Starting sometime last summer the economic numbers started to turnaround, indicating an economic trough was forming. Since the end of last summer a variety of economic indicators have experienced improvement. Included in these numbers are initial unemployment claims, the ISM manufacturing and service index, various regional federal reserve manufacturing indexes, the rate of establishment job losses, personal consumption expenditures and the equity markets.However, several events have either culminated or occurred in the last few weeks that raise yellow flags regarding the US' economic expansion. This does not mean the sky is falling or that Armageddon is approaching. But it does mean this is a good time to look at exactly what has happened and determine the net possible negative effects on the current US expansion.You can click on any chart to get a larger chart in a new window.Initial Unemployment ClaimsFrom Bloomberg:In a setback for the May payroll outlook, initial jobless claims jumped 25,000 in the May 15 week to 471,000. The disappointment includes a 2,000 upward revision to the prior week. There are no special factors to explain the latest week's jump. The 471,000 level is the highest in five weeks, the second highest since February, and 12,000 higher vs. mid-April. But in an important offset, the four-week average of 453,500 does show improvement from mid-April's 461,000.Here is a chart of the data:Notice there are two trends in the data. The first is a consistent downward sloping move that started at the beginning of last summer. During this time, the weekly numbers decreased from the 600,000-650,000 range to the 450,000-500,000 range. However, since the beginning of the year this number has stayed stubbornly in the 450,000-500,000 range. Here is a chart of initial claims going back to the late 1960s:Notice that 400,000 and below is the "normal" rate for initial unemployment claims during an expansion (at least it has been during the last four expansions).Last week's increase to 471,000 is troubling for two reasons. First, the number has been moving sideways since the beginning of the year, indicating the improvement in initial claims has stalled. Secondly, last week we saw a sizable increase in initial claims. Had the increase been a smaller number it would not have registered. But the size of the increase in combination with the length of time this number has been moving sideways raises a yellow flag.Let me add one caveat to this concern:Since the beginning of the year, total establishment jobs have increased 559,000. This occurred during the same time the initial unemployment claims started to move sideways between 450,000-500,000. This indicates there may be a disconnect between initial claims and establishment job growth.The EuroLet's start with a chart of the euro's overall value:The euro has moved from 151.44 near the end of last year to a close of 125.64 on Friday, a drop of 17% in about 5-6 months. That's a pretty severe drop in a fairly short period of time that indicates a loss of faith on the part of investors in the euro area. Also note that prices are at important technical levels established at the end of 2008 and again in early 2009.The drop in the euro alone leads to increased caution. But, there are important inter-relationships between various financial markets. One of these is the relationship between the dollar and the euro. Here is a three year chart of the FXE and UUP that highlights the inverse relationship between the euro and the dollar:Below is a chart of the UUP -- the bullish dollar ETF which shows how the dollar has appreciated in value over the last six months.As the dollar has increased in value, we've seen a corresponding decrease in commodity prices. Adding to the downward pressure is news from China that the People's Bank of China is increasing reserve requirements to slow their economy down. Because China is one of the largest consumers of commodities, we've seen additional downward pressure on all major commodity groups.Agricultural commodities have been decreasing for the last six months; they are in a clear downward price channel.Industrial metals have dropped over the last few weeks, partly in reaction to China and partly in response to an increasing dollar.Oil has also dropped hard and is at its lowest point in the last six months. This is before the summer driving season, which usually adds an upward bid to oil prices.Decreasing commodity prices are adding to deflationary issues, which were discussed in more detail here.And finally, as a result of the euro's drop and the overall situation in Europe, we've seen an increase in one and three month libor, indicating increased caution on the part of lenders to make short-term loans:One month Libor is near yearly highs.Three month Libor is climbingSo, the central issue is a decreasing euro, which has led to an increasing dollar, which in turn has led to decreasing commodity prices. Recent reserve tightening issues in China have added downward pressure to commodity prices, which adds further evidence to the argument the US is facing an increased possibility of deflation.Leading IndicatorsEconomic indicators fall into one of three categories: leading, coincident and lagging. The leading indicators rise/fall before the general economy, the coincident indicators increase/decrease with the general economy and the lagging indicators increase/decrease after the general economy. The conference Board has taken the leading indicators and made a "leading indicator index" which it publishes every month.From the Conference Board:The Conference Board Leading Economic Index®(LEI) for the U.S. declined 0.1 percent in April, following a 1.3 percent gain in March, and a 0.4 percent rise in February.Says Ken Goldstein, economist at The Conference Board: "These latest results suggest a recovery that will continue through the summer, although it could lose a little steam. The U.S. LEI declined slightly for the first time in more than a year, and its six-month growth rate has moderated since December. Meanwhile, the coincident index, a measure of current economic activity, has been improving since mid-2009."Here's the chart:Notice the chart has increased for the better part of a year, making this one month a "blip". However, this is a very good indicator with a good track record that can't be ignored. Here's the data for why the index dropped:Manufacturer's new orders and supplier deliveries dropped. This is hits the manufacturing sector which has been a big part of the turnaround. Coordinate this data with the drop in the Empire State index (which dropped but is still positive) and a possible slowdown may be in the works (although today's Philly Fed was positive). Building permits are way down, impacting housing, construction employment and construction/home improvement retail (Home Depot, Lowe's etc.). Home retailers had reported some good numbers recently. Money supply dropped which hits everyone. Consumer expectations dropped, hitting retail sales.So, we have one month of a drop, but the underlying reasons for the drop are pretty broad based. This, in conjunction with the rise in initial unemployment claims, raises a yellow flag until we get more data.ConclusionAs a result of the increase in initial unemployment claims, the decrease in the euro and the decrease in the index of leading economic indicators, caution is warranted going forward. To eliminate this caution, we need to see the following:1.) A decrease in initial unemployment claims below the 450,000 level. In addition, the economy needs to keep up its current pace of job creation. Last month we had a great employment report. That needs to be repeated in the next report.2.) The euro needs to stabilize. The European Union has proposed a massive $1 trillion dollar package, which was announced several weeks ago. However, the euro has continued to drop since that announcement. Markets are now concerned that austerity programs will hurt overall economic growth.A close look at the FXE indicates the euro may be in the middle of a selling climax. But the only way to make this determination is in hindsight.3.) Commodity prices need to rebound. An across the board drop in commodity prices indicates the markets think decreased demand is an issue going forward. An increase in commodity prices will indicate demand is picking up.4.) The decrease in the LEIs is not fatal and probably indicates the US will be seeing a decreased rate of growth in the second half of the year.Overall, these developments indicate the rate of expansion in the US will probably slow over the next 3-6 months.
