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.

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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:

For the past couple of weeks, I have been writing about how I think, ultimately, we will not go over the fiscal cliff. I have based my views on the need for both parties—for their own good and for the good of the country—to actually compromise and solve the problem.

And the need for some sort of deal is increasingly apparent, as I believe, based on the facts at hand, that the damage done to the economy may be well in excess of the 4 percent of GDP that the actual tax increases and spending cuts amount to. About two-thirds of that 4 percent is made up of tax increases; the rest is spending cuts. Economic studies have shown that the multiplier for tax increases is between 2 and 3, while that of spending cuts is between 1 and 2. Combined, using a multiplier of 2.5 for the tax increases and 1.5 for the spending cuts, we might reasonably assume a 7-percent to 8-percent hit to GDP.

Sort of. The White House has made an initial fiscal cliff proposal, which the Republicans have rejected out of hand. The headlines are portraying the Republican dismissal of the proposal as a problem, but the markets seem to be taking it in stride. I suspect the markets are right on this one.

Slowly, slowly we move forward. Economic growth for the third quarter was revised upward to 2.7 percent, well above the initial estimate of 2.0 percent, but slightly below the expected revision of 2.8 percent. This is a good result, but it probably will weaken in the next quarter, as quite a bit of it was due to inventory buildup, which will be drawn down.

This is part two of how the world ends—at least according to those who want to make a buck off of someone else’s fears. Make no mistake, I am fully supportive of worrying about things—they don’t call me Eeyore for nothing—but if you’re going to worry, you need to be sure that it’s something actually worth worrying about.

I talked yesterday about how the government has better, or at least easier, options available than to confiscate private retirement accounts. Though it could conceivably happen—Argentina has done just that—it isn’t in the cards here because we have a much more robust political and legal infrastructure, as we have just demonstrated.