Federal government wastes half of every tax dollar: poll

Americans are more skeptical than they’ve ever been of the federal government’s spending habits, convinced that it squanders 51 cents of each dollar it uses, according to a new Gallup poll.

Mistrust has steadily grown since the low 1986 estimate of 38 cents wasted on each dollar and is at the highest point since Gallup first considered the topic in 1979.

There’s only a 5% split by political party: Republicans say the government misuses 52 cents while Democrats peg the amount at 47 cents.

By ideology, though, there’s a wider differentiation, with conservatives guessing 56 cents and liberals estimating 44 cents. Back when George W. Bush was president, the sides were flipped. 

Age also plays a part, with young people less inclined to fault the government’s expenditures.

It’s unclear why Americans are so down on how The Man wields a wallet, Gallup said. Some may feel that the government throws money at unnecessary programs while others may feel that essential spending is done inefficiently. 

What’s clear is that respondents feel the federal government is far more bloated than state and local governments. Leaner operations mean that state governments waste just 42 cents while local ones misuse just 38 cents, according to the poll.

RELATED:

IRS: Nearly 1,500 millionaires paid no federal income tax in 2009

Millionaire tax sought by Obama is panned by GOP as 'class warfare'

-- Tiffany Hsu

Photo: Amy Davis / Baltimore Sun / MCT

More banking sector bailouts? When will the madness end?

When will we the lessons of the last round of bail-outs?

The IMF Global Stability Report suggests that banks might be €200-€300 billion down as a result of the Eurozone crisis.  The predictable cry has arisen that this shortfall should be made up by governments.  Really?  So, let's see.  Setting aside the bailouts of late 2007 and early 2008 and just starting when it got serious, we have the bailouts of Fannie Mae and Freddie Mac in early September 2008, which triggered the collapse of just about everything (most notoriously Lehman Brothers), and the bailouts of Autumn 2008.  Then we had the bailouts of Spring 2009.  The US version of quantitative easing involved the Fed buying up loads of the loss-making collateralised mortgage obligations that triggered the bust, so the bailouts continued through 2009.  Then from early 2010 we started re-branding our banking sector bailouts as "sovereign debt bailouts", as if changing the name would make it any less so that these were bailouts of banks.  So we had the "Greek" bailouts of the European and US banking sectors of Spring 2010.  Then the "Irish" bailout of the European, US, and UK banking sectors of Autumn 2010.  Then the "Portuguese" bailout Spring 2011.  Then the "Greece II" bailout of Summer 2011.  All banking sector bailouts.  All good money thrown after bad.

Four years.  Four years!  And still it appears that many folks don't get it.  It's not simply that these were banks that made some past losses and should have been able to raise capital to replace them but the Middle Eastern, East Asian and Norwegian sovereign wealth funds irrationally decided not to pony up the dough.  Some of these institutions simply could not continue as they were.  They have become value-destroying enterprises that need to be significantly restructured.  They need staff fired, assets written down, business lines shut.  There will be redundancies.  Some banks will cease lending to the kinds of enterprises they lent to previously, so some business and individuals will have to seek their credit elsewhere.  When governments refuse to allow these things to happen, but instead chuck money at the problem, they don't make the problem go away; they make it worse.  All they achieve is to retard the necessary and healthy process of restructuring, and extend the period of value-destruction.  In the meantime, they tax the poor to provide money to bail out the rich.  This is immoral, as well as economically destructive.

If Eurozone banks are bust, their creditors should make losses.  They lent the money; they got paid interest for taking a risk; the risk went bad; tough!  If the rich people that lent money to the banks weren't up for risking losing money, they shouldn't have lent it to the banks in the first place.  It's not up to poor people to pay taxes so that rich people can be spared the consequences of their gambles and mistakes.

Surely, surely after more than four years of bailout after bailout, even the most blindly stubborn fan of government intervention can see that it's not working.  Surely it's time for the madness to end?

U.S. home sales up sharply in August

Sales of previously owned U.S. homes were up sharply in August, a ray of light for the nation's beaten-down housing market. But economists are skeptical the gains will last. 

