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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

College is too expensive, graduates can’t find decent jobs and pay off their loans, and students, parents and educators all share in the blame. Now, President Barack Obama proposes to forgive more student debt and that will make a bad situation worse.

More than half of recent graduates are working as waiters, taxi drivers or some other occupation that does not require a college education. The number in minimum wage jobs has doubled since 2007.

Slow growth and a tough jobs market is one reason but as importantly, too few college students choose tough majors like nursing, engineering and accounting that enjoy a robust demand for graduates. Too many select easier subjects like politics, history and other liberal arts, and emerge with few practical skills.

Good jobs abound for technicians in health care, computers and other fields–often educated at community colleges–and the Labor Department finds most rapidly growing occupations don’t require a bachelor’s degree. However, parents fear their children, without a four-year diploma, will lack the flexibility to navigate a lifetime of changing conditions.

If students are lazy and parents risk-adverse, university professors and presidents are worse.

Professors simply teach less and engage in more research of questionable value than in the past. In the 1950s and 1960s, a significant track record of publications was not required for tenure for most undergraduate faculty–advancing the frontiers of science and the arts was mostly the work of professors engaged in post-graduate education.

Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Cyprus would be better off to leave the euro than accept the terms of the bailout imposed by the European Union, International Monetary Fund and European Central Bank.

Until recently, Cyprus was a prosperous island economy thriving through strong tourism, shipping and maritime related activities, and a significant international financial sector.

Its major banks have branches in Russia, the Ukraine, the U.K. and other overseas locations, and have attracted large offshore deposits. Cyprus has gained great popularity as a portal for western investment into Russia, Central and Eastern Europe, China and India.

Much like New York City, London and other big-city European banks, the Cypriot banking sector attracted deposits much larger than it could productively use lending in its local economy and invested in other financial instruments–Cypriot banks invested heavily in Greek sovereign debt.

The 2012 Greek government bailout engineered by the EU, IMF and ECB imposed losses greater than 50% on foreign bondholders–among those, Cypriot banks. Hence, the Troika, which is now imposing severe conditions in exchange for aid to bail out Cypriot banks, bears substantial responsibility for the present sad state of their balance sheets.

During the recent U.S. financial crisis, the Federal Deposit Insurance Corp. was adequate to restructure and secure deposits at smaller banks; however, the Federal Reserve printed hundreds of billions of dollars to purchase and work out souring bonds held by larger banks, and the Treasury borrowed similar sums to inject new capital into those banks. More importantly, depositors–large or small–did not lose any money during or after the U.S. crisis.

The ECB lacks the tools to participate in such bank workouts, and the EU lacks the borrowing authority of the U.S. Treasury–and the taxing powers to back up bonds. Hence, banks in Cyprus, just like those in Ireland and Spain in their banking crisis, lack a lender of last resort to keep them afloat while they restructure and work off losses through new, sounder business activities.

In the U.S. stockholders lost equity when banks went sour, but it kept the banks open and depositors kept their money. The Troika, in exchange for 10 billion euros ($13 billion) in aid, will likely impose losses of at least 20% on large depositors and require Cyprus to slash the size of its banking sector, relative to gross domestic product, to the average for the EU as a whole.

If such a condition were imposed on New York City, its economy would collapse and the Big Apple would suffer massive unemployment and huge population losses, as workers sought employment opportunities elsewhere. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Republicans are losing elections they could win by slavishly clinging to untenable solutions for skyrocketing federal health-care costs that voters reject.

The House Budget Committee, chaired by Paul Ryan, is drafting a plan to balance the budget in 10 years. That requires lowering the trajectory of Medicaid and Medicare costs, which account for 24 percent of federal spending.

He proposes offering seniors the choice of a subsidy to buy private insurance or continuing in the existing Medicare system and giving the states block grants to manage Medicaid.

Conservatives believe seniors could shop for health insurance, as they do for groceries, to drive down prices. The states, freed from excessive federal oversight, could similarly drive down costs.

That’s absolute fantasy.

Seniors would confront large insurance companies armed with too little information, and limited choices or monopolies when they purchase drugs and hospital care.

Already, large employers operate in a similar market space-free to negotiate with health-insurance companies–and even they have not been able to harness rising health-insurance premiums.

Granny will not do any better than GM jawboning Humana and Walgreens. Federal Medicare spending could only be cut by providing inadequate subsidies that would require seniors to pay much larger premiums and out-of-pocket costs than they currently bear with traditional Medicare.

