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Friday, March 9, 2012

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Economic Events of the Week

Friday – Employment Situation

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e21 Reaction & Commentary
e21 Reaction: Should Eurozone Worries Ease as ECB Balance Sheet Grows?

Washington Update
Obama Unveils New Foreclosure Measures (Washington Post)
Agreement on Spending Limit Eludes GOP House Budget Writers (CQ)
Study: Votes in Favor of Health Care Cost Dems 5.8 Points in 2010 (The Hill)

Market Talk
Payrolls in U.S. Climb 227,000; Jobless Rate Holds at 8.3% (Bloomberg)
Investors Back Historic Greet Debt Swap (Financial Times)

Editorials & Opinions
A Look at the One Percent (Allan Meltzer in Wall Street Journal)
Economists Overwhelmingly Believe the Bank Bailout Helped Ordinary Americans (Washington Post)
We Thought They Were Worried About Costs (New York Times Editorial)

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e21 Reaction & Commentary

e21 Reaction: Should Eurozone Worries Ease as ECB Balance Sheet Grows?

With the undertaking of its second long-term refinancing operation (LTRO) the ECB now holds roughly 25% more assets on its balance sheet than the Fed. LTRO2 added another €530 billion to the central bank’s holdings, which now registers a record €3.02 trillion ($3.96 trillion) much larger than the Fed’s $2.9 trillion in assets. Perhaps even more startling is the ECB balance sheet‘s relation to the eurozone economy. Currently, its balance sheet is almost 30% larger than the world’s fourth largest economy, Germany—a fact of which the Bundesbank is well aware. Assets held by Draghi and company are now 32% of the nominal GDP of the entire eurozone—the highest ratio ahead of the Bank of Japan at 30%, the Bank of England at 21%, and the Fed at 19%.


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Washington Update

Obama Unveils New Foreclosure Measures (Washington Post)

President Obama has begun embracing housing policies that administration officials earlier thought unwise or unworkable as he embarks on his most aggressive push to address the nation’s foreclosure crisis and depressed real estate market since the first months of his tenure. Obama has unveiled more than half a dozen plans in recent months to help millions more Americans refinance their mortgages at low rates, to reduce the debts owed by struggling homeowners and to expand existing programs to broaden the pool of borrowers eligible for government aid. The latest initiatives, announced this week, seek to help members of the military and Americans who have government-insured mortgages. The administration had previously rejected some of these efforts on the grounds that they were wrong on the merits, risky for taxpayers or could not be done.

Agreement on Spending Limit Eludes GOP House Budget Writers (CQ)

Republican members of the House Budget Committee have yet to agree on a framework for their fiscal 2013 budget resolution. The panel’s GOP majority met for more than an hour Thursday with House Majority Leader Eric Cantor, R-Va., but emerged without a decision on the discretionary spending limit the budget resolution will set. Some committee members said Wednesday they expected that key question to be settled during Thursday’s session. The committee is expected to recommend a spending cap for next year that falls below the level set in last August’s debt limit agreement, but the figure remains under negotiation. Republicans also are debating how to roll back the $109 billion spending “sequester” imposed by the debt limit law and scheduled to take effect in January. One big issue is whether alternative spending cuts should fall on discretionary spending alone, or on some entitlement programs.

Study: Votes in Favor of Health Care Cost Dems 5.8 Points in 2010 (The Hill)

Voting for President Obama's healthcare reform law cost Democratic incumbents 5.8 percentage points of support at the polls in 2010, according to a new study in the journal American Politics Research. The study helps explain why Democrats lost 66 House seats, significantly more than the median academic forecast of 44 to 45 seats.  Democrats in the lead-up to the elections took a number of tough votes — notably on the Wall Street bailout, the stimulus and cap-and-trade — but none was as unpopular as their support for the healthcare reform law. "We show that the roll-call effect on vote share was driven by healthcare reform. Democratic incumbents who voted yes performed significantly worse than those who did not," Nyhan writes. "We then provide simulation evidence suggesting that Democrats would win approximately 25 more seats if those in competitive districts had voted no, which accounts for the gap between the academic forecasts and the observed outcomes."


