Economy & Budget

When the Federal Reserve slashes interest rates, the presumption is that it will lift the economy. The lower cost of credit is supposed to result in more investment and expansion, possibly at the expense of higher inflation. This has been central bankers’ approach since time immemorial, yet recent experience turns this notion on its head. 

The Fed is now in year five of its zero interest rate policy in which it has held the federal funds rate close to nil. But the result has not been what was expected: the U.S. economy has neither reignited nor been torched by inflation. Instead, it has been stuck in neutral, unable to mount a strong recovery that typically follows recessions. The Fed presses on, though, announcing recently that it will not raise rates until the unemployment level is below 6.5 percent.

Today, a Senate Banking Committee hearing will examine the extent, causes, and consequences of banks’ failure to adhere to anti-money laundering laws, and the laxity of regulators who are meant to keep the banks in line.

The hearing – entitled “Patterns of Abuse: Assessing Bank Secrecy Act Compliance and Enforcement” – follows a string of banking scandals that have raised serious questions about financial institutions’ compliance with anti-money laundering rules. Illicit flows of money through the financial system have been linked to corruption, international drug trafficking organizations, terrorist groups and sanctioned nations.

Despite all the chatter to the contrary, it’s likely that Americans will indeed feel the short term impacts of the across-the-board budget cuts required by the sequester. However, it’s the long-term effects of drastic reductions in federal investment in innovation that could have even greater repercussions for the economic health of the nation.

President Obama speaks frequently about the need to strengthen America’s middle class by creating more good-paying jobs and making the tax system more equitable. How the Congress will react to his proposals is highly uncertain, and what will emerge from the legislative process is unpredictable. But there is one action the president can take now that will accelerate movement of millions of Americans into the middle class, reduce inequality – and improve care for the nation’s elders and people with disability at the same time. With the stroke of his pen, the president can remove from the Fair Labor Standards Act the archaic “companionship exemption,” which excludes home care workers from federal wage protections.

Immigration is now the center of the political debate. Fortunately, the debate has become somewhat more reasonable as extreme Tea Party Republicans, like Sen. Ted Cruz (R-Texas) and Rep. Steve King (R-Iowa), slip from positions of relevance. But now more than ever, we need leaders to fight fiercely for humane immigration reform on behalf of our Latino and immigrant communities reflecting the headways we’ve made politically. Sen. Chuck Schumer has had sensitive rhetoric on immigration at times when the immigration debate included the unrealistic extremes like SB 1070 and self-deportation. However, in reviewing Senator Schumer’s current immigration record, Latinos and immigrant communities should be alarmed.

In less than a decade, the role of unconventional oil and gas has dramatically changed the energy outlook in the United States. Over the next 20 years, US natural gas and coal exports will increase and oil imports will decline steadily.
 
Abundant domestic energy can be a huge driver of the U.S. economy. In order to facilitate economic growth we need to move away from policies based on energy scarcity to our new reality of abundance – an abundance that can benefit our nation’s long-term economic outlook enormously.

Former Gov. Haley Barbour (R-Miss.) served up the usual field-tested oil industry talking points last week. The Hill readers may have been interested to know Gov. Barbour, the “B” in BGR Group, now counts Chevron as a client. In his defense, he is not alone. Walking lock-step with the American Petroleum Institute is common among politicos, past and present, looking for any conversation-stopper whenever the issue of the industry’s darling treatment by Washington comes up.

Following the Italian general election results last week, the prospect of a disjointed government and political gridlock in the country injected a large dose of uncertainty into global financial markets. Voters’ inability to produce a clear coalition government was taken as a sign of reduced public support for the austerity measures outgoing Prime Minister Mario Monti had previously championed. The pro-reform coalition received just over 10 percent support from the Italian electorate.
 
Investor anxiety concerning European sovereign credit quality quickly resurfaced, contributing to last Monday’s 28-point decline in the S&P 500 Index, the largest single day sell-off since Nov. 7, 2012. Italian sovereign credit default swap (CDS) spreads widened by just over 40 basis points (bps) in the immediate aftermath of the elections, indicating a surge in investor concern as they rushed to hedge their exposure to Italian government bonds.

My former California Assembly colleague, Tom Torlakson, hit the mark in his letter to House and Senate Congressional leadership this week: struggling families and children will bear the heavy load of sequester burden. All students in California schools and especially those who are living in poverty will feel its effects. It seems absurd to me that we would short-change our public schools and the programs that target underserved youth. We live in one of the most prosperous countries in the developing world and yet we fund schools so poorly. The sequester will further diminish school funding in addition to negatively affecting the economy.

It sure looks like Sen. Mitch McConnell (R-Ky.) can’t get enough of giving women the short end of the stick. Just two weeks after voting against the Violence Against Women Act, McConnell continues to play games with the health and safety of Kentucky women.
 
VAWA did finally pass, after a seemingly endless fight championed by pro-choice Democratic women in the House and Senate. But just hours after Republicans were finally shamed in to voting for this vital piece of legislation, they grabbed at the first opportunity to weaken it.