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Can Schwarzenegger Be the GOP's Cameron?
Tweet Share on Facebook May 20, 2008 Comment (8)Arnold Schwarzenegger has played some great characters. John Matrix in Commando. Dutch in Predator. Conan in Conan the Barbarian. The Terminator in Terminator. But can he play the role of David Cameron, the green-tinged British Tory leader, in today's Republican Party, particularly on economic policy? He's sure trying to:
The Republican idea is a great idea, but we can't go and get stuck with just the right wing. Let's let the party come all the way to the center.... Let's invade and let's cross over that [political] center. The issues that they're talking about? Let them be our issues, and let the party be known for that.
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5 Bits of Good News on the Un-Recession
Tweet Share on Facebook May 20, 2008 Comment (10)Michael Darda of MKM Partners reels off a list of positive economic indicators:
1) The Conference Board's Index of Leading Economic Indicators rose for the second consecutive month in April after a five month string of negative readings that lasted from October though February.
2) The economically-sensitive Dow Jones Transport Average hit new, all-time highs today on both an absolute and relative (to the DJIA) basis.
3) Emerging market stocks are up 24% since March 17 and at all-time highs relative to the S&P 500—a signal that the developed economy slowdown isn't likely to take too large a toll on the emerging world.
4) Swap and paper bill spreads have collapsed, pointing to a thawing in credit markets (and faster growth down the road).
5) Finished goods and services prices (excluding energy) are rising faster than unit labor costs, a forward-looking indicator of profits.
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When Is the Fed Going to Raise Rates?
Tweet Share on Facebook May 20, 2008 Comment (1)You might want to keep on eye on the December 18 Federal Open Market Committee meeting, the first one after the election, or the two-day meeting on January 27-28 in 2009 for the next Fed action, a rate hike. But it doesn't look as if the central bank is going to move much sooner than that. Michael Feroli of JPMorgan tells us why (bold is mine):
Federal Reserve Vice Chairman [Donald] Kohn gave a talk this morning on the economic outlook that was much less hawkish than the rhetoric heard from some of his FOMC colleagues over recent weeks. His description of the near-term economic outlook was uniformly downbeat.... In terms of uncertainties around the growth outlook, Kohn pointed to only one risk and that was to the downside: house prices could fall further than anticipated.... Kohn stood by the FOMC projection that energy prices will level off, following the prices implied by futures markets. While he did voice concern that longer-term inflation expectations have "edged up," wage inflation remains tame, evidence that higher headline inflation has not fed through convincingly to inflation expectations.... In short, there is nothing in today's speech that suggests the influential Vice Chair sees the Fed taking back rate cuts any time in 2008. And while Kohn certainly did not put further rate cuts on the table, neither was that option taken off the table, should downside risks be realized.
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Ron Paul's Libertarian Lesson for John McCain
Tweet Share on Facebook May 19, 2008 Comment (200)During the Republican presidential debates, John McCain seemed to show as much disdain for Ron Paul as he did for Mitt Romney. But while McCain certainly has no use for Paul's antiwar views, he might want steal Paul's oft-stated idea that Americans are being hit hard by an "inflation tax." This from Paul's website (bold is mine):
Today, the federal government burdens us with one of the most dangerous taxes it can impose—the inflation tax. When the federal government finds that it cannot afford its out-of-control spending, and is unwilling to directly tax the public, it resorts simply to creating the money out of thin air.... We cannot possibly expect the government to control spending when it has a blank checkbook.... This greatly benefits the politicians and special interests—they are able to finance the massive welfare-warfare state. But how does this inflation affect you?...Day by day, every dollar you have is being devalued. You pay an inflation tax without even realizing it because you are forced by a falling dollar to pay more for goods and services.... The disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation, are some of the greatest threats facing our nation today.
My take: Whipping inflation was every bit as important as cutting regulation and taxes in creating our quarter-century economic boom. (And talk about a "tax cut" that more than pays for itself.) Although it's pretty unlikely that McCain would endorse one of Paul's edgy libertarian solutions—legalizing competing currencies—this idea does certainly play into one of McCain's main themes: cutting the size of government. And by connecting government spending to the "inflation tax," McCain would turn a kind of no-fun, root-canal economic plan into pro-growth economic plan and identify with a problem that certainly concerns many Americans today.
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5 Ways the Next President Can Fix the Economy
Tweet Share on Facebook May 19, 2008 Comment (70)"How the Next President Should Fix the Economy" is the current cover story at Time magazine. I think I can briefly sum up the 3,000-word story, written by Justin Fox, thusly: This election is a biggie for the economy. Insecure Americans want higher taxes and more regulation. Government should spend more on infrastructure to combat income inequality. Get rid of the Bush tax cuts even if it weakens the economy. Raise energy taxes. Increase regulation on Wall Street. Nationalize healthcare, pretty much.
