Tuesday, October 15, 2013

Economic Links -- Roubini and Others

This week's links from Roubini Global Economics are more important than usual. 

The Shutdown Talks Are in Chaos
Author: Yves Smith
While the magic date of Thursday does not mean a default happens then, what it almost certainly means is the government goes into a more severe shutdown mode to conserve more cash, which will cause more disruptions. As bad as that is, the real critical date is around October 31-November 1. Even then I don’t see this Administration defaulting on Treasuries, it will sacrifice pretty much everything it can to do that. But some investors may not believe that, and if retail investors start exiting money market funds with Treasury exposures (even though fund managers have exited the particular bonds that would be at risk) we could see serious disruption to the repo market (money market funds are big investors in repo). Remember, a run is destructive whether the fear is well founded or not. 
Now I don’t anticipate that things will go that far (and if anything were to get ugly, you could also expect this Fed to use its unusual and exigent circumstances powers to intervene). But it looks as if the Dems are willing to use Mr. Market to cow the Republicans. And as an aside, this should belie the commonly-touted Democratic cover for Obama that he is weak. He’s only pretended to be weak to shift blame to the Republicans for what he wanted to do when what he wanted to do entailed selling out his base.
► Government Shutdown Leaves US Policymakers Flying Blind
Author: Menzie Chinn
It’s well known that we don’t have a read on the September figures, although the underlying statistics are sitting in computers at the BLS. What is less well known is that surveys regarding the October employment situation begin the week of October 13. If the current trajectory is for sustained closure of the Federal government, then these surveys will be delayed, so as to distort the resulting output. 
Now let me pre-empt the arguments that the private sector will spontaneously generate the requisite statistics. Economic information is a public good, and even when private sector generates the data, because the returns cannot be completely captured by the producers, typically there will be underprovision (this is basic microeconomics). And in any case, how do you compare newly generated private series to established (and well documented) government series? 
Now, it might be that the intent behind the government closure is to hobble information gathering, so that people can make the craziest statements (I can already hear “inflation is soaring – we just don’t know it!”). But I remain hopeful that ignorance is not the objective, and that the current data blackout is merely collateral damage.
Default Lines
Author: James Picerno
This piece cites five other sources, beginning with this:

[...]   Donald Marron at the Tax Policy Center writes: “Actually, the United States Has Defaulted” by way of a brief, limited episode of default in 1979 on some T-bills. Meantime, 
what are your biggest concerns for the crisis du jour? Unsure? Not to worry as pundits have assembled an abundance of doomsday scenarios. 
Should you be worried? Yes. 
Why? Well, consider what our so-called leaders have produced so far–an unnecessary and entirely avoidable crisis that puts the US economy at risk. 
How much confidence should we have for expecting enlightened leadership to suddenly return in the days ahead? When you’re in the back seat of a car with a drunk driver who’s managed to avoid running off the road so far, it’s wise to reserve judgment on the outcome of the trip. [Other links follow.]
The Decline of the United States
Author: Marvin Zonis
More than 70 percent of the Tea Party members of the House of Representatives are from states or territories that were part of the Confederacy. Abraham Lincoln’s election as President in 1860 led South Carolina to declare the Federal Government their enemy. 
In his 1861 inaugural address, Abraham Lincoln declared “You have no oath registered in Heaven to destroy the government, while I shall have the most solemn one to preserve, protect and defend it.” 
For the Old Confederacy, the Federal Government is still the enemy. 
How this crisis will play out, especially in regards the coming debt ceiling, cannot now be predicted. Rumor has it that John Boehner has promised not to let the government default. Whether this crisis will result in greater popularity for southern Tea Party Representatives or less is unclear. 
But what is clear is that a small minority has found a way to exploit the protection of minorities embedded in out Constitution to paralyze the Government. Just another step in the decline of the United States.
► Why Giving Republican Bullies a Bloody Nose Isn’t Enough
by Robert Reich
Or "What is the best way to deal with bullies?"
The government is shuttered and the nation is on the verge of defaulting on its debts. But public opinion has turned sharply against the Republican Party. And the GOP’s corporate and Wall Street backers are threatening to de-fund it.  
Suddenly the Republicans are acting like the school-yard bully who terrorized the playground but finally got punched in the face. They’re in shock. They’re humiliated. They’re trying to come up with ways of saving face. 
With bloodied nose, House Republicans are running home. They’ve abruptly turned negotiations over to their Senate colleagues. 
And just as suddenly, their demand to repeal or delay the Affordable Care Act has vanished. (An email from the group Tea Party Express says: “Are you like us wondering where the fight against Obamacare went?”) At a lunch meeting in the Capitol, Senator John McCain asked a roomful of Republican senators if they still believed it was possible to reverse parts of the program. According to someone briefed on the meeting, no one raised a hand — not even Ted Cruz. 
It appears that negotiations over the federal budget deficit are about to begin once again, and presumably Senate Republicans will insist that Obama and the Democrats give way on taxes and spending in exchange for reopening the government and raising the debt ceiling for at least another year.

