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Populist Rhetoric Does Not a Plan Make
There wasn’t much suspense in the run-up to last night’s state of the union address because President Barack Obama long ago signaled the kind of populist and heavily political speech he was going to deliver. Read more...
The Fed’s Pyrrhic Victory
Increased consumption by households accounted for 70% of GDP growth in the second half of 2011. This increase in outlays was almost entirely due to the fall in consumer savings. The boost in the economy, therefore, is coming from a rise in the proportion of household income that is being spent, not an increase in household income. Is this sustainable? Read more...
A Look Back at 2011: Congress and White House Edition
Just over a year ago, Republicans won the midterm election in a landslide. They picked up a historic number of seats in the House of Representatives, substantially narrowed the Democratic majority in the Senate, and took control of scores of state legislatures and governors’ mansions. The message from voters was clear: they wanted to put an end to the hyper-activist agenda coming from the Obama administration, and to renew policymakers’ focus on promoting private sector economic growth, not more government jobs. Read more...
Hemera
Capital Gains Tax Rates Are Higher Than You Think, and Getting Higher
The President’s State of the Union Address included discussion of the proper level of taxation for investment income. Specifically, the President suggested it was improper for investment income to be taxed at a much lower rate than labor income. This obscures the actual taxation rates faced by investors. Read more...
Precedential Election: Can Trust Be Maintained in Sovereign CDS Markets?
There is little doubt policymakers both within the EU and without will make sure a Hellenic default is avoided. Perhaps the better question is what precedent will the deal set and how will its impact reverberate throughout global financial markets? Whether considering the first deal proposed in October 2011 or the deal now being formulated at the beginning of 2012, the critical point is whether or not credit default swaps should be triggered. Read more...
Hemera
Is Too Much Homeownership a Good Thing?
For generations the assumption among market participants, policymakers, and the general population has been that increased homeownership is a positive for the U.S. economy. An essay out of the Richmond Fed questions this assumption and expands on the risks of subsidizing homeownership. Against the backdrop of the SOTU and the likely inclusion of some new housing policy, the analysis from this essay should be a helpful reminder that there is a lot that we still don’t know about the effects of homeownership and its relationship to the health of the aggregate economy. Read more...
Washington is Spending Too Much
In the Wall Street Journal, former Chairman of the Council of Economic Advisers, argues that the real budgetary problems are (much further) down the road:
The deficit shot up in basically equal measure from taxes falling and spending rising. Spending rose to 25% of GDP from 20.5% in the recession and soon it will fall back down. Taxes fell to 14.5% of GDP from 18.5% and will also return to more normal levels.
Read more...
Financial Times
When A Virtuous Cycle Turns Vicious
The interconnectedness of the global economy has substantially increased its rate of growth. However, that very interconnectedness can allow a local recession spread throughout the globe. A new article in the Financial Times titled “How the Globe Can Grind To a Halt” explains how real a danger we face. It is worth reading in full, but this excellent chart communicates the message clearly.
Read more...-
Friday, January 27, 2012e21 Commentary: Capital Gains Tax Rates Are Higher Than You Think, and Getting Higher
e21 Reaction: Precedential Election: Can Trust Be Maintained in CDS Markets?
Senate Approves Rise in Debt Limit (New York Times)
Pentagon to Cut $485bn Over Next Decade (Financial Times)
Q4: Decent GDP Increase, Great Autos and Durables, But Troublingly Low Final Sales (Slate’s Moneybox)
Fed Rate Stance Lifts Appeal of Equities (Financial Times)
A Less Opaque Fed Will Become Boring (Robin Harding in Financial Times)
The Zero Decade (Wall Street Journal Editorial)
No Need to Panic About Global Warming (Wall Street Journal)
Hope But Not Much Change (David Brooks in New York Times) -
Thursday, January 26, 2012Fed Sets Path for Three Years of Low Rates (Financial Times)
Capital Gains Taxes Are Going Up (Donald Marron in TaxVox)
Obama to Push Corporate Tax Plan (CQ)
Recapping Bernanke Press Conference (Real Time Economics)
The Lone Dissenter: Richmond Fed’s Lacker (Wall Street Journal)
The Buffet Ruse (Wall Street Journal Editorial)
Deceptive Centrism (Reihan Salam in The Daily)
Obama Has the Edge in Tax Push (Richard McGregor in Financial Times)
Ron Paul, The Fed, and The Need for a Stable Dollar (David Malpass in Wall Street Journal) -
Wednesday, January 25, 2012e21 Commentary: Populist Rhetoric Does Not A Plan Make (James C. Capretta)
Obama Says Nation Must Address Inequality (Washington Post)
Obama Answers Bernanke Housing Pleas (Bloomberg)
The European Crisis Deepens (Peterson Institute for International Economics)
United Welfare States of America: Nearly Half Population Receive Govt Benefit (Zero Hedge)
Fed Thoughts: The End of History? (Morgan Stanley)
Economics for the Long Run (John Taylor in Wall Street Journal)
President Obama’s Decision to Waste (At Least) $60 Billion (KeithHennessey.com)
Give Entrepreneurs Room and They Will Grow the Economy (Steve Case in Washington Post)
Bank Capital Requirement Reform: Long-Term Size and Structure, the Transition, and Cycles
There is general agreement that the minimum bank capital ratio requirements (hereafter MCRR) set by regulators in the US and elsewhere were inadequate leading up to the financial crisis, and that this substantially contributed to the financial crisis. Inadequate MCRR contributed to the crisis ex ante by encouraging excessive risk taking (the so-called moral-hazard problem of limited liability, which is exacerbated by the possibility of taxpayer-financed bailouts); ex post, inadequate capital meant that intermediaries’ net worth was too low to absorb losses without jeopardizing banks’ solvency, substantially raising counterparty risk among banks, and thereby producing a funding liquidity crisis for banks that led to massive credit contraction, selloffs of risky assets, and widespread financial distress.
The Risks of Fiscal Turmoil for Monetary Policy: Some Lessons from History
The recent financial crisis and recession in the U.S. and the massive fiscal stimulus package that followed it has led to a fiscal deficit close to 9% and a ratio of debt to GDP close to 90%. In addition, demographics point to ever rising Social Security and Medicare entitlement expenditures and the possibility of even larger deficits and debt ratios in the not too distant future. These facts raise the specter of a disconnect between a relatively stable monetary policy and a relatively unstable fiscal policy and raises the question whether the Fed can insulate itself from the fiscal turmoil.
Monetary Policy and Economic Performance
The Federal Reserve is in an uncomfortable predicament. It has reduced interest rates to zero, pumped trillions of dollars into the financial system, and is now engaging in “operation twist”. Bond yields are low, yet the economy is not responding. Congress, financial markets and the media always turn to the central bank in times of trouble, and the Fed feels pressure to comply and ease monetary policy further. The Fed has not come to grips with the limitations of monetary policy. Complying with the pressure to ease further—to do something—may involve high risks, even if inflation remains low in the near term.MOST POPULAR
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January 27, 2012
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