In a continuing effort to provide words of wisdom from beyond the walls of Zacks, here are a few things that I think people should find to be interesting. The views expressed in the articles are not always shared by either myself or Zacks, but I do find them thought-provoking.
Kash Monsori of the Street Light blog points out that a $1 billion cut in government spending does not result in a $1 billion drop in the deficit. The actual decline is much smaller because the economy will slow in response to the spending cut, and that will result in lower tax revenues. This is a point that I have been trying to make repeatedly, although Monsori does so in a much more formal way.
Despite all the political winds, this is not the time to be slashing government spending. We need more fiscal stimulus, not less, with the unemployment rate still at 9.0%. Government spending is crowding out idleness, not private investment.
Public Programs Keep Millions Out of Poverty
Arloc Sherman, a Senior Researcher at the Center for Budget and Policy Priorities reviews a recent study by the National Bureau of Economic Research that shows that anti poverty programs are very effective in keeping people out of poverty. Without them, there would be an additional 45 million Americans living in poverty. Now those programs are under attack, and the end result is likely to be significantly more poverty.
Simon Johnson, Former Chief Economist at the IMF and professor at MIT, points out that the OCC — which proved to be extremely inept as a bank regulator in the lead-up to the financial crisis — is still around and still sees its mission as first and foremost to protect the banks from the consumers. Obama should try to pick a tough new head for the agency (the position is currently open). I agree, but I’m not sure if the sort of person the agency needs could get the 60 votes needed in the Senate for confirmation.
Household Inflation and Oil: Déjà Vu All Over Again
Bharat Trehan, a researcher at the Federal Reserve Board of San Francisco, finds that consumers tend to overweight recent changes in food and energy prices in setting their expectations of future inflation. An interesting paper and one that is not overly technical. I tend to ignore the consumer survey data of future inflation in favor of the forecasts implied by the spread between TIPS and regular T-notes.
More Solid Proof Obamacare is Working
Rick Ungar, a contributor to Forbes Magazine, argues that the ACA has been extremely successful in reducing the number of people who are without health insurance, particularly in young adults and people working for small businesses. Most of the provisions of the ACA will not go into effect until 2014, but so far it looks like the law has been successful.
How Will the Debt Limit “Game of Chicken” End?
Bruce Bartlett, a columnist for the Fiscal Times, and a former staffer for Congressmen Ron Paul and Jack Kemp argues that the Democrats are likely to resist sharp cuts in Medicare, which the GOP is pushing as its price for increasing the debt ceiling. If interest payments have to be prioritized, it is likely that a failure to raise the limit will result in Social Security checks not going out.
It is also likely that at least some costs, such as for multi-year Defense appropriations will be shifted into next year. That would not be good for the cash flows of the major Defense contractors such as Lockheed (LMT) and General Dynamics (GD).
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