Driving off the Edge of the Cliff - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 22 December 2012
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- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
Imagine the following situation. There are two rowdy teenagers who recently learned how to drive. They both decide to play a game of chicken. It works as follows: Both of them drive their cars at full speed towards a cliff. The first one to brake loses. If neither one brakes; both will drive off the cliff and will likely die.

This may sound like something out of a bad movie, but it is actually very real. It is exactly what is going on as US politicians try and agree a deal to fix the fiscal cliff. The only problem is that both sides are showing no signs of hitting the brakes anytime soon. And they are close to the cliff right now.

The most recent negotiations have resulted in nothing. And now the US congress is taking a break for the holidays, and no negotiations will start until after Christmas. So after a whole month of accomplishing nothing, these politicians agree only to take their Christmas holidays while the rest of the world watches them drive closer to the cliff.

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When most people don't do their jobs properly, they get fired. On top of that, they certainly do not get a paid vacation in addition to accomplishing nothing while on the job. The behavior of these politicians is absolutely disgusting. It is one thing for the global economy to face a crisis. It is another to deliberately manufacture one in the first place.

We all know the consequences of not reaching a deal. Nobody wants that to occur. Yet with each passing day this is appearing more and more likely. Each side would much rather drive off the cliff than be the first to hit the brakes. Even though it is in neither side's interest for this to occur.

Things may obviously change in the weeks to come. We could still end up with some kind of the deal before the year ends. Or possibly after the New Year starts. Either way, we have successfully manufactured a new global crisis.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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3 Responses to "Driving off the Edge of the Cliff"

Mandeep Singh

Dec 29, 2012

Is this the end of the world or doomsday?

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SIVARAMAKRISHNAN

Dec 23, 2012

Mr Asad, Recently there is a lot of noise about this US fiscal cliff but according to me it is a welcome sign for all. Now, let us view this cliff in a more positive way. What do i mean is right now this cliff looks like just a slope and even if the novice drivers fall they could get away with just bruises and fracture but if the drivers continue to drive fearing not to climb the slope at all then the same slope may get steep and tall due to more erosion of land to form a tall cliff and for sure even if they become mature and experienced drivers later they are likely to die in the future.

A fracture due to fall from the slope is better than a death due to fall from a tall cliff.

I would suggest the US to view the present economic crisis as just a fiscal slope to jump safely than to view it as an insurmountable fiscal cliff.

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Ron

Dec 23, 2012

Extending Assad's analogy of two rowdies trying to drive into the cliff etc. further lets assume that they in fact did not brake and both fall off the cliff. What happens then? The so called fiscal cliff dilema is a manufactured one invented and sold to the public to create sense of crisis to everyone. One of the big beneficiaries of the invented crisis is the stock market analysts and other financial /economic advisers who can exploit the so called crisis to spin their stories to fit their desription of events and their fall out. Continuing the analogy further if both of them fall off the cliff then automatic cuts to spending comes into play as well as tax cuts also will cease so what the two sides want to avoid is the only result of such inabiity to arrive at a compromise. Taking it further, if automatic cuts to spending comes through then its not bad for the economy in the long run, the "good effects" of such cuts will start accruing to the economy after say an year as people Govt. will automatically adjust to the reduced level of spending by really addressing the issue of unwanted spending and prioritise programs which will require funding, cut programs which is a drain on resource. Since tax cuts lapse there will be some increase in revenues on that front and together these two will act to give a positive momentum to the economy. So I for one feel that this hype surrounding the imaginary fiscal cliff is totally unnecessary. In the end both sides will slam their brakes hard as they don't want to be seen as becoming irrelevant in shaping the economy!!

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