U.S. Economy 2011 – the first six months

Written by  //  June 30, 2011  //  China, Economy, Politics, U.S.  //  No comments

The Onion: Something About Tax Cuts Or Earnings Or Money Or Something In Recent Economic News published in September 2010, still a pretty accurate rendering of how most of the public probably feels.
(The Economist) On March 4th the federal government will run out of money unless Congress first passes a bill voting more; a few weeks after that, it will bump up against the federal debt ceiling, now set at an apparently insufficient $14.3 trillion, unless, again, Congress votes to increase it. The stage is set for a savage spring. read more
NYT Times Topics: California Budget Crisis ; Wisconsin

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30 June
Republicans Seek ‘Slash and Burn’ Cuts to Slow U.S. Economy, Schumer Says
(Bloomberg) Raising the rhetorical stakes while party leaders are far apart over a plan to cut the deficit and increase the U.S. debt limit, [Senator Charles] Schumer said Republican leaders are seeking deep spending cuts as part of an effort to slow U.S. growth and hurt President Barack Obama’s chances of winning re-election next year.
“It is becoming clear that insisting on a slash-and-burn approach may be part of this plan,” Schumer said today at the Economic Policy Institute in Washington. “It has a double benefit for Republicans: It is ideologically tidy and it undermines the economic recovery, which they think only helps them in 2012.”
27 June
Obama confident US debt deal can be struck
(Reuters) – President Barack Obama is confident Democrats and Republicans can cut a “significant deal” to trim the U.S. deficit and increase its borrowing limit to avoid a damaging default, the White House said on Monday.
Despite the White House’s optimism, both Republicans and Democrats showed little willingness to compromise after deficit reduction talks led by Vice President Joe Biden collapsed suddenly on Thursday.
With polls showing Americans deeply worried about the sputtering economy, both sides are talking tough in an ideological battle over how best to cut a U.S. deficit that is projected to be $1.4 trillion this year.
Republicans say the solution lies in trillions of dollars in spending cuts, while Obama’s fellow Democrats say the deficit cannot be meaningfully reduced without increasing tax revenues, something their opponents reject.
8 June
China warns U.S. debt-default idea is “playing with fire”
(Reuters) – Republican lawmakers are “playing with fire” by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China’s central bank said on Wednesday.
The idea of a technical default — essentially delaying interest payments for a few days — has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending,
6 June
White House: “obstructionism” sank Fed nominee
(Reuters) – The White House said on Monday it was disappointed Nobel Prize winner Peter Diamond’s nomination to be a Federal Reserve governor was thwarted by “partisan obstructionism” and promised to name a new candidate soon.
Diamond said on Sunday he planned to withdraw as a nominee for the role at the U.S. central bank after his candidacy was repeatedly opposed by Republicans.
3 June
Charlie Rose: Economy update with Jared Bernstein of The Center on Budget and Policy Priorities, Paul Krugman of The New York Times, David Walker of Comeback America Initiative & Ken Rogoff of Harvard University
Moody’s sounds alarm over U.S. debt limit and deficits
(Reuters) – Ratings agency Moody’s warned on Thursday it would consider cutting the United States’ coveted top-notch credit rating if the White House and Congress do not make progress by mid-July in talks to raise the debt limit.
16 May
US reaches debt limit: What comes next?
(CSM) US government has reached the debt limit set by Congress, Treasury’s Tim Geithner said Monday. Treasury has ways to keep paying the nation’s bills until August. All eyes are now on Congress.
The event didn’t catch the Treasury or Congress by surprise: Mr. Geithner has warned for months that Treasury borrowing was nearing the cap. But it does guarantee that wrangling will intensify in the weeks and months ahead over the terms under which Congress will raise the limit to allow more borrowing.
Joseph E. Stiglitz: Of the 1%, by the 1%, for the 1%
(Vanity Fair May 2011) Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income-an inequality even the wealthy will come to regret.
24 April
Jeffrey Sachs: Fairness and Efficiency in Taxation
… Many conservatives believe that raising tax revenues as a share of GDP would utterly cripple the economy. This proposition is incorrect for two reasons. First, the federal government can (and should) raise considerable added revenue by closing tax loopholes. Major loopholes include the low tax rates paid on capital gains compared with ordinary income; the absurdly low rates paid by millionaire and billionaire investment-fund managers; the complete deductibility of employer-paid health-insurance outlays, even for the highest-priced plans; and the deductibility of mortgages, including on second homes and mansions. Closing these loopholes could raise significant revenues even without raising the top marginal tax rate.
