Posted by Michael A. Kamperman on December 31, 2011
What happens in the elections will have a big impact on where the economy goes. Unfortunately, President Obama has decided to go for the one year extension of unemployment benefits and the payroll tax cut and call it a year in 2012. With the deal cut for 2 months it is highly implausible we won’t see a full year extension. So Washington plans to take 2012 off on further aiding the economy and plans to focus on fighting it out in the elections. This means nothing meaningful is possible until 2013. That is not good news for 16-29 year olds facing unemployment rates in the neighborhood of 50%. The Federal Reserve will have to pick up the ball and run with it in the first half of 2012. Bernanke has led the Fed to extend the concept of extended low rates and to alter the portfolio to extend maturities to bring down long term interest rates. Additionally, he has worked with the ECB to extend credit lines to European banks creating a de facto back door bailout of European sovereign debt. With Europe embracing austerity and the U.S. embracing no new fiscal aid the economy looks to limp forward. The only bright spot is the central banks have taken a Lehman style collapse off the table. Look for QE3 to take place as soon as the unemployment rate goes back up over 9%. They can only throw millions out of the workforce for so long before that smoke and mirror trick quits working.
So what is the best electoral outcome for the economy in 2013? Certainly not strident Austrian followers like Perry, Paul, and Bachmann. But four more years of Washington warfare will also not solve our problems and President Obama has yet to show anything else. The facts are any dream of Keynesian style stimulus is off the table. So the best option is to choose an option that can move the ball forward, and I’m looking for 50 yard passes that I prefer economically in this depression and have been thrilled to see Baylor’s Heisman Trophy winner throw over and over again on the football field. That leaves a choice between Gingrich, Huntsman, Romney, and Santorum.
Huntsman has shown no real vision, is a free trade no matter what apologist, and is so low in the polls there is no real reason to given him serious consideration. Sanrtorum has caught a spark and is focused on restoring manufacturing. While this is a positive manufacturing is less than 10% of the economy and improving this sector will not be enough to turn around the economy. So basically it is a choice between Romney and Gingrich. I can sum up Romney’s plans with a quote from the WSJ “Yet the 160 pages and 59 proposals also strike us as surprisingly timid and tactical considering our economic predicament. They’re a technocrat’s guide more than a reform manifesto.” Romney seems like a great choice to keep the trains running on time. But the economic train has derailed. President Obama focused on progressive tinkering and Romney looks to want to try conservative tinkering. That leaves Gingrich. Gingrich has wrapped himself in supply side economics focusing on creating growth by cutting taxes ala Reagan. The secret to Reagan’s success was to talk about balancing budgets, but in effect to run large deficits to grow the economy. Effectively Reagan practiced Modern Monetary Economics. Stimulus can come from either fiscal spending or tax cuts not offset with spending cuts. Gingrich seems to understand you cannot get the train back on the tracks by tinkering. We need to take a chance on someone who will be willing to throw the long ball. The only candidate willing to throw a long ball to restore economic growth is Gingrich. His passes may miss the mark, but everyone else is proposing a fumble or a run up the middle.
Posted by Michael A. Kamperman on December 25, 2011
May we have a bigger impact making peoples lives better in 2012. I’m entering the 21st Century and you can now follow me on twitter @MikeKamperman
Posted by Michael A. Kamperman on October 30, 2011
The Occupy Wall Street movement has already had two huge successes. First and foremost it has altered the debate from deficit cutting at all costs back to lack of jobs are the number one issue America is facing, not deficits. Secondly, it has given our President a much needed wake-up call that it’s all about jobs, jobs, jobs. Finally, the President has made a couple of moves in the right direction. He has acknowledged many graduating students have student loan payments that are too high for their too low incomes. He has also moved forward to insist that Fannie Mae and Freddie Mac refinance mortgages that are current without an appraisal and without a new title insurance plan forcing the transfer of the existing plan to the refinanced mortgage. But why not offer the same terms to FHA and VA mortgages? Why not offer the same terms to all mortgages held by all federally backed financial institutions like banks and credit unions? And where have these low hanging fruit moves been hiding at the White House? These moves should have been made months before the last election, not months before this one. The reason these moves are being made now is the President is feeling political pressure from the Occupy Wall Street movement. The lost and forgotten have risen up and the President has sat up and taken notice.
