BEHIND THE NEWS: What's happening?

December 15, 2010 11:30:53 AM PST
I went to school in accounting and economics, but I'll be the first to admit: I'm no economist.

Sure, I remember credits by the window, debits by the door.

I'm pretty good with supply and demand.

And I completely get the theories of surplus value (hardly in vogue these days).

But I'm befuddled by what's happening these days.

Give me a call if you can explain it all to me.

We have the complete socialization of losses, what with our $700 billion (or is it $2 trillion?) bailout of the financial markets.

The Federal Reserve Board lowers the key interest rate to zero. ZERO! I suspect they want us to spend more money. I know my line of credit interest expense has dropped significantly. But now any money I'm saving there is going to be nickel-and-dimed away from me with the new State taxes proposed by Gov. Paterson.

There are 137 new or increased taxes and fees in the Governor's budget plan. They include taxes on sugared soft drinks, car rentals, beer and wine, gasoline, cable and satellite TV, cigars, as well as fees for private investigators, barbers, notary publics, cosmetologists, home inspectors and 16 fee increases involving the Division of Motor Vehicles. (Translation: it will cost you more to operate your car.)

The Governor hopes to raise about $4 billion this way, and, through spending cuts and tuition increases, eventually close a nearly $16 billion gap in this year's budget (which ends in March) and next.

But if the fees and taxes end up being a disincentive for people to spend, then is this the way to go?

It's hardly the most progressive tax system, taxing spending. But it might be an easier "sell" than boosting the income tax, especially during a recession.

And how much lower can the Fed go than zero percent? It can't. And anything they try from here on out will be something untested and unknown.

And with the government about to buy billions of securities and mortgages as part of the bailout - they are basically printing money. All of which raises a red flag, according to Alan Blinder, a former vice chairman of the Fed, and a professor of economics at Princeton. He's quoted on the New York Times website today: "At some point, and without knowing the timing, the Fed is going to have to destroy all that money it is creating," Blinder said. "Right now the crisis is created by the huge demand by banks for hoarding cash. The Fed is providing cash, and the banks want to hoard it. When things start returning to normal, the banks will want to start lending it out. If that much money is left in the monetary base, it would be extremely inflationary."

Welcome to the White House, Mr. Obama.

We'll have the latest on the economy - including the interest rate cut and the Governor's proposed budget plan - tonight at 11.

Also at 11, we'll have the latest on the will-she-or-won't-she become the next U.S. Senator from New York debate involving Caroline Kennedy. Dozens of you emailed your comments in - and we thank you - about whether Ms. Kennedy, with no electoral experience, should be appointed to the seat being vacated by Hillary Clinton.

Many thought she should get the job, based on her life experience and connections and, a few suggested, just because of the allure of the Kennedy name. Others said she'd make a fine candidate, but should run on her own, not get the job through appointment. Others said she had no qualifications for the job.

The range of opinion represents the conundrum faced by Gov. Paterson, who must make the decision. He will also be driven by political party considerations: Who has the best chance of being elected outright in 2010? And who will help him on that ticket? (Remember, he faces election to his post as well.)

We'll also have any breaking news of the night, with what promises to be a rough commute in the morning because of the winter weather moving in, and Marvell Scott (in for Scott Clark) with the night's sports. I hope you can join Liz Cho and me, tonight at 11.