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Video: De Kock Doubts Greece Will Default or Restructure Debt

May 20, 2011

May 20 (Bloomberg) — Gabriel de Kock, an executive director at Morgan Stanley, talks about Greece’s credit rating and the prospects of the country defaulting on its debt. Fitch Ratings cut Greece’s rating to B+, four levels below investment grade, from BB+. De Kock speaks with Pimm Fox on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)

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Metropark To Shutter All 70 Stores

May 19, 2011

GA Keen Realty Advisors has been retained to assist in the marketing and disposition of 70 leased properties across 21 states operated by Metropark – a high-end clothing company that filed for bankruptcy earlier this month. “Metropark has locations in some of the best malls and centers in the country, with great locations within those malls with build-outs that are first class,” said Matthew Bordwin, co-president of GA Keen Realty Advisors. “This…

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Lowe’s Profit Falls On Cold Rain, Chilly Weather

May 16, 2011

NEW YORK — Lowe’s Cos. profit fell 6 percent in the first quarter, as the bad weather that plagued much of the country kept customers away from their gardens and other outdoor projects. The Mooresville, N.C., chain’s quarterly performance missed Wall Street expectations and the nation’s No. 2 home improvement retailer lowered its full-year outlook. Lowe’s results come a day before the country’s biggest home improvement retailer, Home Depot Inc., reports its quarterly figures. Both companies depend on the spring selling season to give them a boost, as shoppers typically head out in droves to buy seasonal items such as flowers, patio furniture and barbecue grills. But cold and rainy weather across the northern half of the country and tornadoes in the Southeast have been a drag on the season so far, Lowe’s said Monday. “It’s difficult to overcome Mother Nature when it comes to weather-related conditions,” Chairman and CEO Robert Niblock said during an interview with the Associated Press. While home owners dealing with flooding and tornado damage will be looking to make repairs, Niblock said any business related to that will be spread out over the long term. Weather is not the only concern. Lowe’s said customers remain wary about spending due to ongoing worries about the housing market and rising gas prices. On Monday, the National Association of Home Builders reported that U.S. homebuilders are concerned the housing market won’t recover this year, with some feeling it may be getting worse. Economists expect home prices will continue to struggle this year before a modest recovery begins. Lowe’s reported a 3.4 percent decline in traffic during the quarter, with average receipt nearly flat. For the three months ended April 29, Lowe’s net income dropped to $461 million, or 34 cents per share. A year earlier it earned $489 million, or 34 cents per share, a year earlier. Revenue dipped 2 percent to $12.19 billion, as sales of outdoor items fell. Revenue at stores open at least a year slipped 3.3 percent. The latter metric is a key indicator of a retailer’s health because it excludes results from stores opened or closed during the year. Analysts polled by FactSet expected higher earnings of 36 cents per share on revenue of $12.54 billion. Lowe’s first-quarter earnings came in at the low end of its projected guidance of 34 cents to 38 cents per share. Its stock declined 92 cents, or 3.6 percent, to $24.84. Lowe’s cautioned in February that consumers were still holding back on big projects. The chain was also up against a difficult comparison with last year, when shoppers took advantage of federal cash-for-appliances rebates, Niblock said. For the full year, Lowe’s now expects earnings of $1.56 to $1.64 per share and a revenue increase of about 4 percent, implying revenue of about $50.79 billion. The retailer previously forecast earnings of $1.60 to $1.72 per share on a 5 percent revenue increase. Analysts predict full-year earnings of $1.70 per share on revenue of $50.9 billion. Lowe’s anticipates second-quarter earnings of 65 cents to 69 cents per share, with revenue up about 4 percent, implying revenue of about $14.93 billion. Wall Street expects earnings of 68 cents per share on revenue of $14.82 billion. The retailer anticipates the second half of the year being stronger than the first, as it will no longer face comparisons that include government stimulus programs. Lowe’s ran 1,751 stores in the U.S., Canada and Mexico as of April 29.

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Dan Collins: Donald Trump’s Legacy: Would You Buy a Used Apartment From This Man?

May 16, 2011

Donald Trump is out, but the memory of the Trump-for-President era will, I hope, live on. We’ve learned a lot. The public, for instance, has been educated to understand that you can’t trust a thing the guy says. “I maintain the strong conviction that if I were to run, I would be able to win the primary and ultimately, the general election,” Trump said in a statement. Is it possible he really believes that? If so, would you buy a used apartment building from this man? The Trump presidential campaign should go down in history as a huge warning sign for other rich, high-profile jerks who think they can notch their name recognition up to even more astronomic levels by pretending to be presidential timber and making outrageous, headline-grabbing allegations about whoever’s running the country. Doesn’t work. Much more important to the egomaniacs who might be tempted to consider this kind of activity, It’s Bad For The Brand. A guy like Trump, who’s basically a reality show celebrity, can skate below the surface of real press scrutiny for a long time. For instance, he continually bragged about his academic background. “I’m a really smart guy. I was a really good student at the best school in the country,” he said on The View . Who ever bothered to check the facts – until Trump the alleged candidate started trashing Obama’s education, claiming he had “heard” that the president got terrible grades and demanding to know how he made it into Columbia and Harvard. Now – since he brought it up – we’ve learned that Trump spent two unremarkable years at Fordham (where he was on the squash team), after which he made a sudden leap to the University of Pennsylvania’s Wharton School. (The undergraduate version, not the one that gives you an MBA.) We also know that his path to that amazing leap in academic status began with an interview with an admissions officer at the University of Pennsylvania who was a high school classmate of Trump’s older brother. Also that after he got to Penn, Trump continued his pattern of never distinguishing himself academically in any way. But the real heart of the Trump Brand is his reputation as a great business guy and real estate developer. Now, thanks to a recent front-page story in the New York Times , we know that a lot of the glitzy Donald Trump housing developments are actually somebody else’s projects, which leased the Trump name and sometimes purchased an appearance by The Man himself at a meet-and-greet for prospective buyers. When the projects go bankrupt, do not expect the fact that Trump put his name on the building meant he put any money on the line. Ditto for the now apparently defunct Trump University, which, reporter Michael Barbaro noted, got a D minus from the Better Business Bureau. If we wanted to keep at it, we could go on to Trump’s military record. He recently told Fox’s Channel 5 news in New York about the “amazing” experience of being in college and watching the draft lottery during the Vietnam War and discovering that he had a “very, very high” number. The problem here is that warrior Trump got out of the Vietnam War by receiving a medical deferment. He was classified 1-Y by the Selective Service in 1968, according to Wayne Barrett’s biography of Trump. [Disclosure: Barrett and I are old friends and we have co-authored a book on Rudy Giuliani.] And the first draft lottery wasn’t held until more than a year after Trump left Penn. So again, the moral. Here was a long-running celebrity who made an extremely good living by marketing himself to the world as a colorful but (supposedly) canny blowhard businessman. Then he decides to pretend to run for president on a platform that revolved around whether the current occupant of the White House was there illegally. Now, Barack Obama is doing fine but Donald Trump has been exposed as a guy who will, for a fee, put his name on anything from a troubled real estate development to a grade D for-profit school. Who brags about a high-achieving Ivy League academic career he doesn’t really seem to have had, and who can’t even get the story of how he stayed out of Vietnam straight. He tried playing in the big leagues and came to disaster. Stick with what you do well, Donald. Go fire Gary Busey again.

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The Ten States That Profit Most From Sin

May 14, 2011

From 24/7 Wall St.: As state budgets strain under huge debt loads, they are counting increasingly on “sin taxes”, one of the few reliable sources of revenue in these uncertain economic times. States have profited from the public’s voracious appetite for easy money (gambling), nicotine (smoking) and booze (alcohol) for years. Some are more successful at it than others. A few states generate less than 1% of their revenue from preying on their residents’ vices while sin accounts for between 5% and nearly 13% of the budgets of others. Some of the difference can be chalked up to varying rates of addiction, but aggressive tax policy also plays a part. Pennsylvania makes the greatest percent of its revenue from gaming taxes of any state. It charges a 55% tax on slot machine proceeds. Conversely, Las Vegas collects only 8%. Read The Ten States That Profit Most From Sin Sin is profitable for many reasons. For one thing, it sells well. In New Hampshire, more than half of its state revenue comes from tobacco sales. Meanwhile, states like Michigan generate revenue evenly across all sins. Still others, such as New Jersey, make a great deal from these bad habits because they’re taxed at such a high rate. To identify the states that make the most money from sin, 24/7 Wall St. , calculated the taxes and revenue each state makes from gambling, alcohol, tobacco and lotteries and compared the receipts against the total revenue for the state. The Tax Policy Center provided alcohol and tobacco tax receipts for 2008, the year for which data is most recent. The North American Association of State and Provincial Lotteries provided state lottery receipts. Revenue from taxes on gambling, as distinguished from lotteries, was obtained from The American Gaming Association. Sin taxes should be viewed in context of the broader economy. Many investors are concerned that the anemic economic recovery will sputter further, particularly as the debate over the debt ceiling continues to rage. Members of the GOP, led by Speaker of the House John Boehner (R-OH), have indicated they they will not vote to raise the debt ceiling without significant spending and budget cuts including popular entitlement programs such as Medicare and Medicaid. The Speaker’s public statements on the debt ceiling and the need for cuts, have angered some. Recently, 75 professors at Catholic University, where the Speaker is receiving an honorary degree this weekend, wrote an open letter accusing him of supporting a budget that will hurt the old, the sick and the poor. “Mr. Speaker, your voting record is at variance from one of the Church’s most ancient moral teachings: From the Apostles to the present, the Magisterium of the Church has insisted that those in power are morally obligated to preference the needs of the poor,” they said. Whether the accusation is fair, it is true that austerity measures can affect the lives of many residents. Following reduced funding from the federal government, 21 states are considering cuts in public school aid to balance their budgets, according to The Center for Budget and Policy Priorities. In order to keep the nation’s debt at its current level without raising taxes, federal spending would have to be cut by 35%, or $1.2 trillion dollars, according to the Government Accountability Office. Of course, such an effort would be unsustainable. In addition to demanding changes to entitlement and spending cuts, Republicans are refusing to consider any tax increases. While that may make sense to some, an exception should at least be made for sin taxes. There are many who maintain that income taxes, property taxes, and even corporate taxes should remain fixed, or even lowered. Increases in income taxes could dampen consumer spending, the argument goes. That’s hardly a prudent course of action for a struggling economy. Likewise, raising property taxes would do nothing for the languid housing market. And corporate taxes, especially for small businesses, are often regressive, and could ultimately discourage hiring if they are raised too high. That’s one reason states are more dependent on sin than ever. These are the states that derive the greatest amount of their revenue from bad habits: 10. New Jersey Most Profitable Sin: Lottery ($924 Million) Revenue From Sin: $2.123 Billion (8th Highest) Total State Revenue: $49 Billion (8th Highest) Percent Total Revenue From Sin: 4.34% New Jersey is an example of a state in which residents are paying a disproportionate amount of taxes for their vices. Although residents gamble, use alcohol and tobacco, the percent of the population that gambles, drinks or smokes is low compared to the national average. The state has the 18th lowest rate of binge drinking in the country and the ninth lowest rate of cigarette smoking. Despite these low rates, high taxes boost the state’s revenue from these activities. New Jersey generates the eighth highest revenue from tobacco and the 17th greatest amount from alcohol sales. The greatest moneymaker for the state, though, is the lottery. In 2010 the state made just under $1 billion through the lottery, the fifth greatest amount among all the states. 9. New Hampshire Most Profitable Sin: Tobacco ($170 Million) Revenue From Sin: $248 Million (12th Lowest) Total State Revenue: $5.5 Billion (3rd Lowest) Percent Total Revenue From Sin: 4.54% New Hampshire has the ninth smallest population in the country, with a small budget to match. In a single year, the state collected only $248 million combined from taxes and revenue related to tobacco, alcohol, and the lottery However, because the state’s total revenue is just $5.5 billion, the third smallest in the country, its sin taxes equal 4.5% of New Hampshire’s budget, a larger percentage than 40 other states. New Hampshire does not have any taxable gambling, and collected only $12.5 million in alcohol taxes in 2008, the fifth smallest amount by any state. Most of “The Granite State’s” revenue from sin derives from tobacco – the state collected nearly $170 million from cigarette taxes in the most recent year for which data is available. The state has one of the biggest populations of smokers in the U.S. It sells an average of 116 packs per person per year, the third most in the country. On top of this, New Hampshire has the 16th highest tobacco excise tax at $1.28 per pack. According to the New York Times, the state’s cigarette taxes have not always been so high – in 2005, they were only 52-cents per pack. The state Legislature is considering a bill which would reduce the price per pack by ten cents, a measure which opponents say would cost the state millions of dollars. 8. Illinois Most Profitable Sin: Tobacco ($827 Million) Revenue From Sin: $2.157 Billion (7th Highest) Total State Revenue: $2.157 Billion (7th Highest) Percent Total Revenue From Sin: 4.55% Although Illinois’ sin taxes are by no means small compared to other states, the main reason for the state’s massive “sin revenue” is the large numbers of people in the state paying these taxes. The average person in the state pays $168 in sin taxes and lottery tickets per year. While this number may seem like a lot, it is only the 19th largest amount in the country. Even tobacco taxes, which contribute the most to the state budget, are not especially high. As of January 2011, Illinois had a tax of $0.98 on a pack of cigarettes, the 20th lowest tax in the country. The sheer number of smokers, however, results in tobacco generating the most in sin revenue. There is a significant chance the amount made by the state through tobacco will increase in the near future. A $1-per-pack tax hike was approved by a state Senate committee in March of 2011. The tax has yet to be approved by the House. 7. Michigan Most Profitable Sin: Tobacco ($1.08 Billion) Revenue From Sin: $2.242 Billion (6th Highest) Total State Revenue: $45.7 Billion (10th Highest) Percent Total Revenue From Sin: 4.91% Michigan collects more than $2.2 billion from alcohol, tobacco, gambling and the lottery, which accounts for nearly 5% of the total state budget. The Great Lakes State has an even distribution of revenue from each of the four vices. Michigan collected more than $700 million from the state lottery in 2010, tenth most in the country, and $311 million from casino taxes, the 8th most in the U.S. The biggest portion of Michigan’s sin revenue comes from tobacco. In 2008 (the most recent year of available data) the state collected the third most in the U.S. from tobacco taxes – more than $1.08 billion. The state has the 11th highest cigarette tax in the country, at $2.00 per pack. 6. Pennsylvania Most Profitable Sin: Gambling ($1.32 Billion) Revenue From Sin: $3.547 Billion (2nd Highest) Total State Revenue: $70.4 Billion (4th Highest) Percent Total Revenue From Sin: 5.04% Pennsylvania is the sixth largest state by population, has the fourth largest revenue, and has the second largest revenue from sin taxes. These taxes end up providing more than 5% of the state’s total revenue. The main source of this money is gambling. Pennsylvania makes more money through gaming taxes than any other state in the nation, even Nevada. In 2010, Pennsylvania made about $1.3 billion through taxing slots parlors. Nevada, by comparison, made about $835 million. Pennsylvania currently has ten casinos, Las Vegas has 260. The Keystone State levies a 55 percent tax on slot machine revenue, however, while Nevada’s tax is only eight percent. Apparently, this tax has not done much to dissuade gamblers. Revenue from slot machines rose from $13.4 million in 2006-07 to just below $1.75 billion in 2008-09, according to the Center for Gaming Research. 5. South Dakota Most Profitable Sin: Lottery ($117 Million) Revenue From Sin: $212 Million (11th Lowest) Total State Revenue: $3.8 Billion (The Lowest) Percent Total Revenue From Sin: 5.63% The National Association of State Budget Officers estimates that South Dakota collected less revenue than any state last year. That is why the state’s $212 million collected from “sin” is the fifth biggest percentage of government income in the country. The state collects the 19th most in gaming taxes in the U.S., although this is primarily because 29 states do not collect taxes on their casinos at all. The state’s biggest source of sin-based income is the South Dakota Lottery, which generated roughly $117 million in revenue last year. The state’s cigarette tax is $1.53 per pack, roughly triple that of North Dakota. The state’s alcohol taxes are also higher than most, at 27 cents per gallon of beer. According to the South Dakota newspaper The Capitol Journal, the state’s revenues from video lotteries actually dropped as much as 15% last year, possibly because of a smoking ban in casinos and bars which was enacted in November. 4. Indiana Most Profitable Sin: Gambling ($875 Million) Revenue From Sin: $1.628 Billion (10th Highest) Total State Revenue: $26.7 Billion (23rd Highest) Percent Total Revenue From Sin: 6.11% Despite having the 15th largest population, Indiana only has the 23rd largest state revenue. The state has the tenth largest revenue from sin taxes, however, and the fourth largest percentage of total revenue deriving from sin. This is largely due to gambling, from which the state made the second largest amount among all the states in 2010. Indiana’s 13 casinos all have a graduated tax rate of 15% to 40% – meaning that the more you make the more you’re taxed – as well as a $3 per patron admission tax, according to the American Gaming Association. Together, this brought in $875 million in 2010 – more than Nevada but less than Pennsylvania. Gambling is not the only major “sin” related revenue for the state, however. About 23.1% of residents in Indiana smoke cigarettes, the fifth highest rate in the country. In 2008, the state made $520 million from tobacco taxes, the ninth greatest amount in the country, despite having the 21st lowest tobacco tax rate. 3. Delaware Most Profitable Sin: Lottery ($275 Million) Revenue From Sin: $659 Million (25th Lowest) Total State Revenue: $8.7 Billion (11th Lowest) Percent Total Revenue From Sin: 7.55% f you were to take the revenue Delaware collects in a single year from gaming, the lottery, tobacco, and alcohol, and were to divide it among the state’s 897,000 residents, each person would receive $733. This amount is more than double nearly every other state in the country. Delaware residents bought 122 packs per person in a single year (the second most in the country. The state also has the sixth highest percentage of binge drinkers in the U.S. as well. Taxes for both of these substances are either average or below average, including a mere 16 cents per gallon of beer, but the state makes up for this in sheer volume of use. While alcohol and tobacco are significant sources of income, most of Delaware’s profits from sin come from its lottery, with which it earned $275 million last year, and casino taxes, which the state ranks 12th in the country for annual revenue. On May 11, according to the News Journal, the state Senate approved a measure to legalize medical marijuana, which will perhaps soon become another major source of sin revenue for Delaware and other states like it. The bill is awaiting an expected signature by Governor Jack Markell. 2. Rhode Island Most Profitable Sin: Lottery ($345 Million) Revenue From Sin: $706 Million (22nd Highest) Total State Revenue: $8.1 Billion (9th Lowest) Percent Total Revenue From Sin: 8.66% Despite being one of the smallest states, with one of the smallest revenues, Rhode Island makes the seventeenth greatest amount among all states through its lottery. Just under half of all the money the state makes through the taxes considered for this list, which constitute 8.66% of the state’s total revenue, comes from the lottery. The state also made $114 million from tobacco taxes in 2008, which is a relatively large amount considering the size of the state’s population. Rhode Island charges a tax of $3.46 for a pack of 20 cigarettes — the second highest amount in the country, behind New York. Each year, the average Rhode Islander pays $671 in sin tax. The only state in which residents pay a larger share is Delaware. 1. Nevada Most Profitable Sin: Gambling ($835 Million) Revenue From Sin: $1.01 Billion (13th Highest) Total State Revenue: $7.9 Billion (12th Lowest) Percent Total Revenue From Sin: 12.83% Most Profitable Sin: Nevada’s revenue from sin is 12.83% of its total budget, which is nearly 4% higher than Rhode Island’s and greater than the percentages of New Jersey, New Hampshire, and Illinois combined. Not surprisingly, most of Nevada’s income comes from gambling – the state collected more than $835 million, the third-most in the country. In terms of other sin taxes, the state ranks average both in alcohol and tobacco taxes. Interestingly, the Nevada is one of only seven to not have a state lottery. According to the Las Vegas Journal-Business Review, state lawmakers proposed a bill to create one, but it failed last month in the legislature. Read more at 24/7 Wall St.

