The Most Critical 48 Hours In The Fiscal Cliff Melodrama Have Begun

Tyler Durden's picture

There is now about 48 hours until the rubber hits the road. What happens in the next 2 days: in a somewhat surprising development earlier, the Republicans today managed to turn the tables on the president, and as reported this morning, proposed an alternative "Plan B", one which the president has already said he will not to accept as it extends the current Bush tax cuts on all those making $1 million or less (and thus not nearly punitive enough in the eyes of Obama's electorate). The reason for this strawman is that unless Obama settles on some compromise definition of 'wealthy' between his already adjusted definition which moved from $250,000 to $400,000 earlier, and the $1 million cutoff proposed by the republicans, republicans will take the Plan B proposal to the House on Thursday and pass it, only so it is immediately voted down by the Senate, but have the popular backstop of saying "they gave it their best" just as Ken Langone suggested to Rand Paul earlier today on CNBC. And as Reuters reported, it appears that the drop dead date for House majority leader Cantor is Thursday, at which point he will vote, and pass, Plan B. At that point the Fiscal Cliff debate for 2012 is as good as over, as the resulting animosity that develops in the subsequent days will guarantee no further compromises are achievable for the balance of the year.

In other words, tomorrow is when all the horse trading will culminate: if there is no resolution by the end of day, the Thursday Plan B vote is all but assured, as is the resultant Risk Off phase, especially for all those who saw in today's moves yet another glimmer of a compromise when in reality it was all merely the latest and greatest big PR stunt. In the meantime, trigger happy algos will send stocks moving wildly in eiuther direction based on headlines over the next 24 hours, although the consensus is that following the massive overbought surge in stocks in the past month, that a fiscal deal is now largely priced in, and a sell the news event is likely to result following a firm agreement... assuming one comes of course.

From Reuters:

After important concessions in recent days from both President Barack Obama and House of Representatives Speaker John Boehner, Republicans moved to increase pressure on the Democrats by vowing to vote in the House on a "Plan B" back-up measure that would largely disregard the progress made so far.


The Republican proposal was part of a political dance by both parties to try to spin the "fiscal cliff" narrative in their favor even as they edged closer together. The White House rejected the offer but remained confident of an agreement.


"The president has demonstrated an obvious willingness to compromise and move more than halfway toward the Republicans," White House spokesman Jay Carney told reporters, adding that Obama is making a "good faith" effort to reach a compromise.


House Republicans were still meeting to discuss the matter on Tuesday evening.

Why did the market surge today? Because it shared the same view as this espoused by Republican Tom Cole:

"They've still got a long way to go, but you can't help but say that the odds are better today than they were on Friday that we'll get some sort of agreement," said Republican Representative Tom Cole.

Maybe. Maybe not. Based on some preliminary reports, numerous conservatives in the House are still fuming over the concessions already granted by Boehner. As National Journal explains:

A second aim of Boehner’s Plan B strategy is clearly directed internally—at grousing House Republicans. He is telling members of his conference who are restive that he will cave more significantly on taxes now that it is as much on their shoulders as his--because they can cut bait on his negotiations or wait them out. He’s not going to take all the heat for any eventual deal they don’t like.


One senior House Republican aide said that some members have been saying they've had it with the private negotiations between Boehner and the White House, including some who believe these talks should be held in an open conference. What Boehner is now offering, the Republican aide said, is, “We can do something else, if you want.”

A just as big problem is whether a schism will develop in the Democrat party, many of whom see no reason to budge on the $250,000 definition, especially in the aftermath of Obama's trouncing victory.

Obama could face unrest from fellow Democrats. Liberals were likely to oppose a key compromise he has offered to permit shrinking cost-of-living increases for all but the most vulnerable beneficiaries of the Social Security retirement program. His proposal calls for using a different formula, known as "chained Consumer Price Index," to determine the regular cost-of-living increases, essentially reducing benefits.


"I am committed to standing against any benefit cuts to programs Americans rely on, and tying Social Security benefits to chained CPI is a benefit cut," Democratic Representative Keith Ellison said in a statement.


Obama also moved closer to Boehner on the proportion of a 10-year deficit reduction package that should come from increased revenue, as opposed to cuts in government spending. Obama is now willing to accept a revenue figure of $1.2 trillion, down from his previous $1.4 trillion proposal.


