Econ 2009

[cheesehead]

"Justifying His Fiscal Policies, Obama Borrows From the G.O.P."

http://www.nytimes.com/2009/05/01/us...get.html?fta=y
(registration required)

Originally Posted by Jackie Calmes

For 30 years, Republicans have held as an article of faith that tax cuts spur the economy and generate more revenue. “Deficits don’t matter,” as former Vice President Dick Cheney said. Now President Obama is adapting Republican arguments to his own agenda — only substituting spending for tax cuts.

. . .

Obama advisers acknowledge a similarity between the president’s economic justification for spending and supply-siders’ rationale for tax cuts. But they say Mr. Obama would never go so far as Republicans who claim that tax cuts pay for themselves. ...

[ewmayer]

Originally Posted by cheesehead

"Justifying His Fiscal Policies, Obama Borrows From the G.O.P."

I got no problem with trying to stimulate some parts of the economy that could and should produce real viable, strategic parts of the economy moving forward - e.g. Green tech. But throwing monstrous sums of money in all directions at make-work projects (which in many cases will hinder real recovery by making labor artificially expensive - why should I work for $15 an hour for a private contractor when I can get $25 an hour patching potholes over and over again as part of the government-sponsored Remake America's Roads project) and propping up corporations which should be allowed to fail - especially in the banking sector, that I have a problem with. To top it off, Obama went out of his way to appease the same Republicans by retaining some of the Bush-era tax cuts for the wealthy.

But back to the Republicans - if they merely merely misguided ideologues it would be one thing, but they apparently think being "pro-business" means actively encouraging corporate fraud:

SEC Under Chairman Cox Slowed Probes, Shrank Fines, Watchdog's Report Says: The U.S. Securities and Exchange Commission was plagued by internal conflicts before the regulator drew fire for missing Bernard Madoff’s $65 billion Ponzi scheme, a U.S. government watchdog said.

Under former SEC Chairman Christopher Cox, the agency instituted policies that slowed cases and led enforcement-unit lawyers to conclude commissioners opposed fining companies, the Government Accountability Office said in a report today. An unidentified attorney said it was “widely felt” commissioners prevented the division from “doing its job,” according to the report.

...When Cox became chairman in August 2005, he stepped into a partisan dispute among SEC commissioners over whether it was appropriate to sanction public companies for violating securities laws. Democratic commissioners argued that fines helped deter misconduct. Republicans countered that shareholders ultimately paid SEC penalties.

My Comment: Our dear Repugnican lawmakers apparently don`t feel that the hard "punishment deters crime" line they so like to take with petty and non-white-collar criminals should apply to corporate crooks - gosh guys, ya think maybe augmenting some of those SEC fines with actual jail time for the worst offenders might help deter such fraud, thus in the long run proving beneficial to shareholders? Oh wait, I`m being "anti-business" ... my sincerest apologies.


GM shareholders may get wiped out: General Motors Corp. Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union.

My Comment: I guess that`s one way to avoid bankruptcy ... rob Peter (shareholders) to pay Paul (Government, bondholders and UAW). This is the corporate analog of the "Behind Door #3" option for getting out of of debt detailed below.


Chart of the Day: This one is a doozy - total consumer credit since 1940. (Note this does not include mortgage debt, which is far larger still, but exhibits a distressingly similar historical profile.) Notice how the recent unprecedented (except for perhaps the 1920s, not pictured in the chart) ramping-up was at pretty much the same slope throughout both the Clinton and W. Bush presidencies. The key constant throughout both of those 8-year spans? None other than Mr. Alan "EZ Money" Greenspan. (In fact you can see the beginning of his reign in the ramp-up coming out of the 1982 recession - the sharp ramp-up that ensued only being broken by the early 1990s recession (which helped get Clinton elected) and at the extreme far right, the current downturn. That is a whole lot of debt hanging over Americans` heads. And there are only 3 things you can do to get out of debt:

1. Pay it down - Many Americans have begun doing just that. Now, roughly $20000 per consumer doesn't sound awfully daunting, but realize that a large fraction of those consumers are also carrying a massive load of mortgage debt (in many cases more than the value of the home it bought), and over a half-million per month are losing their jobs.

