The following letter to the editor appeared in the April 12-13, 2008 weekend edition of the Financial Times on page 6.
Sir, I am living a rather ordinary sort of life. But when I read the April 10 edition of the FT I felt transported to Wonderland. On the first page, I read that the bankers are claiming an epiphany. They will be good boys from now on, holding to higher standards of lending probity and reasonable pay.
Further down the page a headline claimed higher oil prices seemed likely to induce the Federal Reserve to cut rates. No inflation-fighting here. Rather, Ben Bernanke, the Fed chairman, wants to promote more borrowing and spending to keep the decrepit US economy out of the grave. Never mind that it is excess household debt that has helped propel us into today's perilous position.
And, by the way, more debt means less savings, less investment and less economic growth. Does Mr Bernanke think about the effects of all this on his grandchildren? Do we consider what the effect will be on our grandchildren? What kind of society pawns the future of its offspring?
Turning to page two, I read that a panel of banking regulators has endorsed a $300bn-$400bn federal guarantee of refinanced mortgages.
Sheila Bair, chairman of the Federal Deposit Insurance Corporation, considers this will "avoid more dire consequences for all Americans". What dire consequences does she mean? Are they worse than increasing the national debt by more than $300bn? Are the consequences more dire for me who saves in order to weather rainy days such as we are having now courtesy of incompetent regulators who let the credit mess develop under their noses?
- Channing Wagg
Boxborough, MA 01719 US
Friday, April 18, 2008
Thursday, April 17, 2008
Financial Times - Iceland interest rates rise to record 15.5%
This article appeared on page 2 of the Friday April 11, 2008 issue of the Financial Times.
By David Ibison
in Stockholm
Iceland has the highest interest rates in Europe after the central bank raised rates by 50 basis points to a record 15.5 per cent yesterday as it storve to restore confidence in its struggling currency and quench fears of a banking crisis.
The move puts the tiny North Atlantic nation above Turkey's rate of 15.25 per cent and comes just two weeks after it imposed an emergency 1.25 percentage point rise to 15 per cent, underscoring the depth of its problems.
On top of the aggressive action taken by the central bank, the authorieis are also considering further moves to ease investors' fears, such as co-ordinated action by Nordic central banks to provide additional liquidity, if needed.
There was disappointment that this proposed action plan was not unveiled yesterday.
"A sluggish reaction will hurt the financial system, financial stability and the authorities' credibility," said Glitnir Research, the research arm of the Icelandic bank, in a report. "Moreover, non-action will also play a large role in the credit rating of Iceland's sovereign debt, which is on negative outlook at all three major rating agencies, Moody's, Fitch and S&P."
But the central bank did make clear it was prepared to bolster Iceland's foreign exchange reserves in the near future.
"A policy rate increase in and of itself does not solve the problems that have developed in the FX swap market," it said. "Increased issuance of risk-free bonds that are accessible to foreign investors should open up other channels for currency inflow."
Confidence in the krona, Iceland's currency, has been damaged this year because of economic imbalances in the economy and fears over the viability of the banking sector. The krona has weakened by some 25 per cent against the euro this year.
The inflation rate was 8.7 per cent in March, well above the government's target of 2.5 per cent, and the central bank said yesterday it expected inflation to peak at 11 per cent by the third quarter of this year, pushing interest rates up further.
"Persistent inflation will be most damaging to indebted businesses and households and can undermine financial stability for the long term," it said. "It is therefore of paramount importance that inflation be brought under control."
Iceland's economic weaknesses have been exacerbated by the deterioration in global financial markets, which have led to a drastic reassessment of risk and undermined confidence in its highly leveraged banks.
On top of these macro-economic pressures, the authorities in Iceland also believe the country's financial markets may have been weakened via a speculative attack by international hedge funds.
By David Ibison
in Stockholm
Iceland has the highest interest rates in Europe after the central bank raised rates by 50 basis points to a record 15.5 per cent yesterday as it storve to restore confidence in its struggling currency and quench fears of a banking crisis.
The move puts the tiny North Atlantic nation above Turkey's rate of 15.25 per cent and comes just two weeks after it imposed an emergency 1.25 percentage point rise to 15 per cent, underscoring the depth of its problems.
On top of the aggressive action taken by the central bank, the authorieis are also considering further moves to ease investors' fears, such as co-ordinated action by Nordic central banks to provide additional liquidity, if needed.
There was disappointment that this proposed action plan was not unveiled yesterday.
"A sluggish reaction will hurt the financial system, financial stability and the authorities' credibility," said Glitnir Research, the research arm of the Icelandic bank, in a report. "Moreover, non-action will also play a large role in the credit rating of Iceland's sovereign debt, which is on negative outlook at all three major rating agencies, Moody's, Fitch and S&P."
But the central bank did make clear it was prepared to bolster Iceland's foreign exchange reserves in the near future.
"A policy rate increase in and of itself does not solve the problems that have developed in the FX swap market," it said. "Increased issuance of risk-free bonds that are accessible to foreign investors should open up other channels for currency inflow."
Confidence in the krona, Iceland's currency, has been damaged this year because of economic imbalances in the economy and fears over the viability of the banking sector. The krona has weakened by some 25 per cent against the euro this year.
The inflation rate was 8.7 per cent in March, well above the government's target of 2.5 per cent, and the central bank said yesterday it expected inflation to peak at 11 per cent by the third quarter of this year, pushing interest rates up further.
"Persistent inflation will be most damaging to indebted businesses and households and can undermine financial stability for the long term," it said. "It is therefore of paramount importance that inflation be brought under control."
Iceland's economic weaknesses have been exacerbated by the deterioration in global financial markets, which have led to a drastic reassessment of risk and undermined confidence in its highly leveraged banks.
On top of these macro-economic pressures, the authorities in Iceland also believe the country's financial markets may have been weakened via a speculative attack by international hedge funds.
Tuesday, April 15, 2008
Happy Tax Day
Happy Tax Day everybody! Once again, the Federal government will collect more revenue than it knows what to do with, but not enough to make up for frivolous spending.
As of yesterday (per TreasuryDirect), the public portion of debt stands at: $5,349,210,909,674.63
Intragovernmental holdings are: $4,095,188,999,068.57
Giving us a Tax Day 2008 bill of: $9,444,399,908,743.20
Good luck in making it through the next year financially.
As of yesterday (per TreasuryDirect), the public portion of debt stands at: $5,349,210,909,674.63
Intragovernmental holdings are: $4,095,188,999,068.57
Giving us a Tax Day 2008 bill of: $9,444,399,908,743.20
Good luck in making it through the next year financially.
Friday, April 11, 2008
WSJ: The Tax Me More Act
From the Friday April 11, 2008 Wall Street Journal opinion page (A16).
We recently suggested that if Bill and Hillary Clinton are eager to pay more taxes, they should write a personal check to the U.S. Treasury to compensate for the lower tax rates they so frequently decry. And lo, here comes legislation to make it easier for the former first lady and other pseudo-populists to do just that.
California Republican John Campbell yesterday introduced in the House his "Put Your Money Where Your Mouth Is Act," which would amend the tax code to allow individuals to make voluntary donations to the federal government above their normal tax liability. The bill would place a new line on IRS tax forms to make this easy.
Mr. Campbell says he has heard the "cries" of those wealthy Americans - Mrs. Clinton, Warren Buffett, Barbra Streisand- who reject the lower tax rates passed in 2001 and 2003 and complain that they and their fellow rich don't pay enough. "It's a great injustice that citizens wishing to fulfill their dream of paying more taxes cannot simply check a box on their 1040 form to make a donation," he says. His bill would give liberals a chance to salve their consciences without having to raise taxes on millions of Americans who already feel overtaxed as it is.
Still, don't expect many to take Mr. Campbell up on his offer. The Treasury already accepts voluntary donations to decrease the nation's debt; last year it received all of $2.6 million. Apparently even most liberals would rather keep their money, or bequeath their estates to charity rather than to the IRS.
We recently suggested that if Bill and Hillary Clinton are eager to pay more taxes, they should write a personal check to the U.S. Treasury to compensate for the lower tax rates they so frequently decry. And lo, here comes legislation to make it easier for the former first lady and other pseudo-populists to do just that.
California Republican John Campbell yesterday introduced in the House his "Put Your Money Where Your Mouth Is Act," which would amend the tax code to allow individuals to make voluntary donations to the federal government above their normal tax liability. The bill would place a new line on IRS tax forms to make this easy.
Mr. Campbell says he has heard the "cries" of those wealthy Americans - Mrs. Clinton, Warren Buffett, Barbra Streisand- who reject the lower tax rates passed in 2001 and 2003 and complain that they and their fellow rich don't pay enough. "It's a great injustice that citizens wishing to fulfill their dream of paying more taxes cannot simply check a box on their 1040 form to make a donation," he says. His bill would give liberals a chance to salve their consciences without having to raise taxes on millions of Americans who already feel overtaxed as it is.
