Relevant and even prescient commentary on news, politics and the economy.

Push Him! Push Him!

I was taking the day off, but this is the best news the Obama Administration could get right now.* Wonder how they’ll screw it up?

I second the (self-)nomination of Dr. Black, on condition he commit to bringing me on as Assistant Secretary of the Treasury for Financial Markets, which was held in its Glory Days by a former boss of mine.**

*It also stands as yet another reason for Republicans to delay any agreement on the debt ceiling, since he would likely be replaced by a Democrat.

**I, in turn, will promise to get my tax difficulties with NY State straightened out.*** Since the current T-Sec had much more recurrent and lasting issues, I don’t see this as a problem for confirmation, should such be required.

***They are the direct result on my current firm having accidentally, I presume, input my Social Security number into their system with “fat fingers.”

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Fifteen years ago this evening, my wife made the biggest mistake of her life. And she still hasn’t repented. But that doesn’t mean there might not be a little “buyer’s remorse“:

G-d help me, that was the best specific option I could find.* So let’s go instead with a standard:

*Really, folks, does no one celebrate fifteen years? The only other alternative I could find that specifically mentions “fifteen years of marriage” is even more depressing.

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These jokers have no idea what they’re doing

by Rebecca Wilder

What do you want to wager that the IMF’s a bit overly optimistic on the outlook for Greek nominal GDP?

Monday, June 27, 2011


These jokers have no idea what they’re doing.
The IMF has overshot the ex-post path of Greek nominal GDP in each and every one of their World Economic Outlook forecasts since April 2009. What do you want to wager that they’re wrong about 2011, too? And now they want more fiscal austerity…

The French are devising a plan to compel bondholers to rollover Greek debt by enhancing the bonds. The new bond rate would be equal to Greece’s current borrowing rate on the EU/IMF/EFSF programs plus a variable factor linked to ‘an indicator such as GDP’.
Just amazing.
Rebecca Wilder

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A few questions about Obama and Next Year’s Presidential Election

by Mike Kimel

A few questions about Obama and Next Year’s Presidential Election

Assume that Michelle Bachmann wins the Republican nomination next year and Obama wins re-election. Given Obama’s governing style (i.e., fold early, fold often), in what way will the outcome of Obama’s final five years in office (i.e., next year plus the second term) differ from the outcome GW would produce were he President? And how would the outcome be different if Michelle Bachmann wins the Presidential election?

Assume that Mitt Romney wins the Republican nomination next year and Obama wins re-election. Given Obama’s governing style (i.e., fold early, fold often), in what way will the outcome of Obama’s final five years in office (i.e., next year plus the second term) differ from the outcome GW would produce were he President? And how would the outcome be different if Mitt Romney wins the Presidential election?

Assume that Mitt Romney of the year 2000 wins the Republican nomination next year and Obama wins re-election. Given Obama’s governing style (i.e., fold early, fold often), in what way will the outcome of Obama’s final five years in office (i.e., next year plus the second term) differ from the outcome GW would produce were he President? And how would the outcome be different if Mitt Romney of the year 2000 wins the Presidential election?

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A Billion Here, A Billion There…

This is why Andrew Leonard (h/t Yves Smith) gets paid for blogging and I don’t. He tries to do the impossible: make sense out of Michelle Bachmann’s “economics“:

1) The interest can easily be paid for …

Bachmann is making the argument here that the U.S. can choose to pay its creditors — the various holders of government-issued debt — first, and thus not technically be in default. It’s an open question whether credit rating agencies and bond investors will accept that technicality. China might get paid in full, but millions of Americans would immediate get stiffed. Of course, Bachmann doesn’t mention that choosing such a strategy would require extraordinarily severe and immediate spending cuts — around $4.5 billion a day — in programs such as Social Security, Medicare, defense, unemployment benefits, et cetera. Economists generally agree — the negative economic impacts of such drastic short-term cuts in government spending would almost surely drive the U.S. straight back into recession.

Furthermore, a failure to reach agreement on the debt limit would guarantee bond market jitters, pushing up interest rates and raising the cost at which the U.S. government can borrow funds — and thus end up increasing the deficit.

So what happened today? There was a seven-year Treasury auction:

Today the 7 yr saw a yield of 2.43%, 3 bps above the when issued

The WI is where that same note was trading even as it was being auctioned. Which works out to be about a 19.2 cent reduction per $100 of security.

19.2 cents doesn’t sound like much, but there was almost $30 Billion in securities issued. So that’s $55,642,171
that didn’t get paid to the U.S. Treasury (or $57,433,536 if you’re counting the Open Market Activities).