Boehner's latest proposal calls for $1 trillion in new tax revenue from higher tax rates and the curbing of some tax deductions taken by high-income Americans.

No matter the final resolution, it appears that the payroll tax cut holiday is over starting January 1, which as reported previously alone will have an rather adverse impact on Q1 GDP. In fact, with all carryovers, even assuming a compromise is reached in the next 48 hours, the hit to GDP in 2013 will be about 0.5%-1.5%. But at least the economists will have something to blame yet another economic miss on, for an economy whose quarterly scorecard is starting to be pockmarked with one-time charges, and "non-recurring" fees to the same extent as Alcoa.

So keep a very close eye on tomorrow's news flow: the next 24 hours is when any hints of a final compromise will have to come. If there are none, bring a helmet.

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Bicycle Repairman's picture

Taxes up.  Spending?  LOL.

nmewn's picture

You know whats hysterical about this whole thing?

They're saying "millionaires & billionaires" in their rhetoric but they're targeting middle class (200-250k) in their plan. There is no way they can raise the taxes in their own projections WITHOUT including the 200-250k range.

O'Barry and Reid are completely screwed if someone with half a brain can explain it to the sheeple.

With O-Care EVERYONE who works is looking at a 3-4% increase in taxes as it matter what they decide on this.

Liquidate...let it burn.

Freddie's picture

The Dems can rig elections all day long now. They don't care. The Repubs will not stand to them.  I am sure anyone who tried will be suicided.

Yeah yeah red team blue team but Reid has not presented a budget in 4 years.

wee-weed up's picture

Ah, Harry Reid... that slimy little worm!

zorba THE GREEK's picture

Kabuki, Kabuki, Kaboom. Government is so out of touch

with the real world that they will cause the collapse that

will bring great pain and suffering to the people who rely

on them the most, the poor and the struggling. Yet only

through that collapse can we clean house and build a better

system of governing our nation.

zerozulu's picture

This "fiscal cliff" dram is making me sick. They simply want to kick the can one year at a time until KABOOM.

Hayabusa's picture

Look, they are ALL on the same side... they lie, manipulate, cheat and primarily PRETEND to be on opposite sides when in reality they are on the SAME side... the side that pretends to be working for the 99% and instead screws them (the 99% fight their wars, pay the banksters gambling debts, watch the 1% commit crimes and not be prosecuted, take the brunt of the QE/bailouts, etc.).  Blue and Red do not exist... it is the rich expoliting the poor as much as possible that's relevant.

Tommy Gunner's picture


Can we have a rule - if anyone posts a partisan comment on ZH ever again - they should be pounded to death using ball peen hammers.

Don't you fucking idiots get it?  They play you off against each other so that you spend your time arguing over stupid points when these COCKSUCKERS are sitting back and laughing at you like the fucking idiots that you are - and ass raping you.


Yen Cross's picture

 Just wait until q-4 earnings start bitchez.

pragmatic hobo's picture

wasn't bush tax cut a temporary measure? Wasn't it suppose to expire? last year? Why is it keep being called tax increase?

Pharming's picture

Because you are looking at it through a sane person's eyes.  Go to Australia, stand on your head, flip it inside out, THEN it looks like a tax increase...duh...oh and you have to be in the 5th dimension too.  Wait...I'm confused...where is my money?  Is this a tax cut / increase / decrease ?  Is that a black hole up ahead?

GMadScientist's picture

Because conservative logic vis a vis taxes bears great resemblance to a ratcheting system.

Remember: they don't ever feel "entitled"...that's only poor people.

Salon's picture

Why are all of you afraid to go short?

Look at the technicals!

Look at the macro!

Look at Boehner!

We are going cliff diving!

Fix It Again Timmy's picture

Congress is constipated, it can't pass shit....

GMadScientist's picture

More like an obstructed bowel, which left unattended, can kill.

yogibear's picture

Time for the algo's to trigger some competing algo's derivatives to blow up. 

Pharming's picture

Bill Murray summed it up...  "And then, depression set in."

TahoeBilly2012's picture

How do you pay taxes when your rent/fuel/food/medical is at 2012 prices and your income is back to 1992's?? There isn't anything to pay with....

