Wednesday, May 9 2012

Economic Events of the Week

 Thursday – Speech by Ben Bernanke at the 48th Annual Conference on Bank Structure and Competition
Friday – Producer Price Index

e21 Reaction & Commentary
Dollar In A Rut As Recovery Disappoints (Financial Times)

Washington Update
Student Loan Bill Blocked in Senate (Politico)
House Deems a Budget Resolution, Again (CQ)
GOP Tries to Ward Off Fight Over Housing Relief in Election Year (National Journal)

Market Talk
Gross Says QE3 Getting Closer as Goldman Sees Easing (Bloomberg)
Regulation Matters More than Taxes, According to Study (EconLog)
Borrowers Face Big Delays In Refinancing Mortgages (The Wall Street Journal)

Editorials & Opinions
JOBS Act Is Worth the Risks (Neal Lipschutz in The Wall Street Journal)
Paul Ryan Agrees Banks Shouldn’t Trade Like Hedge Funds (Bloomberg Editorial)
America and the Value of 'Earned Success' (Arthur Brooks in The Wall Street Journal)

e21 Reaction & Commentary

Dollar In A Rut As Recovery Disappoints (Financial Times)

Back in January, foreign exchange strategists predicted 2012 would be the year of the dollar. The US currency was expected to enjoy strong gains as a positive recovery story unfolded in America. Instead, the dollar is stuck in a rut. Rather than soar, it has traded in a tight range against other big currencies as that economic recovery has looked less certain.  The dollar index, which weighs the US currency against a basket of other global currencies, is almost flat for the year-to-date, having risen just 0.3 per cent. And, inexplicably for many traders given the divergence between the health of the US and eurozone economies, the dollar is also barely changed against the euro this year. In fact, for all the revived fears about the euro area’s debt crisis, the single currency has risen 0.5 per cent, trading on Tuesday at about $1.30.

Washington Update

Student loan bill blocked in Senate (Politico)

Another of President Barack Obama’s top domestic priorities was stymied in the Senate Tuesday when lawmakers rejected a bill to stop student loan interest rates from doubling in July. The legislation failed to muster the 60 votes needed to break a GOP-led filibuster. Senate Republicans vehemently opposed the measure because it would’ve eliminated a tax loophole for certain businesses – a move the GOP called a tax hike on job creators. The vote was 52-45, with Sen. Olympia Snowe (R-Maine) voting present. “While we don’t think young people should have to suffer any more than they already are as a result of this president’s failure to turn the economy around, we just disagree that we should pay for a fix by diverting $6 billion from Medicare and raising taxes on the very businesses we’re counting on to hire these young people,” said Senate Minority Leader Mitch McConnell (R-Ky.), who called the fight a “manufactured controversy” cooked up by Democrats.

House Deems a Budget Resolution, Again (CQ)

House Republicans erred last month while drafting language they said would provide budget enforcement authority for the fiscal 2013 budget resolution. The House remedied that mistake on Tuesday by passing a measure that includes revised language allowing the appropriations process to move forward. The deeming language is contained in a rule (H Res 643) for a fiscal 2013 appropriations bill that funds the departments of Commerce and Justice and science programs. The House approved the rule on a 228-181 party line vote Tuesday before beginning debate on the appropriations bill (HR 5326), which is the first spending bill to be considered by the House this year. After adopting the budget in March, the House approved a rule last month (H Res 614) for a recreational sporting bill that included a provision to deem the budget resolution as the annual budget resolution for budget enforcement purposes, as if it had been adopted by both chambers of Congress.

GOP Tries to Ward Off Fight Over Housing Relief in Election Year (National Journal)

Republicans at a Senate Banking Committee hearing on Tuesday signaled that they do not want to be dragged into a fight before the elections on the Obama administration’s plan to expand refinancing opportunities for underwater borrowers. Analysts tracking the issue still don't think there's much of a chance legislation will be enacted in an election year when Republicans are threatening to put up a fight, but several Democrats would like to see action and are assembling a package of bills with an eye toward trying to bring them to the Senate floor. The debate alone gives Democrats and the administration an opportunity to tout their housing-relief efforts to voters and distinguish themselves from Republicans, who have generally favored letting the market work on its own without intervention, analysts said.

