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Thursday, March 1, 2012

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Economic Events of the Week

Thursday – Personal Income
Saturday– Washington caucuses

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Story of the Day
A World Awash in Money (Wall Street Journal Editorial)

Washington Update
Bernanke Warns Lawmakers of ‘Massive Fiscal Cliff’ (The Hill)
GOP Hopeful After Obama Meeting (CQ)
The White House's Economic Case for Reelection in 13 Charts (The Atlantic Business Channel)

Market Talk
US Calls Oil Markets ‘Increasingly Tight’ (Wall Street Journal)
Bernanke Quells Talk of Fresh Fed Stimulus (Bloomberg)
Manufacturing Probably Picked Up For Fourth Month (Bloomberg)

Editorials & Opinions
Ryan’s Medicare Revolution (Fred Barnes in Wall Street Journal)
Yuval Levin on Why 2012 Matters (Reihan Salam in National Review Online)
Prizes With an Eye Toward the Future (Tina Rosenberg in the NY Times Opinionator)

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Story of the Day

A World Awash in Money (Wall Street Journal Editorial)

If you want to know who rules the world economy these days, Wednesday was instructive. In Europe, central bank chief Mario Draghi waved his hand and lent European banks another few hundred billion euros at 1%. (See below.) And in Washington, Federal Reserve Chairman Ben Bernanke roiled markets in Treasurys, stocks, commodities, etc., when he told Congress . . . well, no one seems sure of what he really said, or at least what he meant. So it goes when central bankers take it upon themselves to save the world economy. And, man, are they ever trying. The most important economic news in recent weeks has been the global flood of monetary easing.


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Washington Update

Bernanke Warns Lawmakers of ‘Massive Fiscal Cliff’ (The Hill)

Congress risks taking the economy over a “massive fiscal cliff,” Federal Reserve Chairman Ben Bernanke warned lawmakers on Wednesday. In remarks that hit Wall Street stock prices, the central bank boss suggested the economy could hit a serious roadblock if Congress allows the Bush tax rates and a payroll tax cut to expire and $1.2 trillion in spending cuts to be implemented simultaneously in January. “Under current law, on Jan. 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases,” Bernanke told the House Financial Services Committee. “I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date. “All those things are hitting on the same day, basically. It’s quite a big event.”

GOP Hopeful After Obama Meeting (CQ)

Republican leaders say an unusually cordial meeting with President Obama has left them confident the House and the Senate will agree on a package of bills intended to create jobs by relaxing financial regulations on small businesses. GOP leaders were buoyed by a luncheon at the White House on Wednesday with Obama, Vice President Joseph R. Biden Jr. and Democratic congressional leaders. “Frankly, it was a very productive lunch,” said House Speaker John A. Boehner. But while the House is likely to pass the legislation incorporating proposals that have drawn bipartisan support, Senate action on the package could be another matter. Majority Leader Harry Reid, D-Nev., may have reservations about allowing Republicans a legislative achievement to brag about during an election year.

The White House's Economic Case for Reelection in 13 Charts (The Atlantic Business Channel)

Whether you love the president, hate the president, or think he's just in over his head, you'll want to see this. It's the Treasury Department's visual slideshow of the state of the economy, called simply The U.S. Economy in Charts (now that's my kind of Department report). If you're a fan of the Obama administration, you'll want to see these graphs because they represent the White House's case for another term -- in easy picture form. The case is: The economy is better than you think. The bailouts and stimulus worked better than you think. And government is smaller than you think. If you hate the Obama administration, you'll want to see these graphs because it's going to be an economics-focused election, and you'd better understand the argument your side will be running against.


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Market Talk

US Calls Oil Markets ‘Increasingly Tight’ (Wall Street Journal)

The world oil market is growing "increasingly tight" at a time when the U.S. is looking to impose fresh sanctions on Iran over its nuclear program, U.S. energy officials said. The U.S. Energy Information Administration on Wednesday released a closely watched analysis of oil production in countries outside of Iran. In it, the EIA said world oil prices and consumption are climbing and economic growth will continue to fuel that trend. The world has also "experienced a number of supply interruptions" and spare production capacity is "quite modest." Release of the analysis, requested by Congress, coincided with U.S. plans to impose sanctions on financial institutions that do business with Iran's central bank, a main conduit for that country's oil purchases. The goal is to block Iran from selling oil to countries such as China and India, cutting off a main source of revenue for the Iranian government.

