DEBT CEILING LATEST: THE HOUSE - CNBC’s Eamon Javers reports from Washington.
DEBT DEAL DRAMA FROM THE HOUSE SIDE - Rep. Chris Van Hollen, (D) Maryland, Fmr. DCCC Chair - Rep. Jeb Hensarling, (R) TX; House Republican Conference Chmn
CAN HOUSE & SENATE BRIDGE THEIR DIFFERENCES? IMPACT ON BUSINESS
- Jared Bernstein, Center on Budget and Policy Priorities Sr. Fellow; CNBC Contributor; Fmr. Sr. Economist for VP Biden - George Pataki, Fmr. NY Governor - Steve Forbes,Forbes Media Chairman & Editor-in-Chief - Julian Epstein, LMG CEO; Fmr. Democratic Chief Counsel
DEBT CEILING LATEST: THE SENATE - CNBC’s John Harwood reports from Washington.
COMMON GROUND RECONCILIATION? WHAT'S SENATE GOING TO DO? WILL SENATE TAKE UP HOUSE/BOEHNER BILL? - Sen. Mike Crapo, (R) Idaho
THE MARKETS - Michael Cuggino, Permanent Portfolio Funds; President & Portfolio Manager
THE WHITE HOUSE VS. BOEING - Andy Stern, Service Employees International Union - Peter Schaumber, Fmr. NLRB Chairman
Standard & Poor’s government-credit-ratings guru David Beers played his cards close to the vest on the topic of a U.S. downgrade in our CNBC interview this week. However, this head of S&P’s global sovereign-ratings business -- with a staff of 80 covering 126 countries -- issued three strong warnings to the debt-ceiling negotiators in Washington.
Beers avoided direct comments on any of the key debt-limit plans. But when I asked him about joint congressional committees that would report back with additional budget savings at the end of the year, he said, “Well, naturally, it’s going to raise questions . . . we would have to look at the balance of incentives and disincentives that might increase or decrease the probability of that type of approach being effective.”
In other words, both the Harry Reid plan and the John Boehner plan could contribute to a downgrade this summer since it’s uncertain whether joint committees will get the necessary votes for large-scale budget cuts and deficit reduction by year-end. There are no guarantees.
I then asked Beers about a two-step debt increase. This is part of Speaker Boehner’s plan -- a roughly $1 trillion debt-ceiling hike now and a roughly $1.8 trillion increase next year. Beers has a problem with that.
“Well, we’ll look at it,” he said. “But we’ve also said on the 14th of July that we would be concerned if we thought that the debt-ceiling debate would come back and be open, and we’d have to go through all this again and again and again.”
I asked, “And that would be a negative in your view?”
He responded, “That would be a negative in our view.”
We then talked about prioritizing debt payments, where the government would parcel out incoming revenues in August in order to cover federal obligations, including interest on Treasury securities.
From the Jay Powell analysis (bipartisanpolicy.org), Uncle Sam could pay off interest on the debt, benefits for Social Security, Medicare, and Medicaid, defense payments, and unemployment benefits with incoming cash, but would still be $134 billion -- or 44 percent -- short of budget-obligation requirements.
Beers said that would not constitute a formal default. But he added, “It would mean a very sudden fiscal shock . . . you’d essentially be running a cash surplus to pay off the debt as it matures. So potentially that would be deeply disruptive to the economy. . . . We would suspect that that’s not a tenable situation for very long.”
On July 21, S&P issued a warning that there’s a 50 percent chance of a U.S. downgrade. A week earlier, S&P placed the U.S. on “credit-watch negative” based on the rising risk of a policy stalemate. Of course, that clock continues to tick.
Mr. Beers is looking carefully at all the debt plans on the table, and he wants to know three things: Are they actionable? Can they be implemented? And are they credible?
In particular, he’s looking for “some buy-in across the political divide, across both parties, because politics can and will change . . . And if there’s ownership by both sides of the program, then that would give us more confidence.” In other words, bipartisanship compromise.
More generally, Beers wants to see the U.S. federal-debt-to-GDP ratio move on a downward trend. Unlike other AAA countries -- such as Britain, France, or Canada -- the U.S. has not yet undertaken large-scale policy changes that would reverse its rising trajectory of government debt. That trajectory must fall over the medium-to-longer term. And that has Beers worried.
And like a lot of analysts, he’s concerned that a U.S. debt downgrade could raise Treasury rates by 25 to 50 basis points if the rating drops from AAA to AA. “That, of course, would filter through to other interest-rate-sensitive kinds of debt,” said Beers, like mortgages, Fannie and Freddie, insurance companies, overnight bank lending, and on and on.
Stock prices already seem to be falling around 100 points a day on investor fears of the negative economic consequences of a U.S. debt downgrade. People may be moving out of stocks and bonds into cash and government-guaranteed savings accounts to protect themselves in the event of a worst-case scenario.
CEOs are hoarding cash for their companies. The economy is barely growing. And folks are leaving the dollar for gold and foreign currencies.
And with less than a week until the August 2 debt-limit deadline, Congress still dithers.
A debt downgrade is very serious business. Does Washington get that? S&P’s David Beers most certainly does.
DEBT DEAL DEBACLE: COMPROMISE? REID & BOEHNER RE-WRITES; GOP FACING CONSERVATIVE MUTINY? 6 DAYS FROM DEFAULT?
- Sen. Michael Bennet, (D) Colorado - Sen. Mike Lee, (R) Utah - Rep. Peter Welch, (D) Vermont
WASHINGTON TO WALL STREET ... DEBT DEAL DEBACLE: TEA PARTY VS. GOP MODERATES & DEMS ... PLUS, ECONOMY, DEBT & JOBS - WHY AREN'T BUSINESSES HIRING?
- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author ; CNBC Contributor; Univ. of CA., Berkeley - Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author
THE HOUSE SIDE OF DEBT DEBATE - Rep. Brad Sherman, (D) CA; Budget & Financial Services Cmtes - Rep. Paul Ryan, (R) Wisconsin; Budget Cmte Ranking Member; President Obama's Fiscal Commission
MARKETS TAKE A BIG TUMBLE - Gordon Charlop, Rosenblatt Securities Managing Director; CNBC Markets Analyst - Art Laffer, Laffer Associates Chairman -Stephen Weiss, Short Hills Capital managing partner
Last night, I spoke with David Beers, head of S&P's sovereign debt rating committee on CNBC’s Kudlow Report. He made it very clear: the U.S. must take steps to lower its debt/GDP trend over the long run. He is looking at all the plans, and he is waiting for a final product. But right now a U.S. downgrade is 50-50. S&P's next step could come very soon.
