Economy Watch: Deficit Group Offers Tough Love

The National Commission on Fiscal Responsibility and Reform's formal report had lumps of holiday-season coal for just about everybody who receives something from the federal government.

December 2, 2010
Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user AMagill

The National Commission on Fiscal Responsibility and Reform’s formal report, ponderously called “The Moment of Truth”, had lumps of holiday-season coal for just about everyone who receives something from the federal government, which is just about everyone, period. At the heart of the commission’s report is the reminder that there’s no free lunch, which is at odds with the political system of the United States (and many other countries besides), in which politicos routinely run (and win) on the pledge of providing free lunches, or at least subsidized snacks.

To continue the food metaphor, the report’s introduction quotes Sen. Tom Coburn on the inadvisability of procrastinating on this problem: “We keep kicking the can down the road, and splashing the soup all over our grandchildren.” The commission also added some unusually straightforward language of its own: “After all the talk about debt and deficits, it is long past time for America’s leaders to put up or shut up. The era of debt denial is over.”

As expected, the plan calls for deep spending cuts for various sacred cows, including military spending, Social Security and especially Medicare. It also proposes raising taxes by various means, including closing most tax breaks. Now the full commission must vote up or down on the plan. Part of the arrangement is that 14 of the 18 members must agree to the final version before it’s send to Congress for formal consideration, and it looks like the vote on Friday will not be able to muster that many “ayes.” Still, the hard ideas the commission broached will be on the table for all to see.

Fed Dumps Data on Its Lending During Panic of 2008

Not long ago Congress demanded that the Federal Reserve reveal how it helped various major financial actors, and more importantly, how much it helped them in the dark days of late 2008. The Fed revealed much of that data on Wednesday, probably because it doesn’t want to pick a fight with Congress, and perhaps out the hope that it might be thought of as the savior of the global economy. There might be merit to that notion–historians will have to hash it out–but for now critics (including some in Congress) who already see the central bank as a trough for multinational fatcats aren’t likely to change their minds.

In any case, it turns out that the Fed was something like a vast payday loan office for Wall Street and other major corporations (without the usury), providing $3.3 trillion worth of liquidity when no one else would or could lend in the stormy days after the collapse of Lehman Bros. on Sept. 15, 2008. Goldman Sachs Group Inc., for instance, availed itself of the Fed’s Primary Dealer Credit Facility some 84 times at the height of the crisis, borrowing billions at a time and then paying billions back shortly thereafter.

Other heavy borrowers–all paid back, said the Fed–included Morgan Stanley, Merrill Lynch & Co., Bank of America, and many other Wall Street denizens of the first order. A little more surprising is the fact that more than a thousand non-financial companies also accessed Fed liquidity during the crisis, including such household names as Harley-Davidson and McDonald’s.

Consumer Bankruptcies Down Again in November

U.S. consumer bankruptcies dropped in November 13.3 percent month-over-month, according to the folks at the nonprofit and cheerfully named American Bankruptcy Institute. November’s total of 114,587 consumer belly-ups was the lowest since last February, the organization noted. The rate was up 2.2 percent year-over-year, however.

Still, there’s probably a link between dropping bankruptcy rates and the fact that levels of consumer credit have contracted 18 out of 19 months before October 2010. The only exception to that trend was in September 2010, when credit edge up slightly, according to the Federal Reserve.

Wall Street began December with a bang on Wednesday, perhaps exhibiting a What Me Worry stance on Euro-debt and the like, or maybe genuinely feeling optimistic about relatively good Beige Book reports. The Dow Jones Industrial Average gained a healthy 249.76 points, or 2.27 percent, while the S&P 500 advanced 2.16 percent and the Nasdaq was up 2.05 percent.