James Pethokoukis

Politics and policy from inside Washington

Dubai and the dollar

Nov 27, 2009 18:09 UTC

My pal Felix Salmon makes a good point about the dollar and Dubai. The greenback initially slid on the news. But isn’t the greenback supposed to be a safe haven. Felix opines as follows:

Needless to say, this isn’t exactly a classic risk-aversion reaction: when the markets are really scared, they tend to flee to the safety of the dollar, rather than to the Japanese yen. So my feeling is that this — along with the relatively modest stock-market reaction in New York this morning — counts as a sign that Dubai really isn’t all that bad: it shows that markets are trading the news, rather than panicking.

On the other hand, it’s clearly not good news that a severe-if-not-life-threatening shock such as this one sends the dollar down rather than up. The immense fiscal cost of the financial crisis has hurt the dollar’s standing as the global reserve currency, and if I were at Treasury right now I’d be very concerned about this reaction. Not that there’s much Treasury can do about it.

Dobbs, 2012 and the ghost of Perot

Nov 27, 2009 15:45 UTC

If former CNN anchorman Lou Dobbs decides to make an independent bid for president in 2012, he will probably find the political climate as hospitable for an insurgent run — if not more so — as it was in 1992, when Ross Perot captured a fifth of the popular vote. (It was the best showing by a third-party candidate since Bull Moose Teddy Roosevelt finished second with 27.4 percent of the vote in 1912.)

The dreary economic New Normal that is the aftermath of the Great Recession has created a huge political opening for Dobbs or Michael Bloomberg or Sarah Palin, or some other American with high visibility or deep pockets or both.

It was a slow-recovering economy and concern about big deficits that drove the Perot phenomenon. There’s a high probability both factors will be at play three years from now. The Center on Budget and Policy Priorities forecasts annual budget deficits to average $1.2 trillion over the next three years. And the Federal Reserve is forecasting a so-so economic expansion that will leave unemployment over 7 percent in 2012. Overall, the nation’s economic mood might be a lot worse than it was in 1992.

Then you have a populist, anti-Wall Street sentiment that neither Democrats nor Republicans have been able to capture successfully. The result is that party loyalties are frayed, with the tea party movement one manifestation. According to the Pew Research Center, 36 percent of Americans identify themselves as independents, the highest number since 1992. And they seem to be up for grabs. Barack Obama won 52 percent of the independent vote in 2008. But a recent poll by Rasmussen Reports shows Obama with a 61 percent disapproval rating among the group.

None of this means an independent would actually win. Rasmussen has Dobbs at 14 percent in a race with President Obama (42 percent) and Mitt Romney (34 percent.) With the more populist Palin replacing Romney, Dobbs gets 12 percent versus 44 percent for Obama and 37 percent for Palin.  Yet without Dobbs in the race, Romney is tied with Obama and Palin trails by just three. So an independent could, at the very least, radically alter the political landscape.

And not just for the GOP. Unhappiness about an escalation in the Afghanistan war and muddled healthcare reform could create a more liberal independent challenger. Take Howard Dean, for instance. The former Vermont governor and chairman of the Democratic National Committee has been ripping ObamaCare lately and says he would vote with Sen. Bernie Sanders of Vermont, an independent socialist, against it if he were a senator. And Dean sure knows how to use the Internet to raise money, as he showed in his 2004 run for the Democratic nomination.

But here is the bottom line: If the New Normal turns out to be worse than expected, with the GOP blamed for the original collapse and Democrats for a bungled remedy, an independent might accomplish much more than just being a spoiler.

