By KEN THOMAS 06/26/11 07:18 AM ET AP

 

COLUMBUS, Ohio — Vice President Joe Biden said Saturday the Obama administration wouldn’t let middle class Americans “carry the whole burden” to break a deadlock over the national debt limit, warning that the Republican approach would only benefit the wealthy.

Addressing Ohio Democrats, Biden said there had been great progress in talks with Republican lawmakers on a deficit-reduction plan agreement. But he insisted that his party wouldn’t agree to cuts that would undermine the elderly and middle-class workers.

“We’re not going to let the middle class carry the whole burden. We will sacrifice. But they must be in on the deal,” Biden said in a speech at the Ohio Democratic Party’s annual dinner.

Biden led efforts on a deficit-reduction plan but Republicans pulled out of the discussions last week, prompting President Barack Obama to take control of the talks.

The sides disagree over taxes. Democrats say a deficit-reduction agreement must include tax increases or eliminate tax breaks for big companies and wealthy individuals. Republicans want huge cuts in government spending and insist on no tax increases.

On tax breaks for the wealthy, Biden used the example of hedge fund managers who “play with other people’s money.”

“And they get taxed,” Biden said. “I’m not saying they don’t do good things, they do some good things. But they get taxed at 15 percent because they call it capital gains. Because they’re investing not their money, (but) other people’s money.”

To ask senior citizens receiving Medicare to pay more in taxes when people earning more than $1 million a year receive a substantial tax cut “borders on immoral,” the vice president said.

“We’re never going to get this done, we’re never going to solve our debt problem if we ask only those who are struggling in this economy to bear the burden and let the most fortunate among us off the hook,” Biden said.

Republican leaders say without a deal cutting long-term deficits, they will not vote to increase the nation’s borrowing – which will exceed its $14.3 trillion limit on Aug. 2. The Obama administration has warned that if Congress fails to raise the debt ceiling, it would lead to the first U.S. financial default in history and roil financial markets around the globe.

Obama and Biden are scheduled to meet with Senate Majority Leader Harry Reid, D-Nev., and Senate Republican leader Mitch McConnell of Kentucky on Monday. McConnell and House Speaker John Boehner, R-Ohio, say no agreement can include tax increases.

Biden assailed moves by GOP governors in Wisconsin and Ohio to strip away collective bargaining rights from most public workers while criticizing efforts by Republicans in Congress to alter the Medicare program. He defended Obama’s handling of the economy, pointing to difficult decisions on an economic stimulus package and the rescue of U.S. automakers.

Ahead of Biden’s visit, Republicans countered that Obama’s policies led to GOP gains in 2010 and have failed to revitalize the economy.

“All the visits in the world from President Obama, Vice President Biden and other top-level surrogates won’t change the administration’s job-killing policies,” said Republican National Committee spokesman Ryan Tronovitch.

Biden, who spoke frequently of his blue-collar roots in Scranton, Pa., during the 2008 presidential race, is expected to be a frequent visitor to the Midwest during next year’s campaign.

Obama won states such as Ohio, Michigan and Pennsylvania in 2008. But those states elected Republican governors in 2010 and are considered prime targets for Republicans next year.

Looking ahead to 2012, Biden called Ohio “the state that we must win and will win.”

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As reported in Huffington Post
WASHINGTON (AP/The Huffington Post) — Efforts to find a bipartisan agreement blending huge budget cuts with a must-pass measure to increase how much the government can borrow have entered a new phase after Republican negotiators pulled out of talks led by Vice President Joe Biden.

The exit of House Majority Leader Eric Cantor from the talks on Thursday means the most difficult decisions have been kicked upstairs to GOP House Speaker John Boehner of Ohio and President Barack Obama. The Biden-led group had made solid progress in weeks of negotiations but was at an impasse over taxes.

Cantor, R-Va., said that the Republican-dominated House simply won’t support tax increases and that it’s time for Obama to weigh in directly because Biden and Democrats were insisting on tax increases. Democrats said it’s only fair to blend in additional revenues from closing tax breaks to balance trillions of dollars in spending cuts.

