From a source: “I think that because of the nature of backroom deals this has a decent chance of passing. However due to the large public outcry, is has a decent chance of failing.” Again very close …
Politics and policy from inside Washington
It is turning out to be a very, VERY close vote in the House of Representatives. Some of the moderate Rs who were going to vote for it are weakening — like Mary Bono Mack of California. Earlier, it looked like Speaker Pelosi had the votes but was trying to get a big enough margin that politically vulnerable Ds could vote fopr it …now I think the issue is finding enough votes, period. Big gamble for Pelosi might be a bridge too far …
From the great David Goldman:
The negative multiplier occasioned by the retrenching of consumers (lower spending, more unemployment, lower incomes, lower spending in a vicious cycle) is stronger than the Keynesian multiplier from government spending (more government boondoggles for construction unions, more spending).
There are ways to break the vicious cycle:
1) encourage entrepreneurs to dive in and take risks
2) encourage foreign investors to put more money into the US economy
3) attract skilled and talented immigrants who bring in human capital.
The trouble is that entrepreneurs at this stage of the cycle appear as vultures, speculating in human misery, buying foreclosed houses and distressed bonds. … Alternative number two would work if the US government allowed the Chinese and others to come in as partners and buy significant parts of the US economy at discounted prices. That’s not going to happen, either, for the same stupid political reasons. … Alternative number three isn’t even on the agenda.
That means we are stuck in a vicious cycle in which the recession lasts indefinitely, equities chop sideways forever, and the Obama administration sets the stage for a potential dollar collapse some time down the road.
My spin: If you are looking for a second “stimulus package,” one that would address these points, particularly #1 would be helpful. A pro-entrepreneur package …
This is a smart summary: “Waxman-Markey is the climate policy equivalent of Sarbanes-Oxley financial regulation, guaranteeing extensive new bureaucracy and substantial economic cost to the productive economy while achieving few of its stated objectives. And the “cap and trade” system at the heart of the bill is riddled with so many loopholes that it should be considered more of a “hairnet and giveaway.”
From Action Economics (bold is mine):
Today’s U.S. reports revealed a bigger May income boost than we assumed from recent stimulus legislation, but a lower service consumption trajectory nevertheless, to leave a remarkable surge in the savings rate and a slightly weaker trajectory for aggregate demand as we approach mid-year. We also saw a small upward bump in the Michigan sentiment index in June as the various confidence measures post gains from Q4-Q1 lows, though confidence remains remarkably lean. The soaring savings rate shows that households are still bracing for the worst despite improving market conditions, as they hoard distributed stimulus benefits and hence truncate some of the “stimulative” effects.
Pay no attention! Nothing to see here! Excerpts from the Congressional Budget Office:
1) The Congressional Budget Office projects that if current laws do not change, federal spending on Medicare and Medicaid combined will grow from roughly 5 percent of GDP today to almost 10 percent by 2035 and to more than 17 percent by 2080 .
2) That projection means that in 2080 the federal government would be spending almost as much, as a share of the economy, on just its two major health care programs as it has spent on all of its programs and services in recent years.
3) Almost all of the projected growth in federal spending other than interest payments on the debt comes from growth in spending on the three largest entitlement programs— Medicare, Medicaid, and Social Security.
4) By CBO’s estimates, the increase in spending for Medicare and Medicaid as a share of GDP will account for 80 percent of spending increases for the three entitlement programs between now and 2035 and 90 percent of spending growth between now and 2080.
5) The current recession has little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II.
5) As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010.
The CBO bottom line: Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress income growth in the United States. Over time, the accumulation of debt would seriously harm the economy.
Alternatively, if spending grew as projected and taxes were raised in tandem, tax rates would have to reach
levels never seen in the United States. High tax rates would slow the growth of the economy, making the
spending burden harder to bear.
From IHS Global: “Reduced wealth, high debt, tight credit, and a weakening labor market are all weighing on consumers. Wages and salaries were down in May, and have fallen in four out of five months this year. And higher gasoline prices are biting into spending power.”
My guy Dan Clifton of Strategas Research hears what I am also hearing:
As of early this morning, the votes were not present for passage, but House leadership has publicly claimed progress and is confident they have the votes to pass the legislation. Should the bill pass, the vote will likely be a razor thin majority. While today’s vote will have an impact on the financial markets, we remain convinced that passage in the Senate is a very unlikely event and today could represent a head fake. Passage of the House bill should not be underestimated, but House passage is not a proxy for the Senate passage. A razor thin simple majority in the House does not translate into a required 3/5 majority in a more restrictive Senate.
Me: Time is not on the side of the cap-and-trade effort. The longer the economy stays weak, the more this legislation seems like an expensive indulgence. Plus, the consensus on the science is breaking down.
Andy Busch of BMO Capital Markets also noticed the money supply question slipped in toward the end of Ben Bernanke’s grilling yesterday:
During the Bernanke testimony yesterday on the BofA/Merrill deal, a curious question popped up about money supply growth. I’m not sure what was more surprising the fact that this question came up or that a House member asked it. Bernanke said that the massive supply of money into the system was mainly being held by banks as reserves. Since banks are not lending much, this growth in money supply wasn’t a problem at this time.