COMMENT

Jim Gilchrist,who is a leader of more than a million Minuteman, Viet Nam vet with Purple Heart and other medals, charisma, well spoken, well known, been on turncoat Lou Dobbs Show, idiot Larry King Live Show and Fox News etc. retired accountant and nice guy. The fact that he is not a corrupt politician is gold. He will have the Minutemen,people who think like the Minutemen like us and the Vets behind him. He is a lot better than obama and the ones on the right by far for president.Lou Dobbs is a con artist with a hidden agenda for Money and Fame. Anyone who is really against amnesty and illegal has it in them like an arm or a leg. So he was never against amnesty and illegal from the beginning. Just the only way he could get Money and Fame. Schemer with illusions of Grandeur. Opportunist. Who is going to vote for him now other than his own family? That turncoat is a joke. The stunt he pulled would be like Rush coming out and saying he was really a Democrat. Dobbs stabbed his listeners in the back with really being for amnesty all these years for the money. But telling his audience he was against amnesty, illegal like them. Should be some kind of law against it.Palin is another one who is a schemer with illusions of grandeur. Opportunist. United the Republican base with religion and morals. She is copying bush’s strategy of using the fundies to be elected. After the fundies left the oval office bush and the Republicans made fun of them. How can these fundies be duped twice? But then the liberal left fundiea and left are duped by obama. Separation of Church and State. What is she going to do rule the country with the Bible instead of the Constitution? Well seeing as how she didn’t know what NAFTA was she doesn’t know the Constitution either. She left being governor of Alaska with how many? 50 ethic violations? She was against the poor polar bears etc when she was governor. Hypocrite hunts for the thrill of the kill. She is a big joke too.4th generation Democrat no longer and never again. There is no such thing as a Democrat today. My father’s Democratic Party when men were men and took care of their own, would never have been for illegal, foreign workers, amnesty, CAFTA, NAFTA, outsourcing, North American Unoin, NWO etc. like these so called Democrats today. The Democrats of today are just the opposite of my father’S Democratic Party, who were all for the Americans and US Made.

Posted by Darraugh | Report as abusive

Economy makes independents’ day

Nov 27, 2009 15:33 UTC

If Lou Dobbs decides to make an independent bid for president in 2012, he will probably find the political climate as hospitable for an insurgent run — if not more so — as it was in 1992, when Ross Perot captured a fifth of the popular vote.The dreary economic New Normal that is the aftermath of the Great Recession has created a huge political opening for Dobbs or Michael Bloomberg or Sarah Palin, or some other American with high visibility or deep pockets or both.It was a slow-recovering economy and concern about big deficits that drove the Perot phenomenon. There’s a high probability both factors will be at play three years from now.The Center on Budget and Policy Priorities forecasts annual budget deficits to average $1.2 trillion over the next three years. And the Federal Reserve is forecasting a so-so economic expansion that will leave unemployment over 7 percent in 2012.Then you have a populist, anti-Wall Street sentiment that neither Democrats nor Republicans have been able to capture successfully.The result is that party loyalties are frayed, with the tea party movement one manifestation. According to the Pew Research Center, 36 percent of Americans identify themselves as independents, the highest number since 1992. And they seem to be up for grabs.Barack Obama won 52 percent of the independent vote in 2008. But a recent poll by Rasmussen Reports shows Obama with a 61 percent disapproval rating among the group.None of this means an independent would actually win. Rasmussen has Dobbs at 14 percent in a race with President Obama (42 percent) and Mitt Romney (34 percent.) With the more populist Palin replacing Romney, Dobbs gets 12 percent versus 44 percent for Obama and 37 percent for Palin.Yet without Dobbs in the race, Romney is tied with Obama and Palin trails by just three. So an independent could, at the very least, radically alter the political landscape.And if the New Normal turns out to be worse than expected, with the GOP blamed for the original collapse and Democrats for a bungled remedy, an independent might accomplish much more than that.

The Afghanistan war surtax gambit

Nov 24, 2009 19:32 UTC

Why is passing healthcare reform so difficult? One big reason is that Democrats are trying to pay for a broad-based new entitlement without enacting a broad-based new tax.

As the joke goes, the only real difference between Republicans and Democrats is that the Rs don’t want to raise taxes on anybody and the Ds want to clip only the top 2 percent.

But some Democrats have finally found a cause worth taxing the middle class for: the war in Afghanistan. A group of powerful House committee chairmen are pushing a graduated income surtax. (A Senate effort would tax only the wealthy.)

The twin goals, backers say, are fiscal probity and transparency, especially now that it looks like President Barack Obama will be sending up to $34 billion worth of new troops to Afghanistan.

As Barney Frank, House Financial Services chairman, puts it: ‘It’s important for people to understand how these wars are adding to our deficits.’

Nonsense. The same lawmakers supporting the war surtax also support a healthcare reform plan that is structured to hide long-term costs. No accounting trick is spared. Taxes are front loaded. Some spending is back loaded, while other spending is shunted to a separate bill.

No, the goal of the surtax is to drain public support for a war many Democrats think should be downgraded. And no doubt if this legislative effort proves successful, it would be tempting to eventually make the temporary surtax permanent.

Indeed, the whole effort could be laying the groundwork for a broad value-added tax that many centrist and liberal economists think necessary to shrink America’s long-term budget gap.

But why not take this opportunity to help pay for the war through spending cuts?

It’s inside-the-Beltway wisdom that Congress won’t cut spending. But eventually spending will need trimming to deal with the long-term budget deficit without resorting to currency devaluation or inflation or huge tax increases.

