Economic stimulus/tax rebates

[waltky]

Inflation worse than we're told?...

The great inflation cover-up
April 3, 2008: If the price of dinner is pinching us, why don't the CPI numbers acknowledge it?

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A March CNN poll indicates that 91% of the population is concerned about inflation. I'd ask a member of the remaining 9% what they're thinking - and what levels of relative fiscal comfort allow one not to be concerned about inflation - but I'm entirely surrounded by 91-percenters. So how do we account for the discrepancy between the Federal Reserve's recent assurances that inflation is under control and the 91% of the population that's worried it isn't?

There are several possibilities: The first is that we're all paranoid. We simply need reassurance from the authorities: Inflation rates are fine, nothing to see here, move along quietly. The second is that the Fed's insistence on focusing on "core" inflation - a measure that strips energy and food from the consumer price index (CPI) because they're theoretically subject to short-term volatility - makes inflation seem smaller than it is, or than we feel it to be when our gallon of milk that was 12% cheaper last year gets swiped across the grocery store scanner, beeping ominously like a tiny alarm bell. (While core inflation was just 2.3% in February, the CPI was 4%.) The third and most disconcerting possibility is that the CPI systemically understates inflation, in which case we're paying for it taxwise, and the government is underpaying Social Security recipients. In the words of many a UFO spotter, it isn't paranoia if they're really out to get you.

The first possibility is not to be completely discounted. Thanks to financial paranoia, Bear Stearns (BSC, Fortune 500) found itself hemorrhaging cash a few weeks ago, prompting a rare but always terrifying run on the bank and the eventual sale of the firm at a price that led one anonymous observer to tape a $2 bill to the front door of Bear headquarters, a tongue-in-cheek bid for the remaining assets at a competitive rate. And while merely thinking that inflation is going up is unlikely to cause it to do so, there are certainly real-world consequences from misplaced anxieties. Consumer confidence is the first casualty. When they think their money's not going as far in the future, nervous consumers pull back spending.

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[waltky]

Where's My $? IRS Swamped by Tax Calls...

IRS Flooded With Rebate Phone Calls
April 7, 2008 - The Agency Answers an Additional 50,000 Calls a Day on Stimulus Plan Rebates

Wondering about your tax rebate? Considering calling the IRS? You're not alone. The Internal Revenue Service has received an average of 50,000 calls a day above its normal call volume, according to the Treasury Inspector General for Tax Administration, which oversees the Internal Revenue Service.

Between last month and this month, the agency is expecting to receive a total of 1.8 million calls related to the rebate checks promised under the government's new economic stimulus package. To handle all the calls, the IRS is pulling more than 1,500 employees from other duties to work the phones. This could cost the IRS as much as $681 million in uncollected taxes, according a report last month by the U.S. Government Accountability Office.

The IRS announced last month that the first rebates — about $600 for eligible individuals and $1,200 for couples — would be sent on May 2 via direct deposit, while the first paper checks would be mailed by May 16. The agency is using social security numbers to determine the order in which checks are mailed, according to a statement by the agency. Those whose social security numbers end in between 00 and 20 will be the first to receive checks; those whose numbers end in between 76 and 99 will be the last. The last direct deposit payments will be sent to taxpayer bank accounts by May 16, while the last of the paper checks will be in the mail by July 11.

The agency warned that a small percentage of rebates could take longer to send out. Though the stimulus package has been in the works for months, Peter Orszag, director of the Congressional Budget Office, told the House Budget committee in January that the IRS's work on 2007 tax returns would lead to a lag in processing rebates. "The same [information technology] system and the same people who process rebates are working on that, so basically until the 2007 tax season is closed, the IRS cannot turn in any significant way to processing rebates," he said.

Source

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Report: IRS Computer Security Flawed
Monday, Apr. 07, 2008 (WASHINGTON) — One more tax-season dread: A week before the filing deadline, Treasury watchdogs said Monday that poor controls over IRS computers could allow a disgruntled employee, agency contractor or outside hacker to steal taxpayers' confidential information.

Indeed, a hacker might even "gain full control of the IRS network," said a report Monday from the office of the Treasury Inspector General for Tax Administration. Investigators did not cite any specific cases of wrongdoing within the IRS, which processes some 137 million tax returns. But they suggested a lack of review means someone could get sensitive information and no one would ever know.

The report comes amid increasing scrutiny of the IRS and the problems posed both by security concerns within the system and identity theft threats from outside:

— The independent IRS Oversight Board, in a report issued last month, outlined some $32 million in spending it said was needed to enhance the tax agency's security. "Disrupting IRS returns processing and stealing sensitive information could wreak havoc on the economy and financial markets," it said.

