Fiscal Cliff Loose Ends

Tyler Durden's picture

Via Citi's Steven Englander,

The fiscal cliff deal appears to be a done deal and markets have reacted accordingly (although President Obama is apparently awaiting a photo-op later today to sign it). However, the deal leaves a large number of loose ends that ensure high drama for the next two months on the US fiscal front. The immediate impact of all the loose ends and deadlines may be smaller than the Dec 31 fiscal cliff, but all of these loose ends are important and could lead to short-term price action. Several of them are very important for the long run USD outlook as well.

Loose end number 1, at least chronologically, is the political futures of Mrs. Boehner, Reid and Geithner. Treasury Secretary Geithner previously indicated he wanted to stay until the end of the year to try and get a budget deal done. The legislation passed by the House and Senate might be considered a half deal, but is this the point that Geithner walks away? I would presume that he does, although he may choose to stay until the end of March. He has not said anything on that issue for over a month. It is likely that President Obama will announce new cabinet appointments in one big announcement at some point over the next two weeks. House Speaker Boehner and Senate Majority leader Reid will be up for vote on their continuing leadership tomorrow, Jan 3. Congress convenes. Boehner is the most likely to face a challenge, perhaps from his deputy, House Majority leader Eric Cantor of Virginia, who voted against the Senate bill. The other potential challenger, Paul Ryan, voted for the bill. At this stage it is unclear whether either will challenge speaker Boehner. It appears unlikely that anyone would challenge Senator Reid as the leader of the Democrats in the House, although his 'brand' seems diminished by the fact that Vice President Biden took over negotiating the Democratic side from him and got a deal done.

The next loose end, chronologically, is probably the new sequester deadline of March 1. Previously agreed spending cuts will kick in on that date unless they are kicked down the road again. Kicking them down the road in a smaller bill may be difficult, though, because without offsetting provisions, the bill will score as being expensive. If all the sequesters are permanently averted, the cost is USD1.2trn over ten years. After the March 1 deadline, there is one additional minor sequester-linked deadline. On March 27 Congress must agree on what it is going to do to make up for overspending since the first sequester, likely to amount to about USD15-20bn.

From what Geithner and the Treasury have said in public pronouncements, the US will bump up against the debt ceiling at some point around March 1. If tax collections are high in Q1 then the debt ceiling breach could be avoided for another 2-4 weeks, but it appears unlikely that the debt ceiling could be pushed beyond the end of March. On March 30 Congress must pass a budget or otherwise extend spending authority. This deadline results from Congress not having passed a budget for the fiscal year that begins in October. Without spending authority, the Executive Branch would in theory be forced to shut down the government.

Although it doesn't necessarily come with a deadline, another loose end from lawmakers is corporate tax reform. Both Republicans and Democrats have said repeatedly over the past year that it is a priority. In his speech promoting the latest compromise, Obama talked about doing a 'grand bargain' in pieces and talked about wanting another revenue increase to offset any additional spending cuts. Presumably the revenue piece is corporate tax reform, although the corporate tax reform Republicans are talking about is a 'territorial' system with lower marginal tax rates. This issue is likely to bring a major clash, that could occur in February and March or could conceivably be delayed. It is arguably the most critical issue for the USD in the long run. Existing tax law incentivizes US-based multinationals to produce and book profits abroad. Alterations to the law, depending how they shake out, could lead to greater incentives to produce in the US and therefore a smaller trade deficit and/or a wall of repatriation like the one that occurred during the HIA amnesty period in 2005. If something remarkable happens on this issue then we would have to immediately re-examine a bearish USD view for 2013, but if there is no major reform, the likelihood of a 'structural' USD rally is low.

There is one final loose end, and that is the ratings agency response. Ratings agencies were fairly consistent in saying that a 'grand bargain' deficit reduction plan that would take 2.5trn or more off the ten-year deficit would be required to avert a US sovereign downgrade. With the US having failed on a one-stage grand bargain, it is unclear whether a downgrade would come in the next few days. Ratings agencies may choose to wait to see what happens in March with sequesters, the debt ceiling, etc.

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devo's picture

I still don't understand how gold is only up $10.

whatsinaname's picture

Check with Raghuram Rajan. He is now advising the Indian government on economic policy and the gold purchases by its populace.


Can you imagine a government encouraging it's citizens to actually do the smart thing? Nope, neither can I.

nope-1004's picture

That's because taxes, interest, and confiscation through inflation can't be done with physical gold.


Oh ya, and one more thing:  Physical gold can easily be counterfeited, whereas todays laserjet printers have a hell of a time reproducing fiat paper copies. </s>

goldfish1's picture

Euros discarded as impoverished Greeks resort to bartering Communities set up local currencies and exchange networks in attempt to beat the economic crisis

Zer0head's picture

If Mrs. Boner continues as speaker it's all a moot point

NotApplicable's picture

The crying makes a lot more sense to me now.

