Today’s little economic snapshots:
A sharp drop in oil prices reduced import prices by –0.4%. Export prices, conversely, rose by 0.5%. On a year-over-year basis, import prices have risen by 13%, while export prices have gone up by 9.6%.
For the sixth straight month, business confidence has fallen as the NFIB Small Business Optimism Index fell 1.8 points in August to 88.1.
The Ceridian-UCLA Pulse of Commerce Index fell 1.4% in August, with the index reading at 94.62, as nationwide trucking activity dropped slightly.
In weekly retail sales, ICSC-Goldman Store Sales rose 1.3% on a post-Hurricane Irene burst of sales last week, with year-over-year sales up 3.3%. Redbook, meanwhile, reports year-over year sales were up 4.5%.
James Pethokoukis writes, "Goldman Sachs drops this H-bomb on the Obama campaign:
We have lowered our forecast for US real GDP growth further and now expect real GDP to grow just 2%-2½% through the end of 2012. Our forecast for annual average GDP growth has fallen to 1.7% in 2011 (from 1.8%) and to 2.1% in 2012 (from 3.0%). Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level.
Even our new forecast is subject to meaningful downside risk.
So, we got that goin’ for us.
Yes, that’s what’s up … I’m looking at ways to further expand my ability to blog from various platforms and apps.
So far, so good with this one.
- Posted using BlogPress from my iPad
In this podcast, Bruce, Michael, and Dale discuss the fight over the debt limit again.
The direct link to the podcast can be found here.
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I have to admit, I sometimes get tired of being the voice of doom. Sadly, our political class–Republicans and Democrats alike–seems determined to follow the worst policy options available. So, doom slouches closer. The proximate doom they’re fiddling with this time is the approaching debt limit. Now, I yield to no man in my hatred for ever-increasing government spending, but this debt-limit battle is pointless. We will increase the debt limit. We have no choice.
Here’s the current situation:
OMB estimates federal revenues for 2011 will hit $2.17 trillion. Granny, our servicemen, and other such untouchables — by which I take him to mean Social Security, Medicare, national defense, and debt-service payments — will add up to $2.21 trillion, meaning that even if we cut the rest of the federal budget to $0.00 — no Medicaid, no food stamps, no Air Force One — revenues still would not cover these untouchables, according to OMB estimates…
Our deficit is about 40 percent of spending this year; continued recovery, if the estimates hold, will do some of the work for the 2013 regime, but even under current forecasts that are arguably too rosy, we’ll still be running a 26 percent deficit in 2013.
Even if we eliminate every penny of spending this year except for Social Security, Medicare, and Defense, we still can’t cover this year’s spending. And next year’s spending projects an economic recovery will save us, and reduce the deficit to 26% of spending. Absent such a recovery, next year we’ll be back to another 40% deficit.
And the politicians of both parties are nowhere near to making the appropriate cuts in the budget in years farther out than that. The biggest deficit reduction package currently on the table is for $4 trillion over the next 10 years. Which sounds impressive, until you remember that the actual projected budget deficit over the next 10 years is $13 trillion. So, we’re still $9 trillion short of closing the budget deficit for the next 10 years.
But, wait! It gets better! This $13 trillion figure assumes that interest rates will remain stable where the currently are. If interest rates for treasuries go up by 1%, that wil add 1.3 trillion to the deficit over the same period. As the moment, the Office of Management and the Budget (OMB) projections are for a stable average interest rate of 2.5%. Of course, the current 20-year average is closer to 5.5%, so a return even to normal interest rates will add up to $3.9 trillion to the deficit.
But the magic doesn’t stop yet! OMB forecasts growth rates of between 4%-4.5% from 2014 to 2014. The average trend rate of growth is between 2.5%-3% however. So, if we don’t get the strong growth the OMB is predicting over the next three years, and the following years, we’ll need to add another $3 trillion or so to the deficit over the next decade. And, frankly, if you believe Goldman Sachs today, a return to trend rates of growth seems..unlikely, as they’ve lowered 2Q GDP growth to 1.5% from 2.5% and 3Q to 2.5% from 3.25%. They also forecast unemployment at end of 2012 to be 8.75%.
