Tuesday, August 2, 2011

Mortgage rates plunge: For a few borrowers, 30-year fixed loans under 4%

Would a 30-year fixed-rate mortgage for less than 4% make you think about refinancing or even buying a home in today's battered housing markets?

Home loans at that seemingly hallucinatory rate were out there this week, mortgage industry insiders said Tuesday -- at least for those few gold-plated borrowers willing to fork over king-size upfront discount points and origination fees.

Cut-price home, AP-Reed Saxon Home loans almost always march in tandem with the yield on long-term government bonds.

And a combination of bleak economic news and lawmakers' agreement to raise the federal debt ceiling sent the yield on the 10-year Treasury note plunging to 2.62% on Tuesday -- down from more than 3.7% in February.

As usual, mortgage rates followed, reaching their lowest point since November, according to the real estate website Zillow.

"The economy is shrinking. The real estate depression continues," said Laguna Niguel mortgage broker Jeff Lazerson. But, he added: "Rates are dropping through the floor."

Lazerson said rock-solid borrowers were able to qualify for a 30-year fixed-rate loan at 4.5% while paying nothing in upfront costs.

Those who paid 1% in upfront fees and picked up the tab for appraisals, title insurance and other third-party fees were getting 30-year loans at 4.125% fixed, he said.

And Lazerson was quoting 3.875% on 30-year loans for low-risk borrowers willing to pay 3% of the mortgage amount in upfront points and fees: “The first time ever in my 24 years [as a loan broker] I can get pricing under 4%.”

At retail offices of Wells Fargo Home Mortgage, the nation's largest home lender, a few borrowers also were able to obtain the 30-year fixed-rate loans for less than 4%, spokesman Tom Goyda said. To qualify, Goyda said, they had to be excellent credit risks willing to pay 3.25% of the loan amount in discount and origination fees.

Just last Thursday, mortgage finance giant Freddie Mac reported that the 30-year fixed loan had climbed to its highest level in three weeks on concerns about the debt ceiling.

At the time, lenders were offering the 30-year fixed loan at an average of 4.55% to solid borrowers, Freddie Mac said. The borrowers would have had to pay 0.7% of the loan amount to the lenders and additional fees to appraisers and other third parties to obtain the rate.

RELATED:

Home prices rise slightly; experts unimpressed

Stock market tumbles again despite avoidance of U.S. default

Homeowners who want to trade up are stuck waiting

-- E. Scott Reckard

Photo: Price reductions have been the rule of late in the housing markets. But at least mortgage rates are cheap. Credit: Associated Press / Reed Saxon.   

Sacramento County, Calif., resident dies in tainted turkey outbreak

Turkey One Californian has died and 76 people have fallen ill from a drug-resistant strain of salmonella that appears to be linked to eating ground turkey, according to federal officials.

The Centers for Disease Control and Prevention said that Salmonella Heidelberg is resistant to numerous commonly prescribed antibiotics and is often difficult to treat. The cases of people falling ill –- which date to at least March 9 –- have been reported by local and state health department authorities in 26 states.

On Tuesday, California health officials confirmed that one person in Sacramento County died, apparently in connection to eating the contaminated meat. Dr. Glennah Trochet, the health officer for the Sacramento County Department of Health and Human Services, declined to give any further details about the victim’s age, gender or the date and details of the death.

“The family has requested that no other info be released and we are honoring their wishes,” Trochet said in a statement.

The death was one of six people in California reported to have fallen ill from the outbreak: two in Sacramento County and four elsewhere in the state, according to an official from the state Department of Public Health.

Earlier this week, CDC officials reported that 22 people nationwide have been hospitalized. Those infected range in age from an infant younger than 1 to an 88-year-old person.

So far California, Michigan, Ohio, Texas, Illinois and Pennsylvania have been among the states hardest hit by the outbreak.

