Here are some last minute reads to keep you busy while your significant other gets dressed tonite:
• Which professions have the most psychopaths? The fewest? (Barking Up the Wrong Tree)
• 2012: The Year in Graphs (Wonkblog)
• Experts back Deutsche whistleblowers FT Alphaville)
• No Matter How You Look at It, Apple’s Shares Are Cheap (Barron’s)
• In discussing compromise, remember: Republicans lost the election (The Plum Line) see also This Political Polarization Is Really Bad for America (Huffington Post)
• The Fiscal Cliff Is A Diversion: The Derivatives Tsunami and the Dollar Bubble (Paul Craig Roberts)
• Settlement Expected on Past Abuses in Home Loans (NYT) but see BofA Settlement Hits Snags (WSJ)
• The 15 Best Gadgets of 2012 (Paste)
• The Unhappy Marriage of Capitalism and Conservatism (Economix) see also Democrats and Republicans belong to different groups (Mischiefs of Action)
• A Congregation of Motherfuckers in the Senate (The Rude Pundit)
What are you doing tonight?
Jobless Claims Make a Post Recession Low
Source: Bespokeource: WSJ
Dr. Black hits the latest good news from Capitol Hill
The House has signaled that it isn't going to play ball today
And I am no longer the only economist noting that the House--not for the first time--is forcing the Administration to do what it should have been ready to do all along. In fact, Brad DeLong cites Tim Noah,* Scott Lemieux and Jon Chait(!), Aging Ezra, and Paul Krugman and Noam Schreiber,** while Jared Bernstein, last seen being willing to further reduce Senior Purchasing Power for a pair of dirty socks, puts it directly:
The thing that worried me most in the endgame is that the [White House] would be so intent on a deal that they’d lock in too few revenues with no path back to the revenue well, and that they’d leave the debt ceiling hanging out there.... Those fears will be realized unless the President really and truly refuses to negotiate on the debt ceiling and is willing to blow past those who would stage a strategic default. If he is not, and if this cliff deal passes, then I fear the WH may have squandered its hard won leverage.
That last is apparently politico-speak for "look who just s*at the bed." Thank G-d for House Republicans. Otherwise, this Administration would have killed itself long ago.
*Wherein I mix Hebrew and Yiddish in comments. This could become DeLong's first entirely non-English comments thread... **Sadly, I take this as more evidence that Slouching Toward Prosperity will not be published in my lifetime.
Bloomberg reports Gold Extends Longest Streak Since 1920 on Central-Bank Stimulus
Gold rose, capping the longest annual gain since at least 1920, on renewed concern that central banks from Europe to China will take steps to spur economic growth and as U.S. leaders near a budget deal.
Gold futures for February delivery gained 1.2 percent to settle at $1,675.80 at 1:41 p.m. on the Comex in New York, while prices for immediate delivery jumped as much as 1.5 percent. Through Dec. 28, the metal had slumped for five straight weeks as the deadline for the so-called fiscal cliff of automatic tax increases and spending cuts due to take effect tomorrow loomed. President Obama said today at a White House event that an agreement was “within sight.”
The metal averaged a record $1,670.71 this year in New York even as it slid 6 percent since September, the biggest quarterly drop since 2004. The run of annual gains in the immediate delivery market is the longest since at least 1920. The Standard & Poor’s GSCI gauge of 24 commodities gained 0.3 percent
This year, bullion gained 7 percent on the Comex, where floor trading will be closed tomorrow for New Year’s Day. Platinum futures rallied 9.8 percent this year in New York and palladium gained 7.2 percent as labor unrest in South Africa helped curb supply. Silver increased 8.3 percent.
The amusing irony, as noted in Poison Pill and Gold Debate
is that someone posting under the name "Uncle Frank" made the following accusation.
"Mish relishes chaos and financial ruin for this country so his gold
holdings shoot-up in value. Everyone has an ulterior motive you know
"Uncle Frank" is devoid of clear thinking because fiscal prudence is the one thing that would be bad for gold.
Repeating what I said earlier ....
Regardless of my personal beliefs regarding gold (that one would be
prudent to buy and hold gold), I actually advocate government and Fed
policies that are contrary to my recommendations.
My reasons are easily explained:
- Neither the Fed nor the government gives a damn about what is fiscally prudent.
- Both the Fed and Congress are highly likely to debase currency,
causing gold to rise, even if I think that is bad economic and fiscal
policy, which of course I do.
Should Congress actually do what I advocate, I think it
would not be good for gold.
I recommend governmental actions on the basis of policy merit alone, not
based on my stock market positioning. I find it very sad that few
others do the same.
Mike "Mish" Shedlock
Not as bad a deal as some reports, but setting up the next crisis.
I just listened to President Obama's latest remarks on fiscal policy
. This passage caught my attention:
I want to make clear that any agreement we have to deal with these automatic spending cuts that are being threatened for next month, those also have to be balanced, because, remember, my principle always has been let’s do things in a balanced, responsible way. And that means the revenues have to be part of the equation in turning off the sequester and eliminating these automatic spending cuts, as well as spending cuts.
Now, the same is true for any future deficit agreement. Obviously we’re going to have to do more to reduce our debt and our deficit. I’m willing to do more, but it’s going to have to be balanced. We’re going to have do it in a balanced responsible way.
For example, I’m willing to reduce our government’s Medicare bills by finding new ways to reduce the cost of health care in this country. That’s something that we all should agree on. We want to make sure that Medicare is there for future generations. But the current trajectory of health care costs has gone up so high, we’ve got to find ways to make sure that it’s sustainable.
