Talk Back

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:

Gold is selling for close to $1,500 an ounce, up from $258 in 2001.

Jewelry and industrial applications absorb at least 80% of new supply. The economic expansion of the 2000s and the recent recovery have boosted commercial demand, but this alone cannot explain the persistent surge in gold prices.

The cost of bringing new deposits on line has been less than the market price of recent years–investors see in gold what they cannot find in interest-bearing securities.

Exchange traded funds (ETFs) have made storing wealth in gold or simply speculating easier. These store bullion for investors who have lost confidence in the dollar, euro and yen, and may be a precursor of a new gold standard.

In 1944, the International Monetary Fund established a system of fixed currency exchange rates. The dollar was fixed to gold and other currencies fixed to the dollar. This system failed because rising production costs pushed the industrial price of gold above its monetary value, and fixed exchange rates among currencies proved unsustainable.

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 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.)

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…

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

The topic of “large-scale asset purchases” (generally referred to as quantitative easing by many), previously considered unconventional and nebulous, has now become mainstream policy, especially for central banks constrained by the nominal zero-bound interest rate environment.

Although the Federal Open Market Committee prepares to embark on another round of asset purchases, specifically on longer-term Treasury securities, and expand its balance sheet at its meeting Tuesday and Wednesday, there is still widespread recognition that the dynamics of the program are difficult, if not almost impossible, to judge.

Continue reading…

These are the personal views of Lena Komileva, group chief economist overseeing market economic research at Tullett Prebon:

In the end it was the disappointing Federal Reserve Bank of Philadelphia survey and U.S. Dept. of Labor’s jobless claims figures that provided the trigger for a fresh downgrade in investor risk sentiment and appetite for yield in an otherwise peaceful holiday week.

The Philadelphia Fed survey is the most volatile of regional surveys and carries the weakest correlation with the nationwide trend, so the fundamental implications should not be overstated.

Still, the July decline sends an important signal for the health of the economy as it reflects a universal picture of deteriorating corporate sentiment that is driven not by ultra-low Fed funds rates and the strong earnings-driven liquidity reserve accumulated through the past two years’ deleveraging, but by companies’ desire to protect capital and cash-flows in an environment of restrictive credit, local government austerity and future economic uncertainty.

In the survey detail, the Philadelphia Fed purchasing managers’ index manufacturing fell into contraction territory, at -7.7 in August, down from +5.1 in July, for the first time since July 2009 (-8.9). Core growth components sent out universally bearish signals as new business flows, shipments and backlogs all fell and firms slashed inventories and employment.

Continue reading…

By Min Zeng

    A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–Thursday’s sale of $16 billion in 30-year Treasury bonds faces a challenge after the Federal Reserve signaled that the longest maturity in the bond market isn’t on its priority list of purchases.

In the absence of Fed support, and given the very low yields on offer, market participants are concerned that demand at the 1 p.m. EDT sale could waver.

The so-called long bond has a much narrower investor base than other maturities: its buyers are mainly domestic, rather than foreign, and are typically pension funds, insurance companies and asset managers that need to match long-dated liabilities.

Soft demand would be bad news for the U.S. government as it would have to pay up to get the sale done. The higher costs would come just at a time when the government is looking to lengthen the maturity of its outstanding debt.

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 Bush tax cuts were a huge success, and failing to extend them for all Americans–not just families earning less than $250,000, as President Barack Obama proposes–would be a terrible mistake.

Contrary to current White House propaganda, President George W. Bush achieved a lot of growth prior to the financial crisis, and lower taxes for all helped. The Bush prosperity was the byproduct of several multidecade policy trends that freed markets and empowered individuals to innovate and create wealth.

Freer trade championed by presidents since John F. Kennedy, and deregulation (begun by Jimmy Carter with the airlines) were critical to this trend. Also key was reducing excessively high tax rates on upper-income Americans, initiated by Ronald Reagan, somewhat interrupted by Bill Clinton, and reinstated by Bush.

Economists recognize highly productive people, if taxed punitively, create less wealth in the U.S. through arcane tax planning or simply move investments offshore. Higher taxes for high-income families would raise rates on fully half of the income earned by proprietorships and leave those small and medium-sized business with less to invest in creating new jobs.

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 Labor Department reported the economy added 290,000 jobs in April but the unemployment rate increased to 9.9%, versus 9.7% the previous three months.

Federal government employment increased 65,000, boosted by temporary Census hiring, but the private sector added 231,000. Even the long-beleaguered manufacturing sector added 44,000.

Unemployment rose as many discouraged workers returned to the labor force and unemployment benefits ran out for some workers, pushing families harder into the jobs market.

The Great Recession destroyed more than 8.4 million jobs. To bring down the unemployment rate, the economy must add about 150,000 jobs a month to accommodate adult population growth, reentry of discouraged workers, part-time employees who would prefer full-time work, and marginally-occupied self-employed workers. Including these three groups, unemployment is closer to 20% than the 9.9% headline figure.

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 announced he wants to prohibit banks from forming hedge funds, private equity funds and trading securities on their own accounts, and he wants to limit the size of banks and financial institutions generally.

Hedge funds, private equity funds and proprietary securities trading did not cause the banks to get into trouble, and the size of banks did not cause the credit crisis.

Banks, small and large, failed or required bailouts because of poorly considered loans, and the kinds of engineered products that were created from those loans by non-bank entities.

Collateralized debt obligations and swaps created and marketed by non-bank financial institutions, such as Lehman Brothers and Goldman Sachs, compounded the errors of foolish bankers. Later, Goldman Sachs and other financial institutions became banks to access inexpensive credit from the Federal Reserve, but those decisions could be reversed if bank holding companies are not permitted to trade on their own accounts.

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:

Goldman Sachs, J.P. Morgan and other big Wall Street banks are awarding multi-million dollar bonuses to the same financiers who pushed the nation to the brink of financial ruin.

President Barack Obama voices outrage but fails to stem the abuse.

Wall Street leaders argue those bonuses were earned, much like jewel thieves refer to a big heist snatched from an impenetrable safe.

Wall Street has kept its mischief legal by salting the pockets of politicians running for Congress and president, and by making certain that key policy makers at the Treasury Department and the Federal Reserve are faithful Goldman Sachs alumni. Continue reading…