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Buffett: Not Raising Debt Ceiling Would Be An ‘Asinine Act’

May 2, 2011

OMAHA, Nebraska (Ben Berkowitz) – Warren Buffett does not spend his time making stock research recommendations, but he is sure of one thing — America should have a “strong buy” slapped on it. Tens of thousands of Berkshire Hathaway shareholders who descended on Omaha this weekend for the conglomerate’s annual meeting got one unmistakable message from Buffett — no matter how bad the economy, or the deficit, or the political divide, the United States is as good a place to live and work as ever. “I don’t see how anybody can be other than enthused about this country,” Buffett told Berkshire shareholders on Saturday. Buffett, often called the “Oracle of Omaha,” is one of the world’s richest men and leads a conglomerate that owns railroads, insurers and ice cream parlors. The comments echo those Buffett made in February in his annual shareholder letter, but the words still may encourage investors looking sideways at the country, particularly after Standard & Poor’s put the U.S. government’s critical “AAA” credit rating on a negative credit watch. Buffett told Reuters Insider that S&P’s move was premature, given the U.S. government issues debt only in dollars and can simply print more money to pay debt if absolutely needed. “The United States is not going to default on any obligation,” Buffett told Insider in an interview after the annual meeting. “We are not a credit risk, believe me.” Where Buffett’s enthusiasm wanes to any degree, it is mostly in conversation on the dollar, which he said is sure to weaken over time, like most other currencies. Buffett, as usual, said he was shying away from fixed-income investments for Berkshire’s part, even as he keeps some of his personal wealth in Treasuries for safety’s sake. Some worry that safety could be threatened by the debate over the national debt ceiling, an issue that has divided Congress in recent weeks and gotten more tense as the country gets closer to its legal limit on debt issuance. Buffett, asked about the possibility Congress would not raise the ceiling, made one of his most-repeated comments of the whole weekend, saying it would be the legislature’s “most asinine act” in its history. Buffett also affirmed his support for the banking sector, where he has big bets on Wells Fargo and U.S. Bancorp, calling the odds of another banking crisis “very very low.” His partner, Vice Chairman Charlie Munger, was less sanguine about Europe and the effects of the sovereign debt crisis, saying the continent has “a hell of a problem” in comparison. (Reporting by Ben Berkowitz, editing by Maureen Bavdek, Bernard Orr) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Aron Cramer: Japan: From Tragedy to Turning Point?

April 29, 2011

I arrived in Japan for a week of meetings to find Tokyo more deserted than ever before. Maybe the economy really had collapsed in the wake of the triple whammy of the earthquake, tsunami, and ongoing nuclear accident at Fukushima-Daiichi. A week’s visits with BSR’s member companies, however, showed a more layered situation. Japan appears ready to turn this tragedy into a pivot point that puts the country on an even stronger path for a safe, prosperous — and sustainable — future. Many of our Japanese member company representatives expressed a strong sense of self-reflection. One executive raised the question of whether Japan would shift from the energy-dependent consumption models the country has adopted over the past few decades. He asked, for example, whether the Japanese people were ready to dispense with the energy-hungry vending machines that are one of the most ubiquitous symbols of Japanese consumer culture. Another executive said “we can easily achieve” the voluntary 25 percent reduction in energy consumption the government and the Keidanren, Japan’s leading business association, have called for. But he went beyond that. If such reductions were possible, he asked, “Why didn’t we do it before?” (Of course, as an American, I could say little about why another country’s population should reduce their use of electricity, in light of America’s inefficiency and energy gluttony.) Japan currently gets about 30 percent of its energy from nuclear power. It is in no position to phase it out overnight, and, like many countries, would find it harder to reduce carbon emissions, at least in the short term, if it did. However, many people in Japan hope that the events in 2011 will move the country more quickly toward renewable energy, just as the 1973 oil shock catalyzed a national commitment to energy efficiency — and, by the way, to nuclear power. In addition to expressing confidence that Japanese business could adapt, several company leaders predicted that in the aftermath of the quake and tsunami, the long dormant Japanese “NPO” (nonprofit organization, the term of reference for NGO in Japan) would become more important. Most companies are working with NPOs on relief, recovery, and reconstruction. Many of these efforts are channeled through Japanese branches of global organizations like CARE and the Red Cross. But the upsurge in interest in working with such organizations could lead to a stronger role for NPOs in Japan’s everyday future. This was all developing against the backdrop of a widespread lack of faith in the government. Many company representatives expressed their extreme disappointment with the lack of government leadership in responding to the disaster. Several cited their appreciation for the rapid response by the U.S. armed forces, which, in some cases, provided relief more quickly than the Japanese Self-Defense Forces. (Granted, the U.S. military is far larger and richer than the Japanese forces, but this was seen as a failure of resolve and commitment from the government.) Japan now faces a moment of truth. In the wake of 9/11, many commentators in America said that that “everything changed.” in the United States, suggesting new values and a renewed sense of common purpose. Sadly, that never happened. Perhaps Japan will find that 3/11 brings the positive transformation that eluded the United States. It is possible that, a generation from now, Japan will have ushered in a commitment to renewable energy and hyper-efficiency, based on the lessons of its society’s moment of truth. If so, Japan will again have much to teach the world about grace under pressure, clear resolve, and the power of innovation.

