Saturday, February 28, 2009

The Battle of the Budget Shapes UP

President Obama's budget, submitted this week to Congress, is stirring things up, as should be expected.  Combating the deepening recession with a near-trillion dollars stimulus plan, and keeping to his campaign promises to reform health care, energy production, combat global warming, and increase education spending, his $3.6 trillion proposal is both ambitious and startling.

The battle lines are already forming.  Republicans, as expected, will  attack it,hurling  labels:  "socialism," "unAmerican," "Big Government," etc.  Even some democrats are unhappy with cutting farm subsidies to some of their big contributors--those who take in over a half a million dollars a year. 

Mr. Obama is fighting back, however.  His website has a video presentation of his weekly "radio" address in which he lays out his defense. (Click here to see it)

The video can be accessed directly.

The vested interests, such as the medical and insurance industries, do not like it.  So, we can expect a repeat of the advertising blitz that doomed the Clinton proposal in his first year in office.  This time, though, the Obama Administration knows what to expect, so I would expect orchestrated counterattacks to shore up the defenses.

There is no way to overstate the sea-change this budget represents.  It abandons the Reagan approach that defined government as the problem, and reinstates the Roosevelt approach that placed the federal government front and center of shaping American welfare.  It will be interesting to see how this looming battle plays out.  Can Mr. Obama use his popular mandate to force through this kind of change?  Stay tuned for a round-by-round accounting.

Update on Health Care initiative: (3/5/09)

Although Mrs. Hillary Rodham Clinton has not directly participated in any of the White House’s planning sessions on health care, her presence is felt in Mr. Obama’s efforts to pass his own health care reform proposals. The work she did 15 years ago, although ultimately unsuccessful, is being used as a model of what and what not to do for the current efforts.

First, the Obama plan is not being drafted in secret, and then handed over to Congress to pass. Mr. Obama’s plan is broadly defined, and Congress will be allowed to shape the details. Secondly, Mr. Obama is introducing his plan only six weeks into his Presidency. Mr. Clinton waited for 11 months to make his move. The delay, according to some, was one of the major factors in its defeat.

Another factor was the focus of the new plan, which stresses cost control, and it allows everyone to keep their current coverage if they want to. One of the things about the Clinton plan that was attacked was the fear that everyone was going to be forced into one type of access to health care.

Mr. Obama has also included at least partial funding ($635 billion) for his proposal in his first budget submitted to Congress. Mr. Clinton did not do this, choosing to focus initially on balancing the budget, which did not allow any room for health care spending. Now, however, the need for health care reform is widely seen as a necessary step to control the costs of Medicare and other federal spending that touches on health care. This means that the proposals of Mr. Obama are facing far less resistance from Congress and, oddly enough, even from the health care industry than the Clinton plan when it was introduced.

These differences may be critical in gaining passage of this most important piece of legislation. Although Mrs. Clinton may be engaged in diplomacy in foreign lands today, her efforts of a decade and a half ago are helping the new President do what he promised to do about bringing important changes to Washington. She may not get the credit for the success, and certainly Mr. Obama deserves all he will get for getting the job done, but Mrs. Clinton knows that her past efforts are providing some broad shoulders for the current Administration to stand on.

Picture of an Economy Collapsing

Graph of Quarterly Change in GDP

clip_image002See update to this chart for late February, below.

To continue reading and see the latest update, follow this link.

Tuesday, February 24, 2009

The Dollar as Beauty Queen

Like the great American humorist, Samuel Clements ( Mark Twain), reports of the death of the dollar have been highly exaggerated.  I follow commentary and developments in the currency markets, and there has been a downbeat attitude about the dollar for years, especially from those who fail to understand the strength of greenback as the ultimate reserve currency.

If we line up the current levels of American unemployment, GDP, budget deficits and the current account deficit, the dollar can be made to look like a pig.   The problem, though, is that a currency's value is never a matter of absolute value.  It's always about relative value.

Certainly the absolute picture of the American economy is gloomy.  But, then, so is almost everybody else on the world stage.  In Europe, both the developed and developing nations are worse.  Their banking crisis is similar to ours, and their exports are falling fast, as the recession strikes all parts of

Euro/Dollar--Feb 08 to Present 

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the continent.  To read the entire article and see additional graphs, click, here.

Thursday, February 19, 2009

U.S.-Canada Relations Front and Center

 

For many years the tradition for a new American President has been to make Canada his first international stop. This underscores the close relationship between the neighboring countries.

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President Obama and Ottawa from the American side of the St. Lawrence River

We share a long, un-guarded border with Canada, and we also share a common British heritage that covers a wide swath of commonality in language, legal system, political tradition and general culture. We also trade together. We export more to Canada than any other country, and Canada sells 33% of its GDP to Americans. There is good reason Canada gets the first Presidential visit, and I am glad Mr. Obama has continued the tradition today when Air Force One touches down on Canadian soil.

To continue reading this blog, please here to continue.

Sunday, February 15, 2009

Report on G7 Meeting in Rome and Looking Ahead to London's G20 Meeting on April 2nd

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A general view of the Group of Seven (G7) Finance Ministers and Central Bank Governors meeting in Rome, Saturday, Feb. 14, 2009.

The group shot above show the attendees of the meeting.  The photo below is a close up of U.S. Federal Reserve Chairman Ben Bernanke, left, U.S. Treasury Secretary Timothy Geithner, second from left, and U.S. Deputy Assistant Secretary of Treasury Mark Sobel who accompanied Mr. Geithner to the meeting.

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Continue reading article here.

Friday, February 13, 2009

All Eyes on Rome as the G7 Members Meet

All eyes should be on Rome today (Friday, Feb. 13) and tomorrow. The G7 meeting is taking place there, and the American representative, our Secretary of the Treasury, Timothy Geithner, will have his first chance to meet the finance ministers of Canada, France Germany, Italy, Japan, and the United Kingdom.(click here for an earlier review of Mr. Geithner)

The meeting is important because Mr. Geithner will be forced, to some degree, to put some meat on his proposal to salvage the American banking system. His proposal of a few days ago, as to how to spend the balance of the TARP funds, has not been greeted with any enthusiasm in America.

American banks are in horrid shape, especially our largest ones. Today, the market capitalization of our top banks is below $500 billion. Yet the International Monetary Fund estimates that the write-downs of their loan portfolios will rise to $2.2 trillion once a full accounting is required. When this happens, Mr. Geithner will be forced to step up to the task of rescuing them. But it is hard to imagine a scenario where the American taxpayer will pony up $2 trillion and not want a piece of the action. Yet “nationalization” of our banking system is not something he, or many others, want.

For the balance of this article and details of what is faced at the G7 meeting, click here.

Sunday, February 8, 2009

Unemployment Reaches for the Sky as Economy Deteriorates

The American economy lost almost 600,000 jobs last month and the unemployment rate jumped to 7.6 percent, its highest level in more than 16 years, the Labor Department said Friday. Overall, the Labor Department reported that since the U.S. economy went into recession in December, 2007,

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3.6 million jobs have been lost.

Businesses in all sectors except health care are cutting back on their payrolls. It is a major retrenchment and is still getting worse. The chart above shows the change in employment levels by month. Considering that the U.S. needs, on average, about 1.5 million new jobs each month in order to keep up with labor force growth, the effects on the economy are worse than the bar chart shows. As jobs become harder to get, as they are now, this discourages many workers from even looking for work. These “discouraged workers,” as they are called, are then no longer counted in the labor force—thus understating the unemployment levels.

To read the balance of this article, and see additional graphs, check here.