January 8, 2008

"President Bush, in a marked shift from his usual upbeat economic assessments, conceded here on Monday that the nation faces 'economic challenges'..."

Reports the NYT.
“We cannot take growth for granted,” Mr. Bush said in a speech to a group of business leaders in which he acknowledged that “recent economic indicators have become increasingly mixed.”
I've become so skeptical of all things political that my first thought was that he's trying to help someone in the primaries (Romney?) — or hurt someone (Huckabee?) — by pushing economic issues into the foreground.

36 comments:

Middle Class Guy said...
This comment has been removed by the author.
dmfoiemjsof said...

If he was thinking politics, then he wouldn't have said something that just helps Democrats overall.

Doyle said...

"Increasingly mixed" is as sunny as he could have possibly been without seeming completely oblivious what's going on right now.

Goldilocks is dead, folks. We're going down and we're going down hard.

An Edjamikated Redneck said...

You may be right Doyle; But why?

I tend to agree that we are headed for a rough year or two with the economy, but I bet you and I would never agree on why or how to avoid it.

Ben (The Tiger) said...

Wants to protect the tax cuts, perhaps?

michael farris said...

You've got it backwards. Romney doesn't seem to care or talk about the economy at all while Huckabee speaks directly to Americans that are having trouble making ends meet.
Admitting that things aren't great helps the guy who's been saying the same thing.

SteveR said...

The great thing about forecasting an economic downturn is that at some point you'll be correct and meanwhile, get to be on TV.

cokaygne said...

Both parties need an excuse for fiscal stimulus and to hell with deficits. The Repubs want to keep cutting taxes for the rich and the Dems want to spend on worthless social programs. Neither policy would do much for the broad middle class where the votes are; but they would be welcomed by, respectively, campaign donors and public employee unions.

However, fiscal stimulus would be like throwing gasoline on the fires of inflation in view of the Fed's attempts to bail out Wall Street with cheap money. God help us all, the monkeys are running the zoo.

Doyle said...

You may be right Doyle; But why?

I tend to agree that we are headed for a rough year or two with the economy, but I bet you and I would never agree on why or how to avoid it.


Short answer: Housing bubble + securitizations with bogus investment grade ratings + CDOs = Huge amounts of paper wealth that we now realize doesn't actually exist.

I don't think the pain can be avoided, but at least one thing I'd do has been endorsed by Barron's: get rid of the rating agencies or at least have them get paid by investors (or -gasp- the government) rather than issuers.

One thing I'd like to see that you might disagree with: I think the mortgage origination market needs to be regulated in a meaningful way. The free market gave them no incentive to make sure the loans would be repaid.

Roger said...

As I recall, two straight quarters of negative GDP is the definition of a recession--any change in that? So by my calculation anyone who is asserting we are IN a recession is, at best, definitionally challenged.

An Edjamikated Redneck said...

Doyle, I have to agree with you (oh Lord how that hurt).

I work in the real estate industry and although I am a free market man, mortgage brokers ought to be outlawed. I lay the whole subprime collapse on the mortgage brokers, as well as the artificial housing price rise and fall.

How to fix it without ruining the entire economy is the hard part. There has to be a correction in housing values, and when it hits it will hit the folks with highly inflated mortgages first, especially those with a 100% loan to value ratio. Unable to sell without coughing up funds at closing they will just walk away (something we are already seeing in subprime loans).

I saw just today that Freddie wa looking at taking on the larger loans, and that the government was thinking about extending the ARM lock to all loans, not just the subprimes. That may help the borrowers, but what about the lenders? When Countrywide is looking for a bailout we have a serious problem.

Roger said...

BTW: agree with Redneck, Doyle: good analysis--does your sequence of evenets assume the ephemeral "wealth" was assumed by investors to be put into the credit market which eventually dried up? or at least sequestered by banks needing to maintain reserves?

Cyrus Pinkerton said...

middle class guy wrote:

There are things that will improve the economy, but they take courage and political will; things lacking in both parties. Lowring taxes...

Oh yeah, "lowring" taxes requires huge courage on the part of politicians. That's why politicians so very rarely promise tax cuts...

To be accurate, there is no evidence that lowering taxes improves an economy. There are, of course, instances in which a tax cut may benefit the economy, but I see no reason to believe that this is one of those instances.

That doesn't mean that candidates won't continue to promise tax cuts, however. For many candidates, "buying" votes with a tax cut promise is clearly more important than delivering sound fiscal policy.

John Stodder said...

If you're against tax increases, including phony "only on the wealthiest Americans" schemes, Bush's announcement will have an effect on the campaign rhetoric going forward. Most Democrats realize you only worsen a recession, which hurts everybody, if you raise taxes as it's getting started.

Bush probably anticipates an Obama Administration. Karl Rove is surely telling him that the GOP field is weak and that no matter who is nominated, the "base" will be divided.

Bissage said...

It is undoubtedly true that there are economic challenges. But it is similarly true that conmen ogle chalices.

The Exalted said...

do you really think bush would concede any problems to help one of these guys?

you've been following politics for how long?

anyhow, he's conceding the obvious, but doing so in a dishonest way, implying that this economic softness was inevitable.

