( Dems think they have the upperhand and will punish GOP to accept a deal.....question is will GOP bow down. )
Barack Obama's Opening Offer
Later this week, Obama will have his first face-to-face negotiations over the Fiscal Cliff.
In a post that came out this afternoon, The Washington Post's Zachary Goldfarb nicely summarized Obama's opening offer:
Obama’s previous proposal called for raising $1.6 trillion in new taxes on the wealthy by allowing tax rates to increase, imposing a new special tax on millionaires and limiting deductions for the wealthy. He also proposed $340 billion in health-care and entitlement savings, continuing $1.1 trillion in spending cuts already passed into law and generating another $1 trillion in savings through the end of the wars in Iraq and Afghanistan.
The demand for $1.6 trillion in new taxes is far greater than Obama proposed in negotiations with House Speaker John Boehner (R-Ohio) in summer 2011. At the time, Obama wavered between $800 billion and $1.2 trillion in new tax revenue, depending on how much in entitlement cuts Republicans were demanding.
That story came out at 2:37 PM ET, and it's interesting that it was in the several minutes after the release that the market sagged through the rest of the day.
Tonight Obama met with liberal groups to discuss the cliff, and in some followup tweets, Goldfarb notes a sliver of opportunity... he didn't tell the groups anything about protecting Social Security and Medicare at all costs.
It's clear that higher taxes on the rich is the one area where Obama can't budge (politically). His side will eat him alive.
If that can be accomplished creatively (through the Mitt idea of doing it via tax deduction eliminations) and Obama and Boehner can agree on a number, that is one possible path towards a deal.
A few other Fiscal Cliff notes...
- The negotiations haven't even begun, and already The Right is getting angry with Boehner for selling them out.
- More and more Democrats favor going over the Fiscal Cliff before bargaining.
- But Neil Irwin at Wonkblog argues that even a short period over the Fiscal Cliff (into January without a deal) could put the US into a badly damaging recession.
( Dems think they have the upperhand and will punish GOP to accept a deal.....question is will GOP bow down. )
Ron Paul: "0% Chance Of 'Grand Bargain' Over Fiscal Cliff"
Submitted by Tyler Durden on 11/13/2012 19:12 -0500
Shining a little reality light on the otherwise pollyanna-like dearth of pragmatism that is the mainstream media's guest-list, Ron Paul provided Bloomberg TV's Trish Regan a little more than we suspect she bargained for when asked if he had any hope that we avoid the fiscal cliff. The constant "delaying-of-the-inevitable" enables our politicians to avoid facing up to the serious consequences of our reality and as Representative Paul notes the chances of a grand bargain are "probably zero... that's why I think we're over the cliff [already]." Just like the handling of the debt ceiling debacle, Paul notes they will "pretend they are going to do it" until we get a total crash of the dollar and the entire financial system (which he notes is what will occur if we continue the status quo). "We are at a point of no return"unless certain things change, since "we are not the productive nation we used to be."
Paul on the fiscal cliff and whether politicians are under more pressure to just do what they need to do to get votes:
"Well I think that's true and I think it's been that way for a long time but the big difference is the Treasury is bare. It isn't like we're in the 1950s and 1960s where economic growth could work our way out of these problems that you could print money forever. Printing the money right now, what does it do, it fills the banks with excessive reserves and they get paid to park it at the Federal Reserve. So it's quite different. We're not the productive nation we used to be…we have a lot of jobs gone overseas. Our dollar is weakening because prices do go up and as long as we do that, the politicians are going to keep pushing that and trying to get away with that but the big question is how long will politicians will be able to get away with that."
On the probability that a grand bargain will be reached on the fiscal cliff:"Probably zero… that's why I think we're over the cliff. We're past bargaining states because they will not address those things I just stated. They're going to try to pretend that they are going to do it. The way they handled the debt increase, last summer, that is a pretty good example. And matter of fact the debt increase might be the big event come February that might be big because they can roll things over…they can postpone big decisions in January and yet that still does not remove the uncertainty. Uncertainty is a major cause of the inability for the market to get moving again and they have to revamp it in a much more detailed fashion than they are even talking about right now."
