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Fiscal Cliff Update: 'Little Progress Toward A Compromise In Past Ten Days"

Tyler Durden's picture


Two Fridays ago on November 16, just as AAPL was in danger of plunging below the absolute last support level of $500 after which freefall for it and the entire market begins, a truly unexpected deus ex machina appeared for those still clinging to long stock positions: politicians, in this case John Boehner and Nancy Pelosi, who held a press conference in which they defined the recently launched "Fiscal Cliff" talks as "constructive."

In reality, this appearance was nothing but a photo opportunity for talking heads (as explained in "Risk Ramp on Boehner Banality"), and one which as Nancy Pelosi herself admitted later, served simply to halt what then looked like an assured free fall in the markets. Since then the ongoing rally in stocks and the EURUSD has been predicated on the "constructiveness" of the talks actually being real. Because while a fiscal cliff solution, or rather a compromise - one in which the status quo will be extended and no news spending cuts or major tax hikes will appear, will certainly be implemented, the question is what will take to get the career politicians to bend to even this tiny "compromise" and what is the sequence of events of such a catalyst. As is well-known, Goldman, unlike almost every other sellside group on Wall Street, except for Morgan Stanley, still sees a tumble in the S&P to unchanged for the year levels as being the key driver that forces DC to cobble a deal (to be sure, Goldman then expects stocks to surge to over 1500 for 2013).

Judging by the latest update from Reuters, Goldman will likely be right, if only in the short term. As Reuters admits, " U.S. lawmakers have made little progress in the last 10 days toward a compromise to avoid the harsh tax increases and government spending cuts scheduled for Jan. 1, a senior Democratic senator said on Sunday." That this update comes after the "big" market swoon into the recent lows from November 16, is certainly cause for alarm, because it means that at least one more violent market whipsaw to the downside will have to take place before there is any cliff progress to report.

From Reuters:

 U.S. lawmakers have made little progress in the last 10 days toward a compromise to avoid the harsh tax increases and government spending cuts scheduled for Jan. 1, a senior Democratic senator said on Sunday.


"Unfortunately, for the last 10 days, with the House and Congress gone for the Thanksgiving recess ... much progress hasn't been made," Dick Durbin, the No. 2 Senate Democrat, told ABC's "This Week" program.


A deadline is looming. Absent action by lawmakers and President Barack Obama, roughly $600 billion in tax increases and spending cuts will start to hit households and companies in early January.


Durbin said Democrats are willing to allow small changes to parts of these entitlement programs, including public health insurance programs for the elderly and poor, but the Social Security government pension program should not be on the table.


"Bring entitlement reform into the conversation. Social Security, set (it) aside," Durbin said.

In other words, our assessment of the Boehner-Pelosi photo-op was once again spot on.

Remember: politicians are never in a rush to "resolve" something unless real money loss - either their own or of their primary lobbyists - is at stake. And Wall Street will make sure of just that. It will also be sure to buy ahead of everyone else once the real can kicking exercise du jour is completed. At least until the realization that nothing has been actually resolved kicks in. That bridge will be crossed in due course.

But first a far more looming bridge is that of the Cliff, on whose crossing there has been no progress made, for which Obama has said will demand double the previously expected amount in tax hikes ($1.6 trillion over ten years, or enough to fund the US budget deficit for one month), and which will collapse very soon, as there are now just 12 full sessions of Congress until the end of the year.

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Sun, 11/25/2012 - 13:11 | 3009812 knukles
knukles's picture

Ha ha ha ha ha ha ha ha ha

Fat chance.
Doomed, fucking doomed I say.

Notice the hints being surreptitiously telegraphed?
Boner says that ObamaDon'tCare has to be on the table and Yomma is on holiday?  Nazi says she just is trying to goose, talk up the markets, Bollox Chamblss is gonna go for more taxes and Peace Has Been Established in the Middle East while the Economy is Doing Just Fucking Fine.
And its in everybody's best political interests to drive the bus over the fucking cliff, starve the peasantry so's they can blame the other guy for the problem and the majority of the sheeple will yell scream and pontificate how its the other guys fault.

