29 Apr 2011 “It’s an ill wind that blows nobody any good” John Heywood 1546
In perhaps the most audacious and partisan verbal tempest so far as we approach the looming budget storm, Treasurer Geithner said “what I want to make sure they [italics added, referring to Republicans] don’t do is take us too far into June, take us too close to the edge.” Amplifying those remarks, White House Press Secretary Jay Carney said any Republican effort to hold out on a debt-ceiling vote for deficit-reduction measures “could in fact tank the global economy.” He added “it would be foolhardy to play chicken with the full faith and credit of the United States of America. It is simply too risky.”
Messrs.’ Carney and Geithner, need we remind you that under your watch the US accumulated debt at a rate more than 28 times as fast as that during the rest of our entire nation’s history? Need we further remind you that the audience to whom you piously preach are the American voters who sent ‘they’ to Congress to end the free-spending culture that has reigned there since FDR? While Republicans have clearly played a role in piling on debt over the years, it bears noting that the party of those sanctimoniously pointing the fingers has held Congress (which spends the money) for 58 of the past 77 years (75%) – that’s beyond super majority Messrs.’ Geithner and Carney.
At issue is the looming national debt, which is near its legal limits. Republicans are demanding that any vote to lift the debt ceiling to accommodate the rising debt should be accompanied by serious deficit-reduction initiatives. They understand that it will take extreme measures to break a 77-year habit. The debt ceiling is $14.294 trillion, last Friday it stood at $14.241 trillion. The government is expected to hit the ceiling no later than May 16th and could default on its debt by July if action isn’t taken.
The Wall Street Journal reports that a number of ideas are floating around both houses to address these serious issues. Among them is a proposed balanced-budget amendment to the US Constitution by Senate Republicans. Another is a proposal backed by Sens. Bob Corker (R.,Tenn.) and Claire McCaskill (D., Mo.) to impose an across-the-board binding cap on all federal spending, a plan that would cut $7.6 trillion in spending over a 10-year period. Sens. Corker and McCaskill Tuesday touted the acquisition of another Democratic co-sponsor, Sen. Joe Manchin, of West Virginia. Also backing the proposal is Sen. Joe Lieberman of Connecticut, an independent who caucuses with Senate Democrats. But most Democrats object to imposing such a strict cap on federal spending, arguing that could limit the government’s ability to respond to economic and other emergencies. Someone please ask them to show us how the $3.6 trillion they added in new government debt in the last two years has helped with the current economic emergency?
All indications are that both sides are digging in for a take-no-prisoners fight, first over the debt ceiling and ultimately over the budget. May in Washington promises to be as verbally stormy and ugly as April was windy and deadly. “It’s an ill wind that blows nobody any good.”
The Week’s Economic Highlights
The Federal Reserve announced on Wednesday that it would keep interest rates low for an “extended period.” They said “the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.” On inflation they said “commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.” They also announced they would continue as planned with the $600 billion Quantitative Easing 2 program which is set to end in June.
Growth in the first quarter of 2011 slowed to a 1.8% annualized pace compared to a 3.1% rate in the fourth quarter of last year. The slowdown this quarter was largely due to an increase in imports, a decline in personal consumption, and a decrease in federal spending.
Manufacturing bounced back with the latest monthly report of durable goods. New factory orders for durables surged 2.5% in March after rising 0.7% in February. Excluding transportation, the gain was 1.3%. According to Bloomberg, transportation equipment jumped 5.9%, following a 0.9% increase in February. By subcomponents, motor vehicles advanced 3.7%; defense aircraft & parts increased 6.3%; and non-defense aircraft edged up 0.9%. The motor vehicles portion is the largest subcomponent by far, making up 60.7% of transportation new orders in the latest month.
The market for new homes may be sending some early indicators of recovery. Sales of new homes jumped 11.1%, more than expected in March, but from a February severely depressed level that, despite an upward revision, was a record low for a series that goes back to 1963. March had a 300,000 unit annual sales rate vs. a 270,000 rate in February. The median price rose 2.9% to $213,800 for year-on-year contraction of 4.9%, less than February’s contraction of 6.4%. The average price fell 3.8% but year-on-year contraction, of 6.1%, is also moderating. S&P Case Shiller data were mixed in what analysts say is probably a good sign for home prices. Supply at the current sales rate fell to 7.3 months from 8.2 in February.
Pending home sales jumped 5.1% in March due, according to the National Association of Realtors, to better affordability, rising rents and job creation. March’s gain is strongly centered in the largest region which is the South where contracts jumped 10.3%. The South also showed the most strength by far in last week’s existing home sales for March, data where closings are tracked. Today’s report, which tracks purchase contracts, raises the possibility that momentum may once again be building for the existing home market.