On whether Obama will be able to bring Congress together for some kind of reform before the end of the year:"Oh no, I think there will be something, but it will be very temporary, it won't be long lasting and restore confidence and fix the problem. But there will be some type of reconciliation of saying we'll do this and a little of that and it may even help the financial markets for a little while, but since it won't solve the problems it will only be temporary. "
On The Game-Theoretic Market Crash 'Solution' To The Fiscal Cliff
Submitted by Tyler Durden on 11/13/2012 08:59 -0500
Via Michael Naso of FBN Securities,
I expect a return to a skittish environmentas soon as today especially in light of the selloff overnight. Thus, traders should disregard Monday’s tape and focus on how upcoming events and the looming fiscal cliff will drive the price action. I am confident in my prediction for the course of the economy by leveraging simple game theory in handling the upcoming crisis as Congress returns for its lame duck session. Consider the following payoff matrix:
“Compromise” reflects a decision from either side that each find unpalatable. For example, this would include Republicans’ agreeing to a tax hike on portions of the population or the Democrats’ extending current marginal rates. The numbers inside each of the quadrants indicate the level of utility, or satisfaction for the corresponding state. For instance, if the government assigns a higher levy on those with over $250K in per annum income, then the Democrats would enjoy 10 units of utility while the Republicans, disappointed they could have negotiated a better deal, would lose 10 units.
Curiously, I injected a bit of algebra into the analysis by representing the scenario of going over the cliff as a two dimensional function using time and the dislocation of the capital markets, most notably equities, as inputs. This loosely approximates the “theta” in the risk premium that I previously have alluded to when describing the potential shock. Modeling the actual results using these two factors is more art than science; however, I will assume that the closer we get to the deadline and the further stocks decline, the more painful the choice of not compromising becomes.
For example, with seven weeks left until the sequester along with the S&P 500 trading only 7% below its multiyear highs, both President Obama and Speaker Boehner would rather shove two sticks in their eyes than move from their hardened stance despite some of the recent rhetoric in favor of bargaining in good faith. As long as the loss of utility from both sides’ digging in their heels is more favorable than conceding to the preferences from those across the aisle***, then the game arrives at a Prisoner’s Dilemma. In short and holding America hostage notwithstanding, the two parties would rather drag this fight out to the very end assuming the market does not collapse in the meantime.
More poignantly, the above matrix concludes that the fiscal cliff virtually guarantees an aggressive selloff for equities until the stop loss for the Democrats and Republicans has been triggered. For example, if the clock hits midnight on New Year’s Eve with the blue chip index at or near its September peak, each faction would feel comfortable standing up to the other well into January. On the other hand, both corporate CEOs and Main Street would scream for compromise in response to stocks in freefall. At such time, the game gets more complicated albeit President Obama would have a scintilla of an advantage given his majority in the Senate and the reelection challenge every two years for those in the House.
This extreme likelihood of future investor suffering does not preclude an intermediate term modest snapback rally, for managers may have the perception that Washington has ample time to address the crisis appropriately such that institutions subsequently could find valuations attractive enough to put money to work. An incremental, yet necessary, drop of my sentiment indicators would project a deeply oversold landscape that would incubate such a move. However, any reversal would be short in duration and small in magnitude until the pain inflicted on stocks within the context of the time to expiration is far too great for politicians to ignore the cries of their constituencies.
***In the above matrix, this would reflect any value < -10
and paback / snubs of Banksters by the WH commenced after Banksters supported Romney and Val Jarrett noted revenge would be coming after the Election......
The White House Is Hosting A Big Fiscal Cliff Meeting And Wall Street Isn't Invited
President Obama will be meeting with top business executives on Wednesday to talk about resolving the "fiscal cliff."
However, Politico's Ben White points out that Wall Street wasn't invited.
The list for Wednesday’s CEO meeting with President Barack Obama on the fiscal cliff does not include a single banker and only one person — Kenneth Chenault of American Express — from the financial services industry. Chenault is a fixture at these White House meetings, which have amounted to little more than photo ops in the past.
Wall Street bank execs including Goldman's Lloyd Blankfein and JPMorgan's Jamie Dimon have been vocal about addressing the fiscal cliff issue.
White also points out that it seems odd to not have bank execs who can talk about the implications the fiscal cliff would have on the financial markets. However, a White House source tells White that this will not be the only meeting with executives.
Here's the list of who will be attending:
- Mark Bertolini, President, Chairman and CEO, Aetna
- Ursula Burns, Chairman and CEO, Xerox
- Kenneth I. Chenault, Chairman and CEO, American Express Company
- David Cote, Chairman and CEO, Honeywell
- Mike Duke, President and CEO, Walmart
- Jeff Immelt, Chairman and CEO, General Electric
- Andrew Liveris, President, Chairman and CEO, Dow
- Robert McDonald, President and CEO, Proctor & Gamble
- Alan Mulally, President and CEO, Ford
- Indra Nooyi, Chairman and CEO, PepsiCo.
- Ginni Rometty, President, Chairman and CEO, IBM
- John Watson, Chairman and CEO, Chevron