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Next Comes The US Downgrade

Tyler Durden's picture


From SocGen:

The scaled-down deal passed in the Senate addressed the fiscal cliff but did nothing to address longer term fiscal health of the nation. This puts the US rating at risk for a downgrade. However, credit rating agencies may decide to wait and see what emerges from the subsequent talks. There is an implicit new cliff at the end of February related to the sequester and to the expected exhaustion of extraordinary measures related to the debt ceiling. This date is expected to be used by Republicans as leverage for spending cuts. President Obama has already signaled that a new round of spending cuts – those related to the sequester as well as entitlement spending – will have to be matched by additional revenue increases. Therefore entitlement and tax reform are likely to be at the center of discussions over the next two months.

And recall from Moody's in September:

Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the US government's Aaa rating and negative outlook, says Moody's Investors Service in the report "Update of the Outlook for the US Government Debt Rating."


If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable, says Moody's.


If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to Aa1.


Moody's views the maintenance of the Aaa with a negative outlook into 2014 as unlikely. The only scenario that would likely lead to its temporary maintenance would be if the method adopted to achieve debt stabilization involved a large, immediate fiscal shock—such as would occur if the so-called "fiscal cliff" actually materialized—which could lead to instability. Moody's would then need evidence that the economy could rebound from the shock before it would consider returning to a stable outlook.


Moody's notes that it is difficult to predict when during 2013 Congress will conclude negotiations that result in a budget package. The Aaa rating, with its negative outlook, is likely to be maintained until the outcome of those negotiations becomes clear.


The rating outlook also assumes a relatively orderly process for the increase in the statutory debt limit, says Moody's. The debt limit will likely be reached around the end of this year, and the government's ability to meet interest and other expenses out of available resources would likely be exhausted within a few months after the limit is reached.


Under these circumstances, the government's rating would likely be placed under review after the debt limit is reached but several weeks before the exhaustion of the Treasury's resources. Moody's took a similar action during the summer of 2011.

Several weeks before the exhaustion of Treasury's resources is.... now.

For those still confused, nothing has changed on the US long-term sustainability picture. In fact, as the CBO announced yesterday, deficits will rise by $4 trillion (so really $10 trillion) over the next decade. But the music is playing and one must dance....


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Wed, 01/02/2013 - 09:56 | 3114550 Shizzmoney
Shizzmoney's picture

What is taking them so long to downgrade? 

Are they waiting for the King of Bankruptcy Debt, Donald Trump, to become president?

Wed, 01/02/2013 - 09:58 | 3114556 GetZeeGold
GetZeeGold's picture



They were still in shock at the marxist being elected twice.

Wed, 01/02/2013 - 10:10 | 3114584 Dr. Sandi
Dr. Sandi's picture

I don't remember Marx advocating government subsidization of the private banking sector. Maybe I missed something from my commie profs.

Wed, 01/02/2013 - 10:14 | 3114600 HardAssets
HardAssets's picture

Its all one big insider controlled monopoly, whether called 'public' or 'private'.

The 'isms' are just marketing.

Wed, 01/02/2013 - 10:38 | 3114659 FMR Bankster
FMR Bankster's picture

Not much to like about this budget deal. However, there's one positive. Most of the largest budget gimmicks (alternative min tax, expiration of Bush tax cuts, doc fix, ect)went away and the real size of the deficits for the next 10 years are exposed. When the CBO and Obama's budget group put out the next figures we will be looking straight in the eyes of $10-11 trillion in new debt the next decade. Of course that assumes no recession (hasn't happened since at least the civil war)and interest rates stay very low. I know, I know, your thinking we'll have some spending cuts when the republicans hold Obama's feet to the fire next month. Sorry about that, because the $10-11 trillion ASSUMES the cuts defered for 60 days happens and that's $1.2 trillion. Anyone think they will agree on cuts that large? Thought so.

Wed, 01/02/2013 - 10:59 | 3114734 odatruf
odatruf's picture

FMR - doing away with those budget fictions is about the only bright spot, I agree.

I am undecided on whether separating the tax side and spending side of the problem is positive. Most people support cutting spending (so long as it isn't too specifically detailed or targeted at their stuff) and I think it is easier to talk about run away spending and debt without 'defending' not increasing taxes on the well off. So long as people remember they got their pound of blood from the Romneys of the world, then building support for doing away with some of government's excesses may be easier than it was while still under the cloud of screeds about the fair share.

The only reason not to think it is better this way is my own distrust that even a plurality of the GOP would see spending go down. Sure, they may want it to slow for the lefty stuff, but they have their own grab bag of righty stuff they want funded, including anything the DoD wants plus some.


Wed, 01/02/2013 - 11:36 | 3114864 FMR Bankster
FMR Bankster's picture

Anyone who has looked at the real numbers understands it's an out of control situation. Not a question of simply trimming a few wastful programs and modestly increasing taxes. The only solution that could work is to walk back the transfer of power from local and state goverments to the federal goverment. If you ended federal payments for some programs the states administer (unemploymnet compensation for example) and block granted back others that cost more (medicaid)you could regain control over 5 or 6 years. Of course the states would cut these programs a bunch and taxes would rise at the state and local level. As long as the Federal goverment cuts the checks and doesn't raise taxes to pay for them, there's little inclination to fix things. Many voters understand this. Look at all the states that send Democrats to Washington (West Virginia is a good example) where the freebies come from but elect Republicans for state and local office because balanced budgets are required there.