Still, don't expect many to take Mr. Campbell up on his offer. The Treasury already accepts voluntary donations to decrease the nation's debt; last year it received all of $2.6 million. Apparently even most liberals would rather keep their money, or bequeath their estates to charity rather than to the IRS.
WSJ: U.S. Deficit Hits Record As Corporate Profits Fall
From the Friday April 11, 2008 issue of the Wall Street Journal (page A12)
By Michael M. Phillips
The foreclosure crisis and the turmoil on Wall Street appear to be putting a squeeze on the federal budget, leaving record deficits in their wake as corporate-income-tax revenues fall.
The Treasury Department reported Thursday that receipts from corporate income taxes fell 16% to $129 billion in the first half of fiscal 2008, which began Oct. 1. The federal deficit during the period hit an all-time high of $311 billion, and was up 20% from a year earlier.
"Corporate tax revenues are declining significantly," Peter Orszag, head of the nonpartisan Congressional Budget Office, said in an interview. "We're experiencing a period in which corporate tax revenues grew extremely rapidly for several years, and now that's being reversed to some degree."
While government data don't identify revenue sources by industry, analysts looking at corporate profitibability say that the biggest revenue declines probably are due to the setbacks to banks, investment banks and other financial institutions arising from the collapse of the subprime-mortgage market.
"It's partly an economic slowdown, but it's much more focused than that," said J.D. Foster, a former chief economist at the White House Office of Management and Budget and now a senior fellow at the conserative Heritage Foundation. "In recent years we have gotten an inordinate proportion of our corporate tax receipts from the financial sector. And who's getting hammered [now]?"
The wave of home-loan defaults sweeping the nation has sent shocks through banks and Wall Street firms that invested heavily in risky securities backed by those mortgages. The International Monetary Fund forecast this week that, over two years, the crisis will saddle financial institutions world-wide with $945 billion in losses.
In part because of rising revenues from taxes on individuals' incomes, federal receipts overall hit a record in the first half of the fiscal year, reaching $1.15 trillion, an increase of 2% from a year earlier. Individual-income-tax receipts accounted for $504 billion, up from $479 billion in the first half of fiscal 2007. The periods ended before the height of the tax-filing season in early April.
Nonetheless, the reduction in corporate tax revenues combined with a 6% jump in federal spending to $1.46 trillion to create the record budget shortfall.
By Michael M. Phillips
The foreclosure crisis and the turmoil on Wall Street appear to be putting a squeeze on the federal budget, leaving record deficits in their wake as corporate-income-tax revenues fall.
The Treasury Department reported Thursday that receipts from corporate income taxes fell 16% to $129 billion in the first half of fiscal 2008, which began Oct. 1. The federal deficit during the period hit an all-time high of $311 billion, and was up 20% from a year earlier.
"Corporate tax revenues are declining significantly," Peter Orszag, head of the nonpartisan Congressional Budget Office, said in an interview. "We're experiencing a period in which corporate tax revenues grew extremely rapidly for several years, and now that's being reversed to some degree."
While government data don't identify revenue sources by industry, analysts looking at corporate profitibability say that the biggest revenue declines probably are due to the setbacks to banks, investment banks and other financial institutions arising from the collapse of the subprime-mortgage market.
"It's partly an economic slowdown, but it's much more focused than that," said J.D. Foster, a former chief economist at the White House Office of Management and Budget and now a senior fellow at the conserative Heritage Foundation. "In recent years we have gotten an inordinate proportion of our corporate tax receipts from the financial sector. And who's getting hammered [now]?"
The wave of home-loan defaults sweeping the nation has sent shocks through banks and Wall Street firms that invested heavily in risky securities backed by those mortgages. The International Monetary Fund forecast this week that, over two years, the crisis will saddle financial institutions world-wide with $945 billion in losses.
In part because of rising revenues from taxes on individuals' incomes, federal receipts overall hit a record in the first half of the fiscal year, reaching $1.15 trillion, an increase of 2% from a year earlier. Individual-income-tax receipts accounted for $504 billion, up from $479 billion in the first half of fiscal 2007. The periods ended before the height of the tax-filing season in early April.
Nonetheless, the reduction in corporate tax revenues combined with a 6% jump in federal spending to $1.46 trillion to create the record budget shortfall.
Monday, April 7, 2008
Monthly National Debt Statement for March 2008
The newest figures are available at www.TreasuryDirect.gov for the month of March 2008.
As for April 4, 2008, the national debt is: $9,438,509,689,837.02
Public component: $5,346,703,634,865.43
Intragovernmental: $4,091,806,054,971.59
Interest payments:
March 2008 - $23,023,540,357.53
Fiscal Year- $221,541,307,516.69
Public Contributions:
February 2008 - $359,697.45
FY 2008-to-date - $887,459.53
There are six months remaining in Fiscal Year 2008.
With April 15 coming, "Happy Tax Season"
As for April 4, 2008, the national debt is: $9,438,509,689,837.02
Public component: $5,346,703,634,865.43
Intragovernmental: $4,091,806,054,971.59
Interest payments:
March 2008 - $23,023,540,357.53
Fiscal Year- $221,541,307,516.69
Public Contributions:
February 2008 - $359,697.45
FY 2008-to-date - $887,459.53
There are six months remaining in Fiscal Year 2008.
With April 15 coming, "Happy Tax Season"
Friday, March 28, 2008
Reuters: U.S. Seeks enhanced financial authority for Fed
By John Poirier and Glenn Somerville
(Reuters) The U.S. Treasury Department will propose on Monday that the Federal Reserve be given sweeping new powers that would make it chief regulator with authority to take actions to ensure market stability.
An executive summary of the proposals published by the New York Times, which Treasury Secretary Henry Paulson will make public on Monday when he unveils a blueprint for regulatory overhaul, says it is vital to fix "regulatory gaps and redundancies" exposed by an ongoing subprime mortgage crisis.
Lax regulation has been widely blamed for permitting a flood of inadequately documented loans to be made during the boom years of a U.S. housing market that has since soured and now threatens to drag the economy into a deep recession.
The proposals say a "market stability regulator" is needed and the Fed best fits that role, suggesting the central bank could use its control over interest rates as well as its ability to provide market liquidity to fulfill its functions.
It proposes that the Fed be given broad authority to require information from all participants in financial markets and a right to collaborate with other regulators in writing the rules that companies and institutions must follow.
NEW FED POWERS
If the Fed finds that the actions of some market participants pose risks for the overall financial system or the economy, "the Federal Reserve should have authority to require corrective action to address current risks or to constrain future risk-taking," the summary said.
Among other recommendations, Treasury suggests merging the Securities and Exchange Commission, the U.S. markets watchdog, with the Commodity Futures Trading Commission that oversees the activities of the futures market.
It also recommends getting rid of a Depression-era charter for thrifts that was intended to make it easier to obtain mortgage loans, saying it is no longer necessary. That would mean closing up the Office of Thrift Supervision and transferring its duties to the Office of the Comptroller of the Currency that oversees national banks.
Treasury officials refused on Friday to reveal details of the proposals but numerous trade groups had been invited to a speech by Paulson on Monday at Treasury and speculation quickly swelled that its long-awaited prescription for streamlining regulation was at hand.
Treasury said it has been working on its proposals since March last year, well before calls for an overhaul began to intensify in the wake of the subprime mortgage crisis that began to wreak havoc last summer on financial markets.
Paulson had signaled some of the direction the proposals would take earlier this week when he said that since the Fed had taken the exceptional step of permitting investment banks access to its discount window for loans -- the first time it has done so for any financial entities besides commercial banks since the 1930s -- it should have some authority over the investment banks.
ACCESS BRINGS RULES
"Certainly any regular access to the discount window should involve the same type of regulation and supervision," he said in a speech to the U.S. Chamber of Commerce.
Another proposal would provide an option for insurance companies to obtain a charter to do business under federal regulation, though it says the current state-based system would continue for any that did not get a federal charter.
Most of the financial services industry in the United States is regulated by federal authorities except insurance, which the states supervise. For years, big insurance companies, however, have been calling for an optional federal charter.
The chairman of the House Financial Services Committee, Democratic Rep. Barney Frank, last week said Congress should seriously consider giving a federal agency the power to monitor all risk in the financial system and act when necessary, regardless of its corporate form.
Frank suggested one possibility would be to empower the fed as "Financial Services Risk Regulator," an idea that Treasury's proposals appear to broadly embrace.
Many analysts and some Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House.
(Reporting by John Poirier and Glenn Somerville; Editing by Louise Heavens)
(Reuters) The U.S. Treasury Department will propose on Monday that the Federal Reserve be given sweeping new powers that would make it chief regulator with authority to take actions to ensure market stability.
An executive summary of the proposals published by the New York Times, which Treasury Secretary Henry Paulson will make public on Monday when he unveils a blueprint for regulatory overhaul, says it is vital to fix "regulatory gaps and redundancies" exposed by an ongoing subprime mortgage crisis.
