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Economic Update for the Week of 11/9/2012

With the election now over and President Barrack Obama in his second term, where do we go from here? For starters, the Affordable Healthcare Act (ObamaCare) and the Consumer Financial Protection Board will survive along with them a few new taxes will be implemented such as the 3.8% surtax on net investment income. All the focus now is on the "Fiscal Cliff" and if a deal can be struck that prevents the US from going over it. Before the fiscal cliff arrives, Congress will also have to vote again on raising the debt ceiling and if the last round was any indication, we're in for a bumpy ride. 

Jobless claims dropped to 355,000 however this is likely due simply from people unable to submit their claims due to Hurricane Sandy. Expect this number to rise sharply in the coming weeks. 

Just after Mitt Romney conceded to Barrack Obama, Mario Draghi, the President of the ECB (European Central Bank) pointed out the Germany has been taking advantage of the problems in Spain and Greece by borrowing much more than they would because of the extraordinary rates which are a direct result of "flights to safety" to German Bonds. Global markets were up as were US futures the night of the election but when Draghi made his statements, global markets sold off taking US futures down as well. Many suggested the large decline was due to the results of the election, however it appears there were other forces at work. 

Greece continues to have problems with the latest being that they have not achieved the necessary measures to receive the next round of bailout funds. They are set to run out of money on 11/16/2012. The crisis is back and causing disruptions in global financial markets. The main concern is that Spain will follow the same path and this seems likely to happen. European crisis is the most likely cause for the next major meltdown. 

Japan posted a trade deficit for the first time in over 30 year. With a trade deficit they will be unable to buy all their bonds internally and have to go to the global markets to look for buyers which will surely require higher rates. Japan currently has a 230% debt to GDP ratio and higher rates will make is much more difficult, if not impossible to pay back the debt causing Japan to implode.

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