2. Default on it - Many Americans have been and will be doing just that, but that simply transfers the debt to the issuing creditor, many of whom are busy transferring it one step further up the food chain, to the U.S. government, i.e. the taxpayer. Alas, outright default is not a viable option for a country like the U.S. - besides the resulting banana-republic stigma, it would cripple our ability to engage in much future international trade and commerce, and result in sudden severe financial crises in both the public and private sector, which would require radical austerity measures on the part of both - the kind the IMF forces "banana republics" to undertake when they default on their debt. Luckily, the U.S. - thanks to the miracle that was the post-WW2 Bretton-Woods agreement - has rigged the debt game in its favor and thanks to the magic of its (these days electronic) printing press, has available to it a Third Way:

3. Inflate your way out if it by printing money - this amounts to a future tax on all your citizens whose money will get reduced in value as a result, but without the stigma of having to actually tell your citizens that you`ll be raising their taxes or having to get congress to authorize it. Ditto for issuance of more government debt, which at some point in the future must needs be monetized - it's just another variant of the E-printing-press scam. Sweet!

[ewmayer]

U.S. Loses 539,000 Jobs, Fewer Than Forecast, in Sign Economy Stabilizing: Payrolls in the U.S. shrank by the least since October last month as employers detected signs the worst of the recession had passed and government hiring stepped up for the country’s next census.

My Comment: And I thought job losses were *cumulative* ... Good thing gubbermint census hiring (i.e. creating non-productive one-time-only disposable jobs) made the numbers more lipsticky, and also that GM waited until May to announce it`s closing over 20,000 dealerships ... "thank you for making the April jobs report look 'less horrible than expected', GM! Here`s some more bailout money by way of thanks..."


Reeling states hit by April tax shortfalls: States struggle to close new shortfalls before fiscal years end in June. Too late for spending cuts, states must tap into reserves or federal stimulus funds.

Over the past two years, as the economy has weakened, states found their tax revenues were coming in below estimates. These shortfalls led to a cumulative budget gap exceeding $100 billion for fiscal year 2009, according to the National Conference of State Legislatures. As a result, states have had to slash spending on social programs and education, lay off or furlough state workers and raise fees and taxes -- some multiple times over the past year.

Federal stimulus money has helped soften some of the cuts, experts said. But the revenue shortfalls continue to widen.

The latest blow came from the April 15 income tax returns, which states are tallying now. The weak stock market has decimated capital gains tax revenue, upon which many states depend, experts said.

Already, several states have found revenues coming in well below estimates, prompting officials to scramble to close gaps. Massachusetts and Ohio, for instance, are facing new gaps that could exceed $900 million each. In other states, officials will huddle in coming days and issue new budget estimates.

In Massachusetts, April tax revenue came in $953 million, or 35%, less than a year ago. Officials had anticipated that revenue would fall, but it came in $456 million below their most recent estimate, made on April 15. The bulk of the shortfall came from a $905 million drop in income taxes.

My Comment: Gosh folks, maybe y`all should`ve added those niggling details about "massive capital losses for most investors in 2008" and "mass unemployment" into your tax-receipt forecasts. What, you though Bernanke`s "green shoots" were going to pay the bills?


Weeding the budget of $17 billion: Obama administration proposes cuts in funding for more than 100 federal programs in latest salvo in 2010 budget fight.

"There is a lot of money being spent inefficiently, ineffectively, and -- in some cases -- in ways that are actually pretty stunning," Obama said.

The $17 billion in savings amounts to roughly 0.5% of the more than $3.5 trillion in spending approved for next year, or 1.2% of the projected $1.4 trillion deficit next year if the president's overall budget is adopted.

Obama said it nevertheless is real money -- even by Washington standards.

