Current Events: Oil Price, Treasurys, White House

Market Indicators (Friday's Close: Highest in Nearly 4 Years)

• Dow: Up 45.79 point to 12,950
• S&P: Up 3.19 points to 1,361 
• 10-Yr Note: Down in price to yield 2.007% (Treasurys Decline on Greece Hopes)
• Oil: Up $2.68 to $104.99 ($5 Gas Price is a Bold Prediction, But Unlikely)
• Gold: Up $7.30 to $1,736
• $/Euro: Up to $1.3211/Euro

Economic Indicators

Iran Cuts Oil to Britain and France - Me - While last week's supposed cut of oil production from Iran to six European countries appears to not have happened, this news seems legit. It could be another false accusation by Iran, but one that will impact the oil market either way (much like their rhetoric about nuclear weapon capabilities...whether they have them or not is a game changer). In game theory, lessons are learned about the benefits to a cartel member, or a single actor in this case, from cheating on supply cuts because the price of oil increases from the expected cut in crude oil production and then the agent never cuts production and profits the increase in revenue. Another reason the news that oil production is increasing in the U.S. is noteworthy.

EPA's Approaching Regulatory Avalanche - Me - For more on the EPA's Regulatory Avalanche and how our energy sector may change drastically in the near future if numerous regulations by the Obama Administration are not curbed, check out this excellent policy brief by Kathleen Hartnett-White from TPPF. Do your own research and make up your own mind...

Domestic Oil Production Needed - Me - The national average for the price of gasoline per gallon has spiked past $3.50. Typically little blame should go to a President or Congress, as the price of gasoline is related to the price of oil and oil is traded on a global market, but significant increases in energy regulations, constraints on areas to drill, and little love for the oil and gas industry from D.C. surely have had an impact. Some of these have been going on for decades, but the last couple of years have been particularly excessive.

White House Sees Better Economy: "White House Council of Economic Advisers Chairman Alan Krueger told reporters that recent data show the recovery had accelerated in the past few months, but he said administration officials weren't satisfied yet. "No one considers the current rate of 8.3% to be acceptable," he said."

Treasurys Could Take Hit: "The U.S. Federal Reserve had flooded the economy with cheap money by buying bonds, while the euro-zone crisis fueled a flight-to-safety demand for Treasurys from around the world. Now that the situations are stabilizing, there are worries about what will happen when foreign demand wanes and the Fed starts removing itself as a buyer. The growing fear is that this would drive down Treasury prices and force the U.S. government to pay higher costs to finance its debt, as bond prices and yields move inversely. The Fed is currently buying longer-dated Treasurys under its so-called Operation Twist stimulus plan, using the proceeds from sales of shorter-dated debt. That program is slated to end in the middle of the year."

Current Events: Jobless Claims, Housing Market, Bernanke, Geithner, and More

Market Indicators (Thursday's Close: Highest in Nearly 4 Years)

• Dow: Up 123 point to 12,904
• S&P: Up 15 points to 1,358 
• 10-Yr Note: 0/32nds to yield 1.988%
• Oil: Up $0.09 to $102. 40
• Gold: Up $4.20 to $1,733
• $/Euro: Down to $1.3126/Euro

Economic Indicators

Jobless Claims Hit Lowest Level Since 2008: 

• PPI: Headline up 4.1% 
• January housing starts rose 1.5% from December, up almost 10% from a year earlier.
• Jobless claims down 1,750 to 365,250

Consumer Price Index Shows Gas Prices Drive Inflation

Mortgage Delinquencies Hit Three Year Low: 

• 7.6% of residential mortgages were at least 30 days past due on their payments at the end of 2011.
• That was down from 8.3% one year earlier and from a peak of 10% in early 2010, but it is still much higher than the historical level of around 5%.
• Around 4.4% of all loans were in foreclosure, which was virtually unchanged from the previous quarter and down slightly from a peak of 4.6% one year earlier. 
• During normal periods, around 1.5% of all loans are in foreclosure."

Fed Watchers See Risk In Rate Plan

Bernanke: Low Rates Good Long Term for Banks: "assured community bankers that the central bank's easy-money policies will help them in the long run by boosting the economy, even if low interest rates are squeezing their profits today."

German, ECB Moves Foster Greek Bailout Hopes: "The German, Dutch and Finnish governments, deeply mistrustful of the Greeks, raised the idea of splitting the package in two, worrying that giving Greece the entire bailout now would allow politicians breathing room not to implement a program of cuts to wages, government spending and pensions approved by the Greek Parliament."

Europe's GDP Growth Woes Worsen

Geithner: Payroll Tax Rate Should Rise Back in 2013: “This has to be a temporary tax cut. I don’t see any reason to consider supporting its extension” in 2013, Geithner said at a Senate Budget Committee hearing."

The U.S. Trade Deficit Widened in 2011

In-Depth Coverage of President Obama's FY 2013 Budget Proposal

2013 Budget Proposal Details from White House Blog

• Size: $3.8 trillion  (increase of .2% over expected expenditures in 2012-Business Week)
• Spending Boom-WSJ: 
• These past four years are the highest spending years as a % of GDP since 1946. 
• Mr. Obama predicts spending will increase by $193 billion to $3.8 trillion, or 24.3% of GDP.
• Despite its tax increases, the White House still predicts that the annual budget deficit will be $901 billion in 2013 and never fall below $575 billion in any of the next 10 years. 
• Democrats denounced George W. Bush for allowing so much red ink, but his deficits averaged only 3.5% of GDP if you don't count 2001 but do include the 10.1% of 2009. 
• Mr. Obama's deficits have averaged 9.1% of GDP if you count 2009, as you should because his $800 billion stimulus passed that February.

