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Obama's Plan: Spare Me the Tax Cuts, Give Me My Medicare

I'm finally learning the meaning of hope and change. Three years ago, hope and change seemed like a slogan to roll your eyes at. No more. Now it's becoming something to strive for. But it's not the hope and change Obama can bring us, he's already failed that test. It's the hope for change we have at the thought of him leaving and taking his ineffective administration with him.

Onto last night's speech. Obama is so transparent. His speech was all about construction workers, teachers, and veterans, and instilling fear of China and South Korea, because they are out to take our jobs. He went for the "heartland." As if all he has to do is proclaim South Koreans should be driving Fords and it will be so.

More importantly, as always, his plan leaves those on the fringe out to dry. And that includes seniors (who according to Obama are causing the health care system to implode by their sheer numbers), those who don't own businesses, and those who need affordable health care more than they need a $1,500 tax break. [More...]

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Obama to Propose $300 Billion Job Package

President Obama will give a speech Thursday. He's going to propose a $300 billion job package.

Obama will call on Congress to offset the cost of the short-term jobs measures by raising tax revenue in later years. This would be part of a long-term deficit reduction package, including spending and entitlement cuts as well as revenue increases, that he will present next week to the congressional panel charged with finding ways to reduce the nation’s debt.

Almost half the stimulus would come from tax cuts, which include an extension of a two-percentage-point reduction in the payroll tax paid by workers due to expire Dec. 31 and a new decrease in the portion of the tax paid by employers.

Will he mention raising the age for Medicare eligibility? Jay Carney said yesterday the speech would "include some new proposals that you have not heard us talk about.” We haven't heard Obama talk about raising the age for Medicare eligibility, only reports that he was okay with it. This better not be one of his proposals. If it is, his pink slip is coming.

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The Need For Fiscal Stimulus

AmericaBlog interviewed Joseph Stiglitz:

Yes, you have heard it all before. It's still true.

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Feds Issue New Reporting Rules for Lawyers and Merchants Accepting Credit Cards

Many lawyers offer their clients the convenience of paying by credit card. The Feds have just instituted new reporting rules (available here) on such paymnts.

The IRS has implemented new compliance requirements through Internal Revenue Code Section 6050W that will affect all merchants (including government and non-profit entities). Beginning in calendar year 2011, all merchants will be required to report gross payments received through debit or credit card transactions to the IRS on an annual basis. To verify this reporting, banks and merchant service providers will be required to provide both merchants and the IRS with Form 1099-K by January of 2012.

From now on, your merchant name on your credit account at the bank must match your legal name on your tax ID number. Banks will be instituting compliance measures to check.

Here are the final regulations.

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Fannie And Freddie To Sue Banks Over Mortgage Securites: Does Geithner Know?

NYTimes:

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation. The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter. [. . .] The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value. Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

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The Icelandic "Miracle"

Via Krugman, the IMF report (PDF) on how Iceland has put itself on the right path. This stuck out for me:

A new and significantly smaller banking system has emerged from the crisis, with substantial private sector involvement. The banking system now holds assets of about 200 percent of GDP (one-fifth the size of the system pre-crisis) and is comprised of 14 institutions (23 before the crisis). This downsizing was largely achieved by transferring domestic assets and deposits to new institutions and imposing losses on general unsecured creditors. Work to address legacy vulnerabilities in the financial system (including the high level of nonperforming loans, loan and deposit concentration, and financial imbalances) is progressing. In particular, household and corporate debt restructuring is finally advancing and will help restore bank and private sector balance sheets.

Facing up to reality of the banks' true financial condition worked in Iceland. Maybe it can work here.

Speaking for me only

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In A Zero Lower Bound Recession, A Payroll Tax Cut Is Not Stimulative

The Obama Administration wants to extend the temporary payroll tax cut it brokered with Mitch McConnell in December 2010 (it was part of the infamous Deal that extended the Bush tax cuts.) While some like Ezra Klein hailed this initiative as great stimulus, the record is mixed at best. Bruce Bartlett writes:

[T]here is no evidence that the lower payroll tax has done much of anything to stimulate either spending or hiring. There are a number of reasons for this. [. . .T]he tax cut only helps those with jobs. While many have low wages and undoubtedly are spending all their additional cash flow, those with the greatest need and most likely to spend any additional income are the unemployed.

[. . . E]ven if one assumes that the cost of employment has declined and employers can somehow capture some of the payroll tax cut, there’s little sign that labor costs are the principal factor holding back hiring. The main one is a lack of sales, as monthly surveys by the National Federation of Independent Business document. In the latest survey, 23 percent of businesses said poor sales were their No. 1 problem and only 4 percent cited the cost of labor.

