Newt's Economic Recovery Plan

Last Friday I attended the speech by Newt Gingrich at Art Laffer's annual Investor Conference in Washington, D.C., where Gingrich unveiled his own economic recovery program. This wasn't just campaign rhetoric. The speech was specific, detailed, and comprehensive.

Laffer himself, who was central to defining the economic policies that produced the 25-year Reagan economic boom, said regarding Gingrich's economic plan, "The combination of pro-growth tax reform, spending restraint, and sound money will restore robust economic growth with low unemployment and low inflation." Moreover, Laffer added, given the dramatic reductions in tax rates as discussed below, "in due course, the plan should be surprisingly inexpensive from the standpoint of lost revenues given the powerful effect it will have on the future growth path of the United States economy."

Momentum May Drive a Tech-Industry Recovery in 2011

Executives in the tech industry expect the year-end momentum to carry over into 2011 with growth in both revenue and employment. A KPMG survey found that executives expect cloud computing and mobile applications to lead the way with growth rates above 10 percent. An analyst said the numbers indicate big business is buying again.

It's a thought-provoking headline, isn't it? After some ups and downs in 2010 -- welcome after the dips and twists of 2009 -- many industry watchers are bullish on a tech-industry recovery in 2011. The momentum that started to build in the second half of 2010 should continue next year as corporations and consumers alike loosen the purse strings.

Based on the information KPMG has received from U.S technology executives, Gary Matuszak, KPMG global chair for the information, communication and entertainment practice, is optimistic. In KPMG's most recent survey of tech executives, the firm found that business leaders expect significant improvement in 2010 over last year in revenue and employment, and they are more optimistic about next year.

"Almost nine out of 10 executives said they expect business conditions in the technology sector to improve in 2011, including stronger revenue," Matuszak said. "When participants were asked to name the biggest drivers of revenue growth over the next three years in the technology sector, 54 percent named cloud Relevant Products/Services computing, 51 percent said mobile Relevant Products/Services applications, 43 percent identified client computing/virtualization, and 42 percent said advanced analytics. About half the respondents believe the growth rate for both cloud computing and mobile applications could exceed 10 percent over the next two years."

Semiconductors Tell the Story

KPMG also recently completed a global survey of the semiconductor industry. Executives from that industry also expect solid increases in sales and workforce Relevant Products/Services growth in 2011. According to the KPMG survey, conducted in collaboration with the Semiconductor Industry Association, 78 percent of semiconductor executives expect revenue to grow by more than five percent next year.

"In looking at jobs, 29 percent of the respondents predict workforce growth of greater than five percent, compared to 23 percent in 2009," Matuszak said. "Our findings show that the semiconductor industry expects moderate growth next year, which is extraordinary in the context of an uneven global economic recovery. The continuing demand for electronic products ranging from tablets to smartphones, and an increased demand for technology integration in automobiles, will buoy semiconductor manufacturers as the economy fluctuates."

Bellwethers and Startups

Rob Enderle, principal analyst at the Enderle Group, said 2011 looks like a great year for tech sales and intellectual-property attorneys. Year-end numbers are looking good from the majors right now, with the exception of Best Buy -- which took a hit from online sellers like Amazon -- and Yahoo, which is being horridly run, Enderle said.

"HP, IBM, Oracle outside of hardware, and Microsoft Relevant Products/Services have all been strong coming into the end of the year, suggesting big business is buying again and the pent-up demand from lots of years of not replacing aging hardware should make for a strong 2011 if we don't have another financial crisis," Enderle said. "This last is a bit of a risk because the U.S. government isn't cooperating with itself very well at the moment and concerns of a double-dip recession are mounting as a result, which doesn't bode well for next year's sales."

Meanwhile, from an educational perspective, Professor Jonathan Askin at the Brooklyn Law School said he's already seeing early rumblings of a tech recovery, as angel and venture-capital money begins to flow back into the tech startup community.

"We see more and more startups being eyed as acquisition targets," Askin said. "Perhaps the only silver lining in our current unemployment situation is that many innovators and would-be entrepreneurs have seized the moment to work on their own ventures in the absence of having to report to work."

Source: NewsFactor Network

http://www.newsfactor.com

US economic growth revised up to 2.6% for third quarter

The US economy grew at an annualised pace of 2.6% in the third quarter of 2010, slightly faster than the previous estimate of 2.5%, figures have shown.

However, the rate was lower than expectations, with some analysts expecting a figure closer to 3%.