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Video: Cheng Sees `Huge Demand’ for Yuan Private Equity Funds

May 13, 2011

May 13 (Bloomberg) — Anla Cheng, a partner at a Sino-Century China Private Equity Partners LLC, talks about the demand for yuan-denominated private equity funds in China and the country’s financial markets and economy. She spoke with Bloomberg’s Sara Eisen in New York yesterday. (Source: Bloomberg)

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PHOTOS: Thousands Of Teachers Swarm Wall Street In Protest

May 12, 2011

Thousands of teachers, social workers, union members and more took part in a march Thursday against Mayor Michael Bloomberg’s plans for wide-ranging budget cuts — and against the Wall Street bankers they blame for the city’s budget woes. Activists reported that the NYPD had arrested several marchers, but the demonstration took on a mostly joyful cast, with colorful signs, raucous chants and even a stilt-walker. The May 12 Coalition ‘s organizers promised a big turnout of more than 10,000 marchers, and while immediately pinning down the crowd’s size proved difficult, at least that number turned out. Demonstrators from the United Federation of Teachers (UFT) alone, which faces more than 4,000 teacher cuts if Bloomberg’s budget is enacted as is, numbered in the thousands. Rev. Al Sharpton, UFT President Michael Mulgrew and an array of city councilmembers and state elected officials laid the blame for the budget cuts squarely at Bloomberg and Wall Street’s feet. “Wall Street recovered, hedge funds got stimulated, and now they want to lay off teachers and close day care centers,” Sharpton said. “We’re going where they sent the money,” he said of the march. Organizers claimed the city could prevent budget cuts by reinstating the state’s “Millionaire Tax,” ending subsidies for large companies that failed to meet job-creation targets and renegotiating city contracts with the big banks . They estimate their proposals could save New York City $1.5 billion and billed the event as a demonstration not just against the Bloomberg budget plan but also as an effort to “make the banks pay.” Randi Weingarten, president of the UFT’s parent organization, the American Federation of Teachers, noted she has traveled the country in the past few months fighting against teacher cuts in states across the nation. “I never expected to come home to see New York act like Wisconsin,” she told the crowd. Weingarten, like many others at one rally stage dedicated to the teacher cuts, disputed the Bloomberg administration’s argument that it cannot dip into a rainy day fund to pay for teachers’ salaries. “There are lots of places across the country where there are real budget crises,” Weingarten said. “New York is not one of them.” Ralliers included more than just teachers. A diverse coalition of groups took part in organizing the event, from the Coalition for the Homeless to the Communications Workers of America to HIV/AIDS advocacy organization VOCAL-NY. Rev. John Magisano, a pastor at a Chelsea church, said he was worried the cuts forecast in the administration’s budget could harm his neighborhood’s seniors and gay community. “Everyone’s feeling the pain but them,” he said of the country’s large banks. The mayor’s spending plan would cut $30 million dollars from programs for the homeless. Advocacy group Coalition for the Homeless attended the march in protest, along with members of the population they serve. “I’m out here because we have no home,” said Kassandra Ward, who pushed her son in a stroller at the rally. She said she lost her job and home as a result of the recession, and was worried that the mayor’s budget would make her situation worse. “The city and the banks, they’re taking out money… they’re not doing anything.” Devon Murphy, a teacher at Passages Academy, said he attended “in solidarity with all the teachers across New York City.” He was not sure if the mayor’s cuts might hit him and his colleagues, but wanted to come anyways. “I don’t have a clue if it’s going to affect me,” Murphy said, “but it will affect some of us. You never know.” Some unions have charged that Bloomberg’s budget, proposed last Friday, serves more as an opening negotiating gambit than a final word on how many jobs and programs the city will cut. Murphy said he was not sure how serious the mayor was about his cuts. “He’s a hard person to read,” he added.

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Joint Ventures in Commercial Real Estate Developments for the Year …

May 10, 2011

Let’s be realistic: project funding since the collapse of Lehman Brother’s (28 months ago) has been nearly impossible to attain. Developers have come to the.

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Andy Kroll: How the McEconomy Bombed the American Worker: The Hollowing Out of the Middle Class

May 9, 2011

Crossposted with TomDispatch.com Think of it as a parable for these grim economic times. On April 19th, McDonald’s launched its first-ever national hiring day, signing up 62,000 new workers at stores throughout the country. For some context, that’s more jobs created by one company in a single day than the net job creation of the entire U.S. economy in 2009. And if that boggles the mind, consider how many workers applied to local McDonald’s franchises that day and left empty-handed: 938,000 of them. With a 6.2% acceptance rate in its spring hiring blitz, McDonald’s was more selective than the Princeton, Stanford, or Yale University admission offices. It shouldn’t be surprising that a million souls flocked to McDonald’s hoping for a steady paycheck, when nearly 14 million Americans are out of work and nearly a million more are too discouraged even to look for a job. At this point, it apparently made no difference to them that the fast-food industry pays some of the lowest wages around: on average, $8.89 an hour, or barely half the $15.95 hourly average across all American industries. On an annual basis, the average fast-food worker takes home $20,800, less than half the national average of $43,400. McDonald’s appears to pay even worse, at least with its newest hires. In the press release for its national hiring day, the multibillion-dollar company said it would spend $518 million on the newest round of hires, or $8,354 a head. Hence the Oxford English Dictionary’s definition of “McJob” as “a low-paying job that requires little skill and provides little opportunity for advancement.” Of course, if you read only the headlines, you might think that the jobs picture was improving. The economy added 1.3 million private-sector jobs between February 2010 and January 2011, and the headline unemployment rate edged downward , from 9.8% to 8.8%, between November of last year and March. It inched upward in April, to 9%, but tempering that increase was the news that the economy added 244,000 jobs last month ( not including those 62,000 McJobs ), beating economists’ expectations. Under this somewhat sunnier news, however, runs a far darker undercurrent. Yes, jobs are being created, but what kinds of jobs paying what kinds of wages?

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Georges Ugeux: Is Europe About to Collapse? Not if It Restructures Sovereign Debt

May 9, 2011

Recent news from the European side of the Atlantic is not good. With €270 ($400) billion in bailout plans for three relatively small European countries (Greece, Ireland and Portugal), more than half the resources of the European Financial Stability Fund (EFSF), the easy task is done. The rescue of Portugal was announced last week and included severe measures that will put the country in recession for most of the next three years. As a precondition for this action, the IMF and the European Union required an approval by both the majority and the opposition. The Parliament approved it. The Greek situation remains the most worrying . With 2-year yields at 25%, Greek sovereign bonds are worse than junk. Standard & Poor’s just downgraded Greece from BB to B, making the situation even worse. Two main challenges lie ahead. The first one is the relative fragility of Spain. The restructuring of the banking sector is aiming at the second-tier institutions, mostly the Cajas de Ahorros (local savings banks). It should be manageable since Spain did not enter the financial crisis with an excessive sovereign debt level. A meaningful bailout of Spain, if it were to happen, would exhaust the EFSF’s intervention capability and require a substantial increase to its publicly announced €750 ($1,150) billion. While Italy has some fragility within its banking sector (mostly the Cassa Popolare di Milano) it might avoid such a treatment. A bailout of Italy would have to be six times as big as Greece’s. It would purely and simply create a collapse of the European financial system. The second one is the social element: so far, despite demonstrations on the street, the austerity measures have started to be put in place. Surprisingly, the trade unions, after violently expressing their opposition to the austerity measures that were aiming at the workers and pensioners, eventually surrendered to the obvious. That support, however, is fragile. There is a non-insignificant risk of European social unrest that could rise to the level of some of the Middle Eastern unrest. Those two fronts are therefore as essential as they are delicate to handle. The freedom of maneuver is limited. There is, however, something that is not quite right in the European bailout. It is the refusal by the European Governments, the European Central Bank and the countries concerned to even envisage a restructuring of their sovereign debt. Ever since the IMF started helping countries in difficulty to face similar situations, restructuring of the sovereign debt was on top of the agenda. Why would Europe not go through the same exercise? The answer lies in the immense power of European banks on their national Governments. Some of them have balance sheets representing a multiple of their country’s GDP while the largest U.S. bank only reach a fraction. Most financing in Europe goes through the bank balance sheets. Since banks are important holders of European sovereign debt, including those of the countries in crisis, a restructuring of the debt would require them to take a write-off on their core holdings of these bonds. So far, they hold those securities at… their nominal value. This will be accepted by Europe for its “banking stress tests” and therefore, they will be meaningless. Restructuring is also a way to share the pain with the public at large. This is where the social fear, the limits of the EFSF and the structural banking fragility meet. Without an immediate restructuring of sovereign debt of the ailing countries, the European bailouts will only be the burden of their citizens and crush consumers and growth. Without a serious debt restructuring, all Europe is doing is buying time and worsening the problem. It is now at the mercy of any confidence crisis that could erupt in the markets as it did last Friday when the absurd notion of Greece leaving the Euro erupted. Europe is on a tightrope. It can explode at any moment. European Governments and authorities know it. They are consciously running the risk of their own collapse, and a world crisis as a consequence.

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Scott Bittle: Fiscal Follies: No New Taxes? So Now What?

May 8, 2011

As of this weekend, it looks like Congress will hammer out some sort of deal to extend the federal debt ceiling and avoid pushing the country to the brink of default. The response from the Washington Post ‘s Ezra Klein is the best we’ve read so far. “Whew,” Klein wrote last week. As Klein tells it, both sides are softening their hard line positions out of a “healthy aversion to unimaginable consequences.” Whew indeed. But regardless of what kind of package Congress agrees on, this is just the beginning. We need to cut spending and raise revenue for years to get the country out of its fiscal mess. Unfortunately, a sizable contingent of Americans still believes we can solve our problems without tax increases — or at least not any that would affect “me.” More than half of Americans (53 percent) reject the idea of small tax increases and small cuts in Social Security and Medicare to “significantly” reduce the federal debt. Majorities oppose eliminating deductions for home mortgages, state and local taxes, and contributions to charities as “part of a plan to reduce the federal budget deficit.” By a margin of two-to-one, the public wants to balance the federal budget by cutting spending rather than raising taxes. And why wouldn’t they? Politicians have been telling the public for years that all we need to do is cut — even if they stop short of describing the details. So let’s take a look at what “no new taxes” really means if that’s the way we decide to go. Our trillion-dollar budget problems will be $3 trillion dollars worse. Since the Bush taxes cuts are set to expire in 2014, “no new taxes” means that Congress will need to extend them. According to the Congressional Budget Office, extending all of the existing cuts (both the Bush cuts and the expanded tax credits put in under President Obama) means government will have about $3.2 trillion dollars less to spend over the next decade . If we were at even-steven now, or even close, that would be one thing, but the United States is some $14 trillion in debt , and on track to have our national debt exceed the size of our entire economy in only 10 years or so. Plus, just about every budget out there, from the left, right, and the center (and including the Ryan plan ) has us adding to the red ink for decades. The cuts would have to be savage. Okay, for the sake of argument, let’s see what it would take to eliminate 2011′s $1.4 trillion deficit just by cutting spending. The total budget is about $3.8 trillion, so you have to cut about a third of what government now spends . That might not sound impossible, but once you take a look at the numbers, the task is daunting. To cut the deficit by one-third, you would need to eliminate everything government does except for defense, Social Security, Medicare, Medicaid, and paying interest on the debt. Losing that “non-security discretionary spending” would save $533 billion , but of course, you’ve also just wiped out the entire departments of agriculture, commerce, education, energy, and labor. We no longer have federal meat inspectors, the Centers of Disease Control, FEMA or Pell grants. Want to sink your teeth into defense spending? That’s fine, but to eliminate that $1.4 trillion deficit, entirely, you’d need to cut the entire national security budget: all $900 billion of it in 2011. People may end up paying more one way or the other, even if it’s not called a “tax.” The Republicans seem to be backing away from Rep. Paul Ryan’s controversial budget plan, which included turning Medicare into a voucher plan. It’s a “no new tax” plan, and whatever you think about it overall, it makes one tradeoff perfectly clear: the price for no new taxes is higher medical premiums for seniors . Under his plan, the CBO reported, by 2030 seniors would be paying double what they’re currently projected to pay for Medicare . In a philosophical sense, you may have strong feelings about paying higher premiums versus more taxes — but the cost to your bank account is the same either way. Taxing fat cats doesn’t help as much as you think. It is true that most Americans (although certainly not the purists) do back the idea of raising taxes on people who earn more than $250,000 a year . Unhappily, it doesn’t raise that much money. The CBO calculated that raising taxes by 1 percent on the top two income brackets (individuals earning about $175,000 and couples earning about $212,000) would only bring in about $84 billion dollars over the next decade. Unfortunately, our projected deficit for next year is about 10 times that. There certainly are other options — larger tax increases for wealthier Americans, higher corporate taxes, higher payroll taxes, modest tax increases on all of us, taxing fossil fuels, and so on. But the “no new taxes” mantra shuts down any reasonable conversation on how to cut spending and increase revenues in the fairest, least destructive way. The fact is that most government spending is on Social Security, Medicare, and Medicaid, programs the vast majority of Americans value, and there’s no way to protect them (even with tweaking) without raising taxes to cover what they cost. Perhaps the worst result for the country is when an immovable fixation against higher taxes on one side hits up against an immovable fixation on the other side that Social Security and Medicare are untouchable. At that point, the math is simply impossible. In the near-term, Congress may agree on some immediate spending cuts and make some promises about what they’ll do in the future. We’ll all feel better temporarily. But unless more Americans begin to grasp the facts of the budget, we’ll never get out of this. It’s easy to say “no new taxes,” but in real life, the results are almost unimaginable.

