Digging In

In America today, the private sector met the public sector, at the White House. And, in the Middle East, as a prelude to the Washington gathering, Israel decided to retaliate against Hamas in the Gaza Strip. It launched air attacks that killed, among others, the military commander of Hamas, Ahmed al-Jabari. Egypt reacted by recalling its Ambassador to Israel. Markets, hardly needing any more reason to worry, sold off.

In Washington, certain corporate CEO members of the Fix The Debt coalition were invited to meet today with President Obama who, just prior to the meeting, reiterated, at a press conference, that, in addressing the impending fiscal cliff,  he would not under any circumstances agree to extend the Bush tax rate cuts across the income spectrum. Still savoring his re-election (by, compared with 2008, a much smaller 2.4 percentage points of the popular vote), the President apparently decided that the way to reach out to Republicans in the House was to aggressively dig in. Perhaps this was simply an opening negotiating tactic, but, to this writer, it seemed more like a "fire away and damn the consequences" approach,  a curious way to re-start a process of bi-partisan fiscal compromise. Having met with union and civic officials at the beginning of this week, and then today with business leaders, the President moves on to Congressional leaders of both parties on Friday.  Time is precious at this point. The fiscal cliff - some $700 billion of tax increases and spending cuts, amounting to a nearly 5% reduction of GDP over a full year - will kick in January 1. America needs to reduce its deficit, but not so abruptly as to induce another recession. Watch for very skittish markets, at least until a deal is done.