Tuesday, August 3, 2010

8/3/10 Post

Geithner: U.S. unemployment could rise
Treasury Secretary Timothy Geithner said the U.S. unemployment rate could rise for two months before it drops, potentially deepening Democrats' problems in the midterm elections.
White House wants Housing Reform
The U.S. Treasury Department will hold a “Conference on the Future of Housing Finance” on Aug. 17, where “leading academic experts, consumer and community organizations, industry groups, market participants, and other stakeholders” will discuss the right approaches to housing.
Treasury's Geithner: Dramatic Reforms Will Be Needed For GSEs
Treasury Secretary Geithner believes that "dramatic" changes will be necessary for the structure of Fannie Mae and Freddie Mac.
Geithner defends Obama policy on tax cut extension
Treasury Secretary Timothy Geithner said Tuesday it would be "deeply irresponsible" for the Obama administration to support a wholesale extension of Bush era tax cuts, including breaks for the wealthy.
Slow and Slower
Real GDP increased at a 2.4% annual pace in the second quarter—less than forecast and the lowest rate since the third quarter of last year.
Americans who swap passports
In order to avoid taxes, some Americans are renouncing their U.S. citizenship in the U.K.
Stimulus Slammed: Republican Senators Release Report Alleging Waste
Senators Coburn and McCain released a report that argues that the stimulus is ridden with wasteful projects that will not create jobs.
Fed Likely to Pass On More Stimulus Amid Signs Economy Weak
Federal Reserve policy makers signaled they will probably pass on providing more stimulus at their Aug. 10 meeting and wait to see if signs of weaker economic growth persist.
P&G Profit Forecast Trails Estimates as Shoppers Limit Spending
Procter & Gamble Co., the world’s largest household-products maker, forecast first-quarter profit that fell short of analysts’ projections as some consumers limit spending on name brands.
Pending Sales of Existing U.S. Homes Decrease 2.6%
The index of pending home resales dropped 2.6 percent from the prior month, figures from the National Association of Realtors showed today in Washington.
Oil Rises to Three-Month High Above $82 Before U.S. Supply Data
Crude oil rose above $82 a barrel as the dollar weakened on speculation the U.S. may require additional stimulus measures to boost the economic recovery.
Greece Passes First Deficit Test as Budget Challenges Greece Passes First Deficit Test as Budget Challenges Mount
Greece’s austerity drive may pass its first test this week as a European Union-led mission prepares to dole out more rescue funds for a government trying to cut the euro-region’s second-biggest budget gap and weather a recession.
MasterCard Declines as Growth in Processed Transactions Stalls
MasterCard Inc. fell in New York trading after the company said growth in the number of transactions on debit and credit cards stalled in the second quarter.
U.S. savings rate hits highest level in year
Income was unchanged in June, failing to show growth for the first month since July 2009. Consumer spending was also flat.
Yields on 2-year Treasury notes fall to record low
Treasury prices rose on Tuesday, pushing yields on 2-year notes to a record low, after a published report said that the Federal Reserve may buy more debt.
Australia keeps rates steady, as expected
The Reserve Bank of Australia kept its benchmark cash rate unchanged at 4.5% Tuesday, as widely expected, citing in-line growth and inflation.
Spending, Income Flat in June
U.S. consumer spending was flat in June as incomes stopped growing and prices remained subdued, pointing to a weaker economy.
99 Weeks Later, Jobless Have Only Desperation
In June, with long-term unemployment at record levels, about 1.4 million people were out of work for 99 weeks or more, according to the Bureau of Labor Statistics.
Budget woes snare state aid bill
While scrambling to save pre-election jobs assistance, Senate Democrats are quietly conceding that Republicans have already won and big swaths of President Barack Obama’s 2011 budget will be cut when Congress returns after its summer recess.
Bid For Medicaid, Teacher Funds Kicked Further Down Road
A bid to approve increased Medicaid and teacher funding failed yet again in the Senate Monday night, after CBO said the legislation was not fully paid for.
Manufacturing keeps recovery afloat with 12 straight months of growth and talk of hiring
It's a rare bright spot in an otherwise troubled economy: The nation's manufacturing sector has now grown for a solid year, and more of its companies say they're ready to hire.
Iffy Senate outlook for aid package to state governments, local school systems
President Barack Obama's Senate allies are taking one last run at advancing what's left of his tattered jobs agenda. The $26 billion spending measure would help states and local school boards with their budget problems.
Health reform: What you're not getting
Under reform, health plans that existed on March 23, 2010 are "grandfathered," meaning they are exempt from implementing some of the law's new provisions. Plans that lose this status will have to apply all of the changes required by the law.
The Wrong Fight
People who want to sell more American-made goods to China keep prodding Beijing to raise the value of the yuan against the dollar. But prodding China to let the yuan appreciate won't help much. Americans won't buy fewer Chinese imports if the yuan appreciates. China won't buy more American products.