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Jackie Savitz: Tax Tips From Big Oil: How to Save Billions and Short-Change America

May 7, 2011

If you run a business, like a restaurant or grocery store, you know the importance of writing off your expenses every year. Every steak you buy, for instance, can be written off. But if you tried writing off those steaks at prices 20% higher than what you paid for them, you may be guilty of tax fraud. Yet that is exactly what the oil companies are getting away with thanks to a tax loophole called “LIFO” accounting. They buy as much oil as they can early in the year, betting that prices will go up over time, and then they sell it when prices get higher. That’s a fair way to make money, but the problem comes at tax time. Rather than writing off the expense at its cost, they write it off as if they paid the higher prices for it in the first place. By claiming an expense that is much higher than what they paid, they make even more money on it, by paying less in taxes. And because of a long-standing loophole, it’s not even tax fraud. This trick is especially useful for the oil industry. Crude prices have gone up more than 20% on average from January to December each year over the past 12 years. That’s ten times more than inflation, which averaged about 2% annually. So they can overstate their costs by 10 times the inflation rate. Few other commodities can win as much money on this game of LIFO as Big Oil can. With billions of barrels of oil being bought and sold, this adds up to billions of dollars every year — dollars that go into the oil industry’s record profits, rather than into our Treasury. Whether you are a fan of paying down the debt, providing a strong national defense, or protecting social security, if that money is sitting in the oil industry’s pockets rather than in our national bank account, we are all out of luck. Yet this game has been going on for decades and it has cost our country billions of dollars, maybe even hundreds of billions, and counting. In the next ten years alone, this will add up to over 50 billion dollars. Those funds would go a long way toward paying off our debts, educating kids or making sure our soldiers are adequately outfitted, just to name a few options. President Obama has proposed fixing this injustice but, not surprisingly, the oil industry and its Congressional caucus is crying “foul.” They claim removing this gaping loophole is unfair and that it singles their industry out. But it’s really the oil industry that has singled itself out by gaming this tax loophole to maximize its profits and minimize what it gives back to society to an atrocious extent. As long as you and I have to pay our taxes fairly, the oil industry should too. It’s time we close this gaping loophole along with the many others the industry enjoys, and stop letting big oil run roughshod over our country’s finances.

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Video: Daniels on Possible 2012 Bid: Political Capital With Al Hunt

May 7, 2011

May 6 (Bloomberg) — Indiana Governor Mitch Daniels talks with Bloomberg’s Al Hunt about the possibility that he will seek the 2012 Republican nomination. Bloomberg’s Julianna Goldman and Rich Miller report on the killing of al-Qaeda leader Osama bin Laden by U.S. special forces and today’s report showing American employers in April added more jobs than forecast. Flavia Krause-Jackson discusses bin Laden’s compound in Pakistan and U.S. aid to the country. Commentators Margaret Carlson and Kate O’Beirne talk about President Barack Obama’s decision to raid bin Laden’s compound and not release photos of his corpse. (Source: Bloomberg)

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Provista Hires Former Healthcare Executive Dan Thomas as New President

May 6, 2011

IRVING, TX–(Marketwire – May 6, 2011) – Provista, one of the country’s leading supply chain improvement companies and a wholly owned subsidiary of VHA Inc., the national health care network, announced today that it has hired Dan Thomas as its new president.

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Jobs Increase In April, But The Employment Picture Isn’t All Bright

May 6, 2011

This story was reported and written in collaboration with our partners at Patch.com . If you’re among the millions of Americans who don’t have a job and want one, you may have drawn some encouragement from a government report that came out this morning. According to the numbers-crunchers at the Department of Labor’s Bureau of Labor Statistics, the US economy added 244,000 jobs last month, making it three straight months in which the national payroll has increased by a monthly average of more than 200,000 positions. If you took a closer look, though, you might not have felt quite so encouraged. Jobs in some of the key higher-wage industries -– the kind that an economy needs to go from recovering to recovered –- are still lagging behind low-wage work. Nearly a quarter of the new jobs were in the retail sector, where the average hourly rate as of last year was $9.03, only a dollar and change above the current minimum wage. A very small and thoroughly unscientific sampling of job-related stories in towns and neighborhoods around the country seemed to confirm that things on the job-creation front are pretty ambiguous — not quite as bleak as they’ve been at times in the recent past, and not quite as bright as the overall job-growth numbers might lead you to expect. In Patchogue, N.Y., Anthony Hubert, a manager of the Roast Coffee and Tea Trading Company, said that the café was looking to hire baristas and had been getting lots of applications. Good news, right? Sure, but it came with a caveat. “Usually applicants are overqualified,” he said. “We’re looking for someone who has experience in cafés, but need someone younger without a college degree.” The problem with college degrees, he said, is that people who have them tend to hang up their aprons when better-paying jobs come calling. Not that the no-grad guideline is written into the company rulebook. The café recently hired a graduate of St. John’s University, Nicole Westfall. She’s making nine dollars an hour, exactly three cents below the 2010 retail-sector average. “You send resumés all over,” she said, “but every employer wants experience that isn’t there.” On the opposite side of the country, in Rancho Santa Margarita, Calif., about 200 people filed into a McDonald’s recently for what the company billed as its “National Hiring Day.” Maybe an eighth of them would walk away with jobs; the restaurant said it was looking to hire 25 workers. Jairo Moran, a store manager, said he met a lot of applicants who’d been unemployed since the start of the recession. “At this point, they really had to find a job,” he said. One of the applicants was Ken Bishop, a 30-year-old resident of Long Beach who said he’d already filled out paperwork in four other restaurants by the time he got to the McDonald’s. He planned to apply to three more jobs by the end of the day. Since losing his job as a greeter at Verizon Wireless in early March, Bishop, had filled out 30 to 40 applications. It had been “tough,” he said, but he remained hopeful. Dressed in a suit and tie, he sounded a note of defiant optimism: “My long-term goal is to apply for a position, move up, go back to school and get into human resources. Anything you can use as a starting point to move from point A to B to C to D. Everyone has to start somewhere.” In Morristown, N.J., Melissa Rivardo, a 42-year-old resident, put an even more positive spin on a recent bout of unemployment. After losing a restaurant job in 2008 — a job she’d held for ten years — she looked for a new job in the restaurant industry, she said. But the few owners who were hiring then didn’t give her a chance — it was clear, she said, they wanted someone younger. So she enrolled in a course for massage therapy, her passion. It paid off. She ended up getting a waiter job after all and now works two jobs — massage therapy and waiting tables. When her old restaurant closed, she said, “I felt some anxiety but then I also felt a sense of freedom to pursue what I had been thinking about for a long time.” Sal Canzonieri, a 51-year-old resident of Whippany, N.J., told a similar stor y. In 2008 he lost his job as a technical writer to Alcatel-Lucent, a company that makes telecom equipment. He’d been working there for 25 years when the company outsourced operations to China. But if China took away his old job, it supplied him with a new one, too, in a way. With the threat of bankruptcy and foreclosure looming, Canzonieri thought about how much he’d enjoyed teaching Qigong and Kung Fu to coworkers as part of the company’s employee wellness program. He decided to open his own business; what did he have to lose? He now teaches the Chinese martial arts in ten locations. *** Check out these other bleak/bright job-related dispatches from the Patch network: In Alpharetta, Ga., investments in city infrastructure attract high-tech jobs. (Bright.) In Port Washington, N.Y., a ” war for talent .” (Bright.) In Red Bank, N.J., a job recruiter advises ” Fall in love with the word ‘no .’” (Bleak.) In Ridgefield, Conn., the Chamber of Commerce reports an increase in ” small opportunities .” (Partly sunny?)

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Rick Sanchez: It’s Time to Audit the Fed

May 6, 2011

The royal wedding was last week, in case you missed it. Newsrooms here in the US nearly went dark with virtually every reporter embedded in key locations around Hyde Park and Buckingham Palace. It was the century’s first “wedding of the century,” but we’re only a decade in so there could be others. As newsmen and anchors discussed the minutiae of Kate Middleton’s dress, we missed something pretty historic: the Federal Reserve held its first open press conference after a policy meeting. I wonder what the Founding Fathers would have said about our fixation with British royalty at a time when our economy is rotting from the inside out. When the news media does report on our economy, a lot is usually said about China owning so much of our country’s debt. Yes, China’s central bank is the largest holder with over $1.1 trillion. And yes, foreigners own more of our national debt than ever before — 32%, or $4.45 trillion, of our over $14 trillion national debt. But the real threat to our economy isn’t China. We have seen the enemy and he is us. Congress is spending tomorrow’s money today, throwing us into economic oblivion. But Congress isn’t the only culprit in the crime of grand larceny of our future. The Federal Reserve — a quasi-public institution that includes privately-owned US banks — is a more than willing accomplice. As Thomas Jefferson warned, “…banking establishments are more dangerous than standing armies; and… the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” For an entity that wields so much power, we know relatively little about the Fed. Would you trust an unknown banker to decide what happens with your paycheck every week? Why do we accept this for our country? We grow up revering our government’s transparency. “Checks and balances” is as much a part of our lexicon as is “American Idol.” Yet perhaps the most powerful part of our government, the one constituting the biggest potential conflict of interest in our government’s history, goes unchecked and unbalanced. The mystery that is the Federal Reserve begins with its name, since it is neither Federal nor does it have any reserves. Those two facts are the crux of the problem. So here we are today with an economy in a continual stall that is not just broken but broken down, higher gas prices loom over our heads, and a sense of dread that what Wall Street and Washington did to cause our recent meltdown may repeat itself once again. Despite this history, we remain in the dark rather than demand transparency. It is remarkable, and remarkably unacceptable, that the Federal Reserve held a press conference after a policy meeting for the first time in its 97-year history just last week. That’s simply 97 years too late. During this press conference, Fed Chairman Ben Bernanke addressed the public’s concern over inflation, the slow economic recovery, and critics’ claims that the Fed has driven down the value of the dollar. But Bernanke just danced around questions on the dollar, saying currency policy is an issue for the Treasury Department. Bernanke is wrong. The issue isn’t the advice that the Treasury gives Congress, and this isn’t about how our money gets printed. The simple, blunt question he avoided — the proverbial elephant in the room — is why we’re printing money that is literally not worth the paper it’s printed on. The issue is the dollar’s historical evolution (and devolution) from a “United States Note” to a “Federal Reserve Note” and the resulting steady decline in its value as a result of interest rate policy set by the Fed. The Canadian dollar is now stronger than the US dollar. But at least we’re still ahead of the Jamaican dollar — for now. I may disagree with Glenn Beck on certain issues, but when it comes to the Fed, he’s dead-on. To his credit, he’s been taking the Fed to task. And we should give credit where credit is due: Representative Ron Paul has been beating this drum for years. It’s good that some are finally starting to listen. Recently on Beck’s show, Paul said , “People now are looking at the Fed as the culprit rather than the savior, and rightfully so.” He’s right. Skepticism is healthy. Americans are tired of being kept in the dark. We refuse to be left out of the conversation any longer. What we need are real answers. What we need is transparency and honesty. What we need is an audit of the Fed — an independent audit by Congress with public hearings — so we, the American people who are footing the bill and paying the price, can decide how to reform the Fed and save our country.

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BofA Plans To Triple Its Centers For Struggling Homeowners

May 6, 2011

Bank of America announced Thursday that it will create dozens of new service centers to work with distressed homeowners in cities around the country, including in the Washington area.

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Video: Moody’s Mitra Says Pakistan Still Very Important to U.S.

May 4, 2011

May 4 (Bloomberg) — Moody’s Investors Service sovereign analyst Aninda Mitra talks about the outlook for Pakistan’s debt rating following Osama bin Laden’s death in the country. U.S. lawmakers from both parties questioned the need to sacrifice American lives and devote aid to Afghanistan and Pakistan following bin Laden’s death. Mitra speaks by telephone from Hanoi with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

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Video: Djerejian Says Pakistan Will `Always Hedge Its Bets’

May 2, 2011

May 2 (Bloomberg) — Edward Djerejian, former U.S. ambassador to Israel and Syria, talks about the outlook for U.S.-Pakistan relations following the killing of al-Qaeda leader Osama bin Laden in the country yesterday. He speaks with Mark Crumpton on Bloomberg Television’s “Bottom Line.” (Source: Bloomberg)

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Dean Baker: Why Does Senator McCaskill Want to Bankrupt Our Children?

May 2, 2011

That is what people should be asking Missouri Senator Claire McCaskill along with her fellow senators who are advocated strict caps on government spending. The idea being pushed by Senator McCaskill, together with Tennessee Senator Bob Corker and several other prominent senators, would limit federal spending to 20.6 percent of GDP. It would require difficult to obtain super-majorities to exceed this cap. Spending would be cut across a variety of programs if the cap is not reached. This proposal is hugely deserving of ridicule for a variety of reasons. First, it operates from a blatantly wrong premise – that government spending has grown out of control. Those familiar with arithmetic know that government spending had increased by little as a share of GDP prior to the downturn caused by the collapse of the housing bubble. In 2007, the last year before the onset of the recession, spending as a share of GDP was 19.6 percent. That is 1.1 percentage points less than the 20.7 percent share 30 years earlier in 1977. So the idea that there is a long-term trend of out of control spending is simply not true, or what they call outside of Washington, a “lie.” Spending has risen in the wake of the downturn, but this was not due to a flood of new and expensive government programs. It was overwhelmingly attributable to the expansion of safety net programs like unemployment compensation and Food Stamps and a decline in GDP, which raises the spending-to-GDP ratio even when spending remains constant. If McCaskill and the other senators are upset about this recent rise in spending then they should be going after the incompetents at the Fed and Treasury who somehow could not recognize the $8 trillion housing bubble whose collapse wrecked the economy. This was indeed a horrendous mistake that has been devastating to the country, but it has nothing to do with government spending. Over the long term government spending is projected to rise, but this also has nothing to do with the profligacy of Congress. There are two reasons for the projected increases in spending. The first is an aging population. As a result federal programs that provide for elderly like Social Security, Medicare, and Medicaid will cost more money. The second reason is that health care costs are still rising out control. The United States already pays more than twice as much per person for health care as other wealthy countries. This disparity is projected to grow even larger in coming decades. If this proves true then it will both impose enormous costs on the private sector and lead to growing strains on the budget. By contrast, if health care costs were brought under control we would be looking at huge budget surpluses in the decades ahead. Of course controlling costs would mean confronting the insurance and pharmaceutical industries and other powerful lobbies. Unfortunately Senator McCaskill and her colleagues lack the courage to confront such powerful elites. In fact, McCaskill and her colleagues do not even have the courage to propose cuts for specific programs. Does McCaskill wants to cut Medicare, Social Security, Head Start, unemployment insurance? She won’t tell her constituents or the country. She just wants to cut generic spending. This one might sell well with the Wall Street crew, but it is incredibly bad policy. First off, any budget expert can quickly devise 100 ways to game spending caps, the most obvious being tax expenditures, where the government gives a tax break for items it wants to subsidize. This does not count as spending. More importantly, a strict limit on government spending that is binding would prove enormously costly because there are some things that the government does more efficiently than the private sector. Providing Medicare to retirees is one of the items in this category, according to the non-partisan Congressional Budget Office (CBO). CBO’s analysis of Representative Ryan’s plan for privatizing Medicare showed that having private insurers take over the Medicare program would add more than $34 trillion to its costs over its 75-year planning period, an amount that is almost seven times the size of the projected Social Security shortfall. CBO’s analysis implies that the Ryan plan, which was approved by the Republican House last month, would increase the cost of paying for retirement health care for someone turning 65 in 2022 (the first year the plan takes effect) by almost $170,000. This doesn’t count the cost transferred from the government to beneficiaries. This is pure waste associated with using a more inefficient private system rather than the public system. There is a similar story with Social Security. The administrative costs of privatized systems like those in the United Kingdom or Chile are 20-30 times as high as the administrative costs of the Social Security system in the United States. This would cost a typical retiree close to $40,000 in higher fees (which is income to the financial industry) that would come directly out of their retirement income. If Senator McCaskill and her colleagues really expect their caps to be binding then they must want to privatize either Social Security or Medicare or both. Arithmetic leaves few other options. By 2030, CBO projects that spending on Social Security, Medicare and Medicaid would take up 14.5 percent of GDP. If we assume, conservatively, interest payments of 3.0 percent of GDP, this brings us to 17.5 percent of GDP against a proposed cap of 20.6 percent. Any reasonable level of spending on the military, education, infrastructure, the environment and research and development would push the country far over the cap. This would leave little choice except to privatize Social Security and/or Medicare imposing an enormous and unnecessary burden on our children and grandchildren. The higher costs associated with privatized programs will leave all but the wealthiest workers struggling in retirement. Of course, the senators who want to impose this enormous burden on our children and grandchildren will mostly be enjoying a comfortable retirement themselves by the time the effects of their policy are being felt. In the meantime, they will have enjoyed the praise of the Wall Street crew and the elite media for having the courage to destroy the programs that the middle class depends upon. Welcome to Washington.

