Friday, November 5, 2010

Budget News Nov. 1-5

The cost of doing nothing for two years
By 2013, the total U.S. federal debt will total 76% of GDP if Congress remains gridlocked, and digging out at that point will be unimaginably painful.
Managing the Federal Debt
In Washington, on Wall Street, and in foreign capitals, all eyes are on mounting government debt, particularly America's. The scope of American borrowing, and the ease of the government's access to credit, offer useful signals about the strength of our economy and about the future direction of global public finances — especially during this time of economic uncertainty.

GOP Faces Test on Budget Cuts
Brian Riedl at the conservative Heritage Foundation says he can save $343 billion next year. His recipe: Cut $15 billion in farm subsidies, $10 billion in aid to states, $8 billion in aid to college students, $8 billion more by lower cost-of-living adjustments to Social Security and other benefits, and so on.
Fiscal Reality to Hit Quickly for New Governors
The stakes are particularly high in California, which faces a 12.4% jobless rate and a projected $12 billion budget shortfall.

AIG set to repay $37B of bailout
AIG said Monday it raised nearly $37 billion from the divestment of two foreign insurance units and will use that money toward repaying a government bailout.

As Europe Cuts, America Spends
The results of this natural experiment will be highly valuable because they'll teach us so much. But they will also be very bad news for one side or the other.
W.H. Spending Plans Still Murky
If the White House were seriously considering creating a detailed list of potential cuts of its own, it would have very likely leaked by now.

Portugal Ends Long Standoff Over Budget
Portugal avoided a possible collapse of its government after the country’s two leading parties ended on Saturday a monthlong standoff over next year’s budget.
Hungary Unveils Budget
The Hungarian government has prepared the 2011 budget bill based on a budget deficit target of 2.94% of gross domestic product, meeting European Union budget-deficit requirements for the first time, Economy Minister Gyorgy Matolcsy said Saturday.

Economist Comments
GOP: Unlock the American Economy
You cannot understand the way any business functions and then pass a 2,000-page law to regulate the health economy and then a 2,000 page law to re-regulate the entire financial economy. You cannot—in one year—load 4,000 pages of limitless uncertainty on the back of the economy and expect it to grow without Washington life support.
BACON: No cuts, no glory
In the 10-year forecast submitted with the midyear review of the fiscal 2011 budget, President Obama already assumes a $75 billion reduction in discretionary spending between 2011 and 2012, thanks to resumed economic growth, reduced unemployment, higher payroll taxes and reduced entitlement payouts to the poor.

The New Deal Was Anything But A Success
Franklin D. Roosevelt blamed the country's woes on the problems he inherited from his predecessor, much as Barack Obama does today. But unemployment was 20% in the spring of 1939, six long years after Herbert Hoover had left the White House.
State Bailouts? They've Already Begun
Bond subsidies and transfers have allowed states to avoid making tough decisions. It won't last.
Paul Ryan's big plans for a small budget
Ryan has been shaping a detailed plan to achieve a balanced budget strictly through dramatic reductions in spending, with no tax increases, for years.

No, We Do Not Need More Fiscal Stimulus
The thinking undergirding the assertion that fiscal stimulus is what we need is built on the assumption that there exists some tipping point at which an economic recovery becomes self-sustaining and stimulus is no longer needed. Maybe that is true in certain contexts. But it is clearly not true in this one.
US Debt: A Recipe for Economic Disaster?
The foundation of the US dollar is already under threat. If it collapses, it will take other economies and currencies down with it.
BACON: Obama spends billions, only adds to college costs
A blizzard of cash creates inflationary snowdrifts.
Running Afoul of Obama's Adding Machine
The White House attacks the special inspector general for the $700 billion TARP, who stated that the bailout program is falling short of its goals.
Bipartisan Budget Cuts
Over at the Huffington Post, Andrew Moylan (National Tax Payers Union) and Nicole Tichon (Public Interest Research Group) forget about their political differences and propose $600 billion worth of budget cuts.

The Remedy Is Also the Problem
Meredith Whitney writes in yesterday’s Wall Street Journal, there’s no need to guess if states will be bailed out of their debt troubles. They are being bailed out right now, many times over. They are being bailed out by federal bonds, federal transfers, and as I and many others have argued, by fictional accounting.
A Budget Plan: Don’t Buy Stuff You Cannot Afford
Some 75 new Republican members of Congress got there by promising to stop the federal government’s massive overspending. And as Chris Edwards noted, there have been a number of lists of budget cuts proposed recently.

Pennsylvania Capital Struggles to Pay Bondholders
The debt-beleaguered city of Harrisburg needs $305,952 to pay its creditors by November 15.
Morning Bell: Get To Work On Spending Cuts
The verdict is out on how many Americans believed President Obama then, but the verdict is in on his first two years in office: instead of a net spending cut, federal spending has exploded. Since 2008, federal spending has surged from $25,000 to $30,000 per household. And under President Obama’s budget it would reach $36,000 per household by 2020.

It's Official: The Government Isn't Getting Its Money Back Out of GM
Even with the billions they've already "paid back"--by not using all the money--Uncle Sam needed the company to be worth more like $70 billion to break even on the bailout.

A Visual History of U.S. Government Deficits
...the belief that the deficit is "mostly" due to collapsing tax revenues is only technically true in that, if you assume robust revenue growth had otherwise continued, the deficit would "only" be a colossal $600 billion, instead of a sickening $1.4 trillion.

Two Problems in One: Unemployment Funds Used to Balance Budget
Shaking the unemployment piggy bank into the general fund I think raises another important problem. How do we ensure governments don’t raid social insurance programs? Why not give workers individual control of their own unemployment savings accounts.
Krugman Wrong About Cause of Growing Deficits
In fact, lower tax revenue - because of the recession, not because tax rates are lower - explain only one third of the increase in the deficit. Two thirds of the increase in the deficit is due to more spending.
Morning Bell: Solutions for Sanity
Congress should enact a firm cap on the annual increase in total government spending, limited to inflation plus population growth. Lawmakers should exert all effort to keep overall federal spending to less than 20% of U.S. GDP, the historical post–World War II average for federal spending.