Salmonella can cause fever, diarrhea and abdominal pain. It can be fatal to young children, older people and those with compromised immune systems.

On Monday, the CDC issued a statement saying that investigators had found that four cultures of ground turkey taken from four retail locations between March 7 and June 27 tested positive for Salmonella Heidelberg. Three of the four came from the same manufacturer, according to the CDC. The fourth sample is still under investigation.

Federal officials have declined to name the retailers that sold the contaminated products, or which farms and processing facilities produced them.

Local, state and federal public health officials say they are using the DNA of Salmonella Heidelberg to track down new cases of illnesses and trace the contamination to its source.

The U.S. Department of Agriculture’s Food Safety and Inspection Service, which handles oversight for food safety issues involving ground turkey, has not yet called for a product recall, apparently because there’s not yet enough data to do so. Instead, the FSIS last week issued an alert about the outbreak and urged consumers to fully cook and properly prepare their meat.

“As this is an ongoing outbreak, this is likely a frozen product people have in their freezers,” said William D. Marler, a leading food safety litigation lawyer.

“What FSIS should be saying is, 'Don’t eat frozen turkey products until we know what products are safe and what aren’t.' They’re not telling the public anything that they can use to help protect themselves,” Marler said.

This marks the second time in recent months that turkey has been tied to a salmonella contamination. In April, 12 people fell ill amid a salmonella outbreak that prompted the recall of nearly 55,000 pounds of Jennie-O turkey burgers.

RELATED:

Feds nab raw-milk cheese in California food-safety case

London officials ban ice cream shop's sale of dessert made from human breast milk

New database lets people search for information on outbreaks of food-borne illness

-- P.J. Huffstutter

Photo: Turkeys. Credit: Lawrence K. Ho / Los Angeles Times

1 dead, 76 ill in salmonella outbreak tied to ground turkey

Turkeys 
One person has died and 76 people have fallen ill from a drug-resistant strain of salmonella that appears to be linked to eating ground turkey, according to federal officials.

The Centers for Disease Control and Prevention said that this strain of Salmonella Heidelberg is resistant to numerous commonly prescribed antibiotics and is often difficult to treat. The cases of people falling ill –- which date back to at least March 9 –- have been reported by local and state health department authorities in 26 states.

Six people in California are confirmed to have been made sick from this outbreak. Twenty-two people have been hospitalized. The people infected range in age between an infant younger than 1 year to a person 88 years old.

So far, California, Michigan, Ohio, Texas, Illinois and Pennsylvania have been among the states hardest hit by the outbreak.

Federal officials have declined to release any information about the person who died.

Salmonella can cause fever, diarrhea and abdominal pain, and can be fatal to young children, older people and those with compromised immune systems.

On Monday, the CDC issued a statement saying that investigators had found that four cultures of ground turkey taken from four retail locations between March 7 and June 27 tested positive for this strain of salmonella. Three of the four came from the same manufacturer, according to the CDC. The fourth sample is still under investigation.

Federal officials have declined to name the retailers that sold these contaminated products, or which farms and processing facilities produced them.

Now, local, state and federal public health officials say they are using the DNA of this bacterium to track down new cases of illnesses and trace back the contamination to its source.

The U.S. Department of Agriculture’s Food Safety and Inspection Service, which handles oversight for food safety issues involving ground turkey, has not called for a product recall at this time, apparently because there’s not enough data to do so. Instead, the agency last week issued an alert about the outbreak and urged consumers to fully cook and properly prepare their meat.

“As this is an ongoing outbreak, this is likely a frozen product people have in their freezers,” said William D. Marler, a leading food safety litigation lawyer. “What FSIS should be saying is don’t eat frozen turkey products until we know what products are safe and what aren’t. They’re not telling the public anything that they can use to help protect themselves.”

This marks the second time in recent months that turkey has been tied to a salmonella contamination. In April, 12 people fell ill amid a salmonella outbreak that prompted the recall of nearly 55,000 pounds of Jennie-O turkey burgers.