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El-Erian: ‘Sleepwalking On America’s Unemployment Crisis’

May 2, 2011

The issue is the scope and composition of unemployment in America – a problem that is yet to be sufficiently recognized for its increasingly detrimental impact on the country’s social fabric, its economic potential, and its already-fragile fiscal position and debt dynamics.

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Spain’s Unemployment Rate Hits New Eurozone Record

April 29, 2011

MADRID — Spain’s unemployment rate rose sharply to a new eurozone high of 21.3 percent in the first quarter of the year, with a record 4.9 million people out of work, the government said Friday. The rate was the highest reported by the country since 1997. Joblessness during the January-March period jumped 1 percentage point from 20.3 percent at the end of 2010, and adds pressure on Spain as it tries to recover from nearly two years of recession and convince investors that it can handle its heavy debt load. The country is struggling to shift away from dependence on the construction sector, which supported growth for years until the financial crisis popped the Spain’s real estate bubble, as well as make the economy more competitive and reduce national debt. The number of unemployed people in Spain stood at 4,910,200 at the end of March, up about 214,000 from the previous quarter, said the National Statistics Institute, or INE. In an unemployment line in a working-class Madrid neighborhood, people grimly waiting to sign up for benefit payments said they saw little hope of finding new jobs for years. Johnny Albuja, 29, was laid off from his job cleaning offices when the company he worked for lost a contract, but only expected to get unemployment benefits for three months since he worked for the company for just one year. Over the past year, his father and brother were laid off from a metal works company as demand plummeted. “The situation is really difficult right now,” Albuja said. “You can’t live well, you still have to pay the mortgage and it’s tough to get by.” The jobless rate is now at its highest since the first quarter of 1997, when it was 21.3 percent, although officials have since changed the way they measure unemployment, said an INE official who spoke on condition of anonymity in keeping with agency policy. But the overall number of people unemployed is a record, the agency said. Jobs were lost across the entire Spanish economy, with services, manufacturing, agriculture and construction all taking hits. Adding to the bad news for households, consumer prices rose sharply, INE said Friday. The consumer price inflation rate jumped to an annual 3.8 percent in April, up two-tenths of a point from March. Higher fuel prices prompted by unrest in the Middle East and North Africa have been pushing the rate up since January. Spain must hold a general election by March 2012, and polls show the governing Socialists trailing badly. Prime Minister Jose Luis Rodriguez Zapatero has stated he will not seek a third term. As much of Europe and Germany in particular recovers from the global recession, Spain is forecasting meager growth of just 1.3 percent for itself in 2011, and even the Bank of Spain says that prediction is too optimistic. The government has said it expects job-creation to improve in the second half of the year. The second and third quarters of the year traditionally boost Spain’s economy as tourists flock to the nation. Spain’s tourism sector accounts for 11 percent of the country’s gross domestic product. Friday’s report said the number of households in which everyone is unemployed rose by 58,000 to about 1.4 million. It is common for young Spaniards to live at home well into their 30s, in part because traditionally it has been so hard for them to find jobs. The numbers came out on the same day the government was expected to approve a plan to crack down on tax evasion by flushing out the country’s vibrant underground economy. Many small- and medium-sized companies have workers whom they pay fully or partially under the counter to skirt tax and social security obligations, and some estimates say the underground economy accounts for 20 percent of Spanish economic output. ___ Alan Clendenning contributed to this report.

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Dylan Ratigan: How Much Longer for the "Royals"?

April 28, 2011

It is the best of times, it is the worst of times. Tomorrow we will see a wedding between a Prince and a soon-to-be Princess. Polling in the US and UK shows that the public itself is largely apathetic, but we in the media can’t seem to get enough of the event. The wedding will cost over $100 million in security and ceremonial costs, and the British government is giving everyone the day off. Ordinary people will use this day ostensibly to celebrate the ceremonies of those born to privilege. But what they will probably do instead is ignore the wedding and spend time with their families. In America, we’re seeing our own version of this. According to the Business Roundtable, the confidence of American CEOs has never been higher . But 70% of the American public thinks that the country is on the wrong track. If you listen closely, you can hear a subtle creaking under the hood of the global economic system, like a car on the road that is slowly breaking down. Every day there’s a new funny noise, something that says it’s just not working right. The basic dynamic is inequality all over the world, in staggering proportions. But the interesting nugget is not the unfairness, but the increasing inability of elites to manage the increasing anger coming from the global losers. Last week, it was in China, a country with even worse inequality than our own. The largest container port in the world — Shanghai — saw a serious strike by Chinese truckers. The strike was muzzled by a combination of a media blackout, police power, and select concessions by the Chinese government to the strikers. So what does that have to do with us? Plenty. China makes what America consumes. Take, for instance, Walmart. Walmart is increasingly a Chinese company these days, orchestrating the shipping of goods made by incredibly poor Chinese workers to increasingly poor American consumers . Apple is another hybrid Chinese company, a middle-man. Steve Jobs makes billions running a design, retail, marketing, and R&D shop in the US known as Apple. His business partner Foxconn CEO Terry Guo makes his billions making iPads, iPods, and iPhones with 800,000 “iSlaves” in China. This is a system, and the strategy behind it is quite explicit. Economists have designed it, and they call it fighting inflation. Since wage gains contribute to inflation, stopping wage gains is the goal of the international trading regime. The natural end result is low wage workers in China selling to high debt consumers in America. You get an unstable system with a deeply immoral core, but hey, at least there’s no inflation. How do I know this is done on purpose? Well, the people in charge of the system say it when they think no one’s paying attention. I’m going to return to this Federal Open Market Committee transcript from 2005, which has received too little attention. Here’s Fed Dallas President Richard Fisher describing his conversations with area CEOs. Everyone I’ve talked to continues to try to figure out ways to exploit globalization. Each of them, from the IT [information technology] guys to the big box retailers to the specialty chemical firms to the service firms, wants to have offshore supply. One of the CEOs said, “We have a long way to go in exploiting China.” We’ve heard that forever. If you read the New York Times article two days ago about Shanghai’s new deep water port, you have to realize that those facilities are being built to ship goods out of China, not so much to ship goods into China… Now, this is good news on the disinflationary front. The bad news is stateside. We don’t have the capacity to absorb it. Long Beach and the Northwest harbors are constrained. Work rules, according to our interlocutors, are very slow to adjust. But there are ways to beat the bottlenecks… Wal- Mart just built a four million square foot warehouse in the Houston port, in order to shift part of the burden from Long Beach. But it is evident that the enemy is us as far as exploiting globalization, and I think that’s a long-term problem that we might want to take note of over time. Get that? Shanghai is increasingly an export-only port. Fisher’s statements were in 2005, when our country couldn’t accept enough goods because of bottlenecks at our ports. But beat the bottleneck we did, by widening the Panama Canal a few years later so China could ship to east coast ports as well. So now the American factory floor is being transferred to China at a faster and faster rate. Which brings me back to the strikes. American CEOs have exported not just our job base, but all the labor unrest that can come with it. China is running out of capacity to make our products, and commodity prices are going up for them as well. So inflation is hitting Chinese workers very hard right now — one of the causes of the trucker strike was a significant hike in fuel prices. The Chinese government quickly made concessions to the strikers, and is broadly attempting to deal with an incredible gap between the rich and the poor. But as Reuters noted , they aren’t doing this because of goodwill. Their worry is political: The Party leadership is especially jumpy about threats to its control following online calls for “Jasmine Revolution” protests inspired by anti-authoritarian uprisings across the Arab world, and has detained dozens of dissidents. Food price hikes sparked strikes in Egypt, which eventually turned into a political revolution. The Chinese government isn’t stupid, but it is trapped. Their strategy is to take American know-how by undercutting us on price, using protectionist measures that we stupidly allow. Our own corporate oligarchs are well-aware of this dynamic as well. They have been preparing for this moment for some time. Walmart (along with GE and even more surprisingly, Google) led the fight in April, 2007 to gut a new labor law proposed for Chinese workers on issues like collective bargaining, severance, etc. The American Chamber of Commerce in Shanghai is using aggressive tactics to ensure that Chinese wages would remain low. Perhaps there is something ironic about aggressive lobbying tactics by multinationals being used effectively in both communist and capitalist legislatures to suppress worker rights. Or perhaps not. But you cannot suppress reality forever, and the strikes in Shanghai show that top-heavy gains eventually have consequences, even for those who make the rules. It’s not always as dramatic as Mubarak’s fall, but then again, Mubarak’s fall wasn’t the point when those first Egyptians began striking in 2007. It was the rising prices. It’s a very good time to be rich. The global trading system is benefiting those who manage huge capital flows. But unstable systems have a way of collapsing. And you can hear the creaking, even above the media circus of the royal wedding. Catch more from Dylan at DylanRatigan.com .

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Jeffrey Rubin: Is Peak Coal Coming?

April 28, 2011

The price of oil isn’t the only hydrocarbon going through the roof. Check out thermal coal prices to see how dependent economic growth has become on burning increasing amounts of fossil fuels. Prices of Newcastle coal, the Asian coal price benchmark, are poised to rise by as much as 30 percent this year, approaching the peak levels seen in 2008. It is no surprise the countries driving global coal demand through the roof are the same countries pushing global crude demand. Find the fastest growing economies, and you will find where demand for oil and coal are the strongest. China’s coal consumption is expected to rise by another 10 percent this year, propelled by strong economic growth, the soaring prices of diesel fuel and the fact water levels at most of the country’s hydroelectric sites are well below normal due to the severe drought this winter. Demand in India, where power blackouts are still the norm and where 40 percent of the country’s 1.2 billion people still haven’t been hooked up to a grid, is expected to grow by more than 20 percent this year. It is good news for coal prices but the only problem is whether production can keep pace. Sound familiar? China’s coal industry already accounts for more than 40 percent of world production with less than 15 percent of the planet’s coal reserves. This is a rate of resource extraction that U.S. coal companies can only dream about. Even so, domestic mine production in China lags runaway demand growth, forcing the world’s largest coal burner to turn to more foreign suppliers such as Australia. Last year, the Chinese economy burnt a staggering 3.2 billion metric tonnes of the stuff. This is already a huge challenge to China’s railway system that is clogged with hauling billions of tonnes of coal from increasingly distant mines in the remote western regions of the country to the industrial heartland in the east. But the Chinese economy faces an even more daunting challenge to its coal consumption than transportation logistics. Domestic coal production is rapidly approaching what even the Chinese government acknowledges to be a national production peak. At the current extraction rate, China could hit that production peak as early as 2015. Once there, most estimates show a sharp drop off in the country’s coal production beginning around 2020. This is why Beijing is considering capping domestic coal production, fearing the country is depleting its remaining coal reserves far too quickly to sustain future economic growth. This policy shift has sent Chinese coal companies scouring the world looking for new coal reserves. They have already spent $21 billion on overseas coal acquisitions. As the largest coal producing country starts thinking about conserving its remaining coal reserves, you wonder just how far off we are from a world of peak coal?

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Rocky Kistner: Gulf Clean Up Workers Complain About the Human Toll of the BP Oil Disaster

April 28, 2011

More than 60 miles

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Dean Baker: The Battle Is Over Money, Not Philosophy

April 25, 2011

Ever since House Budget Committee Chairman Paul Ryan put out his proposal for voucherizing Medicare we have seen a steady drumbeat of stories telling us that this is a battle over the size and role of government. This is not true. It is a battle over money. This point is important because there are very few people in this country who are interested in debates over philosophy. Insofar as they do give it any thought, most people will say that they prefer small government over big government. They want to see government play a less intrusive role in our lives. There are probably less than a hundred people in the entire country who support “big government” as a matter of principle. Unfortunately, most of them write columns in major national papers. This is bad news for progressives because insofar as the Ryan plan is seen as being about reducing the size of government, then it could be acceptable to a substantial portion of the electorate. On the other hand, if the public understands that the Ryan plan will transfer tens of trillions of dollars from the middle class to the insurance and health care industries, the plan will become radioactive to politicians seeking reelection. The basic story is that the Medicare system is far more efficient than the private insurance sector in delivering health care and holding down costs. This has nothing to do with whether we prefer the government or the private sector. It just happens to be true. We know this because we have tested it. The government first opened up Medicare in a big way to private insurers in the mid-’90s when the Gingrich Congress pushed through Medicare Plus Choice. It turned out that Medicare Plus Choice raised costs. Beneficiaries with comparable histories cost about 10 percent more to treat in the private program than in the traditional Medicare program. We tested the private-sector route a second time when President Bush pushed through his Medicare Advantage plan along with the Medicare prescription drug benefit in 2003. The nonpartisan Congressional Budget Office (CBO) concluded that Medicare Advantage also raised costs. This is why the CBO calculated that Representative Ryan’s voucher system would raise costs compared with the existing Medicare system. The CBO’s projections imply that switching to the Ryan voucher system would raise the cost of buying Medicare equivalent policies by $30 trillion over Medicare’s 75-year planning period. This amount is approximately six times the size of the projected shortfall in Social Security over its 75-year planning period. It comes to almost $100,000 for every man, woman and child in the country. In other words, even in Washington, the burden of the Ryan plan is real money. It is important to recognize that this $30 trillion figure is simply the increase in the cost to the economy of providing health care. This number does not include the shift in costs from the government to beneficiaries. The $30 trillion represents higher payments that would go to insurers, pharmaceutical companies, medical supply companies, doctors and other health care providers because the private system put in place under Ryan’s plan is less efficient than the Medicare program. This enormous waste, and the resulting transfer of income from taxpayers and beneficiaries to insurers and providers, has absolutely nothing to do with whether our preference is for big or small government. The relevant question is whether we want ordinary workers and retirees to pay tens of trillions more for their health care in the decades ahead in order to enrich the insurers and health care industry. The answer to that question for the vast majority of voters would be a loud “no.” If the public understood what the CBO is telling us — that the Ryan plan will hugely raise the cost of health care for retirees so that the vast majority will no longer be able to afford plans that are anywhere near the quality provided by Medicare — then there is no doubt that there would be massive opposition to his proposal. However, if this massive upward redistribution of income is concealed as a debate over the size and role of government, then those who want to destroy Medicare may get their way. So, just remember, tell the “size and role” folks to shove it. The debate over the Ryan plan is about money; it’s that simple.

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Eric Schoenberg: How I Paid Only 1% of My Income in Federal Income Tax

April 25, 2011

In 2009, the median U.S. family had an income of just under $50,000, on which they would have paid roughly $2,761 (or about 5.5%) in federal income tax. I, by contrast, enjoyed an income of $207,415 in 2009, but paid only $2,173 (or 1.0%) in income tax. In a recent newspaper interview, I mentioned my absurdly low tax rate to illustrate the extent to which the tax system is biased in favor of the wealthy (my income varies widely from year to year, but is typically north of half a million dollars). My point was that with our country facing frightening budget deficits amid an ever-widening income gap between the rich and everybody else, I consider it both unwise and unfair that a former investment banker like myself pays less in taxes than working Americans with far lower incomes. Among the dozens of emails I received in response were many from people who assumed that rich people avoid taxes through complicated strategies devised by an army of expensive advisors (many correspondents asked for the name of my accountant). But under our current tax system, the rich don’t need high-priced lawyers who exploit obscure loopholes; I wasn’t even trying to minimize my taxes (and, in fact, could have paid zero tax if I was). Warren Buffett has observed that if there’s class warfare in this country, the rich are winning. I offer my 2009 tax return, then, as a flare to illuminate the battlefield. Americans are understandably angry over the government’s multi-billion-dollar bailouts of reckless bankers. But low tax rates on investment income have put far more money into Wall Street’s pockets than the TARP bill did. Even President Obama’s proposal to let the Bush tax cuts lapse for the richest Americans would leave a top marginal rate on capital gains and qualified dividends of just 20% — half the proposed rate on labor income. This difference creates a loophole you can drive a Rolls Royce through. Having left Wall Street in 2002, I now earn far more money from my financial portfolio than from my job as an Adjunct Professor, and as a result I consistently pay under 15% of my income to the IRS. Still, I was astonished when my accountant told me that my tax rate for 2009 was a mere 1%. I knew my deductions were an unusually large percentage of my income that year due to three items: $46,000 in charitable gifts, $56,000 in state and local taxes (mostly related to 2008, when my income was much higher) and $45,000 in investment expenses (basically fees paid to various money managers). Personally, I think there are reasonable arguments to be made for keeping each of these types of deduction, but the numerous “tax expenditures” that litter the tax code mean that citizens with similar incomes can end up paying wildly different amounts in tax. Even after deductions and exemptions, however, I still had taxable income of $37,349, putting me in the 15% bracket (higher than the average rate I’ve paid in years past with income twenty times as large). If I’d been an ordinary worker, my tax bill would have been $4,764. But wait! Under the Bush tax cuts, if one’s income from other sources is low enough (which mine was after deductions), certain types of investment income are subject to zero — yes, zero — tax. In my case, the qualified dividends I received in 2009 would have escaped taxation altogether if not for the Alternative Minimum Tax. Even under the AMT, however, I paid less than half the income tax paid by a wage-earner with the same taxable income (and less than a third of the tax burden when including social security taxes, which are not due on investment income). Does that seem fair to you? Advocates of lower taxes on investment income argue that they increase the incentives for folks like me to create jobs. As a long time investor, I’m skeptical. After all, job growth was much higher in the years following the Clinton tax hike in 1993 than it has been over the last decade as investment tax rates were repeatedly slashed. And lower rates on investment income also reward financial speculators, whose actions in recent years haven’t exactly promoted increased employment. Middle class anger in the Tea Party era, meanwhile, has been directed primarily at government spending. Arguing that government will simply waste whatever money it receives, Tea Party supporters oppose higher taxes on anybody (which explains why this is one populist movement which many billionaires are happy to support). But by focusing attention solely on whether government costs too much, the Tea Party ignores the completely separate question of who pays those costs. Last year, the answer was: not me. And I’m not happy about it. Some Tea Party types have observed that I am welcome to pay more voluntarily to the federal government if I want, but this entirely misses the point. Given the choice, of course I prefer to give money to my own causes rather than the federal government. But the whole point of democracy is for the community to decide what activities are in our collective self-interest. “Taxes are the price we pay for civilization,” and since we all share in that benefit, we should all pay our fair share of the cost. While the Republicans talk about the “shared sacrifices” necessary to close our government’s budget deficit, their plan imposes pain mostly on the sick, the elderly, and the poor. Asking the rich to sacrifice by paying higher tax rates surely pales in comparison. I believe that having wealthy investors pay taxes at the same rate as middle-class workers would be an important step towards making sure that we all contribute to putting our fiscal house in order.