Muppet Pimp's picture

US mint continues production at a furious pace, who says your government doesn't really care? Watch what they are doing not what they are saying.

Muppet Pimp's picture

You sarcastic bastard.  Touche sir.

tawse57's picture

Aren't the Indians talking about limiting gold imports again?

monogratis's picture

Just what India needs... more riots

new guy's picture

I don't understand why you need to INCREASE revenue to offset spending CUTS

stocktivity's picture

"However, the deal leaves a large number of loose ends that ensure high drama for the next two months on the US fiscal front."

There is no more "high drama" for the market any more. It's a rigged casino....It's all Bullshit!!!!!

Tombstone's picture

Benny is still on holiday on the Gold Coast.  When he returns, seeing that Congress has made an even bigger mess of the country, he will be a willing buyer and gold will rise quantitatively. 

Stuntgirl's picture

In Europe, virtually all mainstream media is declaring the soon-to-come gold bubble burst.

This is especially true in Spain, where all commodity and specialised gold trading websites are screaming SELLSELLSELL.

Financial and general MSM in Southern Europe are reporting on the fiscal cliff as absolutely dealt with and fixed, hence Italy and Spains stocks outperforming the US's. The fartest removed from coherent information, the most optimistic.

Seasmoke's picture

i am glad nothing is happening......i need a 2 month vacation

mayhem_korner's picture



Dow has hit its high for the year.

tawse57's picture

The boss of PIMCO said that he thought the DOW would at best make 5% in 2013 - doubt he expected it to make half that in the first trading session.

Let's hope that it will all crash back down tomorrow.

The problem is that every time they pump the markets up any subsequent correction, fat finger, etc, does not take the markets down far enough. The trend, sadly, is constantly upwards.

HD's picture

I think it's cute how Obama gives Joe little jobs to do around the house....

GubbermintWorker's picture

Lets hope he is totally inempt on his gun control assignment.

SgtShaftoe's picture

Indeed, and here's another must read: Gun Restrictions have always bred defiance -

klockwerks's picture

Thanks for the link. Your correct, a MUST READ for anyone you can send it to

HD's picture

Obama already knows he's going to ban AR-15s. Having Joe "look into it" is just a throw away... Like when the SEC says it's "looking into it".

buzzsaw99's picture

It's pronounced Bay-ner. Get your minds out of the gutter people. :snark:

espirit's picture

Bay-ner / Boner... Same lame dick.

ForWhomTheTollBuilds's picture

Just a shot in the dark, but several months ago an article on ZH was talking about significant tax changes possibly coming up in the commodities space.

There was some kind of loophole being exploited by the hedge funds which was never really sanctioned by the IRS and speculation was that might change.  I keep thinking that such a change could knock prices down quite a bit and therefore suppress "inflation" in commodities temporarily (which is everyone's favorite timeframe these days).


Was it all a horrible dream or does this sound familiar to any of you?



rwe2late's picture

What wasn’t mentioned in the “fiscal cliff” debate are what’s known as “tax extenders” or roughly $205B of tax breaks for corporations. With such a banal name, and boring and difficult to read line items in the bill, few political operatives have bothered to pay attention to this part of the bill.

eight under-reported subsidies, including $1.6 billion for Goldman Sach's fancy new headquarters, and $9 billion for off-shore loopholes: 


SgtShaftoe's picture

Saw this video and couldn't help but smile.

Maybe a good candidate for a headline on ZH:

BoxDownbytheRiviera's picture

my letter to friends:


Hello friends both here in the USA and in the world congratulations to us all , we (team USA) now have more debt, not including forward uncounted spending, than our entire output ability. The nominal number. we'll soon exceed every country on the planet and do it far better than they in the Olympiad of debt spending and money printing. USA! USA! USA! USA! USA! USA! reminds me a little of Reagan's bankrupting the russians into dissolution. but of course, we are now fully at the tail end of those trickle down economics. the next years are end game, so stock up on your handouts be you a business or a citizen, though of course the supreme court has ruled, there is no difference. (I hear a descrimination lawsuit in the wings). Had Roosevelt known far off outcomes, would he have done it the same way? somebody will have a renowned PHd thesis to write, if they can prove he did do the forward math. That he took the gold from private hands, tells me, he did in fact know very well. 1913-2013 the 100 year anniversary of the US Federal Reserve Bank. A glorius reign. In full partnership with a gloriously inept government, but very very adept. I suggest Andy Fastow for the next treasury secretary (he'll need a pardon, but his off balance sheet brilliance paved the way for our very much way of formal accounting life today, and I suggest the long since no longer independant FASB to replace the OMB for a perfect world. there's a bob dylan song in all this somewhere with his, i can't sing pushing lyrics, that precede the phrase, that the times they are a changing. funny, his lyrics apply the same way now, they once did on the other side of the equation. it's math folks, and when the balance is compromised, all songs, sing the same way. (i went to his concerts) Come gather 'round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You'll be drenched to the bone
If your time to you
Is worth savin'
Then you better start swimmin'
Or you'll sink like a stone
For the times they are a-changin'.

