Market Talk

We hit on this topic recently, but it begs revisiting (again and again) as the sheer growth in the number of Americans on food stamps continues to shock and awe.

USDA recently released December numbers for its so-called Supplemental Nutrition Assistance Program (SNAP) which show 486,503 persons added to the food-stamp rolls in December, bringing the total receiving help to more than 44 million. That’s up almost 7% just since June, and 13% compared to a year earlier. Households receiving food stamps swelled to 20.67 million, an increase of more than 263,000 in one month, and a nearly 16% increase in a year.

Compare back to a couple years ago and today’s rates of increase become even more astonishing. In 2007, average monthly participation was 26.31 million persons, so the December total represents a nearly 68% increase over the ’07 average. During the same period, the number of households receiving assistance soared 75%. That’s a startling increase, any way you look at it. Continue reading…

Criminy!

I almost fell off my chair when I read the story in today’s Journal on A6 about a pilot program the Treasury is running to give some taxpayers their refunds via debit cards. They’re going to send an offer out to 600,000 taxpayers, in the lower brackets, mind you. The idea is that many of them don’t have checking accounts, and this is an easier way for them to get their refunds, and less costly than those check-cashing joints.

But to me this is another stealth stimulus. Sending debit cards loaded with cash to poor people? (Can we call them poor anymore? Are we allowed to use that word? Well, come on in and scrub the post if you want; if they can do it to Mark Twain, they can do it to us.) You can’t tell me the subtle goal here is to get people to go out and spend money. We all know, or have been told repeatedly, that “lower-income” people (not poor, mind you, nobody in America is poor) are more apt to spent their income immediately; I imagine that’d go for refund checks as well.

So, our profligate government is encouraging profligacy among the what are likely its least financially sophisticated citizens. Welcome to Bizarro America, folks.

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Off to a slow start this week, but mulling over a couple things from this morning, including St. Louis Fed President James Bullard’s appearance on CNBC. Didn’t see the segment but read a write-up. Spoiler alert: there’s no Hoenig-like straight talk to be found here. Instead, we get this (from Dow Jones Newswires’ Mike Casey):

Asked whether the quantitative easing program, which has been dubbed “QE2,” was a factor behind the strong gains in commodity prices, he said the gains were most likely led by normal demand and supply factors and saw “no evidence” that Fed policy was behind it. However, he did say the relationship would need to be studied.

That “no evidence” part catch your eye, too? Thought it might. Reminded us of proclamations from certain Fed officials five or six years ago that there was no evidence of a housing bubble. Just like when the Fed says something’s “contained,” it probably isn’t; when they say “no evidence,” there’s probably conclusive evidence circulating. Why else would he admit the relationship between QE2 and commodity prices needs to be “studied”? Continue reading…

This has got to be the emptiest threat I’ve heard in I don’t know how long, and I hear a lot of them these days.

From the Journal’s Damian Paletta:

WASHINGTON (Dow Jones)–Top White House economic adviser Lawrence Summers praised the White House’s tax-cut compromise with Republicans, but issued a defiant warning to Congress to not make some of these cuts permanent when major elements expire in two years.

“Compromises that were necessary with a weak economy in 2010 should be inconceivable as recovery accelerates in 2012,” Mr. Summers said in a speech at the Economic Policy Institute Monday.

Really? Oh, really, Mr. Summers? Let’s see if we can guess what the argument’s going to be in two years time.

If the economy’s good: low tax rates boost spending, which boosts economic activity, so raising rates would be a bad thing.

If the economy’s bad: the economy’s bad. Raising rates now would make it worse.

If the Democrats caved now, think they’ll have any more gumption in two years time? With Obama facing a bracing re-election fight against Sarah Palin? Good luck with that one. Face it, the tax rates are here to stay. Nobody cares about deficits in Washington, absolutely nobody, unless it’s to use them as a wedge against the other party.

You know what, I’ll be as happy as the next guy to see my paycheck get bumped up a bit next year, both because my taxes won’t be rising, and the reduction in the FICA tax. I’ll finally be able to complete my collection of racoon-proof garbage cans, and I can easily afford that new ice scraper for my car, and maybe I’ll buy a few Beatles songs at the iTunes store. Hell, I might even buy a new winter coat. The wife says my current one makes me look like the Unibomber.

But, I mean, come on! $860 billion? $860 billion?!

That’s what the Obama-GOP tax-cut deal is going to cost the US government over the next decade. Does that strike anybody else as, well, insane? Especially considering the bill effectively covers a two-year period? How’s that math work? You know what all those Congressmen and Congresswomen and the President should do with their savings? But some dictionaries. Turn to the first section, “A,” and look up “austerity.” It comes after “asinine.”

For two years, all we’ve heard out of Washington, and the GOP especially but even from the White House, has been this canard about how the government needs to straighten out its finances. Looming fiscal train wreck I believe is a phrase I’ve heard bandied about.

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The Mad Hedge Fund Trader has an idea:

I have a very simple solution to the country’s budget deficit problem. Hit the reset button. Eliminate the Internal Revenue Code. Just set it on fire. Keep the existing progressive, hockey stick tax rates on income, but eliminate all deductions. And I mean everything; deductions for dependents, home mortgage interest, medical expenses, the works. There are no sacred cows. My revised Form 1040 would have only three lines on it:

Income
Tax Rate
Tax Due

The budget deficit would disappear overnight. Government spending would shrink dramatically, because you could ditch most of the 100,000 who work for the IRS. Some 1.3 million auditors and CPA’s would have to hit the road in search of new work too. The amount of money that is wasted on tax collection in this country is truly staggering. This is not some pie in the sky concept. This is how taxation already works in most countries, and they seem to get along just fine.