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Naveen Jain: Bring Back America’s Spirit of Innovation and Entrepreneurship

April 25, 2011

As the U.S. economy slowly moves out of the recession, it’s a good bet that businesses started or led by immigrants will play a substantial role in creating jobs and driving growth. In high tech, for instance, 52 percent of startups launched between 1995 and 2005 were founded by immigrants, and foreign nationals have filed for a quarter of patents in recent years. So why are we so eager to send talented immigrants back to their home countries, instead of keeping them here so they can continue to innovate? Our unwillingness to champion entrepreneurs, no matter where they come from, is part of a larger attitude problem around entrepreneurship: We don’t celebrate their achievements as much as we should, and our government support of entrepreneurs is weak. The end result is that talent is attracted here to attend our finest educational institutions, but may not be so welcomed if it wants to stick around and start a business. It wasn’t always this way. Innovators were revered, and schoolchildren learned the names of the great inventors alongside the names of renowned statesmen. Today, people idolize athletes and celebrities — and yes, highly successful and visionary business people like Bill Gates or Steve Jobs, but not the innovators who perhaps have not seen such high-flying levels of success. Can anyone name the inventors of GPS, which has such a huge impact on our lives today? (For the record, Roger Easton, creator of some of the key technologies that led to GPS, was recently inducted into the National Inventors Hall of Fame .) Aside from an attitude shift toward the valuable contributions of entrepreneurs and inventors, we need to cultivate more support on a government level. We can learn valuable lessons from Start-Up Chile , an effort funded by the Chilean government that aims to attract early-stage entrepreneurs from all over the world to launch their businesses in that country. The program provides subsidies to teams of entrepreneurs along with access to sources of capital. It’s a great idea, and one that promises to reap benefits for the country’s economy as well as provide a source for jobs. We need our own American “mobilization” for entrepreneurship and innovators — one that provides both the practical and inspirational support that will attract foreign talent to bring and grow their ideas here, and will help our homegrown talent thrive. Here’s what we need to make this vision happen: Longer stays for entrepreneurs : We don’t have enough of our own innovators in this country, which means we need to encourage budding inventors and entrepreneurs to come here, and stay here. Our current system — the H-1B visa that allows workers to come here temporarily, along with temporary visas for college students — doesn’t provide a long-term solution. We need easy and hassle free access to ” entrepreneur’s visa ” — one that would give deserving startup innovators the time they need to conduct their research, start a company, and see it through to success. The impact on our economy and the job market would be significant. Support from the White House : The President needs to champion the power of entrepreneurship and innovation to help turn around the economy. This message needs to resonate with high school and college students who are poised to create the next generation of entrepreneurs. It will also help restore some luster to the dulled reputations of innovators. In other needs, we need to make entrepreneurship a cherished national value. Connections to markets and customers : The prevailing myth is that innovators and their businesses only need startup capital. But more valuable than money would be a mechanism to bring together budding companies with customers and sources of steady income — perhaps by showcasing their wares on the shelves of America’s powerhouse retailers. Under the direction of the President or a specially created entrepreneurship council, a hundred or so CEOs could meet entrepreneurs and learn more about their innovations. Major retailers could create an “innovation aisle” in their stores to promote new inventions, helping create a funding pipeline to worthy businesses. Programs for college entrepreneurs : More schools need to drive the growth of innovation and entrepreneurship via special training or degree tracks. For instance, Babson College infuses entrepreneurship throughout its curriculum — in fact, one of its most popular classes, the “Ultimate Entrepreneurial Challenge,” lets students compete against each other in business challenges (very much like TV’s The Apprentice ). Unfettered, creative and enthusiastic entrepreneurship is one of the hallmarks of American life, and allowed us to attract the best and brightest to this country. Let’s bring back this spirit of entrepreneurship — to make the U.S. an attractive venue for talent from all over the world, and to do a better job of nurturing young talent here at home.

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AP: US Default Could Be Disastrous Choice For Economy

April 24, 2011

WASHINGTON — The United States has never defaulted on its debt and Democrats and Republicans say they don’t want it to happen now. But with partisan acrimony running at fever pitch, and Democrats and Republicans so far apart on how to tame the deficit, the unthinkable is suddenly being pondered. The government now borrows about 42 cents of every dollar it spends. Imagine that one day soon, the borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it. The damage would ripple across the entire economy, eventually affecting nearly every American, and rocking global markets in the process. A default would come if the government actually failed to fulfill a financial obligation, including repaying a loan or interest on that loan. The government borrows mostly by selling bonds to individuals and governments, with a promise to pay back the amount of the bond in a certain time period and agreeing to pay regular interest on that bond in the meantime. Among the first directly affected would likely be money-market funds holding government securities, banks that buy bonds directly from the Federal Reserve and resell them to consumers, including pension and mutual funds; and the foreign investor community, which holds nearly half of all Treasury securities. If the U.S. starts missing interest or principal payments, borrowers would demand higher and higher rates on new bonds, as they did with Greece, Portugal and other heavily indebted nations. Who wants to keep loaning money to a deadbeat nation that can’t pay its bills? At some point, the government would have to slash spending in other areas to make room for any further sales of Treasury bills and bonds. That could squeeze payments to federal contractors, and eventually even affect Social Security and other government benefit payments, as well as federal workers’ paychecks. A default would likely trigger another financial panic like the one in 2008 and plunge an economy still reeling from high joblessness and a battered housing market back into recession. Federal Reserve Chairman Ben Bernanke calls failure to raise the debt limit “a recovery-ending event.” U.S. stock markets would likely tank – devastating roughly half of U.S. households that own stocks, either individually or through 401(k) type retirement programs. Eventually, the cost of most credit would rise – from business and consumer loans to home mortgages, auto financing and credit cards. Continued stalemate could also further depress the value of the dollar and challenge the greenback’s status as the world’s prime “reserve currency.” China and other countries that now hold about 50 percent of all U.S. Treasury securities could start dumping them, further pushing up interest rates and swelling the national debt. It would be a vicious cycle of higher and higher interest rates and more and more debt. The U.S. has long been the global standard for financial stability and creditworthiness, with Treasury securities seen as a fail-safe investment. But after the near-shutdown of the U.S. government and a new credit-rating report this week questioning the country’s fiscal health, Treasury bills and bonds are losing luster. If there is a debt limit deadlock, the government by this summer could find itself legally unable to borrow more money to pay its bills, beginning with interest on its debt and gradually extending to day-to-day federal operations. At some point, the government would have to decide which bills to pay and which to put aside. The debt ceiling will be hit on or around May 16, the Treasury Department says. Unlike the threatened government shutdown, the impact would start slowly, but then build mightily until the damage would be so dire that few political leaders or economists even want to contemplate it. The day of reckoning could likely be delayed at least until early July with creative bookkeeping. When the House first rejected the Bush administration’s $600-billion bank bailout in September 2008, the Dow Jones industrials went into a dizzying 778-point tailspin. A whiff of a possible similar stock market collapse came on Monday with a sharp selloff on Wall Street when the Standard & Poors lowered its outlook on U.S. debt to “negative” from “stable,” possibly a first step toward a possible downgrade of America’s coveted AAA credit rating. “We haven’t downgraded it. We just said, if nothing happens, we may have to,” said S&P chief economist David Wyss. He said a government default remains uncharted territory, “which is one reason why it’s not a good idea to hit the debt ceiling.” “There’s reason to worry,” said Wyss. “But my best guess is that we sort of muddle through this. Cuts will be made, they’ll be too little too late, but at least they will be enough to maintain a triple-A rating.” “It’s another game of chicken. And this time there are Mack trucks going at each other, not bumper cars. This is a biggie,” said American University political scientist James Thurber. But he predicted that, as in the past, “there will be an accommodation. They will avoid a crash.” Investment bank J.P. Morgan Chase recently concluded that any delay in making an interest or principal payments by the Treasury “even for a very short period of time” would have large “long-term adverse consequences for Treasury finances and the U.S. economy.” The analysis is being circulated on Capitol Hill by supporters of raising the debt limit. “If anyone wants to push that button, which I think would be catastrophic and unpredictable, I think they’re crazy,” JP Morgan CEO Jaime Dimon said recently of those seeking to block raising the debt limit. House Speaker John Boehner and most other GOP leaders agree on the need to raise the debt limit – and don’t want to be held responsible for a new financial meltdown. Still, they want Obama to make more concessions on spending cuts than he has done thus far. That isn’t sitting well with liberal Democrats, who think Obama has already given too much ground. One reason the two parties can’t find common ground: they can’t even agree on what’s causing high deficits. Democrats mostly blame it on policies of George W. Bush: two wars, tax cuts that continue to benefit the wealthy and an expensive prescription drug program. Republicans see government spending as the culprit, particularly on Obama’s watch. In fact, the main reason is the deep recession, which slashed tax revenues and led to hundreds of billions of dollars in recession-fighting spending by both Bush and Obama. The debt was $9 trillion in late 2007 before the start of the Great Recession, and it’s just a sliver under the $14.3 trillion limit today. Even though GOP leaders say they want to avoid more economic chaos, there is a large crop of tea-party aligned Republicans threatening to refuse to raise the cap under almost any circumstance. Polls suggest a large percentage of Americans oppose raising the debt limit. The debt limit has been raised ten times over the past decade. Obama voted against Bush’s debt-limit increase in 2006 as a senator, accusing Bush of “a leadership failure.” Obama recently apologized for “making what is a political vote as opposed to doing what was important for the country.”

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A Year Later, Greece Still Struggles

April 23, 2011

ATHENS, Greece — It’s an anniversary few are celebrating. A year ago Saturday, with its faltering economy days away from bankruptcy, Greece ended months of speculation and requested bailout loans. Prime Minister George Papandreou chose the remote island of Kastelorizo, and its tranquil seaside backdrop, to announce the “urgent national need to formally ask our partners to mobilize the support mechanism.” International solidarity, he said in a televised address, would “send a strong signal to markets that the European Union is not to be toyed with, and it will protect our common interests and our common currency.” Twelve months on, there’s little indication that that signal has been received. Greek bonds have been axed to junk status by the three major ratings agencies. And sky-high borrowing costs have roughly doubled, along with the price of insuring debt. Greece would currently have to pay out 15-percent interest on a 10-year bond, compared with the German benchmark of 3.27 percent. At least 160,000 more people have lost their jobs since April 23, 2010, with government austerity accelerating layoffs and business failures. And the national debt is forecast to exceed the emergency level of 150 percent of gross domestic product in 2011. “At the moment we have a very, very difficult situation which requires a rapid response and tough measures,” economic analyst Vangelis Agapitos said. “Of course the markets also realize that there is political fatigue and political cowardice to fully take the tough measures that are necessary.” Despite daily government denials, 47 percent of Greeks now believe the country will have to restructure its debt, while just 24 percent think it won’t be necessary, according to an opinion poll due to be published Sunday. The survey by the Alco research company for the weekly Proto Thema newspaper used data from 1,000 people interviewed April 15-19. No margin of error was quoted but it would normally be around 3 percentage points for a survey of that size. Support for Papandreou’s Socialists has sunk from 34.7 percent to 21.5 percent in the past 15 months, the poll found, though he still maintains a slim lead over rival conservatives. After Papandreou’s call for help from Kastelorizo, a rescue deal was put together in nine days, just ahead of a critical refinancing deadline. Eurozone countries and the International Monetary Fund agreed to lend Greece euro110 billion – equivalent to nearly half the country’s annual output – through 2013. In return for the bailout loans, Papandreou’s Socialist government slashed euro14 billion off the budget deficit in 2010 using salary and pension cuts and a raft of unpopular measures aimed at reducing waste in the public sector and protective market rules. His government has promised debt inspectors that it will start generating a primary surplus in 2012, but fiscal targets have begun slipping this year due to the ongoing recession. And the sharp rise in public discontent is in growing contrast to calls by Greece’s central bank and analysts for bolder cost-cutting measures. “The (national) debt is 150 percent of GDP and rising. Had it been half that amount, maybe these (austerity) measures would suffice,” Agapitos said. “The number of measures is unprecedented. So in a way, Greece is proving that the effort is there. However, the expectations are much higher and keep rising, because of the mess that Greece is in.” Papandreou is unlikely to get much respite this Easter, with school and hospital closures planned this year and a massive privatization program prompting a general strike on May 11. Many of his countrymen, however, are looking forward to a break from the national gloom this holiday weekend. “I just can’t watch the news anymore – it’s so depressing,” said window cleaner Stratis Dervendlis, who is planning a series of day-trips in and around Athens on his days off. “The bad news is constant. It’s like reminding someone in hospital that they’re sick all the time. Instead, they should be giving us courage and telling us how we’re going to get better.” ___ AP writer Elena Becatoros contributed.

