Why America Needs A Jobs Bill

Last night, in front of a joint session of Congress, President Obama announced his $450 billion plan to help jumpstart the U.S. economy. “The American Jobs Act” calls for tax cuts for small businesses, new investments to modernize infrastructure and a 50 percent reduction of payroll taxes for 160 million workers. The plan also aims to reform unemployment insurance to encourage workers to pursue job training and expand summer job opportunities for low-income youth.

Many of the ideas unveiled yesterday have been supported by both Democrats and Republicans. With the political gridlock in mind that continues to plague Washington, the President urged strongly for compromise.

“The people of this country work hard to meet their responsibilities,” Obama said. “The question tonight is whether we'll meet ours. The question is whether in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy.”

As a whole, the plan is a good step in the right direction. If passed, the plan could add 2 percentage points to real GDP growth and 1.9 million payroll jobs, and reduce unemployment by a percentage point, according to Moody’s chief economist Mark Zandi. Extending the payroll tax holiday on its own could add 750,000 jobs, Zandi told McClatchy-Tribune News. While the bill still needs to be vetted by Congress, this short-term stimulus would come at a critical time for an economy that has yet to fully recover from the 2008 recession.

The U.S. unemployment rate continues to hover around 9%. Even more alarming are the number of Americans who are unemployed or working part-time but want full-time work, which stands at 18.5 percent, up from 18 percent at the end of July, according to a Gallup Poll. It is clear that Congress needs to act quickly to improve the labor market. Without immediate action, there will continue to be uncertainly in global financial markets, which will undermine long-term economic growth and private sector job creation.

For far too long, politicians in Washington have ignored our real priorities. America can no longer afford the price of political posturing. As we approach the 10th anniversary of 9/11, we should be reminded of our ability to come together as a nation in times of uncertainty. Today, our economic security is in danger. I hope Congress and the President will set ideological differences aside and unite to pass a jobs bill. The American people deserve it.

Bond Market and the U.S. Dollar

Great article about the Wall Street Journal discussing how the bond market is creating new implications for the U.S. dollar.

Have Bond Vigilantes Become Dollar Vigilantes?

Have market “vigilantes” — the scourges of U.S. economic policy who in years past drove up Treasurys yields in response to inflation fears — traded in bonds for dollars as their weapon of choice?

And if they have picked up the dollar as their sword, they are headed for their final showdown when the Federal Reserve ends its controversial $600 billion bond-buying program in June.

During the late 1970s through the 1990s, bond vigilantes routinely demanded higher yields to compensate for rising prices, cowing U.S. policymakers into curbing budget deficits or hiking interest rates. But the U.S. government’s current unsavory mix of cheap credit and a precarious budget deficit has closed off that path.

The Fed’s bond buying program has suppressed Treasury yields and curbed selling pressure. Also in a world where several central banks are large buyers of Treasurys, vigilantes would not only be fighting the Fed, but also several other central banks.

“What investor will fight the power of a central bank?,” asked Alessio de Longis, vice president and portfolio manager of the Oppenheimer Currency Opportunities Fund. The bond-buying program “may incentivize macro investors to find different vehicles to express” disapproval of U.S. economic policies, he said.

Have the vigilantes pounced on the dollar? The dollar has fallen by more than 10% on a trade-weighted basis since Fed Chairman Ben Bernanke announced the bond buying in August 2010.

The dollar has plunged to multiyear lows against higher-yielding currencies such as the euro, Australian dollar and pound. It has also plumbed a record low against the Swiss franc, sliding nearly 5% in April against a basket of major currencies on its way to its lowest level since July 2008.

“Although the dollar has declined substantially from recent peaks, it remains about 20% above its average level over the last 40 years versus a broad, trade-weighted index,” noted Matthew Gelfand, a senior economist and senior investment advisor at Rockefeller Financial.

As a result, the dollar is not yet at levels that would lead to a loss of confidence in U.S. assets. But should Washington prove incapable of taming its debt-fueled spending and the Fed remain biased toward easy money, the vigilantes would likely press U.S. policymakers.

Before that occurs, “I expect the Fed and the U.S. government are likely to shift gears in the foreseeable future. . . and thus forestall a significant, deleterious drop in the dollar,” Gelfand said.If the vigilantes have moved to the U.S. currency, their hand definitely will be forced when the Federal Reserve ends its bond buying.

They could get caught if the end of ultra-loose liquidity leads to a pent-up wave of dollar buying. John Taylor, chief investment officer at FX Concepts, said the program’s end “should put upward pressure on the dollar, even if interest rate differentials stay exactly where they are.”

But the vigilantes could cash in should the dollar fall into a death spiral if the economy falters or needs even more stimulus once the bond buying ends.

