A Washington Post article on a report by the IMF’s Independent Evaluation Office criticizing political influence by the United States on the Fund’s policy may have misled readers on how countries accumulate foreign exchange reserves. The article told readers:
“A steady rise in foreign reserves — a country’s holdings of dollars, yen or other major world currencies — can be the result of large trade surpluses. But it can also stem from an undervalued exchange rate, something that the United States has long accused China of maintaining to give its products a more attractive price on world markets.”
A rise in foreign exchange reserves can only result from a decision by a central bank to buy reserves. Its access to reserves is affected by the country’s trade balance, but a central bank only ends up with reserves because it has decided to buy them. If the central bank of a country with large trade surpluses decided not to buy reserves, then its currency would rise in international markets as holders of foreign exchange (mostly dollars) dumped them on international markets to obtain more of their own country’s currency.
This would cause the price of their own country’s currency to rise and the foreign country’s currency to fall. There is no real dispute that central bank intervention keeps the dollar high against the yuan and other currencies. The only questions can be the motivation and the implications of this intervention.
A Washington Post article on a report by the IMF’s Independent Evaluation Office criticizing political influence by the United States on the Fund’s policy may have misled readers on how countries accumulate foreign exchange reserves. The article told readers:
“A steady rise in foreign reserves — a country’s holdings of dollars, yen or other major world currencies — can be the result of large trade surpluses. But it can also stem from an undervalued exchange rate, something that the United States has long accused China of maintaining to give its products a more attractive price on world markets.”
A rise in foreign exchange reserves can only result from a decision by a central bank to buy reserves. Its access to reserves is affected by the country’s trade balance, but a central bank only ends up with reserves because it has decided to buy them. If the central bank of a country with large trade surpluses decided not to buy reserves, then its currency would rise in international markets as holders of foreign exchange (mostly dollars) dumped them on international markets to obtain more of their own country’s currency.
This would cause the price of their own country’s currency to rise and the foreign country’s currency to fall. There is no real dispute that central bank intervention keeps the dollar high against the yuan and other currencies. The only questions can be the motivation and the implications of this intervention.
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Ever since the election the Wall Street gang has been trying to build up scare stories around the budget standoff between the President and the Republican House. The term “fiscal cliff” is a central part of this campaign since it implies that something ominous happens if there is no deal by the end of the year.
As every economist and budget analyst knows, it makes virtually no difference whatsoever if there is a deal 10 days before the end of the year or 10 days after. However if the Wall Street gang can build up enough fear then it will lead to more pressure to get a deal before the end of the year. Since President Obama will be on much better negotiating turf after the end of the year and the tax cuts have already expired, a deal struck this year will likely be more favorable to the Republicans.
The NYT seems to have joined in this effort, telling readers that we may “careen off the so-called fiscal cliff” if there is no deal. This sort of silly and inaccurate metaphor is best left for fiction. It has no place in a serious newspaper.
Ever since the election the Wall Street gang has been trying to build up scare stories around the budget standoff between the President and the Republican House. The term “fiscal cliff” is a central part of this campaign since it implies that something ominous happens if there is no deal by the end of the year.
As every economist and budget analyst knows, it makes virtually no difference whatsoever if there is a deal 10 days before the end of the year or 10 days after. However if the Wall Street gang can build up enough fear then it will lead to more pressure to get a deal before the end of the year. Since President Obama will be on much better negotiating turf after the end of the year and the tax cuts have already expired, a deal struck this year will likely be more favorable to the Republicans.
The NYT seems to have joined in this effort, telling readers that we may “careen off the so-called fiscal cliff” if there is no deal. This sort of silly and inaccurate metaphor is best left for fiction. It has no place in a serious newspaper.
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That’s undoubtedly what readers are asking after seeing this strange and inaccurate phrase appear yet again in an article about the latest tax plan Speaker Boehner put forward. Of course it is inaccurate since it implies that debt and deficits have been out of control.
As every budget analyst knows, deficits were actually quite modest until the economy plummeted in 2008 following the collapse of the housing bubble. The deficit in 2007 was just 1.2 percent of GDP. The economy can run deficits of this size forever, since the debt to GDP ratio was actually falling. The deficit was projected to remain low for the next several years until the projected expiration of the Bush tax cuts pushed the budget into surplus in 2012.
Source: Congressional Budget Office.
There have been no large unfunded increases in spending nor permanent tax cuts since these projections were made. The sole reason that the deficits came in much higher than projected was the impact of the recession on tax and spending and the stimulus measures taken to counter the downturn.
The Post has consistently misrepresented the nature of current deficits. This helps to promote its agenda of cutting Social Security and Medicare.
The Post also misrepresented the risks of missing the December 31 deadline of reaching a budget deal. It told readers:
“If no action is taken before the end of the year, taxes will rise for nearly 90 percent of taxpayers in January, potentially sparking a new recession, according to many economists.”
In fact it is not clear that any economists say that missing the deadline will cause a recession. The Congressional Budget Office and others have projected that if the higher tax rates and spending cuts remain in place all year that the economy will likely fall into a recession. They did not say that this would be the result of waiting one or two weeks into January to work out a deal.
