debt

Obama To Call Income Inequality ‘The Defining Issue Of Our Time’

by The Huffington Post on January 25, 2012

Huffington Post…

The president has the wealth gap on his mind. Obama will identify the need for a level economic playing field as “the defining issue of our time” in his State of the Union address Tuesday night, according to early excerpts of his speech made available to the press . “No challenge is more urgent. No debate is more important,” reads the excerpt in part. “We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.” Obama will deliver his address after decades of divergence between America’s richest citizens and everybody else. A Congressional Budget Office report recently confirmed that the gap separating the wealthiest and poorest Americans is historically large, and that the nation’s top earners have seen their incomes skyrocket in the past 30 years while paychecks for the vast majority of people have barely changed at all. The address will also take place amidst a grim season for the American economy, a time when millions of people are out of work , and millions more have jobs that don’t pay enough to boost them out of poverty . Presently, income inequality is more severe in the U.S. than almost anywhere else in the developed world — a circumstance likely related to the country’s pervasive levels of poverty and economic struggle . In confronting the dearth of economic opportunities for ordinary workers, Obama seems to be echoing — whether intentionally or unintentionally — the concerns of the Occupy movement , which cast a spotlight this autumn on the national wealth gap and the harsh conditions faced by those looking for jobs. In evidence of how thoroughly the Occupy movement saturated the national conversation, the number of times the media mentioned the phrase “income inequality” increased nearly five-fold during the first two months of the Occupy protests, according to Politico. The president is also likely playing into Americans’ concerns about the issue. Nearly three-quarters of Americans said that they think income inequality is a problem for the United States, according to an October poll conducted by The Hill . More generally, countless polls in recent months have shown that the economy and the availability of jibs are the top concerns for Americans. Evidence suggests that the income gap may be holding back a broader economic recovery, which has yet to manifest despite the Great Recession officially ending in 2009. Income equality positively correlates with economic growth , according to a September study from the International Monetary Fund. In the hours leading up to Tuesday night’s address, onlookers raised their eyebrows at the news that Debbie Bosanek, secretary of billionaire financier and occasional Obama adviser Warren Buffett, will receive a seat of honor next to Michelle Obama during the proceedings . Buffett made headlines over the summer when he argued, in a widely read New York Times op-ed, that America’s very wealthiest citizens should pay higher tax rates than many of them currently do. Buffett cited the example of his office co-workers, who he said paid a higher percentage of their income as taxes despite earning much less than him. By seating Bosanek next to the First Lady, Obama appears to be aligning himself with Buffett and others who argue that the rich are given too much freedom to stockpile their wealth. A report earlier this month from the Congressional Research Service pointed to regressive alterations in the tax code — that is, high earners paying smaller and smaller shares — as one of the major reasons for the differences in income growth during those years. The report found that between 1996 and 2006, the top 0.1 percent of tax filers experienced an almost two-fold increase in income, while the bottom 20 percent of filers saw their incomes fall by 6 percent. Here are 15 charts to illustrate what Obama has termed “the defining issue of our time”:

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Obama To Call Income Inequality ‘The Defining Issue Of Our Time’

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Obama Delays Vital Request

by AP on December 30, 2011

Huffington Post…

HONOLULU — President Barack Obama is delaying his request for another $1.2 trillion increase in the nation’s debt limit at the request of congressional leaders. It’s basically because of a technicality. The White House had been ready to ask for the increase Friday because the government is within $100 billion of exhausting its current borrowing authority. Congress would then have 15 days to reject the request, though Obama would veto any objections in order to ensure that the government does not default on its obligations. But with Congress not due to return to Washington until mid-January, a bipartisan group of lawmakers asked Obama to delay his request so they would be in session during the 15-day period allowed for objections. “The administration is in discussions with leaders in both houses to determine the best timing for submission of certification and any subsequent votes in the two houses,” White House spokesman Josh Earnest said Friday. Kevin Smith, a spokesman for Speaker John Boehner, said the House leadership preferred not having to call members back to Washington early to vote on the increase request, but would have done so if necessary. A senior White House official said Obama will make his request within days. The Treasury Department will use accounting measures to ensure that the nation does not reach its debt limit before the $1.2 trillion increase is finalized, said the official, who requested anonymity because the person lacked authority to speak publically. The debt limit is the amount the government can borrow to finance its operations. It has soared because the government has run record deficits over the past decade. The borrowed money has helped pay for two wars, stimulate the nation’s economy after the worst recession since the Great Depression and keep intact broad tax cuts initiated during the Bush administration. Obama’s request to increase the nation’s borrowing authority would boost the debt limit to a record $16.4 trillion. The president and Congress agreed to raise it to that level in three steps as part of the August deal that was struck hours before a threatened government default. Officials say the $1.2 trillion increase should be enough to allow the government to keep borrowing until the end of 2012, or just after the presidential election. Congress agreed to raise the debt limit by $400 billion in August and by another $500 billion in September. House Republicans voted against the second increase, but failed to block it because the Senate approved it. The increases are scheduled to take effect unless both chambers vote against them. The White House announced the delay in the debt limit request from Hawaii, where the president is on vacation.

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Obama Delays Vital Request

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Loan Modification Process ‘Adding Uncertainty To The Market,’ Delaying Recovery

December 18, 2011

WASHINGTON (Reuters) – Shirley Burnell, a community activist from Oakland, California, has been trying to get her subprime loan restructured since 2007. She never missed a payment, but the adjustable rate mortgage she got in 2004 shot up to a monthly payment she could no longer afford. First she provided documents without getting any response, then she was denied in April by her servicer, Bank of America, for not providing documents it never actually asked for. As one part of the bank appealed that decision and approved her for a trial modification, another part denied her again – twice – providing two new reasons in part based on inaccurate calculations, according to documents reviewed by Reuters. When asked about Burnell’s case, a bank spokesman said she was unable to qualify under “imminent default provisions,” a third reason that Burnell said she had never been given. At one point, Burnell even received notice the bank would accelerate foreclosure proceedings, despite her perfect payment record and the letter itself saying the bank owed her $281.01. “They gave you a funky loan in the first place, and now they’re refusing to work with people to get it worked out,” Burnell said. “It just keeps you upset all the time.” Bank of America is “committed to keeping customers in their homes whenever the homeowner has the financial wherewithal to make reasonable payments and the desire to keep the home,” a spokesman for the bank said. Three years after the foreclosure crisis began, the process to apply for a loan modification remains a bureaucratic nightmare that is complicating the housing recovery and could dull the impact of any Obama administration initiatives in the works. The administration’s biggest foreclosure-prevention effort, the Home Affordable Modification Program (HAMP), targeted to help 3 million to 4 million homeowners, has reached only about a quarter of that since its 2009 inception. The program pushed mortgage servicers to cut interest, extend terms, or defer parts of a loan in an effort to reduce monthly payments and keep borrowers in their homes. But servicers have dragged their feet on providing wide-scale modifications. They continue to lose documents, use inaccurate numbers to issue denials, or both approve and deny applications at the same time, according to housing advocates. “It delays resolution of the problem of defaulting loans and it is adding uncertainty to the market,” said Susan Wachter, a housing expert at the Wharton School of the University of Pennsylvania. Around one in every 12 mortgages in the country is delinquent, and only a fraction of them have received modifications. “Somehow the borrower is unreachable, or the servicer hasn’t found the right way to reach the borrower, but the fact is, we see (modifications) piercing maybe 10 to 25 percent of the potential population,” said Diane Westerback, a managing director of global surveillance analytics at Standard & Poor’s. Banks have stepped up efforts to deal with the foreclosure crisis since 2009. Chase, for example, set up 82 centers around the country specifically to deal with struggling homeowners. Wells Fargo hosts one-day fairs for homeowners to bring in all of their paperwork and potentially get approved for a modification on the spot. Bank of America says it has completed almost 1 million modifications since 2008, and Wells Fargo says it initiated or completed more than two modifications for every one foreclosure of owner-occupied homes in the past two years. But the majority of homeowners, advocates say, still get stuck in byzantine mazes, with no real enforcement mechanism to pursue under HAMP. “If you get a minor traffic ticket, you get a right to an impartial hearing, but if you are applying for federal home saving assistance, the bank is judge, jury, and executioner,” said Joseph Sant, a lawyer at Staten Island Legal Services who helps defend homeowners facing foreclosure. ‘GOING IN CIRCLES’ It took nearly one year for Hakan Tale to convince his servicer, Chase, that it overvalued his house by more than $100,000 in rejecting a modification. Once he was able to convince Chase of that mistake, it rejected him again, dropping his monthly income by almost $4,000 and determining he didn’t make enough money to qualify, even though his actual income had not changed. In November, more than two years after Tale first sought a modification, Chase asked him to submit an entirely new application. “Maybe they don’t want me to be an example for other people,” said Tale, who lives with his wife and three children in Staten Island, New York. “Any excuse they find, they deny it.” “We have worked with the customer and reviewed his application multiple times, and have been involved in multiple mediation meetings,” a Chase spokesman said. Another Staten Island resident, 77-year-old Hamson McPherson, was first denied a modification two years ago by his servicer, Wells Fargo, after it miscalculated his income. The bank then served him with a foreclosure summons and complaint, which in New York can lead to court-supervised settlement conference. But it stalled on moving forward for so long that McPherson triggered the proceedings himself in August 2011 to try to negotiate an alternative to foreclosure. In October, more than two years after he first applied for a modification, the bank told him there was an investor restriction on the loan, which meant it couldn’t modify it. That investor agreement was public, Wells Fargo told him. But after confronting the bank with that agreement, which did not include any such restriction, the bank told him there was a previously undisclosed secret document that included the restriction. “It’s a nightmare,” McPherson said, “when you have these things, you don’t get proper sleep at all.” In an ironic twist, the hold music played when he called Wells Fargo once was a song called, “Going in Circles.” “I listened to it for five minutes and then hung up because I was so upset,” he said. A Wells Fargo spokesman said the bank has “worked for some time to find payment assistance within the investor guidelines of the loan.” “We continue to work with him to find alternatives to foreclosure,” the spokesman said. ‘NOT DOING THEIR JOB’ Even with staff additions — Chase, for example, added some 10,000 employees to deal with defaults, and Bank of America increased its 5,000 employees to 40,000 — individual negotiators can still have hundreds, or even thousands of cases open, according to housing advocates. Employees can be so overwhelmed that applications languish for months. Banks consider financial documents “stale” within two or three months, forcing homeowners to provide updated documents all over again. While housing counselors have seen some improvements in the past few years, many borrowers are still not even able to email applications in; they have to fax them in, thus creating no real paper trail. Carlos Cespedes, an advocate with the Neighborhood of Affordable Housing in Boston, said his files include 25 faxes of the same document, provided over and over to a servicer that said it never received it or lost it. One of his clients traveled to Central America to obtain her deported husband’s signature on a document renouncing his interest in the property, but had to send that same document six times to her servicer who kept losing it. “These are institutions that have taken a huge amount of bailout money. There should be a level of responsibility to communities,” said Josh Zinner, an advocate with the Neighborhood Economic Development Advocacy Project in New York. “HAMP is far from perfect, but the biggest problem is servicers not doing their job.” (Reporting by Aruna Viswanatha; Editing by Xavier Briand) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Fitch Downgrades Five Major European Banks

December 14, 2011

NEW YORK – Fitch Ratings on Wednesday downgraded five major European banks, saying tighter capital markets and slower economic growth resulting from the region’s debt crisis should indirectly hurt their performance. Fitch cut the long-term issuer default rating of the following banks: – Banque Federative du Credit Mutuel (BFCM): to A-plus from AA-minus; – Credit Agricole: to A-plus from AA-minus; – Danske Bank: to A from A-plus; – OP Pohjola Group: to A-plus from AA-minus; – Rabobank Group: to AA from AA-plus. (Reporting By Walter Brandimarte) Copyright 2011 Thomson Reuters. Click for Restrictions .

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The European Banking Authority (EBA) has warned lenders against being so risk-averse as to prompt a credit crunch.

December 11, 2011

FRANKFURT – The European Banking Authority (EBA) has warned lenders against being so risk-averse as to prompt a credit crunch. It also said regulators would not allow a cut in lending as a means to meeting regulatory capital targets. Banks have changed their behavior far more than the public has realized in the wake of the financial crisis, EBA head Andrea Enria told German magazine Der Spiegel in an interview. “At the moment, our concerns have gone to the other extreme: that we could now have the problem banks are too risk-averse, which could ultimately lead to a severe credit crunch,” Enria said in the interview in the magazine’s Monday edition. Lenders around Europe will need to drum up about 115 billion euros ($154 billion) in extra capital by June 30 to meet a regulatory capital target set by the watchdog. Banks can retain earnings, curb dividends and bonuses, sell off chunks of their businesses or reduce risky assets to meet the target, but Enria put them on guard if they were thinking of choking off loans. “If a bank reduces its lending to small and medium-sized enterprises, it won’t be counted (toward meeting the target),” he said. “We will not allow credit supply to be cut.” Banks have until January 20 to present their roadmaps for meeting the regulatory capital target to banking supervisors. Loan portfolios can be sold, even to hedge funds, to help bolster banks’ equity capital cushions, Enria said. The EBA wants banks to reach a core Tier 1 regulatory capital ratio of 9 percent by the mid-2012 deadline, which should help lenders withstand any market deterioration. The watchdog’s stress tests of banks, based on data from the third quarter, revealed six German lenders need 13.1 billion euros of extra capital to meet the deadline, nearly triple the amount estimated previously. Commerzbank (CBKG.DE) needs 5.3 billion euros and Deutsche Bank (DBKGn.DE) 3.2 billion, with four other public-sector or co-operative lenders — NordLB, Helaba, DZ Bank and WestLB — making up the remainder. “These sorts of high figures do not necessarily mean that banks are in bad shape,” Enria said. “The most urgent problem is funding, and in that regard the German banks are doing better than others. However, the storm is also affecting them, and they, too, have to strengthen their capital.” Only a few large banks have been able to fund their businesses since July, and have had to pay very high interest rates to do so, Enria said. “If banks cannot get funds, they stop lending and that damages the economy,” he said. “We are stuck in a vicious circle and we have to try to break out of it.” ($1 = 0.7482 euros) (Reporting by Jonathan Gould; Editing by David Hulmes) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Diane Francis: Europe Boots Out its Political Morons

November 21, 2011

The party that calls itself Europe is over. The sovereign debt crisis afflicting its weakest members has ended the eurozone’s political Ponzi scheme — the proclivity to hand out entitlements today and run up a tab due tomorrow. The continent’s La Dolce Vita lifestyle will disappear along with subsidies; cushy civil servant jobs; six-week holidays; 30-hour work weeks, Freedom 50 retirements and its people’s belief that the world owes them a living. This is the Great Markdown in Europe. A more gradual one is underway in North America. Both are due to debts, deficits, demographics and democracy. Europe’s situation is compounded by its badly devised, decentralized and balkanized fiscal regime — one currency for 17 out of 27 countries and a central bank in each nation state. This is like herding cats and unsustainable as last week’s political upheavals revealed. Two democratically-elected leaders in Greece and Italy were unceremoniously pushed aside and replaced by technocrats and the IMF. Greece’s prime minister was replaced by a de facto “bankruptcy trustee” whose job is to take orders from the IMF, in the hopes of turning around the bankrupt country. Then Italy’s playboy prime minister was replaced by a “soft receiver,” Mario Monti. He’s a tough-minded academic, with huge political and moral leverage across the European Union, who will make Margaret Thatcher look like Mother Teresa. By the way, Italy is not a basket case like Greece, Ireland or Portugal. But its bonds are under siege, which could prove ruinous for the region, and this is not due to fundamentals but to trading games that can be halted as described below. Here are some facts about Italy: Total government assets in Italy are slightly less than the total of its public debts. Italy could raise an estimated 45 billion euro by selling its stake in oil giant ENI, utility ENEL, Poste Italiane or aerospace conglomerate Finmeccanica alone and Monti loves privatizations. Offsetting Italy’s high public debt, of 120 per cent of GDP, is its low household debt of 42 per cent. By comparison, the U.S. and Canada have public debts of 90 per cent and 80 per cent respectively, but their household debts are among the highest in the world or above 160 per cent of GDP. By the way, the relatively seamless transition from elected to technocrats is a healthy and necessary way to circumvent short-term democracies which have failed to cope with this crisis. This is no different than a private sector “workout” where the CEO is removed from a failing corporation and is replaced by the bankers’ representatives. Those reforms are now in place and new leaders in Portugal, Ireland and Spain (in this weekend’s election) are kowtowing to the dictates of bondholders and bankers. But financial reform is necessary in order to arrest and cool off the world’s hot money. These are hedge funds and others who have caused the sovereign debt contagion and profited from it by making self-fulfilling short-selling bets. A fascinating set of remedies has been suggested this week by Leonard Waverman, dean of the Haskayne School of Business at the University of Calgary and former professor at London University. He rightly suggests that the Euro crisis is similar to the Asian contagion in 1997 when speculators picked off one currency after another. The difference is that, in this case, there is one currency, the euro, but the similarity is that there are the bonds of 17 eurozone members to pick off. This permits a “classic run” because the bonds are substitutes for currencies that can be pummelled down in value for a profit. “These one-way bets are yielding large profits to some at the expense of hundreds of millions of people,” said Waverman. It is time to put “sand in the wheels” of the “herd” through “capital controls.” These include eurozone members mopping up embattled bonds and paying higher than market prices to destroy short-seller profit-taking; raising margin requirements to 50 per cent or more and imposing a Tobin Tax on trades. It’s interesting that in an imperfect currency union, the bonds of each country behave like separate currencies to market players. Waverman also notes that Malaysia was able to avert a currency run in 1997 by deploying such controls. The European situation is considerably more serious than next week’s “drama.” The U.S. Congressional “super committee” is supposed to come up with $1.5 trillion in cuts and tax hikes by the end of the week, but they are also politically challenged. Investors are assuming nothing will be accomplished. This means that the only big news will be if these American politicians actually agree to make cuts before the football games start on Thanksgiving Day. But don’t count on it. The Europeans stand a better chance of fixing their problems before the 2012 U.S. federal election because they have learned how to unseat the incompetents in between elections. — Financial Post

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Patricia Martin: Changing the Culture of Student Debt

November 18, 2011

Occupy Wall Street may be an amorphous, platform-free movement. But as the protests that began in New York in September have spread across the United States, and the world, one clear issue of concern has emerged: student loan debt. For over a year, I’ve been working on a foundation-funded project that hopes to change America’s debt culture, especially among Millennials. I’ve begun following the young people on “We Are the 99 Percent” Tumblr , and am taken by their use of handwritten signs with their personal stories. It’s a stunning testament in its authenticity, and more powerful than any high-priced ad campaign conceived on Madison Avenue. “I have $50,000 in student loan debt and my B.A. is useless,” one wrote. From another: “Graduated college: May 2010. Debt: $35,000. Jobs in US: None.” Some are resigned: “I am 38 years old. It will take me almost 30 years to pay off my student loans (in 2023).” Others cry out: “I am 24 years old and am $90,000 in debt from getting a college education. Why are we being punished with debt for getting a higher education?” The trends are converging into a perfect storm: rising college costs, an increasing need for access to higher education for low-income students, more borrowing and fewer entry-level jobs for new graduates. The student debt issue is not going away. It’s too pervasive, and it puts pressure on higher education to prove out that a college education pays off. We live in curious times. Some of the things we’ve taken for granted for so long in American culture are being questioned, in particular the power of education to change a striver’s lot. What we are witnessing is a re-organization of our belief system about what it takes to get ahead. I feel fortunate to be living in these times… no matter how unsettling. People are finding their issues and raising their voices. In a democracy, that’s a good thing. We can all believe in that, right?

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Richard Lee Colvin: A Sensible Solution to Student Loan Debt

November 12, 2011

The college class of 2010 now has a dubious distinction. Its graduates who had student loans owed a record-high average of $25,250, up 5.2 percent from the previous year, according to a new report from the Project on Student Debt , a nonprofit advocacy group. Last month, President Obama announced a plan to make it a little easier for 1.6 million college graduates to repay their government loans, recognizing the drag that $1 trillion in student debt is placing on the economy. In the early 1990s, most college students did not need to take out loans. But in 2009-10, 56 percent of full-time undergraduates at public colleges were borrowers. At private nonprofit schools, 65 percent had loans. For the first time in our history, student loan debt has exceeded credit card debt. One reason is that over the last 25 years, tuition has risen four times faster than the Consumer Price Index. In California, public universities enacted the highest average tuition increase, 21 percent, of any state last year, according to the College Board. With states putting up less money to subsidize higher education, more of the cost burden has shifted to students. The federal government is trying to accommodate the demand, pouring $104 billion into loans last year. At the same time, students are becoming less able to repay. The percentage of borrowers defaulting (and thus ruining their credit) rose 25 percent last year. High debt loads affect career choices and cause many graduates to defer getting married, buying homes and having children. Starting with next year’s graduating class, Obama wants to reduce payments to 10 percent of discretionary income for graduates who apply to the government’s income-based repayment plan. That is an immediate reduction from the 15 percent that is in effect today. But that only accelerates the phase-in of repayment terms that would have gone into effect in 2014 anyway. Under Obama’s plan, after 20 years of payments, the rest of the loan, if any is still unpaid, would be forgiven. Today, graduates are expected to pay for a maximum of 25 years. The administration also is offering minor changes in repayment terms for those who graduated earlier. This is welcome. But it doesn’t go far enough. The president should be talking about the effect of student loan debt on the economy as he campaigns for his jobs agenda. Even more important, he should take advantage of the pressure from the Occupy Wall Street protests for relief on this debt and send Congress legislation that offers a much bolder, systemic and long-term solution: income-contingent loan repayment . Under such a proposal, loans would be offered at a single interest rate for all borrowers; payments would be automatically withheld from the borrowers’ paychecks by their employers and would be managed by the IRS, just as income taxes are collected. As in the president’s proposal, 10 percent of a borrower’s earnings would go toward their student loans. The more they earn, the faster they would repay their debt. Such a system would not only help graduates manage their student loans, it would save the government money because it would drastically reduce delinquencies and be far easier and less expensive to administer. Right now when students need to borrow, they and their parents have to navigate a maze of financing options and an alphanumeric soup of loan types, limits and interest rates. Once students graduate, they face an equally baffling range of repayment options that involve various private sector “servicers” such as Sallie Mae. The income-based repayment option that Obama wants to accelerate was a step in the right direction. But it requires borrowers to apply every year and write one or more checks every month. Only 450,000 of 36 million borrowers take advantage of that program. In contrast, income-contingent loans would be universal and automatic. Everyone who took out a student loan would be put into the program and, because their loans would be tied to their Social Security numbers, the repayments would come out of their paychecks, just as their income, Social Security and Medicaid taxes are withheld. Australia and Britain have had great success with their income-contingent loan programs. In Britain, more than 98 percent of loans are repaid. This idea is not entirely foreign to the United States. Child support payments are routinely withheld by the IRS. Two decades ago Rep. Tom Petri (R-Wis.) remarked in a congressional hearing that an income-contingent loan repayment system would be “far simpler for schools and the government to administer, far simpler for students at application, and more manageable and supremely flexible during repayment, at the same time virtually eliminating the default problem and saving immense amounts of money.” Back then, the IRS was just moving to electronic processing of tax payments and wasn’t interested in taking on the new challenge of collecting on student loans. Now, however, the technological barriers are gone and, with the large increases in student debt burden, the political climate for reform is ripe. There is a moral hazard, however. Income-contingent loans could encourage money-hungry colleges to boost tuition even further, so Congress should also provide incentives to colleges to keep costs down. Loans awarded by colleges that didn’t keep tuition hikes within limits could be barred from the income-contingent loan program, which could drive students away. At a recent congressional hearing, Republicans and Democrats alike expressed great concern over student debt load and default rates. Petri, still a member of the House Education and the Workforce Committee, proposed revisiting his 2-decades-old income-contingent loan idea. Obama’s proposal is certainly a step in the right direction, but we need Congress to go further. With nearly $1 trillion in student debt on the line, the country can’t afford not to act. This commentary first appeared in the Los Angeles Times, November 10, 2011.

