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News Cut: April 11, 2012 Archive

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Tsunami bullet, dodged

Posted at 9:01 AM on April 11, 2012 by Paul Tosto
Filed under: Disasters, Weather

News this morning of earthquakes and tsunami warnings near Indonesia and across the Indian Ocean kicked the dread mechanism into high gear.

That's the part of the world where more than 200,000 people died from a massive tsunami in 2004.

The newest earthquakes triggered panic and a tsunami watch.

This one looks to have a happy ending, though. The BBC just posted:

Two hours after the quakes - one with a magnitude of 8.6, the other measuring 8.3 - the centre says "the threat has diminished or is over for most areas".

The alerts caused panic as people fled buildings and made for high ground.

There have been no immediate reports of damage or casualties.

According to the BBC, today's earthquake was " felt as far away as Singapore, Thailand, Sri Lanka and India. 'There was a tremor felt by all of us working in the building,' a man called Vincent in Calcutta, India, told the BBC. 'All just ran out of the building and people were asked not to use the elevator. There was a minute of chaos where all started ringing up to their family and asking about their well-being.' "

tsunami.jpgThe Pacific Tsunami Warning Center in Hawaii loves capital letters. But in this instance, we'll take it:

A SIGNIFICANT TSUNAMI WAS GENERATED BY THIS EARTHQUAKE. HOWEVER...SEA LEVEL READINGS NOW INDICATE THAT THE THREAT HAS DIMINISHED OR IS OVER FOR MOST AREAS. THEREFORE THE TSUNAMI WATCH ISSUED BY THIS CENTER IS NOW CANCELLED.

-- Paul Tosto

UPDATE: Listen to a discussion of the earthquakes and tsunami worries from this morning's Daily Circuit broadcast.

Is the good weather masking a weak economy?

Posted at 11:00 AM on April 11, 2012 by Paul Tosto (1 Comments)
Filed under: Economy

It's been a lovely winter and spring here and across the country. Only an economist could find something wrong with it.

Sure enough, there's been a swell of analysis recently that much of the positive economic news we've seen so far in 2012 is a weather-induced mirage.

The easiest read on this comes from the UCLA Anderson Forecast.

Senior economist David Shulman cites temperatures in most of the country averaging 5 to 6 degrees above normal in January and February 2012 as a key factor in the recent improvement in the labor market, with 227,000 and 284,000 net new payroll jobs created in those months, respectively.

In an essay titled "Curb Your Enthusiasm," Shulman details how the unseasonably warm winter weather drove the consumer economy.

The impact of the mild winter manifested in several respects, including an unusually low number of workers being kept away from their jobs and lower home-heating bills (aided by plummeting natural gas prices, which helped offset higher gasoline prices) -- all of which acted as stimulants for the labor markets.

But, Shulman writes, "We suspect that once the weather and the seasonal adjustment factors normalize in March and April, the economic data won't look so ebullient."

Shulman also writes that "the stronger employment data are not appearing to translate into stronger overall GDP growth." He argues that part of the recent gains in employment was a response to prior growth, not expectations for future growth.

That analysis came out in late March.

Last week, as if on cue, the federal Bureau of Labor Statistics reported disappointing job growth for March.

I've been feeling generally upbeat about the economy this year. I still feel like the worst is behind us in Minnesota and the country.

We'll get a better picture later today when the Federal Reserve releases its Beige Book, an anecdotal report on economic conditions in each of the Fed districts, including Minneapolis.

Here's hoping for a little sunshine.

-- Paul Tosto

(1 Comments)

Fed's largest financial asset?

Posted at 1:28 PM on April 11, 2012 by Paul Tosto
Filed under: Economy

It was eye-opening a few weeks ago when the federal Consumer Financial Protection Bureau took a deep look at private and federal student loans outstanding and concluded that the market had topped $1 trillion.

Equally sobering is a new analysis by financial markets researcher Doug Short. On his blog today, Short offers a pop quiz:

What line item is the largest asset on Uncle Sam's balance sheet?

A) U.S. Official Reserve Assets
B) Total Mortgages
C) Taxes Receivable
D) Student Loans

The correct answer, as of the latest Flow of Funds report for Q4 2011, is ... Student Loans.

Yes, it's an IOU to you. But to the federal government, it's a financial asset bigger than any other.

dshort.jpg
Source: Dshort.com

Just in case you're thinking that student debt could help pay off the national debt, Short notes that, "assets are, sadly, the trivial side of Uncle Sam's Flow of Funds balance sheet -- a bit less than 1.36 Trillion. The liability side totaled 12.28 Trillion at the end of Q4."

-- Paul Tosto

We are the tax loopholes

Posted at 3:47 PM on April 11, 2012 by Paul Tosto (4 Comments)

Those dang federal tax breaks! We just know that the super-rich are exploiting the tax code while we're too dumb to take advantage. Right?

Well, no. Turns out some of the biggest tax breaks in the U.S. tax code are distinctly middle class.

The non-partisan Congressional Research Service recently put together a handy document that makes it relatively easy to understand non-corporate tax breaks (expenditures in budget-speak).

Researchers estimated that while there are more than 200 separate tax breaks in the code, 20 or those represent 90 percent of the revenue loss to the Treasury.

Here's the CRS chart (click on it for a larger view):

taxes.jpg

They note:

Is it possible to repeal or substantially trim most special tax deductions, credits, exclusions, and special rates, also known as tax expenditures? If so, the potential for lower rates or additional revenue would be significant.

For FY2014, the year used in analyzing these provisions, individual income tax expenditures, which account for most of the potential base broadening provisions, are projected to total over $1.1 trillion. This amount is equivalent to 74% of the total FY2014 revenue from individual income taxes, and about 7% of GDP.
In other words, eliminating all those tax breaks would put us well on the way to closing the huge annual U.S. budget deficit and set us on path to actually pay down all our outstanding national debt, now up above $15.5 trillion.

Or you could use the cash to slash personal income tax breaks.

You see where this is headed?

Who's willing to give up tax breaks for employer health insurance, pensions and (gasp) mortgage interest -- stuff that is largely tied to middle income America?

When the president's own commission proposed a dramatic federal financial reform plan that included slashing tax breaks, it was beaten down in the U.S. House of Representatives.

It's a debate that can't be won. However, there may be an end run. Bruce Barlett, a policy official who served in the Reagan and George H.W. Bush administrations, supports a plan that would "simply give every family a tax exemption of $100,000, which would eliminate the income tax for 90 percent of those now filing returns...abolish the income tax for the vast bulk of Americans and replace the revenue with a 12.5 percent value-added tax."

That won't happen any time soon. But, as I contemplate next week's tax filing deadline, I'm at least happy for the idea.

-- Paul Tosto

(4 Comments)
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