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Unnecessary Deficit Panic: Seven And A Half Things To Know

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GRAND BARGAIN DEFICIT
President Obama is thinking about a grand bargain on the deficit. | AP
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Thing One: Economy To Be Sacrificed To Angry Deficit God: Great news, something is probably going to be done about the federal budget deficit soon. Whether we need it or not.

That is because, unlike income inequality, chronic unemployment, climate change and a host of other truly dire problems, all of our country's best and brightest minds have apparently come to the agreement that the budget deficit is our nation's most pressing concern. And, lucky us, they have all been thinking really hard about it and are coalescing around the same ideas about what to do: Squeeze the economy with spending cuts, including Social Security benefits, and a dollop of tax hikes.

A group of more than 80 corporate CEOs, some ordinarily shrinking violets who stay out of political fights, find the deficit issue so urgent that they have put out a statement calling for a grand bargain that includes $3 of spending cuts for every $1 in tax revenue raised, writes David Wessel at the Wall Street Journal: "The CEOs, in a statement to be released on Thursday, say any fiscal plan 'that can succeed both financially and politically' has to limit the growth of health-care spending, make Social Security solvent and 'include comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.'" This follows a similar plea last week from Jamie Dimon and other bank CEOs to deal with the looming "fiscal cliff" by striking a deal on the deficit.

Sounds like the usual Business Roundtable malarkey, no? Lower tax rates, privatize Social Security and "broaden the base," which often means "make the Poors pay some more taxes." Except President Obama is coming close to saying the same thing. In an off-the-record, then on-the-record interview with the Des Moines Register released yesterday, Obama suggested that one of the first things he'd do after the election is take another stab at striking a "grand bargain" with Republicans on the deficit. With the glaring exception of wanting to raise taxes on the wealthiest Americans, the terms of his plan do not sound all that different from the CEOs' -- he wants $2.5 of spending cuts for every $1 revenue raised, notes Ezra Klein of the Washington Post.

Obama didn't talk about cutting Social Security benefits in that interview, but he has put that sort of thing on the table before, and liberals are starting to get just a bit nervous that he will do so again. The funny thing is, he doesn't have to do that at all. He can simply let the Bush tax cuts expire at the end of the year and let the huge automatic military-spending cuts Congress mandated take place -- fall off at least some of the fiscal cliff, in other words -- and voila, the deficit is suddenly reduced by a whole bunch, Jonathan Chait of New York magazine recently pointed out, and Obama's bargaining position is much stronger. Either way, is this really the conversation we should be having right this second, with the economy weak and unemployment high?

Thing Two: Bad News For BofA: U.S. prosecutors sued Bank of America yesterday over mortgages sold to Fannie Mae and Freddie Mac by Countrywide Financial, which BofA bought on the cheap just ahead of the financial crisis. The government says Countrywide, in a program appropriately dubbed "the Hustle," misled Fannie and Freddie about the quality of those loans. It wants $1 billion to cover the damages, which BofA probably has laying around on its new "fortress balance sheet." The three top mortgage lenders in the country -- BofA, Wells Fargo and JPMorgan Chase -- have all now been sued by one government agency or another over these lousy mortgages, in addition to swarms of private lawsuits. In lieu of criminal convictions or more significant penalties, it will have to do.

Thing Three: Rwanda Can Wait: Convictions have been easier to come by in the government's wide-ranging crackdown on insider trading. The biggest conviction so far has been that of former Goldman Sachs director Rajat Gupta, who yesterday was sentenced to two years in prison and a $5 million fine for passing on tips to his buddy, former hedge-fund manager Raj Rajaratnam. Gupta had asked to be sent to Rwanda to do community service instead, but sentencing Judge Jed Rakoff suggested prison time could help serve as a deterrent. Though the government has won convictions of more than 70 people in its crackdown, I'm going to go ahead and bet this doesn't do all that much to stop insider trading: It's too easy to do, and too lucrative for many people to resist.

Thing Four: Fed Meets, Does Nothing: Believe it or not, there was a Federal Reserve policy decision yesterday, at the end of a two-day-long policy meeting. The result of all that work was a Fed policy statement that is almost identical to last month's statement. The Fed is on hold, with its foot on the gas pedal of the economy, keeping interest rates near zero and buying up mortgage bonds to pump cash into the system, for the foreseeable future.

Thing Five: New Housing Bubble Begins: I'm kidding about the bubble thing, but housing continues its slow and steady comeback from Armageddon. Yesterday the Commerce Department reported that new home sales jumped 5.7 percent last month to their fastest pace since April 2010. Sales are up 27 percent from a year ago -- but are still less than half their average level between 1990 and 2006, writes the Wall Street Journal.

Thing Six: Enough With The Oil, Already: You wouldn't know it from all the constant political talk about turmoil in the Middle East and high gas prices, but the world is awash in crude oil right now, the Wall Street Journal writes. "The jump is due to a confluence of events: Turmoil in the Middle East has subsided along with the production and transportation problems that had been stifling oil flows from the U.S., North Sea and Africa. Meanwhile, Saudi Arabia is pumping more oil to replace falling Iranian exports, keeping output from the Organization of the Petroleum Exporting Countries steady."

Thing Seven: Long Miserable Flights No Longer Available: Singapore Airlines said yesterday it was ending the two longest airline flights in the world, between Singapore and Newark, N.J. and between Los Angeles and Singapore, citing low demand and high fuel prices. Maybe the oil glut will take care of the second problem?

Thing Seven And One Half: Football Coach Or Walrus: Thanks to BuzzFeed we can now once and for all settle the age-old debate: Which NFL coach looks most like a walrus?

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Calendar Du Jour:

Economic Data:

8:30 a.m. ET: Initial Weekly Jobless Claims for Oct. 20

8:30 a.m. ET: Durable Goods Orders for September

10:00 a.m. ET: Pending Home Sales for September

Corporate Earnings:

Apple

Aetna

Altria

Amazon.com

Colgate-Palmolive

ConocoPhillips

Procter & Gamble

Sprint Nextel

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