Sun, 11/25/2012 - 13:14 | 3009836 economics9698
economics9698's picture

Who the fuck cares?  Bankrupt that fascist government. 

Sun, 11/25/2012 - 13:43 | 3009884 boogerbently
boogerbently's picture

4 day work week, huh?

Those hard working congressmen must put in long hours!

Sun, 11/25/2012 - 13:45 | 3009890 Enslavethechild...
EnslavethechildrenforBen's picture

Printing presses for the rich.

Soylent green for the poor.

Sun, 11/25/2012 - 14:37 | 3009980 WmMcK
WmMcK's picture

+1 -- 3d printing presses for the rich making solyent green of the poor.

Sun, 11/25/2012 - 15:13 | 3010048 Sofa King
Sofa King's picture

Mofo's still on the 1800's holiday schedule, when they had to get back home for the holiday's by horse-carriage.

Sun, 11/25/2012 - 15:24 | 3010070 EscapingProgress
EscapingProgress's picture

Fiscal Cliff An Artificial Crisis. Fiscal cliff was manufactured to shift more of the burden of the crisis onto ordinary people.

A video interview with Michael Hudson: https://www.youtube.com/watch?v=kTxY-oZuxB4

Sun, 11/25/2012 - 18:41 | 3010311 SgtSchultz
SgtSchultz's picture

"But we've always done it this way...."

Sun, 11/25/2012 - 18:40 | 3010308 SgtSchultz
SgtSchultz's picture

Such long hours that they need plenty of time before Christmas to rest up.

Sun, 11/25/2012 - 15:41 | 3010095 TradingChief
TradingChief's picture

Why do they call them "Bush Tax cuts"? Was Bush on the socialist wagon when he did this? I'ze confused lol

Sun, 11/25/2012 - 14:03 | 3009927 Silver Bug
Silver Bug's picture

We all know the debt ceiling will be raised. It is QE to infinity. Load up on gold and silver.



Sun, 11/25/2012 - 15:18 | 3010060 Sofa King
Sofa King's picture

... and then get ready to hand it over during after the executive order banning personal ownership is enacted. Don't worry, they'll give you $36us(eless) an ounce for your gold.

Sun, 11/25/2012 - 16:04 | 3010126 JohnnyBriefcase
JohnnyBriefcase's picture

I'm more interested in what they will give me for my copper, brass and lead.

Sun, 11/25/2012 - 13:09 | 3009823 fonzannoon
fonzannoon's picture

when does the debt ceiling talk start? I wonder if cnbc will just keep using the "rise above it' pins to appropriately apply to the debt ceiling.

Sun, 11/25/2012 - 13:10 | 3009825 Long-John-Silver
Long-John-Silver's picture

We went over the debt cliff long ago. It's so deep it takes a while to hit bottom. No changes will be attempted until that happens. That's when the pain starts.

Sun, 11/25/2012 - 13:24 | 3009848 economics9698
economics9698's picture

You are not allowed to thing logically, 0 + 2 = 1.

Sun, 11/25/2012 - 14:35 | 3009972 WmMcK
WmMcK's picture

Two wrongs don't make a right, but three rights make a left.

Sun, 11/25/2012 - 13:25 | 3009852 Boondocker
Boondocker's picture

short of default nothing will be fixed.  the masses have figured out how to vote for bread and circuses...

Sun, 11/25/2012 - 15:15 | 3010053 my wag
my wag's picture

I wouldn't blame the masses. They didn't:

If not I would assume that our govt is engaging in MMT

Sun, 11/25/2012 - 13:10 | 3009826 Alcoholic Nativ...
Alcoholic Native American's picture

Fical cliff, fiscal cliff, fiscal cliff.

Is much easier for the plebes to digest than auesterity measures.

Preparing for the fiscal cliff will goes over much better than forced Austerity.  Is this why the media keeps drilling this phrase into our heads?



