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The ledger 06/21/2013

The ledger 06/21/2013

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The weekly snapshot of news, views, and economic cues from AEI's Economic Policy team.
The weekly snapshot of news, views, and economic cues from AEI's Economic Policy team.

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Published by: American Enterprise Institute on Jun 21, 2013
Copyright:Attribution Non-commercial


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Subject: Huge drop in stocks, Bernanke fallout,
CBO’s questionable immigration scoring
(AEI EconomicsLedger)If you have trouble reading this message, click here to view it as a web page.  Chart of the week
Federal Reserve
Markets crashed Thursday
in the largest one-day point drop since September 9, 2011,
following theFOMC announcement
and Ben Bernanke’s press conference.
Former Federal Reserve senior official Steve Oliner explained yesterday on Fox Business why themarket reacted so strongly. (Timestamp 1:20-2:31) 
:“There were two pieces of language
in the first paragraph [of the FOMC report] that I thought were really relevant. The first concerned the
characterization of the labor market. The previous meeting statement had said “some” improvement. Thisone said “further” improvement. So I get the sense the Fed thinks that they are further along with the
labor market improvement that they would need to see before they could start tapering. . . The other thingthat I thought was importa
nt is they downplayed somewhat the low inflation readings we’ve been getting. .. I think Bullard dissented because he thought this statement was too hawkish.”
But taper too soon, and Bernanke risks compromising the recovery.
:“The Fed isn’t
supposed to be sending a tightening message now because that risks slower growth and deflation thatwill only push stocks and house p
rices back down.”
Given low inflation and the large job and output gaps (vs. the pre-recession trend),
there seems little policy need for tapering of any sort.”
 As for Bernanke himself. . . 
My guess is he probably is going to stick around towards
the end of the year because he wants to start the tapering himself.”
“If ever one
doubted that Ben Bernanke needs to step down from heading the Federal Reserve when his term expires
in January 2014, all one needed to do was to watch his press conference.”
More AEI scholar reactions to FOMC can be found here. 
Even Paul Krugman misses George W. Bush. 
“Krugman compares the response of the
Bush administration to the 2001 recession to that of the Obama administration to the Great Recession,
and finds that president Bush oversaw a response that was quite superior.”
 Krugman bats 0-for-3 on entitlements. 
“Paul Krugman 
providesa succinct argument for not doing anything on entitlement refo
rm. Succinct, but mostly wrong.”
 Yes, IRS harassment blunted the tea party ground game.
:“Targeting Tea Party groups
would have been an e
ffective campaign strategy going into the 2012 election cycle.”
The CBO scored the Senate’s immigration reform bill this week,
reporting the bill could reducefederal deficits by $197 billion from 2014 to 2023 and $700 billion from 2024 to 2033.
But don’t take their word for it
“My own take is that it’s
hard to believe that theaverage immigrant will pay more in taxes than he receives in govern
ment benefits.”
Amnesty may not hurt Social Security (that much). 
“Social Security’s 75
-year shortfallwould rise from 2.67% of payroll under current law to around 2.75% of payroll if 85% of current
undocumented immigrants are legalized.”
Housing Reform
Rethinking FHA. 
:“Phasing out FHA over a period of years and
replacing it would be far better than trying to reform such a flawed program. The replacement programwould offer the following benefits
. . .”
A good effort, but the Corker-Warner bill is fatally flawed. 
Congress has to face thefact, made plain by what happened with Fannie Mae and Freddie Mac that any plan in which the
government covers "catastrophic losses" is fatally flawed.”
The affordable housing nightmare continues. 
“[At the
recentBipartisan Policy Center conference], representatives of the Government Mortgage Complex called for arepeat of the failed
government ‘affordable housing’
In Case You Missed It, T 
Video and Summaries
 with Michael Barone(AEI), Jared Bernstein (Center on Budget and Policy Priorities), and Matt Miller (Washington Post).Hosted by Kevin Hassett on June 20.
Quick takes.
Matt Miller: “The idea of freeing up resources to promote new
ideas in a stagnant duopoly I
think is very important.”
Michael Barone: “Let me say some words in defense of the two
-party system. . .With less ticket-
splitting, we’ve nonetheless had split government most of the [last few decades].”
Bernstein: “[T
heir balanced budget amendment] is a recipe for gridlock, crisis, and dysfunction becausethe only way to break the chains of the spending constraint in this amendment is by getting a
supermajority of Congress to agree.”
Economic liberty and human flourishing: Perspectives from political philosophy,featuringHarvey Mansfield (Harvard), Steve Bilakovics (Christopher Newport University), and Ryan Patrick Hanley(Marquette University). Hosted by Michael Strain and Stan Veuger on June 18.
(WilmerHale) and Philip J. Weiser 
(University of Colorado Law School). Hosted by JeffreyEisenach on June 18.
Mark Your Calendar 
AEI Event: 
Join us!
 6.26 Final GDP estimate for Q1 20136.27 Jobless claims announced

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