The U.S. Postwar Miracle
We often hear that big cuts in government spending over a short time are a bad idea. The case against big cuts, typically made by Keynesian economists, is twofold. First, large cuts in government spending, with no offsetting tax cuts, would lead to a large drop in aggregate demand for goods and services, thus causing a recession or even a depression. Second, with a major shift in demand (fewer government goods and services and more private ones), the economy will experience a wrenching readjustment, during which people will be unemployed and the economy will slow. Yet, this scenario has already occurred in the United States, and the result was an astonishing boom.

GET TO WORK: Freeze and Cut Spending
Congress must immediately freeze discretionary budget authority at 2010 levels and cut at least $170 billion from the federal budget for fiscal year 2012.
The U.S. Postwar Miracle
...dramatically reducing government spending and deregulating an economy can take that economy from sickness to health. In short, one of the main things a government can do to help a weak economy recover is to step aside.

RCM: The Case Against the Fiscal Stimulus
...the structure of a fiscal stimulus is crucially important and that the package Congress adopted was far from ideal, regardless of the merits of the Keynesian model.

Employment News Nov. 1-5

Obama calls on lame duck Congress to extend federal unemployment benefits
President Barack Obama yesterday repeated his call that the lame duck Congress — due to convene Nov. 15 — vote to extend the federal unemployment benefit program.
Walking the Walk: NJ Governor Christie to cut 1200 Public Sector Jobs
Governor Christie is not afraid to make the tough decisions in his state. Since assuming office, he has constantly been hammering the fact that his state needs to live within its means.

Jobless claims surge to 457,000
More than 450,000 Americans filed for first-time unemployment insurance last week, a discouraging sign ahead of the government's highly anticipated monthly jobs report due Friday.
Lifeline at risk for 2 million jobless
Two million people will run out of unemployment benefits next month if Congress fails to act in the coming weeks.

More mixed signals for jobs
The job market continues to show mixed signals, as two separate reports released Wednesday showed that companies added more jobs in October, but announced more staff cuts to come.
U.S. Job Creation Improves Slightly in October
Federal hiring and improvement in the West create slightly better job market conditions.

White-collar recession, blue-collar depression
Economists may have declared the 2007-09 recession over, yet the pain lingers.
Housing woes hit job seekers where it hurts
Not so long ago, you may recall, plenty of employers were willing to foot the bill for moving expenses, and maybe even compensate you for a loss on your house, if you pulled up stakes to accept a job in a different locale.

Economists Comments
Jobs and Voters Exit Unreformed New York
States like California, New Jersey, Illinois and New York don't merely require a little tinkering, or a bit of public policy window dressing. They need big change that upsets apple carts and reestablishes the balance between the public and private sectors. Once our most prosperous state, New York lost that balance decades ago. It will take more than another set of reform promises for businesses and residents to stop packing the moving vans.

A Con Job on Jobs
I was no fan of President Bush’s economic policies. But President Obama’s take on Bush-era job creation compared to his own is wide of the mark.

GOP challenge to Obama: jobs
“We believe we can expand our economy and create millions of jobs, if we take money out of Washington’s pockets and put it into the people’s pockets. They can invest it in a powerful force: the freedom of 300 million Americans to roll up their sleeves and pursue their dreams.

Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks
Here are a few graphs based on the employment reports released today.
Broader U-6 Rate at 17%: The Long-Term Unemployed and the Dark Side of Jobs Report
The U.S. jobless rate was flat at 9.6% in October, but the government’s broader measure of unemployment dropped slightly to 17%, possibly due to long-term unemployed dropping out of the labor force.
Good News for the Class of 2011: You’re Hired
This year’s crop of college graduates is poised to have an easier job hunt than last year’s class, a new report shows.

CFO’s Big Cost Worry: Employee Benefits.
A new survey of 508 U.S. chief financial officers and senior comptrollers find far more of them (84%) worried about rising employee benefit costs than worried about rising raw material (27%) or energy costs (21%).

Government Insourcing: Hurting the Economy and Wasting Taxpayers’ Dollars
Since the beginning of the Obama administration, the federal government has steadily increased the number of jobs transferred from private contractors to the civil service. Insourcing was supposed to save money, but the results tell a different story.
Job Creation and Tax Avoidance in Corporate America
The country's top companies don't have as much cash for hiring as many think, and tax laws give companies such as Google and Apple incentives to expand overseas.
What is Unseen
It bears repeating again and again: there is nothing economically special about international trade as compared to intranational trade – save, of course, for the sorry fact that politicians and rent-seeking producers find it easy to demagogue for their own greedy, narrow purposes.
One Date & Four Numbers on the Economy
January 2020 – It took 48 months to regain the lost 2.0% of jobs in the 2001 recession. At that rate, the U.S. would again reach 12/07 total payroll jobs around January 2020.
Secondary Sources: Foreclosures, Immigrants Create Jobs, Mideast Unemployment
A roundup of economic news from around the Web.


Monetary News Nov. 1-5

Fed bond move spurs backlash from Asia to Europe
China, Germany and Brazil warned the Federal Reserve's move to inject money into the U.S. economy might harm the rest of the world, though Beijing said Friday the tactic was understandable because of the slow recovery.
Doubts remain over economic growth
The Federal Reserve can only be delighted with the initial market reaction to its pledge to buy $600bn in Treasury securities by the middle of 2011. But the question for the US central bank is what happens next?
`Hell Week' Ends With Central Banks Split on Recovery Policies
Central banks marked their busiest week since uniting to fight the financial crisis of 2008 by taking divergent steps to keep economic recoveries on track.
Fed Said to Plan Guidelines for Bank Dividends, Stock Buybacks
The Federal Reserve is preparing guidelines for supervisors to use in assessing whether banks are strong enough to boost dividends or buy back shares.