Wed, 01/02/2013 - 14:38 | 3114997 odatruf
odatruf's picture

FMR - I agree that the only real way to get a handle on it that might be lasting would be a significant devolution of power and responsibility back to the states. Something to which the GOP has only paid lip service.

We'd all need to understand that our state taxes were going up as a result, but that can be offset by the reduction in federal taxes. And that exchange would need to be written in blood. As you say, the local budget rules as well as the leverage of smaller groups might stand a chance of keeping it in some balance.

Even then, I think it would take two full decades to pay down the legacy items taken on by the feds. It could not be done as fast as 5 or 6 year in my view, but if there were a credible and enforceable plan, the timing would not be as important so long as it got done.

It's time to reopen the constitution at a new convention. It's well past time, honestly. The only thing I would insist upon would be that no one could serve at the convention if they've ever held any elected office and that person would be barred from ever holding office after the convention.  This rule would need to be added as part of the amendments being made at that time, of course. I also think the delegates should be chosen at random like jury duty and they should be compensated very well.


Wed, 01/02/2013 - 10:15 | 3114601 GetZeeGold
GetZeeGold's picture



Marx wasn't elected President....therefore he never saw the light.

Wed, 01/02/2013 - 10:17 | 3114611 nonclaim
nonclaim's picture

I'm mixed about this but gave a +1 anyway... At this point accusing Marx is like blaming Bush for all things wrong.

Call it for what it is... call them Obamists for it is Obama and his backers that are sinking the country.

Wed, 01/02/2013 - 10:42 | 3114672 kridkrid
kridkrid's picture

NO!  That is a distraction.  People need to understand what they are witnessing.  This has NOTHING to do with politics.  That's all a charade meant to equally divide people into controllable "camps".  We have selected a monetary system in which all money is loaned into existence with interest attached at creation.  Only the system doesn't contain both the principle and the interest to pay the debt so more debt must be issued, forever.  

The system is agnostic with respect to who is saddled with the debt, only that debt continues to grow FOREVER.  "google" any image you would like and you will find a nice rational curve with respect to private and public debt.  The problem... people can only take on debt for so long before they are "tapped out".  Same for corporations... that was what happened in 2008, more or less.  The story was made to seem complicated, but it wasn't really.  2008 was when private credit peaked.  Government has been trying to back fill ever since.  

I doubt that the average congressman understands this, but the leadership of the parties who are beholden to the same interests do.  And they work together to keep the illusion going.  It's all manufactured.  Obama isn't sinking the country... it's already sunk.  It's the titanic.  There's no fixing it, it'll just take a bit of time before it goes down.

Wed, 01/02/2013 - 11:03 | 3114751 odatruf
odatruf's picture

Up arrow because I agree that the left / right benefits those in power and that the path we are one is slow and hard to change, and Obama isn't the only one still pulling ores in the wrong direction.

But I do disagree that the system can't pay both principle and interest. It can. All that is needed is courage, leadership and the selflessness to recognize that such a vote/action may mean you are out of work come the next election cycle.



Wed, 01/02/2013 - 11:15 | 3114794 kridkrid
kridkrid's picture

No... the system can't pay both principle and interest... the interest doesn't exist in the form of "money".  This isn't a theoretical or academic discussion and this doesn't have anything to do with rah-rah appeals to "courage and leadership".  This is merely a description of how our system works.  Money is loaned into existence with interest attached.  However, that "interest" does not have a corresponding "dollar" connected to it.  So more debt must be loaned into existence... always.  There is no getting around this... this is how it works.  

Wed, 01/02/2013 - 11:22 | 3114817 swmnguy
swmnguy's picture

It's just about the math.  Any 7th grader can figure it out.  Both of my kids did, in 7th grade.  When given a simple problem regarding revolving debt at compound interest, eventually they both said, "If you don't stop using the card, you'll get to the point where it will be absolutely impossible to pay it off, ever, no matter how much money you can get!" < light bulb on >

Wed, 01/02/2013 - 11:31 | 3114845 kridkrid
kridkrid's picture

7th graders are smarter than adults. They still have some intellectual curiousity and they don't have the same normalcy bias built in.  Your post below is perfect.  That's what we are... we are consumers... leveraged consumers.  It's a more sophisticated form of serfdom, but it is serfdom.

Wed, 01/02/2013 - 11:45 | 3114890 swmnguy
swmnguy's picture

"7th graders are smarter than adults."  Word.

Or at least, they're less dumber than adults in many ways.

Wed, 01/02/2013 - 11:52 | 3114911 swmnguy
swmnguy's picture

"Serfdom."  Precisely.  That's why I can't call Obama a Socialist, nor a Fascist, nor call anybody a Conservative or a Liberal or any of the terms people like to toss around as if they meant something anymore in this context.

They're all Neo-Feudalists.  Or skip the Neo; they're just Feudalists.  We don't have the whole religious construct so prominently in our minds any more, so the Great Chain of Being isn't the same as it was in, say, 1200 CE.  The basic concept is the same, though.

They had politics in the Middle Ages, too.  Various contenders and pretenders for various thrones.  They all positioned themselves to be very different from each other.  Some of them were nicer to the serfs than others.  But there was no question of a serf sitting in the throne.  When the serfs got feisty, all the nobility forgot their differences until they were done killiing uppity serfs.

