How much will the market tank on tax bill failure?
Since the odds never favored a deal, Boehner's Plan B failure isn't that surprising.
We're stuck with bad templates: TARP votes one and two and the Grand Bargain No Bargain moments of 2011.
These two Washington-orchestrated calamities caused the stock market to plummet each time, which then helped get a deal done.
Anyone who remembers the chaos after the failure of TARP to be passed knows that a 7% drop can occur when Congress chooses not to save the Republic's banks.
The failure to raise the debt ceiling or come up with anything responsible led to a 19% fall until we got something that worked then, but isn't working now. We were paralyzed by the possible ratings agency downgrades and when we got one we thought, somehow, it was the end of the Earth.
Bonds did the opposite of what we thought and staged a remarkable rally. In that sense the selloff was about nothing.
I think that these two analogies, which are being trotted out quickly Friday morning after the failure of Plan B, simply don't work.
First, the hated TARP came at a time when there was a run on the banks. You could argue that your ATM might not even have worked if that didn't pass. That one was huge.
Second, the debt ceiling deal turned out not to matter, at least when it came to the ratings agencies. It was, alas, almost much ado about nothing. This time around it would not shock me if the president just raised it himself and accepted a court challenge. Bills need to be paid, that's the law. One law -- that the Congress has to approve a debt ceiling raise -- conflicts with another. The payments that the federal government must pay on time.
Now I am reading that this failure of Boehner's Plan B is the equivalent of both. You can almost take an average of the two and arrive at what we are supposed to be done, call it 12%. And yes, those are precisely the numbers I am being told we will fall.
Now there are several things at work here. First, I don't know anyone who really thought the GOP would ever vote for a tax increase, period. Grover Norquist has made most Republicans sign a pledge. They will, according to Norquist, be challenged in the primary by Tea Party members. The pledge will not be broken.
I have thought, ever since I came back from Washington not that long ago, that it was clear this meant there could be no deal. We had hopes there would be another Grand Bargain driven this time by the president's big win, but these Republicans won regardless of the president. He means nothing to them. Nothing at all.
So, now we go over the cliff. I believe once Americans have seen their truncated paychecks -- both the people who are paid weekly and the ones paid monthly -- talks would begin in earnest to make some sort of deal to cut taxes with the Republicans actually leading that fight, urged on by Norquist. So Boehner's gambit was always a charade.
So, why should we sell off big on a charade? The Super Bowl plan is in effect. My take, the odds always favored no deal. We aren't going to get a deal. We fall of the cliff.
What gets repealed? The whole 7.5% gain since the November lows?
Nah, I think the gain from when there seemed to be a deal last week, call it about 2%-3%.
We always overdo it intraday, so it could be more. But the idea that "suddenly" there's no chance of a deal is pretty ludicrous.
The GOP will not vote to raise taxes, just to cut them. And I actually expect that to happen because Norquist will urge them to do so.
If it doesn't? Well, we won't know that for another month. And that's how it will go.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.
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Like Obama said,"we need a balanced approach to the fiscal cliff".I want all those companies like
GE to start paying taxes.The billionaires won`t lose their ROLLS ROYCES if they pay
the cliff happens. each party says it was the other one that allowed it to happen. next year they vote in tax cuts and spending increases - applicable to their voting ideology.
the average american sits on the floor at the bottom of the same cliff and ask WTF are these politicians doing?!?!?!?!
What everyone does not understand -- no matter what is done the Republican plan or the Obama plan either one is going to be too little too late.
By either plan the US debt will be at least $25 trillion by 2020 and the GDP officially about $17 trillion
However the GDP is so inflated it is no longer a true measure of the country's economic output.
For starters the $1.8 trillion federal deficit is a positive on the GDP raising it by $1.8 trillion instead of decreasing it $1.8 trillion. Secondly everyone in America is suppose to live somewhere for free and get rental money for renting their homes which adds another $4 trillion to the GDP which I don't know about you but I do not live somewhere for free and get rental money for my house.
So the $16 trillion GDP is overstated by at least $5.8 trillion add in about $1.2 trillion or more for over estimated numbers and you have real GDP at about $11 trillion which sounds about right for the way the real economy is doing.
So right now with GDP at $11 trillion the $16 trillion debt is in crisis mode at 1 1/2 times GDP
Add in the fact that incomes are just below $4 trillion the real spendable GDP is only $4 trillion so the debt to income ratio is at a deadly 4 times income.
If the Federal Reserve was not buying US T-bills and loaning money to the banks at zero percent and having them buy US T-bills with the money (why do you think with all the money out there going to the banks that no one can get a loan hardly???)
Pretty much I give the system only 1 to 2 years before it collapses. The same is true of Europe and Japan is already collapsing before our eyes.
Get ready folks in two years your savings will be worhtless and you will not make enough money to pay the taxes on your houses let alone buy food
Merry Christmas and Happy New Year
The debt will not be paid down.
Waste and fraud will continue.
The Federal government will continue to spend money just like a drunken sailor on leave.
Now they want us to pay for their good time.
WE the People are required to fix it.
[REIN IN BIG GOVERNMENT OVERREACH]
Poor foresight by all Americans regarding Washington legislation have created decades of inept policies. A simple, strategic, powerful fix to jump start the process:
28th constitutional amendment: Yearly Balanced Budget Required
Debt to GDP ratio
>35% = balanced
<35% = allow 10% extra yearly spending
This will not be easy to get congress to enact. The good news is we don’t need Washington to move this: The Constitution provides that an amendment may be proposed either by the Congress with a two-thirds majority vote in both the House of Representatives and the Senate or by a constitutional convention called for by two-thirds of the State legislatures.
It will take only one state to get the ball rolling!!!!!!! A STATE CONSTITUTIONAL CONVENTION!!!!!!!
Merry CHRISTmas,everybody ! ! ! !
PLAN B.....Was never a FAILURE....It was never a PLAN.
Buffoonery at it's best...
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All hail the bull market, which ended the week with a big rally. But it also is starting to look a little like 1987, which suffered an epic blow-out.
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