Archive
Reuters blog archive
from MacroScope:
Is Congress the ‘enabler’ of a loose Fed?
We heard it more than once at today’s hearing of the Joint Economic Committee featuring Fed Chairman Ben Bernanke: the central bank’s low interest rate policies are allowing Congress to delay tough decisions on long-term spending.
As U.S. senator Dan Coats asked pointedly: “Is the Fed being an enabler for an addiction Congress can’t overcome?”
Yet, if you read the subtext of Bernanke’s testimony closely, it may actually be Congress that is enabling a loose Federal Reserve.
That’s because it is the very fiscal tightening mandated by Congressional inaction that is forcing the Fed to continue stimulating growth. Chicago Fed President Charles Evans said on Tuesday the economy could be expanding as quickly as 3.5 percent were it not for the fiscal drag from Washington.
from Global Investing:
India’s deficit — not just about oil and gold
India's finance minister P Chidambaram can be forgiven for feeling cheerful. After all, prices for oil and gold, the two biggest constituents of his country's import bill, have tumbled sharply this week. If sustained, these developments might significantly ease India's current account deficit headache -- possibly to the tune of $20 billion a year.
Chidambaram said yesterday he expects the deficit to halve in a year or two from last year's 5 percent level. Markets are celebrating too -- the Indian rupee, stocks and bonds have all rallied this week.
from Global Investing:
Cheaper oil and gold: a game changer for India?
Someone's loss is someone's gain and as Russian and South African markets reel from the recent oil and gold price rout, investors are getting ready to move more cash into commodity importer India.
Stubbornly high inflation and a big current account deficit are India's twin headaches. Lower oil and gold prices will help with both. India’s headline inflation index is likely to head lower, potentially opening room for more interest rate cuts. That in turn could reduce gold demand from Indians who have stepped up purchases of the yellow metal in recent years as a hedge against inflation.
from The Great Debate:
2014: The Democrats’ dilemma
Washington has been fascinated by Republican self-laceration since the 2012 election. Karl Rove triggered a circular firing squad by vowing to take out unwashed challengers in GOP primaries. Louisiana Governor Bobby Jindal begged Republicans to stop being the “stupid party.” Strategists say the party can’t survive as stale, pale and male. Tea Party legislators knee-cap GOP congressional “leaders” and well-funded political PACs strafe any who dare deviate from the party’s unpopular gospel. Republicans are even talking about changing “Grand Old Party” to something more fashionable.
Representative Paul Ryan’s newest budget will put every Republican on record voting to turn Medicare into a voucher, gut Medicaid, repeal Obamacare, savage investment in education and leave some 50 million Americans without health insurance. Not surprisingly, polls suggest Congress is less popular than colonoscopies, and Republicans poll at lowest levels on record.
from Judgement Call:
The fiscal crisis nears – or not
Few economists preach spending cuts as a cure for high unemployment. Yet that’s exactly what Congress decided when it imposed, starting March 1, across-the-board spending cuts (the “sequester”). Despite Friday’s mildly upbeat jobs numbers, the economy remains limp, with 15 million or so unemployed individuals who want to work. Federal spending cuts won’t make their plight any better.
Congress has known for quite some time that the federal budget will turn sour in 10 to 15 years, with expected outlays far outstripping expected revenue. For complicated, if not odd, reasons, Congress now feels compelled to do what it ordinarily shuns: cut federal programs and raise taxes. That might seem politically brave and responsible. But brushed up against facts, the case for Congress taking swift action wobbles, hitting wrong targets at the wrong time.
from The Great Debate:
The route to a real budget deal
There are glimmers of light in our battle to put America’s finances in order. New hope for a long-term budget deal has come in the form of two ideas, both from outside Congress, that many of our elected officials have embraced:“No Budget, No Pay” and “No Deal, No Break.”
The critical matter now is whether these two initiatives will lead to serious negotiations, or just be rhetorical weapons in Washington’s political warfare.
from The Great Debate:
Time for a serious deficit plan
President Barack Obama pledged to cut the deficit in half by the end of his first term. But because he focused on political gimmicks, rather than real reform, we’ve seen trillion-dollar deficits and nearly $6 trillion added to the debt instead. Based on what we heard from the president at a news conference Tuesday, his unserious attitude is likely to continue.
That’s worrying. Unless we can get a handle on Washington’s overspending, and quickly, it will continue to undermine our economy and jeopardize our children’s futures.
from The Great Debate:
Why public debt is not like credit card debt
One big part of the well-financed campaign for economic austerity is the contention that the public debt is like a national credit card. If we keep charging on it, the argument goes, we’ll get overwhelmed with interest costs, suffer a reduced standard of living and, pretty soon, go bankrupt.
As David Walker, a prominent budget hawk and the former head of the billion-dollar Peter G. Peterson Foundation, has contended, “Both Republicans and Democrats in Washington have charged everything to the nation's credit card, including tax cuts and spending increases, without paying for them.”
from Reihan Salam:
Does Britain’s austerity hold lessons for the United States?
The dog’s breakfast of a deal that “resolved” the fiscal cliff fell far short of expectations. In the hours after it passed, deficit hawks at the Committee for a Responsible Federal Budget and the tag team of former Senator Alan Simpson and former Clinton White House chief of Staff Erskine Bowles all expressed disappointment in a bargain that was anything but grand. Senate Republicans gritted their teeth to accept a small increase in taxes on America’s highest-earning households while Senate Democrats made permanent the bulk of the Bush-era tax cuts. A number of tax provisions that hark back to the 2009 fiscal stimulus law were extended, as were unemployment benefits, thus delivering a modest income boost to a large number of low-income households. But the Social Security payroll tax cut, a Republican-backed replacement for the more narrowly targeted Making Work Pay tax credit that was part of the stimulus law, which benefited a wide range of affluent households as well as families of more modest means, was allowed to lapse. Long-term spending levels, meanwhile, were left largely untouched, which is why rebellious House Republicans came close to scuttling the delicately constructed compromise.
One group that offered at least two cheers for the deal were deficit doves, who believe that premature fiscal consolidation poses a grave threat to America’s sluggish economic recovery. Paul Krugman, the prominent economist and popular left-of-center New York Times columnist who never shrinks from apocalyptic pronouncements, was almost pleased to see that the deal avoided any serious spending cuts and that it entailed relatively modest near-term tax increases.
from David Rohde:
What next? Reforming corporate taxes and entitlements
Nancy Pelosi, of all people, got it right Thursday morning. In an interview broadcast on National Public Radio, the liberal House Minority Leader agreed that spending cuts and entitlement reforms are necessary.
“The size of our deficit is an immorality, we should not be heaping those responsibilities onto the future,” Pelosi said, sounding oddly Republican. “Finding reductions, subjecting every federal dollar spent to harsh scrutiny as to whether the taxpayer is getting full value for the dollar, is very important. And that holds true in defense as well as on the domestic side.”
