Wednesday round up: Melloan on the Fed; Woodhill on the GOP Medicare plan; Kudlow on QE3.

From The WSJ, George Melloan explains the Federal Reserve can’t handle higher interest rates:

But the Fed is running a big interest-rate risk. Over the past few years, the Fed has borrowed about $1 trillion in excess reserves from member banks. The banks can call in those loans to the Fed on demand, which is about as short-term as you can get. Should the economy pick up and banks need that money to make private loans, the Fed would have to offer a higher rate to try to hold those reserves. But when interest rates go up, the value of bonds goes down—and so too would the market value of the Fed's $2 trillion-plus portfolio of Treasurys and mortgage-backed securities.

Writing in Forbes.com on May 6, William F. Ford (a former Atlanta Fed president) and Walker F. Todd (who did stints with both the Cleveland and New York Feds as a lawyer and economist) note that a one percentage point rise in long-term interest rates would lower the market value of the Fed's current bond portfolio by $100 billion. That would more than wipe out the $81.7 billion in earnings the Fed reported for 2010.

In Forbes, Louis Woodhill advises Republicans to reconsider their Medicare proposal and focus on growth.

At NRO, Larry Kudlow opposes a new round of quantitative easing.

On The Kudlow Report, David Goldman discusses the likelihood of QE3 in response to the softening economy:




Reuters reports 150 economists, including supply-side guru Robert Mundell, support Republican efforts to cut spending.

From Reason, Jerry Brito discusses a new attempt at private money.

IBD notes the weak economic recovery.

In The WSJ, David Malpass proposes an alternative strategy to bring down spending:

The way to do it is legislation linking debt or spending to GDP and forcing the government to cut spending when it exceeds a set ratio. For example, if the debt-to-GDP ratio is over 65% in fiscal years 2012-2014 (as it surely will be), or over 60% in 2015-2018, or over 50% thereafter, the president could be required to submit budgets that are no greater than the previous year's nominal spending.

At NRO, Cato’s Michael Tanner suggests the GOP presidential candidates haven’t proposed enough spending cuts.

From COAL, Paul Krugman pushes back on Benn Steil and Manuel Hinds.

On the John Batchelor Show, I discuss Robert Mundell’s euro/dollar argument.

Wednesday round up: Lindsey on growth; Woodhill on different gold standards; Rapoza on the government shut down.

From Forbes, Brink Lindsey explains low long-term growth's profound impact.

Also at Forbes, Louis Woodhill examines four versions of the gold standard.

On The Kudlow Report, Stephen Moore discusses the dip in consumer confidence:



At Forbes, Kenneth Rapoza cites Paul Hoffmeister saying a government shutdown probably won’t be bad for markets, but may be bad for Republicans.

Already, public opinion polls indicate that Americans believe that President Obama’s plan for the economy is better than the Republican’s plan. This is due to the GOP’s almost singular focus on spending cuts compared to Obama’s approach to managing costs of the social safety net like jobless benefits. Usually during times of sub-optimal growth, Republicans perform better politically by emphasizing a pro-growth economic platform.

At TGSN, Kelly Hanlon reports on gold production rates.

From Asia Times, David Goldman explains that the real estate decline is hammering municipal government revenues.

On International Liberty, Dan Mitchell notes that taxes paid as a percentage of GDP has risen even as tax rates have fallen.



At Der Speigel, Michael Sauga quotes Robert Mundell on the euro.

On NRO, Cato’s Mike Tanner suggests conservatives are waiting for an advocate of deeper spending cuts.

Wednesday items.

On NRO, Larry Kudlow suggests the negative yield on inflation-adjusted securities is signaling inflation.

Cato’s Dan Griswold rebuts myths about free trade.

On Carpe Diem, Mark J. Perry explains that current account deficits are balanced by capital account surpluses:


At Café Hayek, Don Boudreaux defends free trade.

On Forbes, Brian Wesbury and Robert Stein argue bullish investments have been more profitable than bearish.

On The Kudlow Report, Don Luskin debates the Fed’s feint towards lighter than expected monetary stimulus:



The WSJ notes that low-tax states have better economies than high-tax states.

On Townhall, Thomas Sowell recalls past tax cutting successes.

On NRO, Michael Tanner urges Republicans to focus on deep, painful spending cuts.

Wednesday articles.

Cato's Dan Mitchell notes the President's desire to increase tax revenue via economic growth.

On the Kudlow Report, Mitchell discusses House Minority Leader John Boehner's (OH) economic policy speech.

And on Power Lunch, Mitchell debates creating a higher tax rate for the super rich.

Bret Swanson comments on Raghu Rajan's analysis of the financial crisis.

On NPR, Cato's Mike Tanner takes a swipe at Jude Wanniski's Two Santas Theory and says we can't grow our way out of deficits.

On the John Batchelor radio show, John Tamny discusses the housing market (at 27:40).

And here's Tamny on the Kudlow Report.

At Huffington Post, Robert Reich proposes increasing tax cuts for lower income workers while raising taxes on upper income earners.

Editor's note: At Alan Reynold's suggestion, I have added Edward C. Prescott's "Why Do Americans Work So Much More Than Europeans?" to the Classic Articles section.