Stimulus report card = A

Update on inflation numbers.

Looks like since the end of February, after a brief deflationary downturn, inflation has chugging right along at the historical trend of 2.9 % on an annual basis.

Up to now, it appears as though the stimulus is working.

For those who swear it was a disaster, and can use evidence other than some version of an unemployment statistic, please leave a comment, because I am not a student of economics, and I enjoy learning from those who know more about it than I.


Chart: consumer price index all goods (including food and energy) 1999:2010


Chart: consumer price index all goods (including food and energy) 2004:2010

What was the goal of the stimulus package? to "turn the economy around"?
How does one measure an economic turnaround?

Its defined by changes in quarterly GDP growth.

What is GDP?

GDP

GDP is an estimate of the dollar value of all of the final goods and services produced by the economy. It is measured by all of the products consumed by the economy.

Sustained growth of profits by corporations and individuals will drive GDP growth.
Strong GDP growth in the long run will eventually lead to high employment rates, up to a theoretical limit known as "full-employment", assumed to be around 95% (this is debated) as corporations compete with one another in the labor market for a chance to take advantage of the future GDP growth.

As the employment approaches its theoretical limit, any additional GDP growth may result in the corporations relative demand for fixed supply of goods and services putting upward pressure on prices as the economy reaches full capacity (inflation). Persistently high inflation erodes the purchasing power of future profits and will put downward pressure on gross investments, and force a contraction in GDP growth.

When GDP starts to contract, this puts downward pressure on product prices as corporations are no longer interested in chasing profits through seeking increased future revenues, but rather by shedding operating costs and current liabilities. This race to the bottom is simultaneously associated with dropping prices (deflation) and dropping employment. This drop in prices only further depresses GDP, and in very bad recessions if the corporations do not quickly shift back to chasing profits and future revenues, it may begin to have downward pressure on nominal wages, and turn into a depression.

So expectations about future price growth (inflation) can have a big effect on an economy's gross consumption and investment activity. Deflation fears will force a contraction in consumption as the economy is more concerned with reducing costs than with chasing revenues, and
Inflation fears can force a contraction in gross investment due to the diminished real returns of future profits.

How does an economy control inflation expectations?

Very carefully. By manipulating the supply of money, the central banks can influence expectations about future inflation, although it is more of an art than a science. Some may argue that this tinkering should be kept at an absolute minimum, preferably managed by a computer, as it can have devastating effects for entire economies if they make a mistake by overshooting/undershooting.

How much inflation/deflation is too much?

Economists seem to think that 2.5 - 3.5 % annual inflation is a good rule of thumb, that it is better to air on the side of inflation, rather than deflation, and the reason apparently has to do with the way the labor market works, that employees are much more willing to take no raise at 2% inflation than a -2% drop in wages at 0% inflation. An employer faced with the situation of having to reduce payroll costs can do so only by either inflating out, or by reducing head-count, and almost never by cutting hourly wage rates.

So, when the housing market started to collapse, the economy shocked itself into a deflationary contraction. At this point, the FEDs had two choices, do nothing, or attempt to ease fears of deflation by increasing the money supply and hopefully get back on track at 3 % inflation. Since doing nothing will almost certainly attract criticism of incompetency, they chose to increase the money supply in the form of bailouts and stimulus packages.

The stimulus package

Earlier in the heat of the financial crisis, credit was disappearing and consumer spending was shrinking rapidly. The economy started to contract into a deflationary period, with food, energy and cyclical consumer product prices dropping steeply from their peak in 3Q 08. The fear was that if the trends continued, and the stimulus package not strong enough to thwart the trend, the short term contraction in prices would continue, and lead to long term downward pressure on the labor market and nominal wages and a halting of economic activity in general.

The purpose of the stimulus package was to prevent the economy from spiraling down into a deflationary economic free fall.

The risk associated with the stimulus package and FED bailout of the financial sector was long term inflation risk, since injecting massive amounts of cash into the economy at once opens the economy up to the problem of to many dollars chasing too few goods, otherwise known as inflation. The FEDs knew this, and made a conscious decision to sacrifice fears of long term inflation in order to fight short term deflation risk. The idea is that if they inject just the right amount of cash, it will be enough to turn around the trend of plummeting deflation, but no so much as to result in an ignition of runaway inflation.

The results (6 months in . . .)

Starting in February, the deflationary contraction turned around into an inflationary trend, but rather than an explosive runaway Banana Republic style disaster, it has been a mild inflationary trend more or less comparable to the US average for the past 30 years 2.9%

If the trends continue like this, I would say the stimulus/bailouts was a bullseye.

What about the employment rate?

Unfortunately, employment trends lag all of the other economic indicators. corporations look for sustained GDP growth before they begin gradually ramping up their payroll numbers. Luckily, if you have a 4-year degree, you probably won't have to worry about the employment rate. If you don't have 4-year degree, I'm really suprised that you are still reading this blog, and would recommend that you go get a 4-year degree.

Questions to ponder

1. Could the graceful turnaround in 2Q 09 been explained by some other outside factor? ( Obama's magical powers, Aliens, China, God, the awesomeness of the American people, Google) ?

2. will the current trend continue?

By the way, if you suddenly find yourself frequently debating whether some very large global event was caused by God, China, Obama, Google, or the FEDs, there is a very rational explanation for that apparent correlation.

Voice Recognition Parse to Text - New Generation of IT Products on the way!

New Generation of Speech Recognition Software

This guy found hardware/software at a research trade show in China IBM division that accurately converts human speech into text, and is able to translate the text into any given language. Something like this could be the tipping point of a new wave of innovation and productivity improvement.

Apparently IBM has been in the voice recognition business for over 40 years, and has been gaining ground on making the necessary improvements and overcoming the barriers to market acceptance. Most of us are familiar with the "I'm sorry, I didn't understand your last response" inadequacies of the current over-the-phone software, and of course,

this embarrassing live-demonstration of MS Vista's voice recognition feature that may have contributed to the delay of MS Visa release
http://www.youtube.com/watch?v=2Y_Jp6PxsSQ

but at IBM, there are signs the days of awkward and malfunctioning voice recognition software may soon be a thing of the past.

IBM voice recognition presentation, in 2001 pretty slick
http://www.youtube.com/watch?v=ZZsL9UCn_3A

http://www.theatlantic.com/doc/200904/chinese-innovation/3
China's Way Forward - James Fallows, The Atlantic

At the far-opposite end of Greater Beijing, in a special government-sponsored research park, I visited the China Research Lab of IBM. The lab’s director, Thomas Li, has a life story like those I have heard at many successful tech and manufacturing companies. He was raised in Taiwan, by parents who had grown up on the mainland. He went to America for his doctorate, had a successful career with a U.S. firm—and then decided, for reasons of opportunity and sentiment, to be part of everything going on in mainland China. In 2002 Li moved with his family to Beijing, where he directs a 200-person team of mainly Chinese-trained computer scientists.