Lax regulation has been widely blamed for permitting a flood of inadequately documented loans to be made during the boom years of a U.S. housing market that has since soured and now threatens to drag the economy into a deep recession.
The proposals say a "market stability regulator" is needed and the Fed best fits that role, suggesting the central bank could use its control over interest rates as well as its ability to provide market liquidity to fulfill its functions.
It proposes that the Fed be given broad authority to require information from all participants in financial markets and a right to collaborate with other regulators in writing the rules that companies and institutions must follow.
NEW FED POWERS
If the Fed finds that the actions of some market participants pose risks for the overall financial system or the economy, "the Federal Reserve should have authority to require corrective action to address current risks or to constrain future risk-taking," the summary said.
Among other recommendations, Treasury suggests merging the Securities and Exchange Commission, the U.S. markets watchdog, with the Commodity Futures Trading Commission that oversees the activities of the futures market.
It also recommends getting rid of a Depression-era charter for thrifts that was intended to make it easier to obtain mortgage loans, saying it is no longer necessary. That would mean closing up the Office of Thrift Supervision and transferring its duties to the Office of the Comptroller of the Currency that oversees national banks.
Treasury officials refused on Friday to reveal details of the proposals but numerous trade groups had been invited to a speech by Paulson on Monday at Treasury and speculation quickly swelled that its long-awaited prescription for streamlining regulation was at hand.
Treasury said it has been working on its proposals since March last year, well before calls for an overhaul began to intensify in the wake of the subprime mortgage crisis that began to wreak havoc last summer on financial markets.
Paulson had signaled some of the direction the proposals would take earlier this week when he said that since the Fed had taken the exceptional step of permitting investment banks access to its discount window for loans -- the first time it has done so for any financial entities besides commercial banks since the 1930s -- it should have some authority over the investment banks.
ACCESS BRINGS RULES
"Certainly any regular access to the discount window should involve the same type of regulation and supervision," he said in a speech to the U.S. Chamber of Commerce.
Another proposal would provide an option for insurance companies to obtain a charter to do business under federal regulation, though it says the current state-based system would continue for any that did not get a federal charter.
Most of the financial services industry in the United States is regulated by federal authorities except insurance, which the states supervise. For years, big insurance companies, however, have been calling for an optional federal charter.
The chairman of the House Financial Services Committee, Democratic Rep. Barney Frank, last week said Congress should seriously consider giving a federal agency the power to monitor all risk in the financial system and act when necessary, regardless of its corporate form.
Frank suggested one possibility would be to empower the fed as "Financial Services Risk Regulator," an idea that Treasury's proposals appear to broadly embrace.
Many analysts and some Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House.
(Reporting by John Poirier and Glenn Somerville; Editing by Louise Heavens)
Monday, March 24, 2008
WSJ: In Debt Crisis, Uncle Sam Is Piling It On
From the 3/24/2008 issue of the Wall Street Journal comes this story written by Mark Gongloff.
While everybody else is running headlong from the burning building of debt, Uncle Sam looks like he is rushing in the other direction.
As the credit crisis deepens, there's every reason to expect old-fashioned Keynesianism to become de rigueur, with the government blowing out the budget to make the downturn less painful.
It started with the recently passed $152 billion stimulus package, and it probably doesn't end there. The government is also building massive backstops for the financial system and the housing market, agreeing to hold or guarantee trillions of dollars in mortgage and other private loans through the Federal Reserve, and, less directly, through federal home loan banks, Fannie Mae and Freddie Mac.
The next steps could be more stimulus, direct bank bailouts and government purchases of mortgage securities, easily dwarfing the $125 billion or so the government spent to fix the savings and loan debacle. The alternative could be a far more devastating economic downturn now.
Is the government in any position to take on this burden? At the moment, the federal budget seems to have wiggle room. The deficit shrank last year to 1.2% of gross domestic product, the lowest since the budget was in surplus in 2001. And the Congressional Budget Office projects surpluses will reappear in 2012.
But the CBO estimates aren't very realistic. They don't take into account the stimulus package, spending on wars in Iraq and Afghanistan wars (sic) or patches for the alternative minimum tax. Nor do they account for an economic slowdown that is already having an impact on federal tax receipts. Both corporate and personal non-withheld receipts turned negative on a year-over-year basis in the fourth quarter, according to Goldman Sachs analysts, who estimate the deficit will jump to 3% of GDP this year and in 2009 - double the CBO's forecast.
Meanwhile, presidential candidates of both parties are making promises that will cost trillions of dollars more if they keep them, either in expanded health-care coverage or making the 2001 and 2003 tax cuts permanent. More ominously, all of this comes as millions of baby boomers are on the threshold of retirement, which will lead to an explosion of Medicare and Social Security spending in the years ahead.
In theory, deficits push interest rates higher as government debt competes with private debt for investors' attention. A 2003 Fed study estimated that every time the budget deficit rises by one percentage point of gross domestic product, it adds one quarter of a percentage point to what long-term rates would otherwise be.
The budget has been in deficit for most of the past two decades with little noticeable impact on borrowing costs. This is largely because foreign investors, mainly central banks, have been happy to finance the profligate spending of U.S. consumers, lawmakers and presidents by snatching up Treasury bonds, keeping the rates low.
As long as they're willing to keep buying U.S. assets, this happy symbiosis can last. At some point, they might start to worry about America's ability to pay its growing debts.
Then Uncle Sam will ahve to start deleveraging, too.
Email mark.gongloff@wsj.com
While everybody else is running headlong from the burning building of debt, Uncle Sam looks like he is rushing in the other direction.
As the credit crisis deepens, there's every reason to expect old-fashioned Keynesianism to become de rigueur, with the government blowing out the budget to make the downturn less painful.
It started with the recently passed $152 billion stimulus package, and it probably doesn't end there. The government is also building massive backstops for the financial system and the housing market, agreeing to hold or guarantee trillions of dollars in mortgage and other private loans through the Federal Reserve, and, less directly, through federal home loan banks, Fannie Mae and Freddie Mac.
The next steps could be more stimulus, direct bank bailouts and government purchases of mortgage securities, easily dwarfing the $125 billion or so the government spent to fix the savings and loan debacle. The alternative could be a far more devastating economic downturn now.
Is the government in any position to take on this burden? At the moment, the federal budget seems to have wiggle room. The deficit shrank last year to 1.2% of gross domestic product, the lowest since the budget was in surplus in 2001. And the Congressional Budget Office projects surpluses will reappear in 2012.
But the CBO estimates aren't very realistic. They don't take into account the stimulus package, spending on wars in Iraq and Afghanistan wars (sic) or patches for the alternative minimum tax. Nor do they account for an economic slowdown that is already having an impact on federal tax receipts. Both corporate and personal non-withheld receipts turned negative on a year-over-year basis in the fourth quarter, according to Goldman Sachs analysts, who estimate the deficit will jump to 3% of GDP this year and in 2009 - double the CBO's forecast.
Meanwhile, presidential candidates of both parties are making promises that will cost trillions of dollars more if they keep them, either in expanded health-care coverage or making the 2001 and 2003 tax cuts permanent. More ominously, all of this comes as millions of baby boomers are on the threshold of retirement, which will lead to an explosion of Medicare and Social Security spending in the years ahead.
In theory, deficits push interest rates higher as government debt competes with private debt for investors' attention. A 2003 Fed study estimated that every time the budget deficit rises by one percentage point of gross domestic product, it adds one quarter of a percentage point to what long-term rates would otherwise be.
The budget has been in deficit for most of the past two decades with little noticeable impact on borrowing costs. This is largely because foreign investors, mainly central banks, have been happy to finance the profligate spending of U.S. consumers, lawmakers and presidents by snatching up Treasury bonds, keeping the rates low.
As long as they're willing to keep buying U.S. assets, this happy symbiosis can last. At some point, they might start to worry about America's ability to pay its growing debts.
Then Uncle Sam will ahve to start deleveraging, too.
Email mark.gongloff@wsj.com
Saturday, March 22, 2008
IRS Publication - Gift To Reduce Debt Held by the Public
Good information if you want to help reduce the National Debt. Gifts to Reduce the Debt Held by the Public ARE tax deductible. A contribution in 2008 will be tax deductible in 2009. See instructions below:
From IRS Publication 17 (2007 Tax Year)
Gift To Reduce Debt Held by the Public
You can make a contribution (gift) to reduce debt held by the public. If you wish to do so, make a separate check payable to “Bureau of the Public Debt.” Send your check to:
Bureau of the Public Debt
Department G
P.O. Box 2188
Parkersburg, WV 26106-2188.
Or, enclose your separate check in the envelope with your income tax return. Do not add this gift to any tax you owe.
You can deduct this gift as a charitable contribution on next year's tax return if you itemize your deductions on Schedule A (Form 1040).
