Let’s Make a Deal (or not)
Posted: November 12, 2010 Filed under: Bailout Blues, Economic Develpment, Global Financial Crisis, Team Obama, U.S. Economy | Tags: currency wars, G20 accords, Goolsbee, US South Korea Trade Agreement 6 CommentsThe U.S. and South Korea have failed to reach an agreement in a trade deal that would have boosted U.S. agriculture exports. The deal would’ve included concessions to South Korea on automobiles and that was not going over well with domestic automakers like FORD and their related labor unions. As with all trade arrangements, there are usually winners and losers. Ranchers and U.S. consumers would’ve been on the winning side of the deal. The U.S. auto industry and related interests were the potential losers.
Arrangements probably failed due to the tough stance the U.S. is taking on the dollar and foreign exchange pegs these days. No one is happy with QE2 around the world. We’ll get to that in a minute. I’m going to quote from the WSJ on this so you need to realize that what’s written here is very pro-free trade. What was being negotiated at the moment was removal of some trade barriers on both sides. Political consensus here was that Obama is trying to look more “pro-business”. Part of South Korea’s problems, oddly enough, is that they are ‘too green’ for America’s stuff. Can you imagine a Democratic president trying to get a country to be less environmental friendly?
One stumbling block was Korea’s refusal to change a provision in the 2007 pact that provided an immediate end to a 2.5% tariff the U.S. levies on imports of Korean cars, said House Ways and Means Committee Chairman Sander Levin (D., Mich.). The U.S. wanted the tariff reduced gradually, while Korea eliminates safety and environmental rules that U.S. auto makers, led by Ford, said help keep Korea the world’s most closed car market. The effect of reducing the U.S. tariff more slowly likely wouldn’t be large because South Korea’s Hyundai Motor Co. already gets around it on more than half of the cars it sells in the U.S., by making them in Alabama and Georgia.
Compounding the stalemate, Mr. Levin said, were U.S. concerns that Korea’s proposed system for settling disputes wasn’t likely to work.
The U.S. also wants Korea gradually to drop its ban on imports of U.S. beef from older cattle, which began after the U.S. had a case of mad-cow disease seven years ago. Previously thought the easier of the two issues, it is a hot button politically for Korea and prompted a walkout by Korean negotiators.
In the end, the parties ran out of time. U.S. Trade Representative Ron Kirk said, “We won’t be driven by artificial deadlines,” though it was Mr. Obama who set the G-20 deadline.
The president alluded to the political pressures. “If we rush something that then can’t garner popular support, that’s going to be a problem,” said Mr. Obama, who had criticized the moribund 2007 Korea pact when he was a candidate. “We think we can make the case, but we want to make sure that that case is airtight.”
So, if you want the White House explanation, here’s Austan Goolsbee in a white house white board moment. I’m not sure what it says when the head of the President’s economic advice team has to give us all lectures, but any way, here’s the deal via Austan.
So, the G20 thing seems to be an exercise in every one going their own way. No one likes the hot money issue or the weakening dollar. So much for cooperation. Guess the only thing we’re exporting these days are financial bubbles.
The U.S. Federal Reserve decision last week to pump $600 billion into world’s biggest economy has stolen the spotlight away from China’s currency. Brazilian Finance Minister Guido Mantega said today that the Fed’s move may inflate commodities prices and proposed the world move away from using the dollar as the main reserve currency. Former Chinese central bank governor Dai Xianglong this week faulted the U.S. for adopting policies without regard for the dollar’s global role.
The policy fissures and concern countries may react with currency devaluations and capital controls underscore how the G-20 unity displayed during the financial crisis has given way to national divisions as members chart their own recovery path.
“The last thing a developing economy wants is for that liquidity to distort their asset markets and create a destabilizing bubble,” Stephen Roach, Morgan Stanley’s nonexecutive Asia chairman, told Bloomberg Television in an interview yesterday. “The process is not going to work if they don’t come up with a multilateral solution.”
If you want to read how the QE2 could possibly work and if it will be scaled up, I suggest going over to Tim Duy’s Fed
Watch for a wonky and some what long analysis. Oh, and there are plenty of those nifty graphs that I always love in the piece about the recovery. He’s going with the blowing bubbles is good narrative. Interesting. Duy says the FED has no choice because the Federal Government is so out of it on Fiscal Policy. Even more interesting and sadly true.
Flooding the market with money is dangerous business. It risks distorting prices and capital allocations. We simply don’t know where the money will wash up. I know that is in vogue to believe there is a nice, obvious story that links an increase in the money supply to an increase in nominal GDP, but that only works on paper. In the real world, the paths between money and output and prices are complicated. The ultimate composition of aggregate demand matters. It matters a lot – distortions have consequences. Warsh’s risks amount to a laundry list of the possible distortions that might occur as the result of ongoing quantitative easing. And he clearly takes those risks seriously.
It makes me think that I haven’t been taking those risks seriously enough. But when monetary policy is the only game in town, what choice do you have? You do what you can up to a point…but then you throw it back to Congress and say “you take responsibility for the mess you created by abdicating your role in crafting long run, stabilizing macroeconomic policies.” Warsh has set the stage for doing exactly that.
Of course, seriously, if we really have to throw this back to Congress, we are absolutely done for. Cooked. Toast. Somebody remember to tell the last guy to turn off the lights on his way out. Better to take our chances with the next bubble.
Aiyee … I’m about reading to move my money into alligator belly futures. At least that makes a good gumbo if you fail to get out in time.
The Cat Food Commission Weighs In
Posted: November 10, 2010 Filed under: Team Obama, U.S. Economy 51 Comments
I’m going to read more about this in the next few days and I’ll write what I can glean from it when I do. Both of my daughters are visiting today so I’m not able to sit down and look things over.