Even if you want to be generous and assume—it’s crazy optimistic, but let’s be really generous—that half a basis point of that is just a long tail (not entirely unreasonable, but rather generous), there are still $46,376,844 (or $47,869,918) that just got left on the table out of fear of near-term deficit issues.

Not incidentally, that’s $46-57+ million dollars that isn’t available for maneuvering to avoid an official default (as opposed to the practical default that has been in effect for almost two months now). From just one of the nearly 300 auctions that are held every year.

But not raising the debt ceiling won’t mean anything. Michelle Bachmann assures us that just because Social Security/Disability/Medicare etc. payments won’t be made for August 3rd, it’s not a problem.

Sooner or later, we’ll be talking about really money. Right now, it’s just your mother’s livelihood. But at least that money has been saved by those who are investing in seven-year Treasuries. Maybe they’ll loan her some of that savings. Oh, right:

At least we know where they got the money to buy the notes.

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Mark Thoma Has Become a Fiery, Liberal Spirit

Mark Thoma joins Dr. Black, putting him one-up on some Liberal Bloggers Who Should Know Better.* Thoma:

1. You have to make the Republicans pay in terms of eroded public support before they will agree to cooperate at all. The president in particular has not played a long-run strategy, the Republicans have, and the results reflect this.
2. “Let’s agree that what matters isn’t how many jobs you ‘get caught trying’ to create.” Why should I agree to take as given the point being debated here? When we need jobs as bad as we do right now, making it clear the other side is standing in the way of that goal, and fighting for the policies you’d like to enact has more value than it did in the past.

3. To me, this is about leaders and followers, and the administration is not the one leading policy right now.

4. The other side is not shy about going public, and that was also true when they controlled the White House. If this advice is correct, why didn’t it hurt Republicans when they were in power?

5. Yes, jobs at election time would be best. But if the other side is pushing policies that work against that goal so that it is unlikely to be attained…making that clear to the public would hurt. [slightly edited; emphases mine]

As Yves said, can Ezra Klein should stick to being (slightly less but still) wrong about health care?

At this point, the list of Obama Administration Unforced Errors—Summers, Geithner, John Walsh, lack of nominations, etc.; see here—is so long I would be willing to swear they put a one-armed man on the tennis court.

UPDATE: Contrast the Obama Administration statements (and lack of same) with today’s Press Release from CGI America:

Today, President Bill Clinton opened CGI America, hosting a plenary session on job creation and announcing new programs that will help foster economic growth in the U.S.

Speaking to more than 700 leaders from businesses, nonprofits, and government at the opening session, President Clinton announced three “Commitments to Action” that will be implemented by CGI America participants. These commitments, presented by Kiva, Visa, Onshore Technology Services, and the AFL-CIO, will expand access to microfinance, train workers, and fund infrastructure development.

“When these commitments are fully funded and implemented, 140,000 people will receive access to job training, 1,000 information technology jobs will be created in rural America, and $3.5 million will be loaned to small businesses in the U.S.,” President Clinton said. “Initiatives like these prove that organizations and individuals around the country have the power to take action to spur economic growth.”

CGI America is the first Clinton Global Initiative (CGI) meeting focused exclusively on the U.S. The purpose of the event is to develop new ideas for spurring economic growth and to highlight existing programs that can be replicated and scaled.

Can’t anyone in the current Administration—Tim Geithner is attending CGI America—understand that Bully Pulpits are Meant to Be Used? The last Democratic Administration did.

*I should be fair to Bernstein, but he perpetuates the horse droppings about “people want to see spending cuts and see them they will.” The unemployed innumerate vote, sometimes, and they’re not going to cheerfully vote for someone who keeps them unemployed by doing what they said they want. That’s not leadership, as David Frum (whose ex-boss knew even less about leadership than BarryO does) noted.**

**Frum’s claim that Obama is not imaginative enough is clearly bollocks, and his toughness (as distinct from his determination) should be unquestionable too. But “not determined enough” has rung true since his Senate days, and the bad Gerald Ford imitation is wearing thin even with those who were originally nostalgic.

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I want spending, I want spending, I WANT SPENDING!

By: Daniel Becker
There is some new information from Adam Hersh of Center for American Progress showing what has happened in the states that have followed the conservative economic approach (yes, talking to you Obama, DLC, Clintonites).  Keep cutting at your own risk.