Second, and contrary to the claims of the supply-siders, the US economy would not be harmed by higher marginal tax rates. The economy thrived in the 1950s and 1960s when top marginal tax rates were over 90% in the 1950s and 70% in the 1960s. The steep cuts in the top marginal tax rates that began in 1981 did not deliver on the supply-sider promise of high employment and rapid economic growth. Instead, the thirty years of low top tax rates have contributed to large budget deficits and the exceptionally high inequality of income.
FAREED ZAKARIA: For U.S. Economy, Short-Term Good News Is Bad News
(TIME) It is now conventional wisdom that the U.S. faces an acute fiscal calamity. America’s problems are severe: a deficit that is more than 10% of GDP and total debt that is more than 70% of GDP. But all evidence suggests that the U.S. does not face an immediate crisis. Take a look at the simplest indicator: the day that Standard & Poor’s raised its now famous warnings, the markets decided to lower America’s borrowing costs, and the dollar rose against its principal alternative, the euro. In fact, the real problem for America may well be that it does not face a short-term crisis.
Around the world, people, countries and companies are looking for safe, liquid investments. And the market’s judgment is that the safest such investment is Uncle Sam’s debt.
US default could be disastrous choice for economy
(AP) WASHINGTON – The United States has never defaulted on its debt and Democrats and Republicans say they don’t want it to happen now. But with partisan acrimony running at fever pitch, and Democrats and Republicans so far apart on how to tame the deficit, the unthinkable is suddenly being pondered.
19 April
President Obama’s Budget Speech Backfires: S & P Slaps US with Negative Rating
(technorati.com) By making such a partisan budget speech, the President contributed to the world view that the US was not serious about reducing our national debt. His “toxic” speech gave credibility to S & P’s claim that the US has no clear path to solving our national debt problems. Perhaps now, our political leaders will stop the partisan bickering and work together to solve our national debt crisis before it is too late. This is not a time to cling to idealogy. Each side will have to take risks with their political base in order to reach a bi-partisan agreement this year. Let’s hope the President leads by signaling to the world that the US will have a credible bi-partisan plan for debt reduction this year, rather than attacking the Republican plan as the central theme for his 2012 re-election campaign..
18 April
Agency sounds alarm on U.S. debt
The nation’s credit rating has a chance of being lowered, Standard & Poor’s said, shocking investors.
(Philadelphia Inquirer) An unexpected warning by a major credit-rating agency on America’s soaring debt shocked global investors and threatened still wider consequences for the U.S. economy, even as a new sense of realism emerged in the deadlock between President Obama and congressional Republicans over fiscal policy.
U.S. Hasn’t Crashed Through Debt Ceiling Yet, but Getting Closer
15 April
Paul Ryan Budget Proposal Passes House Vote
The House has passed a Republican budget blueprint proposing to fundamentally overhaul Medicare for future beneficiaries while combating out-of-control budget deficits. It would impose sharp spending cuts on social safety net programs like food stamps and Medicaid.
The GOP proposal passed 235-193, with every Democrat voting “no.” The nonbinding plan lays out a fiscal vision cutting $6.2 trillion over 10 years from the budget submitted by President Barack Obama.
It calls for transforming Medicare from a program in which the government directly pays medical bills into a voucher-like system that subsidizes purchases of private insurance plans. People 55 and over would remain in the current system, but younger workers would receive subsidies that would steadily lose value over time.
Congress Passes Budget Bill, but Some in G.O.P. Balk
The House and Senate passed the compromise legislation to finance the federal government, with 59 House Republicans breaking ranks to vote against the deal.
11 April
Debt ceiling brawl threatens economy, consumers
(MSNBC) Washington is gearing up for a battle over how many trillions the federal government can borrow to pay its bills, and it’s shaping up to be an even bigger brawl than the one just resolved over funding the government for the next six months.
While investors viewed last week’s budget brinksmanship as a minor event, they are beginning to grow concerned that many lawmakers and ordinary Americans, fail to grasp the implications of even suggesting the United States would default on its debt obligations.
What is a political football to Congress could end up flattening the economy and hurting consumers by lowering the nation’s pristine credit rating and sending interest rates sharply higher.
Risks to Boehner in Debt-Ceiling Brinkmanship
By NATE SILVER
Trying to extract concessions to avoid a default on the federal debt, Republicans risk setting off a crisis even worse than a government shutdown.
Although John Boehner and the Republicans are coming off what is widely being scored as a victory on the argument over the 2011 budget, they risk overconfidence as Congress turns its attention to the next debate, which is the fight over raising the federal debt limit.
