Category Archives: Economy

NEC Head Sperling Prepares Democrats for Some Hard Negotiating

Economy,

 

NEC Director Gene Sperling
NEC Director Gene Sperling

Gene Sperling, the director of the White House’s National Economic Council, spoke before a group of Democratic businessmen to pave the way for the upcoming budget negotiations.

The speech was made in a low-media atmosphere and meant to address issues in the aftermath of the recent government shutdown with a question and answer session following the prepared remarks.

Sperling was introducing the kind of bargaining the Democrats could expect to be facing their Republican counterparts with, a position which appeared very different from what most Democrats seem prepared to accept.

The NEC head emphasized the need to accept entitlement cuts as part of a deal, perhaps to head-off predictable liberal anger. At the moment the official position of the Democrats is that they are willing to accept cuts to entitlements only in exchange for new revenue. That is a deal that most Republicans will not accept. In this speech Sperling did not mention anything about revenue.

Here is a small sample of Sperling’s words:

“Sometimes here [in Washington] we start to think that the end goal of our public policy is to hit a particular budget or spending or revenue metric—as if those are the goals in and of itself. But it’s important to remember that each of these metrics … are means to larger goals. … Right now, I think there is among a lot of people a consensus as to what the ingredients of a pro-growth fiscal policy are. It would be a fiscal policy that—yes—did give more confidence in the long run that we have a path on entitlement spending and revenues that gives confidence in our long-term fiscal position and that we’re not pushing off unbearable burdens to the next generation. That is very important.”

In other words, “We’re going to have to accept entitlement cuts—get used to it.”
Then Sperling justified this position, the poor performance of the economy and its recovery:

“You have to think about this as part of an overall pro-growth, pro-jobs strategy. Also, there’s no question that right now we still need to give this recovery more momentum. We cannot possibly be satisfied with the levels of projected growth when we are still coming back from the worst recession since the Great Depression.”

Stocks Tumble as Government Shutdown Looms

Economy, , ,

Stocks went south yesterday as investors’ anxiety over the possible shutdown of the governmDebt Crisis Loomingent grew. The deadline to approve a budget is this Monday night, September 30, at midnight. As bad as not passing a budget would be, a far worse scenario is what is really worrying people; the possibility that the stalled Congress will not pass a bill to raise the nation’s ceiling on borrowing.

If the budget does not pass, forcing the government into a partial shutdown for the first time in 17 years, the prospect of government default on its loans will become a real possibility, sending fear into the hearts of investors.

The tension caused by the fight over the budget and the debt ceiling is easy to understand: US credit is the basic foundation that all other investment stands upon, mainly because there is an assumption that the country will always pay its debts.

“The concern is government has become so polarized that if it cannot pass (a budget), there’s a greater chance that the debt ceiling battle will go to the brink or possibly lead to a default,” said Alec Young, global equity strategist with S&P Capital IQ.

The Dow Jones industrial average closed at 15,129.67, down 129 points, or 0.8 percent. The S&P 500 dropped 10 points, to 1,681.55, a loss of 0.6 percent. The Nasdaq fell 10 points also, a difference of 0.3 percent, to 3,771.48.

Home Sales Boding Well for Economy

Economy, Real Estate, , ,

In what many economists believe may be the highest numbers in at least three years, home sales are going up as demand for residential real estate continues to give added home sales are upstrength to the economic recovery.

Taken together, the number of new and existing homes which were bought reached the annualized pace of 5.64 million as of last month. This is the quickest pace since November of 2009.

Builder confidence is rising in response to improved sales even while the cost to borrow is going up. The limited supply of homes, lots and materials are also adding to builder confidence.

Federal spending cuts combined with improvements in the housing and auto markets will most likely boost economic growth in the last half of this year.

“The economy is slowly improving,” said Washington-based Roberto Perli, a partner at Cornerstone Macro LP. “I look for the housing recovery to continue. The fundamentals of the market are strong enough to overcome higher mortgage rates.”

Even with Increased Tax Revenue Debate Continues

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House Speaker John Boehner
House Speaker John Boehner

Our national deficit has been casting its black shadows over the political landscape for years, resulting in some draconian measures of late, mostly in the form of “sequestering.” Now that the government is experiencing a rise in tax revenue and the debt is ever so slightly receding lawmakers need to decide whether to: continue with budget cuts, end them, or make some other changes?

Revenue is up 14 percent through June as compared to the same time last year. Expectations are that this trend will continue. July’s numbers will be released next week, and data for August will be published on September 12, just three days after legislators return to work from their summer recess. At that time there will be pressure coming from many conservative lawmakers to close down the government as of October 1 or to face default on the national debt just a few weeks later, a threat to the economy of potentially disastrous proportions.

Since the government is seeing income rising Republicans in Congress have dug in their heels even more in their opposition to tax increases for the wealthy, something the Obama government and his fellow Democrats have been demanding.

“This year the federal government will bring more revenue in than in any year in our history,” says House Speaker John Boehner of Ohio. “We have a spending problem in Washington. It has to be addressed.”

But Obama and the Democrats who back him would prefer to get rid of at least some of the spending cuts and are set against any further cuts to save money and reduce the deficit, unless there is concomitant increase in revenue through more taxes.

“Democrats know we must do more to reduce the deficit,” says Senate Majority Leader Harry Reid of Nevada. “We believe in a balanced approach that pairs spending cuts with having those that can afford it pay more.”

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Economic Prosperity Optimism?

Economy, ,

According to the latest McKinsey quarterly review, there is greater optimism on America’s economic prospects amongst North American business people than executives living in other areas in the country.  However, whereas they are optimistic about America’s economic growth, this is not extended to the global economy.

Overall, executives around the world are more positive than negative about future global conditions, the report said. Still, only 32 percent of North American executives believe that global economic conditions will be better in six months, while 50 percent believe that they will stay the same. In the euro zone, 49 percent of business executives say that the global economy will improve in six months, and 37 percent that it will stay the same.

Looking at statistics on how the country’s economy is faring however, perhaps this optimism is misplaced. When analyzing the country’s GDP and employment levels, it seems that America’s economic growth acceleration has begun a reversal.  The first quarter witnessed 2.4 percent real GDP, indicating a strong economy but in the second quarter this figure plummeted to less than two percent, indicating a decelerating not accelerating economy.

It seems like one of the key reasons global economic instability was so pessimistic is due to geopolitical instability.  As political unrest increases – most notably in North Africa and the Middle East – so does pessimism on the global economy amongst North Americans.  Indeed, even in terms of the domestic economy political unrest was put down as one of the greatest potential risks.  Still, business executives in the States, in general, were positive about their country’s economy as opposed to the economy in other countries with 40 percent anticipating a drop in unemployment rates over the next six months for example.  It is also felt that long-term, government-spending cuts (which result in tax increases in America) are ultimately a good thing.

In general, North American executives are looking to the future with hope at home but problems abroad.