U.S. Economic Statistics -- Quarterly Data

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THE ECONOMIC CASE FOR HEALTH CARE REFORM

THE ECONOMIC CASE FOR HEALTH CARE REFORM

EXECUTIVE SUMMARY

The Council of Economic Advisers (CEA) has undertaken a comprehensive analysis of the economic impacts of health care reform. The report provides an overview of current economic impacts of health care in the United States and a forecast of where we are headed in the absence of reform; an analysis of inefficiencies and market failures in the current health care system; a discussion of the key components of health care reform; and an analysis of the economic effects of slowing health care cost growth and expanding coverage. Read the full report.

The findings in the report point to large economic impacts of genuine health care reform:

• We estimate that slowing the annual growth rate of health care costs by 1.5 percentage points would increase real gross domestic product (GDP), relative to the no-reform baseline, by over 2 percent in 2020 and nearly 8 percent in 2030.
• For a typical family of four, this implies that income in 2020 would be approximately $2,600 higher than it would have been without reform (in 2009 dollars), and that in 2030 it would be almost $10,000 higher. Under more conservative estimates of the reduction in the growth rate of health care costs, the income gains are smaller, but still substantial.
• Slowing the growth rate of health care costs will prevent disastrous increases in the Federal budget deficit.
• Slowing cost growth would lower the unemployment rate consistent with steady inflation by approximately one-quarter of a percentage point for a number of years. The beneficial impact on employment in the short and medium run (relative to the no-reform baseline) is estimated to be approximately 500,000 each year that the effect is felt.
• Expanding health insurance coverage to the uninsured would increase net economic well-being by roughly $100 billion a year, which is roughly two-thirds of a percent of GDP.
• Reform would likely increase labor supply, remove unnecessary barriers to job mobility, and help to “level the playing field” between large and small businesses.

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Vehicle Sales Plunge--Ugly Chart

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Personal Income and Expenditures (Numbers and Charts)

Personal Consumption Expenditures tick up. A positive factor for first Quarter GDP.



Personal income

• decreased $29.1 billion, or 0.2 percent
• disposable personal income (DPI) decreased $10.5 billion, or 0.1 percent

Personal consumption expenditures (PCE)

• increased $17.2 billion, or 0.2 percent. In January, personal
• income increased $20.5 billion, or 0.2 percent
• DPI increased $164.6 billion, or 1.6 percent
• PCE increased $94.8 billion, or 1.0 percent, based on revised estimates.

Real disposable income

• decreased 0.4 percent in February, in contrast to an increase of 1.3 percent in January.

Real PCE

• decreased 0.2 percent, in contrast to an increase of 0.7 percent.
  
• The price index for PCE increased 0.3 percent, the same increase as in January.

Source: Bureau of Economic Analysis (more details and pres release)

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Disposable Personal Income ticks up.

Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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Big Business Loses Out on Tax Break Under Stimulus Deal

One potato, two potato, three potato, zip.

I wrote previously about Georgia Republican Sen. Johnny Isakson proposal that provided a $15,000 tax credit to consumers who purchase a principal residence--Senate Advances Tax Break for Homebuyers. This would have applied to the purchase of a new or existing home. Bad idea since purchasing an existing home does not add to the economy. Additionally, I could foresee that shrewd investors could find a way to swap houses and enjoy $30,000 in tax benefits at the expense of taxpayers. I also wrote about how this tax proposal would benefit the rich and not all taxpayers, Senate’s Housing Tax Credit Favors Higher-Income Homebuyers. Poof gone.

It was clear that Johnny, a former real estate agent, had one thing in mind--some payback for his campaign backers.

Democratic negotiators have also jettisoned a proposal from Georgia Republican Sen. Johnny Isakson that would have provided a $15,000 tax credit to consumers who purchase a principal residence before the end of 2009. The plan was strongly supported by the National Association of Home Builders and many Republicans.

Key words: National Association of Home Builders. Make the builders rich, do little for the consumer, nice try Johnny.

But after Mr. Isakson and most Senate Republicans voted against the overall stimulus package Tuesday, Democrats stripped it from the final legislation. Instead, they expanded an existing $7,500 tax credit for first-time home buyers to $8,000 and extended its expiration to the end of the year from this summer. The change cuts the cost of the home-buyer proposal to less than $3 billion over 10 years from more than 10 times that amount.

Fair enough.

Big business didn't do as well as they would have liked in the new stimulus spending package. I have nothing against big business as I invest in stocks all the time; however, I prefer companies that can do it the old fashioned way without needing to step up the the government "trough". Capitalism--good.