The video and transcript follow below.
LARRY KUDLOW, host:
On July 14th, Standard & Poor's placed the US on credit watch negative on the rising risk of a policy stalemate. That clock continues to tick, August 2nd, less than a week from tonight. How real is the US debt downgrade threat? What will come of us? Here now for an exclusive interview is David Beers. He's the global head of sovereign ratings at S&P, Standard & Poor's.
David, welcome to the show. I appreciate it very much. If I'm not mistaken, on July 21 you issued a warning there's a 50 percent chance of downgrade. Where are you tonight? Where are you today?
Mr. DAVID BEERS: Well, we're still at 50 percent, at least a 50 percent possibility of a downgrade.
KUDLOW: All right. I want to ask you, what will it take to avoid a downgrade? What are your guidelines telling you? What are you looking for?
Mr. BEERS: Well, given the continuing political gridlock, I guess what we're looking for is some program which we think will make a difference over the medium term in slowing the, if not reversing, the rising trajectory of government debt as, for example, as a percent of GDP.
KUDLOW: And United States is around 70 percent. I believe the Congressional Budget Office has us running up to 90 or 100 percent. You like to use total government debt. So you want to see that instead of going up, you want to see it ramping down. Is that fair?
Mr. BEERS: Yeah. Or at least stabilizing, with the prospect of it falling over the medium to longer term.
KUDLOW: All right. I want to ask a couple of questions. I appreciate that you don't want to speak specifically about the political plans. Really, when you take the three plans that are on the table, more or less, they're running about $3 trillion in lower deficits. I mean, they've got pluses and minuses.
Mr. BEERS: Mm-hmm.
KUDLOW: And I don't want to get into that. Is a $3 trillion reduction over 10 years, would that meet your criteria to avoid a downgrade?
Mr. BEERS: Well, to be honest, we can't answer that question tonight. I think what we've said is we'll look at the deal, whatever the deal is, when it's agreed by Congress and the administration, and we will measure it on a number of parameters. One is, is it actionable? Is it actually likely to be implemented and, therefore, is it credible? And credibility, among other things, means to us that there has to be some buy-in across the political divide, across both parties, because politics can and will change...
KUDLOW: Yes, sir.
Mr. BEERS: ...going forward. And if there's ownership by both sides of the program, then that would give us more confidence.
KUDLOW: But you don't want to commit to a ballpark number?
Mr. BEERS: No. Because it's not just about the number. It's about the all-in intent.
KUDLOW: But if it was low--if it as low as $1 1/2 trillion, would that be, you know, downgrade city?
Mr. BEERS: It depends on what's folded into the deal. It depends on what comes along with that number. As you know, there are lots of ideas out there about doing this incrementally. But, ultimately, we've got to look at the overall plan to make a judgment as to whether it's likely to make a difference in terms of the rising tide of US debt.
KUDLOW: All right, the rising tide of US debt. Two of the three plans have a special joint congressional committee which is supposed to find additional spending and debt reduction cuts down the road. Now, does the down the road part trouble you? Is that a plus or a minus in the debt--in the downgrade discussion?
Mr. BEERS: Well, naturally it's going to raise questions. And, again, we would have to look at the balance of incentives and disincentives that might increase or decrease the probability of that type of approach being effective.
KUDLOW: Does it matter to you if the debt ceiling is raised in one or two tranches? In other words, if they raise, let's say for argument sake, half this year and the rest next year. How does that affect your thinking?
Mr. BEERS: Well, we'll look at it. But we've also said on the 14th of July that we would be concerned if we thought that the debt ceiling debate would come back and be open and we'd have to go through all this again and again and again.
KUDLOW: And that would be a negative in your view.
Mr. BEERS: That would be a negative in our view.
KUDLOW: Right. That's what I thought.
All right, let me ask you this, the last scenario. The business about revenue allocation. If we go through August 2nd, we've got some big Treasury redemptions and interest expenses coming, 50, 60, $70 billion in August alone. What happens in your view if that's where the US government goes? Is that a downgrade situation? Or worse, is that a default situation? If we're parceling revenues, let's say to pay the interest on the debt, and a little bit to Social Security, a little bit to health care, and then half the budget is not funded. How does that affect your thinking?
Mr. BEERS: Well, first of all, we're rating debt. Right? So it's theoretically possible that for some period of time the government could take that strategy while the negotiations continue. But it's worth remembering what that would mean. It would mean a very sudden fiscal shock that the longer it lasted would filter powerfully through the system because the US has got--running a budget deficit right now of roughly 10 percent of GDP. Suddenly, for a period of time, you'd essentially be running a cash surplus to pay off the debt as it matures. So potentially that would be deeply disruptive to the economy.
KUDLOW: Would it be default?
Mr. BEERS: No, it would not be default so long as the government is continuing...
KUDLOW: Is covering...
Mr. BEERS: ...to pay its debt as it matures and its interest payments. But we would suspect that that's not a tenable situation for very long.
KUDLOW: So it sounds like that would signal a downgrade.
Mr. BEERS: Well, we'll deal with that as and when the time comes.
KUDLOW: When do you reckon you'll make your next decision? Is it imminent, this week, next week, a month from now, six months from now?
Mr. BEERS: Well, it kind of depends on what happens over the coming days. But, you know, we had said that we'll be very--looking very closely as we approach the 2nd of August to see if there's a deal or not.
KUDLOW: You heard the two senators. All right? They're both prominent senators. There's nothing happening in Washington tonight. Nothing I can report that's any good. In fact, one plan's gone back to the drawing board. It's hard to know what the second plan is. The third plan's buried in the White House. They admit they don't even have a plan. We're getting pretty close it, aren't we? Downgrade is imminent?
Mr. BEERS: I'm not going to say that a downgrade is imminent. We knew that this was going to come close to the wire, and it is, as you say. There's still every possibility that they're going to get--come up with a plan. And we'll--when they do...
KUDLOW: Yeah.
Mr. BEERS: ...we'll look at it and we'll make a judgment then.
KUDLOW: You published a paper where you had several scenarios, and I want to ask you about the middle scenario. What would the downgrade scenario do to the economy and interest rates, based on your work?
Mr. BEERS: OK. Well, there's obviously some uncertainty around this because it hasn't happened before. We sketched out a scenario, which I think is sort of common ground in the marketplace right now, where it's possible if the rating went into the AA category for example, the yield on government securities could rise anywhere between, you know, 25 and 50 basis points.
KUDLOW: From AAA to AA.
Mr. BEERS: Yeah. That, of course, would filter through to other interest rate sensitive kinds of debt, like mortgages, for example. So it would mean, you know, that holders of mortgages, over time, as this filtered through, would have to pay a higher mortgage rates.
KUDLOW: Fannie, Freddie?
Mr. BEERS: Yeah.
KUDLOW: Insurance companies?
Mr. BEERS: Yep.
KUDLOW: Overnight bank lending? What--can our economy take--let's say in the short end.
Mr. BEERS: Mm-hmm.
KUDLOW: We have the best rating A-1 plus right now.
Mr. BEERS: Mm-hmm.
KUDLOW: If you notch that down to A-1 and rates jumped up 50 basis points, how damaging you reckon that would be to our economy?
Mr. BEERS: Well, it would--it would have an impact. It would--it would have an impact. And it would be negative. It would be a depressing effect on economic output, on economic growth.
KUDLOW: Let me ask you one final one in the remaining seconds we have. I know you're very active in the European ratings and so forth. Greece, have we seen the last of the Greece crisis? You've rated them CCC. There is stuff below that. Do you think that will be challenged?
Mr. BEERS: Well, the rating has a negative outlook, so we're pretty certain it's going to go lower because, of course, an actual debt restructuring is now on the table. But we've also expressed the opinion before that we think that any near term restructuring is probably not the end of the story. There may be another bigger restructuring down the road after that.
KUDLOW: How far down the road do you reckon that would be?
Mr. BEERS: Well, that's partly in the hands of Greek politics, but it certainly wouldn't surprise us if a second restructuring had to be looked at over the next couple of years.
KUDLOW: Couple of years. All right, David Beers from S&P, we really appreciate your coming on here and talking about this...
DEBT TALKS LATEST -NBC’s Luke Russert reports from Washington.
DEBT TALK PLANS COMING TOGETHER? - Sen. Jeanne Shaheen, (D) New Hampshire - Sen. Kay Bailey Hutchison, (R) Texas
Kudlow Exclusive WHAT DEFICIT & DEFAULT RISK MEANS FOR U.S. CREDIT RATING - David Beers, Standard & Poor's Global Head of Sovereign Ratings
MARKETS; WHAT HAPPENS TO MONEY MARKET FUNDS IF TREASURYS GET DOWNGRADED?
- John Carney, CNBC.com Senior Editor - David Goldman, Former Head of Fixed Income Research at Bank of America - Michael Farr, Farr, Miller & Washington/CNBC Contributor
Free Market Matters IS OBAMA LOSING HIS BASE? - Tony Blankely, Syndicated Columnist; Executive vice president at Edelman - Jim Nussle, Fmr. OMB Director; CNBC Contributor - David Goodfriend, Fmr. Clinton W.H. Official; Sirius/XM "Left Jab" Co-host
Kudlow Exclusive SNAIL MAIL VS. EMAIL - Patrick Donahoe, Postmaster General - Chris Edwards, CATO Institute Director of Tax Policy; DownsizingGovernment.org Editor
DEBT TALKS LATEST -NBC’s Luke Russert reports from Washington.
DEBT TALK PLANS COMING TOGETHER? - Sen. Jeanne Shaheen, (D) New Hampshire - Sen. Kay Bailey Hutchison, (R) Texas
Kudlow Exclusive WHAT DEFICIT & DEFAULT RISK MEANS FOR U.S. CREDIT RATING - David Beers, Standard & Poor's Global Head of Sovereign Ratings
MARKETS; WHAT HAPPENS TO MONEY MARKET FUNDS IF TREASURYS GET DOWNGRADED?
- John Carney, CNBC.com Senior Editor - David Goldman, Former Head of Fixed Income Research at Bank of America - Michael Farr, Farr, Miller & Washington/CNBC Contributor
Free Market Matters IS OBAMA LOSING HIS BASE? - Tony Blankely, Syndicated Columnist; Executive vice president at Edelman - Jim Nussle, Fmr. OMB Director; CNBC Contributor - David Goodfriend, Fmr. Clinton W.H. Official; Sirius/XM "Left Jab" Co-host
Kudlow Exclusive SNAIL MAIL VS. EMAIL - Patrick Donahoe, Postmaster General - Chris Edwards, CATO Institute Director of Tax Policy; DownsizingGovernment.org Editor
The big sticking points between the House GOP leadership and Sen. Harry Reid’s latest plan are 1) the House wants two debt increases, one this year and one next year (Reid has just one increase) and 2) the House Republicans want a guaranteed balanced-budget-amendment vote.
Regarding the Reid plan itself, it really looks like a Republican plan: A $2.7 trillion spending cut to raise the debt ceiling by something like $2.5 trillion, and no tax revenues. So, really, what’s so bad about the Reid plan? Increasingly, Wall Street gurus want one debt-ceiling increase, not two.
The Reid package includes $1.2 trillion in discretionary-spending cuts and a small $100 billion savings in mandatory accounts, apparently from the Biden meetings, although it will not impact either health care or Social Security.
There are other nicks and knacks from waste, fraud, and abuse, fees on Fannie Mae and Freddie Mac, revenues from spectrum sales, and some sort of farm-subsidy reform. And there is, of course, a huge $1 trillion piece from winding down the wars in Iraq and Afghanistan. But that’s also in the budgets from Paul Ryan and the CBO. Interest savings come to $400 billion.
Reid’s plan also includes a Mitch McConnell-like joint-congressional committee to find future savings. The committee’s recommendations will be guaranteed an up-or-down Senate vote without amendments by the end of 2011.
The GOP House plan undoubtedly has more real spending reduction. Plus, the balanced-budget amendment, which makes it consistent with cut, cap, and balance.
But the Reid no-tax piece is really important in terms of economic growth. At least things may not get worse on the tax front.
Finally, all these plans hinge on tough enforcement for the spending caps. In particular, first-year 2012 savings, and then sequestration penalties. It just looks like the House and Senate are coming together.
DEBT DEAL DEBATE LATEST - CNBC chief Washington correspondent John Harwood reports from Washington.