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Donald Trump Curses, Says Our Leaders Are ‘Stupid’

April 29, 2011

Potential presidential candidate Donald Trump made colorful and eyebrow-raising remarks while speaking at the Treasure Island casino in Las Vegas on Thursday night. He reportedly called the United States “not a great country” and cursed multiple times during his speech. The AP reports : In one of his many curse-bombs, Trump lamented the nation’s focus on building schools in war-torn Afghanistan, while neglecting education in the United States. He said he would not help struggling nations such as South Korea or Libya without payment and promised to use swear words while negotiating with China. “I’m not interested in protecting none of them unless they pay,” he said. A frequent critic of the federal health care law passed last year, Trump said the Supreme Court should decide the dozens of lawsuits challenging the legislation and urged district courts not to waste their time on it. “Our leaders are stupid, they are stupid people,” suggested Trump in taking issue with President Barack Obama’s handling of foreign policy issues related to Libya, Iraq, China and Afghanistan. “It’s just very, very sad.” According to the Las Vegas Sun , he asserted , “When people are screwing you, you don’t give them state dinners.” Rather, he said, McDonald’s should be served up instead. Later in his remarks, the billionaire and real estate mogul reportedly said , “There is a really good chance that I won’t win because of one of these blood-sucking politicians.” According to the Associated Press, the “lavish” event had an open bar and drew more than 1000 people. It was hosted by two Republican women’s groups. As for whether Trump is any closer to making a decision on whether or not he plans to run for president in 2012, the possible contender declined to confirm one way or the other on Thursday night. However, when one woman at the event shouted “run for president,” the billionaire reportedly responded, “I think I am going to make you very happy on that.” The Las Vegas Review Journal reports that Trump signaled he could be expected to decide on his plans for 2012 by June 1. “I’ve never done this before and who knows what will happen,” he said.

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Georges Ugeux: Has Wall Street Lost It’s Way?

April 26, 2011

“Markets are always right.” This assertion loved by market analysts is increasingly losing its relevance. In recent years, we have seen that Wall Street was able to be heavily mistaken. The Dow Jones gained 30% since the lowest level of last year, July 6th. What concerns me most is the evolution since the beginning of this year. The Dow Jones has risen approximately 9%. On an annual basis, this would be somewhere above 30%. However, since the beginning of the year, we had a string of bad news. • Popular uprisings across the Middle East • A tsunami followed by a nuclear crisis that seriously weakens the Japanese economy • A rise of 40% of the yield 10-year US Treasury bonds, from 2.5% to 3.5%, over the last six months • A doubling of the yields of the obligations of countries in difficulty – with Greece’s 2-year bonds yielding almost 24% • A negative outlook on the United States AAA rating by Standard & Poor’s • Mediocre corporate results for the first quarter of 2011 in the USA • A 20% increase in food prices worldwide • A nearly 20% increase in the price of gasoline worldwide • A weakening US dollar against all key currencies Inflation is at our doors, we are going through democratic crises, Europe and the United States have become vulnerable, and interest rates are rising. Each of these factors alone would negatively influence the investment climate and lead Wall Street to decline. All of them combined have the potential to provoke a market collapse. This collective denial, which is reminiscent of 2007, gives the distinct impression that stock markets have lost all reason. Time has come to protect capital. We know what kind of crises Wall Street denials can provoke. Large financial institutions are now in a position to send a signal to sell shares, without being accused of lack of civic-mindedness, sense of responsibility, or both. This is the extent of the independence of financial advice that they publish. Today Equilar , a compensation analyst, reported that the S&P American CEO’s bonus increased 43% between 2009 and 2010, and that their average salary ($ 9 million) increased by 28%. The first press conference on Wednesday, of the President of the Federal Reserve, will most likely tell us nothing more than what we already know. It is good news for the “core inflation” level, namely the Consumer Price Index, without taking into account the price of energy or food ! This betrays the actual purchasing power of the consumers. Bernanke’s optimism will not reassure us: he has a track record for not seeing a crisis coming even if it’s the size of an iceberg. The current euphoria on Wall Street is definitely one of the most compelling signs of a selling opportunity in a long time.