The number of homes sold rose 7.7% from July and were up 18.6% from August 2010, when sales were depressed after the expiration of a popular tax credit for buyers, according to the National Assn. of Realtors.

Although analysts had expected an increase in sales last month, many were surprised they rose as much as they did. Economists polled by Bloomberg News had estimated on average a 1.7% gain.

Economist Tom Lawler expected a stronger jump, based on regional data he had gathered.

"Of course, sales in many of those markets were extremely weak last August, which was pretty soon following the expiration of the home buyer tax credit," Lawler wrote Tuesday on the Calculated Risk blog.

Other economists also doubt that last month’s gain signals a turnaround.

"The recent trend in mortgage applications is downwards, so it is hard to see any further sustained rise in sales in the near-term," said Ian Shepherdson, chief U.S. economist for High Frequency Economics.

The Realtor group which reports monthly figures using a seasonally adjusted annual rate of sales, said

Homes sold in August at a seasonally adjusted annual rate of 5.03 million units in August, up from an upwardly revised 4.67 million in July and 4.24 million in August 2010.

The national median home price was $168,300 in August, down 5.1% from the same month a year prior.

Distressed property sales –- those of homes in foreclosure or where the borrower is in default –- accounted for 31% of transactions last month.

The inventory of properties fell 3% to 3.58 million previously owned homes available for sale, which represents a supply of about 8-1/2 months at the current sales pace. Economists typically consider a supply of six months to be healthy.

RELATED:

New-home slump keeping door shut on U.S. recovery

White House forecasts high unemployment through 2012

BofA, Chase must do more to help troubled homeowners, Obama administration says 

-- Alejandro Lazo

twitter.com/alejandrolazo

Photo: Tract homes in Corona. Credit: Konrad Fiedler / Bloomberg

 

What to Expect From the Fed

There are three kinds of announcements the Federal Reserve may make Wednesday at 2:15 p.m., when it discloses the much-anticipated results of the latest meeting of its policy-making committee:

Full speed ahead. Growth is lethargic at best. Twenty-five million Americans cannot find full-time jobs. The Fed is responsible for addressing unemployment, it has undertaken a series of novel efforts to stimulate growth, and the Fed chairman, Ben S. Bernanke, has not discouraged speculation that he is ready to try again.

Investors are expecting a new effort to reduce long-term interest rates modeled on a 1960s program dubbed “Operation Twist.” The central bank has made borrowing cheaper for businesses and consumers by purchasing more than $2 trillion of government debt and mortgage-backed securities. By reducing the supply of securities available to other investors, it forced them to pay higher prices — that is, to accept lower interest rates — and to shift money into riskier investments with much the same effect.

The Fed could seek to amplify that impact by reorienting its portfolio toward longer-term securities, essentially taking on more risk without investing more money. That could force other investors, in turn, to take larger risks in the face of lower returns. And the hope is that the resulting drop in interest rates will nudge companies to build new factories, and consumers to buy new dishwashers.

Morgan Stanley, which expects the Fed to announce such a program Wednesday, said in a note to clients that it is “no silver bullet,” but could lower yields on 10-year Treasuries by up to 0.35 percentage points, similar to the drop from the Fed’s most recent purchases of $600 billion in Treasuries.

Check back in November. Some close watchers of the central bank expect that the Fed will defer any decision to “Twist” — or take any other major steps — until the board next meets in November, but that the board will make a smaller gesture Wednesday to signal its commitment to help.

Only a month has passed since the Fed announced that it intends to hold short-term interest rates near zero for at least two more years, and the board may want to wait before announcing further measures. The economy, after all, is growing at a modest pace and the options that remain available carry less power to lift growth and greater risk of consequences than those already deployed.

Moreover, investors already have driven down long-term interest rates in anticipation of action by the central bank. So long as investors remain convinced that the Fed will act eventually, there is little to be gained by unveiling such a program. Laurence H. Meyer, a former Fed governor who now leads the forecasting firm Macroeconomic Advisers, suggests the Fed could announce that it will invest the proceeds of maturing securities — about $20 billion each month — in longer-term debt.