So, the best case scenario is that we’ll add $9 trillion to the deficit over the next decade. A return to historical growth and interest rates–even if we assume the $4 trillion of budget cuts will actually happen–means a 10-year deficit of $16 trillion. Essentially, we will more than double the National Debt, pushing the debt to GDP ratio to about 160% by 2021.
And that’s the good news.
The bad news is that, in the current debate over the debt ceiling, everyone involved seems determined to play chicken with a default–even if only a selective default–of US treasury obligations.
Tim Pawlenty even suggested that a technical default might be exactly what Washington needs to send a wake-up call to the politicians about how serious the situation is. Others, like Michelle Bachmann, and a not inconsequential number of Tea Party caucus members are steadfastly against raising the debt ceiling for any reason at all.
This is insanity.
Any sort of default, even a selective default that would suspend interest payments only to securities held by the government, while paying all private bondholders in full, will have completely unpredictable results. The least predictable result, however, would be business as usual. A technical default–i.e., delaying interest payments for a few days–or selective default, or any other kind of default is…well…a default. It is a failure to make interest payments.
The most obvious possible result of any sort of default will be to eliminate the US Treasury’s AAA rating, and push interest rates up sharply. If we’re lucky, we’d be talking about a yield of 9%-10%…and an additional $5 trillion added to the deficit (running total in 2021: $21 trillion added to the national debt).
And, again, that’s a best case scenario. Because it assumes that everyone will be willing to hold their T-Notes through all of this. If any major overseas institution or government–say, China–decides to unload their holdings, it could be the start of a flight from treasuries that will destroy the US Dollar in the FOREX, vastly increase the price of imported goods, like, say, oil, and spark uncontrollable hyperinflation in the US. The life savings of every person and institution would be wiped out.
Naturally, yields on interest-bearing instruments would then pull back on the stick and climb for the skies. Not that it’d matter much at that point, since the currency would merely be ornately engraved pieces of durable paper. Suitable for burning in the Franklin Stoves with which we will be heating our homes, in the absence of oil.
Flirting with default is extraordinarily reckless. I don’t even have the words to begin to describe how badly any sort of default might go.
The thing is, we don’t know–we can’t know–what the results of a technical or selective default might be. It might be the judgement of worldwide investors that there are no better alternatives to US-denominated securities, so they’ll just have to ride out a technical default, and accept their interest payments coming a few days late. It might be their judgement that unloading their US-denominated securities and losing a little money is better than the risk of losing everything through a currency collapse. It might be a lot of things, and we have no way of knowing which of those things might come to pass.
As Tim Pawlenty says, a default might be a wake up call. From an exploding phone filled with napalm and plutonium.
Whatever political points might be at stake, is it worth this level of risk?
The safe path here is a simple $500 billion debt limit increase. That’ll give us 6 months to figure things out, and try to discover some way to get our fiscal picture under control, and avoid a default. Government spending is out of control, but a default is really not the best way to impose fiscal discipline.
Obama says it’s time for us to “eat our peas“. Well, here’s the problem, jacka$$ – I don’t like peas.
I’m an adult. Been one for almost thirty years, in fact, so I have a lot of practice at it. I’m older than you, jerk.
So take your sage advice about how we adult citizens just have to suck it up and bend over for your political friends one more time, and shove it in Joe Biden’s cheek pouches.
If I were a political consultant for a Republican, tea-party-oriented candidate for president (or indeed for any federal office), I would suggest that a central campaign theme be “It’s time to start treating Americans like adults.”
I believe Obama’s condescending smarminess is grating and offensive to a lot of voters. The Republicans are fools if they don’t offer a counterpoint to it.
This “treat us as adults” theme encompasses many things. It means allowing us to make our choices about our lives and our jobs, and be responsible for the outcomes. That includes a whole host of areas that the federal government has completely screwed up in their attempts to treat us like irresponsible children.