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Mitt Romney’s Student Loan ‘Non-Plan’ Underwhelms

November 11, 2011

ROCHESTER, Mich. — The Republican candidates came to college Wednesday night. But some of their responses to a question from undergraduates at Oakland University about the growing problem of student loan debt left students in this small town, 45 minutes north of Detroit, feeling cold. And Mitt Romney’s stance that ending student loan debt will be as simple as fixing the economy is lacking, according to one expert. Current and former students may owe as much as a total of $1 trillion in student loan debt by the end of this year. That number’s growth is fast outpacing inflation. And while students are doing better on the job front than the rest of the population, college graduates are having their own difficulties finding the jobs with which they can pay off those loans. To tell the story of the student loan “bubble” during its primary debate Wednesday night, CNBC showed a video of three Oakland undergraduates talking about how the issue was affecting their generation. “Tuition rates have increased roughly three times that of inflation over the last three decades,” said Maxwell van Raaphorst, class of 2012. “More students have to take out loans or forego college,” chimed in Alana Hartley, class of 2014. Allison Kerry, another senior, added, “My generation is graduating with student debt levels at an unprecedented level.” Only two Republicans at the debate had a chance to answer the students’ concerns. Texas Rep. Ron Paul suggested that the federal government should simply do away with student loans. Former speaker of the House Newt Gingrich offered a more conventional response: The issue was simply one of personal responsibility that didn’t have much to do with the banks. Calling the current student loan program an “absurdity,” Gingrich said he supports forcing more students to take part in work-study programs. It would be a “culture shock for the students of America to learn we actually expect them to go to class, study, get out quickly, charge as little as possible, and emerge debt free by doing the right things for four years,” he said. But Sandy Baum, an economist at Skidmore College who has researched student loan debt for the College Board, an association of higher education organizations, argued that the matter was one of more than simple personal responsibility. “It’s clear that students benefit from their education, so they should contribute, but there are also social benefits,” Baum noted. “If we don’t support them, then we’re going to discourage students in the future from taking this risk that’s actually very beneficial to society.” While she agreed with Gingrich that “students should borrow cautiously,” Baum also said that “there’s a lot of uncertainty” in college. “If you train for an occupation and then suddenly all the jobs in that occupation go overseas, then it’s not going to pay off.” Former Massachusetts Gov. Mitt Romney, who leads in polls of Michigan GOP voters and finishes as a frontrunner nationally , has no specific plan to address the problem of student loans, according to his policy director, Lanhee Chen. “The first thing we’ve got to do is really get this economy on track, create the jobs that these recent graduates need, so they have the income to support these loan obligations. And that’s really where Mitt would focus his time,” said Chen, speaking in the media “spin room” after the debate. Baum said growing the economy would be “great” — but hardly a solution for every student. No matter what condition the economy is in, some will find themselves in bad repayment positions through no fault of their own. Tying repayments to income, a practice President Obama has proposed expanding , would be a good solution for them, she said. College is “a risky investment,” Baum added. “And it pays off well for most people, but it doesn’t pay off for everyone. And that’s frequently but not always out of the control of the individual.” As for the students of Oakland University themselves, their thoughts on the candidates’ responses were mixed. Standing outside the debate with a group of Occupy Oakland University protesters, Oskar Horyd, a freshman from Troy, Mich., said none of the candidates have addressed his concerns. Already $5,000 in debt in his first semester, Horyd said the candidates were simply ignoring the problem. Hartley, one of the students featured in the CNBC video, said she was more likely to vote for Gingrich after his answer and his overall performance. She plans to graduate from college debt-free because of a scholarship, she said, and thought Gingrich’s “answer to the student loan question showed that he has a good work ethic and wants to instill this in students as well.” But Maxwell Van Raaphorst, a senior majoring in biochemistry who also spoke in the video, was unimpressed. “None of the candidates won my vote last night,” he said afterward. Doing away with student loans “would only allow the elite and rich to attend and create a nation of uneducated and unskilled workers.” As for the odd-on choice of pundits, Van Raaphorst said, “I would hope that Romney seriously considers some other options in addition to just simply growing the economy.”

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How Is The European Debt Crisis Affecting Your Business?

November 11, 2011

Main Street can feel pretty far away from, say, the piazzas of Rome and the platias of Athens. But the recent political and economic turmoil in Italy, Greece and elsewhere across Europe has shaken global markets — and the aftershocks are eventually felt right back here at home. For better or worse — and there are cases to be made for both — the world is indeed becoming flatter and more interconnected. Which is great during boom times, providing a huge potential market that simply wasn’t possible to reach just a generation ago. Problem is, in the financial markets and beyond, trouble can spread much more quickly as a result. Entrepreneurs in general are wise to keep a close eye on global news and trends, even if they still do all of their business in the good ol’ US of A, because the reality is that at least something in your supply chain inevitably comes from somewhere else these days. And for entrepreneurs that already do direct business overseas in some capacity, you’re probably already feeling it. From revised investment strategies to a drop in customer demand, the members of our Board of Directors are doing just that. So we asked them to weigh in the unfolding crises in Europe — and what it means for their businesses.

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Greece Threatened With Eurozone Expulsion

November 3, 2011

CANNES, France — European leaders drew a line in the sand for Greece on Wednesday, saying its referendum on a hard-won bailout deal will decide whether it stays in the eurozone – and vowing Athens will not get new aid until the result is in. The acknowledgment that the vote – which will likely take place on Dec. 4 – could see Greece leaving the currency union is the first official admission that such an exit is possible and follows almost two years of pledges to the contrary. The move to tie the vote to the fate of the euro is a huge gamble that could endanger the future of the currency union, the centerpiece of Europe’s postwar unity, and potentially push the world economy into another recession. “The referendum … in essence is about nothing else but the question, does Greece want to stay in the eurozone, yes or no?” German Chancellor Angela Merkel said at a news conference together with French President Nicolas Sarkozy. The leaders of the two biggest eurozone economies spoke to the press after emergency talks with Greek Prime Minister George Papandreou in Cannes, France. The discussion also included International Monetary Fund head Christine Lagarde and other top EU and eurozone officials. By turning the referendum into a popular vote on whether Greece wants to remain in the eurozone – the currency union that gave it access to the club of Europe’s richest countries but also allowed it to pile up a massive debt mountain – leaders are taking a risky bet. The exit of the eurozone’s weakest member could trigger a dangerous domino effect that could quickly see Ireland and Portugal, the other two countries that have received bailouts, also leave the currency bloc and cause the financial collapse of Italy and Spain, which are barely hanging on. Papandreou said that he was forced to call a referendum after it became clear that there was no “broad support” from opposition parties for a bailout deal reached with the rest of the eurozone and big banks just a week ago. That deal would supply Greece with an extra euro100 billion ($138 billion) in rescue loans from the rest of the eurozone and the IMF – on top of the euro110 billion it was granted a year ago – and would see banks forgive Athens 50 percent of the money it still owes them. However, in return Greece had to accept another painful round of austerity measures and privatizations – harboring years of more pain for a people already reeling from two years of deep cuts. “I felt that it was important that the Greek people make a decision on these important developments,” Papandreou said. “It is their democratic right and the Greek people, I believe, are mature and wise to make the decision that is to the benefit of the Greek people and the country.” The alternative to the new rescue deal would be a hard default by Greece within days after the referendum, potentially toppling banks across Europe and further undermining an already slowing economic recovery. Europe’s increasingly shaky condition is the center of attention at a summit of the Group of 20 leading world economies in Cannes on Thursday and Friday. The United States, China and other nations are looking to Europe to get its house in order and avoid harming the global recovery. The United States has an important role to play but it is ultimately Europe’s problem to solve, the White House said Wednesday as President Barack Obama headed for Cannes. Merkel and Sarkozy said that a crucial euro8 billion ($11 billion) loan installment to Greece that was due to be paid out by mid-November won’t be transferred until after the vote. Eurozone finance ministers had already signed off on their part of the payment two weeks ago, but leaders said that without the second bailout assured there was no point in carrying on with the first one. “We want to continue with the Greeks but there are rules and it’s unacceptable that these rules are not followed,” Sarkozy told journalists. Papandreou said that Greece would be able to stay afloat until after the referendum – Greek officials had previously said that Athens would run out of money by mid-November – but acknowledged that the schedule was tight. “If everything goes well – which we hope everything will go well in the referendum – it’s quite a few days before the 6th tranche is needed to pay up salaries and pensions and so on,” he said on his way out of the meeting. While eurozone leaders tried to display a concerted front, with Merkel and Sarkozy briefing the press in their now habitual tandem, the referendum is uncovering growing cracks in the eurozone’s unity. “This did not happen in a coordinated fashion,” she said of Papandreou’s sudden decision to call a vote on the bailout deal. Merkel said that because of the referendum, the rest of the currency union now had to build up its defenses more quickly. To make progress in that direction the finance ministers of France and Germany will meet with the EU’s Monetary Affairs Commissioner Olli Rehn Thursday to work on a plan to boost the firepower of the region’s bailout fund to euro1 trillion ($1.4 trillion). That was one of the commitments of last week’s eurozone summit, but investors remained unconvinced by the promise of a larger rescue fund as many questions on how it will work were left unanswered. In Rome on Wednesday, Italy’s Cabinet proposed legislation to sell off government-owned real estate, encourage investment in infrastructure and privatize local public companies in a bid to avoid becoming the next victim of Europe’s debt crisis. While Merkel and Sarkozy both stressed the democratic right of the Greek people to decide its own destiny, Jean-Claude Juncker, the prime minister of Luxembourg and chairman of the Eurogroup, was more direct. “Greece had 8 billion – Greece has lost 8 billion after having made a decision to put all these questions to a referendum,” he told journalists. “That’s a pity.” ___ Angela Charlton and Jamey Keaten contributed to this report.

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Selling More Insurance On Europe Debt Raises Risks For U.S. Banks

November 2, 2011

U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

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State In No Rush To Pay Huge Backlog Of Unpaid Bills

October 22, 2011

SPRINGFIELD, Ill. — Don’t look for quick action to reduce Illinois’ huge backlog of unpaid bills, despite universal agreement among state leaders that the debt is unfair to businesses, charities and local governments that provide valuable services. Progress is blocked by fundamental disagreements on how to solve the problem and a lack of any sense of urgency among officials. Even with the Legislature’s fall session beginning next week, officials report little or no discussion of what can be done to pay the bills, which total billions of dollars. Gov. Pat Quinn did not list the issue among his top three priorities for the session – ending legislative scholarships, passing a revised gambling expansion and sustaining his veto of a “smart grid” energy system. The Senate’s top Republican doesn’t expect progress any time soon. The speaker of the House and president of the Senate say they’re waiting for signs of cooperation from Republicans. Sen. John Sullivan, a proponent of borrowing money to pay the backlog, said he won’t bother calling for a vote on his plan. “I see no reason to bring it up just to fail,” said the Rushville Democrat. While acknowledging the long odds, advocates for human service groups still plan to push for action, hopefully this fall but perhaps in January. They’re trying to build support for several options: borrowing, taking money out of special-purpose funds or simply devoting any extra income to the backlog. “It’s a moral, ethical obligation,” said Judith Gethner, director of Illinois Partners for Human Service. Officials are split, largely along party lines, into two camps on how to address the backlog. Many Democrats want to borrow by selling bonds and using the money to pay overdue bills. They maintain this would not be new debt. State government already owes vendors who can ill-afford to go without their money, they say, so it would simply be a matter of changing things so the state owes money to a different, more willing group – bond-buyers. “Debt restructuring is the very best way to have Illinois pay its bills immediately,” Quinn, a Democrat, said in an interview with The Associated Press. “Mainly the reason it hasn’t passed is politics. It isn’t policy,” he said. Not true, say those in the other camp. They say it’s bad management to pay for everyday government expenses by borrowing money over many years. They want to reduce the backlog gradually with money saved by cutting spending and with higher revenues that come in as the economy improves. Senate Minority Leader Christine Radogno, R-Lemont, criticized Quinn for not doing more to overhaul government spending for the long run. “There is no plan here to dig out other than borrowing, and that is the wrong answer,” Radogno said. Any borrowing plan would require a super-majority for approval, meaning Democrats need at least a few Republican supporters. One of the few people with a foot in each camp is Treasurer Dan Rutherford, a Republican. In May, Rutherford sharply condemned the idea of taking on more debt and threatened to lobby credit-rating agencies to reject the borrowing if Illinois were to go that direction. But last month he told the Illinois State Chamber of Commerce that not paying bills is “criminal” and it might be feasible to borrow money to pay them. “For those of you that are owed money from the state of Illinois, I support the idea of looking at refinancing some kind of a package to take the burden of the debt load off of you and put it on the state,” Rutherford said. Republicans want to see major changes in government pensions and Medicaid. They predict the changes would save huge amounts of money, but they also acknowledge it would be a long process. In his spring budget address, Quinn proposed borrowing $8.7 billion over 14 years. Lawmakers essentially ignored the idea. In May, Sullivan proposed borrowing $6.2 billion for about half that amount of time. It failed 19-23. Key figures report almost no discussion of alternatives or compromises since then. Republican legislative leaders say the governor’s staff recently approached them about possibly supporting a $4 billion borrowing plan, but they rejected it. Sullivan said he has had no contact with the governor, or with the treasurer, and doesn’t know of anything likely to change the status quo in Springfield. Spokesmen for Senate President John Cullerton and House Speaker Michael Madigan, both Chicago Democrats, said they haven’t pursued the issue because there’s no sign Republicans are willing to cooperate. The size of the backlog varies. As of Sept. 8, it was just over $5 billion. Nearly half of that was more than a month old, and $1.4 billion was more than two months old. State government owed the money to businesses that provided food for prisons and gasoline for vehicles, to nonprofits that care for the disabled and protect abused women, to local governments that educate students and feed hungry children. Illinois raised income taxes dramatically this year. The money, along with budget cuts, was enough to bring revenue and spending into balance but not pay off the old bills So far, money is flowing into the treasury faster than anticipated in the state budget. But a weak economy means revenues could still dry up, warns the Legislature’s Commission on Government Forecasting and Accountability. For now, what to do with the additional money is likely to be a major question for lawmakers meeting this month and next. Should Quinn’s plan to close facilities and cut jobs be blocked? Should canceled government raises be restored? Should overdue bills be paid off? Gethner, of Illinois Partners for Human Services, is lobbying for bills to be top priority. It won’t be easy, she said, but it’s still possible. “I’m certainly not 100 percent in the pessimistic camp,” Gethner said. ____ ____ Christopher Wills can be reached at http//:twitter.com/ChrisBWills

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Jared Dillian: The Tomb Is Sealed

October 14, 2011

Earlier last decade, Alan Greenspan initially opposed (and later supported) what would eventually become a sweeping tax cut. In case you forgot, the government was running a sizable surplus and the logic was that the surplus would be returned to the taxpayers. The government, after all, is generally not in the business of running a profit. Right-leaning people were pretty upset with Greenspan. If you’re ever going to cut taxes, that was the time to do it. Lots of people thought that Greenspan was going all moonbat in his advanced age. He took a not inconsiderable amount of heat from the right for his radical idea that surplus tax revenue should be used to pay down deficits. But Greenspan knew then what people today still do not understand: it’s not the absolute size of government that’s important, it’s whether it can finance itself. Today, unhappily, the United States spends more than half again as much as what it takes in. This is not uncommon in the developed world. Japan’s national debt is about twice the size of its entire economy, the worst in the world. The bond market has so far declined to impose any discipline in the G10 world (except Italy) which causes people to be exceedingly glib about the situation. Liberals generally think that the deficit is not a big deal; a fiction dreamed up by the right to deprive services to those in need, and conservatives are in the absurd position of advocating tax cuts amidst pornographic deficits to oppose any further growth of the state. The only people who really understand how grave the situation is are the financial people, and there are hundreds of protesters camped out on their doorstep. It is a big deal. Few people understand that to balance the budget, or even to bring down the deficits to the rate of growth would require cutting the size of government by at least half and/or nearly eliminating entitlements. It really is true. People like Glenn Beck (and others) were very early in this trade, which was actually unhelpful , because Beck’s other polarizing views did not help anyone to achieve a greater understanding of how serious the problem actually was. You can’t have unserious people have a serious discussion about debt. The reason why ridiculously large deficits are dangerous is not because we (or anyone else) would ever default. As we are finding out with Greece, it is hard to have a meaningful restructuring because too much of it sits on bank balance sheets. If a country goes bankrupt, so do the banks, and that means depression — unless you can find another way out. The other way out is to monetize the debt, which is to say that the central bank will print money to buy government bonds. The central bank finances the government, becoming the lender of last resort. Consequently, there is more money sloshing around the economy, which will lead, in time, to very high rates of inflation. I cannot think of one historical example of a country that monetized its debt and everything worked out peachy, with low inflation (Japan does not count — that story is not yet written). People have heard of Zimbabwe and Gideon Gono, but it remains an abstraction to most, because it is hard to believe that something like that could happen here. It can and it will. The laws of economics are not to be conned. In Europe, the authorities are currently trying to find a way to restructure Greece so that if it defaults, it will default gently. Who knows — they might be able to do it. But even if they can, that still leaves Portugal and Italy and Spain , which are far too large to restructure and which have zero chance of growing their way out of it. Imagine a fancy chess game, where, once checkmated, you can hit the eject button, and launch off the chess board to safety. That’s what debt monetization is, and it can be very attractive. There are protests in New York, which is unsurprising, because people are usually only against capitalism when capitalism fails to produce the desired results — you didn’t see any protests in 1999. If you see ants, it is likely there is a picnic nearby. But if you think this is bad, wait until you see how upset people get when there is inflation, which will hit poor people disproportionately. The whole debt ceiling argument was about something known as austerity, where we would make an honest attempt to balance the budget. It is too late for that. The tomb is sealed, and we don’t even realize it yet. Such a thing is not even possible, and it may not even be desirable. We are too far gone. The only option left for us is to aggressively monetize the debt, and hope that the inflation of the century never arrives, like it has every other time in history.

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Democrats’ Deficit Plans Highlight Super Congress Divide

October 13, 2011

WASHINGTON — Democrats in the House offered up their ideas for the budget-slashing super committee Thursday, insisting again that the effort be “balanced” with revenue hikes. Under the law that created the Joint Select Committee on Deficit Reduction, the various committees of the House and Senate are required to submit recommendations to the committee — or the “Super Congress” — by Friday. For the out-of-power Democrats, releasing their ideas a day early amounted to a stunt since they are unlikely to be included in the official House suggestions prepared by the GOP. But the insistence on revenues highlighted the extreme divide that remains between the two parties, and again suggested the likelihood that the 12-member super committee — evenly divided between the chambers and parties — will deadlock over the deficit reduction plan it must submit by Nov. 23. “We want it to be big, we want it to be bold, we want it to be balanced, and in the balance side … we need to have everyone pay their fair share,” said Minority Leader Nancy Pelosi (D-Calif.). Republicans have steadfastly insisted that raising taxes is out of the question. The super committee must identify at least $1.2 trillion in deficit reduction over 10 years, and if Congress fails to act by Dec. 23, the Budget Control Act that created the committee requires automatic cuts, starting in 2013, including deep cuts to the military. The Super Congress plan will not be subject to amendment or filibuster, giving the 12 members near-unprecedented power. Still, some have suggested that anything they do could just as easily be undone by a future Congress, since the cuts would not begin immediately. The top Democrats on 16 House committees offered a long list of suggestions, often including closing various tax loopholes. Among the most specific proposals came from Rep. Ed Markey (D-Mass.), the top Democrat on the Natural Resources Commitee, who suggested closing a slew of loopholes to raise more than $50 billion, including from the oil and gas industries. Energy and Commerce Committee ranking member Rep. Henry Waxman (D-Calif.) suggested proposals to spend some $16 billion to create jobs in the short run, and to save some $150 billion over 10 years. Rep. Barney Frank (D-Mass.), the Democrats’ leader on the Finance Committee, offered up fees on “too big to fail” banks, and raising $42 billion by regulating and taxing Internet gambling, among other items. All the letters can be found here.