INSIDE THE DEBT TALKS: GRAND BARGAIN OR SMALL BALL? - Rep. Peter Welch, (D) VT - Rep. Scott Garrett (R) New Jersey; House Budget Cmte. Vice Chair
Free Market Friday WHY CAN'T WE GET A $6T DEAL? OR A CUT, CAP & BALANCE DEAL DONE? WHY IS WASHINGTON ADDICTED TO DEBT? - James Freeman, Wall Street Journal Editorial Page Assistant Editor - Tim Carney, Washington Examiner Senior Political columnist - Joe Conason, The New York Observer Columnist; "It Can Happen Here: Authoritarian Peril in the Age of Bush" Author
KUDLOW MAYOR'S CONFERENCE: DEBT CRISIS TRICKLE DOWN EFFECT; IMPACT ON STATES/CITIES IF U.S. DEFAULTS - Vince Gray, (D) Mayor District of Columbia - Mitch Landrieu, (D) Mayor of New Orleans - Scott Smith, (R) Mayor of Mesa, AZ
HEATWAVE STRESSING NATION'S POWER GRID - Ann Thompson, NBC News
MARKETS: WHAT ARE ECONOMIC INDICATORS CAT & GE TELLING US? - Lincoln Ellis, Linn Group (CME) Managing Director - Tommy Belesis, John Thomas Financial Founder and CEO - Denny Strigl, Fmr. CEO Verizon Wireless in New York
There are a lot of known unknowns about the new “Gang of Six” budget proposal. But conservatives should hold back from trashing it. Why? There’s a large, pro-growth tax-reform piece in the plan that would lower tax rates across-the-board. This is a stunning reversal of the Obama Democrats’ soak-the-rich, class-warfare campaign.
The best part of the Gang of Six plan is a reduction in the top personal tax rate from 35 percent to a range of 23 to 29 percent. For businesses, the rate would drop in the same manner. And the corporate tax would be territorial rather than global, thereby avoiding the double tax on foreign earnings of U.S. companies. Finally, the plan would abolish the $1.7 trillion alternative minimum tax. That’s huge. It’s another pro-growth tax reform.
In a more perfect world, the Congressional Budget Office would score the pro-growth incentives of lower marginal tax rates in terms of a tax-revenue increase. That’s the history stretching back to JFK, Reagan, and George W. Bush circa 2003.
And right now, the Gang of Six package is the first real pro-growth tax reform of all the debt-ceiling plans. It acknowledges the need for a growth element in order to solve our budget bankruptcy and limit spending, deficits, and debt. It would boost the economy and broaden the base (by reforming or limiting numerous deductions). As a result, more income would be taxed at lower rates in a rising economy, throwing off a hell of a lot more revenues than we’re getting today. Rising revenues from lower tax rates are a good thing.
Now, there are glitches in this plan that cannot be overlooked. The biggest is the harsher treatment of capital gains. In a CNBC interview on Tuesday, Sen. Tom Coburn (R., Okla.) told me that the investment tax rate would rise to 20 percent from 15 percent. This is a black mark. It’s anti-growth. Coburn, however, also told me that the tax treatment of IRAs and 401(k)s would not change in this plan. That’s good.
Additional problems, however, are raised by Rep. Paul Ryan (R., Wis.). He notes first of all that the Gang of Six plan claims to increase revenues by $1.2 trillion relative to a “plausible baseline.” He also notes that the plan claims to provide $1.5 trillion in tax relief relative to the CBO March baseline. That’s important. But Ryan then reminds us that the CBO baseline assumes the expiration of the Bush tax cuts, which would increase revenues by a static $3.5 trillion.
So Ryan concludes that there’s a $2 trillion revenue increase. And he notes that this number could jump by another $800 billion from Obamacare taxes, which would increase revenues by $2.8 trillion.
Okay, this is tricky business. It’s a baseline-matching game. But let’s not get hung up on that right now. Let’s flesh out the details. Let’s see how the crony-capitalism deductions and loopholes will be treated.
So I’m not prepared to trash the Gang of Six plan. I am impressed by the lower marginal tax rates and tax simplification it contains. These are decidedly pro-growth measures. And we need growth.
If the economy were functioning decently, revenues as a share of GDP would move back towards 18 percent or more. And that would be a good place to balance the budget with spending restraints.
I get the uncertainty of the Senate Finance Committee regarding Social Security, health-care, and tax reform. I get that. But Rep. Dave Camp (R., Mich.) runs the House Ways and Means Committee, and he’s not going to let Sen. Max Baucus (D., Mont.) destroy the economy.
In the Gang of Six plan, there are a lot of planned spending cuts across-the-board for all the cabinet departments. There is spending-cap enforcement. And, importantly, the plan would repeal the CLASS Act, an Obamacare entitlement for long-term health-care insurance that would exponentially elevate future federal spending. This would mark the first step toward undoing Obamacare.
But -- and I acknowledge this weakness -- the health-care savings look inadequate and murky. And the Social Security reform is completely unknown. The cut-and-cap Paul Ryan budget, which would reduce spending by $110 billion in 2012, or $6 trillion over ten years, looks a lot more powerful than the Gang of Six proposal. Ditto for the Ryan domestic discretionary budget cut of $76 billion in 2012, which stretches out to $1.8 trillion in ten years. And of course, I acknowledge that two-to-one or three-to-one formulas for spending cuts and tax increases have always broken down in the past. You get the taxes but not the lower spending.
Nonetheless, with all the known unknowns and maybe some additional unknown unknowns, I still think it’s time to give the Gang of Six plan a chance.
DEBT CEILING TALKS … THE LATEST - CNBC chief Washington correspondent John Harwood reports from Washington.
KUDLOW DEBT SUMMIT: CEILING THE DEAL? - Sen. Kay Baily Hutchison, (R) Texas - Steve Forbes, Forbes Media Chairman & Editor-in-Chief - Rep. Dennis Kucinich, (D) Ohio; House Domestic Policy Subcmte Chmn - Byron Dorgan, (D) Fmr. North Dakota Senator
ONE-ON-ONE WITH RUDY GIULIANI BUDGET; ECONOMY; RUN FOR THE WHITE HOUSE; NEWS CORP/MURDOCH & 9/11 VICTIMS - Former NYC mayor Rudy Giuliani joins us.
THE GANG OF SIX PLAN & TAXES - Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy & America's Future" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. - Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author
IS THERE A U.S. DEBT DOWNGRADE CATASTROPHE LOOMING? - Dan Mitchell, CATO Senior Fellow - David Goldman, Former Head of Fixed Income Research at Bank of America
There seems to be a spirit of compromise in the new “Gang of Six” proposal. But the plan also raises a lot of important questions. Can it get done in time for the critical August 2nd debt-ceiling deadline? Are the spending cuts real? There are lower tax rates and tax reform for personal and business, except the capital gains tax will go up. It appears IRAs and 401Ks will be tax exempt.
