Wednesday, January 2, 2013

Fiscal Cliff charade over - next charade will be debt ceiling and sequestration charades...... meanwhile the Fed will be buying 45 billion a month in treasuries starting January 3rd.....

http://hotair.com/archives/2013/01/02/national-crisis-averted-house-to-vote-on-pork-filled-sandy-relief-bill-by-january-15-peter-king-to-support-boehner-for-speaker/

( Guess everyone has figured out Boehner and the House Gop are easy to roll... all of the talk , no action ! )

http://washingtonexaminer.com/tim-carney-how-corporate-tax-credits-got-in-the-cliff-deal/article/2517397#.UOTPwUbDVSJ


The "fiscal cliff" legislation passed this week included $76 billion in special-interest tax credits for the likes of General Electric, Hollywood and even Captain Morgan. But these subsidies weren't the fruit of eleventh-hour lobbying conducted on the cliff's edge -- they were crafted back in August in a Senate committee, and they sat dormant until the White House reportedly insisted on them this week.
The Family and Business Tax Cut Certainty Act of 2012, which passed through the Senate Finance Committee in August, was copied and pasted into the fiscal cliff legislation, yielding a victory for biotech companies, wind-turbine-makers, biodiesel producers, film studios -- and their lobbyists. So, if you're wondering how algae subsidies became part of a must-pass package to avert the dreaded fiscal cliff, credit the Biotechnology Industry Organization's lobbying last summer.
Some tax lobbyists mostly ignored the August bill "because they thought it would be just a political document," one K Streeter told me. "They were the ones that got bit in the butt."
Here's what happened: In late July, Finance Chairman Max Baucus announced the committee would soon convene to craft a bill extending many expiring tax credits. This attracted lobbyists like a raw steak attracts wolves.
Former Sens. John Breaux, D-La., and Trent Lott, R-Miss., a pair of rainmaker lobbyists, pleaded for extensions on behalf of a powerful lineup of clients.
General Electric and Citigroup, for instance, hired Breaux and Lott to extend a tax provision that allows multinational corporations to defer U.S. taxes by moving profits into offshore financial subsidiaries. This provision -- known as the "active financing exception" -- is the main tool GE uses to avoid nearly all U.S. corporate income tax.

Liquor giant Diageo also retained Breaux and Lott to win extensions on two provisions benefitting rum-making in Puerto Rico.
The K Street firm Capitol Tax Partners, led by Treasury Department alumni from the Clinton administration, represented an even more impressive list of tax clients, who paid CTP more than $1.68 million in the third quarter.
Besides financial clients like Citi, Goldman Sachs and Morgan Stanley, CTP represented green energy companies like GE and the American Wind Energy Association. These companies won extension and expansion of the production tax credit for wind energy.
Hollywood hired CTP, too: The Motion Picture Association of America won an extension on tax credits for film production.
After packing 50 tax credit extensions into the bill, the committee voted 19 to 5 to pass it. But then it stalled. The Senate left for the conventions and the fall campaign. Meanwhile, House Republicans signaled resistance to some of the extensions -- especially for green energy.
One lobbyist said he didn't worry too much about the Baucus bill because "we knew the House wasn't going to pass it." But another lobbyist, who had worked on the Puerto Rico issues, said he saw Baucus' bill as an important starting point that "set the parameters" of a future fight with House Republicans.
But there never was a fight. Baucus' bill sat ignored until last week, when the White House sat down with Senate Republicans to craft a deal averting the fiscal cliff.

A Republican Senate aide familiar with the cliff negotiations tells me the White House wanted permanent extensions of a whole slew of corporate tax credits. When Senate Republicans said no, "the White House insisted that the exact language" of the Baucus bill be included in the fiscal cliff deal. "They were absolutely insistent," another aide tells me. (The White House did not return requests for comment.)
Sure enough, Title II of the fiscal cliff legislation is nearly a word-for-word replication of the Family and Business Tax Cut Certainty Act of 2012.
So, this wasn't a case of lobbyists sneaking provisions into a huge package at the last minute. That probably wouldn't have been possible, many lobbyists told me Wednesday, because the workload in the past two weeks was too large and the political stakes were too high.
One lobbyist who worked on the bill over the summer said he would never ask a member " 'Hey, can you do this for a client,' when their political lives are on the line."
"The legislators and the staff go underground when things get so intense," another Hill staffer-turned-lobbyist told me. "Nobody has time for a meeting. Nobody wants to talk about what's going on. ... The key is to plant the seed months in advance."
GE, Goldman Sachs, Diageo -- they planted their seeds over the summer. They'll enjoy the fruit in the new year.