GMadScientist's picture

For "everything else" there's MasterCard!

David99's picture

The entire media is useless except ZH.

David99's picture

Don't buy any thing at these high levels. FED, ECB, BOE, BOJ are pumping but for how long?

Body of Lies's picture

"will guarantee no further compromises are achievable for the balance of the year" ... there was never a possibility for compromise, the Administration will get so much political mileage from the cliff fall, that there is no way that they would compromise, except if they got everything that they asked for and thus humiliate the repubs. Simpson-Bowles suggested $1 revenue for $4 of cuts. Obama has offered $1 of cuts for $4 of revenue ... pretty far apart.

Once over the cliff, the Administration will be in the driver's seat since nothing can get through Congress or overcome a veto, so they will write the ticket and that only after much, much pain has been inflicted. The ultimate prize is the Debt Ceiling (since everyone knows that the revenue from taxing the 'rich' is a pittance). The repubs will surely accede to the infinite Debt Ceiling now that the Tea Partiers have been purged. Woe is us.

The run up in the markets has a compromise built in, so when this does not transpire, "There Will Be Blood"

are we there yet's picture

Machel's vacations and ginormous staff is entitled to that revinue.

Catullus's picture

I think Senate Democrats defect and pass the bill to send Obama. Why should they take the political hit for this? The prez is the one with all the political capital from the election victory (whatever the hell that means). If they also get a debt ceiling increase that gives them two years, this should be a yea for some senate Democrats.

Here's the deal, if the democrats send it to Obama and he vetoes it, and the market tanks, then he becomes lame duck. If obama passes it and the market doesn't tank (effectively calling the bluff), they get the debt ceiling increase and another 2 years of breathing room and a feather in their cap for lowering middle class taxes and creating a millionaire's tax. If O vetoes it and the market does nothing, then you'll still have the debt ceiling problem. But if nothing gets sent to O and the market tanks, it's all Congress' fault and that means Senate Democrars who couldn't pass the bill. . If nothing gets sent, and the market doesn't react, there will still be a debt ceiling problem come March (these tax increases don't solve the cash flow problem).There's nothing to gain by Senate Democrats blocking plan B

My prediction, a no volume ramp market gives back a lot to open 2013 after the record date for mutual funds prospecti has passed. This is just shifting into big name winners and repositioning for next year market volume. It has little or nothing to do with what DC is doing.

David99's picture

FED is the biggest criminal on this planet.

ZH is only doing good job and reporting correctly. Tyler is a real true person though I have never met him. FED+BOE+ECB+BOJ are the biggest manipulators and JPM +GS +20PD's act on their behalf in this Ponzi Casino. It is all rigged Ponzi Casino. JPM & GS do maximum manipulations from London as no regulators are looking what is going on daily. London is the best place to manipulate Ponzi Casino as no regulators as they are watching porno. Manipulations of highest order without any regulations as every one has been purchased and regulators watching porno. In last 10 trading days, Rio Tinto manipulated by +25% gain and regulators watching porno. JPM doing it. It is just Casino and nothing else. Regulators are watching porno, don't know how Rio Tinto is manipulating daily. On LSE, there is no checks and balances and maximum manipulations daily by Rio Tinto. The market is Casino and the biggest manipulated stock is Rio Tinto and JPM is pulling up daily and no regulations for Rio Tinto in London

Waterfallsparkles's picture

I would like to see the income raised on the Payroll Tax for Social Security, Medicare.  Instead of cutting benefits on Social Security, Medicare.

GMadScientist's picture

In stunning display of hypocrisy, the Tea Party takes "Plan B", but we're assured that the rape was condoned by God.

StychoKiller's picture

O.T.: Guess who got "borked" today... (R.I.P.)

are we there yet's picture

Lets pretend the government is a fisherman in a small lake and we are the fish (not a big stretch). Even the dumbest fisherman knows if you over fish the lake you kill future fishing.  Politiicans, the fed, and bankers have overfished us, our children, and grandchildren. And they are still ravinous looking for a way to escape their excesses. Like an obease man blaming a farmer for his heart disease. How did our leadership become so profoundly dysfunctional?