On today's edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to talk about the latest consumer spending and savings numbers that came out this morning. Then Congressman Sean Duffy discusses debt ceiling negotiations, Democrat calls for tax hikes, and Obama's overreach on Libya.
Consumers Pulling Back on Spending as Inflation Builds
Obama Tries to Salvage Debt Talks as Party Leaders Bicker Over Meaning of 'Tax Hike'
Debt Ceiling Negotiations Break Down Over Taxes
Medicare dominates Duffy’s town hall chat
Lawmakers send Obama message of discontent on Libya
Congressman Sean Duffy
Jackson: On the show today Francis is here to talk about the latest consumer spending and savings numbers that came out this morning, then Ben and I talk to Congressman Sean Duffy about debt ceiling negotiations, Democratic calls for tax hikes, Obama’s overreach on Libya, and more. I’m your host Brad Jackson and you’re listening to the June 27, 2011 edition of Coffee and Markets.
So Francis, this morning the consumer spending numbers came out. What’s your thought on the results?
Cianfrocca: The numbers that came out from the Commerce Department show that consumers moderated their spending behavior in the month of May, and that means flat. Not increase. No increase in consumer spending measureable, or little change and --
Jackson: And that was after 10 strong months of gains.
Cianfrocca: Well, yes. But the April gain was revised downward, so the overall picture to the consumers --
Jackson: Right. Right. Right.
Cianfrocca: -- in the first half are stepping back their spending, and that is a very strong leading indicator of economic weakness ahead, because of course the consumer is three-fourths of the economy.
Jackson: Do you think this portends some bad, some more bad economic news in the coming weeks?
Cianfrocca: Well, I think that the, if anything it’s a data point that is part of the pattern. We’ve been seeing for, I would say, you know, I first started telling people privately in early March that the expectations for strong growth and strong recovery that everyone had in January and February were unlikely to pan out. And I think that that expectation is very well setting in now. And in fact, it may even be overdone a little bit. And we may be, the Stock Market is responding to, readily and strongly to an expectation of weaker growth ahead and the capital markets are doing the same. We’re seeing some very, very, this morning the 30 year bond is down, a higher interest rate, and the 10 year is flat. But the 10 year are 286, yielding 2.86%. Very, very low. And I think that that is very much an indicator that expectations are for weakness ahead.
Look I want to mention another data point in the Commerce Department report this morning, which is the savings rate, which ticked up between April and May to 5% from 4.9%. And I think it’s important to be mindful of the savings rate because that is an important key to consumer behavior. Now, some of the news reporting about this decline in relative terms or lack of strength in consumer spending blames high prices for commodities, like the price of gasoline, the price of food. And you’re always, when you’re writing a newspaper for the, you know, the journalists, they always have to have a story. They always have to have a ready pad explanation for everything. You know, journalism, short form journalism that, you know, is most of what we consume, doesn’t deal with large story lines very well, which is why our listeners need Coffee and Markets.
I think that the overall theme, which we’ve identified several times here, is intact, which is a need that consumers feel to improve their personal balance sheets. They need to feel like, in the face of the decline of their housing values and the stock market portfolios over the last two or three years, they appear to be responding as if they need to increase their ability to withstand future economic shocks, or losing your job, or just general economic weakness, or inflation. And when you save more you can consume less in the current period, that’s the definition of it. I mean, that’s what saving is all about.
Jackson: Now, we’re almost at the end of the month which means in early July we’ll be getting the unemployment numbers for June.
Jackson: Do you think this gives you any sort of peak into the crystal ball on what those might look like?
Cianfrocca: It’s a very big number coming up, and I was just thinking, I don’t know the answer. If it’s going to come out on Friday, which is July the 1ast.
Jackson: Yeah. I would imagine not. Is the market, I think it’s closed that day, isn’t it?
Cianfrocca: But the Monday is a holiday so, you know, we don’t know. It usually comes out on the first Friday of the month so we’ll either get it this coming Friday or we’ll get it early next week after the holiday. But it’s a big number this time because May was so bad. May was an evil number, far lower than expectations and the big question everyone is, was May a noise number or was it full of special considerations, special effects, weather effects, whatever it is. Or is it part of, is the trend changing and shifting downward. So, there’s going to be a lot of attention paid to that number.
Jackson: Congressman Duffy, thanks so much for taking the time to join us today. It’s great to have you here.
Duffy: Thank you guys for having me on. I appreciate it.
Jackson: Sure. The talk in town, in D.C. of course, is all about the debt situation. What are your thoughts on how this is going to play out in the next few weeks?
Duffy: Well, I mean from all eyes been observing. And with a meeting with the President a couple weeks ago, our conversations with Secretary Geithner, I get the, I don’t think the President is going to behave in a way that’s going to match his rhetoric. He keeps talking about wanting to work with us to reduce the size of Government, to reduce spending, but it’s apparent from the negotiations that he’s not really there. He doesn’t really want to scale back. And so you’ve seen these conversations break down with Vice President Biden.