From IRS Publication 17 (2007 Tax Year)
Gift To Reduce Debt Held by the Public
You can make a contribution (gift) to reduce debt held by the public. If you wish to do so, make a separate check payable to “Bureau of the Public Debt.” Send your check to:
Bureau of the Public Debt
Department G
P.O. Box 2188
Parkersburg, WV 26106-2188.
Or, enclose your separate check in the envelope with your income tax return. Do not add this gift to any tax you owe.
You can deduct this gift as a charitable contribution on next year's tax return if you itemize your deductions on Schedule A (Form 1040).
AP: Treasury cuts minimum bill from $1,000 to $100
The following appeared on page 2C of the March 22, 2008 edition of the St. Paul Pioneer Press.
The Treasury Department deals in millions and billions and even trillions of dollars, but it can think small, too.
Officials announced Friday that starting next month, individuals will be able to buy Treasury securities in amounts as small as $100, down from the current minimum of $1,000.
The chane will take effect for the weekly auction of three-month and six-month Treasury bills that will be held on April 7.
The Treasury Department said the reduction in minimum bid amounts is being made possible by an improved processing system for government debt auctions. The hoe is that the reduction will attract smaller investors.
"U.S. Treasury securities, the world's safest, most liquid investments, should be accessible to the broadest universe of investors - large and small," said Anthony Ryan, assistant Treasury secretary for financial markets. "Being able to buy securities in $100 increments adds a new degree of flexibility for all market participants."
The reduction in the minimum sales amount is the first to occur since 1998, when the pruchase amount was cut to $1,000. Prior to that time, the minimum purcashe amount had been $10,000 for Treasury bills, which are securities with a maturity of one year or less, and $5,000 for Treasury notes witha maturity of up to four years.
Individuals can purchase Treasury securities directly from the Treasury Department by going to treasurydirect.gov to open an online account. - Associated Press
The Treasury Department deals in millions and billions and even trillions of dollars, but it can think small, too.
Officials announced Friday that starting next month, individuals will be able to buy Treasury securities in amounts as small as $100, down from the current minimum of $1,000.
The chane will take effect for the weekly auction of three-month and six-month Treasury bills that will be held on April 7.
The Treasury Department said the reduction in minimum bid amounts is being made possible by an improved processing system for government debt auctions. The hoe is that the reduction will attract smaller investors.
"U.S. Treasury securities, the world's safest, most liquid investments, should be accessible to the broadest universe of investors - large and small," said Anthony Ryan, assistant Treasury secretary for financial markets. "Being able to buy securities in $100 increments adds a new degree of flexibility for all market participants."
The reduction in the minimum sales amount is the first to occur since 1998, when the pruchase amount was cut to $1,000. Prior to that time, the minimum purcashe amount had been $10,000 for Treasury bills, which are securities with a maturity of one year or less, and $5,000 for Treasury notes witha maturity of up to four years.
Individuals can purchase Treasury securities directly from the Treasury Department by going to treasurydirect.gov to open an online account. - Associated Press
Thursday, March 6, 2008
Newest National Debt Statistics posted - Feb 08
The newest Monthly Statement of the Public Debt is now available at www.treasurydirect.gov
As of March 5, 2008, the National Debt is as follows:
Held by Public: $5,288,773,781,817.85
Intragovernmental Holdings: $4,091,652,694,295.38
Total size as of 3/5/08: $9,380,426,476,113.23
Interest payment - February 2008: $20,037,492,573.51
Interest payment - Fiscal Year: $198,517,767,159.16
The Fiscal Year payments reflect interest payments made as of October 2007.
Gifts to reduce the public debt: Jan 08 - $197,155.19
Gifts to reduce the public debt: FY 2008- $527,772.08
Gifts to reduce the public debt: FY07 $2,624,862.42
As of March 5, 2008, the National Debt is as follows:
Held by Public: $5,288,773,781,817.85
Intragovernmental Holdings: $4,091,652,694,295.38
Total size as of 3/5/08: $9,380,426,476,113.23
Interest payment - February 2008: $20,037,492,573.51
Interest payment - Fiscal Year: $198,517,767,159.16
The Fiscal Year payments reflect interest payments made as of October 2007.
Gifts to reduce the public debt: Jan 08 - $197,155.19
Gifts to reduce the public debt: FY 2008- $527,772.08
Gifts to reduce the public debt: FY07 $2,624,862.42
Friday, February 29, 2008
Democrat's Bill Sets Up Credit-Card Showdown
by Damian Paletta
Wall Street Journal
Thursday February 7, 2008 Pg D3
Democrats in Congress are pushing for new restrictions on credit-card companies in what could become a hot election-year issue.
Credit cards are a big concern in Washington because constituents often complain to lawmakers about confusing credit-card terms. The amount of credit-card debt is rising as the economy worsens, which will likely increase the volume of complaints.
The banking industry, for its part, is warning that legislative interference could make it even harder for consumers to access credit amid an overall tightening of credit markets.
Rep. Carolyn Maloney (D., N.Y.) could introduce a bill as soon as today that would require card companies to notify customers at least 45 days before increasing rates and prohibit companies from "arbitrarily" changing contract terms. It would require companies to mail credit-card tatements at least 25 days before payments are due, giving customers more room to avoid late fees.
"One of the things consumers are very disturbed about it when they have a contract on a card and their rates go up and the terms change," said Rep. Maloney, who chairs the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.
Her bill has the backing of House Financial Services Committee Chairman Barney Frank (D., Mass.), and several senators also have vowed to take up the matter. The push would broaden the Democrats' consumer-protection agenda beyond the mortgage industry, where much of their energy was focused last year.
A 2006 U.S. Government Accountability Office study said there were nearly 700 million outstanding credit cards, with U.S. consumers charging $1.8 trillion on their cards in 2005.
The banking industry is already girding for a fight over possible legislation. "It impacts our ability to price our products, manage risk, and ultimately our ability to offer low-rate competitive products for consumers," said Kenneth Clayton, managing director of the American Bankers Association's Card Policy Council.
Rep. Maloney said the banking industry is exaggerating her bill's impact. "What the bill fosters is fair competition and the values of a free market," she said. "It includes no price controls, no rate caps, no fee setting, and it doesn't dictate any business models to companies."
Last year, Democrats tried to persuade bank regulators into doing more to curb credit-card industry practices, and Rep. Maloney has been working on the legislation for close to a year. Separately, the Federal Reserve has been working on new policies that would attempt to improve the disclosures card companies are required to give customers.
Borrowing from cards and other unsecured lines of credit rose an annualized 11.3% in November to $937.5 billion, according to the Fed.
Wall Street Journal
Thursday February 7, 2008 Pg D3
Democrats in Congress are pushing for new restrictions on credit-card companies in what could become a hot election-year issue.
Credit cards are a big concern in Washington because constituents often complain to lawmakers about confusing credit-card terms. The amount of credit-card debt is rising as the economy worsens, which will likely increase the volume of complaints.
The banking industry, for its part, is warning that legislative interference could make it even harder for consumers to access credit amid an overall tightening of credit markets.
Rep. Carolyn Maloney (D., N.Y.) could introduce a bill as soon as today that would require card companies to notify customers at least 45 days before increasing rates and prohibit companies from "arbitrarily" changing contract terms. It would require companies to mail credit-card tatements at least 25 days before payments are due, giving customers more room to avoid late fees.
"One of the things consumers are very disturbed about it when they have a contract on a card and their rates go up and the terms change," said Rep. Maloney, who chairs the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.
Her bill has the backing of House Financial Services Committee Chairman Barney Frank (D., Mass.), and several senators also have vowed to take up the matter. The push would broaden the Democrats' consumer-protection agenda beyond the mortgage industry, where much of their energy was focused last year.
A 2006 U.S. Government Accountability Office study said there were nearly 700 million outstanding credit cards, with U.S. consumers charging $1.8 trillion on their cards in 2005.
The banking industry is already girding for a fight over possible legislation. "It impacts our ability to price our products, manage risk, and ultimately our ability to offer low-rate competitive products for consumers," said Kenneth Clayton, managing director of the American Bankers Association's Card Policy Council.
Rep. Maloney said the banking industry is exaggerating her bill's impact. "What the bill fosters is fair competition and the values of a free market," she said. "It includes no price controls, no rate caps, no fee setting, and it doesn't dictate any business models to companies."
Last year, Democrats tried to persuade bank regulators into doing more to curb credit-card industry practices, and Rep. Maloney has been working on the legislation for close to a year. Separately, the Federal Reserve has been working on new policies that would attempt to improve the disclosures card companies are required to give customers.
Borrowing from cards and other unsecured lines of credit rose an annualized 11.3% in November to $937.5 billion, according to the Fed.
Homes in foreclosure soar 79% in '07
St. Paul Pioneer Press
Wednesday January 30, 2008 Pg 2C
The number of U.S. homes that slipped into some stage of foreclosure in 2007 was 79 percent higher than in the previous year, a real estate tracking company said Tuesday. Many homeowners started to fall behind on mortgage payments in the last three months, setting the stage for more foreclosures this year. About 1.3 million homes received foreclosure-related warnings last year, up from 717,522 in 2006, Irvine, Calif.-based RealtyTrac Inc. said. Foreclosure filings rose 75 percent from the previous year to 2.2 million. More than 1 percent of all U.S. households were in some phase of the foreclosure process last year, up from about half a percent in 2006, RealtyTrac said. Nevada, Florida, Michigan and California posted the highest foreclosure rates, the company said.