One product demo made me wish I could get out a checkbook on the spot. It addressed two of the real-world problems most difficult for computers to handle: converting spoken language to written text, and converting written text from one language to another. Computers have “done” both of these tasks for years, but they have not done them accurately enough to be worth the bother. Having watched many similar demonstrations, I was startled by this one. My wife and I were the only native speakers of English in the room. But when each of us spoke into the voice-recognition system, it produced nearly perfect real-time versions of what we said. I had been speaking with deliberate clarity, so as a test I said the following words at fast conversational speed: “I never worry that my apartment is bugged in Beijing, because I figure there aren’t that many non-native speakers who can understand high-speed slangy American speech.” Those very words, except “slangy” (which had become “slinky”), were on the screen. Hmmmm.

Although everyone in Li’s lab speaks English, differences in accent can be a barrier in discussions with native speakers. So on video conference calls with their IBM colleagues in Armonk, New York, the Chinese scientists listen to what is said in English—and see a nearly real-time English transcription running across the bottom of the screen, which greatly aids their comprehension. I am sure it is not perfect, but I have seen enough such projects through the decades to be impressed with this one. Based on another demo I saw, it is already mature enough to allow spoken words—from TV, radio, commercials, YouTube—to be indexed and therefore retrieved as accurately as ordinary text. The words could then be translated and searched, in the original language or others, so that video clips, say, would be easy to find by a phrase (“axis of evil”) someone says in them.

Poignant Orszag-ian insight

The Relationship between Quality, and Medicare Spending by State, 2004

If a picture is worth a thousand words, then in this case I would say a good chart is worth a million. The chart compares Medicare spending per beneficiary, and quality index for each state in 2004.

The results ?

Priceless.

This chart is a wonderful demonstration of the most fundamentally important inference one can make in any scientific study.

I gained a new appreciation for Peter Orszag, Obama Administration's Treasury Secretary, when I saw this slide in a presentation he gave on education and healthcare to the Association of American Universities this morning (21 APR). The presentation does not come with audio, unfortunately, although he touched on the main points of his presentation in Orszag's blog entry on healthcare reform, posted shortly after the delivery of his speech. His points were right on target on the issue of aggregate educational achievement in the US, an issue that has long been neglected in the talk about US productivity slowdown since the 90's.

Many of you have heard me go on about how important it is to reform health care in order to bend the curve on long-term costs and get our nation on firmer fiscal footing [...] When we say that health care is consuming too much of our GDP, we are not just citing an abstract statistic [...]

One might think that health care costs were unrelated to educational trends, but that would be wrong. For years now, there has been a long-running trend toward declining State investments in public universities, as growing health care costs come to crowd out States’ investment in higher education. For example, from the late 1970s to the early part of this decade, State appropriations for higher education have declined from about $8.50 out of every $1,000 in personal income to only a little more than $7 out of every $1,000 in personal income – a decline of roughly 15 percent [...] At the same time, these pressures yield tuition hikes, program cuts, and a general strain on our public universities [...]

The fewer college grads we produce, the slower overall economic growth and the higher the salaries for those fortunate enough to go to college. And since we know that those from lower-income families are less likely to go to college and graduate [...], the overall result is that we perpetuate inequality.

Bingo

Some may see this as another excuse for the Administration to push their partisain spending agendas on education and healthcare, which may be a very valid interpretation of the situation.

Keep in mind, however, that the problem of educational achievement in the US is a problem recognized across party lines, and made especially clear in the report issued by the America’s National Academy of Engineering : Rising above the Gathering Storm. Since the report was issued in 2006, it has had a tremendous bipartisain impact on attitudes about innovation and competitive advantages in the global economy.

Although Peter may have done this out of his own initiative to push the Administration's agenda, it's also possible that he was simply responding to a letter from the AAU, asking him to address the issue.



The X-axis in this case is 2004 Medicare spending per beneficiary (span: 0 - 10,000 USD), and the Y-axis is composite measure of quality care for that same year (span : 0 - 100).
Each data point represents a different US state.

Don't mess with the Hong Kong Monetary Board

Exert from Wikipedia article on the 1997 asian financial crisis

Country----- Strategy------- Result

Indonesia---- allow float ------- total collapse
South Korea- allow float -------hit hard temporarily
Singapore ---allow float --------smooth sailing
Thailand ---- fight inflation ---- total collapse
Philippines - fight inflation----- president impeached
Malaysia ---fight inflation ------strategy was too late
Hong Kong -fight inflation ------speculators "got served"

Hong Kong strategy -

Fight inflation and preserve fixed exchange rate AT ALL COSTS, Result - recovery

Between 20 October and 23 October the Hang Seng Index dropped 23%. The Hong Kong Monetary Authority then promised to protect the currency. On 15 August 1998, it raised overnight interest rates from 8% to 23%, and at one point to 500%. The HKMA had recognized that speculators were taking advantage of the city's unique currency-board system, in which overnight rates automatically increase in proportion to large net sales of the local currency. The rate hike, however, increased downward pressure on the stock market, allowing speculators to profit by short selling shares. The HKMA started buying component shares of the Hang Seng Index in mid-August.

The HKMA and Donald Tsang, then the Financial Secretary, declared war on speculators. The Government ended up buying approximately HK$120 billion (US$15 billion) worth of shares in various companies,^[20] and became the largest shareholder of some of those companies (e.g. the government owned 10% of HSBC) at the end of August, when hostilities ended with the closing of the August Hang Seng Index futures contract. The Government started selling those shares in 2001, making a profit of about HK$30 billion (US$4 billion).

Thailand strategy - fight inflation, then give up - Result - complete financial collapse

On 14 May and 15 May 1997, the Thai baht was hit by massive speculative attacks. On 30 June 1997, Prime Minister Chavalit Yongchaiyudh said that he would not devalue the baht. This was the spark that ignited the Asian financial crisis as the Thai government failed to defend the baht, which was pegged to the U.S. dollar, against international speculators. Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in the countryside and 600'000 foreign workers being sent back to their home countries.^[17] The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to the US dollar in January 1998. The Thai stock market dropped 75%. Finance One, the largest Thai finance company until then, collapsed.^[18]

The Thai government was eventually forced to float the Baht, on 2 July 1997. On 11 August 1997, the IMF unveiled a rescue package for Thailand with more than $17 billion, subject to conditions such as passing laws relating to bankruptcy (reorganizing and restructuring) procedures and establishing strong regulation frameworks for banks and other financial institutions. The IMF approved on 20 August, 1997, another bailout package of $3.9 billion.

