Deep Hole Economics, by Paul Krugman, Commentary, NY Times: If there’s one piece of economic wisdom I hope people will grasp this year, it’s this: Even though we may finally have stopped digging, we’re still near the bottom of a very deep hole. What particularly concerns me is the risk of self-denying optimism — that is, I worry that policy makers will look at a few favorable economic indicators, decide that they no longer need to promote recovery, and take steps that send us sliding right back to the bottom. We’re not talking Morning in America here. Construction shows no sign of returning to bubble-era levels, nor are there any indications that debt-burdened families are going back to their old habits of spending all they earned. But all we needed for a modest economic rebound was for construction to stop falling and saving to stop rising — and that seems to be happening. Forecasters have been marking up their predictions; growth as high as 4 percent this year now looks possible. Jobs, not G.D.P. numbers, are what matter to American families. And when you start from an unemployment rate of almost 10 percent, the arithmetic of job creation — the amount of growth you need to get back to a tolerable jobs picture — is daunting.
How the Financial Crisis Made Big Banks Bigger –Banks are finally beginning to lend, the big ones that is. Commercial and industrial lending is up this quarter 0.2% from the third quarter, according to Moody’s Analytics. That’s true, but this trend reveals something else: the financial crisis has created an environment where big banks are getting bigger, as the small ones struggle. This report comes from the Wall Street Journal. Here’s how it starts: Some big U.S. banks are starting to increase their lending to businesses as demand for loans rises and healthier banks seek to grab customers from weaker rivals. After declining steadily for most of the past two years, the amount of commercial and industrial loans held by commercial banks inched upward during the past two months, according to the Federal Reserve. Unfortunately, the article is a little thin on hard macro-level data that supports this claim. Instead, it provides some anecdotal examples of big banks increasing their lending. JP Morgan’s middle market lending is up 7% this year, while its small business lending is up more than 40%. Wells Fargo is also more liberally extending credit to businesses.
Austan Goolsbee: Hitting Debt Ceiling Would Be ‘First Default In History Caused Purely By Insanity’ – Austan Goolsbee, the chairman of the Council of Economic Advisers, laid out the fairly alarming implications of the United States defaulting on its obligations while asking the question: What type of insanity would persuade us to do this? "Well, look, it pains me that we would even be talking about this," . "This is not a game. You know, the debt ceiling is not something to toy with. If we hit the debt ceiling, that’s essentially defaulting on our obligations, which is totally unprecedented in American history. The impact on the economy would be catastrophic. That would be a worse financial economic crisis than anything we saw in 2008." "As I say that’s not a game," Goolsbee went on. "I don’t see why anybody’s talking about playing chicken with the debt ceiling. If we get to the point where you’ve damaged the full faith and credit of the United States, that would be the first default in history caused purely by insanity. There would be no reason for us to default other than that would be some kind of game. We shouldn’t even be discussing that. People will get the wrong idea. The United States is not in danger of default. We do not have problems with that. This would be lumping us in with a series of countries throughout history that i don’t think we would want to be lumped in with."
House Republican Rule Changes Pave the Way For Major Deficit-Increasing Tax Cuts, Despite Anti-Deficit Rhetoric – House Republican leaders yesterday unveiled major changes to House procedural rules that are clearly designed to pave the way for more deficit-increasing tax cuts in the next two years. These rules stand in sharp contrast to the strong anti-deficit rhetoric that many Republicans used on the campaign trail this fall. While changes in congressional rules rarely get much public attention, these new rules — which are expected to be adopted by party-line vote when the 112th Congress convenes on January 5 — could have a substantial impact and risk making the nation’s fiscal problems significantly worse. Current House rules include a pay-as-you-go requirement that any tax cut or spending increase for a mandatory (i.e., entitlement) program must be offset by cuts in other mandatory spending or increases in other taxes, in order to avoid increasing the deficit.  Current rules also bar the House from using budget “reconciliation” procedures — special rules that facilitate speedy action on specified budget legislation — to pass bills that would increase the deficit. The new rules would alter and greatly weaken these commonsense measures:
Big Health-Care Changes Arrive in New Year – New taxes on drug makers, lower prescription-drug costs for seniors and restrictions on tax-free medical spending accounts are among a slate of health-law provisions that kick in Saturday. The changes show how the law will begin to reshape American health care, even as opponents try to overturn the measure in Congress and the courts. Although House Republicans are threatening to starve the law of funding and stage a symbolic repeal vote, those actions aren’t likely to block any significant pieces of the law aimed at consumers for 2011. That’s because the changes generally involve new rules and don’t require spending. "The debate over defunding and repeal is going to be much more of a political story in 2011 than something that actually means something for consumers immediately," said Larry Levitt, vice president at the nonprofit Kaiser Family Foundation.