In fact, the whole scheme might even pay for itself.

It reminds me of what David Cay Johnston said on the John Batchelor show when I co-hosted back in November: that there’s $1 trillion worth of tax-breaks given out every year to corporations. Reforming the tax code in some form or other should actually be a major focus of any reform movement; it was included in the President’s deficit committee plan that never made it out of the committee, but hey, it was there.

It’s not really a new idea; remember Jerry Brown back in 1992? But it never seems to get much traction, this notion of flattening out the rates and throwing out the deductions and loopholes, mainly because the people most threatened by it have the most “input” into Congress; think the oil industry, for example. But scrapping and reforming the tax code should be a major plank of any efforts to fix the government’s books.

I’ll tell you, though, you’ll be like one of those sad sacks in Waiting for Godot hanging on for that one.

GMO’s Jeremy Grantham continues to be among the most coherent, rational and entertaining voices commenting on US markets and the economy. His latest quarterly piece is the usual must-read, titled “Night of the Living Fed.” Here’s a little taste:

In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.

Enjoy the rest here.

Opportunity knocks.

Look, times are tough, right? Governments from California to New Jersey are struggling to plug budget gaps. And from Philly to Manhattan (hey, when you live in Jersey, that spans your world,) politicians and would-be politicians are coming up with all sorts of novel fixes.

How about this one, out of the city of brotherly love and sent up to us from Dinah Brin, one of the reporters in our Philly bureau:

Philadelphia Mayor Michael Nutter would like the city to tame its, um, bottom lines, both fiscal and physical, with a 2c-an-ounce tax on sweetened beverages. The city faces a budget crisis, and in his budget address today, KYW reports, Nutter proposes the new beverage tax and a trash-collection fee to generate $184M annually and save city services. The drink tax, which could raise $77M of that amount, would cover sugar-sweetened beverages such as soda, sports drinks, chocolate milk and non-100% fruit juices, media reports say. The Pa. Beverage Association and a Teamsters local criticize the move.

Let’s get this straight: they want to tax soda, and charge a fee for a service for which residents already pay. That’s pretty desperate. Of course, if Nutter really wanted to raise some serious cash, he ought to tax cheesesteaks, although that might not go over so well. The point is, as was made rather effectively by New Jersey’s new governor, budgets have been frayed past the point of breaking, and some really, really new – or really old – ideas are needed to fix these problems.

Now, we’ve been getting emails this past week from somebody running for New York governor on a sort of peculiar agenda, but the more I read about stuff like the Philly soda-tax, the more I think this madam may be on to something.

“Women’s rights advocate Kristin Davis, a former Madam who supplied call girls for Eliot Spitzer and did time for her crime, announced her candidacy for Governor of New York on a reform platform of legalization and taxation of prostitution and marijuana.”

Hey, why not have a governor who’s already been convicted of a crime? Kind of get it all out of the way up front. That’s novel, right?

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Can you spare $12 trillion for an American down on his luck?

A few weeks ago, sitting in as a guest on Fox Business’ web show in the morning (sorry, don’t have the link,) we were talking about the $30B President Obama proposing spending to spur small-business growth. After saying I doubted it would work, Connell McShane asked me what I thought they should do with the money. “Put it toward the debt,” I said.

Connell, playing devil’s advocate, said something to the tune of aren’t most people arguing the opposite, spend money now, and worry about the debt later. I don’t think I had a very good answer to that, to be honest. I was surprised by the push-back.

There are two kinds of deficit hawks these days: people who use the national debt as a crutch to beat the current Democratic administration and Congress over the head, and people who are genuinely concerned about the national debt. I put myself in the latter camp.

It’s not an easy place to be; I don’t want to be lumped in with the Sarah Palin fanboys. But I really do worry that our $12 trillion debt, not even counting the unfunded mandates, or the states’ deficits, is something that needs to be addressed immediately. Not because the other party isn’t doing it, but because the long-run consequences are gut-wrenching changes.

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MTV at the Jersey Shore, circa 1915.

Somewhere in the state of New Jersey, there’s already some little man, in a little green lampshade-colored plastic visor, who’s calculating just how much my property taxes are going to rise. I can feel him.

There hasn’t actually been much reaction among my fellow New Jerseyans, at least the one’s I know, to the “state of emergency” invoked by our new governor, Chris Christie. Just about everything, it seems, costs just a little bit more in New Jersey, for some odd reason that nobody can ever seem to figure out (ahem.) There’s a fiscal bomb going off? What else is new?

(Editor’s note: everything costs more in New Jersey, except gas, Russolillo points out.)

So this latest disaster scenario has invoked the usual response: There go our property taxes. It’s all just part of the delicate dance we entertain every day here in the Garden State.

But west of the Delaware (and east of the Hudson for that matter,) New Jersey suddenly is known for more than just mobster shows and trashy kids down the shore. Hey, we’re like California! Or New York. Or Illinois. Or Michigan. Or Ohio. Actually, when you think about it, there are a lot of states that are up against the wall, aren’t there? We’re just one in a long line. The state of the state, to state it just so, is pretty bad, and getting worse. California’s crisis last year grabbed all the headlines, but the Golden State is far from alone in sitting on top of a ticking debt bomb.

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