Wednesday, June 27, 2012

Economic Events of the Week

Wednesday – Durable Goods Orders
Thursday – GDP, Jobless Claims
Friday – Personal Income and Outlays

Story of the Day
Consumer Confidence Falls to Five-Month Low (Bloomberg)

Washington Update
Harkin Prepares Options In Case Court Rejects Health Mandate (CQ)
GOP Demand Growing to Move Now on Sequester (National Journal)
Four Ways to Patch Up Obamacare Post-SCOTUS (Politico)

Market Talk
Fed’s Fisher: Twist Plan Having Very Minor Effects (Real Time Economics)
US Home Prices Rise for Third Month (Financial Times)
US Urged to Bolster Economy (Wall Street Journal)

Editorials & Opinions
Let’s Ban the Word Trillion (Andrew Tisch in Wall Street Journal)
Health Care Reform vs the Founders (David Rivkin in Wall Street Journal)

Story of the Day

Consumer Confidence Falls to Five-Month Low (Bloomberg)

Confidence among U.S. consumers dropped in June for a fourth consecutive month as mounting concern over jobs and incomes dimmed the outlook for spending. The Conference Board’s sentiment index fell to 62, a five- month low, from a revised 64.4 in May, figures from the New York-based private research group showed today. Another report showed home prices were stabilizing. The slide in confidence raises the risk that the slowdown in hiring revealed by last month’s jobs report will cause households to retrench, restraining the spending that accounts for about 70 percent of the economy. The weak labor market is overshadowing the benefit of the lowest gasoline prices in five months, one reason why companies like Ford Motor Co. are keeping an eye on attitudes.

Washington Update

Harkin Prepares Options In Case Court Rejects Health Mandate (CQ)

A top Senate Democrat said he has provisions “ready to go” if the Supreme Court, when it rules Thursday, overturns the requirement in the health overhaul law that individuals buy insurance. “If the court strikes down the individual mandate, which I hope they don’t . . . but if they do, we are going to have to think of some other approaches. And I have been thinking about it, and we have things ready to go,” Tom Harkin, the chairman of the Senate Health, Education, Labor and Pensions Committee, told reporters Tuesday. Democrats have insisted that they will remain focused on implementing the law because they are confident the court will find it constitutional. But Harkin, D-Iowa, acknowledged that lawmakers may have to act if the court decides that the so-called individual mandate that most Americans either buy health insurance or pay a penalty is unconstitutional.

GOP Demand Growing to Move Now on Sequester (National Journal)

After months of party-line finger-pointing over how best to avoid defense sequestration, Republicans in Congress are telling their own party leaders it’s time to move quickly to head off steep budget cuts rather than wait until after the elections. In the last few weeks, leaders on the armed services committees, in the Pentagon, and across the defense industry have stepped up their talk against sequestration. Key Republicans and Democrats influential in national-security circles now are staunchly aligned on one thing: Defense sequestration needs immediate action. “Why don’t we do something to fix it now?” House Armed Services Committee Chairman Buck McKeon, R-Calif., asked in an interview with National Journal Daily.

Four Ways to Patch Up Obamacare Post-SCOTUS (Politico)

President Barack Obama’s administration says it has no contingency plan if the Supreme Court strikes down the health law’s individual mandate. The best fixes would be legislative — but that’s not likely when half of Congress wants to repeal whatever’s left of the law. Yet health experts say the administration does have a handful of backstops. The problem? They’re pretty weak. Here are four options the president could invoke to try to cover more Americans — and why they wouldn’t resurrect the full strength of the law’s individual mandate: (1) selling those subsidies, (2) late enrollment penalties, (3) HHS regulations, and (4) count on the states.

Market Talk

Fed’s Fisher: Twist Plan Having Very Minor Effects (Real Time Economics)

The Federal Reserve‘s Operation Twist program to push down bond yields is only having a “very minor effect” on the economy, said Richard Fisher, the president of the Federal Reserve Bank of Dallas, on Tuesday. In an interview with the Fox Business Network, Fisher said the Twist program will only complicate the Fed’s eventual exit strategy. Fisher said there is already “so much money lying fallow that’s just not being used,” including $1.5 trillion in excess bank reserves and over $2 trillion on corporate balance sheets. The money isn’t being put to work at the moment because of fiscal uncertainty, Fisher said. “They have to stop doing what Republicans and Democrats together have been doing for far too long, that is digging a giant hole in which they are burying our children with debt and unfunded liabilities,” Fisher said.

US Home Prices Rise for Third Month (Financial Times)

US home prices showed further signs of stabilisation in April, boosting hope that the housing market is finally bottoming out. The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential property in 20 metropolitan regions across the US, showed prices edge 0.7 per cent higher on a seasonally adjusted basis. That followed a 0.1 per cent rise in March and was the third straight monthly gain. On a non-seasonally adjusted basis, April prices rose 1.3 per cent after holding steady the month before. Even as other parts of the country’s economy are losing momentum, recent housing data have pointed to a tentative recovery.

US Urged to Bolster Economy (Wall Street Journal)

The U.S. economy is likely to grow moderately this year, but is limited by stagnant wages, relatively high income inequality and an education system that provides few resources to those likely to need help, the Organization for Economic Cooperation and Development said. The U.S. economic outlook could be jeopardized by a deterioration of Europe's crisis or a failure to avoid the so-called fiscal cliff of tax hikes and spending cuts, according to a report released Tuesday by the Paris-based consortium of 34 advanced economies. OECD officials warned, however, that U.S. policy makers shouldn't allow immediate risks to distract them from solving broader, structural problems that could threaten the economy's long-run growth.

Editorials & Opinions

Let’s Ban the Word Trillion (Andrew Tisch in Wall Street Journal)

Pop quiz: What's bigger—$15.8 trillion, or $15,772,177,351,447? Of course, rounding off, they're about the same. But don't we all think that the first number seems so much smaller and more manageable than the second? The first number incorporates a tidy unit of measurement called a "trillion." We can get our heads around the word "trillion," and so we think we understand what we're looking at. In this case, it is the size of our national debt. The thing is, it should be really hard to ever get our heads around a "trillion." Very few of us have ever seen a trillion of anything with our own eyes. Maybe a trillion grains of sand, but not a trillion trees or a trillion stars. When you look at the nighttime sky, think about this: We used to know of a few million stars. Then we moved up to billions of stars. Now we're up to billions of galaxies. But we haven't gotten to trillions of many things uniquely identifiable yet. Except dollars.

Health Care Reform vs the Founders (David Rivkin in Wall Street Journal)

Where, exactly, does the U.S. government get the power to require that every one of its citizens must participate in a government-sponsored health care plan? Ask this of a health care reformer and he, or she, will sniff, think a moment, and (if legally trained) will immediately utter the two most magic words in late 20th century constitutional jurisprudence—Commerce Clause. If the legality of a health care package featuring federally mandated universal participation is litigated (and we can bet it will be), and the system is upheld, it will mark the final extension of this originally modest grant of federal authority. Thereafter, Congress will be able to regulate you not because of who you are, what you do for a living, or whether you use the interstate highways, but merely because you exist.

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