National crisis averted: House to vote on pork-filled Sandy relief bill by January 15, Peter King to support Boehner for Speaker

POSTED AT 4:51 PM ON JANUARY 2, 2013 BY ALLAHPUNDIT


An anxious America waits and wonders: Can New York and New Jersey hang on for two more weeks?
U.S. House Speaker John Boehner has assured lawmakers that the House will vote on $60 billion in aid related to Superstorm Sandy by January 15, a group of lawmakers from New York and New Jersey told reporters Wednesday afternoon…
The lawmakers met with Boehner Wednesday afternoon and then made the announcement.
“As far as I’m concerned … it was an extremely positive” meeting, said U.S. Rep. Peter King, R-New York, who earlier Wednesday called Boehner’s Tuesday move a “knife in the back.”
The plan is to vote Friday for $9 billion in aid and then deal with the remaining $51 billion on the 15th. The fact that they’re still talking about a $60 billion package means, presumably, that they’re going to cave and keep all or most of the porky Senate bill rather than strip out the expenditures unrelated to Sandy and vote on a “clean” bill. Taxpayers have to pay the price for poor “optics” here, I guess: If they pass a $30 billion bill instead, the next narrative will be “GOP guts Sandy bill,” possibly replete with another grandstanding Chris Christie press conference. Can’t have that. Better pass it all.
Meanwhile, here’s how seriously you should take Peter “Don’t donate to Republicans” King:
In the span of about six hours, the guy went from accusing Boehner of sticking a knife in New York’s back for slightly delaying a bill that’s destined to pass to supporting him as de facto leader of the GOP for another two years. At least when Christie affects outrage for political gain, he keeps up the charade for a day or two.
Speaking of which, enjoy as the media hero and future No Labels candidate sounds off. Do note that the video below comes from his own press team. And not only are they circulating the full clip, they’re sending around a smaller clip in which he dumps on Congress just to make sure no one misses the political point of all this.
http://www.zerohedge.com/news/2013-01-02/fiscal-cliff-loose-ends


Fiscal Cliff Loose Ends

Tyler Durden's picture
Submitted by Tyler Durden on 01/02/2013 17:35 -0500



Via Citi's Steven Englander,
The fiscal cliff deal appears to be a done deal and markets have reacted accordingly (although President Obama is apparently awaiting a photo-op later today to sign it). However, the deal leaves a large number of loose ends that ensure high drama for the next two months on the US fiscal front. The immediate impact of all the loose ends and deadlines may be smaller than the Dec 31 fiscal cliff, but all of these loose ends are important and could lead to short-term price action. Several of them are very important for the long run USD outlook as well.

Loose end number 1, at least chronologically, is the political futures of Mr. Boehner, Reid and Geithner. Treasury Secretary Geithner previously indicated he wanted to stay until the end of the year to try and get a budget deal done. The legislation passed by the House and Senate might be considered a half deal, but is this the point that Geithner walks away? I would presume that he does, although he may choose to stay until the end of March. He has not said anything on that issue for over a month. It is likely that President Obama will announce new cabinet appointments in one big announcement at some point over the next two weeks. House Speaker Boehner and Senate Majority leader Reid will be up for vote on their continuing leadership tomorrow, Jan 3. Congress convenes. Boehner is the most likely to face a challenge, perhaps from his deputy, House Majority leader Eric Cantor of Virginia, who voted against the Senate bill. The other potential challenger, Paul Ryan, voted for the bill. At this stage it is unclear whether either will challenge speaker Boehner. It appears unlikely that anyone would challenge Senator Reid as the leader of the Democrats in the House, although his 'brand' seems diminished by the fact that Vice President Biden took over negotiating the Democratic side from him and got a deal done.
The next loose end, chronologically, is probably the new sequester deadline of March 1. Previously agreed spending cuts will kick in on that date unless they are kicked down the road again. Kicking them down the road in a smaller bill may be difficult, though, because without offsetting provisions, the bill will score as being expensive. If all the sequesters are permanently averted, the cost is USD1.2trn over ten years. After the March 1 deadline, there is one additional minor sequester-linked deadline. On March 27 Congress must agree on what it is going to do to make up for overspending since the first sequester, likely to amount to about USD15-20bn.
From what Geithner and the Treasury have said in public pronouncements, the US will bump up against the debt ceiling at some point around March 1. If tax collections are high in Q1 then the debt ceiling breach could be avoided for another 2-4 weeks, but it appears unlikely that the debt ceiling could be pushed beyond the end of March. On March 30 Congress must pass a budget or otherwise extend spending authority. This deadline results from Congress not having passed a budget for the fiscal year that begins in October. Without spending authority, the Executive Branch would in theory be forced to shut down the government.