RELATED:

Feds nab raw-milk cheese in California food-safety case

London officials ban ice cream shop's sale of dessert made from human breast milk

New database lets people search for information on outbreaks of food-borne illness

-- P.J. Huffstutter

Photo: Turkeys. Credit: Lawrence K. Ho / Los Angeles Times

Oakland solar firm Sungevity expands east, woos customers with free ice pops

PRN5-SUNGEVITY-ICE-POP-TRUCK-1yHigh On the East Coast, does a free ice pop translate into new solar panel customers?

Sungevity is about to find out. The Oakland-based residential solar company is sending a bright orange truck stocked with the icy treats around the five Northeastern states where it is expanding its business.

The truck, powered by biodiesel and the sun, is also equipped with iPads where ice pop munchers can multitask by getting a free quote on solar panel installations.

The sweet setup will hit music festivals, farmers markets, minor league baseball games and other events in New York, New Jersey, Maryland, Massachusetts and Delaware. Last month, Sungevity bought up all the advertising space on an Amtrak line running through the states.

The company is hoping its unconventional advertising will help endear its solar offerings to the promising East Coast market. Like competitors and fellow Bay Area companies SunRun and SolarCity, which have already made headway in the area, Sungevity has a solar lease program designed to cut back the heavy upfront costs of installation.

RELATED:

Solar electric lease firm Sungevity expands to Los Angeles DWP service area

SolarCity sees bright future for residential solar systems

-- Tiffany Hsu

Photo: Sungevity's biodiesel, solar-powered ice pop truck tours the Northeast. Photo: PRNewsFoto/Sungevity

Online calculator estimates savings from home solar systems

Ever wonder just how much benefit can be gained by adding solar panels to a new or existing home? Well, now you can go online, fill in the requisite details such as the address and the size of the solar system you're contemplating, and get an answer.

Logo The California Energy Commission has launched the Solar Advantage Value Estimator, or SAVE, officials said, to provide a long-term and cost-effective method for calculating the added value of solar photovoltaic (PV) systems.

"This changes the perception of solar in the housing industry that benefits homeowners. Today's changing real estate market requires a credible method to determine a home's value with solar and this tool is an example of California's leadership to develop new methods to cultivate clean energy," said Energy Commissioner Carla Peterman.

Amy Morgan, a spokeswoman for the Energy Commission, added: "This is a tool for the homeowner. They may be looking to purchase a solar home or they may be selling one. This calculation will give you a monetary value to show potential buyers."

The SAVE calculator will offer an estimate of annual energy savings by using the address and solar system size by automatically combining it with specific climate zone data and local electric utility rates. The calculator is also designed to be used by real estate professionals, appraisers and builders to provide information to potential clients.

On the same Web page, visitors will find other calculators that may provide them with useful and related information. The Clean Power Estimator "calculates the potential costs and benefits of installing a PV system at your home or business."

The National Renewable Energy Laboratory's PVWatts calculator "determines the energy production and cost savings of grid-connected photovoltaic (PV) energy systems throughout the world." Just launch the viewer and enter a ZIP code to begin.

--Ronald D. White 

For Stocks, Day 7 Since the Walkout

Tuesday was the seventh trading day since John Boehner walked out of talks with Barack Obama at the White House. That move made it clear that the House speaker would not risk alienating the Tea Party and that if a debt default were to be averted, the president would have to capitulate on virtually all issues or defy Congress by claiming the debt limit legislation was unconstitutional. He chose to capitulate.

FLOYD NORRIS
FLOYD NORRIS

Notions on high and low finance.

This is also the seventh consecutive session that the Standard & Poor’s 500-stock index has declined. The total fall for the seven days is 6.8 percent.

Notions on high and low finance.