But keeping the government running and paying the nation’s bills should never have been bargaining chits in the first place, and the President and Democrats shouldn’t begin to negotiate over future budgets until they’re taken off the table. 
The question is how thoroughly President Obama has learned that extortionist demands escalate if you give in to them.
Most lawmakers had only heard reports of what was in the agreement being worked out by Senate leaders of both parties; it reportedly would extend the debt limit into early February, fund the government through mid-January and provide for negotiations over the next two months on ways to pare back the deficit.

"I'm not real big on kicking the can down the road," said Rep. Markwayne Mullin (R-OK), who like many others, just wasn't thrilled with the details he was hearing.

But some in the GOP held out hope that negotiations over the budget between the House and Senate might produce some bipartisan agreement on ways to rein in spending.

"Negotiations are important if there is a chance to reduce spending and deficits," said Rep. John Mica (R-FL).

"I think it's time for the President to come to the table in a meaningful way," said Rep. Mike Turner (R-OH).

"There will be many members who will be interested to see what exactly the Senate offers us," said Rep. Dennis Ross (R-FL).

"The question for me is, whether folks are trying to kick the can down road or whether folks are trying to open up a window of possibility to come to a solution," said Rep. Rob Woodall (R-GA).

That worried others as well - concerned that Congress might just have to repeat this shutdown and debt limit fight.

"We'll be back in the some spot two months from now, or whatever the date is," said Sen. Saxby Chambliss (R-GA).

As word of the possible deal spread, reporters swarmed Sen. Ted Cruz (R-TX), trying to figure out what the influential Tea Party Republican figure thought.

"Of what you know so far, do you like it or not?" one reporter asked.

"We'll have to wait to see what the details are," Cruz said as he pressed the button for the elevator just off the Senate floor.

"Are you disappointed it does not include defunding of Obamacare, cutting Obamacare, delaying Obamacare?"

"We'll have to wait to see what the details are," Cruz replied.

"Will you object?"

"We'll have to wait to see what the details are," Cruz said a third time.

"Is there a reason you are being so cautious?"

"I want to wait to see what the details are," a smiling Cruz said to loud laughter from reporters.

But it might not be a laughing matter for Speaker John Boehner, who has already had trouble getting a temporary budget and debt limit bill through the House.

"I think John is going to have a difficult time, irrespective of what the measure is," said Chambliss, a longtime friend and confidant of the Speaker.

House Republicans meet on Tuesday morning; Senate Republicans gather a few hours later.

How they react will likely determine whether this latest effort to get the government running and raise the debt limit actually works, or whether gridlock will maintain its hold on the Congress.

  • Gotta love Senator Cruz, never at a loss for words. One would think that as a Senator he would already know what is in the package coming from where?
    The Senate. 

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