Financial markets rallied when the Federal Reserve defied the rumor-mongers and resolved to continue its program of keeping interest rates very low until the unemployment rate improves. There was only one dissenting vote on the Fed’s policy-setting open market committee.
What’s going on here? Ever since the run-up to the collapse of 2008, what’s good for Wall Street hasn’t exactly been good for the rest of the economy. Are these ultra-low interest rates just pumping up more financial bubbles, as critics fear? Or does a still weak economy need this form of stimulus?
Think of it this way. There are risks to continuing a policy of very easy money, but premature tightening would be even worse.
Republicans are likely incur serious political damage in their effort to hold hostage continued funding of the government in exchange for deep spending cuts. This routine has become an annual ritual, and in the past President Obama has been the first one to cave. The 2011 Budget Control Act, which includes the automatic sequester, is one bitter fruit of the president’s past failure to hang tough in the face of Republican extremist demands.
Welcome home. You have several immense challenges in the coming days and weeks, including of course marshaling support for the Syria attack, dealing with the next artificial budget crisis contrived by the Republicans, and continuing to move forward with implementation of the Affordable Care Act against fierce partisan opposition.
After two major strikes, in 1909 and 1910, and the Triangle Shirtwaist fire in 1911, organizers rode the wave of worker militancy and public outrage to increase union membership of New York’s garment factories. With the period of full employment during World War I, unionization in the garment trades peaked at 129,000, despite having little protection from government. But in the 1920s, the industry managed to weaken the unions with a technique identical to the one used by the big fashion brands today. Instead of producing in their own factories, they contracted with “jobbers” and subcontractors, both to disperse the workforce and to diffuse responsibility for the appalling conditions. The economic collapse of the Great Depression reduced union membership even further.
Speaking in Phoenix on Tuesday, President Obama associated himself with a bipartisan proposal to slowly get Fannie Mae and Freddie Mac out of the business of backing mortgages. According to the plan, formulated in the Senate, a new federal agency called the Federal Mortgage Insurance Corporation would backstop banks and other private investors against catastrophic mortgage losses, but only after they had run though their own substantial capital first.
Most liberals I’ve spoken with are appalled that Amazon founder and CEO Jeff Bezos is buying The Washington Post. I’m no great fan of Bezos or of Amazon’s user-friendly though predatory retailing tactics, but here is a contrarian view of the Post purchase.
To underscore a weeklong initiative by President Obama on behalf of rebuilding the middle class, the latest figures on GDP growth, released Thursday, and on job growth, made public Friday, show just how far from a healthy middle class economy we are.
The EU’s extreme version of budget cutting has pushed the European economy ever deeper into its worst recession since World War II. The United States, pursuing a bipartisan target of $4 trillion in budget cuts over a decade, is mired in an economy of slow growth and inadequate job creation. Our government’s failure to give debt relief to indentured college students and underwater homeowners functions as a multitrillion-dollar twin drag on a feeble recovery. The smart money knows just how weak this economy is. Federal Reserve Chair Ben Bernanke had only to suggest that he might nudge interest rates up a bit, and markets panicked.
President Obama gave a fine speech at Knox College, the scene of one of his most effective pre-presidential moments when he gave the 2005 commencement address as an Illinois senator. Now we need to see whether he follows up with a clear and comprehensive program and a brave politics to match.
In reviewing the public’s ambivalent reaction to the disclosures of NSA data mining, I find that some people conclude that it’s no big deal, while others are uneasy but can’t quite explain why. It’s just a modest generic invasion of privacy that is not even activated in most cases. Presumably, this is a weapon that the authorities need to keep us safe. After closed-door hearings yesterday, some skeptics on Capitol Hill were somewhat reassured that safeguards are adequate.
If you are in this camp, here are three good reasons to reconsider.
Is President Obama planning to reverse course on deficit reduction? You will recall that the president joined the deficit-hawk crowd in calling for more than $4 trillion of deficit reduction over the next decade; that he has offered to cut Social Security and Medicare as part of a grand bargain (that the Republicans mercifully rejected); that it was Obama who appointed the Bowles-Simpson Commission; and that his own budget for FY 2014 includes substantial spending cuts.
The government’s April jobs report produced some happy headlines and a big stock market rally. The dismal March jobs tally was revised upwards from under 100,000 new jobs to a still feeble 138,000. In April, the economy created 165,000 jobs. The nominal unemployment rate dropped all the way from 7.9 percent to 7.5 percent.
But look a little deeper and you’ll appreciate just how crummy these numbers are.
Hillary Clinton is making all the early moves of someone preparing to run for president, though she has given herself plenty of time to rest, rejuvenate, and review a final decision. How, however, President Obama’s ill-conceived plan to cut Social Security benefits via a “technical” change in the inflation index will force Clinton to make an awkward choice.
Most Democrats in both houses of Congress are not happy with this backdoor cut in Social Security. It is both fiscally unnecessary and spectacularly bad politics. Republican leaders are already bashing Obama for selling out retirees. After Obama released his budget, Republican Congressional Committee Chairman Greg Walden of Oregon went on CNN to accuse the president of “a shocking attack on seniors. Resolutely defeneding Social Security in the face of periodic Republican forays at cutting or privatizing America’s most popular program has always been one of the Democrats’ great appeals. Obama gave that away.
Robert Kuttner is co-founder and co-editor of The American Prospect as well as a Demos Distinguished Senior Fellow. He was a longtime columnist for Business Week, and continues to write columns in the Boston Globe. He co-founded the Economic Policy Institute in Washington and serves on its executive committee.