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Robert Reich: A Good Fight

September 19, 2011

So the really big fight — perhaps the defining battle of 2012 — won’t be over Medicare. It won’t even be over Obama’s jobs program. It will be over whether the rich should pay more taxes. The president has vowed to veto any plan to tame the debt that doesn’t increase taxes on the rich. The Republicans have vowed to oppose any tax increases on the rich. It’s a good fight to have. In a Rose Garden ceremony this morning, Obama proposed new taxes on the wealthy — including a special new tax for millionaires, the closing of loopholes and deductions for people making more than $250,000 a year, and an end to the portion of the Bush tax cut going to higher incomes. Republicans accuse the president of instigating “class warfare.” But it’s not warfare to demand the rich pay their fair share of taxes to bring down America’s long-term debt. After all, the richest 1 percent of Americans now takes home more than 20 percent of total income. That’s the highest share going to the top 1 percent in almost 90 years. And they now pay at the lowest tax rates in half a century — half the rate they paid on ordinary income prior to 1981. (Unfortunately, the President isn’t proposing to raise the capital-gains tax — which, now at 15 percent, creates a loophole large enough for the super-rich to drive their Ferrari’s through. About 80 percent of the income of America’s richest 400 comes in the form of capital gains. Here’s where billionaire hedge-fund and private-equity fund managers make out like bandits. As I’ve noted, I also wish he aimed higher — for more brackets and higher rates at the very top. But at least he’s drawn a line in the sand. The veto message is clear.) Anyone who says the American economy suffers when the rich pay more in taxes doesn’t know history. We grew faster the first three decades after World War II than we have since. Trickle-down economics has been a cruel joke. On the other hand — given projected budget deficits — if the rich don’t pay their fair share, the rest of us will have to bear more of a burden. And that burden inevitably will come in the form of either higher taxes or fewer public services. If anyone’s declared class warfare it’s the people who inhabit the top rungs of big corporations and Wall Street (and who comprise a disproportionate number of America’s super rich). They’ve declared it on average workers. The ratio of corporate profits to wages is higher than it’s been since before the Great Depression. And even as corporate salaries and perks keep rising, the median wage keeping dropping, and jobs continue to be shed. You’ve got the chairman of Merck taking home $17.9 million last year. This year Merck announces plans to boot 13,000 workers. The CEO of Bank of America takes in $10 million, and the bank announces it’s firing 30,000 workers. Maybe I’m old-fashioned, but the way I see it we’ve got a huge budget deficit and a giant jobs problem. And under these circumstances it seems to me people at the top who have never had it so good should sacrifice a bit more, so the rest of us don’t have to sacrifice quite as much. According to the polls, most Americans agree. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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Robert Lenzner: Europe Is a Sovereign Debt Crisis and a Bank Solvency Crisis

September 14, 2011

The European crisis looks to be worse than 2008 in the U.S. That’s because it is both a sovereign debt problem for Greece, Portugal and possibly Spain, as well as a a crisis for the European banking system, whose shares are losing value almost every day. In the U.S., you see, there was a sovereign debtor and a central bank, the Federal Reserve, that together staved off the crisis by pouring trillions in the financial system here and in Europe. Today, it’s not clear — but muddy –as to whether the European Central Bank, the Bundesbank (the German Central Bank) will have sufficient fire power to stave off default. The quandary is: if the sovereigns are in trouble and contracting their economies, who is going to bail out the banks? If the risk of economic contraction has increased and the governments are in the mode of spending cuts, can the banks refinance themselves with their shares under severe selling pressure? Europe had better muddle through — but how? If you have some apt solutions, do let me know ASAP. I am sure the climate wasn’t improved by JP Morgan Chairman Jamie Dimon offending the European banking community by strongly recommending the US banks pull out of Basel accords and go their own way with easier regulations. In the meantime, record low interest rates aren’t spurring demand on either side of the Atlantic. The overhang of deleveraging and deflationary psychology that’s perplexing America is alive and well in Europe, too. I don’t want to be an alarmist, but I am getting alarmed. Until US households repair their balance sheets — and lower stock prices and home values aren’t going to do it — neither the US, the UK, Europe or Japan will be in a position to be the motivating force for a sustainable economic recovery — and the end of what is looking to be a new bear market. In short, the US can’t grow while shrinking. Europe can’t stabilize its debt while shrinking. Japan is in a slow stagnation. China can’t grow savings and consumption at the same time. Maybe there’s no policy solution for everyone, except muddling through at a much lower level of growth. As Aaron Gurwitz, Global CIO of Barclays Wealth put it today, at bottom there is “uncertainty about the ability for European governments to meet their full debt service obligations.” You had better read that again. There is uncertainty about whether some European governments can service their outstanding debt obligations. As we already know, the US just raised the debt ceiling so it can continue to borrow to run the nation and service its debt.

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Sen. Fritz Hollings: Getting Money for That

September 14, 2011

I thought the president in his job speech would tell how the country could make a comeback. Instead, he told how he could make a comeback. President Obama kicked off his re-election campaign a la Harry Truman blaming a “do nothing Congress” for not passing his jobs bill. The country is in a depression. But our problem is not primarily economic, It’s political. Globalization is a competition among nations to attract investment and production as each nation builds its economy. But the United States is not competing; not building its economy. Corporate America, the principal entity to create jobs, is off-shoring jobs faster than we can create them. The job for the president and Congress is to have Corporate America create jobs in America. We must return to our roots. In his first message to the Congress, George Washington emphasized manufacture to build the nation’s economy. And the United States built its manufacture and economy on protective tariffs. We didn’t pass the income tax until 1913. We can stop this hemorrhaging of off-shoring jobs if President Obama would enforce the trade laws on the books like President Kennedy did in 1961, enforcing the War Production Act of 1950 saving the textile industry; like President Nixon imposed a 10% surcharge on imports in 1971 when our trade deficit was a miniscule of what it is today; like President Reagan protected, steel, motor vehicles, computers, machine tools, and imposed a 45% tariff on motorcycle imports in 1984, saving Harley-Davidson. Today we need a value added tax that’s rebated on exports. The corporate income tax is not rebated. All the President and Congress need to do is to take the tax break the government gives to off-shore jobs and give it to Corporate America to on-shore jobs – cancel the corporate tax and replace it with a 6% VAT. Since there are no loopholes in a VAT, we have instant tax reform — and the tax lawyers will howl. It puts them out of business. We can eliminate most of the tax lawyers and lobbyists in Washington and give control back to the people’s representatives. A VAT is easily implemented with computers. 141 countries compete in globalization with a VAT and don’t find it regressive or a “money machine.” Last year, the corporate tax produced $194.1 billion in revenues. A 2010 VAT would have produced $700 billion. Exemptions of $70 billion for the poor leaves $630 billion to pay down the debt. Canceling the corporate tax permits Corporate America to invest $1.2 trillion in off-shore profits to create jobs in the United States. Since the VAT is self-enforcing, we can eliminate much of the internal revenue service and cut the size of government. So rather than a jobs bill that is little more than welfare, the president should submit this tax cut with a VAT that takes the government off steroids, allows Corporate America to make a profit in the United States, stops the hemorrhage of off-shoring jobs, promotes exports, gives instant tax reform, gets rid of the tax lawyers, cuts the size of government, provides billions to pay down the debt and creates millions of jobs. Today, everyone thinks the trouble in Washington is: “They can’t compromise; they can’t agree.” On the contrary, our problem is what the president and all in Congress agree upon. We gave President George W. Bush a balanced budget in 2001, but President Bush and the Congress agreed on tax cuts, wars that weren’t paid for, prescription drugs that weren’t paid for, increasing the national debt $5 trillion in eight years. Now President Obama and Congress also agree to cut taxes, not pay for government, adding $4.3 trillion to the debt in three years. The President and Congress agree that whatever the Super Committee agrees to or refuses to agree to will not take effect until 2013, after the election — not paying for government. Republicans and Democrats love filibusters. One Senator on each side of the aisle holds the floor and the rest of the Senators go to California or New York to fundraise. The nation’s lobbyists are quartered in Washington, and the president and Congress fundraise morning, noon and night. Their biggest contributors, Wall Street, the big banks, and Corporate America, want to keep the off-shore profits flowing. Wall Street and the financial elite love the tax break that prompts off-shore production and jobs and make sure that nothing is done to disturb the subsidy to get rid of jobs in the U. S. So nothing gets done. The president and Congress continue to subsidize “getting rid of jobs” as they all exclaim that their principal goal is to create jobs. Not a single member of the 535-member Congress will introduce a bill to repeal the subsidy, and President Obama didn’t mention the subsidy in his job speech to the Congress. I keep waiting to hear him call for a repeal as he campaigns the country. The president and all in Congress agree on creating jobs — in China. They get money for that.

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Euro Officials Warning ‘Systemic’ Crisis Risks New Credit Crunch

September 14, 2011

(John O’Donnell) – The EU’s top finance officials are urging ministers to reinforce banks’ capital while warning that a “systemic” crisis in sovereign debt is hurting banks and risks a new credit crunch, according to EU documents. In a series of bluntly worded reports prepared by officials for a meeting of finance ministers this week, they highlight a “risk of a vicious circle between sovereign debt, bank funding and negative growth” spurring a fresh freeze in lending. “While tensions in sovereign debt markets have intensified and bank funding risks have increased over the summer, contagion has spread across markets and countries and the crisis has become systemic,” officials write in the documents obtained by Reuters. The reports, which raise concerns in unusually emphatic language and make pointed criticism of some countries for failing to help weak banks, highlight a sense of alarm in European capitals about the financial crisis. They also show a growing sense of exacerbation at the failure of Spain, Germany and others to deal with flagging banks even after their weaknesses were exposed by recent stress tests. In the documents, the influential Economic and Financial Committee, which prepares the agenda for discussion among ministers, urges action to bolster the balance sheets of weak banks, especially those with loans in stressed countries. They level harsh criticism at countries including Spain for not doing enough to reinforce its banks following dismal results in stress tests. At stake, they write, is the threat of another credit crunch. One of the reports, dated Sept. 13, cautions that the “spill-over effects” could feed “a dangerous negative loop between the financial and the real sectors (of the economy), whereby funding problems and … risk aversion … may lead to … deleveraging by banks, thereby generating a credit crunch, in some Member States”. Outlining a sovereign debt crisis which they say has “entered a new phase”, officials highlight the difficulties experienced by European banks in borrowing. “Despite the considerable strengthening of capital positions … European banks have recently experienced market funding difficulties resulting … from stress on wholesale liquidity markets, high spreads in secondary markets, and, for some EU banks, growing difficulties in accessing funding from U.S. counterparties.” To counter dwindling confidence in the region’s banks, officials recommend to ministers that “a further reinforcement of bank resources is advisable”. “This is important for banks that have failed the stress test, but also for those that have passed the test but with capital levels close to the relevant threshold,” the report said. They criticise some countries for not taking such measures, which would include state-backed capital injections in flagging lenders, after the recent stress tests. “Albeit having five institutions falling below the … threshold in (stress tests) … the Bank of Spain announced that no Spanish bank needs to further increase its capital,” the report said. Copyright 2011 Thomson Reuters. Click for Restrictions .

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The Super Committee’s Job Just Got Even Harder

September 13, 2011

WASHINGTON — Members of a special House-Senate deficit-cutting “supercommittee” urged their colleagues Tuesday to go beyond the panel’s minimum spending-cut target of $1.2 trillion over the coming decade, but the pricetag on President Barack Obama’s $447 billion jobs plan is complicating the panel’s work. “We need to `go big’ and reach savings of more than $1.5 trillion to address long-term deficits,” said Sen. John Kerry, D-Mass. “We need to `go long’ and address our long-term budget issues. And most importantly of all we need to `go smart’ and address the budget without preconceived dogmas or political agendas.” As the panel convened its second session, it also got a sobering message about the budget deficit’s toxic effect on the economy over the long term from economist Douglas Elmendorf, director of the nonpartisan Congressional Budget Office. Elmendorf warned that spiraling interest payments could swamp the government’s ability to pay for its operations and could spark a financial crisis if nothing is done: “Under current policies, the federal budget is quickly heading into territory that is unfamiliar to the United States and to most other developed countries as well.” “The nation cannot continue to sustain the spending programs and policies of the past with the tax revenues it has been accustomed to paying,” Elmendorf said in a statement. “Citizens will either have to pay more for their government, accept less in government services and benefits, or both.” Obama’s jobs plan calls for a temporary boost in spending on roads, schools and blighted neighborhoods combined with cuts to the Social Security payroll taxes paid by workers and their employers. He would pay for the initiative with a tax increases on wealthier workers, oil companies and hedge fund managers – all proposals that are opposed by the GOP. Elmendorf, a former Brookings Institution scholar initially named to the CBO post by Democrats, said that Obama’s jobs plan – which combines tax cuts with spending stimulus – was well within mainstream economic thought which holds that it doesn’t make sense to raise taxes or impose sharp spending cuts in periods of slack economic growth. “If policymakers wanted to achieve both a short-term economic boost and medium-term and long-term fiscal sustainability, a combination of policies would be required: changes in taxes and spending that would widen the deficit now but reduce it later in the decade,” Elmendorf said. But every dollar spent stimulating the economy makes the supercommittee’s task that much more difficult. Co-chairman Rep. Jeb Hensarling, R-Texas, is clearly irked. “This proposal would make the already arduous challenge of finding bipartisan agreement on deficit reduction nearly impossible, removing our options for deficit reduction for a plan that won’t reduce the deficit by one penny,” Hensarling said recently. “It’s not the role of this committee to spend more money we don’t have on jobs we don’t get.” And the top Senate Republican, Mitch McConnell of Kentucky, weighed in with a broadside Tuesday that labeled Obama’s jobs plan a transparently political exercise. “Despite the president’s calls to pass this bill immediately, the real plan is to let it hang out there for a while so Democrats can use it as an issue on the campaign trail,” McConnell said, noting Democratic opposition to Obama’s proposals to increase taxes on charitable tax deductions taken by the wealthy. “The central tax hike included in this bill … was already dismissed by a filibuster-proof, Democrat-controlled Senate in 2009.” The supercommittee is charged with finding at least $1.2 trillion in deficit cuts over the coming decade, which would come on top of about $900 billion in savings wrung from the operating budgets of Cabinet agencies over the same period. Recent CBO studies say the recent budget pact is just a starting point on the more draconian changes that would be needed to stabilize the national debt so it doesn’t spiral out of control and drag the economy down with it. Numerous lawmakers and deficit hawks outside the government are pressing the panel to exceed the $1.2 trillion goal and perhaps pick up elements of the $4 trillion “grand bargain” that Obama and House Speaker John Boehner, R-Ohio, were working on this summer. It combined higher tax revenues with sharper spending cuts. Elmendorf didn’t offer an opinion as to how much the panel should try to cut the deficit. But he said that simply meeting the 10-year, $1.2 trillion goal wouldn’t be enough because the national debt will continue to grow relative to the size of the economy. That growth, he said, likely will crowd out the ability of the government to keep pace with the new obligations. “At a minimum, federal debt cannot continually increase as a share of the economy because the interest payments on that debt would then continually grow relative to the size of the tax base that would be available for generating revenues to cover those payments, and all of the other activities of the government,” Elmendorf said. “Let’s not duck those realities,” said Rep. Chris Van Hollen, D-Md. “Go big.” There’s considerable skepticism in Washington that the panel will be able to agree on serious cuts, especially with next year’s elections approaching. Most Democrats are ardently against cuts in expensive benefits like health care for the elderly, while Republicans are adamantly against higher taxes – the two most plentiful sources of potential deficit reduction. Under the debt ceiling agreement, which narrowly averted a potential federal default, Congress must approve at least $1.2 trillion in savings by Dec. 25. If it doesn’t, the difference would be made up by automatic spending cuts, divided evenly among defense and many domestic programs. A CBO study released Monday shows that the impact of the across-the-board cuts would hit the Pentagon with a 10 percent budget cut in 2013 and cuts almost that big to domestic agencies. ___ On the Web: http://www.deficitreduction.gov

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S.Z. Berg: General Hospital Star Reveals Deep Fear

September 1, 2011

Carolyn Hennesy is not a starving artist. She has ongoing roles on General Hospital and Cougar Town and is the author of the Pandora Series young adult novels and, as of mid-April, has a New York Times bestseller, The Secret Life of Damian Spinelli. Yet, she told me, she is as frightened of debt as some people are of snakes. The idea of debt leading to having the things she worked so hard for taken away has scared her into implementing fiscally responsible strategies, especially because she doesn’t believe in denying herself. Her secret to her designer wardrobe? She frequents sample sales. Her secret to a good night’s sleep? She saves for purchases to ensure she can afford them outright. Hennesy’s currently remodeling her home and wouldn’t have undertaken the project if she hadn’t had the cash first. The same was true for her wedding — the couple paid for it in advance. She and her husband, actor Donald Agnelli, also sock away 20 percent of their gross earnings from each check into one of their investments. Hennesy invests to grow her savings for future financial security, something she knows actors can’t bank on. While she uses a financial planner for most of her investing, she directly invests about 25 percent of her portfolio in dividend reinvestment programs. She was turned on by a friend to DRIPs some 20 years ago when she first started working as an actress. DRIPs allow shareholders to reinvest their dividends to purchase shares, or a fraction of a share, so that their dividends earn dividends. Hennesy got started by examining the top 10 U.S.-based companies at the time and chose four in which to invest. Among other things, she looked for AAA-rated companies that had great word of mouth, a long history (versus the wild west of the web that was being pioneered in the 1990s), and a solid international market. A big advantage of DRIP dividends is that they can be used to buy a portion of a share of stock, that is, you don’t have to come up with enough cash to purchase an entire share, which can be expensive and therefore out of reach. Further, when using your dividends to purchase additional shares of stock you typically avoid paying a brokerage commission. (You can avoid fees on your first share purchase, too, if you buy shares of stocks from a company that has a direct investment program.) Hennesy and her husband have 30 percent in stocks and mutual funds, 25 percent in inflation protected securities, and 25 foreign investments and the rest is in “miscellaneous” and cash.

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Businesses Increasingly Pessimistic About Future Economic Conditions

September 1, 2011

Optimism for the American economy continues to evaporate, even as President Obama readies a supposedly major jobs plan to be unveiled in a speech before a joint session of Congress next Thursday . Months of sluggish growth, high unemployment, political infighting and market fragility continue to take their toll on American confidence, as polls show that many consumers and business owners agree with a broad consensus among economists that the U.S. is in for several more months of frustratingly slow expansion. A recent survey of franchise executives , conducted by the International Franchise Association, found that pessimistic expectations for the state of the economy have nearly tripled since March, while optimistic expectations are down by nearly half. The number of executives who anticipate easy access to credit — which allows small businesses to expand and create jobs– also fell to nearly half what it was in March. Access to credit. The plunge in credit-access expectations is especially noteworthy as the Federal Reserve recently announced its plans to maintain interest rates near zero through the middle of 2013 , thus keeping credit cheap. That the franchise owners expect credit to be hard to come by anyway suggests their pessimism runs too deep to be alleviated by the Fed’s gesture. The IFA’s findings reflect a wider sense of gloom. Americans’ confidence in the economy has been crumbling all summer, according to Gallup, with levels recently reaching their lowest point since early 2009 . A separate confidence-tracking study from the Conference Board recently reached a similar conclusion , and a closely watched consumer-sentiment index compiled by Thompson Reuters and the University of Michigan found in August that sentiment had fallen to a 30-year low . Growth this year has slowed almost to a standstill , and while large corporations have continued to enjoy strong profits , small businesses have been particularly affected by the stall-out . Multiple surveys indicate that small business owners anticipate pain throughout the rest of 2011 , with dwindling numbers saying they expect hiring to pick up or economic conditions to get more favorable. Small-business borrowing was relatively strong in June and July , but tumbled in August, possibly as a result of violent stock market fluctuations and uncertainty over Washington’s plan to expand the economy while also reining in the federal deficit. Obama, who recently met with a number of small business owners during a bus tour through the Midwest, has indicated that his jobs plan will include measures to stimulate small-business growth , as well as creating new infrastructure jobs. The president’s recent nomination of labor economist Alan Krueger to head the White House Council of Economic Advisers suggests the administration is making job growth a top priority. Obama’s chances of re-election in 2012 are widely seen as hinging on whether the economy experiences a robust turnaround by then.