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Struggling Walmart Focuses On Increasing Sales At Existing Stores

April 26, 2011

(Jessica Wohl) Wal-Mart Stores Inc (WMT.N) is making progress bringing items and shoppers back to its U.S. stores, and turning around U.S. sales remains its top priority, President and Chief Executive Mike Duke said on Tuesday. The Walmart U.S. discount chain’s food department has improved and its general merchandise areas are well on the way to having the right assortment, Duke said at a Barclays conference in New York that was also broadcast over the Internet. Duke also said that there is a “tremendous long-term opportunity” in sub-Saharan Africa. Wal-Mart’s plan to buy 51 percent of South Africa’s Massmart Holdings Ltd (MSMJ.J) has been hung up by delays. The government approval process should be completed over the next few weeks, allowing Wal-Mart to move ahead with the deal, Duke said. Wal-Mart is bringing back thousands of items, advertising its low price guarantee and taking other steps to try to win back shoppers who balked at an earlier plan that cut goods from stores and emphasized promotional prices. Duke again said that achieving an increase in U.S. same-store sales — a key gauge of retail health that measures sales at stores open at least a year — is his “first priority.” Walmart U.S., the largest part of the world’s biggest retailer, has reported seven consecutive quarterly declines. Duke declined to say when those same-store sales should turn around, but he did say that he is seeing “traction.” Wal-Mart’s biggest growth opportunity remains the United States, where it is opening more supercenters and other types of stores, followed by the potential to expand in China, he said. (Reporting by Jessica Wohl) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Home Prices Drop For Eighth Straight Month, Survey Finds

April 26, 2011

U.S. single-family home prices fell for an eighth straight month in February, inching closer to an April 2009 trough, a closely watched survey said on Tuesday. The S&P/Case Shiller composite index of 20 metropolitan areas declined 0.2 percent in February from January on a seasonally adjusted basis, slightly better than economists’ median forecast for a drop of 0.3 percent. The 20-city composite index was at 139.27, holding just a hair above its 2009 low of 139.26. Average home prices across the United States are back to levels where they were in the summer of 2003. Prices in the 20 cities have fallen 3.3 percent year over year, in line with expectations. “There is very little, if any, good news about housing. Prices continue to weaken, trends in sales and construction are disappointing,” David Blitzer, chairman of the Index Committee at S&P Indices, said in a statement. “Recent data on existing-home sales, housing starts, foreclosure activity and employment confirm that we are still in a slow recovery.” The glut of houses up for sale has kept prices low and the market has struggled to regain traction since a home buyer tax credit expired last spring. Other data in the last week has suggested some stabilization in the market with sales of new and existing homes rising in March. Financial markets were unchanged by the Case-Shiller data on Tuesday, with U.S. stock index futures pointing to a higher open with investors focused on earnings from major companies. (Reporting by Leah Schnurr, Editing by Chizu Nomiyama) Copyright 2011 Thomson Reuters. Click for Restrictions .

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The Unemployed Can Now Apply: New Jersey Bans Discriminatory Job Ads

April 25, 2011

In New Jersey, it is no longer legal for employers to specify in their job ads that unemployed persons will not be considered. Gov. Chris Christie (R) recently signed a bill that bans overt discrimination against the jobless in print or online — the first legislation of its kind in the United States. Employers would face a penalty of $1,000 for the first offense and $5,000 for subsequent offenses. New Jersey state Rep. Celeste Riley (D-Cumberland), a primary sponsor of the bill, said she became aware of the problem of employers discriminating against the jobless when her colleague showed her an actual online job ad that ruled out unemployed candidates. “My district has one of the highest unemployment rates in the state, and when jobs are few and far between, I don’t want somebody saying, ‘Just because you’re unemployed I’m not gonna hire you,’” she told The Huffington Post. “There’s the old theory of ‘you need a job to get a job,’ but that’s absolutely unacceptable. You should be employed based on your skills and what you bring to the table.” HuffPost has been reporting on the discrimination against the unemployed since June 2010, when Sony Ericsson posted a job ad online that specified in bold lettering, “NO UNEMPLOYED CANDIDATES WILL BE CONSIDERED AT ALL.” It’s still easy to find job ads that specify that a candidate must already have a job in order to be considered. Riley said she’s not sure to what extent the New Jersey law will actually change employers minds about hiring unemployed people, but she hopes it will at least send them a message. “You can’t control people’s behaviors,” she said, “but as a state, we can say that we find this practice unacceptable — especially in these hard economic times.” Rep. Hank Johnson (D-Ga.) introduced similar legislation on a federal level in March that would amend the Civil Rights Act to include unemployed people as a protected group. The Fair Employment Act of 2011 — a bill which is still in committee — would make it illegal for employers to refuse to hire or to lower compensation based on employment status. “I’m hopeful this can be a bipartisan effort,” he told HuffPost, “because unemployment knows no demographic difference.”