Most analysts think that President Obama’s negotiating position will improve after the tax cuts expire. If this is the case then trying to maintain pressure on President Obama to reach a deal before the end of the year would also advance the Post’s agenda for cutting Social Security and Medicare.
That’s undoubtedly what readers are asking after seeing this strange and inaccurate phrase appear yet again in an article about the latest tax plan Speaker Boehner put forward. Of course it is inaccurate since it implies that debt and deficits have been out of control.
As every budget analyst knows, deficits were actually quite modest until the economy plummeted in 2008 following the collapse of the housing bubble. The deficit in 2007 was just 1.2 percent of GDP. The economy can run deficits of this size forever, since the debt to GDP ratio was actually falling. The deficit was projected to remain low for the next several years until the projected expiration of the Bush tax cuts pushed the budget into surplus in 2012.
Source: Congressional Budget Office.
There have been no large unfunded increases in spending nor permanent tax cuts since these projections were made. The sole reason that the deficits came in much higher than projected was the impact of the recession on tax and spending and the stimulus measures taken to counter the downturn.
The Post has consistently misrepresented the nature of current deficits. This helps to promote its agenda of cutting Social Security and Medicare.
The Post also misrepresented the risks of missing the December 31 deadline of reaching a budget deal. It told readers:
“If no action is taken before the end of the year, taxes will rise for nearly 90 percent of taxpayers in January, potentially sparking a new recession, according to many economists.”
In fact it is not clear that any economists say that missing the deadline will cause a recession. The Congressional Budget Office and others have projected that if the higher tax rates and spending cuts remain in place all year that the economy will likely fall into a recession. They did not say that this would be the result of waiting one or two weeks into January to work out a deal.
Most analysts think that President Obama’s negotiating position will improve after the tax cuts expire. If this is the case then trying to maintain pressure on President Obama to reach a deal before the end of the year would also advance the Post’s agenda for cutting Social Security and Medicare.
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The top of the hour news segment on Morning Edition told listeners that forecasters have predicted that failing to meet the December 31st cutoff on budget negotiations would throw the economy back into recession (sorry, no link). This is not true. The projections for a recession assume that there is no deal on taxes and spending throughout 2013. They did not predict what would happen if it takes a few days or weeks in 2013 to come to an agreement that reversed most of the tax increases and spending cuts that go into effect at the end of the year.
This is a simple and important distinction. It is incredible that NPR could not find news writers who could get it right.
The top of the hour news segment on Morning Edition told listeners that forecasters have predicted that failing to meet the December 31st cutoff on budget negotiations would throw the economy back into recession (sorry, no link). This is not true. The projections for a recession assume that there is no deal on taxes and spending throughout 2013. They did not predict what would happen if it takes a few days or weeks in 2013 to come to an agreement that reversed most of the tax increases and spending cuts that go into effect at the end of the year.
This is a simple and important distinction. It is incredible that NPR could not find news writers who could get it right.
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The Washington Post is having trouble with numbers again. It told readers that the bill passed by the Senate in the summer would restore the Clinton era tax rates on households with incomes over $1 million. Actually the bill would restore Clinton era tax rates on households with incomes over $250,000.
Thanks to Robert Salzberg for calling this to my attention.
The Washington Post is having trouble with numbers again. It told readers that the bill passed by the Senate in the summer would restore the Clinton era tax rates on households with incomes over $1 million. Actually the bill would restore Clinton era tax rates on households with incomes over $250,000.
Thanks to Robert Salzberg for calling this to my attention.
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For some reason the media routinely bring up philosophy in discussions of politicians’ actions. This is utterly bizarre. There is no one in national office who got their position based on their philosophical treatises. They gained their positions by appealing to important political constituencies.
The NYT again committed this sin, telling readers in an article on the budget standoff that:
“The two sides are now dickering over price, not philosophical differences, and the numbers are very close.”
Does anyone think that President Obama and Speaker Boehner had been debating points of philosophy in their discussions?
This piece also raises the possibility that the government will use different inflation indexes for different programs in order to accomplish political ends telling readers:
“The new inflation calculations, for instance, would probably not affect wounded veterans and disabled people on Supplemental Security Income.”
This sort of political manipulation of government statistics is unusual in the United States. It would have been worth highlighting this part of the tentative agreement.
For some reason the media routinely bring up philosophy in discussions of politicians’ actions. This is utterly bizarre. There is no one in national office who got their position based on their philosophical treatises. They gained their positions by appealing to important political constituencies.
The NYT again committed this sin, telling readers in an article on the budget standoff that:
“The two sides are now dickering over price, not philosophical differences, and the numbers are very close.”
Does anyone think that President Obama and Speaker Boehner had been debating points of philosophy in their discussions?
This piece also raises the possibility that the government will use different inflation indexes for different programs in order to accomplish political ends telling readers:
“The new inflation calculations, for instance, would probably not affect wounded veterans and disabled people on Supplemental Security Income.”
This sort of political manipulation of government statistics is unusual in the United States. It would have been worth highlighting this part of the tentative agreement.