“Together with a strongly worded statement, this decision could help avoid a significant market sell-off,” MacroAdvisers wrote in a note to clients predicting the Fed would announce such a gesture Wednesday, and then announce a revival of “Operation Twist” after the board’s November meeting.

We’re not doing anything new. Republicans have been increasingly vocal in their insistence that the Fed should stop trying to increase growth. They argue that the central bank’s existing efforts are not helping, and that new efforts could have negative consequences. Republican presidential candidates have made criticism of the Fed a central theme of the early campaign, and Republican leaders in the House and Senate sent a letter Tuesday to Mr. Bernanke warning against new measures.

“We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy,” said the letter, signed by Mitch McConnell of Kentucky, the Senate Republican leader; Jon Kyl of Arizona, the Senate Republican whip; the House speaker, John Boehner of Ohio; and the House majority leader, Eric Cantor of Virginia.

A vocal minority of the Fed’s policy-making board shares this reluctance to take further action. Three of the board’s 10 members dissented from the board’s most recent effort to foster growth in August.

More public money required for bankers as IMF warns of €200bn blackhole in European banking system

Most International Monetary Fund reports are necessarily the result of compromise and negotiation. Rarely is the IMF allowed by its nation shareholders to tell it exactly as it sees it.

So the warning in the IMF's latest "Global Financial Stability Report" that European Union banks face a possible capital shortfall of €200bn to €300bn as a result of the eurozone sovereign debt crisis comes as quite an eye opener.

European governments will have fought this assessment tooth and nail, for not only does it seem to add fuel to what is already a raging panic around the solvency of the European banking system, it also provides some indication of quite how much more public money is going to be required for recapitalisation.

The IMF is at pains to stress that the big numbers cited are an estimate of the increased sovereign credit risk in the EU banking system over the past two years, not of the extra capital needed by banks as such. None the less, they do provide a reasonable guess at the size of capital at risk. This is, if you like, the IMF's assessment of the unrealised losses in the European banking system as a result of the sovereign debt crisis.

Small wonder that many European banks can no longer access private funding markets. Small wonder too that European governments are so alarmed at this assessment, statement of the bleedin' obvious though it might be. Another round of bank bailouts so soon after the last one is anathma to most Europeans, worse, in some respects than the idea of bailing out sovereign nations directly.

Yet if this crisis is ever to be resolved, the IMF is surely right in asserting that recapitalisation of the banks is one of the first things that needs to happen. Most people will find the idea that more than four years after the banking crisis began, the banking system continues to require squillions of public money almost beyond belief.

It was reasonable to assume that the balance sheet problems of most banks had been "cured". Plainly they have not. Indeed the process seems barely to have begun. The danger of not recapitalising banks is that they will choose instead to boost their capital buffers and solvency through further deleveraging, which would in turn prompt a second credit crunch. Unpalatable though it is, governments must act.

As the IMF Stability Report warns, "Time is running out to address existing vulnerabilities. The set of policy choices that are both economically viable and politically feasible is shrinking as the crisis shifts into a new, more political phase". Quite so.

China rejects U.S. complaint against chicken tariffs

The steamed chicken feet just haven’t been as unctuous since China slapped tariffs on U.S. poultry imports last year.

The price of American chicken, including the prized feet euphemistically called “phoenix talons” in China, shot-up between 50% and 100%, which will cost the U.S. poultry industry an estimated $1 billion in sales by the end of this year.

With that in mind, the U.S. Trade Representative announced Tuesday it had filed a complaint with the World Trade Organization saying China violated international trade rules when it imposed anti-dumping and countervailing duties on U.S. chicken.

“China seems to have failed to observe numerous transparency and due process requirements, failed to properly explain the basis for its findings and conclusions, incorrectly calculated dumping margins, incorrectly calculated subsidy rates and made unsupported findings of injury to China’s domestic industry,” the trade office said.

