As Republican candidates for Congress batter U.S. stimulus programs, some company chiefs are stepping forward to defend corporate subsidies Congress enacted to help firms weather the downturn.
Ronald D. Boire, CEO of gift retailer Brookstone Inc., said a 2009 law that allowed companies to recoup taxes they paid in past years “helped us get back on a growth curve. Instead of closing stores, we opened seven new stores” in 2010, said Boire.The law allowed companies to use their current year losses to offset taxes paid up to five years prior — generating millions in tax refunds for companies like Brookstone.
The provision was part of legislation to revive the housing sector, not the $780 billion 2009 stimulus bill that has drawn the most criticism. But it is part of the broader set of stimulus efforts that some say the Democratic Congress isn’t getting enough credit for.
Brookstone’s seven new stores translate into about 100 permanent jobs, Boire said.
The company this month announced it is renegotiating its revolving credit facility, cutting long-term debt by 20%. That also would not have been possible without the net operating loss tax break, said Boire.
“The net operating loss provision was instrumental in keeping us on the right side of the bankruptcy precipice,” said Allen Tilley, CEO of American Locker Security Systems, Inc. The Grapevine, Tex. firm sells locker systems to health clubs and amusement parks.
The firm, which employs about 100, got a tax rebate of $1.4 million under the program. The additional capital helped the company land a contract with Disneyland parks in California and Hong Kong, and boost payroll by $450,000, Tilley said.
Those companies’ stories are a counterpoint to the more generalized economic doldrums.
And they are in sharp contrast to the prevailing message delivered by GOP candidates and some large business groups in this election season, which have painted the current Congress as an utter failure when it comes to job creation.
“Billions in spending, mountains of foreign debt and countless regulations that Congress didn’t even read. The only thing missing? Jobs. We have to stop stimulus,” according to an ad from Republican Florida Senate candidate Marco Rubio.
Ads from the U.S. Chamber of Commerce against Democrats have mostly shunned criticism of the stimulus bill, but have hammered Democrats on the jobs issue. “We told [Rep.] Betsy Markey [D., Colo.] we needed jobs. Why didn’t she listen?” one ad says.
For William McComb, CEO of Liz Claiborne Inc., the problem wasn’t the stimulus, it was that Congress lost focus on jobs after its initial efforts. But he thinks Congress should get credit for programs like the net operating loss tax rebate.
“Because stimulus programs get a bad rap, it’s very important to reflect and say, this had an effect,” McComb said in an interview.
Allen Sinai, chief of economic research firm Decision Economics, said the U.S. economy would have lost between 1% and 2% of economic growth without the stimulus. “We’d have been a lot worse off if we hadn’t done what we did,” he said.
But he said the effort must be viewed as a failure overall because it didn’t bring down unemployment enough and it helped turned the debt into a major problem.
The net operating loss provision may have had healthy effects, but with a projected benefit of $33 billion in 2009 and 2010, it is still “small potatoes” in the larger economic picture, said Sinai.
Friday, October 29, 2010
CEOs Defend Stimulus - Wall Street Journal
Milton Friedman On Japan - NYTimes.com
David Wessel has an article asking what Milton Friedman would say about quantitative easing, and concludes that he would have been in favor. But I was struck by Friedman’s 1998 remarks about Japan, in which he basically said that increasing the monetary base would do the trick:
“The Bank of Japan can buy government bonds on the open market…” he wrote in 1998. “Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand…loans and open-market purchases. But whether they do so or not, the money supply will increase…. Higher money supply growth would have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately.”
Well, they did that: staring in 2000, the BOJ nearly doubled monetary base over a period of 3 years.
And the money just sat there. Banks did not, in fact, expand loans.
In fact, Japan’s experience is a key element of the case against monetarism. Just printing notes does not work when you’re in a liquidity trap
EU Bows to Germany's Call for Permanent Debt Mechanism, Snubs Vote Curbs
German Chancellor Angela Merkel won European Union backing for a rewrite of EU treaties to create a permanent debt-crisis mechanism by 2013 to prevent a repeat of the Greece-led shock that jolted the euro.
At a summit in Brussels, Merkel made less headway with calls to bar high-deficit countries from voting on EU decisions, dramatizing the limits of Germany’s power over the 27-nation bloc.
“All agreed that there has to be a permanent crisis mechanism,” Merkel told reporters early today after the summit’s first session. “All agreed that a limited treaty change will be necessary.”
Germany’s demands come as bond yields in deficit-strapped Ireland and Portugal inch higher, threatening to reignite concerns about government finances that brought the 16-nation euro to the brink of breaking up six months ago.
