When the Federal Open Market Committee completed its two-day ""meeting"":http://www.federalreserve.gov/newsevents/press/monetary/20130501a.htm at the beginning of May, it issued the usual six-paragraph post-meeting statement.[IMAGE]
The May statement included seven words--changed from the statement issued March 20--summarizing the Federal Reserve's frustration as it has taken unprecedented efforts to shore up the economy by dropping interest rates to historic lows and pumping in billions of dollars.
The seven words suggest the FOMC has been going it alone, without the cooperation of the president or Congress.
After suggesting in its statement there have been improvements in consumer spending and the housing sector, the FOMC added: ""fiscal policy has been restraining economic growth.""
""Fiscal policy,"" simply put, is the means by which a government adjusts its levels of spending in order to monitor and influence a nation's economy. It is the sister strategy to monetary policy that is used to influence the nation's money supply. Taken together, the two policies are used to direct a country's economic goals.
Monetary policy is set by the Fed while fiscal policy is the result of actions--or inactions--by the executive and legislative branches.
The numbers support the argument the fiscal policy has been holding back economic growth.
Since the recession officially ended in mid-2009, the nation's economy as measured by gross domestic product, has grown by an average of about 2.14 percent, hardly robust, but that doesn't tell the entire story. Growth rates for quarters in which federal spending increased are significantly higher than for quarters in which federal spending fell.
Federal spending increased in seven of the 15 quarters since the point at which the National Bureau of Economic Research said the recession ended. In those seven quarters, growth averaged 2.6 percent--below the ""trend"" of 3.0 percent, but almost half again as fast as the 1.76 percent growth rate in the eight quarters in which federal spending declined.
(Lest we think only the federal government is to blame, total government spending rose in only four of the 15 quarters and when it did, GDP growth averaged 2.675 percent, while in the 11 quarters in which total government spending fell, growth was under 2.0 percent.)
At the heart of the spending/growth disparity is a philosophical debate over the role of government: those who believe government should be run like a business and avoid debt and those who see the role of government as spending counter-cyclically, that is increasing spending when the nation's economy is challenged to avoid further struggles.[COLUMN_BREAK]
The debate recalls an old tale of a businessman who each week passes a beggar and drops two dollars into the beggar's cup. One week, the businessman drops in only one dollar and the beggar asks why. ""I had a bad week,"" the businessman explains, to which the beggar replies: ""because you had a bad week, why should I suffer?""
Indeed, when government has ""a bad week"" and reduces its spending, the entire economy suffers, especially an economy such as that of the United States, which relies on consumer spending. As a result of the sequester cuts which no one thought would ever be allowed to take effect, cuts in unemployment insurance benefits are starting to be implemented on a state-by-state basis.
In Maine, the number of weeks an unemployed worker can receive benefits will be reduced to 54 from 63 beginning next week; in Ohio, benefits will be cut 16 percent or about $50 per week; in Washington, the cut will be 21 percent or about $31 a week.
The problem with running the government, any government, like a business is that a business is set up to make a profit while a government is not, and governments provide services which the private sector businesses would not.
Unemployment insurance, again, is the example since as the economy improves, the need for unemployment insurance would disappear.
There is a certain irony in that the anti-government advocates want government to get out of the way so, they say, so that the private sector can flourish.
Guess what, some government advocates want government out of the way too because that would mean the economy is thriving, that we've eliminated poverty and all the other reasons government has to exist. Would that it were so.
There will be a couple of key direct housing indicators in the upcoming week and one indirect.
Ã¢â‚¬Â¢ The Commerce Department Monday will release the monthly report on retail sales reflecting more about prices than consumer preferences. That said though, the sales figures for building and garden supply stores along with furniture stores will tell us something about new homeowners and the extent to which they can afford to furnish their homes. According to the National Association of Home Builders, the buyer of a new home spends about $10,000 on furnishings in the first year of ownership, while the buyer of an existing-home spends about $6,500. To the extent activity at furniture and building supply stores don't reflect the recent uptick in home sale activity, it could suggest new homebuyers are stretched thin.
Ã¢â‚¬Â¢ The NAHB Wednesday will report its Housing Market Index for May. The index fell in April for the third straight month, the first ""three-peat"" since June-July-August 2010, when new home sales were scraping cyclical lows.
Ã¢â‚¬Â¢ Census and HUD will report Thursday on housing permits, starts and completions for April. Permits fell in March to the lowest level since November with both single- and multi-family permits slipping. Total starts increased with all of the improvement concentrated in the multi-family sector as single-family starts suffered the steepest percentage drop in 14 months. Completions on single-family homes rose to the highest level since June 2010, exceeding sales by 176,000 Ã¢â‚¬" the largest ""gap"" since August 2011.
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