Secondary Sources: Fed Watch, Bond Vigilantes, Deflation
A roundup of economic news from around the Web.
Political Futures Market: Dems to Lose House
The political futures market at provides additional support for Barone’s prediction that the Democrats will lose control of the House this fall. When President Obama took office in January 2009, the Intrade odds were only 15 percent that the Republicans would control the House in 2010, but those odds have been consistently rising ever since...
James Manzi on Experimental Social Science
One of the lessons that is implicit in the essay (and that I think that Manzi ought to make explicit) is, "Don't trust one-offs." That is, do not draw strong conclusions based on a single experiment, no matter how well constructed. Instead, wait until many experiments have been conducted, in a variety of settings and using a variety of techniques.
Economists React: Cautious Consumers Save More
Economists and others weigh in on the flat readings on personal income and spending.
Preview: Auto Sales, Pending Home Sales, Aug 10th FOMC Meeting
The consensus is for a slight decline in the pending homes sales index for June, after the 30% drop decline in May.
A Look Inside the Fed’s Balance Sheet
Assets on the Fed’s balance sheet contracted a bit in the latest week, dropping to $2.308 trillion from $2.315 trillion. Most of the decline came from a decline in the value of the Fed’s mortgage-backed securities.
Pending Home fall to record series low in June
This decline was expected and suggests existing home sales - reported at closing - will fall sharply in July and probably a little further in August.
After Scorching Year-Long Run, Factories Chill Out
The two most positive items in the report were pickups in employment and exports. The gains continue previous trends: Factory jobs have been leading the modest pace of hiring so far this year, and faster recoveries in emerging markets are pushing up foreign demand.
Administration Still Double-Counting Medicare Cuts
Last year, the administration grew fond of "double counting" the savings from the Medicare cuts in health care reform--claiming that they'd reduced the deficit, paid for reform, and extended the life of the Medicare trust fund. Eventually, Republicans got around to asking for an analysis from the CBO, which told us what anyone who ever took first year accounting already knew: this is not true. If you used the savings to "pay for" the new spending, you can't also say that you've used them to shore up the finances of Medicare.
Another Victory on the Road to Repeal
In total, 33 states have mounted legal and legislative challenges to Obamacare. The American people are going to continue to fight this intolerable act in Congress, in the courts and in the states. It may take some time, but they are going to win.
Lift Liability Caps, Promote Safety, and Continue Drilling
The Heritage Foundation’s solution accurately assigns risk, holds oil and gas companies fully liable, promotes safety, and guards against frivolous lawsuits. To achieve this, Congress must do the following:
Liberty Wins First Skirmish in the Obamacare Legal Battle
Judge Henry Hudson of the Eastern District of Virginia denied the government’s motion to dismiss Virginia’s legal challenge to Obamacare. Notably, Judge Hudson agrees that the government’s assertion of Commerce Clause authority for the individual mandate is unprecedented:
The Fed Plays Stick-Up!
Hints from the beltway battle consumer stagnation.
Seven ETFs to Play Deflation
As deflationary concerns continue to make headlines among investors, dividend-paying investments, interest-bearing investments, and cash become more appealing.
Why Deflation Isn't Bad
Some of the most prosperous times in American history were during periods of deflation.
Why Anyone Who "Knows" When the Economic Recovery Will Occur Is Wrong
Job creation is idea-driven, not data-driven. And no amount of information can change that.

