Category Archives: Government Spending

Unfunded state and local pensions

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Not to worry – as long as they keep full allocations to equity markets the coming doubling of equity prices over the next few years will bail them out.

Provided the political leadership doesn’t get too serious about federal govt deficit reduction with tax increases and spending cuts.

US Cities Face Half a Trillion Dollars of Pension Deficits

By Nicole Bullock

October 12 (FT) — Big US cities could be squeezed by unfunded public pensions as they and counties face a $574 billion funding gap, a study to be released on Tuesday shows.

The gap at the municipal level would be in addition to $3,000 billion in unfunded liabilities already estimated for state-run pensions, according to research from the Kellogg School of Management at Northwestern University and the University of Rochester.

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Payrolls

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Karim writes:

Headline near consensus and also very consistent with trend of recent months; but details on soft side

  • Headline payrolls -95k; private payrolls +64k; payrolls ex-census workers -20k
  • The 83k drop in state and local govt payrolls likely skewed by seasonals related to education (-50k jobs)
  • Avg weekly earnings unch and hours worked unch; so personal income will be soft in Sep (though it was strong in prior mths)
  • Unemployment rate 9.579% from 9.642%
  • Notable swings by sector: construction -52k; manufacturing -22k; leisure/hospitality +18k; Retail +8k
  • Median duration of unemployed up from 19.9 to 20.4; U6 measure up from 16.7% to 17.1%
  • Diffusion index drops from 54.1 to 49.8 (first month below 50 since January).

Data consistent with moderate growth which is not enough to materially lower unemployment rate and as such, further lowers the bar for more aggressive LSAPs in November.

Census jobs still being lost. State and local cuts will also probably continue.

Also, 65,000 private sector jobs is about 100,000 short of what I’d guess will be the norm with initial and continuing claims now drifting lower.

GDP growing faster than jobs indicates productivity still doing well, which is positive for profits.

Lower interest rates also continuing to support valuations.

Bullard on CNBC shows FOMC still not up to speed on monetary operations.

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US Consumer Credit Falls by $3.34 Billion in August

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With a federal budget deficit of roughly $100 billion/month adding that much in savings (and income) to the economy total spending can be done with less additions to debt than when the deficit was a lot smaller.

Because of the deficit spending, consumers have been able to support maybe 2-3% growth in consumption and at the same time pay down credit cards and other debt, and debt continues to fall as a % of income as well.

Note below that new debt for non revolving credit has been inching up for the last 4 months, a sign that modest improvement continues.

With weekly initial claims now below 450,000 it looks like the spike to 500,000 most likely was some kind of statistical blip.
And at current levels, which seem to be drifting lower, we could be looking at 150,000- 200,000 new jobs per month.
This would mean the unemployment rate would fall only very slowly, but it’s still an upside surprise, and with 7 year treasury yields closing in on 7 year JGB’s we could also see US equity PE’s now around 12 adjust upward towards Japan’s PE’s of about 23.

I have no idea what’s going to happen with QE, except it will have very little or more likely no effect on the economy.
But there will be a lot of trading around the prospects and outcome of the Fed’s decision.

The term structure of risk free rates is always and in the Fed’s hands, and subject to the Fed’s reaction function and not to market forces. And with the talk of the Fed targeting longer term rates they may be coming around to it, as best I can tell knowledge of actual monetary operations seems to be slowly gravitating from the monetary operations staff to the actual leadership.

US Consumer Credit Falls by $3.34 Billion in August

October 25 (Reuters) — Total U.S. consumer credit outstanding declined for the seventh straight month in August as credit card debt continued to fall.

The Federal Reserve said on Thursday total outstanding credit, which covers everything from car loans to credit cards, fell by $3.34 billion after dropping $4.09 billion in July.

Analysts polled by Reuters had forecast consumer credit contracting $3 billion in August.

So-called revolving, or credit-card credit, fell $4.99 billion in August after a $4.98 billion fall the prior month.

That marked the 24th consecutive month credit-card debt decreased.

Non-revolving credit, which includes closed-end loans for big-ticket items like cars, boats, college education and vacations, increased $1.65 billion after increasing $888.59 million in July. It was the fourth straight month of gains.