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Default On Debt Could Be Doomsday Scenario For Economy

April 23, 2011

WASHINGTON — The United States has never defaulted on its debt and Democrats and Republicans say they don’t want it to happen now. But with partisan acrimony running at fever pitch, and Democrats and Republicans so far apart on how to tame the deficit, the unthinkable is suddenly being pondered. The government now borrows about 42 cents of every dollar it spends. Imagine that one day soon, the borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it. The damage would ripple across the entire economy, eventually affecting nearly every American, and rocking global markets in the process. A default would come if the government actually failed to fulfill a financial obligation, including repaying a loan or interest on that loan. The government borrows mostly by selling bonds to individuals and governments, with a promise to pay back the amount of the bond in a certain time period and agreeing to pay regular interest on that bond in the meantime. Among the first directly affected would likely be money-market funds holding government securities, banks that buy bonds directly from the Federal Reserve and resell them to consumers, including pension and mutual funds; and the foreign investor community, which holds nearly half of all Treasury securities. If the U.S. starts missing interest or principal payments, borrowers would demand higher and higher rates on new bonds, as they did with Greece, Portugal and other heavily indebted nations. Who wants to keep loaning money to a deadbeat nation that can’t pay its bills? At some point, the government would have to slash spending in other areas to make room for any further sales of Treasury bills and bonds. That could squeeze payments to federal contractors, and eventually even affect Social Security and other government benefit payments, as well as federal workers’ paychecks. A default would likely trigger another financial panic like the one in 2008 and plunge an economy still reeling from high joblessness and a battered housing market back into recession. Federal Reserve Chairman Ben Bernanke calls failure to raise the debt limit “a recovery-ending event.” U.S. stock markets would likely tank – devastating roughly half of U.S. households that own stocks, either individually or through 401(k) type retirement programs. Eventually, the cost of most credit would rise – from business and consumer loans to home mortgages, auto financing and credit cards. Continued stalemate could also further depress the value of the dollar and challenge the greenback’s status as the world’s prime “reserve currency.” China and other countries that now hold about 50 percent of all U.S. Treasury securities could start dumping them, further pushing up interest rates and swelling the national debt. It would be a vicious cycle of higher and higher interest rates and more and more debt. The U.S. has long been the global standard for financial stability and creditworthiness, with Treasury securities seen as a fail-safe investment. But after the near-shutdown of the U.S. government and a new credit-rating report this week questioning the country’s fiscal health, Treasury bills and bonds are losing luster. If there is a debt limit deadlock, the government by this summer could find itself legally unable to borrow more money to pay its bills, beginning with interest on its debt and gradually extending to day-to-day federal operations. At some point, the government would have to decide which bills to pay and which to put aside. The debt ceiling will be hit on or around May 16, the Treasury Department says. Unlike the threatened government shutdown, the impact would start slowly, but then build mightily until the damage would be so dire that few political leaders or economists even want to contemplate it. The day of reckoning could likely be delayed at least until early July with creative bookkeeping. When the House first rejected the Bush administration’s $600-billion bank bailout in September 2008, the Dow Jones industrials went into a dizzying 778-point tailspin. A whiff of a possible similar stock market collapse came on Monday with a sharp selloff on Wall Street when the Standard & Poors lowered its outlook on U.S. debt to “negative” from “stable,” possibly a first step toward a possible downgrade of America’s coveted AAA credit rating. “We haven’t downgraded it. We just said, if nothing happens, we may have to,” said S&P chief economist David Wyss. He said a government default remains uncharted territory, “which is one reason why it’s not a good idea to hit the debt ceiling.” “There’s reason to worry,” said Wyss. “But my best guess is that we sort of muddle through this. Cuts will be made, they’ll be too little too late, but at least they will be enough to maintain a triple-A rating.” “It’s another game of chicken. And this time there are Mack trucks going at each other, not bumper cars. This is a biggie,” said American University political scientist James Thurber. But he predicted that, as in the past, “there will be an accommodation. They will avoid a crash.” Investment bank J.P. Morgan Chase recently concluded that any delay in making an interest or principal payments by the Treasury “even for a very short period of time” would have large “long-term adverse consequences for Treasury finances and the U.S. economy.” The analysis is being circulated on Capitol Hill by supporters of raising the debt limit. “If anyone wants to push that button, which I think would be catastrophic and unpredictable, I think they’re crazy,” JP Morgan CEO Jaime Dimon said recently of those seeking to block raising the debt limit. House Speaker John Boehner and most other GOP leaders agree on the need to raise the debt limit – and don’t want to be held responsible for a new financial meltdown. Still, they want Obama to make more concessions on spending cuts than he has done thus far. That isn’t sitting well with liberal Democrats, who think Obama has already given too much ground. One reason the two parties can’t find common ground: they can’t even agree on what’s causing high deficits. Democrats mostly blame it on policies of George W. Bush: two wars, tax cuts that continue to benefit the wealthy and an expensive prescription drug program. Republicans see government spending as the culprit, particularly on Obama’s watch. In fact, the main reason is the deep recession, which slashed tax revenues and led to hundreds of billions of dollars in recession-fighting spending by both Bush and Obama. The debt was $9 trillion in late 2007 before the start of the Great Recession, and it’s just a sliver under the $14.3 trillion limit today. Even though GOP leaders say they want to avoid more economic chaos, there is a large crop of tea-party aligned Republicans threatening to refuse to raise the cap under almost any circumstance. Polls suggest a large percentage of Americans oppose raising the debt limit. The debt limit has been raised ten times over the past decade. Obama voted against Bush’s debt-limit increase in 2006 as a senator, accusing Bush of “a leadership failure.” Obama recently apologized for “making what is a political vote as opposed to doing what was important for the country.”

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Hope Lewis: Can the U.S. Afford Economic Rights in an Economic Crisis?

April 21, 2011

Can the U.S. afford to recognize economic and social rights in the midst of high unemployment rates at home and an ongoing global economic crisis? Yes we can. We can’t afford not to respect economic and social rights when millions in our country are struggling to find decent work, to find a stable place to live, to educate their children, to overcome discrimination, and to care for the sick. How can we fail to protect economic and social rights when banks defraud people out of their homes or when businesses discriminate against or mistreat workers who try to organize? We can’t afford not to promote economic and social rights when constitutional courts, schools, and ordinary people protesting on the streets around the world are beginning to understand and apply them. We can’t afford to ignore our obligation to fulfill economic and social rights with an 8.8% unemployment rate , an astonishing 15.5% rate among African-Americans, the incarceration of 2.3 million people , and with infant mortality rates among some Americans that rival those in poor countries. The State Department has just announced a new policy embracing human rights (” The Four Freedoms Turn 70 .”) What’s new about that, you say? This time, the rights at stake include the right to health, education, housing, jobs, and fair working conditions, and the right to organize. The rights are to apply at home as well as in far-flung countries around the globe. For human rights advocates like me, this is a welcome (and long-awaited) turn of events. It is also something of a surprise. For decades, the U.S. official position was that economic and social rights such as those are “pie in the sky” aspirations, and not “real” rights like the right to vote or the prohibition on torture. The State’s new policy position, formally announced by Michael Posner, Assistant Secretary of State for Democracy, Human Rights, and Labor, could mean a sea change for human rights protection both in the U.S. and internationally. But only if the rhetoric is accompanied by the serious commitments necessary at all levels of government — executive, legislative, and in the courts. And only if people throughout the United States — working people, the unemployed, racial and ethnic minorities, women, immigrants, and academics — hold our leaders accountable for taking these rights seriously. One phrase in particular struck me as Posner spoke: “human rights reflect what a person needs in order to live a meaningful and dignified existence.” I agree. That is why the historical U.S. ambivalence, even hostility, toward economic, social, and cultural rights has been so counterproductive, both within the U.S. and outside it. We should have understood their importance long ago. The failure to fulfill civil and political rights is equally counter-productive, as certain regimes in North Africa and the Middle East are learning after decades of repression and military and economic support from the U.S. A commitment to human rights means a commitment to the dignity and worth of each human being, without discrimination. Such a commitment, although daunting, can only work to the benefit of the United States and its people. We spend billions — trillions — of dollars each year on wars, anti-terrorism strategies, incarceration, crime control, anti-immigrant anxiety, emergency room care, and disaster response. What if, instead, we were to spend even a reasonable portion of that amount ensuring early education and nutrition, providing access to preventive health care and the social supports for good health (including the food and agricultural, environmental, drug rehabilitation, and anti-smoking policies that contribute to it), and accessible, sturdy housing? What if we reoriented our international trade and aid policies to focus on fairness, equity, self-determination, and sustainability? It must be the case that such a sea change would be at least as effective as the alternatives. Economic and social rights are no stranger to U.S. administrations. Posner spoke in recognition of this year’s 70th anniversary of President Franklin D. Roosevelt’s ground-breaking 1941 ” Four Freedoms ” speech to the U.S. Congress. In the midst of war, FDR argued that freedom of speech, freedom of belief, freedom from fear, and freedom from want were all linked in a web of human rights and needs. Not only were they moral imperatives, they were also necessary to achieve and maintain peace and security in the United States and internationally. This insight was to be echoed in the 1948 Universal Declaration of Human Rights, the influential statement of human rights and fundamental freedoms drafted by the United Nations Commission on Human Rights under the Chairmanship of Eleanor Roosevelt. The U.S. voted in favor of the Declaration that year and has since signed, or become a party to, several important international human rights treaties that recognize the full range of civil, political, economic, social, and cultural rights for all. Sure, implementing economic and social rights costs money. So does establishing courts, building prisons, and funding political campaigns. The recent and upcoming budget and deficit debates continue to be a grand political show. But this country’s future depends on recognizing that human rights, including economic and social rights, are nothing less than the most important guide by which we can set pragmatic policies. After 70 years, it is a good thing to hear the U.S. administration talk as if economic and social human rights can be a reality for poor and marginalized Americans. Now, the talk must be followed by the action it takes to make change. Yes, we can. Hope Lewis is Professor of International Law at Northeastern University School of Law, a member of the Executive Council of the American Society of International Law, and co-author of Human Rights and the Global Marketplace: Economic, Social, and Cultural Dimensions. The positions expressed here are in her individual capacity and do not necessarily reflect those of organizations with which she is affiliated.

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Politics, Ideology Overshadow Debt Limit Talks

April 20, 2011

(Reuters) – In the looming fight over raising the debt limit, Washington will have its eye on two deadlines: July 2011 and November 2012. The first is the date by which Congress will likely have to act in order to ensure that the United States doesn’t default on its $14 trillion in accumulated debt. The second deadline is when President Barack Obama and most members of Congress will face voters. What has often been a routine, if unpleasant, vote could this year turn into a battleground in the 2012 campaign as Republicans and Democrats advance clashing ideological visions of the nation’s priorities. Fresh from pushing through the largest domestic spending cuts in history, Republicans hope to use the debt limit debate as a vehicle to win bigger cuts and satisfy conservative Tea Party activists who handed them control of the House of Representatives last year. They will also promote a deficit-reduction plan that relies on permanent spending curbs, lower taxes and scaled-back government health programs as they try to wrestle control of the White House and the Senate from Democrats. Obama and his Democrats will lay out a rival vision of deficit reduction through a mix of lower spending and tax increases for the wealthy, arguing that getting the country’s fiscal house in order does not require wholesale cuts to popular programs. The battle is likely to stretch out for months and could bring the world’s most powerful economy to the brink of default — a prospect that would have far more serious implications for investors and the U.S. economy than the government shutdown that was narrowly averted less than two weeks ago with a last-minute deal on spending reductions. “Shutting down the government is like a really bad stomach ache. The debt limit is like a heart attack,” said Norm Ornstein, a congressional analyst at the conservative American Enterprise Institute. POSTPONING D-DAY Unlike nearly every other advanced economy, the United States requires legislative approval for any increase in the amount of money it can borrow. Congress has voted to raise the debt limit 10 times since 2001 as annual budget deficits brought on by wars, tax cuts and the worst recession since the 1930s pushed the country deeper into debt. The Treasury Department estimates it will hit its current limit of $14.294 trillion by May 16, though it could use a variety of tricks to stave off default until early July. Some observers think Treasury could postpone a default for several more weeks beyond that. Whatever the final deadline, Congress isn’t likely to act much before then. “The unwritten rule of Congress is: Why do today what you can put off until tomorrow?” said Dan Ripp, an analyst at New York securities firm Bradley Woods. Though a default isn’t likely, the almost inevitable brinkmanship could unnerve investors who are already rattled by Standard & Poor’s warning that it might strip the United States of its prized triple-A credit rating unless Obama and Congress can find a way to slash the deficit within two years. That would erode the status of the United States as the world’s most powerful economy and the dollar’s role as the dominant global currency. Ripp said he wouldn’t be surprised if investors pushed up the yield on the benchmark 10-year Treasury bond by 20 or 30 basis points if the debate stretches beyond May 16. CHANGING ROUTINES In the past, the politics on a debt-limit vote have been relatively straightforward. The party in power talks about the need to ensure the continued soundness of the country’s credit and votes for an increase; the party out of power inveighs against irresponsible fiscal policies and votes against. Obama, who is now pushing to raise the debt ceiling, voted against an increase as a member of the Senate in 2006, when George W. Bush was in the White House. Nearly every single Republican in the Senate voted for a debt-ceiling increase that year. Three years later, when Democrats held power, every Senate Republican but one voted against an increase. Democrats have followed the same pattern. This year, the politics are more complicated, as House Republicans have to find common ground with the Democrats who control the Senate. Obama hopes that a consensus can be reached in bipartisan talks led by Vice President Joe Biden and that they would wrap up by late June. But another bipartisan group may be a better bet. The so-called “Gang of Six” — three Republicans and three Democrats in the Senate — have been quietly meeting over the past months in an effort to forge a deficit-reduction plan that could win support in both parties. One thing appears certain: Congress will not pass a “clean” bill, free of extraneous conditions, as Obama wants. Republican leaders say any bill that passes the House will have to include long-term spending limits, and even Democrats who control the Senate say spending cuts will need to be part of the package. “The debt limit presents an opportunity for us to make some significant reforms in the budget process,” said Republican Susan Collins, a key swing vote in the Senate. That could take the form of a balanced-budget amendment to the U.S. Constitution — but it’s unlikely to become law as it would also need to win passage in 38 of the 50 state legislatures. Hard caps on federal spending, tied to economic growth, are a more likely option. Democrats could back a limited cap that excludes benefit programs like food stamps and unemployment benefits, according to a congressional Democratic aide. But at this point, Republicans aren’t saying exactly what they want. Even if Republicans include spending limits in the package, they still might not have enough votes to pass it through the House. House Speaker John Boehner was forced to rely on Democratic votes to pass record spending cuts last week after 59 Republicans voted against the deal on the grounds that it did not go far enough. This time, Democrats might not bail Boehner out. “I don’t think the Democrats should give them any votes,” said Representative Peter DeFazio, an outspoken liberal Democrat. “People say, ‘Oh my God, it would be a financial catastrophe.’ Yes it would, but guess who’s first in line for the financial catastrophe: the people on Wall Street. … Let them pick up the phone and educate the Republicans on how destructive these threats are.” (Additional reporting by Caren Bohan; Editing by Kieran Murray) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Bradley T. Borden: Budget Deals, Service Cuts, Tax Returns, and Pure Frustration

April 18, 2011

This year’s tax filing season coincides with the recent budget deal and President Obama’s proposal to reduce the deficit by $4 trillion. We learn about cuts to public services as we write checks to pay for them. The confluence of these events frustrates most of us. Yet, further thought deepens the level of frustration. As you prepare your tax return (or provide information to a return preparer), you probably sift through your old receipts to maximize your deductions. Perhaps you have deductible moving expenses. Maybe you can deduct a charitable contribution you made. If you own a house, you can deduct the property tax and interest you paid on your mortgage. The few thousand dollars of deductions you have saves you a few hundred dollars of taxes. You might be relieved because you save a few hundred dollars (one or two thousand if you have more children) of taxes because of the child tax credit. In the end, however, you’re still frustrated because you have to pay taxes. The real frustration comes when you realize that the tax savings you obtained through your deductions and credits are a pittance compared to what the wealthiest portion of the population saved . As a former colleague quipped, “I’m a tax attorney but I can’t afford to hire myself.” His observation suggests that a small percentage of the population — the wealthiest — reduce their taxes in ways that the middle class can’t. In fact, real tax savings come long before a person files a tax return. For example, large corporations hire tax attorneys to establish fake entities in tax havens and pretend to move their income offshore. Property owners hire tax attorneys to help them create complicated like-kind exchanges so they can pay no taxes when they sell property. Business owners sell their businesses and hire tax attorneys to help them structure the sale to be tax-free. The wealthiest save hundreds of thousands (often millions or billions) of tax dollars, compared to the hundreds of dollars those in the middle class save. Many of the tax-avoidance techniques that are available to the wealthy are legal because the wealthy promote laws that create loopholes . By supporting those laws and then paying attorneys to exploit the laws, the wealthy reduce the amount of tax they pay. If the IRS audits a wealthy person , that person can hire expensive tax attorneys to challenge the IRS’s efforts. Even wealthy tax cheats may fare better with expensive tax counsel. Middle class Americans can’t hire tax attorneys or influence legislation because they don’t have enough money. Assume a tax attorney makes $250,000 and is in the top 2% of the population (but still in the middle class). That attorney may charge tens of thousands of dollars to provide tax advice. The tax savings a tax attorney helps create must be greater than the fee the attorney charges. (For example, no one would pay an attorney $100 to save $50 of tax.) To save tens of thousands of dollars of tax, a person must have hundreds of thousands of dollars of income. And such income often comes from transactions. Even tax attorneys who make $250,000 a year generally don’t own businesses or property worth hundreds of thousands of dollars (other than a home, furniture, cars, and assets in retirement savings), so they don’t have transactions that are large enough to justify the costs of tax planning. Consequently, they get hundreds of dollars of tax savings, while they save their clients millions. This behavior of the wealthy hurts everyone. The middle class must pay more taxes or the country must forfeit services because the wealthy pay lower taxes. To illustrate, the most recent budget deal cuts spending for education, health and human services, and transportation . Those cuts affect the middle class and especially the poor; they stymie growth, hurting the future of the country. To help end the frustration most of us feel, I offer a bold proposition to both sides of the budget wrangling: do nothing else until you take goodies away from the wealthy , including corporations, and raise taxes on the wealthy. President Obama once again promised that he would not renew tax cuts for the wealthy and promised to eliminate some of the tax breaks they receive. This time he must stick with those promises, and go further (despite the efforts of those who will come to the aid of the wealthy ). Some people make millions of dollars a year. Those people should pay tax at an even higher rate than a person making $250,000. Take away the preferences for the wealthy, tax them fairly, and then worry about the other expenses. That would help reduce the frustration we feel this time of year.

