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April 5, 2012

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Economic Events of the Week

Thursday – Jobless Claims
Friday – Employment Situation

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Story of the Day
Europe Needs the Bond Vigilantes (Martin Feldstein in The Wall Street Journal)

Washington Update
What Happens If The Individual Mandate Falls (Washington Post's Wonk Blog)
Geithner Calls for More Government Action (Real Time Economics)
Budget Author, a Romney Ally, Turns Into a Campaign Focus (The New York Times)

Market Talk
Markets Fear End of Stimulus (The Wall Street Journal)
Four Fed Regional Bank Presidents See Less Need for New Easing (Bloomberg)

Editorials & Opinions
You Should Sales Pay Tax On That New Shirt (Josh Barro in the New York Daily News)
A Centerless Euro Cannot Hold (Kenneth Rogoff in Project Syndicate)
Effects Of The Jobs Act Are Hard To Predict (Richard Waters for the Financial Times)
Whose World Bank? (Joseph Stiglitz for Project Syndicate)

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Story of the Day

Europe Needs the Bond Vigilantes (Martin Feldstein in The Wall Street Journal)

Spain's disappointing government-bond auction this week is a sign of things to come: If Europe's debt-bound governments won't get their fiscal houses in order, the bond vigilantes will descend, pressuring them to do so. Europe's heads of state, however, still seem to think the solution is greater political unity not individual fiscal discipline. Indeed, 25 euro-zone governments are now engaged in ratifying a "fiscal compact." Its stated purpose is to prevent a repeat of the explosive increase of sovereign debts that can still threaten the solvency of those nations. Sadly, there are so many weaknesses in the treaty that it will not be any more successful at preventing large budget deficits than the earlier Stability and Growth Pact that was quickly abandoned after its rules were violated by France and Germany.


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Washington Update

What Happens If The Individual Mandate Falls (Washington Post's Wonk Blog)

If the Supreme Court rules against the mandate, congressional Republicans will never permit the Obama administration to repair the battered law. But it might not be up to them. If the mandate is overturned but the rest of the law stands, many states might go looking for policy solutions to stabilize the health-care markets that they set up under the Affordable Care Act, but that are now missing the steadying influence of the mandate. And they’ll probably start with a 2011 Government Accountability Office report that lays out nine alternatives to the individual mandate.

Geithner Calls for More Government Action (Real Time Economics)

In the speech, Geithner said the actions taken in 2008 and 2009, including massive stimulus spending, helped avoid a much deeper depression. He then echoed President Barack Obama comments earlier this week, saying that plans floated in Congress and on the campaign trail to deeply slash government spending will not lead to additional growth. “There is no economic or financial case for using the fear of future deficits to cut as deeply into core functions of the government, to weaken the safety net or fundamentally alter Medicare benefits,” Geithner said in the prepared remarks.

Budget Author, a Romney Ally, Turns Into a Campaign Focus (The New York Times)

After Mr. Ryan, chairman of the House Budget Committee, helped Mr. Romney secure a crucial primary victory in Mr. Ryan’s home state, Wisconsin, the candidate on Wednesday tightened his embrace of the congressman despite a withering assault a day earlier from President Obama on the Ryan spending plan and what he said it reflected about Republican priorities. In his most direct clash yet with the president, Mr. Romney defended Mr. Ryan before newspaper editors gathered in Washington as a politician who “unlike this president, has had the courage to offer serious solutions to the problems we face.” Other Republicans cast the 42-year-old Mr. Ryan as the intellectual light of the party and the heir to Jack Kemp, the late New York congressman who also specialized in fiscal policy and was Senator Bob Dole’s running mate in 1996.


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Market Talk

Markets Fear End of Stimulus (The Wall Street Journal)

The slide began in the U.S. Tuesday after signs from the Federal Reserve that it won't immediately embark on a new round of bond buying. That dashed hopes of investors who had anticipated a new program would further juice financial markets and the economy. "People thought that central banks could solve all of our problems and that we could forget all about Europe," said Jerry Webman, chief economist of New York-based Oppenheimer Funds, which manages $184 billion in assets. "The weak Spanish auction tells us that these risks in Europe are still there. The markets are right to be a bit cautious about how the European debt situation evolves."