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The Post can’t seem to run a simple budget piece without editorializing at every opportunity. Today it referred to the high income people who would be subject to higher tax rates under a new budget deal as “successful.” This assertion is only true if the criterion of success is being rich, in which case it would be more appropriate to simply refer to them as “rich.” Being successful and being rich may be synonymous to the Post’s editors, but that is not necessarily the view of the general population.
It also refers to the goal of reducing the projected deficit by $4 trillion over the next decade which it tells readers is:
“a target that economists say would stabilize the soaring federal debt.”
It should have been possible to write the sentence without the word “soaring.” (It would save space.) It’s also worth noting that more serious economists (the type who are able to notice $8 trillion housing bubbles) point out that a deal reached on taxes and spending over the next decade will not bind Congresses and presidents elected in 2016, 2018, 2020 and 2022.
Therefore this is mostly a big fight over writing words on paper in a context where we have little idea of the future. This is similar to the heated debates in the 2000 elections over the year when we would pay off the federal debt. Meanwhile, both Congress and the president are ignoring the wreckage from an economy in which close to 25 million people are unemployed, underemployed or out of the workforce altogether.
The Post can’t seem to run a simple budget piece without editorializing at every opportunity. Today it referred to the high income people who would be subject to higher tax rates under a new budget deal as “successful.” This assertion is only true if the criterion of success is being rich, in which case it would be more appropriate to simply refer to them as “rich.” Being successful and being rich may be synonymous to the Post’s editors, but that is not necessarily the view of the general population.
It also refers to the goal of reducing the projected deficit by $4 trillion over the next decade which it tells readers is:
“a target that economists say would stabilize the soaring federal debt.”
It should have been possible to write the sentence without the word “soaring.” (It would save space.) It’s also worth noting that more serious economists (the type who are able to notice $8 trillion housing bubbles) point out that a deal reached on taxes and spending over the next decade will not bind Congresses and presidents elected in 2016, 2018, 2020 and 2022.
Therefore this is mostly a big fight over writing words on paper in a context where we have little idea of the future. This is similar to the heated debates in the 2000 elections over the year when we would pay off the federal debt. Meanwhile, both Congress and the president are ignoring the wreckage from an economy in which close to 25 million people are unemployed, underemployed or out of the workforce altogether.
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For some reason the Washington Post has a hard time accurately reporting the nature of the budget discussions between President Obama and Speaker Boehner. It told readers today:
“In exchange for the higher rates for millionaires, Boehner is demanding changes to federal health and retirement programs, which are projected to be the biggest drivers of future federal borrowing.”
Of course Boehner is not looking for random “changes” to these programs, he is looking for “cuts” in the programs. While the next sentence points out that Boehner is seeking “savings” from these programs, there is no reason to obscure what is at issue by using “changes.”
It is also worth noting that under the law, Social Security cannot contribute to the deficit. It was set up by Congress as a stand alone program that can only spend money from its designated revenue stream. All official budget documents show the “on-budget” deficit which excludes revenue and spending from Social Security.
For some reason the Washington Post has a hard time accurately reporting the nature of the budget discussions between President Obama and Speaker Boehner. It told readers today:
“In exchange for the higher rates for millionaires, Boehner is demanding changes to federal health and retirement programs, which are projected to be the biggest drivers of future federal borrowing.”
Of course Boehner is not looking for random “changes” to these programs, he is looking for “cuts” in the programs. While the next sentence points out that Boehner is seeking “savings” from these programs, there is no reason to obscure what is at issue by using “changes.”
It is also worth noting that under the law, Social Security cannot contribute to the deficit. It was set up by Congress as a stand alone program that can only spend money from its designated revenue stream. All official budget documents show the “on-budget” deficit which excludes revenue and spending from Social Security.
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A Washington Post article on the state of the United Kingdom’s economy, after it followed the path of austerity advocated by deficit hawks, implied that consumer spending there has been depressed. This is not true.
While the saving rate has risen from the lows hit at the peak of the UK’s highest bubble, at 5.3 percent it is still well below the levels that the UK saw before the wealth created by its stock and housing bubbles began to drive consumption in the late 1990s. As is the case with the United States, the UK is likely to suffer from inadequate demand until its trade gets closer to balance.
This means that, rather than fearing foreign investors fleeing the British pound, the government should be encouraging such flight. A lower valued pound is the only way that the UK’s trade deficit can move substantially closer to balance. Without more balanced trade the economy will need large government budget deficits to sustain full employment.
A Washington Post article on the state of the United Kingdom’s economy, after it followed the path of austerity advocated by deficit hawks, implied that consumer spending there has been depressed. This is not true.
While the saving rate has risen from the lows hit at the peak of the UK’s highest bubble, at 5.3 percent it is still well below the levels that the UK saw before the wealth created by its stock and housing bubbles began to drive consumption in the late 1990s. As is the case with the United States, the UK is likely to suffer from inadequate demand until its trade gets closer to balance.
This means that, rather than fearing foreign investors fleeing the British pound, the government should be encouraging such flight. A lower valued pound is the only way that the UK’s trade deficit can move substantially closer to balance. Without more balanced trade the economy will need large government budget deficits to sustain full employment.
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