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Dean Baker: Representative Ryan Puts the Republicans on the Record

April 18, 2011

For years people have accused the Republican Party of being the servants of the rich and powerful at the expense of the broader public. In the past, they would deny this charge and claim that they just had a different view of how the economy works. Republican House Budget Committee Chairman Paul Ryan sought to eliminate any confusion on this point. He proposed, and last week the Republican House approved, a budget bill that will transfer tens of trillions (yes, that is “trillions” with a “T”) of dollars from ordinary working people to the insurance industry, the pharmaceutical industry and generic rich people from any industry. This money will come in the form of higher payments by seniors in their old age for health insurance and another round of tax breaks for the country’s richest people. The Medicare story is the bigger transfer here. Representative Ryan wants to replace the current Medicare system with a voucher system. The size of the voucher in Ryan’s plan is held even with the overall rate of inflation. This means that it will not rise at anywhere near the rate of projected health care cost growth. As a result, a greater portion of the cost of health care will be shifted from the government to retirees. However, this is the less important part of the story. The main reason that retiree health care costs will increase is that the private sector is less efficient at delivering care than the existing Medicare program. The Congressional Budget Office (CBO) projects that, under the Ryan plan, the increase in the cost of buying Medicare equivalent policies would be more than $30 trillion over Medicare’s planning horizon. This additional waste comes to almost $100,000 for every man, woman, and child in the country. It is approximately equal to six times the size of the projected Social Security shortfall. This waste is a direct transfer from retirees to the insurance industry and the health care industry. This is not the only way that Representative Ryan and the Republicans dip into the pockets of ordinary workers for the benefit of the obscenely rich. He also wants to give an additional $2.9 trillion in tax breaks to the wealthy over the next decade. These tax breaks would be paid for with cuts to Medicaid, Food Stamps and other programs that middle-income and poor people depend upon. The tax breaks would be real money for the people who get them. For example, Representative Ryan’s tax breaks could give Lloyd Blankfein, the CEO of Goldman Sachs, another $3 million a year based on his $20 million annual paycheck. That’s the equivalent of more than 2,600 monthly Social Security checks. Representative Ryan and the Republicans in Congress are likely to justify their budget by saying that they believe that their health care plan will hold down costs and their tax cuts will spur economic growth. While we can never know what politicians believe, we do know that these are not plausible stories. We have already tested expanding the role of private insurers in the Medicare system. We did this in the 90s when the Gingrich Congress pushed through their Medicare Plus Choice plan. We did it again more recently with the Medicare Advantage program that was promoted by President Bush. These plans did not lower costs; they raised them. That is the basis for the non-partisan CBO’s projections that the Ryan plan will raise costs. Similarly, Representative Ryan and the Republicans claim that tax cuts for the wealthy will spur growth. We have also twice tested this one. The first time was when President Reagan gave us big tax breaks beginning in 1981. The 80s were the worst decade of growth since the Great Depression, prior to the 00s, when President Bush tested his tax cuts for the wealthy. Certainly the economy’s bad performance during these decades cannot be blamed solely on the tax breaks for the wealthy, but it is a bit hard to maintain tax cuts to the wealthy gave a big boost to growth in these years. While Representative Ryan and the Republicans may actually believe that giving private insurers more control over health care lowers costs and that cutting taxes for the rich increases growth, who cares? These people may believe that the moon is made of green cheese, but this does not make the green cheese theory true or even plausible. We have extensively tested both parts of the Ryan transfer program to the wealthy, and they don’t work as he claims. They redistribute money to the rich: end of story. Thanks to Representative Ryan we have the Republican Party on record as supporting these massive transfers to the wealthy. We just have to hope that the Democratic Party takes a different position.

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Tax Breaks For Rich Exceed Value Of Budget Cuts

April 18, 2011

NEW YORK — Today, as Americans submit their tax returns, the wealthiest earners will each reap hundreds of thousands of dollars in tax savings. As part of a law passed late last year, the Bush-era tax cuts for the richest Americans were extended for two years. The estimated cost to the government of that portion of the tax deal, $42 billion this fiscal year, exceeds the stated $38 billion value of the savings from the federal budget cuts lawmakers approved last week. Those budget cuts, which will affect many services for poor Americans, add more strain to a still weak economy , leading some economists to lament that this allocation of federal resources is not the most efficient way to promote economic growth. “I don’t think it’s a good time to be trimming federal outlays if you’re interested in the vulnerability of the economy,” said economist Gary Burtless, formerly with the Labor Department and now at the Brookings Institution. “I’m not quite sure where the theories come from that this is going to strengthen economic growth over the next 12 to 18 months. It’s going to have the reverse effect. It’s going to slow it down.” In the wake of the worst economic downturn since the Great Depression, the economic recovery has been uneven. The financial sector , which employs some of the country’s wealthiest citizens as its executives, has seen profits rebound. Pay at top financial firms has multiplied, while wages for most Americans have stagnated. Between January 2008 and January 2010, the private sector lost nearly 8 million jobs. Last year, payrolls began to expand, but the pace of the recovery has been slow. With companies reluctant to spend their reserve cash on hiring, the unemployment rate remains high. Last month, 8.8 percent of the workforce was unemployed, a figure that would be significantly greater if it included the millions of jobless Americans who have entirely given up looking for work. Thanks to the tax cut extension passed last year, struggling Americans will get to keep a few thousand dollars that otherwise would have gone to the government. A family making between $50,000 and $75,000, for instance, saves just over $2,000 on average, according to the non-partisan Tax Policy Center . From a broad economic perspective, that’s money Americans can spend on themselves, theoretically boosting demand, stimulating business activity and generally helping promote a recovery. But the extension of the tax breaks for the wealthy have proven more controversial, especially as job-creation has remained slow. Under the extension, a family that earns between $500,000 and $1 million gets an average $25,000 tax break, according to the Tax Policy Center. A household earning more than $1 million gets more than $130,000. Over two years, tax cuts for the wealthy will cost the government about $120 billion and will create or save about 290,000 jobs, according to analysis by the White House-aligned research group Center for American Progress . That’s a cost of about $400,000 per job, many of which will likely yield salaries far below that value. The tax extension seems especially hard for critics to swallow in light of last week’s federal budget deal, which calls for spending cuts of about $38 billion. In comparison, tax breaks for the wealthy will cost the government $42 billion during this fiscal year, according to Michael Linden, director for tax and budget policy at the Center for American Progress. The cuts come at a period of economic weakness, when those who most rely on government services struggle to put food on the table. This week, the International Monetary Fund cut its forecast for U.S. economic growth — by the same degree as it cut its forecast for Japan , whose economy faces a major strain as the country attempts to rebuild after a devastating earthquake and tsunami. But some fiscal restraint is necessary for supporting long-term economic growth, said Mark Zandi, chief economist of Moody’s Analytics. In theory, government spending cuts encourage private businesses to boost their own spending, thereby helping stimulate economic activity. A reduction of public spending might also help stem inflationary pressures and boost investors’ confidence. While these proposed cuts represent only a small percentage of the year’s budget, they are an important first step, said Zandi, who has advised lawmakers from both parties. “I think it’s entirely appropriate to focus on discretionary spending, and how we can reduce it going forward,” Zandi said. “My druthers would not have been to cut as deeply right now, until the economy is off and running.” The deficit-reduction plan put forth by President Barack Obama in a speech on Wednesday includes a combination of cutting spending and ending tax breaks for the wealthy when those naturally expire. He laid out a strategy for reducing the deficit by $4 trillion over 12 years, calling for additional cuts across the board. “If they make serious cuts over time, that’s actually going to be quite good for the economy,” said Andrew Lo, professor of finance at the MIT Sloan School of Management. “It’s bitter medicine, but we’ve got to take it.”

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Video: Goldman Says Nigeria Elections May Help Oil Producers

April 18, 2011

April 18 (Bloomberg) — Antony Goldman, an independent oil consultant, discusses the potential impact of Nigeria’s presidential elections on oil production in the country. Goldman speaks with Mark Barton on Bloomberg Television’s “On the Move.”

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CoStar Q&A: Daniel Herrold of Stan Johnson Co. On Prospects for Net Lease Business

April 18, 2011

After 23 years of doing net lease brokerage business largely out of its Tulsa, OK, headquarters, Stan Johnson Co. embarked on an expansion plan to open regional offices in 2008, a time when many commercial real estate companies were downsizing. The firm, one of the country’s leading real estate brokerage and advisory firms specializing in net-lease investment sales, tapped Daniel Herrold to lead the effort and he opened the first regional office…

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WATCH: Donald Trump’s Big Idea To Lower Gas Prices

April 17, 2011

WASHINGTON — With gas prices rising above $3.50 a gallon in all but one state , Americans are getting hit hard at the pump. But billionaire and presidential aspirant Donald Trump thinks he has the solution: Simply tell OPEC to cut prices. Trump blamed gas costs on the Organization of Petroleum Exporting Countries (OPEC), a conglomerate of developing nations responsible for 40 percent of global oil supplies . He said on CNN’s “State of the Union” Sunday that lowering the price of gas is as easy as telling OPEC’s members to do so — something he believes President Obama is incapable of. When host Candy Crowley argued that the United States can’t control OPEC, Trump disagreed, saying our country only needs “brain power.” “Candy, it’s the messenger,” said Trump. “You know, I can send two executives into a room. They can say the same thing. One guy comes home with the bacon and the other one doesn’t. And I’ve seen it a thousand times. It’s the messenger.” “We don’t have the right messenger. Obama is not the right messenger,” he continued. “We are not a respected nation anymore. The world is laughing at us. … Let me tell you, it’ll go down if you say it properly.” Trump also criticized Obama’s handling of the conflict in Libya, saying the United States should just go in there and take the country’s oil. “Either I’d go in and take the oil or I don’t go in at all,” he said. “We can’t be the policeman for the world.” He added that he would leave Libya “plenty” of oil so that “they can live very happily” as well. WATCH: Other Republican presidential aspirants have more directly blamed the Obama administration for rising gas prices. Mississippi Gov. Haley Barbour, for example, has suggested the White House deliberately drives up prices. “This administration’s policies have been designed to drive up the cost of energy in the name of reducing pollution, in the name of making very expensive alternative fuels more economically competitive,” said Barbour in a speech to the U.S. Chamber of Commerce in Washington, DC last month. On NBC’s “Meet the Press” on Sunday, Treasury Secretary Tim Geithner cited tensions in the Middle East and North Africa along with the nuclear situation in Japan for impacting gas costs. He said that high gas prices have a ” measurable impact on the economy ” by slowing the recovery process “moderately.”

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Soaring Prices Still Don’t Indicate Real Inflation, Economists Say

April 15, 2011

Despite American consumers being hard hit by rising gas and grocery prices, federal regulators continue to insist the country need not fear inflation. Gas prices, which rose nearly 6 percent in March alone, are now almost 28 percent higher than they were a year ago, according to figures from the Bureau of Labor Statistics released Friday. Overall, the Consumer Price Index, a closely-watched measure of inflation, rose 0.5 percent in March, the Labor Department reported. The Consumer Price Index tracks changes in the cost of a virtual basket of goods for consumers in cities across the country. Rising food and gas prices accounted for almost three quarters of the March CPI increase. Those findings are in line with economists’ expectations . Still, the Federal Reserve has no plans to combat inflation by raising interest rates ; many economists argue that higher food and energy prices do not necessarily trigger overall price increases for goods and services. “Prices for energy are certainly putting pressure on headline CPI,” said Constance Hunter, Chief Economist at investment banking firm Aladdin Capital. “We saw this in the summer in 2008, when due to oil prices, the CPI got up 5.53 percent. But the point is it didn’t stay there because we had demand destruction.” As gas prices spiked in summer 2008, Hunter noted, many Americans changed their driving habits, opting to take more public transport and start carpooling rather than pay higher prices. That caused oil demand to fall, and prices followed. Now again, there is some indication Americans are already cutting back on driving . The strongest evidence counteracting inflationary fears, however, lies in the core inflation level, which does not include volatile food and energy prices and is widely considered to be a more accurate inflationary predictor. According to that BLS measurement, inflation only inched up 0.1 percent in March — the smallest increase this year — suggesting core inflation is on track to rise 1.2 percent overall in 2011. Inflation below 2 percent normally doesn’t trigger alarm at the Federal Reserve. “The Fed tends to see through temporary increases in headline inflation that are driven by rising fuel and food costs,” said Sal Guatieri, senior economist at financial services provider BMO Capital Markets. “Because the view is those costs cannot rise infinitely.” What is clear, though, is that many Americans are feeling the pinch of those rising costs anyway. “People are still spending very cautiously,” Guatieri noted. Higher gas prices buoyed just a 0.4 percent jump in retail sales in March, according to figures released by the Commerce Department on Wednesday. Consumer spending, which makes up 70 percent of U.S. spending, has risen for nine consecutive months, jumping over 7 percent since March 2010. Sales at gas stations accounted for almost 11 percent of overall retail sales in March — a sign March’s spending increase was more a result of rising costs than increasing optimism.

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World Bank, I.M.F. Unsure Of Solution To Middle East Inequality

April 15, 2011

WASHINGTON — The World Bank once hailed Tunisia’s economic reforms, noting the country’s increasing prosperity over the last decade. Officials now describe the country as a cautionary tale. By focusing primarily on the country’s growth, the World Bank and other international bodies failed to notice widening inequalities. Now, in the wake of a revolution still shaking the region, the World Bank says Tunisia can serve as a model for a revised approach

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Euro Falls After Moody’s Further Downgrades Ireland

April 15, 2011

DUBLIN (Padraic Halpin) – Moody’s cut Ireland’s sovereign rating by two notches to the verge of junk status on Friday and kept its outlook on negative, pushing the euro lower and adding to renewed pressure on the euro zone’s weaker countries. The move sent Ireland’s borrowing costs up and cut short a rare spell of good news after the government said on Thursday it had passed a review of its economic progress by creditors and ratings agency Fitch upgraded its outlook. A soaring of Greek borrowing costs to new highs has turned up the heat on fellow strugglers Ireland and Portugal this week after Germany said for the first time that Athens may have to restructure its huge public debt. Moody’s official Dietmar Hornung told Reuters, however, that the chances of Ireland having to restructure any of its debt were very remote and said he expected Dublin’s debt-to-GDP ratio to level off at a “sustainable” 120 percent. An advisor to Greece’s Prime Minister said last week that its debt-to-GDP will jump to over 150 percent by the end of the year, and higher still by the end of 2012. However Moody’s said Ireland’s growing debt would be high by EU standards and that weak economic growth prospects together with the expected decline of the government’s financial strength threatened its ability to manage the burden. “Should the intended fiscal consolidation goals not be met, a further rating downgrade would likely follow,” Moody’s said. “Moreover, a further deterioration in the country’s economic outlook would also exert downward pressure on the rating.” Moody’s said the downgrade to BAA3 from BAA1 — which puts its rating two notches below both Fitch and Standard and Poor’s — was also due to uncertainty around solvency tests required by the European Stabilization Mechanism (ESM) It said the country may need to take further austerity measures to meet its fiscal goals and that its financial position may suffer as a result of rises in European Central Bank interest rates. One in ten Irish mortgages were either in arrears or restructured at the end of 2010 and more customers are set to fall into difficulty after the ECB raised its base rate earlier this month. The ratings cut pushed the euro to a session low against the dollar, falling as low as $1.4451, down 0.2 percent on the day, and moving further away from its 15-month high around $1.4521 hit earlier this week. The Irish/German 5-year government bond yield spread was 20 basis points wider on the day at 724 bps. The equivalent 10-year spreads, which narrowed by around 100 basis points after an end-March fresh round of bank stress tests, were little changed on the day. ALL ABOUT GROWTH Ireland has been struggling to convince markets its spluttering economy can grow fast enough to sustain its debt burden since the International Monetary Fund and European Union arranged an 85 billion euros bailout last year. The IMF this week slashed its forecast for Gross Domestic Product (GDP) growth to 0.5 percent from 0.9 percent previously and said it did not expect Ireland to meet the target of getting its budget deficit under an EU limit of three percent by 2015. The government, which will get a full update on its progress on the IMF/EU deal later on Friday, is updating its forecasts but currently predicts 1.7 percent growth this year to give it a budget deficit of 9.4 percent. Analysts said the Irish story would now be all about growth. “I still think we will maintain investment grade, but at the same time the risks around achieving debt sustainability are to the downside,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers. “It’s absolutely all about growth now. I think we’ve parked the banking issue which is a positive and you can get that from the readings of the ratings agencies views.” On a positive note, Moody’s said that upward pressures could also develop on Ireland’s rating and that the country’s long-term potential growth prospects remain higher than those of many other advanced nations. (Editing by Patrick Graham) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Richard (RJ) Eskow: Bachmann/Ryan Overdrive: A High-Speed Escape From Economic Reality