It had long been assumed that the Biden group would set the stage for more decisive talks involving Obama and Boehner. As a result, Cantor’s move was interpreted as trying to jump-start the talks rather than blow them up – a view shared by Cantor himself.

“The purpose here is to alter the dynamic,” Cantor said.

In fact, Cantor’s withdrawal came after Boehner had already made a trek to the White House – in a secret meeting Wednesday night that followed up on a golf outing over the weekend.

According to The Hill newspaper, Cantor’s walkout had been planned for weeks:

The timing of Cantor’s exit from the talks has been discussed for weeks, and senior House Republicans cast it as a natural progression for the negotiations.

For his part, Cantor didn’t inform Boehner of his decision to leave the talks until Thursday, shortly before the news broke, said a GOP official familiar with the situation. The official required anonymity because of the sensitivity of the information.

The White House sought to put a positive spin on developments.

“As all of us at the table said at the outset, the goal of these talks was to report our findings back to our respective leaders,” Biden said in a statement. “The next phase is in the hands of those leaders, who need to determine the scope of an agreement that can tackle the problem and attract bipartisan support. For now the talks are in abeyance as we await that guidance.”

The Senate’s Republican negotiator, Jon Kyl of Arizona, also exited the talks.

For his part, Cantor said the secretive Biden-led talks had “established a blueprint” for agreement on significant cuts in spending.

One of the byproducts of Cantor’s departure was to provide an opportunity for partisans on all sides to make statements at odds with the positions they may have to take to achieve a deal. Democrats insist that at least some new revenues are needed – both to soften spending cuts and to line up the Democratic votes needed to pass the measure.

“It will take Democratic votes to pass any debt-ceiling agreement,” said Sen. Chuck Schumer, D-N.Y. “As a result, certain things are going to have to be true. We cannot make cuts to Medicare benefits. We have to allow for revenues like wasteful subsidies for ethanol and oil companies. And we have to do something on jobs.”

“President Obama needs to decide between his goal of higher taxes or a bipartisan plan to address our deficit,” said Senate Republican leader Mitch McConnell, R-Ky. “He can’t have both.”

As for Democratic demands for new deficit-financed “jobs” initiatives, McConnell scoffed: “What planet are they on?”

Cantor said that plenty of progress has been made in identifying trillions of dollars in potential spending cuts to accompany legislation to raise the $14.3 trillion cap on the government’s ability to borrow money. Passage of the legislation this summer is necessary to meet the government’s obligations to holders of U.S. Treasurys. The alternative is a market-shaking, first-ever default on U.S. obligations.

Wall Street Journal June 17,2011

By JAMES
A. BAKER III

If the United States does not address its looming debt crisis, the cost of
servicing the national debt will spiral out of control. The annual interest
bill, according to a recent Congressional Budget Office report, will increase
four-fold to $916 billion by 2020. This year, we will spend 70% less on debt
payments than we do on defense. In nine short years, we are expected to spend 8%
more.

Washington so far has been unable or unwilling to make the tough choices
required to put us on the road toward fiscal sanity. And it is unlikely that a
grand bargain will emerge prior to the 2012 election. Nonetheless, our country
can still take three short-term steps to bolster confidence in the bond markets
and prevent a rise in interest rates that will damage our fragile recovery.

Step No. 1 is to raise the debt limit in a way that generates confidence in
the markets. That means including a restraint on spending.

To accomplish this, the debt limit should be increased by an amount
sufficient to service the U.S. debt for six months, provided that the proceeds
from the increase are used to service debt obligations. Doing this would
eliminate the argument that a U.S. default will end Western civilization as we
know it. And we should also increase the debt limit by an additional amount
sufficient to cover the federal government’s anticipated borrowing needs for the
next six months. But we must do so only if the administration and Congress agree
to a cap on total spending that will be enforced by sequestering spending from
specific programs or by cuts across the board—and only if, in addition,
agreed-upon amounts and types of projected spending are eliminated. Special care
here should be taken not to agree to waivers, exceptions or exemptions that
could be used to defeat the purpose of the cap, sequester or across-the-board
cuts.

