Krugman on The Obama Gap

Stirling has pretty much been right about this one all along: Obama comes from the Chicago School and to the Chicago School tax cuts are everything. Here's Krugman:

But only about 60 percent of the Obama plan consists of public spending. The rest consists of tax cuts — and many economists are skeptical about how much these tax cuts, especially the tax breaks for business, will actually do to boost spending. (A number of Senate Democrats apparently share these doubts.) Howard Gleckman of the nonpartisan Tax Policy Center summed it up in the title of a recent blog posting: “lots of buck, not much bang.”

The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job.

Governing from the Center-Right--aka 'triangulation'--might well doom Obama.

Couple of other newsworthy items before I call it a night:

Unemployment hits 7.2%. Now, we all know that's not the U6 number, but that's still high. And I still think it will hit 10% before year end.

Furthermore, Senate Democrats are, well, perhaps unhappy isn't the best word but it will do, with Obama's 'Stimulus Plan.' Heck, his honeymoon might be shorter than Bill Clinton's!

And Bloomberg News skewers Henry Paulson. It's a beauty. Well worth the read.

Lastly, South Korea has arrested a financial blogger for his, erm, blogging bad news. Good thing I am not there anymore.

Enjoy all this good news, I'll leave you with some new photos of the night food market on Lebuh Chulia here in Penang.

Sean Paul Kelley January 9, 2009 - 9:35am

Sean Paul Kelley's diary | printer friendly version |

( categories: Global Financial Crisis )

Figures

Unemployment hits 7.2%. Now, we all know that's not the U6 number, but that's still high. And I still think it will hit 10% before year end.

8.4%.

_{--Storm brings only richness with it}

Singular January 9, 2009 - 10:09am

So, you are saying 8.4% will be the high? You want to make a

friendly little wager?

^{“Is not our first thought to go on the road? The road is our source, our vault of treasures, our wealth. Only on the road does the ‘traveller’ feel like himself, at home.”

Ryszard Kapuscinski}

Sean Paul Kelley January 9, 2009 - 11:20am

Speaking about December 2009

I could cover my ass with macro derivatives somewhere near that figure. But those are dollar contracts, if you understand what I mean - LOL.

The recession will end in about half a year in the USA. Now Obama intends to create 3 million jobs, and if that's not enough, he will provide more shovels, if the unemployment threats to exceed 8.5%.

The essential risk is that the US bailout economy will implode, because it is based on increasing debt.

_{--Storm brings only richness with it}

Singular January 11, 2009 - 11:27am

adsf

The essential risk is that the US bailout economy will implode, because it is based on increasing debt.

"Trillion dollar deficits for the foreseeable future" are unsustainable monetarily, especially given the amount of underfunded obligations coming due. The US will not become Zimbabwe, but eventually, the Treasury market bubble will collapse, too, as money runs in search of stability, probably into PM. So watch credit vs gold.

tjfxh January 11, 2009 - 11:45am

Political and financing risk

MSM doesn't write a word on the political risks of Obama. The market seems to imply that Obama's stimulation package may be destroyed by American politicians or insufficient money at the probability level of 20%. Who knows what the congress will think about Obama after 6 months.

Junk bonds have done well. Everybody of course remembers those stories circulating few months ago how many of the issuers will certainly go bankrupt. Those stories were probably spread by the buyers :)

_{--Storm brings only richness with it}

Singular January 13, 2009 - 7:46am

Mish: Depression Statistics

The official unemployment rate is 7.2%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 13.5%. Note that it was 8.7% a year ago. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further.

There is no official definition of depression. Here is mine. When the U-6 unemployment rate rises above 12.5 in conjunction with a stock market that is down close to 50%, it's an economic depression. We are in one.

Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse. Expect to see the official unemployment rate hit 9% in 2009.

Given that unemployment is a lagging indicator, it is likely to continue rising in 2010.

figures here

tjfxh January 9, 2009 - 11:36am

We're only in the beginning of the...

...collapse; the roof has only fallen 1/2 - 2/3 of the way to the basement. I'm going with 20% "minimum" unemployment. It's worse than "they" want to tell you. Hasn't anybody noticed we only get bits and pieces of information doled out over time. Yes, I know, there are people who know and they are talking, but the ones who need to listen aren't. My feeling is that we've just not grasped the severity of this quickly enough and we're still playing catch-up; we must be ahead of this and we're not. IMO.

Celsius 233 January 10, 2009 - 7:49am

Narrative

Why to tell the truth in the beginning of the year when different versions of the story can be sold during the year?

The deflation fairy tale was recycled from the previous recession.