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Big Business Loses Out on Tax Break Under Stimulus Deal

By BRODY MULLINS

WASHINGTON -- From auto dealers to the home-building industry, big business appears to be the biggest loser in the final economic stimulus plan being pieced together Wednesday on Capitol Hill.

Negotiators from the House and Senate sliced billions of dollars in tax incentives for businesses and slashed huge tax breaks for consumers that were strongly backed by industry lobbyists.

Many of the business tax provisions were added to the stimulus legislation in the Senate in an effort to attract Republican votes. President Barack Obama wants bipartisan support for the plan and was dealt a setback when no Republicans voted for the House version of the plan two weeks ago.
How the Stimulus Plans Differ

* Compare the House and Senate versions of the stimulus legislation.

More

* See the draft text of the Senate's stimulus bill
* Obama Seeks to Restore Stimulus Spending
* Finding a Foreclosure Fix Proves Tricky
* Bill Poses Political Risk for Both Parties
* Tax Break Divides Large, Small Builders
* Handful of Firms Benefit in Senate Bill
* Stimulus's Winners and Losers
* Obama Warns of 'Lost Decade'
* Do you think the stimulus legislation will work?
* How would you grade Obama's handling of the economy?
* Real Time Econ: Tax Revenue Tumbles
* Video: The Prospects for a U.S. Recovery

But when only three Republican senators voted for the Senate version of the bill Tuesday, Democrats slashed the business tax proposals in an effort to bring the total cost of the bill under $789 billion.

Though the details of the overall package could remain unclear until Thursday, interviews with congressional aides and industry lobbyists indicate that the final plan will include just $5 billion in tax incentives aimed at corporations, down from $21 billion in the Senate.

Democrats shed most of that by cutting back a tax break sought by unprofitable businesses to recoup taxes paid in the past five years by offsetting former profits with more recent losses. Democrats agreed to limit the tax benefit to small businesses, reducing its cost to just a few billion dollars from $19 billion included in the Senate bill.

Democratic negotiators have also jettisoned a proposal from Georgia Republican Sen. Johnny Isakson that would have provided a $15,000 tax credit to consumers who purchase a principal residence before the end of 2009. The plan was strongly supported by the National Association of Home Builders and many Republicans.

But after Mr. Isakson and most Senate Republicans voted against the overall stimulus package Tuesday, Democrats stripped it from the final legislation. Instead, they expanded an existing $7,500 tax credit for first-time homebuyers to $8,000 and extended its expiration to the end of the year from this summer. The change cuts the cost of the home-buyer proposal to less than $3 billion over 10 years from more than 10 times that amount.

Negotiators also dropped a plan by Sen. Barbara Mikulski (D., Md.) that would have allowed consumers to write off the interest on loans for vehicles purchased this year. In its place is a smaller plan to allow consumers to write off sales and excise taxes on car purchases. $2 billion he broader plan in the Senate would have cost $11.5 billion over 10 years.

In a win for business, negotiators sweetened a provision that would reduce the tax burden for companies that buyback their debt. The provision was backed by a coalition that included the U.S. Chamber of Commerce, private equity firms and Las Vegas casinos.

Several smaller tax provisions for businesses remained in the legislation. Negotiators appear ready to except a plan that would allow small businesses to more quickly write off there expenses and a second proposal to speed up the depreciation of new equipment and investments for all companies.

However, Florida citrus growers and California vintners lost a bid to expand those provisions to include agricultural projects.

Negotiators also cut a $500 worker tax credit to $400. Republican Sen. Olympia Snowe of Maine had called the worker tax credit the "signature" piece of Mr. Obama's stimulus plan.

Write to Brody Mullins at brody.mullins@wsj.com

Previously on All American Investor

Ray Dalio on the current state of affairs in the market

15 Great Stocks From the Great Depression

Roubini Predicts U.S. Losses May Reach $3.6 Trillion

Six Errors on the Path to the Financial Crisis

Don't Get Swindled by a Foreclosure Rescue Company

Option ARM--The Toxic Mortgage

Debt Binge--The Perfect Financial Storm

Doctor Doom and the Black Swan Discuss the Economic Crisis

Roubini and Taleb discuss the economic crisis

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Worried about the Economic Stimulus Package--You will be after you read this

Ready for a stomach ache, here goes.

Milwaukee Public Schools would reap $88.6 million over two years for new construction under the economic stimulus package just passed by the U.S. House of Representatives - even though the district has 15 vacant school buildings, a large surplus of property and no plans for new construction.