– We need to be responsible for our own retirement. We don’t need to be treated like children who don’t understand the value of money, can’t see the future, and don’t have the self-discipline to save.
– We need to be responsible for our own healthcare. We don’t need to be treated like children who must be told what to eat, when to exercise, and what treatment they are to get when they are sick, without any thought to how to pay for it.
– We need to be responsible for our own businesses. The vast majority of business owners are adult enough to know what safety precautions to take, and what accounting standards to use. The small minority that doesn’t understand safety should have their butts sued off and lose their businesses when they are negligent. The tiny minority that commits accounting fraud should be put in prison.
– We need to be responsible for our property. That starts with allowing us to keep our own money, and spend it as we like. It also implies some stability that is not currently in evidence, so that we don’t lose huge sums in real estate and stock investments because of governmental incompetence and cronyism with the executives of large companies.
– We need to be more responsible for our own safety. Sure, there’s always a need for law enforcement, but it can’t be the first resort for personal safety. Any law enforcement that could do that would be indistinguishable from a police state. Therefore, we need the right to buy, possess, and use the weapons that provide that safety.
– We need to be responsible for raising our own children. We need to have more influence over their education, and we particularly need to stop wasting our time reversing the indoctrination they suffer at the hands of the educational bureaucracy.
– We need to be responsible for treating other people appropriately. If we are stupid or obnoxious in our treatment of others, we need to suffer social consequences, not legal ones.
I know transitioning to treating Americans as adults would be hard. We’ve now had a couple of generations of government dependents, and they have been actively discouraged from learning the skills and responsibilities of adulthood.
The problem is that we’ve reached the end of our rope on supporting this class, which has a natural tendency to grow.
The fundamental problem we face (and that all societies face) is that there are plenty of people who don’t want to be adults. They want to go on being children. It’s easier, at least superficially. Being an adult is hard; you have to make agonizing decisions sometimes. You sacrifice your own pleasures for your children. You deal with random outcomes, such as acts of nature. You have setbacks, and you only have yourself and those who will voluntarily help you to deal with those setbacks.
So these folks have made a pact with the devil. They get to go on essentially being children, with their housing, food, and healthcare guaranteed at a certain level. They can have children without the trouble of getting married and taking on a long term commitment. They can slough off their education. When things go bad, they can do the equivalent of a toddler’s temper tantrum by blaming any convenient third party for their own lack of capability to deal with life.
They never gain the satisfactions of being an adult, but they do get to avoid the responsibilities – at least, until the whole thing comes crashing down around them, leaving them completely unequipped to deal with the wreaked society into which they will eventually be thrust.
Some of them go one step up the ladder. They take jobs in the public sector. OK, at least they are willing to work, and a lot of public sector employees do work pretty hard. But they still exhibit many of the same childlike expectations. They expect that their job will always be secure, with no thought or concern for where the money comes from. They expect constantly rising compensation. They expect to be insulated from any real criticism by those outside the bureaucracy, i.e., the common citizens.
It’s no wonder that we’re having trouble as a society facing reality. We have created a large class of people whose entire daily existence is based on avoiding the real, adult world.
However, I believe that group is still a minority. At least, I hope it is. With its natural tendency to grow, however, it won’t be a minority for much longer.
So, while we still have a majority of people who prefer to be treated as adults, we need to appeal to that desire. We need to leverage it to shame some people into dropping their something-for-nothing expectations. For example, we need those archetypical self-sufficient farmers to give up every single subsidy they get, and run their farms like the self-sufficient adults they pretend to be. We need to shame businessmen to stop sucking at the government teat and provide goods and services that people will voluntarily purchase, without subsidies, special favors, or restrictions on their competition.
No society constituted with a majority of childlike adults is stable. Greece is the most obvious recent example.
Obama is never, ever going to treat American citizens as adults. He is psychologically incapable of it. Where Bill Clinton could give in and sign welfare reform, Obama can’t. It’s simply inconceivable to his leftist soul that society could move further from his leftist principles instead of closer to them.