On last night's Kudlow Report, I spoke with three key congressional members on all of the latest developments. Joining me were Sen. Tom Coburn (R-OK), a member—perhaps the ringleader—of the aforementioned “Gang of Six” as well as Sen. Jeanne Shaeen (D-NH).
Shortly thereafter I spoke with GOP maverick Sen. Rand Paul. He’s got the right spirit and the right vision to shrink government and grow the economy. He also believes the tea party is winning.
IS THERE A DEBT DEAL? - Sen. Tom Coburn; (R) Oklahoma - Sen. Jeanne Shaheen, (D) New Hampshire
CUT, CAP & BALANCE? - Sen. Rand Paul, (R) Kentucky
APPLE’S BLOWOUT EARNINGS - CNBC’s Jon Fortt reports.
MARKET SURGE - Steve Grasso, CNBC Market Analyst; Stuart Frankel, Managing Director of Institutional Sales - Jeremy Siegel, Professor of Finance Wharton School at Univ. of Pennsylvania
ECONOMISTS OPPOSE CONSITUTIONAL BALANCED BUDGET AMENDMENT - David Webb, Tea Party, Host of The Grinder on AM 970; Founder, Co-founder TeaParty365 - Matt Miller, Host, Public Radio's "Left, Right & Center"; WashingtonPost.com columnist - Sen. Mike Lee, (R) Utah; "The Only Solution Left to Save our Future" Author
NEWS CORP IN CRISIS: THE HACKING HEARING -CNBC’s Kayla Tausche reports from London.
MURDOCHS AT THE HACKING HEARING: 'TOP EXECS KNEW NOTHING' - Sarah Ellison, Fmr. WSJ Reporter; "The War At The Wall Street Journal" Author - Ken Chandler, Newsmax Magazine Editor-in-Chief - Lou Colasuonno, Fmr. NYPost/Daily News Editor-in-Chief
As uncertain and unruly and disheveled as the debt-ceiling debate may be, there are still good grounds to reach a deal. It could help the economy. It could keep the policy ball moving in the direction of smaller government. It could add a key business tax incentive for economic growth. And it could even stabilize the dollar.
There really are two problems here: First is raising the debt ceiling to avoid default. (That’s a real good idea.) Second is stuffing enough spending and deficit reduction into the deal to accommodate the newly militant demands of S&P and Moody’s, who want roughly $4 trillion in cuts over ten years in order to keep our AAA rating.
But here’s the tricky part for me: What kind of numbers are we talking about in the event of a last-minute deal? So many of these numbers are phony, and they often reflect baseline fiddling and out-year budget cuts that never materialize.
But the credit raters are on the war path. The small deal offered by Senator McConnell would raise the debt ceiling in three parts. But with only $1 trillion in so-called cuts, this “Plan B” won’t pass the S&P/Moody’s test. The number is too small.
Then there’s the grand design for President Obama’s big-picture deal. It is over $4 trillion, but it includes taxes that look to be off the table from the Republican standpoint.
But this has me thinking. Assuming there are real spending cuts in the Obama package, I wonder if it’s possible to insert a business tax cut in the deal that would repatriate foreign earnings of U.S. companies. Let’s say with a 5 percent tax holiday. And let’s say it’s a two-to-three-year plan, or lasts until full-fledged business tax reform can come about. That would be a big plus for growth and jobs. We’re talking a base here of nearly $2 trillion in corporate cash that one way or another can come into our economy.
Next up is cut, cap, and balance. Did Obama budget director Jack Lew open the door to this Republican House plan during the Sunday shows? This is my preferred option right now. The burden of government on the economy would be reduced from roughly 24 percent to 20 percent. That narrows the wedge between work and reward. It strengthens private market resources by curbing government redistribution. This is probably the biggest philosophical sticking point in the whole political debate. Of course, I’m for free-market capitalism.
But here too I’m not sure about the numbers. Various news accounts talk about a $2.4 trillion debt-ceiling increase with an equal spending cut. I presume that’s a ten-year number on the spending side. But that wouldn’t pass the S&P/Moody’s test of $4 trillion.
Other accounts of cut, cap, and balance use the Paul Ryan fiscal-year 2012 spending cut of $110 billion. That would be a home run. It would come to $5.8 trillion over ten years and would certainly satisfy the credit-rating agencies. In other words, the GOP House plan is far better from a rating-agency standpoint than any other plan out there -- that is, if the Ryan numbers are actually part of the plan. But we don’t know the numerical details yet. That’s a problem.
We’ve learned from the cash-flow analysis of Treasury revenues and government spending that there just has to be a debt increase. As many have already written, the Jay Powell bipartisan policy analysis shows that you can cover the interest on Treasury debt along with Social Security and health entitlements. You could pay the Defense Department vendor bills. You could keep unemployment insurance benefits. But you’d still be $134 billion short for the rest of the August budget.
The U.S government has $172 billion of revenues coming in that month. But prior budgets have obligated $306 billion of spending. So you’re looking at a 44 percent budget cut. Maybe a good idea, but not realistic in one month. It’s just too big a shock to the system. And according to the Powell analysis, you couldn’t pay active duty military, veterans, or the FBI, to name just a few.
So the revenue-allocation view of not raising the debt ceiling really doesn’t hold any practical water. Why some of my conservative friends keeps pushing this is beyond me.
So is a deal possible? I still think it is. The high end of the budget cuts from the White House and the House GOP possibly could be coupled with a tax deal on repatriation and even future tax reform. After all, economic-growth measures should be crucial in this sputtering economy.
Reducing the corporate-tax wedge and reducing the budget-spending wedge, to quote my friend Arthur Laffer, would provide a tonic for the economy. In other words, a debt deal can still work and promote growth.