In a response Wednesday, China’s Ministry of Commerce released a brief statement rejecting the U.S. claim.

“China’s anti-dumping measures follow the law and are in accordance with WTO rules,” the statement said. “China will study requests from the U.S. carefully and handle them under the WTO’s dispute settlement system.”

Imports of U.S. chicken to China have plunged 90% since the imposition of the tariffs, which are largely seen as retaliation for U.S. duties of 35% on Chinese tires.

The two countries are also sparring over steel, electronic payment services, wind energy equipment and industrial raw materials such as zinc and bauxite.

Before the battle over chicken erupted, U.S. poultry farmers enjoyed steady, high-margin business selling unwanted parts to China.

In 2008, about half the $677 million worth of chicken sold to China were chicken feet, sold for up to 80 cents per pound compared to just pennies in the U.S., according to Time magazine.

While poultry is growing in popularity in China (KFC is the king of fast food in China and expanding rapidly), pork is still the overwhelming meat of choice.

By one estimate, Chinese consume three times as much pork as chicken at nearly 100 pounds per capita each year.

With inflation driving prices-up for pork in China, U.S. hog farmers have found themselves in the opposite situation of their poultry-raising countrymen. Imports of U.S. pork have risen five-fold the first seven months of this year compared to the same period last year, according to the state-owned China Daily.

China and the U.S. now have 60 days to resolve the current dispute on their own. If negotiations fail, the WTO can launch proceedings.

RELATED:

Pork shortage hurting Chinese economy

China still restricting foreign media, U.S. complains

White House defends tariffs on Chinese tires

--David Pierson

twitter.com/dhpierson

 Photo: A woman picks out chicken wings and legs at a market in Shanghai, China, on Wednesday, Sept. 21, 2011. Credit: Qilai Shen / Bloomberg.

The Logic of Cutting Payroll Taxes

Casey B. Mulligan is an economics professor at the University of Chicago.

Payroll taxes are by no means the only thing that stops people from working, but one of President Obama’s payroll tax cut proposals could nonetheless create a million or more jobs.

Today’s Economist

Perspectives from expert contributors.

Last week I estimated that the president’s proposal to cut the employer portion of the payroll tax by 3.1 percentage points could raise employment by more than a million, and maybe as much as three million.

Perspectives from expert contributors.

You might (as some readers wrote to me) think that a payroll tax cut is not, by itself, a good reason for employers to hire, and on that basis conclude that my estimate is way off.

I agree that jobs are not created by payroll tax cuts alone, and my estimate reflects that fact. About 131 million adults are working now, and 109 million adults are not working. If I’m right that the payroll tax cut would raise employment by one million to three million, that means that 106 million to 108 million adults would still not be working despite the payroll tax cut.

The chart below illustrates the results for the case that the payroll tax cut raises employment by exactly two million.

In other words, my estimate is that at least 97 percent of people not working would still not be working regardless of the payroll tax cut. That’s because, as you might deduce, payroll taxes are only one factor among many that determine how many people are employed. Nevertheless, raising employment by one million to three million would be an accomplishment for the president, and one that would be visible in the national statistics.

By the same logic, if someone were to propose raising the payroll tax by 3.1 percentage points, I would expect employment to be reduced by one million to three million. Again, the payroll tax is only one of many factors affecting hiring decisions, which is why my estimate of a payroll tax increase implies that more than 97 percent of workers would continue to work despite the increase.

Indeed, we all know people who would continue to work even if the payroll tax were raised by 30 percentage points, let alone three. We also know people who would not work even if taxes were eliminated completely.

But the fact that more than 100 million people are not employed, and more than 100 million people are employed, suggests that there could well be a million people (or two million, or three million) who are near the fence. For that small fraction of the population, there are almost as many things pushing toward making them employed as making them unemployed; a payroll tax cut could tip the balance.

For hundreds of millions of others, the balance is tilted too far for a payroll tax cut to make a difference. But while economists can debate the exact numbers, few of us can conclude that a small tax cut has no effect. Rather, a small tax cut should be expected to have a small effect — and at this point one worth seeking.