Four Fed Regional Bank Presidents See Less Need for New Easing (Bloomberg)

Four Federal Reserve regional bank presidents who vote on monetary policy this year see less of a need for the Fed to spur the economy with new accommodation. “The probability of needing to do additional stimulus is lower,” San Francisco Fed President John Williams told reporters yesterday. Cleveland’s Sandra Pianalto, Atlanta’s Dennis Lockhart and Richmond’s Jeffrey Lacker also spoke against additional accommodation this week, with Lacker saying yesterday he “was surprised a couple months ago at the probability market participants seemed to ascribe to further easing.”


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Editorials & Opinions

You Should Sales Pay Tax On That New Shirt (Josh Barro in the New York Daily News)

Effective Sunday, New York increased its sales tax exemption for clothing and footwear. Now, anything under $110 is completely exempt from state tax, matching an exemption already offered by the city. Much of the media coverage has been celebratory. It shouldn’t be. This is one of New York’s many Swiss-cheese rules that reduce sales tax collections and make complying with the tax complicated. Not taxing clothing costs the state more than $500 million in annual revenue — money that will have to be made up somewhere else. The more goods and services you carve out and allow to escape the sales tax, the higher you need to set the rate. So it’s no surprise that New York — with a range of unusual exemptions — has one of the country’s highest sales tax rates, and high income and property taxes to boot.

A Centerless Euro Cannot Hold (Kenneth Rogoff in Project Syndicate)

With youth unemployment touching 50% in eurozone countries such as Spain and Greece, is a generation being sacrificed for the sake of a single currency that encompasses too diverse a group of countries to be sustainable? If so, does enlarging the euro’s membership really serve Europe’s apparent goal of maximizing economic integration without necessarily achieving full political union? The good news is that economic research does have a few things to say about whether Europe should have a single currency. The bad news is that it has become increasingly clear that, at least for large countries, currency areas will be highly unstable unless they follow national borders. At a minimum, currency unions require a confederation with far more centralized power over taxation and other policies than European leaders envision for the eurozone.

Effects Of The Jobs Act Are Hard To Predict (Richard Waters for the Financial Times)

Relaxing regulations in the wake of a once-in-a-generation financial crisis does not sound like the sort of idea that vote-wary politicians in Washington would be rushing to embrace. But when it is in the name of promoting innovation, it suddenly becomes a cause everyone can sign up to. That explains why Congress has hurried through – and President Obama is on the brink of signing – the Jumpstart our Business Startups Act, a tortuous name designed to yield a cute and heartwarming abbreviation: the Jobs Act. Whether this will provide jobs for anyone other than bankers, brokers and accountants is another matter. The law amounts to the most sweeping change to the regulation of capital-raising by private companies – and many of those looking to go public – since the post-Enron Sarbanes-Oxley Act a decade ago. No wonder that in Silicon Valley, where the strictures of Sarbox are still deeply resented, the new law is being greeted with barely suppressed glee.

Whose World Bank? (Joseph Stiglitz for Project Syndicate)

Should America continue to insist on controlling the selection process, it is the Bank itself that would suffer. For years, the Bank’s effectiveness was compromised because it was seen, in part, as a tool of Western governments and their countries’ financial and corporate sectors. Ironically, even America’s long-term interests would be best served by a commitment – not just in words, but also in deeds – to a merit-based system and good governance. One supposed achievement of the G-20 was an agreement to reform the governance of the international financial institutions – most importantly, how their leaders are selected. Since expertise on development by and large lies within the emerging and developing countries – after all, they live development – it seems natural that the World Bank’s head would come from one of those countries. To maintain a cabal among developed countries, whereby the US appoints the World Bank president and Europe picks the International Monetary Fund’s head, seems particularly anachronistic and perplexing today, when the Bank and the Fund are turning to emerging-market countries as a source of funds.


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