This is something that Wall Street did not see coming. It took for granted that something more reasonable would be worked out. To make it worse, the economic data has turned much bleaker, highlighted by last Friday’s revisions in the gross domestic product. In normal times, the politicians would be vying to come up with plans to stimulate the economy. Now that seems to be out of the question, and there is more talk of a double-dip recession than at any time since the last downturn ended.

The last time I can recall Wall Street’s being so wrong about what the government would do was in September 2008. Lehman Brothers was collapsing, but the Bear Stearns precedent provided assurance that the government would not take the risks to the financial system inherent in letting a big bank fail.

Over the seven sessions after the Lehman bankruptcy, the S.&P. fell 5.1 percent. It was a much wilder ride than this one, with two days when the market lost more than 4 percent and two days when it rose more than 4 percent. The market would go on to lose much more. By contrast, the largest decline in this string was Tuesday’s fall of 2.6 percent.

Wall Street was so very wrong in 2008 because ideology trumped caution in Washington. Sort of like what seems to be happening now.

Stock market tumbles again despite avoidance of U.S. default

Fi-markets25-span The United States isn't defaulting, but the stock market is tumbling anyway.

The Dow Jones industrial average slumped more than 265 points Tuesday as mounting concerns about the fragility of the U.S. economy weighed heavily on Wall Street. It was the Dow's eighth straight daily loss, its worst string since the depths of the global financial crisis in 2008.

Though relieved at Washington's ability to forge an eleventh-hour debt-ceiling plan that averted a feared default, investors are spooked by the notion that the government cutbacks called for in the debt plan could further weaken an already torpid economy.

“Investors are looking past the budget situation and realizing this is an austerity plan," said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. "We have an economy that’s struggling to stay afloat and we don’t have the ammunition to keep prodding it forward.”

The Dow skidded 265.87 points, or 2.2%, to 11,866.62, its worst loss in two months. It was the blue-chip average's worst day in two months.

Investors scrambled into gold and U.S. Treasury bonds -- perceived havens -- as chatter on Wall Street turned to whether the economy might be headed back into recession.

The selling was driven by a government report that showed consumer spending suffering its worst decline in June since September 2009. Consumer spending fell 0.2%, compared with the 0.1% increase that economists expected.

Combined with a related rise in personal savings, the economic news indicated that the American public –- bombarded by ubiquitous warnings about the debt ceiling and reeling from chronic unemployment -– is further pulling in its horns.

Foreign stock markets sold off heavily, with the Spanish and German markets sinking more than 2%.

Treasury bonds continued their startling three-day rally. The yield on the benchmark 10-year Treasury note plunged to a nine-month low of 2.61% from 2.75% on Monday.

The yield on the 30-year Treasury bond skidded below 4%, falling to 3.90% from 4.08%. It was at 4.28% a week ago.

RELATED:

Debt ceiling deal casts a bleak light on the future

Stock markets close little changed after dramatic day

Fitch reaffirms U.S. triple-A rating after debt deal approval

-- Walter Hamilton

Photo: Associated Press

Alice Cooper to help design Universal Studios Halloween maze

Alicecooper-gettyimages Rock icon Alice Cooper will help design a theme park maze for Universal Studios Hollywood's Halloween Horror Nights, the park announced Tuesday.

Cooper, known for his macabre-tinged stage persona, is the second celebrity that the park has tapped to help create horror-inspired mazes for the annual Halloween celebration that runs on selected nights from Sept. 23 to Oct. 31.

Horror movie director and actor Eli Roth, who produced the 2002 horror film "Cabin Fever" and 2005's "Hostel," among others, will design a maze called Eli Roth’s Hostel: Hunting Season. Other celebrities who have agreed to design mazes will be announced over the next few weeks.

The mazes are usually temporary structures installed at the theme park among the other rides and attractions. Guests walk through the dark mazes, past scenes of gore and costumed actors that jump out from the shadows.