EU President Herman Van Rompuy said there was no discussion of a debt-rescheduling facility, leaving the European Commission to propose a structure for the crisis mechanism by December. The summit resumes at 11 a.m. today and wraps up this afternoon.
“The absence of a crisis mechanism almost brought down the euro,” Van Rompuy said. With the currency up 17 percent against the dollar from June’s four-year low, he said “we won the immediate battle of the euro, but the problems are not completely over yet.” The European currency bought $1.3943 at 2 a.m. Brussels time.
Biggest Contributor
As the biggest contributor to 860 billion euros ($1.2 trillion) in loans and pledges to stem this year’s debt crisis, Germany wants to head off speculation against sovereign debt by handing the bill for future bailouts to bondholders.
Wednesday, October 27, 2010
Just a note to put this election year in context...
The trucks won't load themselves
"Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan 'Press On' has solved and always will solve the problems of the human race." ---Calvin Coolidge (1872 - 1933)
China and US closer on trade targets
China and the US have the basis for an agreement at the summit of the Group of 20 leading nations next month on setting targets to cut trade imbalances, according to an adviser to the Chinese central bank.
Li Daokui, a member of the central bank’s monetary policy committee and professor at Tsinghua University, said on Tuesday there had been “good progress” at the weekend meeting of G20 finance ministers in South Korea which had moved debate from the “surface issue” of nominal exchange rates to “talking about the substance of rebalancing world trade”.
China has pushed back strongly against US pressure for a rapid appreciation of its currency, the political and economic dispute at the heart of fears about a global “currency war”.
However, although Mr Li is an adviser to the central bank rather than a policymaker, his comments suggest support in China for the US proposal of setting limits on current account surpluses and deficits at around 4 per cent of GDP.
“I was very encouraged by the G20 meeting,” said Mr Li. “It is now possible for the two governments [the US and China] and other governments to have a good understanding.”
Several articles in the Chinese business press have also indicated the government would be comfortable with the surplus target at that level.
Report: Fed will probably use gradual approach for QE2
QE2 is coming. The only question is if the Fed will announce a fairly large amount of purchases on November 3rd (like $500 billion), or a somewhat smaller amount and revisit the purchases at each FOMC meeting. It sounds like the Fed might take the 2nd approach ...
From Jon Hilsenrath and Jonathan Cheng at the WSJ: Fed Gears Up for StimulusThe central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis.This is the approach the NY Fed's EVP Brian Sack described earlier this month: Managing the Federal Reserve’s Balance SheetIt is hard to call "a few hundred billion dollars" a gradual approach, but this is less than current expectations for the Nov 3rd FOMC announcement.
Two lawmakers asked to repay stimulus funds
Two lawmakers asked to repay stimulus fundsEthics complaint filed over ‘disallowed’ paymentsA Republican state legislator has been given a week to repay more than $25,000 in federal stimulus money he has been told he owes to Henry County. An ethics complaint also has been lodged against the same lawmaker, Rep. Steve Davis (R-McDonough), and he has 30 days to respond to that issue.By Jason A. Smith
jsmith@henryherald.comA Republican state legislator has been given a week to repay more than $25,000 in federal stimulus money he has been told he owes to Henry County. An ethics complaint also has been lodged against the same lawmaker, Rep. Steve Davis (R-McDonough), and he has 30 days to respond to that issue.
County officials are seeking $25,313, from Davis, who worked as a real estate agent for Henry NSP, LLC, according to a letter from the director of the Henry County Financial Services Division. County officials said in the letter that Davis was the CEO of Greenwood Crest Realty, which was hired by Henry NSP LLC to facilitate the real estate transaction process, through the Henry Neighborhood Stabilization program.
“As you are aware, Henry County’s Neighborhood Stabilization Program is subject to federal conflict of interest regulations, which among other things, prohibit elected officials and any businesses in which elections are connected, from financially benefiting from, or participating in, any activities in association with the NSP program. As an assets manager for the Henry County NSP Program, Henry NSP LLC, was bound by these federal regulations,” the letter read. Davis was considered a broker and deemed to be in violation of the federal conflict of interest rules, by state and county officials.
Another state representative, John Lunsford (R-McDonough) has been told by the State Department of Community Affairs (DCA) that he, too, has obtained $15,052 from the same federal funding –– and that must be repaid.
The county’s NSP was funded through a $6,251,265 federal grant in April of 2009, according to county spokesperson, Julie Hoover-Ernst.
Letters were sent to both Lunsford and Davis, asking them to repay “disallowed” funds, said Hoover-Ernst.
“We asked for them to repay the amount that the DCA has said they would not reimburse us, due to the fact that the DCA had determined there was a conflict of interest on those particular contracts,” Hoover-Ernst said.
