Tag Archives: economics

Stimulus by Fed Is Disappointing, Economists Say – NYTimes.com

The Federal Reserve’s experimental effort to spur a recovery by purchasing vast quantities of federal debt has pumped up the stock market, reduced the cost of American exports and allowed companies to borrow money at lower interest rates.But most Americans are not feeling the difference, in part because those benefits have been surprisingly small. The latest estimates from economists, in fact, suggest that the pace of recovery from the global financial crisis has flagged since November, when the Fed started buying $600 billion in Treasury securities to push private dollars into investments that create jobs.

via Stimulus by Fed Is Disappointing, Economists Say – NYTimes.com.

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Charles Krauthammer – Obama’s next act

Charles Krauthammer – Obama’s next act.

Government Control Decision Adds To Unemployment Rate!

Govt watchdog criticizes handling of car dealers

http://www.google.com/hostednews/ap/article/ALeqM5hJnwMBE7xMJZVNt_R997OWO3fIVQD9H1O0JG3

Charles Krauthammer – Obama’s next act

Charles Krauthammer – Obama’s next act.

Obama’s next act

By Charles Krauthammer
Friday, July 16, 2010; A19

In the political marketplace, there’s now a run on Obama shares. The left is disappointed with the president. Independents are abandoning him in droves. And the right is already dancing on his political grave, salivating about November when, his own press secretary admitted Sunday, Democrats might lose the House.

I have a warning for Republicans: Don’t underestimate Barack Obama.

Consider what he has already achieved. Obamacare alone makes his presidency historic. It has irrevocably changed one-sixth of the economy, put the country inexorably on the road to national health care and, as acknowledged by Senate Finance Committee Chairman Max Baucus but few others, begun one of the most massive wealth redistributions in U.S. history.

Second, there is major financial reform, which passed Congress on Thursday. Economists argue whether it will prevent meltdowns and bailouts as promised. But there is no argument that it will give the government unprecedented power in the financial marketplace. Its 2,300 pages will create at least 243 new regulations that will affect not only, as many assume, the big banks but just about everyone, including, as noted in one summary (the Wall Street Journal), “storefront check cashiers, city governments, small manufacturers, home buyers and credit bureaus.”

Third is the near $1 trillion stimulus, the largest spending bill in U.S. history. And that’s not even counting nationalizing the student loan program, regulating carbon emissions by Environmental Protection Agency fiat, and still-fitful attempts to pass cap-and-trade through Congress.

But Obama’s most far-reaching accomplishment is his structural alteration of the U.S. budget. The stimulus, the vast expansion of domestic spending, the creation of ruinous deficits as far as the eye can see are not easily reversed.

These are not mere temporary countercyclical measures. They are structural deficits because, as everyone from Obama on down admits, the real money is in entitlements, most specifically Medicare and Medicaid. But Obamacare freezes these out as a source of debt reduction. Obamacare’s $500 billion in Medicare cuts and $600 billion in tax increases are siphoned away for a new entitlement — and no longer available for deficit reduction.

The result? There just isn’t enough to cut elsewhere to prevent national insolvency. That will require massive tax increases — most likely a European-style value-added tax. Just as President Ronald Reagan cut taxes to starve the federal government and prevent massive growth in spending, Obama’s wild spending — and quarantining health-care costs from providing possible relief — will necessitate huge tax increases.

The net effect of 18 months of Obamaism will be to undo much of Reaganism. Both presidencies were highly ideological, grandly ambitious and often underappreciated by their own side. In his early years, Reagan was bitterly attacked from his right. (Typical Washington Post headline: “For Reagan and the New Right, the Honeymoon Is Over” — and that was six months into his presidency!) Obama is attacked from his left for insufficient zeal on gay rights, immigration reform, closing Guantanamo — the list is long. The critics don’t understand the big picture. Obama’s transformational agenda is a play in two acts.

Act One is over. The stimulus, Obamacare, financial reform have exhausted his first-term mandate. It will bear no more heavy lifting. And the Democrats will pay the price for ideological overreaching by losing one or both houses, whether de facto or de jure. The rest of the first term will be spent consolidating these gains (writing the regulations, for example) and preparing for Act Two.

The next burst of ideological energy — massive regulation of the energy economy, federalizing higher education and “comprehensive” immigration reform (i.e., amnesty) — will require a second mandate, meaning reelection in 2012.

That’s why there’s so much tension between Obama and congressional Democrats. For Obama, 2010 matters little. If Democrats lose control of one or both houses, Obama will probably have an easier time in 2012, just as Bill Clinton used Newt Gingrich and the Republicans as the foil for his 1996 reelection campaign.