This is great news for those already committed to a spending binge in the form of a European vacation. But the "negative wealth effect" I'm getting from my investment portfolio (401K) is discouraging me from any large purchases, including vacations in the U.S. I continue on a path of "low spending" in order to pay down all debt. And if this is a common pattern, then consumer spending is likely not to grow as rapidly as it might otherwise do based on increasing wages alone.
3.) Commodity prices need to rebound. An across the board drop in commodity prices indicates the markets think decreased demand is an issue going forward. An increase in commodity prices will indicate demand is picking up.But, if the Chinese government achieves it's goal, this is going to swamp commodity prices. So I'd expect that to lag some, relative to the US economy.
No issue for Obama or the Dems politically as it's obviously Bush's fault the economy is still in the shitter:http://www.politico.com/news/stories/0510/37631.html
Suppose that an increase in the demand for money, plus Federal Reserve passivity, recently made monetary policy effectively more contractionary. According to Frederic Mishkin's excellent intermediate textbook on money, banking and finance here’s what you’d expect to see in the financial markets: 1. Falling commodity prices 2. Falling Treasury Inflation Protected Securities (TIPS) spreads 3. Falling equity prices4. A rising dollar So what has actually happened? 1. Aluminum, copper (don't forget, Dr. copper) and oil have fallen about 20% each since April. 2. The five year TIPS spread (a measure of inflation expectations) has fallen from about 2.0% to 1.6% in the past month.3. The Dow Jones is off 10% from its peak in April.4.The dollar is up 16% on a trade weighted basis since November. So the bottom line is that when you look at market sensitive indicators like commodities, stocks, bond yields, etc, money is too tight in the U.S. But more worrying is the fact the Fed has no plans to respond in any form.And look at this little set of parallel timelines: October 1929, stocks crash on sharply falling expectations of nominal GDP growth. October 2008, stocks crash on sharply falling expectations of nominal GDP growth. Early 1931, stocks rise on signs of recovery. Early 2010, stocks rise on signs of recovery. May 1931, stocks fall as European banking/sovereign debt crisis begins (Kreditanstalt). May 2010, stocks fall, as European banking/sovereign debt crisis begins. It's deja vu all over again.
Prior to the EU sovereign debt crisis, the US had not reached even historically average recovery growth. Businesses engaged in a one time delayed inventory replenishment at the end of last year and we then halved GDP growth to something just above that necessary to maintain status quo in employment by absorbing new entrants into the job market.The EU debt crisis will hit us in two ways. First, the world's wealth fled from the Euro into the Dollar, destroying the comparative price advantage for our exports and very likely slowing if not stopping growth in our only real growth sector (outside of government) - foreign trade.Next, the economic horror show of little Greece threatening default makes a similar potential US default in the next decade under the current borrowing trend unthinkable. Thus, we have a choice. If we maintain the current Dem government and its spending surge to 25% and more of GDP, then we will inevitably have to impose equally onerous taxes to pay for it - most likely a combination of a massive VAT and mandates on business which will raise the cost of labor. Given that such burdens kill economic growth, we will simply join the EU in structurally high unemployment while only delaying an EU style default for another decade or two.Or we can start now to reverse the spending and mandates to a range where we can return to standard American economic growth. The EU is openly discussing the reality that their welfare state is unworkable and must be cut substantially if the EU's economy is to survive. It will be easier for the United States to decline to adopt an EU welfare state from the outset than to suffer from society rending withdrawal from government dependence as is Greece now and the EU in the near future.
@Sadowski: Yeah, you're right. When we look at ALL the things the Fed has done, it has started to contract while keeping nominal lending costs low. This is also where Krugman was coming from in a column last week -- if we're not on a course toward a double dip, we're at best on a course toward Japan's lost decade.
I guess the last 2 months of economic data represented a better-than-it-is view of the economy, because of census hiring, inventory replenishment and stimulus money. With those effects fading away, the economy now has to prove that it can stand on its own. And maybe it's not quite there yet, although it will speed up in future months.The problems of the euro zone now makes matters more complicated. The weak dollar was a boon to manufacturing and it could have stayed that way a little longer. In addition to the deflationary pressure, the Fed might take some more action, to actually increase inflation. I don't share the inflation scare.