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Market Talk

Payrolls in U.S. Climb 227,000; Jobless Rate Holds at 8.3% (Bloomberg)

Employers in the U.S. boosted payrolls more than forecast in February, indicating companies are growing more optimistic about the expansion. The jobless rate held at 8.3 percent. The 227,000 increase in payrolls followed a revised 284,000 gain in January that was bigger than first estimated, Labor Department figures showed today in Washington. Job growth over the last six months was the strongest since 2006. The median projection of economists in a Bloomberg News survey called for a 210,000 rise in February employment.

Investors Back Historic Greet Debt Swap (Financial Times)

Greece was due to complete the largest ever sovereign debt restructuring on Friday as it prepared to squeeze out dissenting bondholders in a move likely to trigger a credit event. Participation in the €206bn debt exchange would reach 95.7 per cent, up from 85.8 per cent, if so-called collective action clauses are used to make the deal binding on holdouts, the Greek finance ministry said. All eyes are now on whether a derivatives industry body decides later on Friday that credit default swap insurance should be triggered if, as expected, eurozone finance ministers approve the use of CACs in a teleconference. Greece’s restructuring marks the first time in 60 years that a developed country has defaulted on its debt and it represents a new low-point in the two-year long eurozone crisis.


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Editorials & Opinions

A Look at the One Percent (Allan Meltzer in Wall Street Journal)

While the Occupy Wall Street movement may be waning, the perception of growing income inequality in America is not. For those on the left, the widening gap between the top 1% of earners and the remaining 99% is proof that American capitalism is unjust and should be traded in for an economic model more closely resembling the social democracies of Europe. But an examination of changes in income distribution over nearly 100 years, not just in the United States but elsewhere in the developed world, does not bear this out. In a 2006 study titled "The Evolution of Top Incomes in an Egalitarian Society," Swedish economists Jesper Roine and Daniel Waldenström compared the income share of the top 1% of earners in seven countries from the early 1900s to 2004. Those countries—the U.S., Sweden, France, Australia, Britain, Canada and the Netherlands—all practice some type of democratic capitalism but also a fair amount of redistribution. The share of income for the top 1% in these seven countries generally follows the same trend line. That means domestic policy can't be the principal reason for the current spread between high earners and others.

Economists Overwhelmingly Believe the Bank Bailout Helped Ordinary Americans (Washington Post)

The vast majority of economists believe the bank bailout prevented further harm to the economy during the financial crisis and effectively prevented the unemployment rate from rising even higher, according to a new survey from the University of Chicago of 40 leading economists. Nearly 80 percent “agreed” or “strongly agreed” that the U.S. unemployment rate by the end of 2010 was lower than it would have been without TARP and the subsequent commitments of government capital. But some who agreed that the bailout may have been helpful suggest that it may not have been the only option, arguing that it could have been harder on the banks and provided greater benefit to taxpayers.

We Thought They Were Worried About Costs (New York Times Editorial)

As part of their broader campaign to repeal health care reform, House Republicans are determined to kill off an independent board that is supposed to help rein in federal spending on Medicare. Their rhetoric is predictably distorted: charging that “15 unelected bureaucrats” should not be able to “ration care.” In truth, the independent payment advisory board of nongovernmental experts is specifically precluded from rationing care, and Congress, not the board, has the final say on what cuts should be made. The Congressional Budget Office estimates that repealing the board would drive up federal spending on Medicare by $3.1 billion over the course of a decade, but the board is especially important as a longer-term backstop against rising costs. Nevertheless, the repeal bill has already passed two committees, with some Democratic support, and it is likely to pass the full House this month. A repeal bill pending in the Senate seems unlikely to pass, but there are no guarantees in an election year.


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