The foolhardy actions of U.S. politicians on both sides of the aisle in letting the debt ceiling deadline come and go last August without resolution is indicative of where the two sides stand currently on an ideological basis, and the slide away from the centre over the last two Houses has been such that we have reached the stage where there really is no common ground remaining.

Source: Voteview

This, folks, is another signal—a signal that is bound to be obscured by the noise surrounding the election, but it is an important signal nonetheless, and it will become extremely important as the noise subsides and the Fiscal Cliff begins to make signals of its own.

Whatever happens on Tuesday, America will be saddled with a deeply divided political landscape as potentially a returned Democrat president faces a hostile and bitter Republican House, or a Republican president squares off against a hostile and bitter Democrat Senate (which is the lesser of the two evils in terms of getting anything done). Either way, there will be a lot of noise for us to try and filter away in order to reach the signals, which will be incredibly important in the run-up to December 31.

Want another signal? Well, how about this in the aftermath of the much-anticipated announcement of QE3:

(CNBC, September 12, 2012): Ratings firm Egan-Jones cut its credit rating on the U.S. government to "AA-" from "AA," citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.

The Fed on Thursday said it would pump $40 billion into the U.S. economy each month until it saw a sustained upturn in the weak jobs market.

In its downgrade, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.'s real gross domestic product, but reduces the value of the dollar.

Looks familiar, huh?

Source: Bloomberg

The last time a US downgrade signal asserted itself through the noise, the S&P 500 fell a little under 20%.

The US election is a whole lotta noise, and I have a feeling that the level of that noise may well become deafening in the wake of what looks likely to be a closely fought election (no doubt, the legal challenges from both sides are already written so they can be lodged immediately in the event of a repeat of Bush/Gore in 2000), but amidst the noise will be signals aplenty.

Of course, the US isn't the only place where these problems face investors. Ground Zero for Signal-to-Noise issues for the last few years has been—and will continue to be—Europe, where the level of noise generated by the Eurocrats has been absolutely overwhelming and the many important signals being generated have been completely lost in the static that accompanies every one of the failed "Last-Chance Summits" as well as the incessant babbling that these fools engage in whenever a reporter shoves a microphone in front of them.

A perfect example of this came this morning when Greece's PM, Antonis Samaras, once again made the kind of definitive statement that would ordinarily be a signal, but has become so much more noise as events have unfurled.

(Reuters): Talk of Greece exiting the euro will end after critical votes in parliament this week on new austerity measures, labor reforms and the 2013 budget, Greek Prime Minister Antonis Samaras said on Sunday.

The three-party government will submit the package of measures to parliament on Monday and must approve both it and the 2013 budget to receive aid from the IMF and European Union that it needs to avoid bankruptcy.

The junior ruling Democratic Left Party has refused to back the mix of tax hikes, spending reductions worth 13.5 billion euros because they are tied to measures that will cut wages and severance payments and scrap automatic wage hikes.

But Samaras's New Democracy Party and most of the deputies of its coalition Socialist partners are expected to push the package through in a slim majority in a vote expected on Wednesday.

Lawmakers should then approve the 2013 budget in another crucial vote on November 11, leading to the release of 31.5 billion euros in aid funds and putting to rest any talk of Greece exiting the euro, Samaras said.

"As soon as the new measures are passed and we get the critical aid tranche, liquidity will start again to feed businesses and households, uncertainty will end, sentiment will change and the fear of a return to the drachma will disappear," he told New Democracy lawmakers at a party meeting.

"All this (talk of Greece exiting the euro) will end irreversibly."

The word "irreversible" (and its derivatives) has become something of a favourite in European political circles in recent months:

(UK Daily Telegraph): The euro is “irreversible” and the beleaguered currency union is not in danger of collapsing, according to European Central Bank President Mario Draghi, who also argued that eurozone nations will eventually be bound even closer together.

(Sapa): France and Spain's leaders said Thursday they had agreed in Madrid talks that the euro is “irreversible”.

“We want the European Union to go forward, neither the euro, nor the single market, nor the union will give a step backwards,” Prime Minister Mariano Rajoy told a joint news conference.

Hollande added: “Rajoy and I are committed to the irreversibility of the euro.”

(Paulineseconomicsforum.com): "...when I (Draghi) said irreversible, it means Europe can never go back to lira or drachma, it is here to stay forever!"

(Reuters): Regling conceded that the debt crisis had caused political tensions within the EU, but that a ‘majority’ were still in favour of European integration and the euro. He was confident that the crisis and its accompanying tensions would be overcome. The devaluation of the euro was not the answer, regardless of that fact that it would not be possible in a monetary union. Recovery would instead come through structural reforms and government-level legislation, as outlined in the EU’s Fiscal Compact.

He described the euro as ‘irreversible’, suggesting that it should not be seen merely as an economic project, but as ‘one of the defining pillars of today’s European Union’.

(WSJ): Asked about Greece and its future as a member, Mr. Rehn said the euro "is irreversible and it is essential that we will maintain the unity of the euro." Greece, so far, he said, "has already been able to take quite substantial action in fiscal policy and structural reform." A "rebalancing" is taking place there as evident in lower labor costs and inflation, he said.

Mr. Rehn said he has "full trust in the German people and political leaders that they are fully committed to the euro," and called on Italy to continue with "its stable fiscal path" and press ahead with structural reforms.

All this noise from the likes of Draghi, Rehn, Hollande, Rajoy, and Regling is specifically designed to obscure the signals that are being continuously broadcast loud and clear by the economies of that teetering bloc.

(UK Daily Telegraph): Eurozone manufacturing shrank for the 15th month running in October as output and new orders fell, a survey showed on Friday... Manufacturers were the driving force behind the bloc's recovery from the last recession, but the downturn in factory activity that began in smaller periphery countries has now engulfed core members Germany and France.