Singapore strategy - Managed "soft" landing- Result - smooth recovery

As the financial crisis spread the economy of Singapore dipped into a short recession. The relatively short duration and milder effect on its economy was credited to the active management by the government. For example, the Monetary Authority of Singapore allowed for a gradual 20% depreciation of the Singapore dollar to cushion and guide the economy to a soft landing. The timing of government programs such as the Interim Upgrading Program and other construction related projects were brought forward. Instead of allowing the labor markets to work, the National Wage Council pre-emptively agreed to Central Provident Fund cuts to lower labor costs, with limited impact on disposable income and local demand. Unlike in Hong Kong, no attempt was made to directly intervene in the capital markets and the Straits Times Index was allowed to drop 60%. In less than a year, the Singaporean economy fully recovered and continued on its growth trajectory

Gallup Daily

US Budget 2010 - Out of Control

Markets rally after news of crackdown on tax havens ?

If low taxes are supposed to be the market's best friend, what about NO TAXES?

According to supply-side economics and Andrew Laffer, the market is OK with low taxes.

But judging by the market's positive reaction to the G20 summit,
they are NOT OK with no taxes.

After the conclusion of yesterday's G20 Summit, it will be much harder to horde your money away from Uncle Sam, Onkel Hanz, Oncle Pierre, or even 华伯父 .

One of the conclusions from the G20 summit yesterday was that the member countries agreed to enforce sanctions on "tax haven" countries noncompliant with Article 26 of the Organization for Economic Cooperation and Development's (OECD) model tax convention for income and capital, which deals with tax information sharing agreements between countries. Also from the summit, they asked the OECD to publish a list of tax havens and their compliance with the information sharing regulations.

In anticipation to the recent G20 decision, Switzerland and Lichtenstein have agreed to comply with Article 26,

Which looks like the famous tradition of confidentiality between banks and customers in Switzerland going back to the 1934 Swiss Banking Act has now come to an end.

EU Members and the US have long been critical of these "tax havens" for robbing them of taxes they otherwise feel were rightly theirs to collect. Their cries of "theft" have largely fallen on deaf ears, until September 11, when they used the argument that the same information protection that guards tax evaders from governing authorities, may also shelter funds used for money laundering and terrorism activities. This anti-terrorism twist, along with a renewed thirst for tax funds to finance economic stimulus programs appeared to have finally won over some of the more conservative G20 members, such as China, on the matter.

There is still some hope for those who love offshore bank accounts. As of now, the information sharing is limited, and has little jurisdiction over civil disputes. So those funds in the Cayman Islands may still be safe from pesky child support settlements .

G20 declares door shut on tax havens
http://www.guardian.co.uk/world/2009/apr/02/g20-summit-tax-havens

OECD Article 26
http://www.oecd.org/document/53/0,3343,en_2649_33767_33614197_1_1_1_1,00.html

OECD "harmful tax practices"
http://www.oecd.org/document/53/0,3343,en_2649_33767_33614197_1_1_1_1,00.html

Example of Germany's battle with Lichtenstein for account information
http://news.bbc.co.uk/2/hi/business/7253191.stm

Switzerland agrees to comply with G20 on "case-by-case" basis
- G20 wants full compliance "or else"
http://uk.reuters.com/article/bankingfinancial-SP/idUKL296678920090402

Swiss Banking Act of 1934
http://en.wikipedia.org/wiki/Swiss_bank

Winners and Losers - Performance by Industry MARCH 2009

Tire and Jewlrey beat Crops and Medical Supplies.

I give up at trying to predict the market.  

On 09 MAR 2009, the Dow hit a low of 6547, the lowest since December 1996, over 12 years ago. Since then the Dow has seen a recovery for March to as high as 7800.

I was curious to see which industries rebounded the quickest.  

So I pulled the date from Google Finance from 02 - 27 MAR 09.

My gut instinct was that high-end retailers would still feel the brut force of a sluggish economy, while manufacturing and mining would see a boost as investors look for an opportunity to get in early on the recovery in the commodities industries.

At the time, I decided to buy heathcare, gold and silver, with the thought of new attention from the Obama heathcare reform initiative, and fear of inflation from the Feds recent aggressive moves to lower interest rates.

The results. . . 

I'm now more puzzled than ever.  My GLD, OCR, and SLV moves turned out to underperform relative to the S&P 500.  The only moves that I feel like I could have predicted were the boosts in Iron and Steel and Rental and Leasing Services, and the drops in Tobacco and Gambling.  Pretty much everything else seemed like a crapshoot.

Anyone care to interpret?

By Sector

Change Sector

15.27% Basic Materials

14.26% Technology
14.00% Finance
13.74% Conglomerates
12.18% Capital Goods
11.93% Consumer Cyclical
11.74% Transportation

11.00%  S&P 500

9.36% Energy
5.37% Healthcare
5.32% Services

2.12% Utilities
-0.13% Consumer Non-Cyclical

By Industry

Change Industry Sector

41.92% Tires Consumer Cyclical

38.96% Textiles - Non Appare Consumer Cyclical
32.99% Jewelry and Silverware Consumer Cyclical
30.82% Mobil Homes & RVs Capital Goods
28.96% Rental and Leasing Services
27.96% Photography Consumer Cyclical
27.87% Chemicals - Plastics and Rubber Basic Materials
26.71% Furniture and Fixtures Consumer Cyclical
26.21% Construction & Agricultural Machinery Capital Goods
24.21% Retail - Technology Services
22.58% Appliance and Tools Consumer Cyclical
22.01% Insurance (Life) Financial
21.73% Metal Mining Basic Materials
21.10% Retail (Apparel) Services
20.57% Computer Hardware Technology
20.28% Semiconductors Technology
18.78% Iron and Steel Basic Materials
18.37% Apparel and Accessories Consumer Cyclical
17.87% Construction - Services Capital Goods
17.82% Insurance (Miscellaneous) Financial
17.73% Banks - Money Centers Financial
17.69% Air Courier Transportation
16.92% Investment Services Financial
16.37% Trucking Transportation
16.07% Motion Picture Services
16.01% Computer Peripherals Technology
15.89% Electronic Instrument and Controls Technology
15.86% Construction - Supplies and Fixtures Capital Goods
15.57% Retail - Specialty Services
15.09% Retail - Home Improvements Services
14.92% Computer Storage Devices Technology
14.53% Forestry and Wood Products Basic Materials
14.43% Banks - Regional Financial
14.26% Technology [Services] Services
14.18% Auto and Truck Parts Consumer Cyclical
13.74% Conglomerates Conglomerates
13.27% Communications Equipment Technology
12.85% Printing Services Services
12.21% Insurance (Property and Casualty) Financial
12.15% Container and Packaging Basic Materials
12.08% Recreational Activities Services
12.05% Railroads Transportation
11.97% Footwear Consumer Cyclical
11.97% Software and Programming Technology
11.96% Oil and Gas - Operations Energy
11.92% Security Systems and Services Services
11.84% Consumer Financial Services Financial
11.74% Transportation [Services] Services
11.55% Misc Fabricated Products Basic Materials
11.38% Recreational Products Consumer Cyclical
11.28% Fabricated Plastics and Rubber Basic Materials
11.25% Audio and Visual Equipment Consumer Cyclical

