We Did Not Fall Off the Cliff; We Will Get Stuck on the Ceiling

NEW YORK (TheStreet) -- As far as political melodrama is concerned, it doesn't get mellower than the cliff-hanger of a negotiation about the fiscal cliff. As a typical Hollywood blockbuster, the hero and the villain duke it out amidst fantastic noise and flashes until the very last minute and the hero has no other choice but to win and kiss the girl.

The crowd never gets tired of it. Only this way, it feels, can it get its money's worth.

We got our money's full worth in the entertainment department. But in the real-value department it's far less satisfactory. They did reach an agreement, as I cynically predicted. But they settled on the easy part, which is raising taxes, and left out the hard part, which is cutting spending. This is not what I predicted. I did expect the Republicans to give up and give in; I just didn't expect them to do it so thoroughly.

But raising taxes is easy; you just pretend that you're raising somebody else's taxes. Cutting spending is always much harder because spending is such a joyous and charitable thing to do, especially when it's nobody-in-particular's money.

If the Republicans had to fight so heroically against raising taxes, without cutting one penny (and what is this penny thing anyway? Has anybody used it?) of spending; then there's no way they could even last a day in the coming one-sided massacre of a negotiation on debt ceiling. Their threat of holding firm on the debt ceiling is so pathetic that the joke of minting one trillion dollar worth of platinum coins has been taken as a serious counter-balancing nuclear-weapon by their opponents.

I expect that the Republican members of the Congress would show up to the upcoming negotiations with the sole purpose of a satisfying therapeutic session, to curl up in a cushy corner and sulk.

Either this is democracy at work or Obama overplayed his mandate. For simplicity of argument I'll assume it's the former for now. It makes sense. For all our heroic, innovative and flat-out awesome fiscal and monetary abuses, we have received no punishment at all. So why not be a good sport when the world insists on burying you with free money? So Republicans will give in again, what's the problem?

The problem is, this time around the world is not full of problems. The Eurozone has, much to my amazement I must admit, managed to go three full months without a crisis. The OMT (for "outright money transactions") program seems to have scared the evil speculators away for long enough for eurozone leaders to pat each other on the back. Even German Chancellor Angela Merkel has regain popular support by supporting the perpetual support of the peripherals.

Even though, as Merkel said, to her credit quite correctly, that the euro crisis is far from over, I highly doubt it'll resurface in time for the debt ceiling talk in the U.S. China seems to have settled the question of hard landing vs. soft landing and, with much relief, playing a little trampoline on the cushy bottom for the time being.

Japan is full boil in the Abe fever all of a sudden. For the record, I think Japan's heavy stimulus fiscal and monetary policy package, if materialized, would be suicidal in the longer term -- as they finally get the inflation they so dearly longed for, for so long, they may find it a bit difficult to service the mounting debt all of a sudden. But, again, this is a problem that will not be here in time to make the debt ceiling negotiations easier.

What all these mean is this. Due to the lack of bigger worries, the market might as well pay attention to U.S. debt and credit rating this time. Unlike the last time when U.S. credit rating got a slap in the face, which missed by a mile and slapped the raters' face, this one is very likely to land on the originally intended target.

While everybody knows the bond bubble will burst and nobody dares to predict when, this could very well be the perennial prick, without the Fed doing any selling. Even if the Fed dutifully ramps up buying, I doubt it'd help since, when the market finally latches onto a fundamental problem, it may show surprising stubbornness.

In summary, in this scenario the dollar and Treasuries may suddenly stop being the safe haven. Where would the world turn to? Euro, yen, gold. All temporary refuges, for sure. But temporary refuges nevertheless.

Unless, of course, Washington actually works out a compromise in meaningful cuts in spending and deficit. There would be some big moves in stocks and bonds, depending on the details of cuts. But Treasury and MBS yields may stay low even if the Fed stops buying.

Ha, imagine that!

Well, a man can dream, can't he?

At the time of publication, the author was long gold.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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