Subject: Lights out in Washington (AEI Economics Ledger) If you have trouble reading this message, click here

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Shutdown, debt limit merge

Washington needs to get serious on the debt limit, and quickly. Michael Strain and Stan Veuger: No one knows for sure what would happen if the U.S. were to default. . . . But we shouldnt wait to find out, and we shouldnt charge up to the brink. . . . President Obamas position that he wont negotiate on the debt ceiling is ridiculous previous presidents have, and he should, too. The GOPs laundry list of demands in exchange for a debt ceiling increase is comic. Shut down the government if you must, but dont shut down the entire economy. Quick hits on the shutdown: Chart: The S&P 500 doesnt mind the shutdown Another chart: But bond markets might mind a debt limit fight Video: Kevin Hassett debates the debt limit on CNBC Another video: Ed Conard says Republicans havent done damage yet

How would Her Majesty end a shutdown? She would fire Parliament. Michael Strain: Max Fisher, a foreign affairs blogger at The Washington Post, published a great essay yesterday afternoon describing the last Australian government shutdown. . . . Ill leave you to daydream about what could have been here in the United States, and whether King George III may have had a point.

The Fed
NEW RESEARCH What now for monetary policy? John Makin: One hundred years after its founding, the Federal Reserves policy activities are proving to be quite different than o riginally envisioned. Although the Feds original purpose was primarily to provide liquidity during financial crises and ensure a low and stable rate of inflation, it is now expending more energy on targeting lower unemployment and higher growth. Monetary policy, however, is ill-suited to achieving these goals. The next Fed chair needs to turn the rising tide of dissatisfaction with Fed policy by returning it to its primary purpose of controlling inflation and reducing uncertainty. Janet Yellens confirmation hearing. Phillip Swagel: Ms. Yellen can appeal to Democratic senators by talking about how the Fed is falling short on both aspects of its statutory mandate: inflation is below the Feds target while the unemployment rate is still painfully high. She will find appreciative nods from the lef t by stating that, like Mr. Bernanke, she is deeply concerned about the lasting impact of unemployment, and that with inflationary pressures still faint, she expects to maintain an expansionary monetary policy.

The up and up
Illegal immigration is on the rise again. Madeline Zavodny: New estimates from the Pew Research Center suggest that the number of unauthorized immigrants is once again rising in the U.S. Although this turnaround from the sharp decline in the unauthorized population during the Great Recession is likely to be condemned by many, its actually good news. Unauthorized immigration is a bellwether of the strength of the economy.

US has a huge energy advantage over China, and its growing. Derek Scissors: Conventional wisdom says that by many economic measurements, China isn't far behind the U.S. and is catching up fast. But in one vital sector energy the U.S. leads and is pulling away. And the odds of this lead diminishing anytime soon, Beijing's current plans aside, are close to zero. Considering China's gains in other areas, why is energy so different? US oil output in September was the highest its been since May 1989. Mark Perry: US oil output in September increased by 25.4% from a year ago to 7.783 million barrels per day, which is the highest monthly output of crude oil in the US since May 1989, more than 24 years ago. . . . If the current pace of increases in US oil output continues, its highly likely that domestic crude oil production will surpass 8 million bpd in October or November of this year, surpass 9 million bpd by next fall, and then reach the important 10 million bpd milestone in early 2014.

Financial policy
Attention regulators: Re-propose QRM to avert another crisis. Peter Wallison: Even Barney Frank, one of the key drafters of the Dodd-Frank Act and a long-time supporter of the affordable housing goals, eventually recognized that a policy of reducing mortgage underwriting standards was self-defeating; it did not help its intended beneficiaries. It was a great mistake, he said in August 2010, to push lower-income people into housing they couldn't afford and couldn't really handle once they had it.

In case you missed it

EVENT SUMMARY How economically free is the US anyway?

Mark your calendar

Shutdown continues until agreement between the House and Senate is reached 10.17 Extraordinary measures to avoid default expire 10.17 AEI Event: Housing and government finance in the postbubble, postBernanke world

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Get up-to-the-minute updates @AEIecon Read more from the American Enterprise Institute economic policy team at www.aei.org/economics. Contact Abby at abby.mccloskey@aei.org if you have questions for the economics team. Sign up for a weekly copy of the LEDGER here. If you were forwarded this message, click here to subscribe to AEI newsletters. Click here to unsubscribe or manage your subscriptions. American Enterprise Institute for Public Policy Research | 1150 Seventeenth Street, NW, Washington, DC 20036 | 202.862.5800 | www.aei.org