Criticism of “Operation Twist” Misrepresents the Fundamental Issues

A quality editorial from Bloomberg on Wednesday addresses the fallacious arguments of the Federal Reserve’s Congressional critics.  Since the Fed’s announcement yesterday that they would continue their “Operation Twist” (explained here) program in attempt to put further downward pressure on borrowing costs and increase credit, critics of Chairman Ben Bernanke, such as Jim DeMint of South Carolina, have chastised him for enabling further federal deficit spending.  While, as the editorial points out, by lowering long-term Treasury bond yields the Fed is indeed allowing deficit borrowing to be done at a cheaper rate, pointing the finger at Bernanke for the growing deficit does little to encourage a long-term solution.  Ideas, such as limiting the size of the Fed’s balance sheet, do little to nothing in terms of solving our deficit problem, but would do an effective job at dulling one of the only remaining tools the government has to battle the stagnant economy.

Truly, the only long-term solution to our national spending profligacy must come through the Congress.  While last year’s attempt at resolving the issue failed, no action outside of a Congressional deficit reduction agreement has the ability to make a substantial dent in the growing national deficit.  Though the contentiousness of last summer’s negotiations make such an agreement seem politically infeasible, petty attempts at redirecting national criticism and blame to the Fed and other sources irresponsibly circumvents the inescapable solution, no matter how politically difficult it may be.

Congress’ Deficit-Cutting Committee Fails

Monday afternoon the Congressional deficit-cutting “supercommittee” capitulated, failing to reach a compromise or deal on how to explicitly deal with the country’s growing deficit.  Markets fell significantly on the news, and though parameters to automatically cut $1.2 trillion from the federal deficit remain in place, Congress’ continued failure to address this fundamental problem continues to frustrate and hamper the economic recovery.  While ratings services Moody’s and Standard & Poor’s reiterated that the committee’s failure would not result in another downgrade for U.S. debt, the continued inability of Congress to reconcile the country’s debt only adds to the general uncertainty that is dragging recovery efforts.  As the Federal Reserve considers the possibility of yet another round of quantitative easing, as was illustrated by the questionable success of QE2, they alone cannot inspire a recovery within the markets.  Global markets seem to be reaching a point where their ability to forecast economic outlook is the primary determinant in their investment and consumption decisions, as opposed to the long-term interest rates which the Federal Reserve continues to target.  What is certain is that moving forward, the United States faces serious questions regarding their ability to pay off the debt which has been used extensively in recovery efforts, and Congress’ fierce and increasingly polarized partisanship continues to critically damage the U.S. economic recovery.

Dodd-Frank Turns One

A comprehensive recap of the effects that the Dodd-Frank legislation has had on the financial industry along with a few predictions of what will come next.  Certainly interesting to consider the increased regulation that this legislation enacted in the context of the current economic conditions.  While the stated intentions of the law seem sincere and well-intentioned, given the general uncertainty surrounding the economy as a whole, it seems that if anything, Dodd-Frank has added rather than reconciled any uncertainty or transparency issues within the financial industry.  Unfortunately, the true ramifications of the law remain marred and clouded by Washington’s increasingly partisan negotiating tactics.  The tangible changes the law has enacted and will continue to enact seem lost in demagoguery and ideological grandstanding and it appears unlikely that a candid, thorough review of its true meaning moving forward will be conducted.

Boehner sworn in as new Speaker of the House

Earlier today, the 112th Congress convened and Republican John Boehner was officially sworn in as the 61st Speaker of the House, giving the GOP a majority vote in the House for the first time in 4 years.  While no significant legislation was addressed today, federal spending is sure to be a high priority, and highly contested, issue on the docket in the coming weeks.  Republicans have remained adamant in their promises to significantly cut spending levels but have been vague in their targets aside from exempting military spending, a reality which has left many on both sides of the aisle uncertain and curious as to where these cuts will come from.  The coming weeks will certainly be an intriguing time to watch and see as to how and where the new Congress plans  to curb government spending and what effect their actions will have on the economic recovery.

Obama’s Pay-to-Play Dream Team, Labor Lobbying Push and More in Capital Eye Opener: August 10

By Patrick Margolis on August 10, 2010 11:15 AM

Your daily dose of news and tidbits from the world of money in politics:

DID OBAMA’S DREAM TEAM PAY TO PLAY? LeBron James, Dwayne Wade, Kobe Bryant, Derek Fisher. No, that’s not merely a list of athletes likely to play in the NBA finals next year, it’s a portion of the players on hand for President Barack Obama’s weekend basketball birthday party. Indeed, it was quite the birthday present for the president: a chance to play basketball with a court full of NBA players.

But just how did the president pick his court companions? Unsurprisingly, several of the players on Obama’s list made sizable contributions to Obama’s presidential campaign and/or related Democratic political committees (such as the Democratic National committee) during the 2008 election cycle, the Center for Responsive Politics finds. Among them:

• Earvin “Magic” Johnson ($31,900)
• Shane Battier ($4,300)
• Alonzo Mourning ($2,300)
• Etan Thomas ($7,300)
• LeBron James ($20,000)
• Grant Hill ($2,300)

TOUGH LESSON FOR CONGRESS? School is in session even during a congressional recess. Today, the House is scheduled to vote on a bill already passed by the Senate to provide aid to states, such as Medicaid and education funding. Without passage, many teachers’ union members will likely be out of work. In preparation for this, the unions are attempting to teach quite the lesson to House members voting against the bill. American Federation of State, County and Municipal Employees President Gerry McEntee told The Hill, “We are set to launch a robust field plan across the country during the month of August, including advertising and grassroots events.” The AFSCME is indeed a strong lobbying force, having already spent $1.49 million on federal lobbying efforts during the first half of this year. That puts it on pace to exceed its yearly lobbying expenditure record of $2.87 million, set last year.
FEC REGULATES ON SHADY CAMPAIGN CONTRIBUTOR: The Federal Election Committee on Monday ruled on six matters it had been reviewing. In one case, WellPoint Senior Vice President for Health Care Jose Valdez was ordered to pay a civil penalty of $30,000 for personally reimbursing employee contributions to Rudy Giuliani’s presidential campaign. In another case, Massachusetts Attorney General Martha Coakley was accused of using her state campaign funds to benefit her U.S. Senate election bid. The commission found no reason to believe Coakley violated the Federal Election Campaign Act of 1971, and it dismissed the case.