Now the President finds himself boxed in by the deficit cutting super-committee he approvingly signed off on just a couple of months ago. In fact, if a deal is not reached on how to lower the deficit, then across the board cuts will automatically go in on all discretionary spending, including defense. If the President is serious about helping the young people motivated to have their voices heard, then he will reject any deal that cuts their future Medicare and Social Security benefits period! It is the wrong way for our country to go and it is not necessary. Secondly, he needs to give up his politically charged class warfare rhetoric about raising taxes on the rich and call for the passage of jobs bill by using all of the savings from the ended Iraq war as the pay for. The jobs bill has a chance to put some of those young people into a good job, while raising Warren Buffet’s taxes may feel good but it won’t create one single job.
The Occupy Wall Street movement is also providing cover for the Federal Reserve to move forward on quantitative easing 3, probably this week. In Ben Bernanke’s famous helicopter speech he talked about the importance of coordinating monetary policy with fiscal policy despite the supposed independence of monetary authorities. Look for the fed to go big once again on purchasing mortgages to lower the cost of refinancing distressed mortgages even further. This is sound policy and will even be more effective if the President expands it to all federally backed mortgages. I want to give a shout out to Chris Wallace who criticized Rick Perry’s jobs plan for only aiming to create a far too insufficient 2.5 million jobs. Finally someone in the media is asking where are the plans to create tens of millions of jobs. Wake-up President Obama, he is talking about you too.
Posted by Michael A. Kamperman on October 14, 2011
The Occupy Wall Street movement is all about an economy that is unable to support the aspirations of the majority of its participants. If people had access to good jobs, they wouldn’t be sleeping on the streets to protest economic inequality. Unemployed college grads unable to pay their student loans would much rather have a good job than stay unemployed but see the rich lose a portion of their wealth. But the movement can get lost, or hijacked, if consensus on a common set of demands doesn’t emerge. For one thing, the movement needs to be about how to lift up the 99% rather than how to bring down the fortunate few. Therefore, items under consideration need to be about how to create the 25 million good paying full-time jobs needed that are missing from our economy. Here are seven actionable ideas that could turn the economy around in weeks and months, not years:
1. Demand the Federal Reserve fulfill its dual mandate of price stability and full employment. The Federal Reserve is refusing to take aggressive action on unemployment. The Federal Reserve should start quantitative easing III, which is buying back Treasury bonds, with an aim to repurchase $7 trillion dollars worth of U.S. debt. Then, along with the Treasuries it already holds, it should simply donate the Treasury bonds to the U.S. Treasury, thereby retiring half of the U.S. debt. This action would end the concept that the federal government cannot afford to combat the crisis. It would also take away a very low risk yet very lucrative trade from the banks, forcing them to start making reasonable loans on reasonable terms again.
2. Demand the federal government Federalize Medicaid by taking over 100% of the responsibility for funding the program, which is now jointly funded with the states. This would assure no more cutbacks in medical services for the poor. Importantly, it would also free up state budgets to put teachers back in the classroom. This idea was originally floated by Ronald Reagan, and there is no reason it cannot garner bi-partisan support.
3. Demand every mortgage in America be refinanced at 4% without a credit check or an appraisal. The federal government already guarantees over 90% of all existing mortgages, and the taxpayers are already at risk for losses on these mortgages. Half of all of the people with a mortgage cannot currently qualify to refinance at current market rates because either their home is worth less than the mortgage or they have too low of a credit score. Also, let those with under-water mortgages let a portion of their interest payments go towards principal reduction depending on how far their home has fallen in price. Everyone will still pay all that they owe. Large borrowers get terms like these all the time in debt restructurings. So why not the 99%? This would cost the federal government nothing.
4. Demand that the eligibility age for full Social Security and Medicare be reduced to age 62. This would create millions of new retirees, freeing up jobs for younger workers. Large companies have early retirement buy-outs all the time to reduce the size of their labor force. So why shouldn’t the federal government offer an incentive to people to retire early? The cost of this would be paid for by a combination of a reduction in unemployment claims and the interest savings on the federal debt donated back the Treasury by the Federal Reserve.
5. Demand the federal government fund a 21st century infrastructure program for America. We have millions of people who need jobs, and we have trillions of dollars worth of worthy projects from highways to water. At one time America had the best infrastructure in the world. It’s time to return to the best infrastructure in the world. This benefits 100% of the people, not just the 99%. It can be paid for by stimulating a growing economy and not by some pay-as-you-go offset that Congress has shackled itself to.
6. Demand that the U.S. strive to reach North American energy independence. The U.S. has an abundance of natural gas, and the technology already exists to run our entire transportation fleet on this fuel. The federal government could put forward the seed money to build out the fueling infrastructure required for a mass conversion to natural gas as the primary transportation fuel. Natural gas burns cleaner than oil and is less polluting. The federal government could also push for more wind, solar, and wave energy production. This would create millions of jobs and end our dependence on Mideast oil.
7. Demand an end to free trade and replace it with fair trade. We cannot expect U.S. workers to compete with people in China and elsewhere who work for $4,000 a year with no benefits and no workers’ rights. Our global companies are inventing things here that they then make there to be shipped back and sold here. These corporations supply the same tools and training to the workers there that they do here. How many American jobs have been lost because Apple makes all of its ipads, ipods, and iphones in China?
To have a movement with no demands is to leave the solutions in the hands of Washington. We have all seen how that has not worked out, and that is why Occupy Wall Street is spreading like wildfire. Our politicians come up with plans to create one million jobs. We need to demand they come up with plans to create 25 million good new jobs. The seven actionable ideas above are a starting point for demands for an economic revival. Everyone with an actionable idea should put it forward now.
Posted by Michael A. Kamperman on October 6, 2011
Occupy Wall Street is now a wildfire spreading all over the country. The economy is not working for young college graduates with huge student loans and no jobs, it’s not working for the less educated, it’s not working for those trapped in underwater mortgages, it’s not working for seniors afraid of the stock market and trying to live off of interest payments, and it’s not working for small entrepreneurs who cannot find start-up capital. Those at the protests are right about one thing, it was Wall Street that got us into this mess and for the most part many of the ones involved in creating the crisis got off scot-free. How is it that the same person who ran Goldman Sachs when the AAA fraud was at its height is still running Goldman Sachs? How is it that the head of the New York Fed who failed to oversee Wall Street was rewarded with the job of Treasury Secretary? And how is it that no one has been indicted for the biggest fraud in the history of the planet? Those out on the streets are mad as hell and they are not going to take it anymore! The banks deserve the scorn they are receiving. But if these people had jobs and opportunities they wouldn’t be out on the streets. And those out on the streets don’t have a clue as to what we should be doing, hence they don’t have concrete demands.
Today President Obama said the people were frustrated with the banks and that is why they are out on the streets. If those out on the streets understood why the economy is not turning around they would also be occupying Washington, which shares the blame with the banks for the mess we are in. The President oversold a too small stimulus plan, then spent months insisting it was just right, then spent more months arguing it saved jobs, then dropped altogether the concept of more stimulus and turned to deficit reduction. He never has put forward a serious effort to fix housing. Now he is wanting to put forward another too small Keynesian plan designed to create one million jobs when 25 million people cannot find full time work.
The President is not going to get re-elected if he doesn’t get those people off of the streets. And he is not going to get them off of the streets unless he goes for much bigger and much bolder plans to turn around the economy. And he cannot put forward plans that are truly bold as long as he accepts the current mantra that any new spending has to be paid for with offsetting spending cuts or tax increases. He needs to come out and say his plans will be paid for by creating economic growth and putting people back to work. Otherwise he is left with nothing but playing small-ball. And while there are plenty of good small-ball ideas, those ideas collectively are not going to create 25 million good paying new jobs with benefits. If the President doesn’t go big it won’t take that long for those occupying Wall Street to look to occupy Washington. At least the Bank of England announced a new round of quantitative easing today easing the way for our Federal Reserve to follow suit.
Posted by Michael A. Kamperman on September 21, 2011
The Bernanke led Fed has taken a baby step towards another round of QE3. The market expected the so called operation twist whereby shorter dated Treasuries are sold for longer dated Treasuries driving down long term interest rates. But in a little appreciated move the Federal Reserve will once again start purchasing Agency mortgage-backed securities with interest earnings and return of mortgage capital from home sales. Mortgages were what the Federal Reserve bought in the first quantitative easing program driving down mortgage rates. Once again Bernanke had the courage to act in spite of three no votes on the Committee. He has clearly signaled he is willing to buy something besides Treasuries and he will continue to ease monetary policy despite opposition from inside and outside the Committee. Importantly, the Federal Reserve has downgraded the outlook for the economy. If the economy continues to deteriorate the Federal Reserve will continue to take action. One action that I think would be particularly effective is to not only stop paying banks on reserves held at the Fed, but to charge them for those reserves creating significant incentives for banks to make loans. Right now banks can make money by not making loans. Make it so that they take losses by not making loans.
Regrettably the Republican leadership in the House and in the Senate have sent a letter to Bernanke insisting he stop easing monetary policy. This sort of pressure is entirely inappropriate. It is either based on a brazen attempt to make political gains or it is out of ignorance of how monetary policy actually can help the economy. I will lean on ignorance for the time being because economic ignorance is now running rampant in a Republican Party at all levels from the voter right to the top of the leadership. Believe it or not many of these Austrian economic beliefs were reinforced by the way the Obama Administration bungled the stimulus plan and the selling thereof.
But Bernanke cannot do all of the economic lifting at the Federal Reserve. The White House and the Congress must chip in. The President needs to quit playing politics and get to work with a serious effort to create jobs. His plans to pay for the jobs plan and reduce the deficit cannot even pass the Senate with 57 Democrats, no less the Republican led House. He has one more shot with a proposal to fix the mortgage mess. He needs to go big. Bernanke has paved the way for mortgage interest rates to go lower. It is up to the President to put forward a plan where it is easier to get mortgage credit. I favor refinancing every mortgage holder that come current on their mortgage without an appraisal or credit check. I would also like to see an interest credit to principal reduction for those mortgages more than 10% underwater. If the interest rate is 4%, then 1% or 2% or 3% of the interest can go directly to mortgage principal reduction depending on how far underwater the collateral is. This would allow the borrower to reduce their principal more quickly while allowing the banks to avoid a write down on the mortgages on their books. While I don’t know what the President will do, who does, he must go big on housing or he simply must go.
Posted by Michael A. Kamperman on September 9, 2011
The American Jobs Act presented by President Obama is not big, not bold, and not up to the challenge of helping 25 million Americans find full-time work. When the President calls for a joint-session of Congress to present a plan to deal with what he termed a ‘crisis,’ shouldn’t the plan ‘solve’ the crisis? It’s not that the plan is without merit, it’s just that it’s way too small to solve the problem. For starters, where is the fix for housing? The President has backed Wall Street over Main Street and has rejected the idea which I originated in my book, but is now being touted in many quarters, to refinance all homes that are current on their mortgage without an appraisal or credit check. Instead, the President’s economists will get together with housing regulators to see how to get the already failed HARP program to be more effective. The payroll tax credit is a very good idea, especially offering it to both the employer and the employee. So why limit it to only $5 million in wages for the employer? That limits the incentive for larger firms to higher and most of the good jobs in this country are in those larger organizations. Basically, why come forward with a plan designed to do less than 10% of the job? Moody’s estimates the plan will create/save only 1.9 million jobs.
Basically, for the $450 billion the President proposed you could take 15 million unemployed Americans and give them a job with the federal government with a total compensation package of $30,000 each. Most of the unemployed are lower skilled workers and that would be a meaningful wage for many of them. You could find something for all of them to do that would improve America. That would create 10 times the number of jobs as the President’s plan does for the same amount of money. Is ideology against government workers so sacred that we would be willing to get only 10 cents on the dollar to avoid some form of conservative sacrilege?
The worst part of the plan is that the President wants to fully pay for it by cutting other parts of the budget over the next ten years and raising revenue from the wealthy and from corporations. The bottom line is that any form of raising revenue without growth is raising taxes. And raising taxes is a drag on economic growth, which would offset some of the benefits of the plan. Plus, it plays into the false ideology that the biggest concern the nation has is the debt and the deficit. They should simply buy back all outstanding Treasuries with printed money and end this falsehood. At least then we could talk about policies that would really revitalize the nation. Importantly the plan is not $450 billion in new money. Almost $250 billion is intended to replace programs that expire in 2011. We already have that part of the plan in place and job creation in August was still zero. The idea that simply doing more of the same will create jobs is farcical. It will save jobs to continue these policies because to cut them off would actually cost a couple of million more jobs. If the Federal Reserve doesn’t go big in a couple of weeks the economy is toast.
Posted by Michael A. Kamperman on August 26, 2011
The markets may be initially disappointed but Bernanke sent the signal the Fed is prepared to take significant additional action. He announced that the September meeting has been changed from a one day meeting to a two day meeting and that all options will be on the table. He didn’t change the schedule to allow more time for tea and crumpets. He also kept the decks clear for the President’s speech on September 7. Momentum is growing for the President to finally push for measures to refinance all mortgages that are already guaranteed by the federal government and are current. This could put $100 billion annually into the hands of consumers and would cost next to nothing because these mortgage holders would be less likely to default with lower payments. Look for Bernanke to lead the Fed in September to come back into the market to buy large quantities of mortgage bonds. This would keep the interest rates low for those refinancing their mortgages and would be precisely the type of coordinated policy Bernanke argued Japan should have pursued a decade ago.
Bernanke won’t flinch and he won’t be intimidated by bashers out on the Presidential campaign trail that threaten to treat him ‘ugly.’ In Bernanke’s famous helicopter speech where he criticized the Bank of Japan he called for them to stand up in the face of obstacles and opponents like President Roosevelt did in the 30′s. Bernanke said Roosevelt tried many things, and many didn’t work, but he kept trying and restored confidence that the federal government would stand up and be there when needed. Bernanke plans to stand up. He has no intention of going down in history as the Fed Chairman who stood by and failed to take action when needed.
His speech this morning also called on the White House and the Congress to look for ways to stimulate the economy in the short term and to focus on deficit reduction for the long term. I disagree with any focus on long term deficit reduction, which is code for a combination of raising taxes and cutting entitlements. But if decisions made now take place in the out years they can be changed down the road. What is critical is more stimulus now in whatever form and shape. It is up to President Obama to come forward with workable solutions and not to come forward with plans that can’t pass but can be rolled out as talking points on the campaign trail. This is the President’s last chance to move the needle on economic growth before the election. He better deliver results and not rhetoric, because rhetoric alone won’t save his Presidency. Rhetoric alone will lead to a new President in 2013 whose last name starts with P.
Posted by Michael A. Kamperman on August 21, 2011
They’re all on vacation while the stock market is tanking and fear is rapidly rising. The fools at Standard & Poors who downgraded U.S. debt have proven their irrelevance as interest rates on the 10 year Treasury dropped under 2%, a multi-decade low. Everyone else in the world knows there is nothing safer than U.S. Treasuries. This latest wave of panic was set off not by people questioning the AAA worthiness of the U.S., but by questioning everyone else rated AAA. Hence France and French Banks didn’t seem to measure up so people ran from French financial assets to U.S. Treasuries, which is of course the opposite of what the fools at Standard and Poors predicted. Why this organization still exists after destroying the economy by rating subprime mortgages AAA is still a mystery. The trading action in U.S. Treasuries prove the dual point that the markets accept the U.S. can always pay because they can alays print and that it is the Federal Reserve that controls interest rates and not Asian bond buyers. Yet with fear gripping global markets and U.S. economic measurements plunging no one in a leadership position in Washington is putting forward a plan, especially a plan that will work and can be implemented now.
In one of the worst political optics in recent memory President Obama promised to put forward a new jobs plan when he returns from his 10 day vacation to Martha’s Vineyard. This is the last real chance to use fiscal policy to right the sinking economic ship before 2013. This is the last chance for President Obama to pivot out of his flirtations with Austrian Economics and plant his foot firmly in the Keynesian camp. This is the last chance to put forward something bold. But I won’t hold my breath. Calling for extending unemployment benefits and the 2% payroll tax cut into 2012 is only going to save jobs, not create jobs. We already have those things now and the economy is tanking. The President needs to put forward something that can pass Congress and not something to frame his 2012 re-election campaign. The way to get something to pass is to do something bi-partisan, which means something for you and something for me. The President has to be willing to trade some things for a big jobs plan and I’m not sure he is willing to do that. I’m also unsure that the Republicans in Congress are willing to do that. And without a bi-partisan trade nothing is going to get done on the fiscal front.
The only thing we can realistically hope for in the near term is QE3. Bernanke signalled strongly at the last Fed meeting that he is willing to go there, and go there for real this time. His promise to keep interest rates near zero through mid-2013 with three no votes is as strong a signal as he can send. He’s willing to lead, take responsibility, and move forward without consensus. Here are two things he should do to send the most effective signal he can that he will pull us out of the depression. First and foremost he should return the $1.6 trillion in U.S. Tresuries the Fed owns to the Treasury and shrink his balance sheet. This will show Congress, the President, and Americans of every stripe that jobs is the number one issue and not the national debt. The second thing the Federal Reserve should do is buy up the millions of foreclosed homes, turn them into rental properties, and remove them from the housing market. This would end the housing crisis and would send a signal to the banks that it would be safe to loan on homes again. We don’t need the Federal Reserve to compete with bond buyers for high grade bonds, we need the Federal Reserve to provide direct cash stimulus to the area it is needed the most and that area is restoring the housing market. Desperate times call for desperate measures and we are desperate.
Posted by Michael A. Kamperman on August 2, 2011
Well, it turns out the economy is slower than I thought and falling faster than I thought it would. That’s a mouthful considering I continuously predicted for months that the Federal Reserve would start QE3 before the end of 2011 because of a rapidly slowing economy in the second half of 2011. It turns out government data has missed the mark and now has revised most of the positive economic news down for the first half of the year. So far the data for July has been abysmal and that is after the months revised down. The reason I have predicted QE3 is the economy had already been perceived to be particularly slow in the first half despite extended unemployment benefits, the 2% payroll tax cut, quatitative easing 2, and the tail end of stimulus spending such as aid to the states to help with their Medicaid expenditures. Quantitative easing 2 and aid to the states for Medicaid both ended at the end of June. Unfortunately, the economy has probably already gone negative with extended unemployment benefits and the payroll tax cut still in effect, both of which are scheduled to expire at the end of 2011 along with most of the rest of the stimulus spending. As Washington congratulated itself for agreeing to budget austerity, the markets woke up and realized that fiscal help for an ailing economy from Washington will be all but non-existent in the near-term. All eyes have turned to Ben Bernanke’s Fed.
On Agust 9 the Federal Reserve will either move in to save the day with a quantitative easing program that dwarfs QE2, or we will begin the next leg down in the new great depression. It’s 1937 all over again, deja vu. FDR’s great economic error of prematurely cutting federal spending has just been repeated. In fairness to FDR, and in fairness to Hoover, they didn’t have history as a guide and our leaders do.
Make no mistake, President Obama has not been forced into a position he didn’t want. In my opinion he wants to tackle the debt and the defict more than he wants to tackle jobs. The President had multiple options to reject spending cuts with no aid for jobs. He could have threatened and followed through with the 14th Amendment, or better yet he could have minted coins and simply printed money to keep the wheels of the federal government humming along. If he wanted jobs he could have then negotiated from a position of strength rather than from a position of perceived weakness. Afterall, President Obama never seriously pushed for more stimulus. Instead he set up his own outside Deficit Commission headed by Simpson and Bowles almost two years ago. He has used the debt-ceiling “crisis” to orchestrate what he has wanted all along under the political cover of having no choice because of the Tea Party. He has turned out to be the Manchurian Candidate. But the cruel joke is on the Progressives who put him in power and not on the socialist fearing right who have fought him all the way. Sadly, it is the younger generations who will have to pay for Washington’s madness. It is the younger twenty somethings who face the worst brunt of the enployment crisis, it is the kids who suffer from the cuts to education, it is everyone under 50 who will not see the benefits of the older generations, and it is all of these people who will be left to pick up the tab for the fools who turned from Keynesian Economics and embraced Austrian Economics. Maybe the Federal Reserve will step up and be counted and save us. Or maybe they have been too busy buying canned goods, guns, and properties with secret caves to care about the plight of the rest of us.