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won't come again
And don't speak too soon
For the wheel's still in spin
And there's no tellin' who
That it's namin'
For the loser now
Will be later to win
For the times they are a-changin'.

Come senators, congressmen
Please heed the call
Don't stand in the doorway
Don't block up the hall
For he that gets hurt
Will be he who has stalled
There's a battle outside
And it is ragin'
It'll soon shake your windows
And rattle your walls
For the times they are a-changin'.

Come mothers and fathers
Throughout the land
And don't criticize
What you can't understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin'
Please get out of the new one
If you can't lend your hand
For the times they are a-changin'.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin'
And the first one now
Will later be last happy first working day of the new year. and do make the most of the rally. but ask yourself, who bought your products, if the feed lines from the medical pumps are cut? was it organic profit, or were they lab created in the econ test tube of all time? and which taxpayer should you thank for your livelihood? ad nauseum. which taxpayer pays your way, and which taxpayer.................. is the payer of last resort, which is to say, the one who is not getting anything at all. You know who you are.

conspicio's picture

Regarding Obama's photo-op signing this pig, he's already been on the Marine golf course for a few hours in Hawaii, maybe even done by now gettin him some Reggie time. The autopen will sign this one, kids.

Bicycle Repairman's picture

Loose end number 1, at least chronologically, is the political futures of Mrs. Boehner, Reid and Geithner.

They all have bright futures as they followed orders. 

The next loose end, chronologically, is probably the new sequester deadline of March 1.

The debt limit will be removed permanently and I for one will not miss the kabuki.

another loose end from lawmakers is corporate tax reform.

As soon as the corporate lobbyists work out the bill, congress will pass it and Obama will sign it.

There is one final loose end, and that is the ratings agency response.

Since visits from the FBI are unpleasant, the rating agencies will remain quiescent.


zorba THE GREEK's picture

Joe Biden can at least get the job done. Obama is the lamest president since Ford.

If the average American had 1/2 a brain, Ron Paul would be president and Bernanke

would be teaching economics at a school for the mentally challenged.

Bicycle Repairman's picture

Ron Paul was hidden from the American people.  There was no real discussion of the real issues.  The American people fool very easily, but they had a lot of help.

tenpanhandle's picture

I understand Obama has tweeted to all the twits the reasons for this:

Big can too big to kick down road; must break into many smaller cans.  Chief Obama has spoken.

Make big bill now, Republicans punished once; make many little bills over time, Republicans punished many times over.  Chief Obama has spoken.


falak pema's picture

About loose ends  which never end but become a way of governance; not thru neglect but by calculated intention.

And we fall into the credibility trap thinking its just sloppy governance...; background-attachment: initial; background-origin: initial; background-clip: initial; background-color: initial; background-position: 0% 16%; background-repeat: no-repeat no-repeat; border: 0px initial initial;">

“A credibility trap is a condition wherein the financial, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform, or even honestly address, the problems ot that system without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even the impulse to reform within the power structure is susceptible to various forms of soft blackmail and coercion by the system that maintains and rewards.

And so a failed policy and its support system become self-sustaining, long after it is seen by objective observers to have failed. In its failure it is counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for the thought leaders who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious hypocrisy.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.”


g3h's picture

Neither Cantor noe Ryan is likely to challenge Boehner.  They are part of the establishment.  Unless Cantor knows he has a clear majortiy, which doesn't seem likely, he will not stand out.

Ryan won't do it in any case.

If there is a challenge, has to come from elsewhere.  But then the rank and file simply won't support him or her.


On the spending cut and debt ceiling, if you think there is any suspense, you need to read Mish

Republicans Prepare to Wave White Flag Again, This Time On Debt Ceiling; "Temporary, Partial, Non-Threats" Read more at
orangegeek's picture

Not sure when raising taxes and letting government over spending stand became bullish, but it sure happened today.


SP500 took off today.


Q4 reporting - could be interesting.

Grand Supercycle's picture

Wile E Coyote is not going away...

Recurring short squeezes propelling markets higher just ensures the Wile E. Coyote drop will be brutal ~ we are witnessing a mega crash in the making.

Whether it’s caused by fiscal cliff, debt ceiling, Europe or flesh-eating zombies invading Wall St, it doesn’t matter because another crash is guaranteed.

It’s a no brainer.
Charts don’t lie.

earleflorida's picture

the 'boner' is backed 100%... by Rockefeller $$$--

Home is where the heart grows fondest?