Debt Limit Showdown In March And More

Debt Limit Showdown In March And More – Congress will return on January 5th to battle over the budget for much of the year. The new House Republican majority (242R-193D) won’t wait for the normal budget process to send the Senate weekly spending cuts, which the Senate won’t take up.   House Republicans will do away with the Gephardt rule that automatically passed a debt limit increase as part of the budget resolution. From now on, the House will have to explicitly vote on every debt limit increase. Since many Republicans and a few Democrats have long campaigned on never voting for a debt limit increase, passing one will be very difficult indeed. With the pre-Christmas $856 b. extension of the Bush tax cuts and extended unemployment benefits, a debt limit increase will be required in March or so according to an informal CBO estimate.   "CUTGO" will replace of "PAYGO." The current "pay-as-you-go" limit on mandatory (entitlement) spending would be replaced with "cut-as-you go," so tax increases could not pay for increased entitlement spending. Reconciliation could not be used to increase direct spending. Here’s a summary of the proposed rules changes, and here’s the legislative language.
 

Bill Gross Tells Bloomberg To "Avoid Dollar Denominated Government Debt" – When Nassim Taleb and Marc Faber say that US government debt is a suicide investment, one can be allowed some skepticism. After all, they are likely just talking their book. On the other hand, when the manager of the world’s biggest bond fund, whose flagship fund Treasury holdings amount to almost $80 billion goes on Bloomberg and says to "avoid dollar-denominated government debt" better known as US Treasuries, and instead recommends viewers invest in "stable" currencies like the Peso, the BRL or the CAD, then you know the bottom in bonds is in. So in addition to dumping fixed rate bonds (which means Pimco will again be able to buy on the cheap ahead of QE3, which as Larry Meyer has by now likely advised Pimco is a sure thing), Gross also told Bloomberg that his other two strategies are to buy floating rate debt (over fixed), and lastly recommend credit spreads over interest rate duration risk. For those who find something troubling with a $1 trillion fixed income manager talking down his investments, and are still wondering whether or not QE3 is coming, we suggest putting one and one together. And while at it, they should also consider that Pimco now holds over $100 billion in MBS: a notional amount last held just as QE1 was announced.

Australians Sinking Under Debt Burden
- According to the Reserve Bank, Australians have added almost $220 billion to household debt levels since the beginning of 2008, taking our borrowings to a record $1.3 trillion. Despite more cautious spending in recent months, household debt is still up by 5.8 per cent on a year ago and a recent survey by Westpac found only about 20 per cent of people thought paying off debts was the best use of their money. Most households in the US, UK and much of Europe are still busily paying down their borrowings, particularly unsecured debts such as personal loans and credit cards

China Dec Manufacturing Eases On Tightening Moves – A survey says China’s manufacturing boom eased off slightly in the last month of the year, reflecting tightening policies taken by authorities to keep inflation in check. The state-affiliated China Federation of Logistics and Purchasing said Saturday that its purchasing managers index, or PMI, dipped to 53.9 last month from 55.2 in November and 54.7 in October.  It was the first decline in five months but the 22nd straight month that the reading has stayed above 50, the benchmark for expansion. The survey covered 820 companies across a range of industries and is an indicator of future trends.

Beijing Residents Rush to Register New Cars to Meet China’s Quota System – Residents in Beijing, the city ranked as having the world’s worst traffic, rushed to apply for new vehicle licenses under a quota system started Jan. 1 as China’s government seeks to ease the congestion.  A total of 53,549 applications were made on the first day of the year, more than double the number of license plates to be available each month, the Beijing News reported yesterday.  The government said on Dec. 23 it would set a monthly quota of 20,000 new vehicle licenses in the Chinese capital.  China surpassed the U.S. last year to become the world’s biggest car market as tax cuts and government subsidies aimed at spurring auto sales fueled a surge in traffic. Beijing tied with Mexico as having the world’s worst traffic, according to a survey by International Business Machines Corp. last year.

, President Barack Obama’s top economic adviser, said the administration wants to “juice” the economy amid signs that the economic recovery is continuing at a gradual pace.Mr. Goolsbee, chairman of the White House Council of Economic Advisers, said on ABC’s “This Week” that the administration is focusing on spurring investment and improving U.S. exports and innovation to boost economic growth. And he said that steps already taken, such as cutting payroll taxes by two percentage points and giving small businesses new tax incentives, should soon provide some economic fuel.  But he suggested budget cuts will also be part of the long-term economic plan. “We are going to have to make, in the medium run, a series of tough choices, and the president’s not afraid to do that, and I think you will see in his budget that he’s willing to,”

 
The Very Real Threat of a U.S. Debt Default – This morning, CEA chairman Austan Goolsbee warned Republicans against playing games with the nation’s credit rating by refusing to raise the debt limit and creating a technical default. I have been warning people about this problem for more than a year because I know there is a widespread belief among the nuttier right-wingers that a debt default is just what the country needs to force massive spending cuts into effect. Many stupidly believe that the budget would be balanced overnight because the government couldn’t spend any more than the available cash flow from taxes would permit.   What I haven’t figured out how to properly convey is that a default triggered by a failure to raise the debt ceiling is of a completely different nature than the sort of default that Ken Rogoff and Carmen Reinhart wrote about in their book. All of those cases were market-driven, where investors refused to buy or refinance a nation’s debt because of fiscal profligacy, irresponsible monetary policies etc. A U.S. default, by contrast, would be 100% self-inflicted based on loss of the Treasury’s legal authority to issue bonds, not because of a lack of market demand for those bonds. The historically low level of real and nominal interest rates on Treasury securities is proof that there is still strong demand for Treasury securities.
 
Energy cornucopia? – Don Boudreaux and Mark Perry are among those who regard John Tierney’s claims of energy cornucopia to be persuasive. Here are Tierney’s strongest arguments: Giant new oil fields have been discovered off the coasts of Africa and Brazil. The new oil sands projects in Canada now supply more oil to the United States than Saudi Arabia does. Oil production in the United States increased last year, and the Department of Energy projects further increases over the next two decades. Let me discuss each of these observations in turn.
 
Peak travel  – A study of eight industrialized countries, including the United States, shows that seemingly inexorable trends — ever more people, more cars and more driving — came to a halt in the early years of the 21st century, well before the recent escalation in fuel prices. It could be a sign, researchers said, that the demand for travel and the demand for car ownership in those countries has reached a saturation point… Most of the eight countries in the study have experienced declines in miles traveled by car per capita in recent years. The U.S. appears to have peaked at an annual 8,100 miles by car per capita, and Japan is holding steady at 2,500 miles. Here is more.
 
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