Although it doesn't necessarily come with a deadline, another loose end from lawmakers is corporate tax reform. Both Republicans and Democrats have said repeatedly over the past year that it is a priority. In his speech promoting the latest compromise, Obama talked about doing a 'grand bargain' in pieces and talked about wanting another revenue increase to offset any additional spending cuts. Presumably the revenue piece is corporate tax reform, although the corporate tax reform Republicans are talking about is a 'territorial' system with lower marginal tax rates. This issue is likely to bring a major clash, that could occur in February and March or could conceivably be delayed. It is arguably the most critical issue for the USD in the long run. Existing tax law incentivizes US-based multinationals to produce and book profits abroad. Alterations to the law, depending how they shake out, could lead to greater incentives to produce in the US and therefore a smaller trade deficit and/or a wall of repatriation like the one that occurred during the HIA amnesty period in 2005. If something remarkable happens on this issue then we would have to immediately re-examine a bearish USD view for 2013, but if there is no major reform, the likelihood of a 'structural' USD rally is low.
There is one final loose end, and that is the ratings agency response. Ratings agencies were fairly consistent in saying that a 'grand bargain' deficit reduction plan that would take 2.5trn or more off the ten-year deficit would be required to avert a US sovereign downgrade. With the US having failed on a one-stage grand bargain, it is unclear whether a downgrade would come in the next few days. Ratings agencies may choose to wait to see what happens in March with sequesters, the debt ceiling, etc.





And ...... after the collapse of the GOP in the fiscal Cliff charade , Obama and the Dems get ready to double down..... )

http://globaleconomicanalysis.blogspot.com/2013/01/republicans-prepare-to-wave-white-flag.html


Wednesday, January 02, 2013 11:41 AM


Republicans Prepare to Wave White Flag Again, This Time On Debt Ceiling; "Temporary, Partial, Non-Threats"


Having totally collapsed on deficit reductions in fiscal cliff non-negotiations (agreeing to a mere $12 billion in cuts down from an Obama offer of $600 billion), Republicans are already offering signs they will once again wave the white flag when it comes to the alleged battle over the debt ceiling.

Reuters reports Bigger fights loom after "fiscal cliff" deal. 
 President Barack Obama and congressional Republicans looked ahead on Wednesday toward the next round of even bigger budget fights after reaching a hard-fought "fiscal cliff" deal that narrowly averted potentially devastating tax hikes and spending cuts.
Retreat, Retreat, Then Surrender

Let's stop right there for a second. What "hard fight" was there?

It certainly took a lot of time to reach a deal, but there never was much of a fight. Every day Republicans offered more and more concessions until deficit reductions were whittled down to a mere $12 billion or so from a starting point of $600 billion. 


Senate Republicans immediately waved the white flag of surrender as only 5 Republicans voted against the deal. Please see Obama Deal Adds $3.97 Trillion to Deficit Over 10 Years; Only 5 Republicans Voted Against; White-Flag Surrender for details.

This was a pathetic case of retreat, retreat, then surrender, with every retreat making the president more confident he would get his way.

Reuters continues ... 
 [The fiscal cliff agreement] set up political showdowns over the next two months on spending cuts and on raising the nation's limit on borrowing. Republicans, angry the deal did little to curb the federal deficit, promised to use the debt ceiling debate to win deep spending cuts next time.