We’ll have to repeat the process twice a year until a comprehensive budget
fix is reached. The caps should aim at achieving a historical ratio of spending
to GDP of 20.6%. The debt-limit increase should not exceed the six-month period,
because it is only when the debt limit has to be increased that Congress will be
forced to muster the political will to enact enforceable spending restraint.

Of course, the best way to permanently reduce spending would be to enact a
balanced-budget amendment to the Constitution requiring a supermajority in both
houses of Congress to run an annual deficit, raise tax rates, or increase the
debt ceiling. Unfortunately, the chances of enacting such a constitutional
amendment are slim.

Step No. 2 is to take a page from Ronald Reagan’s playbook in 1986 and
restructure our convoluted tax code by reducing loopholes and lowering marginal
rates. Business responded when the Reagan administration and a Democratic House
overhauled the tax system this way. It would respond again today if given the
chance. But, as in 1986, any changes in 2011 must be revenue-neutral so as to
avoid turning the discussions on tax reform into a heated debate over aggregate
levels of taxes and expenditures. Otherwise, with a divided government, the
effort will fail.

Step No. 3 is for Congress and the White House to fully embrace free trade.
With the dollar at low levels, consumers in other countries have an appetite for
products with a “Made in the USA” label. To encourage them, we should give more
than lip service to the currently pending free trade agreements with Colombia,
South Korea and Panama. The White House should stop stalling after two and a
half years of inaction and send them up to Congress for a vote.

In the long run, much more will be needed to correct America’s fiscal woes.
We must solve long-term funding shortfalls in entitlements such as Medicare,
Medicaid and Social Security. And at some point we will have to start thinking
about ways to raise revenue. But as President Reagan taught us, the very best
way to do that is by increasing economic activity with pro-growth economic
policies—lower tax rates, less regulation and more free trade.

With the Federal Reserve ending its purchase of bonds later this month, the
Treasury must rely even more on China, Saudi Arabia, Japan and other countries
to invest in our securities. The cost of these borrowings will ultimately
increase if the U.S. is not seen to be dealing with its fiscal problems. We must
demonstrate to the American people as well as the world that our leaders are
doing so.

Mr. Baker was President Ronald Reagan’s secretary of the Treasury from
1985-88.

As reported in Huffington Post

By Andy Sullivan

WASHINGTON — Negotiators trying to tame the United States’ spiraling debt said on Thursday that they had tentatively agreed on a number of cuts and are now gearing up for tough trade-offs that could lead to trillions of dollars in savings.

“We’ve gone through a first, serious scrub of each of the categories that make up the total federal budget,” Vice President Joe Biden told reporters. “Now we’re getting down to the real hard stuff: I’ll trade you my bicycle for your golf clubs.”

Biden and top Democratic and Republican lawmakers aim to reduce the country’s stubborn budget deficits by $4 trillion over the next 10 years in order to give lawmakers the political cover to raise the $14.3 trillion U.S. debt ceiling to prevent a default.

The agreed-upon cuts will serve as bargaining chips in the coming weeks as the two sides tackle a stark divide over taxes and health benefits, participants said.

“Even stuff we agreed to that we may have refined today is all subject to be reopened if we don’t get agreement on some of the big issues. We’ve got a long way to go here,” said Democratic Representative Chris Van Hollen.

Farm subsidies, federal employee pensions, student loans and the trillion-plus dollars that Congress spends each year on everything from defense to river dredging could come under the knife.

But Republicans have refused to consider increased taxes, while Democrats have resisted wholesale changes to health benefits for the poor and the elderly.

COMPROMISE ON TAXES, HEALTHCARE?

Compromise is not impossible in these areas. Democrats hope to boost tax revenues primarily by ending breaks and closing loopholes, rather than raising rates. Two recent Senate votes have given them heart as Republicans backed closing tax breaks for ethanol providers.

On healthcare, Democrats have blasted a Republican plan that would scale back the Medicare health program for future retirees. But they have proposed less dramatic changes that could still save hundreds of billions of dollars.

Both President Barack Obama and Republicans have proposed significant changes to the Medicaid health program for the poor. Obama has also said he would support limiting medical malpractice lawsuits — a longtime Republican priority.

