Thursday, September 08, 2011

Obama Goes Big

Finally I saw a glimmer of hope that the person I voted for was actually still there. The plan is far from perfect but it is a pragmatic approach to what is possible with the current house of Representatives. I believe they will be forced to go along with this plan or risk being decimated in the next election.
The American Jobs Act proposal includes more than $250 billion in tax incentives for small businesses and employers, according to administration estimates. The rest of the money would be devoted to infrastructure spending, state aid, unemployment insurance, and neighborhood rehabilitation. The president will pay for the proposal by asking the congressional super committee tasked with finding $1.5 trillion in deficit reduction to offset the cost of the package in their proposal.

Senior administration officials said that the White House plans to introduce the president's proposal next week as a single piece of legislation. The same administration officials did not rule out the idea that the White House would petition the congressional super committee to simply include the jobs bill in the set of recommendations that they reveal later this fall. In his speech to a joint session of Congress, however, the President repeatedly made the case that quicker action is needed.

"I am sending this Congress a plan that you should pass right away," he said. "There should be nothing controversial about this piece of legislation. Everything in here is the kind of proposal that's been supported by both Democrats and Republicans -- including many who sit here tonight. And everything in this bill will be paid for. Everything."

A White House official said Obama phoned House Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) earlier in the day to discuss the need for rapid passage of his jobs plan. During his speech, which was peppered with a defiant sometimes combative tone, he pledged to sell his plan outside of the D.C. Beltway as well.

"I intend to take that message to every corner of this country," Obama said. "I also ask every American who agrees to lift your voice and tell the people who are gathered here tonight that you want action now. Tell Washington that doing nothing is not an option." In all, the phrase "pass this jobs bill" was uttered eight times in the president's speech, with several variations of the phrase appearing elsewhere.

There was no mention as to how many jobs the president believed his proposal would create. At a briefing before the speech, senior administration officials declined to make such an estimate as well. But underlying the whole proposal was the promise that, down the road, it would be paid for. And in the latter portion of his speech, Obama called for Congress to close special interest tax loopholes as one way to cover that cost.

"This isn’t political grandstanding," he said. "This isn’t class warfare. This is simple math. These are real choices that we have to make."

At the heart of the president's plan is an extension of the payroll tax cut passed last year, through 2012. The proposal, which would affect an estimated 160 million workers by providing a $1,500 tax cut for the average family, comes in at a cost of $175 billion.

The tax components of the president's plan don't end there. The White House also wants a payroll tax holiday for businesses that add new workers or increase the wages of current employees; a fifty percent reduction of the tax rates businesses pay on the first $5 million in payroll; and a $4,000 tax credit for employers who hire long-term unemployed workers.

On the spending side, the president is calling for $50 billion in infrastructure repairs; $10 billion for an infrastructure bank to help leverage private capital; $30 billion for school modernization and repairs; and $35 billion in aid to states and municipalities for the purposes of rehiring and retaining teachers and first responders. The proposal would also re-authorize federal unemployment benefits for another year, with additional incentives for employers to retain their workers and train new ones without any cost. A national wireless internet initiative and changes to federal refinancing programs are also part of the American Jobs Act.

The most innovative addition may be the $15 billion that the president is proposing for "Project Rebuild" a program that would leverage private capital to finance the refurbishing of vacant or foreclosed homes. According to a senior administration official, the program would focus on "emerging residential and commercial foreclosure problems" in an effort to raise plummeting property values in those areas and avoid "community blight."

The president's suggested spending totals are a drop in the bucket in terms of the economy's actual needs. Obama's top advisers have, in the past, estimated that the country faces a $2 trillion infrastructure deficit. There is an estimated $270 billion to $500 billion in backlogged school maintenance costs. More than 200,000 government jobs have been slashed in the past year, many of them teachers and emergency first responders.

But the outlines were cheered by Democrats as an important start, as well as a much-needed shift in a political conversation that has been dominated by budget cuts.