• Stimulus measures-Bloomberg:

1. Job Growth Measures: $350 billion
2. Research & Development: $140 billion
3. Infrastructure Spending: $476 billion

• Expected 2012 Deficit = $1.33 trillion (8.5% of GDP)
• Expected 2013 Deficit = $901 billion (5.5% of GDP)
• Expected Deficit Reduction Over 10 Years: $4 trillion from the following:

• $1.5 trillion increase in tax revenues from raising top two tax rates, Buffet rule, and other
• Obama Seeks New Taxes on Rich-WSJ: Check out the Interactive Graphics in this article for an a breakdown of department-specific expenditures by the federal government. 
• Mr. Obama proposed generating $1.7 trillion in new revenue over 10 years largely by ending Bush-era tax cuts for families who earn more than $250,000, restoring the estate tax to its 2009 level and limiting subsidies for oil and gas companies. White House officials said the president's budget would reduce the deficit by $3 trillion over 10 years through a combination of the new taxes, modest changes to health-care programs such as Medicare and Medicaid and other spending cuts."
• Budget Seeks to Boost Tax Revenue: 
• Mr. Obama backed a 30% tax on incomes of more than $1 million, embraced after billionaire Warren Buffett said the government was "coddling the super-rich." 
• Mr. Obama would also raise the top individual income-tax rate to 39.6% for the wealthiest taxpayers starting in fiscal 2013. 
• The plan calls for taxing long-term capital gains at 20% for upper-income Americans and taxing dividends as ordinary income for wealthier taxpayers, instead of the 15% top tax rates for dividends and capital gains instituted during the Bush administration. 
• The oil and gas industry was also in the cross hairs Monday, as Mr. Obama called for excluding energy companies from a tax break that is aimed broadly at domestic manufacturing. The White House also proposed abolishing a method of inventory accounting favored by oil companies.
• New Battle Over Energy-WSJ: "The budget request, presented Monday morning, again calls for the repeal of a suite of tax provisions that benefit oil and gas producers. Repealing the provisions would bring in nearly $40 billion in tax revenue through 2021, the Obama administration's budget request showed."

• $2.5 trillion in slower growth in spending on future programs
• Military Cuts and Tax Plan Are Central to Obama Budget-NY Times
• Agency-by-Agency Breakdown of Obama's Proposal-WSJ
  
  

Obama's Budget Sets Stage for Election Year-USA Today:

• Obama's plan includes $360 billion in savings from Medicare and Medicaid — a small part of which would come from raising Medicare premiums on upper-income beneficiaries beginning in 2017.  
• Republicans said Obama was taking credit for $2.2 trillion in spending cuts already written into law; not paying for $522 billion in Medicare reimbursements to doctors; and counting as savings $617 billion from winding down the wars in Iraq and Afghanistan.
• The Ratio of Spending Cuts to Tax Increases in the President's Budget-Hennessey
• Barrack Obama's 2013 Budget Fails to Make the Tough Cuts America Needs-Ryan

Payroll Tax Cut Clears House

"Green" Energy Government Loans Expect Losses

After a recent review by Herb Allison, former official in the Bush and Obama Administrations, of the loans to "green" energy companies through the U.S. Department of Energy's Loan Program Office, he estimated these loans will have a $2.7 billion loss to the government from those companies that fail. Although failure is a part of a well-functioning economy, it is inefficient for taxpayer dollars to be used to pick winners and losers in any sector of the economy and is another indicator that all energy funding from the government should be abolished.

Here is a recent blog post I wrote for the Master Resource blog about the details of the Loan Program Office. Expanding renewable and nonrenewable energy sources are a path toward energy efficiency in our country, but this will only occur through profit motives of a market allocation of these resources. If we artificially create market activity, we will all be worse off because of less efficient energy sources, higher prices, and fewer jobs created.

I am an advocate of preserving our earth and keeping the air clean, but I believe government actions make the situation worse from opportunity costs promoted by such action. For example, a lumber company has it in their best interest to plant trees to keep their firm in business, but as recycling increases, there is less incentive for them to plant trees and recycling uses a significant amount of energy in the process. Therefore, we must keep in mind the seen and unseen (i.e. the "broken window fallacy"). In this case, it is not that everyone should stop recycling, but instead keep in mind it will not be a cure-all for preservation of our beautiful planet. The "precautionary principle", a blog post where I explain this, used by the federal government is leading to terrible public policy and it should be removed without sufficient research.

Current Events: Greece's Austerity, Obama's Budget, Fairtax, Bank Pact, Texas Economy

Market Indicators:

• Dow: Up 6.51 points to 12,890
• S&P: Up 1.99 points to 1,352
• 10-Yr Note: Price down to yield 2.019%
• Oil: Down $.40 to $99.44
• Gold: Down $7.90 to $1,733
• $/Euro: Up to $1.3267

Economic Indicators:
Greece Sets Austerity Plan: "After all-night talks, Greek Prime Minister Lucas Papademos announced a deal early Thursday among the main political parties to cut spending, slash the minimum wage by 22% and cut pension benefits. The plan would pave the way for a bond swap between the government and its private-sector creditors that needs to be put in motion soon. A €14.5 billion bond repayment looms March 20; without the bailout in hand, Greece will default on its debt, with potentially catastrophic effects on euro-zone government-bond markets." Greece Unemployment increases to 20.9%.

President Obama's Budget Puts 2012 Deficit at $1.33 Trillion

Obama's Budget Ducks Big Benefit Cuts: In 2011, the U.S. government spent $1.56 trillion on Medicare, Medicaid and Social Security benefits—more than $4 billion a day—accounting for 43% of all federal spending. In 2022, if no changes are made, the government will spend just under $3 trillion on these programs, or 54% of the expected federal budget, according to the Congressional Budget Office.