“Lunsford ... has said that whatever cannot be worked out with the DCA — whatever that amount ends up being — he will reimburse the county,” Hoover-Ernst said.
However, she added that Davis has yet to provide county leaders with the same types of assurances. “He has not informed us, to date, that he intends to reimburse us the amount that taxpayers have already paid, for the sales of certain properties.”
“To date, we have not heard from Steve Davis regarding this issue,” continued Hoover-Ernst. “We will take whatever steps are necessary to ensure that taxpayers are reimbursed for that money. My understanding is that Henry NSP does not feel like there should be disallowed costs.”
Hoover-Ernst said the Henry County Board of Commissioners, in August, determined a second letter should be sent to the asset-management teams for the properties, asking for reimbursement. “That letter was mailed out on Oct. 21,” Hoover-Ernst said.
Davis did not return a phone call to the Henry Daily Herald regarding this story.
“This is the most egregious political attack that I’ve probably ever witnessed,” Lunsford said. Lunsford said the county’s version of his, and Davis’ involvement with the NSP program, is inaccurate.
On Monday, the State Ethics Commission received a formal complaint against Davis, alleging that he violated the Ethics in Government Act. The complaint was lodged by the campaign for Democrat Matt Roberts, who is seeking to unseat Davis in the Nov. 2 election.
Lunsford criticized county leaders, and the Roberts camp, for their respective actions against Davis and himself.
“What I actually told the county was, I believe you are incorrect. But, if I have done anything illegal, immoral or unethical, I will refund your money,” said Lunsford. “I never sold the county a house that was my listing. And I never listed one of their houses for sale, or was paid commission by the county.
“I did find the county some houses, some of which I sold them for free, some of which I got paid a cooperating fee from the other agent,” Lunsford continued. “But never did I collect one dime from the county government. I quit working in the program in 2009, by choice. The ruling that they’re pouting about, didn’t even occur until 2010.”
Davis’ activities within the NSP program, as an elected official, came under scrutiny by the state, in December of 2009, said Hoover-Ernst.
The county contacted the Georgia DCA, regarding “disallowed” funds paid to Davis as part of the NSP program. Davis should not have been able to purchase properties in the endeavor, added Hoover-Ernst.
“As soon as we became aware that there was a potential conflict of interest, we notified the DCA in December,” she said. “Later that month, we were informed that there did appear to be a conflict of interest. At that point in time, on Dec. 14, 2009, Henry County placed a moratorium on the purchase of additional properties, so that we did not put future taxpayer dollars at risk.”
Hoover-Ernst said a total of 57 houses in the county, as of Sept. 30, had been acquired through the NSP program, and all but one were under contract. She said at that time, Davis and Lunsford were believed to be benefiting from the NSP program.
Davis’ Democratic opponent has weighed in on the controversy.
“[I believed] Steve Davis had not disclosed all of his financial dealings in accordance with the Georgia Code of Ethics, and that he’s deceiving the Ethics Commission by violating federal and state law,” said John Cain, a political consultant, and Matt Roberts’ campaign manager.
“I know most people are going to perceive this as a campaign stunt,” he said. “But, because of my personal and professional code of ethics, I wouldn’t do that. Elected officials should uphold the very same laws they help to create, and they should be looking out for the interests of their constituents, instead of their own self-interests,” Cain added.
“He’s taking advantage of a program designed to help the economy,” Cain said.
Hoover-Ernst said the county is making changes, regarding oversight of the NSP program. “We are bringing the entire process in-house, to enable us to better manage the funds,” she said. “We believe that the NSP program is helping people to get into their homes, and to rehabilitate our neighborhoods. But we do not want to risk taxpayer dollars again.”
Arguing With Markets: Austerity vs. Negative real interest rates...
One confusion I often run into is the belief that there’s some contradiction between times when I and others argue that markets are wrong — as I did when diagnosing a housing bubble, and now in questioning the market’s optimistic beliefs about inflation — and my point that low interest rates undermine the argument for immediate fiscal austerity.
What people don’t get is that in all cases I’m starting from the fundamentals. It’s the austerity types who are appealing to market psychology to reject those fundamentals — and the point then is that this market psychology is all in their imagination.
The key argument against fiscal austerity now is that it’s bad economics: it would depress the economy, while doing very little to improve the long run budget position (and might even make that long-run position worse.) I’ve done the math repeatedly on this blog.
But the austerians argue that the numbers don’t matter — we have to cut now now now or the bond vigilantes will attack.
And then the question is, where are those vigilantes? I guess they’re suckering us in by lending to the US government at negative real interest rates.
So the point isn’t that market are always right; it’s that if you’re going to claim that appeasing the markets trumps rational economic analysis, you really should have some evidence that the markets care at all about what you’re demanding.