Posts Tagged 'obama'

GM Bailout Explained Correctly

Robert Reich provides the correct reason for the GM bailout:

The only practical purpose I can imagine for the bail-out is to slow the decline of GM to create enough time for its workers, suppliers, dealers and communities to adjust to its eventual demise. Yet if this is the goal, surely there are better ways to allocate $60 billion than to buy GM? The funds would be better spent helping the Midwest diversify away from cars, as the auto industry continues to shrink. And eventually, for the reasons stated in Parts I and II of this series, diversify away from manufacturing assembly. Cash could be used to retrain car workers, giving them extended unemployment insurance as they retrain.

But US politicians dare not talk openly about industrial adjustment because the public does not want to hear about it. A strong constituency wants to preserve jobs and communities as they are, regardless of the public cost. Another equally powerful group wants to let markets work their will, regardless of the short-term social costs. Polls show most Americans are against bailing out GM, but if their own jobs were at stake I am sure they would have a different view.

So the Obama administration is, in effect, paying $60 billion to buy off both constituencies. It is telling the first group that jobs and communities dependent on GM will be better preserved because of the bail-out, and the second that taxpayers and creditors will be rewarded by it. But it is not telling anyone the complete truth: GM will disappear, eventually. The bail-out is designed to give the economy time to reduce the social costs of the blow.

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California will be Bankrupt on July 29th

California will be bankrupt in two months! Obama and Geithner have already said they will not bailout California so we are in trouble. Here are the details from California’s Controller

Starting July 29, California won’t have enough cash to pay its bills, state Controller John Chiang told the governor and legislative leaders today.

The state will be in the red by $317.1 million that day, Chiang wrote them in a three-page letter.

“Two days later, on July 31, our cash deficit increases to a negative $1.02 billion,” he added.

He pleaded with them to pass a balanced budget by June 15 to make it easier for the state to borrow money to cover the cash crunch.

Click here to read the letter.

The controller’s office has also prepared a graphic outlining California‘s cash outlook from July 2009 through June 2010, available here.

Will California Fail?

Megan McArdle has an article about California and if it should be allowed to fail. Here are some excerpts (I suggest you read the entire article):

 There is a surprisingly sizeable blogger contingent arguing that we have to bail them out because however regrettable the events that lead here, we now have no choice.  But actually, we do have a choice:  we could let them go bankrupt.  And we probably should.

On the other hand, I don’t really see another way out of it.  If Uncle Sugar bails out California, California will not fix its problems.  Perhaps you want Obama to make it fix the problems, using the same competence, power, and can-do spirit with which he has repaired all the holes in the banking and auto manufacturing sectors.  But Obma is not in a good position to do this.  California Democrats are a huge part of his governing coalition.  All Obama can do is shovel money into the bottomless pit of California’s political system.

California will go bankrupt, muni and state debt will spike, the federal government will backstop humanitarian programs and very possibly all state and local debt, and eventually, California will figure out whether it wants higher taxes or lower spending.  But we will not actually make the world a better place by enabling the lunatics in Sacramento to pretend they can have both.

Health Care Costs Going Down

From the New York Times:

A range of leading health-care providers joined President Barack Obama on Monday in announcing their promise to sharply reduce the growth of national health spending, a move that could ease the path toward his goal of comprehensive coverage for Americans.

The pledge, if kept, would not reduce overall health spending but merely slow its growth. Still, White House officials said the plan could save $2,500 a year for a family of four in the fifth year, and a total of $2 trillion for the country over 10 years.

This is good news but shouldn’t this savings already be happening? It seems these groups are implementing these savings so the government doesn’t regulate them. Whatever their motive, health-care needs an overhaul. We pay more than other developed countries and recieve lesser care.

A Major Problem with Fiscal Policy

From CNN Money:

 The federal government has made available more than $74 billion in stimulus funds, but the majority of that money has yet to hit the streets.

Here is “why” monetary policy is usually preferred over fiscal policy:

That’s because states have to jump through hoops before they can claim the funds and put them to use. Some have to get approval from their legislatures before they can spend the money. Others must wait for municipalities and school districts to submit applications to state agencies before distributing the dollars.

These are some of the main reasons why states have drawn down only $15.6 billion of the $74 billion made available to them in the 11 weeks since President Obama signed the $787 billion recovery act. Nearly $14 million of that amount has gone to help states handle the crush of Medicaid expenses.

The “discretionary fiscal lags” are real. This could lead to a rush of bad projects just to obtain some more federal funding. This rush could lead to taxpayer waste.

Obama and Student Loans

President Obama would like the government to stop backing private students loans. He would like the government to provide direct financial aid to college students.

Two market forces are at at work here, one is the market for student loans. If we take the private sector out of the process, student loans may cost more due to loss of competition. The second, if the government sells directly to students, there would be no middleman which could save money. Hopefully, the middleman savings outweighs the loss of private competition.

Recession Might Be Ending

From the Associated Press:

New signs emerge that recession might be near bottom

Notice we don’t hear much about a depression any more. There is more talk about a bottom or a double-dip recovery.