How It Works; When It Doesn't
The Federal Reserve announced a new round of bond-buying Wednesday to support the economy. Here are some of the key issues involved in its decision.
Bernanke: It's all about jobs
The Federal Reserve's latest move to help stimulate the economy should help fulfill its obligation "to help promote increased employment and sustain price stability," Fed chairman Ben Bernanke said.
Oil hits six-month peaks on falling dollar, Fed move
World oil prices hit fresh six-month peaks on Thursday as the dollar slumped on the back of the US Federal Reserve's new huge stimulus package aimed at boosting the American economy.
U.S. dollar printing is huge risk -China adviser
Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing.
Stock Markets Surge on Fed's $600B Plan
Will the Federal Reserve Help Unemployment, Housing Market? Here's What the Fed's Move Means to You.
5 facts on quantitative easing
The U.S. Federal Reserve on Wednesday announced it will resume stimulus spending, known as quantitative easing, to jump-start the weak economic recovery. Here are five facts about quantitative easing:

Bernanke Bond Buying May Risk Rise in Prices Similar to 2004
The Federal Reserve may be underestimating the inflation outlook for the second time in less than a decade as it prepares to pump more money into the U.S. economy.
Bernanke Faces Greater Scrutiny After Republican Election Gains
Federal Reserve Chairman Ben S. Bernanke may have to renew his battle to preserve the central bank’s independence after Republican victories in yesterday’s congressional elections.
Fed Easing May Mean 20% Dollar Drop: Bill Gross
The dollar is in danger of losing 20 percent of its value over the next few years if the Federal Reserve continues unconventional monetary easing, Bill Gross, the manager of the world's largest mutual fund, said on Monday.

Australia raises interest rates
All eyes may be on the Fed, but not all central bankers are on the same page.
What the Fed should really be buying
Wall Street is counting on the Federal Reserve to announce purchases of long-term government bonds on Wednesday, a policy known as quantitative easing. But some Fed watchers think that buying up more plain-vanilla bonds won't work, and recommend more unorthodox strategies.
Don't rule out Fed 'shock and awe'
According to the Chinese calendar, next year will be the year of the rabbit. But for the Federal Reserve, 2011 is shaping up to be the year of the hawk -- the inflation hawk, that is.
Fed Set to Launch Fresh Round of Bond Purchases
The U.S. Federal Reserve opens a two-day meeting on Tuesday that is expected to conclude with a decision to pump hundreds of billions of dollars into the economy to stir the tepid recovery out of its doldrums.
Setting Sail on QE2
Since late August, when QE2 first loomed on the horizon, the dollar has sold off and commodities have surged, and the stock market has rallied 13%. By the time the Fed outlines its plans Wednesday, some traders will "sell the news" and book profits. But a consensus is also quickly building that any resulting pullback must be a buying opportunity.

Dollar sinks before 'busiest week in decades'
The dollar hit a 15-year low point against the yen on Monday and sank against the euro ahead of "the busiest week in decades" during which the US Federal Reserve could announce fresh stimulus measures.
Fed’s bond buys seen $500 billion to $750 billion: survey
Economists expect the Federal Reserve to buy between $500 billion and $750 billion of government bonds and say the impact of such purchases already is baked into markets.

Economists Comments
The age of the dollar is drawing to a close
Currency competition is the only way to fix the world economy, says Jeremy Warner.
Bernanke's Bond Buy a Likely Bust
Typically, the Fed only buys and sells short-term Treasury obligations -- ones that mature in a few days to a few months. But interest rates are near zero on short-term Treasury debt, so the Fed turned to long-term debt. There was nowhere else for it to go if it wanted to inject money into the system.
Why QE2 Won't -- and Can't -- Work
QE2, to put it simply, does not address the fundamental problems the U.S. economy faces. It is preposterous to think that reducing medium-term interest rates by 25 to 50 basis points is going to lead to a significant increase in gross domestic product and a reduction in unemployment.
Bernanke on QE2: The Goal Is to Create a Bubble
The Fed is looking in the wrong place for inflation: It's in asset prices outside the US, to be followed by consumer prices outside the US, to be followed by higher inflation here.

What the Fed did and why: supporting the recovery and sustaining price stability
Two years have passed since the worst financial crisis since the 1930s dealt a body blow to the world economy. Working with policymakers at home and abroad, the Federal Reserve responded with strong and creative measures to help stabilize the financial system and the economy.
Bernanke Is Taking a Risk With QEII
One big loser in Tuesday's GOP tidal wave was someone who didn't even appear on a ballot. It's Fed Chairman Ben Bernanke, who'll face greater scrutiny from a skeptical Congress about his policies.
Milton Friedman vs. the Fed
The Nobel laureate would never have endorsed increasing inflation to stimulate the economy.
Fed's $600bn gamble risks throwing away America's biggest asset
Apparently, there's been an election in the US. The BBC tells us that America's wholly unsurprising verdict on the past two years is frightfully important and signals the end of the Obama dream, whatever that may have been; it was never entirely clear.
More Monetary Cowbell
"I got a fever, and the only prescription is more quantitative easing!"
QE2 Sails -- But Where's It Going?
It's likely the new money will find its way into the general economy, increase money supply, and result in some price inflation -- which could lead to stagflation.

G-20: A Viewer's Guide
It is certainly true that the leaders gathered in London agreed to go forth and save their economies. But the question is what the leaders would have done in the absence of such summitry.
QE2 is risky and should be limited
The Federal Reserve’s proposed policy of quantitative easing is a dangerous gamble with only a small potential upside benefit and substantial risks of creating asset bubbles that could destabilise the global economy. Although the US economy is weak and the outlook uncertain, QE is not the right remedy.
High Rollers at the Fed
The central bank becomes a Treasury profit center—for now.
Bon Voyage, QE2!
Investors ready for the next dose of drugs.

