Tuesday, October 5, 2010

10/5/10 Post

Illinois Pays More Than Mexico as Cash-Strapped States Sell Bonds Overseas
Illinois capital-markets director John Sinsheimer and Citigroup Inc. bankers took a globe-girdling trip from the U.K. to China in June to persuade investors that the state’s $900 million of Build America Bonds were a bargain.
Retailers plan to bump up seasonal jobs
Macy's, Toys R Us, Pier 1, American Eagle Outfitters and Borders all plan to hire more temporary holiday workers this year than last, emboldened by several months of sales gains and a slowly improving economy.
Retirement funds tapped for kids' tuition
Nearly a quarter of the nation's parents saving for their children's college education intend to raid their own retirement accounts, despite increasing their tax liability, according to a new study released Tuesday.
Moody's Warns on Ireland Rating
Moody's Investors Service said Tuesday it may cut Ireland's debt rating again, citing the increased cost to the government of repairing the stricken banking system, weak economic growth and rising borrowing costs.
A stimulus program that won't be mourned
As the economy continues to sputter, President Obama recently signed legislation extending the life of several stimulus measures. But one program designed as an emergency rescue for small businesses didn't get life support, and no one seems to be mourning its loss.
Why did federal health-care costs increase?
Average increases for the Federal Employee Health Benefits Program will be 7.2 percent, significantly more than the anticipated 1.4 percent pay raise in 2011.
Obama Open to Lowering Corporate Tax Rate
Barack Obama signaled he was open to lowering the US corporate tax rate from its level of 35 per cent, amid speculation that the administration could seek broad-based reform of the tax code as early as next year.
Pending home sales rise 4.3 percent in August
The National Association of Realtors said Monday that its seasonally adjusted index of sales agreements for previously occupied homes rose 4.3 percent to a reading of 82.3. That's still more than 20 percent below the pace in the same month a year earlier.
Greek '09 Deficit May be Revised Higher: Official
Greece expects to slash this year's budget deficit to 7.8 percent of GDP from 13.8 percent in 2009, based on its draft 2011 budget unveiled on Monday.
Americans Sour on Trade
Generally, businesses and economists argue that free-trade pacts help America. "When we knock down barriers in those markets, we create jobs here," said Myron Brilliant, senior vice president for international affairs at the U.S. Chamber of Commerce. "We've got to trade to create jobs in our country."
Treasury Bailed Out 66 Weak Banks
Treasury Department officials sent bailout money to dozens of banks with known financial problems, and a growing number of bailed-out banks are struggling to stay afloat, a new government audit says.
Barack Obama debates over tax cuts
In a discussion that mirrored the Democrats’ split in Congress, President Barack Obama debated two members of his economic recovery board over middle-class tax cuts Monday, swatting down arguments that the richest Americans need the same relief.
Bank of Japan Reverts to Zero Rates in Surprise Move
The Bank of Japan on Tuesday effectively reverted to zero interest rates on growing signs the strong yen is hurting a fragile economy, surprising markets and preceding the Federal Reserve in stepping up its expansionary monetary policy.
States face Medicaid expansion challenge
Political hostility over the health care law and the potential for turnover in statehouses this November are creating uncertainty for state Medicaid leaders as they prepare for a huge expansion of their programs.
DOJ Hands Credit Cards Another Setback
The Justice Department reached a settlement Monday with Visa and MasterCard that would allow merchants to offer discounts to consumers who use lower-cost credit cards, the latest setback for an industry under increasing scrutiny by regulators and lawmakers.
Fed boss: Threat From Deficits 'Real and Growing'
The economy could be hurt if Congress and the White House fail to come up with a plan to curb the nation's huge budget deficits in the coming years, Federal Reserve Chairman Ben Bernanke warned Monday.
Euro Drops Below $1.37
Early afternoon, the euro was at $1.3686 from $1.3780 from late Friday. The dollar was at 83.35 yen from 83.31 yen, while the euro was at 114.07 yen from 114.80 yen. The U.K. pound was at $1.5841 from $1.5836. The dollar was at 0.9717 Swiss francs, from 0.9751 francs.

