start in Washington?


might as well put my 2 cents in on The Unemployed Held Hostage, Again as well… if that deal is negotiated, the millionaire gets $46,000 in benefits, and the unemployed get $290 a month…

Sheila C. Bair – Will the next fiscal crisis start in Washington? – Even as work continues to repair our financial infrastructure and get the economy moving again, we need urgent action to forestall the next financial crisis. I fear that one will start in Washington. Total federal debt has doubled in the past seven years, to almost $14 trillion. That’s more than $100,000 for every American household. This explosive growth in federal borrowing is a result of not just the financial crisis but also government unwillingness over many years to make the hard choices necessary to rein in our long-term structural deficit.  Retiring baby boomers, who will live longer on average than any previous generation, will have a major impact on government spending. This year, the combined expenditures on Social Security, Medicare and Medicaid are projected to account for 45 percent of primary federal spending, up from 27 percent in 1975. Unless something is done, federal debt held by the public could rise from a level equal to 62 percent of gross domestic product this year to 185 percent in 2035. Eventually, this relentless federal borrowing will directly threaten our financial stability by undermining the confidence that investors have in U.S. government obligations. Financial markets are already sending disquieting signals. The cost for bond investors and others to purchase insurance against a default by the U.S. government rose markedly during the financial crisis, from an annual premium of less than 2 basis points in January 2007 to 100 basis points in early 2009, before falling to the current level of 41 basis points.

Frustrated Obama Sends Nation Rambling 75,000-Word E-Mail —Having admittedly "reached the end of [his] rope," President Barack Obama sent a rambling 75,000-word e-mail to the entire nation Wednesday, revealing deep frustrations with America’s political culture, his presidency, U.S. citizens, and himself. The e-mail, which was titled "A couple things," addressed countless topics in a dense, stream-of-consciousness rant that often went on for hundreds of words without any punctuation or paragraph breaks. Throughout, the president expressed his aggravation on subjects as disparate as the war in Afghanistan, the sluggish economic recovery, his live-in mother-in-law, China’s undervalued currency, Boston’s Logan Airport, and tort reform.

Ireland is Bankrupt…a letter from an Irish citizen – Ireland is not only insolvent because it has no liquidity, no way of meeting its debts. The government decided to link the economic future of the country to a failed banking system and now the two are inextricably intertwined. No amount of raised taxes can bail out the banks and still pay the day-to-day running expenses of our welfare state. The famed ‘Celtic Tiger’ boom economy was always a high-risk, dangerous fiction. Someone dubbed Ireland the ‘Wild West of Economics’. Our illusory wealth was tied to a property bubble that was as unsustainable as it vacuous, and all the money was borrowed, primarily from German savers. We were hooked on credit like it was crack cocaine. We binged but never purged and we stayed high to postpone the inevitable hangover. Everybody was in cahoots, from corrupt local governments, driving through emergency rezoning laws, to rogue bankers financing the criminal inflation of developments and shoveling billions to builders, to newspapers cashing in on their property advertising to regulators asleep at the wheel. Our mafia don cum Taoiseach, Bertie ‘Gombeen-Man’ Ahern, invited critics of the system to commit suicide. Nobody left the orgy. Nobody wanted to leave. Planet Hollywood had finally come to Planet Ireland!

Too Much Focus on Interest Rates – Though much needed, QE2 it is far from perfect.  One problem with QE2 is that it is being marketed as a monetary stimulus program that works by lowering long-term interest rates.  Dropping long-term rates, the story goes, will in turn spur interest-sensitive spending and jump-start the economy.  This marketing strategy seems wrongheaded to me because it (1) ignores other  important channels through which monetary policy can work and (2) creates the wrong expectation that QE2 will only be successful if it maintains long-term interest rates at a low level.  The emphasis on the so called "interest rate" channel through which monetary policy actions are transmitted to the economy is pervasive in QE2 discussions.  For example, here is Greg Ip explaining how QE2 works It is understandable that journalists would invoke this monetary transmission channel when explaining QE2 since Fed officials are doing the same.

Taxing the Rich? It’s All Relative – IT’S not just Tea Party activists who are angry about taxes. A much larger and more diverse group appears outraged that Congress is considering allowing the Bush tax cuts to expire at year-end for families earning more than $250,000 and for individuals earning more than $200,000.  A financially prosperous friend of mine is a case in point. He watches a lot of angry talking heads on cable news, and he recently buttonholed me to ask whether I had any idea that our taxes were about to rise. Did I know that the president was not only planning to allow the Bush tax cuts to expire for relatively high-income people like us, but that he was also thinking of raising the ceiling for the payroll tax? Did I know that we might also face increases in Medicare and self-employment tax rates? And that taxes in New York State could go up, too? His face grew redder as he listed each outrage.  I said I knew all about the scheduled expiration of the Bush tax cuts but hadn’t heard much about the other proposals. When he expressed shock that I hadn’t, I tried to explain why I didn’t think it made sense to fret.


The Unemployed Held Hostage, Again – It is hard to believe, as the holidays approach yet again amid economic hard times, but Congress looks as if it may let federal unemployment benefits lapse for the fourth time this year.  Lame duck lawmakers will have only one day when they return to work on Monday to renew the expiring benefits. If they don’t, two million people will be cut off in December alone. This lack of regard for working Americans is shocking. Last summer, benefits were blocked for 51 days, as senators in both parties focused on preserving tax breaks for wealthy money managers and other affluent constituents. This time, tax cuts for the rich are bound to drive and distort the debate again. Republicans and Democrats will almost certainly link the renewal of jobless benefits to an extension of the high-end Bush-era tax cuts. That would be a travesty. There is no good argument for letting jobless benefits expire, or for extending those cuts.

Managing credit booms and busts – The global financial crisis has served as a powerful reminder that large credit and asset price booms often end in busts (Reinhart and Rogoff 2009). The ensuing financial turmoil has overwhelmed the capacity of governments to stem the economic slump through counter-cyclical fiscal or monetary responses. This grim outcome flies in the face of what used to be the received wisdom on how central banks should handle bubbles – namely, let them rip and concentrate on “mopping up after a crisis” The damage caused by the global crisis and fiscal crises in several developed countries has rejuvenated support for regulation and has reignited research interest. This column presents one recent proposal: A Pigouvian tax to help bring the amount of debt and capital held by the financial sector closer to the socially optimal level.


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