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Trichet ‘Trapped’ by Banks’ Addiction to ECB Cash: Euro Credit

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Yes, as previously discussed, the ECB is now dictating terms and conditions to both the banking system and the national govts with regard to fiscal policy.

The fundamental structure of the eurozone includes no credible bank deposit insurance that now keeps the bank dependent on direct ECB funding. It also includes national govts that are in the position of being credit sensitive entities, much like the US states, only now with debt ratios far too high for their market status who are now directly or indirectly dependent on ECB support via bond purchases in the open market.

And there is no way out of this control for the banks or the national govts. There will be large deficits one way or another- through proactive fiscal expansion or through automatic stabilizers as attempts to reduce deficits only work to a point before they again weaken the economy to the point where the automatic stabilizers raise the deficits as the market forces ‘work’ to obtain needed accumulations of net euro financial assets.

This inescapable dependency has resulted in a not yet fully recognized shift of fiscal authority to the ECB, as they dictate terms and conditions that go with their support.

Yes, the ECB may complain about their new status, claim they are working to end it, etc. but somehow I suspect that deep down they relish it and announcements to the contrary are meant as disguise.

In the mean time, deficits did get large enough the ‘ugly way ‘in the last recession to now be supportive of modest growth. And even the 3% deficit target might be enough for muddling through with some support from private sector credit expansion which could be helpful for several years if conditions are right.

Also, dreams of net export expansion are likely to be largely frustrated as the conditions friendly to exports also drive the euro higher to the point where the desired increases don’t materialize. And the euro buying by the world’s export powers, though welcomed as helping finance the national govts., further supports the euro and dampens net exports.

Trichet `Trapped’ by Banks’ Addiction to ECB Cash: Euro Credit

By Gabi Thesing and Matthew Brown

October 7 (Bloomberg) — European Central Bank President Jean- Claude Trichet staked his reputation on propping up banks with cheap cash during the financial crisis. Now credit markets won’t let him take away that support.

Near-record borrowing costs for nations across the euro region’s periphery are making it harder for the ECB to wean commercial banks off the lifeline it introduced two years ago.

The extra yield that investors demand to hold Irish and Portuguese debt over Germany’s rose last week to 454 basis points and 441 basis points respectively. Spain’s spread hit a two-month high.

The risk for the ECB is that it gets pulled deeper into helping the banking systems of the most indebted nations in the 16-member euro bloc. Governing Council member Ewald Nowotny said Sept. 6 that addiction to ECB liquidity is “a problem” that “needs to be tackled.” Complicating the ECB’s task is that interbank lending rates have risen, tightening credit conditions and making access to market funding more expensive for banks.

“The ECB is trapped and the exit door is blocked,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “The state of credit markets is going to force them to stay in crisis mode for longer than some of them would like.”

The ECB’s 22-member Governing Council convenes today in Frankfurt. Policy makers will set the benchmark lending rate at a record low of 1 percent for an 18th month, according to all 52 economists in a Bloomberg News survey. That announcement is due at 1:45 p.m. and Trichet holds a press conference 45 minutes later.

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Comments on the Blumenthal McMahon Debate

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Comments on the Blumenthal McMahon Debate

The debate organizers opted not to include me as the representative of the third largest political party in Connecticut, the Independent Party. I did, however, watch the proceedings on television. We are in an economic emergency, and I’m running for the US Senate strictly as a matter of conscience to offer my knowledge, experience, and proposals to fix our broken economy and create the 20 million new jobs we desperately need. To that end I offer my comments.

But let me first respond to the question on the death penalty. Both candidates proclaimed their unconditional support for it, while I am categorically against it. That fact that more than 100 convicted murderers on death row have been found not guilty and released after DNA testing became available is reason enough for me to ban this unnecessary measure which has likely put to death untold numbers of innocent people.

With regard to jobs and the economy, both candidates recognized that small businesses account for about 70% of private sector jobs, and both candidates proposed a variety of tax measures to help small business. And while both candidates favored not letting middle income tax cuts expire next year, and Mrs. McMahon further supported not raising taxes on anyone, neither of those proposals actually lower taxes from their current levels.

