Obama's latest quid-pro-quo with the republican party over a doubling down on fiscal stimulus in the form of mutual back scratching, funding by yet another trillion in debt, may have well be the start of his toxic spiral to the the bottom of political insignificance. According to Politico, "The tax deal negotiated by President Barack Obama and Senate Republican leader Mitch McConnell of Kentucky is just the first part of a multistage drama that is likely to further divide and weaken Democrats." Next up on the path of what many see as the terminal alienation of the president from his liberal constituency, will occur during the next State of the Union Address, when the teleprompter in chief is expected to announce cuts in Social Security, according to Politico which quotes "well-placed sources." Why will the president pretend to espouse even an ounce of fiscal prudence? Because, around that time the discussion over the US debt ceiling will be in full heat: we expect total US debt to be about $14.1 trillion by the end of January: just a $200 billion buffer from the debt ceiling breach. Therefore, as Robert Kuttner of politico speculates: "The idea is to pre-empt an even more draconian set of budget cuts likely to be proposed by the incoming House Budget Committee chairman, Rep. Paul Ryan (R-Wis.), as a condition of extending the debt ceiling. This is expected to hit in April." And as Kuttner once again phrases it best: "How to put this politely? For a Democratic president, this approach is bad economics and worse politics."

More from Politico:

For starters, cutting Social Security as part of a deficit reduction deal is needless — since Social Security is in surplus for the next 27 years. The move also gives away the single most potent distinction between Democrats and Republicans — Democrats defend your Social Security, and Republicans keep trying to undermine it.



If you think the Democratic base feels betrayed by Obama’s tax-cut deal, just imagine the mayhem when Obama proposes to cut the Democrats’ signature program.



Sen. Al Franken (D-Minn.) compared Obama’s tax deal to punting on first down. A pre-emptive cut in Social Security is forfeiting the game before kickoff.



Obama is already in trouble with older voters. Republicans have succeeded in convincing seniors that the health care reform bill diverted money from Medicare.

With his recent tax extension compromise Obama has effectively checkmated himself into a corner from which not even his delightful onscreen charm can extricate him:

Consider what the right will do when Obama moves to cut Social Security. Republicans, with no sense of contradiction or hypocrisy, will whack Obama once for not being sufficiently serious about deficit reduction — then whack him again for cutting Social Security.

As for what next steps are, it may just get a whole lot more interesting to all those who follow the MOVE index:

As for the Republicans’ leverage on raising the debt ceiling, a more resolute president would dare the Republicans to jeopardize government bonds, just as President Bill Clinton dared Speaker Newt Gingrich to shut down the government. One hopes that Clinton, in his recent visit to the White House, reminded Obama that Gingrich blinked first. But Obama’s trademark is that he blinks first.



There was brief talk in the House Democratic Caucus on Tuesday night of tying an extension of the debt ceiling to the tax deal, to deprive the Republicans of that leverage. But that support crumbled in the face of White House lobbying and overwhelming Senate support for the deal. Obama, who gives in repeatedly to Republicans, turns out to be highly skilled at isolating Democrats.

And another observation, which has to do with not only decision making in the beltway, but the increasing incursion by Wall Street into both the fiscal and monetary decision process in Washington: now that Obama has no economic advisors left aside from Geithner, it is up to Tim to call up Jan Hatzius daily and get his thoughts on what should be done. Of course, the end result is one that is in Goldman's best interest, and in America's worst:

Beltway Washington — the editorial writers, columnists, centrist policy organizations, Blue Dogs and, of course, the Obama administration and its Wall Street advisers — has become an echo chamber of bad advice.

End result: no second term for Obama, as his shallow rhetoric is exposed for all to see that it is nothing but a deflection from the fact that his entire platform is falling asunder:

Obama is finally getting the bipartisanship he craved — but entirely on Republican terms.



Republicans win three ways. They have a Democratic president doing their work for them, destroying the Democratic capacity to use affirmative government to address dire national problems and annihilating his own party.



And for an economy, in which the market has become nothing but a policy tool, we believe that the rising temperature in DC, is about to manifest itself in a surge in market volatility, which on Friday hit a near record 2010 low, although not only in stocks, but across all asset classes, as we have been demonstrating patiently over the past month. Should that vol enter bonds, and just a few days ago we had a 6 sigma event in the 2s5s30s, which we will describe shortly, this would mean some very painful derisking in that most important of asset classes, and a rapid test of just how accurate Jim O'Neill's prediction that surging bonds rates are really nothing but a boon to the economy.