Bernanke Quells Talk of Fresh Fed Stimulus (Bloomberg)

Federal Reserve Chairman Ben S. Bernanke said elevated unemployment and subdued inflation mean interest rates are likely to stay low, without offering any sign that the economy needs an additional monetary boost. Bernanke, in testimony to lawmakers yesterday in Washington, described “positive developments” in the job market while saying it’s still “far from normal.” He said the inflationary impact of higher gasoline prices is likely to be temporary. Stocks and Treasuries fell as the testimony damped speculation the Fed might embark on a further round of large- scale bond purchases, known as quantitative easing. Yesterday’s semiannual testimony to Congress was a contrast to last July, when Bernanke outlined steps that the Federal Open Market Committee took at later meetings, and to the Fed’s January gathering, when some policy makers said more bond-buying might be needed.

Manufacturing Probably Picked Up For Fourth Month (Bloomberg)

Manufacturing probably accelerated for a fourth straight month in February after Americans picked up the pace of spending a month earlier, economists said before reports today. The Institute for Supply Management’s factory index rose to an eight-month high of 54.5 from 54.1 in January, according to the median estimate of 78 economists surveyed by Bloomberg News. Readings above 50 signal growth. Consumer purchases in January rose 0.4 percent, the biggest gain in four months, a Commerce Department report may show. Manufacturers remain at the forefront of the more than two- year-old expansion, aided by corporate investment in equipment, inventory rebuilding and a pickup in the auto industry. Risks to the industry that accounts for about 12 percent of the economy include higher fuel costs and a slowdown in Europe linked to its debt crisis.


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Editorials & Opinions

Ryan’s Medicare Revolution (Fred Barnes in Wall Street Journal)

Over the past year, an entitlement revolution has taken place on Capitol Hill. It has gotten relatively little attention from the media. Yet its implications for the budget deficit and the health care of senior citizens are enormous. The revolution involves Medicare, the health-care program for the elderly and the single biggest cause of America's looming debt crisis. Reform of Medicare would be achieved by a policy known as "premium support." It would bring consumer choice and spending restraint to the beleaguered program. You may not have heard of premium support. But thanks to the efforts of Paul Ryan, the Republican chairman of the House Budget Committee, it is now the leading alternative to current, fee-for-service Medicare. Indeed, it is the only credible alternative. How would premium support work? 

Yuval Levin on Why 2012 Matters (Reihan Salam in National Review Online)

People who care about politics always think the next election is the most important of their lifetimes, and we should always regard that view (even in ourselves) with some suspicion. There are no lost causes, because there are no gained causes, and no election ever really settles any truly significant question in a permanent way. But, having now told you why you should question my judgment in this regard, I do think the 2012 election could decide an extremely important set of questions regarding the coming several decades of American life: It may well determine whether we are going to become a model of unsustainable welfare-state economics or whether we are going to become a model of how to put market competition at the center of a new way of thinking about what government does.

Prizes With an Eye Toward the Future (Tina Rosenberg in the NY Times Opinionator)

Another market failure in the patent system is that monopoly control can limit access to a new product. Especially when an innovation is in the public interest, it’s counterproductive to encourage the patent holder to price it out of range of most users. Prizes can help, as they reward innovation without monopoly control.  The World Health Organization is currently studying the use of prizes to stimulate medical discovery.  In the United States, the idea’s champion is the quixotic Senator Bernard Sanders of Vermont.   One of Sanders’ proposal would create a Medical Innovation Prize Fund, which would offer more than $80 billion a year in prizes to drugs that are approved by the Food and Drug Administration— a far bigger pot for drug makers than in previous discussions of the idea.   The prize would replace the monopoly control that currently rewards pharmaceutical companies — generic competition would begin immediately.  Sanders claims the fund would create $250 billion in savings annually by bringing down drug prices.


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