The amounts for MPS are particularly eye-catching, and not only because they are the largest in the state. Enrollment is declining every year, and the last major wave of construction in MPS - the $102 million Neighborhood School Initiative launched in 2000 - resulted in projects that are underused, have not met enrollment projections or have closed. A series in the Journal Sentinel in August detailed how tens of millions of dollars in construction spending did not produce the expected results, and the project as a whole has not led to a higher percentage of students attending neighborhood schools.

If you are interested in ascertaining the validity of this information and the source go to, The Mikwaukee Wisconsin Journal Sentinal: Milwaukee Public Schools may be in line for millions in stimulus package

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PIMCOs Gross: Find ways to prop up the Values of Assets

To PIMCO, the remedy for this deflationary delevering and mini-depression is simple and almost axiomatic: stop the decline in asset prices.

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Investment Outlook
Bill Gross | February 2009

BEEP BEEP!

The current financial and economic crisis is difficult to appreciate, not only for the drop in elevation, but because of the swiftness of the declines. It’s been a Wile E. Coyote 12 months – straight down like a dead weight. A year ago, global equity prices were nearly twice today’s levels and recession was only a whisper on the lips of the gloomiest of economists. Today, descriptions drawing parallels to the Great Depression make it obvious that a major shift in economic growth and its historic financial model, as well as policy prescriptions for its revival, are underway. Most of the world’s connected economies and its citizens are in shock, conscious but not fully aware of the seismic shifts that will unfold in future years.

PIMCO’s thesis for several years has held that the levered global economy long ago morphed from a banking-dominated regime to one that hid behind securitized lending and structures resembling a “shadow banking” system. SIVs, hedge funds, CDOs and increasingly levered mortgage and investment banks fueled asset appreciation in all investment markets, which in turn propelled real economic growth and employment to unsustainable levels. But, with U.S. housing prices as its trigger, the delevering process did a Wile E. Coyote and headed over the cliff in mid-year 2007, dragging down almost all asset prices except government bonds. The real economy followed shortly thereafter, not just in the U.S., but globally, proving that linkages work on the “down” as well as the upside. To PIMCO, the remedy for this deflationary delevering and mini-depression is simple and almost axiomatic: stop the decline in asset prices. If that can be done, the real economy will level out as well. When home prices stop going down, newly created households will be more willing to take a chance on ownership as opposed to renting. If stock prices consolidate, recently burned investors will be more willing to invest, as opposed to stuffing their 401(k) mattresses with Treasury bills. Business investment, jobs, and profits should follow quickly behind.

The simplicity of the solution, however, is not easily achieved once deflationary momentum takes hold. Animal spirits, once dampened, are hard to reignite; “fear of fear itself” dominates greed. Under such circumstances, the benevolent hand of government is required and Keynes is reincarnated in an attempt to plug the dike via fiscal spending and imaginative monetary policies that support asset prices. PIMCO has recently been contracted to assist in several publically announced programs which have helped in that effort: the CPFF, which has benefitted commercial paper yields, and the Federal Reserve’s purchase program for agency-backed mortgage loans, which has lowered 30-year mortgage rates to 4.5% and fostered the affordability of new and secondary housing prices. These two programs, in our opinion, have been the major policy successes to date – not because of our involvement – but because they have supported and increased asset prices whose decline has been the major deflationary thrust behind the real economy. Stop asset prices from going down and with a 12-month lag, unemployment will stop going up, and President Obama’s targeted three million new jobs will have a fighting chance of being achieved.

But stopping the decline of asset prices can be and has been attempted in numerous, seemingly uncoordinated ways. Recapitalization of the banks has been the major thrust, in the hopes that banks would extend credit which would reinvigorate asset pricing. Those who argue strongly for a recapitalization of the banking system, however, may be missing the distinction between the banking system as we once knew it, and the “shadow banking” system that superseded it. Jim Bianco, who heads up the research tank bearing his own name, brought the difference to mind in a recently produced piece entitled, “When Will The Banks Start Lending?” His conclusion was that banks already were – lending – but it was the “shadow system” (my words) that was holding up the parade. According to his analysis, shown in Chart 1, securitization has for several years exceeded bank loans as a percentage of private credit market debt. In contrast to recent headlines, however, banks have been picking up their lending, but it has been the “shadow banks” that have faltered. That makes sense. While banks may have tightened their lending standards, fresh capital from the TARP has made it possible to make new loans. The shadow banks, however – hedge funds, investment banks, and structured financial conduits – have been forced to delever as government funds have been directed to more visible institutional lenders. Granted, Goldman Sachs and Morgan Stanley have been TARP recipients, but only under the conditions of downsizing and degearing on their way to becoming regular banks, which have cut their holdings of assets significantly in percentage and actual dollar terms. It should not surprise, therefore, that with the exception of specifically directed government programs directed at commercial paper rates and 30-year mortgage yields, past policies have been unsuccessful. Banks have been recapitalized – yes – and banks have cautiously started to lend. But shadow banks are still delevering due to disappearing and unavailable fresh capital and, as they do, they continue to drag asset prices with them. PIMCO’s Ramin Toloui has produced Chart 2 which correlates the contraction in household debt to the decline of the securitization market. He estimates that there is a one trillion dollar hole that needs to be filled by policymakers in this area alone.




