Subscribe to List View Past Issues RSS translate   facebook facebook Like 0 Comment 0 twitter

 

dashed-line

Monday, April 30, 2012

dashed-line
Economic Events of the Week

Monday – Personal Income and Outlays
Tuesday – ISM Manufacturing Index
Wednesday – ADP Employment Report, EIA Petroleum Status Report
Thursday – Jobless Claims
Friday – Employment Situation

dashed-line
e21 Reaction & Commentary
e21 Commentary: A Guide To The 2012 Medicare Trustees Report (Charles Blahous)

Washington Update
Telling Strength From Weakness (The New York Times)
Taking On Taxmageddon (National Journal)
Boehner Sees Path Forward on Student Loan Rates (CQ)

Market Talk
Housing Ends Slide but Faces a Long Bottom (The Wall Street Journal)
Slowdown Points to Gloom For Industrials (Financial Times)
Father of Treasury Floaters Says Now Worst Time for Sales (Bloomberg)

Editorials & Opinions
Government Doesn’t Give Tax Cuts, It Takes More or Less Taxes (KeithHennessey.com)
The Economy Downshifts (The New York Times Editorial)
How Big Banks Threaten Our Economy (Warren Stephens in The Wall Street Journal)

dashed-line

e21 Reaction & Commentary

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

The story of Medicare finances concerns much more than HI Trust Fund solvency. The Medicare Hospital Insurance (HI) Trust Fund operates somewhat similarly to Social Security’s. It is financed primarily by a payroll tax, its solvency is constantly open to re-evaluation, and total benefits aren’t supposed to exceed what participants have paid for. But Medicare Supplementary Medical Insurance (SMI), which covers physician services, prescription drug benefits and other health services, is financed quite differently. It is funded primarily from general government revenues and to a lesser extent from beneficiary premiums, and is deemed “solvent” virtually by definition. To grasp total Medicare finances one can’t look only to the HI solvency projection but must understand cost/income trends for Medicare as a whole. In the near term population aging will drive rising Medicare costs as it does Social Security’s. In the long-run Medicare becomes an even bigger financing problem because of health cost inflation.


arrow Back to Top dashed-line

Washington Update

Telling Strength From Weakness (The New York Times)

Are the perils posed by too-big-to-fail banks a thing of the past? That’s what we keep hearing from Washington. Politicians who wrote the Dodd-Frank law insist that it eliminates the dangers posed by large, politically connected financial institutions. At a news conference last week, Ben S. Bernanke, the chairman of the Federal Reserve, said that higher capital and greater liquidity requirements for big banks, combined with more watchful regulators, were making our financial giants stronger and less likely to require taxpayer backstops. Outside the Beltway, however, it is hardly clear that we’ve resolved this signal threat. Big banks are bigger than ever, and they exert enormous power over regulators and lawmakers. Increasingly, smaller institutions can’t compete. So it was refreshing last week to hear Kevin M. Warsh, a former Fed governor, speak candidly and critically about the government backing that continues to support our largest banks. Equally refreshing were his prescriptions for eliminating the too-big-to-fail problem. NOTE: Here’s a link to Warsh’s full speech, here.

Taking On Taxmageddon (National Journal)

Any mention of General Electric seemed to terrify the tax executives gathered in the ballroom of the Ritz-Carlton in Washington. They could think of few professional calamities worse than landing on the front page of a major newspaper, as GE had, with a headline declaring that the company they worked for paid zero federal income taxes in 2010. It hadn’t mattered that GE had whittled down its tax bill legally by parking its profits offshore, successfully lobbying for breaks, and practicing aggressive accounting. Nor did it matter that GE publicly pushed back against The New York Times’ story. The only thing that mattered was the public perception that GE was a scofflaw, that it was getting away with something. The story had shone a light on shadows in the tax code—a light that could soon fall on any of the companies that play the tax game.

Boehner Sees Path Forward on Student Loan Rates (CQ)

House Speaker John A. Boehner predicted on Sunday that Democrats and Republicans will be able to work together and pass legislation to avert a politically damaging increase in student loan interest rates. “Democrats and Republicans have been working together to get this resolved and I believe that we will,” Boehner, R-Ohio, said on CNN’s “State of the Union.” The House on Friday passed a bill 215-195, that would prevent the 3.4 percent interest rate on student loans from doubling starting July 1 and pay for the $6 billion cost of the bill by eliminating a fund in the 2010 health care overhaul that covers prevention and public health. The bill received 13 Democratic votes and all but 30 Republicans supported it.


arrow Back to Top dashed-line

Market Talk

Housing Ends Slide but Faces a Long Bottom (The Wall Street Journal)

Nearly six years after home prices started falling, more U.S. housing markets appear to be nearing a new phase: a prolonged bottom. Hitting a bottom, of course, isn't the same as a full-fledged recovery, which is still years off for many housing markets—as well as for millions of people who purchased homes or took cash out during the bubble. The good news is that housing construction and home sales appear to have hit a floor. Home builders cut back heavily in the past four years and began construction on just 434,000 single-family homes last year, the lowest level on record. Research firm Zelman & Associates estimates builders will start construction on 540,000 homes this year, a 24% increase.