As Bonddad points out, many of these negative indicators are small and often equivocal. They are trends that will be best analyzed in hindsight. In a normal economy, these would be largely ignored as blips or cyclical noise.The problem is, we are like people who have just weathered a terrifying, life-threatening illness and are now in initial recovery and treatment mode. Any little bump or lesion, any shortness of breath or sudden obscure pain is a cause for instant alarm and dire foreboding.Maybe we ARE heading for a double dip. Maybe the Euro-zone and China will drag the whole world down, and there's not much we can do about it. As Bonddad says, only time will tell.What honestly puzzles me is the joy that Republicans seem to take in bad economic news for their own country, as if this will somehow benefit them politically. Pete Kent is so gleeful about a negative employment report (with its ensuing misery and despair for thousands of his countrymen) that he can't wait to gallop over here and post it with exclamation points on every thread!!!Do they think unemployment somehow benefits their party... when Republican lawmakers regularly imply that the unemployed are "just lazy freeloaders" and Republican Senators stand up to filibuster against extensions on unemployment benefits?What, truly, do Republicans offer to unemployed and suffering voters? Because... you know.. "tax cuts" just don't resonate that strongly with people who have no income.
The US government is stuck between a rock and a hard place - much as they were when they came into office. You have a high debt, and the necessity for government spending to keep the economy from tanking. That necessity is demonstrated specifically by what Juris said above. When the economy looks bad - and individuals are already in debt - they are not going to spend. That leads to a further slowdown of the economy. Now we are in a situation where Europeans, Chinese, and Americans may contract spending (although as of late - Americans have been beginning to spend more). So what should the Government do? 1) Recognize that even with big debts - the government needs to spend money. Tax cuts are NOT the answer. 2) That money has to be specifically targeted in ways that will lower costs in the long run. Clearly, one place where we can lower costs in the long run is by shifting away from oil - by conserving oil, and by transitioning to homegrown fuel sources. 3) How can we do this in a way that will create jobs in the short term in sectors that now need them? I would suggest a large public/private works program. A light rail system that extends from the East to the West and from the North to the South. This would propel our manufacturing sector, provide jobs for the workers hit hardest in recent years, and cut our energy costs and dependence on foreign oil in the future. 4) How do we pay for it? First, cut all salaries of federal employees on a sliding scale - 5% for those paid the most, down to 1% for those paid the least. Second, all retirees who collect SS and Medicare benefits between the age of 65 and 70 must volunteer 100 hours a year in public service. This can be anything from tutoring students to cleaning up parks, etc. If you do not want to provide this service - medicare and SS benefits will be cut 10% - this would essentially drive people who don't actually need SS and Medicare benefits to take less while strengthening our schools and cleaning up our neighborhoods. For the first 5 years - put the money gained to the light rail system - afterwards use it to strengthen SS and Medicare. 5) Make sure that the way that the money spent on the light rail project (or any other project that might work to do the same thing) is not 'top heavy'. That is - no paying the guys breaking ground shit wages, while paying management huge salaries. No hiring of illegals workers for anything.6) Simultaneously, we must deal with Medicare and SS as these are what will drive the debt long term. That's all I got.
Alex:Inflating the currency will hammer the economy by raising the cost of imports - especially oil - and raise the cost of foreign debt even more by increasing the interest rates we will have to pay.The fact that the EU is reaping the economic destruction of their profligacy makes it necessary to produce growth domestically to pull out of the recession.Stop the spending and borrowing and leave that capital for investment into business. America is viewed as a safe haven so that investment will be in our business. Lower the costs of doing business through tax and regulatory reform. Start by adopting the business tax code of Ireland or Germany and then take an ax to the 150,000 pages of regulations.Lower the current and imminent costs of hiring by eliminating government mandates on employee benefits. Start by repealing Obamacare.
Bart:You know that the current tax levels are as low as they haven't been in more than 50 years?But at least you seem to recognize that the current situation requires further strain on the budget to achieve a recovery (even tax cuts won't make growth appear suddenly out of nowhere, they still represent some kind of investment into the future, a kind of spending on future growth). In addition, you will always have to confront the dual problem of deflation and further debt. I would agree with Tim, that spending has to go into energy efficiency. Investors need a target for their money, and this time, it must go to energy efficiency and infrastructure. The next bubble must be created there.The problems of the EU are not EU-wide. They are caused by the inequality of the economic situations of different countries. Germany and France aren't nearly as endangered as Greece or Ireland. Sweden has weathered the crisis extremely well, for example. Maybe the best solution would be to kick Greece out of the Euro-zone. At the moment, Greece is pulling down the whole Euro-zone into danger, ironically, just like subprime mortgages have spread their risk all over the economy.Please don't reduce this whole situation to bland anti-european catchphrases.
Bart, of course you would try to bring this back to HC. And, fo course, you would be wrong. All the businesses who just received information about the tax credits that they will no be receiving are not going to agree with you. Secondly, your ideas about taxes have been disproved, and I will say it a hundred times over if need be. The Bush tax cuts increased our debt (already) by 1.35 trillion according to the heritage foundation . They resulted in a very brief bump in the GDP and that was it. You take that increase - subtract it from the revenues lost and you get AT BEST 1.35 trillion. Sheer stupidity. Moreover, the tax cuts had the effect of giving more money to the top 1% of people and shrinking the middle class - those would be the people who spend money Bart.