The math is inescapable as the nation's 77 million baby boomers grow older and health-care costs rise. Last year, 2.8 million Americans born in 1946—the leading edge of the boom—turned 65 and qualified for Medicare, joining roughly 47 million beneficiaries already in the program, according to census data. This year, as members of that group turn 66, they will qualify for full Social Security retirement benefits. Close to 10,000 Americans turn 65 every day, according to different estimates. Americans' average life expectancy at birth has climbed steadily from 68.2 years in 1950 to 77.9 years in 2007, according to the Centers for Disease Control and Prevention."

-Possible Solutions: The FairTax Solution for U.S. Unfunded Liabilities: "In order to pay for a debt of this size, the authors propose one option to balance this future debt: “raise income taxes by 17 percent, raise payroll taxes by 24 percent, cut federal purchases by 26 percent, and cut Social Security and Medicare benefits by 11 percent.” In the current political and social environment, these changes seem highly unlikely. What appears more likely are the following: increase the retirement age to 70 or higher, expand health saving accounts, allow individuals the choice of putting part of their income into a private savings account instead of the general fund for Social Security, and scrap the progressive marginal income tax system and switch to a flat consumption tax, such as the Fairtax that only taxes new goods and services by 23 percent and is revenue neutral. "

U.S. Banks Agree on $25 Billion Pact: "The agreement covers five banks: Ally Financial Inc., Bank of AmericaCorp.,Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55% of all outstanding home loans, or about 27 million mortgages, according to Inside Mortgage Finance. The planned pact would involve around $5 billion in cash penalties, payable to borrowers, states and the federal government. That includes $1.5 billion in cash payments to borrowers who went through foreclosure between September 2008 and December 2011. Borrowers could receive $1,500 to $2,000 each, with the actual amount paid depending on the number of borrowers filing a claim.
-The agreement is expected to call on the banks to provide $20 billion in other aid—by cutting loan balances for tens of thousands of homeowners and by refinancing thousands of borrowers who are current on their loans but owe more than their homes are worth. On its own, the deal won't be a cure-all for the housing market or to the majority of borrowers at risk of foreclosure. Home prices have fallen by nearly one-third over more than five years, slashing real-estate values by $7 trillion and leaving 11 million homeowners with mortgages that are exceed their property values by $750 billion. High unemployment has frustrated round after round of federal efforts to stem foreclosures."

$25 Billion Bank Job: "However this helps the politicians, it won't revive the housing market. CoreLogic's latest data show some 10.7 million residential properties have underwater mortgages, representing 22.1% of all housing loans, or $699 billion. Even $25 billion in income redistribution can't clear the market any faster of excess homes, or produce more buyers who can afford to buy them. "

Jobs Report Power Market Rebound - Me: Me: Reversion to mean is consistent with economic variables. The labor market has been weak for years now and will turn around unless impeded upon by the government. I would not say these data signal better or worse policy but rather the private sector feeling more confident and from a slowdown in government interference with a split Congress. Although a President or Congress cannot create economic growth and jobs, they can certainly stifle both of these by increasing uncertainty and distorting market activity. If this recent hands off approach continues by our government, we may have an even lower UR by the end of the year. With it being an election year, I wouldn't bet on it!

Texas Economic Indicators: "Texas gained 13,600 jobs in December after adding 18,700 jobs in November. Current Texas employment stands at 10.65 million. The Texas unemployment rate declined to 7.8 percent in December, down from 8.1 percent in November. The Texas rate is still lower than the U.S. rate, which was 8.5 percent in December."

Oil and Gas Boom, Payroll Tax, China, & Laffer vs. Bernstein Debate Video

This is an excellent article that I hope you will read: Oil and Gas Boom Lifts Economy

While the oil and gas industry created over 160,000 jobs the last five years, millions/billions of tax dollars have been wasted on "green" energy sources? Let's stop picking winners and losers and let the markets decide. The lesson from this: the private sector continues to be the most efficient means of providing job and economic growth, and no amount of government spending can be thrown at a sector and expect to thrive without a sufficient market for the product (renewable energy sources). We need an all of the above approach to energy production for a well-functioning energy economy; the more we distort the markets, the further from achieving this goal we will be.

While on the topic of energy independence and efficient allocation of resources, here is an article I wrote for PolicMic early last year. It is still applicable today.

Nymex Crude's Gains Trim the Brent Premium: Wonder why gasoline prices have continued to rise? This can help explain it...Brent has increased significantly since the issues in Iran have heated up. In addition, there are oil and gasoline market fundamentals of supply and demand at work on the global market and here in the U.S. - "The buying frenzy pushed ICE Brent crude-oil futures up for seven straight days, to a six-month high at Tuesday's settlement. As Brent rose, many investors bought Brent for March delivery and sold March contracts for light, sweet crude oil on the New York Mercantile Exchange. Much of U.S. crude oil can't be easily exported and therefore can't ease supply worries of overseas buyers. The inventory of West Texas Intermediate crude oil, the U.S. benchmark, has begun building up at the landlocked Cushing, Okla., delivery point, adding to price pressure."

Talks on Payroll-Tax Cut Bog Down: "Congress's deadline is tighter than it appears because lawmakers begin a weeklong recess Feb. 20. After that, they will have only a few days until the expiration of the popular tax cut, which reduces the tax to 4.2% of a worker's salary from 6.2%."

Will China's Yuan Rival the Dollar?: Not anytime soon..."Paradoxically, for want of other safe assets, the high and rising level of U.S. government debt is cementing the role of the dollar as the dominant reserve currency. This safety could well be a chimera if the U.S. debt position becomes unsustainable. So the rush to U.S. Treasurys at times of global financial turmoil may reflect a flight to liquidity rather than safety. The U.S. trump card is that its financial markets remain unmatched in their breadth, the range of financial instruments available to foreign investors, the amounts of each such instrument, and the volumes of trading in those instruments."
Video: Laffer vs. Bernstein debate - Check out this excellent debate which I had the pleasure of being at several weeks ago. The debate starts about 14 minutes in...

