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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:

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:

The supercommittee’s failure to come up with $1.2 trillion in budget savings over the next 10 years should not affect the U.S. credit rating–or immediately affect the interest rates paid on Treasurys or their value. However, investors still need to be cautious about loading up on those securities–the longer term outlook is not so good.

Although the supercommittee did not agree to a combination of $1.2 trillion in spending cuts and tax hikes, the automatic trigger in the Budget Control Act will impose cuts of $1.2 trillion on defense, nonentitlement domestic spending and some payments to hospitals and health care providers.

Savings from winding down the wars in Afghanistan and Iraq were already scored into budget projections; hence, additional defense cuts will be from the “base” military budget–expenditures that maintain readiness and defend U.S. security interests around the globe. Continue reading…

These are the views of Thomas Lam, group chief economist at OSK Group/DMG & Partners:

Incoming data over the past month or so have been generally more spunky. Our proprietary High-Frequency Activity Tracker (HAT) has also stepped up recently, suggestive of real GDP growth in the vicinity of 2.5% in the current quarter. As a result, we have decided to bump-up our fourth-quarter growth forecast to 2.6% from 2.0% previously. Overall, we continue to expect full-year 2011 growth to average 1.8%.

While component-specific details are only beginning to emerge, one of the key sources of the foregoing upward revision is faster growth in consumer spending. The latest data on consumer outlays–mostly through October and some preliminary November guidance–implies real consumer spending growth to the tune of 3% in the fourth quarter, up from an advance print of 2.4% in the third quarter. But our more conservative forecast revision anticipates consumer expenditures expanding 2.8% in the fourth quarter compared to our earlier expectations of 2.0%. Also, some early guidance on capital spending seems to be pointing toward decent, albeit more moderate, growth of roughly 10% in the fourth quarter. 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:

Analysts expect the Commerce Department to report on Wednesday the deficit on international trade in goods and services was $47.7 billion in March, up from $45.8 billion in February.

This trade deficit subtracts from demand for U.S.-made goods and services, just as a large federal budget deficit adds to it. Consequently, a rising deficit slows economic recovery and jobs creation and limits how much Congress and the President may cut the deficit without sinking the economic recovery.

Rising oil prices and imports from China are driving the trade deficit up, and these are major barriers to creating enough jobs to pull unemployment down to acceptable levels over the next several years.

Jobs Creation

The economy added 244,000 jobs in April; however, 360,000 jobs must be added per month to bring unemployment down to 6% over the next 36 months. With federal and state governments trimming civil servants, private-sector jobs growth must exceed 360,000 per month to accomplish this goal.

Americans have returned to the malls and new car showrooms but too many dollars go abroad to purchase Middle East oil and Chinese consumer goods that do not return to buy U.S. exports. This leaves too many Americans jobless and wages stagnant, and state and municipal governments with chronic budget woes.

Simply, policies regarding energy and trade with China are not creating conditions for the 5% GDP growth that is needed and easily could be achieved to bring unemployment down to acceptable levels.

In April, the private-sector added 268,000 jobs per month, but many were in government-subsidized health care and social services. Netting those out, core private-sector jobs have increased only 229,000 in April. That comes to 73 non-government-subsidized jobs per county for more than 5,000 job seekers per county.

Early in a recovery, temporary jobs appear first, but 22 months into the expansion, permanent, non-government-subsidized jobs creation should be much stronger.

Economic Growth

Since the recovery began in mid 2009, GDP growth has averaged 2.8%, disappointing administration economists who have consistently assumed 4% growth in budget projections and forecasts for the job-creating effects of stimulus spending.

Consumer spending, business technology and auto sales have added strongly to demand and growth, and exports have done quite well. However, soaring oil prices and the continued push of subsidized Chinese manufactures in U.S. markets have offset those positive trends.

Administration imposed regulatory limits on conventional oil and gas development are premised on false assumptions about the immediate potential of electric cars and alternative energy sources, such as solar panels and windmills. In combination, administration energy policies are pushing up the cost of driving and making the United States even more dependent on imported oil and indebted to China and other overseas creditors to pay for it.

To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40%. It accomplishes this by printing yuan and selling those for dollars and other currencies in foreign-exchange markets.

Presidents Bush and Obama have sought to alter Chinese policies through negotiations, but Beijing offers only token gestures and cultivates political support among U.S. multinationals producing in China and large banks seeking additional business in China.

The United States should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention divided by its exports–about 35%. That would neutralize China’s currency subsidies that steal U.S. factories and jobs. It is not protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it’s self defense.

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 raise the debt ceiling, moderate Democrats and Republicans in Congress may compel President Barack Obama to significantly cut spending. Done right, that would be a good thing!

Americans don’t need higher taxes–they need a government that spends within the nation’s means. That begins with acknowledging the facts and acting on them.