Supply side policies are not the cure for the crisis for the simple reason they were already being practiced in one of the countries hardest hit by this crisis: Ireland. Ireland has a top marginal corporate tax rate of only 12.5%. It had the lowest top marginal personal income tax rates in the eurozone with the exception of Slovakia and Greece. Its government sector was smaller than virtually every member of the eurozone as a percent of GDP. Perhaps as a result its real GDP was growing at an average rate of 6.7% from 1998-2007 and it was one of the darlings of the libertarian right. Then in 2008 the sky fell, and it now has double digit unemployment, double digit fiscal deficits and is facing a sovereign debt crisis unlike core eurozone countries not following such policies such as Austria, Finland, France, Germany and the Benelux countries (where government bond rates are falling just as they are here). Did supply side economics suddenly stop working? Not exactly. The problem is on the aggregate demand side and supply side policies are not the cure (any more than a coronary bypass would cure a liver tumor). In the vast majority of cases the solution to such crises is currency devaluation (expansionary monetary policy, see Reinhart and Rogoff). The problem is however that all of these countries are on the euro and hence have no independent monetary policy. What Ireland must do, regardless of how it’s accomplished, is achieve relative wage and price deflation compared with Germany, in order to regain trade competitiveness. With German inflation low to nonexistent, this means an extended period of deflation, with high unemployment and a deep reduction in nominal GDP. It also means huge fiscal deficits, requiring spending cuts and tax increases that deepen the recession. A more expansionary monetary policy could make a real difference. Suppose that Ireland needs to get relative wages and prices down 10% over the next five years. If the eurozone has 1% inflation, that’s 5% deflation in Ireland. If the eurozone has 2% inflation, all you need is stable prices. Also, a stronger overall eurozone economy means higher nominal GDP and hence higher revenue, improving fiscal balances. However, there's nothing in the recent announcement by the ECB that suggests that this is going to happen. The EU rescue plan merely buys more time (at a huge price tag).
@Mark Sadowski. I agree with you. Imagine, however, the Irish hitting the streets like the Greeks did? They speak English, and the ability of American journalists to talk to just about anybody on the street in Ireland would amplify the effects of public protests, strikes, and so forth. So of all the PIIGS countries, an austerity policy that drove down wages and government social program spending in Ireland would really sink the confidence of international (US) markets.
Regarding what America can do to protect and insulate itself from worldwide economic turmoil... this is going to require concerted action and intelligfent (and likely painful) policy decisions from Congress. How is this policy going to happen?Ousted senator Bob Bennett of Utah made this logical point today with compelling clarity. He said the Tea Party claims to have the fixes for the nation's economic woes... but simultaneously punishes every politician (like him) who ever reaches across party lines to get anything done. Given that newly elected Republicans are going to have a Dem president and certainly a Dem senate, how do they propose to accomplish anything other then NO... when NO means a continuation of the staus quo, which they find unaccapetable.So how do you resolve this knotty conundrum, Bart? How can your people get anything done when the Tea Party will crucify at the polls anybody who works with Dem legislators to make policy?(BTW, Bart, I was remiss the other day in not mentioning that you DID rebuke Odious Pete Kent when he gloated over rising unemployment claims. I saw that, and admired you for it. It has earned you quite a lot of credit in my ledger.)
No matter what your thoughts are on taxes, tax cuts don't give money to anyone. They merely reduce the amount of the money the government takes from them. With that said, the Bush administration certainly did increase the debt, but it wasnt due to a lack of revenue. Revenue grew during the Bush years, but spending increased quite a bit as well.
First, the world's wealth fled from the Euro into the Dollar, destroying the comparative price advantage for our exports and very likely slowing if not stopping growth in our only real growth sector (outside of government) - foreign trade.Bart, were you one that was moaning about the devaluation of the $ [due to the Fed pumping up the money supply]? Serious question, I don't recall off hand.
Alex S. said...You know that the current tax levels are as low as they haven't been in more than 50 years?We have the or nearly the highest business taxes in the developed world. I would agree with Tim, that spending has to go into energy efficiency. Investors need a target for their money, and this time, it must go to energy efficiency and infrastructure.Why? Business and individuals are perfectly capable of determining when it is cost effective to invest their own money into energy efficiency and can do so far more efficiently than the government. Pissing away money into inefficient "green energy" alternatives is a waste of money. (See Spain for the utter failure of a government run green economy). Indeed, all government energy subsides should be the first cuts to be made to balance the budget.The problems of the EU are not EU-wide. They are caused by the inequality of the economic situations of different countries. Germany and France aren't nearly as endangered as Greece or Ireland. Sweden has weathered the crisis extremely well, for example.They are all heading the same direction. The EU is simply not creating the wealth necessary to meet the demands of their welfare states.Tim said...Bart, of course you would try to bring this back to HC. And, fo course, you would be wrong. All the businesses who just received information about the tax credits that they will no be receiving are not going to agree with you.Obamacare made the preexisting entitlement crisis substantially worse. SS is bankrupt and is already taking general fund revenues and Medicare is right behind it. Obamacare will add a minimum of $2.5 trillion to that unsustainable burden over its first full decade and probably far far more if Medicare and Medicaid overruns are any indication. Medicare is not going to be cut, so every check cut by the government will come back with an even higher tax or deferred tax in the form of borrowing.DerFarm said...Supply side policies are not the cure for the crisis for the simple reason they were already being practiced in one of the countries hardest hit by this crisis: Ireland. Ireland is hardly a paragon of supply side. Take a look at their marginal tax rates. However, Ireland was a good example of a good business tax and regulatory environment with a US style flexible labor market. I would borrow what the Irish did right.Then in 2008 the sky fell...Did supply side economics suddenly stop working? Not exactly. The problem is on the aggregate demand side and supply side policies are not the cure (any more than a coronary bypass would cure a liver tumor).Ireland's problem was a mortgage crisis very much like Florida's which dragged down the rest of what was otherwise a relatively free and growing economy. The world recession compounded problems by drying up their export market.In the vast majority of cases the solution to such crises is currency devaluation...You mean like pouring a couple trillion dollars into the banks and maintaining an effective zero percent prime rate? The former may have restored bank liquidity, but neither have created economic growth in the US.All government can do is stop removing investment capital and lower the costs it imposes on business operation and labor, then get the hell out of the way. Our business and workers can do the rest.
