Sunday, December 16, 2012

Fiscal follies on the fiscal cliff continue - don't expect anything to get done until the last days or so of the month..... meanwhile in developed countries , misery is the word .....

http://www.businessinsider.com/john-boehners-plan-b-raises-300-billion-2012-12


John Boehner's 'Plan B' Raises Just $300 Billion In New Revenue — And It Could End Up As A Political Disaster

Joe Weisenthal | Dec. 20, 2012, 4:47 AM | 1,097 | 2
john boehner
AP
The drama in Washington DC: John Boehner is pushing for the passage of 'Plan B', a fiscal cliff solution that would see taxes rise on those making over $1 million per year, while freezing lower taxes on everyone else.
Obama has threatened to veto the bill.
Jackie Calmes and Jonathan Weisman have some very important details about the mechanics of the legislation:
They include:
  • The package would only raise $300 billion in new revenue in 10 years vs. Boehner's initial offer of $800 billion, and Obama's proposal of $1 trillion if taxes rose on those making over $250K.
    • The bill actually repeals some Clinton-era rules about limiting deductions if you make over $1 million, so it actually gives millionaires some breaks.
    • There is no guarantee the bill will pass.
    • It doesn't directly address the sequester (the automatic spending cuts) so Boehner is also pushing a simultaneous bill that moves the military cuts to domestic cuts, so that hawks will come aboard.
    Here's the problem: This is not going to be a hard bill for Obama to veto. Yes, it keeps taxes low on folks making less than $1 million, but because it will still see deep spending cuts (but switched to domestic funding), because the revenue is so paltry, and because it doesn't include any kind of unemployment extension, it's easy for Obama to say this falls way short of tolerable.
    Furthermore, it has the potential to really backfire for Boehner if A) It doesn't pass and B) He's now opened the Pandora's Box of being open to tax hikes (for example, he's now gotten Grover Norquist to sign off on them).
    As for whether it does pass, Boehner can lose just 23 or 24 Republicans. One Congressional aide predicted he would lose 20. That aide also characterized the thinking of dissenters this way:
    For conservatives to vote against it they have to have the mentality that if they were lifeguards and saw 10 people drowning, they would decide to stay on the beach because they thought they could only save 9 and don't want to be responsible for the one that dies.
    So the upside is minimal (Obama just says 'no' and that's that) and the downside is considerable if Boehner's hand ends up significantly weakened. Today will be interesting.












http://www.zerohedge.com/news/2012-12-19/boehner-abbreviated-obama-approves-plan-b-or-reponsible-largest-tax-hike-us-history


Boehner Abbreviated: Obama Approves Plan B Or Is Reponsible For The Largest Tax Hike In US History

Tyler Durden's picture
Submitted by Tyler Durden on 12/19/2012 14:27 -0500



Yesterday, while the market was absolutely euphoric that a Fiscal Cliff deal was imminent in the aftermath of the release of PR theatrics also known as "Plan B" we said:


http://www.businessinsider.com/fiscal-cliff-boehner-obama-deal-2012-12


And Now We Have Our First Real Drama Of The Fiscal Cliff Talks...

Grace Wyler | Dec. 19, 2012, 5:37 PM | 2,281 | 8
obama fiscal cliff
AP
President Barack Obama and House Speaker John Boehner made it clear Wednesday that talks have broken down over how to avoid the fiscal cliff, regressing to political posturing just when it seemed like a deal could be imminent. 
The showdown centers around Boehner's decision to call a floor vote Thursday for his so-called "Plan B" bill, which would allow the Bush-era tax cuts to expire only for incomes over $1 million. 
The move is a tacit signal that the Republican Speaker is walking away from the concessions offered by Obama, and effectively giving up on passing a comprehensive fiscal cliff deal that includes both revenue increases and spending cuts.
"The president’s offer of $1.3 trillion in revenues and $850 billion in spending reductions fails to meet the test that the president promised the American people – a balanced approach," Boehner said in dramatic, 50-second "press conference" Wednesday. "Tomorrow, the House will pass legislation to make permanent tax relief for nearly every American – 99.81 percent of the American people. And then the president will have a decision to make: He can call on Senate Democrats to pass that bill, or he can be responsible for the largest tax increase in American history.”

The "Plan B" vote is a tactical maneuver by Boehner, aimed at forcing Democrats to vote for the bill or risk raising taxes on the vast majority of Americans. According to Republican insiders, the thinking is that by getting the revenue question out of the way, the GOP will have more leverage to negotiate spending cuts and entitlement reforms during the debt ceiling debate next year. 
Obama, meanwhile, has promised to veto the "Plan B" bill should it get to his desk. In his dueling press conference Wednesday, he accused Republicans of walking away from an imminent compromise that had included big concessions from the White House, including raising the income tax threshold to $400,000 and changing cost-of-living adjustments for Social Security. 
"They keep on finding ways to say no, as opposed to finding ways to say yes," Obama said. "This is not a situation where I’m unwilling to compromise. This is not a situation where I’m trying to rub their face in anything.  I think anybody who looks at this objectively would say that coming off my election, I have met them at least halfway in order to get something done for the country." 
The main question now is whether Boehner can actually get Republican House members to vote for his "Plan B" bill, which would force the party to take the unprecedented move of raising marginal tax rates.
Democrats have united against the bill, so Boehner can only afford to lose about 18 votes on the Republican side. But several fiscal hawks in the GOP caucus have already come out publicly to oppose the "Plan B" option, and two powerful grassroots conservative groups have urged members to vote "No," so its passage remains uncertain. 
The Washington Post reports that GOP leaders fanned out across the House floor this afternoon to cajole members into voting, and that they will meet tonight to decide whether they have the votes, or whether they need to tie the "Plan B" bill to another bill that cuts spending in order to make it more palatable to the party's rank-and-file. 
Needless to say, if the bill doesn't pass, it will be a total disaster for Boehner. At that point, the only option will be to come up with a compromise that can pass the House with bipartisan support. But with less than two weeks to go until the cliff deadline, it is not clear whether there will be enough time — or good will — to reach a deal.