Obama push to seize budget initiative
(Financial Times) The White House said it would propose radical reforms to public spending, an attempt to regain the initiative after a last-minute deal on Friday to avoid a federal government shutdown
8 April
Democrats, Republicans reach deal to avert government shutdown
President Barack Obama said on Friday that compromises by both Democrat and Republican lawmakers involving “painful” spending cuts had secured a budget deal and avoided a shutdown of the U.S. government.
In remarks at the White House less than an hour before a midnight deadline to shut the government down, Mr. Obama thanked the leaders of both parties for reaching an agreement he said delivered the deepest spending cuts in U.S. budget history.
6 April
Shutdown Looms as Talks on Stopgap Budget Fail
By JENNIFER STEINHAUER and CARL HULSE
As Congress and the White House veered toward fiscal collision, House Republicans unveiled a longer-range blueprint defining a new era of profoundly smaller government.
24 March
Former White House Economists Say Deficit Is ‘Severe Threat’
(AFP via WSJ) Ten former White House economists on Thursday called for U.S. politicians of all stripes to get serious about tackling the country’s spiraling debt, warning of a looming crisis “that could dwarf 2008.”
The bipartisan group – ten former chairs of the White House Council of Economic Advisers – said Washington’s spats over short-term budget cuts were distracting from “a more dire problem,” the long-term deficit.
9 March
U.S. Economy Is Better Prepared for Rising Gas Costs
While the latest surge in energy prices is likely to cause some pain and slow the recovery from the recession, economists say the spike is unlikely to derail the rebound unless prices rise a lot further.
One big reason is that consumers and businesses have learned lessons from the last oil shock. … And much of the rest of the United States economy is far less dependent on oil than it used to be. Oil consumption has dropped more than 5 percent since 2005, while natural gas use has risen 10 percent. A glut of domestic natural gas has kept prices low, providing a lift to industries like chemicals and pharmaceuticals and tempering the price of electricity, much of which is generated from natural gas.
1 March
US House backs short-term funding to avoid government shutdown
(Monsters & Critics) The House of Representatives on Tuesday agreed to fund the US government for an extra two weeks, a stop-gap measure designed to avoid a shutdown of many government operations by Friday.
The Senate was expected to approve the short-term funding by Thursday, giving President Barack Obama, his fellow Democrats and opposing Republicans a small window to iron out massive differences over the level of government spending in the longer term.
27 February
Frank Rich: Why Wouldn’t the Tea Party Shut It Down?
(NYT) … we are still digging out of the worst financial disaster since the Great Depression, with an unemployment rate of 9 percent and oil prices on the rise. To even toy with shutting down the government in this uncertain climate is to risk destabilizing the nascent recovery, with those in need of the government safety net (including 43 million Americans on food stamps) doing most of the suffering.Not that the gravity of this moment will necessarily stop the right from using the same playbook as last time. Still heady with hubris from the midterms – and having persuaded themselves that Gingrich’s 1995 history can’t possibly repeat itself – radical Republicans are convinced that deficit-addled voters are on their side no matter what. The president, meanwhile, is playing his cards close to his vest. Let’s hope he knows that he, not the speaker, is the player holding a full house, and that he will tell the country in no uncertain terms that much more than money is on the table.
Buffett upbeat over future of US

(BBC) US billionaire investor Warren Buffett urges Americans to ignore “prophets of doom”, and says he believes the country’s “best days lie ahead”. Wall Street Journal
22 February
Andrew Revkin: A Long, Deep View of the U.S. Budget
What’s revealed vividly, of course, is that political fights over cutting those programs are not only threatening many worthy – and modest – efforts, but distracting the public completely from what economists of many stripes say is one of the core challenges attending living within our means.
20 February
As House Votes to Cut $60 Billion, Standoff Looms
The House vote Saturday to slash more than $60 billion from the federal budget shows how powerfully the anti-spending fervor of the fall elections is driving the new Republican majority’s efforts to shrink government. It puts the two parties on a path to a succession of showdowns over the deficit and the nation’s growing debt.
18 February
Empire at the End of Decadence
America is great in many ways, but on a whole host of measures – some of which are shown in the accompanying chart [very worth studying] – we have become the laggards of the industrialized world.
15 February
Obama urges tackling major debt problems
(Reuters) – President Barack Obama on Tuesday called for reforming the gigantic government pension and healthcare programs, as well as simplifying the tax code — steps that would go far beyond the $3.7 trillion budget he proposed this week.
At a White House news conference, Obama tried to quell Republican criticisms of his fiscal policies and called on the opposition party to join him in reducing the costs of the major entitlement programs of Social Security, Medicare and Medicaid.