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Jay Mandle: The Politics of the Budget Deficit

April 25, 2011

The federal budget showed a surplus of $185.2 billion in 2000. By 2010 it was in deficit by $1.3 trillion. What happened? Only after that question is answered is it reasonable to discuss what we should do. The numbers are clear: between 2000 and 2010 tax revenues declined from 21.5 percent of the economy’s Gross Domestic Product (GDP) to 16.3 percent. During these same years, federal government expenditures increased from 19.6 percent to 25.4 percent. The budget surplus disappeared because revenues declined by 5.2 percent of GDP and expenditures increased by 5.8 percent. 1 It does not take much investigation to explain the contrasting trends in revenues and expenditures. The two tax cuts passed during the Bush Administration, combined with the two recessions that occurred during that administration, starved the government for funds. At the same time, defense expenditures increased dramatically — from 3.7 percent of GDP to 5.6 — while health care rose from 5.0 to 7.3 percent in 2009 (the most recent available data). This means that increased health care and military spending together were responsible for about three-quarters of the growth in government expenditures as a percentage of GDP that occurred during the last decade. Economic downturns and tax cuts, combined with increased military expenditures and escalating health care costs, were clearly the villains. Logic therefore would suggest that these are the areas that need to be corrected. The economy’s vulnerability to crises should be reduced, the Bush tax cuts rescinded, defense expenditures curbed, and the health care sector made more efficient. But as obvious as these corrective steps might seem, the dominance of wealthy special interests in our political system makes it unlikely that any of them will be implemented. Despite the financial debacle of 2007, Wall Street continues to ride high and the economy remains vulnerable to a financial meltdown. Reducing health care costs will require taking on powerful special interests in a way that the Obama Administration has shown no stomach to do. Increasing taxes on the wealthy at a time of mounting income inequality is so obviously a matter of justice that it would seem not to require much of an argument. Yet spokespersons for the elite like Arthur C. Brooks of the American Enterprise Institute recently argued in The Washington Post that increasing taxation on the rich will damage not only the economy but the meritocratic ideals upon which the country rests. 2 Then there is the question of defense spending. The fact is that the importance of the military in the American economy far exceeds that anywhere else in the world. Most Americans are unaware of that imbalance or its implications. But the fact is that defense spending in the United States as a share of GDP is at least twice as high as in any comparably developed country. In contrast to the roughly 5 percent in the United States, France stands out as the big spender in the European Community at 2.4 percent. The United Kingdom’s level is 1.7 percent. 3 This commitment to the military is particularly anomalous because the United States is a relatively low tax country. Defense spending here therefore claims a significantly larger share of the overall budget. One estimate has it that United States spends 19.3 percent of budget appropriations on the military, in contrast to 6.3 percent in the United Kingdom and 5.4 percent in France. 4 The consequence is that desirable social and labor market policies are crowded out for lack of funds much more so in this country than in Europe. The people who most need social support are the same people who pay the cost of our military expenditures. Given the configuration of power in our political system and in particular the dominant role of wealth, it is all too likely that in addressing the budget deficit, legislators will inflict a grave injustice on large numbers of people. Middle and low income households were not responsible for the budget deficit. But the programs from which they benefit that are most likely to be on the chopping block. The deficit emerged because rich people succeeded in achieving major tax reductions, Wall Street decimated the economy, the costs of health care remained exorbitant, and the growth of defense spending remained unchecked. Yet as things stand, none of these will be the object of political redress. It is at times like these — when real and important choices have to be made – that the fundamental dysfunction of a political system based on wealth is most obvious. 1. Statistics from this and the next paragraph are from the Bureau of Economic Analysis, U.S. Economic Accounts, http://www.bea.gov , Table 3.2, 1.1.10, and 3.12 2. Arthur C. Brooks, the Washington Post , April 24, 2010, p. B-1 3. The World Bank, “Military Expenditures as % GDP,” http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS 4. “How Countries Spend Their Money,” % of Total Budget Allocated to Military, http://www.visualeconomics.com

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Nobel Prize-Winning Economist Paul Krugman: ‘I’m A ‘Loner’