and.......





http://www.zerohedge.com/news/2012-12-18/most-critical-48-hours-fiscal-cliff-melodrama-have-begun


The Most Critical 48 Hours In The Fiscal Cliff Melodrama Have Begun

Tyler Durden's picture
Submitted by Tyler Durden on 12/18/2012 20:46 -0500



There is now about 48 hours until the rubber hits the road. What happens in the next 2 days: in a somewhat surprising development earlier, the Republicans today managed to turn the tables on the president, and as reported this morning, proposed an alternative "Plan B", one which the president has already said he will not to accept as it extends the current Bush tax cuts on all those making $1 million or less (and thus not nearly punitive enough in the eyes of Obama's electorate). The reason for this strawman is that unless Obama settles on some compromise definition of 'wealthy' between his already adjusted definition which moved from $250,000 to $400,000 earlier, and the $1 million cutoff proposed by the republicans, republicans will take the Plan B proposal to the House on Thursday and pass it, only so it is immediately voted down by the Senate, but have the popular backstop of saying "they gave it their best" just as Ken Langone suggested to Rand Paulearlier today on CNBC. And as Reuters reported, it appears that the drop dead date for House majority leader Cantor is Thursday, at which point he will vote, and pass, Plan B. At that point the Fiscal Cliff debate for 2012 is as good as over, as the resulting animosity that develops in the subsequent days will guarantee no further compromises are achievable for the balance of the year.

In other words, tomorrow is when all the horse trading will culminate: if there is no resolution by the end of day, the Thursday Plan B vote is all but assured, as is the resultant Risk Off phase, especially for all those who saw in today's moves yet another glimmer of a compromise when in reality it was all merely the latest and greatest big PR stunt. In the meantime, trigger happy algos will send stocks moving wildly in eiuther direction based on headlines over the next 24 hours, although the consensus is that following the massive overbought surge in stocks in the past month, that a fiscal deal is now largely priced in, and a sell the news event is likely to result following a firm agreement... assuming one comes of course.
From Reuters:
After important concessions in recent days from both President Barack Obama and House of Representatives Speaker John Boehner, Republicans moved to increase pressure on the Democrats by vowing to vote in the House on a "Plan B" back-up measure that would largely disregard the progress made so far.

The Republican proposal was part of a political dance by both parties to try to spin the "fiscal cliff" narrative in their favor even as they edged closer together. The White House rejected the offer but remained confident of an agreement.

"The president has demonstrated an obvious willingness to compromise and move more than halfway toward the Republicans," White House spokesman Jay Carney told reporters, adding that Obama is making a "good faith" effort to reach a compromise.

House Republicans were still meeting to discuss the matter on Tuesday evening.
Why did the market surge today? Because it shared the same view as this espoused by Republican Tom Cole:

"They've still got a long way to go, but you can't help but say that the odds are better today than they were on Friday that we'll get some sort of agreement," said Republican Representative Tom Cole.
Maybe. Maybe not. Based on some preliminary reports, numerous conservatives in the House are still fuming over the concessions already granted by Boehner. AsNational Journal explains:
A second aim of Boehner’s Plan B strategy is clearly directed internally—at grousing House Republicans. He is telling members of his conference who are restive that he will cave more significantly on taxes now that it is as much on their shoulders as his--because they can cut bait on his negotiations or wait them out. He’s not going to take all the heat for any eventual deal they don’t like.
One senior House Republican aide said that some members have been saying they've had it with the private negotiations between Boehner and the White House, including some who believe these talks should be held in an open conference.What Boehner is now offering, the Republican aide said, is, “We can do something else, if you want.”
A just as big problem is whether a schism will develop in the Democrat party, many of whom see no reason to budge on the $250,000 definition, especially in the aftermath of Obama's trouncing victory.
Obama could face unrest from fellow Democrats. Liberals were likely to oppose a key compromise he has offered to permit shrinking cost-of-living increases for all but the most vulnerable beneficiaries of the Social Security retirement program. His proposal calls for using a different formula, known as "chained Consumer Price Index," to determine the regular cost-of-living increases, essentially reducing benefits.
"I am committed to standing against any benefit cuts to programs Americans rely on, and tying Social Security benefits to chained CPI is a benefit cut," Democratic Representative Keith Ellison said in a statement.

Obama also moved closer to Boehner on the proportion of a 10-year deficit reduction package that should come from increased revenue, as opposed to cuts in government spending. Obama is now willing to accept a revenue figure of $1.2 trillion, down from his previous $1.4 trillion proposal.

