US (and Coral Gables) Economy in Real Danger

June 4, 2011 Leave a comment

The unfathomable politics of the US is driving the economy into stagnation at a time when there are more than 20 million people unemployed or poorly employed.  Politics is at the worst moment centering current public political warfare on the deficit and the danger of the US bond market coming under attack (I guess from our own financial sector that had been saved by the US government not too long ago).  This translate into deepening social welfare declines, a lost generation of professionals graduating and going into professionally demeaning jobs, if any.

We will now see what leadership emerges in this country now that the growth prospects will hurt not only the middle class, but the business and financial class too.

Today’s employment report should be a wake-up call to policymakers who continue to say the budget deficit is a more immediate threat to the economy than the jobs deficit.  Nearly two years after the economy technically turned the corner from recession to recovery, job growth was disappointing in May and unemployment remained high.  At the same time, interest rates are very low (see chart), indicating that financial markets are far more concerned in the near term about a sluggish recovery than about deficits, debt, or inflation.

via Statement: Chad Stone, Chief Economist, on the May Employment Report — Center on Budget and Policy Priorities.

Filed under Coral Gables, Economy, National

The Future for our Economy is Bleak–Deficit Cutting Will Make it Worse

June 3, 2011 Leave a comment

This is first year economics, economics that seems beyond our politicians who are ready to drive us into another recession.

Local governments will have to continue a exercise of austerity, rather than inventing new projects and more borrowing (e.g. city of Coral Gables).

 

Paul Krugman: The Mistake of 2010

Will we continue to repeat the mistakes of the past?

The Mistake of 2010, by Paul Krugman, Commentary, NY Times: Earlier this week, the Federal Reserve Bank of New York published a blog post about the “mistake of 1937,” the premature fiscal and monetary pullback that … prolonged the Great Depression. As Gauti Eggertsson … points out, economic conditions today — with output growing, some prices rising, but unemployment still very high — bear a strong resemblance to those in 1936-37. So are modern policy makers going to make the same mistake?

Mr. Eggertsson says no, that economists now know better. But I disagree. In fact, in important ways we have already repeated the mistake of 1937. Call it the mistake of 2010: a “pivot” away from jobs to other concerns, whose wrongheadedness has been highlighted by recent economic data. …

Back when the original 2009 Obama stimulus was enacted, some of us warned that it was both too small and too short-lived. … By the beginning of 2010, it was already obvious that these concerns had been justified. Yet somehow … it became conventional wisdom that the deficit, not unemployment , was Public Enemy No. 1…

So, here we are, in the middle of 2011. How are things going?

Well, the bond vigilantes continue to exist only in the deficit hawks’ imagination. … And the news has, indeed, been bad. As the stimulus has faded out, so have hopes of strong economic recovery. … So, as I said, we have already repeated a version of the mistake of 1937, withdrawing fiscal support much too early and perpetuating high unemployment.

Yet worse things may soon happen.

On the fiscal side, Republicans are demanding immediate spending cuts as the price of raising the debt limit and avoiding a U.S. default. If this blackmail succeeds, it will put a further drag on an already weak economy.

Meanwhile, a loud chorus is demanding that the Fed … raise interest rates to head off an alleged inflationary threat. As the New York Fed article points out,… underlying inflation remains low. …

So the mistake of 2010 may yet be followed by an even bigger mistake. Even if that doesn’t happen, however, the fact is that the policy response to the crisis was and remains vastly inadequate.

Those who refuse to learn from history are condemned to repeat it; we did, and we are. What we’re experiencing may not be a full replay of the Great Depression, but that’s little consolation for the millions of American families suffering from a slump that just goes on and on.

via Economist’s View: Paul Krugman: The Mistake of 2010.

Filed under Coral Gables, Economy, Finance, National

Tax Cuts, Bush’s Spending and the Social Safety Net

May 22, 2011 Leave a comment

There are two points here.  If you just let the Bush tax cuts expire the country’s capacity to pay its debt will be stable for ten years.  Also, the other key to debt has been spending on wars and the Bush Medicare Part B prescription benefit.  Otherwise, the remaining balance of spending as a cause of debt is trivial.  In other words, cutting employment programs, education spending and other social safety nets pays for the tax cuts of the wealth.  This is not a good political or economic system, nor is it sustainable over time, and may threaten our democracy eventually.

We focus here on debt held by the public, which reflects funds that the federal government borrows in credit markets to finance deficits and other cash needs.  That’s the proper measure on which to focus because it’s what really affects the economy.  We compare it to GDP because stabilizing the debt-to-GDP ratio is a key test of fiscal sustainability.

…simply letting the Bush tax cuts expire on schedule (or paying for any portions that policymakers decide to extend) would stabilize the debt-to-GDP ratio for the next decade.   While we’d have to do much more to keep the debt stable over the longer run, that would be a huge accomplishment.

via Economist’s View: Bush Tax Cuts, Wars Major Drivers of Projected Government Debt.

Filed under Economy, National

Geithner’s Sad Facts for the US

May 18, 2011 Leave a comment

It is hard to imagine the urgency of the governor and the House of Representatives to cut benefits for the poor.  Apparently, more poor is not a big concern for the most rich.  Better the poor than pay more taxes.

Here are five facts that Treasury Secretary Timothy Geithner offered in a speech in New York Tuesday as  “context for the [fiscal] choices we must make now to preserve room for important investments in our future.”

• In the U.S. today , 40% of children born each year are covered by Medicaid.  If you are born today in hard-pressed communities in many American cities, like St. Louis or Baltimore, you are more likely to die before your first birthday than if you were born in Sri Lanka or Belarus.

• In education, we’re losing ground…. In Los Angeles, only about half the kids graduate from high school.

• Over the next 25 years, the number of Americans eligible for Medicare and Social Security will nearly double, while the number of working age Americans will only increase by about 10%, putting substantial new burdens on working Americans.

• We spend $700 billion a year on national security… about two-thirds of what we spent as a share of our economy during the Cold War.

• The effective income tax rate for the wealthiest Americans—those earning more than $250,000 a year—is at its lowest level in 50 years. And the effective rate for the very rich—those earning over $10 million per year— has declined much further and is now around 21%.

via Geithner Offers Fiscal Facts – Real Time Economics – WSJ.

Filed under Economy, National

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