Sun, 11/25/2012 - 13:12 | 3009830 knukles
knukles's picture

Oh and "debt jubilee" sounds so warm and comfie...

Sun, 11/25/2012 - 13:14 | 3009837 centerline
centerline's picture

Sounds like a dessert.  Can I have mine a la mode?

Sun, 11/25/2012 - 13:25 | 3009850 Hulk
Hulk's picture

I want mine flaming. More realistic that way...

Sun, 11/25/2012 - 13:29 | 3009856 Ancona
Ancona's picture

If you go over the cliff, but no one hears you scream, did it really happen?

Sun, 11/25/2012 - 13:36 | 3009868 knukles
knukles's picture

Yes, they were on Christmas Recess and not paying any attention.

Sun, 11/25/2012 - 17:06 | 3010215 Binko
Binko's picture

This is true. The "Fiscal Cliff" will be spun as if it's some sort of natural event that just happens. It's already in play so nobody gets blamed for it. In politics, not getting blamed for bad stuff is absolutely the first concern. On the other hand, passing austerity measures and cutting popular programs is a certain path to a shortened ride on the political gravy train, no matter if you are Democrat or Repub.

Sun, 11/25/2012 - 13:11 | 3009829 Mike in GA
Mike in GA's picture

So in 12 days these 535 partisans will reach an agreement that they've been unable to reach in the last 12 months and more?  NOT!

I think the senate leadership WANTS the tax increases of the fiscal cliff mandates and is willing to pin the blame on spending cuts on the minority party, thus, no incentive to reach a deal.

Forget recovery; hello bigger-than-life recession.  Given the precarious state of the world's economy, this could be a tipping point to something so big the politicians and the Fed can no longer kick down the road.



Sun, 11/25/2012 - 16:32 | 3010159 odatruf
odatruf's picture

Doing anything but letting the tax cuts expire and spending cuts go into effect is kicking the can.  How did we get so fucked up that even on ZH, people can't tell up from down?

The fiscal cliff is a small bit of salvation, no matter what scary overlay graphic and music CNN dubs in.

Sun, 11/25/2012 - 13:17 | 3009840 fonzannoon
fonzannoon's picture

they can kick the shit out of this can. they can all agree that the cuts set to take place would do severe harm. they need another year to think it over. all cuts set to take place are taken off the table. all tax increases set to kick in are put off until further notice. they punt the debt ceiling to 30 trillion to buy 3 more years. they beg ratings agencies to downgrade us so people run to treasuries like last time and lower rates. problem solved. 

Sun, 11/25/2012 - 13:24 | 3009846 centerline
centerline's picture

The only thing I would amend there is the hike.  They will hike it 19.[something] trillion (sort of like $19.99 being easier to sell than $20.00) with some sort of super secret automatic additional increases that apply if a series of useless promises are met.

Sun, 11/25/2012 - 15:48 | 3010103 BlueCollaredOne
BlueCollaredOne's picture

Agreed, just look at Japan

Sun, 11/25/2012 - 13:19 | 3009843 djsmps
djsmps's picture

At the last minute, they will pass the Great Compromise that extends it another 6-12 months.

Sun, 11/25/2012 - 13:54 | 3009907 CrashisOptimistic
CrashisOptimistic's picture

Keep in mind that the Democrats have already abandoned their payroll tax cut.  

The Great Compromise at a minimum is going to revert that tax rate to its previous level.  If nothing at all else happens other than extend everything -- THAT won't be extended -- because both parties say now that it is defunding Soc. Sec.

This means that in a Great Compromise scenario that you are envisioning, there is 120 Billion of destimulus.  That's 0.8% of GDP drag, already defined with no constituency to prevent it.

Sun, 11/25/2012 - 16:34 | 3010166 odatruf
odatruf's picture

Not so fast:

"WASHINGTON (Reuters) - Support is quietly mounting in the U.S. Congress, especially among Democrats, to extend a payroll tax holiday for 160 million Americans to protect workers from an immediate hit in their take-home pay at the beginning of next year, according to lawmakers."