“I think we really are covering every type of spending program there is,” Representative Eric Cantor, the No. 2 House Republican, told reporters. “We are doing all that we have set out to do.”

The group is stepping up negotiations as it faces a self-imposed deadline of July 1, with longer and more frequent talks set for next week.

The Obama administration has warned that it will run out of money to pay the nation’s bills if Congress does not raise the debt ceiling by August 2 — a prospect that could push the country back into recession and upend financial markets across the globe.

Washington needs to show investors that it can rise above its dysfunctional reputation, Biden said.

“The single most important thing to do for the markets is convince them no, that’s not true, we can handle difficult decisions,” he said.

Republicans want at least $2 trillion in cuts, measured over 10 years, to go along with a similar increase in the debt ceiling to ensure Congress doesn’t have to revisit the politically toxic issue before the November 2012 elections.

The Biden group could claim another $2 billion in savings by mandating automatic cuts or tax increases if Congress doesn’t meet specified deficit targets in coming years.

Budget deficits in recent years have hovered at their highest level relative to the economy since World War Two. The deficit is projected to hit $1.4 trillion in the fiscal year that ends September 30.

(Additional reporting by Richard Cowan; Editing by Eric Walsh)

Written by Tyler Kingkade from Huffington Post

WASHINGTON — House Majority Leader Eric Cantor praised Vice President Joe Biden Monday for his handling of the debt limit talks, a positive sign for those who hope the government will raise its debt limit before financial markets react negatively to the growing potential of a U.S. default.

“I’ve been very impressed with the way he conducts his meetings — he does like to talk,” Rep. Cantor (R-Va.) said in a meeting with reporters. “I guess we all do, otherwise we wouldn’t be here.”

Discussions between Biden, Cantor and other congressional leaders about legislation to increase in the debt ceiling are expected to intensify this week as both the U.S. Treasury’s Aug. 2 default deadline and Congress’ summer recess grow nearer. Three debt talks are planned for this week.

“He has conducted these meetings in a way that has kept the ball rolling, and we are — I believe — beginning to see the essence of convergence on savings beginning to happen,” Cantor said. “Now, a lot of this will be up to where the speaker and the president end up.”

“The role that I play in these discussions,” the minority leader added, is to “define the playing field and to push as far as we can to come together to maximize savings and increase the amount of reform.”

Both sides have already agreed to over a trillion dollars in cuts, Cantor said. For the GOP’s cooperation in the debt ceiling vote, his Party is pushing for spending cuts in excess the $2 trillion it would be raised by.

Cantor said everything is on the table, but not tax increases.

This place does not have a revenue problem, it has a spending problem,” he said, insisting even considering them would be a disincentive to small businesses. “I don’t know whether it’s good, bad, indifferent — it just is what it is.”

Cantor reiterated his caucus’ belief that corporate tax rates ought to be lowered to make the U.S. more competitive, even though the current tax rate is at a historic low as a percentage of the country’s GDP.

Cantor predicted, if Congress simply “checked the box” and raised the debt ceiling without significant cuts accompanying the vote, interest rates would skyrocket and the federal government would be forced to raise taxes.

“No one wants that,” he said. “We’re not going to going along with that outcome.”

No clues were given about where the cuts were going to come from in legislation to raise the debt limit, but Cantor said the focus is on the initial 10-year budget window.

The majority leader declined to provide a target date to have the debt ceiling increase bill written, other than saying he did not want it to get the point where a negative reaction from the stock market forces Congress to raise it.

Treasury Secretary Timothy Geithner wrote to Congress in May, warning that the country is projected to begin defaulting on debts come Aug. 2, 2011. However, Geithner said that is no reason to wait to vote to increase the debt limit.

“While this updated estimate in theory gives Congress additional time to complete work on increasing the debt limit, I caution strongly against delaying action,” Geithner wrote. “The economy is still in the early stages of recovery, and financial markets here and around the world are watching the United States closely. Delaying action risks a loss of confidence and accompanying negative economic effects.”

