Fed Funds Rate Drops to Almost Zero

David S. White
Principal of the Law Firm of David S. White & Associates, West Los Angeles, specializing in litigation, arbitration and mediation of real-estate-related disputes and litigation since 1977; www.dswlawyers.com

It really happened here. Tuesday, the Federal Reserve’s closely watched, overnight federal funds rate dropped from its already historic 1% to a level not seen since Japan’s “Los Decade” of the ‘90’s – a rate between zero and 0.25%! The reality is that we’ve already been there even with the 1% nominal rate, as foreshadowed by the recent sales of 4-week T-Bills at 0%, just so investors worldwide can feel that their money is in a safe place.

With the scandals of late, including the record-busting Madoff (still-unfolding) $50 Billion plus mess which has cleaned the clocks of many rich individuals, entities and even charities, a flight to safety is looking increasingly like a reasonable alternative, even if it pays nothing – the under-the-mattress rate, if you will, because that is what you get if you hide your cash there – now the same as the Fed!

So the real fear now is Deflation and there is no more speculation about it. Milton Friedman (1912- 2006) a Nobel Prize winning economist, is credited with creation (or, at least the modern revival) of the economic theory of Monetarism, which, greatly oversimplified, is the belief that excessive expansion of the money supply is inherently inflationary, and that monetary authorities must devote themselves to maintain price stability, almost at all cost.

Read comments Read more

Death of the California Republican Party: Murder or Suicide?

Tony Quinn
Editor, California Target Book

The California Republican Party is dead. Call the undertaker, haul away the corpse.

But was it murder, or was it suicide? Mostly a combination, a result both of demographic changes and the stupidity of Republican leaders.

The modern GOP began with the election of Ronald Reagan as governor in1966. He built a coalition of fiscally conservative suburban voters and “Reagan Democrats,” alienated from their historic party. Republicans carried California for six straight presidential elections using that formula (1968, 1972, 1976, 1980, 1984 and 1988)

But with the end of the Cold War, defense related jobs disappeared, and were replaced by the high technology information age. The new high tech voters were turned off by a less tolerant GOP conservatism, and over the past 20 years Republicans have suffered a long decline in the suburbs. The 2008 election marked the end of the GOP with most high wealth suburban voters.

Read comments Read more

The capitol should be teeming with economists

Jack Stewart
Board Member, National Alliance for Environmental Reform and former President of the California Manufacturers and Technology Association

Is any Californian alarmed that snap judgments without the benefit of professional economic analysis are being made to negotiate the state’s budget and economic recovery?

Economic impacts must always take precedent in a state that leads the nation in bold government programs. The unintended consequences of previous policies and budget solutions have exacerbated the current emergency and still we see almost no economists in the Capitol laying out the long and short term effects for the myriad policy debates that make up our budget negotiations. 

Today, CMTA and 25 other employer groups sent a joint letter to the Legislature insisting that economic stimulus must be the third leg of budget negotiations.

Read comments Read more

A Tax Web Revealed by GOP Budget Plan

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Not even Republicans in the legislature believe the budget proposal they laid out for inspection yesterday will be implemented. Still, the plan has merit in showing where government has grown and combating the idea that automatic budget growth should be expected in these difficult times. In fact, freezing budget outlays to current levels make sense in a fiscal crisis.

What attracted my attention in the proposal was the revenue side, particularly the suggestion to move $6 billion out of quarantined funds for mental health programs and early childhood development. These funds came about because voters passed two ballot measures. Proposition 10 in 1998 raised cigarette taxes for the childhood programs. Proposition 63 in 2004 added a surcharge on high-end income taxpayers to pay for mental health programs.

I worked on the campaigns to defeat both measures, obviously unsuccessfully. To re-direct these funds to general fund purposes will require a vote of the people since it was a vote of the people that established these taxes and their special purposes in the first place.

Read comments Read more

A Spending Cap Solution for the Budget Talks

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

One of the main sticking points in the discussions over a budget solution is whether California will adopt a tougher spending cap. The Republicans insist the spending cap is part of the deal. They have argued for years that excessive and automatic spending is greatly responsible for the continued budget deficits the state has struggled with over the years and only the discipline of a spending cap can reverse that trend.

The Democrats have no interest in a spending cap. They argue that a rigid spending cap will prohibit the state from responding to changing needs of the people.

Politically, Republicans are concerned that since Democrats are so adamantly opposed to a spending limit measure, even if the Democrats agree to putting such a measure on a future ballot in exchange for tax increases, the Democrats and their allies will go all out to defeat it when the proposition comes before voters. In this scenario, the tax increase bartered for the ballot measure will already be in place. (The spending cap would be a constitutional change and therefore would require approval of the voters.)

Given the set-in-stone attitudes on both sides, there has been no movement on this important issue.

Read comments Read more

It’s gonna get worse before it gets better

Matt Klink
President, Klink Campaigns

Two weeks ago, during a lecture at a Southern California college campus, a student asked me a question about if and how the growing state budget deficit had impacted me. I quickly responded that most Californians – expect those involved in the day-to-day rigmarole in Sacramento – have not been directly or even indirectly impacted by the state’s annual budget mess.