"Our opportunity here is on the debt ceiling," Republican Senator Pat Toomey of Pennsylvania said on MSNBC, adding Republicans would have the political leverage against Obama in that debate. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."
Opportunity to Surrender Again

There is no opportunity here. Read the paragraph carefully to see if you can spot the crucial words.


In case you missed it, the crucial word is "temporary". More specifically the crucial phrase is "willing to tolerate a temporary, partial government shutdown, which is what that could mean".

The word "temporary" is pathetic enough. But Toomey goes even further, adding the word "partial".

Temporary, Partial, Non-Threats

Who is supposed to fear a "partial, temporary" shutdown? Anyone?

Sadly, Republicans are already signaling they are prepared for more temporary threats coupled with more permanent can-kicking exercises.

The wimpy language bantered about by Republicans before debt ceiling debate even begins suggests the safe thing to do is prepare for more retreats and more white flags.

Mike "Mish" Shedlock





http://dailycaller.com/2013/01/02/obama-schedules-debt-ceiling-fiscal-cliff-ii-for-february/



Obama schedules potentially ‘catastrophic’ debt-ceiling ‘fiscal cliff II’ for February

President Barack Obama scheduled another so-called “fiscal cliff” crisis for February by announcing late Jan. 1 he would refuse to negotiate any curbs on his use of the nation’s maxed-out credit card.

“I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” he claimed during a late-night appearance on the last-minute resolution to the December 2012 fiscal cliff.
However, the GOP-led Congress wants to use its authority over the nation’s debt ceiling to pressure Obama to shrink future spending, not to repudiate existing debts. (RELATED: House Republicans approve Senate fiscal cliff bill)

Obama is expected to add $3.4 trillion to the national debt by 2017. In his first term, he boosted the national debt by $5.8 trillion, up to $16.4 trillion.
But on Dec. 31, his government hit the $16.4 trillion limit agreed by Congress and Obama in 2011.
Federal officials say they’ll use a series of financial maneuvers to postpone any problems until February. But sometime after that, Obama’s administration won’t be able to borrow more money, and will have to use day-to-day tax revenues to fund the government’s myriad popular and unpopular programs.
Without any negotiations, Washington will be gripped by another fiscal crisis sometime in February, while the GOP and Obama battle for public support and international lenders consider further downgrades to the nation’s credit ratings.
Obama used his brief appearance Jan. 1 to claim that any limits on the government’s ability to borrow funds would be extremely dangerous.

“If Congress refuses to give the United States government the ability to pay [its] bills on time, the consequences for the entire global economy would be catastrophic,” he claimed.
Obama’s refusal to negotiate is partly caused by the GOP’s advantage in any debate over the debt ceiling.
In the 2011 debt-ceiling dispute, the GOP eventually pressured him to accept spending curbs in exchange for an increase to the debt limit up to $16.4 trillion.
Obama has repeatedly complained about that defeat.
On Jan. 1, he complained that “the last time this course of action was threatened, our entire recovery was put at risk. Consumer confidence plunged. Business investment plunged. Growth dropped. We can’t go down that path again.”
The debt is expected to reach almost $20 trillion by 2016 — equivalent to $80,000 for each working-age American — and then climb to almost $23 trillion by 2022.
Current tax revenues are enough to pay roughly 70 percent of federal bills, which include the interest payments on the existing debt.
Obama want to borrow even more money — roughly $850 billion per year — to expand government and operate many additional programs.

These programs include large green-tech subsidies, massive government-run healthcare programs and expensive welfare programs for healthy, working-age people.

GOP legislators say they won’t allow him to borrow more money unless he agrees to reform long-term government spending.
For example, various GOP leaders say Medicare should be reformed to give recipients and providers financial incentives to avoid wasteful medical spending, and fewer payments should be made to the wealthiest retirees.
Other activists say the GOP should end the subsidies and tax breaks enjoyed by Democratic-affiliated groups. These include Hollywood companies, universities and nonprofit groups exempt from many income taxes, investors in taxpayer-funded green-energy companies, and the unions’ lobbyists who are indirectly funded by local government’s tax-free bonds, as well as state tax levies that are now exempted from federal taxes.






