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Thursday, April 26, 2012

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Economic Events of the Week

Thursday – Jobless Claims
Friday – GDP

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e21 Reaction & Commentary
e21 Commentary: A Guide To The 2012 Social Security Trustees Report (Charles Blahous)

Washington Update
Ben Bernanke Puts Obama, Congress On Notice (Politico)
House Appropriations Marches On Toward Confrontation with Senate (National Journal)
House Panel Targets Health Care Law in Budget Reconciliation Debate (CQ)

Market Talk
Bernanke Says ‘Prepared to Do More’ as Policy Unchanged (Bloomberg)
Fed Sees Economy Recovering Gradually (Financial Times)
Fed Holds Rates Steady, but Outlooks Shift (The Wall Street Journal)

Editorials & Opinions
Can Silicon Valley Fix the Mortgage Market? (Christopher Papagianis in Reuters)
Social Security Trustees: We’re Going Broke (John Goodman in Politico)
Congress Finally Takes on The Fed (George Melloan in The Wall Street Journal)

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e21 Reaction & Commentary

e21 Commentary: A Guide To The 2012 Social Security Trustees Report (Charles Blahous)

This will be the first of two articles on the 2012 Social Security and Medicare Trustees’ reports. I am one of the six trustees of these two programs, and one of two public trustees along with Dr. Robert Reischauer. Our annual reports on these two programs’ finances were released with an accompanying summary on Monday, April 23.


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Washington Update

Ben Bernanke Puts Obama, Congress On Notice (Politico)

Federal Reserve Chairman Ben Bernanke says he’s trying to save the economy, but he warned Wednesday that he won’t be able to if the president and Congress send the country off a “fiscal cliff.” The central bank has control over interest rates — used to pull the nation out of an economic abyss in 2008 — but Bernanke said that won’t make much of a difference if both ends of Pennsylvania Avenue can’t agree to extend some of the expiring tax cuts.“If no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that there’s absolutely no chance that the Federal Reserve could or would have any ability to offset that affect on the economy,” Bernanke said at an afternoon press conference.

House Appropriations Marches On Toward Confrontation with Senate (National Journal)

Drawing an even deeper line in the sand, the House Appropriations Committee on Wednesday passed allocation levels consistent with the House-passed GOP budget on a party-line vote, 28-21. The spending levels – which total $19 billion less than the topline set by the Budget Control Act and passed by the Senate -- set up a potentially ugly fight that could stretch into the already enormously burdened lame duck session if the two sides can’t agree on spending levels before the election. Ranking member Norm Dicks, D-Wash., raised the specter of a shutdown fight in the fall when the two chambers try to pass a continuing resolution, as expected, at the end of the fiscal year. A House GOP unwilling to budge on the levels in a prorated CR seems unlikely, if only because it wouldn’t play well politically a month before the election, but it is a real possibility, Dicks warned.

House Panel Targets Health Care Law in Budget Reconciliation Debate (CQ)

A House panel on Wednesday approved three draft measures that would eliminate key provisions of the health care overhaul to achieve budget cuts — the latest push by Republicans to repeal the 2010 law. In three separate votes, the Energy and Commerce Committee approved the draft bills, which are made up of language from a number of House-passed bills. According to the committee, the measures would save an estimated $114 billion over 10 years. The House budget resolution (H Con Res 112) directed the panel to find $3.8 billion in savings this year, as well as $28.4 billion over a five-year period and $96.8 billion over 10 years. To achieve those savings, panel Republicans targeted the health care overhaul (PL 111-148, PL 111-152) to avoid the automatic spending cuts, or sequestration, set for January.


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Market Talk

Bernanke Says ‘Prepared to Do More’ as Policy Unchanged (Bloomberg)

Federal Reserve Chairman Ben S. Bernanke said the central bank stands ready to add to its stimulus if necessary even after leaving its policy unchanged today and upgrading its view of the economy for this year. “We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” he said at a press conference today following a meeting of the Federal Open Market Committee in Washington. Additional bond-buying is still “very much on the table.” Treasuries pared losses after Bernanke kept speculation alive that the Fed might embark on a third round of monetary easing after expanding its balance sheet to a record of almost $3 trillion. Central bankers today raised their forecasts for growth and the labor market this year while repeating that borrowing costs are likely to remain “exceptionally low” at least through late 2014.