But that kind of reform has to go hand and hand with doing some more work to reform our tax code, so that wealthy individuals, the biggest corporations, can’t take advantage of loopholes and deductions that aren’t available to most of the folks standing up here; aren’t available to most Americans.
So there is still more work to be done in the tax code to make it fair, even as we’re also looking at how we can strengthen something like Medicare.
Translation: The deal we are about to strike will raise taxes on the rich. But the fiscal imbalances we face will remain unsustainably large. So I will ask for more tax increases on the rich later.
The HSBC China Manufacturing PMI™
shows modest growth this month. The index is at 51.5 with growth above 50.
After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – posted 51.5 in December, up from 50.5 in November, signalling a modest improvement of operating conditions in the Chinese manufacturing sector. Moreover, it was the highest index reading since May 2011.
Input prices at manufacturing plants continued to increase in December, and for the third successive month. The rate of inflation eased slightly from November but remained marked overall. Average tariffs also increased during December, after remaining broadly similar in November. Output charges rose at an accelerated pace that, although modest, was the quickest in 14 months. Anecdotal evidence suggested that tariffs were raised in line with rising market demand and higher input costs.
Purchasing activity rose at a marked rate in December, the fastest since March 2011. Exactly 17% of panellists reported increased input buying. Consequently, stocks of purchases also rose. Even though the pace of stock accumulation was only slight, it was the quickest in two years. Rises in input buying and stocks of purchases were generally associated with higher new order volumes.
Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:
“December’s final manufacturing PMI picked up for the fourth consecutive month to a 19-month high, thanks to the faster new business flows and the end of destocking. Such a momentum is likely to be sustained in the coming months when infrastructure construction runs into full speed and property market conditions stabilise. This, plus Beijing’s reiteration of keeping pro-growth policy in place into the coming year, should support a modest growth recovery of around 8.6% y-o-y in 2013, despite the ongoing external headwinds.”
I beg to differ with Hongbin Qu.
There is no reason to believe property market conditions will stabilize. Nor is there any reason to believe infrastructure construction will run at "full speed" for any significant length of time.
Indeed, should either of those happen, China's already massive rebalancing problem will just get worse.
- July 18, 2012: "China Rebalancing Has Begun"; What are the Global Implications? Michael Pettis on China Rebalancing, Chinese Price Deflation, and Spain Exit from Euro; Target 2 Revisited
- August 16, 2012: Pettis on Debt, Currency Wars, Commodity Prices and Capital Flight; China FDI Contracts 8.7% YoY, 8th Drop in 9 Months
- December 27, 2012: Michael Pettis on China Reforms, Ponzi Schemes in Wealth Management Programs, Rebalancing Implications
For a more realistic assessment on what is happening in China and why, please visit some of the above links.
This modest bounce in China PMI to a number barely above contraction is nothing to get excited about.
Mike "Mish" Shedlock
S&P 500 futures are up 24 points (1.7%) and gold is up $22 (1.3%) on news McConnell-Biden Said Close to Deal Except for Sequester
The White House and congressional negotiators have agreed to contours of a deal to avert the fiscal cliff including tax cut extensions, with the remaining sticking point being how to handle automatic military and domestic cuts, according to an official familiar with the talks.
Debate on How to Further Postpone Begins
Income tax cuts would be extended on families earning up to $450,000, the official said, with rates rising to 39.6 percent on incomes above that.
Rates on estate taxes would rise to 40 percent, on amounts above $5 million. Extensions of business tax breaks would continue through the end of 2013. There would be a permanent fix to the alternative minimum tax threshold.
The Medicare payment rate for doctors would be extended through 2013.
The contours of the possible deal would generate $600 billion toward deficit reduction. The debate over how to postpone automatic federal spending cuts remains. Democrats propose postponing it for a year, while Republicans want to allow cuts to begin taking effect with the new year.
In simple terms, Congress will achieve zero budget cuts if Democrats get their way. Republicans appear to be quite fine with that as long as military spending is not cut.
Thus, out of a trillion dollar budget deficit, Congress will have addressed a mere $60 billion a year in revenue and something close to $0 in budget cuts, allegedly avoiding a fiscal cliff but in reality creating a far bigger one a few years down the road.
Last year, before the election, Republicans could have gotten $10 in budget cuts for every $1 of additional revenue. Now they have agreed to tax hikes, getting virtually nothing in return.
The only hope for sanity is the House punts this bill a mile high, but don't count on it.
Mike "Mish" Shedlock
Click for ginormous chart
Source: Bianco Research
Since we are debating the deficit, debt and upcominn sequester/tax expiration, lets take a closer look at the history of the American Surplus & Deficits over time.
As you can see, going wildly into the red or black was common in the days before an income tax existed in the 19th century.
The 20th century saw the two world wars and the great depression as sources of spiking deficits relative to GDP.
Note the trend that began in the 1970s, accelerated in the 1980s and did not reverse til the late 1990s, only to start again in the 2000s.
What occurred over these eras?
The deficit eras were during the 1970s when the US went off the Gold Standard, the 1980s, during a period of huge unfunded tax cuts and massive military build up; the 2000′s saw more unfunded tax cuts, post 9/11 homeland security spending, rising military spending for 2 wars, additional domestic spending under Bush, then the financial crisis, the Obama stimulus, and even more defense spending and unfunded tax cuts and extensions.
The surplus was during the late 1990s when there was an economic boom accompanied with rising taxes.
Surplus/Deficit As A Percentage of total debt after the jump
Click for ginormous chart
Source: Bianco Research