Boehner's latest proposal calls for $1 trillion in new tax revenue from higher tax rates and the curbing of some tax deductions taken by high-income Americans.
No matter the final resolution, it appears that the payroll tax cut holiday is over starting January 1, which as reported previously alone will have an rather adverse impact on Q1 GDP. In fact, with all carryovers, even assuming a compromise is reached in the next 48 hours, the hit to GDP in 2013 will be about 0.5%-1.5%. But at least the economists will have something to blame yet another economic miss on, for an economy whose quarterly scorecard is starting to be pockmarked with one-time charges, and "non-recurring" fees to the same extent as Alcoa.
So keep a very close eye on tomorrow's news flow: the next 24 hours is when any hints of a final compromise will have to come. If there are none, bring a helmet.
 





and.....




http://market-ticker.org/akcs-www?post=215047


Sink Below
Heh Boehner and Obama, have a credit downgrade!
Or three.
Obama's most recent offer included $1.2 trillion in increased revenue over 10 years, with tax rate hikes on individual income above $400,000, a source familiar with the negotiations told Fox News. That would be a sharp departure from the president's past stance against maintaining the existing low tax rates on any income above $200,000, or $250,000 for couples. The latest offer would cut the deficit an estimated $2.4 trillion over a decade.
The two sides are getting close, but significant issues remain, a Republican source told Fox Business. They are said to have agreed to at least $1 trillion in spending cuts and at least $1 trillion in new revenue through a mix of tax rate increases on top incomes and tax code reform, though the details have yet to be worked out.
So we're talking about $200 billion in "closing distances" on the deficit, right?
Well, probably not.
First, note that the so-called "$2.4 trillion in deficit reduction over a decade" is about 20% of the deficit at today's run rates, if it happens.  And it won't, because it relies on (1) people not changing their behavior and (2) unrealistic economic growth predictions that won't occur because the nation's debt load as a whole remains too high and thus is and will continue to block economic output.
There are also reports that Boehner is willing to agree to a two year debt ceiling increase, an amount that would have to be more than $2.5 trillion.  This, standing alone, should be worth a credit downgrade -- and probably will be.
Worse, let's assume that the $15 trillion in existing debt winds up with a 2% interest rate, blended.  This is ridiculously low and presumes that economic growth is tepid at best; if it picks up more then the rate will go up.  In that case the interest alone will be $300 billion annually, or more than the alleged "savings."
This is the trap that ZIRP presents; it provides the allure that one somehow can find a free lunch, but as you grab for the sandwich and attempt to take a bite it magically disappears from your fingers, re-appearing just beyond your reach.
One item I cannot find a definitive answer on is whether the payroll tax cut, which utterly trashed Social Security's fiscal solvency, moving its "death date" from about 2039 20 years forward to about 2019, will expire on schedule December 31st.  There are hints in a Bloomberg story that it will (and it must), but no confirmation, and the so-called "$1.2 trillion" in revenue isn't enough to cover it -- that particular tax rate change alone is worth somewhat over $200 billion annually.
This isn't "Rise Above" folks, it truly is "Sink Below", and if either side thinks they will find solace through this path they're nuttier than Aunt Blue's fruit cake.






and...




http://www.zerohedge.com/news/2012-12-17/latest-grand-bargain-compromise-shifts-rich-threshold


Latest "Grand Bargain" Compromise Shifts 'Rich' Threshold

Tyler Durden's picture
Submitted by Tyler Durden on 12/17/2012 20:35 -0500



The rumor mill on unnamed sources and strawmen is full tonight with Reuters, Bloomberg, and WaPo all reporting on a new new deal from Obama that 'meets the Republicans more than halfway' apparently. The crux appears to be a $1.2tn tax increase(over 10 years of course) thanks to higher rates on households earning over $400k (up from his original $250k but below Boehner's $1mm) and $930bn in spending reductions, including the much-discussed 'accounting' gimmick of cost-of-living-adjustments (and unChained CPI - see below) in Social Security. The offer also has a 'debt ceiling' proviso to increase the borrowing capability for two years via McConnell's proposal. S&P futures got a lift from this great 'austerity' news (that will perplex the Keynesians) but seemingly got most of the excitement out of the way this afternoon. Boehner appears to have seen through the cunning guise of accounting jiggery-pokery and debt-ceiling removery and responded:


    • *OBAMA BUDGET OFFER STILL NOT 'BALANCED,' BOEHNER AIDE SAYS

    On Chained CPI (via Washington Post):
    When President Obama tried to reach a comprehensive bargain with Republicans to pay down the federal deficit last year, he floated the idea of changing the cost-of-living adjustment for Social Security benefits from the traditional consumer price index to something called a chained Consumer Price Index, or “chained CPI.”

    Economics and policymakers generally make the assumption that when prices rise, people will turn to a less expensive product. They’ll buy chicken instead of more expensive beef, iceberg lettuce instead of arugula, store-brand, instead of name-brand cereal. The chained CPI attempts to account for how people react to inflated prices.

    It’s an arcane detail in the ongoing budget debate, but the chained CPI is appealing to budget experts and some Republicans and Democrats, because it only slightly tweaks the inflation formula, while building significant savings over time, perhaps more than $100 billion over a decade.



    Making such a change also means paying out less in Social Security benefits over time — something liberal Democrats can’t stomach. Imagine, for example, a person born in 1935 who retired to full benefits at age 65 in 2000. People in that position had an average initial monthly benefit of $1,435, or $17,220 a year, according to the Social Security Administration. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit would be up to $1,986 a month in 2013, or $23,832 a year. But if payouts were adjusted using chained CPI, the sum would be around $1,880 a month, or $22,560 a year — a cut of more than 5 percent and more as the years go by.
    As for taxes, the nonpartisan Tax Policy Center has calculated that most Americans would pay a little more than $100 more per year. Families making between $30,000 and $40,000 a year would see the biggest increases — almost six times that faced by millionaires — but that’s because upper-income Americans are already in the top bracket and not being pushed into higher marginal rates because of changing bracket thresholds.