Fed Is Poised to Aid Economy, but Impact Is Cloudy
The Federal Reserve is all but certain to move to spur the nation’s sputtering recovery this Wednesday, but most economists say it is unlikely to have a big impact on employment and growth.
Why Australia Will Benefit From Inflation
In assessing where inflation will be advantageous, look to countries that extract natural resources and export them around the world, particularly to China.
All of my work regarding QE has me wondering why the Fed would implement such a policy when the evidence appears to point to little to no gain in economic growth?  The only logical answer is that QE2 is really just another case of the Federal Reserve proving that this is a country centered around the bankers, by the bankers and for the bankers. Before you brush me off as some conspiracy theorist please consider the evidence.
Opinions Are Split on Fed Policy Move
Proponents say buying hundreds of billions of dollars more in Treasury bonds will provide only modest support for the economy. Foes warn that it could backfire by pushing up commodity prices, sowing seeds of unwelcome inflation in the future, or by undermining confidence in the Fed's ability to manage—and eventually reduce—its holdings.

Currency Wars Also Have Unintended Consequences and Collateral Damage
In short, the Fed’s actions have undone whatever good came out of the G20 meetings. Any hope for cooperation on currency values and financial stability is out the window. There are potential spillovers in other areas of global cooperation.
Bernanke’s Twist on Price Stability
He believes we are in danger of too little inflation.  While common sense might imply that price stability means neither inflation nor deflation, in Bernanke’s book, anything below the Fed’s target of 2 percent is bad.

The Lone Dissenter: Thomas Hoenig Hits Seven
It’s seven for seven for Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. Hoenig’s dissent kept his streak alive at today’s Federal Open Market Committee meeting with an objection to his colleagues’ move to buy more Treasurys to support the economy.
The QE2 Sails
The Fed Open Market Committee (FOMC) announced today they would buy $600 billion of US Treasury bonds through Q2 2011, mostly of  longer-term maturities. They said:
Chairman Bernanke’s Brave New World
Economists and others weigh in on the Fed’s decision to purchase an additional $600 billion of Treasurys, a second round of a policy known as quantitative easing and referred to as QE2.
Bernanke’s $600 Billion Helicopter
It would be nice if wealth could be created by handing out pieces of paper. It can’t. It is not even clear that the Fed plan will put people back to work. Markets have a way of undoing economic decrees. They react in a way that tends to cancel out the government’s efforts.
Parsing the Fed: How the Statement Changed
The Fed’s statement following the November meeting announced a new round of asset purchases.
Completing the Loop, Take 2?
In fact, in many ways, the period from April through September 2010 displays a number of deflationary characteristics, which is the primary reason the Fed is initiating QE 2.0.
Completing the Loop, Take 2, Part 2
It seems there's more to our observations than we knew. The Fed is indeed targeting stock prices in its quantitative easing programs.
Fed Micromanaged Economy to Oblivion With QE2
On misguided calls to "do something" the Fed is blowing a bubble in commodities that can't possibly help.
No cutting back: the Bernanke money-printing story
If this were Greece or Ireland, the government would be forced to cut back. But with quantitative easing ready, there is no need to face the music.
The Fed Decision: This is Not the End of Quantitative Easing!
The FOMC emphasized its dual mandate of "maximum employment and price stability." This indicates that as long as unemployment does not decrease substantially and inflation does not spike much higher, quantitative easing is likely to continue well into the future. This could be particularly true if there is no additional fiscal stimulus forthcoming from Congress.
Does QE work? Ask Japan
The Bank of Japan tried out a QE program from 2001 to 2006 under generally similar conditions to what the Fed is confronting today. In both cases, central bankers faced a situation in which the real economy was stagnating after a crisis, but they were unable to use the usual monetary-policy mechanism to stimulate growth – lowering interest rates – since those rates were effectively zero and couldn't be lowered any further.

The Strangest Macro Model Ever
I do not think that I understand Why Inflation Targets Need to be Higher.
Q&A on QE2: What a Fed Move Would Mean
Debate is raging inside and outside the Fed about how much good it will do, if any. Proponents say purchasing hundreds of billions of dollars more in Treasury bonds will provide only modest support for the economy. Foes warn that it could backfire by pushing up commodity prices, sowing seeds of unwelcome inflation in the future, or by undermining confidence in the Fed’s ability to manage — and eventually reduce — its holdings.

Q&A: Kohn Says QE2 Won’t ‘by Huge Amount’ Turn Economy Around
I don’t think that anything they will end up doing will instantly and by a huge amount turn the economy around. But it could help on the margin in what is an unsatisfactory situation. If they go ahead and do it, I expect some benefit.
Will QE2 Lead to High Inflation?
Not necessarily, and those who promote this view adhere to an overly simplistic view of the quantity theory of money.
QE2 Preview: How Much Is Too Little or Too Much?
Asset purchase commitments of roughly $125 billion per month -- with the option to alter the program along the way -- is the policy announcement I'm expecting.

US Debt: A Recipe for Economic Disaster?
The foundation of the US dollar is already under threat. If it collapses, it will take other economies and currencies down with it.
Why I assign less weight to the liquidity trap argument
A few people have been asking me about this, so here is a summary statement of some points:
By Request: Monetarism and the Great Depression
My guess is that if we were to try a Sumnerian monetary expansion today, the effect on employment and real output would not be very great. I don't think that the misalignment between nominal wages and prices is such a big deal at the moment.

FOMC: QE 1.6 Sets Sail in Uncertain Seas
The Fed will re-engage in quantitative easing by launching QE 1.6—the purchasing of up to $600 billion of Treasuries on a $75 billion per month schedule through June 2011.

Bernanke Battles U.S. Deflation Threat
Additional quantitative easing, as proposed by Federal Reserve chairman Ben Bernanke, is a necessary, though not sufficient, measure to preempt deflation and a possible economic relapse.