"To put this in perspective, this is more than enough savings to pay for a $2,500 tuition tax credit for millions of students as well as a larger Pell Grant -- with enough money left over to pay for everything we do to protect the National Parks," he said.

My Comment: "To put this in perspective, this is about as much money as the government threw at AIG every fortnight since last Fall..." does Obama think we`re really that stupid, that this negligible "budget cutting" (much of which is merely shifting money around, not actual cutting) is going to make any kind of sizable dent in the gigantic budget hole the folks in Washington are busy digging? "Look honey - I lost a year`s worth of salary in Vegas over the weekend, but saved $2 at the coffee shop today by reusing my cup! Damn, I`m fiscally responsible!"


Former IMF chief economist Simon Johnson and his partner Peter Boone in running the global-economic website http://baselinescenario.com/ have a nice op-ed piece today which examines whether the U.S. and Europe are turning Japanese:

The current rally in stocks marks one clear success -- the fear of a systemic collapse due to loss of confidence in our financial system has subsided. This is good news, and an important achievement of President Obama's team.

However, our "turning Japanese" phase may just have begun. The stress tests that were just completed do not mark the renewed health of our banking system. We still have 22 percent of Americans with houses worth less than their mortgages, and there are parallel problems for commercial property and other sectors.

Many bankruptcies are yet to come. Most publicly traded large homebuilders are deep in debt, yet they are burning cash and waiting to see if -- magically -- the two-year stock of unsold housing can somehow disappear.

We've barely begun to downsize our auto industry, and the parts suppliers and dealers that go along with it, to reflect the lower level of consumer spending and scarcer availability of credit for the future. All of this is also true across much of Europe.

In essence, Europe and the United States both are saddled with zombie banks (which don't really lend), zombie corporations (which don't grow), and a decline in the relative size of the working population (as more people try to retire). This "Japanese" scenario can persist for many years.

The biggest risk now is that the Federal Reserve and the Treasury try to re-leverage our way out of a Japanese-style prolonged recession by flooding the economy with cheap credit -- like they did in 2002, but to an even greater degree.

Cheap government finance for powerful banks is a great cocktail for re-election; running stress tests that weren't really stressful is a good indication this is where policy is heading.

This time the money won't come from consumers (or from China, as it did after 2002); it will be American and European central banks providing funds and our governments running massive budget deficits.

If this is the strategy, the next crisis will be even more traumatic. Budget deficits over 10 percent of Gross Domestic Product and trillions of dollars of new loans to the banks from the Federal Reserve are recipes for hyperinflation and, if the Fed and Treasury don't pull away the punch bowl soon, sharply increasing inflation is very much in the cards.

My Comment: I added a link to Mish`s review of the "stress tests" in the above quote. I like Mish's proposed "real stress test" scenario:

Since Bernanke is willing to brag “The examiners found that nearly all the banks that were evaluated have enough Tier 1 capital to absorb the higher losses envisioned under the hypothetical adverse scenario.”, I say prove it by canceling the fraudulent Public Private Investment Plan (PPIP) taxpayer ripoff.

[AES]

http://www.ft.com/cms/s/0/158f174a-3...44feabdc0.html

[...]
The granddaddy of all bear markets, 1929 –1932, had six false alarms with an average gain of 47 per cent. And Japan’s ongoing bear saw the Nikkei rise by at least a third four times in its first four years with 10 more false dawns since then.

[...]

For what it is worth, the US market’s best-informed participants do not find valuations compelling. April saw the lowest level of insider buying (by people associated with the company) ever recorded by research firm TrimTabs with insider selling 14 times as high. Likewise, companies sold 64 per cent more shares than they bought in April.

This last point though may be a contrarian indicator of a true bull market. Corporate America hardly displayed prescience prior to the bust, after all.

[Fusion_power]

The single biggest economic slam pending is the bankruptcy of GM. Chrysler already has bitten the bullet, now it is GM's turn. From an economic perspective, it is not a matter of GM avoiding bankruptcy, it is just a matter of when. All the indicators point toward a filing in the first week of June.