And Obama doesn't belong to politics. Politicians are supposed to be stupid like GWB, Sarah Palin, Kerry or Blagojevich. So, what's wrong with this Obama?

_{--Storm brings only richness with it}

Singular January 11, 2009 - 11:47am

If only...

Unfortunately the Chicago school has yet to extend those sorts of tax benefits to people actually living in the city itself - we have the highest sales tax in the country and the highest gasoline tax (the city excises $.1275 per gallon in addition to the federal and state taxes not to mention another 6.25% sales tax *and* the "underground storage fee").

PS: Since I'm a betting gal, I say 9.3% by May, but then it will start coming back down. We'll end 2008 at around 7.9%.

swatymyers January 9, 2009 - 10:47am

Mish: No driver for earnings

Looking ahead to 2009, 2010, 2011 there is simply no driver for earnings like we saw in 2002. Enormous leverage, creative financing, and the housing bubble are all gone and are not coming back.

The brokerage houses are now under bank rules and leverage will be reduced to 10-1 or possibly 12-1. A reduction in leverage is a reduction in risk, but also potential earnings.

In the immediate future, think about what increasing layoffs are going to do to credit card defaults, foreclosures, commercial real estate, demand for PCs, etc.

Then once the markets bottom, think about how fast those earnings will rise. Here's a hint: It will not be anything remotely like 2002.

Rushing in now on that expectation that stocks are cheap is playing the greater fool's game all over again. Stocks are not cheap, no matter how many pretend otherwise.

Is the Stock Market Cheap?

tjfxh January 9, 2009 - 11:45am

Did you know you (taxpayers) are in for 8.5 trillion?

Government agencies have committed more than $8.5 trillion to shoring up the financial system, including the $700 billion Troubled Asset Relief Program signed into law Oct. 3 by President George W. Bush. TARP was originally sold to Congress as a way to buy securities that had fallen in market value. Paulson shifted his emphasis to direct capital injections to banks to prevent the financial sector from foundering.

Paulson Bailout Didn’t Give Taxpayers What Goldman Gave Buffett

Emphasis added

tjfxh January 9, 2009 - 11:53am

re: South Korea's blogger arrest

You know people want their soothsayers to tell them what they want to hear. Genuine prophets are not wanted, and generally get seriously kicked about. I generally use Keynes as a case in point, but you can also trot out your Classical literature, and bring up Cassandra of Troy.

These days, and S Korea's no exception,you're probably right in that you got out at a good time. Hope your ribs improve before you ship out....

-5.75,-4.05
"God gives men a brain and a penis, and only enough blood to run one at a time." -- Robin Williams

justadood January 9, 2009 - 11:55am

Hey, don't forget Socrates

Genuine prophets are not wanted, and generally get seriously kicked about. I generally use Keynes as a case in point, but you can also trot out your Classical literature, and bring up Cassandra of Troy.

The father of the Western intellectual tradition was condemned to death by the democratic vote of his fellow Athenians on charges of impiety and corrupting the youth. His defense, reported in Plato's Apology, is one of the most famous literary works of Western civilization.

tjfxh January 9, 2009 - 12:59pm

economic benefits of various stimulus provisions

EPI/Moody's

_{"Go confidently in the direction of your dreams! Live the life you've imagined." -Henry David Thoreau}

Tina January 9, 2009 - 2:59pm

Here's the chart

Strong argument for helicoptering funds to the bottom via food stamps and UI insurance, as well as infrastructure spending and aid to states, where they will be spent immediately, as well as rolling back the Bush tax cuts ASAP, as many Dems in Congress want to do.

tjfxh January 9, 2009 - 3:44pm

Obama team working on overhaul of financial rescue

Fri Jan 9, 2009 3:15pm EST

Caren Bohan

WASHINGTON (Reuters) - President-elect Barack Obama's economic team is working to overhaul the $700 billion financial rescue program to stem mortgage foreclosures and spur the flow of credit to the struggling U.S. economy, an Obama aide said on Friday.

The Washington Post reported earlier that Treasury Secretary nominee Timothy Geithner was working with top Obama economic adviser Larry Summers and other aides to hammer out a new approach to managing the Troubled Asset Relief Program, also known as TARP.

The transition official, who spoke on condition of anonymity, confirmed that such an effort was under way and that part of it would likely include using some money to help homeowners avoid foreclosures.

The Obama team is also looking at ways to expand the program to help generate loans to municipalities, small businesses and consumers.

maybe Obama should read blogs more often

_{"Go confidently in the direction of your dreams! Live the life you've imagined." -Henry David Thoreau}

Tina January 9, 2009 - 3:26pm

Bloomberg

The Bloomberg article that S-P cites in the diary entry reveals that Paulson essentially gave the big financial institutions hundreds of billions, not to restore liquidity but rather solvency, without adequate protection for the taxpayers to recover on the enormous stake they were being volunteered to make.