Obama is down, but it’s very early in the play. Like Reagan, he came here to do things. And he’s done much in his first 500 days. What he has left to do he knows must await his next 500 days — those that come after reelection.

The real prize is 2012. Obama sees far, farther than even his own partisans. Republicans underestimate him at their peril.

Republicans propose cutting Obama budget – Yahoo! News

Republicans propose cutting Obama budget – Yahoo! News.

Obama, the Dreamer-in-Chief, and the vision thing

By Charles Krauthammer
Friday, June 18, 2010

Barack Obama doesn’t do the mundane. He was sent to us to do larger things. You could see that plainly in his Oval Office address on the gulf oil spill. He could barely get himself through the pedestrian first half: a bit of BP-bashing, a bit of faux-Clintonian “I feel your pain,” a bit of recovery and economic mitigation accounting. It wasn’t until the end of the speech — the let-no-crisis-go-to-waste part that tried to leverage the Gulf Coast devastation to advance his cap-and-trade climate-change agenda — that Obama warmed to his task.

Pedestrian is beneath Obama. Mr. Fix-It he is not. He is world-historical, the visionary, come to make the oceans recede and the planet heal.

How? By creating a glorious, new, clean green economy. And how exactly to do that? From Washington, by presidential command and with tens of billions of dollars thrown around. With the liberal (and professorial) conceit that scientific breakthroughs can be legislated into existence, Obama proposes to give us a new industrial economy.

But is this not what we’ve been trying to do for decades with ethanol, which remains a monumental boondoggle, economically unviable and environmentally damaging to boot? As with yesterday’s panacea, synfuels, into which Jimmy Carter poured billions.

Notice that Obama no longer talks about Spain, which until recently he repeatedly cited for its visionary subsidies of a blossoming new clean energy industry. That’s because Spain, now on the verge of bankruptcy, is pledged to reverse its disastrously bloated public spending, including radical cuts in subsidies to its uneconomical photovoltaic industry.

There’s a reason petroleum is such a durable fuel. It’s not, as Obama fatuously suggested, because of oil company lobbying but because it is very portable, energy-dense and easy to use.

But this doesn’t stop Obama from thinking that he can mandate into being a superior substitute. His argument: Well, if we can put a man on the moon, why not this?

Aside from the irony that this most tiresome of cliches comes from a president who is canceling our program to return to the moon, it is utterly meaningless. The wars on cancer and on poverty have been similarly sold. They remain unwon. Why? Because we knew how to land on the moon. We had the physics to do it. Cancer cells, on the other hand, are far more complex than the Newtonian equations that govern a moon landing. Equally daunting are the laws of social interaction — even assuming there are any — that sustain a culture of poverty.

Similarly, we don’t know how to make renewables that match the efficiency of fossil fuels. In the interim, it is Obama and his Democratic allies who, as they dream of such scientific leaps, are unwilling to use existing technologies to reduce our dependence on foreign (i.e., imported) and risky (i.e., deep-water) sources of oil — twin dependencies that Obama decried in Tuesday’s speech.

“Part of the reason oil companies are drilling a mile beneath the surface of the ocean,” said Obama, is “because we’re running out of places to drill on land and in shallow water.”

Running out of places on land? What about the Arctic National Wildlife Refuge or the less-known National Petroleum Reserve — 23 million acres of Alaska’s North Slope, near the existing pipeline and designated nearly a century ago for petroleum development — that have been shut down by the federal government?

Running out of shallow-water sources? How about the Pacific Ocean, a not inconsiderable body of water, and its vast U.S. coastline? That’s been off-limits to new drilling for three decades.

We haven’t run out of safer and more easily accessible sources of oil. We’ve been run off them by environmentalists. They prefer to dream green instead.

Obama is dreamer in chief: He wants to take us to this green future “even if we’re unsure exactly what that looks like. Even if we don’t yet precisely know how we’re going to get there.” Here’s the offer: Tax carbon, spend trillions and put government in control of the energy economy — and he will take you he knows not where, by way of a road he knows not which.

That’s why Tuesday’s speech was received with such consternation. It was so untethered from reality. The gulf is gushing, and the president is talking mystery roads to unknown destinations. That passes for vision, and vision is Obama’s thing. It sure beats cleaning up beaches.