In recent years, Halloween has represented an opportunity for huge revenues for theme parks such as Universal Studios, Knott's Berry Farm in Buena Park and Disneyland in Anaheim.

According to Universal Studios Hollywood, Coopers maze will include "guillotine decapitations, electric chairs, a sadistic insane asylum, predatory snakes and giant Black Widow spiders that have helped make his imagery timeless and indelible."

-- Hugo Martin

Photo: Alice Cooper. Credit: Getty Images

Gold soars to high on South Korea purchase, economic jitters

Goldbars 
Gold prices were at record highs Tuesday following word that the Bank of Korea had made its first gold purchase in more than a decade and as global economic concerns reinforced gold’s image as a safe haven from a turbulent stock market.

Near-term gold futures in New York jumped $22.90 to close at a record $1,641.90 an ounce.

Silver also gained, rising 78 cents to $40.08 an ounce, although the white metal has been stuck in a narrow range in recent weeks even as gold has continued to surge.

“The flight-to-quality money is flowing into gold,” Adam Klopfenstein, a senior strategist at MF Global Holdings, told Bloomberg News. “There’s a lot of uncertainty about the global economic recovery.”

From Reuters:

South Korea spent more than a billion dollars in its first gold purchase in more than a decade, as uncertainty about global growth and sovereign debt push central banks around the world to diversify foreign reserves.

A brittle global economic recovery and precarious debt conditions in the United States and Europe have boosted the safe-haven appeal of gold, lifting bullion to a record high on Friday.

The Bank of Korea said in a statement on Tuesday it bought 25 tonnes of gold over the past two months, raising its gold holding to 39.4 tonnes.

Gold's price now is up 15.5% year to date. Silver is up 30%, but nearly all of that gain occurred amid frenzied buying in the first quarter. Silver peaked at $48.58 an ounce on April 29.

RELATED:

Americans cut spending for first time in 20 months

Stocks slump as concerns about economy grow

--Stuart Pfeifer

Photo: Gold bars on a table awaiting transport at a plant of gold refiner and bar manufacturer Argor-Heraeus SA in the southern Swiss town of Mendrisio November 13, 2008. Credit: Arnd Wiegmann/Reuters

Stock market slides again on economic fears

The stock market's jitters about the U.S. debt ceiling are over, but its concerns about the economy are growing rapidly.

The Dow Jones industrial average tumbled more than 150 points Tuesday morning, its eighth-straight losing day, as investors worried that the debt-ceiling agreement could further weaken an already torpid economy.

Investors scrambled into gold and U.S. Treasury bonds, perceived havens, as chatter on Wall Street turned to whether the economy might be headed back into recession.

The selling was driven by a government report that showed consumer spending suffering its worst decline in June since September 2009. Consumer spending fell 0.2%, compared with the 0.1% increase that economists expected.

Combined with a related rise in personal savings, the economic news indicated that the American public –- bombarded by ubiquitous warnings about the debt ceiling and reeling from chronic unemployment -– is further pulling in its horns.

As of 11:30 a.m. PDT, the Dow was off 158.33 points, or 1.3%, to 11,974.16.

Foreign stock markets sold off heavily, with the Spanish and German markets sinking more than 2%.

Treasury bonds continued their startling three-day rally. The yield on the benchmark 10-year Treasury note plunged to a nine-month low of 2.62% from 2.75% on Monday.

The yield on the 30-year Treasury bond skidded below 4%, falling to 3.93% from 4.08%. It was at 4.28% a week ago.

RELATED:

Debt ceiling deal casts a bleak light on the future

Stock markets close little changed after dramatic day

Fitch reaffirms U.S. triple-A rating after debt deal approval

-- Walter Hamilton

Illegal immigrants decline in some California counties

AI Immigration_Fig 4 Despite concerns about illegal immigrants in the California labor market, a new report shows that their number has declined in the most heavily populated areas in California during the last decade.

