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Betting Markets: McCain Closes Gap on Obama
Tweet Share on Facebook July 31, 2008 Comment (6)Something is afoot over at the Intrade online betting market. The odds of Barack Obama being elected have tumbled from near 70 percent earlier this month to just below 60 percent right now, while John McCain's odds have risen from just below 30 percent to around 37 percent. That's a huge move for such a widely traded contract this far from Election Day. Maybe it's because if you combine the most recent Gallup and Rasmussen polls—with a combined survey group of close to 6,000—Obama has only a slim 1.5 percentage-point lead despite Obama's tour of Europe. I'm telling you, this is going to be 2000 all over again, with the winner of the popular vote losing the electoral vote. Oh, by the way, the Intrade odds of a recession this year remain at a lowly 20 percent.
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America's Politically Correct Recession
Tweet Share on Facebook July 31, 2008 Comment (10)Is America in a recession? Sure we are. After all, the media say we are. Political candidates say we are. Our friends who are underwater on their homes say we are.
But the actual economic numbers? Well, not so much. The Commerce Department said today that the economy grew at a 1.9 percent annual rate in the second quarter. (A number that may well be revised higher.) What's more, revised first-quarter growth came in at 0.9 percent. Yes, the fourth quarter of 2007 was revised downward to a negative 0.2 percent, but the third quarter was revised way upward to 4.8 percent from 3.8 percent.
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Obama and the Socialist 'Thing'
Tweet Share on Facebook July 29, 2008 Comment (29)"Is Barack Obama a socialist?" is the question asked once again, this time by the liberal New Republic magazine. (Reporters asked John McCain that same question recently, and he cheekily replied, "I don't know.") It is a question I addressed some time back:
Such campaign season silliness aside, it is certainly true that Obama has chosen to pursue government solutions rather than market solutions to problems such as possible climate change, healthcare, Social Security solvency, income inequality, the trade deficit, and education. Compare those views with those of Bill Clinton, who cut capital gains taxes, pushed free trade, and floated the idea of having the government invest Social Security dough in the stock market.
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McCainomics and Obamanomics: DOA?
Tweet Share on Facebook July 29, 2008 Comment (1)You can pretty much forget about all these campaign promises, according to my guy Dan Clifton over at the Strategas Group. His two cents:
Yesterday the Bush administration released their updated forecast for the FY'09 budget deficit—$483bn. This forecast does NOT include the assumption of a recession or a material increase in unemployment. If either or both of these two scenarios develop, which is likely, the new president will have to scuttle campaign promised tax cuts and infrastructure spending and look to tax increases to raise revenue. The first group which could see their campaign promises evaporate is the middle class—but we note, the bottom 50% of taxpayers paid just 3% of all income taxes in 2006, leaving little room to cut their taxes further. Knowing this, both campaigns are increasingly looking to entitlement "reform" as a vehicle to increase taxes, much in the same way as President Reagan and Speaker O'Neill did in the early '80s.
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Is Obamanomics Really Recessionomics?
Tweet Share on Facebook July 29, 2008 Comment (6)Let's say Barack Obama is elected our 44th president. And let's further assume that when he takes office, he faces an economy that is, at best, sluggish. Finally, let's assume he and an overwhelmingly Democratic Congress pass a tax-and-spending package similar to the one Obama is campaigning on. Will that help or hurt the economy? In today's Wall Street Journal, former Bush I economist Michael Boskin thinks it's the latter: "If the proposals espoused by candidate Obama ever became law, the American economy would suffer a serious setback." The key data paragraph is this:
The top 35% marginal income tax rate rises to 39.6%; adding the state income tax, the Medicare tax, the effect of the deduction phase-out and Mr. Obama's new Social Security tax (of up to 12.4%) increases the total combined marginal tax rate on additional labor earnings (or small business income) from 44.6% to a whopping 62.8%. People respond to what they get to keep after tax, which the Obama plan reduces from 55.4 cents on the dollar to 37.2 cents—a reduction of one-third in the after-tax wage!
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Can America Go Bankrupt?
Tweet Share on Facebook July 29, 2008 Comment (14)Let's see here: $500 billion budget deficits, the possibility of a $500 billion bank bailout in 2009, and exploding entitlement costs. Surely, this can't be good. My pal Arnold Kling doesn't think so:
Think of the U.S. government as the world's biggest hedge fund. One thing a hedge fund does is engage in credit arbitrage. When you can borrow risk-free, you can make a profit holding risky assets. That is what Congress is hoping will happen with the Freddie-Fannie bailout. We have grown accustomed to the assumption that the risk of default of U.S. government liabilities is zero. That in turn allows Congress to act like the biggest hedge fund on the block. Consider the long-term obligations of the U.S. government: Social Security, Medicare, the Pension Benefit Guaranty Corporation, public employee pension plans. Add to those the risks of the securities that the government is effectively choosing to guarantee in the Bear Stearns merger, the Freddie-Fannie prop-up, and other steps that are being taken or will be taken in the mortgage and financial market. It seems to me that in order to achieve short-term stability we are piling on long-term fragility.... If people do not have confidence in the long-term financial stability of the U.S. government, the chances are that they will not have much confidence in the long-term stability of U.S. corporations, and so you would see a collapse of long-term investment altogether.
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Housing May Be Making a Bottom
Tweet Share on Facebook July 29, 2008 Comment (2)A bit of cheer from the econ team at Action Economics:
In total, the sales statistics for the U.S. real estate market may be forming a bottom as we digest the most recent bout of financial market stress in July, which would be a welcome relief for the beleaguered housing market. We are hardly out of the woods, however, and rising mortgage rates and recent turmoil may still disrupt this recent flattening pattern. The price data will inevitably lag the volume figures, though the rate of price decline for all but the S&P Case Shiller figures seems to have stabilized for now as well, in the 3%-6% [year-over-year] area. The construction figures are also exhibiting some early signs of stabilization.
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McCain Veep Nominee: Pawlenty or Romney, Romney or Pawlenty
Tweet Share on Facebook July 28, 2008 Comment (17)Vice presidential speculation intensifies! The common wisdom—and the betting markets—seem to be congealing around Tim Pawlenty and Mitt Romney as the two likely picks to be John McCain's running mate. Like many others today, I have heard the pick will be made much sooner rather than later. Pawlenty has the momentum in the Speculation Sweepstakes, but my sources still think it will be Romney.
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McCain and Social Security Taxes
Tweet Share on Facebook July 28, 2008 Comment (4)Ramesh Ponnuru has a post over at the Corner about McCain's seeming willingness—per his ABC News interview—to raise Social Security taxes.
My take: I know of no political analyst who thinks a President McCain could fix Social Security with a Democratic Congress without agreeing to higher taxes as part of the deal. Even McCain points to the tax-hiking Greenspan Commission of the 1980s as a model of bipartisanship. And McCain has in the past gone on the record in favor of just such a compromise. Maybe because a McCain win would be such an upset, he would come into office with amazing momentum and impose his will on stunned Democrats. Maybe.
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Obamanomics and Trillion-Dollar Deficits
Tweet Share on Facebook July 28, 2008 Comment (2)So we're looking at a $500 billion federal budget deficit, at least, in 2009, according to White House sources in published reports. None of this will be news to regular Capital Commerce readers. A few thoughts on this:
1) Neither presidential campaign anticipated this back in early 2007 when they were cooking up their economic agendas.
2) This huge deficit number does not include the cost of any further housing bailouts, such as a $500 million-to-$1 trillion buyout of bad mortgage debt. (It may well be coming, folks.)
