Counterparties: 2013 — The year of meh

December 17, 2012

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The NYT and the WSJ have officially weighed in on the US economy in 2013, and the sound they’re making is something of a collective meh.

The NYT says things will be “pretty good next year — assuming Washington does its part”. The WSJ is barely more positive, saying next year will be a “more normal, though hardly robust, period of growth”. (Both pieces focus on economic growth, rather than the much more pressing problem of unemployment.)

Economists think that growth above 3% next year is as equally likely as a recession — they’re both given 24% odds, according to a WSJ survey. In a separate survey by NABE, economists predict GDP will grow by just 2.1% in 2013, after 2.2% growth in 2012. NABE respondents predict “little improvement” in consumption, and slowing corporate profit growth, and slowing spending on equipment and software.

The 2013 outlook isn’t pretty, but it’s not terribly frightening either — unless you’re one of the 12 million officially unemployed Americans. Hale Stewart points to some bright spots, not the least of which is that consumer debt is nearing a 30-year low. Consumer confidence and auto sales are solidly back in pre-recession territory, and there’s more and more evidence of a housing market rebound. Bill McBride, for his part, is on the “modest” growth 2013 team, but he identifies two big upsides for next year: residential investment is rising, suggesting construction employment will soon follow, and state and local governments have largely stopped slashing jobs.

Which brings us back to the Very Big If in 2013. The WSJ reports that fiscal cliff negotiations may have finally hit a “breakthrough” “tipping point” when the GOP agreed to higher taxes for millionaires. That’s certainly a good thing because Goldman’s star economist predicts that, even with a fiscal deal, we’ll see some degree of budget austerity early next year.

And while we’re hoping for a fiscal cliff deal, let’s hope economists’ forecasting ability improves. Zero Hedge notes that since 2003 economists have, on the whole, overestimated US GDP by 10.6%. — Ryan McCarthy

On to today’s links:

Oxpeckers
Growing audiences, shrinking revenue: the economic absurdity of mobile ad rates for publishers - Frédéric Filloux

Filters
Instagram’s CEO seems to be forgetting Twitter’s offer to buy his company – NYT
Instagram and the risk of selling low – Felix

Popular Myths
The truth about the deficit: It’s not that big and there’s one way to close it – Joe Weisenthal

TBTF
“Leaving felons in power over our largest financial institutions… to produce financial stability is insane” – William Black

Investigations
“Normally we would never divulge data like this”: emails link Cohen to trade in insider case – Bloomberg

The Fed
The Fed is not omnipotent and we wouldn’t be able to tell if it was - Noah Smith

Taxmageddon
Chart: How the fiscal cliff will affect your taxes – WaPo

New Normal
“Reinventing college” is harming the quality of education for those who need it most – Chronicle of Higher Education

Trends
We are in a bubble bubble – Dan Drezner

Charts
Quartz’s best charts of 2012 – Quartz

Reversals
Leverage returns to the buyout – NYT

Mas Kapital
US banks need $800 billion more in liquid assets to meet Basel III – FT

Billionaire Whimsy
Silvio Berlusconi is engaged to a woman 20 years younger than his daughter (and he’s still married to his second wife) – Telegraph

One comment

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“As long as your deficit isn’t bigger than nominal GDP growth, your national debt isn’t growing.”

This is true if your debt exceeds annual GDP. If your deficit, as a percent of annual GDP, is equal to nominal GDP growth, then your national debt as a percentage of GDP is moving toward 100%, from above or — still, for us today, if not by a lot — from below. So there you go; using rather optimistic assumptions of the CBO, hoping that the best economy in the last four years is still sufficiently “depressed” that $250 billion in spending can be ignored as “countercyclical”, we are *still* heading toward 100% debt to GDP. Fantastic.

Incidentally, that $600 billion figure? That happens to be approximately the deficit we’d still have if we went over the “fiscal cliff” (and would be higher than any deficit, in nominal terms, before 2008). So the terrible, awful, no-good, very bad austerity threatened by the fiscal cliff amounts, under (again) somewhat optimistic assumptions about the long-run vis-a-vis now, to just barely living within our means over the course of a business cycle.

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