In 2007, the last year before the financial crisis, the deficit was a manageable $161 billion. The Bush tax cuts were in place, and wars in Iraq and Afghanistan were at full tilt. President Obama should stop blaming those for the fiscal mess.

Over the next four years, Congress, with plenty of White House participation, permanently increased spending by $1.1 trillion and added another $350 billion in tax breaks.

Viola! The deficit jumped to $1.6 trillion.

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:

When gas prices spike, owing to Middle East turmoil or hurricanes, conspiracy theories abound about profiteering speculators. The truth is Americans are suffering from bad energy polices–politicians eager to sell pet projects and hoist blame onto others.

In such a fit, President Obama offers fanciful alternative energy technologies as a solution to rising pump prices and a task force to ferret out fraud in energy markets.

Even before disturbances in Egypt, Libya and elsewhere, economists expected oil prices to increase from their September lows of $75 per barrel to more than $100 a barrel by this summer.

Economic recovery is pushing up gasoline demand and jet travel; President Obama’s restrictions on off-shore drilling are curtailing U.S. oil supplies; electric vehicles and hybrids won’t appreciably dent U.S. gasoline consumption before the end of this decade; and Chinese oil imports are growing 10% a year. All the Middle East strife did was accelerate the price surge.

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 Obama’s plan to balance the budget was a brilliant political speech–highlighting weakness in the Republican deficit reduction proposal drafted by Congressman Paul Ryan–but it offered little new or encouraging that would correct Washington’s troubled finances.

Once again, President Obama blamed President Bush for the mess–citing two wars and tax cuts that were not funded–when his own political party is more culpable.

In 2007, the last year before the financial crisis and when former Speaker Nancy Pelosi and the Democrats took control of Congress, the deficit was a quite manageable $161 billion. Over the next four years, spending has increased $1.1 trillion and the deficit jumped to $1.6 trillion.

The President’s February budget projected the deficit would fall to $772 billion by 2022. However, that forecast is dubious, because it assumes 4% growth over the next four years, which few economists would endorse, and cuts in Medicare payments to physicians and hospitals few political observers believe will materialize. More likely, deficits will exceed $1 trillion, or even $1.5 trillion for the next decade, without further action.

In his speech the president claimed to be tabling $4 trillion in additional cuts over twelve years, but there was little new from his February budget.

Obama proposed higher taxes on families earning more than $200,000 a year. While that may be good populist politics, those tax increases were already in his February budget, and presenting those as additional deficit reduction is deception not worthy of his high office.

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:

If the U.S. government shuts down, the Republicans will likely get the blame but the American people will be the losers.

Federal finances are in a shambles and in need of radical overhaul. President Barack Obama’s budget ignores this; however, with a shutdown, he will be able to tar Republicans as ideologues, steal the initiative on spending and taxes, and leave his successor with a mess.

From 2007, the last full year before the financial crisis, to 2011, the second year of recovery, spending has jumped $1.1 trillion–40%. The president’s budget plan would trim the deficit to $774 billion by 2022, but his projections have been rejected as too optimistic by private economists and political analysts of all stripes–he assumes cost savings and new revenues from health-care reforms that are unlikely to materialize and a 4% economic growth through 2014, which few private economists endorse.

Most legitimate deficit reductions the president’s budget accomplishes are through higher taxes on the wealthy, and a new interest and dividend tax that will likely drive business investment and personal wealth offshore.

Higher taxes are not the answer. In 2011, spending is projected at $3.8 trillion and revenues at $2.2 trillion. A 50% increase in all taxes and fees–personal income, Social Security, Medicare, and corporate taxes, entry fees into national parks and the like–would leave the deficit at $560 billion. Even if phased in over several years, such a dramatic increase in taxes and fees would send the economy into a depression from which it would never recover.

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:

The economic consequences of a U.S. government shutdown can’t be calibrated on a spreadsheet with an economic model. It all depends on who wins public opinion–Congressional Republicans or the president and Democrats.

Federal spending is out of control. From 2007, the last full year before the financial crisis, to 2011, the second full year of economic recovery, spending has jumped $1.1 trillion, 40%, when a $200 billion increase would have satisfied inflation.

For any other country, a deficit exceeding 10% of gross domestic product would force austerity by sending interest rates on government bonds through the roof. Alas, the U.S. prints the world’s currency–the dollar–so it can inflate its way to solvency, and the bond market is starting to take that bet.

Enter the Tea party, that troublesome bunch of youngsters pushing elder Republicans to stand up for fiscal solvency, end the madness or halt funding for the government.

Closing federal offices for a few days will have not a great, lasting impact. On reopening the checks will go out. What counts, though, is whether the newly elected conservative majority in the House of Representatives keeps its mandate as measured by the polls.

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.)

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.

Continue reading…