Sadly, the problem is that neither candidate recognizes that it is SALES that create jobs. Consequently, they did not focus on proposals designed to increase sales. Restaurants, department stores, and other small businesses don’t cut staff when sales are good and they are full of paying customers. They cut staff when sales fall. We’ve lost 8 million jobs because sales fell and business in general remains slow. So while Mrs. McMahon stated that entrepreneurial activity is what creates jobs through risk taking, she failed to recognize that they do that only when prospects for actually selling their goods and services are favorable, and, particularly, when they have a backlog of orders.

Thus, while lowering taxes for small business certainly doesn’t hurt, it’s not what creates jobs. My lead proposal to create millions of new jobs is a full payroll tax (FICA) suspension for both employers AND for all employees. This will increase take home pay by about 8% which means a person earning $50,000 a year will see his take home pay go up by over $300 per month, which will boost sales and create jobs the right way, from the bottom up, and not from the failed top down trickle down bailout policies of the last several years. It also lowers costs for all businesses, which helps keep prices down. We have to take strong measures to get sales back up to where they should be.

Next, I want to address one of the more famous sound bytes from this debate. Mrs. McMahon specifically stated that “government doesn’t create jobs, the private sector does” and Mr. Blumenthal did not disagree. What both candidates failed to recognize is the government’s central role in private sector job creation. Government’s role is the creation and maintenance of public infrastructure necessary for the functioning of the private sector. This includes in the general sense the legal system, the monetary system, public safety, and other related and essential support functions. This infrastructure employs real people in real jobs providing real benefits without which there would be no viable private sector. So in that sense government does indeed create real jobs, both directly and indirectly.

In summary, neither candidate showed that they understood that sales create private sector jobs, and neither candidate directly proposed measures such as my payroll tax suspension for employees to increase our spending power to restore sales and create jobs. Instead, they proposed measures that certainly won’t hurt, but will fall far short of what’s needed to put America back to work.

Next, Mr. Blumenthal repeatedly called for policy to force China to end its ‘currency manipulation,’ along with ‘buy America’ proposals and proposals to reverse the flow of American jobs overseas, to the point of criticizing Mrs. McMahon for purchasing imported goods. Mrs. McMahon implicitly agreed with the premise, countering by explaining that US corporate tax policy was to blame for companies moving overseas. Again, unfortunately, both candidates have things fundamentally backwards on this issue as well. I suspect that is because the unions they are undoubtedly catering to also have it backwards and are sadly working against their own best interesets.

The real problem is not the imports, or the jobs going overseas. The problem is that we are grossly over taxed for the size of government we have, and don’t have enough take home pay to buy enough goods and services to keep everyone at home fully employed.

As every Professor of Economics knows, and every first year student is taught, imports are real benefits and exports are real costs. You can think of each nation’s real wealth this way: take the ‘pile’ of goods and services we produce at home, then add to that pile the goods and services the rest of the world sends us, then subtract from that the pile of goods and services we send overseas. What we are left with is our real wealth. As you can see, the problem is not what we buy from overseas. That adds to our pile and makes us richer. The problem is the unemployment here at home, which is best addressed by my payroll tax suspension which gives people working for a living enough spending money to increase sales enough to create the jobs we need here at home. The trick is to get taxes low enough so that we have enough spending money to buy everything we can produce here at home with everyone working, plus everything the rest of the world wants to sell us.

In the debate, both candidates also stressed the importance of deficit reduction, with both concerned about the debt we are leaving our children. The problem is that they have both bought into the deficit mythology that has gotten the U.S. economy to where it is today. In order to restore American prosperity create American jobs it is critical to dispell this mythology, and I am on mission to stomp it out forever.

The fact is that the U.S. government is not ‘out of money’ or ‘about to go broke.’ That talk is pure fear mongering. Unlike state and local governments (which can go broke), the Federal government is the actual issuer and operator of the US dollar. It utilizes its Federal Reserve Bank and the commercial banks (where all of our bank accounts are) to make payments and receive payments. It makes all payments, such as Social Security payments, simply by marking numbers up in our bank accounts. Those numbers don’t come from anywhere, as Fed Chairman Bernanke testified last year and other Fed officials have repeated. There is no gold coin that drops into a bucket at the fed when you pay your taxes and they don’t hammer one into their computers when they pay a Social Security check.