April 14, 2011

Remember all those mini-movies that summarized a broad topic in two minutes? Whether the subject was the Civil War, the magical things that happen when you multiply by ten, or the complete history of Western Civilization, these little films covered it all in one rapid-fire shot after another, giving you a whole lot of information — and a splitting headache — in a very short period of time. The first couple minutes of this Michelle Bachmann Today show interview are like that. She runs through the entire litany of conservatism’s disproven economic cliches in 100 seconds or less. without even getting short of breath. If someone ever wants to make one of those two-minute movies and call it The Ideas That Crushed the American Dream , Rep. Bachmann’s already written the script. Fire it up and watch her go! We’ll sound the bell every time she floats a discredited idea. Ready? Raising taxes for the wealthy shouldn’t be “on the table,” says Bachmann, because “tax rates are high enough (ding!), and history shows (ding!) that when we raise taxes, particularly on job creators (ding!) we actually bring in less revenue (ding! ding! ding!) rather than more.” Forget what I said about two-minute movies. Michelle Bachmann could cover Western Civilization in ten seconds . I was on a talk radio show from St. Louis yesterday with a guy from the Heritage Foundation who used the same “history shows us” line. What history actually shows us is that we lost jobs after the Bush tax cuts, even before deregulation brought down the economy. History also shows us that our periods of greatest economic prosperity occurred when taxes were higher than they are now. The history of the Great Depression shows that it took a lot of government investment to get people working and the economy growing — and that this investment paid off handsomely. FDR listened to the Bachmannites of his time in the late 1930′s, and that’s when everything started falling apart again. So history shows us that we need government investment to reduce persistent unemployment. And “job creators”? Oh, please. Wall Street financiers have regained their pre-crash parasitical economic stranglehold, seizing nearly 40% of corporate profits. They’re getting rich by not creating jobs, and sometimes by destroying them through destructive hedging. Corporate profits are at historic highs and taxes for the wealthy are at historic lows, yet people in the real world are still taking the world’s longest unemployment gut-punch. Which raises the question: If these guys are “job creators,” where are the jobs ? “Do we want more revenue or more taxes?” Bachmann asks rhetorically. Because the two don’t go together.” As the young people say (picture a finger snap here): Oh no she didn’t! Did she cite the Laffer Curve ? Yes, she did. Michelle Bachmann just brought out the most discredited theory in modern economic history: the notion that people will stop making money if taxes are too high, so overall government income will fall and not rise. There’s only one thing that contradicts that theory: The economic history of every single nation on the planet. The Laffer curve argument goes like this: if you taxed everybody 100% of everything they earned, nobody would ever bother to make money. So it must be bad to increase taxes. That sort of reasoning cuts both ways: If you paid everybody zero for their work, nobody would bother working. But they never use that logic to fight for a higher minimum wage. Economists like the name “Laffer curve” because this theory is always good for a laugh. “You could actually confiscate (ding!) all the wealth that people make at $200,000 or more,” says Bachmann, “and that would only yield about six or seven months of revenue to run the government.” Hey, that’s half the whole cost of government! She’s selling the idea pretty well! Conservatives love that word “confiscate.” They’re the same ones who say they’d lay down their lives for their country. But pay four pennies on the dollar on six-figure income? Forget it. That’s dictatorship! Think of it: Our highest tax bracket under Dwight D. Eisenhower was 91% percent. He must be the greatest dictator of all time! This is the type of person who loves to sing along when they play that song about sacrificing everything for this country — you know the one . All the Democrats are proposing is a four-and-a-half percent increase on income over $250,000. “There ain’t no doubt I love this land” — but not enough to chip in for it. Here’s the song they should really be singing. Know what’s funny? Bachmann and her colleagues are the same people people who think we can’t afford to pay thirty million dollars per year to predict coastal storms and floods and plan for disasters. These floods create an average of $11 billion in damage every year , along with loss of life — and they think we can’t spare a few million to lower that cost and save some lives. Yet they’ll give away hundreds of billions in tax expenditures like it was peanut butter in a smoke-filled college dorm. For the Representative from Minnesota it’s “confiscate” this and “take 100 percent” of that… on and on and on… until all of the ridiculous rhetorical tricks that got us into this mess begin to flicker stroboscopically and the rational listener is in danger of having a seizure, like those cartoon-watching kids from a few years back. Bachmann goes on in this vein for what seems like forever, but which in reality is only four minutes or so. This alteration in subjective temporal experience is produced by something physicists call the “Mind Dilation Effect,” in which time appears to be moving more slowly as the flow of bullsh*t approaches the speed of light. We see every single conservative cliche simultaneously, as if … Well, almost all. She left out one of their favorites, the one that says “If you could go back in time one day for every dollar the government spends, you’d be face to face with Jesus.” Just as well. With all their cuts to life-saving health care and law enforcement programs, it looks like a lot of other people are gonna wind up face-to-face with Jesus too. “Already again,” she says later, “the top 1% of income earners pay about 40% of all taxes.” (That’s not the right number, because it leaves out other forms of taxes, but whatever.) Why do the top 1% pay a large share of taxes? Because the top 400 families in America are richer than the bottom fifty percent of the entire country! So of course they pay a big chunk of income tax, even after they’re coddled with tax breaks galore. Rep. Bachmann sure has a lot of talking points, but here’s an odd thing: When Matt Lauer asked about the CBO’s report on, which documents the devastating financial impact their Medicare cuts would have on seniors, suddenly she tells us she “hasn’t had a chance to look at the study.” “But it’s important for us to understand,” Bachmann continues, “that individualism (ding!) and personal responsibility (ding!) have always been a bedrock of this country.” When it comes to the whole “devastating financial impact” question, I’ll take that as a “yes.” There’s more, but you get the gist. Some people think she’s a little nuts, and they’ll even get a little personal by mentioning that Children of the Damned-ish glint in her eyes. Actually she’s very polished and effective here. Somebody’s been coaching her, both on presentation and on talking points. Still, her ideas are as radical and as detached from reality as ever. But as Dave Johnson points out, Rep. Paul Ryan’s proposed budget is too extreme even for her. And that’s how it is on the Right these days. You can always tell that a movement’s degenerating into extremism when the radicals start attacking each other. Think Stalin vs. Trotsky, or that big squabble among birthers a couple of years back. And don’t forget the Judean People’s Front vs. the People’s Front of Judaea. (“Splitters!”) Now we’re in Bachmann/Ryan Overdrive time. These Representatives and other members of the Right are in a high-speed race to see who can outbid the other to win the extreme vote. I’m not against radicalism — it’s can be a laboratory for new ideas — but they’ve seen that responsible members of the far Right like Ron Paul are suddenly at risk of being thrown over by the Tea Party. That means that the Ryans and Bachmanns are going to keep upping the ante as long as they can. It’s like the game of chicken in Rebel Without a Cause where neither driver will take his foot off the accelerator until somebody goes over the cliff. Hope it’s not us. Cross-posted at Crooks and Liars . __________________________________________ Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project and the Strengthen Social Security campaign. Richard also blogs at A Night Light . He can be reached at “rjeskow@ourfuture.org.” Website: Eskow and Associates

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Obama: Deficit Reduction Push ‘Can’t Exempt Anyone’

April 14, 2011

WASHINGTON — President Barack Obama says the nation’s effort to curb ballooning deficits “can’t exempt anyone.” Obama spoke Thursday as he met with the co-chairmen of his deficit reduction commission, a day after laying out his blueprint for erasing some $4 trillion in red ink over 12 years. The commission was led by former Republican Sen. Alan Simpson and Erskine Bowles, former White House chief of staff to Bill Clinton. It produced a plan for a similar amount of deficit reduction over 10 years. Obama tells reporters the country needs to ask everyone to participate in the effort to get its fiscal house in order.

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‘Tax Freedom Day’ May Overstate Middle-Class Tax Burden

April 12, 2011

One hundred and one days. That’s how long it will take Americans to earn enough income to pay off their total 2011 tax obligation to the U.S. government, according to the Tax Foundation, the fiscally conservative think tank that will celebrate April 12 as the day of completion, labeling it Tax Freedom Day. The Tax Foundation’s calculation, however, doesn’t account for America’s richest citizens paying taxes at significantly higher rates than middle- and low-income taxpayers. Instead, they simply divide total taxes collected ($3.628 trillion) by the net national product of the country ($13.107 trillion). But while this year’s tax revenue as a percentage of national income is higher than 2010 (26.9 percent) and 2009 (26.6 percent), it remains lower than any other year since 1966. This recent trend toward earlier Tax Freedom days largely results from declining tax revenues since the recession, the study’s author, economist Kail Padgitt, said in an interview. Tax Freedom Day has sparked debate over middle-class taxes, with the Center on Budget and Policy Priorities arguing , the Tax Foundation figures exaggerates the tax obligations of “typical middle-income workers. Only the richest 20 percent of Americans pay taxes at or above the level indicated by the Tax Foundation, CBPP notes, while the other 80 percent pay a considerably lower percentage, citing the most recent data available from the Congressional Budget Office: Still, the Tax Foundation says their Tax Freedom Day is a useful indication of the state of the country’s overall tax burden. The calculations, the foundation notes, don’t account for Americans’ estimated future obligations to the nation’s $14 trillion deficit . Here’s a Tax Foundation chart on the gap between the deficit and tax revenue. What Tax Freedom Day also doesn’t take into account, though, is that the U.S. has also seen a rapid rise in the amount of income that is exempted from taxation. Over the last 50 years, non-taxable annual U.S. income per capita has grown by 600 percent to $12,528 from $2,007. Taxable income has only doubled in that span — to $31,303 from $15,368 — placing an additional strain on the federal deficit. Some, including University of Maryland political science professor Robert Stoker, argue that the Tax Foundation’s indicator builds an unfair bias against progressive income taxes and other taxes that actually lift the tax burden off of middle-class households. “As [long as] income [becomes] more and more concentrated at the top, Tax Freedom Day will fall later and later in the year,” Stoker says. “That is, unless we shift the tax burden on to working Americans. Among the states, Connecticut (May 2) has this year’s latest Tax Freedom Day, while Mississippi (March 26) has the earliest. Of course, how states and cities obtain revenue for governments differs drastically by region. As explained in Taxing the Poor , a 2011 book by Katherine Newman and Rourke O’Brien, the South tend to rely on sales tax (a regressive tax) while the Northeast is dependent on revenue from income taxes (more often progressive): The largest percentage of income ever dedicated to taxes was 33.0 percent, recorded during the Clinton administration. President Bill Clinton, who benefited from a surging dot-com economy, balanced the budget from 1998-2001.

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Obama Open To Deal On Debt Ceiling

April 12, 2011

White House officials have opened the door to a deal with Republicans that would allow the U.S. to increase its ability to borrow, potentially easing worries in financial markets that the country might default on its debt.

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Dean Baker: Paul Ryan in Your Pockets: Government by People Who Hate You

April 12, 2011

House Budget Committee Chairman Paul Ryan put out a budget proposal last week that will leave the vast majority of future retirees without decent health care by ending Medicare as we know it. According to the Congressional Budget Office (CBO) analysis, most middle-income retirees would have to pay almost half of their income to purchase a Medicare equivalent insurance package by 2030. They would be paying much more than half of their income in later years. This sort of broadside against the living standards of the middle class might have been expected to draw an outraged response in a nation that exalts the lifestyle and values of the middle class. Instead the punditry rallied around Mr. Ryan’s plan to deal with the problem of run-away entitlement spending, crediting it for being “serious” even if they did not embrace all the details. If there is any doubt that our political system is controlled by an elite who is completely removed from the bulk of the population, this response to the Ryan plan ended it. There is nothing at all serious about the Ryan plan. It is naked attempt to redistribute yet more money to the country’s rich at the expense of everyone else. The proposal to end Medicare relies on market efficiencies to get health care costs under control, as though we had not tried this before. Has Representative Ryan never heard of Medicare Advantage or Medicare Plus Choice? Doesn’t he know that we already have the opportunity to see the effectiveness of private insurers in containing health care costs in the vast non-Medicare insurance market? Based on this extensive experience, we know that the private insurance market does not control costs. This is why CBO calculated that Ryan’s plan would hugely raise the cost of health care for seniors. If every senior got a Medicare equivalent policy under Representative Ryan’s plan (which most will not be able to afford), the added cost of his system would be more than $20 trillion over the next 75 years. This comes to more than $60,000 for every man, woman and child in the country. That would be money out of the pocket of ordinary workers and retirees that will go to the insurance and pharmaceutical industries, highly paid medical specialists and other health care providers. When it comes to redistributing money upward, the bar for intellectual coherence is set very low. Pundits from across the political spectrum had a hard time containing their enthusiasm for Ryan’s plan even if few were willing to embrace it in its entirety. And, if there was not enough substance over which to get excited, then there were always the 37 footnotes which Washington Post columnist Charles Krauthammer trumpeted last week. In principle the country’s elite should be laying low right now. After all, their greed and ineptitude has given us the worst economic collapse since the Great Depression. But after getting the Wall Street banks back on their feet with trillions of dollars of government subsidized loans, the elite are once again making a full-frontal assault on the living standards of the middle-class. Last week it was Medicare, but they promise to be back to attack Social Security in the not-too distant future. The ostensible rationale for this attack is the country’s huge budget deficit. This is garbage. As all the pundits know, the country has a huge deficit today because the Wall Street boys drove the economy off a cliff. If the government deficit was not propping up the economy we would be looking at 11 or 12 percent unemployment, rather than 8.8 percent. Spending creates jobs and at this point it is not coming from private sector, so the government must fill the hole. Over the longer term the projections of huge deficits are driven by the projected explosion in health care costs. President Obama’s health care reform took steps toward constraining these costs, although probably not enough. Remarkably, Ryan’s plan abandons these cost-control measures, virtually guaranteeing that quality health care becomes unaffordable for all but a small elite. And the pundits call Ryan’s plan “serious.” Yes, it is very serious. It is a serious plan for taking tens of trillions of dollars from low-income and middle-income people and giving them away as tax breaks to the rich and to the health care industry. It is about as serious as a robber with a gun pointed at your head.

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Denny’s Plans To Open Restaurants In India

April 11, 2011

MUMBAI (Nandita Bose) – The scramble by global food companies into India’s fast food sector intensified on Monday as several U.S. chains announced plans to enter the country, hoping to tap the surging spending power in Asia’s third-largest economy. Restaurants like Denny’s Corp (DENN.O: Quote, Profile, Research, Stock Buzz), known for serving pancakes and sausages all day, and Rita’s Water Ice, which would be the first foreign competitor to local water ice brands like Gola, which operates out of little stalls placed mostly on streets, plan to enter India over the next two years. Pollo Tropical of Carrols Restaurant (TAST.O: Quote, Profile, Research, Stock Buzz), known for Caribbean-flavored chicken, Applebee’s and Johnny Rockets, known for its hamburgers, are also looking to cash into the Indian quick-service restaurant market worth $13 billion. All brands will face challenges as they compete with incumbent McDonald’s and Yum Brands, not the least of which would be adapting a meat-centric menu to a largely vegetarian palate. Denny’s Corp, which plans to make an Indian foray in 2012, has set up a supply chain network and customized its offering to suit local palates, William Edwards, chief executive of EGS, which handles the company’s international expansion. He said the menus would be stripped free of beef and pork, and would focus on fish and vegetarian dishes instead. “In India we are planning to have regional licensees with 10, 25 or 50 units,” Edwards said, adding that every 10 units required an investment of about $5 million. Others wanting a foothold include Wendy’s, Arby’s International, CKE Restaurants with Carl’s Jr and Focus Brands with Schlotzsky’s Deli, all known for sandwiches and burgers. BannaStrow’s Crepes and Coffee, Moe’s Southwest Grill and Carvel Ice Cream are also in line. “We are excited about the opportunity in India and are hopeful that the franchises we have brought with us will see an opportunity for expansion here,” said Nicole Y.Lamb Hale, the assistant secretary for manufacturing services, U.S. Department of Commerce, who accompanied the franchises into India. Starbucks Corp (SBUX.O: Quote, Profile, Research, Stock Buzz) and Dunkin Donuts recently announced plans to enter India, taking advantage of a growing preference for coffee and a culture that is increasingly socializing in cafes. SEARCH FOR FRANCHISEES India caps foreign ownership in single brand retail at 51 percent, forcing all foreign chains to seek partnerships to do business in the nation of 1.2 billion people. The franchise owners plan to meet the Ministry of Commerce and Industry and the Ministry of Corporate Affairs in the coming days. The franchise market in India, estimated to be worth $3.3 billion, is growing at a rate of 30 percent. Casual dining chain Applebee’s and Johnny Rockets also said they were in talks with several players in the country as they sought franchise partners. “We are still in talks and will probably start our operations with Mumbai, Delhi,” Phil Crimmins, president of Applebee’s international division said. Johnny Rockets said it was also open to joint venture opportunities. “We are hoping to sign a deal in the next 6-8 months and after that start operations in the next 6-9 months,” Steve Devine, senior vice president, international development at Johnny Rockets said. (Editing by Jui Chakravorty) Copyright 2011 Thomson Reuters. Click for Restrictions .

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