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Congress, White House Prepare for Battle
Tweet Share on Facebook August 31, 2007 Comment"Forget about 2007. It's all about the 2008 and the election," is how one veteran Capitol Hill watcher said I should think about all the upcoming goings-on and machinations in Congress. Both parties are trying to "prepare the battlefield" this fall to put themselves in the best position with voters come Election Day 2008.
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Can Republicans Explain Why Higher Taxes Are Bad?
Tweet Share on Facebook August 29, 2007 Comment (47)The Republican presidential candidates seem to be assuming that their Democratic rivals are going to push for repeal of all the Bush tax cuts. That's why they are always talking about a potential $2 trillion-plus tax hike when those reductions expire at the end of 2010. More likely, Democrats will call for only the tax cuts on wealthier Americans to be repealed—such as raising the top rate from 35 percent to 40 percent—and for keeping most of the middle-class tax cuts, including rate reductions and a higher child tax credit.
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Giuliani on Taxes and a Homeowner Bailout
Tweet Share on Facebook August 27, 2007 CommentI had a chance to chat with Rudy Giuliani this weekend, on Saturday morning, just after he finished with his "tax summit" campaign event in Manchester, N.H. There, Giuliani offered his case for making the Bush cuts permanent, killing the estate tax (or "death tax," as he puts it), indexing the alternative minimum tax to inflation, and lowering corporate taxes. The easy-reading, truncated version of the interview can be found here. But lucky CapCom readers get to peruse the longer "director's cut." No Iraq, no abortion, no immigration—just hardcore economic policy. Giuliani speaks at length about taxes, Social Security, and the mortgage crisis. But since you're likely to be Giuliani-ed out by the end, I am giving my analysis upfront. My takeaways are as follows:
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Would a Bush Bailout Save the GOP?
Tweet Share on Facebook August 24, 2007 Comment (2)The last politician who took advice from the bond market was Bill Clinton. When he pushed for a tax hike back in 1993 to cut the budget deficit, it was under the assumption that bond investors would respond by bringing down interest rates. (The theory here is that deficits are inflationary. Inflation is bad for bonds.) Yet long-term interest rates surged from 6.45 percent when Clinton signed his tax-hike bill on Aug. 10, 1993, to 8.16 percent on Nov. 7, 1994, the day before the midterm congressional election where Republicans won back the House and Senate.
Now PIMCO's Bill Gross, perhaps the most well-known bond fund manager in the world, is giving President Bush and the GOP some advice. He wants the government to start cutting checks to struggling homeowners, as both good policy and smart politics. (Bush has already ruled out any direct payments.) As Gross wrote in his recent letter to clients:
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Tax Views of Fred Thompson Alarms Conservatives
Tweet Share on Facebook August 23, 2007 Comment"I mean, what the hell was that?" was the puzzled reaction of one conservative activist to a recent interview with soon-to-be White House contender Fred Thompson, in which the Republican compared tax cuts to entitlement spending. Two others expressed similar puzzlement in recent chats with me. According to the Washington Post:
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Poison Pajamas and Chinese Economic Growth
Tweet Share on Facebook August 22, 2007 CommentNews that New Zealand's government is investigating clothing imports from China, including children's pajamas, after some were found to contain dangerous levels of formaldehyde is only the latest incident that has raised concerns about the safety of Chinese exports. About a month ago, I had a brief E-mail chat with Simon Anholt, a British government adviser specializing in the field of nation branding, about the impact of these product safety issues on the Chinese economy.
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U.S. Incomes Are Falling ... Nope, They're Not
Tweet Share on Facebook August 21, 2007 Comment"More Americans making ends meet with less money," was the headline atop a Boston Globe story Tuesday morning. The newspaper went on to tell its readers that Americans in 2005 earned a smaller average income, when adjusted for inflation, than in 2000, $55,238 vs. $55, 714.
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Did the White House Rig the Stock Market?
Tweet Share on Facebook August 20, 2007 Comment (2)I don't have the storytelling chops of, say, Oliver Stone, but I'll do my best here: Last Thursday, the stock market was deep in the red all day, with the Dow trading down more than 300 points at its nadir because of investor fears about the mortgage credit crisis. Then as the session drew to a close, the stocks staged an amazing comeback. That huge deficit was nearly erased as the market finished with a miniscule 16-point loss for the day. Then on Friday, stocks soared after the Federal Reserve announced a surprise cut in the discount rate.
Now most traders attributed that Thursday comeback to rumors that Federal Reserve Chairman Ben Bernanke had seen enough and the central bank would take some action the next day. Others around the blogosphere had a different theory—make that "conspiracy theory." The Adventures of Citizen X blog wondered if the comeback was "a result of investors working through their worries (in a couple of hours no less) or government intervention?" The blog at Greenback Consulting, a stock trading firm, was also full of questions:
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Bernanke Blinks and Wall Street Rallies
Tweet Share on Facebook August 17, 2007 Comment"Fed says 'no más,'" is how JPMorgan economist Bruce Kasman succinctly summed up the Federal Reserve's decision to cut the discount rate—the rate it charges banks on loans they receive from the Fed's so-called discount window—in his morning note to clients. And little wonder why: The whole global financial system seemed to be going a bit pear-shaped as the week ended. Even though Wall Street staged a late-day rally yesterday, Japan's benchmark Nikkei fell 5.4 percent overnight, its biggest drop in seven years.
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Bernanke Plays a High-Risk Game
Tweet Share on Facebook August 16, 2007 Comment (1)"The hedge fund boys get in a little trouble and now you want the nanny state to come to the rescue?" is how economist Dean Baker, director of the Center for Economic and Policy Research, good-naturedly critiqued my recent call for the Federal Reserve to cut interest rates. Yet it's not just millionaire hedge fund managers taking a beating right now. Whenever the Dow tanks—as it's doing again today—America's broad investor class suffers, too.
Of course, it's not the Fed's role to protect investors—whether their money is socked away in hedge funds or 401(k)'s—from 10 percent market corrections. But one thing the Fed is supposed to do is prevent financial panic from dragging the economy into recession. Economist and CNBC host Larry Kudlow points out in a must-read blog post today that the huge drop in yields on supersafe three-month treasury bills—they're currently trading at a full percentage point lower than last week—is particularly ominous amid this spreading credit crunch. What does this all mean? Let me quote Kudlow at length:
