With Five Months To Go, Here Is "Cliff" Versus Consensus

Tyler Durden's picture

America is now exactly 5 months away from the day the US Fiscal cliff will crater the economy unless a Congress which has never been as partisan as it is currently agrees to collaborate and delay the day of reckoning. This is very unlikely to happen before the presidential elections for obvious reasons, and it is even more unlikely to happen after the elections when politicians demonstrate just why the term "graceful loser" has never existed when describing what happens in D.C. So what would happen to the US economy if and when January 1, 2013 rolls in and nothing has changed, and how does this differ from the consensus? The chart below from BofA answers that particular question, and brings up a new one: even if the Fed goes ahead with more NEW QE today or in September, if the "cliff" consensus really is as wrong as it very well may be, will the Fed have no choice but to follow up its easing at this FOMC meeting or the next with another one immediately following? And is this precisely the one consideration for Ben Bernanke, who realizes very well that if financial conditions, read the Russell 2000, are relaxed just in time for the crucial decision on Bush Tax Cut extension, then absolutely nothing will happen, forcing the Fed to continue being the sole source of "stimulus" in America. Of course, in that case expect nothing from the Fed not only in in August and September, but well into 2013.

Consensus versus cliff: With the economy weakening even faster than our baseline forecast, it is worth considering downside risk scenarios. In our latest US economic weekly we consider a “severe cliff scenario” where the combined uncertainty shock and austerity shock lowers growth to zero by the fourth quarter. This would be well below the consensus that assumes gradual  recovery in growth. The nearby chart shows our “severe cliff scenario” versus current consensus estimates.

A canyon sized gap: As we have argued before, the cliff impacts some parts of the economy more than others. The uncertainty shock has the biggest impact on hard-to-reverse big ticket spending items. We also believe the corporate sector is both quicker  to recognize and more likely to respond aggressively to the cliff than the household sector. Hence we would expect the shock to  show up first in capital spending and hiring and later in household purchases of homes and autos. The nearby table compares  the severe cliff scenario to the consensus for some key economic indicators in the second half of this year. Note the big  difference for business investment and light vehicle sales.

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francis_sawyer's picture

Where's Evel Knievel when you need him?

BandGap's picture

You mean Robby Knievel. Evel has jumped the Grat Canyon in the Sky.

No matter who puts forth a theory as to when the system craps out, the all have it crapping out.

GetZeeGold's picture



With Five Months To Go


That's like in eternity in doggy years.....no clue what that comes out to in trader years.


Robby Knievel is hanging in midair.......huh.....I don't think he's coming down. How do you do something like that?


lindaamick's picture

Bipartisan agreements will be made that further punish the 99% and enrich the 1% before year end.

No need to worry about that.

Taxes on the rich can NOT go up.  Defense spending can NOT go down.

Coldfire's picture

Tax rates will go up, but collections will go down. Human action. Where will the money go? Wherever it wants to. Timmay's FA(scis)TCA is dead in the water, it just hasn't been beached yet. Every dollar that evades the thieving paws of the government is good for the real economy. Fiscal cliff? Bring it.

mayhem_korner's picture



The cliff forecast looks to have a miracle turnaround in Q2/Q3 2013.  Yeah, that seems likely.  /s

scatterbrains's picture

So forced austerity and each side gets to blame the other then? Sounds like a plan.


apberusdisvet's picture

QEn would negatively impact the meme of the Obama Administration that we are in "recovery".  That alone might forestall any FED action; but who knows?  Hard to predict criminal psychopaths.

Againstthelie's picture

Why should the tax cut ending for the super rich have an impact on the broad economy?

Isn't it possible that the talk about the fiscal cliff is more inspired by the media owners and many politicians, who definately would be severely affected?

azzhatter's picture

I think it's a fair point. If you only raised tax rates 4% on people making over $1mm per year, it would probably have minimal impact. The spending cuts we need will leave the skidmarks

fattail's picture

Obama's tax increase only raises about 50 billion, which will float our deficit for less than a week.  austerity... get used to it.

Sigep0612's picture

US Drought will cause inflation before 1/1/13.  FDIC has not made a decison to extend bank deposit insurance of $250K beyond 12/31/12.   Greece is out of money again.  Israel claims they have not made a decision to attack Iran?  In about a month the US debt will hit $16Trillion.  2013 Annual defict is projected at $1.4T.  News reports indicate an acceleration of layoffs and downsizing.  The CBO now claims that th cost of Obamacare will be $1.6Trillion over 10 years rather than the previous $900Billion.  And we're worried about JUST tax increases?  Maybe we should pay more attention to the Mayans.  They knew about this scenario 5000 years ago...we just didn't plan properly.    Chuckle...Chuckle...Snort...Snort.    

azzhatter's picture

Congress is in session 6 days between now and election. They are off for August and come come back for a week in Sept than adjourn for campaigning until Nov

ExpendableOne's picture

They will do a budget that will fix all this right?  I mean, 6 days is plenty of time to produce a budget...

knightowl77's picture

Beohner and Reid have already agreed to yet another CR for 6 months, to avoid a shutdown. Both of which hope that this will all be decided by the election in November...

Because neither side has the balls to cut friggen spending and reform our f*&^d up tax code.........Sooooooooooooooooooooooooooooooooooooooooo the great unknown continues because our morons in DC cannot make a decision

odatruf's picture

Being there only for 6 days is a good thing. But I have confidence in them; it's more than enought time to screw the pooch.  USA! USA!

Hype Alert's picture

The FED just extended operation Twist.  Wasn't that like a month ago?  What would it broadcast if they immediately followed up a failed Twist announcement with New QE announcement?

blueRidgeBoy's picture

the hyperbole isn't necessary.  Congress is very partisan, but it's not more partisan than it's ever been.  If only they were partisan for the right reasons...

kridkrid's picture

I would suggest that congress isn't partisan at all, merely good little actors, even if most of them don't even realize it. Listen to the average congressman speak; is he or she any smarter than the average contestant on Big Brother or whatever "reality" tv show is on the air? Theater, it's all we have left of our government.

Peter Pan's picture

Let's hope that the nation which has lost control of its economy manages to keep better control over its nuclear weapons. America cannot forever rely on its laurels of yesteryear nor can it continue to squander the prouder aspects of its heritage.

There will come a time and point where the USA will fall behind to such a degree that it just will not be able to recover. Time is running out and Americans together with their leaders need to be conscious that the trap door has been sprung and that the noose is around their collective head.

LawsofPhysics's picture

Totally fucking stupid.  Politicians may arrive at a consensus to "forbid hurricanes and drought for the next 50 years".  Implementing such a "consensus" is another thing all together.

Stupid fucking sheep.

earnulf's picture

Because no one wants "their" piece of the pie to be cut, we will wallow along like pigs in slop, happy right up until the farmer (economy) shoot us between the eyes.

Really want to put things back on track, stop all this BS about Obamacare/TaxCuts/Defensecuts/Repeal/Appeal etc and just KISS.

2013, 5 percent increase in taxes across the board, 5 percent cut in spending across the board.   no sacred cows, no special interests or earmarks, everyone takes a hit.   Sorry Mom, Sorry Vet, Sorry unemployed, Sorry government support program.

Each year thereafter, repeat until the numbers move into the black.    Sure there will be consequences, but "We're at WAR here people!"    We are fighting for the survival of the 99% without which the 1% starve to death waiting on their supper to be made by people who no longer are content to be servants!