To repeat: There is no such thing as the Federal government running out of money. Government checks don’t ever bounce.

That is not to say that ‘over spending’ can’t drive up prices and eventually result in inflation. It does mean, however, that Social Security is not broken. It can’t be. The checks will never bounce. And I have signed a pledge never to cut Social Security benefits or eligibility. However, unfortunately for all of us, there is a commission on “fiscal responsibility and reform” supported by the Democrats and the Republicans, which, conveniently after the election, will recommend ways to cut Social Security and Medicare. An important part of my mission is to make sure they do not succeed.

Often, when I explain this, people will ask if I am proposing that we just ‘print the money,’ as if today there is a distinction between printing money and some other way of government spending. I tell them that ‘printing money’ is a long outdated gold standard distinction that meant we had printed more paper money than we had gold backing it. Today, you can’t ‘cash in’ your dollars at the Fed for gold. Dollars are just numbers in bank accounts, or actual cash. So all I’m doing is describing the one and only way spending and taxing always takes place with today’s monetary system.

The other question that seems to be on everyone’s mind is how then do we pay off China? The answer is actually quite simple when you understand how it works in its most basic form.

First, one has to understand China doesn’t start out with any dollars. They get them from selling things to us. When China gets paid, those dollars go into its checking account, which is also called a reserve account, at the Fed (Federal Reserve Bank). US Treasury securities including T bills, notes, and bonds are nothing more than savings accounts at the Fed. So when China buys Treasury securities all that happens is their dollars shift from their checking account at the Fed to their savings account at the Fed. That’s called ‘the US going into debt.’ You can call it whatever you want, but it is really just transferring dollars from China’s checking to its savings. The total US debt of about $13 trillion is simply the dollars in savings accounts at the Fed. And how is that repaid by the tens of billions every week as the various Treasury securities mature? All the Fed does is shift those dollars (plus interest) from the savings accounts back to the checking accounts. That’s it, debt paid. And no checks from anyone’s children and grandchildren are involved. But what if China decides not to ‘buy our debt’? This simply means their money stays in their checking account at the Fed and never goes to their savings account. There is no reason for anyone to care in which Fed account China’s dollars are kept. Further, if China doesn’t want dollars at all, their only option is to buy something with them just like anyone else.

All of this causes one to view deficit spending in a very different light. Deficit spending for the Federal government is very different than most people imagine. When the Federal government spends more than it taxes, that extra money spent simply winds up in savings accounts at the Fed. In other words, it adds to the savings of the economy. With this in mind and knowing that, by definition, deficit reduction means either increasing taxes or cutting spending, we can see that both of those actions take money out of our economy – the worst possible thing to do at a time like this. While I strongly favor cutting wasteful and unnecessary Federal spending, I also recognize that with today’s high unemployment any spending cuts must be matched by tax cuts of at least that much to ensure money is not removed from the economy. What actually matters is the real economy, and not the deficit which is nothing more than the savings accounts at the Federal Reserve Bank. Don’t you think that if the debt was really a problem something very bad would have happened long before it got to $13 trillion?

Mrs. McMahon’s nonsensical statement about using unspent stimulus money to pay down the national debt would be like saying you are going to use your remaining line on your credit card to pay off your debt. And Mr. Blumenthal’s failure to respond to such an obvious absurdity likewise shows he too is sorely lacking in his understanding of economics and job creation at this time of economic emergency.

The health insurance issue again highlighted their lack of understanding of markets and economics for all parties concerned. Both candidates missed the point that there is not yet an operational plan to guarantee coverage for those with pre existing conditions. The problem is that if you can’t be turned down for insurance because you are already sick, you don’t need to buy insurance until AFTER you need medical attention. To address that situation, they’ve discussed fining people who don’t buy insurance. But if the fines aren’t at least as high as the insurance premiums, people will just pay the fines. And then insurance companies will only be selling insurance to people already in need of treatment, which means the premiums will be higher than the costs of the needed treatment to cover the insurance company’s costs. Unfortunately, however nobly intended, the entire concept is unworkable under the current structure, and neither candidate indicated any awareness of this.