The Federal Reserve is following in the exact same footsteps trod by the Bank of Japan for the last ten years. Zero Interest Rate policies in a deflationary environment do nothing but provide a atate of stasis and falling prices. The Nikkei stock market fell from 40000 to 10000 and there it sits. The DJIA topped at 14000 and is still within 30% of its high. It has an huge way to fall before it matches Japan's experience.If the crash comes between now and November both chambers of Congress will go Republican. Obama himself probably won't win re-election regardless of his opponent. The Democrats ran against Herbert Hoover for 50 years after the first Great Depression. History may well repeat itself here.
The problem is on the aggregate demand side and supply side policies are not the cure (any more than a coronary bypass would cure a liver tumor). And this is why, in a nutshell, nobody should ever listen to Bart. It is not that supply side economics are always wrong. It is that conditions call for differing solutions. Bart, in fact, reminds me of Rand Paul. He has an ideology that is much like a religion. He will take any set of facts and try to make them 'fit' so that they will support the answer that his ideology espouses. For Rand Paul this was expressed when he said that he thought it would be a poor business decision for business owners to discriminate. To some extent this is not even true now but it was quite clearly not true in the South in the 60s. In fact, if you allowed black into your restaurant - you were assured of losing the vast majority of your business.Ideology/philosophy and reality are not one and the same thing.
Hard to expect any meaningful economic growth beyond a cyclical rebound with nothing but anti-business and anti-growth policies emanating from Washington. Subsidies are not a substitute for growth, and the current numbers show the flaccidness of those policies, especially once the subsidies begin to slow. They only create delayed pain, not less pain.The euro is still hardly cheap in relation to the dollar -- it's just back to where it was 5 years ago, when it was less overvalued. Tourists are finding no bargains yet, which means the euro likely has further to fall. Not a bad thing -- even though it hurts US exports there, it makes imports more attractive to buyers. And a stronger dollar refutes the idiodic notions that a cheap dollar somehow helps US workers by making the cost of their labor look comparatively less expensive versus the world, and the notion that the cost of government debt is cheaper with a weak dollar. Those notions are both extremely shortsighted, ignoring the longer-term consequences of a weak currency, such as high inflation. On balance, a strong dollar is far more desirable. Even so, the dollar really is only strong recently against the euro, not against the other major currencies.
@ Bart Why? Business and individuals are perfectly capable of determining when it is cost effective to invest their own money into energy efficiency and can do so far more efficiently than the government. Pissing away money into inefficient "green energy" alternatives is a waste of money. (See Spain for the utter failure of a government run green economy) Thirty years ago Brazil launched an effort to eliminate it's dependence on foreign oil. It is now the world's top exporter of ethanol, and 15th ranked exporter of oil. Had we taken the aggressive steps that Brazil took 30 years ago, we would not be in the mess we are in today.
filistro said...Ousted senator Bob Bennett of Utah made this logical point today with compelling clarity. He said the Tea Party claims to have the fixes for the nation's economic woes... but simultaneously punishes every politician (like him) who ever reaches across party lines to get anything done.Bennett was kicked out because he was part of the problem - see the borrowing to pay for TARP and his proposal for imposing health insurance mandate costs on business.Given that newly elected Republicans are going to have a Dem president and certainly a Dem senate, how do they propose to accomplish anything other then NO... when NO means a continuation of the staus quo, which they find unacceptable.The House initiates all spending. It can fully defund Obamacare, the Porkulus and TARP. Then it can proceed to reduce spending across the board. None of this can be filibustered by the Senate or vetoed by the President unless the Dems want to shut down the government. Newt made a mistake by welcoming a government shutdown and allowed Clinton to blame him when the President shut down the government. The GOP needs to take the opposite tack and blame Obama for shutting down the government with a veto in order to borrow more money from the Chinese to spend. The tax payers are more than ready for a large dose of NO.
@ BART Tim said...Bart, of course you would try to bring this back to HC. And, fo course, you would be wrong. All the businesses who just received information about the tax credits that they will no be receiving are not going to agree with you. Bart replied Obamacare made the preexisting entitlement crisis substantially worse. SS is bankrupt and is already taking general fund revenues and Medicare is right behind it. Obamacare will add a minimum of $2.5 trillion to that unsustainable burden over its first full decade and probably far far more if Medicare and Medicaid overruns are any indication. Medicare is not going to be cut, so every check cut by the government will come back with an even higher tax or deferred tax in the form of borrowing. Bart - everybody knows that we spend more per capita than anybody else with worse results and less people covered. That is a FACT. That is REALITY. We waste a ton of money on insurance - and Bart, BTW - insurance does not create wealth .
@Bart: The House initiates all spending. It can fully defund Obamacare, the Porkulus and TARP. Then it can proceed to reduce spending across the board. None of this can be filibustered by the Senate or vetoed by the President unless the Dems want to shut down the government.Yeah sure, I know what you want. But that's not what I asked. This is all "my way or the highway" bluster, and not only does that not work... your party is in no position to demand it.Protecting and advancing this fragile recovery will require lots of intelligent compromise between Dems and Reps. What I asked was: how you are prepared to get anything done on the economy when your party is utterly opposed to compromise? I would truly like to hear your answer... because I have a feeling this may well be developing into one of the major issues of the campaign this fall.
