Wednesday, October 6, 2010

10/6/10 Post


News
Republicans Urge No Earmarks In Omnibus
More than 50 Republicans, including House Minority Leader John Boehner, R-Ohio, and other GOP leaders, Tuesday sent a letter to House Speaker Nancy Pelosi, D-Calif., beseeching her not to include any earmarks in catch-all omnibus spending legislation Democrats hope to pass after the election.
U.S. Is in ‘Race to the Fiscal Bottom’
David Stockman, the former budget director during Ronald Reagan’s first term, speaks out on the Obama presidency, the state of the economy, the Bush tax cuts, and what the midterm results might do to the Democratic agenda.
TARP Losses Won't Top $50 Billion
The Treasury Department released a rosy report of the Troubled Asset Relief Program today by noting that total losses would not exceed $50 billion for the program, which has become reviled among most lawmakers as an unwarranted bailout that benefitted Wall Street but not Main Street.
Unemployed? Get a federal loan to pay your mortgage
You can soon apply for a no-interest government loan for up to $50,000 to pay your mortgage and cover your arrears. The loan, which can offer assistance for up to two years, will be forgiven if the homeowner stays in the house for five years.
Amid backlash and budget deficits, government workers' pensions are targets
Public employment was once viewed as less rewarding than work in the private sector, but that has changed. State and local government employees earn an average of $39.74 an hour in wages and benefits, about 45 percent more than private-sector workers, whose total compensation averages $27.64 an hour, according to the Labor Department.
Social Security: No 2011 increase expected
Chances are high that for the second year in a row Social Security beneficiaries will see no increase in their benefit checks.
Middle Class Slams Brakes on Spending
Households in the middle fifth of the population sliced their average annual spending to $41,150 in 2009, the Labor Department said Tuesday in its annual spending breakdown. That was down 3.1% from 2007 and 3.5% from 2008, the steepest one-year drop since records began in 1984. The drop came even as those households' after-tax income remained relatively stable over the two years, at an average $45,199.
No paper, no plastic. The tax that works too well
The tax on single-use disposable bags in Washington D.C. is proving to be very effective -- maybe too effective. The tax is bringing in far less revenue than expected.
Central Banks Open Spigot
Stocks Leap as Japan Launches Bond Buying, Fed Official Urges More Easing.
Is the Fed playing with fire?
The Federal Reserve is about to throw some more fuel on the fire it has been stoking for more than two years.
IMF sees global economy gaining, US growth slowing
The global economy will likely strengthen the rest of this year and in 2011 as China and other emerging powers offset weakness in the United States and Europe. The international lending agency predicts the U.S. economy will grow 2.6 percent this year, below the previous estimate of 3.3 percent, and 2.3 percent next year.
Private sector sheds 39,000 jobs in September
Private employers unexpectedly cut 39,000 jobs in September after an upwardly revised gain of 10,000 in August, a report by a payrolls processor showed on Wednesday.
New Yorkers' Income Falls for 1st Time in 70 Years
The recession put a 3.1 percent dent in the personal incomes of New York state residents, who endured their first full-year decline in more than 70 years, according to a report released Tuesday.
$162 million in stimulus funds not disclosed
Recovery.gov promised transparency on how the government spends every dollar of stimulus money, but there's $162 million the website doesn't disclose.
Greek debt and deficit figures to shoot up
Increased figures for Greek national debt and deficits covering contested data from 2006 to 2009 will be published this month, the EU said on Wednesday after conducting its first invasive audit.
Fitch Downgrades Ireland's Rating on Cost of Banking Bailout
Fitch Ratings lowered Ireland’s credit grade to the lowest of any of the major rating companies and said there’s a risk of a further reduction.
USA Today's overhaul cuts 35 newsroom positions
USA Today is eliminating 35 jobs from its newsroom as it de-emphasizes its print edition and feeds more content to mobile devices.
Jobs picture: Stagnant, stubborn
Looking ahead to Friday's government jobs report, the outlook doesn't look rosy. Two separate reports issued Wednesday paint a grim picture of the job market.
UN report: 22 nations face protracted food crises
U.N. food agencies said Wednesday that 166 million people in 22 countries suffer chronic hunger or difficulty finding enough to eat as a result of what they called protracted food crises.
City budgets slammed by falling property taxes
The housing crisis is finally catching up with cities -- and the impact isn't going to be pretty.
Lawsuits over health care law heat up
A number of interest groups, state officials and ordinary citizens are seeking to have the health care law struck down in federal court, and action is heating up.
Banks' $4 trillion debts are 'Achilles’ heel of the economic recovery', warns IMF
More taxpayer support is needed to ensure global financial stability despite the billions already pledged, the International Monetary Fund has warned, as banks remain the “achilles heel” of the economic recovery.
Retail Data: September Sales Edge Up
...pockets of growth during the five weeks between Aug. 29 and Oct. 2 point to a modestly more robust holiday season this year than last.

