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

 

dashed-line

Wednesday, May 2, 2012

dashed-line
Economic Events of the Week

Wednesday – ADP Employment Report, EIA Petroleum Status Report
Thursday – Jobless Claims
Friday – Employment Situation

dashed-line
e21 Reaction & Commentary
e21 Commentary: Volcker Rule Is Designed To Fail (David Meyers)

Washington Update
Republicans Question Push for Principal Reductions at Fannie and Freddie (National Journal)
House Budget Panel Sets Vote on Alternative Spending Cuts (CQ)
Van Hollen Doesn’t Expect Deal on Budget, Taxes Before Lame Duck (CQ)

Market Talk
Three Fed Policy Makers See No Need to Ease (Bloomberg)
New Short Sales Guidelines from Fannie and Freddie (Calculated Risk Blog)
Higher Inflation Ahead, Investors Warned (Financial Times)
Greenspan Says U.S. Stocks ‘Very Cheap,’ Likely to Rise (Bloomberg)

Editorials & Opinions
Exposing the Medicare Double Count (Charles Blahous and James Capretta in The Wall Street Journal)
Debate and Evidence on the Weak Recovery (John Taylor in Economics One Blog)
After The Bonfire Of The Verities (Martin Wolf in the Financial Times)
The Boss and Everyone Else (The New York Times Editorial)

dashed-line

e21 Reaction & Commentary

e21 Commentary: Volcker Rule Is Designed To Fail (David Meyers)

Peter Wallison’s recent op-ed in defense of proprietary trading has generated a lot of controversy, particularly for his claim that proprietary trading is now good banking policy. But whatever you make of Wallison’s arguments, it’s hard to disagree with his conclusion that the current Volcker Rule is an unworkable disaster. The current Volcker Rule was designed to fail because Republicans and Democrats inserted too many exceptions for their various constituencies and put far too much power and faith in regulators. Congress must either ban proprietary trading completely or repeal the Volcker Rule. Any effort to enforce the provision in its current form is a cynical charade.


arrow Back to Top dashed-line

Washington Update

Republicans Question Push for Principal Reductions at Fannie and Freddie (National Journal)

Republican leaders on the House Financial Services Committee on Tuesday questioned whether the Federal Housing Finance Agency has the authority to reduce the principal on underwater mortgages. They have also asked the agency for details about the Treasury Department’s involvement in the debate. Committee Chairman Spencer Bachus, R-Ala., and seven other committee Republicans, including all of the panel’s subcommittee leaders, sent a letter Tuesday to the acting director of the FHFA, asking for about the agency’s deliberations over allowing Fannie Mae and Freddie Mac to offer principal reductions. “We are writing to understand whether the FHFA can – and should – authorize Freddie Mac and Fannie Mae to forgive a portion of the outstanding principal on mortgages that qualify for relief under the Home Affordable Modification Program,” the lawmakers wrote in the letter.

House Budget Panel Sets Vote on Alternative Spending Cuts (CQ)

The House Budget Committee on Monday will debate and vote on legislation to repeal and replace the automatic spending cuts set to hit in January, putting the House in position to consider the proposals later in the week. The legislation includes a bill (HR 4966) introduced by House Budget Chairman Paul D. Ryan, R-Wis., which would prevent about $98 billion of the $109 billion in cuts for the 2013 fiscal year from taking place. A second reconciliation measure that proposes replacing the automatic cuts in part with $261 billion in reductions to mandatory spending programs will be filed after it’s voted on by the committee next week. The Budget Committee scheduled a markup of the legislation for 2 p.m. Monday.

Van Hollen Doesn’t Expect Deal on Budget, Taxes Before Lame Duck (CQ)

The top Democrat on the House Budget Committee said on Tuesday that the major fiscal issues facing Congress at the end of the year won’t be dealt with until after the election and maybe not until next year. While the confluence of certain tax and spending policies will create a “forcing action,” Chris Van Hollen, D-Md., said at the Bloomberg Washington Summit on the economy, when asked whether Congress would act before a post-election, lame-duck session, his answer was, “regretfully, no.” On a separate panel, former Rep. Vin Weber, R-Minn., and now adviser to Republican presidential candidate Mitt Romney, said he “disputes the logic” that nothing can happen until after the election. However, members of both parties have acknowledged that, given the political uncertainty and the difficulty of many of the decisions that must be made, Congress is unlikely to take action on a variety of tax and spending issues until the lame-duck session.


arrow Back to Top dashed-line

Market Talk

Three Fed Policy Makers See No Need to Ease (Bloomberg)

Three voting members of the Federal Open Market Committee said they don’t see a need to ease policy further as the U.S. economy maintains its expansion. Federal Reserve Bank of Richmond President Jeffrey Lacker said in Washington that more monetary stimulus risks stoking inflation while doing little to strengthen the recovery. San Francisco’s John Williams said the outlook he expects doesn’t warrant more bond buying, and Atlanta’s Dennis Lockhart repeated that he’s skeptical of the benefits of such action. The rate-setting committee left policy unchanged after its April 24-25 meeting, and Chairman Ben S. Bernanke signaled that further stimulus is unlikely unless the economy unexpectedly deteriorates. Bernanke said it would be “reckless” for the central bank to pursue policies that would drive up inflation when it’s already near the Fed’s goal of 2 percent, while noting he’s “prepared to do more” should conditions worsen.