(Emphasis supplied.) I'm not sure why the lack of demand in a zero bound recession is not recognized as the problem here by the VSP in this country. The issue is how to stimulate demand. For this purpose, spending, by the government, is what is required. It seems clear no one wants to understand this. Bartlett writes:

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Warren Buffett: Raise Taxes On The Rich

In the New York Times:

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Here is an issue the President can easily make his. He could of done it last December of course, but it is not too late.

Speaking for me only

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Pelosi Names House Dems for Budget Deficit Committee

The gang of 12 henchman for the Deficit Budget Committee is now in place. Nancy Pelosi named the Democratic House appointees today. They are:

Democratic Reps. Chris Van Hollen (Md.), Xavier Becerra (Calif.) and James Clyburn (S.C.).

On the Republican House side:

House Speaker John Boehner tapped House Republican Conference Chairman Jeb Hensarling, R-Texas, to serve as co-chair of the committee. He also appointed House Ways and Means Committee Chairman Dave Camp, R-Mich., and House Energy and Commerce Committee Chairman Fred Upton, R-Mich., to the committee.

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Senate Dems Name Members of Deficit Committee

Sen. Harry Reid today named the Democratic Senate appointees to the Deficit Committee:

Reid tapped Sen. Patty Murray of Washington to co-chair the Joint Committee on Deficit Reduction, and also named Sen. Max Baucus of Montana, the chairman of the Senate Finance Committee, and Sen. John Kerry of Massachusetts.

Republicans have until next Tuesday to name their appointees.

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What "Lessons" Will Be Learned From Today?

Some, sadly including some self proclaimed "liberals," insist that today 'proved [S&P] f*cking right!' This despite the fact the US Treasuries hit 2 year yield lows.

I prefer, via Atrios, the lessons from Brad DeLong:

Stock market down 17% in two and half weeks while the bond market has reduced the yield on the Ten-Year Treasury from 3% to 2.35%, and break-even five-year inflation has fallen from 2.1% to 1.7%. I think that is a very loud wake-up call for Mr. Obama--that it is long past time for him to stop talking about how surrendering to Republicans on long-run spending priorities will bring the confidence fairy who will then gift us with a strong recovery and start actually doing his job.

Yep. See also Krugman.

Speaking for me only

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The S&P Effect: Market Fears S&P Push To Double Down On Bad Economic Policy

While the markets don't give a fig about S&P's analysis of the creditworthiness of US debt, it does appear to fear that governments will be pushed to follow S&P's bad economic advice:

The downgrade of the United States’s debt to AA+ from AAA has global implications, said Alessandro Giansanti, a credit market strategist at ING in Amsterdam. “We can see that this may force the U.S. to move more aggressively to cut spending,” he said, something that could drive the already weak economy into recession and weigh on the economies of all of its trading partners. “That’s the main driver” of the stock market declines, he said.

Krugman makes a similar point:

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US Treasuries Show Lower Yields Than Before S&P Downgrade

Unless someone misread the S&P downgrade and it downgraded the global equities market, much egg on the face of the clowns at S&P, as the yield on benchmark 10-year US Treasury is now lower than prior to Standard & Poor's downgrade.

S&P spoke, and nobody cared. This should be the end of S&P's sovereign debt ratings. When no one pays attention to you, what's the point?

Open Thread.

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S&P Is A Joke

Via Krugman, Treasury skewers S&P:

In a document provided to Treasury on Friday afternoon, Standard and Poor’s (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one.

[. . .] S&P’s $2 trillion mistake led to a very misleading picture of debt sustainability – the foundation for their initial judgment. This mistake undermined the economic justification for S&P’s credit rating decision. Yet after acknowledging their mistake, S&P simply removed a prominent discussion of the economic justification from their document. In their initial, incorrect estimates, S&P projected that the debt as a share of GDP would rise rapidly through the middle of the decade, and they cited this as a primary reason for a downgrade.

Clowns. As Treasury says, "[t]he magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action."

Speaking for me only

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S&P Downgrades US Debt

What's An S&P Sovereign Debt Rating Worth? We are about to find out:

The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday, in a dramatic reversal of fortune for the world's largest economy. S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

S&P stands alone here, as Moody's and Fitch did not downgrade US debt. I think we will see that no one cares what S&P thinks about sovereign debt.

Speaking for me only

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