December 18th Edition

The Federal Reserve Board has kept overnight interest rates near zero since December 2008 and conducted a large-scale campaign of quantitative easing. The latter has ended — although the issue of reducing its massive portfolio of Treasuries and mortgage-backed securities remains — and the remaining task is to begin to “normalize” monetary policy; i.e. raise interest rates. The exit from extraordinary policy has always been expected to be a difficult matter and yesterday’s Fed announcement is illustrative of the difficulties.

December 17th Edition

The recent slowdown in the growth rate of national health care spending has been a bit of good news, with only the danger that the slowdown will be reversed (as has happened in the past). Many have tried to attribute the slowdown to Obamacare's delivery system reforms, a claim nicely dissected by Jim Capretta. More likely, the slowdown in part reflects the diffusion of stronger incentives like copays, deductibles, and — in particular — Health Savings Accounts (HSAs).

December 15th Edition

Exhale. It is over. Saturday, the Senate passed the $1.1 trillion 2015 funding bill known as the “Cromnibus.” But it was not without controversy, particularly because of the inclusion of a provision amending the Dodd-Frank financial reform act. As described by the progressive Huffington Post "One controversial provision in the spending bill weakens the Dodd-Frank Act's restrictions on banks that want to trade in the same sorts of risky derivatives that sparked the financial meltdown of 2008, and allows the banks to back their bets with taxpayer-backed insurance.

December 11th Edition

The House will turn to passage of the so-called “cromnibus” — a cross between a full-year omnibus bill (for all departments except the Department of Homeland Security (DHS)) and a continuing resolution (for DHS as a penalty for the president’s executive action on immigration) through the end of February, 2015. After extensive negotiations, it is expected to pass both houses of Congress and solve most 2015 funding issues so that the next Congress starts with a clean slate.

December 10th Edition

In the aftermath of the financial crisis and Great Recession, U.S. housing markets were beset by two problems. In some areas; notably Ohio, Michigan, and other parts of the center of the country; poor economic growth had driven homeowners to use their homes as ATMs and the pricey first plus second mortgages proved too difficult to service as the economy worsened further. In the “sandy states” of California, Nevada, Arizona, Florida and the like, a boom in housing prices lured buyers into highly leveraged housing financial packages that proved unsustainable when the house-price bubble burst. Homeowners found themselves “underwater,” with homes worth less than the mortgage balance.

December 9th Edition

Last week, protestors in 190 cities demanded the fast-food industry pay a “living wage” and the federal government increase the minimum wage to $10.10 or even $15 per hour. Advocates often claim that a central benefit of raising the minimum wage is that it would save the federal government money. These supporters claim that as low wage workers get a raise their dependence on public assistance will fall causing federal spending on safety net programs to decrease as well. Sounds great, right? Not quite. In new research, AAF finds that raising the federal minimum wage fails to significantly reduce federal outlays, and the policy’s detrimental costs to the labor market would far outweigh any fiscal savings. 

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