Stressing the importance of the shadow banks is not the same thing as suggesting that they should be next in line for government largesse and bailouts. Lord knows, the Obama Administration is not going to bail out hedge funds, CDOs, private equity firms (Cerberus?), or Donald Trump. There are levered risk takers that will be, and should be, allowed to fail. But in permitting failure, policymakers must still be cognizant of the need to support asset prices – hopefully by inducing confidence and trust in private investors, as pointed out by Robert Shiller in a recent Wall Street Journal op-ed, but if need be by the financing or purchase of assets themselves. It’s not so much that the stock market needs to go back to 10,000. That would be nice for millions of 401(k)s that have been cut in half over the past 12 months, but it is not likely. Rather, asset prices securitizing commercial real estate and credit card receivables, as well as plain old-fashioned municipal bonds, must stop going down if the real economy has any chance to revive by 2010.

Example: CMBS or commercial real estate mortgage-backed securities are now priced to yield over 12% vs. 5% in recent years. As real estate financing comes due and rolls over in the next few years, it is imperative these yields return to mid-single digits if shopping centers, retail malls, and office buildings are to remain viable. How best to bring those yields down is debatable: another CPFF-like structure with self-insurance and contributed fees as its equity backstop? A generous portion of remaining TARP billions providing a reserve cushion for Federal Reserve funding? A good bank, bad (aggregator) bank structure? All three are being debated by policymakers and we should have clarity within a week’s time. But one thing is certain: an economic recovery is dependent upon commercial real estate prices stabilizing and most retail stores staying open for business in the months and years ahead.

Similarly, municipal yields are now trading at nearly twice their Treasury counterparts, implying that municipal bonds are trading at 80 cents on the dollar instead of 113 cents like the average Treasury. To enable states and cities to return to normal functioning, those bonds must return to par. Modern day capitalism depends on the successful refinancing and issuance of securities at a price and yield level not significantly divorced from past experience. That is the same thing as saying that current yields must come close to matching the economy’s embedded cost of debt if default is to be avoided. Not only municipalities, but the efficient operation of hospitals, nursing homes and even universities depend on the leveling and returning of municipal bond prices to higher levels. Similar arguments can be made for corporate bonds as well.

PIMCO’s advice to policymakers is as follows: you can’t bail out everyone, yet economic recovery is not possible unless certain critical asset sectors are not only reliquefied, but rejuvenated in price. The prior Administration’s focus on the banks has been critical but unidimensional. The shadow banking system with its leverage and financial innovation, powered a near 25-year global economic expansion, but it is the delevering of those hidden quasi-banks that is now threatening its petrification. Policymakers should not focus entirely on one-off bailouts of large real estate developers, municipalities, or even credit card issuers like they have with Citi, BofA, and AIG. Rather, they should recognize that supporting critical asset prices such as municipal bonds, CMBS, and even investment grade corporate bonds is a necessary step towards eventual economic revival. Capitalism at its philosophical and practical center depends on credit, and while new loans can be and are being advanced via the banking system, it’s a much more difficult task to force shadow banks to lend. That lending depends on securitization which in turn depends on stable and eventually higher asset prices than currently exist. The original focus of the TARP was on asset prices, but the prior Administration quickly lost its way or perhaps its nerve. Like his Road Runner nemesis, Wile E. Coyote must now extend some infrequently used figurative wings to avoid the deflationary precipice below. Support asset prices. Beep Beep!

William H. Gross
Managing Director
Investment Outlook

PIMCOs Gross: Find ways to prop up the Values of Assets

Are the Democrats peddling voodoo economics?