Current Events: Fed Policies, Jobs Report, Texas Drought

Market Indicators (Friday's Close):

• Dow: Up 157 points to 12,862
• S&P: Up 19.36 points to 1,345 (Up 6.9% so far this year)
• 10-Yr Note: 0/32nds to yield 1.928% (1.95% at the beginning of the year)
• Oil: Down $0.47 to $97.39 per barrel (Down 5% so far this year)
• Gold: Down $4.10 to $1,736 per ounce (Up 8% so far this year)
• $/Euro: Down to $1.3091 (Up marginally)

Economic Indicators:

Even After Rain, Texas Drought Persists

Mark Zuckerberg's $2 Billion Tax Bill

Canada's Jobless Rate Rises Unexpectedly from 7.5% to 7.6%

Spanish Unemployment Soars

Bernanke Questioned on Fed Policies

Foreclosure Deal Gets Closer

Still Club Fed: "Federal workers on balance still receive much better benefits and pay packages than comparable private sector workers, the Congressional Budget Office reports. The report says that on average the compensation paid to federal workers is nearly 50% higher than in the private sector, though even that figure understates the premium paid to federal bureaucrats."

The Fed Votes No Confidence: "There is a saying in finance: "Don't fight the Fed." It's now time for the Fed to step out of the fight. It did its job. Let's allow the free-market system to do its job. Doing so will restore business confidence and spur much needed new investment."

Jobs Power Market Rebound - Me: Reversion to mean is consistent with economic variables. The labor market has been weak for years now and will turn around unless impeded upon by the government. I would not say these data signal better or worse policy but rather the private sector feeling more confident and from a slowdown in government interference with a split Congress. Although a President or Congress cannot create economic growth and jobs, they can certainly stifle both of these by increasing uncertainty and distorting market activity. If this recent hands off approach continues by our government, we may have an even lower UR by the end of the year. With it being an election year, I wouldn't bet on it!

Jobless Figures Cut Two Ways for Obama - Me: Just think what the UR would be if President Obama had proposed policies to release the burdens of government on taxpayers instead of redistributing dollars through stimulus spending. A new President taking office in January would hopefully put policy proposals in a direction of individual and economic freedom that does not single out income groups and provides an economic environment of prosperity for everyone. President Obama has slowed the economy and reduced incentives for entrepreneurs to create jobs, which have contributed to the protests around the nation. While some economic data looks better, be aware that it is in spite of government and not from it. Correlation does not mean causation. President Reagan was right when he referred to the fact that "government is not the answer, but the problem".

Current Events: Jobs Report, Home Prices Fall, National Debt, Europe

Market Indicators (Thursday's Close):

• Dow: Down 11.05 points to 12,705
• S&P: Up 1.45 points to 1,326
• 10-Yr Treasury Note: Down to yield 1.828%
• Oil: Up $0.10 to $96.46
• Gold: Up $0.40 to $1,760
• $/Euro: Down to $1.3124/Euro

Economic Indicators:

Video: The Truth About the Economy

Video: The Real "Truth About the Economy" - Have Wages Stagnated

Jobs Report for January 2012:

1. # of Net Jobs Created: 243,000

    Total Number of Unemployed: 12.7 million (decline by .4 million) (lowest since 2/09)

2. UR: 8.3% (decline by .2%) (lowest since 2/09)

    U6 (includes discouraged and underemployed workers): 15.1% (decline by .1%)

    Emp-to-pop ratio: 58.5% (no change) (still off from 63% peak in 2007)

3. Average hourly earnings: Up 1.9% for the year to $23.29

    Real average hourly earnings (earnings % increase-CPI inflation)=(1.9 - 3%)= -1.1%

Good Summary Graphs from Calculated Risk Blog

Home Prices Tumble: "The 10-city and 20-city composites posted annual returns of negative 3.6% and negative 3.7%, respectively, compared with November 2010."

Biggest Holders of US Government Debt: My thoughts - The Federal Reserve holds about $1.65 trillion and other federal gov't trust funds hold about $4.678 trillion of the $15 trillion of the gov'ts national debt (the total assets of the Fed is $2.9 trillion so they could not own $6 trillion of debt as my previous post stated). Although there is much rhetoric about China's holdings of government debt, it is only $1.132 trillion (7.5% of total). This is a perfect example of how the Fed can manipulate interest rates to remain very low in a period that lacks monetary policy rules and hinders a correction and subsequent boom we could have. (these values in graph are in trillions of $)

An American History Lesson for Europe: From article - "If the federal government had chosen to bail out the states a second time, it probably would have taken greater control over state taxes and revenues in order to prevent yet another bailout situation. Refusal to bail out the states was thus a pivot point in sustaining a federal system in the United States. It led the states to discipline themselves by rearranging their constitutions in ways designed to allow them to retain freedom and responsibility for taxing and spending within their borders. Europeans today might be tempted to say "yes" to bailouts. Or they might also recall a time when Americans preserved their own federal system by saying 'no.'"

Current Events: Different Views for the Path Forward

Market Indicators (Tuesday's Close):

• Dow: Down 20.81 points to 12,633
• S&P: Down 0.6 points to 1,312 
• 10-Yr Treasury Note: Up to yield 1.813%
• Oil: Up $.32 to $98.79
• Gold: Up $1.80 to $1,742
• $/Euro: Down to $1.3075/Euro

Economic Indicators:

What are the different paths moving forward?