Tax News Nov. 1-5

Voters to states: No new taxes
State residents aren't feeling very generous these days, even though now is when government officials say they need the tax money the most.
Obama signals openness to deal on tax cuts
Barack Obama has signaled he is open to extending the Bush-era tax cuts for the richest 2 per cent of Americans, although not to making them permanent as Republicans are demanding.
Fannie, Freddie Overhaul Could Cost $685 Billion
Fannie and Freddie have already cost taxpayers nearly $134 billion, but S&P analysts said Thursday that the government could ultimately be forced to inject $280 billion into the firms because of a slowdown in the housing market.

Bush tax cuts: Obama seeks compromise
A few key Democrats -- such as Senate Budget Chairman Kent Conrad -- have said they could support extending the tax cuts temporarily for upper-income households. Others, including Senate Banking Chairman Christopher Dodd, have called for pushing the $250,000 threshold higher.

The Tax Break Everyone Wants to Forget
Extending the Making Work Pay credit for one year, which would lower most people’s payroll taxes by $400, would cost the Treasury $80 billion next year. That price tag is higher than the $68 billion it would cost to extend the Bush tax cuts for the wealthy for one year.

White House Considering New Tax Cut Plan, Washington Post Says
Administration officials are discussing “decoupling” the Bush-era tax cuts to allow permanent extension for families making less than $250,000 a year and temporary extension of cuts for those making more…
7 key money decisions facing lame-duck Congress
Incredibly, after unexpectedly letting the estate tax lapse for a year, lawmakers still have not resolved their differences over just how far-reaching the tax should be.

Economist Comments
Joe’s Income Doesn’t Belong to Sam
The thing appropriately identified as being unaffordable today – the thing that is today too costly for the spender, given his income, to purchase – is not his reduced income but, instead, the goods and services he buys that he cannot afford.

Entitlements Without Taxes? It Doesn't Add up
Maybe that's just human nature, but you can't have it both ways. Either you want the governmental services and have to pony up -- or dig into your own pocket and pay for it yourself.

Government, get out of the way of business
We need incentives instead of penalties. We need tax reform, not new taxes. We need to reduce uncertainty so that the private sector can provide jobs — the only proven way to increase purchasing power. In doing this, we allow employees to take their families out to movies, get washers and dryers, buy gas for the cars that take them to work and back home. That's the way a revenue stream for the government is created, by creating more taxpayers — people with a J-O-B.
FEULNER: Red tape on the rise
Reports from government regulators show that Washington imposed 43 major new regulations in fiscal 2010 - an unprecedented number - at an annual cost of $26.5 billion. This is far higher than the cost in any other year for which records are available, according to a new report from the Heritage Foundation. That's $450 for a typical American family every year.
GM Could Be Free of Taxes for Years
The tax benefit stems from so-called tax-loss carry-forwards and other provisions, which allow companies to use losses in prior years and costs related to pensions and other expenses to shield profits from U.S. taxes for up to 20 years.

To Reduce Taxes, We Must Abolish Our Tax Breaks
Indeed, if we want the government to remove its greedy hands from our pockets, we must stop reaching into the pockets of our fellow citizens in order to reduce our tax bills.
A Defense of the Enterprising Rich
The true danger to our social fabric comes not from those able to purchase yachts and other such baubles, but from the political demagogues who promise the mob a redistribution of Other Peoples' Money as their road to power.
Outfoxing a Higher Tax on Gains
If the Bush tax cuts are allowed to expire, the levy on capital gains will rise. Here are options plays from Oppenheimer to offset the reduction in returns.
Puerto Rico's Governor Channels Ronald Reagan
Luis Fortuño wants deep tax cuts to spur growth. Are Republicans in D.C. paying attention?

Competitive Government Watch: Washington Income Taxes
"Texas Gov. Rick Perry has sent letters to around 90 top employers and a few business associations in Washington urging companies worried about taxes to head on over to his state."
What taxpayers can do while lame-duck Congress mulls tax changes
If you’re taking distributions from an IRA, set up paperwork in advance to allow you to receive that income two different ways: before the new year and after. If Congress raises tax rates for 2011, you can take out more this year, while rates are still lower.
You can't get something for nothing
When the government promises no cuts to services, state pensions or entitlements and that only high earners will pay for continuation of such services, it's a promise that Americans can have more while someone else picks up the tab.

Secondary Sources: Quiet Tax Increase, Rubin’s Plan, U.S. Threat.
Bob Williams wonders why amid all the sturm and drang about the Bush tax cuts, no one is talking about the expiring tax cuts in the stimulus bill.

One Billion of Your Tax Dollars Sent to Dead People
Sen.Tom Coburn (R-OK) put out a report today documenting one billion in your tax dollars given to dead people.
Abolition of the Corporate Income Tax
We don't know for sure who bears the burden but the larger the elasticity of the supply of capital to the United States, the lower is the percent of the burden borne by shareholders.

GET TO WORK: Stop the Obama Tax Hikes
These will hit many Americans. These hikes include reducing the child tax credit, re-imposing the marriage penalty, raising taxes on small businesses (the American jobs engine), raising dividend taxes (draining seniors’ incomes), raising capital gains taxes (diverting money from job-creating investments) and raising some personal tax rates.

Health Care News Nov. 1-5

Citing health overhaul, AARP hikes employee costs
AARP's endorsement helped secure passage of President Barack Obama's health care overhaul. Now the seniors' lobby is telling its employees their insurance costs will rise partly as a result of the law.
Privacy advocates fear massive fed health database
Several privacy groups have raised alarms over plans by the U.S. Office of Personnel Management (OPM) to build a database that would contain information about the health care claims of millions of Americans.
No Government Shutdown Over Health Care
Senate Minority Leader Mitch McConnell said Thursday that Republicans would not shut down the government in an effort to force President Barack Obama to repeal his health care law.

Health care costs on the front lines
Looking to push his cost-cutting reforms to new realms, Defense Secretary Robert Gates may set his sights on runaway military health care costs — an area that members of Congress have so far been reluctant to tackle.

