Greg Ip

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

Archive for November 2012

Free exchange: Savers’ lament

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The complex effects of low interest rates on consumption and investment

Dec 1st 2012 | from the print edition

[Greg Ip] WHEN interest rates hit double digits in the late 1970s, house-builders sent planks of wood to the Federal Reserve in protest. With rates stuck near zero, the protests now come from the opposite direction. The retired complain of a “war on savings”.

The Fed cut rates to current levels at the end of 2008 and has promised to keep them there until 2015. Since 2008, personal interest income has plunged 30%, or $432 billion at an annual rate, more than 4% of disposable income. David Einhorn, a hedge-fund manager, likens zero rates to an overdose of jam doughnuts: too much of a good thing. Raghuram Rajan, a former chief economist for the International Monetary Fund, describes the Fed’s policy as “expropriating responsible savers in favour of irresponsible banks”, and thinks it should raise rates modestly. Read the rest of this entry »

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November 29, 2012 at 5:55 pm

Posted in Uncategorized

Monetary policy, the unintended consequences: QE through the looking glass

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Nov 29th 2012, 21:37 by G.I. | WASHINGTON, D.C.

Even if you follow central banking, you may not have heard much about Jeremy Stein. He’s a highly regarded finance economist from Harvard University who became a governor this year, and since then he has given only one speech. But judging by the contents of that speech, Mr Stein’s profile seems bound to grow.

The subject of the speech was the Fed’s large scale asset purchases (LSAPs), colloquially known as quantitative easing (QE). It had none of the tantalizing hints about coming Fed actions that attract headlines. Rather, it mucked about in dark, abstruse corners of corporate finance, devoting three of its 19 pages to academic references. Read the rest of this entry »

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November 29, 2012 at 4:44 pm

Money-market funds: Running from the shadows

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Regulators seek to shore up money-market funds against runs

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November 24, 2012 at 2:11 pm

Posted in Uncategorized

The fiscal cliff: Getting down to brass tacks

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Finding common ground on cutting spending

Nov 24th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] IN THE negotiations to reduce America’s long-term deficit and to avoid the “fiscal cliff” of automatic tax increases and spending cuts at the year’s end, Republicans have so far done most of the retreating. But they still want something in return. Emerging from the first—and so far only— negotiating session with Barack Obama on November 16th, Mitch McConnell, the leader of the Republican minority in the Senate, said he was “prepared to put revenue on the table, provided we fix the real problem.” By that he meant entitlements, in particular the big three: Social Security, Medicare and Medicaid—pensions, and health care for the elderly and poor, respectively. On November 20th John Boehner, the Republican speaker of the House, demanded that Mr Obama’s health-care plan should also be on the table.Cutting these entitlements challenges Democratic orthodoxy almost as much as higher taxes challenges Republican. Read the rest of this entry »

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November 22, 2012 at 5:38 pm

Posted in Fiscal policy

Tax reform: Opening bids

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Barack Obama and Republicans grope towards common ground on taxes

Nov 17th 2012 | WASHINGTON, DC | from the print edition

 THE election dust had barely settled when Barack Obama and his Republican adversaries returned to their traditional rhetoric over taxes. “Raising tax rates is unacceptable,” John Boehner, the Speaker of the House of Representatives, declared on November 8th. The next day Mr Obama said “I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, making over $250,000, aren’t asked to pay a dime more in taxes.”Optimists, however, took note of what the men did not say: Mr Boehner did not rule out raising tax revenues. Mr Obama did not explicitly insist that the two top income tax rates, now 33% and 35%, return to 35% and 39.6%, as they are scheduled to do when George W. Bush’s tax cuts expire at the end of this year.