We can all watch Democrats and Republicans, and talk about Conservatives and Liberals, and who knows, even Statists or Socialists or whatever.  It can be diverting theatre, though I prefer baseball myself.  I guess if I'm going to be enslaved, I'd prefer a master who is kindly toward me.  But I'm funny; I'd rather not be enslaved.  Go figure.

Wed, 01/02/2013 - 12:00 | 3114937 DaveyJones
DaveyJones's picture

Great chain you guys.

Wed, 01/02/2013 - 12:17 | 3114973 odatruf
odatruf's picture

Much of it is theater, I agree. Because at the end of the day, the audience, in aggregate, has more power than they know or know how to use.  That's why TPTB keep us hooked, happy and divided (contradictions notwithstanding).

@kridkrid: I understand what you are saying in your first reply about the actual dollars not 'existing' for the debt that is presupposed from the outset. As you know, in our fractional system that isn't the problem as it would be in another format. There are plenty of complaints about the way things are that ring true (at least to me), but your point isn't one of them. We can pay both interest and principle and doing so will crowd out other spending, but the outstanding debt will go down. And if you do it long enough, it can go to zero.



Wed, 01/02/2013 - 12:23 | 3114988 kridkrid
kridkrid's picture

"As you know, in our fractional system that isn't the problem as it would be in another format" - Ummmm, what?  Time for you to go on a journey.  Be open minded, like a 7th grader.  Your reward will be some level of understanding.  Or don't.  I don't really care.

Wed, 01/02/2013 - 14:42 | 3115500 odatruf
odatruf's picture

I am open to considering other views. Please point me in a credible direction and I'll give it a look.

My point is that our system does not preclude borrowing and then the repayment of that borrowing. There are consequences and crowding out via the interest above the principle, but that value decision can be rational.



Wed, 01/02/2013 - 11:55 | 3114926 kraschenbern
kraschenbern's picture

...Until such time as title to (most) real assets are in the hands of the banks. 

Fixed it for you.

Wed, 01/02/2013 - 11:50 | 3114908 Panafrican Funk...
Panafrican Funktron Robot's picture

"But I do disagree that the system can't pay both principle and interest."

The GDP is 15.5 trillion.  The debt is 16.4 trillion.  That's a $900 billion dollar gap that's widening daily.  Current spending is at 3.5 trillion.  Current revenue is at 2.4 trillion, for an annual deficit of 1.1 trillion.  So, we would need a combination of spending cuts and revenue increases that would result in 1.1 trillion + 900 billion = 2 trillion dollars.  This year.  Does that sound even remotely possible to you?

Wed, 01/02/2013 - 12:10 | 3114958 odatruf
odatruf's picture

Is it remotely possible? Yes. Is it likely? No. But that it won't happen is not the same thing as saying the system precludes it.

As you may recall, the feds ran an on budget surplus for a few years in the late 1990s. At that point, we paid down some principle by not rolling the full value of expiring bonds into new bonds. Yes that budget surplus was in many ways gimmickry and also fueled by a dot com bubble that was unsustainable. But, the system itself is able to allow the total value of outstanding bonds to down. <-- this is a very simple review of what happened then, but I can expand on it if you'd like.

What makes it impossible isn't the system, but rather those who benefit from it.




Wed, 01/02/2013 - 11:07 | 3114754 nonclaim
nonclaim's picture

Obama is the face of "hope & change" and for all intents and purposes he is the leader of the free (falling) world. So no, not a distraction even if it is an illusion. Debt and interest in its current format (fiat) are also an illusion... but, unlike you, I would not call it a distraction.

But, paradoxically enough, calling it all an illusion is a distraction for all the common people see and feel is the illusion.

Wed, 01/02/2013 - 11:24 | 3114807 swmnguy
swmnguy's picture

Exactly, KK.  Once money is debt and debt is money, and both can be bought and sold like commodities, with leverage, it's all over.  Because it CAN get out of hand, it WILL get out of hand.

As I argued on a thread last night, each human being can earn and spend and invest a certain amount of money.  However, that same individual can be used to create a vastly higher amount of debt.  Since debt is money in our system, the elites would rather the individual be saddled with $750,000 in debt than have a positive or zero-balance net worth, with income around $100,000 (Yes, I'm talking about myself).  I am of nearly no use to the elites in charge of the monetary system, though I am the very picture of what used to be considered modest middle-class success in progress.  To this system, the guy down the street who makes $45,000, but owes $275,000 on his house, $40,000 on a huge SUV, $150,000 in student loans, and carries about $30,000 on credit cards (Yes, I'm describing a guy I know) is vastly more valuable to the system.  Doesn't matter if he ever pays all of that $495,000 either; his creditors got all the money they lent him for essentially free, and they've already sold off all the debt and gotten their money back.  Sure, if he defaults eventually the bond market and shadow markets will collapse, but that's why they're getting $85 billion a month from the FED for MBS's alone.

Our system requires infinite markets, resources, and money.  The first two aren't infinite.  Money can be made to be infinite, as long as it's abstract, and as long as it's balanced by debt so it zeros out.  In that instance, the debt is far more valuable to the system than what we consider to be "money," though the system considers them the same thing.  Consumers and money have the same relationship as sheep do to fleece.  They need it, but it's a lot more valuable to those who do the shearing, and at a certain point, if the fleece isn't enough for them, they'll actually skin the sheep.  Tough luck for the sheep.

