TOP NEWS: Economy: August 1st, 2012
- Central banks under pressure to curb recession risks
- Sequestration ‘not the responsible way’ to cut debt
- Fannie Mae, Freddie Mac not able to reduce loan balances
- An Intriguing Idea to Encourage Bank Lending
- Geithner Calls on Europe, Congress to Spur Growth
Excerpts and more top stories
Zachary Goldfarb, Washington Post – With much of Europe in recession and the United States at risk of falling back into one, the world’s most powerful central banks face enormous expectations this week as they meet to consider new steps to bolster economic growth.
Sudeep Reddy, WSJ – The Federal Reserve’s unconventional measures to boost the recovery in recent years have followed a pattern in benchmarks of the economy’s health. In months before past Fed action, private payroll growth worsened, the economy stalled or contracted and stocks weakened, depressing consumer and business confidence. Today, as policy makers at the central bank consider whether to take another, similar step, most of those indicators look better, on a relative basis, than they did before earlier rounds of Fed support.
Burce Bartlett, Op-Ed, NY TImes – The Federal Open Market Committee, the policy-making arm of the Federal Reserve, meets Tuesday and Wednesday to discuss what, if anything, it will do to stimulate economic growth. There is widespread speculation that it will adopt further “quantitative easing” and inject more money into the economy.
FISCAL CLIFF/SEQUESTRATION: Obama budget chief: Sequestration ‘not the responsible way’ to cut debt
Ed O’Keefe, Washington Post – The Obama administration’s budget chief is less concerned with how to make $110 billion in mandatory spending cuts set to take effect next year and wants to focus instead on striking a new deficit-reduction agreement with Congress.
FISCAL CLIFF: Fiscal cliff dive only way out
Jennifer Granholm, Politico, Opinion – Unless this Congress acts, nothing that happens in the election will stop our inexorable march toward the cliff.. But if the tax-pledge signers won’t stand up to Norquist, then Democrats and Republicans go off the cliff together on Dec. 31, like it or not.
HOUSING LOANS: Fannie Mae, Freddie Mac won’t be allowed to reduce loan balances for troubled borrowers
Brady Dennis and Zachary Goldfarb, Washington Post – The federal regulator for government-backed mortgage giants Fannie Mae and Freddie Mac said Tuesday that he will not allow the firms to reduce loan balances of struggling homeowners, frustrating the Obama administration as it looks for ways to boost a floundering economy.
Alan S. Blinder, WSJ - The Bank of England is about to launch a creative “Funding for Lending Scheme” to boost bank lending. Importing this British product to America would require some adaptations to the U.S. system, plus cooperation from the Treasury and maybe even from Congress. The Bank of England decided to spur bank lending because credit has not snapped back enough and because the euro-zone crisis is darkening banking prospects. Under the British plan, the more a bank lends, the more it saves on funding costs. But no bank is forced to lend, nor told what loans to make, and any loan losses remain with the banks.
Steven Pearlstein, Op-Ed, Washington Post – Excessive bank consolidation has left us with megabanks that are too large and complex to properly manage and regulate. The evidence is now overwhelming that top executives and directors and regulators are often clueless about risks deliberately taken and corners knowingly cut by people working under their direction. The chances of that happening grow with the size and complexity of the bank.
BANKING: Regulate, Don’t Split Up, Huge Banks
Steven Rattner, Op-Ed, NY Times – We need a Dodd-Frank do-over to create the right oversight apparatus for huge banks. Regulators will always be outnumbered by bankers, and they will never find every problem. But, like prison guards, regulators are essential, even if they are outnumbered.
Doug Cameron, WSJ – he trustee overseeing Peregrine Financial Group Inc. wants to subpoena financial records from 10 banks involved with the collapsed U.S. brokerage.
Ian Katz, Peter Cook, Washington Post – U.S. Treasury Secretary Timothy F. Geithner called on European policy makers and lawmakers in Washington to spur economic growth even as they seek long-term measures to narrow budget deficits.
JOB GROWTH: Private survey shows US companies added 163,000 jobs in July, a slight dip from June’s 172,000
AP via Washington Post — A private survey shows U.S. businesses kept hiring at a modest pace in July, suggesting the job market could be improving after three sluggish months.
JOBS/ UNEMPLOYMENT: U.S. Faces Uphill Battle in Retraining the Jobless
Ianthe Jeanne Dugan and Justin Scheck , WSJ – The Obama administration has been promoting the retraining of unemployed workers as a linchpin of its economic-recovery plan. The federal government spent about $18 billion on training and job-search programs. But government efforts to determine the effectiveness of the programs have been spotty, at best. It doesn’t keep track of how many people receive federally funded training. Some training programs don’t bother to monitor whether the unemployed workers who complete them succeed in landing jobs related to their training. For programs that do track job placement, the data are far from conclusive.
MANUFACTURING: Manufacturing Still Contracting, Says ISM Survey
By Avi Salzman, Barrons – The monthly ISM manufacturing gauge inched ahead to 49.8% in July from 49.7% in June, the government reported at 10 a.m. indicating that the sector continues to contract (anything below 50% equals contraction). The reading was below expectations for 50.2%, and it caused stocks to dip. The Dow was still up about 40 points shortly after the release, however.
Brendan Conway, Barrons – J.P. Morgan Chase technician Michael Krauss is still positive on this market. But he’s warning of a “wall of resistance” starting right around this morning’s high on the Standard & Poor’s 500 index, at 1385. The index quickly bounced lower from that level in early Wednesday trading.
Jack Farchy and Heba Saleh, FT – The economic effects of the sharp rise in agricultural commodities have barely begun. A jump of 30-50 per cent in benchmark corn, wheat and soyabean prices has revived memories of the world’s last food crisis in 2007-08, and large consumers from Egypt and Morocco to South Korea and Taiwan are bracing for a renewed bout of food inflation.
Mary Williams Walsh, NY Times – The Securities and Exchange Commission said the market was “illiquid and opaque” and that issuers should provide information that investors receive in other financial markets.
Lori Montgomery, Washington Post – Mitt Romney’s plan to overhaul the tax code would produce cuts for the richest 5 percent of Americans — and bigger bills for everybody else, according to an independent analysis set for release Wednesday.
Mark Peters, WSJ – A historic drought across the middle of the U.S. is shriveling crops—but not many farmers’ incomes, as widespread use of crop insurance and record corn and soybean prices cushion the blow to growers.
TECHNOLOGY: How Technology Hurts Investors
Eric Savitz, Forbes Staff – Technology has lowered the cost across all investing platforms – index fund costs are lower, liquid funds help to minimize spread of stocks, and commission and trading costs have significantly dropped. Accessibility, ease, confidence and lower costs sound like good things, but in reality it’s a dangerous combination that makes frequent trading more enticing (and poor decision-making more likely).
Eric Pfanner, NY Times – For the second time in less than a week, the Internet giant admitted to data privacy authorities that it had retained some of the information despite promising to delete it.
The Common Good publishes an U.S. economy news digest every weekday, available here.