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Top Greek banks merger to boost banking system

August 28, 2011

(MENAFN) Greece’s Vima Weekly News reported that two of the country’s top lenders are planning to announce a merger this week that would give a vital confidence boost to the debt-hit country’s …

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BofA shares drop, debt insurance costs jump

August 23, 2011

By Joe Rauch CHARLOTTE, North Carolina (Reuters) – Bank of America Corp shares posted their steepest drop in 2-1/2 years on Tuesday as investors worried that the biggest U.S. bank might face big writeoffs. The cost of insuring the bank’s debt against default spiked to record levels. Bank of America shares closed 1.9 percent lower at $6.30 after falling as much as 6.4 percent during the day. The shares pared losses, and credit swaps largely retraced, as a broader stock market rally helped assuage investor fears about the economy. In a blog post on Tuesday, former securities analyst Henry Blodget said the bank could have $100 billion to $200 billion of writeoffs and troubled assets to sort through. These potential write-offs could eat into a substantial portion of the bank’s $222 billion of book value. “That’s why Bank of America’s stock is tanking. The owners of that stock will be the first folks to get hit if Bank of America has to raise more capital,” Blodget wrote on Business Insider, his collection of blogs. Bank of America fired back at Blodget in a statement, calling his claims “exaggerated and unwarranted,” echoing language the U.S. Securities and Exchange Commission used in a 2003 complaint against Blodget. Blodget, a former Internet analyst at Merrill Lynch, was barred from the securities industry as part of a settlement with the SEC over alleged conflicts in his research. Bank of America said the exposures that Blodget identified as the source of possible losses were inaccurate, with his sovereign exposure being off by a factor of 10. The volley between Bank of America and Blodget was the latest example of analysts and investors disagreeing with the bank. Since June, a number of analysts have said Bank of America needs to boost its capital levels by about $50 billion to comply with new global standards. At least some of that extra capital could come from issuing stock, several analysts have said. The bank itself says it can reach target capital levels by selling assets and earning more money. The bank has some time to comply with the Basel III capital rules, which are to be phased in from 2013 through 2019. Some analysts agree. Rochdale Securities analyst Dick Bove told television news outlets on Tuesday that the bank does not need to raise capital, whatever happens to its share price, and that Bank of America has ample liquidity. Chief Executive Brian Moynihan told investors on a recent conference call that the bank did not view issuing more shares as an option, after having already diluted its shareholders so much during the financial crisis. Some analysts have suggested the bank will need to raise capital if the proposed $8.5 billion settlement over Countrywide Financial Corp-created mortgage-backed securities falls apart. Outside investors have been pushing for the bank to repurchase toxic mortgages from the securities, amid allegations the loans do not meet initial guarantees made when the securities were bought, and now total $100 billion in unpaid principal. Others said pressure on the bank is increasing the chances of a capital raise. In a note to clients, JPMorgan Chase & Co analysts upgraded Bank of America’s stock to neutral from underweight, on the belief the declining stock price and rising debt insurance costs will force a capital raise. “We think it is getting more difficult for management to ignore this sentiment,” JPMorgan Chase analysts Kabir Caprihan and Matthew Hughart said in a research note. Regulators seem generally unconcerned. At a news conference on Tuesday, the Federal Deposit Insurance Corp’s acting chairman said he is comfortable with the overall amount of capital at U.S. banks. “As a general matter I would say the answer to that is yes,” Acting Chairman Martin Gruenberg said in response to a question about the amount of capital banks are holding. DOWNWARD SPIRAL The drop in the bank’s shares on Tuesday was their fourth consecutive daily decline. “It’s on a self-fulfilling downward spiral. I don’t know what’s going to make BofA go up,” said Mark Coffelt, head portfolio manager at Austin-based money manager Empiric Advisors. The shares fell even as the KBW Bank Index and the S&P 500 Index rose 3.3 percent and 3.1 percent, respectively. Credit default swap insurance on the bank’s unsecured debt jumped as much as 65 basis points to 435 basis points, before retracing to 385 basis points, meaning it would cost $385,000 per year for five years to insure $10 million in bonds, according to Markit. The level is just under the record level of 386 in March 2009, Markit data show. Traders said weakness in credit derivatives helped fuel downward pressure on the shares, as markets feed off each other. Bank of America shares closed Tuesday at levels not seen since March 2009. The key arteries of the financial system — the ability of banks and other institutions to borrow from one another on a short-term basis — continued to show rising stress on Tuesday, but not at levels associated with the panic of 2008. The cost for a bank to borrow from another bank for three months in U.S. dollars, known as the London Interbank Offered Rate, continued to rise, hitting 0.31178 percent Tuesday morning from 0.30300 on Monday. The pressures were most acute at European banks, which continued to pay more than other banks for short-term funding. Most European institutions paid more than the LIBOR fixing. (Reporting by Joe Rauch; additional reporting by Lauren LaCapra, Jonathan Spicer, Karen Brettell and David Gaffen in New York and Dave Clarke in Washington; editing by John Wallace, Matthew Lewis and Bernard Orr)

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Dean Baker: Why Is President Obama So Anxious to Cut Social Security?

August 23, 2011

On his tour of the Midwest last week, President Obama again indicated his interest in cutting Social Security. He repeated a proposal that his administration first put forward in the debt ceiling negotiations: he wants to cut the annual cost of living adjustment by 0.3 percentage points. This cut may sound small, but it adds up over time. A person in their 70s who had been getting benefits for ten years would see a reduction of 3 percent. By the time they were in their 80s, the cut would be 6 percent. And if they lived into their 90s, their benefit would be more than 9 percent lower as a result of President Obama’s proposal. For an average retiree who can expect to get benefits for 20 years, President Obama’s plan would cut their lifetime Social Security benefits by roughly 3 percent. By comparison, his much feared tax increases on the rich would reduce the after-tax income of someone earning $300,000 a year by just 0.5 percent. In this case, a beneficiary who will be mostly dependent on their Social Security income in retirement will take about six times as large a hit relative to their income under President Obama’s plan to cut Social Security than a couple earning $300,000 would from his plan to raise their taxes. This cut to Social Security seems especially inappropriate since the near retirees who would feel the full impact of this cut have just seen most of their wealth destroyed by the collapse of the housing bubble and the plunge in the stock market. The typical near retiree (ages 55-64) has just $170,000 in net wealth , including the equity in their home. This means that if they used every last penny in their 401(k) and other savings, they would have just about enough money to pay off the mortgage on a typical home. This would leave them 100 percent dependent on Social Security for their income. And of course, half of near retirees have less than this amount, meaning that they will not even be able to pay off the mortgage on a typical home. But apparently President Obama feels that these people need to make greater sacrifices. The determination to cut Social Security is especially strange given the finances of the program. Under the law, Social Security is financed by the designated Social Security tax. It does not contribute to the deficit, since the law prohibits payments from being made if there is not money in the Social Security trust fund. That means that if the trust fund were drained, rather than contributing to the deficit, full benefits would not be paid. And the date where this could be an issue is still relatively distant. The Congressional Budget Office just released new projections showing that the Social Security trust fund is fully solvent through the year 2038. Even after that date, the program would have enough money to pay 81 percent of scheduled benefits for the rest of the century. The folks who say that there will be nothing there for our children or grandchildren are just making it up or repeating the nonsense promulgated by some political hack. Furthermore, this gap is not hard to close. Currently, the tax on the wages subject to the tax is capped at $107,000. The upward redistribution of income over the last three decades has caused a large share of wage income to escape taxation, as more money ends up in the pocket of CEOs and Wall Street types than ordinary workers. If all wage income were subject to the tax, then it would leave Social Security fully solvent for its 75-year planning period. We could also go the route of increasing the tax on ordinary workers to cover the shortfall. After all, part of the story is that people are enjoying longer retirements, even if the wealthy have benefited much more from the increase in longevity than the typical worker. By 2040, average wages are projected to be 45 percent higher than today, adjusting for the impact of inflation. If just 5 percent of the projected wage growth over this period was used to finance Social Security, the program would be fully solvent for the rest of the century. Most people would be surprised to know that 5 percent of the wage growth projected over the next three decades would be sufficient to keep Social Security solvent. After all, there is a well-funded and well-connected industry of people spreading disaster stories about Social Security and its massive deficit. Many people will be taken aback by the idea of “projected wage growth,” after all most workers’ wages have been stagnant or falling in recent years. This is true. The projections refer to average wages, which had been rising, at least until the recession. This brings up the fundamental point. The country has been and is getting richer. The reason that most people do not feel better off is that most of the money has gone to those at the top. Part of the reason is that they have been distracted by nonsense about the crushing burden of Social Security, so they have not paid attention to the policies that put more money in the pockets of the rich. Unfortunately, at the moment, President Obama seems to be working with the distracters.

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Farm Aid Shrinks As U.S. Debt Deal Means No Bailout

August 20, 2011

Extreme weather that is reducing yields of corn, wheat, cotton and soybeans is also taking a toll on smaller crops, leaving pockets of losses in a farm economy the government says may produce a record $94.7 billion in profit this year, thanks to higher prices for the crops that do reach harvest and better weather in other parts of the country.

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WATCH: Starbucks CEO Discusses His Boycott On Campaign Contributions

August 17, 2011

Starbucks CEO Howard Schultz spoke to CNN Money on Tuesday about what he hopes to accomplish with his recently announced boycott on political contributions. As reported by The Huffington Post’s Dan Froomkin , Schultz is calling on Americans and fellow business leaders to halt all campaign donations until politicians stop squabbling and demonstrate a capacity to work toward compromise on long-term fiscal issues. New York Times columnist Joe Nocera recently wrote in an op-ed : In effect, Schultz thinks the country should go on strike against its politicians. “The fundamental problem,” he said, “is that the lens through which Congress approaches issues is re-election. The lifeblood of their re-election campaigns is political contributions.” The message from the Starbucks CEO comes on the heels of the protracted debate over raising the nation’s debt ceiling. He reiterated the sentiment on Tuesday. “All it seems people are interested in is re-election,” Schultz explained. “And that re-election — the lifeblood of it is fundraising.” He urged employers to “grow their companies, start hiring and stop waiting for Washington.” He added, “We can spread a felling of confidence in America.” WATCH (via CNN): RELATED VIDEO:

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Kristie Arslan: An Open Letter to the Budget Super Committee

August 15, 2011

The nation’s smallest businesses would like to send our encouragement as you roll up your sleeves to address our nation’s debt challenges, including finding $1.5 trillion to cut from the federal budget. That’s a big number and no small task – we are writing to ask that you keep the 22 million self-employed and micro-businesses in mind when you take out the red pen. Who are we? We are self-employed and micro-businesses owners and we represent over 95 percent of the small business community. We are businesses with 10 or fewer employees and we directly contribute $1 trillion to the economy every year. Most people don’t realize that the vast majority of businesses in the United States are very small enterprises. Watch the latest video at video.foxbusiness.com Each of us who pursues self-employment not only has the luxury of being our own boss, but we are also keeping one more person off the unemployment rolls, supporting ourselves and our families, and contributing to the economic vitality of our communities. We are doing our part to help the nation reduce its debt by paying taxes. Frankly, if some of the nine million unemployed Americans were given some incentive to join our ranks, we’d be paying down that debt a lot faster. We have concerns about the outcome of the debt-ceiling debate and the nation’s flagging credit rating. Being so small means we often rely on credit or micro-loans to keep our businesses afloat whether the economy is booming or busting. We have watched with envy as large businesses and corporations have benefitted from stimulus spending and lucrative bailouts! There was little to nothing in those efforts to jump start the economy for us – the small business community. What can you do for us? You can make the tough decisions. The tax code is a good place to start. Self-employed business owners need to be CEO, COO, head of sales as well as their own accountants. We don’t have the luxury of big business accounting departments that can manage the complicated and ever changing tax system. Undertake meaningful reform of the tax code by moving towards a simpler and more equitable system, giving all businesses, regardless of size, the same tax benefits so there is a level playing field. Furthermore, reform should also enable America’s businesses, big and small, to compete in the global economy. Protect programs that incentivize entrepreneurship to jumpstart our economy. Remember, today’s small business could be tomorrow’s big business and even if they choose to stay small, increased entrepreneurship will help foster innovation, create jobs and bring in additional revenue to our federal coffers. Help us jumpstart the economy with long term policies not short term “fixes.” Finally, go where few have gone before – Social Security, Medicare, Medicaid and Defense spending. Most self-employed Americans are willing to make some sacrifices if it means that our policymakers will proactively address our federal deficit and our nation’s economy would improve. We know you have a lot on your plate, but we ask that you keep a simple question in mind as you work: will this change help small business owners keep their doors open and grow? Will it encourage others to go after their American dream? If you’re not sure, ask us. If it will make it harder for us to thrive, then it’s not good public policy for America. Sincerely, America’s smallest businesses — the self-employed and micro-businesses

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For ‘Super Congress’ Members, ‘Doomsday’ Cuts Loom Large

August 14, 2011

WASHINGTON — For the dozen lawmakers tasked with producing a deficit-cutting plan, the threatened “doomsday” defense cuts hit close to home. The six Republicans and six Democrats represent states where the biggest military contractors – Lockheed Martin, General Dynamics Corp., Raytheon Co. and Boeing Co. – build missiles, aircraft, jet fighters and tanks while employing tens of thousands of workers. The potential for $500 billion more in defense cuts could force the Pentagon to cancel or scale back multibillion-dollar weapons programs. That could translate into significant layoffs in a fragile economy, generate millions less in tax revenues for local governments and upend lucrative company contracts with foreign nations. The cuts could hammer Everett, Wash., where some of the 30,000 Boeing employees are working on giant airborne refueling tankers for the Air Force, or Amarillo, Texas, where 1,100 Bell Helicopter Textron workers assemble the fuselage, wings, engines and transmissions for the V-22 Osprey tilt-rotor aircraft. Billions in defense cuts would be a blow to the hundreds working on upgrades to the Abrams tank for General Dynamics in Lima, Ohio, or the employees of BAE Systems in Pennsylvania. For committee members such as Sens. Patty Murray, D-Wash., Rob Portman, R-Ohio, and Pat Toomey, R-Pa., the threat of Pentagon cuts is an incentive to come up with $1.5 trillion in savings over a decade. Failure would have brutal implications for hundreds of thousands workers back home and raise the potential of political peril for the committee’s 12. “I think we all have very good reasons to try to prevent” the automatic cuts, Toomey told reporters last week when pressed about the impact on Pennsylvania’s defense industry. “That is not the optimal outcome here, the much better outcome would be a successful product from this committee.” The panel has until Thanksgiving to come up with recommendations. If they deadlock or if Congress rejects their proposal, $1.2 trillion in automatic, across-the-board cuts kick in. Up to $500 billion would hit the Pentagon. Those cuts, starting in 2013, would be in addition to the $350 billion, 10-year reduction already dictated by the debt-limit bill approved by Congress and signed into law by President Barack Obama this month. Not surprisingly, Defense Secretary Leon Panetta has described the automatic cuts as the “doomsday mechanism.” He’s warned that the prospect of nearly $1 trillion in reductions over a decade would seriously undermine the military’s ability to protect the United States. For the Pentagon, “we’re talking about cuts of such magnitude that everything is reduced to some degree,” said Loren Thompson, a defense analyst at the Lexington Institute, a think tank. “At that rate, you’re eliminating the next generation of weapons.” Committee members will face competing pressures as they try to produce a deficit-reducing plan. As chairman of the Senate Foreign Relations Committee and a possible successor to Secretary of State Hillary Rodham Clinton if Obama wins a second term, Sen. John Kerry is certain to be protective of the budget for the State Department. Yet the Massachusetts Democrat, who recently said he would seek a sixth term in 2014, represents a state that was fifth in the nation with $8.37 billion in defense contracts this year, behind Virginia, California, Texas and Connecticut, according to data on the federal government’s website USAspending.gov. In Tewksbury and Andover, Mass., deep defense cuts could have serious ramifications for thousands of Raytheon employees working on the Patriot, the air and missile defense system. It was heralded for its effectiveness during the 1991 Persian Gulf War and is now sold to close to a dozen nations, including South Korea, Taiwan and the United Arab Emirates. Whatever decisions Kerry and the committee make will affect Massachusetts-based Raytheon, which was fourth in defense contracts this year at $7.3 billion, behind Lockheed Martin, Boeing and General Dynamics. Raytheon also has operations in Arizona, home to another committee member, Republican Sen. Jon Kyl. “While some will argue there is peril in serving on this committee, we believe there is far greater peril in leaving these issues unaddressed,” Kerry said in a joint statement with Murray and Sen. Max Baucus, D-Mont., after they were selected by Senate Majority Leader Harry Reid, D-Nev. In February, Murray celebrated when the Air Force ended a decade-long saga of delays and missteps and awarded one of the biggest defense contracts ever, a $35 billion deal to build nearly 200 air refueling tankers, to Boeing, a mainstay in her home state. Boeing was fourth on the list of donors to Murray from 2007-2012, with its political action committee, individual employees and family members contributing $102,610. Michigan is home to two committee members, Republican Reps. Dave Camp and Fred Upton, and General Dynamics work on the Abrams tank. The state is struggling with a 10.5 percent unemployment rate, which is above the national average. Already facing the prospect of $350 billion in defense cuts over 10 years, the Pentagon could look to scale back some projects, such as the F-35 Joint Strike Fighter, the stealthy aircraft that has been plagued by cost overruns and delays. Lockheed Martin, in conjunction with Northrop Grumman and BAE Systems, is building 2,400 of the next generation fighter jet for the Air Force, Navy and Marine Corps, as well as working with eight foreign countries. But the cost of the program has jumped from $233 billion to $385 billion; some estimates suggest that it could top out at $1 trillion over 50 years. Questioned about the defense cuts, Joint Chiefs of Staff Chairman Adm. Mike Mullen recently said that “programs that can’t meet schedule, that can’t meet cost … requirements are very much in jeopardy and will be very much under scrutiny.” The Joint Strike Fighter is being built in Fort Worth, Texas, and Palmdale and El Segundo, Calif. Those are the states of committee members Reps. Jeb Hensarling, R-Texas, and Xavier Becerra, D-Calif. Lockheed Martin and BAE Systems also have operations in Pennsylvania. The Pentagon could decide to scrap the program or scale it back while upgrading the existing F-15 and F-18 aircraft, a troubling prospect for lawmakers from the states that benefit from F-35 production. In the military world, however, reducing the number could make it more costly. “The problem when you cut back in numbers is you increase the number for one, you increase the cost for one,” said Laicie Olson, a senior policy analyst with Council for a Livable World and the Center for Arms Control and Non-Proliferation. “Sometimes it’s almost better to buy more.” Boeing, in a statement, said it has been “anticipating flattening defense budgets for some time.” Company spokesman Daniel C. Beck said that while Boeing is trying to improve production and efficiency, it’s moving into new markets such as cybersecurity and energy management. ____ Associated Press writer Marc Levy in Harrisburg, Pa., contributed to this report.

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Ray Leach: Cuts and Volatility: How the Economic Rollercoaster Strains Startups

August 12, 2011

The debt ceiling debate is over for the time being, but it sure doesn’t feel like it. President Obama, the House and the Senate agreed on a compromise that increases the debt ceiling by as much as $2.4 trillion dollars. On top of the $900 billion spending cut over the next ten years from federal programs, agencies and day-to-day expenditures, the agreement called for the formation of a special “super committee” that must identify further spending cuts by Thanksgiving. If this committee deadlocks or if Congress reject the committee’s recommendations, automatic across-the-board spending cuts of at least $1.2 trillion will go into effect. Though the debt compromise is considered by most as sub-optimal, the alternative would have led to a U.S. default. Given the painful things that have already happened in the markets, who knows how much greater the pain would have been if, over the last week, we instead were watching the U.S. Treasury determine who would and would not get paid. In that scenario, I think we could have faced a downturn and volatility in the markets that exceeded 2008 and rivaled 1929. All of this market turmoil does nothing to help entrepreneurs, particularly for ones seeking access to capital and other financial resources. A poorly performing stock market, in addition to the anticipated public-sector budget cuts, put a damper on almost everything that high growth entrepreneurs need to be successful, including public and private sector resources for groundbreaking research and commercialization of disruptive, market-creating innovations. These macroeconomic issues also affect an entrepreneurial firm’s ability to secure new customers who are willing to give them an opportunity to validate their innovations and technologies. Downturns in public equity markets affect the private sector’s ability to support entrepreneurs in a huge way. First, it has a significant influence over the amount of money venture capitalists can raise to invest in startups. Pension plans, endowments, foundations, and other institutional investors typically have a formal approach to their allocations across stocks, bonds, and alternative investments, which include venture capital funds. When the stock market declines significantly, the value of the equity investments owned by these groups declines more aggressively than the other financial assets in their portfolio that are not priced on a minute by-minute basis. As a result of the reduced value of these equity investments, many large investors end up being over-allocated in alternative assets like venture capital. In efforts to rebalance their portfolios, large investors might reduce their new capital commitments to venture capital funds until public equity securities rebound on their valuations. We saw this happen in 2009. The number of venture funds that were able to raise capital decreased 30 percent and the amount those funds raised declined 38 percent. Right now, according to Mark Suster, an entrepreneur-turned-VC, investors are taking a wait-and-see approach and most likely won’t invest until some stability arises. Similarly, the portfolios of individual angel investors are negatively impacted when the stock market takes a massive hit, leading them to shy away from risky investments in young entrepreneurial companies. A public equity market facing steep declines also deters young, private venture-backed companies that would like to go public from doing so. They’re fearful that they will not be able to raise the necessary funds from the public investors that startups require in order to go through the hardships of going public. This paradigm played out in 2008, when the number of venture-backed companies that went public declined 93 percent from 2007 — from 86 to just six. Without these initial public offerings (IPOs), new investments in high potential companies and fundraising by venture capital funds tends to slow down until the pipeline of companies waiting to go public is cleared. And finally, in this non-exhaustive list of what could happen, every economic downturn leads to a reduction in consumer and business spending, translating to lower demand for entrepreneurs’ innovative products and services. From 2008 to 2009, for instance, business spending on technology declined 8.2 percent and consumers spending declined 2.8 percent . On top of the market-related issues that impact the growth of young, high potential companies, government cuts and taxes are looming. That means entrepreneurs shouldn’t be surprised to see slashes to the $2 billion Small Business Innovation Research program that funds startup R&D and product development. And as the government looks to cut costs, it will likely offer fewer or less attractive federal contracts, which can be a big source of revenue for young companies. The public and private sectors are, to some extent, broken. Neither the government nor America’s business and consumer masses can support entrepreneurship and change the trajectory of our economy alone. Because of this, we need to focus on creating partnerships between the public, private and philanthropic and institutional entities. When pooled together, these groups have more resources to support higher levels of entrepreneurship and innovation, which is so vital to our nation’s economic revitalization. Ohio has had some success in the area of partnerships. At the core of Ohio’s commitment to innovation and entrepreneurship is Ohio Third Frontier , a State-led, public, private, philanthropic and institutional effort that will provide over $1.7 billion to R&D, technology commercialization, and entrepreneurial support. Even as the federal government considers cuts to every state in the country, Ohio has already made its long-term investment to support entrepreneurs and has ensured that changes in the economic environment cannot affect its investment. Ohio Governor John Kasich has demonstrated a determination to continue supporting entrepreneurship in the face of budget cuts. Amidst billions in spending cuts, he increased funding to programs that accelerate the growth of high potential companies. Ohio isn’t the only state using the partnership approach. In 2008, the state of Michigan created the Invest! Michigan , a fund capitalized with $300 million from the state’s pension funds and funds from other institutional investors. The goal is to develop Michigan’s entrepreneurial ecosystem. Other states have created similar initiatives to that of Invest! Michigan, including New York, California, Indiana, and North Carolina. Collaborations across the public, private, institutional and philanthropic sectors mitigate the impact that market downturns and budget cuts can have on entrepreneurs and the investors supplying the capital they need. These partnerships, which lead to a sharing of resources, are essential to accelerating innovative companies and the growth of our nation’s economy. President Obama understood this imperative and launched the Startup America initiative earlier this year in order to create partnerships across the nation to accelerate regional entrepreneurial initiatives focused on high impact startups. This work is more important than ever, as the nation finds itself in a time when no single sector — public, private, institutional or philanthropic — can bear the load alone.