    All told, chained CPI would lead to a larger across-the-board cut in Social Security benefits and a 0.19 percent income surtax, according to experts. Those changes could make the proposal politically unpalatable for some, which is why some budget watchdog groups have argued that the only fair way to implement such a change would be to couple it with an increase in Social Security benefits and to exempt Supplemental Security Income, which provides support for impoverished elderly, disabled and blind people.
    Will lawmakers unveil some kind of proposal using chained CPI and other adjustments in federal benefits emerge in the coming days to help strike a deal? Stay tuned.




    and....








    http://www.businessinsider.com/report-obama-tax-rate-threshold-400k-2012-12


    REPORT: Obama To Propose Tax Rate Threshold Of $400k

    Sam Ro and Max Nisen | 34 minutes ago | 554 | 
    barack obamaBloomberg is reporting that President Obama will propose a tax rate threshold of $400,000.
    The Washington Post cites AP sources claiming that President Obama has responded to John Boehner's latest offer, which put the tax rate threshold at $1 million.
    This latest counter offer from the President brings the threshold for tax increases to $400,000, up from his previous demand that higher rates apply for those earning above $200,000. 
    Reuters reports on Twitter that this latest plan "includes $1.2 trillion in revenue increases, $1.22 trillion in spending reductions."
    Additionally, the plan would cut more from health care programs, and would add an additional $200 billion in spending cuts over 10 years.
    Congressman Boehner has moved closer to the President on the revenue side of the equation over three discussions in the past 5 days, and this move may bring them closer together on that end, as well as on spending cuts. 


    The President dropped his request to extend payroll tax cuts, which means there's likely to be at least some tax increase for a wide swath of Americans.

    He did not agree to any increase in the Medicare eligiblity age, which has been a consistent sticking point throughout the debates.

    Read the full story here 

    and.....





    http://hotair.com/archives/2012/12/17/report-fiscal-cliff-deal-emerging-including-one-year-debt-ceiling-increase/


    Report: Fiscal cliff deal emerging — including one-year debt-ceiling increase

    POSTED AT 5:51 PM ON DECEMBER 17, 2012 BY ALLAHPUNDIT


    I didn’t believe this when I saw it at WaPo yesterday, then I started to wonder when I read Ed’s post this morning, and now Ezra Klein claims Democrats are telling him the same thing. I thought the GOP’s big Plan B alternative to a grand bargain was to extend the Bush tax cuts for the middle class, let them lapse for the rich, and then go home so that they can fight another day when it’s time to raise the debt ceiling again in the spring. The automatic tax hikes on January 1 have deprived them of leverage in this negotiation, but they’ll have more once that’s over with and the debt ceiling is all that’s left on the table.
    Change of plans: Now the GOP’s going to agree to raise the ceiling for another year, right up front. Wait, what?
    Boehner offered to let tax rates rise for income over $1 million. The White House wanted to let tax rates rise for income over $250,000. The compromise will likely be somewhere in between. More revenue will come from limiting deductions, likely using some variant of the White House’s oft-proposed, oft-rejected idea for limiting itemized deductions to 28 percent. The total revenue raised by the two policies will likely be a bit north of $1 trillion. Congress will get instructions to use this new baseline to embark on tax reform next year. Importantly, if tax reform never happens, the revenue will already be locked in.
    On the spending side, the Democrats’ headline concession will be accepting chained-CPI, which is to say, accepting a cut to Social Security benefits. Beyond that, the negotiators will agree to targets for spending cuts. Expect the final number here, too, to be in the neighborhood of $1 trillion, but also expect it to lack many specifics. Whether the cuts come from Medicare or Medicaid, whether they include raising the Medicare age, and many of the other contentious issues in the talks will be left up to Congress…
    As for the debt ceiling, that will likely be lifted for a year, at least. In contrast to a week or so ago, when the White House was very intent on finishing the debt ceiling fight now, they’re sounding considerably less committed to securing a long-term increase in these negotiations. The argument winning converts, I’m told, is that since the White House won’t negotiate on the debt ceiling now and won’t negotiate on it later, there’s little reason to make it the sine qua non of a deal.
    So in exchange for a tweak to Social Security’s benefit formula, Boehner’s agreeing to tax hikes on the richand limits on deductions and a mere promise of future spending cuts and a debt-ceiling increase that would formally abandon the live-to-fight-another-day strategy? Note the “at least” part, too. Matt Yglesias is entirely right about this:
    If you’re a House Republican, you’re much more apt to drive a hard bargain next spring than you are in early 2014, when election day will be less than a year away. In fact, if the economy starts to pick up and revenue increases next year, then the next debt-ceiling might be delayed by months — which could mean a showdown right before the midterms. No Republican facing reelection in a purplish district will go to the mat under those circumstances and Boehner knows it, so I assume the one-year deal will quickly become a two-year deal. Will, er, House conservatives — who are already irritated at Boehner’s offer on tax hikes — go along with that? Or is Boehner now prepared to write them off and govern with a coalition of Democrats plus a small group of moderate Republicans? If I’m Pelosi and JB comes back to the House with the sort of deal described above, I’d instruct my troops to vote no (at least on the first pass) just to watch Boehner be humiliated as waves of conservatives vote no too and the bill fails.
    But maybe this is just a trial balloon. Here’s what his spokesman said about raising the debt ceiling:
    Boehner’s offer signals that he expects a big deal with sufficient savings to meet his demand that any debt limit increase be paired dollar for dollar with spending cuts. That would permit him to keep a key vow to his party — and head off a potentially nasty debt-limit fight — at least until the end of next year.
    “Our position has not changed,” Boehner spokesman Michael Steel said Sunday. “Any debt limit increase would require cuts and reforms of a greater amount.”
    A Boehner aide told CNN the same thing — no debt-ceiling hike without an equivalent amount of cuts. Now that they’ve drawn that line publicly, they can’t cave without Boehner losing whatever remaining credibility he has with the House. So maybe this is just a tactic to pressure Obama on cuts by wringing a little positive PR from the negotiations for the GOP, with Boehner angling to come off as the responsible, compromise-minded side of the table who’s willing to give O what he wants in exchange for a little fiscal responsibility in return. If I were Obama, though, I’d call his bluff. Given how the polling worked out for the GOP after the last debt-ceiling standoff, Boehner will have tremendous difficulty holding the caucus together if/when there’s a new standoff in the spring. Why would O give him the cuts he wants now when he could try to split the House by forcing another debt-ceiling showdown a few months from now?