Of course, it may be a gambit to get something else, but I know for sure that many Dems would love to keep this in place. It conditions us to think of SS as something that is routinely funded by the general fund...


Sun, 11/25/2012 - 18:09 | 3010276 knicks3005
knicks3005's picture

And if that happens we WILL be downgraded again, and deservedly so. 

Sun, 11/25/2012 - 13:22 | 3009844 phat ho
phat ho's picture

the sneaky little bastards will tie it up with another whistle-by-the-graveyard bill and pass it under the door either day before xmas or new years...sneaky little bastards

Sun, 11/25/2012 - 13:31 | 3009859 knukles
knukles's picture

I got a new way to pass it real quiet like.

On page 3,892 of the bill, insert a sub-paragraph which refers to a foot note found only in Appendix 24 volume 9 part 2 section VII which states that; "all such unnecessary and useless horseshit* to pass this bill that nobody wants to be associated with shall automatically take effect on the last Friday night of the year 2012 if and only if no member of Congress are able to vote on said bill for which no vote shall be held, and announced unceremoniously by the Sergent at Arms to an Empty Chamber at midnight the day of Christmas Eve."

* hereafter known as the "Unnecessary and Useless Horseshit Clause."tm

Sun, 11/25/2012 - 13:39 | 3009872 phat ho
phat ho's picture

....as a member of congress; errr, zero hedge, I approve this message

Sun, 11/25/2012 - 14:31 | 3009968 WmMcK
WmMcK's picture

Better copyright UUHC as well.

Sun, 11/25/2012 - 15:33 | 3010082 B2u
B2u's picture

and Pelosi won't read it...

Sun, 11/25/2012 - 13:23 | 3009847 Hulk
Hulk's picture

"little progress in the last 10 days toward a compromise"

This comes as a complete surprise. I am shocked and appalled !!! A complete surprise !!!

Credit downgrade in 3,2,1

What a clownshow...

Sun, 11/25/2012 - 13:25 | 3009851 apberusdisvet
apberusdisvet's picture

Just another dog and pony show, folks; the end has already been predetermined; the middle class gets further decimated, and we lose even more of our freedoms.

Sun, 11/25/2012 - 18:31 | 3010297 slaughterer
slaughterer's picture

They want to get the middle class to pay even more for the financial crisis.  

Sun, 11/25/2012 - 13:26 | 3009853 skipjack
skipjack's picture

The compromise that will be reached is that the current "budget" will be extended until the next CONgress can be seated, hence passing the buck, err, I mean kicking the can, yet again.

Sun, 11/25/2012 - 13:26 | 3009854 evolutionx
evolutionx's picture


With most of the world’s major economies as well as the financial system bankrupt, there is only one solution that can save the world economy. Like in the Greek tragedies, Deus ex Machina is now the only way that the world can avoid a total economic collapse. This would involve God being lowered down onto the world stage and miraculously saving the plot.



Sun, 11/25/2012 - 13:27 | 3009855 A Lunatic
A Lunatic's picture

You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before.
Rahm Emanuel


The build-up is everything, bitchez...........

Sun, 11/25/2012 - 13:32 | 3009862 cossack55
cossack55's picture

I love a good drama. Too bad all we get is this shit.

Sun, 11/25/2012 - 13:42 | 3009883 cosmictrainwreck
cosmictrainwreck's picture

our illustrious "leaders"........mutiple shades of gray

Sun, 11/25/2012 - 13:31 | 3009860 woggie
woggie's picture

how can inexorably goin' from 16.3 to 20.0 trillion be construed as "avoiding" the ( media induced buzz term) "fiscal cliff" ? what a scam. some "ceaucescuin' "  is in order.

Sun, 11/25/2012 - 13:37 | 3009869 knukles
knukles's picture

Ya'll remember some years ago Congress appropriated money to hire a PR firm to burnish its public image?

Wonder how that's workin' for 'em these days?

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