The population of illegal immigrants in Los Angeles County fell by 8,000 between 2001 and 2008, according to a new report from the Public Policy Institute of California, which uses the term "unauthorized immigrants." In Orange County, the population of illegal immigrants fell by 60,000. And in Santa Clara County, it fell by 61,000.

"After many years of increases, the number of California's unauthorized immigrants has remained stable or even declined slightly recently," says the report, written by Laura E. Hill and Hans P. Johnson. "At the same time, the number living in other states has increased substantially compared to California."

States such as Mississippi, Alabama  and South Carolina have seen significant increases in their illegal immigrant population, as California's stays stagnant or even shrinks.

The report tracks illegal immigrants by ITIN filings, which are federal tax filings for people without Social Security numbers. Economists estimate that about 80% of illegal immigrants have filed federal tax returns.

The PPIC study shows that in 2008, illegal immigrants made up a share of the population in nearly every California county, including Imperial (12.8% of the population), Fresno (5.3%) and Napa (12%).

But those numbers shrank in some areas. Other counties that lost illegal immigrants from 2001 to 2008 include Alameda, Marin and San Francisco, while Riverside, San Bernardino and Kern counties all added them.

The economic effects of these changes remain to be seen. Some economists argue that illegal immigrants increase the economic output of the places where they live, but have flooded the market as low-skilled workers competing for the same jobs. It is unclear whether those low-skilled workers will be willing to do jobs traditionally filled by illegal immigrants in the agricultural and service sectors.

-- Alana Semuels

RELATED:

Mexico law aims to reduce risks to migrants passing through

Economy: increase immigration for economic growth?

At southern border, Obama calls immigration reform an 'economic imperative'

Photo: Percent of illegal immigrants in population, by ZIP code, 2008. Source: PPIC

Answering Questions on Leadership

Adam Bryant, who conducts interviews with chief executives and other leaders for Corner Office, a weekly feature in the Sunday Business section and on nytimes.com, will be answering questions posed online today on Quora, a site devoted to curating knowledge collaboratively. Mr. Bryant, a deputy national editor whose previous assignments included coverage of the auto and airline industries, will field questions from 3 to 4 p.m. Eastern time. It is the last of three weekly sessions on Quora featuring Times staff members. Read more >>

Is Deflation Back?

Deflation has returned.

CATHERINE RAMPELL
CATHERINE RAMPELL

Dollars to doughnuts.

For the first time in a year, consumer prices fell in June, according to a new report from the Commerce Department released Tuesday. The price decline was driven by energy declines, and is just one month’s data point, but even so, the figure is worrisome. The Federal Reserve pays close attention to this price index (more so, reportedly, than to the Consumer Price Index released by the Labor Department); and you may recall that part of the reason the Federal Reserve engaged in quantitative easing was the threat of a deflationary spiral.

Dollars to doughnuts.

The Commerce Department’s report delivered other bad news, too.

Nominal personal income increased by just 0.1 percent in June — and the increase was due to higher government transfer payments (like unemployment benefits) and capital gains income, not wages and salaries.

In fact, private wage and salary income fell in June.

None of these facts bode well for growth in the third quarter of this year, given that the economy is so dependent on consumer spending. And the austerity measures created by the recent debt ceiling deal look unlikely to make things better.

Predicting Bubbles and Crashes

Do financial commentators repeat the same optimistic words and terms in a kind of groupthink before and during an economic bubble? That was the premise of a study by two scholars in Ireland. Patricia Cohen, who looks at the world of ideas on the Arts Beat blog, tells what they found. Read more >>

Wall Street Roundup: More bad numbers. Fed to the rescue?

Wall Street Gold: Trading now at $1,640 per ounce, up 1.1% from Monday. Dow Jones industrial average: Trading now at 12046.74, down 0.7% from Monday.

More bad numbers. The markets fell after the latest disappointing economic data showed that consumer spending unexpectedly dropped.