Earlier this month, the US Federal Reserve said the US recovery was still too slow to bring down the country's high level of unemployment.

Separately, figures showed home sales continuing to recover.

Sales of previously-owned homes rose by 5.6% in November compared with the previous month, to a seasonally adjusted annual rate of 4.68 million units last month, according the National Association of Realtors.

However, the increase was less than analysts had hoped for, and overall sales were down 27.9% from a year ago.

Consumer spending

The GDP data from the Commerce Department showed that the third-quarter growth rate was revised up after an increase in the pace of businesses building up inventories.

However, this increase was offset by a downward revision to consumer spending, which grew at an annual pace of 2.4% in the quarter, down from a previous estimate of 2.8%.

Consumer spending is watched closely as it accounts for about 70% of the US economy's total economic output.

"Clearly the economy continues to improve and grow but at a slow, modest pace and that is restraining employment growth and a recovery in the housing market," said Tim Ghriskey, chief investment officer at Solaris Asset Management.

Figures released earlier this month showed the unemployment rate in the US rising to 9.8%, its highest rate since April.

High unemployment, along with a weak housing market, is undermining economic growth.

'Employment growth'

Last month, the Fed said it would pump $600bn (£390bn) into the economy.

The policy, dubbed QE2 because it is the second round of quantitative easing, is designed to boost the economy's fragile recovery.

The government has also done its part to stimulate growth, by extending tax cuts enacted by President George W Bush that were set to expire this year.

However, some analysts argue that there may be some reason for cheer in the current quarter.

"More recent data suggests we're seeing reasonably healthy retail sales growth, pretty healthy investment spending [and] some growth in employment," said Zach Pandl at Normura Securities in New York.

Source: BBC
www.bbc.co.uk

Time to print more money?

The Federal Reserve signals that it might pump more dollars into the economy if things get worse. Is that a good idea?

Best Opinion: U.S. News, Seeking Alpha, Wall St. Journal

With the recovery faltering, the Federal Reserve is considering expanding the money supply to give the economy another boost. In newly released minutes from September's Fed meetings, policy makers appeared ready to launch a second round of so-called quantitative easing — purchasing Treasury bonds to drive down interest rates and raise expectations of inflation, encouraging consumers to buy more now. But opponents of the move say the Fed would just undermine international confidence in the dollar and the U.S. economy. Is printing money the right way to get the things moving again? (Watch a Fox Business discussion about the proposal)

Firing up the printing presses could be a big mistake: Buying all these assets — up to $1 trillion worth — would merely add to "the already ballooning deficit," says Ben Baden at U.S. News & World Report. And pushing down already low interest rates would further penalize people, especially retirees, who live off the interest on their savings. "One of the biggest problems facing the economy is a lack of confidence" — so maybe the Fed should be signaling that the threat of Armageddon is past and we're getting back to normal.

"Why more quantitative easing could be a mistake"

This could be just the stimulus we need: Quantitative easing will "provide short term stimulus," says Jim Farrish at Seeking Alpha. So it is the right move if the Federal Reserve determines that the economy is getting worse and needs another shot in the arm. There's no denying that this will weaken the dollar, possibly expanding deficits and creating inflation. But there will be time to head off those problems once the immediate crisis has passed.
"Is this a bull market or not?"

It might help — just not very much: "Investors have been euphoric" with the hope of another flood of cash, says Kathleen Madigan at The Wall Street Journal. And the move — expected at the Fed's next meeting, in November — is "better than nothing." But the first round of easing that began in 2008 has alread made loans so cheap that any business looking to expand and create jobs could have done so already. Pushing rates a tad lower won't help "as much as some hope."
"QE2 may not be lifeboat for economy or jobs"

Source:theweek.com

You say 'recession,' I say 'depression'

With hopes for a quick recovery fading, the fight over what to call the economic slump begins anew

Best Opinion: New Republic, Encore, Death by 1000 Paper Cuts

Economists warn that U.S. is facing slower economic growth ahead, raising fears that the nation may fall into another recession. But some financial experts say it makes perfect sense that business isn't bouncing back as it has after past recessions — because what we're experiencing is actually a full-blown depression, instead of a more common recession. Is this financial crisis a depression, or a recession? (Watch a CNBC discussion about whether this is a depression)

Sorry, folks. This is a depression: Unlike all the post-World War II recessions, this downturn was global in scale, says John B. Judis in The New Republic. And like the Great Depression, the current crisis was "precipitated, and deepened, by a financial crisis." Past experience shows that only massive government spending can speed the economy out of a depression — if we pull back, and treat this like a mere recession, we'll only prolong the pain.
"You say recession, I say depression"

