It must be a great and terrible power that the top fiscal cliff negotiators wield. The markets react more when they speak than when hedge fund wunderkinds move their money, and with less than a week on the clock until the new year and fiscal cliff trigger, every moment of their pessimism is caught in the media spotlight.
On Thursday, it was Senate Majority Leader Harry Reid pointing at the fiscal cliff and saying in a speech, “it looks like that is where we’re headed.” That sentiment, voiced by one of the top policymakers in Washington and echoed by both sides of the aisle, is credited with bringing the three major U.S. equity indices down over 1 percent in afternoon trading.
Catalysts are critical to discovering winning stocks. Check out our newest CHEAT SHEET stock picks now.
This game of cause and effect that Washington is playing with Wall Street has been going on for weeks, with the stakes getting higher each day a deal isn’t found. No matter how each match is played, consensus seems to be that everybody loses and blame gets tossed around like a hot potato.
Senator Ben Nelson (D-Nebraska) told The New York Times, “There are folks who are elected who have come here with an agenda to do nothing want to stop everything. It may be the new norm — blocking everything.” Nelson is referring to the far right, such as the House Republicans who torpedoed Speaker John Boehner’s (R-Ohio) “Plan B” proposal.
Plan B would have renewed the Bush-era tax cuts for all Americans earning less than $1 million per year, while letting the tax cuts for those earning more than that amount expire. This was a far cry from Obama’s upwardly-revised proposal of a $400,000 cut-off point, but a huge step forward from the hardline no-new-taxes policy that Republicans brought to the table.
But at the end of the day, that step was too big for some members of the House to take, and his own party killed the bill before it went to a vote. Representative Tim Huelskamp (R-Kansas) told CNN that the bill’s failure was a “victory for conservative principles.” The GOP is still waiting for palatable entitlement reform from the White House — they are seeking as much as $1.35 trillion in cuts while the current offer is about $930 billion, or $850 billion net after spending.
Further complicating the issue, and perhaps most worrisome, is the debt ceiling, which Treasury Secretary Timothy Geithner said the U.S. will hit on December 31. Members of the GOP are insisting on more budget cuts as a condition for raising the ceiling. Perhaps the only thing worse than failing to reach an agreement on spending cuts or revenue increases would be the U.S. defaulting on its obligations.