James Pethokoukis

Politics and policy from inside Washington

Obama, the Un-Reagan when it comes to the dollar and stocks

Oct 2, 2009 19:12 UTC
David Goldman notices the tight relationship of the dollar and the stock market, comparing it to the Reagan years.
We have only had one period in which the dollar and the stock market were so correlated, and that is in 1983-1984, the beginning of the great Reagan stock market rally. The world bought the dollar and sold the US economy, before the Mundell twist (tight money and lower marginal tax rates) kicked in and the Reagan recovery began. Now we have the opposite: The dollar is selling off in tight correlation with rising stock prices, again with rising stock prices.
Think of Obama as the un-Reagan: rather than a monetary squeeze hurting stocks, monetary easy is helping stocks, as the world goes to the great American fire sale assets. We’ve had an un-rally, and now it’s going undone. … This is a unique situation: never before has the US stock market traded as if it were a banana-republic equity market reprices to the dollar. Now the stock market is repricing to a basket of alternatives to the dollar. That doesn’t spell the end of the dollar as a reserve currency, at least not for the foreseeable future. As former Fed chairman Paul Volcker told Charlie Rose last night, there’s no alternative to the dollar. Bt that’s for now. Keep it up, and the world will eventually find a substitute for the dollar.
COMMENT

Wake up America,

your president is doing a photo op with DAVID LETTERMAN,

and EVERY NEWS CHANNEL for another photo op,

and now hes in Copenhagen to run for the Olympics with OPRAH WINFREY.

Lost the Olympic bid, spent 3 million of YOUR MONEY.

IS THAT THE CHANGE?

Not for me thank you very much!

Posted by Ian | Report as abusive

Is the US labor market broken?

Oct 2, 2009 19:00 UTC

US unemployment has been far worse than economists would have expected given the magnitude of GDP decline. Has something structurally changed with the American labor market? An interesting angle on this from Brian Wesbury and Bob Stein of First Trust Advisers:

The employment situation has remained much weaker much longer than the overall economy. In September, the jobless rate rose to the highest level since 1983, total hours worked fell at a 5.9% annual rate, and wage gains were a soft 0.1%. Payrolls came in worse than anticipated, falling 263,000, although payrolls fell a smaller 210,000 in the private sector. There are two reasons for the disconnect between the economic recovery and the labor market. First, productivity growth has been rapid of late, part of the ongoing process of technological change that rivals (and may surpass) the industrial revolution. Second, corporate leaders still think the recent spurt in growth will be short-lived and so are being overly cautious. In the short term, productivity growth lets companies raise production even as they continue to cut jobs. Over time, though, higher output with lower labor costs mean more profits, which will help stimulate rapid job growth once companies become more confident about the staying power of the recovery. When the labor market eventually turns positive, it will do so with a vengeance.

COMMENT

@ Frank:

Although I’m not a fan of unions, when it comes to any comparison between corporate management and unions the greater levels of douche baggery exist on the management side of the equation.

The rest of the unemployment problem rests with our government which enabled the abandonment of the American worker. America is no longer the greatest force to be reckoned with thanks to political infatuation with cash and power among the very few. Is America better than it used to be? Not from where I’m standing! Thanks a lot you guys!

Posted by Unemployed | Report as abusive

September jobs report: -263,000, unemployment at 9.8 percent

Oct 2, 2009 15:22 UTC

The silver linings here are tough to find, at least according to this summary from IHS Global:

The September employment report signaled a painfully slow path to stabilization in the private employment market, and sharper declines in government jobs. It also suggested that the unemployment rate is likely to hit 10% by the turn of the year.

The leading indicators in the report were not promising. The workweek fell, and is now back at its June low. And temporary help jobs – while declining only fractionally – still haven’t moved into positive territory.

There was nothing to support the view that the economy will be adding jobs before the end of the year. And nothing to support the view that the consumer can sustain the spending increases that we saw in August – employment and hours worked were down, and hourly earnings only inched higher, implying that wage and salary incomes fell.

State and local governments have now shed 160,000 jobs over the past four months as budget cuts bite. This month, 29,000 of those losses came in education as the school year began. The education sector as a whole lost 46,000 jobs this month.

The economy has now lost 7.2 million jobs since the recession began – but the story is even worse than that. The BLS now tells us that it expects to revise down March 2009 employment by 824,000, based on a full employment count from unemployment insurance statistics. That implies that the total loss is now 8.0 million.

COMMENT

I think the “early adoption” of 21st energy and health care reform is capable of putting the job market on a solid ground. As a major driver, IT industry stalled and stranded in a game industry for the lack of 21st energy policy over the stretch of two wars needs to evolve into the all but indefinite energy, medical, and academic industry where the investors are eagerly waiting for policy-makers to act now, which I guess is why the far-reaching and long overdue health care and 21st energy bill have come into focus.

Posted by hsr0601 | Report as abusive

VAT Attack! Greenspan: Raise taxes with a value-added tax

Oct 2, 2009 15:13 UTC

At the Atlantic magazine symposium I am attending, former Federal Reserve chairman again said he thinks taxes are going up and that a value-added tax would be the “least worst” way of doing it.  This dovetails nicely with what I wrote yesterday:

Does President Obama have a secret plan to raise taxes on middle-class Americans — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’s not such a big secret. Connect the dots:

1) The joint statement from the just-concluded G20 Summit in Pittsburgh called for balanced global growth — which means Americans must spend less and save more and reduce its budget deficit.

2) That same weekend, John Podesta, co-chairman of Obama’s presidential transition team and an outside White House adviser, tells a Bloomberg reporter that a value-added tax is “more plausible today” than ever, adding that “there’s going to have to be revenue in this budget.” A VAT is a kind of consumption tax.

3) Yesterday, the Center for American Progress, the liberal think tank with close White House ties, holds a conference on the rising national debt. While speaker after speaker — Paul Krugman, Roger Altman, CAP President Podesta (again), Laura Tyson — admits entitlement spending must be reduced, they also agree that taxes must be raised. Altman suggests $400 billion in new tax revenue is needed almost immediately to calm financial market fears, and a VAT would be a great way of doing it. That’s $400 billion a year, by the way, not over ten years.

4) Also, yesterday was the first meeting of President Obama’s tax reform panel led by former Federal Reserve Chairman Paul Volcker. In a two-part interview with Charlie Rose airing yesterday and today, Volcker says that if Washington can’t get spending under control, either a VAT or a carbon tax would be effective revenue raisers. “Those are two big ones,” he says.

5) As they used to say in the Soviet Union, “It’s no coincidence.” This is also the conclusion of one Washington insider with ties to the White House economic team: “Does this all add up to a trial balloon? Of course, it’s a trial balloon. And I expect the administration will propose major tax reform, including a VAT.”

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