Bart:"Why? Business and individuals are perfectly capable of determining when it is cost effective to invest their own money (...)"We are not talking about individual businesses here. We are talking about a national economy. And I was also talking about the money of investors that is looking for profit."They are all heading the same direction. The EU is simply not creating the wealth necessary to meet the demands of their welfare states."Well, I actually don't see a lot of difference between Europe, Japan, the USA or any other classic industrial nation. Since about 1980 most of the western countries have experienced a steadily rising dept-to-GDP-ratio. Curiously, those countries that seemed to do best, like Ireland or the UK, are now among the worst. The USA has also been approaching the 100% mark, even before the health-care mandate went into effect.
@Alex - The USA has also been approaching the 100% mark, even before the health-care mandate went into effect. Debt at the end of Carter 35% of GDP of Reagan 55% of GDP of Bush 41 62% of GDP of Clinton 51% of GDP of Bush 44 78% of GDP Bart hates real figures. CBO estimates reductions to deficits (and thereby Debt) as a result of HCR. Bart hates also to use the figures produced by the bipartisan CBO - the figures that are always used - preferring instead to make up his own.
filistro said...I would truly like to hear your answer... because I have a feeling this may well be developing into one of the major issues of the campaign this fall.I really think that is his answer. Zero interest in 'intelligent compromise', either part of that phrase. The demagoguery has turned on it's masters and ate Bennett. Now it threatens all of us.An idiocracy is taking hold in the GOP, it's the rhetoric of railing against the "elite" manifest in action, and yes it's just as bad and destructive to the country as was warned. *shrug*
@ Tim:Yes, the direction was obvious, even without anything Obama did. The rising cost of health-care would have ensured that.
"What honestly puzzles me is the joy that Republicans seem to take in bad economic news for their own country, as if this will somehow benefit them politically."Now you know how Republicans felt when they saw Democrats trumpeting failures in Iraq. Though that was, to say the least, considerably more serious.This is the kind of uncomfortable situation any group finds themselves in when they say something is a bad idea. Nobody wants to cheer for bad news, but it won't do to predict it and not point that out when it comes to pass, either. It needs to be highlighted, but in a solemn manner."Do they think unemployment somehow benefits their party... when Republican lawmakers regularly imply that the unemployed are "just lazy freeloaders" and Republican Senators stand up to filibuster against extensions on unemployment benefits?"I love throaway lines like this, "regularly imply." A very nice way to level a devastating accusation without having to provide a quote or source. I don't think most Republicans imply (or even think) this. Though to the degree that they do, they probably blame government for encouraging it more than they blame people for taking advantage of it."What, truly, do Republicans offer to unemployed and suffering voters? Because... you know.. "tax cuts" just don't resonate that strongly with people who have no income."They should, if the tax cuts are based at encouraging businesses to expand and grow. I don't know if this is a political problem for Republicans, but it's certainly a reality problem for anyone who mocks the idea of tax cuts for business, yet simultaneously trumps the importance of "creating" jobs.As for how Republicans think they will benefit: simply because the Democrats are in power and aren't fixing the problem. Unemployment is far, far higher than they'd said it was going to be. The stimulus hasn't worked the way they said it would. Thus, these numbers represent a failure. It *obviously* benefits Republicans, and I'm surprised this needs to be expounded on.
@Bart,Just how low do tax rates have to be before they are considered supply side? And why do only low personal income tax rates count?In any case consider the Baltic states and Poland. None of these countries are in the eurozone (although all are in the EU) but as I shall explain later this actually furthers my argument. The Baltic states all have flat personal income taxes with rates varying from 21% (Estonia) to 25% (Latvia). (Is that supply side enough?) Poland has a progressive income tax with a top rate of 40% (albeit low by eurozone standards). All of these countries experienced a real estate boom although the boom in the Baltic states was more extreme. The Baltic states all had rather small government sectors and public debt was low to nonexistent. They were also generally running fiscal surpluses. They were growing rapidly and were frequently referred to in supply side circles as the "Baltic Tigers." Prior to the crisis, Poland had a more traditionally sized government sector relative to GDP by EU standards and the accompanying public debt and fiscal deficits. They had growth higher than the eurozone but much lower than the Baltic states. What has happened to these countries since 2007? The Baltic states are by any measure in an economic depression with real GDP down 25-30% and unemployment at 15-23%. Poland on the other hand has not even experienced a recession (GDP did decline slightly in the fourth quarter of 2008 however). Latvia is facing a sovereign debt crisis with double digit fiscal deficits, soaring debt and 14% long term bond rates. Poland's deficits have hardly increased and neither has its long term bond rates. What's the difference?The Baltic states all maintained an exchange rate peg versus the euro and thus adopted the eurozone's deflationary monetary policy. Poland pursued an expansionary monetary policy and allowed the zloty to depreciate by about 30% relative to the euro between July 2008 and March 2009. I have nothing against supply side economic policies. It's just that they are not appropriate for demand side crisis. The eurozone and the US needs to pursue a more agressively expansionary monetary policy through real (not fake) quantitative easing and either price or nominal GDP level targeting.