    and.....







    http://www.washingtonpost.com/business/economy/boehner-offers-to-take-debt-limit-off-the-table/2012/12/16/8b369b7e-47c6-11e2-b6f0-e851e741d196_story.html

    ( GOP cave strategy coming into view - kick the debt ceiling down the road for a year as nothing truly gets addressed seems to be the bipartisan solution. )










    House Speaker John A. Boehner has offered to push any fight over the federal debt limit off for a year, a concession that would deprive Republicans of leverage in the budget battle but is breathing new life into stalled talks over the year-end “fiscal cliff.”
    The offer came Friday, according to people in both parties familiar with the talks, as part of the latest effort by Boehner (R-Ohio) to strike a deal with President Obama to replace more than $500 billion in painful deficit-reduction measures set to take effect in January.
      With the national debt already bumping up against a $16.4 trillion cap set last year, Congress risks a government default unless it acts to raise the debt ceiling in the next few months. Some Republicans had argued that party leaders should use the threat of default to demand additional spending cuts from Obama.
    Boehner’s offer signals that he expects a big deal with sufficient savings to meet his demand that any debt limit increase be paired dollar-for-dollar with spending cuts. That would permit him to keep a key vow to his party — and head off a potentially nasty debt-limit fight — at least until the end of next year.
    Boehner’s offer also includes a proposal to raise tax rates for millionaires, generating $460 billion over the next decade — about half what Obama has demanded from the wealthy, according to official estimates.
    The White House rejected the offer, saying it would raise too little cash to significantly dent record budget deficits and do nothing to extend emergency unemployments benefits into the new year, according to a Democrat familiar with the talks.
    But the tax offer was viewed as a breakthrough, the Democrat said. Senior White House officials remained in contact with Boehner’s staff throughout the weekend in a sign that serious negotiations had finally begun after weeks of stalemate and partisan posturing.
    “Recognizing the importance of raising tax rates is a big, positive and important step,” said former White House economic adviser Lawrence Summers, who emphasized that he was not speaking for the Obama administration.
    “The evaluation of any deal should depend on how much total revenue is raised, whether adequate demand is maintained to sustain the recovery and whether we are restoring confidence or just marking time until another debt-limit crisis,” Summers said.
    Boehner and Obama have not spoken directly since the Friday afternoon phone call when Boehner extended his latest offer. With Obama in Newtown, Conn., to attend a Sunday-night service for victims of Friday’s elementary school massacre, aides were uncertain when their next meeting would take place.






    All told, Boehner’s proposal would generate about $2 trillion in savings over the next decade, split equally between new taxes and spending cuts, according to a Republican familiar with the talks. On the tax side, about $460 billion would be locked in by letting the George W. Bush-era tax cuts expire on income over $1 million a year.
    That would boost the top rate from the current level of 35 percent to 39.6 percent for about 400,000 families in the 2013 tax year. The rest of the tax revenue would come through a rewrite of the tax code next year aimed at limiting deductions and other tax breaks.































































































    The Bush tax cuts would be extended for everyone else under the proposal, averting the biggest of several automatic tax hikes set to rattle the economy in January.
    In exchange for the higher rates for millionaires, Boehner is demanding changes to federal health and retirement programs, which are projected to be the biggest drivers of future federal borrowing. Boehner wants $1 trillion in total savings, starting with adoption of a less generous way of calculating inflation that would save $200 billion over the next decade — about two-thirds of it by reducing Social Security cost-of-living adjustments.
       Obama has offered $600 billion in spending cuts, with only $350 billion coming from health programs and none from Social Security. Many congressional Democrats adamantly oppose dragging the program into the year-end talks.
    Still, if Republicans make an offer on higher tax revenue that Democrats consider big enough, senior Democrats have signaled that they are open to the change in how inflation is calculated for entitlement programs, known as chained CPI.
    The tax issue also remains problematic. Obama has called for the Bush tax cuts to expire for about 3 million families with income over $250,000 a year, a move that would raise about $830 billion over the next decade, according to the latest estimates by the Joint Committee on Taxation. He also wants higher taxes on inherited estates, as well as new limits on tax breaks enjoyed by the wealthy, to bring total new taxes to $1.6 trillion.
    White House officials last week dropped their tax demand to $1.4 trillion and may be willing to go lower, Democrats said. But setting the income threshold for tax rate hikes at $1 million, as Boehner proposed, would sacrifice too much money, they said. Democrats argue that a threshold of $375,000 or even $500,000 would be more appropriate.
       If a pact were reached, people in both parties say it likely would include a postponement of $100 billion in automatic spending cuts from the Pentagon and other agency budgets next year.






