Recession 2013: Can We Avoid It?
The U.S. economy is currently two-for-two in its attempts to skirt recession 2013.
The first came after we narrowly avoided a tumble over the fiscal cliff with a down-to-the-wire deal on New Year's Day. The second came Wednesday with the passage of a three-month extension on raising the debt ceiling.
Had we not averted one or the other, the Congressional Budget Office warned on numerous occasions that a recession in 2013.
But we are not out of the woods just yet, even though the odds may have changed.
Debt Ceiling Bill Includes Controversial "No Pay" Plan
Republicans will vote tomorrow (Wednesday) on a debt ceiling bill that will give Congress nearly four months to make some major budget decisions – or risk losing out on pay.
The bill aims "to ensure complete and timely payment of the obligations of the United States Government until May 19, 2013," according to a release Monday from the House Rules Committee. Exactly how much the $16.4 trillion debt ceiling will be lifted hasn't been discussed.
In a significant shift in GOP strategy, the legislation does not include specific spending cuts, like previously when Republicans have requested dollar-for-dollar cuts to match the debt ceiling increase.
What it could include is a requirement for both the House and Senate to pass a budget by as early as April 15 or have Congress members' salaries held in escrow until one is passed – what the GOP has coined a "no budget, no pay" rule.
"[I]f the Senate of House fails to pass a budget in that time, members of Congress will not be paid by the American people for failing to do their job. No budget, no pay," House Majority Leader Eric Cantor, R-VA, said last week.
Middle Class Decline Under Obama Shown in 5 Charts
U.S. President Barack Obama often makes a point of talking about how important our country's middle class is to our economic growth – something he reiterated yesterday (Monday) in his second inauguration speech.
"Our country cannot succeed when a shrinking few do very well and a growing many barely make it," President Obama said. "We believe that America's prosperity must rest upon the broad shoulders of a rising middle class."
But the financial reality that currently faces the U.S. middle class is not one that can support a country's economic future.
For example, many middle-class workers have lost jobs or taken a pay cut since the president took office in 2009, and the 7.8% unemployment rate is the same as when President Obama first took office.
The labor force participation rate – the percentage of working-age people who are employed or actively seeking jobs – is at its lowest level in over 30 years, and those who are working are making a lower median income than they did 10 years ago.
At the same time, almost half of Americans are unprepared for financial emergencies. About 49% of Americans don't have enough money saved to cover three months of expenses and 28%don't have any money saved, according to a survey by consumer financial services firm Bankrate.com.
Here are five startling charts that outline a middle class decline that's taken shape under President Obama.
Short-Term Debt Ceiling Increase a Strategic Move for GOP
Republicans this week will vote on a short-term debt ceiling increase that gives Washington three more months to agree on budget cuts.
The GOP would approve the short-term increase with the requirement that both the House and Senate pass a budget before the new deadline – or fail to get paid.
The move, according to Republican party strategists speaking to The Washington Post, was designed to give the GOP leverage in the spending cuts fight that will begin in March.
"Republicans have to do a better job of picking our fights," one prominent Republican consultant told The Post. "So, we need more concern about the impact of Obama's reckless spending before we fight with a guy who controls the bully pulpit."
Debates over what to do about the automatic spending cuts, or sequestration, will start before the new April 15 debt ceiling deadline. Republicans want drastic spending cuts, but if Congress can't agree, then deep across-the-board cuts will go into place anyway. Democrats will have to compromise if they want budget cuts other than the sequester.
The GOP compares this to the president's position in the fiscal cliff fight, when Democrats wanted tax hikes on the rich.
"In the fiscal cliff fight, the president had greater leverage because current law was on his side," a House Republican aide told The Post, noting that if nothing was done on the cliff taxes would have gone up on all Americans. By contrast, the aide added, "in the sequestration fight, we have greater leverage because current law is on our side."
Automatic Spending Cuts: What's Set to be Slashed
There was short-term optimism about the U.S. economy after the fiscal cliff deal, but there's still a looming problem for this year that can't be avoided: automatic spending cuts to government programs.
Because Congress did not reach an agreement on them, the automatic spending cuts – known as sequestration – are now delayed until March. Lawmakers will meet in March to try and restructure the cuts.
As of now, the cuts equal $1.2 trillion in savings over 10 years. If nothing is done, there will be across-the-board preprogrammed reductions in a number of government programs, with the defense industry being hit the hardest with $55 billion.
For lawmakers wielding the knife, deciding where to slash budgets is tricky. If there are too many reduction-related layoffs, the automatic cuts could kick the nation back to a recession.
Here's a breakdown of what will be cut if Washington does nothing and lets the sequester go through as planned.