I think what’s going to happen is the President is going to have to get involved. And unless he truly comes to the table and says that he’s willing to significantly cut back how much their spending and reform the way we’re spending, I don’t think we’re going to get a deal on the debt ceiling. And I say that with the full knowledge of what it means to not get a deal on the debt ceiling. But also if we continue to spend this way we are going to careen off a cliff here.
Domenech: You know, it seems pretty clear that the President is operating under the assumption that Republicans are going to break on this. That they’re not willing to sort of play a game of chicken here. And I wonder if you could speak to that, because it does seem more and more like what happened yesterday in terms of the Cantor walk-out, in terms of the Kyle (phonetic sp.) walk-out, was designed to send a message that this is not the case. That there’s just not the votes to add tax hikes to this deal.
Duffy: That’s right. And I think the President’s insistence and the Democrats in the House and the Senate, their insistence that we increase taxes on our job creators, especially at a time when our recovery is so fragile. I mean, you don’t help the job seeker by punishing the job creator. And we’re not going to go for tax increases and their adamant that we have them. I think it really underscores their fundamental lack of understanding of how the economy works.
We just harken back to a couple years ago when they thought they could jump start the economy through stimulus spending. I mean, almost a trillion dollars of Government spending they thought would create prosperity, wealth and jobs, and we all know that’s not the case. We have to look at the private sector. You know, pro growth policies. You know, free markets and free enterprise which is going to kick start and grow our economy.
Domenech: Congressman, you’ve obviously been traveling around in your own district and talking in town halls and meetings about these issues. I wonder if you could share with us some of the things that you’re hearing from folks back on the ground about the need and about the, maybe that level of recognition at the ground level that maybe might not exist in Washington.
Duffy: Well, yeah. There’s no doubt that people are hurting. There is a lack of job opportunity. There’s a lack of prosperity and they want solutions. They don’t care who brings a solution to the table, but they want a solution that’s going to work for them. And I think there is an understanding now in America that the policies that have been pursued over the last couple of years aren’t working. This is a prolonged recession. We should have recovered long ago and we’re not seeing that recovery. And I think there’s an understanding that there’s uncertainty in the marketplace. It’s coming from Washington. And when I talk to job creators in my district they easily say this is what’s happening for us. This is why we’re not expanding. This is why we’re not growing. This is why we’re asking our workers to work overtime and not hiring new employees.
So listen this $14.3 trillion debt, what that does for us is it tells us that we don’t know what interest rates are going to be now for us, you know, a couple years down the road. We don’t know what’s going to happen with inflation when our Government is going to, just like QE2 where we’re printing money to buy our debt. They look at the cost of healthcare for every new employee and they can’t calculate that because they don’t know how ObamaCare is going to impact them. And then you look at regulations, specifically coming from the EPA, but other agencies. And then we throw even dot frank (phonetic sp.) on top of it, that has absolutely thrown our marketplace into a tailspin. And our job creators aren’t taking risks anymore and that’s a problem. We need to bring certainty to the market from Washington so folks in the private sector can take risks based on their industry factors, not on Washington factors.
Jackson: One of the key topics that is wrapped up in this whole debt debate is Medicare. I know as you’ve been going around the state having these meetings talking about it, Medicare is one of the things that comes up and I understand Move On appeared at one of your events to raise a ruckus the other day.
Duffy: You know, absolutely. But what I find interesting though is, you know, I (unintelligible) what’s happening at MoveOn.org sends in their folks from across the state lines to try to disrupt the conversation with seniors. And you know, we’re going to have that and that’s okay. I think on our side of the aisle we still have to go out there and communicate what’s happening with regard to Medicare because it’s an important issue.
But what I’m seeing is when I talk about the two plans with regard to Medicare, the President’s plan and the Republican plan, and people understand the two of them. They are siding with us. And when people understand that the President is taking a half a trillion dollars out of Medicare and using it for ObamaCare, our seniors are mad. I mean, they understand that their Social Security trust fund has been robbed over the course of years, and when they see that happening to their Medicare trust fund that makes them wild.
And then on top of that when the President is going to institute this independent payment advisory board, a board that’s going to reduce costs, or actually reduce reimbursements in Medicare to our health care providers, our seniors understand that when you reduce the reimbursements that are already incredibly low, you’re going to affect their access to care. So, seniors understand that the President’s plan is going to affect their access to care today. Our plan is actually going to save Medicare, it’s going to preserve it and protect it for future generations. And so when we have a frank conversation we win the argument.