Repeal 'Obamacare': GOP will try at least
GOP candidates pledged that their first item of business would be repealing and replacing health care laws passed in March that would insure 30 million Americans without health care coverage.
Republicans to Take On U.S. Health Law, From Taxes to Insurance
Some Senate Democrats will apply pressure on their leaders for changes, seeking bipartisan support for legislation that would scrap the individual mandate and a requirement that most employers provide coverage to workers.

Reform's future hangs in balance
While the health care reform law isn’t on the ballot today, the results of the midterm elections will have vast implications on the debate over the Democrats’ controversial legislation.
Health Benefits Appear On Rise
Some small businesses are benefiting from portions of the law, which includes a tax credit beginning this year that covers as much as 35% of a company's insurance premiums.

Economist Comments
Pull the plug on Obamacare
Health care takeover law needs scrapping, not tweaking.

Seeking a Healthcare Compromise
Revising the health care law would be an opportunity for the new Republican majority to showcase its new ideas. That might endear it to independent, centrist voters, who will hold the key to the 2012 presidential election.

A Primer on the Constitutionality of Health Reform
The legal battle over Obamacare is only beginning, with appeals proceeding all over the country. These cases present the fundamental questions of where government gets its powers, and what the constitutional limits to those powers are.

Get to Work Repealing Obamacare
Businesses suffer higher costs under Obamacare. They are struggling to meet disruptive employer mandates; accommodate new taxes on insurance, drugs, medical devices and investment; and comply with piles of Federal agency regulations and IRS paperwork. These costs will be either passed on to customers or to employees who will face lower wages or lost jobs.
Wishful Thinking about ObamaCare Investigations
If House Republicans hold hearings, sloganeering will give way to detail.  And if House Republicans hold hearings, ObamaCare supporters will finally be able to get their message out — something they were unable to do while they controlled both chambers of Congress and the executive branch.

Bad News for New Mexico Residents Who Like Their Current Health Plan
Once again, the promise that Americans can keep the health coverage they like under Obamacare has been broken. National Health Insurance, Aetna, John Alden, and Principle have reported that they “need to make adjustments in their business to accommodate the nation’s new federal health care law.”
ObamaCare Takes a Shellacking
It wasn’t just the party of ObamaCare or its champion that took a “shellacking” at the polls yesterday.  The law took a shellacking as well.

The Political Economy of Health Care
For a federal government to spend $3.5 trillion per year and still find itself with this health care crisis is so much more inexcusable than arguing that “society is so rich that we should trade off some efficiency for some equity.”
Now Even Democrats Are Voicing Concern About Obamacare’s Consequences
Savings don’t come from reductions in the cost within the health care system. The new health law will actually drive insurance premiums higher. Instead, “savings” are solely attributable to the taxpayer-funded subsidies. Obamacare won’t make insurance any cheaper—someone else will just be picking up part of the tab.
Is Orszag Proposing Medical Malpractice Reform or Something Else?
Orszag’s approach has more to do with creating stricter mechanisms to enforce physicians’ compliance with evidence-based guidelines than with reforming the tort system to better protect doctors and patients.
Get to Work
The people have spoken. Reckless spending, stifling regulations, ever-rising taxes, endless debt and the looming government takeover of health care have brought this nation to a tipping point. Not surprisingly, the American people have now taken matters into their own hands.

KIBBE: The cost of 'free' medical care
Somebody, somewhere will be forced to pay for the goodies

Confessions of a Price Controller
The problem for a government price controller is that he can never know when the price structure is ‘right.’ The bias is always to raise prices, not lower them.
If You Like Your Medicare Advantage Plan, You Probably Cannot Keep It
Taking into account those who remain in the less-generous Medicare Advantage program and those pushed out of it completely, our report found substantial regional variations—benefit losses range from a low of $2,780 in Montana to a high of $5,092 in Louisiana.

GET TO WORK: Repeal Obamacare
Until Congress is able to get the President to sign a law repealing Obamacare, Congress should in the meantime endeavor to withhold funding, block key provisions, and override regulations carrying out Obamacare.

General Economic News Nov. 1- 5

What the election means for foreclosures and robo-signing
The state attorneys general have been pressing the banks hard over the past month, questioning them over foreclosures and falsified legal paperwork. But Tuesday's election could impact that effort.
Ron Paul vows renewed Fed audit push next year
Republican Representative Ron Paul on Thursday said he will push to examine the Federal Reserve's monetary policy decisions if he takes control of the congressional subcommittee that oversees the central bank as expected in January.
40% of Americans cutting Thanksgiving fat
Forget that second helping of pumpkin pie. With the economy still struggling American families are planning to scale back their Thanksgiving celebrations this year.
AIG loses $2.4 billion on asset sales
AIG said Friday that it lost $2.4 billion in the third quarter on sales of insurance units, proceeds of which it plans to use to pay back the U.S. government.
Toyota quadruples net income
Toyota reported Friday that its net income in the latest quarter more than quadrupled over the same period last year, as strong sales and cost-cutting measures balanced the strengthening yen.
The End of Free-Trade Globalization
The world economy is on the brink again, facing a crisis of epic dimensions for reasons largely obscured by the inflamed politics of 2010. Against their wishes, the United States and China have been drawn into an increasingly nasty and dangerous fight over currencies and trade.
Obama drops plan to limit global warming gases
Environmental groups and industry seem headed for another battle over regulation of greenhouse gases, as President Barack Obama said he will look for ways to control global warming pollution other than Congress placing a ceiling on it.

Obama wants a do-over with business
One day after a "shellacking" in the congressional election, President Obama acknowledged Wednesday that he needs to improve his relations with business.
Stores strong ahead of the holidays
Retailers reported strong sales results for October on Thursday despite the still-struggling economy.
U.S. Auto Sales Rise in October
U.S. auto sales rose in October as buyers grew more confident in the economy and new models drew them into dealerships.
Germany Concerned about US Stimulus Moves
Germany Economy Minister Rainer Bruederle said on Thursday he was concerned at U.S. efforts to stimulate growth by injecting liquidity into its struggling economy.
Dow up 133 a day after Fed reveals stimulus plan
Stocks are rising sharply Thursday, one day after the Federal Reserve announced a $600 billion plan to stimulate the economy.
European Central Bank Keeps Rates at Record Lows
The Bank of England and the European Central Bank left their key interest rates at record lows Thursday after recent data showed that the economic recovery was showing some resilience.