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Carl Gibson: Austerity: The Wrong Prescription

August 11, 2011

If you were a patient in intensive care, sick and in pain, what would you say to a doctor whose only recommendation was cutting off your blood supply, meals, therapy and redirecting your pain medicine to another patient who was already healthy and well? Would you follow your doctor’s orders, or sue them for malpractice? For the first time in U.S. history, our credit rating has been downgraded, meaning higher interest rates on Americans’ personal debt, like credit cards and student loans. Conservatives have jumped on this as an opportunity to bash President Obama, arguing that not enough spending cuts were made in the recent debt deal to avoid the downgrade. The media has allowed this to be the dominant narrative in the national conversation. But Conservatives and the media are both ignoring page 4 of Standard & Poor’s research update, published August 5th, which explicitly states , “the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.” In their reasoning for our credit downgrade, S&P specifically attacks the GOP for threatening to not pay America’s bills in order to protect tax breaks for billionaires, corporate jet owners and big oil. While Republicans and the corporate media bemoan the growing federal debt as our most pressing crisis, very few commentators, with the exception of folks like Allison Kilkenny , have mentioned the necessity of addressing America’s most crucial deficit — jobs. We’re on the verge of entering a double-dip recession, and there’s been surprisingly very little conversation in Washington or on cable news networks about how to actually get millions of Americans back to work. While America’s middle class families and small business owners struggle to survive, thousands of tax loopholes for tax-dodging , job-outsourcing companies like GE remain open. We still freely give out $4 billion in taxpayer subsidies to oil companies who don’t even pay $1 in taxes . Warren Buffett still pays a lower effective tax rate than his receptionist. Congressional Republicans are calling for $4 trillion in spending cuts over the next ten years, saying America is “broke.” Yet, by simply ending the bush tax cuts for the wealthy, we would recoup $5.4 trillion in a decade. Republicans like John Boehner and Mitch McConnell continue to give our teachers, cops, firefighters and other public services the axe, all to protect these failed ” trickle-down ” policies that have blown holes in our budget since the Reagan years. Their adherence to such flawed policy ignores reality — the economy has tripled since 1973, but median income has actually gone down since then. Something is trickling down, but it certainly isn’t wealth. Our economy is on life support, barely holding on while jobs continue their flight overseas. Foreclosures and fuel prices are rising almost as fast as the profit margins of big banks and big oil. Despite all of this, there is still no real economic prescription offered by Republicans and corporate Democrats to heal our economy and get people working again. Instead of “compromising” with the doctors who want to pull the plug on us, America must demand new doctors who are actually interested in curing the disease.

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Ai-jen Poo: Paying Off Our Real Debt

August 9, 2011

Kimi Lee’s mother did everything right. She saved all her life, had two health insurance policies, was a member of a union. Then, during a trip to see her newborn granddaughter, she suffered a stroke. Her family did their best to cope: Kimi and her family moved to Los Angeles to help care for her. But bills and long-term care costs still threatened to rob the family of what Kimi’s mom had worked her whole life for, including her house. “For us it was definitely a shock,” Kimi said. “When there are these long-term situations that happen to people, there’s just no safety net for that.” Henry Perry considers himself lucky. He is 96 years old, and is able to live an active, dignified life thanks to the care of Dabphne Hughes , a longtime friend from his church who came to care work after she lost her previous job. Henry can afford to pay for long-term care, but sees that many in the African American community he lives in cannot. While younger people in the community used to be able to care for their elders, job and health struggles often leave them unable to — and older people are left to struggle at the time they care the most. “It says a lot about the American Dream,” Henry said, “that you work all your life, pay your taxes and all that sort of thing. Then you get to your Golden Years and find out they’re not as golden as they’re supposed to be.” Marlene Champion came to domestic care work after decades of work at a poultry processing plant. For six and a half years, she cared for an older man who at first was home-bound and did little but watch television. “Over the years, I coaxed him out of his shell. He began to go to birthdays and weddings and bar mitzvahs — he became a different man,” Marlene said. “I learned a lot from him in those years about the struggle for dignity and respect. Someday, I hope someone will care for me that way.” These are the voices of America’s Care Crisis. The relationship between care providers and care recipients is full of love, intimacy, and interdependence. And yet millions of older Americans and people with disabilities struggle to live with dignity because they don’t have the quality care they need. Their families struggle to provide for them. Meanwhile, caregivers suffer burn-out from poor working conditions, low wages, lack of training, and benefits. And the many immigrant care workers who are currently caring for our loved ones are locked outs of the American Dream, without a path to citizenship. The crisis is growing by the day. Every eight seconds, another American turns 65. By 2050, there will be 27 million Americans with long-term care needs — more than twice the number in 2000. These older Americans are the deepest source of wisdom, values, and character we have as a nation. We owe them a debt of gratitude more profound than any other. And we have a responsibility to care for them as they spent their lives caring for us. That’s why on July 12, nearly 800 community, faith, and labor leaders gathered in Washington, DC, to launch Caring Across Generations , a national movement to solve America’s Care Crisis. Caring Across Generations aims to preserve what we have — the vital safety net of Medicaid, Medicare, Social Security — while creating what we need: two million new care jobs, training and protection for workers, new paths to citizenship for immigrant workers, and measures to make care more affordable for struggling families. White House Senior Advisor Valerie Jarrett was with us at the event, a day-long town hall-style event we called a Care Congress. “Our economy will depend on the creation of millions of home care jobs. You are the economic engine of our country,” Jarrett said. “It is up to us to ensure that these jobs come with the right benefits, what all Americans deserve: good working conditions, clear labor standards, and the ability to form a union.” Secretary of Labor Hilda Solis was with us as well. “Thanks to your work — workers and families coming together — we’re standing up today for a rightful place in society,” she said. “That’s what this is about: dignity and respect.” The July 12 Care Congress was just the beginning. Over the next 12 months, Caring Across Generations will hold Care Congresses in at least 15 U.S. cities. These events will bring together tens of thousands of Americans who are touched by the “care crisis,” particularly older adults, people with disabilities, care workers and their families. Together, we will transform public policy so that we can be a nation that takes care of one another, across generations. It won’t be easy — especially in a political moment where short-sighted and destructive budget cuts are the order of the day. But the Caring Across Generations campaign is built on love: the love of Kimi and her mother, of Dabphne and Henry, of Marlene and the man she cared for. Whatever the obstacles, love is still the most powerful force for change in the world.

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Christopher Newfield: Was the Innovation Economy Killed by the Debt Debate?

August 9, 2011

Only a week has passed the debt ceiling deal was finally signed, and we’ve already seen USAAA become US of AA plus, followed by the return of the worst global market turmoil since the financial chaos of fall 2008. Major U.S. indicies fell between 5 and 7 percent on Monday , a lead Financial Times opinion piece called avoiding a new recession ” mission impossible ,” and governments have already spent all the public money they can find on bailouts and the general stabilization of dubious valuations. As things go from bad to worse, is there anything in the U.S. political discussion that could make things better? The apparent answer is no. Congress’ approval rating has fallen to an almost nonexistent 14 percent, and 77 percent of respondents in a CNN poll thought their representatives had behaved like ” spoiled children .” There was some agreement that even if S&P was wrong about U.S. debt, it was right about U.S. politics, which was unlikely to use the important tool of higher taxes to lower its deficit. The new round of name calling, as in John Kerry’s attempt to launch the term ” Tea Party downgrade ,” won’t inspire anyone to look to Washington for help. The ideological standoff is exactly where it was earlier in the summer. Everyone is equally unhappy. Deficit hawks can point to limited and non-binding progress on debt reduction. Advocates for growth and jobs can lament a Hooveresque austerity that will prolong our ” Lesser Depression ” and, ironically, increase the deficit . Republicans may be realizing that their only truly popular program of the past thirty years — “no new taxes” — is now a minority position favored by only 20 percent of the public in a July Gallup poll, and can now pass only with acts of undemocratic coercion of the kind we saw this summer. Democrats rightly lament that they don’t actually know whether their president opposed cutting core public services like health care or embraced these cuts. Behind the obvious political dysfunction — the propagandistic major media, the limited choice between far-right and center-right national parties, the overwhelming power of special interests — is the deeper problem. Neither party in Washington has any plan to revive a faltering economy whose 2011 slowdown has, if extended over the 10-year tax cut period, already cost the country as much as it will save in projected spending cuts. Instead, both major parties compete to offer their overlapping bases false substitutes for economic and social development. I say overlapping because nearly as high a percentage of Tea Party voters as registered Democrats were anxious to keep Medicare. Both parties are stocked with majorities of “fiscal conservatives” in the sense of people who don’t like large debts and uncertain revenues. The people who do like these things are largely in the financial, insurance and real estate industries that make piles of money by borrowing, leveraging and gaming minor price movements in ways that most people find alien, if not repugnant. In addition, much Tea Party anger is focused on the failures of “professional politicians” rather than on the evil of public services. It’s true that the Republican right has long argued that government wastes all the money it gets and that the only good tax is a zero tax. But many Tea Partiers don’t hate public services as such. They hate the political class that serves itself rather than society with the revenues it gets in the name of public services. American tax rates are the lowest in the high-income world, but so are its levels of everyday services . In one category of social welfare expenditures the U.S. is dead last among high-income countries, and behind Turkey (see p. 533 here , or scroll down to the Welfare Expenditures table ). The relative miseries of American health care, job retraining, public infrastructure , public safety, cultural programming, and so on discourage the consumers of these services from wanting to pay more. To make matters worse, our low tax regime has not produced prosperity or a decent quality of public life. It has instead yielded the high-income world’s most extreme levels of income inequality . One mainstream columnist recently called the United States ” our banana republic .” In reality, our extreme inequality is extremely unpopular , nearly as much on the right as on the left. But once the banana republic has been established, low taxes make individual sense, and in the U.S. they function as a kind of political booby prize. With the stock and housing booms over, most people feel they can’t increase their own incomes through known legal means, and since virtually no one thinks they can make America more egalitarian, low taxes on our modest incomes can look like the next best thing. The only thing close to a real proposal to revive jobs and incomes is the “innovation economy” that Obama featured in this year’s State of the Union address. But the combination of no-taxes on the right and austerity on the Obama center-right will keep this from getting off the ground. Obama has not told the public the truth about the high level of investment that a real response our new “Sputnik moment” would require . More fundamentally, the Obama administration has not given the wider public reasons to prefer the high-tech economy to the industrial economy that national policy has long been undermining. The reason is that “innovation” has for thirty years gone hand-in-hand with job destruction and job exporting — first in the industrial heartland, and more recently in supposedly post-industrial replacement industries like real estate. The innovation economy’s “STEM” jobs (sciences, technology, engineering and mathematics) have mean wages of close to $80,000, or nearly twice the national average, but the major STEM categories are nearly ten times smaller than those of the country’s largest occupations. Scrape together 97 STEM categories as the Bureau of Labor Statistics did and you still get to no more than 6 percent of the total U.S. workforce. As for most jobs, nine of ten of the biggest occupational categories have mean wages between $20,000 and $32,000 per year. These widespread subpar wages persist thirty years or so into our innovation economy. In this context, the working- and middle-class bases of both major parties act rationally when they prefer low taxes on their stagnant incomes to increased taxes for innovations that have an established track record of passing them by. In short, the rational distrust of tens of millions of people for an innovation economy that requires ever-higher levels of public investment for not-so-democratically distributed economic benefit bolsters Tea Party refusals of any kind of public action. It is now trapping the country in a devolutionary spiral. Is there anything that could turn this around? The most useful research I’ve seen , from James Carville and Stanley Greenberg, determined that the strongest message is, “We have to start by changing Washington… The middle class won’t catch a break until we confront the power of money and the lobbyists.” This research reinjects a major taboo into the debate — confrontation with economic elites, starting with Wall Street and continuing with Wall Street’s largely, if not wholly, negative impact on the middle class. Greenberg ties his “change for the middle class” framework to a series of plausible policy reforms . I am quite sure that these are premature. Democrats will not reform a Washington from which they benefit as much as Republicans unless they are subject to massive popular pressure. Pressure requires mass participation in political confrontation of the kind for which Keith Olbermann recently called . But why would people line up to participate in a risky confrontation with politicians and financial backers who have repeatedly demonstrated their enormous power, ruthlessness and lack of remorse? Two things need to happen first to get regular people of any party to pony up for investment and innovation in a major way. First, innovation economy advocates need to tie innovation to employment. Silicon Valley has not done this, and has instead focused on its need to cherry-pick foreign workforces via expanded visa programs — and on moving manufacturing abroad. Apple Computer, whose market capitalization puts it just behind Exxon-Mobil, employs about 50,000 people . Its chief foreign manufacturer, Foxconn of Taiwan, employs 920,000. (General Motors, so last-century, still employs four times more people than Apple. It’s great to have an innovation economy. Where the hell are the innovation jobs ? Second, mass participation needs to be inspired through the deliberate cultivation of a new egalitarian vision. Rational economics supports this. The current concentration of wealth is grossly inefficient . Creative quality-oriented people in every walk of life are simply not getting the resources they need to develop. But there is a deeper feature of equality for which there is no hard data, but which is real nonetheless. That is the mass demoralization that results from levels of inequality that make no sense in terms of creativity, output, productivity, justice or religious values. What kind of a country sanctions the top-25 hedge fund managers earning $22 billion personally? What kind of country cuts services to people who would need 250 years to earn the salary a CEO earns in one year — so that CEO can pay lower taxes than his secretary ? Our political discourse has successfully shamed people out of asking these questions. But when they do, the answer to what kind of country we are is: not a country that fairly rewards hard work, individual creativity or pulling together to solve shared problems. Any belief in the general benefits an innovation economy are mocked by current levels of inequality, fueled by a mania for tax avoidance, much like that which created poverty amid the aristocratic plenty of pre-revolutionary France. Until policymakers can support both innovation jobs and levels of equality that spell mutual respect, the majority will not vote to pay for the economic renewal we need.

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Jason Alderman: Dealing With Debt Collectors

August 8, 2011

If you’ve ever fallen far behind on paying your bills, you know what it’s like to dread whenever the phone rings: What if it’s another bill collector? Ignoring the call — like ignoring a toothache — is never a good idea, however. Sooner or later, you’re going to have to deal with the situation. According to Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (NFCC), “Our 2011 Financial Literacy Survey found that most people — 68 percent — pay their bills on time. However, 28 percent said they experience difficulty making timely bill payments.” Ideally, you should contact your lender as soon as you realize you may have difficulty paying a bill. They would much rather work out a repayment plan than enter the costly and time-consuming collections process. But, if that ship has already sailed, here are a few precautions you can take to protect your interests: You have certain rights whenever dealing with debt collectors. For example, under the Fair Debt Collection Practices Act , collectors cannot harass you by: Using abusive language or threatening violence or arrest. Calling before 8:00 a.m. or after 9:00 p.m. Falsely representing themselves as attorneys or government employees if they are not. Threatening to sue you if they do not in fact intend to file a lawsuit. Contacting you at work if you tell them your employer disapproves. Contacting others, except to verify where you live and work. Revealing to others that you owe money. If a collection agency contacts you initially by phone, they must send you a written notice within five days telling you how much you owe, the name of the creditor owed and how to file a dispute if you don’t agree. Once contacted, you should: Get the names of all persons calling and their agency, its address and phone and fax numbers. Take detailed notes of all conversations, correspondence and pre-recorded calls, noting names, dates and times. You may also want to consider recording the conversations, but be sure to get their consent if required by law in your state. You may request that all subsequent contact be handled by mail. Send this request — and all further correspondence — by certified mail, return receipt requested. Request that all conversations be followed-up in writing. Document any false, misleading or harassing statements and include them in your correspondence. Ask for full details about any debts the collector claims you owe, including dates, amounts, lender’s name, etc. Instruct that you be the only person contacted, unless you wish an attorney to be involved. Retain all records indefinitely in case of future disputes. Have all agreed-to repayment plan terms verified in writing, including promises to remove or adjust reports to your credit history. If you feel you’ve been targeted in error, tell the collection agency — in writing — that it has the wrong party and to stop contacting you. If they can’t provide proof, by law they must cease collection efforts. Unfortunately, it’s not uncommon for identity thieves to run up debt in someone else’s name and to have those unpaid debts eventually go into collection. That’s why it’s important to check your credit reports regularly and to report any errors or mistaken transactions immediately. You can order one free credit report a year from each of the three main credit bureaus. (Order through the government-authorized AnnualCreditReport.com ; otherwise you’ll pay a small fee.) A few other tips: By not responding to a debt collector you risk triggering a lawsuit, which, if lost could result in garnishment of your wages or other actions. There’s no time limit on contacting you about a debt. Some debts are sold to other collectors even after being properly disputed. So keep all records indefinitely in case the debt ever resurfaces and you need to dispute it again. If you settle with a debt collector for less than what you originally owed, this “forgiven debt” may be considered taxable income by the IRS. Don’t pay bills you don’t owe just to make the collector go away; that’s considered acknowledgement that you are responsible. The Privacy Rights Clearinghouse’s Debt Collection Practices: When Hardball Tactics Go Too Far offers great tips on navigating the debt-collection process, including your privacy rights, sample letters and where to turn for help. The Federal Trade Commission also provides a helpful Guide for Consumers . And finally, if you want to learn more about the potential advantages — and pitfalls — of working with a debt settlement company to pay off your debt, read my previous blog, Feds Strengthen Debt Settlement Rules . This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation. Follow Jason Alderman on Twitter: http://twitter.com/PracticalMoney

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Scott Bittle: Fiscal Follies: The Leaders, the Led and the Gridlock on the Budget

August 7, 2011

It seems hard to disagree with the 8 in 10 Americans who say Congress is doing a terrible job in wake of the dismal, dispiriting debate over raising the debt ceiling. We dodged a needless and potentially devastating government default, but aside from that, this debt deal is largely a failure. The brutal debate produced an 11th hour band-aid, but it damaged the government’s standing at home and abroad, and it’s still not enough to get the nation’s finances off their unsustainable path. In fact, the main accomplishment — apart from making the U.S. government look both arrogant and inept — was to set up another crisis for December (just in time for the holidays). That’s when the “trigger” mechanism will make automatic (and very severe) cuts if Congress can’t agree on a more sensible solution. And after all that, Standard and Poor’s downgraded the United States government’s credit rating anyway. It’s hard to see how leaders of any political stripe walks away from this proud of what they’ve achieved. But there’s another point of view on this, which is actually pretty widespread among Washington policymakers and the media. Slate ‘s Jacob Weisberg pretty much summed this up when he wrote “there’s no point in explaining complicated matters to the American people.” In this view, elected officials in Washington are just reflecting a nation that’s divided about the role of government and completely unrealistic about what it will take to reduce deficit spending and get the country’s finances back on track. There is plenty of polling to show just that. For example, 51 percent of Americans say ” government should do more to solve problems and help meet the needs of people ,” while 46 percent say “government is doing too many things better left to businesses and individuals.” Meanwhile, 6 in 10 say government should be “smaller and provide fewer services,” but mention the specifics, and that view crumbles to dust. Large majorities of Americans oppose cuts in Medicare, Medicaid, Social Security, and pensions to federal workers. Majorities even oppose cutting subsidies to farmers, and 52 percent oppose cuts in defense. What’s an elected official to do? There’s simply no way to follow those instructions, and get the country out of its fiscal mess. But at this point, arguing over whether leaders or the public deserve more of the blame is the equivalent of fighting over who gets to wear the captain’s hat on the Titanic, after hitting the iceberg. Leaders haven’t done much leading, and the public desperately needs a better grasp of what it takes to really put the government’s budget on a sound footing. But we do get another chance in a few months, so is there any way to avoid the instant replay? Frankly, we’re not that optimistic. The Congressional “super committee” seems set up to fail, and at this point, we’re not sure its report will carry any more weight than any of the dozens of budget plans that have come out in the last couple of years. The debate over its recommendations and the triggers will be vicious. To the public, it will look like another vaguely repulsive food fight. The cable news commentators will endlessly and reflexively pontificate about what it all means for the election — forget what it means for the country’s future. And we’ll end up about where we are with (a) a budget that is neither sustainable nor helping the economy, and (b) a 82 percent disapproval rating for Congress — maybe even worse. The country will be divided and demoralized. Nobody will win — at least no one in the United States. But suppose we actually spent the next few months talking about what parts of government matter most to us, what we’re willing to pay for them, and where we’re willing to compromise to protect the goals that we value most. Throw out the politics for a moment, and however you feel about Tea Partiers, progressives, Eric Cantor, the president or anybody else. Put the election predictions on pause. Let’s talk about what’s most essential to protect, and where we’re willing to give to get a deal. These are questions just every American should be able to answer, and we’re pretty confident that most people can. After all, all those polls that show how unrealistic Americans are also show that most prefer a settlement that blends spending cuts and revenues — just like nearly every commission report and study out there (and that includes many conservatives ). In Greece, people took to the streets when the government decided that some status quo benefits had to be trimmed. We’ll place our bets that most Americans have already accepted that they won’t get everything they want from a meaningful budget deal, but that they want the Congress to pass one anyway. Will the country’s leaders step up to the plate? Well, at least they didn’t let the United States slide into default, which actually wasn’t a sure bet just a few weeks ago. After all the mess and the backbiting, most members of Congress decided that protecting the “full faith and credit of the United States” was an important step to take. Maybe the next time, they can do better. Maybe they’ll even decide to demonstrate the realism, judgment, candor, and honor that the American people have every right to expect.

