It’s another shovel ready snow day in the mid-Atlantic, with our second two footer in five days. Too bad we can’t ship the stuff to Vancouver efficiently. A couple of interesting things on the wires today:
The Fed’s exit strategy
Ben Bernanke outlined the Fed’s game plan for tightening monetary policy when the time is right. In our judgement he said the right things for the most part. The relatively new policy tool that is getting the most attention is the payment of interest on excess reserves that member banks have on deposit with the Fed (“IOER”).
Our initial take on IOER when it was legislated in 2008 was that it offered a way around the zero bound on the Fed’s interest rate target, but that was wrong. We overlooked that (1) the interest is not necessarily paid with new USDs, but could be paid out of cash flows earned on the voluminous assets that have been taken onto the Fed’s books and (2) the incentive effect of the interest payments is to “tie up” banks’ reserves outside of credit creation channels.
Fortunately, the Fed’s current interest rate is not competitive with spreads on public and private sector credit; instead, it appears to compete solely on the basis of risk, as banks don’t have to worry about mismatching assets and liabilities (borrowing short term and lending long term). But overall, it’s hard to see how those two effects of IOER support economic activity in the present. Apparently we’re not the only ones trying to get our heads around this.
ABC News poll
Headline numbers from a recent ABC News poll look bad for President Obama and Democrats, but there are some interesting things under the hood. First the headlines:
- Trust in Democrats’ ability to handle critical policy issues such as the economy and terrorism gave decline steadily since last year, with the overall gap versus Republicans falling from roughly 25% to 5%.
- Obama’s approval ratings are below 50% on creating jobs, the economy, health care, and the deficit (his approval on terrorism is a very healthy 56%).
Some of the nuances that should be very relevant for political strategists include:
- While the margin has dropped considerably from 13%, 49% of independents lean towards Dems, 45% towards the GOP (p.5).
- While respondents viewed the loss of the Dems’ Senate super majority positively, 58% view the GOP as obstructionist, and 68% say that obstructionism should only be used infrequently (p.4).
- 48% describe themselves as “anti-incumbent”, below the 54% and 53% that preceded the “throw the bums out” elections of 1994 and 2006.
Health care reform is especially interesting; while most respondents view the present outcomes negatively:
- 80% support banning limits on pre-existing conditions.
- 56% support a personal health insurance mandate, including public assistance.
- 65% say the current approach is overly complicated, and 59% say it’s too expensive.
- 74% of those with private insurance trust their carrier to handle claims fairly, and more of these folks oppose the current reform packages.
One takeaway is that there’s plenty of room for strategic and tactical maneuvering by both parties in the quarters ahead.
Another, based on that last bullet point on health care, is that there appears to be a powerful asymmetry at work, one that I’m much more sympathetic to nowadays: people who have satisfactory health coverage are going to have a harder time empathizing with the challenges faced by those who don’t. That seems pretty rational, if not a little cut throat – if it ain’t broke for me, why should I have to pony up for your troubles?
My wife, who has worked in architecture for almost twenty years, was out of work for most of 2009. If not for the COBRA subsidy, we would have been in a much deeper financial hole, to the tune of about $600+ per month. When the subsidy was set to expire in December, we applied for coverage with the carrier we had through her prior employer, but were denied coverage for preexisting conditions, namely minor wear and tear to one of my knees and heightened anxiety in a person who had just lost her job and income. Huh???
And if you’ve ever tried to purchase a policy as an individual, you know how frustrating it is to try making comparisons between apples, oranges, cumquats, dragon fruit, and a bunch of others (let alone issues like financial strength and ratings). You also have to be a very savvy insurance consumer to detect the coverage gaps at work in different kinds of policies.
The family’s now fully insured thanks to good news on the employment front, but this is an issue that we have a whole new perspective on — one that’s firmly supportive of well designed health care reform.