So let’s start now. The war in Afghanistan currently costs some $43 billion a year. As the Heritage Foundation rightly notes, “that sum is dwarfed by the $72 billion in improper payments (i.e. over-payments, payments made for services and goods never received, benefits and tax credits paid to people who didn’t qualify) that the Government Accounting Office said the federal government made last year.” Then there’s $92 billion in corporate welfare and $123 billion in programs that simply aren’t really showing any positive impact, according to government auditors.

Time for Congress to prove the common wisdom wrong and do the unexpected: Cut spending.

COMMENT

Maybe they’ll suggest a modest, temporary VAT to pay for the war. Also, let’s not forget about the billions of waste and fraud that Obama found in Medicare which he could cut painlessly.

Why panicky Dems are bailing on Tim Geithner

Nov 23, 2009 20:38 UTC

One residual from Timothy Geithner’s rough confirmation back in January — “Turbo Tax Tim” and all that — is that his political position is probably a bit more precarious than that of the typical newbie treasury secretary.

Not only has Geithner been a frequent target of late-night comedy shows, he’s the public face of the unpopular bank and automaker bailouts. High unemployment rate isn’t helping either.

No surprisingly, a new Rasmussen poll finds that 42 percent of Americans think Geithner has done a “poor” job handling the economy versus 20 percent who rate him “good or excellent.” And the furor over his handling of the AIG bailout has yanked the competence issue back to the forefront.

So there is little political risk from calling for his resignation, as Representative Peter DeFazio, an Oregon Democrat, and several Republicans have done. But, my sources say, there seems to be little White House appetite at this moment for ousting Geithner, who certainly has no plans of his own for a fast exit.  Expect him to stick around until at least November 2010.

And why would Obama cut him loose when doing so would be tantamount to a vote of disapproval in his own economic policies?

No one has charged Geithner with going rogue, after all. So blame the model, not the man, if you must. Not to mention a quick hook would stink of panic. Top cabinet secretaries of first-term presidents rarely leave before the midterm elections.

Nor does Geithner have much to fear from a whisper campaign to put JPMorgan CEO Jamie Dimon in the job, according to insiders. Despite the rumors, Dimon doesn’t want the gig. What banker would, given the current populist political climate?

It seems unlikely that radioactive Wall Street will be supplying Geithner’s eventual successor. More likely candidates: Rahm Emanuel (he of the frequent phone calls to Geithner), White House chief of staff; Janet Yellen, president of the San Francisco Federal Reserve; Lawrence Summers, director of the National Economic Council; and Roger Ferguson, CEO of TIAA-CREF and former Fed vice chairman.

But the calls for Geithner’s resignation, as well as stunts like the Congressional Black Caucus blocking a key House committee vote on financial reform, indicate a degree of desperation among congressional Democrats. They see high unemployment and dissatisfaction with Obama’s scattered focus on the issue as driving the anti-incumbent mood.

Unlike in sports, in government it’s the players, not the coach, who gets fired. And that’s why some Dems think one way to save their jobs in 2010 is by suggesting that Geithner lose his today.

COMMENT

Blaming Geithner, or Paulson, for the great panic of 2008 is absolutely insane. Bears and Lehman were ruined when giant banks around the globe began reporting huge mortgage losses, securities where both Bears and Lehman were heavily invested. Then, behemoth banks, hege fund managers, and overnight financiers panicked and began yanking their financing from investment banks like, Bears and Lehman, who were heavily invested in these securities. It was nothing short of a good ol’ fashion panic; only this time it hit the unregulated, grossly leveraged investment houses. In unprecedented fashion, Geithner, Paulson, and Bernanke used the powers of the Fed to rescue the entire financials industry. Their alleged bailout of Bear Stearns did little more than protect Bears’ creditors and the global financial system. Bears shareholders and employees lost billions!! Look at what happened when Paulson couldn’t stomach being castigated again in the press and let Lehman fall: the down plunged over 500 points and the recession was on in earnest! Could you imagine what would have happened if Bears, Lehman, Merrill Lynch, AIG, and Fannie and Freddie were all allowed to go under? Lehman alone tanked the markets over 500 points!! If these institutions defaulted on ALL of their contractual obligations, commercial banks all over the world would have been ruined! You think 10% unemployement is bad, which we had in 1982 under Reagan, try the 30% and up we had in the great depression. That’s where we we’re headed but for the courage of these guys to take extraordinary steps to save us. If Greenspan had acted with similar aplomb, and taken the air he knew existed out of the housing bubble, it probably would never have come to this. The simple truth is that capitalism, like everything else, fails every now and then. And those who save us from its uncommon failures shouldn’t be pilloried by a bunch of brain dead politicians, many of whom thought that Enron and it’s real crooks were great guys!

