Wednesday, December 05, 2012

Thursday: Weekly Unemployment Claims, Flow of Funds Report

by Bill McBride on 12/05/2012 08:57:00 PM

"Laws, like sausages, cease to inspire respect in proportion as we know how they are made."
John Godfrey Saxe, 1869.

Watching politician's public statements is definitely not inspiring. But here are a couple of articles, first from CNBC: Geithner: Ready to Go Over 'Cliff' If Taxes Don't Rise
Treasury Secretary Timothy Geither told CNBC Wednesday that Republicans are "making a little bit of progress" in "fiscal cliff" talks but said the Obama administration was "absolutely" ready to go over the cliff if the GOP doesn't agree to raise tax rates on the wealthy.
I'm pretty sure that tax rates will increase on high earners, and this is why I think the agreement will not be reached until early January  (so policitians can say they didn't increases taxes).

And from the WSJ: White House Unyielding on Debt Limit
The White House hardened its position that Congress should raise the U.S.'s borrowing limit without preconditions, adding an unpredictable new element into the high-stakes budget talks.

In a Wednesday speech to top corporate chiefs, President Barack Obama said he wouldn't negotiate with Republicans on this issue as he did in 2011.

"I want to send a very clear message to people here: We are not going to play that game next year," Mr. Obama said in remarks to the Business Roundtable, a trade group. He said Washington needs to "break that habit before it starts," referring to the way Republicans would like to use the debt limit to negotiate further spending cuts.
I argued a year and a half ago, eliminating the debt ceiling would be the correct approach.

On the debt ceilng, it seems like Obama is taking a page from Ronald Reagan:
"Congress consistently brings the Government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the Federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility – two things that set us apart from much of the world."
We don't know what else we be in the compromise, but it will obviously not be eliminating "unspecified deductions" - if deductions are eliminated, then they have to be specified (by definition). I still think a compromise will be reached, but probably not until early January.  Right now the public statements are pretty fair apart.

Thursday economic releases:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. This is expected to show a further decline following the spike related to Hurricane Sandy. The consensus is for claims to decrease to 380 thousand from 393 thousand.

• At 12:00 PM, Q3 Flow of Funds Accounts of the United States from the Federal Reserve. Household mortgage debt probably declined further in Q3.