Download the PDF. Great paper!

In considering fiscal policy at this juncture, policymakers need to answer several key questions. Is fiscal stimulus needed? When should such stimulus be provided? And what would constitute effective fiscal stimulus? These questions are not merely technical. The livelihoods and living standards of many Americans are at stake. Fortunately, economic research provides clear theory and evidence for making appropriate decisions about if, when, and how to craft fiscal stimulus. This paper summarizes the evidence and provides straightforward principles and examples for formulating effective stimulus.

If, When, How: A Primer on Fiscal Stimulus - Brookings Institution

WASHINGTON (MarketWatch) -- The U.S. posted a record $48.3 billion budget surplus in December, as year-to-date receipts and outlays also hit record highs, the Treasury Department reported Friday. The monthly surplus is a bit higher than the $47 billion estimated earlier this week by the Congressional Budget Office. The December figure is 15% above the year-ago surplus of $42 billion. Year to date, the U.S. is running a budget deficit of $105.5 billion.

U.S. Dec. budget surplus hits record $48.3 billion - MarketWatch

The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody’s, the credit rating agency, said on Thursday.

The warning over the future of the triple-A rating – granted to US government debt since it was first assessed in 1917 – reflects growing concerns over the country’s ability to retain its financial and economic supremacy.

FT.com / World - Moody’s says spending threatens US rating

Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

The $1.4 Trillion Question

Jan. 7 (Bloomberg) -- Harvard University economist Martin Feldstein, head of the group that dates U.S. economic cycles, said the odds of a recession have risen to more than 50 percent after a report showing unemployment jumped in December.

``We are now talking about more likely than not,'' Feldstein, president of the National Bureau of Economic Research, said in an interview in New Orleans two days ago. ``I have been saying about 50 percent. This now pushes it up a bit above that.''

Feldstein Says U.S. Recession Odds More Than 50% After Job Data

The key thing to remember is that businesses drive the economy. Businesses create jobs and incomes for consumers to spend. Today’s John Edwards/Mike Huckabee anti-business populism sounds more like William Jennings Bryan than Adam Smith. It’s absolutely crazy. They attack Wall Street and investors, which is another way of attacking capital. Without capital investment, there will be no new business, no new jobs, and no middle class.
...
Right now the single best thing President Bush and Congress can do is slash the corporate tax rate for large and small businesses. Bush must reach out to Charlie Rangel and move the corporate tax to 25 percent from 35 percent. Then, instead of taxing successful capitalists as an offset, Congress can entirely abolish corporate-tax subsidy loopholes, special provisions, and other corruption-inducing K-Street earmarks.

A middle-class tax cut to help families and small businesses would also work wonders. This can be done by collapsing the three middle-income tax brackets of 15 percent ($15,650), 25 percent ($63,700), and 28 percent ($128,500) into one 15 percent bracket. These brackets apply to small-business owners who may be suffering the high costs of energy and raw materials. The biggest weakness in the jobs report is the household survey which is comprised of these owner-operated small businesses. Household job increases have slumped to only 262,000 over the last year.

Larry Kudlow on Goldilocks and Tax Reform on National Review Online

Stagflation is coming. Lock up your portfolio. We could be on our way to a replay of the 1970s.

That's the worry among an increasing number of investors as we head into 2008. It's certainly possible for the year ahead, but it's unlikely. In this column, I'll look at what would have to go wrong for stagflation to return and how to position a portfolio if you think stagflation is more of a danger than I do.

Is '70s-style stagflation returning? - MSN Money

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BOSTON (MarketWatch) -- A new exchange-traded fund holding Europe's single currency gives investors a convenient way to hedge fluctuations in the U.S. dollar.

Rydex Investments launched the first currency ETF, Euro Currency Trust, on the New York Stock Exchange. The ETF is geared to rise when the euro strengthens against the dollar and to decline when the euro weakens.

CurrencyShares Euro Trust

WASHINGTON (Reuters) - Federal Reserve Chairman Alan
Greenspan on Monday warned that hedge funds had picked the
"low-hanging fruit" of easy profits and may be set for a fall
as they assume more risks in a quest for high returns. He said, however, that the financial system should escape
widespread damage from hedge fund woes as long as banks lending
to them managed risks effectively. "After its recent very rapid advance, the hedge fund
industry could temporarily shrink, and many wealthy fund
managers and investors could become less wealthy," the
influential Fed chief cautioned in remarks prepared for
delivery via satellite to a bankers conference in Beijing

MSN Money - Reuters Business News: Greenspan: trouble ahead for hedge funds