This article may well be prophetic. But it is supposed to be prescriptive. How does any of that stuff make the economy more productive and competitive? About the only idea presented in the whole story that might have a positive growth impact is getting rid of the mortgage interest deduction. Now here are five ideas that both liberals and conservatives might agree on that also could actually improve economic growth by embracing the American model of capitalism that's working wonders the world over:
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More Good News for the Un-Recession
Tweet Share on Facebook May 19, 2008 Comment (1)While Washington continues to debate the best ways to fix Wall Street, Wall Street is already healing itself. This from Jim Glassman at JPMorgan Chase:
Financial markets are reopening for new business.... A key factor in this improving sentiment...is the recognition by banks of losses. Announcements of bank writedowns are heading to page two. Since last summer, the international banking community now has marked asset values down almost $350 billion. And it has raised more than $260 billion of new capital. Even if the most pessimistic assertions were right, that aggregate credit losses suffered by all investors could be up to $1 trillion and those at leveraged companies about $400 billion, this is real progress.... This cautious optimism is supported by at least two other considerations. First, many market critics believe that banks have been forced to overdo the writedowns, because of the mark-to-market rules that look to market indexes for guidance on how to value assets.... If they are right, some writedowns already recognized will turn into markups in the future. Second, further declines in house prices are not likely to lead to as many new foreclosures at the same intensity that was observed in the last couple of years, because the 12% decline in house prices to date seems already to have washed out many of the speculators.
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The Dollar as a Dark-Horse Political Issue
Tweet Share on Facebook May 16, 2008 Comment (17)When it comes to economic policy, a nation's currency is pretty much the ur-factor. But the political sharpies keep telling me that people don't care about the weak dollar, or at least that it doesn't have any legs as a political issue. I think they are dead wrong. People are beginning to understand how the anemic greenback is playing a role in high energy prices and inflation. Take a look at these poll results:
A Bloomberg/Los Angeles Times poll found that 76 percent of Americans think the government should do something to halt the falling dollar. Among those with incomes of $100,000 or more, 7 in 10 favored aiding the currency.... The U.S. currency has slumped 41 percent against the euro since 2002 and 13 percent in the past 12 months alone.
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Bush Ready to Join the Bailout Bunch
Tweet Share on Facebook May 16, 2008 CommentAs I have been predicting, it looks more and more as if President Bush will agree to some sort of bailout for struggling homeowners based on the Dodd-Frank bill. Further evidence today from American Banker:
Sen. [Richard] Shelby [ranking Republican on the Senate Banking Committee] said he expected the White House would support the final agreement. The White House had vowed to veto the House version of the bill, arguing it was a bailout that put taxpayer money at risk. "We've been working with the White House...on some principles that [President Bush] will agree to," Sen. Shelby said.
My take: In a U.S. News interview this morning, the senator basically said the deal is a go in the Senate and will be signed by Bush.
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Inflation Nation
Tweet Share on Facebook May 16, 2008 Comment (3)This analysis by JPMorgan Chase is really bad news:
Consumer sentiment dropped to a 28-year low in early May, and there is increasing evidence that surging short-term inflation expectations are spilling over to long-term inflation expectations. One-year inflation expectations increased to 5.2 percent from 4.8 percent a month earlier and are now at their highest level since 1982. Five- to 10-year inflation expectations have moved up less dramatically, but, after rising from 3.2 percent to 3.3% percent, they are now at their highest level since 1996.
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The Absolute Dumbest Wall Street Journal Story Ever. Really
Tweet Share on Facebook May 15, 2008 Comment (23)What the heck is the matter with Thomas Frank? The new columnist at the Wall Street Journal—and author of the book What's the Matter With Kansas?—wrote a commentary earlier this week, "Our Great Economic U-Turn," that basically said the economic boom of the past quarter century was a "man-made catastrophe." (It's an opinion seemingly shared by Barack Obama if you listen to his speeches.) This chunk pretty well sums up Frank's thesis:
What has overtaken America's working people is not a natural disaster like "globalization," and not even some kind of societal atavism in which countries regress mysteriously to their 19th-century selves. This is a man-made catastrophe, a result that proceeded directly from the deliberate beatdown of organized labor and the wrecking of the liberal state. It is, in other words, a political disaster, with tax cuts, trade agreements, deregulatory measures, and enforcement decisions all finely crafted to benefit one part of society and leave the rest behind.
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