Reality of America’s fiscal mess starting to bite

By Gillian Tett

Financial Times

Published: June 17 2010 16:15 | Last updated: June 17 2010 16:58

If you pop into a toilet on the Seattle waterfront this summer, you might see over-flowing bins. The reason? A polite notice explains that “because of 2010 budget reductions”, the Seattle government can no longer afford to “service this comfort station” each day. Hence the dirt.

Investors would do well to take note. In recent months, America’s fiscal mess has assumed a rather surreal air. On paper, the country’s federal-level deficit and debt numbers certainly look very scary. But in practical terms, the impact of those ever-swelling zeroes still seems distinctly abstract.

After all, so far the federal government has not been slashing spending; on the contrary, there was a stimulus bill last year. And, as my colleague John Plender pointed out this week, Treasury bond yields have been falling as investors flee the eurozone woes. As a result, those scary numbers still seem to be a problem primarily concocted in the world of cyber finance.

But there is one place where reality is already starting to bite in America and that is in terms of state finances. Just look at the statistics. A report from the US Center on Budget and Policy Priorities issued last month estimates that in fiscal 2010 the US states collectively posted a $200bn-odd budget shortfall, equivalent to 30 per cent of all state budgets.

Last year, that pain was partly eased by Barack Obama’s stimulus package(s). But that spending splurge is now fading away. And in fiscal 2011 and 2012, the states are expected to face another combined budget deficit of $260bn, with the 2011 shortfall in places such as New Jersey, Illinois, Nevada and Arizona projected to be more than 35 per cent of last year’s budget.

So far, the municipal bond market has been dangerously complacent about all this, with yields on 10-year municipal bonds hovering just above 3 per cent. But even if markets seem relatively relaxed, the key point is that the state statistics are already having a very real world impact – in contrast to the federal debt.

Never mind the trivial matter of Seattle’s comfort stations; as it happens, Washington State’s finances are better than most. In New Jersey schools, classes are being cut. In California, public sector employees are not getting paid. In New York, a subway extension has just been cancelled. And in places such as Illinois and San Diego, pension benefits are being renegotiated altogether, breaking numerous taboos.

This, in turn, begs a bigger question: what will be the wider economic and psychologal impact? One obvious, immediate consequence of these cuts is that they appear to be undermining consumer confidence, over and above the damage already being inflicted by the stubbornly high unemployment rate. The pattern may also be fuelling some subtle shifts in terms of how investors view the future.

In Seattle, for example, local insurance companies have recently changed the message they are giving to customers. For though financial planners used to steer households into tax-deferred products (such as 401K), since they assumed that employees would pay lower taxes when they retired, the new mantra is “tax diversification”. That is based around the idea that households should not defer tax payments, since taxes wll inevitably rise in the future, as the fiscal squeeze takes hold. And that, in turn, raises another question: namely what all of this real-world squeeze in Seattle (and eslewhere) might – or might not – do to the bigger debate about the federal debt.

It is a fair bet that eventually the debate about state spending cuts will encourage investors and voters to start paying more attention to the seemingly abstract federal fiscal numbers.

That might spark more market upheaval. it might also create more political upheaval. Just look at the rise of the Tea Party for signs of that.

But if you want to be optimistic, it is also possible to put a more upbeat spin on this. For all the gloomy statistics about state deficits and spending cuts, what has not received as much attention is that some states are now trying proactively to tackle their woes. Illinois, for example, is facing a big crunch due to credit downgrades; but it is also doing some imaginative things, such as raising the retirement age for local state employees.

That may not please voters. Nor will it necessarily save Illinois from further downgrades to its debt. But this is the type of step that needs to embraced at the federal level, too. So if places such as Illinois can actually break these taboos, it could be a reason for cheer; conversely, if it sparks too much social unrest, it will be a powerful warning sign. Either way, holders of US Treasury bonds had better keep a close watch on what happens to state budgets this year; even in the all-too-tangible world of the Seattle waterfront.

It’s time to consider cutting instead of spending!!

Prune and Grow

By DAVID BROOKS

NEW YORK TIMES

Sixteen months ago, Congress passed a stimulus package that will end up costing each average taxpayer $7,798. Economists were divided then about whether this spending was worth it, and they are just as divided now.

The president’s economists ran the numbers through their model and predicted that the stimulus package would create or save at least three million jobs. John F. Cogan and John B. Taylor of Stanford and Tobias Cwik and Volker Wieland of the Goethe-University of Frankfurt argue that the White House methodology is archaic. Their model suggests the stimulus will create about a half-million jobs.

