Number of the Day: $400 billion

The Fed announced today that it would purchase $400 billion in long-term Treasury bonds with proceeds from the sale of short-term securities. What this means, in effect, is that the Fed is attempting to boost the flagging economy, but without employing the “treasonous” method of increasing the money supply. Instead, they will try to drive down interest rates, hopefully spurring consumption spending (by reducing saving) and increasing investment (by increasing borrowing). The plan is somewhat similar to what I’ve advocated here, but it falls short in both size and scope.

First, while I commend the Fed on attempting unconventional action to fulfill its full employment mandate, the $400 billion price tag is far too low to have a significant stimulative impact on the U.S.’s $14 trillion economy. Initial projections say the Fed’s action will add 0.4% of economic output and 350,000 jobs. That’s certainly better than nothing, but far from the massive intervention needed to get the economy back on track.

Second, it will have little effect on inflation, which seems to be the more conventional (and obvious) weapon in the Fed’s arsenal. A healthy dose of inflation would accomplish the Fed’s goal of driving down real interest rates while also decreasing the debilitating household debt overhang. The Fed rejected calls for a third round of quantitative easing, or money printing, by choosing to offset the cost of its bond purchases with the dumping of other assets.

All in all, I think Ben Bernanke is taking the boldest action he feels that he can at the moment. I think he agrees that inflation can be an effective central banking tool (in fact, I know it), but he is being constrained by hawks on the FOMC and other institutional restrictions — one of which is Republican meddling in the statutorily-independent decisions of the Fed. Oh yeah, and the S&P dropped 3% on the heels of the Fed’s announcement.

So it goes.

Number of the Day: 13,000

Following the discharge of over 13,000 uniformed men and women on the basis of sexual orientation, today marked the first day in which gays and lesbians could officially serve openly in the U.S. military. This day has been in the works since Congress passed the repeal of “Don’t Ask, Don’t Tell” during the lame duck session last December. For the first time, all Americans fit for duty will be allowed to serve in uniform, and our military and our country are stronger for it.

On a personal note, I’m back home from a weeklong adventure up the Eastern Seaboard, so I will be able to resume a regular posting schedule soon.

Number of the Day: $300 billion

Leaked reports indicate that President Obama will propose $300 billion in new tax cuts and spending during his address to the nation Thursday night. As expected, the president will call for an extension for the current employee payroll tax breaks, new cuts in the employer payroll tax rate, infrastructure spending, and aid to state and local governments. An extension of unemployment benefits for the long-term jobless is also expected to be included, as well as some innovative proposals to incentivize businesses to hire from the pool of currently unemployed. I wouldn’t be surprised if a plan to help struggling homeowners with their mortgages is also included. Tune in Thursday to find out.

 

Number of the Day: 0.2%

Total economic growth across the 17-country Eurozone was a meager 0.2% in the last quarter. Germany — the backstop behind Greek, Portuguese, and Spanish financial calamity — only grew 0.1%. The economic recovery has been choked off by monetary and fiscal austerity measures that only Paul Ryan could love. (By the way, the next time Mitt Romney wants to criticize Obama for his “European” economic philosophy, he should take a look at how similar their budget-slashing policies are to his…) All together, the Eurozone has approximately the population and GDP of the U.S. If they backslide into recession, the suffering will certainly be felt on our side of the Atlantic as well.

Number of the Day: 24

The number of hours between the time President Obama requested to convene a joint session of Congress for his major address on jobs and the time that Speaker Boehner will let him. Today’s back-and-forth partisan spat over the timing of the president’s speech has been a caricature of our current political dysfunction.

Here’s a brief summary. Around noon, the White House sent a letter to the Hill asking for a joint session on Wednesday, September 7th, which just so happened to overlap with a scheduled Republican presidential debate. (For those that think it was a coincidence, read this.) Speaker Boehner, not wanting to let the president trample over his party’s debate, cooked up a BS parliamentary excuse to delay the speech until Thursday, September 8th. The White House accused the Speaker’s office of reneging on their private agreement about the date, while the Speaker’s office said that the White House had sent the request before the date was confirmed. Ultimately, President Obama — perhaps just wanting to get the whole farce over with and perhaps acknowledging how juvenile it was to overlap with the debate to begin with — accepted the Speaker’s new date. So now Americans will have to wait 24 more hours to hear what the leader of the free world thinks we should do about the economic future of our country.

What effect will this have on people outside of Washington? None. Everyone with better things to do will have surely have forgotten about it by next Thursday. But what effect will it have inside the Beltway, where the points won and lost in these political games are written down in ink? It’s uncertain, but the slim hope of finding bipartisan support for the president’s jobs proposals has probably left town.

Number of the Day: -0.73%

The real yield on a 5-year Treasury note is 0.73%. Below zero. Negative-point-seven-three-percent. On a 7-year Treasury note, the real yield is -0.36%. Nominal rates are still above zero, of course, but the combination of high demand for U.S. government securities and a modest amount of inflation has pushed real rates into the red.