The bipartisan Simpson-Bowles fiscal commission previously recommending various tax increases and reforms that Republicans are now opposing. Senior economic advisers to Ronald Reagan have also said tax increases will be needed in some sort to reduce the national debt.

Bruce Bartlett, who was a policy adviser in the Bush Treasury, told The Huffington Post recently that a trillion dollars has been “left on the table” due to the historically low tax levels. Another senior Republican economic adviser, Joel Slemrod, also said a return to Clinton-era tax rates would not necessarily harm the economy, although under current conditions it could be risky.

The original request to raise the debt limit by $2.4 trillion would be projected to last until the end of 2012, past the next elections. An ABC News/Washington Post poll found last week that a slim majority of Americans favor an increase, so long as it’s accompanied by spending cuts.

As reported by Courier Post

Written by
ANGELA DELLI SANTI and BETH DeFALCO

TRENTON — Republican Gov. Chris Christie and Democratic Senate President Stephen Sweeney reached a deal Wednesday to change retiree pension and health benefits by requiring public workers to pay more for both.

The deal, if approved by the Legislature, would require bigger contributions from all public workers beginning July 1, a person who has been briefed told The Associated Press. The person insisted on anonymity because the deal has not been made official.

It would also mean that public workers’ health benefits would be legislated, not negotiated, as they are now. Christie has been pushing for legislative changes; union leaders have been opposed.

An official announcement is planned for later Wednesday. Details were still being worked out by Democrats who control the Senate.

Assembly Speaker Sheila Oliver, also a Democrat, has been involved in the talks over the past several weeks, but it’s not known whether she agrees with the deal. Her spokesman, Tom Hester Jr., declined to comment Wednesday.

The governor’s office did not respond to messages for comment.

The pension and retirement health systems are both underfunded by tens of billions of dollars. The proposal is designed to reduce the long-term indebtedness of both systems.

One provision of the deal would require the state to make its annual pension payment. Governors of both parties have skipped or greatly reduced their pension contribution in most of the past 20 years.

The deal would raise pension contributions immediately by at least 1 percent for public workers such as local police and firefighters; teachers; state police; and state, county and municipal workers. Judges, who now put 3 percent of salary toward their pensions, the least of any public worker group, would see that amount increase to 12 percent.

The deal also would require employees to pay more for health care under a new salary-based contribution formula that would be phased in over four years. The rate could be as high as 30 percent of the cost of the premium for top wage earners and as low as 3 percent for the lowest-paid employees. Most workers now pay 1.5 percent of their salary toward health care regardless of the cost of their plan.

The proposed state budget for the fiscal year that starts July 1 relies on more than $300 million in savings from health benefits reforms.

The Communication Workers of America, the state’s largest public worker union, wants health care to remain a collective bargaining issue. The union representing 55,000 state and local employees is in negotiations with the Christie administration over a new contract; its current contract expires June 30.

“This proposal destroys collective bargaining,” said Hetty Rosenstein, the union’s state director. “It’s completely unaffordable for anybody — it does not one thing to actually save health care dollars, all it does is shift them.”

“All over this country there is a fight to protect collective bargaining,” Rosenstein said, “and we think Democrats in New Jersey should join that fight.”

The union’s health care giveback proposal relies on increased cost-sharing by employees, bulk purchasing of prescription drugs and updated medical record-keeping to reduce costs by $240 million in the fourth and final year of the contract.

 

Life Line

June 7, 2011

The life line to any business is the phone.

 

 

It is your connection to the public.

 

The Customer calls and you are on stage.

 

 

 

My Pop always said,

 

 

“That people hear you before they see you.”

 

 

 

What image are you projecting when your clients call?

 

 

 

Some companies place a low priority on this…..

 

 

 

Trying calling Dell, Comcast or Verizon.

 

 

 

All their words tell you they are customer oriented

 

 

Geared to handle your issues,

 

 

but you are so frustrated by the time you get a chance to
talk to someone!!!

 

When you finally do get a human voice…

 

 

You start to panic…..

 

 

Please don’t hang up!!!!

 

 

If we get disconnected…..

 

Can you call me back at 856……….

 

 

Is that true customer service?

 

 

 

 

Service is Key

 

 

Companies personally answering each phone call

 

Is rare these days….