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November 15, 2012 at 5:51 pm

Posted in Uncategorized

America’s taxes: Higher taxes the easier way

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Setting a cap on deductions is a better starting point than raising tax rates

Nov 17th 2012 | from the print edition

[Greg Ip] AMERICA’S presidential election was supposed to be a head-clearing referendum on the size of government. It was not: voters split their vote, giving Barack Obama a second term and Republicans in the House of Representatives another big majority. Yet in one respect the election has clarified matters. Mr Obama has long argued that repairing America’s finances will require raising more tax as well as cutting spending. Influential Republicans, most importantly including John Boehner, the Speaker of the House, now appear to agree.This comes not a moment too soon. In less than two months America will reach a “fiscal cliff”, when George W. Bush’s tax cuts will expire and automatic spending cuts will take effect (seearticle). The economy could suffer a fiscal tightening of as much as 5% of GDP over a full year, easily enough to bring on recession. Read the rest of this entry »

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November 15, 2012 at 5:46 pm

How to solve the fiscal cliff: The Obamney tax plan

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Nov 8th 2012, 23:33 by G.I. | WASHINGTON, D.C.

This post has been updated.

PRESIDENTS choose their words carefully. So when Barack Obama talked of  “tax reform” but not “tax rates” in his acceptance speech early Wednesday, he was presumably sending a signal. And it was similarly significant that later that day John Boehner repeatedly stated his opposition to higher tax “rates” rather than tax revenue.

Within those two statements lies the nucleus of a deal: raising tax revenue through some means other than higher tax rates. Read the rest of this entry »

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November 8, 2012 at 8:02 pm

The budget deficit: To the cliff, and beyond

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Barack Obama and the Republicans have precious little time to act

Nov 10th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] A DAY after receiving a thumbs-up from voters, Barack Obama got a thumbs-down from the stockmarket, which fell 2%, its biggest fall in a year. Blame the threat of higher taxes on dividends and capital gains and tougher treatment of banks and fossil fuels, but blame also the sad fact that the election failed to resolve the biggest question hanging over the economy: how to deal with the deficit.

Mr Obama needs to come up with an answer, fast. Within two months some $700 billion of tax increases and spending cuts kick in (roughly 5% of GDP over a full year—see table). So much austerity so quickly would suffocate the recovery. But moving the cliff leaves the underlying problem intact: on current policies the deficit, 7% of GDP in the last fiscal year, will still be over 5% a decade from now, and the debt held by the public will climb from 73% of GDP to 90%. Read the rest of this entry »

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November 8, 2012 at 12:56 pm

The economy and the election: The macroeconomics mandate

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Nov 7th 2012, 14:19 by G.I. | WASHINGTON

HAD Barack Obama lost to Mitt Romney yesterday, the explanation would have barely taken up a sentence: the economy defeated him. Mr Romney’s mission from day one was simple. Pound home the message that Mr Obama took a bad economy and made it worse, and leave the facts to do the rest: unemployment stuck at around 8% and four straight years of trillion-dollar deficits.

That Mr Obama won is thus a victory not just for him personally but for macroeconomics. Read the rest of this entry »

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November 7, 2012 at 8:07 am

Posted in Uncategorized

Corporate savings: Dead money

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Cash has been piling up on companies’ balance-sheets since before the crisis

Nov 3rd 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] MONETARY stimulus gets you only so far. In America, third-quarter profits and revenues for companies in the S&P 500 index appear to have fallen year on year for the first time since 2009, according to Thomson Reuters. Profits for roughly half the firms in the European Stoxx 600 have fallen short of expectations so far.

Companies in search of a culprit may want to glance in the mirror. Firms are trimming their budgets for everything from technology-consulting services to semiconductor equipment in the face of what Sir Martin Sorrell of WPP, a British advertising and marketing giant, calls four “grey swans” (unlike black swans, people know about grey ones). The four worries unnerving business are: the euro-zone crisis; upheaval in the Middle East; a possible recession in China; and America’s economic health and “fiscal cliff”—the combination of tax increases and spending cuts scheduled to occur at the end of this year.

This is not a new problem. Read the rest of this entry »

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November 2, 2012 at 12:38 pm

Posted in Uncategorized


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