Posts tagged ‘Interest Rates’

10/12/2011

Republican Debate New Hamp (10-11-11)

The Republican candidates met in New Hampshire on Oct. 11, 2011 to debate economic issues.

INTERNATIONAL TRADE: Romney said we have been run over by China for 20 years, and he would issue an Executive Order identifying them as a currency manipulator, and then prosecute them in the WTO.  He did not want a trade war, but did not want to let them use us either. Huntsman worried if we apply penalties, we will get the same in return, because we also manipulate our currency, and a trade war would hurt our agricultural exporters.

EURO CRISIS: Gingrich said the Greek economy should not be using the Euro-Zone Currency. Ron Paul uncovered the Federal Reserve sent 5 billion overseas to bail out foreign banks.

DEFENSE SPENDING: Romney will not cut defense spending.

BANKING: If the economies of the entire world were collapsing, Romney would take action. He said we need to prevent a contagion from affecting U.S. banks. President Bush had to take action to keep all banks from closing. Santorum opposed the bailout of the Wall Street banks, and the creation of the Troubled Asset Relief Program (TARP), which Romney, Huntsman, Perry, and Cain supported. Bachmann said the banks cannot grow, because they are being required to comply with new rules. Cain thought the Wall Street protesters should target the government.

FEDERAL RESERVE: Gingrich said the fix has been in since the Bush Administration. Newt said Paulsen, Bernanke, and Geithner are not smart, and he would fire Bernanke and Geithner over the crisis. He singled out Bernanke for spending billions bailing out one group, over another. He said it is wrong for one man to have that kind of secret power. He wants all Fed documents released, so we can better prepare for the next crisis. Romney would also discharge Bernanke. Cain had no objection to a Fed audit. Paul called the Fed the engine of inflation and the source of recessions.

INTEREST RATES: Paul said Greenspan kept interest rates too low for too long. Easy credit caused a bubble and then it burst and now we need a correction. We should not have someone at the Fed deciding what interest rates should be, or how much money we should have. We should go back to the gold standard, Paul said. Because the Fed is setting artificially low interest rates, Bachmann blamed the financial meltdown on the government.

HOUSING: We built too many houses, Paul said, and then the Wall Street speculators got bailed out, but the Middle Class lost homes. Freddie Mac and Fannie Mae caused overbuilding and distortions, and the government must get out of housing. Bachmann said the government pushed housing goals, as Freddie and Fannie put mortgages in a difficult place. Gingrich said the easy ability to buy homes is where we went wrong the last decade. He blamed the Countryside deal on the lobbyists for Freddie Mac.

JOBS: Romney said funds should not have been used to bail out GM and Chrysler. The NLRB should not be telling Boeing it cannot build in a non-union state. He said we borrowed 800 billion for a job stimulus, but didn’t see any jobs. Huntsman would regain our industrial base by lowering taxes and lessening regulations. Santorum said we are uncompetitive, and must reduce corporate taxes from 35% to zero on those who invest in plant and equipment in this country. Perry wants our manufacturing back.

ENERGY: Perry would repeal regulations that interfere with the energy industry. He would put 1.2 million people to work in the industry, so the U.S. can become energy independent. It was wrong, he said, for Obama to invest in Solyndra, a solar energy firm. When asked about doing the same in Texas, he said his legislature had oversight and created 54,000 jobs. Santorum would drill in Pennsylvania, saying it is a gas capital.

HEALTH CARE: Romney said Americans are not satisfied with the status quo. Although he would repeal Obamacare, he asked, what are we going to replace it with? In Mass, he dealt with the 8% who were uninsured. He said Perry has one million uninsured kids in Texas, while Mass has less than 1%. Romney said Obama’s plan raises taxes and spends trillions. Huntsman wants a health care solution that works in the market. He warned the IRS is already gearing up with 19,500 employees to administer the insurance mandate. Santorum would repeal Obamacare, but not by waivers. He would repeal the taxes and spending for it, so the insurance mandate would have no teeth.

MEDICARE: Gingrich was asked: Are the last two years of life under Medicare wasteful spending? He did not want death panels. Bachmann warned Part B for hospitals will be broke in nine years. She thinks Obama would push people out of Medicare into Obamacare, and 15 political appointees will make major decisions for 300 million Americans. Perry says Medicare needs to be block-granted to the states.

BUDGET & DEBT: Cain wants revenues to equal spending. Perry would propose a Balanced Budget Amendment, because we raise taxes, but never get spending reductions. Paul said the debt is a burden on the economy. Bachmann opposed increases in the Debt Ceiling, because she did not want to give Obama another 2.4 trillion. We spend 40% more than we take in, she said, and cut backs on spending would be only part of the answer. Romney said we cannot have more tax revenues, because that would kill jobs.

TAXES: Romney would not raise taxes. We don’t need Cain’s 999 tax plan, said Perry. The last thing Bachmann would do is let Congress impose a national sales tax, a suggested by Cain. Santorum said Cain’s plan would not pass, because no one supports a national sales tax. Huntsman would not do Cain’s tax plan, but instead something doable, like eliminating loopholes and deductions for individuals, as recommended by the bipartisan Simpson-Bowles Commission. Huntsman would also phase out corporate welfare and subsidies. He said he had a flat tax in Utah.

