius Caesar Vespasianus Augustus's picture

Why do I "hate Jews" because I note that it is virtually certain that the nominee will be Jewish?  Do you think this sort of thing fools people with half a brain?

No - but I do think pointing out obvious and statistically curious massive over-representation is always valid.

2% of the population runs the fed, fdic, cbo, office of budget and management,  national economic council, council of economic advisors, irs, sec - and has and will again run treasury.

That's pretty much most federal agencies having to do with money.


Maybe you're being blinded by trying so hard not to be a bigot.


I suspect if all these people had Italian last names, there'd be lots of discussion about the "Mafia"
running the show.   But substitute 'Jews' and all of a sudden, otherwise intelligent people think it's suddenly "hate."


What utter horseshit.  Do you actually believe it?

BraveSirRobin's picture

I find it really difficult to believe that 2% of the US population, and by extension a much smaller segment of the toal world population, can conspire to control everything. I think the world is so large and so complex, no one is actually in control of much of anything, no matter what they think.

The problems we face run much deeper and broader than any scapegoatable segment.

I think your bigotry is drawing your eyes and mind away from the true sources of the problem and potential solutions.

MachoMan's picture

While I strongly suspect he's an antisemite, you still haven't actually addressed the observation regarding the religious persuasion/membership of those government offices.

BraveSirRobin's picture

My response:

(1) Who cares

(2) See posts below. It is inconceivable that 2% of the population can conspire to control everything.

(3) Do certain ethnicities or groups congregate in certain fields and professions? No doubt, but this in not proof of evil intent or even control. It usually has more to do with networking and social support structures.

He sees Jewish names and gets upset. I look at what people do, not at their last names, skin color, religion, etc.

For example, I disapprove of Barak Obama, not because he is a Muslim (that’s a JOKE), but because he is incompetent and proffers bad policies, which is no joke.


catacl1sm's picture

During the reign of the Persian Empire, Jews were on the payroll of the court for banking.

blunderdog's picture

    No - but I do think pointing out obvious and statistically curious massive over-representation is always valid.

Maybe Jews are statistically significantly more intelligent than most of the global population, and their natural talents make it easy for them to excel in the financial industries.  Just a thought, anyway.

Titus Flavius Caesar Vespasianus Augustus's picture

A fair discussion of 'why' this has come about would have to list that as a possible reason, sure.

The point is to be able to note it exists.


I understand why people's Pavlovian response is to soapbox about antisemitism, but I expressly refute that tactic as false and hyopcritical.  If nothing else is presupposes a motivation for asking the question which may often be there... but doesn't necessarily have to be there.


Put differently:  When people immediately try to stop a debate or discussion with a canned response, I tend to suspect there's something they don't want discussed, not that they're bona fide moral sheriffs.




catacl1sm's picture

Paid shills always jump in on those conversations

BraveSirRobin's picture

I have had jobs where we all sat around in cube farms, and no one new what the guy in the next cube was doing. Then we would have meetings to figure out what everyone was doing, and try to make a plan and coordinate our activities. Then we would return to our cubes and everything runs their separate ways again. These were purportedly large and successful organizations, and believe me when I say we were making plans to dominate and control things. If anything good happened, it was either via luck, or the transitory superhuman efforts of one or two guys (not Jewish as far as I could tell).

If Jews are so much better at controling everything, maybe we should all recognize it and just give it over to them, because the rest of us suck at it. 

But one thing I can assure you of, little Tim Geightner is not in control. I do not think anyone is, or can be. Where other people see conspiracy, I see chaos and confusion, and the results of billions of daily interactions, the invisible hand, you know.

blunderdog's picture

    If Jews are so much better at controling everything, maybe we should all recognize it and just give it over to them, because the rest of us suck at it.

That's what I'm getting at--it may well be that we have done or are doing exactly that.

I have no interest in being Secretary of the Treasury or head of the Fed, for damn sure.

BraveSirRobin's picture

But I still love ya man. You can take that to the bank, but I don't think they will deposit love.

fuu's picture

After 13 days you already have 55 posts!

Grats on your latest sock puppet account!

Titus Flavius Caesar Vespasianus Augustus's picture

First and only, jackwad.   Truth is no defense, though, eh?


Shouldn't you be busy calling people who are reporting on Gaza civilian deaths "antisemites" right now?



fuu's picture

Where did I call you an antisemite? Damage control much?

I will stand up for your ability to post whatever the fuck you want to post, ask around. I think we should still have Trav, Max, Johnny, Spaulding, Mynhair, Robo, Slewie etc.

I just like to point out the noobs who are not noobs.

Contra_Man's picture

...As an aside;

Is it "noob", or "nobe", "nob" ... or "knobe"?  I'll just keep using "Dickhead" instead.

Titus Flavius Caesar Vespasianus Augustus's picture

I didn't say you called me an antisemite - I implied that you're the sort of fellow who'd call someone an antisemite for pointing out that Israel kills civilians.


The sort of fellow who would read without comment if I lamented how our drone strikes are killing lots of innocent people, but who decides to weigh in talking about noobs or otherwise run interference if it pertains to Israel or Jews.


To dumb it down a bit further for you:  You're full of shit.


but if you like playing the role of comment section Stasi - have at it, dude.


Meanwhile I'll read about Gaza up until Israel bombs and kills the last reporters sending copy and images from inside that Jewish-made concentration camp.



Which makes me an "antisemite."


Oh well.



fuu's picture

That's me, rocking the comments like the Staatssicherheit, it's a good thing you got a big bark, cuz you ain't got no bite.

Grats on the 13 days again.

Cliff Claven Cheers's picture

I hear ya bro. The Tylers still have my Sock Puppet account shut down.  I was not trying to spread any mis info just having some fun antagonizing.

catacl1sm's picture

Did slewie get banned?

q99x2's picture

Look the US politicians saw how well the bailout saga worked for European stock markets so they created a similar market ramping situation here.

Is Greece going to default?

SheepDog-One's picture

Sure, we're all bankrupt, but at least our fake stawks are high.

Winston Churchill's picture

Circular firing squad with artillery.

BraveSirRobin's picture

I wish the end result of this is that we would all get blasted.

I think a better analogy is a circular firing squad with flame throwers, because in the end, we are all going to get burned.

slaughterer's picture

The "Pelosi Pump" in AAPL worked pretty well.  AAPL is up 5 NFLXs today.   

With the "Topeka Pump" we should get a few more NFLXs before EOW.  

AAPL longs: Nancita got your back. 

BraveSirRobin's picture

"The "Pelosi Pump""

OMG, the vizualization made me instantly spew chunks. Good thing I had a trash can next to me.

Ancona's picture

There is no "fix"' for the debt parabola.....none. The only medicine that can cure it is the same medicine that will kill our economy. More cutting and austerity is what we need, and lots of it at that. If we shut down all unnecessary government and kept the essential 10 percent that remains, rein in social programs and return our soldiers from the four corners of the earth, close all foreign bases and leave, we could maybe level out the curve. Anything else is simply more bullshit.