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Tea Party Influence On GOP Could Prove Make Or Break In 2012

August 7, 2011

(AP) WASHINGTON — The tea party is here to stay. The 2-year-old phenomenon’s muscular role in the debt-ceiling crisis made that clear, despite earlier predictions it would fade away when the national furor over health care cooled down. Now the GOP establishment wonders if the grass-roots movement will power Republicans to new victories in 2012, or dash them on the rocks of unbending ideology. One thing is obvious: The tea party already is reshaping the Republican Party. Once-moderate lawmakers are shifting sharply right, fearing primary challenges more than Democratic opponents. And most GOP presidential contenders have positioned themselves to the right of party leaders, and even some House tea partyers, on the debt-ceiling issue. The movement’s influence on the GOP remains double-edged. Tea partyers’ adamant opposition to tax hikes helped Republican Party regulars force President Barack Obama to surrender his push for new taxes on the rich. But House tea partyers also embarrassed Speaker John Boehner by forcing him to hastily revise his debt-ceiling bill. To secure their votes, Boehner added a balanced-budget provision that had no hope of becoming law, and which drew ridicule from some quarters. A weakened requirement that the House and Senate only vote on – not necessarily pass – a balanced budget amendment before the end of the year survived in the final product. With the tea party about to play its first role in a presidential election, mainstream Republicans hope to harness its energy in campaigns nationwide, as they did in 2010. The trick is to do it while avoiding the damage of that year, when tea partyers cost the GOP likely Senate pickups by nominating out-of-the-mainstream conservatives in Delaware, Nevada and Colorado. The lesson, party insiders say, is not for the tea party to dampen its fire. Rather, they say, Republican candidates must understand its power. Shame on those who get blindsided this time. The tea party is “driving the conversation,” said Republican consultant Danny Diaz. “The president, Congress, Democrats, Republicans are all talking about austerity, restraint, the spending crisis. That’s not going to change.” Asked if another tea party insurgent might cost Republicans a likely Senate win, as Christine O’Donnell did last year in Delaware, Diaz put the onus on the party’s candidates. “If you are seeking office in this environment,” he said, “it would behoove you to discuss the out-of-control spending that’s taking place in Washington.” Another Republican consultant, Brian Nick, agreed. “A candidate has got to figure out a way to get through a primary,” he said, and it’s unfair to make scapegoats of tea partyers. Veteran elected Republicans with mainstream conservative histories have gotten the message. Some are virtually reinventing themselves as tea partyers. In Utah, already-conservative Sen. Orrin Hatch has veered so hard to the right that it’s a constant topic of conversation, and sometimes amusement, in state political circles. Still, many wonder if he can survive if two-term Rep. Jason Chaffetz, a tea party favorite, decides to challenge him. In New Mexico, former five-term Rep. Heather Wilson built a reputation as a GOP centrist, willing to buck her party’s leaders and support raising the minimum wage and expanding children’s health insurance. In 2008, she lost a Senate primary to a more conservative Republican. Now, running for Senate again, Wilson has pledged to oppose raising the nation’s debt ceiling unless Congress passes a balanced budget amendment to the Constitution. That requires a two-thirds majority in both chambers, which lawmakers in both parties say is politically impossible. Virginia Republican George Allen, who is trying to regain the Senate seat he lost in 2006, has taken a similar stand, even though he voted four times to raise the debt ceiling while in office. Many congressional Republicans support the balanced-budget amendment. In the end, however, a solid majority of them, including most members of the House tea party caucus, voted for the bipartisan debt-limit deal that dropped a demand that the amendment first win passage and be sent to the states for ratification. The big unknown is the tea party movement’s influence on the presidential race. Some political professionals think tea partyers already are pushing GOP candidates so far right that the eventual nominee might struggle to pick up independent voters in the general election against Obama. Former Massachusetts Gov. Mitt Romney appeared unenthusiastic when announcing his opposition to the debt-ceiling compromise that Congress enacted with solid GOP support in both chambers. Jon Huntsman, the only presidential hopeful to support the measure, said Romney did not show leadership. The tea party’s influence on the GOP “will come with heavy baggage in independent-leaning states like Maine or even Indiana,” said Nate Daschle, a Democratic activist whose father was Senate majority leader. That could apply to Senate races in those states, where incumbent Republicans face tea party challengers for the nomination, and to the presidential race, he said. Obama won Indiana narrowly, and Maine handily, in 2008. Independent voters skip most primaries but play big roles in general elections. They want “progress over rigid ideology,” Daschle said. If tea party voters dominate GOP primaries, they can nominate unorthodox candidates such as Delaware’s O’Donnell. “The tea party didn’t happen by accident and it wasn’t contrived,” Daschle said. “It’s one of the purest and most organic movements in politics today, and while it may endanger its parent party, this is exactly the way the system was designed.” A recent Pew Research/Washington Post poll suggests that Republicans did themselves few favors in the debt-ceiling struggle. About four in 10 Americans said they had a less favorable view of congressional Republicans because of the negotiations, while three in 10 said their opinion of Democrats in Congress faded. People who now have a dimmer view of tea party-affiliated lawmakers, because of the debt issue, outnumber those with a more positive view. A CBS News/New York Times poll this week shows that only 20 percent of Americans and 41 percent of Republicans have a favorable view of the tea party, down from 26 percent and 59 percent, respectively, in April. Just 18 percent of Americans now view themselves as tea party supporters, compared with 31 percent who did immediately after the November 2010 elections. Texas Tech University political scientist Tim Nokken warns against overstating the tea party’s influence. “I’m not sure the GOP is going to march lock-step with the tea party,” he said in an email. The movement may have its biggest impact on Republican House members eager to avoid a primary threat from the right, he said. These lawmakers may act “not so much out of agreement with the tea party agenda, but as a means to reduce the likelihood of a primary challenge,” Nokken said. Either way, the tea party is leaving a big mark on the GOP. And the limits of its influence are not yet clear.

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S&P Defends Downgrade

August 7, 2011

WASHINGTON – Standard & Poor’s says it downgraded the U.S. government’s credit rating because it believes the U.S. will keep having problems getting its finances under control. S&P officials on Saturday defended their decision to drop the government’s rating to AA+ from the top rating, AAA. The Obama administration called the move a hasty decision based on wrong calculations about the federal budget. It had tried to head off the downgrade before it was announced late Friday. But S&P said it was the months of haggling in Congress over budget cuts that led it to downgrade the U.S. rating. The ratings agency was dissatisfied with the deal lawmakers reached last weekend. And it isn’t confident that the government will do much better in the future, even as the U.S. budget deficit grows. David Beers, global head of sovereign ratings at S&P, said the agency was concerned about the “degree of uncertainty around the political policy process. The nature of the debate and the difficulty in framing a political consensus … that was the key consideration.” S&P was looking for $4 trillion in budget cuts over 10 years. The deal that passed Congress on Tuesday would bring $2.1 trillion to $2.4 trillion in cuts over that time. Another concern was that lawmakers and the administration might fail to make those cuts because Democrats and Republicans are divided over how to implement them. Republicans are refusing to raise taxes in any deficit-cutting deal while Democrats are fighting to protect giant entitlement programs such as Social Security and Medicare. S&P so far is the only one of the three largest credit rating agencies to downgrade U.S. debt. Moody’s Investor Service and Fitch Ratings have both issued warnings of possible downgrades but for now have retained their AAA ratings. The rating agencies were sharply criticized after the 2008 financial crisis. They were accused of contributing to the crisis because they didn’t warn about the dangers of subprime mortgages. When those mortgages went bad, investors lost billions of dollars and banks that held those securities had to be bailed out by the government. Ratings agencies assign ratings on bonds and other forms of debt so investors can judge how likely an issuer — like governments, corporations and non-profit groups — will be to pay the debt back. Asked when the United States might regain its AAA credit rating, Beers said S&P would take a look at any budget agreements that achieve bigger deficit savings. But the history of other countries such as Canada and Australia who saw cuts in their credit ratings, shows that it can take years to win back the higher ratings. Administration sources, who briefed reporters on condition of anonymity because of the sensitivity of the debt issue, said the administration was surprised by the timing of the announcement, coming just a few days after the debt agreement had been signed into law. Treasury officials were notified by S&P of the imminent downgrade early Friday afternoon and spent the next several hours arguing with S&P. The administration contended that S&P acknowledged at one point making a $2 trillion error in their computations of deficits over the next decade. But S&P officials said the difference reflected the use of different assumptions about how much spending and taxes will come to over the next decade. The S&P officials said they decided to use the administration’s assumptions since the $2 trillion difference in the deficit numbers was not going to change the company’s downgrade decision. In a Treasury blog posting Saturday, John Bellows, the Treasury’s acting assistant secretary for economic policy, said he was amazed by that decision. “S&P did not believe a mistake of this magnitude was significant enough to warrant reconsidering their judgment or even significant enough to warrant another day to carefully re-evaluate their analysis,” Bellows wrote. S&P officials said their decision hadn’t been rushed. They noted that S&P had been warning about a potential downgrade since April. Some critics, the debacle of 2008 still in mind, raised questions about S&P’s actions now. “I find it interesting to see S&P so vigilant now in downgrading the U.S. credit rating,” Sen. Bernie Sanders, I-Vt., said Saturday. “Where were they four years ago?” Standard & Poor’s roots go back to the 1860s. One of its founders, Henry Varnum Poor, was a publisher of financial information about the nation’s railroads. His company, then called Poor’s Publishing, merged in 1941 with Standard Statistics Inc., another provider of financial information. S&P’s website said both founding firms warned clients well before the 1929 stock market crash that they should sell their stocks. The company has been owned by publisher McGraw-Hill Cos. since 1966.

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Lydia Fisher: Wow, What a Week!

August 6, 2011

After the failure of rating agencies to rate securities properly as to risk preceding the subprime meltdown (bundled securities rated AAA with near worthless underlying loans), don’t know what to make of S&P’s downgrade of U.S. debt from AAA to AA+ Friday evening. Is it a beginning? Read on. : The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge,” the company said in a statement. It appears that the American public did some of their own analysis, underscored this week by the headline, “Disapproval Rate for Congress at Record 82 Percent After Debt Talks.” The AA+ rating, by definition, still implies good credit-worthiness. Moody’s and Fitch still hold U.S. debt as AAA. Regardless, with a new 16 trillion “credit card” limit, fiscal challenges remain. Here’s why. Simply put, the bigger the debt, the bigger the interest rate risk exposure to service the debt. The U.S. debt downgrade potentially has higher borrowing cost implications for consumers, businesses and the U.S. government, which impacts economic growth. It remains to be seen how the markets will adjust to the S&P downgrade, whether a shift upwards in rates in the Treasury yield curve occurs — whether our creditors will demand higher rates. For now, matters “across the pond” in the eurozone appear worse. European money markets seized up this week, with Italy and Spain in sharp focus. The ECB announced intentions to buy back debt of Italy and Spain. This, after the European Union has already bailed out Greece, Ireland and Portugal. Seems to me sovereign debt default issues will be with us for some time, based on the absolute levels of debt relative to GDPs within developed nations and the question of how to now grow the economies going forward to sustain the debt and meet obligations. Some astute investors note that there are two ways to default on debt — an actual default or through devaluation of the currency. It’s no secret to any of us, that the dollar has suffered devaluation in the last decade. Just this last Thursday, the Swiss Franc hit another high against the dollar (another marker for the week). If we keep raising the debt ceiling (to avoid actual default), then we’re monetizing debt (financing government spending) to meet our obligations. Unless, of course, we can grow the economy to keep up with the pace of deficit spending. But, here’s the deal. This week’s debt ceiling increase (which may turn out to be yet another temporary fix) came in at 2.1-2.4 trillion to a jaw-dropping 16 trillion . We’ve raised U.S. debt ceilings before. What makes this one uncomfortable is that it puts the U.S. that much closer to the 100 percent threshold of debt to GDP, and that’s a drag on the economy. Historically, this ” shaves about one percentage point off GDP, which was just 1.3 percent for the second quarter and 0.4 percents for the first quarter. ” With the weight of big debt, the “heavy lifting” to grow the economy, to create jobs, becomes all the more arduous. As if back-to-back days of U.S. stock market declines weren’t enough this week ( culminating in a 500 point Dow plunge on Thursday), the jobs picture remains murky. This week, the unemployment rate showed a slight improvement to 9.1 percent from 9.2 percent. But, if one looks beyond to the increase — in the discouraged no longer searching — the unemployment picture looks dismal. What’s this all saying? We can’t expect quick fixes to problems formed over decades. Tempting as they may be, within an age of instantaneity. I keep coming back to structural changes needed. Note that the financial crisis (and the most recent explosion in debt it created) came on the heels of already multi-decade long trends that chiseled away at jobs — conglomeration, globalization and technological automation. Running an economy, in part, on financial bubbles, particularly in the last decade, masked the underlying reality of the job market. Yes, we need growth and jobs. How do we do this within the economy we’ve created over decades? Where on the horizon is the sustainable revenue bedrock, the growth that will move us forward? Amidst the brouhaha , the numbers, let’s not forget the very human. Is there a point at which debt and debt service crowds out life and living? Or, is life about growing and working to achieve happiness, fulfillment and harmony as a society?

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U.S. Downgrade Heralds A New Financial Era

August 6, 2011

There will be endless debate on whether S&P, the rating agency, was justified in stripping America of its AAA rating and — adding insult to injury — even attaching a negative outlook to the new AA+ rating. But this historic action has now taken place, and the global system must adjust. There are consequences, uncertainties, and a silver lining.

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Moisés Naím: The Clash of the Middle Classes

August 5, 2011

The main cause of coming conflicts will not be clashes between civilizations, but the anger generated by the unfulfilled expectations of a middle class, which is declining in rich countries and booming in poor countries. “The clash of civilizations,” the theory popularized by Samuel Huntington in the early 1990s, maintains that once the ideological confrontation between communism and capitalism is over, international conflicts will arise between countries with different cultural and religious identities. “The clash of civilizations” will dominate global politics. “The fault lines dividing civilizations will define the frontlines of the future,” he wrote in 1993. For many, the attacks by al Qaeda and the wars in Afghanistan and Iraq confirm this view. As we now know, however, what has happened is that conflicts have been more within civilizations than between them. Pious Islamic terrorists have killed far more innocent Muslims than anyone else. And the battles between Shiites and Sunnis continue to cause the majority of Muslim casualties. In my opinion, a far more important source of friction than clashes between cultures or religions will be the changes in living standards of the middle classes in both rich and poor countries. In the former the middle class is shrinking, while in the latter it is swelling. These changes lead to thwarted and unfulfilled expectations — both feed social and political instability. Poor countries experiencing rapid economic growth now have the largest middle class in history. This is true for Brazil and Botswana, China and Chile, India and Indonesia, and many other nations. According to the World Bank, between 2006 and today, 28 formerly “low-income countries” joined the ranks of what it calls “middle-income” ones. Their new middle classes may not be as prosperous as their counterparts in developed countries, but their members now enjoy an unprecedented standard of living. Meanwhile, in countries like Spain, France, or the United States the status of the middle class is going from bad to worse. In more than 1.3 million Spanish households , all the members of working age are unemployed. Only 8 percent of French believe that their children will have a better life than them. In 2007, 43 percent of Americans claimed that their salaries were only enough to make ends meet. Today, 61 percent admit this. On the other hand, the frustrations due to the unsatisfied aspirations of the middle class in China and Brazil are as politically explosive as the anger over the new economic insecurity of the middle class in Italy, Spain, or Greece. Governments in the poorer countries are under enormous pressure to meet the booming demands of the new middle class while those of the richer nations are struggling to contain the fall in living standards of the existing bourgeoisie. Inevitably, some politicians in developed countries are blaming the economic decline on the rise of other nations. The assertion that job losses or stagnant wages in the United States or Europe are due to the expansion of China, India, or Brazil are common. These claims will continue and even intensify as the crises deepen even if the best available research concludes that these are unfounded accusations. The data show that lower wages or job losses in developed countries are not due to the rapid growth of emerging economies, but mostly to technological change, anemic productivity, or tax policy and other domestic factors. On the other hand, in poor countries, the new middle class which has increased its consumption of food, clothing, medicine, and housing, now demands better schools, cleaner water, better hospitals, more convenient transportation and all kinds of public services. Chile, for example, is one of the most economically successful and politically stable countries in the world and its middle class has been growing consistently. Yet, street protests demanding improvements in public education are regular occurrences. Chileans do not want more schools, they want better schools. And for all governments it is far easier to build a school than to improve the quality of teaching. In China, there are thousands of demonstrations every year to demand more or better public services. In Tunisia, recent riots expressed the impatience of the people who overthrew the regime of Ben Ali, despite the fact that the country boasted the best economic performance in North Africa. No government can adequately meet the new demands of a booming middle class at the same speed at which they occur. And no government can survive the fury of a once prosperous middle class that sees its situation worsening daily. The political instability caused by these frustrations is already visible in many countries. Its international implications are not yet so obvious. But they will be. Moisés Naím is a senior associate in the International Economics Program at the Carnegie Endowment for International Peace. He tweets at @moisesnaim.

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Jared Bernstein: A Better-Than-Expected-Though-Still-Pretty-Weak Jobs Report

August 5, 2011

The nation’s payrolls increased by 117,000 last month, with the private sector posting a stronger gain of 154,000, its best month since April. Job gains for May and June were revised up by a combined 56,000, and hourly wages got a decent bump, up 0.4% over the month. The unemployment rate ticked down slightly, from 9.2% to 9.1% but that decline was due to fewer people looking for work, not more people finding jobs (note that the payroll data and the unemployment data come from different surveys). The share of the population working-a good proxy for employers demand for workers-also ticked down slightly, to 58.1%, the lowest rate since July 1983-28 years ago! Still, the job and wage gains were better than expected and such expectations matter a lot right now. Fear feeds fear in this hyper-skittish market environment, and today’s jobs numbers should help calm some jittery nerves and dampen some destructive volatility. Of course, gains of this magnitude along with what is really an unfavorable result on the unemployment rate — it doesn’t help if it falls because more people give up their job search — don’t change the overall story one bit. The economy is growing, but much too slowly to provide working families the jobs, hours or work, and paychecks they need to get ahead. To see this more clearly, it’s useful to average over the past three months, in order to smooth out some of the statistical noise in these monthly data. If you do so, you get average monthly private sector gains of 111,000 over the past three months, compared to 240,000 over the prior three months, so no question that employment growth has sharply slowed. One important negative trend continues unabated in today’s data: the loss of state and local jobs, as budget constraints, no longer offset by federal help, continue to force layoffs. States, cities, and towns laid off 39,000 workers in July (though this loss was largely due to the temporary government shutdown in Minnesota last month) and 340,000 over the past year. Update: First, someone asked me this morning, “wouldn’t it have been better if the jobs report were terrible, so as to force policy makers to do something?” I don’t think so. Even after yesterday’s crash and the spate of weak reports — and this jobs report is really not that much better, by the way — I seriously doubt a worse report would have moved these folks, and frankly, we really need the jobs. The federal government right now is like a fire truck outside a burning building, with the firefighters leaning on the truck looking at the flames and saying, “what a shame… too bad we can’t help.” And don’t try to tell me they can’t help because they don’t have any water in their tanks… they do, and they can borrow more at very low rates right now. At this point, the best way to reduce the deficit is to get more people back at work, earning paychecks and paying taxes. Second point: I noted in my earlier post that state and local employment continues to tank. Though this month was made worse by the partial state government shutdown in Minnesota — hey, state legislators do the self-inflicted wound thing too! — the long-term trend is clear, and in stark contrast to the private sector jobs trends (state/local employment is on the right axis). Private sector job growth is too slow, as I noted earlier, but at least its moving the right way. (Graphic by CBPPs Hannah Shaw) This X is a function of the fact that states and towns are still cutting and laying off teachers, cops, sanitation workers, etc., because they must, by law balance their budgets. Two lessons here: 1) they need federal help, and 2) that line going down: this is your job market on a balanced budget amendment, another great Republican idea. This post originally appeared at Jared Bernstein’s On The Economy blog.