American dream fades for more as homeownership falls
Ongoing economic, financial and housing woes continue to hit Americans where they live -- or used to.
Freddie Mac sees no housing recovery soon
Freddie Mac lost $2.5 billion in the third quarter and said it will be a "considerable time" before the housing market recovers.
Small Automakers See Big Gains in October Sales
October sales are expected to come in slightly below 1 million vehicles, hitting around 12 million on a seasonally adjusted annual sales rate. Sales in October were uneven, coming in strong some days and really weak on others.
Borrowing Costs Rise for Weak In Europe
Borrowing costs of weaker European countries are again on the rise amid a steady stream of bad news.
Business Looks to Republicans to Block Obama on Rules, Taxes
The Republican gains in Congress mean U.S. companies from Goldman Sachs Group Inc. to Wellpoint Inc. may be able to weaken or block what they consider President Barack Obama’s anti-business policies on health care, the environment, taxes and financial reform.

Making Low Mortgage Rates Work for You
Rates on 30-year fixed-rate mortgages (excluding jumbos) hit an average of 4.3% in September, the lowest level since 1953, according to Freddie Mac, and are still hovering below 4.5%.
Obama administration sings new tune on foreclosures
A year ago, officials focused on stemming the foreclosure tide. Now they are touting the need for foreclosures to rebuild the housing market.
One sector really loves gridlock: Financials
Interestingly, Financials showed demonstrably better performance under divided government than under unified government, posting an average 20% return over a two-year period (9.5% annualized) as compared with 9% (4.3% annualized) when the government is unified.
Should the Government Insure Private Markets?
...demonstrates how poorly designed public insurance programs can lead to resource misallocation, excessive risk-taking, and potentially enormous burdens on current and future taxpayers.
RIP, muni bond insurance
The market no longer believes in the business of insuring municipal bonds.
Pace of Economic Recovery Remains Unclear
A report on manufacturing provided a glimmer of encouragement, but a separate government report suggested that consumer spending was stuck in the doldrums.

Manufacturing in surprise surge
The Institute for Supply Management's manufacturing index hit 56.9 in October from 54.4 in September. The reading was expected to have eased to 54.
U.S. Consumer Spending Rises Less Than Forecast, Prices Cool
Consumer spending rose less than forecast in September as incomes dropped for the first time in more than a year, a sign Americans may keep rebuilding savings and paring debt as the economy is slow to recover.
The savings rate for U.S. households fell to its lowest level in 13 months
With spending rising faster than incomes, the personal savings rate fell to 5.3% of disposable income, down from 5.6% in August. It was the lowest savings rate since August 2009.
Construction Spending in U.S. Unexpectedly Rose in September
Construction spending in the U.S. unexpectedly rose in September, led by increases in homebuilding and public projects.
Schedule for Week of Oct 31st
The highly anticipated second round of Federal Reserve quantitative easing (QE2) will be announced on Wednesday at 2:15 PM.

Economist Comments
The problem with the economy? Confidence.
How could several trillion dollars of fiscal and monetary stimulus barely move the needle of gross domestic product growth? That's the question President Obama needs to answer in the wake of the midterm elections. Why was his policy so ineffective at multiplying its stimulative effects throughout the economy?
A Must-Read on Social Security
Think of the Social Security Trust Fund as a cookie jar where a couple tries to save for retirement by tucking away a $100 bill every week. But every weekend, they give that $100 to their kids to spend on movies, pizza, new clothes, and video games. Still, the couple doesn't worry about their inability to save, because each time they remove a $100 bill from the cookie jar, they replace it with a piece of paper that says "You kids owe us $100 plus interest to be paid out in an annuity upon our retirement."

Parsing the Republican economic agenda
The Republicans now have a platform to voice their positions on economic policy, even if their bills never land on President Obama's desk. Here's how they'll likely approach the hotly debated issues.
China: Economic Miracle or Just Another Bubble?
China's surging, rampant capitalism is still only skin deep - but probably for good reason.

If I max out my 401(k), what's next?
My wife and I have a combined annual income of about $250,000. If we max out our 401(k)s, can we each still contribute the full $5,000 this year to a traditional deductible IRA rather than just investing the money through a normal taxable brokerage account?
Put Department of Education in timeout
The U.S. Department of Education was created with the primary stated goal of increasing students' test scores, but test scores for 17-year-old American students have remained essentially flat since 1970. The department's budget has grown to a whopping $107 billion this year. Per pupil, taxpayer-financed education spending (adjusted for inflation) has risen by more than 200 percent since 1970 (and 150-plus percent since 1980). Clearly and unambiguously, the department deserves a grade of F.
How the FCIC can salvage its relevancy
The forthcoming report from the Financial Crisis Inquiry Commission will not likely disclose any great unknowns about the causes of the crisis. But total transparency would help secure its place in the historical record.

New Basel Rules Could Punish Wrong Banks
...quadrupling the percentage of capital banks have to hold on to in a system that is basically the same as the one governing global finance during the bubble and great recession isn't the way to prevent future excessive risk taking.
Q3 2010: Homeownership Rate at 1999 Levels
The homeownership rate was at 66.9%, the same level as in Q2. This is at about the level of early 1999.
What are the Costs of Political Uncertainty?
...the ill-effects of policy uncertainty are particularly strong in those areas of policy that are least-certain today.