Noise

(Pimco): "It's extremely difficult to see any way, any possibility how the country pays back its debt without receiving assistance in the form of debt relief.

"Greece is insolvent and it's going to default. It's just a question of how and when that is realized."

Signal.

How do you tell? Simple. The first statements were all made by politicians who are forced by the situation to say one thing and one thing only. The last one was made by someone willing to countenance all possibilities.

That was fun. Let's do another one.

(Ambrose Evans-Pritchard): German finance minister Wolfgang Schauble said over the weekend that taxpayer "haircuts" were unthinkable. "The question has very little to do with the reality in eurozone member states," he said.

Noise

(Ambrose Evans-Pritchard): A draft version of the Troika report obtained by Spiegel magazine said EMU governments and the European Central Bank must accept their share of losses in order to bring Greece’s public debt back to 120pc of GDP by 2020, deemed the sustainable level.

Greece must carry out a further 150 reforms, some involving a drastic loss of sovereignty. Troika payments will be held frozen in a special account under creditor control.

The Troika will have power to raise taxes automatically. There must be new laws to make it easier to fire workers and adjust the minimum wage.

Signal.

Oh, and remember our friend Antonis Samaras—you know, the Greek PM who said that talk about a Greek exit from the euro would "end"?

(UK Daily Telegraph): Greece's prime minister has urged the country's politicians to unite behind new austerity measures in an attempt to secure bail-out money for the country or risk an exit from the euro.

Antonis Samaras said Greece would run out of money next month if parliament did not vote through the latest set of cuts and reforms he has agreed with the country’s international creditors.

And on and on it goes...

The only way to figure out the likely landscape of the next year or two is to ignore the noise and focus on the signal. That means ignoring ANYTHING that a politician says and focusing squarely on the reality provided by economic statistics and hard numbers (although the government-disseminated variety bring with them far more noise than signal). That's not easy during a presidential campaign in the USA and a fevered attempt to maintain a currency union in Europe, but here are a few hard numbers that may make it easier to tune out the noise:

Number of Americans on the SNAP program (food stamps): 46.68 million

Ratio of growth in food stamp recipients to job creation (2009-present): 75x (see chart)

US public debt (October 31): $16,221,685,381,838.28

Unemployment rate in Greece: 25.8%

Increase in Greek unemployment rate since July 2011: +8%

Unemployment rate amongst Greeks aged 15-24: 54.2%

Unemployment rate in Spain: 25.8%

Unemployment rate in Spain amongst under-25s: 52%

Percentage of Spanish bank deposits lost in July 2012 alone: 5% (€74 billion)

German unemployment rate: 6.9%

Last time German unemployment rate rose: Three years ago

Performance of S&P 500 since the announcement of QE3: -1.56%

All signal. No noise.

Source: Weekly Standard/BLS/USDA/FNS

While this is obviously by no means an exhaustive list, it is at least a start, and the idea of ignoring the noise and focusing on the signal is perhaps the most important concept to grasp in the search for understanding of what the future holds for the world.

When Claude Shannon wrote A Symbolic Analysis of Relay and Switching Circuits, he had no idea of the effect it would have on the world. When he and Ralph Hartley formulated the Signal-to-Noise Ratio, they had no idea how ubiquitous it would become. When we as investors listen to the sheer volume of noise we encounter every day, we sometimes have no idea just what the signal is that is buried within.

Concentrate, folks. Tune out the noise and focus on the signal.

**********

The forces of reaction and economic folly threaten to prevail in China. The long political arm of Jiang Zemin has reached out from the shadows to thwart reform, with huge implications for Asia and the world.

If reports from the Hong Kong press and China's blogosphere are correct, a remarkable upset has occurred on the eve of the ten-year power shift next week—the greatest turn-over of top cadres since Mao's revolution.

The South China Morning Post says the new line-up of the Politburo's Standing Committee is "packed with conservatives." The succession deal agreed over the summer has been scuppered.

The 86-year-old Mr Jiang—who rose to supreme leader on the bones of Muxidi and Tiananmen in 1989—has placed his accolytes in charge of the economy, propaganda, as well as the Shanghai party machine.

The hardliners seem poised to snatch control of the seven-man committee, tying the hands of incoming President Xi Xinping and Premier Li Keqiang. If confirmed, long-term investors may have to rethink their core assumption about the future course of China.

This power struggle going into the 18th Party Congress matters more in the sweep of history than the run-off two days earlier between a centrist Barack Obama or the centrist Mitt Romney, though the stage drama is less compelling.

Mr Jiang's rear-guard coup should give pause to thought. It was he who instituted the Patriotic Education movement in schools in the 1990s, whipping up nationalist fervour to replace the lost mystique of Maoism. The effect was to nurture revanchist hatred against Japan, creating a monster that now requires feeding.

His eerie return comes at a time when China and Japan are "one error away" from outright war over the Diaoyu/Senkaku islands, to cite the findings of four American diplomats in a report to US Secretary of State Hillary Clinton.

Stewart Patrick from the US Council of Foreign Relations likens East Asia to Europe just before the First World War. It was then that Sir Norman Angel famously argued that the great European powers were so intertwined by trade and investment that conflict had become unthinkable. Nationalist emotions decided otherwise.

Any conflict over the Diaoyu/Senkaku islands would put the US in an impossible position since it is obliged by treaty to uphold Japanese control over the islands—and to go to war under Article V if Japan is attacked. The Noda government in Tokyo seems determined to hold America to that pledge.

Mr Patrick said that blank cheques to headstrong allies in the region could "set disaster in motion," proving as dangerous as Germany's blank cheque to the Austro-Hungarian Empire in 1914.

*** Ambrose Evans-Pritchard / link