A Geithner gimmick

The spintasic idea of using the remaining TARP money to payoff a part of the deficit is being laid at Geithner's feed, as his idea.

Dean Barker points out that this is a gimmick:

Arghhhhhhh! TARP is a loan program, not a spending program. Let's explain the difference so that even a Washington Post editor can understand it.

A loan is expected to be paid back. When Congress appropriates money for a loan, it does not add to the deficit. The government lends out money, but it owns a loan that it expects to be paid back. The only cost to the government is either any subsidy implicit in the loan or the losses on loans that are not repaid.

The Congressional Budget Office expected the bulk of the TARP money to be repaid, therefore it was never scored as spending. Only the expected losses were scored as spending. Therefore, the Obama administration cannot use unallocated or repaid TARP funds to pay down the debt -- that is what CBO always assumed would be done with the TARP money.

It's a nice trick to claim this, but serious news outlets should not let them the Obama administration get away with such silliness.

Here's an apt comment from TBI coverage:
Do I read this correctly? "Paying" back the deficit with excess Tarp funds? That money did not exist in the first place! Bernie Madoff could not have done it better!

Update [2009-11-19 11:4:28 by Jerome Armstrong]:

The thing I like about when politicians get trashed and thrown into the gutter, losing everything, is that when they get back up, they tend to be a bit more honest. Case in point, Eliot Spitzer: Obama Economic Policies Ineffective, A Continuation Of Bush:

"The fundamental error of this administration is that it is continuity. They have embraced the Bush Administration view that if you solve the problem of big banks everything else flows from that. They are wrong. Too big to fail is too big. They don't get it. The only two people I know who don't appreciate that are Tim Geithner and Larry Summers. Paul Volcker, Alan Greenspan, Henry Kaufman, Mervyn King -- every major academic has said, We must get rid of too big to fail."
I think "continuation of Bush" isn't really what this is; its more just a continuation of Bush-Clinton-Bush, and probably even before that, with Reagan. Obama needs to break out of that mold-- its what led us to this point.

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Krugman is wrong: Why China won't revalue

Cross-posted at River Twice Research.

For years, Americans have been fulminating about China and its policy toward currency. While many of the debates are technical and laden with econo-speak, they boil down to the simple conviction that China is unfairly manipulating its currency to keep it undervalued against the dollar. The result is to give China unfair advantages in trade - flooding the US with cheap goods, hurting labor wages world-wide, and accumulating massive surpluses in the process. That view is again articulated by Paul Krugman in today's New York Times (http://www.nytimes.com/2009/10/23/opinio n/23krugman.html?ref=opinion) which ends with the firm statement: "Something must be done about China's currency."

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Superfusion: How China and America Became One Economy

Cross-posted at River Twice Research.

The economic relationship between China and the United States is the defining issue of our day. While debates over health care are vital to American society, and while challenges ranging from Iran to Afghanistan to North Korea are real, nothing will determine the arc of the coming decades - or will shape domestic life and prosperity in the United States - more than the emergence of China as a global economic superpower unrivalled except by America.

The rise of China is hardly a secret, but because it is a complex economic that is constantly evolving, it gets less attention than hot-button issues. Absent a real crisis between the two, the relationship is more about the flow of capital and the nature of global business than it is about heated battles inside the Beltway or on Main Street. And while the rise of China and America's increased dependency on Chinese loans to fund its deficits certainly generates anxiety, it's mostly amorphous barring some specific issue to focus it.

How that relationship came to be is the subject of my new book, Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends On It. While this economic fusion has taken more than two decades to evolve, with the crisis of the past year, it has become both a tighter embrace and one more fraught with tension. It's to the credit of both governments - for now - that those tensions have not boiled over.

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China and the United States - a marriage of convenience

Cross-posted at River Twice Research.

As the United States and China wrap up their two-day "Strategic and Economic Dialogue," it's more apparent than ever that the two find themselves in a marriage that neither can easily dissolve and that neither fully wants.

The speeches struck all the rights notes - "the United States and China share mutual interests," President Obama announced. "If we advance those interests through cooperation, our people will benefit, and the world will be better off - because our ability to partner with each other is a prerequisite for progress on many of the most pressing global challenges" Those sentiments were echoed by both Hillary Clinton and Timothy Geithner in an op-ed published in the Wall Street Journal. The Chinese delegation spoke of the two nations as traveling in the same ship, a ship which was wracked by the global financial storm of the past year. In general, the rhetoric could not have demonstrated more clearly that both see themselves as locked in a relationship of mutual dependence.

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Nate Silver - Chill out, y'all!

Nate Silver, over at 538.com has a post up making a compelling case that we should essentially trust Obama and Geithner to get this thing right.  The crux of his argument is that they have every incentive to fix the economy and no incentive to cave to Wall Street or some other fantastic notion of insider influence-peddling.

I generally agree with his assessment, although I think there are different ways of conceptualizing the current crisis.  One concept is to get us back to where we were economically two years ago.  This presumably presages another economic collapse in 2011.  The other concept is to get us back to pre-Reagan economics both with its vicissitudes and its protections for the middle class.  That, to me, is the real question about Summers & Geithner.  Do they want late Bush II-era social and economic divides and credit-card living?  Or do they want a solidly middle-class country?  I'm not sure of the answer to this.

From Nate:


1. Nobody, absolutely nobody, has more incentive to get this right than the Obama Administration. If the economy collapses -- well, more than it already has -- then the Democrats get slaughtered in 2010, Obama is a one-termer, health care doesn't happen.

Point well taken.  Geithner is trying.  I will certainly give him that.

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