Similarly, it is doubtful that the states, acting individually, can do a better job of negotiating reimbursement rates for Medicaid services for the poor than does the federal government. In fact, the Ryan solution could drive up prices, because providers could play off states against each other.

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Despite the recent $150 billion tax increase, uncertainties imposed by sequestration and halting growth in consuming spending, economists expect GDP growth to rebound and moderate jobs creation to continue.

Friday, forecasters expect the Labor Department to report the economy added 171,000 jobs in February, and for unemployment to remain unacceptably high for several more years.

In the fourth quarter, GDP was up at a scant 0.1 percent annual pace, slowed by a drop in inventory build and smaller Pentagon purchases. However, those factors are not likely to repeat in the first-quarter data, and the effects of sequestration will not likely be felt until spring.

Consumers have been constrained by higher gas prices and the January tax increases, but overall, economists expect GDP growth to be in the range of 2 percent or a bit higher in the first quarter.

Still, the pace of recovery remains disappointing, in part, because Dodd-Frank regulations make mortgages, refinancing and home-improvement loans much more difficult to obtain. Those hold down existing homes sales, renovations and demand for building materials, major appliances and other durable goods. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

With the Dow Jones Industrial Average setting new records, it is important to recognize current stock prices are hardly extraordinary. Adjusted for inflation, stocks are still well below their January 2000 peak and may have a long way yet to run, but much stronger economic growth is needed to drive profits higher and sustain a bull market.

Stock prices are helped by the Federal Reserve’s bond buying and thumb on interest rates and by cash-rich companies aggressively buying back stocks and boosting dividends. Simply, U.S. CEOs are flush with cash but don’t have enough opportunities to invest in organic growth in a slow-growing U.S. economy.

To date, corporate profits have been driven higher mostly by U.S. firms thinning employee ranks to accommodate slow-growing domestic sales, and by big gains abroad–about half of the profits of S&P 500 companies are earned outside the U.S..

Boosting worker productivity in slow-growing markets has limits, and many companies may reach those in 2013. Repatriated foreign profits face stiff corporate taxes, making future stock buybacks and raising dividends more difficult.

In the end, a stronger U.S. economy is needed to sustain a bull market into 2014, and the fundamental competitiveness of the U.S. economy in global markets must be improved.

Consumer spending should strengthen with improvements in the housing market; however, reductions in federal spending and deficits and eventual Fed pull back from bond buying and higher mortgage rates policy portends only moderate growth in the combined contributions to aggregate demand from consumers, federal and state governments, and residential construction–those ultimately drive the remaining component of demand, business investments in structures, equipment, software and the like.

Too many consumer dollars go abroad for Middle East oil and Chinese goods that do not return to buy U.S. exports. Thursday, the Commerce Department is expected to report the January deficit on international trade in goods and services was $43 billion-about $500 billion annually.

Businesses, consequently, are pessimistic about future demand for U.S.-made goods and services. And bearing higher taxes, more-burdensome regulations, and increased benefits costs mandated by Obama Care, they are reluctant to undertake major new investments in the U.S. and continue investing and hiring mostly abroad.

Imported oil and subsidized imports from China account for the entire trade gap. Development of new onshore reserves in the Lower 48, despite all the hype, haven’t delivered nearly enough new oil, and a full push on U.S. potential in the Gulf, off the Atlantic and Pacific coasts and in Alaska could cut U.S. imports in half, push U.S. growth well above three% a year, and persistently push up U.S. stock prices.

The surge in natural gas production and accompanying lower prices substantially improves the international competitiveness of industries like petrochemicals, fertilizers, plastics, and primary metals–and important new investments have been announced. Investment opportunities are beginning to surface to deploy natural gas in place of oil in rail and coastal water transportation.

However, the Department of Energy is reviewing licenses to boost exports of liquefied gas that would reduce the trade deficit and boost domestic demand, economic growth and corporate profits earned in the U.S. much less, than keeping the gas at home to boost energy-intensive manufacturing and alternatives to gasoline in transportation.

To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan through official intervention in currency markets and actions of state-owned banks, which often evade calibration in their scope. Other Asian governments pursue similar strategies to stay competitive with the Middle Kingdom.

Economists across the ideological and political spectrum have offered strategies to offset the negative consequences of these mercantilist policies, but the Obama administration has refused to even acknowledge those options.

Cutting the trade deficit by $250 billion, through better domestic energy and trade policies, would ignite growth in the range of 5% a year–comparable to the economic recovery of the Reagan years–and fuel a bull market that would last until the end of the decade and take the Dow past 20000.