Fed to the rescue? As talk of a double-dip recession starts to circulate, all eyes are turning to the Federal Reserve, wondering whether the central bank will try another round of monetary stimulus.

Big Board earnings. The New York Stock Exchange announced earnings that were down, but better than expectations, as it moves toward a sale to Germany's largest stock exchange.

-- Nathaniel Popper

Credit:  Stan Honda / Getty Images

 

Why Would a Fiscal Commission Work This Time?

Here on Capitol Hill, legislators are fuming about being stripped of their power by a new bipartisan fiscal “super-committee.” But history shows that such commissions have been generally powerless.

CATHERINE RAMPELL
CATHERINE RAMPELL

Dollars to doughnuts.

In the last six decades, Washington has assembled more than a dozen blue-ribbon panels to grapple with fiscal problems. These include the 1947-49 Hoover Commission, the 1982-84 Grace Commission and of course most recently, the Simpson-Bowles Commission, a bipartisan panel President Obama created by executive order just last year that included 12 sitting members of Congress. (If I were Alan Simpson and Erskine Bowles — the namesakes of that task force — I might be a little peeved that my colleagues are effectively repeating the exercise that I spent so much time on last year.)

Dollars to doughnuts.

The panels were often devised as a way to give political cover to policy makers so they could make unpopular changes to things like entitlements and tax rates. In most cases, though, Congress ignored the proposals or deferred action.

Even the panel usually held up as the exception that proved the rule, the 1981-83 Greenspan Commission set up to revamp Social Security, was also largely a failure.

According to an unpublished memoir written by one of the now-deceased members of the commission, the panel deadlocked and then splintered. President Reagan and the House leadership were able to eke out a deal to save Social Security only by engaging in separate negotiations just as the entitlement program was about to go bankrupt.

“Most of these deficit commissions have ended up exactly the way Simpson-Bowles did: with lots of talk, lots of congratulations and no actual changes,” said Bruce Bartlett, a former economic adviser to Presidents Ronald Reagan and George H.W. Bush (and regular contributor to this blog).

Many of these commissions have issued the exact same recommendations as their predecessors, he said, only to have them disregarded once again.

“They keep appointing new commissions to reinvent the wheel,” Mr. Bartlett said.

And indeed, there are many reasons to believe that Congress’s current (and past) fiscal challenges are due less to a lack of economic ingenuity than to a lack of political will, a will that the creation of a commission does nothing to strengthen.

After all, the nonpartisan Congressional Budget Office publishes an enormous tome of “Budget Options” nearly every year for the primary purpose of letting legislators know what choices they have for fiscal consolidation strategies. Just about every permutation of tax change and spending cut is cataloged, analyzed and scored for deficit savings.

The one design element of the current fiscal super-committee proposal that bodes well is its so-called trigger function.

The only fiscal task force that economists and political historians say worked somewhat reliably was one with a similar model: a commission set up to determine which military bases closed.

Politicians are loath to vote for closing any individual base within their own district, so this commission put together a master list of military bases that were good candidates for being shut down. And if Congress did nothing, every base on the list closed. That meant the onus was on opponents to act to prevent the commission’s recommendations from taking effect.

The model was quite effective for many years.

“The deck was really stacked against the plan’s opponents then,” said Sarah Binder, a senior fellow at the Brookings Institution and a political science historian at George Washington University.

The current fiscal commission requires Congress to approve the commission’s recommendations — but if it does not do so, major deficit cuts will kick in automatically. In other words, like the base-closing commission model, Congress will have to act affirmatively to undo that legislative language if it wants no new spending cuts or tax increases to take effect.

“Expedited procedures count for a lot, and triggers count for a lot, if they can get them to work,” Professor Binder said. “All these delegated panels involve kicking the can down the road, but this one tries to make that can explode if gets kicked.”

Is a Balanced Budget Amendment a Good Idea?