11.00% S&P 500

10.82% Computer Networks Technology
10.80% Aerospace and Defense Capital Goods
10.59% Restaurants Services
9.94% Fish and Livestock Consumer Non Cyclical
9.94% Retail - Department and Discount Services
9.82% Misc Capital Goods Capital Goods
9.61% Chemical Manufacturing Basic Materials
9.41% Insurance (Accidental and Health) Financial
9.14% Gold and Silver Basic Materials
8.88% Oil and Gas - Integrated Energy
8.75% Airline Transportation
8.71% Banks - S&L Financial
8.68% Paper and Paper Products Basic Materials
8.58% Office Supplies Consumer Non Cyclical
8.46% Auto and Truck Manufacturers Consumer Cyclical
8.06% Coal Energy
7.91% Oil Well Service and Equipment Energy
7.88% Office Equipment Technology
7.09% Retail - Grocery Services
6.95% Hotels and Motels Services
6.71% Computer Service Technology
6.58% Casino and Gaming Services
6.57% Personal Services Services
6.48% Misc Transportation Transportation
6.46% Waste Management Services Services
6.15% Miscellaneous Financial Services Financial
6.15% Scientific and Technical Instruments Technology
5.95% Biotechnology and Drugs Healthcare
5.65% Major Drugs Healthcare
4.62% Retail - Drugs Services
4.58% Communications Services Services
4.42% Business Services Services
4.41% Medical Equipment and Supplies Healthcare
4.13% Construction - Raw Materials Capital Goods
3.89% Natural Gas Utilities Utilities
3.81% Schools Services
3.62% Non-Metallic Mining Basic Materials
3.37% Water Transportation Transportation
3.27% Water Utilities Utilities
2.87% Advertising Services
2.73% Real Estate Operations Services
2.43% Printing and Publishing Services
2.12% Utilities [Services] Services
2.08% Beverages (Alcoholic) Consumer Non Cyclical
1.84% Personal and Household Products Consumer Non Cyclical
1.70% Food Processing Consumer Non Cyclical
1.67% Electric Utilites Utilities
-0.02% Healthcare Facilities Healthcare
-2.47% Tobacco Consumer Non Cyclical
-3.87% Crops Consumer Non Cyclical
-4.51% Beverages (Non-Alcoholic) Consumer Non Cyclical
-12.31% Broadcasting and Cable TV Services

'Cramdown' legislation gives courts authority to set mortage terms

bankruptcy judges now have the authority to set loan terms such as principal balance and interest rates

One more challenge to stabilizing the financial sector .

This cannot be a good move, and may explain the markets poor reaction this past week. If the Administration continues down a path of setting prices based on homeowners needs rather than market forces, it seems unlikely that the market confidence in mortgage backed assets will be positive, and only exasperate the housing market lending issues, and work to undermine efforts to stabilize the overall financial crisis.

US House passes mortgage debt plan
Jessica Holzer | March 06, 2009 The Australian Business

A MEASURE to allow strapped US homeowners to reduce the principal balance on mortgage debts in bankruptcy has cleared a key hurdle.

Picture: Bloomberg

The US House of Representatives has passed the bill.

The measure, if it becomes law, would give borrowers substantially more leverage in their negotiations with creditors.

Proponents, including the Obama administration, believe the change will help spark a turnaround in the housing market by encouraging mortgage servicers to modify more loans voluntarily. The banking industry says it will raise borrowing costs for all homeowners.

The measure passed as part of broader housing legislation on a 234-191 vote, after Democrats agreed to a set of changes pushed by centrists in their ranks to narrow its scope.

The changes also aimed to convince waverers that the measure was a complement to the administration's broader program of incentives for lenders to modify loans.

"This is one component of a very large effort to stabilise the housing market and limit the number of home foreclosures in California and across the country," said Ellen Tauscher, who was the lead negotiator for centrist Democrats on the bill.

A record 5.4 million homeowners were behind on their mortgage payments at the end of last year, the Mortgage Bankers Association reported. Up to 10 million US homeowners are at risk of default over the next one to two years, Moody's Economy.com estimates.

Under the legislation, bankruptcy judges would be able to reduce the principal amount of mortgage loans for struggling borrowers - a process dubbed "cramdown."

Currently, only vacation properties, and not primary residences, can be crammed down by bankruptcy judges.

The banking industry warns the change will raise borrowing costs for all homeowners and clog the bankruptcy courts, prompting judges to write off tonnes of other consumer debt just when lenders are reeling from the financial crisis.

The industry mounted a fierce lobbying campaign that made inroads with several centrist Democrats in recent weeks. A vote on the legislation was delayed last week after several began to balk at the measure.

The Obama administration argues that mortgage cramdowns should be used as a last resort, only when borrowers have run out of other options.

The measure faces a far steeper climb in the Senate, where Republicans, who largely oppose the measure, still hold a lot of sway.

It was attached to broader legislation related to the current crisis that enjoys broader support, including a measure to raise permanently the cap on federal deposit insurance coverage from $US100,000 to $US250,000.

The legislation would also boost the Federal Deposit Insurance Corporation's line of credit with the US Treasury to $US100 billion from $US30 billion.

Under the legislation, mortgage servicers would acquire a safe harbour against lawsuits from investors after they modify loans. The bill would also ease restrictions on the Hope for Homeowners program. Begun last fall to help borrowers refinance into more affordable government-backed mortgages, the program has failed to gain much traction.

The cramdown measure, introduced in the last Congress, gained momentum in recent weeks due to the change in power in Washington and the perception that lenders haven't done enough to modify loans.

Opposition to mortgage cramdown has eroded further after Citigroup agreed to back the measure after politicians offered to limit it to existing mortgages.

A host of consumer groups and borrower advocates, including the AARP, lobbied hard for the measure.

"With rising foreclosures undermining everyone's property values, this new option will not only help hundreds of thousands of homeowners save their homes, it will help keep everyone's property values from sliding further," AARP said in a statement.

U-6 could hit 20% by 2010

The US Department of Labor routinely removes certain types of unemployed people from their "official" unemployment statistic. Some of those who are removed include; those who are either part-time but seeking full time employment, or have been unemployed for an extended period of time and have stopped actively seeking employment. There are also those who for other reasons do not qualify for unemployment insurance (resigned, fired "for cause", etc..). When all of these are included into an "augmented" employment statistic, the picture becomes much more grim.