Obama Budget Reflects a Cut-and-Invest Agenda
(NYT) Overall, Mr. Obama’s budget reflects his cut-and-invest agenda: He proposes to slash spending in some domestic programs, both to reduce deficits and to make room for increased spending on education, infrastructure, clean energy, innovation and research to promote long-term economic growth and global competitiveness.
Budget Starts Long Spending Fight
(WSJ) Obama’s $3.73 trillion budget proposal for fiscal-year 2012 marks the start of a long fight with Republicans on spending cuts.
The budget act
(The Economist) THIS morning, hundreds of Washington journalists are fanning out across the city to attend briefings on President Obama’s 2012 budget proposal.
… many of the specific line items in the budget aren’t worth the paper they’re printed on. Taxation of carried interest? Forget about it. An end to fossil fuel subsidies? Just like last year, it’s dead on arrival. Perhaps saddest of all is the president’s proposal to reauthorise the nation’s transportation funding law, to be paid for with “bipartisan financing for Transportation Trust Fund”. The bipartisan financing plan would raise $140 billion through 2016, if it weren’t less likely to be found than a yeti riding a unicorn.
13 February
Paul Krugman: Eat the Future
After examining the results of a new survey by the Pew Research Center, in which Americans were asked whether they favored higher or lower spending in a variety of areas, Mr. Krugman concludes that Republican leaders, who refuse to admit that taxes ever need to rise, and … spent much of the last two years screaming “death panels!” in response to even the most modest, sensible efforts to ensure that Medicare dollars are well spent … had to produce something like Friday’s proposal for immediate cuts in federal spending], a plan that would save remarkably little money but would do a remarkably large amount of harm.
8 February
Obama builds case for infrastructure investment
(FT) Barack Obama has gained support from the US Chamber of Commerce with his proposals for greater infrastructure spending, but they are divided on how to pay for them
27 January
A strikingly unaudacious speech from Barack Obama failed to address America’s problems
(The Economist) A year ago Mr Obama set up a deficit-reduction commission, which duly produced a sensible report at the end of last year. He has failed previously, and failed again this week, to endorse the commission’s conclusions. He offered no specific proposals for cutting the cost of the biggest drains on the federal purse: health care, Social Security (pensions) and defence. And, although revenues will have to rise if the budget is to be brought into balance, he failed to explain to middle-class Americans that they will have to pay more tax. His only gestures in the direction of fiscal responsibility were to propose reforming corporate tax, increasing some taxes on the very rich and extending a freeze on some categories of discretionary spending, all of them tiny parts of the overall picture. If he is serious about the deficit, this was the time to show it. He should have taken courage from recent improvements in both his poll ratings and the economy. He copped out.
For their part, the Republicans have made it clear that they have no interest in Mr Obama’s plans to spend or invest more money. Given that they are supposed to be the party of fiscal rectitude, that is understandable. But they, too, are failing in their main brief, having neglected to come up with a plan for dealing with the long-term problem caused by entitlements. The only medicine they propose is cuts of 20% and more on parts of the “non-security discretionary” bits of the budget (ie, on only about 17% of it) which would succeed in causing a lot of pain while failing to solve the problem.
26 January
After speech Obama and Republicans face budget battle
(Reuters) – President Barack Obama and Republicans are headed for a fight over deficit reduction and spending cuts despite a conciliatory State of the Union speech that set the tone for a looming budget debate.
20 January
Path Is Sought for States to Escape Debt Burdens
Policy makers are working to find a way to let states declare bankruptcy and get out from under debts including the pensions they promised public workers.
Corporate Taxes: The Chief Business Of The Conquerors
(Forbes) Washington is debating the 35% statutory corporate tax rate. The average statutory corporate tax rate among OECD nations hovers around 27%.
But neither the 35% nor the 27% number should be considered certain, because the effective rate companies will pay depends on how taxation in the rest of the world evolves.
Three well-known, global, brand-name companies pay roughly a tenth of the statutory rate. Their legal structure demonstrates that Washington’s decisions on corporate taxes must start by evaluating the present complex tax and regulatory codes around the world.
19 January
The White House Looks for Work
Obama’s economic team knows that everything rides on vanquishing unemployment, and doing it on the cheap.
15 January
U.S. Bills States $1.3 Billion in Interest Amid Tight Budgets
(NYT) … The interest cost, which has been looming in plain sight without attracting much attention, represents only a sliver of the huge deficits most states will have to grapple with this year But it comes as states are already cutting services, laying off employees and raising taxes. And it heralds a larger reckoning that many states will have to face before long: what to do about the $41 billion they have borrowed from the federal government to help them pay benefits to millions of unemployed people, a debt that federal officials say could rise to $80 billion.

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