The US economy seems to be muddling through at modestly positive GDP growth, supported by a still sort of high enough 8% or so govt fiscal deficit.

The year and fiscal cliff is a looming disaster but it’s too soon for markets to discount a high chance of it actually happening.

Lower oil prices are helping the US consumer and the $US.

The stronger $US works against US exports some and earnings translations a bit as well. Weaker global demand also works against US exports.

Deficit spending in the euro zone has also been rising some, and after the latest rounds of austerity and subsequent deficit increasing weakness may total something close to 7% of GDP.

That should be enough to muddle through as well. Austerity hikes unemployment and deficits to the point where the resulting deficit is sufficient to sustain things. Without another round of austerity there should be some sort of stability of output and employment.

That is, while it’s doubtful the ‘new europe’ will engage in meaningful fiscal expansion, it may not proactively raise taxes and/or cut spending in any meaningful way, either.

So as the member nations stumble their way through each successive securities auction, it won’t surprise me if their economies sort of stabilize around 0 growth or so. And then begin to pick up a tiny bit. All supported by the current, higher levels of deficit spending.

And the lower euro could help their exports some as well.

Yes, there will be all kinds of credit related vol, but under it all there will be sales and profits taking place. The businesses that are still around are the survivors who know how to get by in this kind of economy, where, while slower than it ought to be, there is still about $40 trillion worth of goods and services getting bought/sold in the US and Europe. GDP growth has gone to near 0, but not GDP itself.