Edward L. Glaeser of Harvard compared the change in employment in each state to the amount of stimulus money it has received. He found a slight relationship between stimulus dollars and job creation, but none at all if you set aside three states: Alaska and the Dakotas.

Over all, most economists seem to think the stimulus was a good idea, but there’s a general acknowledgment that we know relatively little about the relationship between fiscal policy and job creation. We are left, as Glaeser put it on The Times’s Economix blog, “wading in ignorance.”

If the economists are divided about what just happened, the rest of the world is not divided about what should come next. Voters, business leaders and political leaders do not seem to think that the stimulus was such a smashing success that we should do it again, even with today’s high unemployment.

They seem to see the fiscal floodgates wide open and that the private sector still only created a measly 41,000 jobs last month. That doesn’t inspire confidence. Furthermore, they understand something that is hard to quantify: Deficit spending in the middle of a debt crisis has different psychological effects than deficit spending at other times.

In times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. Deficit spending doesn’t induce small businesspeople to hire and expand. It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon. It doesn’t make political leaders feel better either. Lacking faith that they can wisely cut the debt in some magically virtuous future, they see their nations careening to fiscal ruin.

So we are exiting a period of fiscal stimulus and entering a period of fiscal consolidation. Last year, the finance ministers of the G-20 were all for pumping up economic activity. This year, they called on their members to reduce debt. In this country, deficits are now the top concern.

Some theorists will tell you that if governments shift their emphasis to deficit cutting, they risk sending the world back into recession. There are some reasons to think this is so, but events tell a more complicated story.

Alberto Alesina of Harvard has surveyed the history of debt reduction. He’s found that, in many cases, large and decisive deficit reduction policies were followed by increases in growth, not recessions. Countries that reduced debt viewed the future with more confidence. The political leaders who ordered the painful cuts were often returned to office. As Alesina put it in a recent paper, “in several episodes, spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.”

This was true in Europe and the U.S. in the 1990s, and in many other cases before. In a separate study, Italian economists Francesco Giavazzi and Marco Pagano looked at the way Ireland and Denmark sharply cut debt in the 1980s. Once again, lower deficits led to higher growth.

So the challenge for the U.S. in the years ahead is to consolidate intelligently. That means reducing deficits while at the same time making the welfare state more efficient, boosting innovation in areas like energy, and spending more money on growth-enhancing sectors like infrastructure.

That’s a tough balancing act.

The biggest task will be to reduce middle-class entitlement spending. Alesina found that spending cuts are a more effective way to stabilize debt than tax increases, though we’ll need both.

The second biggest task is to consolidate while addressing another problem: labor market polarization. According to a Hamilton Project/Center for American Progress study by David Autor, high-skill sectors saw no net loss of jobs during the recession. Middle-skill sectors like sales saw an 8 percent employment decline. Blue-collar jobs fell by 16 percent.

In other words, the recession exacerbated the inequalities we’ve been seeing for decades. Somehow government has to cut total spending while directing more money to address the trends that threaten to hollow out the middle class.

During the period of consolidation, in other words, the government will have to spend less, but target better. That will require enormous dexterity and intelligence from a political system that has recently shown neither.

US money supply plunges at 1930s pace as Obama eyes fresh stimulus – Telegraph

US money supply plunges at 1930s pace as Obama eyes fresh stimulus – Telegraph.

Obama counters Republican critics on jobs agenda – Yahoo! News

THIS IS A COMMENT RESPONDING TO THE YAHOO NEWS ARTICLE COVERING OBAMA’S APPEARANCE IN BUFFALO:

“Under Bush we had 5 sustained years of growth even after the market tanked because of 9-11.

THEN THE DEMOCRATS TOOK CONTROL, and Chris Dodd and Barney Frank order lenders like Fannie Mae to extend credit wholesale to hundreds of thousands of bad risks. Guess what? Those bad risks defaulted by hundreds of millions collectively – duh – and the rest of the dominoes fell and the market collapsed.

That’s not economic theory. That is timeline and event cross-indexed fact. Ask any Wall Street exec. THEY know, but oh yeah, they’re supposed to be the “bad guys”….

The bad guys are the socialist Democrats in congress who never met a dollar of someone else’s’ money they didn’t love to spend, regardless of the consequences.

Obama has time for this, but cannot disclose his citizenship records when even his own military sues him for them, records Mccain and Delay turned over without a fuss when democrats demanded such things of them. Right. Sure. Yes. We’re all just exactly that stupid.

Anyone taking bets on Obama’s poll numbers for next week?”

via Obama counters Republican critics on jobs agenda – Yahoo! News.