$5 Trillion and Change: Largest deficits as a percentage of GDP (since WWII) and in levels (ever) under President Obama. - "Nonpartisan Congressional Budget Office (CBO) reports that annual spending over the Obama era has climbed to a projected $3.6 trillion this fiscal year from $2.98 trillion in fiscal 2008, or more than 20%. The government spending burden has averaged 24% of GDP, up from an average of about 20%. All of this has increased the federal debt by about $5 trillion in a mere four years. Thanks to higher revenues, the federal deficit will decline to $1.08 trillion in 2012, or 7% of GDP."

"Buffett Tax" and Truth In Numbers: "In September, the Congressional Budget Office estimated the 10-year deficit at $8.5 trillion. The nonpartisan Tax Foundation estimates that a Buffett Tax might now raise $40 billion annually. Citizens for Tax Justice, a liberal group, estimates $50 billion. With economic growth, the 10-year total might optimistically be $600 billion to $700 billion. It would be a tiny help; that’s all. “The purpose of the Buffett Rule is not to close the deficit gap,” Buffett has said. Hard choices remain, in part because existing deficit estimates already assume steep defense cuts."

How to Save the Global Economy: More inflation to reduce the real value of debt-Menzie Chinn and Jeffrey Frieden - "We're not proposing a lot of inflation -- just enough to reduce the debt burden to more manageable levels, which probably means in the 4 to 6 percent range for several years. The Fed could accomplish this by adopting a flexible inflation target, one pegged to the rate of unemployment. Chicago Fed President Charles Evans has proposed something very similar, a policy that would keep the Fed funds rate near zero and supplemented with other quantitative measures as long as unemployment remained above 7 percent or inflation stayed below 3 percent. Making the unemployment target explicit would also serve to constrain inflationary expectations: As the unemployment rate fell, the inflation target would fall with it."

Why Gingrich's Plan Beats Romney's: Increased economic growth by shrinking the size of government-Art Laffer - "Jobs and wealth are created by those who are taxed, not by those who do the taxing. Government, by its very nature, doesn't create resources but redistributes resources. To minimize the damages taxes cause the economy, the best way for government to raise revenue is a broad-based, low-rate flat tax that provides people and businesses with the fewest incentives to avoid or otherwise not report taxable income, and the least number of places where they can escape taxation."

Why We Need Tax Reform: Tax reform and shrinking government spending are needed to provide economic growth - Me. "We have been going down the same road of tinkering around the edges of taxes and spending that have not been successful. These actions have made us more dependent on the government. This is apparent across our economy, and until the citizens of our great country can take back the reigns from government and allow markets to work without manipulation, we will stifle the entrepreneurial spirit that has made America an economic superpower."

Current Events: Myths of Capitalism, New Home Sales, Deflation

Key Market Indicators (Last Week's Change): Dow Snaps 3-Week Win Streak

• Dow: Down 60.02 (0.47%) points to 12,660
• S&P: Down 2 (0.2%) points to 1,316
• 10-Yr Treasury Note: Up 1 6/32nds to yield 1.896%
• Oil: Up $1.23 to $99.56
• Gold: Up $68.10 to $1732
• $/Euro exchange rate: Up to $1.3219/Euro

  Economic Indicators:
Video: The Broken Window Fallacy
Video: Top 3 Common Myths of Capitalism
Personal Income: PI: Up .5%
                           -Taxes: Up .2%
                           =Disposable PI: Up .3%
                           -Consumption: 0.0%
                           =Savings: Up .3%  => Up to 4% of DPI from 3.5%

Dismal New Home Sales: "It’s possible that 2011′s record low of 302,000 represents the bottom for new home sales, but don’t count on it. The record has been broken three years in a row."

Deflation is Real Possibility: "It may be that companies have enough cash on hand that they simply don't need to borrow, or that they are raising funds in the bond market instead. Even if that holds for the biggest firms, though, smaller ones still rely on bank loans. Their weaker demand is a cautionary sign for economic growth after a disappointing 1.7% increase last year."

Dr. Arthur Laffer on Income Inequality

Recently I attended the Laffer Center Gathering on Economic Growth in Austin, TX. There were a number of intellectual debates and conversations throughout the conference. What struck me the most was the following excellent explanation Dr. Laffer gave on income inequality and class warfare:

"If I were father of this country, I'd want all of my kids to be equally successful...you do want that! And if you look at this world, I don't see any reason that the rich should have any more than anyone else...I'd like all my kids to be equally successful...

What I'd do is tax all that make above the average income 100% of the excess, and subsidize everyone that makes below the average income up to the average income. I don't understand why anyone makes more than anyone else...I really don't.

And by doing that, I will stipulate that everyone will be equally successful at zero income. There is no way to change the distribution of income without changing the volume of income. Period. It is math. No way from here to Sunday to do it...when you do redistribute income you have to look at the consequences...you cannot redistribute income without lowering the volume of income... I'd love to redistribute income from those that have a lot to those that have a little, if there weren't any consequences. But there are! 

If I ran my class the way the government runs our country, I'd flunk all the A students out, and give all the F students scholarships. Now before you giggle on this, my A students happen to be a little brighter and a little harder working than the F students. So once you change the rules, my A students would still get all the scholarships because my A students know enough to never accidentally guess the correct answer. I haven't changed the grade distribution one iota. But what I have done is destroy the entire quality of the educational process. 

 Every revolution on planet earth has been fought over income distribution and not one of those revolutions has ever changed the distribution of income, but all have destroyed huge amounts of volume of income. You can't change the distribution with taxes and government spending, but boy can you change the volume.

You can't make every poor person rich without making every rich person poor...you can't have a profit and loss system without losses. You can't.You can't have a warm heart without a clear vision. Dreaming of doing X when you are really doing Y...Liberals are creating the poverty. No wonder we have the worst problems with black unemployment, etc...they are creating the very problems they use as the ruse to implement their policies that make them worse. You've got to see the actual consequences of your actions. They are wrong on what the consequences of their policies are.