April 25, 2011

Paul Krugman is a Nobel-Prize winning economist and world-famous blogger. According to a new article, you can add self-described loner to that list as well. In a New York magazine profile, “What’s Left of the Left,” Krugman, author of the New York Times ‘ highly-influential blog, “The Conscience of a Liberal”, is described as a “lonely man” that had trouble naming a single friend that could be interviewed to provide the author with a better understanding of one of America’s most famous liberals. Asked to describe himself, Krugman, who allegedly avoids eye contact with colleagues in the elevator, quickly points to his own solitary characteristics: “Loner. Ordinarily shy. Shy with individuals.” The portrayal differs somewhat from the March 2010 profile by the New Yorker in which a relatively-content Krugman allows the public into his life and mariage with fellow economist Robin Wells. “I think he’s happy,” his friend Craig Murphy said at the time. “A much happier person now than when we first met him.” The New York profile’s author, Benjamin Wallace-Wells, instead, contrasts Krugman with his bombastic former classmate at Harvard graduate school: Larry Summers, ex-director of Obama’s National Economic Council. “Let’s put it this way,” Krugman says when describing the difference between the two. “When things go crazy, my instinct is to go radical on policy, and Larry’s is to be a little more cautious.” Summers, in return, took aim at Krugman as “the guy in the bleachers who always demands the fake kick, the triple-reverse, the long bomb, or the big trade,” without ever getting in the game. Krugman has previously said his wife pushed him to remain true to his gut, denouncing filibusters and holding strong to his belief that that Obama’s health-care bill needed a public option. In an interview with New York , Krugman describes his first years blogging for the NYT as “a radicalizing experience,” primarily because of wading through the Bush administration’s economic policy closer than ever before. Krugman says he discovered a world in which the president of the United States could say something “demonstrably false” and no one would say anything. “That was pretty awesome,” he said.

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A Calm Start for the Week with Housing Data from the United States

April 25, 2011

A Calm Start for the Week with Housing Data from the United States

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UK- Hernandez keeps United on top

April 24, 2011

UK- Hernandez keeps United on top

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McDonald’s To Bump Prices, While Ads Wax Fifties Nostalgic

April 22, 2011

As food costs are expected to rise about four percent in the United States and Europe from last year, McDonald’s plans to raise its prices slightly and gradually. In March, the company raised all menu items by one percent, reports Nation’s Restaurant News, and plans to “keep taking small, additional menu price increases.”

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U.S. ‘Strong Dollar’ Rhetoric Fades As Currency’s Value Declines