— Separately, IRS Commissioner Douglas Shulman will testify before Congress on Thursday about scams in which people are fooled into revealing their Social Security numbers and other confidential information by e-mails and phone calls purported to be coming from the IRS. The tax agency said last month that taxpayers this year had already forwarded to the agency 33,000 'phishing' scam e-mails reflecting more than 1,500 different schemes.

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[waltky]

Ride gonna get bumpier...

Paulson: 'Expect more bumps' ahead
April 12, 2008: Speaking to world financial leaders, Treasury Secretary says U.S economy faces more risks; G7 officials call for more bank regulation to prevent global slump.

Top financial leaders, faced with the biggest crisis to hit the global economy in at least a decade, are pledging to strengthen their regulation of banks and other financial institutions while anxiously hoping the slump in the United States will be a short one. After an opening round of talks among the world's seven richest industrial countries, financial officials were scheduled to reconvene Saturday for discussions focused on the 185-nation International Monetary Fund and the IMF's sister lending institution, the World Bank.

The IMF, the lender of last resort for countries in trouble, is facing its own economic hard times. Officials were to discuss a proposal that would trim 15 percent of the agency's staff and sell about $11 billion in the institutions' vast gold reserves. The biggest agenda item during the three days of meetings was the severe credit crisis that hit last August and could result in losses approaching a staggering $1 trillion before it is over, according to an IMF estimate released this week.

Treasury Secretary Henry Paulson assured the IMF's policy-setting panel on Saturday that the Bush administration was moving aggressively to deal with the economic slowdown in the United States, but he said risks remain. "The weak housing market, together with high energy prices and stress in financial markets, is penalizing U.S. economic growth," he said. "We must expect more bumps in the road."

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[waltky]

Psychology behind the slowdown...

Pessimistic Americans: Fear of Home Buying
WASHINGTON Apr 14, 2008 - AP Poll: Many Worry They May Fail to Make Monthly Mortgage Payments Soon

One in seven mortgage holders worry they may soon fail to make their monthly payments and even more fret that their home's value is shrinking, according to a poll showing widespread stress from the nation's housing crisis. In an ominous snapshot of how the sagging real estate market and sour economy are intersecting, the Associated Press-AOL Money & Finance poll also found that 60 percent said they definitely won't a buy a home in the next two years. That was up from 53 percent who said so in an AP-AOL poll in September 2006. Only 11 percent are certain or very likely to buy soon, down from 15 percent two years ago.

In today's economic climate, even holding onto what they already have is a challenge and source of distress for significant numbers of homeowners. Nearly three in 10 said they are concerned their home's value will decline over the next two years, while 14 percent of mortgage holders expressed worry that they might miss payments in the next six months.

One nervous homeowner is Daniel Gallego, a warehouse worker in Stockton, Calif., who said in a followup interview that he may have to sell his house at a big loss. "We may have to move in with my wife's parents or my parents," said Gallego, 30, who has two young children. "I could pay off some debt, then we could rent, and maybe buy another house in a few years."

More ABC News: Pessimistic Americans: Fear of Home Buying

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Americans Still Gripping Their Wallets Tightly
April 14, 2008 - Retail Sales Edged Up by Just 0.2 Percent in March

Consumers, beset by a credit crunch, rising energy and food costs and a prolonged housing slump, stayed away from the malls in March. Retail sales posted only a small increase after a big drop in February. The Commerce Department reported Monday that retail sales edged up 0.2 percent in March after a 0.4 percent decline in February. The March gain primarily reflected higher costs for gasoline, which climbed to record highs. Excluding a big 1.1 percent rise in sales at gasoline service stations, retail sales would have been flat last month.

The new report did nothing to dispel worries that consumers will cut back so sharply on spending that the country will tumble into a recession. Consumer spending accounts for two-thirds of total economic activity.

The 0.2 percent increase in retail sales was slightly better than the 0.1 percent increase that analysts had expected and the February decline was revised from an even-bigger 0.6 percent plunge that had been initially reported. However, the March gain reflected the big jump in sales at gasoline service stations. Sales in most areas either declined or posted lackluster increases such as a tiny 0.2 percent rise in auto sales.

More ABC News: Americans Still Gripping Their Wallets Tightly

[waltky]

Push is on for more economic stimulus...