Market Talk

Gross Says QE3 Getting Closer as Goldman Sees Easing (Bloomberg)

Bill Gross at Pacific Investment Management Co. and Jan Hatzius at Goldman Sachs Group Inc. (GS) say investors should prepare for additional bond purchases from the Federal Reserve to combat a slowing U.S. economy. A decision to buy more debt is “getting closer,” Gross, who runs the world’s largest mutual fund, wrote on Twitter yesterday. Hatzius, the chief economist at New York-based Goldman Sachs, predicted in a report the same day that the Fed will announce additional monetary easing when it meets in June. Prospects for more Fed purchases increased after a Labor Department report May 4 showed U.S. employers added 115,000 jobs in April, the smallest gain in six months. Europe’s debt crisis is also threatening to slow global growth. Ten-year Treasury yields fell to 1.81 percent yesterday, approaching the record low of 1.67 percent set Sept. 23.

Regulation Matters More than Taxes, According to Study (EconLog)

“Small businesses care almost twice as much about licensing regulations as they do about tax rates when rating the business-friendliness of their state or local government.” The power to tax is the power to destroy. That seems obvious. What may be less obvious is that the power to regulate is the power to destroy. When a government imposes a regulation that a business has to comply with before operating, that is like a very stiff tax. Thus the quote above from a study by Thumbtack.com in partnership with the Kauffman Foundation.

Borrowers Face Big Delays In Refinancing Mortgages (The Wall Street Journal)

Clogged mortgage pipelines have created headaches for hundreds of thousands of Americans trying to take advantage of low mortgage rates, which averaged 4.05% for the week ending April 27, according to the Mortgage Bankers Association. Those rates have helped thousands of Americans free up cash or retire debt. On average, borrowers that refinanced during the first quarter of 2012 reduced their first-year interest payments by $2,900, according to mortgage-finance giant Freddie Mac. Overall, refinancing over the past three years has unlocked savings worth $46 billion in their first year, according to Moody's Analytics.

Editorials & Opinions

JOBS Act Is Worth the Risks (Neal Lipschutz in The Wall Street Journal)

Are we ready to risk more fraud in order to fund more start-ups? The answer in the U.S. apparently is ‘yes’. The economic malaise demands it. The provocative quid pro quo above is still theoretical on both sides of the equation. But the recently signed federal law, Jumpstart Our Business Startups, has the potential to spark greater company creation and thereby bring into existence some desperately needed jobs. The hopeful acronym for the law, of course, is the JOBS Act. It also puts investors in a less-protected position. Sure, there are safeguards and investment limits in the law, but that didn’t stop investor advocates and some legislators from complaining it was a step backwards. “Crowdfunding” via the Internet is now an approved method for small start-ups to attract investments from individuals. The law gives regulatory leeway to smaller companies that want to launch initial public offerings. That means less information for investors.

Paul Ryan Agrees Banks Shouldn’t Trade Like Hedge Funds (Bloomberg Editorial)

We were as surprised as everyone to hear what U.S. Representative Paul Ryan of Wisconsin told constituents at a meeting on May 4. “If you’re a bank and you want to operate like some nonbank entity like a hedge fund, then don’t be a bank,” the House Budget Committee chairman and the Republicans’ leading policy wonk said. “Don’t let banks use their customers’ money to do anything other than traditional banking.” We agree. Although Ryan didn’t say so, he was endorsing the Volcker rule in the Dodd-Frank financial reform law. Inspired by former Federal Reserve Chairman Paul Volcker, the rule is supposed to stop federally insured banks from making speculative bets for their own profit -- leaving taxpayers to bail them out when things go wrong.

America and the Value of 'Earned Success' (Arthur Brooks in The Wall Street Journal)

Earned success means defining your future as you see fit and achieving that success on the basis of merit and hard work. It allows you to measure your life's "profit" however you want, be it in money, making beautiful music, or helping people learn English. Earned success is at the root of American exceptionalism.The link between earned success and life satisfaction is well established by researchers. The University of Chicago's General Social Survey, for example, reveals that people who say they feel "very successful" or "completely successful" in their work lives are twice as likely to say they are very happy than people who feel "somewhat successful." It doesn't matter if they earn more or less income; the differences persist.

e21: Economic Policies for the 21st Century is a nonprofit, nonpartisan organization dedicated to economic research and innovative public policies for the 21st century. Drawing on the expertise of practitioners, policymakers, and academics, we aim to advance free enterprise, fiscal discipline, economic growth, and the rule of law.

2011, e21: Economic Policies for the 21st Century