Broader Unemployment Rate Hits 14.8%
by Sudeep Reddy
The Wall Street Journal March 6, 2009, 10:52 AM ET

If a half-percentage-point increase in unemployment rate isn’t ugly enough for you, there’s more from your government statisticians: almost a full percentage point jump in a broader measure of unemployment.

The Labor Department reported today that its most comprehensive measure of joblessness hit 14.8% in February, from 13.9% in January. That’s just about 1 out of 7 Americans who are either unemployed and looking for a job, want a job but stopped looking, or part-timers who want full-time jobs.

We’ve already blown through the prior high point of the data series, which the Bureau of Labor Statistics started in 1994. An even broader (since discontinued) series hit 15% in late 1982, and we’re likely to fly right through that one next month.

The 8.1% official unemployment rate, up from 7.6% in January, only counts people who are available for work and actively looked for a job in the prior four weeks. The 14.8% figure (known as the “U-6” by the BLS) includes everyone in the 8.1% figure, plus people who say they want a job and looked for work recently, along with people working part-time because they couldn’t get a full-time schedule.

How high can the U-6 go? Just looking at forecasts for the main unemployment rate, the broader measure would hit 17% by the end of next year. Some economists say 18% to 20% — 1 out of 5 people unemployed in some way — wouldn’t be terribly surprising. If employers aren’t hiring, job hunters would be more likely to give up hope and stop looking even if they do want jobs. After the 2001 recession, employers took roughly two years to resume meaningful hiring and competition was stiff for the jobs available. Anyone searching for a job during this recession is already aware of that grim reality.

The Laffer Peak - Can the US take any more taxes?

In 1974, an economist Arthur Laffer described supply-side economics and the relationship between marginal tax rates, and marginal tax revenues as a parabolic curve on the back of a napkin to Dick Cheney, Donald Rumsfeld, and Jude Wanniski.



At the extremes were 0% and 100% tax rates and 0 marginal tax revenue, and "somewhere inbetween" lay a maximum, or optimal marginal tax rate that would provide just low enough to motivate the population to remain productive, but just high enough so that the government would reap some of the benefit as well. Some have actually tried to calculate just where this optimal value likes using time series regression analysis, such as this paper by Yu Hsing at Southeastern Louisiana University, USA claiming that the optimal marginal tax rate for income tax is between 32.67% and 35.21%

Today, economists and politicians alike are still struggling with just where that magical "optimal tax rate" lies.


Excel graphs for those who like to squint. The top graph is the overall tax revenues as % of GDP as a 2 year moving average. The bottom graph is real GDP growth rate 5 year moving average.

If anyone knows how to embed excel charts into blogs, please share.
I took data from the US Office of Management and Budget to determine the overall effective tax revenue as % of GDP, and real GDP growth. The real GDP growth was calculated by dividing by the Consumer Price Index for that year. The GDP values are 5 year moving averages.

From Kennedy to the present, each administration has had it's try at manipulating the tax codes to stimulate the economy. From Johnson to Bush senior, a clear trend appeared to take shape - whether or not a Democrat or Republican was in office, whoever decided to raise taxes would see a subsequent drop in real GDP, and consequently whoever lowered taxes saw a rise in real GDP.

Until Clinton . . . from Clinton on, the trend appeared to have reversed?

Clinton continuously raised the overall tax revenues as a % of GDP in an effort to run a surplus and pay down the national debt. The result - a booming economy with continued rise in real GDP.

And then along came Bush, with significant tax cuts early on, but no real gain in real GDP, and when the tax revenue rose as % of GDP no Clintonesque miracle boom, but rather a bust, as the laffe curve would have predicted.

So even though it looks good on the back of a napkin, this "optimal" value appears to be very elusive, and can make any president or congress look like a fool if they play this game the wrong way. Right now Obma is banking on a GDP recovery, and critics are not so optimistic that now is the best time to be paying down the national debt by increasing overall tax receipts just like the Clinton administration did.

How low too low and how high is too high?

Here's a pick of countries with the lowest, and the highest capital gains tax rates from the Howie Institute. Looks like Congo, China, Germany and the US are at the top at ~ 38%
and Singapore, Ghana and Mexico at the bottom, ~ 10% even as low as 6% (Hong Kong).

Apparently there is more to public policy and economic development than the effective or marginal tax rate, and simply adjusting your tax rates to meet your spending and defecit wishlist targets doesn't always result in immediate economic growth.

In a recent CNN article, Jeanne Sahadi takes a critical look at the underlying assumptions behind the recent budget proposal by the administration.

Reality check on Obama's deficit plan

By Jeanne Sahadi, CNNMoney.com senior writer

March 3, 2009: 4:38 AM ET

The administration laid out several key approaches to whittling down U.S. debt. Whether they pan out as the president hopes is a question mark.

...

Raising taxes on high-income filers

The assumptions: Reduce the deficit by $637 billion over 10 years by letting the Bush tax cuts expire in 2011 for singles making more than $200,000 and couples making more than $250,000.

Reality check: Letting the tax cuts expire has a good chance of happening. But the savings that achieves could be undercut if two other revenue raising efforts don't pan out.

...

Obama hopes to raise $318 billion over 10 years with this provision and use it to help pay for his new health reform fund.

Separately, he wants to make permanent his signature credit for low- and middle-income families and fund it by requiring companies to pay for the amount of carbon emissions they produce. He estimates a cap and trade program, which is the subject of much debate, would raise $646 billion.

If either or both of these revenue raisers don't pan out, the administration will have to propose other ways to help pay for his new initiatives or risk further increasing the deficit.

"The key to the budget is whether they stick to that pledge [to pay for their new proposals] because they have the potential to add enormously to the deficit if they're not paid for," said Bob Bixby, director of the Concord Coalition, a deficit watchdog group.

The end of suburbia and single-family homes

I found this chart on a website about economic forecasts for 2009 .

It looks as though slowly but surely, the real estate developers are responding to the market forces against low density housing.

In the chart, single family units have been on the decline since 2005, whereas multiple family units has been steady.

This chart supports the prediction that the ultimate consequence of rising energy and transportation costs is a contraction of housing development towards higher density, multiple family units.

This is a good sign for transportation reform, since low density suburbs have been one of the biggest deterrents to political support for improving public transit systems.