Blogs
The big picture on Japan
Almost every pundit and economist discussing Japan’s lost decade and whether we are headed for one are missing the big picture, and the most relevant research. They’ve forgotten or, even more embarrassingly, never read Gregor Smith’s 2006 paper “Japan’s Phillips Curve Looks Like Japan”.
How to Slash the State
14 ways to dismantle a monstrous government, one program at a time
State of the Economy: "Endless Possibility" Replaced With "Limited Reality"
In March 2000, markets were euphoric. Fast-forward to today's "unusual uncertainty" and "lack of visibility" and it's easy to see how much our world has changed.
Should they have let the guy's house burn down?
To borrow language from Thomas Schelling, social systems involve costs in terms of both "known" and "statistical" lives. It's the sum total of costs which is important. It's fine (though controversial) to argue that a "known" life should be more important than a "statistical" life, but it's not dispositive to pull out one example of a "known" life and draw a significant conclusion from that anecdote.
How the US Should, But Won't, Handle Job Creation
As elections near, policy makers must look toward real solutions: lower taxes, less regulation, low cost energy, and education reform.
Fighting Back Against Arbitrary Government Rule
In conjunction with NACDL, The Heritage Foundation released a report, Without Intent, in May recommending that Congress should do the following...
Cigarettes or Books? Spending Tradeoffs Amid Recession
The Labor Department’s report on consumer expenditures tells us something about how consumers changed their behavior to muddle through the recession and dawdling recovery — they ate out less, they spent less on apparel and, for those higher on the income spectrum, they cut deals on their mortgages.
Side Effects: Obamacare Compels More Employers to Dump Coverage
Obamacare has struck again. Last week, 3M announced plans to drop health benefits for retirees, citing the new law’s impact as a contributor in its decision.
MBA: Mortgage Purchase Activity increases, FHA applications increase sharply
"The Refinance Index decreased 2.5 percent from the previous week. The seasonally adjusted Purchase Index increased 9.3 percent from one week earlier and is the highest Purchase Index observed in the survey since the week ending May 7, 2010."
Personal Bankruptcy Filings Jump
Today, the White House announced that that Obama Administration will use taxpayer dollars to build solar panels and a solar hot water heater on the roof of the White House in the spring of 2011.
Would You Trade Higher Taxes for Much Lower Spending and Less Red Tape?
I dislike taxes as much as the next person (and probably a lot more), but other policies matter as well, so if I had the choice of replacing current government policies with the ones that existed at the end of the Clinton years, I would gladly make that trade.
Treasury Sees ‘Substantial’ Offset to Fannie, Freddie Losses
The Treasury Department on Tuesday acknowledged that it expects “to incur substantial losses” from these government-sponsored enterprises, which have operated under federal control since 2008.
QE2: The Ship Is Leaving The Dock
If unemployment does increase or fail to trend down, then you could see the QE2 exploding well beyond $1 trillion. This, despite Mr. Dudley’s protestations would monetize more debt which would lead to higher inflation than the Fed ever intended. This of course is difficult to predict because you have to tell me what the Fed and the government would do in the future.
Is Boosting Teacher Pay a Legitimate Use of the Stimulus?
...it makes little sense to argue that a salary boost right now would serve the original purpose of the stimulus (which was intended to stimulate the economy, for those who are still paying attention).
Treasury Updates Debt-Management Operations
Mary Miller, the assistant secretary for financial markets at the Treasury Department, offered a broad update on the government’s debt-management operations, as well as a look at the state of the economy.
Is it Possible that the President thinks Economists Agree That Spending is the Answer?
It would be one thing to know about this evidence and to dismiss it. The president, however, seems not to have heard of it.
More Credit Card Loan-Backed Deals Likely in 2010
About $5 billion of asset-backed bonds backed by credit-card debt have been sold so far this year. By contrast, auto sector asset-backed securities issuance stands at $45.95 billion of the total $78.14 billion sold, according to Citigroup data. This is about 60% of all consumer loan-backed bonds sold.
Pass the Debt
The same moral hazard problems that the stimulus introduced to the states, exist when the state bails out its municipalities. In essence, a bailout weakens the incentive to deal with the underlying problem.
A Solipsist's Guide to Comparative Advantage
You might object, "We already know that trade increases productivity via shared knowledge, increasing returns, etc." But these are all empirical claims. My point is stronger: Trade tautologically increase productivity.