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Some House and Senate Republicans have pushed hard to include a “balanced budget” constitutional amendment as part of any agreement on a debt ceiling, and the final accord — passed Monday by the House of Representatives and awaiting action by the Senate — identified such an amendment as one path to the bill’s deficit-cutting provisions.

Today’s Economist

Perspectives from expert contributors.

Its supporters say such an amendment is a way to keep spending and deficits under control by requiring that federal spending not exceed revenues. But there are three main problems with this potential approach as it is currently articulated.

Perspectives from expert contributors.

The first issue, which has been forcefully identified by my fellow Economix blogger Bruce Bartlett, is that there is no way to make this amendment work. The language proposed would, as part of the “balance,” limit federal government spending to 18 percent of gross domestic product, and only a two-thirds majority in both houses of Congress could waive that limit. On the table, in effect, is a balanced budget amendment with a spending cap.

G.D.P. is not a legal concept but an economic measure, the details of which change all the time, subject to the prevailing view of best practice among statisticians. To take one example, the flow value of housing services for people who own their houses is imputed to create a number that is roughly equivalent to what renters pay.

The goal is to measure more accurately a key component of consumption, which represents the largest category of spending within G.D.P. But let me emphasize the “roughly equivalent” — the models used are sometimes called into question and must be revised from time to time. And imputed spending on housing is a big number – probably around $1 trillion in today’s economy (with total G.D.P. at about $15 trillion).

If an enterprising future administration wanted to lower spending relative to measured G.D.P., it could convene a panel of experts that could duly find that our current practice of not valuing household services — like cooking and taking care of children — is a statistical aberration as well as an affront to people who work very hard providing those. That should add at least $5 trillion to our annual G.D.P.

Alternatively, a statistical adjustment in the other direction would force real and painful spending cuts. The Constitution is the wrong place to pursue such details.

Second and more seriously, imagine that this constitutional amendment were in place and that federal spending were roughly at its limit relative to the size of the economy. Then, what happens should the financial sector blow up again — either through no fault of its own (which, believe it or not, is the current prevailing myth on Wall Street about 2007-9) or because of some toxic combination of malfeasance and malpractice (the current predominant view of 2007-9 among many other people)?

The blame game is irrelevant when G.D.P. drops 10 percent; the issue is how to prevent a Great Depression. But note that with such a decline in G.D.P., a level of nominal spending that was 18 percent of G.D.P. is suddenly 20 percent, and now a constitutional crisis awaits – even before we get to the question of whether tax cuts or other forms of stimulus might be appropriate.

It makes no sense to take aim, as a matter of constitutional process, at two numbers that are both outcomes of deeper economic processes.

And to be frank, sometimes it makes a great deal of sense to apply an economic stimulus to an economy in free fall. One such moment was 1930 (and 1931 and 1932), when no stimulus was applied. Other moments were 2008 and 2009; both President Bush and President Obama initiated stimulus packages. When credit for and confidence in the private sector evaporates, do you really want the government sector to be forced to make quick cuts — or to raise taxes?

Third, why is 18 percent of G.D.P. the right number to set in stone? The argument given — for example, at a recent hearing of the Joint Economic Committee of Congress — is that this is what the federal government has spent, on average, in recent decades.

Well, so what? The federal government, after all, used to spend much less — see the important new book “Government Versus Markets: The Changing Economic Role of the State” by Vito Tanzi on the relevant history (and much more).

Alternatively, as the United States begins to have a larger share of older people relative to the total population, perhaps it makes sense to increase spending — as a share of the total economy — on people over the age of 65?

Or, given today’s problems in public education, perhaps we should consider investing more in children who can — if they are able to become sufficiently productive — support an aging population while paying only moderate taxes.

What is the right amount of federal government spending relative to G.D.P.? That’s a great question, worthy of considerable deliberation, including during the presidential election campaign of 2012. But setting it in stone now at precisely 18 percent of G.D.P. makes no sense.

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