The short term, then, is for Republicans to stand firm against his desire to turn more Americans into childlike adults. No more taxes. Insist on spending cuts, using whatever leverage comes to hand. Endure stalemate, if necessary, because it’s worse than the alternative. Giving in to Obama just means more ground to retake later.
The medium term is to realize that a complete turnaround is absolutely necessary in the relationship between American citizens and their federal government. Citizens must be allowed and required to be adults.
I believe if the GOP embraces this as a guiding principle, we would see a bigger electoral triumph than 2010, bigger than 1994, bigger than 1980. I believe there is latent demand in our citizens for being treated as equals instead of wards. I think they’re sick of condescending lectures on eating their peas from incompetent, smug Democrats who have failed at everything they have tried. I think many are disheartened that they want to take on the mantle of adult responsibility, but they can’t because they can’t find jobs.
However, if we get another Republican candidate who is from the same vein as authoritarian Democrats – say one that believes government control of healthcare is just fine and showed his true colors by implementing it in his state – then the GOP will forfeit a lot of that latent demand.
The GOP might still win with such an authoritarian-minded, political class approved, “to the manor born” candidate. Bill Quick thinks his Pomeranian could beat Obama, and it’s hard to argue with his reasoning.
But without sweeping majorities, clarity of mandate, and courageous, principled leadership at the top, the Republicans won’t be able to get anything of consequence done. They’ll fritter, attempt to look “bi-partisan” to please the mandarins at the Washington Post and New York Times, get gamed by the Democrats, and lose what is probably our last chance to make a real reversal before the debt resulting from our social welfare failures sends the economy into complete meltdown.
Are businesses sitting on their money in the hope of a change in the regulatory regime (i.e. an Obama loss in 2012)?
Marylin Geewax brings us the following story about the overall economic picture. And it isn’t pretty:
The latest surveys show that both business owners and consumers have been losing confidence in the U.S. economy. That pessimism is just the latest blow to hopes for a speedy recovery.
Last week, even Federal Reserve officials said they have grown more pessimistic about the economic outlook this year. The policy makers cut their forecast for 2011 to a growth rate of just 2.7 to 2.9 percent — down from their April estimate of 3.1 to 3.3 percent.
Economists say growing pessimism and a lack of confidence tends to depress spending. Chris Christopher, an economist with the forecasting firm IHS Global Insight, says the large cash reserves corporations are holding are evidence that our budding optimism is fading.
I’d only ask, “what budding optimism”? Most who’ve been following the so-called “recovery” have seen little, in terms of economic indicators to elicit “budding optimism”. As we discussed in yesterday’s podcast, part of the problem, in fact a big part of the problem is the unsettled regulatory regime. Businesses have no idea where the administration is going with regulations, but what they’ve seen thus far provides them with no incentive to expand and hire and every incentive not to do so. Consequently:
U.S. corporations have about $1.65 trillion in cash available to them, he noted. But managers are so wary about the near-term outlook that they are not spending that cash on hiring workers or expanding operations.
And that brings us to another factor one can’t help think is at least beginning to have an effect as well. As we approach the second half of 2011, the 2012 presidential election looms. Are businesses now factoring in the possibility of change in the White House (real change we could live with) and holding back until that’s settled? It is certainly something that would make sense. With the administration’s war on business these past two plus years, there’s no reason to commit to expanding a business or hiring new employees if doing so is going to end up being a net negative. So why not wait and see? Sit on the cash and have it ready to use if and when the current administration is shown the door and a less draconian regulatory regime is on the horizon?
That’s common sense business.
Of course that’s not the only reason business is hanging back. There are other factors:
Other concerns involve a spring slump in manufacturing activity and the ongoing problems in real estate. For example, last week, a report from the National Association of Realtors showed existing home sales fell again in May, down 3.8 percent to a seasonally adjusted annual rate of 4.81 million units, the lowest rate in six months. Even worse, the median price was down 4.6 percent from a year earlier.
