Mystery Economic Theatre 2013
 

So the old year is gone and the new year has begun. It might be time to reflect on the good and bad of the year and to consider the impact of recent events on the new year we have begun.

The "Fiscal Cliff" has been supposedly avoided by an 11th hour deal that basically maintains the status quo. The only significant change is that taxes on dividends and incomes over $400,000 (single) or $450,000 (married) will rise a bit.

Was this a huge win for Obama? No, actually it may turn out to be a strategic mistake of earthshaking dimensions. Why? Because Obama let the deal go through with relatively few concessions. The next major argument will be over raising the debt ceiling and you can bet the republicans will hold feet to the fire until they get concessions on Social Security, Medicare, and Medicaid. I have a serious problem with the reductions to Social Security because I know they will have me as a target. I fit almost exactly the profile of a person who will draw the maximum when I retire in about 14 years.

Reminds me of an old adventure game years ago, if you kick the dog, the dog bites your leg.

DarJones

[QUOTE=Fusion_power;323279]< snip > The next major argument will be over raising the debt ceiling and you can bet the republicans will hold feet to the fire until they get concessions on Social Security, Medicare, and Medicaid.[/QUOTE]
But Obama has stuff on his side, too -- e.g., do away with Congressional power to set, or at least enforce, a debt ceiling.

This is what I wrote a year ago as predictions for 2012:

1. Obama will win.
2. Euro will appreciate with respect to dollar. Low inflation in eurozone.
3. Greece will be kept on the brink of bankruptcy, but nothing like bankruptcy (or leaving eurozone) will happen. Paying huge interest rates for its debt, situation of Greece will worsen.
4. There will not be a real winter in Europe, as it was in previous years. Unfortunately, this becomes a rule.


I am ready to hear that my predictions were wrong, I am used to this. I already read on this forum that "euro will weaken further with respect to dollar". Well, euro appreciated about 20% with respect to a dollar in 2012. But everybody has the right to have his own opinion, even if it is totally wrong.

Now it is time to state new predictions for 2013. I will restrict myself to a fiscal cliff problem to be short.

1. Debt ceiling will be risen. It is the simplest way, not harmful for anybody (for the time being).
2. At the end of 2013 it will appear that budget deficit is bigger then it was in 2012.
3. No smaller debt, no budget cuts (or very little), no tax hikes.

Let me remind that these are only my predictions. Reality can be substantially different.

'Well, euro appreciated about 20% with respect to a dollar in 2012' just doesn't seem to be true; EUR/USD went from 1.30 to 1.22 then back to 1.32, which isn't a 20% move even if you look at it optimistically.

I expect low inflation and low interest rates indefinitely - the Western world is now Japan, and the consequences of increasing inflation or interest rates would be bad enough that the increase won't happen.

[QUOTE=ewmayer;323334][url=http://finance.yahoo.com/q/hp?s=FXE&a=11&b=12&c=2005&d=00&e=1&f=2013&g=m]Historical end-of-month data[/url] show a gain of less than 1% in 2012. But hey, you had the sign right...

Or was your "20%" based on the same kind of arithmetic the Greek government uses when it promises "20% public sector spending cuts" in order to get the next tranche of bailout monies?

[I could get used to this "sniping from the sidelines" thing.][/QUOTE]



When I wrote predictions for 2012 (post #2) euro was about 1.16. Yes, it does not make 20% rise, but about 10%. Even in this situation it is hard to say about "further weakening".
Your table in the quoted link is not table of euro values. It is entitled "CurrencyShares Euro Trust (FXE)". Probably it is something based on futures of euro. Futures for euro depend on values of euro, but it is not the same.


BTW. Number 1% is also positive. So where is your "further weakening"?

U.S. Fiscal Cliff Deal Leaves House Republicans Angry, Deal In Jeopardy
 

[url]http://www.huffingtonpost.com/2013/01/01/us-fiscal-cliff_n_2393102.html[/url]

[QUOTE] A high-stakes, multi-layered game of chicken is underway in the Capitol, as House Republicans grapple with how to handle a fiscal cliff bill sent their way by an overwhelming bipartisan vote, even while it's wildly unpopular within their conference.[/QUOTE]

[QUOTE]They'll have no difficulty making life uncomfortable for Senate Minority Leader Mitch McConnell (R-Ky.), who they blame for getting them in this mess, said one GOP source close to the situation. "He jammed the House. He's gonna get re-jammed," he said of the possibility the House amends the bill and sends it back to the Senate.[/QUOTE]

I am delighted to see this disarray among Republicans. I don't like what came out of the Senate. The concessions on income levels on which taxes would increase should not, and need not have been made. It would make me very happy if House Republicans shoot down the deal. It also seems that now Ryan, as well as Cantor have their knives out and at Boehner's back. Still, I'd rather have Boehner than either of those toxic characters as Speaker.

[QUOTE=ewmayer;323342]There are surely many people who would be interested to know in which "Forex market" the Euro dipped that far below $1.20 at any point last year. Your claimed $1.16 start-of-2012 number represents a 10% discount over what "the other Euro" (you know, the one actually used by the EMU) was trading at at the time. I for one would love to be able to buy Euros (or any other currency) at a 10% discount relative to the official exchange rate? Got a link to the Forex site which permits you to do so?

The ETF I quoted simply tracks the EURUSB exchange rate, 1:1. You can see the official exchange rate data [url=http://www.bloomberg.com/quote/EURUSD:CUR]at Bloomberg[/url], if you prefer.[/QUOTE]


Yes, it was 1.16, I remember it. All charts that I know show only values for the past 6 months. But the discussion is not about exact numbers, but whether euro appreciated with respect to dollar or not i.e. whether I was right in my predictions or not.
On the other hand your statement "further weakening of euro" indicates that according to you, euro values dropped in the near past. Even your charts contradict this. For the past 6 months euro was rising almost constantly and in the entire year increased 1% (according to you). Positive 1%.

[QUOTE=ewmayer;323346]Ah, I see, you're getting your data from [url]www.ijustpulledanumberoutofmybutt.com[/url] - carry on.[/QUOTE]


I wish you Happy New Year too.

Consider the growth in the number of dollars in the world economy now vs a year ago. It is obvious that the U.S. currency should have slipped relative to most major currencies. It is an insidious form of inflation where the impact is shoved onto other nations instead of felt at home. It makes U.S. goods cheaper to sell overseas and makes overseas goods more expensive in the U.S.

If I were putting a name to this period of history, I would probably call it the Era of Dysfunctional Governments. Why is it not possible for government leaders to do their job? Why do we have huge deficits? Where will this logically lead over the next year and the years after that? Anyone care to comment on these themes?

DarJones

[QUOTE=Fusion_power;323370]Consider the growth in the number of dollars in the world economy now vs a year ago. It is obvious that the U.S. currency should have slipped relative to most major currencies.

DarJones[/QUOTE]



It was not so obvious in time I was writing my predictions for 2012 (see post #3). In this time euro was going down, everybody was talking about disappearance of euro.

Press responses
 

Some possibly interesting [URL="http://www.bbc.co.uk/news/world-us-canada-20891883"]responses from the world's press.[/URL]