New Short Sales Guidelines from Fannie and Freddie (Calculated Risk Blog)

Fannie Mae and Freddie Mac have issued new guidelines designed to speed up short sales and make them more consistent, but real estate agents question whether they are achievable in the real world. Under the new guidelines, which take effect June 15, servicers have 30 days to review and respond to short sale offers or requests. If they need more than 30 days, they must provide the borrower weekly updates and a final response within 60 days. If the borrower is requesting a short sale under the government's Home Affordable Foreclosure Alternative program, the clock starts ticking when the borrower submits a completed borrower response package requesting consideration of a short sale. If the short sale is not under the government program, the clock starts ticking when the borrower submits a short sale offer from a potential buyer and a completed borrower response package. With the average short sale nationwide taking about six months to complete, real estate agents are happy to see the new timetable but wonder if it's realistic.

Higher Inflation Ahead, Investors Warned (Financial Times)

Bill Gross, manager of the world’s largest bond fund for Pimco, has warned investors that higher inflation lies ahead after stimulative central bank policies created an “ocean” of credit. In his latest monthly letter to investors on Tuesday, Mr Gross said he expected economic growth for most developed economies this year, but that this risked stoking price rises. Mr Gross also returned to a theme that preoccupied him last year and which led to the worst performance in more than a decade for his $253bn Total Return Fund – namely who would buy Treasuries when monetary stimulus came to an end. In his investment outlook, Mr Gross described the Federal Reserve’s view of the effect on the bond market of its efforts to stimulate the economy as “somewhat incomprehensible”.

Greenspan Says U.S. Stocks ‘Very Cheap,’ Likely to Rise (Bloomberg)

Former Federal Reserve Chairman Alan Greenspan said U.S. stocks offer good value and are likely to rise as corporate earnings increase over time. “Stocks are very cheap,” Greenspan said today at the Bloomberg Washington Summit, citing “a very low price-earnings ratio.” “There is no place for earnings to grow except into stock prices,” said Greenspan, who served as Fed chairman from August 1987 to January 2006. Stocks have rallied on better-than-forecast corporate profits and signs of economic strength. The Standard & Poor’s (SPX) 500 Index has risen more than 12 percent this year, the best start to a year since 1998.


arrow Back to Top dashed-line

Editorials & Opinions

Exposing the Medicare Double Count (Charles Blahous and James Capretta in The Wall Street Journal)

One of the enduring mysteries of President Obama's health law is how its spending constraints and payroll tax hikes on high earners can be used to shore up Medicare finances and at the same time pay for a massive new entitlement program. Isn't this double counting? The short answer is: Yes, it is. You can't spend the same money twice. And so, thanks to the new health law, federal deficits and debt will be hundreds of billions of dollars higher in the next decade alone. Here's how it works. When Congress considers legislation that alters taxes or spending related to Medicare's Hospital Insurance Trust Fund, the changes are recorded not just on the Hospital Insurance Trust Fund's books, but also on Congress's "pay-as-you-go" scorecard.

Debate and Evidence on the Weak Recovery (John Taylor in Economics One Blog)

Last week’s GDP release is yet more evidence that this recovery has been remarkably weak, and has been so from the start—averaging only 2.4 percent in the 11 quarters since the recovery began. See my updated charts below with a comparison with the 1983-85 recovery. Debate about the causes of the weak recovery continues, however, with some still blaming the severity of the downturn and the financial crisis and others blaming economic policy. Indeed this was a big part of the recent debate at Stanford between me and Larry Summers which is now available on video. Economic historian Mike Bordo, who is visiting at Hoover and Stanford this year sheds new light on the subject in a recent working paperwith Joseph Haubrich of the Federal Reserve Bank of Cleveland. In a study of U.S. business cycles they find that deep recessions have always been followed by strong rather than weak recoveries and that this is also the case when there are severe financial crises. So history is not on the side of those who blame the preceeding deep recession and financial crisis. Other factors have likely been at work.

After The Bonfire Of The Verities (Martin Wolf in the Financial Times)

What is the future of central banks? It will be busy, because they are now expected to deliver both monetary and financial stability. It will be controversial, because the decisions they make have a huge impact on the distribution of income, people’s access to finance, the way the financial system operates and even the solvency of governments. Before the crisis, the rise of sophisticated modern finance was thought to render redundant the role of central banks as guardians of financial stability. It had been long believed that their role as financiers of government brought only inflation. Thus, central bankers became priests of a monetary policy aimed at low and stable inflation. This past is a foreign country. Central banks have not abandoned the religion of price stability, though some economists have muttered heretical thoughts about the need for higher inflation. Nevertheless, central banking has been transformed, in practice and theory.

The Boss and Everyone Else (The New York Times Editorial)

One lesson of the financial crisis is that excessive pay led to excessive risk-taking. To help curb exorbitant pay, the Dodd-Frank reform law included a so-called say-on-pay provision, which requires companies to put their pay practices to a shareholder vote at least every three years. The law also included a pay-gap provision, which requires companies to calculate and disclose the ratio of the chief executive’s compensation to the median pay package at the company. Say-on-pay, though nonbinding, lets investors influence executive pay, while the pay-gap ratio is crucial to determining whether executive compensation is excessive and to judging the effect of pay gaps on company performance and the broader economy.


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