An Edjamikated Redneck said...

Roger, without a doubt teh money, what actually exists as hard currency, is in the banks.

What exists as ephemeral currency is in inflated property values, backed up by the inflated mortgage values the banks thought they could count on.

I attended a talk a few months ago by Lawrence Yon (sp?); he explained that the value of real estate had goone up 7-8 times in the same amount of time wages had only risen 3 times- an unsupportable ratio.

My guess is that in the next few years (7-10) wages will increase to the fourth multiplication of the base and housing prices will fall to a 5-6 times of the base. Some folks who have taken every dime of equity out of their real estate are Screwed with a capital S.

The firm I work for does some foreclosure work, and in the past year we handled (ongoing work) the foreclosures on two property barons/slumlords. One held probably 40-45 properties, all either in foreclosure or already gone; the other had about 20-30 in the same shape. I believe this is the tip of the iceberg, as teh folks who thought they could get rich on other people's money find out the truth.

rhhardin said...

lowring interest rates

Interest rates are an output of the economy, not an input to it.

The Fed uses them as a way to gauge a change in the money supply that it determines is necessary to head off inflation.

That is, if there's too much money for the economy, the Fed quickens selling debt until the interest rate rises to its new slightly higher target. The rate itself is of no importance, just that it's higher than before.

Conversely if they want to add money, they slow selling debt until the interest rate falls to their new lower target.

The target in turn is set by indicators of inflation, as a little higher or a little lower.

Understand that money is not wealth but a ticket in line to say what the economy does next, presumably something for you. The Fed is just regulating the number of tickets to match what the economy is capable of doing at once.

So in short, a lower interest rate is not in itself good.

jeff said...

"The free market gave them no incentive to make sure the loans would be repaid."

How so? Not that this isnt true, I just have no idea how these sub prime mortgages worked. How come the free market would lend capitol and not worry about repayment?

"For many candidates, "buying" votes with a tax cut promise is clearly more important than delivering sound fiscal policy."

The problem with that statement is the assumption that my money is actually governments and they are offering to not take as much of it.

Doyle said...

does your sequence of evenets assume the ephemeral "wealth" was assumed by investors to be put into the credit market which eventually dried up? or at least sequestered by banks needing to maintain reserves?

Well yes the credit market was where the "wealth" resided. Banks are holding paper that they thought was worth $100, but are now trying to sell it for much, much less and are finding no takers. For reporting purposes, they're largely on their honor to assess their value, which adds to the uncertainty. Their claim is basically that the paper has intrinsic value but it's just hard to figure out what it's really worth because... no one wants to buy it. Don't call it worthless, though!

So yeah now they have to raise cash (by reducing their dividends or selling big chunks of themselves at a discount to oil states) to meet their reserve requirements and conduct their business.

Re: JohnStodder

In 2006, the economy was doing well, and Larry Kudlow told me it was because of the Bush tax cuts. Now that the economy is in trouble, he (and you) tells me that now more than ever we need tax cuts.

How many business cycles can that logic last before we pay 0% taxes?

Mutaman said...

"There are things that will improve the economy, but they take courage and political will; things lacking in both parties. Lowring taxes"

Right, lowering taxes certainly takes a lot of courage. Ann, the time has come for you to require some kind of intelligence test for people who post here. Some of the stuff being written here lately is just over the top.

Doyle said...

Jeff -

Because they make the mortgage and then turn around and sell them into the secondary market, which was buying s--- it thought (or could convince other a third party to think) was champagne.

There's a funny item about Countrywide (the biggest mortgage originator) here.

Middle Class Guy said...
This comment has been removed by the author.
Revenant said...

How come the free market would lend capitol and not worry about repayment?

I think you misunderstand a bit. The people and companies *lending* the money obviously cared about being repaid.

The thing is, the people actually lending the money for a mortgage never meet the folks they are lending to. The loans are arranged by middlemen, and the money of those middlemen isn't lost if the borrower turns out to be a deadbeat.

Now, normally, a broker who routinely arranges bum loans is going to get dropped by the lender. What was different this time around was that housing prices kept going up, up, UP at a ridiculous and basically unprecidented rate -- which allowed people who had no business borrowing gazillions of dollars to do so, then flip their house and pay back the loan after making a profit. So the brokers got looser and looser in arranging loans, and the increased amount of money drove house prices even higher, which made it even easier to make money by flipping homes, and so on and so on... until house prices reached the point where pretty much everyone with common sense either already OWNED a house or refused to pay the ridiculously inflated prices they were being offered.

In other words, the housing market normally punishes brokers who gamble with the banks' money, because the broker eventually gets unlucky and gets fired. But the market was such that gambling paid off for almost everybody and the people who DIDN'T gamble simply missed out on a lot of profits. When the market sobered up, the gamblers' tactic quit working and everybody lost their shirts.

Middle Class Guy said...

Let me try this again. We have a tax system and a regulatory system that is regressive and oppressive to any economic development and forward momentum. Our iconic elected officials do not have the political courage or the political will to eliminate certain taxes and cut income taxes even further. They have refused to take on the regulatory agencies, which are agenda driven and out of control.

