What Yellen Should Have Said

The question reporters should be asking now is, what did the Federal Reserve Board’s Open Market Committee do for two days last week?

The statement it issued based on its meeting is a rehash of its last statement, which itself was not worth repeating.  Check the link from The Wall Street Journal, which you can use to compare the two most recent statements (as well as others), and you’ll see that the Fed mailed it in this time.

Yellen

These folks are managing our economy.  The fate of the world is in their hands.  And the best they can do is come up with an update to a previous statement.  No wonder the economy has practically flatlined throughout the current “recovery.”

It’s worth adding, though, that the Fed’s Seinfeld approach of having meetings about nothing may be better for the economy and for the American taxpayer than the previous chair’s pronouncements about Operation Twist and unlimited QE programs.

The latest Fed statement starts with this: “Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat.”  Really?  What does “has moderated somewhat” mean?  And where is the “information” received from?  NSA wiretaps?  Drones?  Ben Bernanke’s blog?

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AP Poll: Americans Want Less Economic Growth

Well, here’s a shocker.  A new AP poll shows that a majority of Americans want a higher minimum wage.  They also want paid sick leave and parental leave, free community college and more gender equality laws.  And, of course, they want wealthy taxpayers to pay for all of it.

Who wouldn’t?  The poll doesn’t ask about the resulting economic impact of these feel-good policies.

Polls are supposed to be objective.  They rarely are.  Asking Americans if they support a higher minimum wage isn’t too far removed from asking, “Do you want to help poor people?” Transfer Payments

Pollsters will never ask questions such as, “Studies show that increasing the minimum wage results in fewer jobs and slower economic growth.  Do you favor an increase in the minimum wage?”

The Poll That Will Never Be

To provide some balance, perhaps AP should poll Americans about the following questions.

Do you favor higher unemployment and lower economic growth?

It’s basic economics that when the price of something goes up, demand falls.  Increasing the minimum wage, and requiring paid sick leave and parental leave may be desirable for employees, but many would lose their jobs as a result.

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Embrace the Bailout, Reduce the Federal Debt

Finally, the U.S. Treasury Department has figured out a way to reduce the federal debt – by giving money away.

That may not make sense, but keep in mind that we’re talking about the federal government.  And that means that money isn’t just given away; there are strings attached, unless you’re a preferred government contractor or an expert in Medicare fraud.

Bailouts

So consider this shocker.  Fannie Mae is scheduled to make a $7.2 billion payment to the U.S. Treasury next month and, when it does, the total payments from Fan and Fred will add up to $192.5 billion, exceeding the $187.5 billion they received from taxpayers.

Granted, a 3% profit over five years isn’t really a profit, but we’re talking about the “toxic twins” here.  And their payments are scheduled to continue, much to the chagrin of Fan and Fred shareholders.  They can just get in line, though.
That’s not the only government bailout that’s been profitable – the Troubled Asset Relief Program (TARP) required a $250 billion investment for troubled banks, but brought in more than $272 billion, a profit of about 9%.  AIG’s bailout was even more lucrative, bringing in $22 billion on an investment of $152 billion, for a 15% return.

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Goodbye, Middle Class

With all of the talk in Washington about equality, you have to wonder how the gap between rich and poor has widened to the point where even The New York Times is questioning the future survival of the middle class.

Disposable Income

Some have, indeed, made the transition from middle class to upper class and are enjoying a more comfortable lifestyle.  They may not be part of the 1%, but they’ve broken away from the middle.

The New York Times noted that, “In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995 … Even more striking, the current recovery has been driven almost entirely by the upper crust … Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.”

Put aside your class envy for a minute, though, and recognize that consumer spending by the top 5 percent is keeping the economy out of a recession – albeit, the current recovery has been so weak we may as well be in a recession.

The Great Divide

And while some are moving up, many more are falling down, creating a greater divide than ever between rich and poor.  Consider a few statistics from a cheery blog called, The Economic Collapse (and republished on Zerohedge):

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No, We Can’t

Someone had blunder’d:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do and die.

                                          From “The Charge of the Light       Brigade”

Take pity on the can.  It’s been kicked so far down the road, it could circle the globe a dozen times.  It’s been battered more than the New England Patriots’ starting lineup.  It’s been kicked harder than an Adam Vinatieri football.

And still it persists.

This week, Congress and President Obama reached a deal that reopens the government through January 15 and suspends the debt ceiling through February 7.  Calling it a deal, though, is an exaggeration.  One side, the Democrats, refused to negotiate.  The other side, the Republicans, asked for something it had no hope of getting.  So everyone agreed to kick the can three months down the road.free-the-fowl-games-photo-420-1196-FF11015_0

Beyond that, according to The Wall Street Journal, “The bill includes one minor change to the health law sought by Republicans, setting new procedures to verify the incomes of some people receiving government subsidies for health-insurance costs.  It also provides back pay for all federal workers who were furloughed during the government shutdown.”

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One Man’s Ceiling Is Another Man’s Floor

“There’s been some hard feelings here
About some words that were said …
Remember, one man’s ceiling is another man’s floor.”
                                                         Paul Simon

Here we go again. Hold on to your wallets, taxpayers. It’s time for another debt ceiling “negotiation.”

We use the term “negotiation” loosely, as it’s now extinct in Washington.

On one side, we have House Republicans waging an unwinnable battle, saying they’ll agree to suspend the debt ceiling limit for a year in exchange for a one-year delay of the individual mandate for ObamaCare, tax reform, approval of the Keystone pipeline and other concessions. While such changes would potentially provide a huge benefit to the economy, they have zero chance of passing in the Senate, which is controlled by the Democratic majority.Debt ceiling

On the other side, we have President Obama and Senate Democrats saying the Republicans are trying to shut down the federal government, because they are not willing to lift the debt ceiling without concessions from the President.

There will be no concessions by the Democrats. As President Obama put it, “I will not negotiate on anything when it comes to the full faith and credit of the United States of America.”

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U.S. Without a Budget for Four Years and Counting

As of April 29, the U.S. government will have operated without a budget for four years.  Based on the budget he proposed this week, President Obama intends to keep the streak going.

Even the smallest mom-and-pop businesses develop a budget each year and stick to it.  Yet the world’s largest enterprise – the U.S. government – has operated without a budget for more than 1,400 days.  Of course, the mom-and-pop business wouldn’t spend $1.4 trillion more than it takes in every year, either, but that’s another matter.

Nitpickers would say that the government is operating with a budget; Congress just has not passed a budget resolution since 2009.  But it’s the job of Congress to pass and approve a budget – and it has not done so for four years.

As just one example of the absurdity of the Congressional budget process in recent years, consider that when President Obama proposed his budget for FY ’12, the Senate voted it down 97–0.  Every Senator in the President’s own party – even Senate Majority Leader Harry Reid — voted against the budget, even though many had praised it when it was proposed.

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Sequestration: The Crisis Du Jour

It’s crisis time again in Washington, D.C.  Having just barely avoided a swan dive off the fiscal cliff, the leaders of our country are now locked in battle over the pending sequestration.

“Locked” is the operative word here, as the deep freeze that’s hit New England this week is likely to thaw well before the freeze in progress over sequestration.

If nothing else, this standoff has added to our vocabulary.  “Sequestration,” as we’ve learned, is a procedure that triggers automatic spending cuts.  It also means “the seizure of property for creditors,” as in, “China will begin sequestering U.S. property if we can’t control our debt and pay our bills.”  That definition may be more appropriate in years to come, but for now, let’s concentrate on the immediate future.

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