Here's how it may play out

Developers stop building new single-family homes, but continue with multi-family units
The lack of new homes, tightening credit, and rising gas prices will raise the cost of suburb living
The rising cost of suburban living will force residents into the more affordable high density areas
The rise in urban residents will result in increased ridership on public transit
The increased ridership will force more routes and decrease time waiting for the next bus/train
The improved service will result in higher ridership, and more movement to the urban centers
This feedback cycle will plummet the real estate value of the old suburbia
The now cheap real estate outside the urban center will attract manufacturing to fill in the void

Net Result

safer, more affordable, transportation
less dependency on oil imports
more manufacturing jobs

Social Security Reform - Now officially on the Obama Agenda

(Halelujah corus playing ... )

I'm speechless. . .

Reform of the entitlement programs, Social Security, Medicare, and Medicaid

-the "elephants in the room" that are the biggest threat to the 'AAA' rating of US Treasuries, and the future of the US economy-

is now officially on the agenda.

To preserve our long-term fiscal health, we must also address the growing costs
in Medicare and Social Security. Comprehensive health care reform is the best
way to strengthen Medicare for years to come. And we must also begin a
conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans.

- Barack Obama, February 24 2009 State of the Union Address

For years no politician would dare touch the issues because the backlash from the interest groups would be political suicide.

But this Administration is different.

They are focused on fearless leadership and instilling a vision of hope for healthy change in the areas the America is the weakest. They are not afraid of facing some tough political opposition, or having to ask Americans to sacrifice for the good of future generations. This bold leadership quality is unlike any seen since the last Great Depression, and although it may hurt, it is the only way the US can emerge from this crisis stronger and better prepared for the 21st century challenges.

This is encouraging news, and should resonate throughout the media and public to ensure that the Administration follows through on pushing their agenda. This is the time for those that will most be affected by Social Security reform to speak up, and voice their concerns and hopes about entitlement reform. This issue cannot slide to a second or third priority agenda. If it is not resolved now, there may not be another chance.

$819 billion stimulus bill - break down

From public records HR 1 the $819 billion version that passed in the House on 28 JAN

I scrolled through the bill and looked for allocations, then added them all up.
I came up to a total of $367 billion of committed funds. I heard that the tax provisions alone were around $275 billion, which adds up to $ 642 billion. The remaining ~ $177 billion must come from the other provisions of the bill - Unemployment Assistance, Health Insurance and Health Information Technology, Energy, Broadband Communications, and Education, which are indicated in blue italics.

Feel free to add comments and corrections as necessary.

Oversight and Auditing $0.2 billion

Justice $4.0 billion

State and Local Law Enforcement
Community Oriented Policing

Homeland Security $1.1 billion

Customs and Border - Salaries
Customs and Border - Construction
TSA - Aviation Security
Coast Guard - Bridge Alteration
FEMA - Emergency Shelters
Social Security Immigration Reform

Defense $9.35 billion

Facilities
Operations - Army
Operations - Navy
Operations - Marine Corps
Operations - Air Force
Defense - Health
Operations - Army Reserves
Operations - Navy Reserves
Operations - Marine Corps Reserves
Operations - Air Force Reserves
Operations - Army National Guard
Operations - Air National Guard
Research - Army
Research - Navy
Research - Air Force
Research - Defense Wide

Military Construction and Veterans Affairs $7.0 billion

Military Construction - Army
Military Construction - Navy and Marine Corps
Military Construction - Air Force
Military Construction - Defense Wide
Military Construction - Army National Guard
Military Construction - Air National Guard
Military Construction - Army Reserves
Military Construction - Navy Reserves
Military Construction - Air Force Reserves
Defense Base Closure Account
Veterans Affairs - Medical Facilities
National Cemetary

State Department $ 0.5 billion

Foreign Affairs - Capital Investments
US-Mexico Border Construction

Government Operations $8.3 billion

Federal Buildings
Energy Efficient Federal Vehicles

Interior $15 billion

Land Management - Construction
Fish and Wildlife - Construction
National Parks - Construction
National Mall
Centennial Challenge
US Geological Survey - Surveys and Research
Indian Affairs - Construction
EPA - Hazardous Substances
EPA - Leaking Underground Tanks
EPA - Clean Water
EPA - Drinking Water
EPA - Energy Policy
EPA - Environmental Response and Liability
Forest Services - Capital Improvements
Wildlife management - hazard reduction and rehabilitation
Wildlife management - State fire management
Health and HS - Indian Health Facilities
Smithsonian - Facilities
Arts and Humanities - Grants

Energy and Water $45.7 billion

Corps of Engineers - Construction
Corps of Engineers - Mississippi River
Corps of Engineers - Operations
Corps of Engineers - Regulatory
Interior - Water Resources
Dept of Energy - Energy Efficiency and Renewable Energy
Electricity Delivery and Reliability
Battery Loans
Institutional Loans
Innovative Technology Loans
Carbon Sequestration
General Energy Science
Defense Environmental Cleanup
Hoover Power Plant - Loan
corrections to the Energy Independence and Security Act of 2007
Renewable energy and electric power transmission loan guarantee
rapid deployment of renewable energy and electric power transmission
weatherization assistance program
renewable electricity transmission study
state energy grants

Agriculture $34.5 billion

Agriculture Buildings and Facilities and Rental Payments
Buildings and Facilities
Salaries and Expenses
Watershed and Flood Prevention
Watershed Rehabilitation
Rural Community Advancement Loans
Rural Loan Administration
Rural Housing Insurance
Rural Housing Loan Admin
Rural Utilities
Child Nutrition
Food Assistance
Administration - Agriculture

Commerce $1.3 billion

Economic Development Assistance
Census

Financial Services $3.4 billion

Small Business Loan administration
Small Business Loan Allocation

Telecommunications $3.8 billion

Telecommunications Salaries
Wireless and Broadband Grant
Digital to Analog Boxes
Inventory of broadband service capacity
wireless and broadband deployment grants
national broadband plan

Transportation $43.1 billion

Federal Aviation Administration - Airport Grants
Federal Highway Administration - Highway Investments
Federal Railroad Administration - Intercity Passenger Rail Investment
National Railroad Passenger Corporation - Capital and Debt Service Grant
Federal Transit Administration - Transit Investment
Federal Transit Administration - Fixed Guideway Investment
Federal Transit Administration - Discretionary

Housing and Urban Development $16.3 billion

Indian Housing
Elderly and Disabled - Energy Retrofit
Native American Housing Block Grant
Community Development Fund
Neighborhood Stabilization - foreclosure avoidance
HOME Investment partnership program
Self Help and Assisted Home-ownership
Homeless Assistance Grant
Lead Hazard Reduction

Education $143.5 billion

Elementary and Secondary - Education for the Disadvantaged
Elementary and Secondary - Impact Aid
Elementary and Secondary - School Improvement
Elementary and Secondary - Innovation and Improvement
Elementary and Secondary - Special Education for Children with Disabilities
Higher Education - Student Financial Assistance
Higher Education - Student Aid Administration
Higher Education - General
Institute of Education Sciences
Elementary and Secondary - School Modernization, Renovation, and Repair
Higher Education - Modernization, Renovation, and Repair
State Fiscal Stabilization Fund
Amendment to Pell Grants
Increasing Student Loan Limit and Interest Rate Calculation
21st Century Green High Performing Public School Facilities