The Trillion Dollar Trick
The birth, and the apparent death, of the trillion dollar platinum coin idea may one day be recalled as a mere footnote in the current debt crisis drama. The ultimate rejection of the idea (which was to use a loophole in commemorative coinage law to mint a platinum coin of any denomination) by both the President and the Federal Reserve seems to offer some relief that our economic policy is not being run by out-of-touch academics and irresponsible congressmen. In reality, our government has been creating more than one trillion dollars out of thin air every year for the past five. The only difference is that the blatant dishonesty of a trillion-dollar platinum coin is so easy to understand that the public simply couldn't be expected to swallow it. The American people are more than willing to be fooled, but they won't tolerate so simple a ruse.
People have a long and intimate history with coins. Some of us collected them as kids, and we all touch and see them every day. Unlike currency bills, we know intuitively that a coin's value is supposed to come from its metal content. That's why quarters are bigger than dimes.As a result, most people have viscerally rejected the platinum coin idea. To assign an arbitrary, sky high, valuation to a small piece of metal strikes most people as a deceitful, desperate act. They are right.
However, the same people have no problem with images of thousands of crisp paper notes flying off the printing presses. The acceptance is not impacted by how many zeroes the bills contain. People simply believe that paper money derives value from the numbers, not the paper. This was not always so. Paper money originally entered the public awareness as promissory notes to pay different amounts of gold. Once people got used to the paper, few really cared when the gold backing was finally removed. As a result, the public would likely have been much more accepting of the Fed printing a trillion dollar bill than the government minting a trillion dollar coin. But there was no legal pathway for the Fed to simply give that money to the government.
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The government, not the Fed, mints coins, so they did not have to rely on the Fed to create value out of thin air. That is why the platinum coin idea was so seductive, if ultimately unsellable.
What Automatic Spending Cuts Would do to U.S. Defense Industry
The looming automatic spending cuts would include a major hit to the U.S. defense industry, slashing $500 billion from the Pentagon budget over 10 years.
The cuts, known as sequester, would result from a law enacted in summer 2011 following Congress' failed attempt to find a balanced way to trim federal spending. Policymakers in Washington sought to resolve the issue again in December after elections, but the only thing agreed upon then was a two-month extension.
With talks set to resume on March 1, expectations have dimmed among senior defense officials that U.S. President Barack Obama and Congress will succeed in mapping out an all-encompassing deficit-reduction plan before the massive spending cuts envelope the country.
As a result, the Defense Department is prepping to ground military aircraft and radio ships back to port should the substantial cuts come.
Reductions in ship and pilot training, flying hours and equipment maintenance would also have to be implemented. Plus, civilian hiring freezes, travel halts and a decrease to base spending are all expected.
The uncertainty surrounding what's ahead has brought widespread concern. U.S. Defense Secretary Leon Panetta voiced his unease during a recent Pentagon briefing.
"(We) have no idea what the hell's going to happen. All told, this uncertainty, if left unresolved by the Congress, will seriously harm our military readiness," Panetta said.
Why U.S. Auto Companies Are Betting Big on China for 2013 Sales
Both U.S. auto companies set sales records in 2012. Sales of Ford vehicles in China rose 21% year over year to 626,616.
GM, which is neck-and neck with Volkswagen AG (VLKAY) for the title of auto sales leader in China, reported combined sales from its joint ventures of 2.85 million vehicles, a year-over-year increase of 11.7% over 2011.
Both Ford and GM have built factories in China, and both U.S. auto companies plan to continue expanding there in 2013.
Ford plans to introduce 15 new models in China and double its production capacity to 1.2 million vehicles by 2015. The company also plans to double its network of dealerships in the country.
GM, in the middle of a five-year plan to invest $7 billion in China, has plans to add a third factory and increase production to 2 million vehicles annually by 2015. GM has set a goal of selling 5 million vehicles a year in China by 2015.
GM also plans to add 400 dealerships in China next year, which would give it 4,200 in all.
Here's what U.S. auto companies see in this foreign market.
$1 Trillion Coin Isn’t the Right Answer to Our Debt Ceiling Crisis
There's increasing support for the idea of minting a $1 trillion coin to help the United States avoid hitting the debt ceiling.
Even those supporting the idea – including The New York Times' Paul Krugman – admit it sounds "silly," but say it deserves consideration in that it could help solve one of our country's biggest economic issues.
"By minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling – while doing no economic harm at all," Krugman wrote.
While the government can't make infinite sums of money however and whenever it likes, there's a legal loophole that gives the Treasury Department the authority to create platinum coins of any denomination.
The law that gives Treasury that authority is meant to allow the issue of commemorative coins, but its intentions have been misinterpreted and distorted by politicians and economists alike.
Here's the real deal with a $1 trillion coin and what it would do to the U.S. economy.