Kevin O’Rourke on the Irish crisis
— Live at Eurointelligence.
An extract. The reaction to the news that Irish taxpayers are to be squeezed while foreign bondholders escape scot-free has been one of outraged disbelief and anger. At the start of last week, it was possible to make the argument that ‘burning the bondholders’ was irresponsible, since it would inevitably lead to contagion, and the spread of the crisis to Iberia. That argument has at this stage lost all validity, since contagion has happened anyway. Besides, the correct response to the possibility of contagion was never to engage in make-believe, but to extend taxpayer protection to other Eurozone members as required. Swapping debt for equity in a coordinated fashion across Europe would show ordinary people that Europe is on their side; but like the PLO of old, the European Union never misses an opportunity to miss an opportunity.
Erosion of Employer-Based Coverage Highlights Importance of Health Reform, CBPP
: The health reform law (Affordable Care Act) includes a number of provisions to strengthen the employer-based insurance system and improve access to affordable health coverage in other ways. Recent Census Bureau data show why such step are so important, as a new report
by my colleague Matt Broaddus explains. The number of uninsured rose by more than 4 million in 2009 to a total of 51 million, or more than one of every six Americans. The largest single-year increase on record (these data go back to 1987), it was the result of a continued decline in private health coverage — primarily in employer-sponsored insurance (ESI). Employer coverage rates fell precipitously for both children and working-age adults: …These declines reflect both the large job losses resulting from the recession and the increasing difficulty that employers and workers are having in financing health care coverage as costs rise.
The Euro at Mid-Crisis, by Kenneth Rogoff
– Now that the European Union and the International Monetary Fund have committed €67.5 billion to rescue Ireland’s troubled banks, is the eurozone’s debt crisis finally nearing a conclusion? Unfortunately, no. In fact, we are probably only at the mid-point of the crisis. To be sure, a huge, sustained burst of growth could still cure all of Europe’s debt problems – as it would anyone’s. But that halcyon scenario looks increasingly improbable. The endgame is far more likely to entail a wave of debt write-downs, similar to the one that finally wound up the Latin American debt crisis of the 1980’s. For starters, there are more bailouts to come, with Portugal at the top of the list. With an average growth rate of less than 1% over the past decade, and arguably the most sclerotic labor market in Europe, it is hard to see how Portugal can grow out of its massive debt burden. This burden includes both public debt (owed by the government) and external dent (owed by the country as a whole to foreigners). The Portuguese rightly argue that their situation is not as dire as that of Greece, which is already in the economic equivalent of intensive care. But Portugal’s debt levels are still highly problematic by historical benchmarks (based on my research with Carmen Reinhart).
Persistence of Long-Term Unemployment Tests U.S. – The longer people stay out of work, the more trouble they have finding new work. That is a fact of life that much of Europe, with its underclass of permanently idle workers, knows all too well. But it is a lesson that the United States seems to be just learning. This country has some of the highest levels of long-term unemployment — out of work longer than six months — it has ever recorded. Meanwhile, job growth has been, and looks to remain, disappointingly slow, indicating that those out of work for a while are likely to remain so for the foreseeable future. Even if the government report on Friday shows the expected improvement in hiring by business, it will not be enough to make a real dent in those totals. So the legions of long-term unemployed will probably be idle for significantly longer than their counterparts in past recessions, reducing their chances of eventually finding a job even when the economy becomes more robust. “I am so worried somebody will look at me and say, ‘Oh, he’s probably lost his edge,’ ” “I mean, I know it’s not true, but I’m afraid I might say the same thing if I were interviewing someone I didn’t know very well who’s been out of work this long.”
Bernanke to Appear on ‘60 Minutes’
– Federal Reserve Chairman Ben Bernanke will appear — for the second time — on CBS’s “60 Minutes” show this Sunday, Dec. 5, the television network said. In the interview with Scott Pelley, Bernanke “discusses pressing economic issues, including the unemployment rate, the deficit and the Fed’s controversial $600 billion U.S. Treasury purchase,” CBS said.
