Economy Watch: The Budget Scrummage Starts

Is President Obama's plan to cut the deficit through spending cuts and tax increases, outlined in a speech on Wednesday, a path to U.S. fiscal solvency or not?

Is President Obama’s plan to cut the deficit through spending cuts and tax increases, outlined in a speech on Wednesday, a path to U.S. fiscal solvency or not? It depends on who you ask. The goal of the president’s plan is to reduce the annual U.S. federal budget deficit to 2.5 percent of GDP by 2015, down from a projected 10.9 percent of GDP for this year.

The speech itself was short on specific numbers to describe the cuts to entitlements and defense, but the president was clear enough about raising taxes on the wealthy. Or rather, not signing any more extensions of the Bush-era tax cuts.

In any case, the coming struggle over the debt ceiling, the 2012 budget, long-term entitlement reform and fiscal health of the United States promises to be a blood-on-the-field game of rugby between two (or maybe three) teams. The ball is in play.

Beige book more upbeat, except for RE

The latest Beige Book (a nickname for the Summary of Commentary on Current Economic Conditions by Federal Reserve District) from the Federal Reserve, which was released on Wednesday, reported improving U.S. economic activity since the last report about a month ago–increased retail spending in some cases, and increased hiring in others.

Real estate activity wasn’t terrific, however. “Residential and commercial real estate performance varied across Districts,” the report said. “Seven of the Districts described commercial real estate as slightly improved, while five noted that their markets were flat. While most Districts noted little change in their residential real estate markets, half of the Districts cited at least pockets of weakening.”

The report’s summary doesn’t actually use the word “inflation,” but it did mention “higher commodity costs,” which were “widely reported to be putting increasing pressures on prices.” Energy prices were the most concern, but so were raw materials. The ability to pass through cost increases varied from place to place, the Fed said, with manufacturers finding less resistance to price increases than either retail or construction, where weak demand was a limiting factor.

Government issues orders to mortgage servicers

The Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision published enforcement orders against the nation’s 14 largest mortgage servicers on Wednesday. The orders said that the banks did indeed do what everyone is now sure they did: file foreclosure documents in courts around the country that were not all personally verified by their employees (that would be robo-signing).

Going forward, banks will be required to hire an independent consultant to evaluate their foreclosure practices, and establish processes to compensate borrowers who have suffered from robo-signing, among other measures. No monetary penalties were mentioned by the orders, and neither was the idea that banks should reduce the amounts owed by some underwater homeowners.

Wall Street didn’t move much on Wednesday, with the Dow Jones Industrial Average gaining a scant 7.41 points, or 0.06 percent. The S&P 500 eked out a 0.02 percent gain, while the Nasdaq saw a more robust 0.61 percent rise.

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