Congress wants to jolt economy - again
April 15, 2008: Democrats outline proposals, including jobless benefits, to counter downturn. President Bush wants to give the first stimulus law a chance to work.

Democratic leaders are signaling that they will launch a spring offensive on the economy by pushing for measures aimed at creating jobs and providing relief for Americans struggling financially. The effort, which has started taking shape in the past week, comes just two months after the first stimulus package was enacted and a few weeks before the IRS will start distributing one-time tax rebates to more than 130 million households. The push is set against the election-year backdrop of a national economy that is showing increasing signs of strain and even recession.

So far, President Bush isn't on board. He has said repeatedly he wants to give the first package a chance to work before considering other measures. Most policy analysts believe the Democrats face long odds in getting a full-blown standalone stimulus package through both chambers of Congress - at least not before summer and not before lawmakers pass a housing stimulus bill. But they say the odds are better than even that one or two stimulus measures could be attached to other bills.

The provision most likely to pass is an extension of unemployment benefits, which are usually capped at 26 weeks. One bill being considered by the House Ways and Means Committee this week calls for a 13-week extension plus an additional 13 weeks in states with high unemployment, defined under the bill as 6% or more. A similar measure was taken out of the first bipartisan stimulus package. But since then unemployment has gone up to 5.1%, and supporters note that 1.3 million people have exhausted their benefits in the past six months and 3 million will do so in the next year.

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Economy gettin' weaker...

Fed: Economy has weakened further
April 16, 2008: According to the Beige Book released Wednesday, the economy continues to struggle with the mortgage meltdown, credit crisis and weak employment.

WASHINGTON -- The country's economic health deteriorated further in the early spring as shoppers buckled under the strains of the housing and credit debacles and a weaker employment climate. Manufacturers and other businesses, meanwhile, were walloped by zooming prices for energy and other raw materials. However, their ability to jack up retail prices to customers was mixed, with some companies restrained by competitive pressures, according to the Federal Reserve's new snapshot of nationwide economic conditions released Wednesday.

"Economic conditions have weakened," the Fed report stated. Many analysts believe the economy has fallen into a recession, predicting that economic activity contracted in the first three months of this year and is still ebbing now. Even Fed Chairman Ben Bernanke recently acknowledged for the first time that a recession was possible. That was a rare utterance of the "r" word for a Fed chief. The government later this month will report on the economy's first-quarter performance.

The report underscored the challenges facing Bernanke and his colleagues as they fight to keep the economy from sinking into a deep recession, while at the same time avoiding a flare-up of inflation. The report will figure prominently when the Fed meets next on April 29-30 to decide its next move on interest rates. The Fed, which has been cutting rates since last September to bolster the economy, turned much more forceful in January, when conditions took another turn for the worse. Many economists believe the Fed will lower rates yet again at the April meeting to help shore things up.

Even with the rate reductions, though, consumers have turned more cautious, the Fed report suggested. Consumers are major shapers of the economy because their spending accounts for such a big chunk of overall economic activity. "Consumer spending was characterized as softening across most of the country, with some districts reporting year-over-year declines in retail and or auto sales," the Fed report said. Merchants - other than auto dealers - reported that sales were "sluggish or declining" in 10 of the Fed's 12 regions, the report said. With inventories of unsold goods starting to pile up, retailers in the Richmond, Va., and San Francisco regions have canceled orders, the report noted.

Inflation takes its toll

[waltky]

Another rate cut coming up?...

Executives see credit and housing as big threats
Fri., April. 18, 2008 WASHINGTON - Survey: 88 percent believe U.S. will enter a recession over next 12 months

Turmoil in credit and housing markets will be the most significant threat to growth this year, according to a survey of top financial company executives released Friday. These executives believe there is a high probability — 88 percent — that the country will suffer a recession in the next 12 months. The responses came from executives whose firms are members of the Financial Services Forum, which represents 20 of the largest financial companies in the country including Bank of America, JP Morgan Chase, Goldman Sachs, Merrill Lynch, Allstate Insurance and Fidelity Investments.

After credit market tumult and troubles in the housing market, the executives listed the next biggest threats to the economy now as the possibility the government will impose higher taxes or raise protectionist barriers to foreign competition. "As the U.S. economy slows, trade and economic openness are more important than ever," said Rob Nichols, the president of the forum, a Washington trade group. He said that U.S. exports accounted for 40 percent of economic growth last year with domestic activity being battered by the slowdown in housing and it was essential that Congress not do anything that could jeopardize future growth in this area.