Here’s the thing.  Like the Wile E Coyote, we seem to have run off the cliff.  Our feet are still moving like we are running because we have not noticed we are off the cliff.   Or I should say those in the lofty parts of our power house and economy have not noticed.   Now, in cartoons, sometimes the charater makes the realization and can scramble back to safety at the edge of the cliff.  However,  Wile E never did get it and always fell.

I’m not interested in being taken down by Senator, Represenative, President, Chairman Wile E Coyote.  No thank you.  I know we’re off the cliff as do the vast majority of not only the USA but it seems the rest of the 1st world nations.  So listen up Wile E.  We’re not following you any more ( I hear you Greek patrons).  Not going to try to catch that road runner your way anymore.   And here is why:

Relative to national economic trends, states that increased spending enjoyed on average:
0.2 percentage point decrease in the unemployment rate
1.4 percent increase in private employment
0.5 percent real economic growth since the start of the recession.

In contrast, states that cut spending saw on average:
1 percentage point increase in the unemployment rate
2.1 percent loss of private employment
2.9 percent real economic contraction relative to the national economic trend.

So, I hope the IMF is happy now.  I have to be honest, the study does note:

The three figures presented in the accompanying charts demonstrate that steep state government spending cuts have gone hand-in-hand with rising unemployment, falling private-sector payroll employment, and lower real growth in states’ gross domestic product, or GDP—the sum of all goods and services produced by labor and equipment in each state, minus imports. The analysis, however, does not tell us whether the spending cuts caused the negative economic outcomes. But in all three cases, steep spending cuts are statistically associated with markedly worse economic performance.

There are some nice charts at the linked article if you are more visual.  Personally, I feel this new info just further supports my position that people are not drowning (debt is not money and thus not water), they are dehydrating.  We need more of the water that already exists.  It’s the income inequality issue.  I am rather certain that more government cutting has no chance, zero chance of reversing the inequality. 

If we can’t reverse the inequality, then we’re going to continue with what I pointed out in 2008.  That is, the top is taking money from the economy as income faster than the economy can produce it.  Can you keep spending more than you make?  No, is the conservative answer.  Well, can you keep taking it faster than you can produce it?  No, is the liberal/progressive answer. 

The issue is not that we are spending too much via government because the government is not just another player in the economy.  As I have noted, as long as the government acts counter to the players in the economy and does so in a manor that assures equality and the reduction of risk in living, it is not a competitor.  It does not “crowd out” the private sector. 

This leaves the real issue of a stalling economy, and declining living security one of  to much money being taken out of the economy.  For decades as noted, one group has been taking too much money out of the economy and have been doing it at ever increasing rates: the top 1%.  They are doing it faster than the economy can produce it.  This, as far as I am concerned is no different than government cutting spending.  Either way, money is taken out.  Velocity is what we are talking; how much and how fast money is moving through the economy.   Of course to understand such, one has to appreciate that Wall Street, banks, and markets are not an economy.  This is why the government, acting to fulfill it’s prime purpose of equality of power is never a competitior in the economy.

So, how convienent the conservative issue is debt.  Too much of it they say.  Too much spending.  HA!  The real debt is in the lack of income to everyone other than those in the top 1%.  They took and are taking so much money out of the system in the form of income (decrease union membership, tax cuts, off shoring, financialization, consolidation) that they have damaged the machine which allowed them to have growing income.  This is the real debt.  It is the lack of economic growth.  And the rich have caused it.  Yet there solution is to cut government spending and further reduce the amount of money in the active (remember velocity) part of the economy all the while taking even more out as income in their pockets?

Do you see how nuts Wile E Coyote is?

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Just When I Thought it was Safe to Click a Headline

I just couldn’t resist clicking “Bank of America to pay $8.5 billion settlement over mortgages”. Finally the Bankers are paying for destroying the economy. My enthusiasm rapidly faded as I read the article. Then I read

“Shares of Bank of America Corp. jumped more than 4 percent, or 48 cents to $11.30 before the market opened”.

I should have stopped at the headline. More whining after the jump.

$ billion can be a very small amount of money. In this case it is a settlement for the alleged fraud committed by Countrywide. So the deal is that, if you destroy the economy, you might make $8.5 billion less than you expected. In particular “The settlement … covers 530 trusts with original principal balance of $424 billion.”

I am personally frustrated, because I hate Bank of America. When I was 17 I opened an account at BayBank (my mom had to cosign). This was a historic account, because it came with an ATM card which could be used in the one ATM machine in Harvard square (a competing bank had a big sign up saying they would have an ATM machine too soon). It was my first PIN number. It was also extraordinary because it was an interest bearing checking account (still banned outside of Massachusetts by regulation q).