With regard to TARP funding for banks, again, neither candidate got it right. The fact is TARP was nothing more than regulatory forbearance that allowed the banks to continue to function with reduced levels of private capital, along with terms and conditions regarding operations, compensation, etc. No additional public funds were actually involved. The FDIC was, for all practical purposes, already guaranteeing the depositors from loss should all the private capital of any one bank be lost. Adding TARP money to secure depositors from loss when they were already FDIC guaranteed made no sense at all and added nothing. Nor did ‘paying back the TARP money,’ which necessarily did nothing more than let funds sit in reserve accounts at the Fed, make any difference.

To summarize the economic issues, neither candidate showed that they understood that sales create private sector jobs, and neither candidate directly proposed measures such as my payroll tax suspension for employees to increase our spending power to restore sales and create jobs. Instead, they proposed measures that certainly won’t hurt, but will fall far short of what’s needed to put America back to work. During this time of financial crisis, even with the best of intentions, neither candidate is qualified to represent our best interests and fix our economy.

Mr. Blumenthal has been a tireless public servant and advocate for the people of Connecticut for a very long time, and I have no doubt he’ll continue to do that if elected Senator. Unfortunately, much of his understanding of current issues is completely backwards. For example, his tireless and well-intentioned efforts in regard to foreign trade are far more likely to destroy jobs than create them. And nothing could be more subversive than Mrs. McMahon’s promised vote for a balanced budget amendment, which would take over $1 trillion out of our economy, destroying tens of millions of jobs, and threatening our liberties as well in the ensuing social unrest that.

We are in an economic emergency, and both candidates have put forth proposals that would unknowingly destroy millions of jobs in a terrible depression. I am running for the US Senate solely as a matter of conscience as the candidate uniquely qualified to support the proposals that will create the 20 million jobs we need, and defeat the forces at work that are attempting to slash Social Security and Medicare.

Also, unlike the other candidates, creating jobs has been my life work, and not just election talk. My published writings and proposals have already created millions of jobs around the world, and I have met regularly with Congressmen and Senators from both parties promoting full employment and prosperity, as well as fighting back against the proposed cuts to Social Security and Medicare.

I urge you to please visit www.moslerforsenate.com and read my proposals, my qualifications, and my endorsements.

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CNBC’s Kudlow Comments

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He sort of gets some of it.

There are many debates among economists about how to resurrect the subpar, so-called recovery and generate some serious new job creation. But there is also widespread agreement that nations cannot tax their way into prosperity,

Right.

devalue their way into prosperity,

Depends on how you define prosperity. Japan sort of did it this way. Not ideal, due to suboptimal real terms of trade, etc., but that’s they way they set up their system. And as soon as they stop devaluing their currency (buying dollars) they have problems. Europe is in the same bind.

spend their way into prosperity,

This is wrong. The output must be sold, either to the public sector or the private sector. That’s a political choice- public goods or private goods.

or pursue trade-limiting protectionism as a path to prosperity.

This can also work, but as above, is suboptimal in general. And, it is vital when it comes to strategic materials and intellectual knowledge. For example, military needs are best sourced domestically to assure a supply in times of war, etc.

All of this is weakness.

I’d say in general yes, all of his argument displays a weakness of understanding.

:)

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Japan Recap- Prime Minister Says Huge Public Debt Unsustainable

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More modest signs of improvement in Japan, with employment and spending improving.

Unfortunately, the Prime Minister seems be about to make the same mistake of past Prime Ministers and take action to reduce the govt’s deficit.

In contrast, China seems to have recognized govt spending spending (and lending by state owned banks that is in fact thinly disguised govt spending) is not operationally dependent on revenue, and that there is no solvency issue nor external constraints on local currency expenditure. China seems to understand the risks are inflation, making adjustments as they see that political threat arise.

See comments below.