Wed, 01/02/2013 - 11:32 | 3114839 RebelDevil
RebelDevil's picture

And then I ask myself, "Where is all of the county's wealth ending up if it's going to pay off this fradulent debt?"
*Cue anti-Rothschild anger*

Wed, 01/02/2013 - 11:35 | 3114856 swmnguy
swmnguy's picture

Well, that's kind of the Achilles' Heel of this whole thing.  Since it's all abstract, it really isn't going anywhere.  it only has value if we think it does.  As soon as we don't think it does, then it doesn't.  Preserving that "misplaced concreteness" is the whole point of dog-and-pony shows like "The Fiscal Cliff" and "The Debt Ceiling" and all the other installments of WrestleMania.   The second people stop believing in it, then it all comes down to brute force.  The Rothschild types are counting on their thugs' believing in it just a little bit longer than everyone else does.

Wed, 01/02/2013 - 14:47 | 3115516 odatruf
odatruf's picture

I don't understand why assert that you are less valuable with $750k in debt being serviced by 100k in income than someone with 495k in debt serviced by 45k in income.  Is it the ratio?  I'd think that the gap in the raw number would make you a more attractive mark. Please explain if you have the time.


Wed, 01/02/2013 - 19:15 | 3116732 IrritableBowels
IrritableBowels's picture

Because he's not an origin for free money generation.  You need to find a bigger rabbit hole.

Wed, 01/02/2013 - 17:04 | 3116147 Johnny Utah
Johnny Utah's picture

You said "$85 billion in MBS a month". It is $40 billion a month in MBS(unsterilized), the other $45 billion is a continuation of op.twist, which will be unsterilized as well but that will go to purchase the long bond, not MBS. Don't get me wrong, the debt situation is untenable and will not be fixed by the politicians. I use to think ZHers were doomers but I have come to realize that we are going the way of Greece no matter what. Only a dictator could save us and who wants that.

Wed, 01/02/2013 - 18:03 | 3116430 odatruf
odatruf's picture

So long as the dictator likes everything I like, what could go wrong?

- says everyman

Wed, 01/02/2013 - 11:35 | 3114854 aerojet
aerojet's picture

A very succint description of what has taken place.  The only thing I would add is that government debt is not the same quality as private debt--it is a poor replacement that will lead to many problems and a much faster unwind because it misallocates resources far worse than private debt.  We should have taken our medicine.  The collapse they are setting us up for could wipe out the human race.  I have no understanding of the timeline of these events, however.  I thought we would already be seeing massive problems, but the masters of the debt have managed to kick that can much, much further than I ever expected.  But you can see the massive cracks forming.  I do know that in the US we'll have plenty of warning, because Europe burns first, no matter what.

Wed, 01/02/2013 - 11:43 | 3114881 swmnguy
swmnguy's picture

Timing is indeed the bitch, isn't it.  I didn't figure any of this stuff out until I refinanced my house in 2003  I just had to know why banks were willing to lend me $135,000 for a house I had bought in 1996 for $49,500.  When I said, no, I only want to lock in a rate and pay off one nagging entanglement, so all I want is $60,000, they laughed at me for being so stupid.  When I closed the deal for $60,000, at a slightly lower interest rate, my monthly payment actually went down, despite having added some 20% to the principal.  I had to spend a whole day with a legal pad, several pencils, a calculator and a jug of iced tea to figure out how that worked.  That process led me to suspect something awful was going on.  Since then I've been reading everything I can get my hands on, and as we all know, something awful is going on.

But I thought  TS would HTF a long time ago.  2007, I thought at first.  I thought 2008 was "The Big One."  I wildly underestimated the reservoirs of wealth to be made abstract and multiplied by leverage and exploited, as well as people's capacity to keep doing what they've been doing for no particular reason.  And the outright mendacity of people who think things are going their way, and the unwillingness of most people to understand the tools and processes on which they depend.  So the road down which to kick the can is a heck of a lot longer than I ever suspected. 

Maybe I just have a much lower tolerance for such things than most people.  Most of my former employers would endorse that notion, which is why I'm self-employed.

Wed, 01/02/2013 - 12:19 | 3114980 odatruf
odatruf's picture

swmnguy - and the biggest outright mendacities are the ones aimed inward.

Wed, 01/02/2013 - 12:43 | 3115020 swmnguy
swmnguy's picture


Wed, 01/02/2013 - 10:50 | 3114698 Seize Mars
Seize Mars's picture

Dr. Sandi

Yes, central banking with a state-controlled fiat currency is a main plank in the "Manifesto."

Here is a site that shows this:

There are many other places on the web to see this.


Thu, 01/03/2013 - 17:27 | 3120059 Dr. Sandi
Dr. Sandi's picture

Unfortunately, banking controls the state. Not quite the same model as Marx.

Wed, 01/02/2013 - 11:03 | 3114750 GOSPLAN HERO
GOSPLAN HERO's picture

It's a very thin line between communism and fascism.

Wed, 01/02/2013 - 11:14 | 3114790 HardAssets
HardAssets's picture

GOSPLAN - someone down arrowed you. Likely because they don't have a clue what 'communism' and 'fascism' are - - or anything about their origins.

But what do you expect from those indoctrinated in commie fascist public 'schools' ?

Wed, 01/02/2013 - 11:21 | 3114814 Shizzmoney
Shizzmoney's picture

But what do you expect from those indoctrinated in commie fascist public 'schools' ?

Totally different like the Catholic Private School I went to, that espoused about some "Jesus" guy who preached about "forgiveness", "sharing", "sacrifice", and a guy who only got angry when the Pharisees and the Money Changers practiced "usury" in the Temple?