THE DEBT DIVIDE DRAMA - HOUSE - Rep. Xavier Becerra, (D) California - Rep. Jeb Hensarling, (R) TX
THE DEBT DIVIDE DRAMA - SENATE - Sen. Mark Warner, (D) Virginia - Sen. David Vitter, (R) Louisiana
$1600 GOLD - Keith McCullough,Founder & CEO of Hedgeye Risk Management
THE PAWLENTY CAMPAIGN -CNBC’s John Harwood reports from Urbandale, Iowa
MARKETS: IS GOLDMAN'S GDP PESSIMISM SHAKING UP STOCKS? - Anthony Scaramucci, SkyBridge Capital Managing Partner - Lee Munson, Portfolio Asset Management Chief Investment Officer - Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist
MURDOCH FACING MUTINY? WILL SCANDAL COME TO U.S.? - Martin Dunn, Fmr. Editor in Chief, NY Daily News; Fmr. News Corp Executive - Brian Stelter, The New York Times Media Reporter
SECOND DEATH AT PHARMA CEO'S HOME - CNBC’s Jane Wells reports.
LEGAL LOOK AT CASE, AND POSSIBLE IMPACT ON MEDICIS - Jay Fahy, Former Federal Prosecutor Fahy & Choi Partner
DEBT DEAL DRAMA RAGES ON - Gov. Ed Rendell, (D) Fmr. Pennsylvania Governor; NBC News Political Analyst; Fmr. DNC Chairman - Fmr. Rep. Artur Davis (D) - Rep. Nan Hayworth, (R) New York - Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist
DO 80% WANT HIGHER TAXES? - Scott Rasmussen of Rasmussen Reports join us.
DEBT TROUBLE IN EUROPE - CNBC’s Michelle Caruso-Cabrera reports from Rome.
THE MARKETS - Steven Weiss, Author, "The Billion Dollar Mistake;" Fast Money Contributor
Free Market Friday THE OBAMA DOWNGRADE - Andrew Ross Sorkin, New York Times Business Reporter; Author, "Too Big To Fail: CNBC contributor - Mark Simone, deputy managing editor of National Review - Armstrong Williams, Radio Talk Show Host/Syndicated Columnist
CAN OBAMA PULL A 'CLINTON' ON THE GOP? - Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy - Steve Moore, Senior Economics Writer for WSJ Editorial Board;"Return to Prosperity" co-author; Founder & Fmr. President of the Club for Growth
Sen. Mitch McConnell’s grand design may prove to be more powerful than people think.
As has been reported, McConnell is negotiating now with Sen. Harry Reid for a large-scale package that will allow the debt ceiling to rise unless overturned by a two-thirds vote. If a White House debt-ceiling deal comes through with $1.5 trillion of spending cuts, that will be part of the package. Right now, it’s not completed because enforceable spending caps have not been determined.
The key part of the new McConnell package is a joint committee to review entitlements in a massive deficit-reduction package. Unlike the Bowles-Simpson commission, this committee will be mandated to have a legislative outcome -- an actual vote -- that will occur early next year. No White House members. Evenly divided between Republicans and Democrats. No outsiders. This will be the first time such a study would have an expedited procedure mandated with no amendments permitted. Also, tax reform could be air-dropped into this committee’s report.
Senator McConnell is determined to produce something from this grand-design package. He’s a smart guy. He may be saving the GOP from itself. McConnell believes that debt default must be completely taken off the table. That’s the thinking behind his debt-ceiling proposal, unless overturned by two-thirds of a congressional vote.
He strongly believes that Republicans must disassociate themselves from any debt default or downgrade by the ratings agencies. And he recognizes that the monthly revenue and spending numbers are so unbalanced that the idea of revenue allocations in the event of no debt-ceiling hike is simply not feasible or desirable.
Other Republican sources are telling me they do not want to risk the destruction of the dollar as the world’s reserve currency by allowing a debt default or a downgrade. Eighty million checks have to go out. Otherwise the GOP could be blamed.
So one way or the other the tide is turning toward a deal. Credit McConnell’s uber-clever stratagem.
DEBT CEILING BATTLE -CNBC’s Eamon Javers reports from Washington.
- Mort Zuckerman, U.S. News & World Report Chairman - Sen. Kay Bailey Hutchison, (R) Texas - Rep. Peter Welch, (D) Vermont - Rep. Peter Roskam, (R) Illinois
BERNANKE & THE ECONOMY - David Malpass, Encima Global President; Fmr. Bear Stearns Chief Economist; Fmr. Reagan Deputy Assistant Secretary of Treasury - NYC/30 Rock - Dean Baker, Co-director of the Center for Economic and Policy Research - DC/NBC
FBI OPENS NEWS CORP INVESTIGATION - NBC’s Pete Williams joins us.
DEBT CEILING BY THE NUMBERS: DOES IT MAKE SENSE TO APPORTION REVENUES? - Douglas Holtz-Eakin, Fmr. OMB Director; Fmr. White House Chief Economist; President, American Action Forum
ON DEBT CEILING INCREASE; PAWLENTY ON MCCONNELL - Tim Pawlenty, (R) Fmr. Governor Minnesota
MANSION MURDER - CNBC’s Jane Wells reports.
ITALY CONTAGION… - CNBC’s Michelle Caruso-Cabrera reports from Rome.
MARKETS - Ron Kruszewski, Stifel, Nicolaus Chairman & CEO - Phil Orlando, Federated Investors Chief Equity Market Strategist
There are a lot of pieces to the debt-ceiling deal. There are the taxes upon taxes, as the Wall Street Journal editors describe it. That’s the roughly $1 trillion in new Obama taxes on top of what he’s already signed into law. It’s an economy and jobs killer.
Then there’s the entitlement piece, which may be more interesting since Obama is apparently open to extending the Social Security and Medicare retirement age and using the so-called chained-CPI, which would lower cost-of-living adjustments (and increase income-tax thresholds). Whether the president is serious about these entitlement measures, no one knows. It’s noteworthy that he’s at least talking about them, although he’s linking them to higher taxes.
But there’s another piece to the debt-ceiling deal that hasn’t yet seen the light of day. It’s the non-entitlement spending piece. That is, domestic and defense discretionary spending plus so-called small entitlements like food stamps, unemployment benefits, and so forth.
Here’s my thought: The public wants deep spending cuts. That’s their first priority and that’s why polls overwhelmingly show opposition to a debt-ceiling increase. So regarding those spending cuts, the only thing that matters is the first-year spending decline. That would be 2012. If the spending baseline is brought down significantly in year one, then the out-years will follow suit. The government’s cost curve will ease down.
For example, go back to the Paul Ryan budget. Rep. Ryan includes a $110 billion reduction from the CBO baseline for fiscal year 2012, which reflects a $179 billion cut from the president’s budget baseline. Over ten years, that’s roughly $6 trillion in savings. That would be real money. It would be significant. In fact, Ryan’s total budget in 2012 would actually come in about $100 billion below 2011. That’s incredible. It’s almost always that so-called spending cuts are mere reductions in growth. Hats off to Ryan.
