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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:

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 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:

America’s finances are headed for a train wreck.

By Nov. 23, the Supercommittee in Congress must come up with a package to cut the federal deficit by $1.2 trillion over ten years or draconian cuts in defense and discretionary spending follow.

Something still may be cobbled together but the federal deficit would remain too large, and could easily fly out of control. Genuine progress is not possible, because the principals won’t even accept the facts.

Democrats harp that Bush tax cuts, wars and the prescription-drug plan for seniors caused the deficit to swell to $1.3 trillion in 2011. Yet, with all those at play, the deficit was only $161 billion in 2007.

Spending is up $847 billion, and additional temporary tax cuts–such as the payroll tax holiday–account for the rest of the increased deficit. Only $62 billion was necessary to accommodate inflation, and social security, health care and other entitlements account for 78% of the rest.

Most economists agree GDP growth is likely to be in the range of 2% over the next several years, and such slow growth and high unemployment will accelerate spending on entitlements, while retarding the growth of tax revenues. 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:

Whether the Joint Select Committee on Deficit Reduction reaches a deal to reduce the federal deficit by at least $1.2 trillion or stalemates on Nov. 23, Democrats appear intent on handicapping the national economy with higher taxes and imperiling national security by cutting defense. Those are the wrong places to solve the nation’s budget woes.

In 2007, just prior to the financial crisis and when Democrats took control of Congress, the deficit was a manageable $161 billion. Wars in Iraq and Afghanistan were ongoing, and Bush tax cuts and prescription benefits for seniors were in place.

In 2011, two years after the recession ended, the deficit is $1.3 trillion. Spending is up $847 billion, and additional temporary tax cuts–such as the payroll tax holiday–account for the rest. Of the $847 billion, only $62 billion was necessary to accommodate inflation, and social security, health care and other entitlements account for 78% of the rest.

Repeatedly, Democrats President Barack Obama and Majority Leader Harry Reid have exhorted Social Security is not contributing to the deficit, but the program began paying out more than its receipts in 2009, and the Trust Fund will be entirely depleted by 2036. 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 faces three daunting challenges–jobs, deficits and re-election. His actions reveal he places a second term ahead of fixing the economy and federal finances.

If Obama runs on the economy, he loses. Too many voters are unemployed, underemployed, standing discouraged on the sidelines, or watching their paychecks dwindle for Obama to win. And most voters recognize, had President Obama’s economic policies permitted the economy to grow as it should, deficits in Washington and state capitals would be much more manageable.

If he runs on handling the financial crisis, he loses. He inherited a mess, but trillions in bailouts for Wall Street, Chrysler and GM rewarded the best-paid white collar and blue collar workers for lousy management and worse, while the other 98% watch their paychecks shrink in value. Now charges of fraud in his solar energy program and revelations about White House management dysfunction cast a president lacking judgment and leadership qualities.

On both jobs and the deficit, the president seeks to present a sharp contrast with his eventual GOP rival premised on “fairness”–presenting himself as guardian of the working family, and his prospective Republican opponents as champions of privilege.

An additional $447 million in stimulus and tax cuts, over two years, if spent smartly, could create about 2.5 million jobs for that period. However, he proposes paying for teachers by cutting aid to states for health-care workers and that won’t create many jobs. Extending the payroll tax holiday for the middle class by taxing those who earn over $200,000 only adds marginally to new spending and few 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:

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

The acrimonious debate on the U.S. fiscal deficit and debt has just begun. While Congress and the administration managed to jump over the fiscal year 2011 hurdle late last week, the contentious agenda surrounding the debt ceiling review (probably by May 2011), FY 2012 budget (Oct. 2011-Sept 2012) and overall fiscal consolidation remains on the table.

President Obama and GOP representatives struck a compromise in order to avert a shutdown of the U.S. government (on “non-essential” operations only) at the eleventh hour last Friday. Reportedly, the brokered compromise for funding the government through this fiscal year (which ends in Sept 2011) requires an additional $38.5 billion reduction in fiscal outlays (formally, however, the legislation will only be drafted this week).

Our calculations suggest that the total spending cuts ($10 billion from prior continuing resolutions and the aforementioned $38.5 billion) this fiscal year could potentially reduce real GDP growth by 0.4 percentage point to 0.9 percentage point, all else equal (the differing estimates reflect different multipliers). But we think the plausible impact on growth is likely to be at the lower end of the foregoing forecast range. And the nudge to the unemployment rate might potentially be between 0.2 percentage point and 0.4 percentage point, all else equal. Continue reading…