Giving Money Away

Paulson said “he had to make it attractive to banks, which is code for ‘I’m going to give money away,’” said Joseph Stiglitz, who won a Nobel Prize in 2001 for his work on the economic value of information.

“The worst aspect of this is that they were designed not to do what they were supposed to do,” he said in a telephone interview from Paris Jan. 7. “In many ways, it’s not only a giveaway, but a giveaway that was designed not to work.”

[snip]

“Supporting equity is such a profound shift in American economic policy that we must take a hard look at that decision,” said Warren, a Harvard Law School professor who specializes in bankruptcy.

‘Something Worth Nothing’

Stiglitz said finance professionals at Treasury possessed expertise on warrant pricing that members of Congress didn’t. As a result, Paulson gave lip service to the lawmakers’ intent on TARP without gaining much value for taxpayers, said Stiglitz, a Columbia University professor who described the pricing mechanism as “a gimmick to make sure that they were giving away something worth nothing.”

“If Paulson was still an employee of Goldman Sachs and he’d done this deal, he would have been fired,” he said.

Paulson Bailout Didn’t Give Taxpayers Buffett’s Terms

No sense locking the door now. The horse has already been stolen from the barn, unless they renegotiate the deal.

tjfxh January 9, 2009 - 3:40pm

The Global Financial Crisis

The Global Financial Crisis that we are experiencing nowadays is a great burden to our lives. Our new President has his plans to solve the crisis that shook not only our country but also the world. Hopefully, the new plan under the Barack Obama administration will provide that extra cash on payday so you won't need a payday loan. The President-elect will first put the economic stimulus and job-creation package to the test. He is proposing a tax cut and a program he calls Making Work Pay. Hopefully this new strategy will be a better way to stimulate the economy. We know that the movements under the current administration seem to be hurting instead of helping the economy. Right now the need for a payday loan is increasing. Although we may not know exactly what the outcome will be, we should not shy away from trying out a new plan. There are signs that we may be coming out of the recession. All we need is something to provide that boost we urgently need. Hopefully this approach will restore consumer confidence and bigger paychecks on payday so you won't need to take out a payday loan.

Garrison K. January 10, 2009 - 12:52am

Video: A recent Onion piece about

Obsessive Obama Glorification. :-)

canuck January 10, 2009 - 1:02am

Tax cut

It's giving the Democrats some badly needed practice to push left. This could be a little judo by Obama.

I am in favor of weird screwy primaries because the smartest, sneakiest combatant can bubble up to the top. In the general we decide which one we hate the least :)

“The Playboy reader invites a female acquaintance in for a quiet discussion of Picasso, Nietzsche, jazz, sex.” - Hugh Hefner

Tonsure Wimple January 10, 2009 - 2:59am

someone please remind me

what we need a president actually for in the first place?
i understand the VP can flip a coin for the senate but really, imagine if we had no president. or prime minister. or king. it'd be up to us all to run the otherwise administration. it'd be up to us all to elect the cabinet positions in the first place.

spread the wealth? spread the "power". deconcentrate absolutely everything while we're at it.

meanwhile, impeach obama... can president-elects be impeached before they become president?

(...it's 3 in the morning. gotta headache & i'm tired and feeling old and cranky, forgive me. say good night gracie.)

Zuma January 10, 2009 - 4:10am

The Stimulus plan is one of

The Stimulus plan is one of the new President’s solutions to save our economy from its drowning state. Timothy F. Geithner, the Obama nominee for Treasury Secretary, had owed a large sum of money to the Internal Revenue Service. I wonder if he needed a payday loan to help pay off his $42,000 debt with the IRS. Apparently Geither’s tax mistakes occurred during the time he worked for the International Monetary Fund back in 2001-2004. It seems that U.S. law mixed with working for an international company was too complicated for Geithner. Fortunately, getting a payday loan is absolutely simple. Obama and his team are defending the nominee, stating that the errors were an honest mistake and there is no good reason why Geithner should not be the next United States Secretary of the Treasury. When you really think about it though, the incident happened five years ago. By now, he is probably a lot better with his taxes. In addition, he did pay back the money he owed plus interest. However, I am a bit hesitant to put a man who was unable to handle his personal financial dealings in charge of the entire country’s finances. You could read more about Timothy Geithner and the Barack Obama administration through this article on the payday loan money blog at PersonalMoneyStore.com.

Lamont E. January 19, 2009 - 12:25am

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Krugman on The Obama Gap

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