What Good Are Republicans if They Can't Protect Us from Class Warfare? | Jim Powell | Cato Institute: Commentary

Jim Powell of the Cato Institute gives his view on why Romney lost the election:

Romney lost for several reasons. The bulk of his primary advertising seems to have been spent attacking opponents, rather than defining himself, with the consequence that by the time the primaries were over, his reputation was a blank slate as far as the general public was concerned — an irresistible target for Obama’s early advertising blitz that defined him as an out-of-touch rich guy who destroyed American jobs. Romney was on the defensive from the get-go……

via What Good Are Republicans if They Can't Protect Us from Class Warfare? | Jim Powell | Cato Institute: Commentary.

Canada: TSX Composite

The TSX Composite Index continues to consolidate below 12500. Reversal below 12100 and the rising trendline would warn of another test of primary support at 11200. Reversal of 63-day Twiggs Momentum below zero would strengthen the bear signal.  Breakout above 12500, however, would signal a primary advance, while follow-through above 12800 would confirm.

TSX Composite Index

* Target calculation: 12500 + ( 12500 – 11000 ) = 14000

US: Honeymoon is over

The S&P 500 broke support at 1400, warning that a top is forming. A 21-day Twiggs Money Flow peak below zero would indicate medium-term selling pressure. The “honeymoon” period leading up to the election is over. It is back to “business as usual” as the President and the Republican-controlled Congress arm-wrestle over taxes, entitlements and the budget deficit. Speaker of the House John Boehner extended an olive-branch of sorts, saying that Republicans were willing to accept additional tax revenues, but his emphasis remains on reforming entitlement programs and curbing “special interest loopholes and deductions”.

S&P 500 Index
The Dow Jones Industrial Average similarly broke support at 13000 on the weekly chart. Breach of support and the primary trendline warn that a top is forming. Reversal of 63-day Twiggs Momentum below zero would suggest a primary down-trend. Recovery above 13300 is unlikely at present but would indicate another advance.

Dow Jones Industrial Average

* Target calculation: 13000 + ( 13000 – 12000 ) = 14000

Markets Worry About Fiscal Cliff

Michael S. Derby writes about the looming fiscal cliff:

The central problem is the lack of change. President Barack Obama was reelected. Democrats retained control of the Senate, while Republicans held on to the House of Representatives. The fiscal cliff can only be resolved if lawmakers work together. “Returning to status quo likely means all sides see the voters as supporting their views, which means reaching compromise is not likely to get any easier,” economists at Bank of America Merrill Lynch warned clients.

Speaker of the House John Boehner (R-Ohio) says “the Republican majority in the House stands ready to work with [the President] to do what’s best for our country.” Republicans appear willing to accept additional tax revenues but their emphasis is on reforming entitlement programs and curbing “special interest loopholes and deductions”.

The Congressional Budget Office summarizes the fiscal cliff as:

Among the policy changes that are due to occur in January under current law, the following will have the largest impact on the budget and the economy:

  • A host of significant provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Public Law 111-312) are set to expire, including provisions that extended reductions in tax rates and expansions of tax credits and deductions originally enacted in 2001, 2003, or 2009. (Provisions designed to limit the reach of the alternative minimum tax, or AMT, expired on December 31, 2011.)
  • Sharp reductions in Medicare’s payment rates for physicians’ services are scheduled to take effect.
  • Automatic enforcement procedures established by the Budget Control Act of 2011 to restrain discretionary and mandatory spending are set to go into effect.
  • Extensions of emergency unemployment benefits and a reduction of 2 percentage points in the payroll tax for Social Security are scheduled to expire.

The CBO estimates that increases in federal taxes and reductions in federal spending, totaling almost
$500 billion, will cause a 0.5 percent drop in GDP in 2013.

The other candidate

Scott Sumner writes on Libertarian candidate Gary Johnson:

When he ran for governor as a Republican in heavily Democratic New Mexico. He had no prior political experience. He won by a 10-point margin. (By poetic coincidence, he beat a competitor for the GOP nomination named Dick Cheney.) Johnson spent his first term slashing taxes and reining in the growth of the state budget. Then he won a second term, and spent that crusading for school vouchers and marijuana legalization. He set a record for vetoing bills—750 of them, more than all other 49 governors combined during the same period—and left a budget surplus in his wake…..

via TheMoneyIllusion.