The schools aren't the problem.  The government, and its corporate backers who fund them, ARE.

Wed, 01/02/2013 - 11:35 | 3114855 HardAssets
HardAssets's picture

Another public school 'teacher' ?

First of all you use the logical fallacy of a Straw Man argument - what is taught in Catholic schools about Jesus has little to do what went on in the public 'schools' over the last 100 years.

Do a little research. Start with NY state and NYC Teacher of the Year John Taylor Gatto. Also research Charlotte Iserbyt who was a high level official in the US Dept of Education. You'll find the origins and purposes of the 'education' system.

Wed, 01/02/2013 - 10:06 | 3114570 Dr. No
Dr. No's picture

They will only downgrade if the carrot is big enough.  They are all part of the crew on the Titanic.  The iceberg has been hit.  Nothing will stop the water, but need to keep the passengers calm as long as they can.  Not because it will help, but uniformed passengers are easier to deal with than ones who know the ship is going down.

Wed, 01/02/2013 - 10:11 | 3114591 Dr Benway
Dr Benway's picture

I often think about that angle too. And about this hypothetical scenario:

If the gov discovered a meteorite hurtling toward earth that would guaranteed kill everyone a year from now, with no chance of stopping it, would they tell the people or would they try to keep it quiet?

Wed, 01/02/2013 - 10:20 | 3114625 Dr. No
Dr. No's picture

A meteor is would be doom for everyone, but he default of the fedov will be liberating for most.  The feds dont want us to know they have no clothes since they are the ones who stand to loose the biggest.

Wed, 01/02/2013 - 10:17 | 3114610 pods
pods's picture

Calm as Hindu cows.


Wed, 01/02/2013 - 10:18 | 3114613 HardAssets
HardAssets's picture

Does anybody pay attention to the 'ratings agencies' ?

 Just another branch of the American Pravda.


Wed, 01/02/2013 - 11:04 | 3114756 odatruf
odatruf's picture

Exactly.  Remind me again of the negative borrowing consequences of the last downgrade?

As if there were a real market pricing this stuff in. Ha ha ha.



Wed, 01/02/2013 - 14:43 | 3115501 Panafrican Funk...
Panafrican Funktron Robot's picture

Solid point, we pay for it dearly via dollar devaluation, but that shit is behind the curtain.  Headline rates and short term glee are all "leadership" gives a fuck about anymore.  

Wed, 01/02/2013 - 12:07 | 3114948 Landotfree
Landotfree's picture

To me it's not a credit rating issue, it's credit worthiness issue.   The structure that is in place, the US has no problem supplying the interest needed plus principle where required.... well, at least until whole system collapses.

Wed, 01/02/2013 - 09:57 | 3114552 Boilermaker
Boilermaker's picture



Wed, 01/02/2013 - 09:59 | 3114558 GetZeeGold
GetZeeGold's picture



Is something wrong with the printer?

Wed, 01/02/2013 - 10:04 | 3114563 Boilermaker
Boilermaker's picture

This time, they will really really really let it collapse.  They'll stop propping it up!  I mean it this time.  For real!


Wed, 01/02/2013 - 10:22 | 3114599 kridkrid
kridkrid's picture

They won't ever let it collapse, but it will collapse.  Hard to say what that will look like, when it will be, or what comes after that... but the global monetary system is in a state of suspended animation.

Wed, 01/02/2013 - 10:45 | 3114680 RockyRacoon
RockyRacoon's picture

Juggling to keep the big guys solvent was hidden in the legislation.  They're like roaches... they'll survive any apocalypse and more than just one in the woodwork:

Eight Corporate Subsidies in the Fiscal Cliff Bill, From Goldman Sachs to Disney to NASCAR

Matt Stoller

1) Help out NASCAR - Sec 312 extends the “seven year recovery period for motorsports entertainment complex property”, which is to say it allows anyone who builds a racetrack and associated facilities to get tax breaks on it. This one was projected to cost $43 million over two years.

2) A hundred million or so for Railroads - Sec. 306 provides tax credits to certain railroads for maintaining their tracks. It’s unclear why private businesses should be compensated for their costs of doing business. This is worth roughly $165 million a year.

3) Disney’s Gotta Eat - Sec. 317 is “Extension of special expensing rules for certain film and television productions”. It’s a relatively straightforward subsidy to Hollywood studios, and according to the Joint Tax Committee, was projected to cost $150m for 2010 and 2011.

4) Help a brother mining company out – Sec. 307 and Sec. 316 offer tax incentives for miners to buy safety equipment and train their employees on mine safety. Taxpayers shouldn’t have to bribe mining companies to not kill their workers.

5) Subsidies for Goldman Sachs Headquarters – Sec. 328 extends “tax exempt financing for  York Liberty Zone,” which was a program to provide post-9/11 recovery funds. Rather than going to small businesses affected, however, this was, according to Bloomberg, “little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp.” Michael Bloomberg himself actually thought the program was excessive, so that’s saying something. According to David Cay Johnston’s The Fine Print, Goldman got $1.6 billion in tax free financing for its new massive headquarters through Liberty Bonds.

6) $9B Off-shore financing loophole for banks – Sec. 322 is an “Extension of the Active Financing Exception to Subpart F.” Very few tax loopholes have a trade association, but this one does. This strangely worded provision basically allows American corporations such as banks and manufactures to engage in certain lending practices and not pay taxes on income earned from it. According to this Washington Post piece, supporters of the bill include GE, Caterpillar, and JP Morgan. Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the “Active Financing Working Group.” 