Posted by Chad Swenson | Report as abusive

PAYGO and pretend fiscal responsibility

Nov 23, 2009 20:09 UTC

Ed Yardeni calls it on PAYGO:

Too bad that there are so many devils in the details. Obama’s proposal for fiscal discipline totally exempts “discretionary spending” for defense, education, environmental protection and many other programs. Normal increases in entitlement spending (more beneficiaries, higher health costs, etc.) also aren’t covered. In other words, the increase in Social Security and Medicare spending resulting from the impending retirement of baby boomers doesn’t count. Congress did operate under self-imposed PAYGO rules during FY1991-FY2002, and frequently skirted them. The statute was then allowed to expire. So here we are with Mr. Obama paying lip service to fiscal disciple with yet another campaign speech.

Is it any wonder that the price of gold is at a record $1165 this morning?

Might the Bush tax cuts be repealed before 2011?

Nov 23, 2009 20:02 UTC

I have to admit, this scenario does make a lot of sense:

In a word, yes. Back in August 1993, President Clinton passed the largest tax increase in history – the Omnibus Budget Reconciliation Act of 1993 (OBRA) – and made it retroactive to January of that year.

It was challenged in court, and the court held that retroactive tax increases were legal. This was not the first time this sort of chicanery had been pulled. (You can read more on the topic of retroactive taxes by clicking here.)

Why am I so confident this trap is being set? Nancy Pelosi herself tipped her hand on the retroactive tax plan when she said last January she wanted Congress to repeal Bush’s tax cuts well before their scheduled expiration date. An early repeal of the Bush tax cuts was also one of President Obama’s campaign promises.

The administration and its allies have since gone quiet on its intentions. But that’s only because they want to avoid triggering a stock selloff before the end of 2009. That all changes once the ball drops in Times Square this coming New Year’s Eve. At that point, it will be too late to escape.

Me: Perhaps this is how Team Obama means to help pay for the second stimulus, assuming they don’t intend just to borrow it all.

The politics of the bailout

Nov 23, 2009 19:33 UTC

From the Times:

Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy.

“Most advanced economies will not accept any more [bailouts]…The political reaction will be very strong, putting some democracies at risk,” he told delegates.

“I do believe that the financial sector needs to contribute both to the costs of the financial crisis and to reduce recourse to public funds in the future,” he said.

Me: In the US, TARP and bailouts are already transforming the political landscape, giving rise to the Tea Party movement and creating anti-Wall Street sentiment on the left and right.

Fight for the Fed: Ben Bernanke vs. Nancy Pelosi and Harry Reid

Nov 23, 2009 19:26 UTC

Ron “End the Fed” Paul:

If you want to be a strict constitutionalist, there’s a lot more defense of having Congress involved with defending the value of the currency than delivering this responsibility over to the Fed.

Me: Keep in mind that there are in folks in Congress, such as Barney Frank, who would like to depower the Fed bank presidents because they worry too much about inflation.  Mend it, don’t end it!

COMMENT

James,

How can you mend central planning? The Fed is socialist and needs to be abolished. Interest rates need to be set by the free market — people’s time preferences of money.

A restoration of Hendricks vs. Griswold and hard money is also needed to kill inflation and budget deficits once and for all.

Posted by Austrian School | Report as abusive

Geithner Resignation Watch: Jamie Dimon Edition

Nov 23, 2009 17:19 UTC

Here is what I know, or at least what I think I know after talking with slew of folks today (and an expanded take to come in a bit):

1) Geithner isn’t going anywhere before November 2010.

2) JPMorgan’s Jamie Dimon doesn’t want the job.

3) If Geithner did go, Rahmbo, Yellen, and Summers are all more likely that JD.

4) The Geithner resignation talk is a sign of panic on the part of congressional Dems. Expect the AIG ruckus to get more of a push on the Hill.

5) Geithner’s uneven TV skills aren’t helping, though.

COMMENT

JAMIE DIMON WILL BE TAGGED A CROOK IN A VERY SHORT PERIOD OF TIME. HE IS GREEDY AND WILL GET CAUGHT!!
HE USES THE BANKS POWER TO OVERPOWER PEOPLE AND WASTES MONEY, HE IS KEN LAY JR,, JAN 22ND ,, WE WILL ALL SEE WHAT KIND OF GUY HE HIS AND HIS FAMILY.

Posted by RICK | Report as abusive
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