The survey, conducted in early April, showed that the financial company executives were much more pessimistic than in their last survey, conducted in October. They marked down the prospects both for growth in this country and globally, reflecting the serious toll from a credit crisis that has forced major financial firms to declare billions of dollars in losses and last month claimed its biggest victim with the forced sale of Bear Stearns, the nation's fifth-largest investment house. The Federal Reserve, which has been aggressively cutting interest rates and provided a $30 billion loan to facilitate the Bear Stearns sale to JP Morgan, was given generally good marks by the executives for its handling of the crisis with an average ranking of 3.93 on a scale of 5. The executives strongly believed that the Fed will cut rates again at its meeting at the end of this month.

More Executives see credit and housing as big threats - Stocks & economy - MSNBC.com

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OMG! Let's Not Go to the Mall
April 20, 2008 - In the slumping economy, teens are finding it cool to be frugal.

The souring job market and rising costs of the usual teenage indulgences — a slice of pizza, a drive to the mall, the hottest new jeans — are causing teens to do something they rarely do: be thrifty. It's a far cry from the freewheeling spending of recent years, when teens splurged on $100 Coach wristlet handbags, $60 Juicy Couture T-shirts and $80 skinny jeans from Abercrombie & Fitch.

Now jobs for teens are less plentiful, and parents who supply the allowances are feeling the economic pinch themselves. The stalwart retailers of teen apparel, such as Abercrombie and American Eagle Outfitters Inc., are reporting sluggish sales, defying the myth that teen spending is recession-proof: It holds up longer, but can eventually fold. It's even becoming cool to be frugal.

Last week, Ellegirl.com, the teen offshoot of Elle magazine, launched a new video fixture called Self-Made Girl, which shows teens how to make clothes and accessories. The first video offers tips on how to create a prom clutch. "It's a little tacky in the economic unrest to tote a big logo bag," said Holly Siegel, the site's senior editor. She said it's no longer about teens "one-upping each other," but rather where they can get it cheap.

More ABC News: OMG! Let's Not Go to the Mall

[waltky]

Granny sweepin' the cobwebs outta the mailbox...

Tax rebates to start arriving Monday
April 24, 2008: Treasury Department says it will deposit the first 800,000 rebates - five days earlier than expected - in effort to boost economy.

The federal government, eager to boost the flagging economy, will start distributing special tax rebates on Monday - five days earlier than expected, the Treasury Department said Thursday. The department had said last month that it would begin giving rebates on May 2. Instead, 800,000 tax filers daily will get rebates on Monday, Tuesday and Wednesday. No rebates will be distributed on Thursday, and 5 million payments will be made on Friday.

The payments will go out ahead of schedule because of a new computer program that updates records daily - faster than an older program that updates weekly, according to Andrew DeSouza, a Treasury spokesman. Overall, the Treasury will distribute more than $110 billion to 130 million taxpayers by July and hopes to get the first $50 billion out by the end of May, DeSouza said.

The checks are the centerpiece of an economic stimulus program signed into law by President Bush in February. The aim is to boost consumer spending and help mitigate problems caused by the slowing economy. Checks are being distributed to people who file 2007 tax returns. Those who opt for direct deposit with the Internal Revenue Service will start getting rebates before those who use the mail.

The program calls for rebates of up to $600 for single filers making less than $75,000. Couples making less than $150,000 would receive rebates of up to $1,200. In addition, parents would receive $300 rebates per child. Tax filers who do not owe income taxes but have at least $3,000 in income would get a $300 rebate.

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[waltky]

possum gonna stock up on balogna samiches...

Rebates might be too little, too late
April 28, 2008: Economists question whether $110 billion in tax rebates will provide stimulus needed to hold-off recession and restart growth.

Tax rebates are starting to arrive in bank accounts. But many economists doubt that they will keep the economy from recession. The stimulus package, passed with overwhelming bipartisan support earlier this year, will give rebates to about 130 million Americans, costing the U.S. Treasury more than $110 billion. Married taxpayers earning $150,000 or less will get up to $1200 while single taxpayers earning $75,000 will receive up to $600.

But since the measure passed Congress, there have been growing signs that the U.S. economy has already fallen into recession. "This is will not avert a recession, because it is too late," said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. "For this to have kept us out of what was an avoidable recession, it needed to happen a couple of months ago, in January or February."

In the past three months, employers have cut 232,000 jobs from their payrolls. The unemployment rate has climbed to 5.1% from 4.7% as recently as November. Another 80,000 job losses are forecast to be reported in the April employment report this Friday, according to economists surveyed by Briefing.com, while the unemployment rate is expected to climb to 5.2%.