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10 Worst Single-Day Drops In Dow Jones History

August 5, 2011

The Dow Jones Industrial average fell 513 points, or 4.3 percent, on Thursday, making it the worst single-day drop since the depths of the financial crisis. The blame, at least in part, falls on a slew of dismal economic data, along with impending government spending cuts and the Euro debt crisis. Still, despite the severity of the drop, Thursday’s fall barely cracks the top ten largest total point drops in history. And in terms of percentage decline, Thursday is nowhere close to the darkest day on Wall Street. On October 19, 1987, for example, the Dow sank an entire 22.6 percent, despite falling by less than Thursday’s point total, because it represented a larger portion of the index’s total points at the time. Here are the ten biggest point drops of the Dow Jones Industrial Average counting back to 1899, according to the Associated Press:

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Senate Votes To End FAA Shutdown

August 5, 2011

WASHINGTON — The Senate has approved legislation ending a two-week partial shutdown of the Federal Aviation Administration, clearing the way for furloughed employees and airport construction projects to resume. Two senators were present to approve a House bill extending FAA’s operating authority, using unanimous consent procedures that took less than 30 seconds. Employees can return to work as soon as Monday if President Barack Obama signs the bill before then. The shutdown has cost the government about $400 million in uncollected airline ticket taxes and idled thousands of construction workers. THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below. The Senate is poised to pass legislation ending a two-week partial shutdown of the Federal Aviation Administration that has cost the government about $400 million in uncollected airline ticket taxes and idled thousands of workers. A bipartisan compromise reached Thursday cleared the way for the Senate to approve a House bill extending the FAA’s operating authority through mid-September, including a provision that eliminates $16.5 million in air service subsidies to 13 rural communities. Senators have scattered for their August recess, but the measure can be approved Friday if leaders from both parties agree to adopt it by “unanimous consent.” FAA employees could return to work and payments for airport construction projects could resume as soon as Monday if President Barack Obama signs the bill over the weekend, transportation officials said. Republicans had insisted on the subsidy cuts as their price for restoring the FAA to full operation. But bill also includes language that gives Transportation Secretary Ray LaHood the authority to continue subsidized service to the 13 communities if he decides it’s necessary. Democrats said they expect the administration to effectively waive or negate the cuts. The shutdown began when much of Washington was transfixed by the stalemate over raising the government’s debt ceiling. During that time, the FAA furloughed 4,000 workers but kept air traffic controllers and most safety inspectors on the job. Forty airport safety inspectors worked without pay, picking up their own travel expenses. Some 70,000 workers on construction-related jobs on airport projects from Palm Springs, Calif., to New York City were idled as the FAA couldn’t pay for the work. But airline passengers in the busy travel season hardly noticed any changes. Airlines continued to work as normal, but they were no longer authorized to collect federal ticket taxes at a rate of $30 million a day. For a few lucky ticket buyers, prices dropped. But for most, nothing changed because airlines raised their base prices to match the tax. Some passengers will now be eligible for tax refunds if they bought their tickets before July 23 and their travel took place during the shutdown. As the debt ceiling crisis passed and Congress headed home for its August recess without resolving the standoff, Obama spoke out Wednesday and LaHood urged Congress to return to deal with the issues. Obama expressed dismay that Congress would allow up to $1.2 billion in tax revenue to go out the door – the amount that could have been lost by the time lawmakers return in September. Senate Majority Leader Harry Reid announced the deal Thursday afternoon, saying it would put 74,000 transportation and construction workers back to work. “This agreement does not resolve the important differences that still remain,” said Reid, D-Nev. “But I believe we should keep Americans working while Congress settles its differences, and this agreement will do exactly that.” Republican Sen. Tom Coburn of Oklahoma won’t attempt to block passage of the bill when it comes up on Friday, spokesman John Hart said. Coburn blocked several attempts by Democrats to pass an extension bill without the subsidy cuts. The partisan standoff that led to the shutdown began last month when Rep. John Mica, R-Fla., the chairman of the House Transportation and Infrastructure Committee, signaled his intention to attach the subsidy cuts to a bill to extend the FAA’s operating authority through mid-September. The agency has been operating under a series of 20 short-term extensions since 2007, when the last long-term FAA funding bill expired. Senate Democrats complained that Republicans were breaking with precedent by using an extension bill to enact policy changes that hadn’t been agreed upon. Even Republican Sen. Kay Bailey Hutchison of Texas called the measure a “procedural hand grenade.” Senators refused to pass the House bill, saying to do so would be giving into legislative blackmail and inviting Republicans to up the ante on the next extension bill. Obama, who had scolded Congress on Wednesday for not solving the standoff, expressed relief. “I’m pleased that leaders in Congress are working together to break the impasse involving the FAA so that tens of thousands of construction workers and others can go back to work,” Obama said in a statement. Both the House and Senate passed long-term funding bills for the FAA earlier this year, but negotiations on resolving differences and finalizing those bills are stalemated. The biggest holdup is a labor provision in the House long-term bill. Republicans want to overturn a National Mediation Board rule approved last year that allows airline and railroad employees to form a union by a simple majority of those voting. Under the old rule, workers who didn’t vote were treated as “no” votes. “The House has made it clear that the anti-worker piece is a priority for them and they also put us on notice that they don’t intend to give in,” said Vince Morris, a spokesman for Sen. Jay Rockefeller, D-W.Va., chairman of a committee that oversees FAA. “So we are bracing for a new fight in September.” Communities targeted for the proposed air service subsidy cuts are Morgantown, W.Va.; Athens, Ga.; Glendive, Mont.; Alamogordo, N.M.; Ely, Nev.; Jamestown, N.Y.; Bradford, Pa.; Hagerstown, Md.; Jonesboro, Ark.; Johnstown, Pa.; Franklin/Oil City, Pa.; Lancaster, Pa.; and Jackson, Tenn. ___ AP White House Correspondent Ben Feller contributed to this report.

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Paul Krugman: Economy Was Never ‘On The Road To Recovery’

August 5, 2011

In case you had any doubts, Thursday’s more than 500-point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things.

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David Woolner: Forgetting Lessons of Keynes and FDR Brings On the ‘Obama Recession’

August 5, 2011

When FDR ignored the Keynesian tenet that cutting spending in a downturn spells disaster, he paid dearly. Obama is set to relearn this lesson the hard way. “The economic experiments of President Roosevelt may prove, I think, to be of extraordinary importance in economic history, because for the first time — at least I cannot recall a comparable case — theoretical advice is being taken by one of the rulers of the world as the basis of large-scale action. The possibility of such a remarkable event has arisen out of the utter and complete discredit of every variety of orthodox advice. The state of mind in America which lies behind this willingness to try unorthodox experiments arises out of an economic situation desperate beyond precedent.” ~John Maynard Keynes, January 1934 Just under three quarters of a century ago, a group of conservative economic advisers close to Franklin Roosevelt informed the President that they were worried about the rapid rate of growth in the U.S. economy. Since 1933, when FDR took over at the height of the Great Depression, the economy had been expanding steadily, at an average rate of 14 percent per year. Schooled as most of these advisors were in the tenets of economic orthodoxy (which called for cuts in spending during an economic downturn), and unsure of the effects of the Keynesian-style deficit spending that the administration had been engaged in under the terms of the early New Deal, the President was advised to cut the budget, reduce deficit spending and tighten the money supply as a means to stave off inflation. Heeding their word (and no economist himself), FDR did just that. The results were an unmitigated disaster. Thanks to the Administration’s decision to move away from the increasingly Keynesian policies it had been following — policies that saw the unemployment rate fall from a high of 25% in 1933 to 14% by 1937 — FDR launched one of the sharpest economic downturns in American history — the so-called ” Roosevelt Recession ” of 1937-38. In just a few short months, the GDP declined by 13 percent; industrial production by 33 percent; wages by 35 percent and an estimated four million people lost their jobs. No fool, FDR quickly reversed himself and went back to Congress to seek a massive stimulus bill to put people back to work and repair the damage to the Depression-era economy. Within three months growth had returned and the economy was back on track. FDR only met John Maynard Keynes once during the 1930s, and after their 1934 meeting both men expressed a certain ambivalence about the other (Keynes said FDR did not know much about economics and Roosevelt said with all of his “numbers” Keynes struck him as more of a mathematician than an economist). But the lessons FDR drew from the 1937-38 recession were clear: cutting federal spending and tightening the money supply in the midst of a deep economic crisis were bad ideas and from this point on his administration pursued economic policies that can only be described as unabashedly Keynesian. FDR may never have publicly embraced Keynes’s theories, and in fact preferred to call his subsequent use of massive government borrowing and spending “compensatory fiscal policy,” but the two concepts were virtually identical. Spurred along by this change of heart and by the growing demands to increase defense spending to meet the challenges of World War II, the federal government borrowed 100s of billions of dollars in the late 1930s and early 40s, while at the same time government expenditures — i.e. stimulus — reached record levels. By the time the United States was fully engaged in the war, federal spending accounted for more than half of the country’s Gross National Product, business was booming and the scourge of unemployment had all but disappeared. And what were the long-term consequences of all of this borrowing and spending? Economic chaos? A sovereign debt and default crisis? No, what followed was more than three decades of postwar economic expansion and the creation of perhaps the best paid and best educated work-force America had ever seen. The modern middle class was born. In the past two years we have heard official after official claim that they do not want to repeat “the mistakes of the Great Depression.” Yet the recent behavior of both the Obama Administration and senior members of Congress belies this claim. Rather than fight for economic policies that would stimulate the economy and put people back to work, this Administration — and even many senior democratic party officials — have chosen to ignore the lessons of the past. Instead of focusing on jobs and growth — the real crisis in our economy — they have embraced the sky-is-falling rhetoric of the Republican Party extremists. These fear mongerers and obstructionists have convinced millions of Americans and virtually the entire US media that the key to economic recovery is to slash federal spending. The Administration’s championing of the 39 billion in cuts to the 2010-2011 budget and the recent debacle over the debt ceiling — with an agreement that does nothing to stimulate the economy — are but two sorry examples of this phenomenon. In 1937 FDR paid a heavy political price for his decision to turn away from Keynesian economics. The democrats lost seats in the 1938 election and FDR’s ability to push through further fundamental reforms in Congress was severely limited from this point forward. Worse still, millions of Americas suffered from the sudden economic downturn that came as a result of these ill-timed and unnecessary cut-backs. President Obama sells the Budget Control Act of 2011 as a victory for the American people; as an important “first step” in solving the “deficit crisis.” But he has missed a fundamental point: the most effective way to reduce the federal deficit in the long-term is to spur economic growth in the short-term. He also seems to have lost sight of the fact that the real crisis we face is that roughly 26 million Americans are either under employed or out of work. This national tragedy could be greatly alleviated by a return to the Keynesian economic policies temporarily abandoned by Franklin Roosevelt three quarters of a century ago. But neither the President nor his colleagues in Congress appear to have the desire or political will to resist the incessant Republican demands to cut spending no matter what the cost to the American people. It is sad to think that history may be repeating itself. But the apparent decision of this administration to embrace cuts over spending may soon lead the President down the same path that FDR took in 1937. Only this time the “Obama recession” of 2011-2012 will most likely cost the current president his job. Cross posted from New Deal 2.0 .

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Peter S. Goodman: Stock Plunge: A Storm Cloud In The Shape Of Tim Geithner

August 4, 2011

Maybe the stock market freaked out at the talk that Treasury Secretary Tim Geithner is sticking around for more. Stock market movements are, of course, like the shapes we see in the clouds. You can tell whatever story you like, assign whatever characteristics seems fitting, and no one can prove you wrong. But what is clear about the 513-point dive suffered by the Dow Jones Industrial Average on Thursday is what it most certainly was not: An affirmation of the happy state of the economy, or a vote of confidence that those in power in Washington have a plan to improve our national fortunes. Whatever the market had on its mind, it was not happy about it. Recent days have featured a ceaseless barrage of uncomfortable data attesting to an abrupt slowdown on the American factory floor, the resumption of a pullback in consumer spending and fresh claims for unemployment insurance at a level that suggests continued retrenchment. And the glum sense of stagnation seems to stretch on as far as the horizon. Of most immediate concern: the government’s report on the July job market, to be released Friday morning. Most economists expect a slight improvement from the last couple of months, with the economy adding somewhere in the order of 100,000 net jobs. But that is not enough to absorb even new entrants to the labor force, let alone sufficient to dislodge the sense that the economy has no engine for growth. Longer-term, prospects appear awful, with serious economists now debating the likelihood of a double-dip recession , and some assuming that a Japan-style Lost Decade may now be an inescapable experience. Earlier in the week, as President Obama assented to slash government spending to trim the federal budget deficit, Treasury Secretary Geithner said this would restore “confidence” to the market, indulging a word with mystical powers among econ-geeks. But the Confidence Genie has yet to emerge from the bottle, and the market keeps recoiling. The less mystical factors are too big to ignore: Not enough Americans have money to spend, making government a crucial source of what spending takes place. And the government just agreed to take $2 trillion-plus out of the economy over the next decade. In some sense, the economic population has been consolidated. Workers and consumers were once two separate groups of people. Until the Great Recession, spending and wages traveled on two different tracks. Even if your wages were inadequate to finance your needs and desires — electronic gadgets, groceries, education for your children — there were other ways to make the payments, not least borrowing against your home. But in a time when being underwater does not mean enjoying the shore, workers and consumers are now the same people. And worker-hood is generally not a great place to be these days — not with hours getting cut and anxiety about layoffs again on the rise. This is something that employers clearly understand, hence their unwillingness to hire. The question is whether anyone in Washington understands this dilemma, or is willing to focus on it in place of pandering to the usual interest groups as the 2012 presidential election jockeying takes shape. Austerity is the recipe for Republicans trying to argue that they cut spending and made the government smaller. Austerity is the ransom the administration just paid to prevent the Republicans from triggering an American default. Or maybe it’s much simpler than all that. Maybe investors woke up on Thursday, read in The New York Times report that Geithner is apparently staying and decided to put their cash in Mason jars. If Washington operated anything like the rest of the world, Geithner would be, as they say, pursuing his other opportunities in the private sector. As a primary architect of economic policy in the White House, he carries the stench of abject failure. He bet that protecting banks would put them in a magnanimous mood, and they would distribute capital to the real economy. This was the logic of a housing rescue program that has done little to help homeowners, while enabling banks holding second mortgages to pretend they still hold value, evading the necessary write-offs. Geithner has carried the torch on deficit reduction, a strategy that has failed to restore confidence anywhere — certainly not in the realm of household finances, and apparently not in high finance either. This is the story that seems to emerge from the rout in the marketplace on Thursday: Even the people who control money have figured out that the real economy has some influence over that pursuit. If no one can afford to buy anything, then there is less money to be made. And the people in charge of the government seem either unwilling to change, intellectually bankrupt or — much like the rest of the country — too shell-shocked to figure out what to do next.

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Susan Sipprelle: Citizens First, Consumers Second

August 4, 2011

As we head toward the end of the week when the government will release July’s employment data, the economy, we now know, grew only 0.4 percent in the first quarter of 2011, rather than 1.9 percent, as reported previously. Overhanging this dismaying news, the acrimony of the debt ceiling crisis lingers in the Washington atmosphere. Clearly, the Great Recession, declared at its end in June 2009, is ongoing in its impact and aftershocks. At least 15 million Americans remain unemployed, and approximately three million of the jobless are 50-plus. Since early 2010, filmmaker Sam Newman and I have used video to chronicle the stories of 100 unemployed older Americans in a multimedia documentary project, Over 50 and Out of Work . This data comes from the Bureau of Labor Statistics Employment Status of the civilian non-institutional population by age, sex and race and from our interview with Professor Andrew Sum . Although older workers were able to hang onto their jobs more successfully than younger workers during the economic downturn, those who were laid off now face a much harder time getting back to work. The duration of unemployment for older workers is about one year, which is longer than this age group has ever previously experienced and longer than the average time out of work for any other demographic. Also, less than half of the older workers who lost their jobs have been able to return to work, a lower success rate than achieved by any other age group over the past two years. Nevertheless, when the national unemployment rate (which does not reflect the underemployed or those who have dropped out of the labor force) is stuck above 9.0 percent, many Americans of all ages are suffering. “There is a major disconnect between the reality of American labor markets and the leadership that we’re getting from both political parties in the United States at this point in time,” said Andrew Sum, director of the center for labor market studies at Northeastern University. The persistent impact of the Great Recession is not caused by structural unemployment, Sum stressed. Rather, the economy is not growing. It is not creating enough jobs and, for the first time in U.S. history, nearly all the productivity gains are going to corporations, rather than to workers. If you compare average income in the United States to other countries over the past 20 years, we rank first, Sum said. But if you remove only the top one percent of wage earners, the United States drops to the middle of the distribution, exposing growing American income inequality that is exacerbated by high levels of unemployment. He said conservatives like to call the current situation structural because the label implies that the government cannot help create jobs by stimulating the economy. On the other hand, liberals like to believe that additional training will solve the problem of unemployment, but Sum said, workers’ lack of skills is not the issue — there simply are not enough jobs. It has been widely reported that there are more than five unemployed workers for every available job, but the center’s research reveals that statistic is misleading. When seasonal and part-time job listings are culled out, the result is eight workers seeking every year-round, full-time job, and in some industries, the ratio is even worse. There are 15 blue-collar production and 25 construction workers to each available job in their respective industries. Sum’s back-to-basics advice to kick start job creation is straightforward. First, require government-funded projects to have 80 to 90 percent domestic content to guarantee that jobs stay in the United States. Second, reward companies that create domestic jobs with tax incentives. Third, Americans should purchase products made in the United States to help promote domestic job retention and growth. As we have traveled around the country, many of our Over 50 and Out of Work interviewees have suggested remedies for our economic woes similar to Sum’s proposed policies. “Myself, I would pay a little bit more if I knew it was made in the United States,” said David Board, 51, steelworker from Weirton, W.V. Sum argues that other countries view it as loyal to purchase goods made domestically and not in their best interest to buy products manufactured abroad. In contrast, Sum said, the United States has adopted an “open global mind” that has killed the American worker. In order to retain and create U.S. jobs, we should reorder our priorities. We should be citizens first, making sure that all Americans have opportunities to work and thrive. We should be consumers second. The goal of buying all goods at the cheapest possible price not only comes at the expense of domestic jobs, it also promotes the loss of American innovation and technological knowledge. We have emphasized short-term consumerism over long-term sustainable growth shared by the entire population.

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How Washington Took U.S. To The Brink In Debt Fight