Dollar bears are clearly discomfited by the current U.S. policy mix, but not all market observers think that vigilantes are the culprit.

David Gilmore, a partner at FX Analytics in Essex, Conn., sees the yield differential between Europe and the U.S.–expected to grow wider as the European Central Bank embarks on a monetary tightening cycle–as the single biggest reason why the dollar is falling. Gilmore sees surging stock markets, which have risen on strong earnings, and stable bond markets as a sign that investors have not yet completely lost faith in U.S. assets.

“If those two markets start to weaken because people are losing confidence in the dollar, we will have a rapid change in policy. That would bring forward an exit policy from the Fed,” which would likely start talking up the dollar in order to avoid a run on dollar-denominated assets, Gilmore said.

Invest in America's Children

My Latest Piece Featured @ YPNation.com:
http://www.ypnation.com/blogs/invest-americas-children

Conspicuously missing from the national budget debate is a discussion about strategic investments in early childhood education.

Without a doubt, all levels of government are facing tough choices in this new age of austerity. But if America is to remain a country that prides itself on enabling individuals to pursue their God-given abilities in a free market system, than it must place top priority on ensuring its children have the skills to compete in today’s global economy.

Targeted investments in early childhood development can lead to significant economic gains for society. For every dollar invested in early learning programs today, savings range from $2.50 to as much as $17 per child in the years ahead, according to the U.S. Chamber of Commerce.

Children who are involved in early childhood education programs are less likely to rely on social services and are more likely to earn more. High-quality prekindergarten for disadvantaged three- and four- year olds generates a 16 percent annual rate of return, according to the Federal Reserve.Which leads to increased tax revenues for local communities as well as declining expenditures on costly juvenile justice and social welfare programs.

Many communities across the country have begun to develop innovative programs to address this need. For example, in Cleveland, a broad spectrum of leaders from the public, private, and non-profit sectors joined together in 1999 to develop Invest in Children, an initiative aimed at increasing the development, funding, visibility, and impact of early childhood services. Since its inception, the program has served more than 75 percent of all new infants born in Greater Cleveland. Students who participated in the Invest in Children program and then entered kindergarten in the Cleveland Metropolitan School District averaged a score three points higher on the Kindergarten Readiness Assessment for Literacy (KRA-L) than other students in the district.

Early learning programs are a good investment, yet they are too often neglected in economic agendas, despite their importance to America’s long-term strategic interests and the high rates of return they generate for the public and private sectors.

Investing in early childhood education is an important first step as America plots its path back to prosperity. Tax cuts and entitlement reform are only part of the solution. To win the future, we must invest in our most precious asset—our children.

Building A Critical Mass

St. Patrick’s Day is a great day if you’re a Clevelander. It’s one of those rare occasions where you can experience having a critical mass of people downtown. Bars are packed. Cars stand at a stand still on the street. If you close your eyes and take in all of the sounds of the city, you would easily think you were in Chicago or New York City. Walking down the street, I was struck by the comments of a bystander who said, “I would easily live downtown if it were always this crowded and filled with energy.” The sad reality is that there a probably thousands of people across Northeast Ohio who feel the same way. They would live in the city if it had a vibrant urban core, good schools, and a sense of connectedness.

The latest figures from the U.S. Census make the case for a new sense of urgency around quelling Cleveland’s population loss even greater. With 396,815 residents, the lowest since the 1900’s, the challenge of creating a robust urban core seems daunting, but the problem can be fixed. To help solve Cleveland’s population problem, a group of civic and business leaders have come together to help re-engineer Cleveland as an international metropolis, through Global Cleveland, a new initiative aimed at attracting diverse talent and marketing the city in immigrant and minority communities across the country. The group has set out an ambitious goal of attracting 200,000 immigrants over the next two decades. This new project is also focused on building a welcome center that would serve as a way to connect new residents to the greater Cleveland community.

The Global Cleveland project, if done right is certainly a step in the right direction. By attracting new immigrants and creating more open and welcoming neighborhoods, the city could truly begin to develop the entrepreneurial culture and dynamism to foster sustainable economic growth. Creating a prosperous urban core in Northeast Ohio also requires dramatically transforming public education to help encourage middle-class families to live in the city. More of the same just won’t do.

Local Budgets, The Bond Market, & Winning the Future

The protests in Wisconsin and Ohio have made us even more aware of the difficult choices that lie ahead when it comes to America’s fiscal challenges. Nowhere is the problem more real than at the state and local level, where according to the Center on Budget and Policy Priorities, 45 states and the District of Columbia are projecting budget shortfalls totaling $125 billion. Failure to repay these debts not only has huge implications for jobs and public services, it also presents severe implications for the municipal bond market.