 

Almost unheard of

 

 

Guess what????

 

HBS has a client who does just that.

 

 

Recently, we met with the client who had a 12 year old phone
system

 

 

Yeah, the phones worked….

 

But we were having trouble finding parts for it

 

 

They were dealing with an accident waiting to happen.

 

 

When we met with them,

 

we asked….

 

What are you looking for a new phone system to do?

 

 

Besides the ability to personally answer each call

 

They were also looking for management tools

 

  • How long calls were lasting
  • Who is available to answer overflow
  • How many rings does it take to answer
  • How can we get in touch with people who hang up

 

We took all their suggestions into account and spoke to many
of the phone vendors we deal with to define a solution that would work.

 

We found a solution with

 

The new Hosted VOIP system designed by Evolve

 

 

It has not only addressed their questions

 

but their ability to service the client has

 

Shot thru the roof.

 

 

Here are some of the comments we have received

 

 

I couldn’t believe we had over 900 calls the other day.

 

We had 9 people answering the phone in the past;

 

Now we have up to 15 people available to jump in and help out.

 

 

We found that many people hang up after they have been on hold for more than 20 seconds,

 

Now, we are able to retrieve those #s and call them back up

 

 

 

I was out of town last week and was able to log in remotely to see what was going on in our call
center.

 

 

The tools and products now available to business……

 

Continue to literally evolve.

 

 

When VoIP was first introduced;

 

QOS (quality of service) was a major issue.

 

 

Voices sounded delayed, in the distance and always had static.

 

 

 

Hosted VOIP solutions have put these questions to rest.

 

Clients are now able to ride on the providers’ network and
the results are amazing.

 

 

How old is your phone system?

 

Are you on borrowed time?

 

 

HBS represents all the major PBX and Hosted VOIP providers.

 

We offer a free consultation.

 

 

Prices for updating your phone system have never been more
affordable.

 

 

 

Hosted VOIP solutions

 

Will revitalize your efforts to

 

Stay in touch with your clients

 

 

 

 

For learn more about Hosted VOIP solutions email George@hbsadvantage.com

Or call 856-757-1230

As reported in Huffington Post Business

Written by William Alden

NEW YORK — As politicians fight over the federal debt ceiling, Americans could start feeling the consequences of Congressional gridlock even before that limit is hit.

Moody’s Investors Service warned on Thursday that if lawmakers have not made progress in negotiations to raise the debt limit by mid-July, the ratings agency plans to reassess the nation’s sterling credit rating for a possible downgrade. The warning, coming after Standard & Poor’s lowered its outlook on U.S. debt to “negative” in April, underscores that the current political stalemate in Washington has already begun to dampen the nation’s economic prospects.

A downgrade from Moody’s on U.S. debt, or even the imminent threat of one, could itself begin to choke the economic processes that still have not fully recovered from the Great Recession. It would imply that a credit default is possible, likely causing yields on Treasury debt to rise and pushing up interest rates across the board.

“It would be an earth-shattering event,” said Scott Anderson, senior economist at Wells Fargo. “It’s taken as a given that U.S. Treasuries are a safe asset. Once you question that assumption, it shakes the foundations of global finance, and the way it’s been established over the last 50 years.”

Federal lawmakers have been locked in a debate over raising the nation’s legal borrowing limit, as the vote to allow the government to fund its existing obligations has been tied to a more controversial legislative agenda. Congressional Republicans insist they will not vote to raise the limit without also achieving measures to reduce the federal deficit, while economic officials in the Obama administration warn that procrastination on the debt ceiling vote could have disastrous consequences.

The country could be forced to default if the limit is not raised by August 2, Treasury Secretary Tim Geithner said in a letter to Congress last month.

But the economic pain could begin before that date. The risk of a default by the U.S. government has risen, Moody’s Investors Service said in a note posted to its website. Moody’s incorporates these considerations into its credit ratings, which are treated by many investors as authoritative assessments of credit quality. Investors use these ratings in their decisions to buy or sell a security.