The major ramifications of bankruptcy include:

1. Union benefits and wages will be cut by court order.
2. GM will shed the boondoggle retirement plan.
3. Insurance benefits will be cut
4. layoff benefits will be cut closer to normal ranges.
5. 2/5 of all dealerships will close.
6. parts suppliers will be forced into bankruptcy.
7. major brands Pontiac, Saturn, Hummer, and GMC will go the way of Oldsmobile.
8. They will keep 3 major brands including Chevrolet, Buick, and Cadillac.
9. The GMC brand will stay around but only as they apply it to alternative fuel vehicles.
10. Market ripples will be felt throughout North America as plants are closed.
11. Taxpayers will be left with about $100 Billion in pension, benefit, and company loan obligations. Can you say RIPPED OFF?
12. The legal wrangling will go on for the next 10 to 20 years.



I'm not sure there is a good part other than giving the company a chance to survive and eventually recover.

DarJones

[ewmayer]

Originally Posted by Fusion_power

The single biggest economic slam pending is the bankruptcy of GM. Chrysler already has bitten the bullet, now it is GM's turn. From an economic perspective, it is not a matter of GM avoiding bankruptcy, it is just a matter of when. All the indicators point toward a filing in the first week of June.

Yep, I think Chrysler was just a warm-up for the Obma administration - by forcing Chrysler's senior bondholders to take huge haircuts (via a combination of behind-the-scenes armtwisting and vilification in the press) they are sending a clear signal to GM's creditors, perhaps figuring that if they can extract bankruptcy-style concessions on the part of GM creditors but avoiding an actual bankruptcy process (a GM BK would make Chrysler's look like a walk in the park, partly due to the size differential and partly because of GM's huge and systemically-risky GMAC finance arm) that's the best of both worlds.

The other big slam, though, is the ongoing implosion of many state budgets, most notably that of California. CA's state assembly kicked the crisis can down the road a couple months by passing a "budget" which put all the really hard choices on the plate of the voters in the upcoming May 19th special election, but 5 of the 6 budget-hole-closing measures on the ballot are trailing badly in the polls, and the media scare campaign being run to try to drum up support for the initiatives seems to be ineffective. This could be one version of the taxpayer revolts many have been predicting.

[only_human]

Originally Posted by ewmayer

The other big slam, though, is the ongoing implosion of many state budgets, most notably that of California. CA's state assembly kicked the crisis can down the road a couple months by passing a "budget" which put all the really hard choices on the plate of the voters in the upcoming May 19th special election, but 5 of the 6 budget-hole-closing measures on the ballot are trailing badly in the polls, and the media scare campaign being run to try to drum up support for the initiatives seems to be ineffective. This could be one version of the taxpayer revolts many have been predicting.

I, as one Californian, have little sympathy for the state's budget problems and don't feel like carrying their water this coming election. Too many times there have been budget items like buying Librarians cars for me to feel like they can or will control their spending.

[Uncwilly]

Originally Posted by only_human

I, as one Californian, have little sympathy for the state's budget problems and don't feel like carrying their water this coming election. Too many times there have been budget items like buying Librarians cars for me to feel like they can or will control their spending.

What about the poor schmucks that have to do with 1/2 staff and meet regulatory requirements. People who work for the government because they desire to do the civic minded work that only is done by the government. Not back-filling positions because of budget reasons, but facing fines that would pay for some of the positions is the crazy stituation that some agnecies are facing. Or, declining to pressure a surplus senior manager to retire with full pay, and instead streeting 3 laborers that are getting the physical work done.

There are plenty of quality civil servants that are not taking their vacation days, because the work has to get done, much less unpaid furlough days.

