The economy: Looking better

Some risks, but less fear, as the second term gets under way

Jan 26th 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] WHEN Barack Obama took office four years ago, the economic figures were terrifying. A financial crisis and a savage recession were in full swing, and house foreclosures were soaring. As he was sworn in, panic about the banks sent the Dow Jones Industrial Average down more than 300 points. At the start of his second term, by contrast, the Dow hit a five-year high, while a widely followed index of investor fear called the VIX reached a near-six-year low (see table).

This change in mood is understandable. The financial crisis and recession ended more than three years ago. The housing market is firmly on the mend. Employment is growing. The euro zone, though feeble, is no longer about to collapse. And the threat of home-grown crisis appeared to recede when Republicans in the House forbore to use the threat of default to extract spending cuts. This week they voted to raise the Treasury’s statutory ceiling until May 18th; previously, the Treasury had expected to run out of borrowing authority as early as mid-February.

The Fed’s profits: The other side of QE

What happens when the Fed starts losing money

Jan 26th 2013 | Washington, DC |From the print edition

[Greg Ip] EVER since the Federal Reserve first started buying up financial assets back in 2008, some have fretted about taxpayer exposure. The private debt purchased by the Fed to prop up the financial system might sour. The government bonds it has bought with newly created money, a strategy dubbed “quantitative easing” (QE), could fall in value if interest rates rose.

The reality has been happier.

The next treasury secretary: Jack be nimble

A successor to Timothy Geithner in the economic hot seat

Jan 12th 2013 | WASHINGTON, DC | from the print edition

[Greg Ip] TREASURY secretaries are best picked to fit the circumstances. Barack Obama chose Timothy Geithner, a central banker and an experienced crisis manager, in late 2008 when the global financial system was in free fall. The crisis and recession are past; Mr Obama’s priority now is dealing with the deficit they left behind. And so, as The Economist went to press, he was expected to name a budget technocrat, Jack Lew, to succeed Mr Geithner.

Mr Lew is currently Mr Obama’s chief of staff and has spent most of his career dealing with budget issues, starting in 1979 as an aide to Tip O’Neill, then-Speaker of the House of Representatives. He ran the Office of Management and Budget for Bill Clinton from 1998 to 2001, and for Mr Obama from 2010 to 2012.

The treasury secretary is one of the most influential members of the cabinet and by default the administration’s economic spokesman. The portfolio spans currency relations with China and collecting taxes. There had been speculation Mr Obama would appoint an outsider, perhaps from Wall Street, to repair relations with business and with Republicans in Congress. Mr Lew, by contrast, is the consummate insider. The fiscal challenge he inherits is almost as daunting as the financial abyss that greeted Mr Geithner four years ago. America’s deficit, expected to be around 6% of GDP this year, should decline for a bit as the economy improves, but then head inexorably higher as the cost of entitlements such as Social Security (pensions), Medicare and Medicaid (health care for the elderly and poor) mount. 

The next fiscal fight: From cliff to ceiling

The debt ceiling in America serves no useful purpose and should be abolished

Jan 12th 2013 | from the print edition

AMERICA sidestepped one fiscal disaster at the turn of the year when Barack Obama and Congress agreed to keep most tax rates from rising. A much bigger one is as little as five weeks away, when the Treasury Department runs out of legal authority to borrow. Failure to raise the “debt ceiling”, Mr Obama has warned, would force the government to default on its obligations. Republicans say they need some sort of leverage to drag a spendthrift president to the negotiating table. They have a point, but the debt ceiling is a dangerous tool with which to make it.

The economics of the platinum coin option: Platinomics

Jan 9th 2013, 4:04 by G.I. | WASHINGTON, D.C.

In the many years I’ve spent scrutinizing monetary policy, I had never devoted more than a thought to coins. In the scheme of all things monetary, they seemed, well, pocket change.

Needless to say, the prospect of the Treasury issuing a $1 trillion platinum coin to circumvent the debt ceiling changes that. I won’t repeat the details; you can get up to speed by reading Matthew O’Brien of The Atlantic here and my colleague here. If nothing else, unpicking the consequences is a fun exercise. I’ve concluded the economics are more complicated and more benign than appreciated, but the political consequences are graver.

The Fiscal Cliff deal: Nothing to be proud of

Barack Obama wrings an 11th-hour deal on taxes from John Boehner and the Republicans, but accomplishes little else

Jan 5th 2013 | WASHINGTON, DC | from the print edition

[Greg Ip] THE deal to avert the fiscal cliff had not yet been sealed when Barack Obama allowed himself to gloat a little. “Last month, Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans,” he reminded a friendly White House audience on December 31st. Yet the deal would do just that, he declared. And they all applauded him.

The tax deal enacted this week, which leaves income-tax rates where they are for 99% of households while raising them sharply on the top 1%, was indeed a political victory for Mr Obama. For the first time in more than two decades Republicans had voted for higher taxes, by large numbers in both the Senate and the House of Representatives. The deal raised almost as much money from the rich as Mr Obama had first sought, and he made no meaningful concessions on spending in return.

It was less of a victory for the economy. It leaves in place significant short-term fiscal tightening, while doing almost nothing to arrest the escalating national debt in the long term. Mr Obama himself conceded that at the White House: “We still have deficits that have to be dealt with,” he said, surely his understatement of the year.