Is Another Round of Quantitative Easing Coming?

Today was a special Jobs Day Tuesday as the Bureau of Labor Statistics released the September jobs report, which had been delayed due to the government shutdown. It wasn’t very good. Total non-farm payrolls increased by 148,000, which was less than the expected 180,000, while the unemployment rate dropped from 7.3% to 7.2%. The labor force participation rate remained unchanged at 63.2%. The July (-15,000) an August (+24,000) revisions combined for an increase of 9,000 jobs.This report was disappointing, but what’s even scarier is the trend lines.

Here’s the three-month moving average going back to the end of 2011:

3 month moving averageThere’s a pretty good chance that something is wrong with the way the BLS seasonally adjusts the numbers. Every winter has been much better than the following summer, but the trend is still not good. We’re into Obama’s second term and the economy is still barely growing. The reasons for this aren’t clear, but the government likely has a lot to do with it. Sequestration is terrible policy that is taking a chunk out of the economy at the wrong time. Austerity is the last thing we need right now. The expiration of the payroll tax cut at the start of this year is likely having some effect as well. And, of course, shutting down the government and risking a default is about as boneheaded as it gets. Instead of constructing policies looking to get the economy back going, the federal government (read: Republicans) have stood in its way.

The Federal Reserve has been concerned about fiscal policy and chairman Ben Bernanke has repeatedly emphasized that Congress needs to do more. Except that’s never going to happen. The question then is will the Fed do more? The economy is slowing down, not recovering. The FOMC had hinted at tapering in September, but pushed it off due to weak data and the impending fiscal fights. The market had assumed that the Fed was going to reduce its bond purchases regardless of the underlying data. By delaying the taper, the central bank attempted to regain its credibility and prove to investors that it’s data-dependent. Now, this is another test of that credibility.

This was a bad report and the economy is trending downwards. More fiscal fights loom and sequestration will be worse in 2014 than it was this year. Inflation is still running well below the Fed’s 2% target. If the Fed is really data-dependent, it will seriously think about making its policy even more accommodative either through QE4 or another mechanism.. The economy is no longer improving at a moderate pace. It’s slowing and there’s no chance that fiscal policy will help. It’s time for the Fed to pick up the slack.

Delaying Obamacare May Be Necessary To Save It

There are a couple of new stories out today that give more details on the troubles of HealthCare.gov, the federal health exchange. It’s a mess. From a New York Times article today:

Administration officials approached the contractors last week to see if they could perform the necessary repairs and reboot the system by Nov. 1. However, that goal struck many contractors as unrealistic, at least for major components of the system. Some specialists working on the project said the online system required such extensive repairs that it might not operate smoothly until after the Dec. 15 deadline for people to sign up for coverage starting in January, although that view is not universally shared.

That’s the worst case scenario and it looks like it may be the most likely one too. Starting January 1st, the individual mandate takes effect. That means that millions of Americans must sign up for health insurance before then. The law gives everyone a three-month grace period, but because of processing delays, you need to purchase insurance by Feb 15. After that, you’ll have to pay the prorated fine of either $95 or 1% of your income for not having insurance. That’s why that February 15 date is so important. What happens though if you spend months trying to sign up for Obamacare, but the website doesn’t work properly? Surely, the federal government can’t force you to pay a penalty for its failure. Without changes to the law though, we’re heading that way.*

The Obama administration has been adamant that it will not delay either the law or the individual mandate. It does not want to give any more time for Republicans to attempt to dismantle it, but time is running short. What happens if in a month, the exchanges are still not working? Will the administration have the political courage to stand up and say we need more time? Will Republicans allow a delay?

There’s another important point here: we can’t only delay the individual mandate. It shocks me how many conservatives have pushed for an individual mandate delay. That would eliminate the stick meant to bring young, healthy people to the exchanges to offset the influx of old, unhealthy people. It would likely bring about the dreaded death spiral where too many old, unhealthy people sign up for health care forcing insurance companies to raise premiums, which then scares away the most healthy people and forces insurance companies to raise premiums again and so on. The entire point of the individual mandate is to force those young people on to the exchanges. Without them, the law will fail.

As that February 15 date approaches, Republicans will see the political value of calling for an individual mandate delay. Imagine how easy it will be for any GOP congressmen to argue that the federal government is going to fine you for the failure of the exchanges. It’s a perfect talk point. Simple, easy to understand, and dead right.

That’s why the administration needs to get out ahead of this. If there is a decent probability that the exchanges won’t work in December, it’s time to take HealthCare.gov down and give the contractors an extra 3-6 months to work on it. The longer they wait, the worse it will look politically and the greater the chances that political pressure from the right will stop the law before it has a chance to get going. In the end, Democrats have control of the Senate and White House. If Obamacare is delayed until June, the Republicans will still have no leverage to attempt to stop it. Only Obama and Senate Democrats have the power to block the law. For the past two years, using that power to defeat the GOP’s attempt to undermine Obamacare was vital. Right now though, it’s looking more and more likely that the opposite is true. The greatest threat to the Affordable Care Act is no longer the Republican Party. It’s the law itself. Democrats need to start looking at that power as a way to save Obamacare, not a way to thwart the opposition.

*Thanks to Adrianna McIntyre for helping clear up some mistakes I made about the timing. Important date is February 15 for signing up for health insurance and avoiding the penalty, not December 15,