Washington is struggling to make a deal that will couple an increase in the debt ceiling with a long-term reduction in spending. There is no reason for the players to make their task seem even more Herculean than it already is. But we should be prepared for upward revisions in official deficit projections in the years ahead—even if a deal is struck. There are at least three major reasons for concern.
First, a normalization of interest rates would upend any budgetary deal if and when one should occur. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020.
The 10-year rise in interest expense would be $4.9 trillion higher under “normalized” rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market.
General Motors CEO Dan Akerson set off something of a firestorm a few weeks ago, when he said, in response to a question about forthcoming CAFE increases:
You know what I’d rather have them do — this will make my Republican friends puke — as gas is going to go down here now, we ought to just slap a 50-cent or a dollar tax on a gallon of gas.
Predictably, populists and economic alarmists of all stripes took great umbrage at Akerson’s candor, questioning his leadership of GM as well as his perspective on the shaky US economy. But Akerson is not alone in his support of some form of gas-tax increase. Bob Lutz and Tom Friedman (an odd couple right there, if ever there was one) agree with him. Edmunds CEO Jeremy Anwyl defended Akerson and even suggested a $2/gallon tax earlier this year. Bill Ford and AutoNation’s Mike Jackson are of the same mind as now-retired Republican Senator George Voinovich on the issue. And yet, inside the Beltway, the subject tends to draw a chuckle and a roll of the eyes. Everyone wants it, but nobody wants it.
Read a book with your laptop thrumming. It can feel like trying to read in the middle of a party where everyone is shouting
In the 20th century, all the nightmare-novels of the future imagined that books would be burnt. In the 21st century, our dystopias imagine a world where books are forgotten. To pluck just one, Gary Steynghart’s novel Super Sad True Love Story describes a world where everybody is obsessed with their electronic Apparat – an even more omnivorous i-Phone with a flickering stream of shopping and reality shows and porn – and have somehow come to believe that the few remaining unread paper books let off a rank smell. The book on the book, it suggests, is closing.
I have been thinking about this because I recently moved flat, which for me meant boxing and heaving several Everests of books, accumulated obsessively since I was a kid. Ask me to throw away a book, and I begin shaking like Meryl Streep in Sophie’s Choice and insist that I just couldn’t bear to part company with it, no matter how unlikely it is I will ever read (say) a 1,000-page biography of little-known Portuguese dictator Antonio Salazar. As I stacked my books high, and watched my friends get buried in landslides of novels or avalanches of polemics, it struck me that this scene might be incomprehensible a generation from now. Yes, a few specialists still haul their vinyl collections from house to house, but the rest of us have migrated happily to MP3s, and regard such people as slightly odd. Does it matter? What was really lost?
The taxi driver to Beirut airport tells me that yom al-qiyama (the day of judgment) is approaching. There will be a big explosion soon — a very big explosion. The revolutions sweeping the Arab World are not good. Islamic parties will come to power everywhere. There will be no more Christians left in the Middle East. Believe me, believe me, he insists. In anticipation, he will make the Hajj to Mecca this year, inshallah. I tell him that I am traveling to Iraq as a tourist. The look he gives me in the rear view mirror says it all: He thinks I am crazy.
I am heading back to Iraq nine months after I left my job as Political Advisor to the Commanding General of U.S. Forces Iraq. Earlier this year, a Sheikh emailed me from his iPad, “Miss Emma we miss you. You must come visit us as a guest. You will stay with me. And you will have no power!” I am excited and nervous. The plane is about a third full. I am the only foreigner. I look around at my fellow passengers. I wonder who they are and whether they bear a grudge for something we might have done.
The flight is one and a half hours long. I read and doze. As we approach Iraq, I look out of the window. The sky is full of sand and visibility is poor. But I can make out the Euphrates below. Land of the two rivers, I am coming back.
I do not have an Iraqi visa. Visas issued in Iraqi Embassies abroad are not recognized by Baghdad airport. I have a letter from an Iraqi General in the Ministry of Interior, complete with a signature and stamp. In the airport, I present my passport and letter, fill out a form, pay $80, and receive a visa within 15 minutes. I collect my bag. I am through. I want to reach down and touch the ground, this land that has soaked up so much blood over the years — ours and theirs.
