Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for August 2012

Ben Bernanke in Jackson Hole: The road to QE3

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Aug 31st 2012, 21:00 by G.I. | WASHINGTON

[Greg Ip] IF THE Federal Reserve eases monetary policy again at its meeting on September 13th, as I expect, it will be its most meticulously debated, planned and scrutinised move in recent memory. The case for action has been apparent at least since the spring when it became clear the economy would underperform the Fed’s repeatedly lowered economic forecasts. Yet Ben Bernanke spent much of the press conference following the Fed’s meeting in June, when it extended Operation Twist (the purchase of long-term bonds financed by selling short-term bonds) on the defensive over why the Fed hadn’t done more. In August, it again chose not to pull the trigger. But it did release a statement that hinted the point was drawing near. The minutes to that meeting released three weeks later suggested it would take an immediate and powerful improvement in the economy to stay the Fed’s hand.

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August 31, 2012 at 8:01 pm

Barack Obama’s economic record: End-of-term report

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The president’s record is better than the woes of America’s economy suggests

Sep 1st 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] NOT since 1933 had an American president taken the oath of office in an economic climate as grim as it was when Barack Obama put his left hand on the Bible in January 2009. The banking system was near collapse, two big car manufacturers were sliding towards bankruptcy; and employment, the housing market and output were spiralling down.

Hemmed in by political constraints, presidents typically have only the slightest influence over the American economy. Mr Obama, like Franklin Roosevelt in 1933 and Ronald Reagan in 1981, would be an exception. Not only would his decisions be crucial to the recovery, but he also had a chance to shape the economy that emerged. As one adviser said, the crisis should not be allowed to go to waste.

Did Mr Obama blow it? Nearly four years later, voters seem to think so: approval of his economic management is near rock-bottom, the single-biggest obstacle to his re-election. This, however, is not a fair judgment on Mr Obama’s record, which must consider not just the results but the decisions he took, the alternatives on offer and the obstacles in his way. Seen in that light, the report card is better. His handling of the crisis and recession were impressive. Unfortunately, his efforts to reshape the economy have often misfired. And America’s public finances are in a dire state. Read the rest of this entry »

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August 31, 2012 at 12:51 pm

A Paul Ryan vice-presidency: America’s next prime minister?

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Aug 28th 2012, 23:08 by G.I. | TAMPA & WASHINGTON

[Greg Ip] Anyone who has watched the excitement among Republicans since Paul Ryan was picked as the vice-presidential nominee can’t help concluding that while Mitt Romney might be the Republican party’s candidate, Mr Ryan is its leader. This is more than just because of the power and appeal of his ideas. It’s also a reflection of the philosophy of governance he represents in Congress. If he brings that same philosophy to a Romney administration it could have profound effects on how America is governed.

Mr Ryan is regarded by both supporters and detractors as a man of substance (though they disagree vehemently on whether that substance is good or bad). You  wouldn’t know it from his 13 years as a legislator, in which he hasn’t done much legislating. He has sponsored 71 bills but only two have become law: one renaming a post office in his district, the other reducing the tax on arrow shafts. Read the rest of this entry »

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August 28, 2012 at 1:08 pm

Posted in Uncategorized

Fannie Mae and Freddie Mac: Back to black

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The Treasury squashes hopes that the agencies may ever be private again

Aug 25th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] SINCE 2008 Fannie Mae and Freddie Mac, America’s two housing-finance giants, have been on life support, spared from insolvency by an intravenous drip of taxpayer cash. Lately, however, the companies have shown signs of life: earlier this month both reported their biggest profits since being forced into “conservatorship” four years ago (see chart).

That has sent a frisson through investors clutching preferred shares issued back when the companies minted money by using their quasi-governmental status to borrow cheap and buy or guarantee most residential mortgages in America. Between March and early August, many of Fannie’s old preferred shares, which now trade over the counter, jumped from around $1.50 to more than $3 (still a fraction of their $25 par value).

Several factors explain the turn in the companies’ fortunes. Read the rest of this entry »

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August 23, 2012 at 8:47 pm

The fiscal clifflet: The forgotten fiscal threat

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Aug 22nd 2012, 23:18 by G.I. | WASHINGTON

[Greg Ip] THE Congressional Budget Office kindly reminded us today of what has been manifestly obvious for months. If all the tax increases and spending cuts now scheduled for year-end are allowed to occur, the economy will tank. Today, in an update to the economic outlook, it said:

The deficit will shrink [by] almost $500 billion … Such fiscal tightening will lead to economic conditions in 2013 that will probably be considered a recession, with real GDP declining by 0.5 percent between the fourth quarter of 2012 and the fourth quarter of 2013 and the unemployment rate rising to about 9 percent in the second half of calendar year 2013.

Actually, the recession would probably be worse. Given the inability of the Federal Reserve to meaningfully compensate, such a fiscal hit is liable to set off a self-reinforcing spiral of declining consumption and income, falling inflation and rising real interest rates.

However, the focus on the fiscal cliff is a bit of a distraction. Read the rest of this entry »

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August 22, 2012 at 12:58 pm

Posted in Fiscal policy

The housing market: Pulling its weight at last

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Investors help turn the housing market into a source of growth

Aug 4th 2012 | PHOENIX, ARIZONA | from the print edition

[Greg Ip]

STEVE SCHMITZ surveys the street outside his newly bought four-bedroom house and enthuses over what he sees. Stucco houses with tidy gardens, just like his, line the road. A minivan is parked outside one, an SUV sits in the driveway of another. An elementary school is just a few blocks away. It is as idyllic as a new homeowner could wish in this western suburb of Phoenix.

Mr Schmitz, however, is no ordinary homeowner. The house is just one of more than 1,000 which his company, American Residential Properties, has acquired since 2008 in Phoenix, Las Vegas and California. ARP bought the house for roughly half its peak selling price of more than $300,000 in a “short sale”: in essence, a sale forced on the owner to avoid foreclosure. After carpet cleaning and repainting it was quickly rented for $1,300 a month, about half what the original owner had been paying for a mortgage.

Mr Schmitz, however, is no ordinary homeowner. The house is just one of more than 1,000 which his company, American Residential Properties, has acquired since 2008 in Phoenix, Las Vegas and California. ARP bought the house for roughly half its peak selling price of more than $300,000 in a “short sale”: in essence, a sale forced on the owner to avoid foreclosure. After carpet cleaning and repainting it was quickly rented for $1,300 a month, about half what the original owner had been paying for a mortgage.

Investors like Mr Schmitz are an important part of why America’s long-suffering housing market may at last have turned the corner. Read the rest of this entry »

Written by gregip

August 2, 2012 at 4:13 pm

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