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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:

At times of peril, when all around are panicking, the person who stays calm can see the facts, act prudently, and not merely survive, but prosper. No doubt, readers have heard that before, but this is a good time to remember it.

The markets are behaving like it is 2008 again, but it is simply is not. 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:

Wednesday, Federal Reserve Chairman Ben Bernanke will discuss with reporters decisions taken by the Federal Open Market Committee. For this unprecedented press conference to be successful, Bernanke must venture where Fed chairmen are most reluctant to go–into politics.

Economists have long held that transparency about goals and means makes monetary policy more effective. However, genuine transparency requires that Bernanke acknowledge the limits imposed on the Fed policy by the actions of Congress, the administration and foreign governments.

Inflation is heating up, thanks to rising oil, food and other commodity prices. Many in Congress and financial markets blame QE2–the Fed’s policy of purchasing Treasury securities to moderate interest rates on mortgages, corporate bonds and the like–but easy money is not causing inflation.

China and several other Asian governments choose to keep their currencies substantially undervalued against the dollar and regulate domestic gasoline and other commodity prices. Those policies boost Asian exports and growth, slow U.S. and European growth, and push up global prices for oil and other commodities.

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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:

Friday, the U.S. Labor Department reported consumer prices were up 0.5% in March, driven by 3.5% and 0.8% jumps in energy and food prices.

This is the fourth straight month of large gains in consumer prices. While food and energy prices may be volatile, international conditions indicate commodity prices will continue surging, and the Fed’s emphasis on core inflation is absolutely misplaced.

With inflation running at 6% a year, it will be tough for the Federal Reserve to deny inflation and continue quantitative easing and low interest rates generally. Similarly, with unemployment likely to remain above 8% for the balance of the year, the Fed will find it tough to raise interest rates too much.

The U.S. economy is headed for stagflation thanks to failed banking and international economic policies that lie largely beyond the Fed’s control.

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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.)

Federal finances are in shambles, and Americans should be amused if not disgusted by the explanations and solutions both political parties offer.

President Obama’s budget plan issued in February projects a $1.6 trillion deficit for 2011 and a cumulative shortfall of $11 trillion through 2021.

Things may get worse, as additional revenue and cost savings from health care reforms don’t materialize and the 4% growth assumed by the president’s budget for the next four years proves Pollyanna.

Time and again, Obama and House Democratic leader Nancy Pelosi have demagogued the problem, blaming two wars and tax cuts instigated by President Bush and the Great Recession.

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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:

S&P has downgraded Japan’s long-term debt from AA to AA-, indicating the U.S.’s AAA rating should be taken down several notches to less than AA-.

National economies must generate foreign currency for their governments to pay foreign creditors, and national governments must be able to tax, sell bonds or print money, without causing inflation, to cover operating expenses and pay interest.

Japan’s ability to pay is simply much stronger than the U.S.

Japan has a strong current account surplus, thanks to a powerful manufacturing export machine, and the Bank of Japan sits on $1 trillion in foreign-currency reserves. It has more than enough cash flow and adequate reserves to service the claims of foreign creditors. The U.S. can hardly make such a claim.

Domestically, Japan suffers from deflation, slow growth and maintains a large budget deficit to prop up domestic demand because Japanese citizens save so much. With prices falling, even in the face of global commodity inflation, the Japanese government has adequate latitude to sell bonds to its savers, and the Bank of Japan has more than enough flexibility to purchase those bonds as needed without instigating domestic inflation or creating other adverse macroeconomic consequences.

The U.S. is a different situation. The U.S. has a gaping current account deficit–on oil and with China–and policies pursued by the Bush and Obama administrations are worsening those conditions. Owing to the large current account deficit, the U.S. must run a huge budget deficit, close to 10% of gross domestic product, just to sustain growth at 3.5% and keep unemployment from flying out of control.

The large U.S. current account deficit indicates the U.S. economy as a whole isn’t generating adequate revenue to pay foreign creditors interest due on U.S. debt, and Washington must service the interest on externally held debt by printing more bonds and selling those abroad, but foreign private demand for those bonds is satiated. Consequently, the U.S. is much too dependent on the government of China to print yuan to buy dollars and, in turn, to use those dollars to buy Treasurys to finance the U.S. private economy’s current account deficit and the federal budget deficit.

Beijing plays along because the resulting weak yuan and trade surplus with the U.S. helps deal with Chinese unemployment, but printing so many yuan requires Beijing to sterilize those extra yuan by persuading Chinese investors to purchase too many yuan-denominated government bonds, bonds the private sector doesn’t want. 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:

President Barack Obama’s State of the Union address and Rep. Paul Ryan’s Republican response offered few new ideas and weren’t forthright about what needs to be done to get America thriving again.

The November elections plainly established voters want less government and a focus on jobs, and they don’t believe Americans have to choose between the two.

President Obama proposed freezing domestic discretionary spending to reduce the deficit by $400 billion over 10 years, but he offered no substantive changes to Medicaid, Medicare, Social Security and other entitlements. That simply doesn’t cut it.

In 2007, the year before the recession, government spending was $2.7 trillion–less than 20% of gross domestic product–and the deficit was a manageable $161 billion. In 2011, with the economy recovered, spending will top $3.8 trillion–more than 25% of GDP–and the deficit will be about $1.4 trillion

Simply, the Democrats took control of the Congress in 2007 and used the recession as cover to permanently increase spending on the regulatory bureaucracy, entitlements and industrial policies by $1.1 trillion, and the leading edge of the Baby Boomers has begun to tax the Social Security and Medicare trust funds.

Now, the president proposes to address about 40% of the gap over the next decade. Essentially, he is laying a trap–daring Republicans to solve runaway health-care costs and Social Security, knowing how Americans react to the bearers of bad news.

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NEW YORK — As indicated by the May consumer price index, inflation remains the no-show of this recovery.

The top-line CPI has fallen for two months in a row, dragged down by falling energy prices. Even excluding food and energy, the core CPI has risen just 0.9% over the past year.

Underneath the quiet surface, however, are signs of “stealth inflation.” Companies and industries are trying to slip in price increases without appearing to be hiking prices.

It’s a way to pump up revenues at a time when demand growth remains modest. The incidents should become more numerous when the recovery becomes more durable and businesses test the waters when it comes to raising prices.

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