In practical effect, the federal government has the rare and perhaps fleeting opportunity to borrow money for a rebate. Investors will give the government more money than they expect in return (at least in terms of purchasing power.) As it so happens, the point in time that investors want to pay us to take their money is the moment that we need it the most. Aggregate demand is slumping, and the economy desperately needs more fiscal stimulus. Infrastructure, education, and R&D demand massive new investment. And hurricanes and earthquakes have been wreaking havoc up and down the Eastern Seaboard.

A businessman who passed on a deal this good would be fired on the spot. What should happen to Congress?

Number of the Day: 47%

A Kaiser Family Foundation poll released today shows that 47% of Americans without health insurance do not expect to be affected by the Affordable Care Act. Only three in ten say that it will make it easier for them to get health insurance, while a full 14% believe that they will be hurt by the law.

Whatever your views on the merits of the ACA in general, there is no denying that it will have drastic effects on the ranks of the uninsured. The CBO estimates that 32 million low- and middle-income Americans will gain coverage through the expansion of Medicaid and tax credits to offset the cost of private coverage. Unlike those with employer-based insurance, the uninsured will be able to purchase their plans through state-regulated exchanges — websites that allow consumers to easily compare the prices and features of different plans before choosing the right one for themselves and their families. And those who were barred from purchasing insurance because of preexisting conditions or lifetime caps can no longer be turned away. (The Dept. of Health and Human Services has set up a great website to explain exactly what is in the Affordable Care Act and how it will affect you.)

Many supporters of the law will be quick to chalk this up as another communications failure by the Obama White House. No doubt that is partly to blame, as the poll says only half of the uninsured — the group that stands to benefit most from the president’s signature domestic achievement — are familiar with the chief components of the law. But blame also lies with many of the law’s opponents, who turned the debate into a cacophony of lies and distortions that the media has done very little to disprove. Ultimately, though, the biggest reason that so few people understand what’s in the ACA is that the law is complex, and most people have better things to do with their time (Tyler and myself excluded.)

These numbers actually expose a silver lining for the White House. Overall public opinion is still slanted against the law 39/44, but low support among the uninsured means that its favorability has tremendous upside. Supporters have good reason to believe that once the major provisions kick in on January 1, 2014, those that stand to benefit the most will start signing a different tune, and the last major piece of the U.S. safety net will become as entrenched as Social Security and Medicare.

Number of the Day: -0.003

You remember how we had that anemic, disappointing, potential-start-of-a-double-dip GDP growth rate of 1.3% last quarter? Well, turns out that might have been a bit optimistic according to the Commerce Department. Today the annualized growth estimate from April-June was revised downward 0.3% to 1%. Combine that with Bernanke’s “wait and see” speech in Jackson Hole and Republicans’ opposition to any further stimulus — even tax cuts — and we might be lucky to keep GDP growth above the Mendoza line for the rest of the year.

Number of the Day: 417,000

New applications for unemployment benefits rose to 417,000 this week, up 5,000 from last week’s figures. Jobless claims have shown very little improvement in recent months; the unemployment rate is stuck around 9% — 16% when taking into account those who have taken part-time work or dropped out of the labor force entirely. In the face of a stalling economic recovery, all eyes will be on Fed chairman Ben Bernanke’s speech in Jackson Hole, Wyoming, tomorrow. Many (myself included) hope he announces a third round of quantitative easing or, in an ideal world, an inflation target. More likely is noncommittal speech without new policy announcements but which leaves the door open for future action.

Number of the Day: 11.4 trillion

According to statistics from the New York Fed, U.S. household debt now totals $11.4 trillion. Mortgage debt accounts for the vast majority of borrowing — 71%, to be specific — with most of the remainder split among auto loans, student loans, credit card debt, and home equity lines of credit. Click here for the full report.

First, the good news: the overall trend is moving in the right direction. Total consumer indebtedness has dropped $1.08 trillion (8.6%) since its peak in late 2008. At the time of the financial crash, household debt was roughly equal to GDP; now, it is around 90%.

And the bad news: household debt is still around 90% of GDP. By historical standards, the U.S. households are still way, way overleveraged. Not only does this place extreme financial pressure on individuals and families (which can take a serious emotional and physical toll), but from a macroeconomic perspective, it increases the likelihood that the recovery from our economic troubles will be a long, difficult slog.

In 1982, during the last recession that saw unemployment above 10%, the household-debt-to-GDP ratio was roughly half of today’s rate. People could spend extra money from wages or tax cuts on consumption instead of using it to pay down their mortgages. Before today’s households can start pumping money back into the economy, they have to get out from under their crippling debt overhang. (Read here for steps I propose that the Fed take to alleviate debt and boost spending.) Until that happens, get used to slow growth and high economic misery.