Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "Fiscal Policy"

G20 Worries About Growth

by Robert Kahn

The central message from the G20 Summit in Brisbane last weekend was the need for more growth, and there was a clear sense after the meeting that leaders are worried. David Cameron captured the mood with his statement that “red warning lights are flashing on the dashboard of the global economy” and his concern about “a dangerous backdrop of instability and uncertainty.” While Europe came in for the most criticism (Christine Lagarde rightly worries that high debt, low growth and unemployment may yet become “the new normal in Europe”) concerns about growth in Japan and emerging markets also weighed on leaders. In the end, though, the diplomacy conducted on the sidelines was more meaningful than the growth proposals put forward at the summit.

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Japan’s Sensible Fiscal Retreat

by Robert Kahn

Surprisingly poor second quarter growth numbers in Japan have raised market expectations that there will be snap elections and a delay in the consumption tax hike that was scheduled for October 2015. GDP fell for a second consecutive quarter, by 1.6 percent (q/q, a.r), versus market expectations of a 2.2 percent increase. A huge miss. Falling corporate inventories were a large part of the story, but exports rose only modestly while household consumption and capital spending slowed. The yen sold off after the announcement, reaching a low of 117 against the dollar. Japanese stocks are higher.

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The International Economic Agenda Facing the New Congress

by Robert Kahn

The initial post-election talk is understandably about whether the shift to a Republican controlled Senate makes it easier or harder to make progress on central economic challenges facing the United States, including energy, immigration, social spending, and infrastructure. There is understandable concern that this next Congress will face the same gridlock that we have now. But even before that, there is the mundane issue of what we borrow and spend. Partly out of fear of being seen as crying wolf one too many times, I have been wary to advertise my concern that we are facing a new series of economic cliffs. First up is a likely standoff on the budget (in December, and likely again in the spring of 2015). Then comes the debt limit, which will be reset on March 15, but given the usual and not-terribly-extraordinary “extraordinary measures” that are at the disposal of Treasury, they can likely pay the nation’s bills until perhaps the fall of 2015 before cash balances fall to zero. Of course, in the past deals have been done, often at the last minute, and we have not, with the exception of the 2013 government shutdown, gone off the cliff (though there have been a few unnecessary fender benders along the way). But with the Senate as polarized as ever, it is easy to see getting to deals on these issues will be difficult and potentially unsettling to markets.

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Shadow of the Sequester

by Robert Kahn
House Budget Committee member Marsha Blackburn (R-TN) displays a copy of President Obama's FY14 budget proposal upon its arrival on Capitol Hill in Washington. (Courtesy Kevin Lamarque\Reuters). House Budget Committee member Marsha Blackburn (R-TN) displays a copy of President Obama's FY14 budget proposal upon its arrival on Capitol Hill in Washington. (Courtesy Kevin Lamarque\Reuters).

The news shows this weekend were filled with optimism from across the political spectrum that the congressional budget conference, which begins Wednesday, will produce a deal. I am skeptical. The aim of the conference will be to find agreement on spending for the remainder of FY14 at levels of spending above those that resulted from the 2011 Budget Control Act and the failure of the “super committee” (enforced by sequestration, or “the sequester”). All factions are united in their distaste for the sequester, which cuts too deep and too broadly across both defense and domestic areas. But there is little consensus on what to do about it, and no ideas about how to bridge the fundamental divide between Democratic calls for more revenue and Republican insistence that the focus be on entitlement reform. At this point, the most likely scenario is that a deal on spending will come in January, not December, and will be at (or very near) sequester levels of spending.

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When Is the Next X Date?

by Robert Kahn
Source: fms.treas.gov Source: fms.treas.gov

In my post yesterday, I mentioned in passing the uncertainty about when we would again hit the debt limit (“X Date”).  The question is complicated. Yesterday’s agreement extends the debt limit until February 7, and it allows the U.S. government to replenish or repay the extraordinary measures that it took in order to finance the deficit from May until yesterday.

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Celebrating Failure

by Robert Kahn
(Joshua Roberts/Courtesy Reuters). (Joshua Roberts/Courtesy Reuters).

So it looks as if we will have a fiscal deal. The final bill will be the result of the Senate negotiations that concluded this morning:

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