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Farrell: 'Beep-beep-beep'

You know the sound that a large truck makes when it backs up? Beep-beep-beep. Well that sounds like what's coming out of Congress since the nonpartisan Congressional Budget Office said it didn't see any savings in the health care proposals but rather an increase in the deficit of a potential $230 billion.

Backing up they go since they see even Obama's polls are down. The most recent Washington Post/ABC poll showed a decline to 49% from 57% of those that approve of the President's handling of the health care situation. 44% versus 29% prior poll actively disapprove. Greg Valliere would tell you Washington is a town driven first, second and third by the polls and the establishment is getting nervous.

Larry Summers acknowledged that the Administration was off on its estimates for unemployment and the shape and speed of the recovery. The White House has chosen to delay its midsummer budget update.

They will have to show higher deficits, higher unemployment, and slower growth estimates than the last summary. It could be they are delaying the report until Congress leaves on its August 7th vacation (that date can't come soon enough!) It's tough to deliver a gloomier outlook and try to muscle through an expensive "who knows how we are going to pay for it" health program.

The Administration is on record as predicting 8% unemployment with a stimulus program (9% without one ), and it is now 9.5%. They also predict 3.2% growth next year and 4% from 2011 to 2013.

To put it kindly, those estimates are somewhat optimistic. The budget numbers will be tough to deal with in any context but add a health care program that would require significant tax increases to pay for only part of it and you have a troubled political situation.

The Leading Economic Indicators were released the other day and were up for the third month in a row. This statistic isn't widely followed but three positive months in a row is encouraging. Rarely would a lift of some 3% from the recent bottom be indicative of continued recession.

Along with recent reports on unemployment claims, the trade deficit, industrial production all over the world, and housing statistics (among a host of others) and predicting the end of the recession isn't hard.

On the other hand anticipating a rising inflation rate with a somewhat better economy is premature. The Fed's emergency lending programs are running off of their own accord. The commercial paper program is 1/3rd of its former size and other programs have fallen into the non-use category. That is one reason why the broad based measures of money — like M3 — are growing sluggishly.

The Fed's balance sheet is also some $300 billion down in size. With enormous amounts of unused capacity and very high rate of unemployment, it is hard to get exercised about inflation.

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