Just wanted to pass on some links and comments coming from the President’s Panel on Spending. It looks like a mixed bag on the surface. Here’s some details from the NYT. Surprise! Surprise! Social Security is ON the table and cuts are suggested.
The plan would reduce projected Social Security benefits to most retirees in later decades — low-income people would get higher benefits — and slowly raise the retirement age for full benefits to 69 from 67, with a “hardship exemption” for people who physically cannot work past 62. And it would subject higher levels of income to payroll taxes, to ensure Social Security’s solvency for the next 75 years.
The plan would reduce Social Security benefits to most future retirees — low-income people would get a higher benefit — and it would subject higher levels of income to payroll taxes to ensure Social Security’s solvency for at least the next 75 years.
But the plan would not count any savings from Social Security toward meeting the overall deficit-reduction goal set by Mr. Obama, reflecting the chairmen’s sensitivity to liberal critics who have complained that Social Security should be fixed only for its own sake, not to balance the nation’s books.
Most appalling is the plan calls for taxes cuts. Here’s Krugman’s take on that.
OK, let’s say goodbye to the deficit commission. If you’re sincerely worried about the US fiscal future — and there’s good reason to be — you don’t propose a plan that involves large cuts in income taxes. Even if those cuts are offset by supposed elimination of tax breaks elsewhere, balancing the budget is hard enough without giving out a lot of goodies — goodies that fairly obviously, even without having the details, would go largely to the very affluent.
I mean, what’s this about? There is no — zero — evidence that income taxes at current rates are an important drag on growth.
The more I read, the more I can’t believe that this was a commission put together by a Democratic President. It’s horrid! Mankiw (Bush economist) thinks it’s great. DeLong joins Krugman with a big thumbs down. DeLong’s headline says it all: Yes, the Entitlement Commission Was an Unforced Error by the Obama Administration. Here’s some random comments as he kept reading the abomination.
At the time I asked why you would take a budget arsonist like Alan Simpson and give him a Fire Chief hat. I never got a good answer.
…
Oh my God! Ration city, here we come!
What clowns vetted this thing?
…
A 23% top marginal tax rate?
Hoo boy!
TPM-DC calls their presser “eye popping”.
Their recommendations are more or less a list of the third-rail issues of American politics, including cuts in the number of federal workers; increasing the costs of participating in veterans and military health care systems; increasing the age of Social Security eligibility; and major cuts in defense and foreign policy spending. They also encompass a range of tax system reforms that have been floated by many in Washington for years to little effect, including funding tax rates reductions by eliminating many beloved credits and deductions.
We don’t have a two party system any more. We have Republicans and Theocratic Republicans.
Who can come along and save us from people like these?
I’ve got some more updates from the currency wars and this thing to plow through. I’ll start more things tomorrow!!! Promise!!!
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Boston Boomer here with some more reactions to the Catfood Commission proposals:
Jane Hamsher has a quote from Richard Trumka, president of the AFL-CIO:
The chairmen of the Deficit Commission just told working Americans to ‘Drop Dead.’ Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare.
Some people are saying this is plan is just a “starting point.” Let me be clear, it is not.
This deficit talk reeks of rank hypocrisy: The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires.
What we need to be focusing on now is the jobs deficit. Working families already paid for Wall Street’s party that tanked our economy. If we actually want to address our economic problems, we need to end tax breaks that send American jobs overseas and invest in creating jobs by rebuilding our crumbling infrastructure and green technologies.
The Hill talked to Bernie Sanders and other liberals
“The Simpson-Bowles deficit reduction plan is extremely disappointing and something that should be vigorously opposed by the American people,” Sanders said in a statement.
Sanders has been among a group of congressional liberals who have threatened to defeat the commission’s recommendations if it curtails Social Security benefits in any way. Sanders has said of the commission’s recommendations that Congress would “vote it down” if it touched on Social Security, and Rep. Raúl Grijalva (D-Ariz.), joined by 136 other House Democrats, has written to similarly warn the commission.
The proposals released on Wednesday, charged Grijalva, co-chairman of the Congressional Progressive Caucus, would only favor the wealthy.
“The path this plan would set is not good for the public. Congress should be having a realistic, productive conversation right now about how to reduce our budget deficit and maintain a secure retirement system for those who have earned it,” he said in a statement. “Instead, we’re debating a proposal from a commission dedicated to cutting crucial social programs and reducing corporate and upper-income taxes at the same time. This is not a recipe for a healthier American economy.”
We need to keep in mind that the co-chairs do not have support from the rest of the commission for these shock doctrine proposals. They also have no power to enact their sick proposals unless the President and Congress support them.
Disturbing if True
Posted: October 28, 2010 Filed under: Surreality, Team Obama, The DNC 61 Comments
Bill Clinton pushed Kendrick Meek to quit the Florida Senate race (via politico).Bill Clinton sought to persuade Rep. Kendrick Meek to drop out of the race for Senate during a trip to Florida last week — and nearly succeeded.
Meek agreed — twice — to drop out and endorse Gov. Charlie Crist’s independent bid in a last-ditch effort to stop Marco Rubio, the Republican nominee who stands on the cusp of national stardom.
I had heard rumors the White House was pushing for this but was unaware that former President Clinton was involved. Meek may be the underdog in the race, but pushing Crist to block Rubio is over the top, imho. They’ve been doing this for Lincoln Chaffee’s gubenatorial bid also. Caprio’s losing steam now since he told POTUS to ‘shove it’ and the independent Chaffee’s embracing Obama in TV ads.
Exactly what is going on here?







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