Alas, U.S. politics remain center stage because of the recession risk.
THE “GRAND BARGAIN”: Grover vs the WSJ
I think it is significant that the WSJ, a truly republican paper, is taking this position in today’s editorial Republicans and the Tax Pledge:
(…) The fact is that Republicans and Mr. Norquist both face a new political reality on taxes. President Obama’s re-election means that taxes for upper-income earners are going up one way or another. The Bush rates expire on December 31 unless Mr. Obama signs an extension, and he shows no inclination to do so except for anyone earning less than $250,000 a year ($200,000 if you’re single). The question is how Republicans should handle this reality while staying true to their principles and doing the least harm to the economy.
This is where Mr. Norquist can give some ground. If taxes are going up anyway because the Bush rates expire, and Republicans can stop them from going up as much as they otherwise would, then pledge-takers deserve some credit for that. Mr. Norquist says it violates his pledge to eliminate deductions without lowering rates, but at the current economic and political moment it is also a service if Republicans prevent tax rates from going up. Speaker John Boehner deserves some leeway to try to mitigate the damage by negotiating a larger tax reform.
All the more so if Mr. Boehner can also get Mr. Obama to agree to significant spending and entitlement reform. This means more than the usual suspects of cuts to doctors and hospitals and means-testing benefits for the affluent.
It means reforms—dotted-line commitments, not promises—that immediately reduce Medicare and Social Security liabilities, that terminate some discretionary programs, and that rein in such scandals as runaway Social Security disability payments. We doubt Mr. Obama will agree to much of this, but Republicans ought to try by putting their proposals out in the open where voters can see them. (…)
Democrats also have to deal … with themselves. From the truly democrat NYT:
(…) Even if Mr. Obama and Republican leaders in Congress could agree on savings in Medicare and Medicaid, the president would face resistance from some liberal members of his party who oppose cuts in the two giant health care entitlement programs. Medicare and Medicaid insure one-third of all Americans, account for more than one-fifth of the federal budget and are expected to grow much faster than the economy in the coming decade.
Two staunch liberals, Senators Tom Harkin of Iowa and John D. Rockefeller IV of West Virginia, said in a letter to Mr. Obama that he should “reject changes to Medicare, Medicaid and Social Security that would cut benefits, shift costs to states, alter the structure of these critical programs, or force vulnerable populations to bear the burden of deficit reduction.”
More than 40 House members, led by the Congressional Progressive Caucus, declare in a resolution that any deal on taxes and spending “should not cut Medicare, Medicaid or Social Security benefits.”
Bloomberg sums up the situation:
To get a deal with Democrats, Republicans would have to turn their talk of higher revenue into a vote that may split the party. And to transform Republicans’ talk into action, Democrats would need to accept deeper cuts to entitlement programs such as Medicare and Medicaid than they are willing to countenance.
It all comes down to the President:
“It is time for the president to present a plan that rises above these reckless and radical voices on the hard left,” Mr. McConnell said. “He’s the only one who can lead his party to do something they wouldn’t ordinarily do.” (WSJ)
Why it’s wise to compromise (From Business Insider)
When the government decided to build a highway to Wenling, a town in China’s Zhejiang province, it offered everyone in the neighborhood compensation to relocate.
But farmer Luo Baogen and his wife refused to move, saying the compensation wasn’t enough for them to rebuild their home elsewhere.
Faced with Luo’s refusal to leave, the government decided to go ahead and build the road around it anyway.
The Federal Reserve Bank of Chicago said Monday its National Activity Index’s three-month moving average dropped to -0.56 in October from -0.36 in September.
The one-month reading, a more volatile number, fell to -0.56 in October from a flat reading of zero in September making this six of the last eight months that the index has been in the negative.
Doug Short explains the recession risk:
The next chart highlights the -0.7 level. The Chicago Fed explains:
When the CFNAI-MA3 value moves below -0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun.
The next chart highlights the -0.70 level and the value of the CFNAI-MA3 at the start of the seven recession that during the timeframe of this indicator. The 1973-75 event was an outlier because of the rapid rise of inflation following the 1973 Oil Embargo. As for the other six, we see that all but one started when the CFNAI-MA3 was above the -0.70 level.
The hope is that the latest month was mainly Sandy’s making. Haver Analytics:
Deterioration in the CFNAI reflected declines in all four component series, but it was most notable in the Production & Income number. It dropped to -0.45 and gave back most of its September improvement. The Sales, Inventories & Orders series also declined sharply m/m but remained barely positive. In addition, the Employment, Unemployment & Hours series fell hard but it too remained positive. The Personal Consumption & Housing series dipped and remained negative. In this series, however, the recent trend has been improving while the others have moved sideways or deteriorated. The Chicago Fed reported that during October, 31 of the 85 individual indicators made positive contributions to the index while 54 made negative contributions.
The world economy is at risk of a fresh contraction if euro-zone and U.S. policy makers fail to restore confidence by resolving their fiscal problems, the Organization for Economic Cooperation and Development warned.
In its twice-yearly report on global economic prospects, the Paris-based think-tank delivered its most urgent call to action since late 2008, when the global economy was confronting a deepening financial crisis.
It urged central banks in the euro zone, Japan, China and India to provide further stimulus to their economies, and said governments should slow their budget cuts, which it said were damping growth to a greater degree than it had expected.
(…) countries such as China and Germany that are running trade surpluses should provide temporary fiscal stimulus. (…)
Assuming that its worst fears don’t come to pass, the think-tank said it now expects the combined GDP of the OECD’s members to grow 1.4% next year, unchanged from 2012, and pick up to 2.3% in 2014. In May it forecast growth of 1.6% this year and 2.2% next. (…)
It now expects the euro-zone economy to contract 0.1% in 2013, having previously forecast an expansion of 0.9%. The U.S. economy will grow 2% instead of the 2.6% predicted in May, while growth in Japan will be 0.7%, rather than the 1.5% previously forecast. (…)
(…) Industrial profits in October rose 21% from the same month a year earlier to 500.1 billion yuan ($80.3 billion), accelerating from an increase of 7.8% in September, when profit growth swung into positive territory for the first time this year, data from the National Bureau of Statistics showed.
Major industrial companies’ profit margins for the first 10 months of the year rose to 5.46%—the highest level this year—from 5.36% during the first nine months.
Meanwhile, average year-to-date costs declined for a third-consecutive month, to 85.37 yuan per 100 yuan of revenue for the first 10 months, official data showed. (…)