Wednesday January 30, 2008 Pg 2C
The number of U.S. homes that slipped into some stage of foreclosure in 2007 was 79 percent higher than in the previous year, a real estate tracking company said Tuesday. Many homeowners started to fall behind on mortgage payments in the last three months, setting the stage for more foreclosures this year. About 1.3 million homes received foreclosure-related warnings last year, up from 717,522 in 2006, Irvine, Calif.-based RealtyTrac Inc. said. Foreclosure filings rose 75 percent from the previous year to 2.2 million. More than 1 percent of all U.S. households were in some phase of the foreclosure process last year, up from about half a percent in 2006, RealtyTrac said. Nevada, Florida, Michigan and California posted the highest foreclosure rates, the company said.
Those Pell Vouchers
Wall Street Journal
Wednesday January 30, 2008 Pg A16
If unrestricted federal education grants are kosher for college students, why not for grades K-12 too? That's the question President Bush is asking with his cheeky proposal Monday to create Pell Grants for Kids, a program to offer $300 million in scholarships that low-income students could use to attend the school of their choice.
Pell grants for college are among the most popular ways to spend money in Washington. Over the past seven years, Members from both sides of the aisle have lined up to expand the number and size of these grants that students can use to attend the college or university of their choice, public or private. Last year, 5.3 million students received a total of $14 billion in Pell grants, up from 4.3 million students receiving $8.8 billion at the start of the Bush Presidency. However, what no one wants to admit is that Pell grants are essentially "vouchers," with the decision about where to spend the money in the hands of parents and students.
Mr. Bush's proposal would give Pell grants to students stuck in public secondary and elementary schools that have failed to meet federal testing benchmarks for five years running or that suffer high drop out rates. The bulk of that money would go to inner-city students who otherwise have little chance of going to college or even finishing high school. In the same way, the D.C. Opportunity Scholarship program has given 2,600 of the poorest students in Washington a better chance at a good education.
Neither of these programs is getting anywhere in the current Congress, however, and the new Pell grant proposal was immediately denounced by Democrats. The reason, as ever, is because K-12 education is dominated by a union monopoly that can't abide parental choice. Lucky for students the same unions don't yet run American universities.
Wednesday January 30, 2008 Pg A16
If unrestricted federal education grants are kosher for college students, why not for grades K-12 too? That's the question President Bush is asking with his cheeky proposal Monday to create Pell Grants for Kids, a program to offer $300 million in scholarships that low-income students could use to attend the school of their choice.
Pell grants for college are among the most popular ways to spend money in Washington. Over the past seven years, Members from both sides of the aisle have lined up to expand the number and size of these grants that students can use to attend the college or university of their choice, public or private. Last year, 5.3 million students received a total of $14 billion in Pell grants, up from 4.3 million students receiving $8.8 billion at the start of the Bush Presidency. However, what no one wants to admit is that Pell grants are essentially "vouchers," with the decision about where to spend the money in the hands of parents and students.
Mr. Bush's proposal would give Pell grants to students stuck in public secondary and elementary schools that have failed to meet federal testing benchmarks for five years running or that suffer high drop out rates. The bulk of that money would go to inner-city students who otherwise have little chance of going to college or even finishing high school. In the same way, the D.C. Opportunity Scholarship program has given 2,600 of the poorest students in Washington a better chance at a good education.
Neither of these programs is getting anywhere in the current Congress, however, and the new Pell grant proposal was immediately denounced by Democrats. The reason, as ever, is because K-12 education is dominated by a union monopoly that can't abide parental choice. Lucky for students the same unions don't yet run American universities.
US state finances
Financial Times
Thursday January 29, 2008 Pg 14
The most painful time to tighten your belt is just after gorging. US state and local government expenditure - 12 percent of gross domestic product - expanded by almost 8 per cent in the third quarter of 2007, year-on-year. Now governors across the country are proposing big budget cuts. New York City lasat week said it would cut spending on a range of services, from schools to sanitation, to offset slowing tax revenues - partly because of Wall Street's woes.
It is not merely the prospect of a recession that is forcing a rethink on spending, but the nature of the potential slowdown. State and local taxes, excluding transfers, split about 60-40 in favour of states. Typically state coffers are filled by taxes on sales, personal income and corporate profits. Local taxation, meanwhile, is overwhelmingly based on property - 72 per cent of total revenues, according to Moody's.
In 2001, the primary impact of the slowdown was on personal income tax. However, consumers kept spending and house prices kept climbing, underpinning sales and property taxes. The threat this time is spread further across the tax base, primarily because of the housing downturn - California, Florida and New York are among the largest states facing deficits. Although local officials may not be in such a rush to reassess home values now that they are falling, the secondary effects on sales and income taxes would bite earlier.
Moody's believes that states are better prepared this time round. However, the uncertain environment means local officials may have to react quickly - and with unpopular measures - if big gaps open up on their ledgers. It is worth remembering that state and local spending has increased by about $100bn a year over the past three years. If expenditure now stays flat, that will dampen a signficant portion of the $150bn federal stimulus package now being finalised in Washington.
Thursday January 29, 2008 Pg 14
The most painful time to tighten your belt is just after gorging. US state and local government expenditure - 12 percent of gross domestic product - expanded by almost 8 per cent in the third quarter of 2007, year-on-year. Now governors across the country are proposing big budget cuts. New York City lasat week said it would cut spending on a range of services, from schools to sanitation, to offset slowing tax revenues - partly because of Wall Street's woes.
It is not merely the prospect of a recession that is forcing a rethink on spending, but the nature of the potential slowdown. State and local taxes, excluding transfers, split about 60-40 in favour of states. Typically state coffers are filled by taxes on sales, personal income and corporate profits. Local taxation, meanwhile, is overwhelmingly based on property - 72 per cent of total revenues, according to Moody's.
In 2001, the primary impact of the slowdown was on personal income tax. However, consumers kept spending and house prices kept climbing, underpinning sales and property taxes. The threat this time is spread further across the tax base, primarily because of the housing downturn - California, Florida and New York are among the largest states facing deficits. Although local officials may not be in such a rush to reassess home values now that they are falling, the secondary effects on sales and income taxes would bite earlier.
Moody's believes that states are better prepared this time round. However, the uncertain environment means local officials may have to react quickly - and with unpopular measures - if big gaps open up on their ledgers. It is worth remembering that state and local spending has increased by about $100bn a year over the past three years. If expenditure now stays flat, that will dampen a signficant portion of the $150bn federal stimulus package now being finalised in Washington.
Stimulus package seen worth the extra red ink
by Martin Crutsinger
Associated Press
St. Paul Pioneer Press
Tuesday January 29, 2008 Pg 3C
A proposed economic stimulus plan could boost this year's deficit by $100 billion, but political leaders believe the flood of red ink is worth the cost if it keeps the country from falling into a prolonged recession.
Worries that any recession could be a severe one, far surpassing the last two mild, brief downturns in 1990-91 and 2001, have captured the attention of President Bush and other politicans, especially with the White House up for grabs.
Bush and House leaders reached a deal in record time lsat week that would provide $150 billion in economic stimulus through tax rebates that will go to 117 million families, and temporary tax breaks for businesses.
The House is rushing the proposal to a vote this week and Senate Majority Leader Harry Reid, D-Nev., said he hopes to have the package approved by the senate and on the president's desk by Feb. 15.
Concerns have mounted with a cascade of bad news on the economy, from multibillion-dollar losses at some of the nation's biggest banks and investment houses to soaring mortgage defaults and a continued plunge in housing.
The rescue effort will not be without its own cost. Economists estimated the deficit for this year will be between $100 billion and $120 billion higher because of the stimulus package, primarily from the cost of the tax refund checks. Business tax breaks will reduce government revenue by a smaller amount this year; other costs from the business relief will take effect next year.
Economists at Global Insight, a private forecasting firm in Lexington, Mass., are projecting that this year's deficit, with the stimulus package included, will hit $400 billion. That would be the second highest imbalance on record in dollar terms, surpassed only by the all-time high of $413 billion in 2004.
Even without the stimulus package, the Congressional Budget Office is forecasting the deficit for 2008 will jump to $219 billion, up from last year's $163 billion. And CBO said its new estimate did not include still unapproved outlays for the wars in Iraq and Afghanistan, which probably will push the deficit to around $250 billion.
Adding a stimulus package will make that imbalance go even higher, but was seen by many economists as critical insurance against a severe downturn.
"Doing nothing and running the risk that the economy will slide away into a deep recession would cost the Treasury even more in lost tax revenues and increased spending," said Mark Zandi, chief economist at Moody's Economy.com.
