The Fed’s Program

The Lehmann Letter (SM) Today the Federal Reserve announced that it would, “… put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.” This was not good enough for stock-market investors, and share prices plunged. But what can the Fed do? Interest rates are at historic lows. The Fed can’t push them any lower: At least not enough to make a difference. So we’re stuck. And so is the Fed. The problem lies in the wreckage of the recent credit-excess and the consequent recession. Household balance sheets are in weak condition, limiting household borrowing and Continue reading


The Lehmann Letter (SM) The stock market is down today because of continuing concerns over the euro’s fate and Greece’s ability to avoid default. It is difficult to sort through each nation’s statements and interests regarding these events. But it is not difficult to put current developments in historical perspective. The European nations were at each other’s throats for over 500 years, going back to when the modern nation-state was born. World War II brought a cataclysmic end to that approach. For the past 65 years Europe has knit itself into an organization that would have been difficult to imagine Continue reading

The President’s Plan: By the Numbers

The Lehmann Letter (SM) Here is how the president’s recent jobs bill breaks out: Extend payroll-tax cuts – $250 billion, extend unemployment benefits – $50 billion, hire more teachers, police and firefighters – $35 billion, infrastructure projects – $105 billion. This is to be paid by a $400 billion increase in taxes on upper-income earners and a $40 billion increase in oil-industry taxes. So $440 billion in tax-cut extensions and additional expenditures are to be paid by $440 billion in additional taxes. If you look at these numbers, it seems that a $300 billion tax-cut extension and unemployment-benefit extension for Continue reading

The President’s Plan

The Lehmann Letter (SM) The president challenged Congress to pass his jobs-creation plan forthwith. The president also said that his plan created no new spending, and that other and future spending reductions would offset any present increase. The plan also extended the payroll-tax reduction. An increase in public-works spending and public-employee hiring coupled with a tax-increase postponement should help the economy. And it makes sense to permit the deficit’s expansion now, to be offset by a sharper reduction later when the economy is more robust. Keep in mind, however, that even if the president gets his entire package it can’t Continue reading

The President’s Speech

The Lehmann Letter (SM) The economy suffers from weak demand. Additional purchases would provide business with the incentive to boost production and hiring. The president’s challenge: Stimulate expenditures to promote employment. Cut taxes? Maybe…. But people may just save the additional funds to bolster their liquidity. Increase spending on public works? That would provide direct employment gains, and newly hired employees would spend their earnings – promoting business production and private job gains. If the increase in public-works expenditures is accompanied by reductions in federal spending elsewhere, the impact will be muted. The economy requires a net gain in spending Continue reading

Europe Is Not The Problem

The Lehmann Letter (SM) The stock market tumbled this morning following sell offs around the globe. But Europe’s fiscal crisis and sovereign debt problems and questions about the Euro’s longevity are not the problem. See the front page article in today’s New York Times that discusses Europe’s efforts to forge a united front to deal with these issues: Europe will probably succeed, salvage the Euro and grow stronger for the effort. Today’s stock market woes are tied to the prospect of weak earnings here at home stemming from inadequate growth in aggregate demand. Sales volume can’t recover until households Continue reading

Employment Report Disappoints

The Lehmann Letter (SM) This morning the Bureau of Labor Statistics reported that health care added jobs in August while all other sectors shed workers or showed virtually no change: The consequence: No job growth last month. Job Growth (Click on chart to enlarge.) Recessions shaded As this letter has reported in the past, and the chart above makes clear, the economy must consistently add several hundred thousand jobs a month to provide evidence of robust and growing conditions. That hasn’t happened during the recovery from the recent recession. Some months have attained that goal, but consistent job growth Continue reading