Don't fall for the liberal word play: The U.S. economy has suffered a bad recession, says Howard Rich at Encore online. If we leave it to the free market, we'll bounce back quickly. But if Big Government advocates continue to use scare tactics to justify "costly federal interventionist policies." If they have their way, we'll turn "a recession into a depression" by overburdening the government with debt, just like we did after the crash of 1929.
"Recovery semantics"

It doesn't matter what we call it — the economy's in crisis: A recession is a downturn that's part of a normal business cycle, says Mondo Frazier at Death by 1000 Paper Cuts, while a depression is a long-term crisis that hits many countries at once. Whatever word you choose, we've got massive deficits, 10 percent unemployment, and no relief in sight. "We only have two words of advice: buckle up."
"Recovery summer's over. Now, is it a recession or depression?"

Source:theweek.com

Are we heading into a 'third depression'?

In its history, the U.S. has endured only two depressions. Misguided fears over deficit spending are pushing us into a third, argues Paul Krugman

Best Opinion: NY Times, BeliefNet, FireDogLake

The G-20 nations agreed last weekend to halve their deficits by 2013, saying fiscal austerity measures are the best path to economic growth. President Obama and Indian Prime Minister Manmohan Singh, an economist, argued that cutting spending too soon will just make things worse; Nobel laureate and New York Times columnist Paul Krugman is going one step further, warning that austerity now will turn the fragile recovery into America's third full-fledged depression. Who's right? (Watch a CNBC discussion about Krugman's claims)

Spend now, cut later: Misguided Europeans and U.S. deficit hawks have us "in the early stages of a third depression," says Paul Krugman in The New York Times. Like in the Great Depression and Long Depression of the 1870s, foolish policymakers are foolishly "preaching the need for belt-tightening when the real problem is inadequate spending." It is "self-defeating" and cruel to cut spending while unemployment remains high.
"The third depression"

Cut or perish: Given our "fathomless hole of debt," it's "sheer madness to borrow even more, as Krugman advises," says Rod Dreher in BeliefNet. Instead, how about this "irresistible" advice from Krugman's "principal antagonist," Niall Ferguson: To avoid the "terrible" specter of default, "we simply have no choice but to slash spending." A note to Obama: The French Revolution was "sparked principally by massive levels of government debt."
"Krugman: Here's the next Great Depression"

Why trust the architects of this disaster? The problem with "today’s deficit hysteria," says John Chandley in FireDogLake, is that it's being spread by the same geniuses that drove us into this ditch in the first place. It doesn't take a PhD in economics to understand that "the most important steps in reducing long-run deficits start with a fully recovered economy and putting people back to work." And that's a long way off.
"Economics is hard... especially for those who got everything wrong"

Source:theweek.com

Why does the U.S. need China?

Editor's note: Li Daokui is director of the Center for China in the World Economy at Tsinghua University in Beijing and also adviser to the China's Central Bank.

Beijing, China (CNN) -- The United States needs China for two simple reasons: China can make a difference in the world after the financial crisis, and more importantly China's fundamental interests are aligned with the United States.

It is obvious that China can make a difference in the world today and tomorrow. China is the world's leading exporter of manufactured goods. A sudden appreciation of its currency would inevitably export inflation to the rest of the world, which is not welcome by American families struggling to find jobs. China holds the world's largest currency reserves, enough to buy up the share prices in New York or sell down the yield curve of the T-bond.

Halfway into industrialization, China has become one of the largest emitters of global warming gas -- understandable, as it has followed the growth path of the West. Whether China can creatively find a new approach to modernization holds the key to the success of mitigating global warming. Last but not least, developing countries, including those in Africa, are watching carefully what China is doing. If China can be successful in achieving a balanced, sustainable and green growth, many other emerging economies will follow.

Does this mean that the United States and the West have lost their dominance in the world? Not at all! The West still enjoys the highest living standard and best educational achievement, still possesses the world's most important and relevant technologies, be it military or green, and still maintains by far the most formidable military power. Perhaps, most important to me as an economist, the West was not only the builder but also the most skillful mover and shaker in today's international institutions. The United Nations, the International Monetary Fund, the World Bank, and the G-20 were all initiated in the West. The most skillful professionals working in China are from the West or trained in the West. The most useful working language is English.