Just because you have seen a few stinking rotten apples, are you willing to throw out the baby with the bath water? I hope that you can only get a day off when the dmv is shut down. Or you try to get planning approval, pull a building permit, get inspections, and power hook-up from an under staffed government. Stimulas monies are going to police and fire, but schools are laying off the young and otherwise enthused teachers (so they will head off to other careers, or maybe the green pastures of high quality prep/private schools, thus draining skill from the public system). Trash collectors and waste water workers are not getting protected the same way the other public health and safety workers are. FAA doesn't want to staff up too much with controllers before the old ones retire (because of budget issues), hope you don't want to fly.
Hope you don't drive through a municipality that has problems with street light/lighting workers, or street paving crews.

Or want your child to go to a state university, those lazy government professors. Or know someone that will wind up at an under funded county run emergceny hospital.

[only_human]

I may have struck a nerve, and I apologize for that.
From just about anyone's point of view, the system is broken.

Or, declining to pressure a surplus senior manager to retire with full pay, and instead streeting 3 laborers that are getting the physical work done.

That problem won't be fixed by providing more money. This is part of the problem that kills my desire to pay more into a system that has priorities like that.

Stimulas monies are going to police and fire, but schools are laying off the young and otherwise enthused teachers (so they will head off to other careers, or maybe the green pastures of high quality prep/private schools, thus draining skill from the public system).

Apparently, bad teachers can't fired unless they get caught in some sexual scandal. We seem to have plenty of time to chase sexual scandals but otherwise disregard who is actually doing their jobs. Again, hard to want to fund.

Trash collectors and waste water workers are not getting protected the same way the other public health and safety workers are.

Why? Must we raise the tide of money until we lift all boats or can we break the damn thing and then fix it?

[only_human]

...
Or how about this lovely chestnut?
U.S. threatens to rescind stimulus money over wage cuts Because the state government cut unionized home healthcare workers pay from maximum of $12.10 per hour to a maximum of $10.10 in order to save a mere 74 million, California's $6.8 billion in stimulus money is at risk. And just try to get the two-thirds vote in Legislature (including contentious Republican votes) to reverse it before it goes into effect on July 1st. Fat chance.

I hope that you can only get a day off when the dmv is shut down.

As for my last trip to the DMV, it should have been unnecessary. It was for a vision test and a new photo. AAA does not take photos in their DMV services, as I would have gladly done it there if they provided it. The vision test should have been unnecessary in this day and age because I have had two optometry visits in the last three years and two glasses prescriptions filled. Maybe when pressed they will find some way to request that data be shared (with my very easily given acceptance) and the entire trip could have been avoided. Another thing, the DMV is selling vehicle history data to businesses like Carfax. This data is provided by other states without charge. By forcing people to pay a third party, the consumer isn't being served. Carfax isn't the the party that the DMV should be serving.

[Uncwilly]

Originally Posted by only_human

That problem won't be fixed by providing more money. This is part of the problem that kills my desire to pay more into a system that has priorities like that.

I should have said at "nominal full pay" retirement level, where it makes no difference if one comes in to work or retires. No extra money is spent to pay them, unless a small incentive to retire.

Apparently, bad teachers can't fired unless they get caught in some sexual scandal. We seem to have plenty of time to chase sexual scandals but otherwise disregard who is actually doing their jobs. Again, hard to want to fund.

You missed the point. Because of depressed revenues, school districts are trimming staff to make ends meet. Teachers that don't yet have tenure (those that are generally under 2 years in) can be furloughed much easier. They often don't have the cash reserves that an older person would, therefore they need to get a new job sooner (to live and pay-off student loans).

Why? Must we raise the tide of money until we lift all boats or can we break the damn thing and then fix it?

You missed the point again. Police and fire are the sexy parts of public health and safety, those that provide for a sanitary society are not, they don't have the same fear factor available to them (if we aren't funded crime will increase / houses will burn). Those that keep society well by dealing with the disposal of disease causing waste, is an unsexy job, even bus drivers are better thought of (Ralph Kramden vs. Ed Norton). But, those that have had sewage spills into their streets, or trash pilled up in the streets, can tell you, those jobs are important (but no one notices when all is going well).

The politcally powerful do what they will, those on the lower levels will suffer. Sad but true.