The country will keep its top rating if the government does not default, Moody’s said. But if the agency determines there isn’t significant progress on a deal by mid-July, it will initiate the process that could lead to a downgrade, the agency said in the release.

“Although Moody’s fully expected political wrangling prior to an increase in the statutory debt limit, the degree of entrenchment into conflicting positions has exceeded expectations,” the note reads. “The heightened polarization over the debt limit has increased the odds of a short-lived default.”

Moody’s added that its long-term assessment would also depend on lawmakers’ hammering out a plan to reduce the federal deficit. S&P sounded a similar note in April, saying it could downgrade U.S. credit if lawmakers don’t settle on a plan to reduce the deficit and debt by 2013.

Investor confidence in Treasury debt began to show cracks on Thursday. Yields on U.S. debt have been low for the past several months even as politicians fight over the debt limit, suggesting that investors believe the government will not ultimately default. But yields edged up on Thursday as the value of the debt fell.

The 10-year Treasury note was yielding nearly 3.03 percent on Thursday, after closing on Wednesday at 2.95 percent. Rising interest rates suggest investors perceive the debt as risky, demanding higher payment in compensation for this lack of safety.

As congressional negotiations drag on, this trend in bond markets could continue, said Anderson, the Wells Fargo economist. Higher Treasury rates would make borrowing more expensive for businesses and individual Americans. Especially in light of Friday’s dismal jobs report, any further economic strain should be avoided, Anderson said.

“The markets would start pricing in the possibility of default even before the drop-dead deadline,” he said. “We can’t deal with another shock.”

The Mistake of 2010

June 3, 2011

By
Published: June 2, 2011

 

Earlier this week, the Federal Reserve Bank of New York published a blog post about the “mistake of 1937,” the premature fiscal and monetary pullback that aborted an ongoing economic recovery and prolonged the Great Depression. As Gauti Eggertsson, the post’s author (with whom I have done research) points out, economic conditions today — with output growing, some prices rising, but unemployment still very high — bear a strong resemblance to those in 1936-37. So are modern policy makers going to make the same mistake?

Fred R. Conrad/The New York Times

Paul Krugman

Mr. Eggertsson says no, that economists now know better. But I disagree. In fact, in important ways we have already repeated the mistake of 1937. Call it the mistake of 2010: a “pivot” away from jobs to other concerns, whose wrongheadedness has been highlighted by recent economic data.

To be sure, things could be worse — and there’s a strong chance that they will, indeed, get worse.

Back when the original 2009 Obama stimulus was enacted, some of us warned that it was both too small and too short-lived. In particular, the effects of the stimulus would start fading out in 2010 — and given the fact that financial crises are usually followed by prolonged slumps, it was unlikely that the economy would have a vigorous self-sustaining recovery under way by then.

By the beginning of 2010, it was already obvious that these concerns had been justified. Yet somehow an overwhelming consensus emerged among policy makers and pundits that nothing more should be done to create jobs, that, on the contrary, there should be a turn toward fiscal austerity.

This consensus was fed by scare stories about an imminent loss of market confidence in U.S. debt. Every uptick in interest rates was interpreted as a sign that the “bond vigilantes” were on the attack, and this interpretation was often reported as a fact, not as a dubious hypothesis.

For example, in March 2010, The Wall Street Journal published an article titled “Debt Fears Send Rates Up,” reporting that long-term U.S. interest rates had risen and asserting — without offering any evidence — that this rise, to about 3.9 percent, reflected concerns about the budget deficit. In reality, it probably reflected several months of decent jobs numbers, which temporarily raised optimism about recovery.

But never mind. Somehow it became conventional wisdom that the deficit, not unemployment, was Public Enemy No. 1 — a conventional wisdom both reflected in and reinforced by a dramatic shift in news coverage away from unemployment and toward deficit concerns. Job creation effectively dropped off the agenda.

So, here we are, in the middle of 2011. How are things going?

Well, the bond vigilantes continue to exist only in the deficit hawks’ imagination. Long-term interest rates have fluctuated with optimism or pessimism about the economy; a recent spate of bad news has sent them down to about 3 percent, not far from historic lows.