Scientific Research $4.9 billion

Technology Research
Industrial Technology Services
Research Facilities Construction
Ocean and Atmosphere Research
NASA - Science
NASA - Aeronautics
NASA - Disaster Relief
NSF - Research
NSF - Education
NSF - Facilities and Construction
Satellite Construction

Health $12.3 billion

Health Centers Grants
Health Centers - Repairs
Health Centers - Moving Expenses
Health Care Personnel and Training
Disease Control
National Institute of Health - Research
National Institute of Health - Discresionary
National Institute of Health - Facilities
Agency for Health Care Research - Discretionary
Health Information Technology
Public Health and Social Services Emergency Fund
Disease Control - Prevention
Discretionary Prevention
Assistance and extension of COBRA benefits
COBRA premium assistance
Penalty for failure to notify health plan of cessation of eligibility
Optional medicaid coverage
Health Information Technology and Quality provision

Labor and Human Services $12.5 billion

Employee Training
Community Service for Older Adults
State Unemployment Insurance
Department of Labor - Salaries
Office for Job Corps
Low Income Home Energy Assistance
Child Care and Development Grants
Children and Family Services
Community Service - Operations
National Service Trust
Social Security Administration - Computer Center
Social Security Administration - processing disability and retirement workloads
Aging Services
Extension of Emergency Unemployment Compensation Program
Increase in Unemployment Compensation
Unemployment Compensation Modernization
Emergency fund for TANF Program
One Time Emergency Payment to SSI Recipients
Temporary Resumption of Prior Child Support Law
Additional Medicaid provisions

Tax Incentives $ 275 billion (estimated)

Increased earned income tax credit
Increased child tax credit
American opportunity tax credit
waiver of repayment of first time buyer tax credit
low income housing credit
temporary investment incentives
temporary increase in limitations on expensing depreciable business assets
5 year carryback of operating losses
Exceptions for TARP recipients
incentives to hire veterans and disconnected youth
limitations on certain built-in losses following change of ownership
de minimus safe harbor exception for tax exempt interest expense of financial institutions
modification of smaller issuer exception to tax exempt interest expense allocation rules for financial institutions
temporary modification of alternative minimum tax limitations on tax-exempt bonds
school construction tax credit
qualified zone academy bonds
government bonds
recovery zone bonds
tribal economic bonds
repeal withholding tax on government contractors
electricity produced from renewable resources
investment credit in lieu of production credit
repeal limitations on credit for renewable property
coordinate with renewable energy grants
increased limitations on issuance of new clean renewable energy bonds
increased limitations and expansion of qualified energy conservation bonds
extension and modification of credits for non-business energy property
modification of credit for residential energy efficient property
temporary increase in credit for alternative fuel vehicle refueling property
increased research for energy research
application of certain labor standards to projects financed with tax-favored bonds
grants to states for low-income housing projects in lieu of low-income housing credit allocations
grants for specified energy property in lieu of tax credits
study of economic employment and related effects of the act

Numbers don't matter to the Obama Administration

This economic recovery plan is starting to show some very disturbing elements of political manipulations. In a "don't mind the man behind the curtains" move, this recent circulation from the Obama Administration makes an overt attempt at blurring reality by encouraging the supporters to not worry about numbers.

The media is filled with numbers about the economic crisis. But the numbers do not tell the full story.

The Administration cannot shy away from the numbers, but rather needs to incorporate the real numbers of this recession into its communications. Otherwise - they lose the trust of the American public, and appears to be hiding the truth, rather than dealing with the reality of the situation. In the article, the Administration claims that the recovery plan

will help struggling families right now by saving or creating up to 4 million jobs

indicating that numbers do matter, which contradicts the previous statement. So when the media uses numbers, don't believe them, but when the Obama Administration uses numbers, its somehow more trustworthy? The twist is that although 4 million jobs may be created, how many are not being created? How does 4 million compare with the number of jobs that will be lost by the end of 2009?

The whole reason for the financial crisis is the complete negligance of numbers by investors, financial analysts, government regulating agencies, the Federal Reserve, credit rating agencies, and consumers.

Numbers like: credit scores, income, collateral - were ignored by the entire mortage industry, fueled by pressure from the government and incentives from the Feds to extend real estate ownership privileges to lower income families for no better explanation than "it was a good thing to do". Where "good" is now something up for debate.

Numbers like: future ARM rates, purchase price, household disposable income, equity, price-to-rent ratios - were ignored by consumers for social and cultural pressures under the belief that "housing prices will always rise" and "you're throwing your money away if you rent - buying a house is an investment". Well, we are reminded now that housing prices rise and fall just like any other market price, and "throwing your money away" and "investment" are words and phrases left for interpretation.

In several of the online doomsday scenarios of how this recession could play out, one of the last steps before complete breakdown of civil order is when the people discover that the government has been diliberately covering up the statistics that tell the true magnitude of the problem. Numbers are particularly uncomfortable for the government, because unlike words, which can be manipulated through vauge and ambiguous shadows of meanings, numbers mean very specific things, and although one may also have phoney numbers, its easier to spot a bogus statistic than a vaugue political memorandum that doesn't actually say anything substantial, but is open to interpretation.

If the market realizes negative growth for successive quarters, then mathematically the country is in recession.

If more people file for unemployment than new jobs created, they your unemployment statistic rises.

If banks do not trust the financial system then they will charge a higher premium for lending their liquid assets, and interest rates will rise.

If foreign countries like Saudi Arabia and China doubt the ability of the US to fulfill its future debt obligations, then the exchange rates will tank the US dollar.

Ambiguous statements such as

it will also help strengthen our economy for the future by investing in crucial infrastructure projects in health care, education, and energy.

leave room for interpretation of "help strengthen" , "the future" , and "critical infrastructure".

Numbers matter- investors move money, and create jobs based on numbers. Consumers purchase because they have disposable income, or available credit, and product prices are low. The Obama Administration is correct in identifying the intangible psychology of consumers and investors manifests itself in ways unexplainable by numbers, but the ability to alter expectations about the economic outlook has limitations, and those limitations are the reality that numbers represent.

Original Message
__________________________________________________________
Organizing for America - your economic crisis story

Thank you for taking part in an Economic Recovery House Meeting.

Americans have organized Economic Recovery House Meetings in all 50 states -- including 382 in California, 255 in Florida, 115 in Ohio, 199 in New York, 105 in Washington, and 149 in Texas.

That's more than 3,587 meetings in 1,579 cities and 429 congressional districts.