Aug Job-To-Applicant Ratio: 0.54% vs 0.54% (expect) / 0.53% (last)

Aug Jobless Rate: 5.1% vs 5.1% (expect) / 5.2% (last)

Aug Household Spending (YoY): 1.7% vs 1.4% (expect) / 1.1% (last)

Sep Tokyo CPI (YoY): -0.6% vs -0.9% (expect) / -1.0% (last)

Sep Tokyo CPI Ex-Fresh Food (YoY): -1.0% vs -1.0% (expect) / -1.1% (last)

Sep Tokyo CPI Ex-Fresh Food & Energy (YoY): -1.3% vs -1.4% (expect) / -1.4% (last)

Aug National CPI (YoY): -0.9% vs -0.9% (expect) / -0.9% (last)

Aug National CPI Ex-Fresh Food (YoY): -1.0% vs -1.0% (expect) / -1.1% (last)

Aug National CPI Ex-Fresh Food & Energy (YoY): -1.5% vs -1.5% (expect) / -1.5% (last)

Japan Prime Minister Says Huge Public Debt Unsustainable

October (Reuters) — Japan’s prime minister warned on Friday that the country’s fiscal situation was unsustainable given its huge public debt, and called for multiparty tax reform talks as he struggles with a fragile economy and a divided parliament.

With perhaps the world’s largest public debt, severe prior downgrades by the ratings agencies, perhaps the strongest currency in the world, mild deflation, and yet ten year JGB’s hovering around 1%, you’d think the historical evidence alone would convince them there is no solvency or funding or ‘sustainability’ issue. But clearly it doesn’t. And while those in monetary operations at the BOJ understand there is no sustainability issue, it is not their place to mention it (much like the US).

Naoto Kan also repeated his resolve to curb a rise in the yen that threatens to derail Japan’s export-led economic recovery, urged the central bank to do more to fight deflation, and expressed hope that opposition parties would join in talks on a extra budget he wants to enact soon.

This seems to indicate he’s pushing for a higher deficit? Or will there be a new tax to ‘pay for it?’ And the only way to weaken the yen vs the dollar is to buy dollars, which is what I call off balance sheet deficit spending. It ‘works’ and there are no operational limits to the amount of fx a CB can buy. But it’s a poor second choice to a domestic tax cut or spending increase.

Japan’s core consumer prices marked their 18th straight month of annual declines in August, as deflation grips an economy struggling with a rising yen, slowing exports and a surprise decline in output. But the jobless rate fell and the availability of jobs improved slightly, data showed on Friday.

Yes, the deficit did go up in the financial crisis slowdown and got large enough to support growth. The question is whether they allow that to continue.

Kan, who took office in June as Japan’s fifth leader in three years, faces a tough time wooing the opposition support that is vital to enact laws since his Democratic Party of Japan (DPJ) and a tiny partner lack a majority in parliament’s upper house.

The government faces the delicate task of reining in debt while keeping the economy going. Japan has built up a huge public debt burden, now nearly twice the size of its $5 trillion economy, during two decades of economic stagnation.

It might help if the media stopped calling it a burden, as it’s clearly not a burden in any sense. particularly with a 0 rate policy (not that it matters for solvency).

“If the current fiscal situation is left alone, it will be unsustainable at some point,” Kan said in a speech at the start of an extra session of parliament.

I doubt he could define ‘unsustainable’ but no one asks as the errant sustainability assumption is pervasive.

He also vowed to achieve Tokyo’s goal of bringing the primary budget balance, which excludes revenue from bond sales and debt-servicing costs, into the black within a decade.

Extra Budget

Kan, whose past calls for debating a hike in the 5 percent sales tax had contributed to a July upper house election defeat, said Japan needs a social welfare system that citizens could trust even if that meants added financial burden on the public.

Multiparty debate on tax reform including the sales tax is thus indispensable, Kan said, reiterating that he would seek a mandate from voters before deciding on the sale tax rise.

The government is crafting an extra budget for the fiscal year to March 31 to stimulate the economy by supporting job seekers and families with children, but has sent mixed signals about the size of the package and how it will fund it.

It does look like they plan on ‘funding it’

Some in the cabinet, such as the economics minister, have said new debt issuance should not be ruled out, but the finance minister is firmly against the idea.

National Strategy Minister Koichiro Gemba has said Japan could fund measures worth around 4.6 trillion yen ($55 billion) by tapping reserves, thereby avoiding new bond issuance.

Functionally this would be the same as deficit spending.

“The biggest task for this parliamentary session is enacting a supplementary budget to finance economic steps. I sincerely hope for constructive debate among ruling and opposition parties,” Kan said in the speech.

