Sunday, November 28, 2010

Weekend update.

In a great Globe Asia piece, Cato’s Steve Hanke overviews commodity price chaos due to this decade’s falling dollar.

At Forbes, Lawrence A. Hunter argues the only true Federal Reserve reform is a gold price target.

On The WSJ, Mary Anastasia O’Grady discusses the Fed’s QE2 strategy:

The NY Sun editorial page suggests depoliticizing the Fed by linking the dollar to gold.

At Cato, Alan Reynolds rebuts The WSJ’s David Wessel on QE2.

In The Weekly Standard, former Bush Administration economist Larry Lindsey notes that if QE2 succeeds, interest costs on U.S. government debt will rise significantly.

Now suppose quantitative easing is “successful” in the way the Fed intends, taking inflation close to the average 2.4 percent rate of the last two decades and government borrowing costs back to their two-decade average of 5.7 percent. To get an idea of what happens to the budget, assume this transition happens over three years, so that by 2013 interest rates are back to “normal.” This “return to normal” will mean the government’s interest costs will rise to $847 billion by 2015 and $1.15 trillion by 2019.

The increase in annual interest costs in 2015 alone—$557 billion—is nearly six times the additional revenue that is supposed to be collected by letting the higher end of the Bush tax cuts expire, the centerpiece of the current fiscal policy debate in Washington. The increase in interest costs in 2019—$795 billion—is two-and-a-half times the value of all the Bush income tax cuts of 2001 and 2003 that are due to expire. On the spending side, just the extra interest cost from a quantitative easing “success” would swamp, say, the entire defense budget for the rest of the decade. No plausible increase in taxes or reduction in spending could fill a gap of that magnitude.

At The Pittsburgh Tribune-Review, GMU’s Don Boudreaux advocates ending the Fed.

In The WSJ, Hoover Institution’s W. Kurt Hauser explains that increasing growth, not raising tax rates, is the key to deficit reduction.

Bloomberg reports wealthy Britons may thwart that nation’s higher taxes:
“It’s my ambition to prove the Laffer Curve,” Hiscox, 67, said, referring to economist Arthur Laffer’s 1974 theory that tax receipts fall as governments raise taxes on the rich. “Income at 40 percent tax is quite painful. But losing 50 percent, plus all the other taxes -- it becomes onerous and less attractive to get income.”
At New World Economics, Nathan Lewis suggests renewing Glass-Steagal.

On Fiscal Times, Bruce Bartlett criticizes Republicans for cutting taxes to starve government, undermining his past critique of Republican claims that tax cuts pay for themselves.

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