Alex S. said... @ Tim:Yes, the direction was obvious, even without anything Obama did. The rising cost of health-care would have ensured that. More fundamentally, the 'deficits' that everybody would like to blame on Obama were already cooked into the soup well before Obama arrived. The Bush tax cuts - which Obama could not let expire given the advancing recession, the Bush prescription Drug benefit (wholly unpaid for and part of mandatory spending), and TARP. Add to that the costs (unpaid for) of one unnecessary war, and one necessary war, and the fact that GDP was dropping like a rock (which of course means that the deficit is larger as a result of decreased revenues) and you automatically have an extremely high deficit. Obama's 'spending' has consisted of tax cuts - so much so that we are at the lowest taxes in 50 years (and this of course increases deficits), payments to States for critical workers, unemployment benefits, and $250 billion in infrastructure spending. At the very most - all the GOP could object to in all of that is some small portion of the 'infrastructure spending'.They certainly don't object to the increased spending in Afghanistan, now do they?
@Warning Track: It *obviously* benefits Republicans, and I'm surprised this needs to be expounded on.I'm not so sure. I think either way, the economy is a dangerous issue for Reps if they mishandle it (as they are almost sure to do.) If they continue gloating and blaming Obama for bad numbers, and then things improve... he gets the credit.On the other hand, if things get markedly worse, will people turn to the party of NO? I don't think so. When things get really bad, even the anti-govt types look to their govt for help... just as the loudest of "police brutality!" protesters still call the cops when their back door gets kicked in. (Lots of the Freepers and Teapers are now on UI, you know... and pretty damned defensive about it, too.) A falling economy can only benefit Republicans if they have some better ideas, and the hard-hit voter sees them as prepared to work hard on his behalf.What ideas are the GOP proposing right now that will give Joe Six-Pack hope... nevermind Greece and the Euro and China, and "Porkulus" and "Obamacare" and "Hell NO!!!"... that HE'S going to be able to get a job, pay his mortgage and put food on the table? I'm just not seeing it.
@Warming Track ...There are several issues that need addressing in your post: you say Now you know how Republicans felt when they saw Democrats trumpeting failures in Iraq. HERE YOU GIVE NO EXAMPLES which you follow (regarding this statement "Republican lawmakers regularly imply that the unemployed are "just lazy freeloaders" and Republican Senators stand up to filibuster against extensions on unemployment benefits?" with I love throaway lines like this, "regularly imply." A very nice way to level a devastating accusation without having to provide a quote or source. I don't think most Republicans imply (or even think) this. GIVEN THAT YOU JUST DROPPED IN A THROWAWAY LINE ABOVE.. MAYBE YOU SHOULD THINK A LITTLE ABOUT WHO IS TOSSING OUT "DEVASTATING ACCUSATIONS" "What, truly, do Republicans offer to unemployed and suffering voters? Because... you know.. "tax cuts" just don't resonate that strongly with people who have no income."They should, if the tax cuts are based at encouraging businesses to expand and grow. I don't know if this is a political problem for Republicans, but it's certainly a reality problem for anyone who mocks the idea of tax cuts for business, yet simultaneously trumps the importance of "creating" jobs. Which is why multiple tax cuts and credits have been given to small businesses. The objections of Democrats tend to be those tax cuts that are directed at the top percentages of the income tax brackets. Tax credits to the lowest income workers are the most effective in stimulative value (actually things like food stamps are the best) because these people are much more likely to spend the money. That is where you get the multiplier effect :A dollar of $ spent on food stamps results in $1.76 stimulative effect.
filistro said...@Barta lot of credit in my ledger.~~~~~~~~~~Every 4/5 months or so, Bart makes a disingenuous rational post scolding a winger who is more negative than him. btw, always hard for him to find such an animal lol.This doesn't change his 99.9% sore loser, negative meme re: the Dems/Obama ie his only purpose for posting at 538.Rather than being disingenuously negative re: a fellow 538 spamming troll, a better course would be sayin' something disingenuously positive re: the Dems or Obama. ;) Still a song and dance to be sure as a leopard can't change its spots, eh.Being positive is always better than being negative whatever one's nefarious goal is."Our Republic Has Stumbled, But Has Not Yet Fallen"My descriptive phrases do not begin to do justice to the damage these policies are doing to the country.April 23, 2010 10:46 AMI wonder whether I live in America anymore when the government imposes its will in opposition to the people. That is what ruling classes do, not representatives of the people.~~~~~~~~~~Notwithstanding loldid I mention a leopard can't change its spots ...>Filistro, you obviously have more empathy than me. :) but Bart disingenuously chastising 538's notorious negative spammer once in a millennium doesn't win him any brownie points ...
@ BartSS is bankrupt and is already taking general fund revenues This of course is an outright lie!
Ah, so it appears the *h8ers* at Kos were right after all eh?
@ Warning Track A very nice way to level a devastating accusation without having to provide a quote or sourceMarch 2, 2010: Senator Jim Bunning (R) launches a filibuster against extension of UI benefits; shoots the bird and stalks away from reporters who ask him to explain his motivation.March 3, 2010: Senator Jon Kyl (R) says, “In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”Sunday March 6, 2010: Former House Majority Leader Tom Delay (R)calls Sen. Jim Bunning (R-Kentucky) “brave” for launching a one-man filibuster of unemployment benefits. "You know," Delay says, "there is an argument to be made that these extensions of unemployment benefits keep people from going and finding jobs. In fact there are some studies that have been done that show people stay on unemployment compensation and they don't look for a job until two or three weeks before they know the benefits are going to run out."As I have said... this will not play well in a worsening economy. With soundbites like these readily available to their opponents, Republicans would be advised to pray for economic improvement... not failure.WV..aximm: old political aximm... "Live by the failing economy, die by the failing economy."