Our dreams are no different than the liberals, but our economics is right and their economics is wrong."

I think this eloquently and concisely states the issue in a way that Americans across the country can understand. The more government interferes and tries to fix income inequality, the worse off we will be.

 

 

CE: GDP Growth, Fed Funds Rate, Oil, IMF, Durables, and Jobless Claimes

Market Indicators (Thursday's Close):

• Dow: Down 22.33 points to 12,735
• S&P: Down 7.62 points to 1,318
• 10 Yr Note: Down 3/32nds to yield 1.947%
• Oil: Up $.05 to $99.75
• Gold: Down $8.90 to $1,721
• $/Euro: Down to $1.31

Economic Indicators:
GDP Rises 2.8% in 4th Q: "That is up from 1.8% growth in the third quarter and 1.3% in the second quarter. It was the fastest pace since the second quarter of 2010. Economists surveyed by Dow Jones Newswires expected 3.0% growth. The faster growth capped an otherwise sluggish year in which the economy grew by 1.7%, slower than the 3.0% growth in 2010."

Economic Recovery is Slow: "On Friday, the government releases its preliminary snapshot of economic growth in the final three months of 2011 and most economists expect it to show gross domestic product grew at an annual rate of about 3%." We need economic growth by at least 3% for job growth to keep up with the growth of the labor force.

Oil Seesaws on Iran Threat: "Iran said Thursday that it was considering an immediate halt to oil exports to the European Union, in response to an EU embargo on its oil sales set to be fully in place by July 1. EU nations, which import about 600,000 barrels a day of Iranian oil, approved the embargo Monday to ratchet up pressure on Tehran to halt its nuclear program."

IMF Chief Warns Europe Must Fuel Growth

Economics for the Long Run: "As this election year begins, a lot of people are wondering what we can do to restore America's prosperity and create more jobs. Republican presidential candidates are offering their ideas, and at his State of the Union message on Tuesday President Obama presented his. I believe the fundamental answer is simple: Government policies must adhere more closely to the principles of economic freedom upon which the country was founded."

No Need to Panic About Global Warming: "A candidate for public office in any contemporary democracy may have to consider what, if anything, to do about "global warming." Candidates should understand that the oft-repeated claim that nearly all scientists demand that something dramatic be done to stop global warming is not true. In fact, a large and growing number of distinguished scientists and engineers do not agree that drastic actions on global warming are needed."
(Here are my thoughts on Global Warming and Economic Growth)

Federal Reserve Expects Low Rates Through 2014: "Officials hope that by signaling their intentions on short-term interest rates, long-term rates will fall, spurring investment, spending and growth. Since August, the Fed had been saying rates would stay near zero at least until mid-2013." The current federal funds rate is in a range of 0-.25%.

Businesses Ramp Up Spending On Goods: "New orders for U.S. durable goods—those lasting longer than three years, such as automobiles and kitchen appliances—rose 3% in December from November. That followed a big drop in claims the previous week. The four-week moving average, which smooths out weekly volatility in the numbers, fell by 2,500 to 377,500."

Current Events: IMF, SOTU, Texas UR, Health Ins.

Six Major Market Indicators (Tuesday's Close):

• DOW: Down 33.07 points to 12,676 -   The Dow posted a second consecutive decline for the first time in nearly three weeks but remains up 3.8% to start the year.
• S&P 500: Down 1.35 points to 1,315
• 10 Yr. Note: Down 1/32nds to yield 2.065%
• Oil: Up $.19 to $99.14
• Gold: Up $.50 to $1,665
• $/Euro: Down to $1.3017

Economic Indicators:

International Monetary Fund (IMF) Cuts Global Forecasts: The global economy will expand 3.3%, this year, down from 3.8% last year, said the IMF, which in September had forecast 4% growth in 2012.
State of the Union Speech: President Barack Obama offered Americans a sharply populist economic vision in his State of the Union address Tuesday, seeking to draw a contrast with his eventual Republican rival and demonstrating the widening policy gulf between the two political parties.
Unemployment Rates Fall in Most States: Texas UR falls to 7.8%; Texas notched the biggest increase in nonfarm payrolls with 20,200 added jobs

Should Everyone Be Required to Have Health Insurance?: Yes, It's Key for Reform. No, Premiums Will Rise.

Current Events

Six Market Indicators (Friday's Close):

• DOW: up 96.50 points to 12,720 
• S&P500: up .88 points to 1,315
• 10 YR Note: 0/32 to yield 2.03%
• Oil: down $2.15 to $98.39
• Gold: up $12.50 to $1,667
• $/Euro: down to $1.2924

 

Economic Indicators:
Economists to See Ways to Aid Housing Market

• First, local investors could play a greater role in spurring a recovery in their own communities.
• Second, policy makers could restore clarity to lending by finalizing a clutch of pending regulations.
• Third, a growing number of economists are warning that the overhang of debt in some of the most distressed housing markets will linger for years, particularly if more borrowers default. They say mortgage investors and banks should consider reducing debt for more troubled homeowners.
• Indeed, no single idea will fix all of housing's problems. Many involve taking on more risk or rewarding bad behavior.

 

Sales Stir Hope for Housing Market: Existing-home sales increased 5% in December from a month earlier. The median price in December was $164,500, down 2.5% from a year earlier.

 

Greek Talks Fail to Clinch Debt Deal: "Reaching a deal with private creditors is a key precondition for Greece to receive a fresh, €130 billion ($169 billion) bailout from its European partners and the International Monetary Fund."