April 22, 2011

WASHINGTON (Glenn Somerville and Tim Reid) – For years, Treasury secretaries parroted a line that the U.S. was committed to a strong dollar policy. But as the greenback slides close to all-time lows, President Barack Obama’s administration has been noticeably quiet. Treasury Secretary Tim Geithner last used “strong dollar” language in November, and a glance through his speeches and news databases shows he has had almost nothing to say on the matter since. Meanwhile, record low interest rates, the Federal Reserve’s bond buying program, staggering budget deficits and the White House’s export-driven jobs policy all have contributed to the dollar’s decline. All this has a growing number of investors and currency experts thinking Washington is passively accepting a gradual decline in the currency, hoping it helps engineer a vigorous enough recovery to get a battered economy in order. “There is no obvious evidence of that in official rhetoric or in the commentary of key officials, but de facto the United States is permitting if not aiding a deliberate dollar decline,” said Allen Sinai, chief global economist for Decision Economics Inc. in Boston. “The heart of the dollar decline,” he added, stems from the super-loose monetary policy run by the Federal Reserve for more than two years as opposed to fiscal or tax policy. “Markets aren’t going to buy the dollar when you offer zero interest rates and have an economy that is growing at roughly one-third the rate of China’s — that’s an easy choice for investors.” On Thursday, the dollar index, a gauge of the U.S. currency against six advanced country currencies, fell to 73.735, its lowest level since August 2008, setting up a possible run toward its record low of 70.698 touched in March 2008. The euro soared to a 16-month high above $1.46. Geithner last year flatly denied he is pursuing a policy aimed at cheapening the dollar. “We will never use our currency as a tool to gain competitive advantage,” he told reporters last November after a meeting in Kyoto, Japan, of finance ministers from the Asia-Pacific Economic Cooperation group. “I’m happy to reaffirm again that a strong dollar’s in our interest as a country.” Undeniably, though, financial markets see the dollar on a slide against other currencies that is likely to continue, in no small part because current trade policy seems to demand it. “It’s implicit in the administration’s call for a doubling of exports, that can’t happen without the dollar falling,” said David Gilmore, a partner at FX Analytics in Essex, Connecticut. The U.S. government’s consistent pressure for a revaluation of the currency of its major trading partner, China, only underline these perceptions. Much of the argument for the dollar’s decline — down 6.2 percent this year against that basket of six major currencies — comes back to the Fed’s policy of keeping interest rates low to spur a fledgling recovery from the 2007-2009 financial crisis. It’s a policy that’s drawn criticism from the world’s new economic powerhouses in Latin America and Asia, who say U.S. monetary policy is fueling global inflation and hurting efforts to balance the global economy. “I’ve noticed there’s a strategy by the United States and advanced countries to increase exports and reduce their imbalances at the cost of emerging markets,” Brazilian Finance Minister Guido Mantega, a former economics professor, said last year. Strong corporate earnings reports this week showed the declining dollar has helped U.S. companies sell drugs, chemicals and food in foreign markets. A former White House economist in the Obama administration, who requested anonymity, summed it up: “I don’t believe the U.S. is actively pushing a weak dollar policy — but I would say this: the fact that interest rates are low and the U.S. is aggressively pushing monetary stimulus, that has the effect of depreciating the dollar,” the former official said. “That is certainly a mechanism which would result in a de facto weak dollar policy.” PLAYING WITH FIRE? There are major dangers with such a strategy, not least of which are the inflationary risks it creates. The Fed’s buying up of U.S. government debt, also known as quantitative easing, is to many the equivalent of cranking up the dollar printing presses at the central bank, devaluing the value of the currency in the process. “When you print money or create money…it weakens the value of the dollar” and stokes potential inflation, said Representative Steve Stivers, a freshman Republican from Ohio. The same sentiment was expressed by Republican Senator Jim DeMint, who told the Senate Banking Committee last month, “The quantitative easing, monetizing of debt, or however we term that, has caused some concern about…the long-term value of our currency.” Indeed, with U.S. gasoline pump prices soaring partly because investors have been able to borrow money cheaply in the U.S. and invest it in crude oil and other commodities, Obama has been lashing out. On Thursday, he announced that a group of federal agencies were being asked to probe fraud in the energy markets. Of course, no Obama administration official is ever likely to officially endorse a declining dollar. There is no political upside to being a “weak dollar” president. But analysts say allowing a slow decline in the dollar isn’t a policy to be feared unless the fall turns into a rout. “It’s a necessary part of both global rebalancing and domestic rebalancing, given that the U.S. has agreed that it needs to rely less on debt-financed consumer spending and more on export-driven growth,” said C. Fred Bergsten, director of the Peterson Institute think-tank in Washington. Bergsten, a noted commentator on exchange-rate policy, noted there has been essentially a nine-year “bear market” in the dollar since 2002, aside from brief upward spurts in value when the global financial crisis struck in 2008 and again last year when Europe’s debt crisis was acute. That means a substantial amount of foreign exchange rate rebalancing has taken place, aside from a continuing disconnect between the value of fast-growing China’s yuan and the dollar. Bergsten estimated the yuan remains undervalued by around 20 percent. In financial markets, major players anticipate a continuing decline for the dollar, partly connected to skepticism that the Obama administration and opposition Republicans are anywhere near agreement on how to tame towering deficits. “Absent problems elsewhere in the world, history and economics suggest that America’s current fiscal and monetary policy stance will put continued pressures on the dollar,” said Mohamed El-Erian, co-chief investment officer of top bond manager PIMCO, which has $1.2 trillion in assets under management and is betting against U.S. treasuries. And influential investor Jim Rogers warns that investors will stop buying increasingly risky U.S. government assets even if the returns go up from current levels. “At some point along the line, people are going to realize it’s absurd to lend money to the United States government at 30 years in U.S. dollars at 3 or 4 or 5 or 6 percent interest,” he told Reuters Insider. (Additional reporting by Donna Smith, Thomas Ferraro, Mark Felsenthal and Jennifer Ablan in New York, editing by Kristin Roberts and Martin Howell) Copyright 2011 Thomson Reuters. Click for Restrictions .

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

April 21, 2011

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

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McDonald’s Expects Significant Increases In Food Prices