http://www.zerohedge.com/news/2013-01-02/cliff-dead-long-live-cliff-futures-soar


The Cliff Is Dead, Long Live The Cliff: Futures Soar

Tyler Durden's picture
Submitted by Tyler Durden on 01/02/2013 06:52 -0500



And so after much pomp and posturing over the past 48 hours, much of which will likely reshape the layout of the GOP in both chambers, both the Senate and the House passed the first concurrent tax hike and permanent tax cuts in about two decades. The net result of this will be a roughly 1% drag on GDP, even as the US budget deficit increases relative to the CBO's old baseline, and the beneficial impact from the tax hikes offsets roughly two weeks of spending. In other words, while addressing the tax part of the equation, politicians delayed the spending part of the problem for exactly 60 days by punting on the expiration of the sequester, or the government spending cuts. They also delayed addressing the debt ceiling, perhaps the most integral part of the Fiscal Cliff, which has now been breached and which as of this moment means the US can't incur one additional dollar in additional debt.
So looking forward it means the US now has about 4 separate cliffs: the debt ceiling cliff in February/March, the sequester cliff in March, the farm bill cliff in September and the expiration of jobless benefits on December.But that's all in the future, and it will all be a function of just how quickly the GOP rolls over to once again confirm that when it comes to the stock market, America has just one political party. The party of up at all costs, which in turn is manifested right now in the first futures print of the New Year, with both the S&P and the DJIA futures up nearly 2%, and with the E-Mini up some 50 points, or half a turn of S&P multiple expansion in two trading sessions: a nice rally to show just who Washington truly works for.
From a big picture perspective it means one thing: the Fiscal Cliff discussions aren't going anywhere, and will continue to dominate the airwaves over the next two months, only this time far more attention will be paid to the debt ceiling part of the cliff, an issue Obama said last night he will not yield to republicans, and on which republicans said they will demand far more concessions.
In peripheral news flow, corporate revenues and earnings continue to grow below trend, and economic growth will certainly be impacted adversely as none of the uncertainty has been removed, but merely delayed. European final manufacturing PMI declined from 46.3 to 46.1, even as the UK soared ahead of Mark Carney taking the helm of the BOE. Peripheral European bonds continued their declining, with Spain and Italy reaching nearly 2 and 3 year yield lows, respectively.
That said the main mission has been accomplished: all relevant newsflow has once again been pushed back from the main news stream and relegated to the backburner, where anything not meeting expectations can be "explained away" using the Cliff as a scapegoat for both Q4 2012 and Q1 2013.
In terms of actual expected US data today, we have the Manufacturing PMI at 8:58 am, Construction spending at 10 am (expected to drop from 1.4% to 0.4%) when the latest Manufacturing ISM is also released and is expected to rise from 49.5 to 51.5, and finally the December FOMC minutes at 2:00 pm.
Some more on what to expect today from SocGen:
A last minute deal saved the US from going over the fiscal cliff means that the start of the new year is being greeted by a 'risk on' boost to cross assets. JPY funded risk positions have been bid up causing USD/JPY to vault 87.00 and EUR/JPY to set sights on 116.00. Long-term core bond yields and swaps have backed up in the process and a round of decent US ISM data today and payrolls on Friday could cause the correction to deepen in 10y and 30y sectors in particular with yield curves steepening in the process. A break of 1,450 for the S&P-500 could presage a move back up to the September'12 high of 1,474. However, critics were quick to pour cold water on the US fiscal Bill, and the lopsided nature of the deal that focuses on tax increases and is devoid of any commitment to cut public spending will cause tense negotiations to resume over the weeks ahead as the focus now shifts on how to raise the $16.4trn debt ceiling by March. The CBO calculates that the latest agreement will add $4trn to the US deficit. Nevertheless, the negative short-term impact on the economy (and sentiment) appears to have been contained as we now wait for the Bill to be signed into law. In the meantime, we suspect that shorting JPY will continue to be popular as PM Abe takes the reins. Data today includes EU and UK manufacturing PMIs and the US ISM. Germany sells 5bn in 2y notes.


and the Fed is gunning the engines for the start of QE 3.5 or 4 .... starting January 3 , 2013

http://www.newyorkfed.org/markets/tot_operation_schedule.html

Tentative Outright Treasury Operation Schedule
The Desk's tentative operation schedules associated with outright purchases and sales of Treasury securities as announced by the FOMC.
The Desk plans to purchase approximately $45 billion in Treasury securities over the month of January.


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