Zandi said he believed the stimulus package that House negotiators have approved will be enough to boost economic growth by 1.5 percentage points in the second half of this year and by about 0.5 percentage point in the first half of 2009. That should translate into an additional 700,000 jobs over what the economy would have created during that period, Zandi said. The unemployment rate will still rise from teh current 5 percent to around 6 percent, but not the 6.5 percent it would hit without the stimulus package, Zandi said.
Other analysts are forecasting a boost in growth and jobs from the package, because of increased consumer spending - which accounts for two-thirds of the economy - and increased business investment to expand and modernize in response to the tax incentives.
Douglas Elmendorf, a senior fellow at the Brookings Institution and formerly an economist at the Federal Reserve, said he believed economic growth this year will be about 0.7 percentage point higher than it would be without the stimulus, although he said that may not be enough to keep the country out of a recession.
While this is the first stimulus package being put forward, it may not be the last if the slowdown becomes more severe.
"You can construct some very dark scenarios given all the uncertainty that exists over just how big the problems in the financial system might turn out to be," Zandi said.
Associated Press
St. Paul Pioneer Press
Tuesday January 29, 2008 Pg 3C
A proposed economic stimulus plan could boost this year's deficit by $100 billion, but political leaders believe the flood of red ink is worth the cost if it keeps the country from falling into a prolonged recession.
Worries that any recession could be a severe one, far surpassing the last two mild, brief downturns in 1990-91 and 2001, have captured the attention of President Bush and other politicans, especially with the White House up for grabs.
Bush and House leaders reached a deal in record time lsat week that would provide $150 billion in economic stimulus through tax rebates that will go to 117 million families, and temporary tax breaks for businesses.
The House is rushing the proposal to a vote this week and Senate Majority Leader Harry Reid, D-Nev., said he hopes to have the package approved by the senate and on the president's desk by Feb. 15.
Concerns have mounted with a cascade of bad news on the economy, from multibillion-dollar losses at some of the nation's biggest banks and investment houses to soaring mortgage defaults and a continued plunge in housing.
The rescue effort will not be without its own cost. Economists estimated the deficit for this year will be between $100 billion and $120 billion higher because of the stimulus package, primarily from the cost of the tax refund checks. Business tax breaks will reduce government revenue by a smaller amount this year; other costs from the business relief will take effect next year.
Economists at Global Insight, a private forecasting firm in Lexington, Mass., are projecting that this year's deficit, with the stimulus package included, will hit $400 billion. That would be the second highest imbalance on record in dollar terms, surpassed only by the all-time high of $413 billion in 2004.
Even without the stimulus package, the Congressional Budget Office is forecasting the deficit for 2008 will jump to $219 billion, up from last year's $163 billion. And CBO said its new estimate did not include still unapproved outlays for the wars in Iraq and Afghanistan, which probably will push the deficit to around $250 billion.
Adding a stimulus package will make that imbalance go even higher, but was seen by many economists as critical insurance against a severe downturn.
"Doing nothing and running the risk that the economy will slide away into a deep recession would cost the Treasury even more in lost tax revenues and increased spending," said Mark Zandi, chief economist at Moody's Economy.com.
Zandi said he believed the stimulus package that House negotiators have approved will be enough to boost economic growth by 1.5 percentage points in the second half of this year and by about 0.5 percentage point in the first half of 2009. That should translate into an additional 700,000 jobs over what the economy would have created during that period, Zandi said. The unemployment rate will still rise from teh current 5 percent to around 6 percent, but not the 6.5 percent it would hit without the stimulus package, Zandi said.
Other analysts are forecasting a boost in growth and jobs from the package, because of increased consumer spending - which accounts for two-thirds of the economy - and increased business investment to expand and modernize in response to the tax incentives.
Douglas Elmendorf, a senior fellow at the Brookings Institution and formerly an economist at the Federal Reserve, said he believed economic growth this year will be about 0.7 percentage point higher than it would be without the stimulus, although he said that may not be enough to keep the country out of a recession.
While this is the first stimulus package being put forward, it may not be the last if the slowdown becomes more severe.
"You can construct some very dark scenarios given all the uncertainty that exists over just how big the problems in the financial system might turn out to be," Zandi said.
Tuesday, February 26, 2008
Bernanke Revisits 'Financial Accelerator'
Wall Street Journal
Monday January 28, 2008 Pg A2
Fed Chairman Ben Bernanke's urgency in addressing the risk of recession can be traced in part to the insights from his research on the financial system and the Great Depression. In June, Mr. Bernanke delivered a speech on the "financial accelerator," which describes how weakness in the financial system an compound an economic downturn. He developed the theory in the 1980s to explain the depth and duration of the Great Depression, and later expanded on it in collaboration with Mark Gertler of New York University.
Rereading that speech helps explain last week's 0.75-percentage-point rate cut, a likely cut this week, and Mr. Bernanke's advocacy of a fiscal stimulus. Fed commentary these days contains a lot of references to "feedback loops" and self-reinforcing spirals of declining confidence and asset prices. Those are the hallmark of the financial accelerator in action. They give the current economic cycle a different cast from the typical post-World War II cycle, which was driven largely by trends in inventories, employment and - in 2001 - capital investment.
"Economic or financial news has the potential to increase financial strains and lead to further constraints on the supply of credit to households and businesses," Mr. Bernanke observed in a speech Jan. 10. Note the reference to "news": it's not just economic and financial developments, but how market confidence is affected by news of those developments, that can aggravate the downward spiral. Taht may explain why just the threat of a steep stock decline last Tuesday played a part in Mr. Bernanke's decision to cut rates: allowing the drop to play out may have had confidencedamaging consequences beond the lost stock-market wealth.
- Greg Ip
Monday January 28, 2008 Pg A2
Fed Chairman Ben Bernanke's urgency in addressing the risk of recession can be traced in part to the insights from his research on the financial system and the Great Depression. In June, Mr. Bernanke delivered a speech on the "financial accelerator," which describes how weakness in the financial system an compound an economic downturn. He developed the theory in the 1980s to explain the depth and duration of the Great Depression, and later expanded on it in collaboration with Mark Gertler of New York University.
Rereading that speech helps explain last week's 0.75-percentage-point rate cut, a likely cut this week, and Mr. Bernanke's advocacy of a fiscal stimulus. Fed commentary these days contains a lot of references to "feedback loops" and self-reinforcing spirals of declining confidence and asset prices. Those are the hallmark of the financial accelerator in action. They give the current economic cycle a different cast from the typical post-World War II cycle, which was driven largely by trends in inventories, employment and - in 2001 - capital investment.
"Economic or financial news has the potential to increase financial strains and lead to further constraints on the supply of credit to households and businesses," Mr. Bernanke observed in a speech Jan. 10. Note the reference to "news": it's not just economic and financial developments, but how market confidence is affected by news of those developments, that can aggravate the downward spiral. Taht may explain why just the threat of a steep stock decline last Tuesday played a part in Mr. Bernanke's decision to cut rates: allowing the drop to play out may have had confidencedamaging consequences beond the lost stock-market wealth.
- Greg Ip
12-Step Earmark Withdrawal
Wall Street Journal
Monday January 28, 2008 Pg A14
As every reformed addict knows, the road to recovery is long and hard. So it is for Republicans who became addicted to spending "earmarks" while running Congress, lost their majority in large part because of it, and are now struggling with mixed results to dry out.
Their latest halting effort in what appears to be at least a 12-step recovery plan will come tonight, when President Bush uses his State of the Union address to lay down his toughest anti-earmakring pledge to date. We're told he will tell Congress that he will veto any fiscal 2009 spending bills that doesn't cut earmarks in half from 2008 levels. He will also report that he is issuing a Presidential order informing executive departments that from now on they should refuse to fund earmarks that aren't explicitly mentioned in statutory language.
This is progress, though frankly less than we had hoped because Mr. Bush's executive order will not aply to the fiscal 2008 spending bills that passed late last yaer. Congress endorsed 11,735 special-interest earmarks worth $16.9 billion in fiscal 2008, yet thousands of these weren't even written into the actual budget bills. Instead, they were "air-dropped" at the last minute into non-binding conference reports that serve as advice to federal departments about where to allocate funds. This ruse means that earmarks are able to avoid scrutiny from spending hawks on the House and Senate floor.
We argued in December that Mr. Bush had the legal authority to refuse to fund those this year as well. But in the end we hear he acceded to the argument from Capitol Hill that because he hadn't made a specific earmark veto pledge last year, he would be sandbagging Congress after the fact and courting its wrath.
The President had, however, said the following last year: "even worse, over 90% of earmarks never make it to the floor of the House and Senate - they are dropped into committee reports taht are not even part of the bill that arrives on my desk. You didn't vote them into law. I didn't sign them into law. Yet they're treated as if they have the force of law. The time has come to end this practice." Members in both parties whooped and hollered in approval, even as they could barely contain their self-knowing grins.