The US municipal bond market is a $3 trillion part of the global credit markets where state and local governments can borrow funds to support the building of schools, bridges, and hospitals. Without access to these funds, local communities would not be able to support vital community development projects. In the face of stark economic challenges, state and localities may be forced to slash spending and increase taxes to repay debts or restructure their debts entirely which would force bondholders to swallow huge losses with their citizen public sector union counterparts.  

With these tough choices, state and local leaders need to engage in a pragmatic debate about best ways to ensure fiscal solvency without undermining the future competitiveness of their local economy. Every one has to make sacrifices. Raising taxes alone won’t solve the problem. Eliminating collective bargaining and destroying America’s middle class won’t also help restore our fiscal woes either. It will take political will, courage, and trust for local communities to deal with the unpopular choices that lie ahead. As President Obama said in a recent speech:

“To win the future, we have to out-innovate, out-educate and out-build the rest of the world, tapping the creativity and imagination of our people. We have to take responsibility for our deficit, by investing in what makes America stronger and cutting what doesn’t. And we have to reform our government so that it’s smarter, leaner, and better able to take on the challenges of the 21st century.”

I hope our leaders can heed this message sooner rather than later.



Cleveland: A Visionary City

Last week, Yahoo Travel ranked Cleveland as one of the word's most visionary cities. This comes as a pleasant surprise for a city who is usually showcased in a negative light when it comes to rankings on misery, crime, and education.

Being back in Cleveland recently, I have been able to feel the sense of excitement and optimism in the possibilities for the future. Businesses, policymakers, and foundations are collaborating in innovative ways to turn the tide to create sustainable economic growth in the region. Just in the past two weeks the city has held groundbreaking ceremonies for over $2 billion dollars  worth of development projects, which over time has the opportunity to make Cleveland a true 24-hour city.

Social entrepreneurs from across the city are also rallying together to help renew the civic fabric of Northeast Ohio. Just yesterday I had the opportunity to meet with Jack Storey, Co-Founder of Saving Cities, an organization dedicated to using media as a tool to advance community development across the Rust Belt. Jack shares the passion and intellectual curiosity of so many young professionals in Northeast Ohio who are dedicated to putting Cleveland back on the map. They just need the right voice and the right mechanisms to ensure that their ideas can be translated into action.

Moving forward, Cleveland should be proud of this new ranking. Our city has all the right assets to be a competitive city in the 21st century. For too long we have focused on whats wrong and not whats right. Citizens of Cleveland should hold their heads high and be proud as people from all walks of life are rolling up their sleeves to solve local problems. At the end of the day, this is the only thing that will allow us to realize our true destiny.

Lessons from Italy

Last month, TIME Magazine did a great story on what lessons Cleveland can learn from Torino, Italy. Check out the piece below: 

What Tornio Can Teach Cleveland 

By Stephan Faris 

The closure of Torino's Lingotto assembly plant in 1982 was a body blow for the Italian car capital. The Fiat automobile factory, inaugurated in 1923, was once the largest in Europe. Assembly lines carried cars up five levels and delivered them fully formed onto the roof, where they'd whip around an oval test track before spiraling down the building's ramps and heading to showrooms. The shutdown marked the end of an era. That decade, Torino would lose more than 100,000 jobs, a trend that would continue through the rest of the century as the city's industrial dominance slowly bled away. (See TIME's photo-essay "Torino's Lingotto: Symbol of an Aging Auto City Reborn.")

Today the Lingotto plant stands once again as the symbol of the city. Only now the old factory serves as a testimonial that there can be life after the auto industry. Redesigned in the 1990s by Italian architect Renzo Piano, it forms the hub of a revitalized commercial district. The assembly floors, far from silenced, host a shopping mall, a multiplex, two hotels and an art gallery, and on the roof are a rooftop meeting room, a panoramic restaurant and a helicopter landing pad. The test track remains, now at the disposal of hotel guests looking for a jog high above the city streets.

Torino — once known as the Detroit of Italy — has become a model of how a city can transform itself after an industrial collapse. It's the latest chapter in how this city, which dates to ancient Roman times, has remade itself as its political and economic fortunes have shifted. Once Italy's capital, Torino turned to industry at the end of the 19th century after power moved to Rome.

This time, when its home industry waned, Torino turned outward. An aggressive urban plan, expansion into international markets, investments in innovation and the buildup of new sectors like food and tourism have made the city one of the most dynamic in Italy. Roughly 60% of Torino's abandoned industrial land has been repurposed. Its per capita GDP is more than 10% higher than the national average. Delegations from hard-hit cities like Cleveland and Detroit come to learn how their metropolis might become the Torino of America. "Turin is a city that had a plan to come back," said Detroit Mayor Dave Bing while touring the city in November. "It's good to see we're not in this by ourselves." (See pictures of how cities are powered.)