7) Tax credits for foreign subsidiaries –  Sec. 323 is an extension of the “Look-through treatment of payments between related CFCs under foreign personal holding company income rules.” This gibberish sounding provision cost $1.5 billion from 2010 and 2011, and the US Chamber loves it. It’s a provision that allows US multinationals to not pay taxes on income earned by companies they own abroad.

8) Bonus Depreciation, R&D Tax Credit – These are well-known corporate boondoggles. The research tax credit was projected to cost $8B for 2010 and 2011, and the depreciation provisions were projected to cost about $110B for those two years, with some of that made up in later years.

Conveniently the Joint Committee on Taxation in 2010 did an analysis of what many of these extenders cost. You can find that report here.

Wed, 01/02/2013 - 11:42 | 3114878 WhiteNight123129
WhiteNight123129's picture

Yup, HPQ is the supplier and there are accounting issues there.


Wed, 01/02/2013 - 10:04 | 3114566 johnnymustardseed
johnnymustardseed's picture

When the FED funds rate is at zero percent, it does not matter. Downgrade away

Wed, 01/02/2013 - 10:16 | 3114606 yogibear
yogibear's picture

Nah, MOO-dy's won't downgrade. Their afraid to. 

Wed, 01/02/2013 - 10:18 | 3114616 j0nx
j0nx's picture


Wed, 01/02/2013 - 09:57 | 3114553 Water Is Wet
Water Is Wet's picture

Woohoo!  S&P up 60 points in about 1 day of trading!

Wed, 01/02/2013 - 10:05 | 3114571 Boilermaker
Boilermaker's picture

Could be 600 or 6,000.  They only have to do it.

Wed, 01/02/2013 - 09:59 | 3114557 SheepDog-One
SheepDog-One's picture

U.S. downgrade? SO then that means the DOW will go over 14,000 shortly?

Wed, 01/02/2013 - 10:01 | 3114561 SoundMoney45
SoundMoney45's picture

I thought the "fiscal cliff" script was solid, and the parts generally well played.  Finishing in the midst of new year's eve festivities was a nice touch.  

It will be interesting to see what is in the script for "debt ceiling 2013", as I am sure it will be equally well written and played.  Perhaps the script is out for final comments now.

Wed, 01/02/2013 - 10:13 | 3114597 kliguy38
kliguy38's picture

precisely.....very well crafted for the sheep and effective in the sense that an illusion of "governance" was involved....and yes now the game is to extend into the next distraction for the proles while the final arrangements are made before the end game are very perceptive

Wed, 01/02/2013 - 10:21 | 3114626 kridkrid
kridkrid's picture - When Money Dies... a great book from which you can read the script ahead of time.  It's "crisis" after "crisis"... each one "solved", only to face another version of the same a month or two later.  This is the playbook everywhere.

Wed, 01/02/2013 - 10:56 | 3114720 BullsNBeers
BullsNBeers's picture

I for one found it to be great theater! I laughed, I cried, hell... I was a kid again!



Wed, 01/02/2013 - 11:07 | 3114763 odatruf
odatruf's picture

It was better than Cats!  I'd see it again and again.


Wed, 01/02/2013 - 11:27 | 3114833 swmnguy
swmnguy's picture

I turned it off before they all got together and sang "Auld Lang Syne," but yes, it was a lot better than most of the stuff on TV.  Addin Zooey Deschanel would be nice though.  She's cute, in that quirky way.

Wed, 01/02/2013 - 10:04 | 3114564 Zer0head
Zer0head's picture

Obama just issued a warning to Congress

"there will be no debate on the debt ceiling Congress has to pay the bills that they have racked up"

Boner was seen in the House Shower picking up a bar of soap

Wed, 01/02/2013 - 10:10 | 3114583 azzhatter
azzhatter's picture

was harry reid standing behind him?

Wed, 01/02/2013 - 10:18 | 3114612 Osmium
Osmium's picture

I think it was Bawney Frank

Wed, 01/02/2013 - 10:20 | 3114621 tuttisaluti
tuttisaluti's picture

he got boned??

Wed, 01/02/2013 - 10:04 | 3114567 digalert
digalert's picture

If only Wile E Coyote knew. The cliff can be moved.

Wed, 01/02/2013 - 10:12 | 3114594 BurningFuld
BurningFuld's picture

Nah, they just keep lowering the ground which will mean a higher velocity impact.

Wed, 01/02/2013 - 10:24 | 3114632 j0nx
j0nx's picture

Actually at this point it wouldn't matter since terminal velocity is reached after about 15 seconds of freefall. They can lower the ground all they want but the velocity at impact would still be the same as would the damage. Maybe that's their goal after all.

Wed, 01/02/2013 - 11:09 | 3114774 odatruf
odatruf's picture

If you are going to splat at ~ 125 MPH, you might as well get a long ride (lots of iShit and Obamaphones) as a short one.


Wed, 01/02/2013 - 10:05 | 3114572 Disenchanted
Disenchanted's picture


The Cliff Is Not a Credit-Rating Crisis

S&P put out a Dec. 28 bulletin, “Congressional Impasse On Fiscal Cliff Does Not Affect U.S. Sovereign Rating.”