Slowdown Points to Gloom For Industrials (Financial Times)

US manufacturers may struggle to maintain earnings momentum in the current quarter as orders for industrial goods show increasing signs of slowing down. Industrial companies’ results for the first quarter have for the most part been robust so far this earnings season, with Boeing, Caterpillar and 3M all raising their outlooks for the full year and companies such as General Electric, Honeywell and DuPont comfortably beating analysts’ expectations. While the results have been hailed as proof of how manufacturing continues to lead the US out of recovery, recent data suggest manufacturers will struggle to match those earnings in the second quarter.

Father of Treasury Floaters Says Now Worst Time for Sales (Bloomberg)

Almost two decades after advising the U.S. to sell floating-rate notes to lower debt expenses, Campbell Harvey says starting to issue the securities now would be a costly mistake for American taxpayers. “In an environment with historically low interest rates, the Treasury should avoid floating-rate debt as it introduces risk,” Harvey, a finance professor at Duke University’s Fuqua School of Business in Durham, North Carolina, said in a telephone interview April 17. “If interest rates go up, it puts the government at risk because they will need to come up with a lot of extra revenue to pay the interest bill.” The U.S. may detail plans for floaters on May 2 when it discloses quarterly funding needs, Mary Miller, the Treasury Department’s undersecretary for domestic finance said in a Feb. 1 press briefing. The Treasury Borrowing Advisory Committee, the bond dealers and investors who meet quarterly with the agency, unanimously endorsed them in February, more than 19 years after Harvey told a Congressional committee that bonds with rates set periodically based on a short-term benchmark would reduce costs.


arrow Back to Top dashed-line

Editorials & Opinions

Government Doesn’t Give Tax Cuts, It Takes More or Less Taxes (KeithHennessey.com)

Wednesday the President spoke to a college crowd in favor of raising taxes on the rich to subsidize low interest rates on student loans. His comments provide an opportunity to explain the signficance of how one talks about taxes. THE PRESIDENT:  “How can we want to maintain tax cuts for the wealthiest Americans who don’t need them and weren’t even asking for them?  I don’t need one.  I needed help back when I was your age.  I don’t need help now.  (Applause.)  I don’t need an extra thousand dollars or a few thousand dollars.  You do.” Let’s assume you agree with the President — that a college student has a greater need for an extra thousand dollars than a rich person.  By itself that judgment does not mean that raising taxes on the rich to further subsidize student loans is good policy. To make a balanced decision you also need to incorporate the harm done by taking money from someone, a factor the President’s quote ignores because it treats tax cuts as given rather than taxes as taken.

The Economy Downshifts (The New York Times Editorial)

The slow start for the economy in 2012 — an annual rate of 2.2 percent in the first three months of the year — is evidence that the recovery is too weak to push joblessness much lower than its current 8.2 percent, and too fragile to withstand the kinds of budget cuts Congressional Republicans are proposing. First-quarter growth was not far off the recent average pace and conditions are certainly worse elsewhere, with many European nations in recession. But that’s false comfort. To make up the damage the Great Recession did to jobs, income, wealth and confidence, the economy needs consistent above-average growth. Europe’s problems will only exacerbate America’s own, by shaving growth from exports or, in a worst case, by destabilizing banks that are linked to the European financial system. So there is no getting around that slower growth means bigger challenges for ordinary Americans, for policy makers and, not least, for President Obama and Mitt Romney. Unfortunately, with election-year partisanship only intensifying Washington’s gridlock, concerted action to support the economy will have to wait until after the election, and no one knows which direction policy will take.

How Big Banks Threaten Our Economy (Warren Stephens in The Wall Street Journal)

As of this past January, any bank operating in the United States with more than $50 billion in assets must have the business equivalent of a living will—plans for what to do in the event of catastrophe. Every well-managed business should have contingencies and ways to assess its health and viability. But the fact that the Dodd-Frank financial regulations require the largest banks to submit detailed plans for worst-case scenarios suggests something is seriously amiss. We all know what happened when the "too big to fail" banks teetered on the verge of collapse in 2008. The government stepped in with $700 billion of taxpayer money, justified by the notion that failed banks would destroy our economy. (Of the eight biggest U.S. banks, only J.P. Morgan Chase didn't receive a bailout.) Three years later, we have Dodd-Frank's complex regulations and banks that are bigger than ever.


arrow Back to Top dashed-line

solid-line

e21: Economic Policies for the 21st Century is a nonprofit, nonpartisan organization dedicated to economic research and innovative public policies for the 21st century. Drawing on the expertise of practitioners, policymakers, and academics, we aim to advance free enterprise, fiscal discipline, economic growth, and the rule of law.

solid-line_1px

2011, e21: Economic Policies for the 21st Century


1150 17th Street, NW - Suite 504 - Washington, DC 20036
Phone: 202-232-0090 | Email: info@economics21.org

52 Vanderbilt Avenue - New York, New York 10017
Phone: 646-673-8539 | Email: info@economics21.org