Divided Washington Is What U.S. Economy Needs
Chances are good that the power of the U.S. government, squarely in the hands of Democrats the past two years, is about to become divided between the two parties. Modern American history suggests that this is the best of all worlds.
Sane Conservative Ideas Watch
As life-spans have gone progressively up, the average age of getting early social security benefits has gone in the opposite direction.
In Praise of Irrational Exuberance
Does a flourishing economy depend on delusion?
Populist Rage Over Foreclosures Doesn’t Justify a Breakdown in the Rule of Law
Grinding the foreclosure process to a halt would only hurt the housing market, create more problems for taxpayers, and slow the recovery.
2% Just Won't Do
While real GDP grew by an annual rate of $66 billion, nearly two-thirds of that - $47 billion - came from businesses restocking depleted inventories. And while it's true that consumer spending increased at the fastest rate since late 2006, all that demand was satisfied entirely with imports, adding little to U.S. output.
Unpopular Financial Reform
Most Americans don’t like the Dodd-Frank act.

School Choice in the Supreme Court: Does All Your Money Belong to the Government?
Tuesday’s election results aren’t the only outcomes this week likely to impact the future of school choice across the country. Yesterday, the Supreme Court heard oral arguments in the case of Arizona Christian School Tuition Organization v. Winn to determine whether the Grand Canyon State’s scholarship tax credit program violates the establishment clause.
Seizing control
"The consumers drove the mom and pops out of business. The consumers preferred Wal-Mart (and Target and K-Mart) to the mom-and-pops. To the extent Wal-Mart did the driving, it was by offering better products at better prices. I was thinking of that yesterday when I saw the headline in the Washington Post: "GOP Siezes Control in the House."
Republican Agenda: Privatization
In coming months, new Republican members of Congress will be looking for ways to cut the budget deficit and also to increase economic growth. One way to do both is to privatize government assets, such as the U.S. Postal Service, Amtrak, and the air traffic control system.
In U.S., 14% Rely on Food Stamps
A huge number of American households are still relying on government assistance to buy food as the recession continues to batter families.

Bankruptcy Filings increase, Freddie Mac reports loss, and more
Information on the latest happenings in economics.
Post-Moratorium: Where Are the Drilling Permits?
The deepwater drilling moratorium ended three weeks ago, but it could be months before the federal government issues its first new permit.
How does Reagonomics compare to Obamanomics?
A blogger compares the state of the GDP five quarters after the end of the 1981-82 recession to the state of the economy now, five quarters after the 2007-09 recession.

ISM non-Manufacturing Index increases in October
The October ISM Non-manufacturing index was at 54.3%, up from 53.2% in September - and above expectations of 54.0%. The employment index showed expansion in October at 50.9%, up from 50.2% in September.
Personal Bankruptcies Continue to Rise
Personal bankruptcy filings continued to climb in October, on pace to reach their highest level in five years.
Mortgage Purchase Applications Increase slightly last week
The MBA reports: Mortgage Purchase Applications Increase, while Refinance Applications Decline in Latest MBA Weekly Survey

World-Wide Factory Activity, by Country.
Manufacturing activity expanded faster in most major economies in October, with the U.S., euro zone and China all picking up steam.

Rising Tide Of Government Regulation Faces Rising Opposition From American People
Specifically, fiscal year 2010 federal regulators promulgated 43 major rules estimated, by the regulators themselves, to cost the U.S. economy $28 billion. That is the highest level ever on record.
Faster growth needed
The main reason for the slower performance is the change in recession type. The Fed created the 1982 recession by increasing interest rates to record levels, in an attempt to wring inflation out of the economy. This time around, the recession was caused by the collapse of a huge debt bubble, which forced banks and households to rapidly deleverage.
The Wrong Path
In 2010, the median inceom of U.S. households very likely dropped from the $49,777 recorded in 2009 to a level roughly $2,500 lower: $47,211.
Unofficial Problem Bank list increases to 894 Institutions
Here is an unofficial problem bank list for October 29,2010.
Making the world a better place
Greatness is all around us. It doesn’t come out of Washington. It comes out of you and me and how we live our lives.
Rosner on securitization
Rosner recently wrote an analysis of the state of the securitization market. It is superb. He argues that it is crucial to re-establish the securitization market. I disagree. But that doesn’t matter. What does matter is his superb analysis of the Dodd-Frank bill.
Number of the Week: 107 Months to Clear Banks’ Housing Backlog
Over the summer, banks appeared to be making some headway. The government’s mortgage-modification program helped some people get current on their payments, taking their homes out of the foreclosure pipeline. At the same time, homebuyer tax credits helped boost sales. Combined real and shadow inventory fell to 91 months of sales in May.
The Stealth Stimulus of Defaulters Living for Free
The mortgage-foreclosure mess could prove expensive for banks and investors. But in some states, it will also prolong an unintended economic stimulus: free housing for millions of defaulters.

Real Economic Ties Should Underpin U.S.–Indonesia Partnership
There is one very useful thing about economic issues: Progress on them is measurable.

Federal Overreach into American Higher Education
The U.S. Department of Education (ED) has proposed 14 new regulations that call for aggressive new government involvement in American higher education. Three regulations in particular have attracted much attention and stand out as especially troubling. One regulation would require higher education institutions to obtain authorization from their state governments in order to participate in federal financial aid programs.

RCM: Wells Fargo Economics Group: ISM: Still a Growth Story—Prices Paid Up, Metals on the Move
October’s ISM came in at 56.9 with continued growth signals from production, orders and employment. Firms appear to have adjusted their operations to signal growth with export orders very strong.

The Consumption Response to Seasonal Income: Evidence from the Japanese Public Pension Benefits
Japanese public pension benefits, which were distributed quarterly through February 1990 and every other month since then, induce substantial but predictable income fluctuations. The relative magnitude of the payments combined with the delay between payments yields a stronger test of the Life-Cycle/Permanent Income Hypothesis than in prior studies. Applying two identification strategies to monthly household panel data, we find that consumption significantly responds to quarterly benefit receipt. Additionalanalysis suggests that our findings cannot be explained by either liquidity constraints or precautionary savings motives.
Weekly Economic & Financial Commentary
U.S. Moderate Growth Continues to Move Ahead.