Wednesday, September 07, 2011

UN:Austerity Measures and Deficit Cuts Is Pushing The World Economy Towards Disaster

By Tom Miles - Reuters

The pursuit of austerity measures and deficit cuts is pushing the world economy toward disaster in a misguided attempt to please global financial markets, the annual report of the United Nations economic thinktank UNCTAD said on Tuesday.

The report, entitled "Post-crisis policy challenges in the world economy," savaged U.S. and European economic policies and called for wage increases, stricter regulation of financial markets, including a return to a system of managed exchange rates, and a conscious break with market-led thinking.

"The message here is very pragmatic: we need to reverse our course quickly," said UNCTAD Secretary General Supachai Panitchpakdi.

Supachai, a former head of the World Trade Organization, said the policy response to the crisis, with an emphasis on fiscal tightening, was misconceived and inept.

The report's lead author Heiner Flassbeck said the global economic situation was extremely dangerous and, without more stimulus, a decade of stagnation was the best-case scenario.

The current policies were a disaster, said Flassbeck, head of the globalization and development strategies division at the U.N. Conference on Trade and Development, and a former deputy finance minister in Germany.

"If interests rates everywhere are zero, and if governments stick to the policy of not only keeping fiscal deficits where they are but retrenching, cutting public expenditure, then we will end up in permanent recession," he said.

"Unemployment depends very much on demand. And if you have no demand then you need government to step in with a huge program for stimulating the economy. This was the U.S. scenario in the past. Now it's worse because wages are rising less than in the past so you're going to need a bigger stimulus program."

The recovery from the financial crisis was not only jobless, which was to be expected, but it was also "wageless," he said, with Americans, Japanese and Europeans -- 70 percent of the world economy -- expecting their incomes to stagnate.

In its last report a year ago, UNCTAD said a premature removal of stimulus policies might cause a deflationary spiral with attendant slumps in growth and employment around the world.

"Let's not fool ourselves. This is a realistic scenario for the whole developed world, if we do not understand the lessons now, and really quickly, because we do not have other instruments any more," Flassbeck told a news conference to launch this year's report. "To revive the economy with a wageless recovery with diminished expectations by the private economy, by private households, what are the instruments at hand? There is nothing." He said that even if things go well, global economic growth would slow to about 1.5 percent in 2012, less than half the U.N. forecast of 3.1 percent growth for this year.

HERD MENTALITY The report put much of the blame for the crisis on deregulation of financial markets, which it said invited destabilizing "herd behavior" by speculators, and allowed an over-concentration of banking activities. "What we've seen in the past and we never learn is that countries seem to have excessive belief in the financial markets. And we've seen time and again that financial markets are not very sound in their judgment," said Supachai. "But still people keep thinking that they are doing these austerity measures because they want to please the markets so that the markets give them better ratings, including the rating agencies which do not always produce the best assessment."

Flassbeck said the herd mentality was evident whenever equity markets and commodity markets all lurch in tandem on the same day, an effect that could not conceivably be caused by real swings in demand. But the world was ignoring it, he said. "If the G20 negotiations were not confidential I would tell you that it's ignored even there," he said. A November summit of the 20 biggest economies would reach "extremely weak" conclusions on tackling the crisis and would underestimate the influence of financial markets, he said. "We have three areas where the G20 wanted to be strong. The first is the coordination of economic policy: nothing. The second is commodities speculation: more or less nothing; and the third is international global monetary order: nothing. So that's the result of nine months deliberation by the G20."

The U.N. report said the world should introduce a system of rules-based floating exchange rates, which would kill off distorting "carry trades" in which investors borrow currencies with low interest rates to buy higher-yielding currencies. The system would be based on divergences between the consumer prices or interest rates applicable to different currencies, and unlike the defunct Bretton Woods system, it would cater for continual adjustments in exchange rates.