A Better Tax System by Greg Mankiw

1. Broaden the Base and Lower Rates
2. Tax Consumption Rather Than Income
3. Tax Bads Rather Than Goods
4. Keep It Simple, Stupid

"Filling out tax returns will never be a delight. But if reform included simplification, the task might become a bit less onerous. And if a few accountants and tax lawyers were induced to become engineers and doctors instead, society will have moved a big step in the right direction."

Why We Need Tax Reform by Me
President Obama Promises "Economic Blueprint" in State of the Union  on Tuesday

Current Events

Six major market indicators:
Stocks:
Dow Jones Industrial Average (DOW): Up 45 point to 12,624 (6-month high)

Standard & Poors 500 (S&P 500): Up 6.46 points to 1,315
Bonds:
10-year Treasury Note (10 YR Note): Up 4/32 to yield 1.97%.
Commodities:
One month ahead price of oil futures (Oil): Up $.11 to $100.50

Price of an ounce of gold (Gold): Up $2.50 to $1,657
Exchange Rate:
Dollar/Euro exchange rate ($/Euro): $1.2963 (Dollar down-depreciated)   (Euro rises to two week high)

Economic Indicators:
Producer Price Index (PPI): Headline PPI: Up 4.8% over the last year. Core PPI (excludes food and energy): Up 3% over the last year.
Consumers Notch Gains as Some Prices Decline: Headline Consumer Price Index (CPI): Up 3% over the last year through December. Core CPI (excludes food and energy): Up 2.2% over the last year. (The central bank of the U.S. - Federal Reserve - would like this to be in a range of 1.5-2%)
The 4-week moving average was 379,000, a decrease of 3,500 from the previous week's revised average of 382,500. Benchmark is 350,000 to signal a strong labor market.
House Rejects Debt Limit Increase: "The House voted Wednesday to reject President Barack Obama's request to raise the federal debt limit by $1.2 trillion. Mr. Obama has requested a $1.2 trillion increase in the debt ceiling, which would bring the government's borrowing limit to $16.394 trillion. That is expected to cover borrowing until after the November election."

Assorted Articles

Little Alarm Shown at Fed at Dawn of Housing Bust
Consumers Step Up Their Borrowing
Economists Set Rules on Ethics
Labor Market Gains Traction
China's Trade Surplus Shrinks in 2011
Euro Zone Sentiment Darkens as Recession Fear Looms
Downgrades Fan Fresh Euro Fears
White House Seeks to Merge Agencies
President Obama, GOP Trade Political Challenges
PPI Prices Decline

Laffer Center Policy Orientation Thoughts

After an inspiring few days at the Texas Public Policy Foundation Policy Orientation with the Laffer Center in Austin, I am back to full days of dissertation work before I start teaching again at Sam Houston on Wednesday.

While in Austin, I had the honor of meeting Dr. Arthur Laffer, (one of the father's of Supply Side economics, one of the top living economists, and one of my role models-see pic below) and drive him from the airport to the Austin Hilton Hotel. I was inspired while I was at the Policy Orientation to keep striving to find solutions to our economic woes. Hearing the numerous other proposals by leaders in business, government, and academia was very helpful.

The foundation for providing economic prosperity was discussed and includes a stable dollar, reforming the Fed, tax reform (with either a flat income or consumption tax), cutting government spending (which stifles economic growth because of the redistribution of resources), income inequality will never be solved through the tax code, regulations should be reduced (repeal Obamacare, Dodd-Frank, and Sarbanes-Oxley), and economic growth is the key to our debt problems. By providing incentives to supply more goods and services by entrepreneurs across our nation through sound economics there will be a boom in our economy. Although there are more government-oriented policies that have been discussed, they lack good economics.

Dr. Laffer was kind-spirited and discussed how we should continue to debate with each other no matter what side of the aisle we may be on and do it in such a way that is constructive for future prosperity. He believes that this is another time in American history where we will have Republicans in the White House, Congress (both chambers), State Governors, and many State Congressmen and women after the 2012 election.

This should help bring about another period of economic prosperity that resemble the 1920s, 1960s, and 1980s from Supply Side reforms that were promoted during those times. He was optimistic about Mitt Romney winning the Republican nomination (I think there is no doubt he will) because of his time with President Reagan early on and how Reagan was not the Supply-Sider we know today. It took a number of discussions and the art of persuasion before President Reagan agreed to the largest tax cuts in American history and restored America's economic growth after a terrible 1970s. The deficits during President Reagan's tenure were outrageous and he was not able to reduce the size of government as much as I would have liked, but the reforms put in place certainly changed the way we think about the size and scope of government.

We can hope that more reforms to shrink the size of government will occur again, but we also should be cognizant of what happened when Republicans had power from 2001-2007 and there was a continual expansion of government. Reducing the size and scope of government should be the goal from the failures of government stimuli from the use of parts of Keynesian economics. Time will tell...

Here is a recent article by Dr. Laffer on class warfare. Here is a rebuttal to Supply Side economic rhetoric by Jared Bernstein, who was Vice President Biden's chief economist for a while and was the one who debated Dr. Laffer at the event in Austin I was at. Here is an article from the NYT about income inequality.

Jobs Report and Assorted Articles

After a trip to Chicago for the AEA Conference and interviews, here is a summary of recent economic data.

Job Numbers for December Mask Complex Picture: Great Summary of Data

1. Net jobs created: 200,000; 212,000 private sector jobs; 13.1 million unemployed
2. UR: 8.5%; U6: 15.2%; Employment-to-Population: 58.5%
3. Average hourly earnings: Up 2.1% over the last year, which is less than headline inflation of 3.4%

Labor Market Gains Traction

Unemployment Scars May Last Years

Texas Economic Indicators: "Texas gained 17,900 jobs in November after adding 400 jobs in October. Current Texas employment stands at 10.63 million. The Texas unemployment rate declined to 8.1 percent in November, down from 8.4 percent in October. The Texas rate is still lower than the U.S. rate, which was 8.6 percent in November."