April 21, 2011

NEW YORK/LOS ANGELES (Phil Wahba and Lisa Baertlein) – McDonald’s Corp said higher costs for beef, bread and other items cut into its quarterly margins and that inflation for the year would be worse than expected. The inflation comments on Thursday sent shares of the world’s largest restaurant company down 2 percent, even though strong sales helped McDonald’s post a first-quarter profit that beat expectations. March sales at established restaurants also rose more than expected. “The key question now will be how they are going to raise prices to try to offset some of these food costs,” Edward Jones analyst Jack Russo said. McDonald’s said it now expects food costs to rise between 4 percent and 4.5 percent in the United States and Europe this year. In January, McDonald’s said it expected its food costs to be 2 percent to 2.5 percent higher this year in the United States and up between 3.5 percent and 4.5 percent in Europe. McDonald’s has been outperforming most other U.S. restaurant chains and taking market share from smaller rivals amid a slow U.S. economic recovery. After struggling during the recession, McDonald’s has outperformed its fast-food peers by updating its menu. The company pointed to its McCafe menu as a source of sales gains. “The bottom line is they’re still doing a great job of growing revenue,” said Peter Jankovskis, co-chief investment officer at Oakbrook Investments in Lisle, Illinois. The firm owns McDonald’s shares. Analysts remain concerned about high gas prices that could prompt fast-food restaurant patrons to cut back. But Jankovskis said McDonald’s was better equipped than others to cope with those prices. The company has more locations than its rivals, so customers do not have to travel far to get to one. “The big test will come in the summer months with gasoline remaining in the neighborhood of $4.00 (a gallon) — that’s when the strength of McDonald’s will come through,” he said. McDonald’s results come a day after rival Yum Brands Inc reported better-than-expected sales due to strength in China. Chipotle Mexican Grill, which has nearly all of its 1,100 restaurants in the United States, saw higher food costs eat into margins. Total revenue at the Golden Arches during the first quarter that ended March 31, rose 9 percent to $6.1 billion, with sales in Europe leading the way. March sales at restaurants open at least 13 months were up 3 percent in the United States, up 4.9 percent in Europe and gained 0.5 percent in McDonald’s Asia/Pacific, Middle East and Africa unit. Globally they rose 3.6 percent. Analysts, on average, were looking for same-restaurant sales to rise almost 2 percent in the United States, more than 3 percent in Europe and 2 percent in APMEA. Sales in Asia may have been pinched by the disasters in Japan. The United States contributes just over one-third of McDonald’s overall revenue, compared with 40 percent for Europe — its largest market for sales and one where it has more middle-class appeal. First-quarter net income rose 10.9 percent to $1.21 billion, or $1.15 per share, from $1.09 billion, or $1 per share, a year earlier. That beat Wall Street expectations of a profit of $1.14 per share, according to Thomson Reuters I/B/E/S. But operating margin fell to 17.7 percent from 18.2 percent as costs for food and paper rose. Food and paper costs were 33.6 percent of sales in the quarter, compared with 32.9 percent a year earlier. McDonald’s shares fell 1.9 percent, or $1.56, TO $76.84 in morning New York Stock Exchange trading. (Reporting by Phil Wahba and Lisa Baertlein; Editing by Maureen Bavdek) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Wendell Potter: Ryan’s Medicare Plan Would Be a Windfall for Insurance Companies

April 21, 2011

Rep. Paul Ryan’s plan to privatize Medicare would accelerate a trend started several years ago by corporate CEOs and their political allies to shift ever-increasing amounts of risk from Big Business and the government to workers and retirees. If enacted, the Ryan plan would represent a windfall of unprecedented proportions for insurance corporations and other businesses. For millions of average Americans, many of whom already are finding it impossible to save for retirement, it would represent financial calamity. The nation’s middle class would pay dearly for Ryan’s proposed shredding of the social safety net that Medicare currently provides. Ryan, chairman of the House Budget Committee, wants to dismantle the Medicare program and replace it with a system of vouchers. Starting in 2022, the government would give the average 65-year-old Medicare beneficiary $8,000 a year to buy coverage from a private insurer. That’s the amount health care analysts estimate will be what the Medicare program will spend on every 65-year-old in 2022 if the government doesn’t turn it over to private insurance companies. While that might sound fair on the surface, it would actually be a very bad deal for people who turn 65 that year, compared to those who turn 65 in 2021. That’s because commercial insurance plans are much more expensive, and operate far less efficiently, than the current Medicare program. The amount of money commercial plans actually spend to pay medical claims has been declining rapidly over the past several years while the amount they spend on administrative activities such as marketing and underwriting — and to pay executives and reward shareholders — has been increasing. That’s why Congress included a provision in last year’s health care reform law to require insurance firms to spend no more than 20 percent of their policyholders’ premiums on overhead. By contrast, the current Medicare program spends just 3 percent of its budget on administration. The nonpartisan Congressional Budget Office says the $8,000 voucher won’t be nearly enough for seniors to buy comparable coverage from private insurers and pay the additional out-of-pocket costs that those insurers would require them to pay. The amount the average 65-year-old would have to shell out to buy private insurance in 2022, according to the CBO, will actually be $20,510. Seniors would have to pay the difference — $12,510. If Medicare is not privatized, the difference would be $6,150. Here’s why this would be a dream-come-true for the insurance industry: The more health plan enrollees have to pay out of their own pockets, the less insurers have to pay for medical care. The money that insurers avoid paying out in claims goes straight to their bottom line — and into shareholders’ pockets. Insurers have been shifting more and more of the cost of care to their policyholders over the past several years by enticing — or pushing — them into plans with ever increasing deductibles. This trend is part of what Yale professor Jacob S. Hacker called “the personal responsibility crusade” — making people more responsible for the management and financing of the major economic risks they face — in his 2006 book, The Great Risk Shift . This crusade has been led by Republicans and insurance company executives who have been saying for years that the best way to control medical costs is for Americans to have more “skin in the game.” That’s an expression that former Aetna CEO Jack Rowe used often before he retired in 2005, the year he made $22.2 million. It was also a sound bite favored by the CEO I used to work for, CIGNA’s Ed Hanway, before he retired in 2009. Hanway’s total compensation that year was almost $111 million. The problem is, most Americans have far less skin to put in the game than CEOs like Rowe and Hanway or even Rep. Ryan, who makes $174,000 as a member of Congress. The median household income in the United States was just $49,777 in 2009, which was down $335 from 2008. That decline, by the way, was the continuation of another trend that began as the Clinton era was ending and the George W. Bush era was beginning. Median household income in the United States peaked in 1999 at $52,388 (adjusted for inflation). It fell more than $2,000 during the eight years of the Bush administration. During that time, health costs rose dramatically. According to the Kaiser Family Foundation, the average annual health insurance premium for family coverage increased from $5,791 in 1999 to $13,770 in 2010. The average amount that workers contributed out of their own pockets for family coverage increased from $1,543 to $3,997. With household incomes declining, Americans have had far less money to put into retirement. According to a recent survey conducted by Opinion Research Corp. for America Saves and the American Savings Education Council, less than half of current workers are saving enough to have a “desirable standard of living in retirement.” If workers are having this much difficulty saving for retirement, where in the world will they find the money to pay what Rep. Ryan would make them pay for Medicare coverage when they turn 65? Ryan’s “blueprint” is one that will take America back to the pre-1965 days when senior citizens were losing their homes and their farms to pay for medical care. They were becoming destitute — and dying much earlier than they are today — because insurers would not sell them coverage because they were too much of a risk to insure, and there was no safety net for them. That’s exactly the same place future senior citizens would find themselves if Ryan’s plan to privatize Medicare ever becomes public policy.