But even so, his ten-year budget would still rise by about $40 trillion.
So, again, 2012 is the only year that really counts for spending cuts in the debt deal. My guess is that any entitlement reduction will take decades. So if Speaker Boehner sticks to his argument that there must be more than $1 worth of spending cuts to offset a $1 increase in the debt ceiling, then 2012 must be his target year.
As the congressional negotiators negotiate with President Obama, we the taxpaying public have no idea what they’re cooking up on 2012 spending. It could be a worthwhile reduction or not. Out-year-discretionary decreases and small entitlement cuts for 2019 to 2021 are simply not reliable or credible. Congresses change. Deals are broken. Outcomes are, well, kind of like a scam.
And the public is onto this. The highly accurate IBD/TIPP pollsters have just released an incredible result. Get this: The public rejects a debt-ceiling increase by a huge 58 to 36 percent. That includes 59 percent of independents and even 38 percent of Democrats. That is the Tea Party revolt.
I believe the public agrees with people like Michele Bachmann. She told me in an interview this week that Congress can direct the Treasury to “first pay off the interest on the debt, make sure our military men and women get paid, and then deal with our priorities. Yes, we have very sacrificial consequences, but when are we going to get serious about deficit reduction?”
On this logic, Bachmann and other Tea Party Republicans -- including most on the presidential campaign trail -- oppose a debt-ceiling increase. This populist spending revolt runs directly counter to the Tim Geithner, Wall Street, big-business view that we must at all costs have a debt-ceiling increase to make good on our federal debt.
Tea Party populists are saying no, no: We can still make good on our debt, but this debt bill is the only leverage we have to force Washington to cut spending.
Main Street is in revolt against Wall Street, although it should be noted that Wall Street bond investors are not panicked by any means. The 10-year Treasury continues to trade below 3 percent. Maybe that will change by August 2, or the next Geithner debt-limit drop-dead date. But right now the bond market seems to be aligned with the Tea Party.
President Obama says it’s time to “eat our peas,” meaning the debt deal should have huge tax increases. That argument is being rejected. Instead, the grassroots sees a big bowl of porridge and wants to shrink that bowl substantially -- no matter what the “sacrificial consequences.”
DEBT DEAL BATTLE ON THE HILL - NBC’s Luke Russert reports the latest from Washington.
- Tom Donohue, Chamber of Commerce - Sen. Orrin Hatch, (R) Utah - Gov. Jack Markell, (D) Delaware - Mike McGinn, Mayor of Seattle
THE FUTURE OF NEWS CORP & MURDOCH; IS NEWS CORP MISLEADING SHAREHOLDERS? WHERE WAS THEIR BOARD? - CNBC’s Simon Hobbs - Martin Dunn, Fmr. Editor in Chief, NY Daily News; Fmr. News Corp Executive - Harvey Pitt, Kalorama Partners, CEO & Founder; Former SEC Chairman
ECONOMIC DEBATE: HOW TO GROW THE ECONOMY - Robert Reich, University of California at Berkeley Prof.; Former Secretary of Labor - Casey Mulligan, University of Chicago Professor of Economics
THE MARKETS - David Bianco, BofA Merrill Lynch Global Research Chief U.S. Equity Strategist - Scott Nations, Nations Shares Chief Investment Officer; Options Action Contributor
FREE MARKET TUESDAY: THE TEA PARTY LEADS THE COUNTRY AGAINST RAISING THE DEBT CEILING - David Webb, Tea Party, Host of The Grinder on AM 970; Founder, Co-founder TeaParty365 - Jimmy Pethokoukis, Reuters BreakingViews Money & Politics Columnist; CNBC Contributor - Sam Seder, Political Commentator; Host, "The Majority Report"
LET'S MAKE A DEAL -- INSIDE THE DEBT DEAL TALKS … OBAMA: "I WILL REFUSE TO SIGN ANY SHORT-TERM DEBT DEAL" - Rep. Peter Welch (D) VT - Rep. Kevin Brady (R) Texas - Sen. John Barrasso, (R) Wyoming
JOBS CREATION STUDY SAYS SMALL BIZ STANDSTILL: WHY IS SMALL BIZ CREATION STALLED?; HOW TO GROW? - Jared Bernstein, Chief Economic Advisor to the Vice President - Carl Schramm, Kaffman Foundation
FRAUD & CORRUPTION IN LAWSUIT INDUSTRY - Brian Kelly, Producer/director of InJustice
OBAMA ON JOBS TODAY, LOOK AHEAD TO SUNDAY DEBT TALKS -CNBC’s Eamon Javers reports from Washington.
DOES TODAY'S DISMAL JOBS NUMBER CHANGE THE COMPLEXION OF THE DEBT CEILING DEBATE? - Rep. Carolyn Maloney, (D) New York; Joint Economic Committee Chair - Rep. Dan Burton, (R) Indiana
WHAT'S THE BEST WAY TO STIMULATE JOB GROWTH & THE ECONOMY? - Ed Lazear, Fmr Chmn of the President Bush's Council of Economic Advisors; Stanford University Economics Professor Sr Fellow - Laura Tyson, Berkeley, Univ of California Prof; Member of President Obama's Council of Jobs and Competitiveness
MARKETS - Lee Munson, Portfolio Chief Investment Officer - Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
LAST SPACE SHUTTLE -CNBC’s Brian Shactman reports from Kennedy Space Center, FL
WHAT'S THIS MEAN FOR U.S. SECURITY & INNOVATION? - Gen. Barry McCaffrey, Four-star General; U.S. Army (Ret.); McCaffrey Associates Pres. - Jim Maser, Pratt & Whitney Rocketdyne Pres; Fmr. Boeing Pres & gen. mgr.; Fmr. Research Fellow, NASA Glenn Research Ctr - John Glenn, Fmr. Astrouaut; Fmr. Senator; Founder of John Glenn Institute for Public Service & Public Policy at Ohio State Univ.
DEBT TALK A FIG LEAF FOR OBAMA TO GET RE-ELECTED? - Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor - Mark Simone, WABC Radio Talk Show Host - Keith Boykin, Former Clinton White House Aide; Editor of The Daily Voice online news site; CNBC contributor
Here’s some friendly fiscal advice: Any time some Washington big shot like Ben Bernanke or Tim Geithner claims that immediate spending cuts in the debt deal will harm the economy — ignore them. Completely. You know why? Because in this great country of ours, spending never goes down. Never.