In a move ECB President Jean-Claude Trichet says is NOT Quantitative Easing, ECB Delays Exit of Emergency Measures, Buys Bonds to Fight ‘Acute’ Tensions – The European Central Bank delayed its withdrawal of emergency liquidity measures and bought more government bonds as President Jean-Claude Trichet pledged to fight “acute” financial market tensions. Trichet said the ECB will keep offering banks as much cash as they want through the first quarter over periods of up to three months at a fixed interest rate. As he spoke, ECB staff embarked upon a new wave of purchases, triggering a surge in Irish and Portuguese bonds. “Uncertainty is elevated,” Trichet told reporters after the ECB’s Governing Council left its benchmark interest rate at 1 percent today. “We have tensions and we have to take them into account.”
Bond purchases will continue to be offset to keep the money supply unchanged, in contrast to the Federal Reserve and the Bank of England, he said. “It’s not quantitative easing, we’re withdrawing all the liquidity,” he said. President Axel Weber, a leading contender to replace Trichet at the bank’s helm next year, opposed the decision to start buying bonds in May and has since called for the program to be cancelled. He says it poses “stability risks” and that there is no evidence it works.
Q&A: Trichet on ECB Bond Buying – European Central Bank president Jean-Claude Trichet spoke with Dow Jones Newswires reporter Nina Koeppen in a television interview Thursday. The conversation took place on the 28th floor of the ECB tower in Frankfurt, after the ECB’s rate-setting meeting.
Lobbying on the Estate Tax: Cui Bono?
– When you think about it, the connection is obvious, but I confess I was surprised by this new report
by Tim Carney and Dick Patten on who’s lobbying for
the estate tax. The report was paid for by a small-business group that opposes the tax, and it outlines who’s been opposing them behind the scenes. Answer: the life insurance industry. In the halls of Congress. With bushels of money.
- The life-insurance lobby spent $10 million a month lobbying in the first half of 2010. During this same period, only three industries – pharmaceuticals, electric utilities, and oil and gas – spent more over the same period.
- The leader of the life-insurance lobby, the American Council of Life Insurers (ACLI), spent $2.32 million in lobbying in 2010’s second quarter. Only 10 industries spent more.
- The life-insurance industry exercises bi-partisan influence on the estate tax issue. Through most of 2010, the two leading life-insurance lobbyists – and thus the two biggest advocates for the death tax – were a former Republican governor and the wife of a Democratic Senator.
Fed Officials Push For Fiscal Stimulus – Top Federal Reserve officials are pressing lawmakers to pair a long-term plan for deficit reduction with new short-term fiscal stimulus to boost an economy that the central bank admits needs more help than it can provide. Fed Chairman Ben Bernanke has tucked support for a two-part fiscal strategy into speeches, and has pushed it behind the scenes with lawmakers, offering a boost both to deficit hawks and to proponents of spending more or taxing less in the near term. Fed Vice Chairman Janet Yellen, in a speech on Wednesday, amplified Mr. Bernanke’s call. "We need, and I believe there is scope for, an approach to fiscal policy that puts in place a well-timed and credible plan to bring deficits down to sustainable levels over the medium and long terms while also addressing the economy’s short-term needs." Ms. Yellen didn’t elaborate on the latter. Even if the central bank’s controversial bond-buying initiative works as its proponents hope, Fed officials acknowledge it will only do a little to boost growth and bring down unemployment. .
– The White House’s Recovery.gov
Web site, which tracks how stimulus money has been spent, recently posted a new map animation
by the visualization expert Edward Tufte that shows where Recovery Act grants have been awarded. (Click the photo above to see the full animation.)
The Kenny Rogers Theory of the Bush Tax Cuts
– Did the Democrats make a tactical mistake by not being tougher on the Bush tax cuts for the affluent? Absolutely. High-income households have received by far the largest pre-tax raises of any group in recent years. They have also had their tax rates drop by far more. And the country is facing a huge budget deficit. Beyond these economic reasons, there are good political arguments too: Most of the country favors the expiration of the Bush tax cuts on households making more than $250,000 a year. But should the Democrats start
getting tough now? That’s a very different question. Several other bloggers argue the answer is yes, and their arguments are worth reading. But I want to lay out, in more detail than I did in my recent column
, what a hard line position for the Democrats would probably lead to. Once the full chain of events is clear, I’m left thinking the Democrats waited too long and could well compound their earlier mistakes by starting to get tough now.