The most important point the United States and the West need to understand: In today's post-crisis world, China's fundamental interests are aligned with the West. It is in China's fundamental interest to contribute to the world's economic rebalancing and to continued peace and prosperity.

China's policy makers understand the need to reduce its trade surplus in order to reduce its exposure to international economic volatility. They realize that their household income needs to increase faster in order to boost domestic income and to bring real benefits of economic growth to its population. They also understand that China's growth of energy consumption must come down, relying more upon green energy and recycled materials. This awareness and commitment can be found in black and white in various official policy papers including the recent Guide to the next Five Year Development Program.

In fact, progress has been made in China in rebalancing growth. This year alone, trade surplus is likely to be below four percent of GDP, coming down from nine percent before the finance crisis and five percent last year. Imports are growing much faster than exports. Household consumption is outpacing GDP by five percent.

How have these been achieved? Exchange rate appreciation is not the most important factor. The driving factors are domestic forces. Wage rates of the exporting sector have increased by 20 percent this year. Taxes were cut for some consumption goods. Importing inland regions are encouraged to grow much faster than exporting coastal areas. Structural changes are much more fundamental than nominal appreciation.

The exchange rate dispute is the most counterproductive debate in the world. Appreciation does not work like a magic wand. In the Chinese case, against the background five percent general cost increase and 20 percent exporting sector wage increases, anything beyond a gradual appreciation will directly translate into a price hike to the American or European buyers, since in the short run, the option of switching from Chinese producers to others is not available, and the Chinese firms have to mark up their export prices in order to survive.

The end outcome of such a rapid appreciation is continued trade surplus with inflation in the West, which in turn brings in more expectation of nominal appreciation, causing capital flowing from the United States into China for arbitrage, offsetting the impact of Quantitative Easing (QE2) in the U.S. economy. Moreover, this scenario provides juice to conspiracy theories that renminbi (RMB) appreciation and the QE2 are just contrivances to undermine the Chinese and developing countries' modernization process.

The continued dispute on the RMB exchange rate may well be the saddest tragedy of economic policy making in the post-crisis world, since both the Chinese and U.S. sides share the same fundamental interest of rebalancing trade and growth but in the end ruin each other's endeavors. It is like the captains of two giant ships spending precious time arguing about the best techniques to steer the course and causing the ships to eventually collide.

In a larger context, the G-20 is perhaps the only tangible reward to the world in the wake of the financial crisis. Let us hope the leaders will not waste the precious good will and political capital on senseless issues like the exchange rate. Rather, they need to work on something much more relevant and effective to mitigate global imbalances, to reinvigorate growth and to avoid future crises.

By Li Daokui, Special to CNN
Source: CNN
www.cnn.com

Will the Fed's $900 billion cash injection restart the economy?

The Federal Reserve is pumping vast amounts of "new" money into the economy. Will that solve our financial woes?

Best Opinion: U.S. News & World Report, Reuters, Economist

As many predicted, the Federal Reserve has agreed on another round of quantitative easing — essentially printing "new" money — in a bid to jump start the economy (read more on quantitative easing from The Week). The Fed announced yesterday it would buy up $600 billion of long-term government bonds, or Treasuries, by the middle of 2011 in hopes of driving down rates on mortgages and other debt and spurring investment. That comes on top of an expected $300 billion in buying from earlier programs. Will this massive cash injection be enough to revitalize the economy? (Watch a CNBC discussion about the announcement)

The evidence suggests it won't help much: The Fed surprised everyone by pumping $1 trillion into the economy in March last year, notes Rick Newman at U.S. News & World Report, and while it steadied the stock market, it didn't speed up GDP growth. This round "will probably have far less impact" — mainly because the market was expecting it for months and has already priced it into expectations.
"Why the Fed's quantitative easing is overblown this time"

$600 billion a lot of money — but still too little: Call this quantitive easing "lite," says John Kemp at Reuters. "After all the thunderous commentary" for and against pumping more cash into the economy, the Fed has "labored mightily and brought forth a mouse." Only "shock and awe" could have jolted the market into action. This may "shave more than a few basis points" off interest rates, but the overall effects "will probably be marginal."

"Fed launches QE-lite"

It's already worked: "I'm struck by the extent of the scepticism regarding this action," says The Economist. Sure, the "impact of easing" had already hit the markets. But "that impact is impressive." Equity markets are up and the dollar is down — which will help "domestic firms thinking about hiring and investing." It may not solve our unemployment rate, but "it's not clear that any Fed action" could do that.

"The morning after"

Source:www.theweek.com