Monday, August 30, 2010

Economic Events of the Week

Monday – Personal Income
Tuesday – Case-Shiller Index
Wednesday – Manufacturing Index, FCIC Hearing on "Too Big To Fail," Christina Romer National Press Club Speech
Thursday – Pending Home Sales
Friday – Employment Situation

e21 Reaction & Commentary
e21 Commentary: More Capital and Robust Growth Can Coexist

Washington Update
Administration Releases Report on Options for Tax Code Overhaul (Congressional Quarterly)

Market Talk
Bernanke's Jackson Hole Speech (Round Up)
Weekly Economic Commentary (Wells Fargo)
Further Signs of Slowdown (DMarron.com)

Editorials & Opinions
The Folly of Subsidizing Unemployment (Robert Barro in Wall Street Journal)
New Ideas About Monetary Policy from Jackson Hole (John Taylor's Blog)
Why We Need a Second Stimulus (Laura Tyson in New York Times)
Why Cheap Money Won't Mean More Jobs (RobertReich.org)

e21 Reaction & Commentary

More Capital and Robust Growth Can Coexist (e21 Staff Editorial)

The next stage of financial regulatory reform is rulemakings to determine how much capital banks must hold to buffer against potential losses. A key question policymakers will need answered is the extent to which tougher regulatory standards will reduce lending and inhibit economic growth. On the one hand, banks and their supporters will be inclined to describe any increase in capital and liquidity buffers as an implicit tax on lending. On the other, pro-regulatory forces may use this opportunity to enact punitive restrictions on bank risk-taking in pursuit of social goals or an ideological agenda.

Washington Update

Administration Releases Report on Options for Tax Code Overhaul (Congressional Quarterly)

The White House released a long-awaited report on Friday that outlines options for overhauling the tax code. The 126-page document, created by an offshoot of the President’s Economic Recovery Advisory Board, does not endorse any of the listed options and does not represent official White House policy. Instead, the group, led by former Federal Reserve Chairman Paul A. Volcker, tries to set out options for upcoming debates on taxes, including a long list of suggestions that would simplify the tax system, improve compliance and revamp the corporate tax code.

Market Talk

Bernanke's Jackson Hole Speech (Round Up)

In much-anticipated remarks, Bernanke sought to clarify the actions the Fed might take and what would trigger them - and to dispel the confusion that has resulted during his recent public silence, as other top Fed policymakers have aired dissonant views amid conflicting economic signs. The Financial Times suggests that the stakes for the world’s most important central banker are higher now than at any time since the depths of the financial crisis. David Beckworth calls Bernanke's speech "a big tease", Mark Thoma argues "the Fed's wait and see policy is a mistake" and Clive Crook thinks "further monetary policy is needed, and soon." For more, read Bernanke's speech as well as Jean-Claude Trichet's speech on the macroeconomic challenges of the next decade.

Weekly Economic Commentary (Wells Fargo)

Subpar recovery in housing had been our expectation but this week’s existing and new home sales data reinforced that the old themes of consumer deleveraging and the long-term workout for the U.S. economy remain in place. Our outlook for the second half of this year is for sub 2 percent growth and housing continuing its slow workout. Real growth in the second quarter was revised down to 1.6 percent due to weaker trade and inventories.

Further Signs of Slowdown (DMarron.com)

Editorials & Opinions

The Folly of Subsidizing Unemployment (Robert Barro in Wall Street Journal)

My calculations suggest the jobless rate could be as low as 6.8%, instead of 9.5%, if jobless benefits hadn't been extended to 99 weeks. The Bureau of Labor Statistics reports that, near the worst of the recession in March 2009, 3.9 million people were hired and 4.7 million were separated from jobs. This net loss of 800,000 jobs in one month indicates a very weak economy—but nevertheless one in which 3.9 million people were hired. A program that reduced incentives for people to search for and accept jobs could surely matter a lot here.

New Ideas About Monetary Policy from Jackson Hole (John Taylor's Blog)

The main thing I took away from Ben Bernanke’s opener was his call for a “cost-benefit” approach to determine whether another dose of unorthodox large scale asset purchases is needed. This is a big improvement over a “whatever it takes” approach, and it opens the door to a transparent discussion of the costs and benefits of such policies. My own view  is that the benefits in terms of lower rates are very small, while the short-term costs of greater uncertainty about the exit strategy and long-term costs from a loss of independence are large.

Why We Need a Second Stimulus (Laura Tyson in New York Times)

Our national debate about fiscal policy has become skewed, with far too much focus on the deficit and far too little on unemployment. There is too much worry about the size of government, and too little appreciation for how stimulus spending has helped stabilize the economy and how more of the right kind of government spending could boost job creation and economic growth. Policy makers should do two seemingly contradictory things. First, they should provide additional fiscal support for job creation and growth. And, second, they should enact a credible multiyear plan now to stabilize the ratio of federal debt to gross domestic product gradually as the economy recovers.

Why Cheap Money Won't Mean More Jobs (RobertReich.org)

The sad reality is cheaper money won’t work. Individuals aren’t borrowing because they’re still under a huge debt load. And as their homes drop in value and their jobs and wages continue to disappear, they’re not in a position to borrow. Small businesses aren’t borrowing because they have no reason to expand. Retail business is down, construction is down, even manufacturing suppliers are losing ground. If Bernanke and company make it even cheaper to borrow, they’ll be subsidizing a third corporate strategy for creating more profits but fewer jobs — mergers and acquisitions.

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