Small and Large Footprints: Reserves and the Fed - (There is a lot of jargon in this interesting post, simply put: commercial banks find the marginal benefit of parking their excess reserves at the Fed to gain .25% is greater than or equal to the marginal cost of lending it out. The supply and demand for loanable funds exist but uncertainty about the state of the economy, bad mortgages on banks'assets, and numerous regulatory burdens are constraining the use of these reserves. Their lack of use is integral to the Fed's plan to increase liquidity without causing inflation in the short run, but the costs of which may far outpace their benefit.)

FOMCs November Minutes Euro Crisis Concerns: (Here is an article by my friend Ryan Schuette about the measures the Fed and other central banks have taken to stimulate/bailout economies from a slowing global economy.)

India's Slowdown - (Although India's economy may grow by 6% this year compared to 10% recently, there are several factors that make it likely they will continue their brisk growth rate. Even so, their GDP per person is poor compared to many developed countries.)

China's Emerging Housing Dilemma - (If you thought the government engineered housing boom and bust was rough, you may have not seen the worst yet: China.)

Washington is Spending Too Much - (Taylor sums up nicely the argument I agree with: excessive spending by government is the primary problem with bloated deficits.)

Individual Mandate Not Severable from Obamacare

4th Year of MB: 2011 in Review & Hopes for 2012

I hope that you had a Merry Christmas and a Happy New Year! I certainly did. This is the 4th year of the Marginally Beneficial blog. First off, thank you for reading! My blog posts help me to remain sane while working on my dissertation (expect to graduate in August 2012) and over the years this blog has helped to keep me updated with current events, divulge what my thoughts are on issues, and spread the news to others. I have had over 20,000 hits on this site over the last two years, there are 79 followers on Networked Blogs through Facebook (feel free to add me as a friend on Facebook for updates as well), and 29 members through Blogger.

If you are a frequent reader and would like to be updated when I make new posts, please become a follower on one of these sites. In addition, if you know someone who could benefit from my blog, please email them the link. My goal is to reach 200 followers/members this year, so your help would be greatly appreciated! I also hope that there will be an increase in the number of comments from you this year. I have my students read the articles and posts I put on my blog and your comments would help them to think critically about many issues.

I would also like feedback from you. Please comment here to let me know what you would like to see more or less of in this blog. I write this blog to first understand more about the fascinating world we live and next to please the customer, YOU! As I noted before, my goal is to increase the demand for my product (blog) and this will only happen if my product is marginally beneficial. Please also check out my previous blog posts, links to specific issues, and other blogs that I follow. Thank you again and now for the news!

Here are a few videos and articles I thought you would enjoy (My thoughts or quotes from link are in parentheses):

Videos:
Markets Need Rules: (What if there were thousands of new regulations imposed on a baseball game like there has been on the private market? Would you want to play ball? In other words, should we expect anything different than an economy that is barely moving?)
Europe At the Brink: (In this documentary, Wall Street Journal editors and reporters examine the origins of Europe's debt crisis and why it spread with such ferocity to engulf much of the continent and threaten the entire world.)

Articles:
The Rise of Consumption Equality: ("Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve." If we equalize outcomes, will entrepreneurs have more incentive to create more of the goods that make our lives better? Maybe they should be the ones who are protesting.)
Oil and Gas Bubble All Over: ("Crude-oil imports are falling, balance-of-trade payments are improving and thousands of oil-field jobs are being created from Texas to Ohio, from West Virginia to Wyoming. Moreover, the U.S. is beginning to export a significant amount of diesel and gasoline refined from crude and could begin exporting chilled natural gas next year." It 'could' if regulations do not stifle production.)
The Spenders Won in 2011: ("GOP Congressional leaders will be tempted to play it safe and wait for their Presidential nominee. And inevitably the Presidential race will dominate public debate as 2012 unfolds. But before it does, Republicans need to do far more to show their own supporters and independent voters that they are the party of reform and change in Washington. If voters want spending as usual, they'll elect Democrats." More resolve is needed by all of those in Congress for fiscal restraint or we will bear the costs in the short and long run. In the long run we may all be dead, but we may wish we were dead in the short run from an overpowering government.)
Why the Dow Clobbered the S&P in 2011
Recap of Markets in 2011 & Good Start for 2012
Oil Prices Up
World's Woes Leave Lasting Scars
Dollar Defied Reality in 2011
Treasury Rally Lives On, Bubble?

Debate: Should Congress Pass Another Temporary Payroll Tax Cut?

Debates have been fierce (Shortened session shows fight over tax cut) about extending the temporary payroll tax (Social Security) cuts from 6.2% to 4.2% for another two months (passed by the Democratic Senate) (President Obama to Boehner: Two-month cut is only option) or a year (passed by the Republican House) (House GOP rejects payroll tax plan).

Should this payroll tax cut be extended? (Middle class needs the tax cut) Has it been effective in increasing consumption, investment, and economic growth this year (it was originally cut in a bill last December)?

Although it may not bankrupt Social Security (Extending the payroll tax cut will not impact Social Security from the White House blog), it is impacting our massive budget deficits because the government is using general tax revenues to reimburse the SS fund for whatever amount is not received from the payroll tax cut (Payroll Tax Cut? No, just another raid on Social Security). Is this good policy? (The GOPs payroll tax fiasco) Should we allow the SS fund to diminish its funds instead to show the real costs of these measures? (Will they bankrupts Social Security?)

If uncertainty (Want Growth? Try stable tax policy by John Taylor) is an issue in our economy, is a two month or one year extension a way to increase certainty for future decisions? These are all questions that I hope are happening in D.C.