The Fiscal Cliff cat and mouse game is entering its last two weeks of calendar 2012, with Congress now officially closed for the year. And while we would have expected major updates in the Cliff timeline to only hit during trading hours, usually just as AAPL once again threatens to trade with a 4-handle, Reuters reports that out of the blue Boehner, who last we checked is back in Ohio, has made a radical departure with the Norquist pledge status quo, and has offered to raise tax rates on high earners to break the "fiscal cliff" deadlock in exchange for major cuts in entitlement programs, "but President Barack Obama is not ready to accept, a source said late Saturday."
Which brings us back to political square zero, because at the end of the day none of this is about a fiscally sustainable America, and certainly won't be until one day the shadow banking mechanism, whereby PDs can extract par cash from custodians for TSYs just issued and purchased and immediately re-pledged, and use said cash to recycle TSYs as effectively infinite collateral, and where more issuance means more demand (which creates a Giffen good perpetual engine which of course works, until suddenly out of the blue, for whatever reason sentiment shifts rapidly and violently, and it no longer does), fails and yields spiral out of control.
In the meantime, both political parties will trundle along pretending a tax hike which covers about a month (max) of government spending is even remotely relevant.
More from Reuters:
While the White House considers Boehner's offer "progress," the source said more remained to be worked out between the two.
Tax rates are a major sticking point in negotiations to avert steep automatic tax hikes and budget cuts set for the end of the year if a deal isn't reached. Republicans have resisted Obama's demand to extend lower tax rates for everyone except top earners, preferring to extend them for all taxpayers.
The Boehner offer was the first departure from the position the House speaker has held for months.
The question now is whether the GOP can now spin the president's negative response to the proposed "compromise" - and it will certainly try - to portray Obama, instead of themselves, as the entity that wants to push the US over the cliff in exchange for political brownie points. Because now Boehner will have all the leverage to tell any splinter GOP group in either the Congress or the Senate, that he made a good will offer, and it was the president who refused.
As for the actual cliff, we repeat what we said back on November 13: "once again, it will be up to the market, just like last August, just like October of 2008, to implode and to shock Congress into awakening and coming up with a compromise of sorts. Only this time, now that Bernanke has shown he will "get to work" at a moment's notice, the impetus to do anything as a result of even a market plunge will be far less. After all why lose face, and put your career in jeopardy when there is the Fed which, supposedly, can offset a market crash, courtesy of the shining example set by Chuck Schumer."
Nothing has changed since then.