Archive for February, 2011
The budget for fiscal year 2012, just published by the White House, presents an optimistic prognosis for US fiscal health. Like all budgets, it looks ahead not just one, but several years. The budget deficit, expected to be 10.9 percent of GDP in 2011, is projected to fall to 7 percent in FY 2012 itself (October 2011 through September 2012), then to 4.6 percent in 2013 and 3.6 percent in 2014. By 2018, the budget is supposed to show a small primary surplus (surplus before interest expense), something essential if the debt-to-GDP ratio is to be stabilized.
As the federal budget season moves into full swing, infrastructure is not only on the table, but in the center of the table. The Obama administration budget, which would cut some areas of spending and freeze others, calls for more infrastructure spending, including high-speed rail, wireless Internet, and modernization of the electric grid. Across the aisle, House Republican leaders, vowing to “leave no stone unturned and allowing no agency or program to be held sacred,” envision infrastructure cuts, including Amtrak, EPA grants for municipal clean water, and other programs. Some Republicans want to outdo the leadership and cap federal spending at 20 percent of GDP, something that would require even more drastic infrastructure cuts.
As the US economy struggles to recover from recession and cope with a budget crisis, all past policies must be put on the table for review and revision. Even the sacred cows. Even the mortgage interest deduction.
A new report from the OECD, which deserves more attention than it has been getting, explains the role badly-designed housing policies played in triggering the recent economic crisis. As the report shows, housing policy varies greatly among developed economies. There are some areas where the United States scores well. For example, it has a relatively liberal regime of building and land use permits. As a result, the supply of housing responds more to rising prices than in other OECD countries. Also, with the exception of some urban areas like New York and San Francisco, the US rental housing market has a healthier balance between the rights of landlords and tenants. However, in the area of tax treatment of owner-occupied housing, the United States comes off poorly.
Could an obscure loophole known as emergency liquidity assistance (ELA) lead to the collapse of the euro area, much as the post-Soviet ruble area collapsed in 1991-1993? Some people seem to think so. The Irish Independent says that the use of ELA by the Irish central bank amounts to “printing its own money.” Tracy Alloway, writing on ft.com/alphaville, emphasizes the secret, hush-hush nature of ELA operations. One blogger goes so far as to speak of hyperinflation. Is there really something fishy going on? And what does ELA have to do with the ruble?