At Citi, Risk Management Is Still Lacking
At least so says a new report from Crédit Agricole Securities financial analyst Mike Mayo, a vocal critic of Citigroup who met with company execs on Friday (after having “lobbied for nearly two years for an audience with” Citi chief exec Vikram Pandit) in preparation for the release of his long-term outlook on the company.
Secondary Sources: Fed Communication, Job Retraining, Long Stagnation
A roundup of economic news from around the Web.
ISM non-Manufacturing Index increases in September
The September ISM Non-manufacturing index was at 53.2%, up from 51.5% in August - and above expectations of 52.0%. The employment index showed slight expansion in September at 50.2%, up from 48.2% in August. Note: Above 50 indicates expansion, below 50 contraction.
Bernanke: Additional Asset Purchases Could Ease Financial Conditions
Speaking to college students, Bernanke illustrated how the Fed was able to lift the economy even after it took short-term interest rates close to zero by buying $1.7 trillion bonds in what he defined as an “effective program.”
Forecasting GDP for 2010-Q3
Using the official "final" estimate of GDP from the second quarter of 2010, we can now project that GDP, when adjusted for inflation, will fall between $13,019 billion and $13,550 billion during the third quarter of 2010, with a target value of $13,284.3 billion. All these values are expressed in terms of 2005 U.S. dollars.
Personal Bankruptcy Filings Jump
Personal filings for bankruptcy increased in September, pushing the total number of bankruptcies this year to nearly 1.2 million.
Current Data Survey Points To Stagnation
Reports on jobless claims, manufacturing, factory orders, and consumer spending were all rather flat to negative—except for jobless claims which have declined for the fifth straight week.
Coming soon to your bank statement: Tax info & Macy's coupons
If, for instance, you'd recently made debited several charitable donations from your bank account, your statement would instantly show how those donations would affect your upcoming Form 1040.
ABC vs. Recalculation
I think of Austrian Business Cycle theory as based on the notion that the structure of production can be long or short. Or, if you will, more roundabout or less roundabout.
The Future According to Dividends, September 2010 Edition
What we find is that investors expect very little in the way of economic growth in the fourth quarter of 2011. That would appear to be followed by a major economic boom in the first quarter of 2011, followed by a very sluggish second quarter, before growth would seem to pick up again in the third and fourth quarters of the year.
Central Banking, Limited Purpose Banking, Free Banking...
What needs to happen is bold and creative thinking through the institutional structures, not changing parties nor changing policy per se. Buchanan makes the distinction between policy (changes within the given institutional structure) and politics (changes of the institutional structure).
Does money boost real output?
We do have theoretical grounds for believing that monetary expansions will be potent when there are lots of unemployed resources and when the demand for money has recently spiked up. But if we're relying on theory, theory doesn't tell us much about expected employment effects...
Private Construction Spending declines in August
"Spending on private construction was at a seasonally adjusted annual rate of $498.2 billion, 0.9 percent (±1.1%)* below the revised July estimate of $502.6 billion."
Why taxpayer receipts aren’t a good idea
The idea of these receipts is to let people find out not just what their they’re putting into the system but what they’re getting out of it. And that’s a great idea — it would be fantastic if people understood exactly what their tax money was going to. But these receipts won’t do this, and here’s why.
Scary Monsters
The growth of government threatens freedom much more than mosque-building Muslims do.
Why Employment Won't Accompany the Economy's Recovery
We're facing a battle between expensive labor and cheap capital.
US Economy Not Turning Japanese
American culture and recent policy decisions have set the US on a similar but different path.
Data Survey Points to Stagnation
Over the last week, reports on manufacturing, factory orders, and consumer spending were all rather flat to negative.
Narrowing the Rights of the Minority
“Filibuster reform” is the new cause of the left. Senator Mark Udall (D–CO) has drafted up a rules change that would chip away at minority rights in the Senate by severely limiting the filibuster.
Local Control Is the Key to Education Reform
Greater federal control is not the answer to improving the nation’s education system.
Side Effects: Obamacare Fails to Halt Rising Premiums
President Obama and his supporters have said that one of the major benefits of the Patient Protection and Affordable Care Act would be a drop in health insurance premiums. But a new Hewitt Associates study shows that insurance costs will continue to rise for 2011.
$700K Taxpayer-Funded Play on Climate Change
The National Science Foundation (NSF) is “an independent federal agency created by Congress in 1950 ‘to promote the progress of science. The New York Times reports that the federal agency will award $700,000 of taxpayer money to a New York theater company to produce a show on climate change.
CBO Makes the Case for Change of a Different Sort
Congressional Budget Office (CBO) Director Douglas Elmendorf recently testified before the Senate Budget Committee on policies that might give the economy a helpful lift in the near term.
A Free Market Solution to Helping the World’s Poor
A featured op-ed in The Wall Street Journal last week documented the recent, surprising successes of Bangladesh. It has little economic freedom, and many in the international community saw little hope for it, but it has made some large achievements in recent years.
Arm Our Children to Succeed and Arm the Military to Prevail
As a nation, we shouldn’t have to choose between defense and education.
Anti-Poverty Approach Needs Reform: Who Said That?
“What’s needed most right now is creating the conditions where assistance is no longer needed.”
Is the Media Reporting or Distorting American Opinions About Trade?
The media seem intent on convincing Americans that they no longer support free trade.
Media Darken Americans’ Perceptions of Trade
Americans have soured on trade largely because of the way media conveys its stories about trade. There is no alternative explanation for a majority of Americans harboring ill-will toward trade.
Welfare and Fiscal Federalism
Federal policymakers should get out of the anti-poverty business as the Constitution intended.
Have Americans Turned against Free Trade?
The facts are on the side of expanding the freedom of Americans to trade and invest with people in other countries. What is lacking are political leaders in Washington who will stand up for the broader national interest of our country against the special interests who are exploiting anxiety about the economy to trash trade.
President Touts New Jobs At Solar Farm Funded By 5 Year Old Program
The President points to a revolutionary new solar plant that will employ 1,000 people and power 140,000 homes. Desperate for any good news about jobs, it is no wonder the President highlights this new solar farm from a company called BrightSource Energy. The problem is that this plant is being built largely thanks to a funding program that was passed 5 years ago.