Research, Reports & Studies
RCM: Wells Fargo Economics Group: ISM: Growth Moderates, Jobs Positive, Prices as Well
Moderating gains in the ISM index continues to suggest slower growth in the second half of this year. July’s ISM index at 55.5 further supports the slowdown outlook. On the plus side, prices have moderated as well.
State Budget Gaps and State Budget Growth
...states whose per capita spending levels increased the most over the last two decades had larger percentage budget gaps in FY2010. Furthermore, states whose policies permit economic freedom and states with strict balanced budget requirements experienced smaller budget gaps. Taken together, these results suggest that spending restraint, economic freedom, and institutional rules that ensure a strict balanced budget requirement seem to be a more reliable path to fiscal balance than tax increases.
Restoring Trust In the Highway Trust Fund
The urgent need to rebuild and modernize vital Interstate highway infrastructure is bogged down by politics and the current system’s failure to prioritize projects that deliver the most benefits.
Oil Spill Liability: A Plan for Reform
Current law states that oil or gas companies do not have to pay more than $75 million in liability costs for accidents they cause—no matter how great the damages.
Tax Cuts Are Still Not Driving the Budget Deficit: The Critics Fall Short
With critics regularly blaming the 2001 and 2003 tax cuts for deficits caused more by runaway spending and a sluggish economy, The Heritage Foundation recently released “The Three Biggest Myths About Tax Cuts and the Budget Deficit” to set the record straight.
Financial Conditions Indexes: A Fresh Look after the Financial Crisis
Starting in August of 2007, the U.S. economy was hit by the most serious financial disruption since the Great Depression period of the early 1930s. This paper examines why financial condition indexes can be a useful tool for both forecasters and policymakers.
We Do Not Have Liftoff
Nearly two years of zero percent interest rates, a $1.2 trillion expansion of the Federal Reserve's balance sheet, and a nearly $800 billion fiscal stimulus package in February 2009 have failed to produce sustainable growth.

Economists’ Comments & Opinions
Geithner: Welcome to the Recovery
While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen.
The President's Four Rotten Policy Planks
High taxes, fair trade: no wonder the U.S.S. Obama rides low in the water.
Reform Bond Subsidies to Improve States' Behavior
The federal government didn't create the crisis in state and local finance, but it has enabled it. It can stop the enabling by removing incentives for states to ignore their long-term budget problems, and by putting some common-sense limits on the use of tax advantaged borrowing.
Rewriting Fannie Mae History
The effort is underway to resurrect the biggest housing losers.
The Federal Reserve is Running out of Options to Spark the Economy
The Fed has only a few remaining options for spurring economic growth and job creation or warding off a debilitating period of deflation, but they are unlikely to work.
The Next Sovereign Debt Crisis
Europe’s PIIGs are in a poke, but U.S. states and municipalities risk their own sovereign debt crisis.
Yes, Virginia . . .
. . . ObamaCare is unconstitutional.
Has Congress Become Useless?
Congress ducks responsibility because We the People have let them get away with it for far too long.

Graph of the Day
American Thinker: Three Years of GDP Data Revised in One Month By Dept. of Commerce
PODCAST: Brady on the State of the Electorate
See: What Americans Love & Hate about the USA
See also: July Personal Income and Spending

Book Excerpts
"The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put more or less in the power of the tax-gathered, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggravation, some present or perquisite to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular, even where they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great importance that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil as a very small degree of uncertainty." –Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776)

Did You Know
"For losing all of their World Cup games, including a 7-0 defeat at the hands of Portugal, the North Korean soccer team was subjected to six hours of public shaming."