Efforts to gain such opposition support will be complicated by a bitter feud with China.

Kan is under fire for appearing to cave in to Beijing’s demands to free a Chinese fishing boat captain detained last month after his trawler collided with Japanese patrol boats near disputed islands in the East China Sea.

The prime minister on Friday reiterated that good ties with China, in the process of replacing Japan as the world’s second-biggest economy, were vital but also expressed concern about Beijing’s military buildup and aggressive maritime activities.

China still has bitter memories of the last war with Japan.

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Boehner says he’d support a middle-class tax cut

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As previously suggested, Boehner reverses course and does what should have been his obvious choice.

This gives everyone in Congress a pre election window to try to tax cut their way to victory before the election.

With the current level of deficit spending already supportive of modest GDP growth, and these latest developments taking away the risk of fiscal tightening through tax hikes, look for prospects for a double dip to be all but forgotten, and equities to firm accordingly.

In sum, federal deficits are supporting enough income/savings/agg demand for modest gdp growth even with a relatively weak consumer and no credit expansion,
corps have already demonstrated the ability to generate reasonably good cost cutting/profits with very modest gdp growth,
high unemployment keeps unit labor costs under control, and relatively low term interest rates continue to support valuations,
housing can’t go any lower and even if starts doubled they would still be relatively modest,
and same goes for cars and lots of other areas of deferred consumption and deferred investment.

Boehner says he’d support a middle-class tax cut

September 12 (AP) — House Minority Leader John Boehner says he would vote for President Obama’s plan to extend tax cuts only for middle-class earners, not the wealthy, if that were the only option available to House Republicans.

Boehner, R-Ohio, said it is “bad policy” to exclude the highest-earning Americans from tax relief during the recession. But he said he wouldn’t block the breaks for middle-income individuals and families if Democrats won’t support the full package.

Income tax cuts passed under President George W. Bush will expire at the end of this year unless Congress acts and Obama signs the bill. Obama said he would support continuing the lower tax rates for couples earning up to $250,000 or single taxpayers making up to $200,000. But he and the Democratic leadership in Congress refused to back continued lower rates for the fewer than 3 percent of Americans who make more than that.

The cost of extending the tax cuts for everyone for the next 10 years would approach $4 trillion, according to congressional estimates. Eliminating the breaks for the top earners would reduce that bill by about $700 billion.

Boehner’s comments signaled a possible break in the logjam that has prevented passage of a tax bill, although Republicans would still force Democrats to vote on their bigger tax-cut package in the final weeks before the November congressional elections.

“I want to do something for all Americans who pay taxes,” Boehner said in an interview taped Saturday for “Face the Nation” on CBS. “If the only option I have is to vote for some of those tax reductions, I’ll vote for it. … If that’s what we can get done, but I think that’s bad policy. I don’t think that’s going to help our economy.”

Austan Goolsbee, new chairman of the White House Council of Economic Advisers, said on ABC’s “This Week” that he hopes that Democratic lawmakers who also want an across-the-board extension will join Obama and others in the party in supporting legislation aimed at the middle class before the November elections.

In response to Boehner’s comments, Goolsbee said, “If he’s for that, I would be happy.”

With congressional elections less than two months away, both parties have been working to score points with voters generally unhappy with Congress. Democrats are bearing the brunt of voter anger over a stubborn recession, a weak job market and a high-spending government, giving the GOP an opening for taking back control of the House and possibly the Senate.

Democratic leaders would relish putting up a bill that extends only the middle-class tax cuts and then daring Republicans to oppose it. In response, GOP lawmakers probably would try to force votes on amendments to extend all the tax cuts, arguing that it would be a boost to the economy, and then point to those who rejected them.

A compromise over the tax-cut extensions had been suggested by some senior Democrats. In a speech last week in Cleveland, Obama rejected the idea of temporarily extending all the tax cuts for one to two years.

The tax-cut argument between Obama and Republican lawmakers focuses on whether the debt-ridden country can afford to continue Bush’s tax breaks, which were designed to expire next year. Republicans contend that cutting back on government spending ought to be the focus of efforts aimed at beginning to balance the federal budget.

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