Domenech: Congressman, you’ve obviously been sort of, had to go through this transition with so many of these new members who are in the Congress and who are sort of getting their feet wet for the first time. I wonder if you could share with us after having been in Washington now for a couple of months, having seen what’s going on there and what the true, sort of, frame of reference is, what are your thoughts? What are some of the things that you’ve learned or that you’ve been surprised by about the way that things work?
Duffy: Well, you know, it seems like the solutions to our problems we face are pretty simple. There are some common sense solutions and it oftentimes appears that this town lacks common sense and that can be relatively frustrating. And you see, I see, how my constituents, you know, are looking for those jobs. As they want to go from that unemployment check to the paycheck and they’re not able to find an opportunity. That there’s partisan gamesmanship going on in Washington, that frustrates me. It makes me angry.
But I think just, you know, case in point, you know, that we’re going to tap into our strategic oil reserves for political purposes. That the President would do that over the summer driving season for his own political gain at a time when we go into the hurricane season and we can just, I mean, the oil supply in the Gulf could be disrupted and we could need those supplies. That he would jeopardize the security of our energy supply in this country for a political gain this summer, I think makes people incredibly mad, and suspect of his motives.
Domenech: You know, I think that’s obviously a key point, but I wonder also, you know, if you’ve learned anything in terms of maybe things that could help folks who have been around the town for so long and who may share your ideas to be better about communicating them with the folks back home. You’ve obviously had a lot of experience doing this for the first time. I wonder if there are some things that you think Republicans and conservatives ought to be doing that maybe they aren’t, they haven’t really figured out yet in terms of how they talk and how they communicate about these issues.
Duffy: Absolutely. I think that’s a very good question and it’s something that we have to do a better job at. We hear the Democrats and especially those in MSNBC, you know, talk a certain line on what’s happening with Medicare and what’s happening with the jobs and the economy. We have to do a better job of educating our base about the truth of what’s happening with regard to the President’s plan that is encompassed in ObamaCare, and our plan. So as they gloat and, you know, have a cup of coffee in the morning they can actually push back with the truth, which I think is incredibly important. And so this is an information war. What I think is unique with our, you know, 87 new freshmen is we’re going out there, we’re doing these coffees with the congressmen, we’re doing town halls, we’re talking to our constitutes. And I think your congressman has the most impact on an area, more so than a State Senator, or a State Rep, or a US Senator. And if we do that effectively, I think the American people are going to see the truth of what’s happening in the country. So, I encourage all of our freshman, and we’ve been doing it, to go talk to our constitutes. But also those who have like mind to get educated so you can engage in this very important debate that’s going to take place over the next year and a half.
Jackson: Congressman, there was a vote in the House about the war in Libya recently. How do you see Obama’s use of his executive power in this instance in Libya and how it’s gone over the line?
Duffy: Well listen, I mean, to think that the President is going to take the position that he doesn’t have to consult the Congress is absolutely absurd. And I think this is a bipartisan issue. This is one issue we’ve all rallied around and said that we’re not going to tolerate it. I mean, the President should and has to consult with us. And there’s a movement now that says listen, we shouldn’t be spending billions of dollars in Libya especially after the President has chosen not to consult us. And that’s frankly bipartisan right now.
Domenech: Congressman, one last question and then we’ll let you go. I wondered if you could speak to your goals in terms of the next year and a half or so, what are some of the key pieces of legislation that you’re looking forward to working on, and is there anything in particular that you have in mind about an issue that’s important to you that you might propose some legislation on?
Duffy: Well, I think and this is in the broad spectrum here of what we’re trying to do. This is truly about the economy and jobs. And as we drill down further we see that the economy and jobs are being greatly affected by the massive debt that we’re accumulating in the country. And I think if you look at the great challenges of our country, we’ve had many, you know. Whether it was the Revolutionary War, the Civil War, World War I, World War II, the Cold War, each generation has risen to the challenge of their time. This debt crisis that’s around our corner is the challenge of our generation.
And if we look out 50 years from now on whether it’s our kids, or our grandkids, or our great grandkids, they will look back at this time in American history and they will know whether we succeeded or failed at the challenge of our time. And if we fail, we are going to send this country on a course that has been never known to the American people. It will be nothing like we’ve ever seen before. And if we’re successful we will have passed on what has been so great about this country, of the country of freedom, and opportunity, and prosperity. And that truly is the battle that we’re fighting right now.
And I think all of us in this freshman class are directly focused to make sure we win this war on debt which then is a success for job creation and opportunity in an ever changing global economy. So, that’s my focus. I have a unique perspective coming from the financial services market. We’re dealing with some distinct pieces of legislation that come from dot frank. I’m dealing with the CFPB, the Consumer Financial Protection Bureau trying to get that under wraps. But overall this focus on debt, jobs and economy is job number one for this Congress.
Domenech: Thank you so much, Congressman. It’s a real pleasure to talk to you and we appreciate having the opportunity.
Duffy: Thank you guys for having me on. Have a great day.
(End of Podcast)