At a lot of meetings, guests watched a video of Governor Tim Kaine and shared their stories about how the economic crisis has affected them. If you haven't already, watch the video and share your economic crisis story.

The media is filled with numbers about the economic crisis. But the numbers do not tell the full story.

The story of this crisis is in homes across the country -- homes where a family member has lost a job, where parents are struggling to pay a mortgage, and where college tuition has slipped out of reach.

That's also where the story of our recovery begins -- in communities where repairing roads and bridges, manufacturing green technologies, and rehabilitating our schools and hospitals will directly impact the lives of ordinary people and their families.

President Obama's recovery plan will help struggling families right now by saving or creating up to 4 million jobs. But it will also help strengthen our economy for the future by investing in crucial infrastructure projects in health care, education, and energy.

Share your story about how this economic crisis is affecting you and your family and join your fellow Americans in supporting bold action to speed our recovery:

http://my.barackobama.com/sharestories

Thank you for organizing so much support at this crucial moment for our country,

Mitch

Mitch Stewart
Director
Organizing for America

Peter Schiff - US Economy prophet - predicts the worst is yet to come

Peter Schiff nailed it in 2006 - predicted the credit crisis events of 2007 and 2008 well in advance.

The scary part . . . his prediction for 2009 and beyond.

Foreign governments stop buying US Treasuries to subsidize the flailing US economy

This lack of confidence will tank the $US 

Commodities (oil,gold) will rise creating massive inflation 

Interest rates will rise and the economy will contract into a prolonged multi-year depression .

Peter criticizes the US government bailout on loaned money from China, Japan, and Saudi Arabia, that it's only delaying the inevitable , and that US citizens are consuming beyond their means, too leveraged, with dangerously low savings rates. 

The stimulus plan does not address any of these fundamental problems or the enormous debt as a result of entitlement programs like Medicare, Social Security, and Medicaid. 

Peter's advice - Buy Swiss franc and Singapore Dollars , stick your head between your knees, and . . . you know the rest.

Information taken from February 2009 Fortune Magazine Article "He Saw it Coming"

YouTube Video : Peter Schiff Was Right 2006 - 2007 (2nd Edition)

The White House - 2.0

One of the reasons why I support Obama and believe that he will be successfull as a president is that he is consistient and follows through with what he has said in the past.  

I was initially attracted to him as a candidate when I saw a youtube interview of him with Google back in November 2007.  One of the things he said in the interview, 

"To sieze this moment, we have to use technology to open up our democracy [...] 

We will put government data online in universiblly accessable formats. (applause) 

I will let citizens track frderal grants, contracts, earmarks, and lobbying contracts- 

I'll let you paricipate in government forums, ask questions, in real time,offer suggestions that will be reviewd before decisons are made, and let you comment on legislation before it is signed. 

And to ensure that every government agency is meeting 21st century standards, 

I will appoint the nations first Chief Technology Officer to coordinate and make certain that we are always at the forefront of technology and that we are incorporating it into every decision that we make."

He mentioned his interest in incorporating the new technological communication and collaboration tools that characterize Web 2.0 into the US government, and particularly the Executive Branch.  All in an attempt to improve not only the perception of the government by its citizens, but also to enhance its efficiency and effectiveness by leveraging its citizens as resources on many of the routine government functions.  

Now that he is actually in office, it is impressive to notice that along with his actions on shutting down the Guantanamo Bay facility and reversing some of the most controversial policies of the previous administration, Obama has chosen implementing his plans on "White House 2.0" to be one of his "day one" initiatives.  I found this article from washington post.com which provides details on the work that he has already begun.

How Obama Will Use Web Technology

Guest AuthorTechCrunch.com 

Saturday, January 24, 2009; 2:54 AM

Editor's Note: The following guest post was written by Kevin Merritt, the CEO and founder of blist, a Web-based list manager and spreadsheet that was used on Change.gov, the Obama Administration's transition Website.

President Barack Obama was sworn into office this week as our nations 44th president. Despite running into a few technical challenges in the first few days at the White House, the Obama Administration will embrace technology in unprecedented ways. Led byforward thinking, web savvy technologists, President Obamas new media team looks poised and ready to fulfill President Obama?s vision of open-source democracy.

Coincident with Mr. Obama being sworn in, the Obama Administration's new media team assumed control of WhiteHouse.gov at 12:01 PM EST on Tuesday. This is the official website of the sitting administration. The new media team has identified three top priorities of the new administration communication, transparency and participation. Let's examine how the new administration has been leveraging web technologies to meet these priorities.

Communication. This administration's use of Google's YouTube during both the campaign and after winning the election leverages Internet video to reach a generation of Americans and global citizens who no longer tune in to AM radio on a regular basis. President Obama has vowed to continue video recording his fireside chats and publishing them via YouTube and other video sites. With the transition of WhiteHouse.gov to the new administration, for the first time ever an official White House blog came online. You can sign up for email updates from the president. Through the blog, Mr. Obama is the first U.S. president to have an RSS feed!

During the campaign President Obama relied heavily on Facebook, Myspaceand Twitter to build support, communicate with constituents and develop a core audience. By far, Mr. Obama has more followers on Twitterthan anyone else (168,000). His fan page on Facebook has more than 4 million fans.

Transparency. Mr. Obama promises to run the most open, honest and transparent administration to date. Through the Your Seat at The Tablesection on the CHANGE.GOVtransition site, the Obama transition team posted the minutes of hundreds of private meetings with then President-Elect Obama.

Even all of the content on the CHANGE.GOV site, unless otherwise noted, is licensed to the public at large via a Creative Commons Attribution 3.0 License.

The Obama-Biden Transition Team used my company, blist, to disclose the names of all donors to the transition project. Two key points of note are that the disclosure was entirely voluntary and the tool they chose to use made the data itself much more consumable by the mainstream public. Compared to a plain HTML table, which is bulky, cumbersome and hard to work with, by publishing the data via a blist widget the data can easily be sorted, searched, filtered, downloaded, printed, emailed and even republished all capabilities not previously enjoyed by most consumers of public data sets.

Participation. The Obama Administration has been conducting bold experiments in interactive government. The Citizens Briefing Book, powered by Salesforce.com, has allowed citizens to suggest topics Mr. Obama should consider upon taking office. Once a topic was submitted, other visitors to the Citizen's Briefing Book could vote the topic up or down and comment on it. Voting, ranking and commenting are hallmark features of web-based, social media applications.

The new Administration has brought forth a new era of honest, open, participatory and transparent government by creatively employing web-based software from innovative companies like Google, Facebook, Salesforce.com and blist. Were eager to see the use of these technologies extended to WhiteHouse.gov initially and from there we'd love to see more government agencies quickly embrace web technologies to promote communication, transparency and participation.