Archive for September 2011
Sep 19th 2011, 19:32 by G.I. | WASHINGTON
[Greg Ip] THIS much can be said for the deficit plan that Barack Obama released today: at least it’s a plan. Mr Obama has spent the first two and a half years of his presidency talking grandly about the importance of getting the deficit down without ever laying out a credible plan for doing so, in the process ceding the initiative to Republicans.
The 67-page proposal meets the first test of credibility: it sets the right goals. It would reduce the deficit by a cumulative $3.1 trillion over the coming decade, beyond the $912 billion of spending cuts already agreed to in the August 2nd debt-ceiling deal. The annual shortfall would fall from $1.3 trillion this year to $695 billion in fiscal 2021. That would cut it from 8.5% of GDP to 2.9%, instead of only to 6%, which is where the White House says it’s headed under current policies. (That’s using the Congressional Budget Office’s “adjusted” baseline. Using the White House’s own baseline, the deficit in 2021 would be smaller by 0.6% of GDP.) Publicly-held debt would stabilise at 74% of GDP, rather than rising to 85% and beyond. It also avoids applying the fiscal brakes immediately when doing so could tip an already feeble economy back into recession, thanks to his previously announced $447 billion in new stimulus.
Sadly, the details of Mr Obama’s plan do not live up to the promising goals. Read the rest of this entry »
Republicans and the deficit stand in the way of a new stimulus package
Sep 17th 2011 | WASHINGTON, DC | from the print edition
[Greg Ip] AMERICA’S political priorities have undergone a breathtaking about-turn. In early August Barack Obama and Congress were consumed by fears about deficits, eventually making a deal to cut more than $2 trillion dollars from the budget over the coming decade.
By the time Mr Obama spoke to Congress on September 8th, though, the deficit had taken a back seat to job creation.
Could the Federal Reserve lower unemployment by revamping its goals?
Sep 17th 2011 | from the print edition
The entire article is linked here.
Sep 15th 2011, 16:12 by G.I. | WASHINGTON
[Greg Ip] CENTRAL banks are once again coming to the financial system’s rescue. In a move coordinated with its counterparts in America, Japan, Switzerland and Britain, the European Central Bank today announced it would make special, three-month dollar loans to euro-zone banks to cover funding needs over the year-end.
This has delivered a shot in the arm to European stock markets, and bank stocks in particular. European banks regularly borrow in dollars to make dollar loans and finance dollar-denominated inventory. But concerns about the banks’ solvency should their holdings of peripheral sovereign debt sour have prompted the American money market funds and others who lend to the banks to pull back. European banks have lost access to $700 billion in dollar funding in the last year, according to this excellent analysis in today’s Wall Street Journal.
Today’s operation is a bandage, not a cure. Read the rest of this entry »
Sep 9th 2011, 3:13 by G.I. | WASHINGTON
AS JOB growth has ground to a halt and stock markets have swooned, the outlook for both the American economy and Barack Obama’s presidency has dimmed. The jobs package he unveiled in a much anticipated speech before Congress on September 8th was a calculated attempt to resuscitate both. His “American Jobs Act” consists of a hefty $447 billion worth (roughly 3% of GDP) of new and renewed tax cuts and spending that, he hopes, will prevent a fiscal vice from pushing the economy into recession early next year. Its provisions were carefully chosen to stimulate job growth immediately while maximising the political price Republicans will pay to obstruct it.
A dismal employment picture precipitates competing remedies from the president and his challengers. But will any of them work?
Sep 10th 2011 | WASHINGTON, DC | from the print edition
BEN BERNANKE’S speech today in Minnesota cut and pasted the key sentence out of his Jackson Hole remarks: “the Federal Reserve has a range of tools…[and is] prepared to employ these tools as appropriate.” What does this mean? I’ll trust Neil Irwin and Jon Hilsenrath: they say the Fed will ease in September.
If they’re right then maybe the rest of this blog post is moot. Nonetheless, it’s worth revisiting a meaty and intriguing speech that Charlie Evans, president of the Chicago Fed, delivered yesterday. Mr Evans has emerged as a vocal dove and counterpoint to the Fed’s hawkish contingent. The task facing those like Mr Evans who want the Fed to do more is how to justify it. The Federal Reserve Act requires that it aim for both full employment and stable prices. But in both theory and practice, the inflation part of this mandate trumps the employment part. The Fed kicked off QE2 last year when deflation threatened. It hasn’t yet given us QE3 because deflation isn’t knocking on the door.
Mr Evans provides a theoretical argument why more vigorous monetary ease aimed explicitly at lowering unemployment is justifiable right now. There’s a lot about this speech that I love, in particular this observation: Read the rest of this entry »
Sep 6th 2011, 15:29 by G.I. | WASHINGTON
HOW much of our economic malaise can be blamed on regulatory uncertainty? Conservatives argue that a wave of Obama administration regulations and the threat of more to come are the primary hindrance to business confidence and hiring. Liberals say that the weak economy is far more important and that any regulations being enacted more than pay for themselves in economic terms.
I’ve been struggling with this question for months and have found the debate frustrating: the terminology is wrong and the subject poorly framed, the evidence fragmentary and unhelpful, and generalisations are rampant. So what follows are a few thoughts that I think clarify the debate, though without necessarily resolving it.
First, it is not “uncertainty” per se that bothers business. Read the rest of this entry »
Sep 2nd 2011, 15:04 by G.I. | WASHINGTON
IT’S hard to imagine a more toxic economic brew than what America had to swallow in August: stock prices plunged, Europe’s debt crisis deepened, Congress took America to the brink of default and Standard & Poor’s responded by cutting its credit rating. It should not surprise anyone that employers decided it was a lousy time to hire.
Even so, this morning’s numbers from the Labour Department were a shock. Non-farm payroll employment was exactly unchanged in August from July, and total employment was revised down by 57,000 over the previous two months. Read the rest of this entry »
The twins still watch their bottom line, to the economy’s detriment
Sep 3rd 2011 | WASHINGTON, DC | from the print edition
AS BARACK OBAMA casts around for ways to bolster the American economy, one area of focus is a still-moribund housing market. He could start by taking a closer look at Fannie Mae and Freddie Mac, America’s housing-finance giants.
When the two government-sponsored entities (GSEs) were listed companies, they acquired or stamped guarantees on millions of loans that in retrospect were far too risky. Those bad loans drove them to the brink of collapse in 2008, forcing their regulator to take them over. The Treasury has since injected some $140 billion into them to keep them solvent. That matters. In the first half of this year the two guaranteed roughly 70% of all new loans. They have also helped 1.7m homeowners through loan modifications and other measures. Yet although the GSEs are ostensibly government-controlled, they still try to maximise profits and minimise losses.
The entire article is linked here.