Research, Reports & Studies
Impact of Obama Tax Increase: National, State, and Congressional District Levels
The macroeconomic model presented in “Obama Tax Hikes: The Economic and Fiscal Effects” makes predictions at the national level. Converting the model’s predictions to state and congressional district levels requires supplemental analysis.
RCM: Wells Fargo Economics Group: September ISM Non-Manufacturing is Stronger Than Expected
The ISM Non-Manufacturing index came in at 53.2, which was better than expected. The increase is consistent with an economic recovery, but we continue to see slow growth in the second half of the year.
Do We Really Need a Bigger IMF?
A dangerous idea is making the rounds in Washington. It is International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn's proposal to increase the IMF's war chest by US$250 billion. If past experience is any guide, such a proposal is all too likely to only prolong the euro zone's sovereign debt crisis.

Economists’ Comments & Opinions
The Soul of the Spending Machine
...Republicans won't succeed in their professed goal of cutting spending, boosting the economy, and reforming the entitlement state without disassembling Congress's tax-and-spending machine.
The Economist vs. Alesina on Austerity
The main difference between Alesina and the IMF paper is how they define fiscal adjustments. Unlike the IMF, Alesina’s original paper raises the potential issues with his methodology and spends some time explaining why, in spite of some limitations, this methodology is worth using. In his response, he shows that the IMF’s methodology also has pros and cons.
Foreclosure follies slap taxpayers again
Technical legal challenges threaten to delay hundreds of thousands of foreclosures by up to a year -- and once again, the biggest victim will be the US taxpayer.
Why QE2 Isn't the Answer
It's called QE2, but it should really be called QE4. The first QE was in November 2008, back when the banking crisis was still in full swing and the Fed and the Treasury were actively engaged in bailing out Citigroup in various ways.
Washington can save $1 trillion
The Technology CEO Council is to present to policymakers a proposal for how the federal government can save $1 trillion over the next decade by applying homegrown expertise, technology and organizational innovation.
A compromise for the tax cut debate
The debate about whether to extend the Bush tax cuts just for the middle class and whether to make the extension temporary or permanent couldn’t be more important. A permanent extension of most or all of them is unaffordable, given looming deficits. But allowing all the tax cuts to expire, given the state of the economy, is unwise.
Geithner: Currency problems risk global growth
Treasury Secretary Timothy Geithner took a sharper tone on the issue of currency Wednesday, saying global economic growth could be at risk unless developing nations are more flexible about undervalued currencies.
Quantitative Easing II: The Ship Is Leaving the Dock
The key question is, how much? If unemployment increases or fails to trend down,QE2 could explode to well beyond $1 trillion.

Graph of the Day
Temp hiring is back. Is a jobs recovery next?
See: The Global Debt Clock
See: Chart: The IMF’s New Growth Projections
See Also: Holiday sales outlook hinges on bargains
Video: Heritage Foundation Takes On White House’s Misleading Tax Video

Book Excerpts
"What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it." –Adam Smith, The Wealth of Nations, (1776)

Did You Know
"From 2007 to 2009, the 24,033 households in the middle fifth by income cut their average annual spending on alcohol by a stunning 20.1%, the Labor Department reported Tuesday in its Consumer Expenditures Survey. On average, U.S. households in the middle spent $330 last year on alcohol, down from $413 in 2007 before the recession kicked into high gear... Middle-income households cut back on booze spending far more than other groups. Slightly more well-heeled households, whose income ranged from $57,944 to $91,290, actually spent 6.9% more on alcoholic beverages from 2007 to 2009. The poorest fifth cut back by 3.4%."