Senate Republicans in particular lobbied hard to stop Presidential action against their 2008 earmarks, in the strange belief that they will help incumbent Members in close races this fall, including Minority Leader Mitch McConnell of Kentucky. This shows that Senate Republicans haven't even taken the first essential step of admitting their addiction.
They also don't understand that pork is overrated as incumbent protection, as ex-Congresswoman Anne Northup of Kentucky found out last year. She received five times as much pork as the average House Member, but still lost her Louisville district. Conrad Burns delivered $2 billion in earmarks for Montana - about $5,000 for every voter - but he lost too. Five pork-barrelling Republicans on the Appropriations Committee in the House and Senate were defeated in 2006. The pork could well boomerang again this year if certain GOP incumbents under investigation for earmark favoritism for political allies are indicted before Election Day.
House Republicans at least made some progress at their annual retreat late last week, offering a one-year moratorium on earmarks if Democrats go along. That probably won't happen, however. So the GOP leadership could help itself with voters by endorsing Arizona Representative Jeff Flake's request to join the Appropriations Committee, where he could serve as a taxpayer watchdog. Imagine how he could torment such all-world earmarkers as Pennsylvania Democrat Jack Murtha?
Mr. Bush's strategy of drawing a harder line on the fiscal 2009 budget might at least force an anti-earmark showdown this autumn. An an executive order will set a precedent for the next President, who would pay a political price to repeal it. But Republicans are still missing a major opportunity this year to restore their fiscal credibility by swearing off earmarking altogether. You can't claim to have kicked the habit if you keep hitting the vodka bottle in your desk drawer.
Monday January 28, 2008 Pg A14
As every reformed addict knows, the road to recovery is long and hard. So it is for Republicans who became addicted to spending "earmarks" while running Congress, lost their majority in large part because of it, and are now struggling with mixed results to dry out.
Their latest halting effort in what appears to be at least a 12-step recovery plan will come tonight, when President Bush uses his State of the Union address to lay down his toughest anti-earmakring pledge to date. We're told he will tell Congress that he will veto any fiscal 2009 spending bills that doesn't cut earmarks in half from 2008 levels. He will also report that he is issuing a Presidential order informing executive departments that from now on they should refuse to fund earmarks that aren't explicitly mentioned in statutory language.
This is progress, though frankly less than we had hoped because Mr. Bush's executive order will not aply to the fiscal 2008 spending bills that passed late last yaer. Congress endorsed 11,735 special-interest earmarks worth $16.9 billion in fiscal 2008, yet thousands of these weren't even written into the actual budget bills. Instead, they were "air-dropped" at the last minute into non-binding conference reports that serve as advice to federal departments about where to allocate funds. This ruse means that earmarks are able to avoid scrutiny from spending hawks on the House and Senate floor.
We argued in December that Mr. Bush had the legal authority to refuse to fund those this year as well. But in the end we hear he acceded to the argument from Capitol Hill that because he hadn't made a specific earmark veto pledge last year, he would be sandbagging Congress after the fact and courting its wrath.
The President had, however, said the following last year: "even worse, over 90% of earmarks never make it to the floor of the House and Senate - they are dropped into committee reports taht are not even part of the bill that arrives on my desk. You didn't vote them into law. I didn't sign them into law. Yet they're treated as if they have the force of law. The time has come to end this practice." Members in both parties whooped and hollered in approval, even as they could barely contain their self-knowing grins.
Senate Republicans in particular lobbied hard to stop Presidential action against their 2008 earmarks, in the strange belief that they will help incumbent Members in close races this fall, including Minority Leader Mitch McConnell of Kentucky. This shows that Senate Republicans haven't even taken the first essential step of admitting their addiction.
They also don't understand that pork is overrated as incumbent protection, as ex-Congresswoman Anne Northup of Kentucky found out last year. She received five times as much pork as the average House Member, but still lost her Louisville district. Conrad Burns delivered $2 billion in earmarks for Montana - about $5,000 for every voter - but he lost too. Five pork-barrelling Republicans on the Appropriations Committee in the House and Senate were defeated in 2006. The pork could well boomerang again this year if certain GOP incumbents under investigation for earmark favoritism for political allies are indicted before Election Day.
House Republicans at least made some progress at their annual retreat late last week, offering a one-year moratorium on earmarks if Democrats go along. That probably won't happen, however. So the GOP leadership could help itself with voters by endorsing Arizona Representative Jeff Flake's request to join the Appropriations Committee, where he could serve as a taxpayer watchdog. Imagine how he could torment such all-world earmarkers as Pennsylvania Democrat Jack Murtha?
Mr. Bush's strategy of drawing a harder line on the fiscal 2009 budget might at least force an anti-earmark showdown this autumn. An an executive order will set a precedent for the next President, who would pay a political price to repeal it. But Republicans are still missing a major opportunity this year to restore their fiscal credibility by swearing off earmarking altogether. You can't claim to have kicked the habit if you keep hitting the vodka bottle in your desk drawer.
Economic jitters reach younger workers
by Gita Sitaramiah
St. Paul Pioneer Press
Monday January 28, 2008 Pg 1A
Justin Fox sat his girlfriend down recently and said he'd be cutting bak on their dinner and movie dates. It's not that he's just not that into her: He's worried about the future, even though the 26-year-old made a handsome six-figure income last year.
Blame recession fears. Although economists continue to debate whether we're headed for one - or perhaps already mired in one - many consumers are voting with their wallets.
For younger workers like Fox, the prospect of a second recession so early in their careers is particularly unsettling. Experts say it could affect them long after the economy kicks back into gear.
The tumult of the housing market and rising gas and food prices have prompted Fox, a real estate broker, to pay off his Chevy Tahoe, reduce his home equity debt and move the drnks and dinner outings with this girlfriend and buddies to his Cottage Grove home.
"I probably save $300 or more a month from before, paying for two people to eat and go out to movies," he said.
The financial stress for Gen X and Y is in some ways no different than any other group starting out. Wages often are lower in first and second jobs - Fox notwithstanding - and savings nonexistent.
What makes things different is that today's young adults are carrying more debt and facing higher housing costs in inflation-adjusted dollars than their parents did. Tack on higher expectations by many raised in solidly middle-class households with indulgent parents, and the stress level spikes.
"The first 10 years of your adult work life is when the fastest wage growth happens, so to expect back-to-back recessions during that first 10 years can have a fundamental effect on your whole working life," said Tamara Draut, author of "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead."
"Add on to the mix that this is a generation that's just been walloped by student loan and credit card debt, so their long-term financial outlook could be bleaker than even I have predicted," Draut said.
Adult children of babyboomers are much more likely than their parents or grandparents to report feeling stress regarding finances, according to a new Ameriprise Fianancial "Money Across Generations" study. Young adults were much more reluctant to part witht heir money than older generations and expressed the lowest level of confidence that now is a good time to purchase, said a study of 301 adult children of baby boomers averaging 29-1/2 years old.
They may have reason to be more concerned if recession strikes. "They may be some of the first laid off because of lack of experience or tenure with a particular company," said Ginger Ewing, a senior financial adviser for Ameriprise Financial.
On the bright side, one of the great things about being young is the room to make changes to prepare for the future, said Clarky Davis, the Raleigh, N.C.-based author of the CareOne Credit Counseling Debt Diva blog. "If you're young, you can get a rommate, you don't mind getting a second job, you're more willing to take risks and extend yourself as far as work, and that's a good thing," she said.
Bree Halverson, 27, used to be a spender. The St. Paul resident reined in her shoe addiction, gives fewer Christmas presents and will no longer dine out with friends on weeknights, only on weekends, to pay down college and credit card debt and one day buy a house.
"I bought a Crockpot, and I'm going to be eating in more," said Halverson, a political organizer for St. Paul Trades and Labor Assembly who makes less than $50,000 and recently earned a graduate degree and some related debt.
Despite her savings plan, she's scared. The thought of retirement planning makes her anxious, despite having a union job with a pension plan. "I worry about Social Security," she said. "I don't know if I'll have to work until I'm 75."
Even big savers such as Yang Zhang Madsen, a 29-year-old city planner who lives in St. Paul, and her husband, who make a household income around the Twin Cities median of $62,223, are postponing starting a family. The decision is "a little bit about economics, because if I had a child, one of us wouldn't work full time," she said.
Kate Smith, 30, and her husband bought a house in St. Paul, started a business together and had a baby this past year. Their household income will be down to $30,000 from around $75,000 last year. She doesn't go to Kowalski's anymore. The "fancy cheeses" are too tempting; she sticks to co-op trips only. There are no more liquor store stops for beer, either.
For Smith, who grew up going on a family vacation every year, not having disposable income is tough, but she figures everybody struggles along the way. She's decided she and her friends need to do a better job at managing expectations.
"Our parents grew up with less and tried to provide us with more," she said. "And we take things for granted."