There is no evidence that raising taxes helps the economy. There is no evidence that regressive regulation helps the economy. There is ample evidence that lowering taxes and enacting common sense, understandable protective regulations, grows the economy.

It does take political courage to lower and eliminate taxes. The cowards will not eliminate the Estate Tax, the Capital Gains Tax, or the Alternative Minimum Tax. They will not lower the Corporate tax, the highest in the world.

The cowards will not cut government spending and financing of failures either.

Revenant said...

To be accurate, there is no evidence that lowering taxes improves an economy.

To be accurate, there is no evidence that tax cuts paid for by borrowing the money the taxes would have raised help the economy. There is a wealth of evidence that tax cuts help the economy when they are paired with spending cuts. The smaller the share of GDP controlled by the government, the faster the GDP grows, although there is a lower limit at which this ceases to be true.

The problem with the tax cuts the government normally tries is that they rely on deficit spending, and the money thus borrowed comes from the pool of potential investment capital that might otherwise be invested in something useful. So the benefit of the tax cuts is canceled out by the increased difficulty in finding investors.

hdhouse said...

This clueless sluggo couldn't push mashed potatoes on his plate much less economic issues to the front.

You give breakfast for bonzo way too much credit. it is pure luck he hits on a topic that is at all relevant to the daily news.

Chris Wren said...

Given that even Merril Lynch's own analysis concludes that the US is in fact in a recession ALREADY, just how do you interpret Bush's message as "pushing" the economic issue to the forefront?

Revenant said...

Given that even Merril Lynch's own analysis concludes that the US is in fact in a recession ALREADY, just how do you interpret Bush's message as "pushing" the economic issue to the forefront?

"Given that even" Merrill Lynch concludes that?

Isn't it a little silly, given the events of the last few years, to assume that ML's analysts have special knowledge of the state of the economy? Their expert analysis resulted in their company losing billions of dollars. You need to consider that those analysts are in desperate need of a scapegoat to explain why their company is circling the bowl, since obviously "we totally screwed up and lost all your money" isn't an explanation their clients and investors want to hear.

A recession requires negative economic growth, specifically two quarters of it. We haven't got that yet, Merrill Lynch's opinion notwithstanding. However, I wouldn't bet against our having one in 2008.

rhhardin said...

The financial panic is because nobody knows who's solvent and who isn't, owing to not very informative reporting ; so institutions are afraid to trade with each other.

The amount of money that's a loss is actually not very large ; it's just a question of who eats the loss.

Sort of a game of financial chicken.

The Fed is arm-twisting a little to get institutions to cough up some bailout funds, no doubt according to their probable fault in the phony paper they issued. So it looks like a contribution rather than the loss it actually is.

It moves the ball along.

Cyrus Pinkerton said...

There is no evidence that raising taxes helps the economy. There is no evidence that regressive regulation helps the economy. There is ample evidence that lowering taxes and enacting common sense, understandable protective regulations, grows the economy.

Absolute rubbish. Strike two. Want to try a third time?

It does take political courage to lower and eliminate taxes. The cowards will not eliminate the Estate Tax ...

What a joke. Again, there's no evidence that elimination of the estate tax will lead to economic growth.

Bruce Hayden said...

Cyrus,

I would be interested in your suggestions of when raising taxes helped us out of a recession. I am sure that several here could find instances where cutting them did. Ditto for raising spending.

Middle Class Guy said...

Bruce,
Thank you. I think the problem is that people do not understand basic- not politcal- economics.

Cyrus Pinkerton said...

Bruce Hayden wrote:

I would be interested in your suggestions of when raising taxes helped us out of a recession. I am sure that several here could find instances where cutting them did. Ditto for raising spending.

Bruce, you should note that the comments to which I was responding were not specific to a recession. On that basis, I can't imagine why you've narrowed the circumstances for tax cut costs and benefits to recession conditions. (BTW, are you declaring a recession ahead of the NBER?)

Moreover, I don't understand why you believe (apparently) that the sole alternative to a tax cut is a tax hike. Nothing in my remarks suggest that I'm promoting a tax hike as a means of bringing the economy out of recession. I'm afraid you've simply misread my comments.

The sad truth is that many rightwingers have a nasty habit of babbling "tax cuts" incessantly, without regard to the current economic circumstances. Unfortunately, in order to support the call for more tax cuts, these rightwingers frequently misrepresent the economic consequences of tax cuts. I've found that it's best to stick to a reality-based approach to economic policy and particularly so when I see politicians "courageously" trying to buy votes with tax cut promises.

knoxwhirled said...

Nothing in my remarks suggest

...a less than "courageous" response. That's some fast backpedaling, there.

Cyrus Pinkerton said...

knoxwhirled wrote:

...a less than "courageous" response. That's some fast backpedaling, there.

People without reading comprehension problems will understand that what I wrote doesn't qualify as "backpedaling" in any way. Idiots will think otherwise.

Frankly, I'm very tired of the straw man fallacy that Althouse rightwingers resort to every time they find themselves in trouble in these exchanges. If anything is a sign of cowardice, it's these straw man responses from the commenters who have nothing substantive to offer. Try harder, please.