Archive for November 2012
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 »
Nov 29th 2012, 21:37 by G.I. | WASHINGTON, D.C.
Regulators seek to shore up money-market funds against runs
Finding common ground on cutting spending
Nov 24th 2012 | WASHINGTON, DC | from the print edition
Barack Obama and Republicans grope towards common ground on taxes
Nov 17th 2012 | WASHINGTON, DC | from the print edition
Setting a cap on deductions is a better starting point than raising tax rates
Nov 17th 2012 | from the print edition
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 »
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 »
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 »
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.