9-9-9 PLAN: Cain would throw out the entire tax code, including the progressive income tax, the capital gains tax, death taxes, and payroll taxes, and he would replace it with a 9-9-9 plan: 9% corporate business flat tax, 9% federal income tax, and 9% national sales tax. He was asked why Americans would be willing to pay more for bread and milk, under his new 9% national sales tax. He gave an incorrect answer, suggesting ordinary people are now paying 15.3%, when in fact they pay only 7.65%. He tried to suggest they would be save 6%. He thought people would have more for sales taxes, since they would pay less in payroll taxes. Cain also appeared ignorant of how Congress works, when he said he would ask them to require a 2/3rds vote before increasing any of his 999 taxes. He would need a Constitutional Amendment.

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09/09/2011

American Jobs Act: Pass It Now

President Obama proposed the American Jobs Act last night to put people back to work in: 1) construction: rebuilding roads, bridges, school buildings, homes and railroads; 2) education: by hiring teachers to train engineers; 3) manufacturing: by increasing exports made in the USA; 4) finance: by restructuring home loans at 4% rates; and 5) in health care: by reforming Medicare.

Obama said our economy has eroded over several decades into a crisis, and it now millions of Americans are out of work. Congress needs to stop conducting a political circus, he said, and advocated several steps they could take right now to fix the economy.

CONSTRUCTION: Obama wants construction crews hired to rebuild roads and bridges, tasks requiring bulldozers and asphalt trucks. Millions of unemployed construction workers could build airports and faster railroads. Carpenters could repair and modernize 35,000 schools, by fixing roofs and windows. They could install science labs, and Internet facilities. Obama advocated putting them to work rehabilitating homes. Next summer, disadvantaged youth could work, presumably as helpers.

CUT RED TAPE: Obama suggested cutting any red tape that gets in the way. He has but two criteria: 1) How badly is the project needed? 2) How much good would it do for the economy? We should have no more rules and regulations than health, safety and security require, he said. He rejected any idea of ending collective bargaining rights, saying we need not be in a race to the bottom.

EDUCATION: He wants to put thousands of teachers back to work in the classroom. We need to train 10,000 engineers a year.

MANUFACTURING: He would expand manufacturing jobs by signing trade deals with Panama, Colombia, and South Korea, so Americans could market more goods abroad. We need to sell more American-made goods around the world, he said. The next generation of manufacturing needs take place here in America.

FINANCE: Obama wants to generate work in the finance sector at savings and loans, and at banks, by helping homeowners refinance their mortgage loans at 4% interest rates. This would create savings, and generate spending, and stimulate the economy.

HEALTH CARE: He wants to keep people busy in the health care industry by making additional changes to Medicare and Medicaid.

OFFSET BY MEDICARE CUTS: The President said his plan would be offset by budget cuts, and it need not add to the deficit. We must make additional cuts to Medicare and Medicaid, he said, because their spending is unsustainable.

OFFSET BY TAXING RICH: Obama said we need to eliminate loopholes, deductions, and tax breaks for millionaires.

OFFSET BY ENDING CORPORATE LOOPHOLES: Obama said the Tax Code could be reformed so big corporations paid their fair share. Do we really need oil company loopholes?

TAX BREAKS FOR NEW HIRES: The President suggested tax advantages for companies that invest and create jobs in America. He would give tax breaks to companies who hire new workers, or raise wages. Companies will get a $4,000 tax credit if they hire someone who has spent more than six months looking for a job.

CUT INDIVIDUAL TAXES: Obama proposed cutting in half payroll taxes for working Americans. Families would get a $1,500 tax cut next year, under his plan, again to stimulate the economy.

MUST ACT NOW: Although the next Presidential election is 14 months away, Obama said the people do not have the luxury of waiting that long and they need help now. He asked Congress to pass his plan right away, saying: “Doing nothing is not an option.”

08/25/2011

Low Interest Rates: Correct Fed Policy

The Board of Governors of the Federal Reserve correctly used Monetary Policy to try to turn the economy around, by keeping home mortgage interest rates at their lowest level in 40 years.

Congress created the Federal Reserve System with a Central Bank in 1913 to help prevent recessions and other economic downturns from turning into depressions. Since then, all National Banks have joined the system.

The Federal Reserve has the ability to set interest rates for loans to member banks. When the Fed sets low interest rates, members are able to make loans to the public at correspondingly low rates. The availability of cheap money theoretically allows the economy to expand, provided other factors line up correctly.

Low interest rates at the Fed also help the U.S. Government when short-term loans are needed. Since interest on these loans is later turned over to the U.S. Treasury, the Fed basically provides interest-free money to the government. The principal sums borrowed from the Fed are repaid by the government with money raised from publically sold Treasury Bonds. Interest on the bonds is paid by the U.S. Treasury, until the bondholders are satisfied.

The decision by the Fed to keep interest rates low helps the federal government in terms of the annual deficit and national debt, regional banks in allowing them to offer cheap money, and the public, by enabling them to borrow at relatively low rates.

If the Fed now raised interest rates, while the national economy is still struggling to get out of a deep recession, one consequence would be a contraction, and a worsening of the economic crisis. If the Fed imposed higher interest rates, they certainly would not help, and would likely make the housing crisis worse.

Currently, factors other than interest rates are keeping the housing market from expanding. The Fed should continue to keep interest rates low, until measurable improvements are seen in the housing industry, which unfortunately may take the better part of a decade, no matter who occupies the White House or the Congress.