Greg Ip

America’s debt crisis will be chronic, not acute

Illustration by Belle Mellor

[Greg Ip] AS AMERICA’S financial crisis recedes, the rumblings of its next crisis can be heard. The federal government has wrapped its guarantees around banks and the housing market. It has borrowed hundreds of billions of dollars to stimulate the enfeebled economy, while tax revenues crumble. And in the years to come the cost of retirees’ benefits will explode. “There is every reason to worry that the banking crisis has simply morphed into a long-term government-debt crisis,” says Kenneth Rogoff of Harvard University.

But what kind would it be: acute or chronic? Read the rest of this entry »

Smaller nest-eggs enhance a long-term trend to later retirement

[Greg Ip] IN TERMS of output, America’s recession may be showing signs of ending; but it retains its painful grip on the labour market. Non-farm employment fell in August by the smallest amount in a year in absolute terms (though by a still-horrid 216,000); but the unemployment rate nevertheless rose, to 9.7%. That is up almost five percentage points since the recession began in December 2007.

One group, however, is so far looking a bit less gloomy. The number of people aged 55 and over who are in work has climbed almost 4%, or by nearly 1m, since the recession started, even as employment of young and middle-aged workers has fallen sharply (see chart). Read the rest of this entry »

The original article is linked here.

GREG IP plus another Economist correspondent

The economy may be pulling out of recession but unemployment is still surprisingly high. Celebrations should be delayed

Illustration by S. Kambayashi

WHEN Barack Obama visited Elkhart, Indiana, in early February, a few weeks after his inauguration, it was a sombre affair. In the previous 12 months the area’s unemployment rate had more than tripled to 18.3 %. The president pleaded for the passage of a massive fiscal stimulus, insisting that “doing nothing is not an option.” By the time he returned to Elkhart on August 5th he was quite a bit sunnier. Local factories are “coming back to life”, he proclaimed. A few days earlier he had declared the economy to have done “measurably better” than expected.

Mr Obama’s good spirits are well grounded: America’s recession appears to be coming to an end. Read the rest of this entry »

The original article is linked here.

By Greg Ip

Can America wean itself off consumption? The first of a series on how the world’s four biggest economies must change to ensure sustainable global growth

GENERAL ELECTRIC has historically been a manufacturer, but in the long boom leading up to the financial crisis it became more like a bank. Half its profit came from its finance arm, GE Capital, which among other things had a lucrative business issuing mortgages and credit cards to American consumers. GE’s chief executive, Jeffrey Immelt, now talks like a man chastened. With GE Capital acting as a drag on the company, he vows that in the future finance will be a smaller part of the company. In its place GE touts its manufacturing and exporting prowess. Mr Immelt boasts of record aircraft engine orders at the Paris Air Show in June, none of them to American airlines.

Like GE, the entire American economy is at an inflection point. For decades, its growth has been led by consumer spending. Read the rest of this entry »

The original article is linked here.

The economy and employment

On the turn?

The gloom about jobs is overdone, but the outlook remains tenuous

AFTER ebbing steadily since the start of the year America’s monthly job losses figure abruptly jumped from 322,000 in May to 467,000 in June, deflating talk of an imminent exit from recession. Hand-wringing in Washington quickly followed. Read the rest of this entry »

The original article is linked here.

Economics focus

Put out

Uncertainty over the size of the output gap complicates the task of central banks

HAVING raised the alarm on deflation, the Federal Reserve has now begun to sound the all clear. The statement it released after its policy meeting on June 24th notably omitted the warning from its three prior meetings that “inflation could persist for a time below rates that best foster economic growth and price stability”. To be sure, with the economy gradually finding a bottom and the rate of decline in home prices slowing, the chances of a downward spiral of deflation and economic activity have diminished. Yet it seems premature to write off the threat as long as a large output gap persists. Read the rest of this entry »

The original story is available here.

In his zeal to fix capitalism, Barack Obama must not stifle America’s dynamism

Illustration by KAL

DEFENDING American capitalism these days is a thankless job. Reckless lending by American financiers produced a crisis that has pushed the world into its worst recession since the 1930s. Tales of greed and fraud during the boom years abound.

Small wonder that although Americans still prefer their government neat and local, they are a little less hostile to federal activism these days (see article). Such sentiments, last November, helped propel Barack Obama into the White House and his Democratic Party to bigger majorities in both houses of Congress. As Rahm Emanuel, the president’s chief of staff, says, Mr Obama does not want to waste this crisis. He is using it to create a bigger role for government throughout the economy, from education and health care to banking and energy.

He, and Congress, risk overreaching. Read the rest of this entry »

The original article is available here.

Americans have grown slightly more receptive to the idea of an activist government. Will they go along with Barack Obama’s aspirations?

Alamy

THE demonstrators thronging the steps of the war memorial in central Indianapolis are a small but spirited bunch. Steps away from the head office of one of the country’s biggest health-insurance companies, they chant slogans calling for a single government-run health plan and wave signs with slogans like “One plan one nation” and “Patients not profits”. One cheekily advises: “Accept personal responsibility. Do your own colonoscopy”. After pursuing their cause for years, advocates of universal health care got a jolt of energy when Barack Obama took office. “Something happened in January that changed our cultural story for ever,” a folk singer tells the crowd before launching into a song, “If not now, tell me when.”

Across the street, an argument breaks out. Dennis Majewski, a public-defence lawyer, agrees with the protesters. “We’ll never rebound until we have national health-care insurance.” But should the government look after “a known druggie whose drug habit gets him to the point he is seriously ill?” queries his cousin, Tom Majewski, a retired executive. Well, yes, says Dennis: “That person has a serious illness.” Tom shoots back: “But it’s a choice!”

The debate in Indianapolis is a microcosm of a broader re-examination by Americans of government’s role in the economy. Read the rest of this entry »

The original story is linked here.

May 14th 2009 | WASHINGTON, DC
From The Economist print edition
The real battle, over health care, is just beginning

THE first hundred days were busy, Barack Obama noted, but the pace would be just as hectic in the second hundred: they would be spent building “a library dedicated to my first hundred days”. The president delivered the joke at the White House press corps’ annual shindig, but it makes an apt metaphor for the past week. He and his officials have released a blizzard of tax and health-care proposals that largely repackage, or add detail to, the ambitious draft budget he released in February. Read the rest of this entry »

The original story is linked here.

Consumer spending may have hit bottom, but America’s mountain of debt means the climb back up will be slow and painful

Illustration by Peter Schrank

CONFLICTING news this week from California, one of the centres of the housing bust. Just north of Los Angeles, a Texas bank was tearing down a half-built development of luxury houses that had fallen into its hands. With the market for flashy homes dead, the bank reckoned it made more financial sense to destroy them than to complete them.

Farther south, Jeffrey Mezger, boss of KB Home, a well-known LA-based home builder, was calling a bottom to his segment of the housing market. But KB Home’s secret, he said, was to sell custom-built homes that were smaller and cheaper than before, and priced to compete with a flood of cut-rate foreclosure properties. “Homes must change with the times,” he believes. Read the rest of this entry »