U.S. economy 2010

What to Watch for in 2011
(Politics Daily) Although the financial crisis erupted more than two years ago, the fallout will continue for many years to come. As 2010 draws to a close, analysts are warning of looming municipal bankruptcies as communities across the country find it impossible to meet their pension obligations. They are also raising concerns about Fannie Mae and Freddie Mac, which the federal government put into conservatorship in September 2008 (and still provides an enormous amount of assistance to keep them afloat). All this occurs as the nation carries a $13.8 trillion debt burden and the budget deficit grew by $858 billion when President Obama and Congress agreed to extend the Bush tax cuts for two years and unemployment benefits for another 13 months, all part of a 2010 holiday gift to the American people.

Snow costs US businesses $1bn but jobs pressure eases
(The Independent) US businesses have been counting the cost of the snowstorm that swept through the north-east on Boxing Day, making roads impassable and grounding thousands of flights.
Retailers suffered an estimated $1bn in lost or delayed sales, as blizzard conditions deterred people from hitting stores to take advantage of post-Christmas sales and, with air travel still getting back to normal yesterday, airlines may have to swallow $150m in losses from the disruption.
Economists said that the cost of the storms adds up to only a small wobble in what is expected to be strong end-of-year growth for the world’s largest economy. US GDP growth for the final three months of the year is expected to come in at an annualised rate of more than 4 per cent.
A clutch of positive data yesterday added to the tentative optimism. The number of American workers filing new claims for jobless benefits fell by 34,000 last week to 388,000, the first time in two-and-a-half years that the figure has dipped below 400,000. A survey of business activity in the US Midwest, by the Institute for Supply Management-Chicago, showed expansion at a rate not seen for two decades. And a 3.5 per cent jump in existing home sales in November eased concerns around the US housing market.
27 December
Strapped Cities Hit Nonprofits With Fees
(WSJ) Facing budget gaps and an aversion to new debt and taxes, states and local governments are slapping residents with an array of new fees—and some are applying them to nonprofits.
That marks a sharp departure from long-standing tax exemptions mandated by state law or adopted on the theory that churches, schools and charitable organizations work alongside governments to provide services to the community.
At a group called the National Council of Nonprofits, Tim Delaney, chief executive, says, “Governments are taking their public burdens and putting them on the backs of nonprofits, at a time when the demand for our services is skyrocketing.”
Some cities are charging religious groups property taxes on buildings no longer used for worship. Other localities are soliciting voluntary contributions. Albany, N.Y., recently passed an ordinance asking schools, hospitals and other nonprofits to contribute to city services.
26 December
(NYT Editorial) The Looming Crisis in the States
Many conservatives have said the revenue decline is a good incentive for states to cut their spending. That is precisely what almost all states have done, because they are legally barred from running deficits. State spending fell by 3.8 percent in the 2009 fiscal year and 7.3 percent more in the 2010 fiscal year, the only significant declines since at least the 1970s, even as the cost of education and health care rose.
School aid, Medicaid, transportation, employee salaries, social services, courts — whatever there was to cut, states have slashed it, often at ruinous costs to the most vulnerable: the poor, the sick and disabled, students, tens of thousands of laid-off workers.
But cutting spending will not affect the heaviest burden: the accumulated debt that comes from passing off the biggest problems to future generations. States and cities have nearly $3 trillion in outstanding bonds, and more than $3.5 trillion in shortfalls to pensions. Promised health benefits alone are more than $500 billion.
10 December
Robert Reich: America’s Future in the Global Economy: This Week’s Words and Deeds
The United States has gone from 1st to 9th place among nations in the percentage of its population that graduates from college, [President Obama] noted. We now rank 24th in the portion of our children who have a high school degree. Our infrastructure is crumbling.
“The most competitive race is between America and our competitors around the world,” he said. “In the race for the future, America is in danger of falling behind.”
But the President’s tax deal makes it harder for the United States to get back on top. By extending the Bush tax cuts to the wealthy, shrinking the estate tax, and freezing discretionary spending (on everything except defense), he’s leaving almost nothing for education and infrastructure.
So who won this week?
(The Economist) EVERYONE has at least one answer. But anyone who still thinks Barack Obama simply “caved” over the Bush tax cuts ought to read Charles Krauthammer’s column this morning,
… However, a far more interesting, and positive, take on the White House’s manoeuvres comes from my former colleague, John Heilemann, who argues in the New York Magazine that this was the pivotal week of Mr Obama’s presidency, less because he outwitted the Republicans than because he has at last asserted himself against the Democrats in Congress, to whom he had so far deferred excessively.
Charles Krauthammer: Swindle of the year
(WaPost) Barack Obama won the great tax-cut showdown of 2010 – and House Democrats don’t have a clue that he did. In the deal struck this week, the president negotiated the biggest stimulus in American history, larger than his $814 billion 2009 stimulus package. It will pump a trillion borrowed Chinese dollars into the U.S. economy over the next two years – which just happen to be the two years of the run-up to the next presidential election. This is a defeat?
David Brooks: Obama’s Very Good Week
The White House negotiators did an outstanding job for their side. With little leverage, they got not only the unemployment insurance, but also an Earned Income Tax Credit provision, a college scholarship provision and other Democratic goodies. With little leverage, they got a package that could win grudging praise from big-name liberal groups like the Center on Budget and Policy Priorities and the Center for American Progress.
