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Friday, March 16, 2012

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Economic Events of the Week

Friday – Consumer Price Index

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Story of the Day
The U.S. Is Number One (Wall Street Journal Editorial)

Washington Update
Obama Shifts Healthcare Defense (The Hill)
Democrats Unhappy With JOBS Act Trajectory (Roll Call)

Market Talk
Consumer Prices: Inflation in ‘Sweet Spot’ For Fed (WSJ MarketBeat)
Moody’s Attacks Rivals On Debt Risks (Financial Times)

Editorials & Opinions
Unions Send Doctor Bills to Taxpayers (Steven Greenhut in Bloomberg)
A Time For Risk-Taking (Robert Samuelson for Washington Post)
Why Quantitative Easing Is The Only Game In Town (Martin Wolf in Financial Times)
ObamaCare and Employer-Based Health Insurance (Philip Klein in The Washington Examiner)

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Story of the Day

The U.S. Is Number One (Wall Street Journal Editorial)

April 1 is a date that every politician and business executive in America should circle on the calendar. That's when Japan cuts its corporate tax rate to 36.8% from 39.5%. The United States will then hold the title of highest corporate tax rate, with average combined federal and state profit levies of 39.2%. Yes, that's higher than Sweden. Higher than Russia. And China, Mexico, Denmark and even France. Doesn't it make you want to break out in a chant: U-S-A, U-S-A?


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Washington Update

Obama Shifts Healthcare Defense (The Hill)

The Obama administration has shifted its legal arguments as it prepares to defend the president’s healthcare law before the Supreme Court. Written briefs in the landmark case increasingly have focused on a part of the Constitution that didn’t get much attention in lower courts. Some legal experts say the shift could steer the case in a direction that would make Justice Antonin Scalia more likely to uphold the healthcare law’s mandate requiring individuals to purchase health insurance.

Democrats Unhappy With JOBS Act Trajectory (Roll Call)

To the chagrin of some Democrats, Senate Majority Leader Harry Reid (D-Nev.) today moved to limit amendments on a House-passed JOBS Act and set up two procedural votes for Tuesday — the only amendments expected to be offered to the measure... The first vote Tuesday will be whether to cut off debate on a Democratic substitute package that includes many of the changes some Democrats were hoping to make as part of a Senate version of the House bill. Offering it as an amendment, rather than the underlying bill, often makes it harder to prevail on the Senate floor. Outside groups that were critical of the House bill expected the Senate to take up its own version.


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Market Talk

Consumer Prices: Inflation in ‘Sweet Spot’ For Fed (WSJ MarketBeat)

Surging gas costs drove consumer prices higher in February, although the increase fell just shy of what economists’ had been expecting. The consumer price index rose 0.4% last month, the biggest spike since April 2011. Prices were up 2.9% from a year ago. Energy costs surged largely due to the big uptick in gas prices. The “core” price index, which removes food and energy costs and is the reading the Fed favors to gauge inflation, rose only 0.1% in February. Economists were anticipating a 0.2%.

Moody’s Attacks Rivals On Debt Risks (Financial Times)

Moody’s has taken a public shot at its rivals, warning that some of their credit ratings do not reflect rising risks in the securitisation markets. Credit rating agencies have been vilified for failing to properly assess the risks associated with subprime and other lower quality mortgage debt ahead of the financial crisis. They gave triple A ratings to billions of dollars of mortgage securitisations that turned out to be far riskier and banks and investors suffered large losses.


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Editorials & Opinions

Unions Send Doctor Bills to Taxpayers (Steven Greenhut in Bloomberg)

The U.S. public pension mess, with its $2 trillion to $3 trillion in unfunded liabilities, is such a volcano of gloom that it takes a potentially bigger problem to turn our eyes away from it. Turn your attention instead to the size of the taxpayer- backed health-care obligations for public employees.“Frankly, if you want to look at a truly scary set of unfunded liabilities, health care for retirees is a better choice than pensions,” said California Treasurer Bill Lockyer in an October speech meant to play down the pension crisis. Not that Lockyer or his Democratic and union allies want to reduce any benefits that are at the heart of the problem. In their view, the real scourge is “pension envy” or perhaps “health-care envy” -- the failure of the private sector to keep up with government-benefit levels.

A Time For Risk-Taking (Robert Samuelson for Washington Post)

Outwardly, the IPO market seems healthy. In 2011, Zynga, an electronic game company, raised $1 billion from its IPO, and Groupon, the cyber coupon firm, tapped the market for $700 million. The Godzilla of IPOs — Facebook’s — might raise $5 billion this spring. Unfortunately, appearances are deceiving. The IPO market “has never really recovered from the 2000 collapse” of Internet startups, says Harvard Business School professor Josh Lerner, a venture capital expert. “There are some spectacular (successes) — the YouTubes, Googles and Facebooks. Where there’s a drying up is midlevel companies.” From 1985 to 2000, the annual number of IPOs averaged 154, reports the National Venture Capital Association. In 2011, there were 52. Precisely, contend the venture capitalists (VCs). Only colossal winners can easily do IPOs; many successful, smaller companies can’t. And misguided government regulations, say VCs, are the main reason.

Why Quantitative Easing Is The Only Game In Town (Martin Wolf in Financial Times)

The BoE argues that asset purchases work by restoring confidence, signalling future policy, forcing rebalancing of portfolios, improving liquidity and increasing the money supply when the standard mechanism – lending by banks – has frozen. Overall, suggests the BoE’s analysis, the initial QE of £200bn raised gross domestic product by 1½-2 per cent and inflation by ¾-1½ per cent. If so, it prevented a “double dip” recession, while worsening already high inflation – a reasonable trade-off. If the subsequent QE of £125bn, agreed in October 2011 (£75bn) and February 2012 (£50bn) has a proportionate impact, it might amount to 1-1¼ per cent higher GDP – nice to have, but not decisive. It is striking just how much the central bank has to do to when aggregate demand, credit supply and corporate confidence are all so battered.

ObamaCare and Employer-Based Health Insurance (Philip Klein in The Washington Examiner)

This morning, the Congressional Budget Office released a new report estimating that three to five million fewer people would receive employer-based insurance coverage under President Obama’s national health care law in each year from 2019 to 2022 than would be the case without the law. Under one scenario, the CBO said as many as 20 million would lose their employer coverage. Conservatives should be careful about how they react to this news.


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