Fed Sees Economy Recovering Gradually (Financial Times)

Federal Reserve officials left monetary policy unchanged as they upgraded their forecasts for US economic growth for 2012, predicted lower unemployment rates and suggested the appropriate time for interest rate hikes was sooner than previously thought. US central bankers are expecting growth in gross domestic product between 2.4 and 2.9 per cent this year, higher than the 2.2 per cent to 2.7 per cent projections published in January. Meanwhile, they expect the US unemployment rate to sit between 7.8 per cent and 8 per cent in 2012, a notable downward shift compared to the 8.2 per cent to 8.5 per cent range predicted in January.

Fed Holds Rates Steady, but Outlooks Shift (The Wall Street Journal)

Federal Reserve officials reaffirmed their plan to keep short-term interest rates near zero until late 2014 to support economic growth, but hints emerged of policy makers' diverging views about how the central bank might proceed. A number of Fed officials indicated they expect the unemployment rate to fall lower this year than they projected in January, and for economic growth to pick up more. Most officials don't want to shift their stance on interest rates even though the outlook has brightened mildly. "It's a little premature to declare victory," Chairman Ben Bernanke said Wednesday in a news conference following Fed officials' two-day policy meeting. "Keeping interest rates low is still appropriate for our economy."


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Editorials & Opinions

Can Silicon Valley Fix the Mortgage Market? (Christopher Papagianis in Reuters)

Without question, the rise of social networks has been the dominant theme in Silicon Valley over the past few years. Platforms like Facebook and Twitter have inspired countless startups looking to latch on to networks to deliver new applications and services for consumers. In many ways, the glue that binds these enterprises is an advanced ability to organize and analyze the reams of user data generated by these networks or systems. Entirely new business models have emerged to try and capitalize on this improved understanding of consumer preferences and behavior. Over the last couple of years, the analytics experts in Silicon Valley have started to turn their attention to other big data problems. A question that is increasingly attracting their attention is: How can the fallout from the subprime mortgage crisis be better managed for all the players involved, including at-risk homeowners, lenders, mortgage servicers and investors?

Social Security Trustees: We’re Going Broke (John Goodman in Politico)

Here’s some bad news: The latest report of the Social Security and Medicare trustees shows an unfunded liability for both programs of $63 trillion. That is equal to about 4.5 times the entire U.S. gross domestic product. The unfunded liability is the amount we have promised in benefits, looking indefinitely into the future, minus the payroll taxes and premiums we expect to collect. It’s the amount we must have in the bank today, earning interest, for these entitlement programs to be solvent. We not only don’t have the money in the bank, no one has a serious plan to put it there.

Congress Finally Takes on The Fed (George Melloan in The Wall Street Journal)

Two bills now before Congress make it clear that legislators are finally giving serious attention to a much-needed reform of the Federal Reserve System. The most recent effort is the Sound Dollar Act (H.R. 4180) introduced in the House in March by Rep. Kevin Brady (R., Texas), vice chairman of the Joint Economic Committee. A companion bill was put before the Senate by Mike Lee (R., Utah). The Sound Dollar Act has far more hope of passage than the more radical H.R. 1098, introduced by Rep. Ron Paul (R., Texas) last year. H.R. 1098 would repeal the legal tender laws, end the Fed's monopoly on money creation, and allow the private production and use of gold and silver as specie. The Sound Dollar Act, though more modest in its goals, would be a good start in reforming the way the U.S. dollar is created and managed. It would give the Fed a single mandate: to maintain price stability. The present dual mandate, which adds maintaining full employment as a requirement, never made any sense when it was enacted during the Carter administration in 1978. That has been amply demonstrated by the experience of the last three and a half years.


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