A new year begins next week, and it is time for my annual dodge. Peter Drucker, one of the world’s few worthwhile business theorists: "Nobody can predict the future. The idea is to have a good grasp of the present."

This year, no flinching. Why such foolish courage? In more than one econo-political arena we have dithered and fiddled so long that something is going to happen, and all I have to do is guess what. In order from easiest to hardest …

A new year begins next week, and it is time for my annual dodge. Peter Drucker, one of the world’s few worthwhile business theorists: "Nobody can predict the future. The idea is to have a good grasp of the present."

This year, no flinching. Why such foolish courage? In more than one econo-political arena we have dithered and fiddled so long that something is going to happen, and all I have to do is guess what. In order from easiest to hardest …

Interest rates: Nothing big. Maybe nothing at all. The bond market is behaving as though the Fed intends a 2 percent cap on 10-year T-notes. Why argue?

U.S. economy: As is. The fantastic stimulus in the economy should keep it afloat, but the housing drag will keep it low in the water. Primary risk: if the foreclosure resale engine is finally allowed to run and undercuts prices (again). All other risks to us are from overseas. Upside surprises will be limited to regions first-in to the housing bust, first to recover, my home state Colorado a fair bet. Don’t look for a general economic improvement, if only because fiscal austerity lies just over the horizon.

China: I had this one right last year, so double down. It had to fight inflation in 2011, and did, and is slowing as a result. Other than that, nobody knows what will happen there, not even China. Too big, and too preoccupied by power transfer under way. For the time being, these transfers are nonviolent, but behind all the black suits, white shirts and bland ties there’s a contest that would impress Capone and Corleone.

Inflation: Just forget about it. Year after year after year people have worried about it, and it’s not in the cards. Forces of deflation are still far too strong.

Europe: Toast. Said so last year, and nothing has changed. They might get so totally scared that even the Germans will morph into importers and consumers tolerant of inflation. Sure. Any day. The European Central Bank will prevent an immediate banking collapse (more below), so timing will depend on Clinton’s Law: "It’s the economy, stupido." When austerity bites, economies shrink, tax revenue falls, and budgets get worse, then we’ll see about political stability versus suicidal clinging to the euro.

Broncos. If they make the playoffs, it won’t be for long.   

That was the easy stuff. The Hard Three are related (ain’t they all?).

1. Modern central banks date to Walter Bagehot’s concept of "lender of last resort" in 1873. That entire modern concept is on trial, doing well but not getting anywhere. Buying time. Inventing noninflationary cash with which to put down waves of global bank runs. Cushioning but unable to stop an asset-value disaster. Unable to create credit. Hopelessly unable to get the attention of local politicians, and thereby unable to get to root issues (U.K. except!). No root fix, the credit house of cards just gets bigger, more vulnerable to some idiot tying the hands of one of the central banks.

2. The Fed and European Central Bank in their well-intended desperation to prevent a replay of 1930-’32 are buying time not just for the financial system, but for local politicians who are wasting every second of it. I thought last year that the frustration and exhaustion of the American people would force a budget deal and a big one. Wrong. Both political parties are engaged in lies so big that they seem to believe themselves. Shrinking government and regulation will not balance our budget. Taxing rich people will not do it either. The middle class has promised itself benefits that it cannot afford, and neither party is willing to say so. I cannot believe that the tombstone of the United States of America will say, "Liked Being Lied To."

3. A bunch of Tea Party yahoos will be sent home, no working majority in Congress for either party. We do not have another four years for another presidential failure. Twelve straight years have consumed all margin of safety. We either fix our budget within the next presidential term, or see tombstone, above. I am resolutely anti-partisan, but I have lost faith in the "current occupant" and wish Mitt Romney the strength for straight talk and fair action. And I think our people are more than ready.

2012 is make or break. Simple as that.

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