The Zero Deficit Line

The Zero Deficit Line – Earlier this year, we posted a chart that illustrated the biggest single political issue of 2010, which revealed the near-complete disconnect that has developed since 2007 between the federal government’s spending and the median income of American households. Today, we’re going to take you deeper into that issue because rectifying that unsustainable situation will affect the lives of every single American.  We’ll begin by revisiting a very slightly modified version of our "biggest issue" chart to give you a better idea of why we designed it to look the way it does.  As you can see, we’ve shown how the U.S. federal government’s total spending has changed with respect to the level of the median U.S. household’s income in every year from 1967 through 2009.  While the United States’ historic federal expenditure data goes back to the nation’s founding, the median household income data only goes back to 1967, which limited our ability to show the relationship between the two before that time. And then, the only reason we didn’t go past 2009 is because the Census won’t report the median household income for 2010 until October 2011! Not that we didn’t take a stab at projecting what median household income will turn out to have been for 2010….

All the President’s Captors – THOSE desperate to decipher the baffling Obama presidency could do worse than consult an article titled “Understanding Stockholm Syndrome” in the online archive of The F.B.I. Law Enforcement Bulletin. It explains that hostage takers are most successful at winning a victim’s loyalty if they temper their brutality with a bogus show of kindness. Soon enough, the hostage will start concentrating on his captors’ “good side” and develop psychological characteristics to please them — “dependency; lack of initiative; and an inability to act, decide or think.”

Jamie Dimon Profile Misses The Point: Trusting Bankers Is Too Stupid To Try Again – Poor, sad Jamie Dimon, the frustrated and–by his account–tragically misunderstood chief of megabank J.P. Morgan Chase. It’s not enough that he gets to keep the tens of millions of dollars he netted turning an already enormous institution into a sprawling empire of finance that now controls $2 trillion in assets, even as it has tangled ordinary people in the red tape of the foreclosure mess and seized hundreds of thousands of homes. He wants us to like him, too, and give him props for magnanimously saving the world. The government has been unfairly putting the blame for the financial crisis on Wall Street bankers, he complains to Roger Lowenstein in a profile gracing the cover of Sunday’s New York Times Magazine. "It’s harmful, it’s unfair, and it leads to bad policy," Dimon is quoted as saying, leaving you free to imagine the sad strains of the string quartet playing for him as he nurses a brandy at one or another of his residences. .

The mortgage interest deduction: winners and losers –  The debate on tax reform is starting to heat up with various proposals being debated, and many policies are being considered for the chopping block. One of them is the mortgage interest deduction (MID). I’ve covered the previous research before, which shows the deduction doesn’t increase homeownership, and now a new paper sheds further light on the losers and winners from this subsidy. Using national data from 1984 to 2007 they found that the MID did not increase overall homeownership. In areas with light land use regulation they found that homeownership among higher income families was increased, and in tightly regulated housing markets homeownership was decreased for all income groups except the lowest. The effects, both positive and negative, generally range from 3% to 5%. Regardless of the regulatory environment, homeownership among the lowest income group was not affected at all by the MID. The authors estimate that it each additional homeowner created by the mortgage interest deduction costs the government $53,590, a number they rightly call “staggering”.


Social Security and the Very Serious People – Karl Smith ventures a guess about why elite pundits and analysts obsess so much over Social Security even though its solvency problem is fairly easy to solve. He thinks they obsess over it because its solvency problem is so easy to solve: I think Very Serious People concentrate on Social Security because they can understand it. The program is relatively simple and the math straightforward. The ultimate driver of most projections — that there will be more retirees than workers — makes sense. There might be something to this. As pushback, I’d note — and perhaps you’ve seen this in action yourself? — that opinion mongers don’t generally have any problem pushing simplistic solutions to fantastically complex problems. So I’m not sure Social Security’s relative simplicity really explains much. On the other hand, it’s true that there’s a class of problems that are not only hard, but also seem hard to ordinary people, and things like healthcare and globalization might fall into those categories. By contrast, there’s a different class of problems that are hard, but seem pretty simple to lots of people.

So That’s Where the Money Went  – HOW the truth shines through when you shed a little light on a subject.  Such is the message from the massive document drop the Federal Reserve made last week. The Dodd-Frank law forced the Fed to disclose the recipients of $3.3 trillion from emergency lending programs put in place during the crisis days of 2008, so the taxpayers who paid for those rescue efforts now know whom they were helping.  Not that we should expect to receive any thank-you notes from these institutions for rescuing them from themselves.  Still, it’s good to know who got what at the bailout banquet. This helps us understand how expensive it is to live in a nation where big, politically interconnected financial institutions are not allowed to fail — even after they mess up in the most catastrophic of ways.

Distressed Homes in U.S. Sell at Biggest Discount in Five Years…  U.S. homes in the foreclosure process sold for about 32 percent less than non-distressed properties in the third quarter, the biggest discount in five years, as buyer demand slumped, according to RealtyTrac Inc.  The average discount for bank-owned real estate, residences in default or those scheduled for auction rose from 29 percent a year earlier, RealtyTrac said in a report today. A quarter of all U.S. transactions involved those types of homes, according to the Irvine, California-based data seller.  Sales of foreclosure properties plunged 31 percent as the end of a buyer tax credit reduced purchases overall, RealtyTrac said. The decline came before loan servicers including Bank of America Corp. and JPMorgan Chase & Co. halted some home seizures amid claims that employees processed thousands of documents without verifying them, a practice known as robo-signing.  “The foreclosure-processing controversy, which was brought to light at the very end of the third quarter, could chill demand even further,”

4 Million Americans Set To Lose Unemployment Benefits Even If Congress Passes Extension (CHART) – Even as Congress debates whether to extend emergency unemployment checks for more than six million Americans who are approaching the 99-week limit, some four million others are facing the certain end of their benefits over the next year, unless an entirely new program is crafted. This is the sobering conclusion of a report released by the President’s Council of Economic Advisers on Thursday. The study forecast that the exhaustion of unemployment benefits for so many will curb spending power enough to significantly impede an already weak economic recovery. The typical household now receiving emergency unemployment benefits would see their income fall by a third should they lose their checks, according to the report. Among the roughly 40 percent of households in which the person receiving a check is the sole breadwinner, income would fall by 90 percent.

 Obama Signals Openness to a Tax-Cut DealThe U.S. Senate on Saturday defeated two attempts by Democrats to extend the Bush-era tax cuts for the middle class permanently. After the Senate votes, President Barack Obama told Democratic congressional leaders he would be open to a temporary extension of the Bush-era tax cuts for the affluent, but he would demand concessions from the GOP. In rare weekend votes that likely had little effect on wider negotiations to reach a compromise about extending the tax cuts, the Senate voted 53-36 to reject an attempt to initiate debate in the chamber on a measure that would have extended lower tax rates for individuals who earn less than $200,000 and couples earning less than $250,000.  The measure would have also renewed the estate tax from 2011 at the same level it was set at in 2009 before it expired at the end of that year. It would levy a 45% tax on estates valued at than $3.5 million. Without congressional action, the estate tax will be reinstated in 2011 at a 55% level on estates in excess of $1 million.

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