http://www.zerohedge.com/news/2012-11-25/fiscal-cliff-update-little-progress-toward-compromise-past-ten-days
Submitted by Tyler Durden on 11/25/2012 12:00 -0500
http://www.guardian.co.uk/world/2012/nov/25/senator-lindsey-graham-republican-norquist-tax
Fiscal Cliff Update: 'Little Progress Toward A Compromise In Past Ten Days"
Two Fridays ago on November 16, just as AAPL was in danger of plunging below the absolute last support level of $500 after which free fall for it and the entire market begins, a truly unexpected deus ex machina appeared for those still clinging to long stock positions: politicians, in this case John Boehner and Nancy Pelosi, who held a press conference in which they defined the recently launched "Fiscal Cliff" talks as "constructive."
In reality, this appearance was nothing but a photo opportunity for talking heads (as explained in "Risk Ramp on Boehner Banality"), and one which as Nancy Pelosi herself admitted later, served simply to halt what then looked like an assured free fall in the markets. Since then the ongoing rally in stocks and the EURUSD has been predicated on the "constructiveness" of the talks actually being real. Because while a fiscal cliff solution, or rather a compromise - one in which the status quo will be extended and no news spending cuts or major tax hikes will appear, will certainly be implemented, the question is what will take to get the career politicians to bend to even this tiny "compromise" and what is the sequence of events of such a catalyst. As is well-known, Goldman, unlike almost every other sell side group on Wall Street, except for Morgan Stanley, still sees a tumble in the S&P to unchanged for the year levels as being the key driver that forces DC to cobble a deal (to be sure, Goldman then expects stocks to surge to over 1500 for 2013).
Judging by the latest update from Reuters, Goldman will likely be right, if only in the short term. As Reuters admits, " U.S. lawmakers have made little progress in the last 10 days toward a compromise to avoid the harsh tax increases and government spending cuts scheduled for Jan. 1, a senior Democratic senator said on Sunday." That this update comes after the "big" market swoon into the recent lows from November 16, is certainly cause for alarm, because it means that at least one more violent market whipsaw to the downside will have to take place before there is any cliff progress to report.
From Reuters:
U.S. lawmakers have made little progress in the last 10 days toward a compromise to avoid the harsh tax increases and government spending cuts scheduled for Jan. 1, a senior Democratic senator said on Sunday."Unfortunately, for the last 10 days, with the House and Congress gone for the Thanksgiving recess ... much progress hasn't been made," Dick Durbin, the No. 2 Senate Democrat, told ABC's "This Week" program.A deadline is looming. Absent action by lawmakers and President Barack Obama, roughly $600 billion in tax increases and spending cuts will start to hit households and companies in early January.Durbin said Democrats are willing to allow small changes to parts of these entitlement programs, including public health insurance programs for the elderly and poor, but the Social Security government pension program should not be on the table."Bring entitlement reform into the conversation. Social Security, set (it) aside," Durbin said.In other words, our assessment of the Boehner-Pelosi photo-op was once again spot on.Remember: politicians are never in a rush to "resolve" something unless real money loss - either their own or of their primary lobbyists - is at stake. And Wall Street will make sure of just that. It will also be sure to buy ahead of everyone else once the real can kicking exercise du jour is completed. At least until the realization that nothing has been actually resolved kicks in. That bridge will be crossed in due course.But first a far more looming bridge is that of the Cliff, on whose crossing there has been no progress made, for which Obama has said will demand double the previously expected amount in tax hikes ($1.6 trillion over ten years, or enough to fund the US budget deficit for one month), and which will collapse very soon, as there are now just 12 full sessions of Congress until the end of the year.
Note GOP signaling they will cave regarding their no new taxes pledge....
Senator Lindsey Graham is latest Republican to disavow tax pledge
South Carolina senator tells This Week he will break Grover Norquist's pledge in order 'to avoid becoming Greece'
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Senator Lindsey Graham has said that he will break the Taxpayers Protection Pledge. Photograph: Alex Wong/Getty Images
Senator Lindsey Graham has become the second senior Republican in days to publicly disavow a pledge that handcuffs the party to a policy of no tax rises, raising hopes of a deal over the fiscal cliff.
Speaking on ABC's This Week, the South Carolina politician said that the only pledge members of either party should make would be one to make sure the country did not go the same way, economically, as Greece. Regarding a pledge against tax hikes that has been signed by mostRepublicans in Congress – having been promulgated by the conservative lobbyist Grover Norquist – Graham said: "I will violate this pledge, long story short, for the good of the country."
In the aftermath of the GOP's defeat in the presidential election of 6 November, Norquist is increasingly seeing his influence on the party decline. On Thursday, senator Saxby Chambliss said he would break the Taxpayer Protection Pledge in an attempt to help avert the automatic triggering of $600bn of spending cuts and tax increases, the so-called "fiscal cliff".
Washington has until the end of a year to negotiate a deal to avoid such a situation. Economists have suggested that a package of swingeing spending cuts and tax hikes could be catastrophic for the US economic revival, plunging the country back into recession.
"I care more about this country than I do about a 20-year-old pledge," Chambliss said in an interview, earning a rebuke from Norquist.
A vast majority of Republicans in the House and the Senate have signed the Taxpayer Protection Pledge, which was created in 1986 and which commits them to voting against any increase in revenue taken from personal income. Until recently it had been seen as a litmus test for the conservative credentials of party representatives, but the incoming House of Representatives will have 16 Republicans who have not signed up – an increase from six. One new Republican senator, Arizona's Jeff Flake, has avoided putting his signature to the demand.
On Sunday, Graham – who had already spoken of his misgivings about the pledge – added his name to those who have gone on record about their intention to break with the policy.
"I think Grover is wrong," he said. "When you are $16tn in debt the only pledge we should be making to each other is to avoid becoming Greece. I will violate this pledge, long story short, for the greater good of the country, only if Democrats do entitlement reform."
Speaking on the same show, the Democrat senator Dick Durbin also indicated a willingness for negotiation. After saluting Graham, Durbin said: "What he just said about revenue and taxes needs to be said on his side of the aisle. We need to be honest on our side of the aisle."
Durbin, a Democratic Party whip, noted that Congress was due to begin its new session on Monday.
"We can solve this problem," he said. "Tomorrow, there's no excuse: we're back in town."
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