In looking more deeply at that statement, here’s the simple reality: Despite massive deficits, little has changed in our daily lives because of Sacramento’s inaction. Our public schools are still open. Roads, bridges, railroads and ports remain operational – albeit the maintenance on them may have slowed or ceased. If you turn on your tap, water still flows out of it. In short, nothing has changed despite the news that the sky will soon fall.

So, when Governor Schwarzenegger stood up last week and spoke of Armageddon, and papers report that the “Big 5” talks cratered again…why should any Californian get nervous because the state faces a budget gap? Claims that the “sky is falling” have occurred before. We’ve faced budget shortfalls previously and have always found a way to bail ourselves out – usually by borrowing to put-off the tough decisions.

Read comments Read more

BailOut Fatigue?

David S. White
Principal of the Law Firm of David S. White & Associates, West Los Angeles, specializing in litigation, arbitration and mediation of real-estate-related disputes and litigation since 1977; www.dswlawyers.com

Americans have famously short attention spans. Media frenzy will carry a story for a week or so, maybe a couple of weeks in extreme, unfolding situations, and then Breaking News will sweep that one away for another. TV Talking Heads stations will then come up with compelling names for the story: “Terrorist Horror in Mumbai” or “StormWatch 2008” or whatever, with reporters in network logo rain slickers standing in hip waders in swirling waters, until the next one comes along. You can get caught up in it – I spent much of Thanksgiving’s long weekend watching that horror in Mumbai and I recall vividly wasting an entire Labor Day Weekend horrified, watching Katrina drown New Orleans (to the consternation of family and friends who wanted me to ‘Get a Life’).

Now it’s BailOuts. One explanation for the stunning Congressional denial of a $15 Billion Dollar BailOut to US AutoMakers, after handing over some $350 Billion or so to Wall Street (dare I say, “Pirates,” without giving up journalistic objectivity?) with virtually no strings attached and very little transparency (can you list the recipients of that money and how much each received?) is BailOut Fatigue. Enough already with the handing out of my and your hard-earned, but apparently easily spent, taxpayer dollars.

Read comments Read more

Congress to US AutoMakers: Drop Dead!

David S. White
Principal of the Law Firm of David S. White & Associates, West Los Angeles, specializing in litigation, arbitration and mediation of real-estate-related disputes and litigation since 1977; www.dswlawyers.com

After days of fussing, fighting and fretting, the Senate has failed to pass the BailOut for at least GM and Chrysler (Ford says it is fine for now) and, echoing the famous headline when President Gerald Ford told NYC it would get no BailOut ("Ford to NYC: Drop Dead"), they may have condemned us to an even worse economy – right in time for Christmas.

As I write, the stock market is about to open – bang – down 213 points on opening on lousy futures and bad Asian results last night. The Bush Administration is making noises about finding some TARP money for the AutoMakers, but, that may not save this Friday’s market, which may be headed for even more trouble.

Did the Senators who opposed this do so to favor their foreign AutoMakers resident in their Southern states, who are not exactly CarpetBaggers, having been there already some 20 years. When does a foreign AutoMaker become a US AutoMaker? Can they apply for a Green Card?

And now the dire bankruptcy talk begins – what will happen to all those GM car, SUV and truck warranties? What will be the ripple effect on job losses throughout the economy?

Read comments Read more

Another Tax Commission–And Just Maybe a Different Result

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Another state tax commission has been launched. Will it burn up on re-entry like so many commissions before it? I know something about tax and fiscal commissions. I have served on three and I was an informal consultant to another. All of them turned out to be merely academic exercises.

Reports were delivered and ended up on the shelf or as doorstops. The legislature often didn’t hold hearings, or perhaps, had a courtesy hearing before filing the report away. The commission I worked with as informal consultant was appointed by Governor Davis and delivered its findings on the day Governor Schwarzenegger was sworn in after the Recall. Timing is everything. The others suffered only slightly better fates, but in the end all recommendations were ignored.

President Pro Tem Darrell Steinberg promised at the press conference announcing the names of the 12 commissioners that there would be “no dusty shelf reports.” I hope he’s right. The California tax system can use some updating. If the commissioners are true to their mandate to smooth out the boom and bust cycles generated by the current state tax structure without looking for ways to raise taxes, they can perform a great service to the taxpayers.

Read comments Read more

County Pension Drove Assessor Smith from Office

Richard Rider
Chairman of the San Diego Tax Fighters

There’s been much speculation in the press about the sudden resignation of San Diego County Assessor Greg Smith. Theories abound.

But there’s no mystery why Assessor Smith is leaving and taking another job. The county pension plan drove Greg Smith out.

But not the way you’d think. Financially, he’d be a fool to stay. And Assessor Smith is no fool.

Greg is one of the sharpest, most responsive elected officials in the county. I’ve written a complimentary op-ed about him earlier this year, touting his efforts to ease the process of adjusting down one’s property taxes in a recession. I talked with Greg about his retirement, and he was quite open about his story.

Read comments Read more

Please note, statements and opinions expressed on the Fox&Hounds Blog are solely those of their respective authors and may not represent the views of Fox&Hounds Daily or its employees thereof. Fox&Hounds Daily is not responsible for the accuracy of any of the information supplied by the site's bloggers.