Doctors treating the poor in the US are braced for significant reductions to their services amid increased pressure from both the Obama administration and Republicans for deep cuts in health spending.
Twenty-nine Republican governors have called for greater flexibility in how states administer Medicaid programmes for the poor, a move which coincides with the Obama administration’s withdrawal of stimulus funds used to pay for treatment.
Nearly 49m people in the US, or one in six Americans, were covered by Medicaid in 2009. The figure is thought to be higher today.
The federal government increased its subsidies to the states under the stimulus programme, spending $2.68 for every dollar a state spent on Medicaid, nearly twice as much as before the stimulus.
Ahead of the Federal Reserve‘s policy-setting meeting tomorrow and the coming end this month of QE2, it’s worth taking a look at the latest figures from the Fed’s balance sheet.
Assets on the Fed’s balance sheet sit at around $2.811 trillion as of last Wednesday. That’s up from less than $1 trillion prior to the recession. During the recession the Fed expanded its balance sheet through several programs aimed at keeping markets functioning. As markets stabilized the Fed shifted out of emergency programs and into purchases of U.S. Treasurys, mortgage-backed securities and agency debt securities to drive down interest rates and encourage more borrowing and growth in two separate rounds of what is known as quantitative easing.
Though the overall size of the balance sheet is continuing to increase, the makeup is moving back toward the long-term trend. The MBS and agency debt holdings, which were part of the first round of quantitative easing, have steadily declined as loans are paid off or mature. The Fed still holds nearly $1 trillion in MBS and more than $1 trillion in agency debt, but now owns more Treasurys — over $1.5 trillion. As the latest round of bond-buying announced last year ends this month, the size of the balance sheet is likely to stabilize. The Treasurys holdings are likely to continue to rise, as the central bank purchases bonds with money reinvested from its shrinking MBS portfolio. If economic growth accelerates this year, as the Fed hopes, ending the reinvestment of maturing MBS is likely to be the first step toward eventually raising rates and paring down the central bank’s balance sheet.
Livable cities draw creative people, and creative people spawn jobs. Some places you’d never expect—small cities not dominated by a university—are learning how to lure knowledge workers, entrepreneurs, and other imaginative types at levels that track or even exceed the US average (30 percent of workers). Here are some surprising destinations from the data of the Martin Prosperity Institute, directed by Richard Florida, author of The Rise of the Creative class.
Case Study: Omaha, Nebraska
It’s only the 42nd-largest city in the US, but over the past two decades, Omaha has been transformed into one of the Midwest’s most vibrant cultural hubs. Here’s how the rebirth happened, starting in the ’90s.
Tileshwar Prasad concentrates fiercely on every step, one foot in front of the other, staring at the wall ahead as he learns how to walk again.
At the end of his careful parade, he is asked how he feels with his new limb, a prosthetic foot built from rubber and wood, and a new knee made of nylon and a handful of bolts.
For the first time in a decade he is able to stand unaided, hands on hips and back straight.
My Cool Campervan. By Jane Field-Lewis and Chris Haddon with photography by Tina Hiller. Pavilion; 160 pages; £14.99.
THE classic VW camper van is a venerable vehicle on which rides–usually rather slowly–a carefree image of life on the open road. They can often be found in the narrow British lanes leading to the surfing beaches in Cornwall in the summertime. But as old ones in good nick can cost £20,000 ($33,000) or more, many of their owners are more likely to be trying to recapture their lost youth than hanging ten.
There are many variations of the VW camper van, not least because until 2005 Volkswagen never made a camper itself, but produced vans for transporting people and goods which others converted with the addition of caravan-style living accommodation. And it was not just VWs which received such attention, as “My Cool Campervan” shows in a collection of photo essays.
As I’m old enough to recall the stereotypes that formed around Vietnam veterans, I’m well aware of this danger. The purpose of my stories has been to participate in the national conversation about the costs of war. JPWREL and VICTOR are correct that the majority of warriors return home without invisible wounds, but it is by no means an “overwhelming” majority. There are an estimated 600,000 veterans (out of 2.2 million who’ve served in OEF and OIF) who are suffering from either stress disorders, MST, or the effects of TBI. The proportion is considerably higher than in previous wars because of multiple deployments and the aggregate number of consecutive days that participants are in a high-conflict environment, thus in a rolling state of stress and hyper-vigilance.