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Thursday, August 12, 2010
Thursday – Jobless Claims
Washington Update
Financial Markets News
Editorials and Commentaries Featured StoryTaxes Aren't The Problem, Spending Is (Jennifer Pollom for e21)Fareed Zakaria had an interesting, but misguided piece, “Raise My Taxes, Mr. President!” in last week’s edition of Newsweek echoing what has become a familiar line from the left. In it, Zakaria makes a claim that has become popular lately, stating that “The Bush tax cuts remain the single largest cause of America’s structural deficit” and that in order to get deficits under control the 2001 and 2003 tax rates should all be allowed to expire. However, in claiming that current tax rates are most to blame for our disastrous fiscal condition, Zakaria is wrong.  Back to Top
Washington UpdateHouse Passes $26 Billion in State Aid (New York Times)The House interrupted its summer recess on Tuesday to approve $26 billion in aid to school districts and states to prevent large-scale layoffs of teachers and public employees and to engage in another partisan fight over policy priorities. After the vote of 247 to 161 in favor of the legislation, President Obama quickly signed the measure at the White House, underscoring the importance Democrats place on the bill that they view as compelling evidence of their commitment to protecting American jobs. Back to Top
Financial Markets NewsTreasury Yields Tumble on Fed Move (Financial Times)The Federal Reserve Bank of New York said on Wednesday that it would purchase $18bn of Treasury bonds over the next month, as yields on their targeted maturities fell within sight of record lows reached at the height of the financial crisis. The size of the Fed buying is lower than the average of $50bn seen during 2009 when the central bank purchased $300bn of Treasuries under its initial policy of quantitative easing. The prospect of renewed Fed buying – and Wednesday’s falls in stock markets – combined to pull yields sharply lower on some medium-dated debt. US Fund Manager Warns on Mortgage Guarantee (Financial Times)Bill Gross, who manages the world’s largest bond fund, said on Wednesday that he would not buy bonds backed by mortgages unless the US government continued to guarantee the debt. His comments, in an interview with the Financial Times, will raise the stakes ahead of next Tuesday’s housing finance conference at the Treasury department, which will lay the groundwork for reform of Fannie Mae and Freddie Mac, the large government-owned mortgage finance companies. Wider Trade Gap Signals Weak Growth (Wall Street Journal)The U.S. ran a surprisingly large trade deficit in June, raising concerns that the economic recovery is losing steam faster than previously thought. The trade gap widened 19% from a month earlier to $49.9 billion, the widest deficit since the financial crisis hit in October 2008, the Commerce Department said Wednesday. Imports jumped 3%, driven largely by strong U.S. demand for foreign-made consumer goods such as iPads and flat-screen TVs, while exports fell 1.3% as American producers sent fewer capital goods overseas. 2nd Quarter GDP May Be Revised Even Lower (Economix)The government’s preliminary estimate for economic growth in the second quarter is likely to be revised substantially lower. This preliminary estimate of gross domestic product growth, which was released on July 30, reported that the nation’s output grew at an annual rate of 2.4 percent in the spring. This tepid growth was nothing to write home about, since it was a big step downward from growth rates in the previous two quarters. Right now it’s looking like second quarter G.D.P. growth was only half as big as initially estimated. Back to Top
Editorials and CommentariesDoes the Stimulus Stimulate? (Lawrence Lindsey in Weekly Standard)
It really should be no surprise that the stimulus bill has created far fewer jobs, dollar for dollar, than past stimulus measures. That is why it is methodologically spurious to assert that unemployment is far lower than it would be in its absence. I say that as one whom the administration itself cited as a supporter of a generic stimulus measure back in January 2009. I continue to believe that it would be a mistake to withdraw stimulus from the economy—such as by raising taxes or by letting existing tax provisions expire. This despite the very high deficits we are now experiencing. Our policy problem today is that the bill that was actually passed into law was both so expensive and so badly flawed that it gives the whole concept of macroeconomic stimulus a bad name.
The Great False Choice, Stimulus or Austerity (Olivier Blanchard n Financial Times)The debate on the need for further fiscal stimulus or quicker retrenchment has become too ideological, and too extreme. Underneath it, however, there is more agreement on the basics than may be apparent at first blush. Indeed, despite the warring comments that have appeared in these pages, there is actually no necessary conflict between restoring fiscal sustainability and maintaining support for the recovery. Today’s debt problems result not from how fiscal policy was managed during the crisis, but rather from how it was mismanaged before the crisis. Advanced countries entered the crisis with some of the highest public debt ratios ever reached in the absence of a major war. Europe Jumps Off the Keynesian Bus (Allan Meltzer in Wall Street Journal)
Right now, businesses are investing to reduce costs for health care and employee benefits by increasing labor-saving capital. That maintains profits despite continued slow growth, but increases layoffs and unemployment. They see what the administration and Congress do, and they protect themselves as best they can. Policy makers can reduce uncertainty about future costs by putting a moratorium on new regulation unless it is approved by a supermajority of Congress. Meanwhile, there has to be a recognition that bashing business and blaming the Bush administration for economic problems create less confidence about the future and are counterproductive. They do nothing to end high unemployment.
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