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

The Justice Department is accusing Standard & Poor’s Ratings Services of defrauding investors with optimistic ratings of mortgage-backed securities and derivatives prior to the financial crisis. While investors are entitled to answers about those conflicts, compensation and reforms, the attorney general and president, by singling out S&P, instead of other bond raters, appear to be engaging in political vengeance and put freedom of speech at risk.

In 2011, S&P, Moody’s Investors Service and Fitch Ratings were accused by a Senate Committee of giving overly rosy ratings on mortgage-backed securities in the years prior to the financial meltdown of 2008, and then contributing to the severity of the crisis by hastily downgrading hundreds of securities after the housing bubble burst.

Notably, S&P, alone, in August of 2011 downgraded U.S. government bonds–causing the president considerable embarrassment at a time when his re-election was far from certain. And, this downgrade will raise U.S. borrowing costs, and ultimately curtail federal spending and the president’s progressive agenda, when the Federal Reserve deems appropriate to end quantitative easing, which is artificially depressing all interest rates.

Often, federal prosecutors, when several firms have engaged in unsuitable practices, will single out one to obtain damages and reforms, and then use that settlement to obtain concessions from the others; however, the selection of S&P certainly creates the appearance of sovereign and political abuse.

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

The U.S. economy added 146,000 jobs in November, up a bit from 138,000 in October. Unemployment fell to 7.7%, largely because 542,000 additional adults chose not to look for work.

Hurricane Sandy and business fears regarding the so-called fiscal cliff contributed to the slow pace of jobs creation; however, the overall picture is worse than these headline figures reveal and will remain difficult until the policy fundamentals change.

In the weakest recovery since the Great Depression, most of the reduction in unemployment from its 10.0% peak in October 2009 has been accomplished through a significant drop in the percentage of adults working or looking for work. Were adult labor-force participation the same today, the unemployment rate would be 9.7%.

Adding more than eight million part-time workers who can’t find full-time work, the unemployment rate becomes 14.4%. That measure rose above 14% in the wake of the financial crisis and remains stuck there.

Convincing millions of Americans they don’t want a job or compelling desperate workers to settle for part time work has been the Obama administration’s most effective jobs program.

Economic growth remains weak, as most of the pickup to 2.7% in the third quarter was attributable to inventory build and a temporary surge in exports. Consumer spending and business investment weakened, substantially, and goods piled up warehouses–either in the fourth quarter or early next year, inventories will be adjusted and growth will slow. Exports will slow as Europe’s recession continues. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

To avert the fiscal cliff, President Barack Obama may get Republican cooperation in soaking the rich, but the deal that emerges could put the nation in dire straits by the end of the decade.

The Budget Act of 2011 requires the president and Congress to cut federal deficits by $1.2 trillion over nine years, or annual defense and nonentitlement outlays automatically will be reduced $107 billion annually in January. Also, the Bush tax cuts, payroll tax reductions and other assorted programs expire.

Overall, annual spending would be cut $136 billion, taxes raised $532 billion, and economists fear a staggering recession would result pushing the unemployment rate into the teens.

President Obama wants to raise tax rates on families and many small businesses earning more than $250,000, and Congressional Republicans would like to curb entitlements by increasing Medicare premiums paid by wealthier participants and slowing Social Security cost of living increases. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Thursday, the Commerce Department is expected to report the deficit on international trade in goods and services was $44 billion in August, up from $42 billion in July.

Imported oil and subsidized imports from China account for nearly the entire $525 billion annual trade gap and pose the most significant barriers to robust growth and jobs creation.

The economic recovery began five months after Barack Obama took office, and gross domestic product growth has averaged 2.2%. In October 2009, unemployment peaked at 10%, but has fallen to 7.8%, however, about 90% of that reduction has been caused by a falling percent of adult Americans seeking work.

Ronald Reagan inherited a similarly troubled economy with unemployment cresting at 10.8% early in his presidency. When he sought re-election, the economy was growing at 6.3%, unemployment was 7.3% and a rising percentage of Americans were seeking work. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

On Friday, forecasters expect the Labor Department to report the economy added 113,000 jobs in September, a monthly pace too slow to return the nation to full employment.

The economy must add more than 375,000 jobs each month for three years to lower unemployment to 6% and that is not likely with current policies.

Most analysts see the unemployment rate steady at 8.1%, while a few see an increase. The wild card is the number of adults actually working or seeking jobs, the measure of the labor force used to calculate the unemployment rate.

Were the labor force participation rate the same today as when unemployment peaked above 10% in October 2009, the unemployment rate would still be about 10%. Were it the same as when President Barack Obama took office, it would be about 11%. Continue reading…