August 4, 2011

WASHINGTON (Reuters) – The world’s largest economy was headed toward an unprecedented default, and all Washington wanted to talk about was the manner in which the president had left a room. A White House meeting in mid-July between President Barack Obama and congressional leaders had ended with sharp words as Obama clashed with the brash Republican House majority leader, Eric Cantor. Now Cantor was back on Capitol Hill, dishing details to a scrum of reporters — a shift from the terse, vague statements that usually followed such meetings. “He said to me, ‘Eric, don’t call my bluff. I’m going to the American people with this,’” Cantor said in his Southern drawl. “I was somewhat taken aback.” Republican aides filled in the gaps. Obama had “stormed out of the room,” one said. At the White House, aides pushed back. One official demonstrated to reporters exactly how Obama had ended the meeting — lightly pushing his chair back from the table, standing up deliberately, walking away calmly. “He didn’t storm out. He just got up and walked into his office,” one said. That evening — July 13, 2011 — was one of the lowest points in the struggle to avert fiscal disaster and put the nation’s budget on a sustainable path. Congress needed to extend the country’s $14.3 trillion debt ceiling before Tuesday, August 2, the date the Treasury Department would begin running out of cash to cover the country’s bills. But Republicans and Democrats were deadlocked. INSIDERS UNITE As the deadline drew closer, the two sides abandoned a series of efforts to reach agreement, searching for the right combination of policies and personalities to get a deal done. In the end, it fell to two consummate Washington insiders to prevent the talks from collapsing. A Reuters examination of the months-long showdown over the debt ceiling found that: * Vice President Joe Biden and Senate Republican Leader Mitch McConnell emerged as critical players in the final stretch of the talks, as theirs was the only cross-party relationship built on decades of trust. * Despite a belief among many rank-and-file Republicans that the government could muddle through a default, party leaders never doubted the Treasury Department’s warnings that economic catastrophe was a real possibility if they didn’t reach a deal by August 2. * Although House of Representatives Speaker John Boehner, the top U.S. Republican, was eager to strike a bold deal with Obama, it was ultimately necessary for Boehner to distance himself from the White House to convince his House Republicans to back the final deal. * The business community played an important behind-the-scenes role, with two White House foes — Wall Street and the Chamber of Commerce — rallying support for a compromise backed by Obama. This account of America’s journey to the brink of default is based on interviews conducted over the past six weeks with dozens of elected officials, business lobbyists and aides in the House, the Senate and the White House. A ZEAL FOR CUTS The U.S. congressional elections in November 2010 set the stage for confrontation over the congressionally mandated cap on the outstanding total of federal government borrowings. Republicans had harnessed voters’ anxiety over the economy and soaring deficits to capture the House of Representatives. Accusing Obama of overreaching with his stimulus package in 2009 and his drive for healthcare reform, Republicans vowed to slash spending and rein in the federal government’s size. A campaign document — the “Pledge to America” — promised to cut spending by $100 billion in the first year alone, back to the levels in place in Republican President George W. Bush’s last year in office. The newly elected Republicans, 87 in all, were not interested in compromise. Many felt a greater obligation to the grassroots Tea Party activists who had sent them to Washington than to the party elders who ran the place. In a budget fight with the Democratic-controlled Senate that took the government to the brink of a shutdown in April, Republicans managed to cut spending by $38 billion, the largest domestic cut in U.S. history. Still, 59 House Republicans voted against the bill because it did not go far enough. BOEHNER’S BATTLELINES That was a mere skirmish. The big battle lay ahead as the government was fast running up against its $14.3 trillion credit limit and would need Congress to raise it further. In early May, Boehner laid out his conditions for a debt-ceiling increase: spending cuts would need to exceed the amount of new borrowing authority. Instead of billions of dollars, the debate would be measured in the trillions. It would be a chance for Boehner to show his new troops that he could use the levers of Washington to get results. An avid golfer and a chain-smoker, the 61-year-old Boehner is from an older generation than many of the Tea Party conservatives whose election to Congress made it possible for him to become House Speaker. The seasoned legislator and former businessman grew up in Ohio from a family of modest means and worked as a janitor to help put himself through college. Obama, 49, had a comfort level with fellow Midwesterner Boehner despite their philosophical differences. The speaker reminded the president, a former state senator from Illinois, of Republican legislators he used to play poker with in Illinois and with whom he forged bipartisan deals. Both men are even-tempered and view themselves as Washington outsiders. Each has ambitions of transforming Washington and making a big mark on policy. Those aspirations drove their on-again, off-again talks aimed at a far-reaching, bipartisan “grand bargain” that would put the United States on sounder fiscal footing for years to come. On a golf outing in mid-June, the two agreed to work together on a broad deficit-reduction deal. “Let’s give it a try,” Obama told the speaker. The following week, at a secret White House meeting, they agreed to have their staff draw up options. The aim was to craft a plan that would cut deficits by roughly $4 trillion over 10 years. A ‘GRAND BARGAIN?’ The challenges were steep. Democrats would have to agree to rein in cherished social programs like the Medicare health plan for retirees and the disabled. Republicans would have to accept a tax-code overhaul that would increase revenues through the elimination of tax breaks and deductions. Boehner’s enthusiasm for the “grand bargain” was not shared by his colleague, Senate Republican leader Mitch McConnell. McConnell had confided to Vice President Joe Biden that he thought it was unrealistic to try to accomplish such a sweeping deal in the weeks before August 2 deadline. The Senate Republican leader worried it would lead to a dead end when pressure was building to resolve the debt-limit standoff. Rating agencies were warning they might downgrade the country’s top-notch credit score and, while there was no sign of panic yet in financial markets, investors were growing nervous. McConnell, 69, had served in the Senate since 1985 and witnessed firsthand the divided-government battles of the 1990s, when Republican House Speaker Newt Gingrich and an earlier generation of firebrand conservatives went toe-to-toe with Democratic President Bill Clinton. MEMORIES OF 1996 That confrontation led to a shutdown of the federal government and provoked a public backlash against Gingrich and his party. With the Republican brand tarnished, Clinton sailed to re-election in 1996. McConnell, whose party is a minority in the closely divided Senate, viewed the 2012 elections as a chance to gain dominance in the chamber. He feared the debt-limit fight would put that in jeopardy while also bolstering Obama’s re-election prospects. If Treasury Secretary Timothy Geithner’s warnings were right — and both McConnell and Boehner believed they were despite skepticism among their rank-and-file — the fallout from a debt default would be calamitous, causing stocks and the dollar to sink and interest rates to surge. Mortgage rates and business borrowing costs would spike, potentially sending the economy into another recession. That would mean Republicans — whom Democrats had accused of intransigence over the debt limit — would share in the blame for the economy’s woes and suffer voter wrath as a result. Many in the White House viewed McConnell as more of a tactician than a visionary and someone more focused on party politics than on setting policy. In the quest for a grand bargain, Boehner would make a better partner, they thought. But in the end, after Boehner twice broke off talks with the White House, administration officials relied heavily on McConnell as an emissary to the speaker, and came to view him as a crucial player. A BOND BETWEEN RIVALS The administration’s chief link to McConnell was Biden, 68, a 36-year veteran of the Senate with rock-solid Democratic credentials who nonetheless had a strong rapport with the Republican leader. The two seemed to speak the same language from their years in the Senate together. Their bond grew closer when they worked together on a tax-cutting deal just before Christmas late last year, according to people who know both men. “C’mon Mitch, you know what I’m dealing with here,” Biden would sometimes tell McConnell — Senate-speak to describe the pushback he would face from Democratic Party activists if he gave too much ground. According to a former Biden aide, McConnell seemed to appreciate that Biden understood the GOP leader faced similar constraints within the Republican Party. In April, Obama tapped Biden to lead a panel of lawmakers that would lay the groundwork for a deal. In an ornate corner room just off the Senate floor, the group pored through stacks of government and private-sector reports to identify more than $1 trillion in mutually acceptable spending cuts. As the talks stretched into June, Biden gradually built up a rapport with Cantor, the House majority leader, who was leading the Republican side. REPUBLICAN RIFT In less than 10 years in Washington, Cantor had quickly climbed to the top rungs of Republican leadership. But his sharp elbows had earned him enemies — some from within his own party. He and Boehner had a cool relationship, say people who know both lawmakers. The rift extended into the lobbying community, where Republicans identified themselves as “Boehner people” or “Cantor people.” At the end of June, Cantor abruptly walked out of the Biden talks, saying the two sides could not agree on taxes. The “principals” — Obama and Boehner — would have to take it from there. Even before the Biden talks began, members of Boehner’s office dismissed them as political theater. “This thing will ultimately get decided by Boehner and Obama,” a Boehner aide said. After weeks of back-channel negotiations with Obama, Boehner decided on July 22 that he could not work with the White House and would have to forge a deal with Democrats on Capitol Hill. The two sides had come tantalizingly close to a deal, but stumbled again over the tax question. Boehner felt the White House had shifted the goalposts at the last minute. White House officials believed Boehner’s departure stemmed from an unwillingness — or an inability — to take on the conservative rebels in his party. If Boehner had been willing to shake hands publicly with Obama on a “grand bargain,” they said, there would have been a way to woo enough mainstream Republicans and Democrats to pass the bill. They also disagreed with any suggestions that they had shifted the goalposts. ‘A BOWL OF JELL-O’ “Dealing with the White House is like dealing with a bowl of Jell-O,” Boehner said angrily at a press conference that night. Obama called him back to the White House the following day and told him he should not be left out of the process. “Mr. President, as I read the Constitution, the Congress writes the laws. You get to decide if you want to sign them,” Boehner responded, according to his aides. The action moved back to Congress. Like the deal that Boehner and the White House had abandoned, the latest plan would separate the relatively easy decisions — curbs on annual discretionary spending — from the difficult reforms to benefits and the tax code. It wasn’t the “grand bargain” Obama and Boehner had sought, but it would deliver trillions in savings and cover the nation’s borrowing needs past the November 2012 elections. There was one catch. The plan would require another debt-ceiling vote in a few months to ensure Congress would sign off on the second set of savings, and Obama had already ruled that out. Around 10 p.m., on Saturday, July 23, Obama called Boehner to tell him he would veto the bill if it reached his desk. But he suggested that they could find another way to ensure Congress would actually follow through with the tax and benefit changes envisioned by the plan. GOING SEPARATE WAYS Congressional staff continued work on the plan the next day. Boehner told Fox News he would press ahead with his own legislation if the two sides could not agree. With no progress made on the enforcement mechanism, known as a “trigger” in Washington-speak, that appeared to be the case. Boehner told Republicans he would unveil his version of the plan on Monday, July 25, while the Democratic leader of the Senate, Harry Reid, decided to advance a rival plan. Another effort had failed. The final week would put Boehner’s leadership to the test. Boehner unveiled his plan to Republicans that Monday in a meeting room in the bowels of the Capitol. It wouldn’t tie a debt-limit increase to the balanced-budget constitutional amendment, as many of them wanted, but it would deliver more than $2 trillion in savings. A vote was set for Wednesday, July 27. Boehner launched a two-front lobbying blitz, alternating between in-person meetings with wavering lawmakers and phone calls to conservative media figures like talk radio host Rush Limbaugh and columnist Charles Krauthammer. On Monday night, he touted the plan directly to a national audience, as television networks granted him air time to respond to a prime-time speech by Obama. ‘READY TO DRIVE THE CAR’ Boehner’s rally continued on Tuesday morning at the Capitol Hill Club, a social club for Republicans. Boehner’s lieutenants took the lead. Cantor bluntly acknowledged that “the debt limit sucks.” Kevin McCarthy, the House Republican whip, or lead vote counter, showed a clip from “The Town,” a 2010 movie about bank robbers. “I need your help,” said a character played by Ben Affleck. “You can never ask me about it later and we’re gonna hurt some people.” “Whose car are we going to take?” asks another character. The message: it was time to get the job done, no matter how messy. The film clip appeared to win over at least one convert. Representative Allen West, an outspoken Tea Party-aligned freshman, stood up and shouted: “I’m ready to drive the car!” OBAMA’S UNLIKELY ALLIES But momentum shifted as the day wore on. Outside conservative groups like the Club for Growth and the Heritage Foundation urged a vote against the bill. At the White House, aides were batting away suggestions that Obama had been sidelined. “He’s working tirelessly, meeting with his economic team, doing a lot of outreach, exploring all opportunities for compromise,” said senior White House adviser Valerie Jarrett. Obama worked the phones, talking strategy with Democratic leaders and developing options for the final endgame. Jarrett, one of the administration’s envoys to the business community, said her phone was ringing off the hook with calls from retailers and other business owners worried about the prospect of another debt-limit fight in December if Obama was forced to accept Boehner’s two-step plan. The White House was also actively reaching out to the business community to spell out the dire consequences of a default. The administration found an ally in the Chamber of Commerce, a group traditionally aligned with Republicans, who now urged the party to back the bill. The financial services industry was also on the same page as the administration on this issue, despite its many skirmishes with the White House during the debate over Wall Street reform in 2010. JAMMED CIRCUITS In his public address on Monday night, Obama had implored Americans to intervene directly by calling, emailing or posting messages on Twitter to their lawmakers. Telephone circuits on Capitol Hill seized up, email messages bounced back and Web sites crashed under the load. The anxiety at the White House was building. “It’s fair to say that nobody here had any doubt that this was going to go right up to the line, even as we urged Congress not to take it right up to the line,” one administration official said. “That’s just the way Congress works.” Still, the path toward a deal was far from clear. Over at Treasury, Geithner was trying to figure out what to do if Congress failed to reach a deal in time. Should the government make debt service a top priority to prevent a meltdown on Wall Street? That could delay paychecks to soldiers, benefit checks to retirees, and payments to government contracts, sending ripples through the economy. Back at the Capitol, Boehner’s troubles mounted. Representative Jim Jordan, a leader of the Republican Party’s right wing, predicted Boehner wouldn’t get the votes he needed from his own party. Democrats united against his bill. The Congressional Budget Office, the official scorekeeper, said it would only deliver $850 billion in savings, rather than the $1.2 trillion it claimed. Late that evening, Boehner decided to rewrite the bill to make sure it complied with the party’s vow to extract spending cuts greater than the size of the debt limit increase. That put off a vote until at least Thursday. ‘FIRE HIM!’ The acrimony spilled into the open Wednesday morning, July 27, in the party’s basement meeting room. Representative Greg Walden, a Boehner ally, read aloud an email from a Jordan staffer that urged outside conservative groups to convince undecided members to vote against the bill. Many lawmakers in the room viewed the message as a betrayal of the Speaker. As the Jordan staffer stood uncomfortably against a wall, lawmakers chanted, “Fire him! Fire him!” The usually jovial Boehner turned the screws. “Get your ass in line,” he said. There was laughter, but the message was unmistakable. As the meeting adjourned, lawmakers predicted the bill would pass. But a large number remained on the fence. Boehner spent the day listening to their concerns — the cuts weren’t big enough, the special committee might raise taxes, the balanced-budget amendment has been watered down. Thursday morning, July 28: another meeting, another chance to rally the troops over fruit and doughnuts and signs that read “Play like a champion.” Representative Mike Kelly, an alumnus of Notre Dame University, drew upon his school’s storied legacy as he urged members to “put on your helmet, buckle your chin straps, run out onto the field and beat the shit out of your opponent!” Doubters like Jordan stayed silent. As the meeting adjourned, they told reporters that their opposition had not changed. With the rewritten bill ready to go, Republican leaders scheduled a vote for late Thursday afternoon. As debate started on the House floor, Boehner, Majority Leader Cantor and Whip McCarthy continued to meet with doubters, making the case that the party needed to stick together if it wanted an acceptable final product. At 5:25 p.m., the Republican troika abruptly yanked the bill from the House floor with only one minute left of debate. They didn’t have the votes. ‘BLOODY AND BEATEN’ As floor action turned to naming post offices, Boehner summoned the holdouts to his office just off the Capitol rotunda. Whatever he was doing wasn’t changing any minds. “I’m a bloodied and beaten ‘no,’” said Representative Louie Gohmert of Texas, one of several conservatives who had downplayed the consequences of a technical default, as he left the office. At the beginning of the year, Republicans had enacted a ban on earmarks, the pet spending projects that had come to symbolize waste and corruption in the public imagination. That meant that Boehner had fewer carrots to offer reluctant members — no highway overpasses. “It is the most refreshing thing in the world to see what is going on here. These kinds of negotiations a couple of years ago would have cost $20 billion,” said Representative Jeff Flake of Arizona, whose anti-spending stance had made him an outcast in the party in the past decade. The five Republicans who represent South Carolina headed from Boehner’s opulent suite to the Capitol’s small, private chapel to pray. As they knelt beneath a stained glass window depicting George Washington, they weren’t praying for guidance, just strength to maintain their stand. “I think divine inspiration has already happened. I was a ‘lean-no,’ now I’m a ‘no,’” said Representative Tim Scott. 19 BOXES OF PIZZA The action moved downstairs to McCarthy’s office. The jovial 46-year-old Republican whip, from California’s dusty interior, was a novice vote counter. He had presided over a few embarrassing setbacks earlier in the year. Now he was facing a true disaster. As the night wore on, 19 boxes of pizza from Al’s Pizzeria disappeared into McCarthy’s office. The holdouts weren’t looking for pork-barrel spending or other favors — though they didn’t refuse the pizza. Instead, they wanted to strengthen the balanced-budget clause. That would certainly doom the bill in the Senate, but at that point Boehner just wanted to get it out of the House. Even with that change, Boehner still appeared to be short of the 217 votes he needed. At 10:30 on Thursday night, the House adjourned without a vote. House Republicans met in their basement clubhouse again on Friday morning, July 29. The holdouts came under more pressure — this time from other rank-and-file members who said they were undermining the party’s negotiating position. But a final count showed that the votes appeared to be there. “I love you guys,” Boehner said in a moment of levity. The bill passed Friday evening on a vote of 218 to 210 — just one vote more than needed. The Senate defeated it two hours later, and the House retaliated on Saturday by defeating a proposal put forth by Harry Reid, leader of the Democratic majority in the Senate. Another week had elapsed, and Congress was no closer to consensus. While the legislative chess game played out, Biden called McConnell on Wednesday and Friday. MCCONNELL’S BOTTOM LINE Out of loyalty to Boehner, the Senate Republican leader had refrained from talks with the White House for most of the week. On Friday morning, McConnell told Biden there was “no daylight” between the two Republicans, but told the vice president to try later in the day. “Call me back after these votes and I will tell you what it will take to get my support,” McConnell said, according to a Republican aide. Biden and McConnell spoke again Friday evening and in the early afternoon on Saturday. Negotiations began in earnest around 3 p.m., after the House defeated Reid’s bill. Tuesday, August 2, was three days away. White House chief of staff Bill Daley’s office became Grand Central Station for a rolling series of meetings among White House staff. The meetings moved on Sunday to the vice president’s office and later to the Oval Office. On Saturday, Obama asked Biden’s chief of staff, Bruce Reed, whether his wife was angry that he was spending his wedding anniversary at the office. “Previously, I was on negative watch but I’ve now been officially downgraded,” Reed deadpanned. CLIMACTIC PHONE CALLS After months of high-profile meetings, nearly all of the negotiations on the final weekend took place by phone. In the big gatherings, participants tended to emphasize “talking points” because of the expectation that the conversations would spill out into the public. Smaller meetings allowed participants to cut to the chase, according to an administration official, and details could remain private. On Saturday night, a media report surfaced that there was a tentative framework for a deal. White House reporters seeking an update chased a top communications aide toward the Oval Office, only to be told later that the two sides had not arrived at a deal yet. Indeed, the negotiations ended up going down to the wire. At 5 p.m. on Sunday night, White House officials discussed whether Treasury Secretary Geithner should make a statement to the financial markets that evening or perhaps the following morning. GEITHNER’S GAME Geithner, in his former role as head of the Federal Reserve Bank of New York, was one of the chief financial firefighters during the global markets meltdown triggered by the collapse of Lehman Brothers in September 2008. Asian markets were about to open. The crisis had already roiled U.S. debt markets and taken a toll on the dollar and Wall Street stocks. Administration officials feared worse bloodletting if investors returned to their desks at the start of the week without clarity on whether there would be a deal. Geithner and a small team of aides had been quietly working on contingency plans in case Congress missed the August 2 deadline to raise the debt ceiling. Treasury had planned to brief markets on those plans no later than Monday. Private-sector analysts believed that in a worst-case scenario, Geithner would be prepared to tell markets he would put a priority on paying the government’s debt in order to avoid default — even if that meant taking the politically explosive step of delaying payments to Social Security recipients and others. PULLING THE TRIGGER But the Treasury secretary never had to show his hand. The final sticking point in the talks centered on the terms of the deficit-cutting “trigger.” Democrats wanted automatic cuts in military spending if Congress balked at the second round of deficit reduction. Biden and McConnell spoke four times on Saturday, five times on Sunday, circling around the two stumbling blocks that remained — the nature of the “trigger” and the size of the defense cuts that Democrats wanted. McConnell kept in contact with Boehner. On Sunday, July 31, there were less than two full days before Default Day. As Obama’s budget director, Jack Lew, crunched numbers on the Republican defense cut proposals, the White House feared it might not get a deal. Biden spoke with Boehner around 4 p.m. and said, “We just can’t get there.” McConnell floated a compromise to widen the trigger to all security-related programs — the State Department, veterans’ care, nuclear security — and not just the Pentagon. At 8:15 p.m. Sunday, Obama made a final call to Boehner as White House aides listened nearby. “Do we have a deal?” Obama asked. There was a moment of suspense, then: “Congratulations to you, too, John.” (Additional reporting by Richard Cowan, Rachelle Younglai, Laura MacInnis, Dave Clarke, Alister Bull and Jeff Mason; Editing by Jackie Frank) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Patrick Sharma: Can We Focus on Unemployment Now?

August 4, 2011

Although the debt ceiling imbroglio is finally behind us, hard times are ahead. Having avoided a potentially catastrophic default on the national debt, Washington has set the economy up for a painful few years, and without a major change of course, we can expect to see higher unemployment and slower growth in the near future. In recent days we have seen a lot of talk about the group of 12 legislators who will be charged with coming up with at least $1.2 trillion in deficit reduction over the coming decade, as well as the automatic triggers that will ensue if Congress fails to heed the recommendations of this “super committee” when it reports in the fall. But the most important part of the debt ceiling bill that President Obama signed on Tuesday, Aug. 2 is its plan for $1 trillion in spending cuts over the next 10 years. While many of these cuts won’t go into effect until after a new Congress is elected in 2012 (and, as such, might never come to pass), a significant portion are scheduled to take place within the next year and a half. This is a major problem, because austerity measures have the potential to throw the economy back into recession. As we learned during the Great Depression, cutting government spending in the midst of a downturn lowers aggregate demand and keeps businesses from expanding. This, in turn, depresses the economy and increases deficits in the long run. If this were not enough, it appears that many of the proposed cuts will come from Medicaid and education aid to the states . Combined with the fact that the bill fails to extend unemployment insurance or provide other forms of assistance for the growing number of jobless Americans, the debt ceiling “solution” will harm the most vulnerable members of society. And who’s to say we won’t see similar stunts over the coming years? Watching Republicans use an obscure legislative procedure to extract radical policy concessions will likely lead to more economic hostage-taking in the future. Unemployed Americans and our democratic system of government might not be the only victims of the debt ceiling debacle. Although the final bill was drastically skewed in Republicans’ favor, President Obama is poised to take the lion’s share of the blame. For better or worse, presidents are usually held responsible when the economy heads south, and with projections of high unemployment lasting through next year’s election, the White House is going to have a tough time convincing the electorate that they deserve another four years. Yet all is not lost. The silver lining to the debt ceiling resolution is that Washington can finally turn its attention to the major issue of the day: jobs. As Republicans in Congress continue to work themselves into a frenzy over spending cuts — witness their ongoing efforts to shut down the Federal Aviation Administration — President Obama and others interested in solving the nation’s main economic problem can take a number of steps to get Americans back to work. Here are three: 1. Speed Up The Stimulus Currently, a little over $100 billion from the 2009 stimulus bill has not been spent . Although many of these funds have been allocated to agencies and will be disbursed over the coming months, a good portion remains tied up by regulations. In California, for instance, over $300 million of stimulus funds for weatherizing homes and financing clean energy businesses have gone unspent because of federal regulatory delays. The lag time in getting projects off the ground has been one of the major drawbacks of the stimulus, and federal agencies should grant the states waivers to speed disbursement of funds before conservatives in Congress try to withdraw unspent money. 2. Loosen Monetary Policy With spending on the chopping block, the government’s main economic tool is monetary policy. The Federal Reserve has already taken a number of steps to increase the flow of money in the economy, but it could do more. As Fed Chairman Ben Bernanke stated in congressional testimony last month, by committing itself to keeping interest rates low and maintaining its large holdings of private assets (“quantitative easing”) for a specific period of time, the Fed could make credit more available throughout the economy. Eliminating the interest rate that banks get for keeping their excess reserves at the Fed would also encourage more lending. And, while it might trigger inflation, the Fed could pump more money into the economy by undertaking another large round of Treasury bond purchases. 3. Move Money Around In an age of austerity, the federal government must focus on getting the most bang for its buck. One way to do so would be to expand loan guarantee programs. As Bill Clinton recently argued , excess TARP reserves could be used to guarantee private loans for small businesses that have struggled to obtain credit since the financial crisis. Under such a scheme $15 billion of federal funding could lead to $150 billion in new loans. Such measures will require the resourceful thinking and political courage that have gotten the country through previous hard times. To be sure, these qualities have been in short supply of late. But if the president wants to avoid joining his fellow Americans in the unemployment line, he needs to abandon his penchant for bipartisan compromise and work with those who are interested in improving the economy to find creative solutions to the jobs crisis.

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Nearly Half Of Americans Say Debt Ceiling Deal Worsens Economy

August 3, 2011

Since President Obama signed a deal on Tuesday to extend the Treasury’s borrowing authority and reduce the federal deficit, it’s become clear that the agreement has left a lot of people unsatisfied. And while progressives have sharply criticized the deal’s emphasis on spending cuts, many conservatives, particularly those aligned with the Tea Party movement, say the reductions don’t go far enough. This atmosphere of dissatisfaction is mirrored in the wider population, according to a Gallup poll published Wednesday . The poll found that forty-six percent of Americans disapprove of the deal reached in Washington this week, compared with 39 percent who approve of it. Gallup also found that 41 percent of respondents believe the deal will make the economy worse, while only 17 percent believe it will make the economy better. Thirty-three percent think the deal will have no effect. Americans who predict negative economic fallout from the debt deal are in good company. A raft of analysts and commentators have warned that the agreement — which calls for $900 billion in spending cuts now, with either $1.2 trillion or $1.5 trillion in additional cuts to follow — will do nothing to promote growth. The deal makes no provisions for economic stimulus, and it fails to extend emergency unemployment benefits and a temporary payroll tax cut, two measures that have kept a bit of money flowing to consumers. An economist at JPMorgan predicted that the deal would result in a 1.5 percent decline in GDP for 2012 — an especially discouraging estimate given that GDP for 2011 has grown at an annualized rate of just 0.8 percent , according to the most recent Commerce Department figures. And even though the agreement calls for substantial spending cuts, it may not be enough to stave off a credit downgrade of the United States , which would have a fundamental and unpredictable effect on markets. The deal hews closely to the priorities of Hill Republicans. Yet the Gallup poll found that Republican voters oppose the deal by much higher margins than Democrats. Fifty-eight percent of Democrats say they approve of the deal, versus just 28 percent who disapprove. Among Republicans, only 26 percent approve, while 64 percent disapprove. There’s a similar gap between the parties when it comes to anticipating the deal’s effects on the economy. Thirty-three percent of Democrats say the deal will make the economy worse, while 29 percent say it will make the economy better — a four-point difference. But 49 percent of Republicans say the deal will make the economy worse, and only 8 percent say it will make the economy better. A number of Republican presidential candidates, among them Michele Bachmann, Tim Pawlenty and Mitt Romney , have criticized the debt deal in recent days.

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