Research, Reports & Studies
RCM: Wells Fargo Economics Group: Factory Orders Slip in August, But Details Remain Solid
Factory orders fell 0.5 percent in August, which was slightly more than expected. The report’s details show non-defense capital goods orders excluding transportation are holding up somewhat better than anticipated.
Japan Launches Global Quantitative Easing
The usually-cautious Japan is leading the way with a policy of quantitative easing, hoping to boost exports and steer its economy away from deflation. But Japan’s problems are not unique; in the wake of the financial crisis, economies worldwide are facing a global shortage of demand and competing for their share of exports. The United States has moved decisively toward quantitative easing, with the Federal Reserve hinting at further steps by early November.
The Lieberman–Kerry Cap and Trade Bill: Making Housing Less Affordable
Proposed legislation would offer financial incentives to increase the population density of communities in an effort to reduce greenhouse gas emissions and energy use. However, the available evidence, which is admittedly limited, indicates that such “smart growth” policies are misguided, producing minimal results at great expense and disruption.
Obamacare’s Medicaid Policy: Putting the Doctors in Another “Fix”
Obamacare increases enrollment in the troubled Medicaid program by over 20 million persons. However, providers are already limiting the amount of Medicaid patients they accept because of low payment rates.

Economists’ Comments & Opinions
The Bill Gates Income Tax
If Washington's most famous billionaires are really worried about their state's finances, they'd write personal checks to the government and leave everyone else alone.
The False Obstacles to Pension Reform
... the problems with defined-benefit pensions aren't a one-time fluke caused by a bad recession and a stock market crash. Their flaw, especially in the public sector, is structural: they involve involves lawmakers making promises today about payments the state will make decades from now.
O's quietest jobs-killing machine
...a major contributor to businesses' worries is the Obama Environmental Protection Agency, which is issuing a daily barrage of rules and regulations threatening jobs in American industry.
$10,000 Gold?
...the most powerful argument to justify today’s high price of gold is the dramatic emergence of Asia, Latin America, and the Middle East into the global economy.
Hating 'Superman'
Teachers unions and the public school monopoly have long benefitted from wielding a moral trump card. They claimed to care for children, and caring was defined solely by how much taxpayers spent on schools.
Republican Record Backs Spending Cuts
Republicans will be under great pressure from the media to sign on to the tax increases in exchange for the spending cuts.
Stimulus even a deficit hawk could love
In the short-run, the jobs picture is bleak and consumers and businesses aren't spending. In the long run, the growing national debt could lead to many years of substandard growth or even an abrupt fiscal crisis. Fortunately, there is a solution: Tie stimulus to budget reforms. That would create a "twofer" out of each policy -- first help the economy and then the budget.
Peace Doesn't Keep Itself
Defense spending has increased at a much lower rate than domestic spending in recent years and is not the cause of soaring deficits.

Graph of the Day
Mercatus Center: Projected Interest Payments on Federal Debt Balloon
See: Bush vs Obama Spending
See also: TARP Is Dead; Long Live QE
See also: How volatile is the US stock market?

Book Excerpts
"There is but one way toward an increase of real wage rates for all those eager to earn wages: the progressive accumulation of new capital and the improvement of technical methods of production which the new capital brings about. The true interests of labor coincide with those of business." –Ludwig von Mises, Bureaucracy, (1944)

Did You Know
"Apparently the Greek original is “sittybas,” from “sittyba,” “parchment label or title-slip on a book” — but then an early printing of Cicero mistranscribed the word as “syllabos.” ...That’s the way language works: Errors, accepted long enough, become standard."