    With many lawmakers still hoping for a resolution by Christmas, people close to the talks cautioned that much work remains to be done before Obama and Boehner could seal a deal.






    http://www.zerohedge.com/news/2012-12-15/boehner-proposes-conditional-tax-hike-high-earners-obama-refuses

    Boehner Proposes Conditional Tax Hike On High Earners, Obama Refuses

    Tyler Durden's picture
    Submitted by Tyler Durden on 12/15/2012 22:17 -0500



    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.




    As long as the fed will monetize the wasteful spending . why will the pols change their ways ? 

    http://www.zerohedge.com/news/2012-12-16/jp-morgan-admits-qe-will-offset-almost-all-next-year%E2%80%99s-government-deficit

    JP Morgan Admits That "QE Will Offset Almost All Of Next Year’s Government Deficit"

    Tyler Durden's picture
    Submitted by Tyler Durden on 12/16/2012 15:40 -0500


    There was a time when it was nothing short of economic blasphemy and statist apostasy to suggest three things: i) that the Fed's canonic approach to monetary policy, in which Stock not Flow was dominant, is wrong (as we alleged, among many other places, here); ii) that the Fed is monetizing the deficit, thus enabling politicians to conceiveany idiotic fiscal policy: the Fed will always fund it no matter how ludicrous, converting the Fed effectively into a political power and destroying any myth of its "independence" (as we alleged, among many other places, most recently here in direct refutation of Bernanke's sworn testimony); and iii) that by overfunding bank reserves, the same banks are left with one simple trade - to frontrum the Fed in its monetization of the long-end, in the process destroying the bond curve's relevance as an inflationary discounting signal, with more QE, leading to tighter 10s, flatter 10s30s, even as the propensity for runaway inflation down the road soars, in the process eliminating any need for the massively overhyped, and much needed to rekindle animal spirits "rotation out of bonds and into stocks" trade (as we explained, first, here). Well, that time is now officially over, with that stalwart of statist thinking, JPMorgan, adopting all of the above contrarian views as its own, and admitting that once again, the Fed and conventional wisdom was wrong, and fringe bloggers were right all along.
    And while we recreate the piece in its entirety below, here is the punchline:

    Since the Lehman crisis, the Fed has been purchasing Treasuries and Agencies at a $500bn per year pace. This flow, which is equivalent to around 3.5% of US GDP, has offset more than a third of the government deficit since the end of 2008. In other words, QE purchases meant that the QE-adjusted government deficit has averaged 5.8% of GDP since the end of 2008 instead of 9.3% for the actual government deficit. This week’s Fed announcement means that this QE flow will double from a $500bn pace currently to $1tr.Coupled with a projection of a lower government deficit next year, to around 6% of GDP, this means that QE will offset almost all of next year’s government deficit.
    Who knew that in the internal JPM thesaurus, "offset" was equivalent to "monetize"... But we'll take it.

    From JPM's Nikolaos Panigirtzoglou:

    Flows & Liquidity: QE's Stock Effect

    • The Fed announced this week an extension of operation twist bringing the total amount of net bond purchases expected for next year close to $1tr.
    • The excess reserves are likely to increase by the same amount, from $1.4tr to $2.4tr, adding 70% extra liquidity into the banking system.
    • This extra liquidity has the potential to suppress bond yields in addition to the traditional demand effect of QE. This demand effect is well documented and understood. As the Fed buys Treasuries and Agencies it offsets government supply, exerting downward pressure on yields.
    • What is often overlooked and surely less well understood is the liquidity effect of QE. What is this liquidity effect?
    • As we highlighted in F&L Oct 5th, QE by itself does not affect the overall supply of collateral, as government bonds are replaced with reserves. But it  does affect the relative pricing of collateral by creating a shortage/expensiveness of government bonds vs. cash (reserves). QE is a good example of the distinction between collateral scarcity and collateral shortage. QE does not create a shortage, as the overall supply of collateral is unchanged, but it does create scarcity by making one form of collateral (government bonds) more expensive relative to another (zero yielding reserves).
      • The most important difference between the liquidity effect and the demand effect is that that the former operates via stocks while the second operates via flows. As the Fed buys Treasuries and Agencies both effects are in operation.
      • The Fed offsets government supply via bond purchases and at the same time the stock of zero-yielding excess reserves rises relative to the stock of government and government related bonds held outside the Fed.
      • If the Fed were to stop purchasing bonds on net, the demand effect would disappear but the liquidity effect would remain. For as long as the Fed maintains its stock of QE and its zero-interest-rate policy, the stock of zero-yielding excess reserves will continue to affect the relative pricing of government bonds.
      • Since the Lehman crisis, the Fed has been purchasing Treasuries and Agencies at a $500bn per year pace. This flow, which is equivalent to around 3.5% of US GDP, has offset more than a third of the government deficit since the end of 2008. In other words, QE purchases meant that the QE-adjusted government deficit has averaged 5.8% of GDP since the end of 2008 instead of 9.3% for the actual government deficit. This week’s Fed announcement means that this QE flow will double from a $500bn pace currently to $1tr. Coupled with a projection of a lower government deficit next year, to around 6% of GDP, this means that QE will offset almost all of next year’s government deficit.
        • What about the liquidity effect? The liquidity effect is also set to intensify next year. To quantify this liquidity effect we follow the approach by Krogstrup-Reynard-Sutter “Liquidity Effects of Quantitative Easing on Long-Term Interest Rates”, January 2012. This paper proxies the liquidity factor using the ratio of excess reserves divided by the stock of government securities held outside the Fed.
        • Excess reserves should rise by $1tr, to $2.4tr by the end of 2013. At the same time the stock of Treasury and Agency bonds should rise by around $675bn (net supply of $900bn for Treasuries and shrinkage of $225bn for Agency debt and Agency MBS). This means that the stock of government and governmentrelated bonds held outside the Fed will likely decline by $375bn ($1tr of QE purchases minus $675bn of net issuance for Treasuries and Agencies).
        • As a result, the liquidity effect ratio, i.e. the ratio of excess reserves divided by the stock of government securities held outside the Fed, is set to rise from 10% currently to 17% by the end of 2013.
          • What does this mean for Treasury yields?
          • We have tried to quantify the impact of the government deficit and other factors on bond yields in the past by fitting a regression model using data going back to 1959 (see “A Fair Value Model for US Bonds, Credit, and Equities”, Panigirtzoglou and Loeys, Jan 2005). The model values the 10-year UST yield as a function of long-term inflation expectations, the real Fed funds rate, inflation volatility, and three major components of the demand for  capital in the US market, the government, corporates, and emerging market issuers in dollars. We measure these by the government deficit, the  corporate financing gap (i.e. the difference between capex and cash flows), and the EM current account balance, all as a % of US GDP. Higher deficits by governments and corporates push up yields as overall demand for capital rises. External surpluses of EM countries push US yields down because of the repayment of dollar-denominated debt and the dollar asset accumulation by their central banks.
            • As explained above, we capture the QE flow effect by subtracting bond purchases by the Fed from the overall government deficit (as % GDP). We capture the liquidity effect by the ratio of excess reserves divided by the stock of government securities held outside the Fed. In theory, these two effects depress bond risk premia, i.e. term premia.
            • Beyond bond purchases, the Fed is also affecting bond yields via its communication. That is, via its communication the Fed affects the path of expected future short rates. The literature has tried to quantify this affect via event studies. This is because, in theory, signaling should be mostly present at announcement times.
            • Given the difficulties that these event studies have with choosing the appropriate window around the announcement date, we instead prefer to proxy this signaling/communication effect more directly via Fed’s forward guidance. In particular, the variable we use is the time period (in months) over which the Fed has committed to keep rates low and is being constructed and used by US Fixed Income Research team, Terry Belton et al.
              • The coefficients of the 10y UST regression model are shown in Table 1 while the fitting errors are shown in Figure 2. The model has provided a good fit to quarterly averages of the 10-year UST yield over the past 50 years with an average absolute error of 57bp and R-sq of 86%.
              • All coefficients are statistically and economically significant, suggesting that both QE flow and QE stock effects are present. This is admittedly a mechanical exercise with imperfect proxies for QE flow, QE liquidity and Fed communication effects. But the model illustrates how important and persistent the liquidity effect of QE can be as the Fed continues to expand the stock of excess reserves next year. It also casts doubt to the idea, advocated by Professor Michael Woodford via his speech in Fed’s annual Jackson Hole conference, that the portfolio balance effects of QE purchases are minimal and that the Fed’s impact on bond yields stems almost exclusively from forward guidance.
              • * * *
                Are these the first rumblings of mutiny on the Titanic, we hear?



    and looking at the developed countries generally....

    http://www.zerohedge.com/news/2012-12-15/misery-spread-widely



    Misery Spread Widely

    Tyler Durden's picture
    Submitted by Tyler Durden on 12/15/2012 17:38 -0500



    Via Gordon T. Long of GordonTLong.com,
    The 'something for nothing' mentality is now firmly in charge in the developed economies. As the G7 economies cascade lower under their past, present and future entitlement & politically connected reward policies, misery is now being spread widely! Misery being spread widely is the product of socialism, as real growth disappears and money printed out of thin air fills in for the lack of real income growth. All of this is paid for by the money you earn and store your wealth in, buying less and less, while your balance in the bank stays the same. The attacks on wealth and job creation are set to accelerate as politicians loot and plunder the private sectors to pay the unpayable promises and support those that don’t produce, by dis-incenting and enslaving those that do. Effectively, penalizing those who lead a prudent and productive lifestyle.

    The cynical would argue that the goal is not to spur economic growth and job creation but instead is intended to formant economic collapse, grow government dependence, gather power as the man-made disaster unfolds, take freedoms and redistribute what wealth is left to the special interests in charge. This may very well be true but it could also be a matter of human nature and the generational re-learning of what role a government must be restricted to playing.
    "A great civilization is not conquered from without, until it has destroyed itself from within. The essential causes of Rome's decline lay in her people, her morals, her class struggle, her failing trade, her bureaucratic despotism, her stifling taxes, her consuming wars."  – Will Durant, The Story Of Civilization III, Epilogue, 1944
    Recent Hurricane Sandy exposed once again the governments inability to execute even its most basic mandate - to serve the people. Grief stricken Americans heard plenty of platitudes by well meaning politicians, but the follow through was as usual found wanting by the destitute. The bureaucracy that the politicians supposedly run, with expanding central planning and control, simply couldn't deliver on its most basic responsibilities. The politicians focused on political goals of power and the redistribution of wealth through taxation, regulation and crony capitalism only add to the growing frustrations with the incompetence, inefficiency and shear neglect of the government. The bureaucrats have consistently failed the people and with their failure so will the healthcare, energy industry and financial systems.  They have failed with the post office, social security, the public schools, medicare, medicaid, energy policy and everything else they have taken charge of in a supposed attempt to serve the people!
    Every generation learns these simple truths about governments and central planning, but always fall into the trap of expecting and relying on government versus themselves. The reality is people will sell their freedoms for what they perceive to be safety and security. Predictably and consistently they end up with neither safety not security.
    Many have learned through experience that socialism is best defined as "Misery Spread Widely".

