James Pethokoukis

Politics and policy from inside Washington

A somewhat more bullish outlook

Jun 9, 2009 19:27 UTC

From Macroeconomic Advisers:

GDP declined at a 5.7% annual rate in the first quarter following a 6.3% decline in the fourth quarter of last year. Together, these declines constitute the second sharpest two-quarter decline in GDP in the postwar period. But a bottom in GDP is forming, and we look for a modest 0.9% decline in the second quarter followed by moderate growth in the second half of this year and above-trend growth in 2010 and 2011. The sources of the rebound continue to be the aggressive monetary and fiscal policy responses under way; the success in Treasury’s efforts to recapitalize the major banks and to provide sufficient capital buffers, if necessary, so that banks are more likely to make loans; diminished drag from housing and credit conditions; and a rebound in equities that is already under way. In this forecast, the unemployment rate peaks at 9.6% at the end of this year and declines only slowly thereafter. Inflation falls significantly, and the FOMC is expected to maintain a near-zero federal funds rate for a very extended period.


The entire financial crisis has a common denominator. It’s easy to research James. People are not paying attention. One ” too big to fail” company has caused the crisis by doing something very very illegal. That same company is receiving all the bail out and TARP money.
It all relates to Social Security. Unfortunately, it was privatized long ago, prior to 1991 and lost. International accounts were paid to one company who was caught, created the whole crisis and it goes back to Enron.

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Study: Climate legislation could cost $2 trillion by 2050

Jun 9, 2009 19:04 UTC

Here some results from a Brookings study on the costs of reducing carbon emissions:


The study estimates that alternative paths to reach an emission reduction target of 83% below 2005 levels by 2050:

• reduce cumulative U.S. emissions by 38% to 49%, about 110 to 140 billion metric tons CO2

• reduce total personal consumption by 0.3% to 0.5%, or about $1 to $2 trillion in discounted present value from 2010 to 2050

• reduce the level of U.S. GDP by around 2.5% relative to what it otherwise would have been in 2050

• reduce employment levels by 0.5% in the first decade, with large differences across sectors

• create an annual value of emission allowances peaking at around $300 billion by 2030, and a total value of about $9 trillion from 2012 to 2050.

Me: And the following chart illustrates why cap-and-trade is really an energy tax of sorts:



I still don’t understand what offends people so much about reducing pollution. We spend many times the cost of reducing pollution on health care increases caused by pollution related illnesses and on fighting wars to secure more oil.

The extremists want to hide behind the possibility that global warming isn’t real or isn’t affected by us, when anyone with a brain has to see that breathing clean air and having clean water to drink is also important.

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More bank stress tests an unnecessary sequel

Jun 9, 2009 18:49 UTC

Elizabeth Warren, chair of the TARP oversight panel, must not be on the White House email list. Is she was, then surely she wouldn’t be recommending that the U.S. government rerun its controversial “stress tests” on the nation’s largest banks. Warren rightly notes that the current 9.4 percent unemployment rate already exceeds the test’s 2009 worst-case scenario of 8.9 percent and is bearing down hard on the 2010 worst-case rate of 10.3 percent. “We have not actually broken through the worst-case scenario, but let’s face it, the numbers are bad and they’re heading in the wrong direction,” she told the Joint Economic Committee of the U.S. Congress.

Yet the White House message team would have us believe that the jump in unemployment is actually not-so-terrible news since a) the jobless rate is a lagging economic indicator, and b) one reason the number rose so sharply last month was because more folks are getting off the couch and actively looking for work. If the labor force had stayed steady, the unemployment rate would have been 8.7 percent.

Of course, the U.S. economy is still hemorrhaging jobs — 345,000 last month — and many analysts think the bleeding will continue. The Federal Reserve Bank of San Francisco, for instance, forecasts unemployment near 11 percent next year. But it’s not as if Team Obama doesn’t know this. And when you factor in that certain awareness with its willingness to let banks replay $68 billion in bailout funds (“A sign of health of the financial system,” said Obama adviser Austan Goolsbee), it’s reasonable to conclude that the White House has run its own informal, updated stress tests and already calculated that the worst-than-expected economic conditions won’t force those institutions to return for more taxpayer dough. That is a scenario Obama is eager to avoid.

Yes, rising joblessness will mean more bad loans to individuals. And commercial mortgages don’t look so hot either. But the super-steep yield curve is great for bank earnings, as is the relaxation of mark-to-market rules. Moreover, the case for new stress tests is no less dodgy than the case for the original ones. Remember that when Treasury Secretary Timothy Geithner announced the tests back on Feb. 10, the Dow Jones industrials fell nearly 400 points as investors interpreted the move as a prelude to bank nationalization. Instead, they turned out to be a poorly executed exercise in investor relations to show Uncle Sam proactive in dealing with Wall Street. Pass-pass instead of pass-fail with many key financial details unavailable to the public. (“Show us the spreadsheets!,” said banking analyst Bert Ely of the lack of data granularity.) The market didn’t fully recoup its losses until early May.

Rerun the stress tests? That really would be heading in the wrong direction.


Let’s imagine how a modern writer-employee/news-boss meeting plays out at a typical major news organizational today.

Boss — you know, it would really be in the best interests of your career here if you took the view of our owners into account when you write your stories.
Writer-employee — Ahhhh… I understand completely (i.e. I need a steady income ’cause I’ve got all these bills and new news gigs aren’t a happening. Therefore, I’ve no choice but to toe the line and write to company line).

Could it be any less apparent what’s happening?

Reuters…you RUIN any credibility you once had when you do “hatchet” jobs such as this one.

Elizabeth Warren seems to be a singularly honest & competent person. As such, I imagine she’s a real burr in the side to many in the U.S. government.

Government in turn lets it corporate backers know it’s intent on who should be denigrated so as to remove them from public view. And thus…this pressure builds where character assassination is taking place.

SHAME on you Reuters for crumbling to the pressure.

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How to pay for healthcare

Jun 9, 2009 16:07 UTC

Capitol Hill watcher Pete Davis gives the breakdown:

Health care reform financing options estimated by JCT. Yesterday, June 2 Joint Committee on Taxation “very preliminary” revenue estimates were obtained by the Bureau of National Affairs showing the following 10 year revenue increases:

  1. Cap the employer health exclusion at the FEHBP, index to CMS         $418.5 b.
  2. Cap, but only for singles (joint) over $100,000 ($200,000)                     $161.9 b.
  3. Limit exclusion to 50% of premium amount                                           $1,173.1 b.
  4. Repeal medical itemized deduction over 7.5% of AGI                            $180.7 b.
  5. Repeal Flexible Savings and Health Reimbursement Accounts               $68.6 b.
  6. 3¢ per 12 oz. sugar-sweetened beverage                                                   $51.6 b.
  • Raise alcohol excise tax to $16 per proof gallon                                        $61.5 b.

    want to pay for healtcare? e tax on all unhealthy habits and diets.. imagine if it cost $20 to eat a burger and fries at McDonalds? with over 1 trillion served, we could tax fat food all over the planet, (i mean obama is god, he has domain, ask him)and then get paid to go do the doc. gosh why didnt barny but-fuk-frank think this one up?

    Posted by zapperz | Report as abusive

    Obamanomics and voter patience

    Jun 9, 2009 15:57 UTC

    My pal Ed Morrissey tries to get a handle on the depth of reservoir of voter goodwill:

    Even if we wildly disagree on economics, we agree that Obama will own this unemployment cycle, and soon.  The 10% mark is a psychological barrier that Obama simply cannot avoid.  Even without it, blaming Bush has a shelf life whose expiration date is rapidly approaching.  Bush didn’t spend trillions of dollars in 2009 and promise that it would create “or save” jobs.  Voters will get tired of hearing how many jobs Obama thinks he’s “saved” while unemployment continues to rise.

    Obama has been in charge for almost five months and got every single bit of economic policy he wanted from Congress.  If the economy remains mired and debt keeps skyrocketing, people will start to ask what they got for all of their great-grandchildren’s money.  Even a Party of No will look pretty good in comparison under those conditions, and perhaps especially so.


    It does not matter if it is a private company you work for or their government’s elected officials –

    No one want to hear their “leader” whine and cry – in a weak attempt to hide behind the prior administration.

    Obama has taken this – inherited crap way to far –

    I just wish someone in the MSM had the balls to ask Obama – so you inherited a bunch of problems – didn’t you inherit anything GOOD?

    If you balanced the scales on the America you inherited

    Good on one side – bad on the other – which way would the scales tip.

    I recall one speech that Obama gave –

    First he said – “The BUCK STOPS HERE” then not even 10 seconds later he starts whining about the inherited problems -

    Posted by z71bill | Report as abusive

    More unemployment gloom

    Jun 9, 2009 14:57 UTC

    From IHS Global:

    The economy remains on track to bottom out soon—at least in output terms. We expect the rate of contraction in GDP to slow in the current quarter (to minus 2.8%), before GDP edges higher in the second half of the year. But a rapid recovery is not in prospect, after so extreme a financial shock. Economists may be able to declare the recession technically “over” some time in the third quarter, but it won’t feel that way for the unemployed, with the unemployment rate peaking at 10.3% in the first half of 2010.

    More stress tests for the banks?

    Jun 9, 2009 14:40 UTC

    The TARP oversight panel, led by medical bankruptcy alarmist Elizabeth Warren, thinks it’s about time to redo the strest tests. Just talked to banking guru Bert Ely about this. He had a number of objections including a) allowing the repayment of$68 billion TARP money probably means the government is already factoring in worsening economic conditions , b) it raises the possibility of reigniting investors anxiety, and c) it continues the politicization of the bank via government control. To what end? To keep the banks under the thumb of Uncle Sam and influence lending. If you control credit allocation, you control the economy.

    Has Obamanomics already failed?

    Jun 9, 2009 13:43 UTC

    That is is the insta-conclusion of Newt Gingrich. What you can say, I think, is that the administration appears to have been overly optimistic. Indeed, Obama advisers are already admitting that. The economic forecasts driving the stimulus package were too rosy, as was the “stress test” worst case scenario. And had Team Obama been gloomier — as gloomy as the Inauguration Day speech, say — would their policies have been different, would they have followed the advice of folks like Paul Krugman and Robert Kuttner and pushed for a much bigger stimulus package? Or would they have at least front loaded the existing stimulus package by increasing the emphasis on tax cuts vs. “investment” spending? Perhaps. But the gamble they took was to let the Fed pretty much handle the near term (and avoid a depression) while they would focus on bolstering the economy for the longer term and pushing through their policy agenda.


    “A recession is when your neighbor loses his job; a depression is when you lose yours. And recovery is when Obama loses his.” – Ronald Reagan
    Only in the original 1980 quote it was “when Jimmy Carter loses his”

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    Roubini: 9 reasons why the recover will be a bust

    Jun 9, 2009 10:23 UTC

    Nouriel Roubini tries to grind his heel into the green shoots:

    First, employment is still falling sharply in the US and other economies. Indeed, in advanced economies, the unemployment rate will be above 10% by 2010. This will be bad news for consumption and the size of bank losses.

    Second, this is a crisis of solvency, not just liquidity, but true deleveraging has not really started, because private losses and debts of households, financial institutions, and even corporations are not being reduced, but rather socialized and put on government balance sheets. Lack of deleveraging will limit the ability of banks to lend, households to spend, and firms to invest.

    Third, in countries running current-account deficits, consumers need to cut spending and save much more for many years. Shopped out, savings-less, and debt-burdened consumers have been hit by a wealth shock (falling home prices and stock markets), rising debt-service ratios, and falling incomes and employment.

    Fourth, the financial system – despite the policy backstop – is severely damaged. Most of the shadow banking system has disappeared, and traditional commercial banks are saddled with trillions of dollars in expected losses on loans and securities while still being seriously undercapitalized. So the credit crunch will not ease quickly.

    Fifth, weak profitability, owing to high debts and default risk, low economic – and thus revenue – growth, and persistent deflationary pressure on companies’ margins, will continue to constrain firms’ willingness to produce, hire workers, and invest.

    Sixth, rising government debt ratios will eventually lead to increases in real interest rates that may crowd out private spending and even lead to sovereign refinancing risk.

    Seventh, monetization of fiscal deficits is not inflationary in the short run, whereas slack product and labor markets imply massive deflationary forces. But if central banks don’t find a clear exit strategy from policies that double or triple the monetary base, eventually either goods-price inflation or another dangerous asset and credit bubble (or both) will ensue. Some recent rises in the prices of equities, commodities, and other risky assets is clearly liquidity-driven.

    Eighth, some emerging-market economies with weaker economic fundamentals may not be able to avoid a severe financial crisis, despite massive IMF support.

    Finally, the reduction of global imbalances implies that the current-account deficits of profligate economies (the US and other Anglo-Saxon countries) will narrow the current-account surpluses of over-saving countries (China and other emerging markets, Germany, and Japan). But if domestic demand does not grow fast enough in surplus countries, the resulting lack of global demand relative to supply – or, equivalently, the excess of global savings relative to investment spending – will lead to a weaker recovery in global growth, with most economies growing far more slowly than their potential.


    Now c’mon.. you almost excerpted his whole post. What’s your opinion?