Wed, 01/02/2013 - 10:05 | 3114574 lolmao500
lolmao500's picture

Get real, those rating agencies are bought and paid for.

Wed, 01/02/2013 - 10:16 | 3114609 yogibear
yogibear's picture

Yep, keep the party going until the booze stops flowing.

Wed, 01/02/2013 - 11:37 | 3114866 RebelDevil
RebelDevil's picture

haha that's probably the motto of the 1%!

Wed, 01/02/2013 - 22:10 | 3117297 HardAssets
HardAssets's picture

1% is too broad. If youre not an insider connected billionaire with your assets nicely sheltered in trusts and offshore - - - you ain't in the 1/100 of 1%. If you can't do all sorts of crooked shit including fraud, embezzlement, and laundering drug money without fear of reprisal - you ain't in the club either.

Wed, 01/02/2013 - 10:07 | 3114575 docj
docj's picture

Pfft - if these bankster bootlickers had any credibility they would have already downgraded the US to junk status, but this should have been the final nail in the coffin. Let's face it, if this farce has demonstrated anything in perfect clarity it's that CONgress will literally move Heaven-and-Earth if necessary to avoid ever cutting spending. Period. So, to wit, spending will never, ever voluntarily get cut and it's mathematically impossible to close the roughly $1.6T current account deficit with taxes alone.

The US is, ipso facto, insolvent. A zombie. It's just that Doc McCoy hasn't yet shown up to declare "It's dead, Jim!"

Wed, 01/02/2013 - 11:46 | 3114892 chubbar
chubbar's picture

Fed spending equals GDP. They cut fed spending and what few points they currently have to hang their hat on showing positive GDP goes away like a fart in a windstorm.

Wed, 01/02/2013 - 10:10 | 3114576 Peter Pan
Peter Pan's picture

With such exuberance on the stock markets one might think that a herd of flying pigs was spotted somewhere in the vicinity of Wall Sreeet. Come to think of it, perhaps a flying pig should take the place of the bull on Wall Street.

Wed, 01/02/2013 - 10:53 | 3114710 tango
tango's picture

Anyone with an atom of sense can see the consequences of our financial folly.  The securities game is simply one of timing.  You are fully invested until the bitter end when you choose the exact moment to exit, take your profits and retire to Tahiti or Montana or New Zealand (one of the few nations that can easily feed its citizenry). I don't understand those who refuse to participate in a bull mark out of ideology.  Make some money, take a profit and enjoy the small percent left after taxes and inflation.

Wed, 01/02/2013 - 22:12 | 3117315 HardAssets
HardAssets's picture

Maybe the bull and bear should be replaced with the bronze likeness of the excrement from those animals instead.

Wed, 01/02/2013 - 10:07 | 3114577 Dr Benway
Dr Benway's picture

But haven't the rating agencies already proved they are morons? And isn't the current Aaa rating already a joke? And aren't 'markets' already completely disengaged from both reality and ratings?

Wed, 01/02/2013 - 10:07 | 3114578 zoggl
zoggl's picture

yeah right, downgrade the US! Will never happen. Already forgott what happend last time?

Wed, 01/02/2013 - 10:08 | 3114579 azzhatter
azzhatter's picture

All according to plan for Barry Hussein. Lube up folks that was just the tip you felt

Wed, 01/02/2013 - 10:10 | 3114585 Boilermaker
Boilermaker's picture

Right, because the Republicans really displayed a great deal of 'courage and conviction' last night.

By the way, Congress makes the laws and holds the purse.

Wed, 01/02/2013 - 10:51 | 3114703 odatruf
odatruf's picture

While I agree, Boilermaker, what would you have them do?  Clearly the American people love the can kicking and irresponciblity, and who are the elected representative to deny them their iShit?


Wed, 01/02/2013 - 10:11 | 3114588 pragmatic hobo
pragmatic hobo's picture

... what is up with UNG?

Wed, 01/02/2013 - 10:11 | 3114589 JPM Hater001
JPM Hater001's picture

I dont see how this doesnt deserve an upgrade frankly.  Look at the stability to the


I cant do it...Where's MDB?

Wed, 01/02/2013 - 10:11 | 3114590 hero HNL
Wed, 01/02/2013 - 10:13 | 3114592 busted by the b...
busted by the bailout's picture

Another debt downgrade will mean about as much as the first one -- nada.  How can it matter when Ben is buying most of the new debt and every other country is just as bad or even worse than us?

Wed, 01/02/2013 - 10:13 | 3114596 San Diego Gold Bug
San Diego Gold Bug's picture

A Perfect storm for Gold and Silver !

Wed, 01/02/2013 - 12:49 | 3115039 HungryPorkChop
HungryPorkChop's picture

I would agree except the large banks have cornered the silver market using blind naked shorts.  They routinely dump 6 months and 1 years supply worth of paper silver on the market in 15 minutes to hold down the price.  So until this stops I don't expect the metals to do much except run up a little bit then get battered right back down.

Wed, 01/02/2013 - 10:15 | 3114602 jjsilver
jjsilver's picture

Globalists of the Bilderberg Group have called an emergency meeting in the city of Rome

Wed, 01/02/2013 - 10:39 | 3114664 optimator
optimator's picture

Invading armies taking over countries in a Blitzkreig is soooo passe.  These days countries are taken over very slowly, no armies required and the population doesn't even know it when they are finally taken over. 

Wed, 01/02/2013 - 12:03 | 3114608 CaptianSpaulding
CaptianSpaulding's picture

 The new and improved countdown clock complete with ads and egg timer should be up and running on marketwatch in 4,3,2,1...

Wed, 01/02/2013 - 10:18 | 3114615 j0nx
j0nx's picture

FBI already on standby to raid the offices of any agency that downgrades the US. Bank on it. And they know it.

Wed, 01/02/2013 - 10:19 | 3114617 Tsar Pointless
Tsar Pointless's picture

A US debt downgrade.

Yep. And Amerikkkans are suddenly going to stop watching "Finding Bigfoot" and pick up a book on economic or political theories.

Here - pull my finger.

Wed, 01/02/2013 - 10:25 | 3114638 kridkrid
kridkrid's picture

I always fall for "pull my finger".  GAAWWD!

Wed, 01/02/2013 - 10:19 | 3114618 yogibear
yogibear's picture

Next goal for the Democrats and Obama.

Remove the debt limit and spend unlike any time in history.


Wed, 01/02/2013 - 10:21 | 3114622 ptoemmes
ptoemmes's picture

Hey, that sounds like a good last gasp personal plan, too.

Wed, 01/02/2013 - 10:20 | 3114620 ptoemmes
ptoemmes's picture

Moodys - really?  I'll be wondering what Egan-Jones was thinking though their rating may not have the cachet of the big three cronies.

Wed, 01/02/2013 - 10:20 | 3114624 yogibear
yogibear's picture

Sorry, no downgrade coming.

Unlimited debt and spending is the next agenda.

Wed, 01/02/2013 - 10:26 | 3114639 XtraBullish
XtraBullish's picture

More seared flesh from the shorts this morning~ oh how I love the pungent aroma of barbecued short sellers !

Remember - Zimbabwe performed magnificently as well!


The greatest short in history is U.S. currency - i.e. CASH. Short CASH.

Wed, 01/02/2013 - 10:28 | 3114645 yogibear
yogibear's picture

"Remember - Zimbabwe performed magnificently as well!"


That's correct. We have a Zimbabwe economic policy going forward!

Wed, 01/02/2013 - 10:33 | 3114653 Michelle
Michelle's picture

The markets signaled a downgrade about 2 weeks before it happened in 2011. So far the markets aren't reflecting this type of event, yet. Will we get a large sell-off again in February and knowing that this possiblity exists what mechanisms will be in place to mitigate its effects? The false drama of the fiscal cliff led to shorts getting squeezed this time in anticipation of an August 2011 repeat. Fortunately I anticipated correctly as I just couldn't see another repeat. Sometimes excessive pessimism is costly.


Wed, 01/02/2013 - 10:35 | 3114658 Lucius Corneliu...
Lucius Cornelius Sulla's picture

Risk on!

Wed, 01/02/2013 - 10:41 | 3114669 yogibear
yogibear's picture

US dollar debasement keeps on going (Fed already said they will do it indefinitely), effort to remove the debt ceiling and more spending increases.

The democrats will oust more GOP members next election in the house.

The Free Stuff army wins and the debt just keeps on going up.

Higher and higher debt, more and more Federal Reserve printing is in the future until a currency crisis.

How many times do people need to see this every year for it to become obvious?

Wed, 01/02/2013 - 10:57 | 3114724 jomama
jomama's picture

the manipulation and coercion is flagrantly obvious to anyone half paying attention.   the give-a-shit factor, however, is at an all time low.  the illusion of maintaining the status quo is all americans in general care about.

Wed, 01/02/2013 - 10:45 | 3114682 optimator
optimator's picture

Does anyone know what the very end game is exactly?  I think "They" are slowly doing to us what they wanted the Morgenthau Plan to do to Germany in 1945.  Turn the country into a strictly agricultural society with no industry,  and barely able to feed itself. 

Wed, 01/02/2013 - 11:10 | 3114776 NEOSERF
NEOSERF's picture

Wait they will, ratings agencies are great procrastinators...

Wed, 01/02/2013 - 11:12 | 3114782 hawk nation
hawk nation's picture

The good thing is now it will be easier for me to explain to my family members that there is no difference between the two parties

Spend spend spend and if there is a downgrade from a rating agency expect executions of the rating agency management.

Are there no americans left with integrity and a moral compass to do the right ting no matter the consequences?

Wed, 01/02/2013 - 11:17 | 3114798 WhiteNight123129
WhiteNight123129's picture

Why do you care about the downgrade. It is obvious to anyone with a bit of common sense that US Government bonds are junk securities supported by a monetary paradigm that can not last.

Wed, 01/02/2013 - 11:24 | 3114820 Grand Supercycle
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.

Wed, 01/02/2013 - 11:45 | 3114891 hawk nation
hawk nation's picture

I agree one the eventual crash but not so much on the charts since the markets are so manipulated how can you surmise any direction from the resulting charts

Wed, 01/02/2013 - 12:18 | 3114979 q99x2
q99x2's picture

Nah the agencies got the banks to cough up more money. They are about to upgrade all of Europe now that the EU has entered recession.

Wed, 01/02/2013 - 15:42 | 3115763 Redhotfill
Redhotfill's picture

When will they re-introduce the large denomination bills?  I'm looking forward to the $500, 1,000, 5,000 and 10,000 bills hitting the strets again.  Seriously with all the extra costs for luggage on planes and now some airlines charging for a carry on we need those large bills to save on transortation costs when traveling abroad to bribe foriegn dignitaries et al.

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