Consumers, whose spending accounts for roughly 70 percent of all U.S. economic activity, also lost confidence this spring as gasoline prices rose to nearly $4 a gallon in early May and unemployment ticked back up last month. The unemployment rate had gotten down to 8.8 percent in March, but was back up to 9.1 percent by May.
All of that in combination have businesses reticent to do what is necessary to help the recovery. I just wanted to bring the other factor - unsettled regulatory regime – to the fore as it simply doesn’t get the coverage it deserves. Draconian regulations which cost businesses high compliance costs are a drag on economic expansion. The possibility of relief from such a regime is a legitimate reason to not expand or hire and incur those increased compliance costs. As I’ve said any number of times, the government can help the economy best by getting the hell out of the way. Instead it seems the inclination is to meddle and intrude even more and, as should come as no surprise, this sort of non-recovery “recovery” is the result.
A group of around ten women in Muslim headscarves crashed the RightOnline conference for about ten minutes Saturday, protesting what they said was an incident targeting Muslim women Thursday night.
The event was the latest spark kicked up by the proximity of Netroots Nation and RightOnline. The two conferences are blocks apart — RightOnline is being held in a hotel many Netrootsers are staying in — and interaction between the progressives at Netroots and the conservatives at RightOnline has been inevitable.
A spokesperson for the group of women told TPM they weren’t sure of the identity of the man responsible for the Thursday incident — when two hijab-wearing women were followed by a man with a cell phone camera who reportedly asked them why they were dressed the way they were "in America" — but rumors that the incident involved an employee of conservative blogger Andrew Breitbart were rampant at Netroots.
A few points. It wasn’t a “flash mob” – at least not as I understand the term. I stood on the second floor balcony, watched them arrive together. I then watched a person, who I assume was John Aravosis, interview one of them for at least 10 minutes and then I watched them ascend the elevator and go up into the RightOnLine crowd.
All of this action based on a rumor that it was an “employee” of Breitbart involved in asking someone why they were dressed the way they were. Not fact – rumor. Unfortunately for them, all they drew was curious stares from the crowd. No confrontations, no heckling, no nothing.
I’m not sure why TPM felt compelled to make of this much more than it was, but then I always find it interesting to actually witness something as it happens and then read the report in what passes for the left’s media.
The spokesperson for the "flash mob," Allison Nevitt, told TPM that there was a larger message to their protest beyond the Thursday incident, which Nevitt said had been reported to Minneapolis police.
"The point was mostly that Muslim women are an equal part of this nation, and that we have an equal right to exist here," Nevitt said.
Is that the point? Well other than a rumor, who at RightOnLine denied it?
Why are the Netroots so angry? They won, right?
John Aravosis, another panelist, who blogs about gay-rights issues on AMERICAblog, reminisced about the heady early days of the left’s relationship with Obama.
"I honest to God thought I was voting for these guys and that it was going to be the first time in my lifetime that I’m finally in a position of power, where I could be working with the White House on a regular basis, saying, ‘OK what could we do this year on gay stuff?’ Wouldn’t it be cool, oh, ‘Don’t ask, don’t tell,’ this is great.’ "
But panelists agreed that it hasn’t turned out so well for progressives on overhauling health care or financial systems or the wars in Afghanistan and Iraq and a host of other issues.
Interesting – the naiveté evident is, well, not surprising. These folks apparently actually believed they’d have both access and impact.
But it seems the “gay stuff” has been the bell weather issue to prove both of those assumptions wrong. And, of course, there’s Iraq, Afghanistan, the environment, Gitmo, – in fact just about everything.
So what does that all mean? Well let’s contrast it a bit with RightOnLine going on concurrently in the same city. Motivated, enthusiastic, optimistic along with record attendance. The difference in the “enthusiasm gap” is evident. Jane Hamsher:
This is the time when Barack Obama has to care. This is the time when he needs your vote. So don’t give yourself away cheaply. Ask for what you need and what the country needs and this is the time to do it.
That reminds me of some on the right when John McCain was running. It doesn’t sound like a very confident or enthusiastic group does it?