We certainly are not free of the fiscal cliff, but it is at least comforting to know that our representatives are taking up the matter when they have a free minute. The New York Times (NYT) reports today on the front page, with “Senate Leaders See Path to Avert Mandatory Cuts,” that the Senate, the less irresponsible body, is “closing in on a path” to deal with the problem.

As well they should be. In addition to the 160 million people to be affected by the fiscal cliff mentioned in an article yesterday (“Payroll Tax Rise for 160 million is Likely in 2013,” NYT, p. A1), today the Financial Times (FT) has “Washington’s fiscal cliff to hit 90% of families, claims think tank” on page 3. That’s a lot of voters.

I have written many times about Europe and its problems, but always with a provision: because the European Union is ultimately a political project, rather than an economic one, politics will trump the many economic problems and the eurozone will survive because of that.

Oh, yes—spending cuts! The papers this morning are all about both. The key article, and the one most people (160 million of them) will be talking about shortly is on the front page of the New York Times (NYT), “Payroll Tax Rise for 160 million Is Likely in 2013.” The expiration of the 2-percent payroll tax on earnings will hit everyone immediately in the new year, and it’s not likely to be reinstated.

This is just a part of the fiscal cliff, which is becoming clearer and clearer as the election approaches. Taxes will be going up, and spending will be cut—the question is how. “Way round the fiscal cliff still unclear” on page 2 of the Financial Times (FT) is pretty self-explanatory and leads with the conclusion that Congress is unlikely to resolve the issues in 2012, leaving another potential pending crisis in 2013. Patriotic citizens are glad to contribute more, led, of course, by private equity managers. According to “Private equity managers fear tax hit” in the FT (p. 17), they are attempting to rewrite existing agreements to specify that they will make more money to compensate if their taxes go up. Clients, unsurprisingly, do not seem to be in favor. No doubt, the managers want to make sure they can continue to spend and stimulate the economy, which will then trickle down.

Progress in Europe

I have written a couple of times about rising protectionism, and looking at today’s stories, now seems to be an excellent time to revisit the topic. Protectionism is just one facet of how states try to wring out economic advantage over others, with currency and trade policies among the available tools. Today we have several examples.

On the currency policy front, we have “Beijing, Seoul Blast Fed Push” in the Wall Street Journal (WSJ) on page A13. The article talks about how both central banks are opposed to continued U.S. monetary easing, which encourages inflation around the world, weakens the dollar to make U.S. exports more competitive, and in general benefits the U.S. at the expense of its trading partners. Of course, this is exactly what the policy is designed to do. The ability of the U.S. to continue to follow policies that benefit itself at the expense of others, however, is dependent on the continuation of the dollar as the reserve currency, which is the other focus of the article, as both central banks advocate finding an alternative. Not an immediate concern, but a building long-term concern.

The U.S. economy continues to actively stay in one place. The papers reflect this, with headlines like “Numbers Augur Trouble Ahead” and “Obama Trumpets Revised Job Data,” both from page A6 of the Wall Street Journal (WSJ) and both painting very different pictures of where we are. Although the job figures have been revised up—meaning we actually have more than 400,000 more jobs than we thought—slowing growth and a drop in durable goods orders suggest that the future will be worse than expected. Likewise, “Chinese Slowdown Idles US Coal Mines” from the front page of the WSJ talks about how reduced exports and mining employment are hitting the U.S., while “GE’s Immelt Is Upbeat on Industrial Outlook” (p. B3) suggests that the recent industrial and manufacturing slowdown is in fact overdone. But there is cognitive dissonance within the GE article itself, with an acknowledgment that FedEx and Caterpillar are much less sanguine about the future.

The New York Times (NYT) is just as visibly conflicted. “Fearing Fiscal Cliff, Investors Cash In and Seek Safety” (p. B1) is right next to “Economy Still Weak, But More Feel Secure.” A follow-up article, “Good News and Bad in New Data on Economy” (p. B6), makes the uncertainty even more explicit. How’s that for hard-hitting analysis?

The fiscal cliff

Another bad day for Mitt Romney in the papers. The race in Ohio, which, according to the polls, is increasingly in favor of Obama, hit the front pages of the Wall Street Journal (WSJ) with “Electoral Drama Shifts to Ohio” and the Financial Times (FT) with “Romney’s options narrow as poll gaps widen.” Both articles highlight how critical Ohio is to the Republican’s national chances. The WSJ also has a useful map on page A6 that outlines exactly what states are in play, while the FT offers a look at the Ohio race in a special analysis piece on page 11, “Race for the rustbelt,” that highlights some of the state-specific issues in detail.

The race did not make the front page of the New York Times (NYT), but that paper did have a similar analysis by Nate Silver, whom I have recommended before, on page A19: “Romney’s Tough Path as He Trails in Ohio.” Silver provides an excellent breakdown of how past races have evolved and what that may mean for the race going forward. Worth reading.

We seem to be moving out of the eye of the European hurricane, as the winds are starting to blow again and people are taking cover. Spain and Greece made the front pages of the papers: the Wall Street Journal (WSJ) has “Bottles Fly as Spain’s Confidence Shatters,” accompanied by a photo of a bottle shattering on a building right by an older woman’s head as she takes cover; the Financial Times (FT) has “Spain’s premier fights turmoil,” accompanied by a picture of what looks like a masked riot policeman assaulting a member of the Spanish parliament; and the New York Times (NYT) has “New Protests Over Austerity Plans in Greece,” with a photo of a masked riot policeman running away from the remains of a Molotov cocktail. All three papers also have follow-up articles on both the Spanish and Greek protests to provide more context. Although the photos are quite scary, this is not just a photo op—it goes much deeper.

This is what it looks like when all the choices are bad ones. Everyone is looking for a solution that doesn’t require any sacrifice. The Catalonians are convinced they are paying too much, so they want to separate, which, of course, would make the problems worse for everyone, including themselves. “Spain Resists Homage to Catalonia” (WSJ, p. C12), “Spanish Ire Symbolized by a Carrot” (NYT, p. B1), and “Financial crisis stokes fires of Spanish identity” (FT, p. 4) all center on exactly this issue. What is the relevant governmental unit in Europe? At what level should different communities hang together and sacrifice for the common good? Without solving this fundamental issue, can any other issue be solved?

I want to highlight an interesting chart put together by Pete Essele of Commonwealth’s Asset Management and Research teams. Pete does excellent work in a variety of areas, but he is particularly good at putting together charts and graphics that make important points in very clear ways.