St. Paul Pioneer Press
Monday January 28, 2008 Pg 1A
Justin Fox sat his girlfriend down recently and said he'd be cutting bak on their dinner and movie dates. It's not that he's just not that into her: He's worried about the future, even though the 26-year-old made a handsome six-figure income last year.
Blame recession fears. Although economists continue to debate whether we're headed for one - or perhaps already mired in one - many consumers are voting with their wallets.
For younger workers like Fox, the prospect of a second recession so early in their careers is particularly unsettling. Experts say it could affect them long after the economy kicks back into gear.
The tumult of the housing market and rising gas and food prices have prompted Fox, a real estate broker, to pay off his Chevy Tahoe, reduce his home equity debt and move the drnks and dinner outings with this girlfriend and buddies to his Cottage Grove home.
"I probably save $300 or more a month from before, paying for two people to eat and go out to movies," he said.
The financial stress for Gen X and Y is in some ways no different than any other group starting out. Wages often are lower in first and second jobs - Fox notwithstanding - and savings nonexistent.
What makes things different is that today's young adults are carrying more debt and facing higher housing costs in inflation-adjusted dollars than their parents did. Tack on higher expectations by many raised in solidly middle-class households with indulgent parents, and the stress level spikes.
"The first 10 years of your adult work life is when the fastest wage growth happens, so to expect back-to-back recessions during that first 10 years can have a fundamental effect on your whole working life," said Tamara Draut, author of "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead."
"Add on to the mix that this is a generation that's just been walloped by student loan and credit card debt, so their long-term financial outlook could be bleaker than even I have predicted," Draut said.
Adult children of babyboomers are much more likely than their parents or grandparents to report feeling stress regarding finances, according to a new Ameriprise Fianancial "Money Across Generations" study. Young adults were much more reluctant to part witht heir money than older generations and expressed the lowest level of confidence that now is a good time to purchase, said a study of 301 adult children of baby boomers averaging 29-1/2 years old.
They may have reason to be more concerned if recession strikes. "They may be some of the first laid off because of lack of experience or tenure with a particular company," said Ginger Ewing, a senior financial adviser for Ameriprise Financial.
On the bright side, one of the great things about being young is the room to make changes to prepare for the future, said Clarky Davis, the Raleigh, N.C.-based author of the CareOne Credit Counseling Debt Diva blog. "If you're young, you can get a rommate, you don't mind getting a second job, you're more willing to take risks and extend yourself as far as work, and that's a good thing," she said.
Bree Halverson, 27, used to be a spender. The St. Paul resident reined in her shoe addiction, gives fewer Christmas presents and will no longer dine out with friends on weeknights, only on weekends, to pay down college and credit card debt and one day buy a house.
"I bought a Crockpot, and I'm going to be eating in more," said Halverson, a political organizer for St. Paul Trades and Labor Assembly who makes less than $50,000 and recently earned a graduate degree and some related debt.
Despite her savings plan, she's scared. The thought of retirement planning makes her anxious, despite having a union job with a pension plan. "I worry about Social Security," she said. "I don't know if I'll have to work until I'm 75."
Even big savers such as Yang Zhang Madsen, a 29-year-old city planner who lives in St. Paul, and her husband, who make a household income around the Twin Cities median of $62,223, are postponing starting a family. The decision is "a little bit about economics, because if I had a child, one of us wouldn't work full time," she said.
Kate Smith, 30, and her husband bought a house in St. Paul, started a business together and had a baby this past year. Their household income will be down to $30,000 from around $75,000 last year. She doesn't go to Kowalski's anymore. The "fancy cheeses" are too tempting; she sticks to co-op trips only. There are no more liquor store stops for beer, either.
For Smith, who grew up going on a family vacation every year, not having disposable income is tough, but she figures everybody struggles along the way. She's decided she and her friends need to do a better job at managing expectations.
"Our parents grew up with less and tried to provide us with more," she said. "And we take things for granted."
Monday, February 25, 2008
Auditors Recoup Millions For Medicare but Assailed
By Theo Francis
Wall Street Journal
January 26-27, 2008 Weekend Edition Pg A12
A pilot program to audit Medicare claims filed by hospitals and others in three states recouped nearly $250 million last year but is drawing fire from health-care providers as it prepares to go national over the coming year.
The program, which relies on private-sector auditing firms to comb through past claims filed by hospitals and other medical providers, recovered $247.4 million for Medicare last year from medical providers in California, Florida and New York, according to figures from the federal Centers for Medicare and Medicaid Services.
But hospital groups have mounted a campaign against its expansion, saying the effort is "riddled with flaws" and suffered too many problems to expand so soon. Chief among their complaints: The program's reliance on what some hospitals called a "'bounty hunter' payment mechanism" - contingency fees that reward the auditorsan incentive to be thorough at little cost to the government, since the fees come from funds the government otherwise wouldn't have recovered. Critics counter that it encourages the auditors to be too aggressive.
"Any kind of question is a reason for denial," even in subjective decisions such as determining whether an expense was medically necessary, said Don May, vice president for policy at the American Hospital Association. "Going at it from this kind of perspective really isn't, I don't believe, in the best interest of taxpayers."
The program has encountered problems. After California hospitals complained last year - enlisting help from congressional representatives - CMS spot-checked claims from inpatient rehabilition facilities that had been rejected in audits. The review upheld 60% of the auditor's findings, but determined that many had been handled inconsistently.
Medicare considers the program a success, both in recovering pasat improper payments and as a deterrent to future overbilling. "[W]e believe recovery auditing is a valuable tool in the Medicare program," Kerry Weems, the acting CMS administrator, wrote the California lawmakers last month.
Overall, auditors identified $357 million in overpayments in fiscal 2007, of which $17.8 million - or 7.1% of appealed claims - were overturned on appeal, according to CMS figures. An additional $77.7 million went to contingency fees and other administrative expenses, and the auditors identified $14.3 million in underpayments - situations in which Medicare should have paid more than it did.
Hospital groups have also complained that many claim reviews weren't done by qualified medical personnel, that the process doesn't give providers an opportunity to fix errors and that the auditors haven't been required to publicize what areas they are targeting. They also note that CMS isn't required to take the audit program national until 2010.
Supporters of the program note that in expanding the program, CMS is addressing many of these concerns: Auditing firms will have to have a medical director and medical-coding experts, return contingency fees for claims upheld on appeal even when further appeals are possible, and notify CMS sooner if they identify new kinds of problem claims. The national program also shortens the period auditors could review to three years from four, and puts all claims filed before October 2007 off-limits.
Wall Street Journal
January 26-27, 2008 Weekend Edition Pg A12
A pilot program to audit Medicare claims filed by hospitals and others in three states recouped nearly $250 million last year but is drawing fire from health-care providers as it prepares to go national over the coming year.
The program, which relies on private-sector auditing firms to comb through past claims filed by hospitals and other medical providers, recovered $247.4 million for Medicare last year from medical providers in California, Florida and New York, according to figures from the federal Centers for Medicare and Medicaid Services.
But hospital groups have mounted a campaign against its expansion, saying the effort is "riddled with flaws" and suffered too many problems to expand so soon. Chief among their complaints: The program's reliance on what some hospitals called a "'bounty hunter' payment mechanism" - contingency fees that reward the auditorsan incentive to be thorough at little cost to the government, since the fees come from funds the government otherwise wouldn't have recovered. Critics counter that it encourages the auditors to be too aggressive.
"Any kind of question is a reason for denial," even in subjective decisions such as determining whether an expense was medically necessary, said Don May, vice president for policy at the American Hospital Association. "Going at it from this kind of perspective really isn't, I don't believe, in the best interest of taxpayers."
The program has encountered problems. After California hospitals complained last year - enlisting help from congressional representatives - CMS spot-checked claims from inpatient rehabilition facilities that had been rejected in audits. The review upheld 60% of the auditor's findings, but determined that many had been handled inconsistently.
Medicare considers the program a success, both in recovering pasat improper payments and as a deterrent to future overbilling. "[W]e believe recovery auditing is a valuable tool in the Medicare program," Kerry Weems, the acting CMS administrator, wrote the California lawmakers last month.
Overall, auditors identified $357 million in overpayments in fiscal 2007, of which $17.8 million - or 7.1% of appealed claims - were overturned on appeal, according to CMS figures. An additional $77.7 million went to contingency fees and other administrative expenses, and the auditors identified $14.3 million in underpayments - situations in which Medicare should have paid more than it did.
Hospital groups have also complained that many claim reviews weren't done by qualified medical personnel, that the process doesn't give providers an opportunity to fix errors and that the auditors haven't been required to publicize what areas they are targeting. They also note that CMS isn't required to take the audit program national until 2010.
Supporters of the program note that in expanding the program, CMS is addressing many of these concerns: Auditing firms will have to have a medical director and medical-coding experts, return contingency fees for claims upheld on appeal even when further appeals are possible, and notify CMS sooner if they identify new kinds of problem claims. The national program also shortens the period auditors could review to three years from four, and puts all claims filed before October 2007 off-limits.
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