Tim said...Thirty years ago Brazil launched an effort to eliminate it's dependence on foreign oil. It is now the world's top exporter of ethanol, and 15th ranked exporter of oil. Had we taken the aggressive steps that Brazil took 30 years ago, we would not be in the mess we are in today.Actually, if the government got the hell out of the way, we could have done much the same thing. The United States has 3-5 times the oil reserves of Saudi Arabia in its oil and oil shale. Open it all up. Nuclear energy? Start issuing permits without a decade long enviro review.Tim said...Bart - everybody knows that we spend more per capita than anybody else with worse results and less people covered. That is a FACT. That is REALITY. We waste a ton of money on insurance - and Bart, BTW - insurance does not create wealth.And the government is going to make this more efficient? LMMFAO! Start with the 14% fraud rate for Medicare and Medicaid.Once again, get government the hell out of the way and eliminate all coverage mandates on private health insurance and limit regulation to promoting transparency and eliminating fraud. Open everything up to interstate competition.
shiloh... if it's any comfort to you, I don't think there's anything Pete Kent could do to get back in my good graces. He could volunteer to walk my dog, clean up its poop, wash my car and shine my penny loafers, and I would STILL loathe him for gloating over his fellow Americans losing their jobs and life savings.
@Bart: The United States has 3-5 times the oil reserves of Saudi Arabia in its oil and oil shale. Extraction of oil from shale requires massive, prodigious amounts of fresh water... which is soon going to be more rare and valuable than oil.From "CanRigs" greeningofoil.comIn shale formations, tight rocks trap oil or gas. To increase permeability, drillers pump large amounts of chemical-laced water and sand underground to crack rock formations and prop open the fissures, allowing the oil or gas to move up to the surface.In the Barnett Shale stretching over North Texas, fracing a vertical well can require 1.2 million gallons of water, according to recent estimates from the Railroad Commission of Texas. Horizontal wells increase the demand, requiring closer to 3.5 million gallons each.An average hydraulic fracturing treatment in the Marcellus Shale uses about 3 million gallons of water.
filistro said...@Bart: The House initiates all spending. It can fully defund Obamacare, the Porkulus and TARP. Then it can proceed to reduce spending across the board. None of this can be filibustered by the Senate or vetoed by the President unless the Dems want to shut down the government.Yeah sure, I know what you want. But that's not what I asked. This is all "my way or the highway" bluster, and not only does that not work... your party is in no position to demand it.After this election, it will be clear that the voters are demanding it. The new GOP majority only needs to demand two things - (1) the Dem overreaches which the voters rebelled against must all go (TARP, Porkulus and Obamacare) and (2) set a series of gradually reduced overall spending targets for the next decade and negotiate on what to cut in a way the Dems never asked the GOP what to increase over the past two years. Protecting and advancing this fragile recovery will require lots of intelligent compromise between Dems and Reps.Actually, it will require an almost total abandonment of the Obama Administration's democratic socialist dream to get to a real recovery. The government is the problem and not in any way the solution apart from governing the money supply. Where the compromise must take place is determining what are the core functions of government and what are not and should be cut. Everything should be on the table including national defense. EVERYTHING.The United States is facing a very real insolvency and an economic dark age in a decade if we do not only stop but in fact reverse the course of the past decade of Bush and Obama profligacy and regulation. We can negotiate about what to cut, but cut we must if you little ducklings are to have a future remotely as prosperous as yours.I would like to think of this as getting back to Reagan, but if it will get you on board, think of it as getting back to the post 94 Clinton Administration.
filistro said... shiloh... if it's any comfort to you~~~~~~~~~~:) one gets the impression PK is an automated RNC machine and as mentioned before, if Bart didn't exist, 538 would have to create him ;) but being 100% negative 24/7 regardless of one's political beliefs has to effect one's business, job and personal life.just sayin'but whether Bart is disingenuous or not, it's always amusing when he, once every blue moon, throws liberals a bone lol
sadowski@udel.edu said...@Bart, Just how low do tax rates have to be before they are considered supply side? And why do only low personal income tax rates count?In order to have a supply side effect, tax rates on all income (not just personal) need to be flattened and reduced. I have no idea how low tax rates could be cut before there is no longer a supply side effect because we have never reached that point in real life. GDP and tax revenue growth has followed every cut in marginal income tax rates to date.
I wrote this a year ago. Consider:http://www.411mania.com/politics/columns/105171/The-Real-Post-Industrial-America:--Part-I.htmhttp://www.411mania.com/politics/columns/105338/The-Real-Post-Industrial-America:--Part-II.htmhttp://www.411mania.com/politics/columns/105367/The-Real-Post-Industrial-America:--Part-III.htmThe here and now, is the past.We're NOT coming out of this, anytime soon.
I wouldn't necessarily agree that we have worse results for more money than other industrial countries. Part of the problem is that other countries dont often don't respect our patents so we cover the cost of medical research etc. I don't think you would argue that we lead the way in that. Also, part of the way they lower costs is by denying care for certain things to certain people, namely the elderly. As far as quality of care, I live in UK right now, recent story about the NHS removing the wrong testicle from a man with testicular cancer as well as a story about a woman dying because NHS didnt notice that she had a broken handle of a toilet brush stuck in her body even though she kept on saying that she was in pain and thought something was there. Healthcare over her is certainly not as great as a lot of Americans think.
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