McConnell Offers Bill to Keep Bush-Era Tax Rates

The Senate Republican leader proposed legislation on Monday to continue all of the Bush-era tax cuts indefinitely, testing the willingness of Democrats to allow a tax increase on the wealthiest Americans in a weak economy and making clear that a partisan fight will extend deep into the campaign season if not beyond.

The proposal by the Senate leader, Mitch McConnell of Kentucky, came a day after the House Republican leader, John A. Boehnerof Ohio, suggested a potential compromise, saying he would vote for President Obama's plan to extend the cuts only for households earning less than $250,000 if he had no other choice.

In part, Mr. McConnell’s proposal illustrated the greater leverage that Republicans enjoy in the Senate, where they control 41 seats — enough to filibuster and block any bill. While Mr. Boehner cannot stop House Democrats from forcing a vote on the president’s favored tax plan, Mr. McConnell made clear that he would have a say and that he wanted to put a handful of wavering Senate Democrats on the spot.

Democrats immediately dismissed Mr. McConnell’s plan, noting that he had not offered any way to make up the $700 billion in lost revenue over 10 years that extending the tax breaks at the highest income levels would cost the government.

Democrats need time to draft the tax bill, and also line up their votes. In addition, Mr. McConnell’s stance increases the likelihood that the tax fight could be drawn out, and Democrats have other crucial work to do before the sessions ends, including a temporary spending measure to finance the government until after the election.

Regulators Back New Bank Rules to Avert Crises

Some of the world's top bank regulators met in Switzerland to discuss new potential banking regulations intended to make the global banking industry safer in addition to protecting nation's economies from disasters in the future.

The proposed set of rules will be presented to officials in nations across the globe with a deadline of January 1st, 2013 to begin phasing in the new rules simply known as Basel III. The group of rules seeks to almost triple the amount of capital that banks must hold in reserve, an effort to move banks toward more conservative positions and force them to maintain a larger degree of protection against potential incidents that might arise.

Personally I view this as a strong progressive move in the right direction because it was due to America's banks not holding enough reserves in the first place that forced the government to release bailout funds in the first place. What are others' thoughts?

New Year, No Federal Budget

NEW YORK (CNNMoney.com) -- On Oct. 1, just three weeks after lawmakers return from their summer break on Tuesday, fiscal year 2011 will begin. But Congress will not have a new budget in place by then. And it may not materialize anytime soon.

It won't be the first time. In fact, tardy federal budgets have been par for the course for most of the past 35 years.

Warren Buffett: "No Double Dip Recession"

Speaking today by video to the Montana Economic Development Summit, the AP quotes him as telling those attending: "I am a huge bull on this country. We are not going to have a double-dip recession at all. I see our businesses coming back across the board."

Bloomberg feels the same way, in that all businesses are making a slow comeback and we should not be faced with any deflationary period that the double-dip recession entails. It seems that the general feeling towards the economy through some of our top economic figures in this country have no real concern for our ailing economy and see it getting better in the foreseeable future.

Student loan default rate creeps higher

CNN reported today that defaults on student loans for fiscal 2008 are the highest they have been in over 10 years. The rates jumped from 6.7% in fiscal 2007 to 8.0% in fiscal 2008. The rates are the highest for graduates of for-profit schools, followed by public then private institutions. This growth in default rates only reaffirms that the economic recession is making job placement and retention no easy task; students that have newly entered the labor force simply can not find ways to pay back their debt. It would be interesting to see how this rise in default rates would effect the Cobb-Douglas production function we studied last Friday in which the three inputs (labor, capital, and human capital) effect MPL and MPH. Would the rise in default rates make having a college degree less valuable? Would it cause a decrease in MPL for unskilled workers because more people with college degrees would enter the unskilled work force, taking whatever jobs they could find?

We Need Demand, Not Protectionism

The author of this article discusses the importance of demand in our economy. Total spending was broken down into four categories: consumption, investment, government and exports. With consumption accounting for roughly 70% of total spending; the fact that consumers are saving more than usual in response to the weakened economy is further slowing any progress of immediate recovery. As a result, businesses are reluctant to invest out of fear that consumer spending is going to continue down this road. The government is not making things any easier for investment to increase because of the strict regulations and high taxes imposed on businesses.

The author also calls attention to the large trade deficit that the United States has been experiencing recently. While we are generating domestic income from exporting goods and services, the amount of importing goods and services immediately offsets this gain. The author remains optimistic in saying that eventually these foreign entities that are becoming wealthier with each transaction will most likely invest these dollars back into the United States. He also believes that the trade deficit is a self correcting problem that will eventually straighten itself out.

China Inflation rises
CNNMoney- Sept 12, 2010

China CPI rises to 3.5% in August from 3.3% in July this year. This is almost 3 folds that of the US, which rises only 1.2% over the twelve-month period ending in July.

Inflation is good indicator of economic growth, however, growing at a breaking 3.5% in August might need to be met with some caution.

According to the site, food prices in China have risen 7.5%., which demands for a rise in workers' wages to accommodate the high price shoot in necessary goods.

Economic analysts says that China may rise its interest rate, but more symbolically than substantially to match its economic growth.

High interest rate will encourage saving and deter investment, thus slowing down the economy. However, I don't understand how raising the interest rate will help, will somebody help me?

Timothy Geithner and the Economy

"Mr. Geithner said the biggest challenge facing the economy right now was Washington paralysis. He urged Congress to take up the White House's recent proposals to give tax incentives to business and fund new infrastructure projects.

"If the government does nothing going forward, then the impact of policy in Washington will shift from supporting economic growth to hurting economic growth," Mr. Geithner said during an interview with The Wall Street Journal in his U.S. Treasury office, citing the example of countries who "shift too quickly to premature restraint" after a crisis, including the U.S. in the 1930s."

Trade Deficit Narrows By 14.1 Percent; Exports Up, Imports Down

The article from the census bureau bodes well for the United States' GDP growth. It relates that United States exports are increasing while imports are decreasing.
In July, exports grew 1.8 percent, after falling 1.3 percent in June. Over the month, the trade deficit narrowed considerably, falling 14.1 percent to a monthly pace of $42.8 billion. This drop in net-exports was a major drag on Q2 GDP growth. In contrast, the narrowing of the gap in July bodes well for Q3 GDP growth. The trade gap had expanded greatly in June to a pace of $49.8 billion per month. Imports fell 2.1 percent, following two months of strong growth. From a year prior, exports were up 19.9 percent, while imports were up 22.7 percent.
Hopefully this decrease in the United States trade deficit will continue and this will spur on United States companies to increase our GDP.

World Panel Backs Rules to Avert Banking Crises

World banking leaders met today and agreed on new international banking rules that will hopefully prevent financial disasters. The biggest change was requiring the amount in reserve for each bank to be almost three times higher. Previously, the required rate was 2% - it will now be raised to 7% or higher. The new regulations will be phased in by 2015.
The president of the European Central Bank served as chairman of the group. Bernanke, the chairman of the Fed also served as leadership for the discussion. Financial leaders from 27 countries attended.
This is a concern because now these funds cannot be lent out and will decrease the overall available investment funds.