In addition, leading retailers have reported disappointing sales. Auto sales have tumbled 8% from year-earlier levels in the first quarter. Home prices and sales have also continued their slide. Finally, rising food and energy prices have hit consumer confidence. With that in mind, Achuthan thinks that people who will be receiving rebates will probably use them to pay bills or deal with a tighter budget brought on by higher prices. In other words, there won't be the type of incremental spending that could actually spur the economy.

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[waltky]

Fearless W shamin' Congress...

Bush: Congress Hindering Economy
Tuesday, Apr. 29, 2008 President Bush said Tuesday that Congress is blocking his proposals to deal with high gas prices and dragging its feet on other issues to address the nation's sagging economy.

He said he was open to any idea in terms of energy, including a proposal backed by John McCain and Hillary Clinton to suspend gas and diesel taxes this summer. But, he said, he favored longer-term fixes, such as encouraging new oil production in the United States and the building of new refineries. "It's a tough time for our economy," Bush said at a Rose Garden news conference. "Across our country, many Americans are understandably anxious about issues affecting their pocketbook, from gas and food prices to mortgage and tuition bills. They're looking to their elected leaders in Congress for action. "Unfortunately, on many of these issues, all they're getting is delay," he said.

Bush was asked about a proposal by Republican presidential contender John McCain, later endorsed by Democrat Hillary Rodham Clinton, to suspend taxes on gasoline and diesel fuel for the summer travel season. The tax is 18.4 cents per gallon of gasoline and 24.4 cents on diesel fuel. "I'm open to any ideas and we'll analyze anything that comes up," he said. But Bush also said he didn't want to inject himself into the ongoing presidential race. Of the three candidates, only Democrat Barack Obama has not backed the gas tax proposal.

The average price of a gallon of gas has reached $3.60 nationwide. Bush renewed his objection to calls that the government discontinue keeping up the nation's Strategic Petroleum Reserve supply while oil prices are so high. "If I thought it would affect the price of oil significantly, I would seriously consider it," he said of an idea embraced by many Democrats and some Republicans. Bush also said that it was important to keep filling the reserve, in underground salt domes in Texas and Louisiana, in case there is a terror attack on the nation's oil supplies. He also once again called for Congress to permit drilling in the Arctic National Wildlife Refuge, a proposal he has made repeatedly since he first took office in 2001, and to pave the way for the building of new refineries.

"Another reason for high gas prices is the lack of refining capacity. It's been more than 30 years since America built its last new refinery. Yet in this area, too, Congress has repeatedly blocked efforts to expand capacity and build more refineries," Bush said. The president revived an earlier proposal that shuttered military bases be used as sites for new refineries. In the past, oil and energy experts have expressed little interest in that, saying military bases often aren't situated where the oil pipelines are anyhow.

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Now we know why they didn't want to use obsolete bases to house the homeless of Katrina.

[waltky]

Another 1/4 point cut...

Fed Cuts Key Rate by Quarter-Point
Wednesday, Apr. 30, 2008 (WASHINGTON) — The Federal Reserve has cut a key interest rate by a quarter-point, a smaller move than the aggressive easing it undertook earlier this year.

The Fed action, announced Wednesday after a two-day regular meeting, pushed the federal funds rate down to 2 percent, its lowest level since late 2004. It marked the seventh consecutive rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a deep housing slump and credit crisis. The rate cut will mean lower borrowing costs throughout the economy as banks reduce their prime lending rate, the benchmark for millions of consumer and business loans.

The Fed move was in line with expectations. Wall Street believes this could well wrap up the Fed's rate cuts unless the economy threatens to fall into a worse slump than currently expected. The Fed said it stood ready to "act as needed to promote sustainable economic growth and stability." That phrase was seen as a signal that the Fed is as worried about weak growth as it is about the risk of higher inflation.

The Fed devoted portions of its statement to both the threats of weakness and the threats that inflation could pose, likely reflecting the debate inside the central bank. There were two dissents from the move, with both Richard Fisher, president of the Dallas regional Fed bank, and Charles Plosser, head of the Philadelphia Fed, arguing that the central bank should make no change in rates.

The central bank is walking a tightrope, trying to jump-start economic growth while also confronting the risk that if it overdoes the credit easing it could make inflation worse down the road. Many economists believe the country has fallen into a recession. However, the government reported Wednesday that the overall economy, as measured by the gross domestic product, managed to eke out a 0.6 percent growth rate in the January-March quarter, barely in positive territory.

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