The most expensive election in history

Lam Thuy Vo writes:

Today wraps up what is set to be the most expensive election in the history of the U.S. Total spending on federal campaigns will be about $6 billion, according to the Center for Responsive Politics. This includes both official campaign spending and spending by outside groups for the presidential, House, and Senate campaigns…..

Do you think that $6 billion buys a better election result? Or would restricting each candidate to $100 million worth of air time increase the competition and improve the outcome?

After all there are many good people out there with good ideas but without the financial backing. And restricting campaign spending would limit the influence of special interest groups.

via Here’s One Number That Makes $6 Billion In Campaign Spending Seem Low : Planet Money : NPR.

A New Idea on How to Fix the Ratings Agencies – CNBC

John Carney comes up with an idea to fix the rating agencies:

Instead, we could restrict the access that ratings agencies have to non-public information, perhaps along the lines that we ban selective disclosure under Regulation FD. An issuer could be banned from disclosing to a ratings agency any information that it does not generally disclose to the public. All ratings would be based on public information.

That would increase transparency, encourage new entrants and promote competition.

via A New Idea on How to Fix the Ratings Agencies – CNBC.

Forex: Euro, Pound Sterling, Australian Dollar and Canadian Loonie

The Euro is testing support at $1.28. Breakout would respect the primary down-trend, warning of another test of primary support at the 2010 low at $1.19/1.20. Reversal of 63-day Twiggs Momentum below zero would strengthen the signal. Recovery above $1.32 is less likely but would indicate an advance to $1.35/$1.36*.

Euro/USD

Pound Sterling rallied off support at €1.225 against the Euro. Breakout above €1.26 would indicate an advance to €1.29. A 63-day Twiggs Momentum trough above zero — and respect of the rising trendline — would both indicate a healthy up-trend. Breach of support at €1.225, however, would signal a primary down-trend.

Pound Sterling/Euro

* Target calculation: 1.26 + ( 1.26 – 1.23 ) = 1.29

Canada’s Loonie is testing support at parity against the greenback. Respect would indicate an advance to $1.06*. Breach of resistance at $1.03 would strengthen the signal and a 63-day Twiggs Momentum trough above zero would confirm. Failure of support, however, would warn of another test of primary support at $0.96.

Canadian Loonie/Aussie Dollar

* Target calculation: 1.03 + ( 1.03 – 1.00 ) = 1.06

The Aussie Dollar broke resistance at $1.04 after the RBA announced that it would not cut interest rates, leaving them on hold until December. Expect an advance to $1.06*. 63-Day Twiggs Momentum oscillating above zero suggests a primary up-trend.

Aussie Dollar/USD

* Target calculation: 1.04 + ( 1.04 – 1.02 ) = 1.06

Explain the disease to help US citizens – FT.com

This must-read opinion by Richard Koo explains the impact US private sector saving — a staggering 8 per cent of gross domestic product — has on the US economy.

“….. if left unattended, the economy will continuously lose aggregate demand equivalent to the unborrowed savings. In other words, even though repairing balance sheets is the right and responsible thing to do, if everyone tries to do it at the same time a deflationary spiral will result. It was such a deflationary spiral that cost the US 46 per cent of its GDP from 1929 to 1933.”

via Explain the disease to help US citizens – FT.com.

The Output Gap: A “Potentially” Unreliable Measure of Economic Health?

Excerpt from a newsletter by Elise A. Marifian, Research Analyst at the St. Louis Fed, describing problems with calculation of the hypothetical output gap and how this can lead to incorrect monetary policy:

Some economists question the reliability of potential output and, therefore, output gap measures. For instance, as James Bullard noted in 2009, if calculations had considered the housing boom and bust, then potential GDP and output gap measurements would have been smaller than they appeared…….. Gavin (2012) shows that the output gap calculations for 2003-12 are reduced significantly when 2011 estimates of potential GDP are used in place of 2007 estimates. If our economy is improving faster than current output gap measurements suggest, then monetary policy intended to boost the economy could produce too much stimulation, thereby fueling inflation once the economy begins to pick up steam.

via Page One Economics – St. Louis Fed.