Archive for the ‘The Economist’ Category
President and speaker draw near to a deficit deal
Dec 22nd 2012 | WASHINGTON, DC | from the print edition
[By Greg Ip] THE housing market has turned, Europe’s crisis is apparently in remission and the Federal Reserve has pressed its monetary accelerator to the floor. Yet as 2012 draws to a close, America’s economy is still growing at an annualised rate of only around 1%. That figure has been depressed by fears of the self-inflicted “fiscal cliff”: a package of tax increases and spending cuts, worth 5% of GDP in a full year, that is set to kick in on January 2nd.
That constraint may also be finally lifting. Read the rest of this entry »
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 »
Politicians love postponing problems. America’s budget is a rare case where it makes sense to do so, briefly
Jun 16th 2012 | from the print edition
WHEN quarrelling politicians got into a deadlock in 2010 and again last year over how to close America’s gaping budget deficit, they picked the easy way out. They applied temporary patches that would expire after this November’s presidential and congressional elections.
For the political parties, this made sense. Then as now, they seemed incapable of compromise. Democrats were hostile to spending cuts; Republicans as fond of tax increases as they were of flag-burning. Rather than moderate their views, both sides preferred to fight it out during an election campaign.
For the country, however, the strategy has been costly. The temporary patches postponed a premature fiscal tightening, but created a fiscal “cliff” at the end of this year. It included the reimposition of the taxes that George W. Bush cut, an increase (in effect) in payroll taxes and a string of across-the-board spending cuts (“sequesters”). You do not have to be Sherlock Holmes to see that wrestling on a cliff-edge is dangerous.
Altogether America is set to see a fiscal tightening equivalent to some 5% of GDP. That is easily enough to tip the economy, which is expected to grow by 2.2% this year, back into recession. Around the same time, the Treasury’s legal authority to keep borrowing more will run out. The last time Congress squabbled over raising this “debt ceiling”, one credit-rating agency stripped America of its precious AAA rating, spooking the markets. With the euro wobbling and emerging markets slowing, businesses are fearful. The cliff adds another huge uncertainty, discouraging companies from investing or hiring until they can see the future more clearly (see article).
Numerous Republicans, Democrats and this newspaper have repeatedly argued that the solution is a grand bargain that raises taxes, preferably through base-broadening reform, and curbs the growth of entitlements (ie, public spending on health care and pensions). This is also the formula that Barack Obama and John Boehner, the leading Republican in the House of Representatives, toyed with last year, before the deal fell apart.
Time to buy time
The best solution by far would be to agree on some version of this grand bargain sooner rather than later. Read the rest of this entry »
America’s economy is growing at an unimpressive rate. It may not be able to go much faster
May 26th 2012 | from the print edition
[Greg Ip] WHEN the American economy emerged from recession three years ago, forecasters fell into two broad camps. Optimists reckoned brisk growth would quickly return the economy to its long-term potential level of output, the maximum sustainable GDP that could be achieved with the capital and labour on hand. That would pull down unemployment and prop up inflation. Pessimists, however, predicted sluggish growth, persistently high unemployment and inflation that would slip ever lower as a result of unused capacity in the economy.
What has actually happened since then has been a mixture of the two. Unemployment and inflation have moved in the directions that optimists expected. Since peaking at 10% in late 2009, the jobless rate has now fallen by nearly two percentage points. Core inflation, which excludes food and energy, dipped below 1% in 2010 but is now above 2%. Yet economic growth has averaged 2.5%, a rate more typical of the economy at full employment rather than when recovering from a deep bust.
Economists advance several explanations for this dichotomy. The drop in unemployment may simply be mechanical, a snapback after employers fired workers too indiscriminately during the recession. Inflation has been underpinned by the indirect effects of higher commodity prices, rising rents and the influence of stable inflation expectations on prices and wages. Optimists say that GDP may be revised up later.
As trade deals head towards approval, a backlash grows against China
Oct 8th 2011 | WASHINGTON, DC | from the print edition
Could the Federal Reserve lower unemployment by revamping its goals?
Sep 17th 2011 | from the print edition
The entire article is linked here.
Sep 2nd 2011, 15:04 by G.I. | WASHINGTON
IT’S hard to imagine a more toxic economic brew than what America had to swallow in August: stock prices plunged, Europe’s debt crisis deepened, Congress took America to the brink of default and Standard & Poor’s responded by cutting its credit rating. It should not surprise anyone that employers decided it was a lousy time to hire.
Even so, this morning’s numbers from the Labour Department were a shock. Non-farm payroll employment was exactly unchanged in August from July, and total employment was revised down by 57,000 over the previous two months. Read the rest of this entry »