    Margaret Thatcher in the depths of pulling the UK out of its economic misery pointed out:

    "Socialism is about spending other peoples money, until there is none left to spend".
    Slowing Credit, CAPEX and Corporate Industrial Production are only three of the 'Canaries in the Coal Mine' that point out that the current bull market in government regulations and uncertainty is stymieing growth, innovation and risk taking. By avoiding and effectively "papering over pain" with unsound money and a litany of transfer payments, it doesn't allow nor force required societal change. It may 'kick the can down the road' by 'extending and pretending' but it only delays the inevitable. A degree of pain is needed to keep a society both healthy & vibrant. Without it you remove motivation and instill complacency, reduced risk taking and Misery Spread Widely.

     
    Greece is the canary in the coal mine for the West  and Golden Dawn is a representation of the repressed anger being manifested.....


    The Price Of “Collective Trauma”: Greece At The Brink of Civil War

    testosteronepit's picture
    Submitted by testosteronepit on 12/15/2012 22:51 -0500



    “I’m wondering how much this society can endure before it explodes,” said Georg Pieper, a German psychotherapist who specializes in treating post-traumatic stress disorders following catastrophes, large accidents (including the deadliest train wreck ever in Germany), acts of violence, freed hostages.... But now he was talking about Greece.
    He’d spent several days in Athens to give continuing education courses in trauma therapy for psychologist, psychiatrists, and doctors—for free, this being a country in crisis. He was accompanied by Melanie Mühl, an editor at the daily paper Frankfurter Allgemeine. And in her report, she decries how “news consumers” in Germany were fed the crisis in Greece.

    It was “no more than a distant threat somewhere on the horizon,” defined by barely understood terms, such as bank bailout, haircut, billion-euro holes, mismanagement, Troika, debt buyback.... “Instead of understanding the global context, we see a serious-faced Angela Merkel getting out of dark limos in Berlin, Brussels or elsewhere, on the way to the next summit where the bailout of Greece, and thus of Europe, is to be moved forward another step” [also read... The Curse Of The “Irreversible” Euro].

    But what is really happening in Greece is silenced to death in the media. Pieper calls this phenomenon a “giant feat of repression.”

    And so they report their findings that cannot be dressed up in the by now normal euro bailout jargon and acronyms. There were pregnant women rushing from hospital to hospital, begging to be admitted to give birth. They had no health insurance and no money, and no one wanted to help them. People who used to be middle class were picking through discarded fruit and vegetables off the street as the stands from a farmers’ market were being taken down.
    [I have seen that dreary activity even in Paris; if Mühl spent some time looking, she could see it in Germany as well. It’s not just in Greece where people, demolished by joblessness or falling real wages, are deploying desperate measures to put food on the table. And the largest consumer products companies are already reacting to it: The “Pauperization of Europe”.]

    Heart-breaking, the plight of the Greeks. There was an old man who’d worked over 40 years, but now his pension had been cut in half, and he couldn’t afford his heart medication any longer. To check into the hospital, he had to bring his own sheets and food. Since the cleaning staff had been let go, doctors and nurses, who hadn’t been paid in months, were cleaning the toilets themselves. The hospital was running short on basic medical supplies, such as latex gloves and catheters. And the suicide rate doubled over the last three years—two-thirds of them, men.

    “Collective trauma” is how Pieper described the society whose bottom had been pulled out from under it. “Men are particularly hard hit by the crisis,” Pieper said, as their pay had been decimated, or their jobs eliminated. They’re seething with anger at the utterly corrupt system and a kleptocratic government that have done so much damage to the country; and they’re furious at the international bailout politics whose money only benefits big banks, not the people.


    These men take their anger to their families, and their sons take that anger to the street. Hence the growing number of violent gangs that attack minorities. The will to survive in humans is enormous, Pieper points out, and so humans are able to overcome even incredibly difficult situations. To do that, they need a functioning society with real structures and safety nets. But in Greece, society has been hollowed out for years to the point where it is collapsing.

    “In such a dramatic situation as can be observed in Greece, the human being becomes a sort of predator, only seeing himself and his own survival,” Pieper said. “Sheer necessity pushes him into irrationality, and in the worst case, this irrationality transcends into criminality.” At that stage in society, he said, “solidarity is replaced by selfishness.”

    And so he wondered, “how much this society can endure before it explodes.” Greece is on the brink of civil war, he went on, and it seems only a question of time before the collective desperation of the people erupts into violence and spreads across the country. A ricocheting indictment of the euro bailout policies.
    As the Eurozone flails about to keep its chin above the debt crisis that is drowning Greece and other periphery countries, and as the EU struggles to duct-tape itself together with more governance by unelected transnational eurocrats, Sweden is having second thoughts: never before has there been such hostility toward the euro. Read....  Sweden’s Euro Hostility Hits A Record.




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