Moreover, Obama has put himself in a position to govern again. The package is popular. According to the most recent Gallup numbers, 67 percent of independents and 52 percent of Democrats support extending all the tax cuts. Higher numbers support extending the unemployment insurance. Obama is reminding independents why they liked him in the first place.
8 December
Heilemann: Why the Tax Fight Is Obama’s Pivotal Moment
(New York Magazine) In terms of both policy and politics, the White House has embarked on a dramatically new path. Much of the left is furious. Democrats in Congress are no less so. And some conservative Republicans are threatening to revolt, alongside their liberal foes, against what Senator Mary Landrieu yesterday decried as the “Obama-McConnell plan” on taxes. At this hour, whether the deal will survive or not is an open question — though I suspect it will, in something close to its current form.
The conservative objections to the plan, voiced by the Club for Growth and ultra-con Republican senator Jim DeMint, are that it (a) fails to extend the Bush tax cuts forever and (b) “blow[s] a hole in the deficit,” as the Club president, Chris Chocola, put it. The inherent contradiction between these complaints is so obvious that it renders them too absurd to merit further comment.
The liberal objections to the plan are mainly political, but on substance they are focused on the cost of extending the tax cuts to Americans making more than $250,000 a year and the estate tax: $125 billion combined. Even by the fiscally debased and debauched standards of Washington, that’s not chump change, especially at a time of dangerously mounting deficits. But it’s small beer compared to the parts of the package that Democrats favor: $360 billion in income-tax cuts for those earning under $250K, $56 billion in unemployment insurance, and more than $350 billion in tax goodies that Obama championed — from payroll-tax cuts, the Child Tax Credit, the Earned Income Tax Credit, education tax credits, and business-investment tax incentives.
American Profligacy and American Power
Roger C. Altman and Richard N. Haass
(Foreign Affairs November/December) The U.S. government is incurring debt at an unprecedented rate. If U.S. leaders do not act to curb their debt addiction, then the global capital markets will do so for them, forcing a sharp and punitive adjustment in fiscal policy. The result will be an age of American austerity.
21 September
White House economic adviser Larry Summers stepping down
(Globe & Mail) Brilliant but blunt-spoken White House economic adviser Larry Summers said Tuesday he will leave his job, marking a major staff shake-up for President Barack Obama as he faces growing pressure to revive the sluggish economy.
17 September
Elizabeth Warren appointed White House ‘consumer czar’
President Obama announced the appointment Friday of Harvard law professor Elizabeth Warren to be an assistant to the president and oversee the creation of a new consumer financial protection bureau. … The decision to name Warren, the first to call for the creation of such a bureau, to the temporary job has been widely seen as a compromise aimed at avoiding a potentially bruising Senate confirmation.
10 August
U.S. Is Bankrupt and We Don’t Even Know It: Laurence Kotlikoff
Neither spending more nor taxing less will help the country pay its bills.
What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.
30 July
IMF Executive Board Concludes 2010 Article IV Consultation with the United States
Executive Board Assessment
Executive Directors noted the economic recovery underway in the United States, aided by a massive policy response. However, with recovery still dependent on policy support, rising downside risks, and substantial long-term fiscal and financial-sector challenges, further decisive action is needed to achieve stable medium-term growth and limit risks of adverse international spillovers. Directors saw near-term tradeoffs between supporting recovery and addressing long-term legacies.
24 July
(NYT editorial) President Obama should nominate Elizabeth Warren to head the new Bureau of Consumer Financial Protection, and not only because of her credentials.
… Bank lobbyists say a regulator like Ms. Warren would overreact in protecting consumers from abusive loans, constraining needed credit. That is unfounded. In her academic work and in the 2007 article introducing the idea of the bureau, Ms. Warren has shown that she understands the power of credit to do good.
16 July
State Budget Crises Threaten U.S. Economic Recovery
Across the country state budget crises are threatening to undermine the U.S. economic recovery.
Some 48 states are emerging from a round of painful budget cuts for their 2010 fiscal budgets, and at least 46 states face shortfalls for the upcoming 2011 fiscal year, which in most states began July 1.
The recession has caused the steepest decline in state tax receipts on record – and states will continue to struggle to find the revenue needed to support critical public services for a number of years as a result.
Since virtually all states are required to balance their operating budgets each year they cannot maintain services during an economic downturn by running a deficit, as the federal government does.
3 July
A Market Forecast That Says ‘Take Cover’
[Robert] Prechter is convinced that we have entered a market decline of staggering proportions — perhaps the biggest of the last 300 years.
25 June
States of Crisis for 46 Governments Facing Greek-Style Deficits
(Bloomberg) Even as the U.S. appears to be on the mend — gross domestic product has climbed three straight quarters — finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution. State spending is 12 percent of U.S. GDP.
“States are going to have to cut back spending and raise taxes the same way Greece and Spain are,” says Dean Baker, co- director of the Center for Economic and Policy Research in Washington. “That runs counter to stimulating the economy and will put a big damper on the recovery in the latter half of this year.”