Radio commentary, December 17, 2009
Happy Beethoven’s baptism day.
Fed begins to withdraw some indulgence
On Wednesday, the Federal Reserve held one of its regular policy-setting meetings, which happen every six weeks or so, and decided to do nothing, for now. That is, it left the interest rate under its direct control, the so-called federal funds rate, the interest rate that bank charge each other for overnight loans, unchanged at 0. Ok, it’s averaged 0.12% for the last few weeks, which is pretty close to 0. It also said in the statement accompanying the decision that it intends to keep it in this neighborhood “for an extended period,” whatever that means. The Fed described an economy that is slowly mending, but one that has a lot of recovering to do yet, which justifies this level of indulgence.
In the analytical paragraph of their statement, the Fed pointed to improvements throughout the U.S. economy—notably an “abating” deterioration in the labor market, a slower rate of cutback in business investment, and some signs of improvement in the housing market. Most of the evidence they point to is of the less bad but not yet good variety that’s been dominating the news for the last several months.
The Fed also announced that it will be phasing out a number of its extraordinary “liquidity facilities,” which is a fancy way of referring to their recent habit of spending trillions of dollars created out of thin air to support various forms of lending. Now they think that things are healing enough that they can start stopping. We’ll see how well this works. The Fed has been about the only major institution that’s been lending to private borrowers. They’ve even bought about a quarter of the bonds that the U.S. Treasury has issued so far in 2009—foreign investors, it seems, don’t have quite the appetite for lending to Uncle Sam that they did in earlier years. Will this withdrawal of the Fed’s indulgence lead to a relapse of the credit market seizures that characterized 2008?
parsing recovery (cont.)
On Thursday morning, the Labor Department reported that first-time applications for unemployment insurance, filed by the unlucky souls who’ve just lost their jobs, rose last week, the second consecutive rise in this sensitive indicator, which had been in an encouraging downtrend. The weekly figures are noisy, however, and the four-week average, which smoothes out all the week-to-week volatility, continues to drift lower. Continuing claims, the count of those already drawing unemployment insurance benefits, rose a hair, and their four-week average also continued in its downtrend. All this says that the job market is improving, but slowly—which is what all the other evidence suggests as well.
And the Conference Board’s leading economic index, designed to forecast turns in the economic trend three to six months out, rose nicely in November, its eighth consecutive rise. While this is encouraging, the economy still faces fiendish headwinds, most notably the continuing lack of job creation, without which the recovery can’t pick up enough steam to be self-sustaining. Much of the recovery so far reflects the government’s efforts to revive the economy—all the indulgence from the Federal Reserve I talked about earlier, as well as the $787 billion stimulus program that passed earlier this year.
It’s not only the broad macroeconomy that’s gotten a kick from what’s officially known as the American Recovery and Reinvestment Act of 2009. An analysis of that stimulus program, one of the few good things the president and the Democratic Congress have done, by the Center for Budget and Policy Priorities finds that it’s kept more than 6 million Americans from falling into official poverty in 2009, and lessened the sting of poverty for another 33 million. The reasons include tax credits for all workers and especially for working parents, emergency unemployment benefits, a one-time check for $250 sent to Social Security and disability recipients, and an increase in food stamp benefits. Their state-by-state analysis shows that about 419,000 New Yorkers and 844,000 Californians were lifted above the poverty line by bill’s provisions, and 2.4 million poor New Yorkers and 5.9 million poor Californians had their poverty eased. The benefits average out to about $1,000 per affected person per year—not an enormous amount, but since a poverty income is anything below $14,000 for a couple and $22,000 for a family of four, a thousand bucks can make a big difference.
two months’ Pentagon spending could end poverty
On that point, a reminder of how little it would take to end poverty in the USA. The so-called poverty gap, the amount of money necessary to bring everyone whose household income is below the offical poverty line up to that line, was about $138 billion in 2008, less than 1% of GDP. Or, to put it more bluntly, about what the Pentagon spends in two months. Or 3% of the total income of the richest fifth of American households. Or roughly what we spent bailing out AIG. But Wall Street and the war machine really need the money, you see.
Obama snubbed by his bosses
Finally, what a bunch of ingrates. Our president invited a lot of top bankers to the White House early this week to urge them to lend money to actual people and businesses instead of hoarding it, or speculating with it, which is what they’ve been doing. Three of them, Lloyd Blankfein of Goldman Sachs, Richard Parsons of Citibank, and John Mack of Morgan Stanley, didn’t bother to show up, claiming that bad weather kept them from getting to DC. [In an early version of these comments I replaced Blankfein with JPMorgan’s Jamie Dimon. I was wrong. Sorry.] What nonsense. Their banks would have failed without Washington’s assistance, and this is the thanks that Washington gets? And how did our president react to this snub? Instead of denouncing them as the hoarders and ingrates they are, he welcomed them when they phoned in. And I’m sure they’ll continue hoarding their money or speclating with it rather than lending to real people and businesses.
To steal and paraphrase a line from Adolph Reed, from many years ago and a very different set of circumstances, Obama more and more reminds me of George Bush but without the courage of his convictions.