So I never closed the account. I didn’t want to severe my tie with banking history and besides I was sentimental (yes I understand that people who are emotionally attached to a checking account need professional help).

Baybank was bought by the Bank of Boston, which was bought by Fleet bank (or vice versa) which was bought by Bank of America. The old checks still worked. Then Bank of America began charging $10 a month for accounts with balances below something. Now it does not cost them $10 a month to story my data (that would be less than a kb of data really less than 100 bytes, storing it with 999 backup copies costs 3.5 cents divided by the life of a hard drive in months (I also am emotionally attached to an 18 year old hard drive)). I’m sure they informed me of this charge in some bank statement (I’m eccentric but not eccentric enough to read bank statements for an account I don’t really use). So I found out that the account was in the red. I think they even extracted more money from me (yes people like me are born every minute).

And now they get away with paying only $ 8.5 billion.

Yes I am too old to be naive enough to think bankers will be held responsible. I blame myself — I should know not to click headlines which include “Bank of America.”

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Abolish the Republican Party Now

If I made this up, you would never believe me:

“He informed me by text while he was on the floor,” [Erie County Republican Chairman Nicholas A.] Langworthy said of [New York, State Sen. Mark J.] Grisanti’s Friday vote. “I urged him to stick by his word he had given. The people elected him on what he ran on. This is not tax policy or something. This is important stuff.” [emphasis mine]

Good to know The Republican Party has ceased to give a shit about anything for which the Ancestral Party stood.

(via Lance)

cross-posted from Skippy

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Beating The New Republic by Seven Days, or Does Jonathan Cohn Read AB?

Yes, it’s another “AB was right” post. Detractors of this blog in general and me in particular could stop reading now.

But they shouldn’t. Anyone who thought through the economics could have pointed out what I did on the 17th:

From [Republican Congressman John] Boehner’s site:

At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.

This should be intuitive. If the company is paying $1,000 a month for my family’s health care along with my $800 a month, it can raise my paycheck by $1,000 a month—employee compensation is employee compensation—and cut back on its health care administration. If I’m not a health-care administrator, it’s win-win.

Any economist worth her salt should know that lower costs of employment increase overall employment (assuming there is not a demand-side problem).

If the McKinsey “study” were accurate—again, not the way to bet—we should expect overall employment to increase….

The follow-on effects in that universe: more people joining the HIEs than expected, improvements in the measurement of “real” wage growth, greater transparency in the current health-insurance system, and arguably a larger contingency of workers demanding something closer to a single-payer solution, all improve efficiency and provide opportunity for economic expansion.

Or what Jonathan Cohn wrote for the Kaiser Health Network and The New Republic a week later:

But here’s the irony: Most people like the insurance they get from their employers, which is why you hear politicians from both parties constantly promising to keep that coverage in place. In the long run, though, workplace-based insurance is probably not an arrangement worth preserving….

An ideal health care system would…liberate employers from the responsibility of administering health benefits for workers, allowing them to concentrate on other, more productive activities. Let the car companies make cars and the grocery stores sell groceries and the software firms design software. They don’t need to be running health insurance plans, too.

I’ve left out Cohn’s historically-illiterate paragraph about the groups of private health insurance, since he omits the main reason it developed: wage controls during wartime left employers looking for other ways to attract and keep workers.* At least he comes to the correct conclusion:

A single-payer system, with a combination of basic government insurance and private supplemental coverage, would be a much better alternative. So would a “competition” system that looks like what is currently in place in the Netherlands or Switzerland, or what Senator Ron Wyden, D-Ore., first proposed back in 2007. The Affordable Care Act could evolve into such a system, particularly if the new insurance exchanges work well and workers feel comfortable the insurance available there is as good as what they’d get from employers. But that transition would probably take a lot of time, no matter what corporate officials were telling the survey-takers at McKinsey.

It’s not just a lot of time. It’s a lot of opportunity cost and underutilized human capital. And we have enough of that already,** no?

Good to see the Mainstream catching up with AB.

*As an alternative history, consider that, if that industry hadn’t begun to develop during the War After the War to End All Wars, the U.S. might have followed the same path as the United Kingdom and founded the National Health Service, instead of leaving the country, almost sixty-five years later, trying to pretend that Barack Obama is Tommy Douglas.

**Yes, I would have found a way to link to this piece just for the title. When Brad DeLong is starting to entitle his pieces as if he were Lee Papa (or at least me; see the following link), the Sensible Centrists are once again signaling that their imminent move into the Activist camp.

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