5 big statements of the week

Posted on July 30th, 2010 by ecthompson md

I found this on Morningstar.com. I thought that it was worth commenting on.

5 Big Econ - July 2010 [ 0:01 ] Play Now | Play in Popup | Download

I’d like to take a few moments and go over these five big statements of the week.

  • Let’s start with this report from Moody’s.com. This report attempts to analyze the unprecedented steps that were taken both by the Federal Reserve, Congress and the Bush/Obama administrations in order to stabilize the economy. They use a modeling technique in order to stimulate the economy. They estimate that 8.5 million jobs have been saved. They also estimate that the Gross Domestic Product would be approximately 11.5% lower without the intervention. Wow! Basically, they’re saying that government intervention worked to avoid the Great Depression 2.0. Now, I know that this will not be the last word on this. I find this paper very fascinating. For those who are interested in the economy, please read the whole paper.
  • Just as in the United States, Europe has performed their stress tests on their financial institutions and found that the vast majority of their financial institutions are fiscally sound. From a political standpoint, what else could they have found? Just for a moment, imagine that the European Union announced that the majority of their banks were unable to stand a significant stress. The panic that would ensue would cause distress and the banks will collapse. The purpose of the stress test is to calm the fears of investors.
  • There should be no surprise to anybody that the housing market remains depressed. In my opinion, the housing market has overbuilt and will take several years to alleviate that oversupply. In the meantime, there will not be much building. As I mentioned earlier, the economy has to find another fuel to drive economic engine. The housing sector just can’t do it anymore. This is why I have been pushing green energy.
  • The Democrats are unable to push through comprehensive climate change legislation. There’s almost no Republican support. The conservative Democrats have too much to lose by supporting such legislation. In my opinion, Democrats need to split up this legislation into small pieces. Small portions can pass.
  • British Petroleum has put Tony Hayward up on the shelf. They haven’t really fired him. With the amount of money he is getting, it’s hard to say that he’s really been demoted. He has just been removed from public view. To be honest, Tony Hayward is not the problem. The problem is a sense of entitlement that many of these executives have. The chairman of BP had the nerve to say that they look out for the “little people.” Really? Instead of feeling lucky or deep sense of humility for running a multibillion dollar corporation and taking home a multimillion dollar salary, they seem put out and upset that one of their wells has contaminated the Gulf of Mexico. It is not the person, but the culture that is the problem.

Tags: Bush Administration, Economy, Obama administration, Senate // 2 Comments »

  • http://hiddencause.wordpress.com DK Fennell

    There's two things worth emphasizing in the Moody's Analytics report. First, Mark Zandi was listed by John McCain as one of his principal economic advisers. His name appears first among the McCain advisers cited by the Wall Street Journal and the Journal says that he is among the most “widely quoted” business economics in news articles. According to the Journal he was recruited to the McCain campaign by Kevin Hassett of the very conservative AEI.

    Perhaps more interesting is Table 11 on page 16. Using Moody’s Analytic’s data, the authors estimate the one-year “bang for the buck” from federal spending. The biggest bang (defined as the estimated dollar change in GDP for given dollar in federal spending) came from the temporary increase in Food Stamps ($1.74), temporary federal financing of work-share programs ($1.69), extending unemployment insurance spending ($1.61), increased infrastructure spending ($1.57) and general aid to state governments ($1.41). Tax cuts were net losers in terms of bang for the buck. One dollar in lost government income resulted in the following increases in GDP: Bush tax cuts, 0.32; dividend and capital gains tax cuts, 0.37, cut in corporate tax rate, 0.32. In other words, the tax cuts extracted by the Republicans in formulating a “bipartisan bill” (one in which they did not vote for) resulted in the private pocketing of money at great expense to the GDP.

    In other words, the entire economic world view of the GDP is contradicted by empirical evidence. This of course will not deter the official Republican Party (who will do or say anything to reduce the tax burden of their wealthy patrons) or the teabaggers (who are used to avoiding the world of empirical evidence).

  • ecthompson

    excellent analysis. I appreciate your thoughts.

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