Take a look at the following chart:
The blue line you see is President Obama’s budget. The green line is Rep. Paul Ryan’s budget.
Now, Ryan’s is of course a couple of trillion dollars lower than Obama’s over the next ten years. But what do they both have in common? They both go up. As in spending more, not less. As in, roughly $40 trillion to $45 trillion more. That’s a whole lot of taxpayer money, folks.
Now why is this? It’s because of something called the “current services baseline,” which includes population and inflation increases built into the budget. Entitlements have their own formulas.
So when you hear a politician tell you they’re cutting spending, they’re actually referring only to reducing the growth of spending. Rarely, if ever, do they actually reduce the level of spending.
Think of it this way: You’re out car shopping and thinking about buying a $100,000 Mercedes. That’s your target. But then you decide to forego the Mercedes and opt for a $20,000 Chevy instead. Well, guess what? Congress would score that as an $80,000 budget cut. Huh? We all know that it’s actually a $20,000 budget increase.
Let’s be honest here. This budgetary game remains one big taxpayer scam. Look, I used to work in the federal budget office. I know the game.
Here’s yet another scam: Big budget deals say they “cut” (there’s that word again) a couple of trillion dollars over ten years. But most of it is targeted for the last couple of years, as in years eight, nine, and ten. So basically it’ll never happen. It’s four or five Congresses from now. Laws change. Deals are broken.
At the end of the day, the only thing that really matters is next year’s budget. Will it be cut? Ever in my lifetime? Because if it were cut, it would bring that line in that chart above down. Now that would be a called a decline. All of that other stuff? Increases.
When businesses cut expenses, the spending line declines. But when government cuts spending, the spending line always rises. Think of it.
It was a pleasure welcoming my old pal Mark Skousen back to the set of Kudlow Report last night. Mark always comes armed with valuable market and economic insights.
Incidentally, Mark's got a brand new book out, "The Maxims of Wall Street", which is a wonderful collection of Wall Street sayings.
He tells me that the first edition is limited edition and available only through his publisher Eagle Publishing -- buyers can't buy it through Amazon, Kindle, or bookstores yet.
WHY CAN'T THE ECONOMY CREATE JOBS? WHERE'S THE GROWTH? - Peter Cohan, President of Peter Cohan & Associates; Professor of Business Strategy at Babson School of Business; Author of "Capital Rising" - Peter Ferrara, Institute for Policy Innovation Dir. of Entitlement and Budget Policy; White House Policy Development Official under Reagan
SENATE DEBT CEILING SUMMIT - Sen. Michael Bennett, (D) CO - Sen. John Barrasso, (R) WY, Senate GOP Conference Vice Chairman
MARKETS & ECONOMY: IS THE GOLD RUSH STILL ON? - Mark Skousen, Editor of Forecasts & Strategies; "The Big Three in Economics" Author - David Goldman, Former Head of Fixed Income Research at Bank of America - Richard Whittall, CEO of Newstrike Capital
RUPERT MURDOCH TABLOID HACKING STORY - NBC’s Michelle Kosinski reports from London.
AN "INSIDER'S VIEW" OF THE STORY...WHAT THE SCANDAL MIGHT MEAN FOR NEWS CORP & MURDOCH? - Martin Dunn, Fmr. News Corp Executive; Fmr. New York Daily News Editor-in-Chief
INSIDE THE MINNESOTA BUDGET BATTLE - Thomas Bakk (D) Minnesota State Senator; Minority Leader of State Senate - Dave Thompson, (R) Minnesota State Senator
DEBT CEILING DEBATE: WHAT SHOULD HAPPEN, WHAT'S GOING TO HAPPEN? -CNBC chief Washington correspondent John Harwood reports.
- Sen. Rob Portman, (R) Ohio; Fmr. OMB Director - Matt Miller, Washington Post Online Columnist; Public Radio's "Left, Right and Center" Host - Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author - Tony Blankley, Syndicated columnist
WHAT'S AHEAD FOR GREECE? - CNBC’s Michelle Caruso-Cabrera reports.
THE MARKETS & ECONOMY - John Rutledge, Fmr. Reagan Economic Advisor, CNBC contributor - David Dietze, Point View Financial Services President and Chief Investment Strategist - Michael Farr, Farr, Miller & Washington/CNBC Contributor - DC/NBC - Keith McCullough, Founder & CEO of Hedgeye Risk Management; CNBC Contributor
CORPORATE TAX: BILL CLINTON VS. GROVER NORQUIST - Fmr. Rep. Artur Davis, (D) Alabama ; SNR Denton's White Collar & Gov't Investigations practice; Fmr. Federal Prosecutor - Grover Norquist, Americans For Tax Reform Pres
Huge bull week for stocks. The Dow was up nearly 6 percent, roughly 650 points. And it could be signaling a market forecast of a second-half economic rebound from the less-than 2 percent sputter in the first half.
Triggering this week’s rally, Greece default is off the table for now, Japanese auto production is picking up (so the supply-chain-shortage problem for the U.S. may ease), and the U.S. ISM manufacturing index slightly beat estimates (though the internal components were not fabulous).
On the downside, U.S. car sales for June were up only 11.5 million annually, private construction is still falling, and oil bounced back to $95 a barrel, despite the IEA and SPR release of stocks.
But gold looks weak, and maybe people are shifting cash out of commodities and into stocks. Bond prices got hammered this week, as yields rose to nearly 3.2 percent from 2.85 percent. That could be a signal of better economic-growth expectations.
Also noteworthy, after the Fed closes down QE2 — finally, thank heavens — the M2 money supply is picking up. That could be a growth signal for the second half. After hovering for nearly two years at around 4 percent growth, year-on-year M2 is moving above 5 percent while three-month growth is close to 7 percent annually. Maybe some of that $600 billion of new Fed money will actually be spent and loaned.
There are so many threats from Washington — with Obama’s relapse into tax-and-regulate class-warfare — that a roaring rebound in the economy still looks far-fetched. Maybe we can move to 2.5 or 3 percent growth. Maybe.
Final thought: The future economy may hinge on the dollar. With a somewhat less-accommodative Fed, maybe the greenback will stabilize and move higher, thereby cutting down the commodity inflation that has eaten away at the economy and consumers in the past six months.
Please join us at 7pm ET tonight on CNBC.