Voodoo economics: a slanderous term used by President George H. W. Bush in reference to President Reagan's economic policies known as Reaganomics. Now known as "trickle down economics" by democrats. Bush used the term voodoo economics to categorize Reagan's strategy of extreme supply side economics. One of the early tenants of supply side economics was that that across-the-board cuts in income-tax rates might raise overall tax revenues.
It now appears that the new theory being espoused by the Obama administration is the use of extreme demand side economics. The theory being that each dollar of government spending can increase the nation’s gross domestic product by more than a dollar. In some arguments the multiplier is as high as 1.5 times.

This has me thinking two things. First, if this is true why don't we spend two trillion dollars instead of one trillion? Second, why are savings in such ill repute that no one is saying a single word about savings. The argument being used right now is that savings do not add to demand--in other words if people save then they don't spend. As I look at past bull markets, they are always preceded by savings. Prior to the latest bull market in the U. S. the savings rate soared to 8 percent. More recently, saving rates have dwindled to zero percent and sometimes less than zero.

I don't think it is a crazy to assume that over consumption and creating artificial demand for things like houses and cars is part of our problem. Our current problems are being caused by the use of credit gone wild. Nevertheless, the government is proposing spending over savings, and by the way, they will borrow the money to do it. On the other hand, when people save they have to invest it somewhere--usually in stocks, bonds, or bank CDs. This helps the economy grow and creates jobs because these savings get invested directly into companies or in the form of loans by banks to companies.

The articles by economist for and against the stimulus package are coming out rapid fire. Here are a few that are very thought provoking.

Is Government Spending Too Easy an Answer?
Government Spending Is No Free Lunch
Let's Stimulate Private Risk Taking

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The rush to stimulus

Recently:

• economic indicators worsening
  
• unemployment at the highest level in 16 years
  

John Cochrane, a professor at the University of Chicago Booth School of Business, says that among academics over the last 30 years, the idea of fiscal stimulus has been discredited and in graduate courses, it is "taught only for its fallacies."

New York University economist Thomas Sargent agrees: "The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research."

The cost of the plan is also scary. Supporters of fiscal stimulus are correct in saying that if it shortens the recession, it would more than pay for itself. Unfortunately, no one knows for sure if it would.

The stimulus rush

January 13, 2009

In recent weeks, just about every economic indicator has gone from bad to worse—the latest being unemployment, which is now at the highest level in 16 years. Most forecasters think the recession that began more than a year ago will last at least through spring. So it's no surprise that President-elect Barack Obama and his economic team have offered a $775 billion fiscal stimulus package to jolt the economy back to health. But just because the incoming administration and the public are eager for a remedy doesn't mean this one will work.

From the public debate on the need for fiscal stimulus, you would think the only open question is what form it should take. In fact, among economists, there is a good deal of uncertainty and doubt over whether fiscal policy holds much promise.

John Cochrane, a professor at the University of Chicago Booth School of Business, says that among academics over the last 30 years, the idea of fiscal stimulus has been discredited and in graduate courses, it is "taught only for its fallacies."

New York University economist Thomas Sargent agrees: "The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research."

Nobel Laureate Gary Becker says any benefits will be modest at best.

For the government to finance infrastructure spending or tax cuts, it has to borrow money. The money is thus unavailable for private investment or consumption. Right now, companies and individuals are having trouble getting credit, which is a big reason for the downturn. But if the government borrows more, they will have an even harder time finding lenders. So the effort could be self-defeating.

The cost of the plan is also scary. Supporters of fiscal stimulus are correct in saying that if it shortens the recession, it would more than pay for itself. Unfortunately, no one knows for sure if it would. Given a choice between a severe contraction and a one-time boost in the budget deficit, the latter would obviously be preferable—not to mention better for the long-run fiscal outlook. The danger, though, is that we may inflict on future taxpayers the better part of a trillion dollars in new debt without actually hastening recovery.

So the burden is on the incoming administration to show 1) that fiscal stimulus has a good chance of paying off and 2) that the spending will be done wisely. It's not easy to spend such large sums quickly, and trying to do so carries the risk of wasteful outlays that don't improve the long-run strength of the economy—and may undermine it. If there are sound, cost-effective projects waiting to be started, it makes sense to start them sooner rather than later. Costly boondoggles, however, are a bad deal any time.

Right now, a lot of advocates are in a big hurry to dispense with the questions about fiscal stimulus and get on with it. But rushing to your destination won't help unless you know you're on the right road.

Copyright © 2009, Chicago Tribune