Recently, my posts have focused on the U.S., as that’s where most of the news has been, but I wanted to take a look at the rest of the world. Although nothing particularly urgent is happening, many issues we have discussed before continue to cook.

Europe

I have written before about the disconnect between consumers, who have been spending as if the fiscal cliff didn’t exist, and business, which has cut back. That disconnect is starting to disappear as consumers become aware of the cliff and what it could mean.

Consumer confidence showed a material drop at the end of last week, due largely to growing public awareness that after-tax incomes will take a hit if the cliff isn’t averted. Other factors included gas prices and the stock market, both of which hit the expectations component. Looking forward, if confidence stays lower, we can expect consumer spending to drop as well—a problem, as it has been a major sustaining element of the recovery. A front-page story in the Wall Street Journal, “Consumer Spending Wobbles,” notes that spending was slower over the summer than previously believed and has continued to weaken into the end of the year.

— Fred DeBaets

On Wednesday, we expect the Fed to announce the continuation of Treasury purchases to replace the current maturity extension program, better known as Operation Twist. The Fed will likely grow the balance sheet at a rate of $45 billion per month, maintaining the current pace of purchases. As for the time frame, our best guess is that the new program will end approximately six months prior to the anticipated rate hike, currently projected as mid-2015 by the Fed and early 2016 by the Fed futures market.

I have been writing about re-shoring for a while—most recently, yesterday. Today, front-page news in the New York Times and Financial Times, and front-business-page news in the Wall Street Journal, supports that theme in a big way. Apple has decided to start moving production of Macs back to the U.S.

The company plans to invest about $100 million to start manufacturing Macs here, beyond the assembly work it already does. Tim Cook, the CEO, explicitly says that he plans to work with partners to manufacture the full range of components in the computers.

Today, we will talk a bit about the cliff, but I wanted to lead off with recognition that, despite the short-term risks, there is still a lot of good out there, and the stories keep coming to prove it. A front-page article in the Wall Street Journal, “US Gas Exports Clear Hurdle,” and similar story on the front business page in the New York Times, “Exporting Natural Gas Has Merits, Study Finds,” both talk about a Department of Energy study, which concluded that exporting natural gas would be an economic plus, overall.

Such exports would help enormously with the trade balance; they would also create many jobs for people involved in constructing and operating the infrastructure to facilitate such exports. The costs would include the potential for higher prices domestically, as well as the possible erosion of a domestic cost advantage for manufacturers.

Much of the coverage today is about the difficulties facing the fiscal cliff negotiations. These stories suggest that I may have been premature in thinking the Republicans had fought their own civil war to completion. Although the House Republicans did indeed offer a compromise plan, and the leadership did indeed sign on, the battle still seems to be under way.

[youtube=http://youtu.be/vCh_g-ag2ns?rel=0hd=1]

Volatility in financial markets

I wrote in the other post today about the fiscal cliff, which is one front-page story. The other is something that would not normally be considered front-page news—corporate audit policy. What makes this important are the systemic, as well as the geopolitical, implications.

The underlying issue is a conflict between U.S. and Chinese law. U.S. law requires foreign public accounting firms to provide the SEC with the paperwork involving U.S.-traded companies. Chinese law prohibits this.

Apparently, Obama’s demand that the Republicans come up with a plan had some effect—they did. Not surprisingly, the offer includes much less new revenue than the White House proposal and much larger spending cuts. The New York Times has a pretty good graphic today on page A16 that compares the initial offers.

A few interesting points: