Posted by Michael A. Kamperman on August 31, 2010
The minutes from the Fed meeting show that no one on the Fed is worried that deflation is a significant near-term risk. No one. Some see disinflation while others still see inflation as the mostly likely outcome, but no one is forecasting deflation. In fact they are forecasting moderate growth for 2011, despite the fact the stimulus will run off in 2011 and there doesn’t appear to be a replacement stimulus bill on the horizon. The Fed is way way way behind the curve again, ala summer 2007. Deflation has already taken hold in the U.S. Deflation is a function of either over-supply or declining demand. Demand has withered for most items, most notably housing. With the expiration of the homebuyers tax credits sales of homes have plunged. How hard is it to foresee housing will remain a drag on the economy? Wages are falling substantially for those fortunate enough to replace lost jobs. What has held up the incomes of many households up until now are unemployment benefits and 401(k) plan withdrawls. Congress is not likely to extend unemployment benefits for individuals beyond 99 weeks. The large scale shedding of workers began roughly 99 weeks ago right after Lehman Brothers was turned away by the Treasury and forced to file for an unprepared bankruptcy. How hard is it to foresee household personal incomes are in trouble going forward?
The question the Fed should be concerned with is not whether the economy will fall into deflation, the question they should be debating is how soon and how forcefully do they need to act to prevent it. Like cancer, it may be too late to cure it if you wait for it to be obvious to see. Look at how Japan has struggled to shake off deflation despite near zero interest rates. Look at how the U.S. failed to shake off deflation prior to the onset of World War II. Frankly, the Fed simply doesn’t know how soon they should act, nor how forcefully. Shocking considering Bernanke is supposed to be the world’s deflation expert.
The Fed knows its only remaining weopon is printing money, which puts a bad taste in the mouths of most avowed inflation hawks. But as inflation hawk St. Louis Fed President Bullard has said, the data is coming in on the low side for inflation, not the high side. And, while he doesn’t see deflation as a probability he wants an orderly framework for how the Fed will decide when to print and how much to print. Shouldn’t this conversation have occurred under Greenspan or Volcker and shouldn’t the Fed have a manual on just what to do in this situation? The reason they don’t is the concept of deflation has seemed inconceivable to smug modern day economists who grew up in the post World War II era. This is the reason all of our econometric models only contain post World War II data. With fiscal policy frozen in Washington the only operational weopon left is monetary policy. I’m know we have waited too long to pull the trigger. So do all the 99ers. There is no doubt the Fed will print more money. The open question is do they have the guts necessary to print the trillions needed?
Posted by Michael A. Kamperman on August 24, 2010
Existing Home Sales plunged 27% in July to the lowest level since 1995. True, demand was borrowed from the future by the tax credits. But in 1995 mortgages rates were on the way up, not down. Not down to the lowest level in my adult lifetime and most likely your adult lifetime too. And let’s not forget home prices are back to early 2000 levels. Lower prices and lower interest rates cannot stimulate macro demand for housing. The reason is simple. We built enough single family homes for 70% of the population, yet only about 64% of the population is traditionally positioned for home ownership. Young people in their 20’s looking to build a career with a resume are better off mobile than tied down. People whose finances are poor don’t need the added costs of home ownership. Now, combine overbuilding market inventory with high unemployment, tight mortgage credit despite the heroic efforts of the FHA, and the deflationary psychology that prices could continue l0wer rather than higher and you have a broken market for homes.
The Obama Economic Team has failed to come up with a strategy to revive the housing market. The market has become addicted to tax credits. The mortgage modification efforts have been a woeful failure with almost half of the participants re-defaulting, and most inquirers failing to qualify. If your current on your mortgage you get no help. It is time for out-of-the-box-solutions. To change the direction of housing the Obama Administration needs a plan that addresses supply, credit, and psychology.
To rebalance supply we need to demolsish houses. We should end the cash for caulkers program and offer people who live in run down houses a chance to upgrade to a beautiful foreclosure on favorable terms. Then we should demolish the homes they left behind. If a bank is sitting on a run down foreclosure, then it should demolish it. The solution is not to talk people who shouldn’t own a home into one, that will only push more problems down the road. The solution is to lower the vacany rate and rebalance supply and demand. Credit is easy. Simply offer to refinance every current mortgage for 4% without an appraisal, a new title policy, or income verification. If their current they are getting the cash from somewhere to pay and we would be lowring their payments. Salvage the salvagable rather than trying to salvage those who simply cannot afford the house. Everyone marvels at the Chinese economy, yet over half of the apartments in Beijing and Shanghai are vacant and owned by investors who believe in real estate. In China they are building all sorts of things they don’t currently need. Psychology will return in America when we see more people bidding for homes than homes available for sale, and when their are no more foreclosures or short sales in the neighborhood dragging pricing down.
Posted by Michael A. Kamperman on August 19, 2010
With weekly jobless claims climbing back to the 500k level, the time has come for President Obama to convene a Jobs Summit. Mysteriously jobs continue not to be the primary focus of the Whitehouse. The strategy of kicking the can down the road hoping for a natural recovery in the economy has failed. But who should be invited to the Summit? Any citizen in America who wants to share an idea should be invited. The Summit should start out as a series of smaller regional Summits. Then, those presenting credible ideas should be invited to the Washington Summit. Let economists, CEOs, Congressman, and anyone else who wants to contribute ideas attend a regional Summit, and if they have a credible idea, then invite them to the Washington Summit. The reason for this concept is to decentralize the voices our President and Congresional leaders hear from. The advisers they currently have have taken us nowhere. There are plenty of good ideas, but unless someone is connected their voice is never heard in Washington.
For example, Bill Gross is getting a lot of credit for coming forward with a proposal to use Fannie Mae to refinance any current mortgage already guaranteed by the government without an appraisal. This is a great idea and it will help stabilize the housing market and put diposable income into the hands of numerous consumers. The only thing is the idea has been out there for well over a year. On page 105 of How America Can Escape the New Great Depression it says “Fannie Mae should also refinance any mortgage in good standing without an appraisal.” The book was published in March of 2009. Imagine where things might be if the idea were implemented back then. What other idea is out there that can’t get through the filters?
The Summit should be televised and hosted by the President and the Congressional leadership. The American people should see and here these ideas. Some ideas will rise to the top and gain broad-based support. The politicians will not control the ideas presented and will have difficulty spinning them. There should be a bi-partisan agreement between Democrats and Republicans that no idea will be dead on arrival just because it involves cutting or increasing taxes or spending. The objective of the Summit is to get something positive done as opposed to the usual Washington grid-lock where two sides shout at each other and accomplish little. Make no mistake, in a depression grid-lock is a bad thing. I’ll throw out another idea right now. Starting in 2014, let’s place a tarrif on all products made outside the U.S. if the employees do not receive health care. It is crazy to let countries like China ship products into America made by workers who are on their own for healthcare when the corresponding American competitor is required to provide health-care. It’s just crazy for us not to insist on a level playing field.
Posted by Michael A. Kamperman on August 10, 2010
Well that was quick. The Fed looked for an exit strategy in April and returned to printing money by August. Make no mistake the Fed just adopted St. Louis Fed President James Bullard’s strategy of targeting the balance sheet and rasing or lowering the quantity of quantitative easing based on the forthcoming data. Bullard is an economic hero. He provided a plan. Like a lion willing to lay down with a lamb he walked to the other side of the aisle and and said I am a self-avowed inflation hawk , but I see deflation as the risk and I am willing to do the un-thinkable and monetize the debt. Now, the ball is in the politicians court. How many Democrats are willing to step up and say we should not only not raise taxes, but during a major economic downturn we should lower them. How many Republicans are willing to stand up and say we should not only not cut spending, but during a major economic downturn we should raise spending to create jobs. It is time for President Obama to step forward and lead. We need another stimulus plan and the progressive liberals need to back off letting the Bush tax cuts expire.
The Fed effectively has said the TARP wasn’t enough. The Stimulus Plan wasn’t enough. Our previous quantitative easing program of $1.5 trillion wasn’t enough. The tax credit for homes and clunkers wasn’t enough. The economy remains in the ditch and it will take heavy lifting to get it out. The Fed has signalled they have the will. But the Fed cannot do it alone. We must have permanent fiscal stimulus to create an environment of confidence. The best ideas are to lower the eligibility for Social Security and Medicare to 60 and to have the Federal Government take over all Medicaid spending from the states.
What the Fed has done is they have said don’t worry about the deficit or the debt, because we can monetize it and control it. That is the advantage of owing all of your debt in your own currency. Japan owes its debt in yen. Will the Bank of Japan follow the Fed? Probably not until the policy proves successful. Great Britain owes its debt in pounds. Will the Bank of England follow the Fed. Yes, in a heart beat. The countries in the euro owe all of their debts in euros. Will the ECB follow the Fed. Eventually, once there is a massive mutiny against the austerity crowd and they run Trichet out of town on a rail. We have a global problem and we need a global solution. The Bullard led Fed is showing the way.
Posted by Michael A. Kamperman on July 31, 2010
The GDP report was horrific. It came in at 2.4%, well below month ago estimates. What’s worse is it included a 27.9% rise in housing due to the bump in the home-buyers tax credit and it included a small positive contribution from state and local government spending. The tax credit is gone and stimulus based state aid will soon fade away. Also gone is the boost from inventory adjustments. So where do we go from here…down. The economy is clearly heading back down. The President is too busy campaigning and vacationing and doesn’t have the time to focus like a laser beam on jobs. The Senate is a complete embarrassment. This week the Republicans and the Democrats couldn’t agree on the procedural rules to move forward on a critical bill to revive small business lending. Majority Leader Reed is so anxious to return to Nevada to try and save his seat that he was only willing to offer the Republicans a chance to vote on three of their amendments to the bill. The Republicans balked and filibustered with both sides pointing fingers at the other. Yet out of Ben Bernanke’s ‘unusually uncertain’ economic outlook and what to do about it emerges St. Louis Fed President James Bullard. A man with a solid label as an inflation hawk is willing to step away from people’s perceptions of him and call it likes he sees it. He sees the risk of the U.S. heading straight for a Japanese style deflationary trap. He said the Fed may never hit its target of 2% inflation targets if the U.S. enters the trap. An inflation Hawk says the facts have changed and he is willing to print money, soon. When asked how he felt about raising taxes he said it wouldn’t be helpful to reviving the economy. He has firmly placed restoring economic growth and avoiding deflation higher on the priority list than deficit reduction or current U.S. debt levels. While not asked about federal spending it seems as though he would have given the same answer as he did on taxes, it’s not helpful to reviving the economy.
Bullard did more than just say quantitative easing was the best tool available to the Fed, he offered a game plan on how to use it. He has come forward with the innovative idea the Fed should keep a close watch on the data meeting by meeting and adjust the level of quantitative easing based on the data. Basically if things are looking up print less and if things are looking down then by all means print more. He is willing to print as much as is necessary to prevent the slide into deflation. I’m already on record stating the Fed will need to buy back virtually all of the outstanding federal debt, and perhaps much more, to restore the economy to full health.
What we need now is for a prominent Republican or Democrat to step forward and call it like it is: namely now is not a good time to either raise taxes or cut federal spending. Its time to break with type-castes. Its time to say the world changed in 2007 and both sides need a contemporary play book. It probably won’t happen. But with Bullard leading we may survive in spite of the partisans. Monetary policy is an extremely powerful tool. Paul Volcker brought the economy to its knees to battle inflation. The Fed has an unlimited check book to throw at economic revival. It has lacked the wisdom and the will, but Bullard just changed all of that. Look for his strategy to be implemented much sooner rather than later. If not by the election, then soon after. Bullard has proven himself to be not just a leader, but a hero.
Posted by Michael A. Kamperman on July 22, 2010
Federal Reserve Chairman Ben Bernanke gave a speech in 2002 in which he famously said that if it was necessary to prevent a Japanese style deflationary-depression the Federal Reserve could figuratively speaking “drop money from helicopters.” Now, with a Japanese style deflationary-depression staring the U.S. right in the face, the man we placed in charge of the Fed confesses that he doesn’t know how to fly a helicopter. His paper was theoretical after-all, and now he claims he is not sure of what the risks would be if his theory were put into practice. He will place the theory into practice if there is another ‘panic’ and have the Fed resume aggressive quantitative easing. But short of that he is content to watch this “unusually uncertain” economy and dither. There is nothing uncertain about the economy. We are in a deflationary-depression ala Japan. We are repeating the policy mistakes of the 1930’s by focusing more on the deficit than on economic growth. To this day the variables programmed into the Fed’s econometric forecasting model and most other econometric models are based solely on the post World War II inflationary expansion. Hence, what is ”unusual” and causing “uncertainty” is the economy is not responding the way the models predicted. Right now the Fed’s model anticipates unemployment will fall to 7.5% by the end of 2012 without any changes in Fed policy, tax policy, or stimulus policy. To reach that target the economy would need to generate 7.5 million new jobs, which is an average of 250,000 new jobs per month for the next 30 months. I must have missed where Washington D.C. jumped the gun on California to become the first in the nation marijuana tourist destination. At least I hope these guys are smokin something, because it is depressing to think this is actually the best work they can do. Mr. Bernanke, throw away the models and open your eyes.
Short of a ’meltdown’ the Fed is willing to take three steps to vigorously support the job market. First, they are willing to say they will keep interest rates near zero for a really really long-time, rather than for just an extended period of time. Wow, that should open up the job market. Perhaps he should consider how effective this has been for Japan before relying on it as our next line of defense. Second, the Fed might be willing to stop paying the Zombie Banks a quarter of a point interest on the one trillion dollars in reserves they have at the Fed in-order to jump start lending. The WSJ detailed how many many small businesses are being asked to back their loans with cash, in many cases for the full amount of the loan, in addition to the equipment and real estate already pledged to the bank. The Zombie Banks keep insisting that they are ready to make loans to all that qualify, which means if you give them the money to loan back to you you qualify. Small business credit cannot get any tighter than this. Again, hard to imagine the Zombies would open up the credit spigot if they were denied that 1/4% interest payment from the Fed. Third, and this would help at the margins, the Fed is willing to re-invest the mortgage and bond payments it purchased back into the economy. Right now those payments simply lower the Fed’s balance sheet and go back to money heaven. They are neither saved nor spent in the economy. Effectively, the Fed is currently tightening the money supply because all those mortgages payments are not being recirculated back into the economy.
Mr. Bernanke has already presided over an economic slide greater than the slide in 1930 at the start of the Great Depression. Yet despite his reputation he lacks the wisdom and the will to head off either another slide mirroring the one in 1932, or a long drawn out nightmare mirroring the Panic of 1873 and the Two Lost Decades in Japan. He should have told the Congress that the key tool under consideration is the Fed stands ready to support the Treasury market with aggressive purchases to back whatever fiscal stimulus policies Congress deems necessary to spur private sector growth. There is a time and a place for everything, and now is the time to drop concerns about Fed independence and have the Fed and the Congress work together. The housing market is terribly underwater. Why not have a bail-out for the people instead of the Zombies? Congress could offer to refinance and modify any existing mortgage in America for 4% with no credit check. A home would be appraised and if the mortgage is underwater Congress would authorize the balance over and above the value of the home to be paid off by the Treasury. These mortgages started out no higher than appraised value. All Congress would be doing is hitting the housing reset button. Anyone with half a brain is not really worried about the debt or the deficit because they know the U.S. can print what it owes. Democrats want social spending and they want the rich to pay for it. Republicans simply want a strong national defense and to pay less in taxes. Democrats are unwilling to cut out social spending to avoid a deficit. Republicans are unwilling to pay higher taxes to avoid a deficit. Both sides don’t want to pay in some way for the other sides issues. The “tools” the Fed and the Congress need to fix the economy are simple. The wisdom and the will are what seems like a bridge too far.
Posted by Michael A. Kamperman on July 12, 2010
Paul Krugman hasn’t gone left, he hasn’t gone right, he’s gone real. Paul was a progressive liberal, is a progressive liberal, and will probably continue to be a progressive liberal. But he is also a Princeton Economics Professor and a Nobel Prize winner. He sees the economy is in the ditch, what he calls a third depression. He also sees the Whitehouse doesn’t have a coherent plan to lead us out. So he has decided to tell it like it is and not worry about who with whom he curries favor. First he distanced himself from the approved Whitehouse phrase “the steps we have taken have avoided another Great Depression.” Now he has called out the Federal Reserve led by his Princeton colleague Ben Bernanke to be much more aggressive. His basic argument is we must try something because what we are doing is not working. He is rallying around the Keynesian principle that when private sector demands slumps it is best to replace it with public sector demand. This is a 180 from the Hayek championed Austrian School of Economics’s view adopted by libertarians and unwitting Tea Partiers that public spending only crowds out the private sector and the best way for a government to instill confidence in the economy is to balance the budget. President Hoover tried this and it failed. President Roosevelt tried this in 1937 and it failed. With history as our guide why are we trying to emulate failed policies? Professor Krugman has decided that his standing at the Whitehouse, in the Princeton faculty lounge, and preserving his Nobel reputation by being aloof is not as important as his speaking the truth. More power to him.
John Maynard Keynes famously said “when the facts change sir I change my mind, what do you do?” Well the facts are the unemployment rate is 9.5%, but it would be close to 12% if the workforce remained constant with end of 2007 levels plus population growth. Currently the average person has been unemployed for 35 weeks, significantly eclipsing the post World War II era record of 21 weeks set in the early 1980’s. One in seven mortgages are delinquent (30 days or more past due) and one in four mortgages are underwater. State budgets have imploded. The number of people on SNAP (food stamps) has risen from 26 million in the summer of 2007 to over 40 million today.
Paul singled me and some others out when he said “As recently as two years ago, anyone predicting the current state of affairs (not only is unemployment disastrously high, but most forecasts say that it will stay very high for years) would have been dismissed as a crazy alarmist. Now the nightmare has become reality.” Guilty as charged. But the issue is not who was right and who was wrong, it’s where do we go from here? Krugman is right. We need more fiscal stimulus and we need more monetary stimulus. For a sick economy stimulus is medicine. Few in America believe a sick person shouldn’t have modern medicine. Sadly many believe a sick economy should have 100 year old medicine, namely Austrian Economics.
Posted by Michael A. Kamperman on July 6, 2010
I thought it would be helpful to interpret David Brooks column in this morning’s New York Times on ‘A Little Economic Realism’ into plain English. Be sure to read the actual column before reading the translation: http://www.nytimes.com/2010/07/06/opinion/06brooks.html?_r=1&hp
You’re President Obama. The economy is starting to tank again. You’re feeling stuck between a rock and a hard place.
The vast majority of smart and sensible economists say we need another stimulus bill. Some aligned with Republicans favor more tax cuts aimed at jump starting the private sector, while others aligned with your Democrats favor more federal spending to support state governments. Almost all of these economists agree stimulus focused on infrastructure projects that make the nation more competitive would be a good way to go. They all have models they swear by, all of which failed to predict the downturn in the first place. They claim the solution is a simple math problem where 2+2=4 and that you shouldn’t trust the other guy’s model. Yet because the economy is $14 trillion the price of poker in all of the models starts at several hundred billion dollars and goes up, way up from there.
The Keynesian economists are giving you a plan for another round of stimulus. But your not married to Keynes. Your a practical politician and are paying attention to the polls.
Krugman and his colleagues are brilliant economists, and they dismiss the ridiculing of their ideas by people who can’t walk and chew gum at the same time. They have complete faith in their models. But they and economists of other schools of thought failed to predict the downturn because they only modeled on the post World War II inflationary era and ignored the deflationary era of the Great Depression. Who knew national home prices could actually fall? You are therefore very hesitant to risk your political career on their advice.
My fellow NYT columnist Paul Krugman thinks everyone who disagrees with him is either immoral, a moron, or both. While some economists want tax cuts and spending cuts and others want spending increases and tax increases, virtually no reputable economist thinks the U.S. should raise taxes and cut spending at the same time in the current environment. However, the Germans and Trichet, the head of the ECB, think now is the time for just such austerity moves. German taxpayers don’t want to subsidize Southern Europe. Trichet actually believes austerity measures in countries with over 20% unemployment like Spain will gain confidence as unemployment rises to 25%. You know this man needs to retire but your not sure you can go against the political flow and back your Keynesian economic advisers.
Professor Krugman has a very good explanation for the last two years. The stimulus bill needed to be $2 trillion as he suggested and not $789 billion. The increases in federal spending have been offset with spending cuts at the state and municipal level, hence the fiscal spigots have not been wide open. The federal deficit has ballooned saving many jobs in the public-sector. But because you slashed infrastructure spending in the stimulus bill there has not been little private-sector job growth. Because you oversold the stimulus bill and continued to insist it was enough for political reasons, when it clearly wasn’t, you can’t get another stimulus bill passed and therefore you pray every night the Federal Reserve will come to its senses and save your bacon by opening up the printing presses.
Paul Krugman and his cohorts think their so smart, but they know little about psychology. Keynes wrote that the state of confidence “is a matter to which practical men pay the closest and most anxious attention.” The rhetoric of a coalition of those who want to win in November have convinced the public that debt-fueled government doesn’t work. Because we have actually lost jobs since the stimulus plan was enacted only 6% of the public believes my rhetoric that it actually created jobs. People fear debt because we allowed the banks we bailed out to cut their credit card limits and jack up their interest rates to 29%. These good-hearted but simple-minded people are afraid this could happen to the U.S. Government, even though we owe everyone dollars and we can print them any time we want.
I don’t like to read economic models. I prefer to contemplate my pollsters focus groups consisting of people who started websites in the middle of no-where. They think deficit spending could bankrupt the U.S., and at a minimum it will raise their taxes. They don’t realize teachers, soldiers, policeman, and fireman are government employees. Since they do the hiring and firing and voting I value their opinion the most.
Krugman doesn’t understand the pressure I’m under. Because I was sleeping and golfing while Massachusetts was voting I no longer have the votes to do what I want. My supporters on the left would rather die than a cut a deal with the far right who would rather die than cut a deal with me. The right and the left cannot agree on whether to spend on defense or programs for poor people. No one wants to take on more debt for the other sides issues.
To justify my hesitancy to take a stand my researchers have discovered an obscure academic paper by three Harvard profs. They found that congressional districts with the most pork have more people working for the government than for the private sector versus districts with the least pork. While this proves nothing the name ‘Harvard’ allows me to sound impressive as a columnist and I agree your grandkids shouldn’t have to pay for the other sides programs.
Mr President you are unsure of what to do but you want to be re-elected. Therefore you must choose something. I see your choices as being too hot, too cold, and just right. Running up the debt to save the economy risks a run on the dollar. Adopting euro-style austerity risks turning you into Herbert Hoover. Doing a little bit of spending while promising a little bit of future austerity could be just right.
Well, Mr. President here is what I advise. First, extend unemployment benefits or your left will go ballistic. Second, offer to provide aid only to those states who cut some spending now and cut pension benefits in the future to pick-off that vote from Massachusetts you let slip through your hands. That would save some public-sector jobs now and ease some contractionary pressures without throwing the country into a fiscal-debt spiral that makes Greece look prudent.
But the main message is this: Don’t listen to Paul Krugman. Don’t borrow all the money you could dream of for less than 3% interest and spend it to revive the economy just because you can. Also, don’t go Ron/Rand Paul nuclear and end the world as we know it. Instead, trim a few programs you don’t like and spend a little more on your pet projects. Be a minimalist.
You don’t have the ability to play the economy like a fiddle like the fiddle-fool Krugman is advising. Let’s face it, while neither you nor I nor your political advisers know diddly about the economy, you should listen to us and the polls and not economists like that know-it-all Krugman. And you do have the ability to keep my taxes low by cutting Medicare and Social Security in the name of deficit reduction. Keep up the good work Mr. President, love David Brooks.
Posted by Michael A. Kamperman on July 3, 2010
Nobel Prize winning Economist Paul Krugman has ended the unchallengeable mantra that we have avoided the risks of another Great Depression by claiming in his liberal leaning New York Times column that he believes we have already entered a new depression. He is an expert on global trade and on the Japanese depression of the last two decades. Yet our chronically tin eared President declared after a widely agreed upon disappointing unemployment report by both the right and the left that “make no mistake — we are headed in the right direction.” About the only other thing the left and the right agree upon is that make no mistake-we are NOT heading in the right direction. After that the road forks. President Obama has failed to heed the pleas of those begging for job creation policies and for jobs to become the number one issue on his agenda. Every few months he says jobs is now number one and then jobs quickly move to the back burner. Well the chickens are coming home to roost. Rather than hailing the drop in the unemployment rate from 9.7% to 9.5%, the media is highlighting that this only occurred because 652,000 people dropped out of the work force. The country has soured on smoke and mirrors and wants substance. President Obama praised Senator Robert Byrd as someone with “quintessential American quality, and that is a capacity to change, a capacity to learn, a capacity to listen, a capacity to be made more perfect.” Hopefully President Obama will gain the capacity to listen because we desperately need a change in economic policies.
The President’s tin ear resulted in his being summarily dismissed in his calls for more European stimulus spending and ended up with the G-20 agreeing to halve their budget deficits by 2013. The President has not championed extending stimulus spending at home for 2011 and he plans to raise taxes by letting both the stimulus tax cuts and the Bush tax cuts expire. What he has championed is a bi-partisan deficit cutting commission. Leaders need to walk the walk and not just talk the talk. The reason the President is desperate for Europe to continue to spend is his whole plan to restore the U.S. economy depends on exports. Many of his economic advisers believe the U.S. doesn’t need a vibrant housing market, or vibrant consumers. They believe we need to be more like China and focus on manufacturing and exports. Hopefully the President ”listened and learned” that we can’t export our way to prosperity because there are no buyers out there. We need to recreate demand here. To build a home in America one needs to be physically in America.
By spending the last year with a tin ear the President has squandered any chance to push fiscal policies through the Congress that will make a meaningful economic difference. This failure to fight for jobs every day has consequences. For many they will lose their job or their business. For the President, he will lose the large majorities he enjoyed in Congress and he may lose any majority at all. After only one and a half years the President is heading towards long-term lame duck status. This prediction will become a certainty unless the President gains the “quintessential American quality, and that is a capacity to change, a capacity to learn, a capacity to listen, a capacity to be made more perfect.” The reason the deficit is so large is because we have so many people hurting. The President needs to call for a plan that leaves no unemployed person behind. He needs to say that every willing and able person in America that wants a job will get one, preferably from the private sector but also from the public sector if need be. He needs to say the way to cut our deficit is not through austerity, but through growth. He needs to say we need to look to ourselves to solve our problems and not to others. He needs to fund this Jobs for Every-One program with printed money and continue to print money to fund the program until the budget deficit reaches a sustainable target of less than 3%. Working people pay taxes, pay mortgages, and don’t collect unemployment benefits. Can you listen Mr. President? Can you learn Mr. President? Can you change?
Posted by Michael A. Kamperman on June 30, 2010
The New York Times had an editorial calling for an extension of unemployment benefits. However, I took serious disagreement with their endorsement of deficit reduction by saying “A sane approach would couple near-term federal spending with a credible plan for deficit reduction — a mix of tax increases and spending cuts — as the economic recovery takes hold.” In reality this is just a euphemism for cutting Social Security and Medicare benefits. This is not a sane approach. It is akin to the concept that the real fiscal threat is our debt and our long-term structural deficit, which is simply not true. The U.S. Government owes everyone dollars, which it can print. Now would be a very good time to start printing some money. In reality there are going to be fewer jobs per-capita in our economy for a long time. The sane approach would be to lower the age of eligibility for full Social Security and Medicare to age 60 and to give everyone on Social Security a 20% raise. This is counter-intuitive to current mainstream thinking. But in the 1930’s Keynes concepts of government spending seemed counter-intuitive to maintaining a healthy economy.
It would cost $400 billion a year to lower the retirement age to 60. But the question should be what would we get for that $400 billion? For starters would we get a cadre of young retirees ready to volunteer at the charity of their choice. Plus, most of these retirees would maintain their spending patterns as they tap additional sources of retirement savings. Companies would be able to lower their health care spending as those over 60 who choose to keep working would move to Medicare. Older workers are the most expensive workers in health insurance risk pools. This would free up compensation money for raises for other employees. Some would be moving from Medicaid to Medicare, which would lower the cost of the Medicaid program. But the biggest benefit would be millions of jobs would open up for unemployed workers and young people entering the workforce. This would save billions and billions of dollars at the state and federal level as unemployment spending and supplemental nutritional (food stamps) spending would decrease. And, the income of the unemployed would rise boosting consumer spending and tax revenues. Additionally, confidence in a more secure and earlier retirement would encourage people in their 50’s to spend more money rather than fear that they will have to wait longer to receive Social Security and Medicare benefits. And the ensuing decline in the unemployment rate would entail a huge boost in consumer confidence.
Raising the retirement age, which is the goal of President Obama’s Deficit Commission, will trap us into years and years of high structural unemployment rates. America needs to find a way out of this New Great Depression and raising taxes and cutting federal government spending was tried in 1937 and ended in abject failure. So why even give lip service to an obviously failed policy. We remain trapped in a mindset that since we have to balance our budgets the federal government should also have to balance its budget. But no other entity is like the U.S. Government, because they can print money and we cannot. Those that acknowledge the debt and the deficit are a serious problem give the upper-hand to the Deficit Hawks. In no way do I see either as problematic. We can print China a one trillion dollar check anytime they want their money back.