Torino was a company town whose company nearly went down. When Fiat sneezed, Torino didn't just catch a cold; everybody competed to supply the handkerchief. So when the car company started to slump, much like GM, the city was suddenly faced with the possible loss of its only customer. Torino's leaders knew they had to diversify, not just technologically but also geographically. The city would concentrate on its core competences — automobiles, aerospace, industrial design — but market them elsewhere.

A series of public agencies began marketing Torino as a package. Rather than having a host of small companies feeding into a single big one, the businesses in the region would promote themselves as a single brand, offering one-stop shopping to clients all over the world. "It's strength through numbers," says Silvia Sabato, a manager at the Piemonte Agency for Investments, Export and Tourism, which markets the area's firms internationally. "We don't represent just one company but an ensemble of companies." (See why Bangkok is the capital of gridlock.)

As an example, Sabato points to companies like the 2A die-casting foundry, located in a suburb about 20 minutes outside town. There, in the red glow of molten aluminum, the city's manufacturing tradition is still very much alive. Indeed, thanks to contracts developed through the agency that pull in more than a quarter of the company's $67 million annual turnover, the company logged its best year ever. "We will soon be expanding," says Vincenzo Ilotte, 2A's director. Exports account for 85% of the firm's business; Fiat, just 8%. "Fiat is one of our customers," says Ilotte. "It's not our only customer."

Torino's experience suggests that development can't necessarily be left to its own devices, especially in the face of historic forces like deindustrialization. Industry can be guided, even given a boost. Public agencies and philanthropies can provide small and medium companies with some of the services that would be handled by the back office at a company like Fiat or General Motors: funding R&D, promoting products, attracting talent and financing start-ups. In addition to hosting the 2006 Winter Olympics, Torino has revamped its public transportation, redeveloped industrial sites and invested heavily in culture and tourism. "The private sector is not going to invest only because there's open space," says Sergio Chiamparino, Torino's mayor. "Our principal lever is the things our territory has to offer."

One of those things is Torino's university, the Politecnico di Torino, which the city has leveraged into industrial advantage. An extension of the campus hosts the I3P incubator, where start-ups can get a three-year jump start and contacts with consultants and funders, which could lead to no-collateral loans from local banks. Nearby, workers are finishing a $33 million facility where General Motors designs and tests diesel engines. GM established the branch in 2005 after breaking off a joint venture with Fiat, electing to remain in Torino in no small part for the skills of the Politecnico's graduates, who make up more than half the project's 420 engineers. "They're almost plug and play," says Romualdo Ruotolo, a manager at GM. "They have a lot of knowledge when it comes to diesel engines." (See pictures of London preparing for the 2012 Olympic Games.)

The city's example has encouraged the likes of Cleveland, where a group of philanthropists has teamed up with local politicians to boost the region's economy. Once a powerhouse of heavy industry — steel, rubber, automobiles — Cleveland has struggled for decades to find its footing. Recently, however, the city and the surrounding area have established agencies like those in Torino to help young companies get off the ground, assist midsize businesses with finding new markets and guide the city's old manufacturing base into faster-growing sectors such as medical supplies, flexible electronics, clean energy and next-generation polymers. "The question is, What do you do if Bill Gates doesn't settle down in your town?" says Brad Whitehead, president of the Fund for Our Economic Future, a partnership of more than 100 regional philanthropies. "We're trying to put ourselves in the way of luck."

Cleveland and its region are now home to 19 venture-capital firms — up from two in 2000 — and are focused on working to help existing firms find their places in the new economy. GrafTech, a company that once provided carbon and graphite products exclusively for the steel industry, now makes heat sinks for electronics. And Lumitex, a maker of backlighting systems for LCDs and dashboards, has expanded its customer base from car companies to hospitals, providing lighting for surgery. "We need to build on our region's existing strength in old-line manufacturing and connect them to these high-growth sectors," says Daniel Berry, president of MAGNET, a government-funded organization that advises the region's manufacturers. "It would take northeast Ohio a very long time to build a new economy using only entrepreneurial start-ups." (See pictures of Beijing cleaning up.)

If Cleveland has one advantage, it's that its belt has already been tightened. Since April 2009, Cleveland's unemployment rate lagged the national average. In the first half of this year, it was a leader in private-sector job growth — signs, say the city's leaders, that by following in the footsteps of Torino, the metropolis might have finally found the way out of its slump. "We have to do this," says Whitehead. "We have to achieve a transformation. You see and hear a story like Turin's, and you say, 'Well, maybe it's a tall mountain, but it's a mountain that can be scaled.'"