And the news has, indeed, been bad. As the stimulus has faded out, so have hopes of strong economic recovery. Yes, there has been some job creation — but at a pace barely keeping up with population growth. The percentage of American adults with jobs, which plunged between 2007 and 2009, has barely budged since then. And the latest numbers suggest that even this modest, inadequate job growth is sputtering out.

So, as I said, we have already repeated a version of the mistake of 1937, withdrawing fiscal support much too early and perpetuating high unemployment.

Yet worse things may soon happen.

On the fiscal side, Republicans are demanding immediate spending cuts as the price of raising the debt limit and avoiding a U.S. default. If this blackmail succeeds, it will put a further drag on an already weak economy.

Meanwhile, a loud chorus is demanding that the Fed and its counterparts abroad raise interest rates to head off an alleged inflationary threat. As the New York Fed article points out, the rise in consumer price inflation over the past few months — which is already showing signs of tailing off — reflected temporary factors, and underlying inflation remains low. And smart economists like Mr. Eggerstsson understand this. But the European Central Bank is already raising rates, and the Fed is under pressure to do the same. Further attempts to help the economy expand seem out of the question.

So the mistake of 2010 may yet be followed by an even bigger mistake. Even if that doesn’t happen, however, the fact is that the policy response to the crisis was and remains vastly inadequate.

Those who refuse to learn from history are condemned to repeat it; we did, and we are. What we’re experiencing may not be a full replay of the Great Depression, but that’s little consolation for the millions of American families suffering from a slump that just goes on and on.

James
Pethokoukis

Politics and policy from inside Washington

 

So I took a crack at the budget
simulator
cooked up over at the NYTimes Web site. It starts out with a
projected 2015 deficit of $418 billion and a projected 2030 deficit of $1.355
trillion. My goal was to do it through 100 percent spending cuts.

nytimes

Here is what I did:

1.  Eliminated earmarks  ($14 billion)

2. Cut the pay of civilian workers by 5 percent ($17 billion)

3. Reduced the federal workforce by 10 percent ($15 billion)

4. Reduced nuclear arsenal and space spending  ($38 billion)

5. Reduce military to pre-Iraq War size and further reduce troops in Asia and
Europe ($49 billion)

6. Reduce Navy and Air Force fleets ($24 billion)

7.  Cancel or delay some weapons programs ($18 billion)

8. Reduce the number of troops in Iraq and Afghanistan to 60,000 by 2015
($149 billion)

9. Enact medical malpractice reform ($13 billion)

10. Increase the Medicare eligibility age to 68  ($56 billion)

11. Reduce the tax break for employer-provided health insurance ($157
billion)

12. Cap Medicare growth starting in 2013 ($562 billion)

13. Raise the Social Security retirement age to 70 ($247 billion)

14. Reduce Social Security benefits for those with high incomes ($54
billion)

15. Tighten eligibility for disability ($17 billion)

16. Use an alternate measure for inflation ($82 billion)

In the end, my budget would have a minuscule 2015 deficit of $80 billion and
a 2030 surplus of $187 billion. Now I would have preferred an option for deeper
domestic spending cuts. The Heritage
Foundation has ideas
for over $300 billion worth. And I think eliminating
hundreds of billions of tax breaks and lowering tax rates across the board would
boost growth and revenue. The simulator only lets me use the Bowles-Simpson plan
which would lower rates by cutting tax expenditures —  but uses some of the
dough for deficit reduction. Plus, the simulator assumes no impact on growth
from higher taxes or lower taxes. Also, there is no doubt the Medicare cuts
would be rightly labeled as “rationing.”  But Americans really have only two
choices, I think: severe government healthcare rationing (since right now
healthcare costs are rising much faster than GDP growth) or voucherization.

The simulator also shows how tough it is to balance the budget through tax
increases alone. If you went for every tax increased offered, you would still
have a slight deficit in 2030. And again, that assumes zero impact on economic
growth from a) letting all the Bush tax cuts expire; b) eliminating tax breaks;
c) adding a national sales tax, carbon tax and bank tax. That is a fantasy.
Letting all the Bush tax cuts expire, for instance, would probably knock 2-3
percentage points from GDP next year.