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Lobbying Push Targets New House GOP Lawmakers On Debt Ceiling Vote

April 21, 2011

WASHINGTON (Reuters) – They have been in Washington barely four months but the 85 first-term Republicans in the House of Representatives have found themselves the target of a massive lobbying campaign by Wall Street banks, big business and the Treasury. The fiscally conservative freshmen are under intense pressure to vote to raise the cap on U.S. borrowing so that the United States can continue to pay its bills after May 16. The Obama administration has expressed confidence that a deal can be reached with Republicans but Wall Street is less sure. Yet there are signs the intense lobbying effort is falling flat. Many freshmen still insist they will not vote to raise the debt ceiling unless it comes with legislation to slash America’s $1.4 trillion deficit. This is no ordinary class of rookie Republican lawmakers. Many are aligned with the loosely organized conservative Tea Party movement that is devoted to dramatically scaling back federal spending. After being elected to Congress from relative obscurity, they are being lavished with attention and receive almost daily warnings that a failure to raise the debt limit will trigger a global economic catastrophe. There are invitations to meet with Wall Street executives, coffee mornings with business leaders, calls from the Treasury Department, visits from economists, and weekly hour-long meetings with John Boehner, the Republican speaker of the House. The lawmakers are reminded frequently in these meetings about the concerns America’s foreign creditors, especially China, have about the prospect of a U.S. default. Chinese officials in Washington say they are watching the debate closely. “There is no question about it — there is a lot of pressure being put on the freshman,” Michael Grimm, a first-term Republican from New York, told Reuters. “I have had meetings in D.C., meetings in New York, meetings with Fortune 500 companies, meetings with financial institutions,” he said. “I get invitations to meet with boards of directors, or a group of CEOs, from insurance companies, big banks, community banks, financial institutions, small businesses. “And the message is: not to raise the debt ceiling will lead to a catastrophic event. I understand that. But if it doesn’t come with serious cuts and real systemic reform, it’s just short-term relief.” CRUCIAL VOTING BLOC The Republican freshmen are seen as a crucial voting bloc in the looming battle over whether to allow the U.S. to go deeper into debt to avoid defaulting on its loans. The lobbying campaign is unusual in that it spans almost the entire financial and business community — often natural allies of the Republicans who now oppose them on the debt issue. Treasury Secretary Timothy Geithner has said the nation will hit its current debt limit of $14.3 trillion in mid-May, and a refusal by Congress to raise it would be “catastrophic.” Geithner already has sent two letters to members of Congress urging them to back the move. Economists say a failure to raise the ceiling would trigger a crisis in bond markets and possibly another recession. Interest rates would soar and foreign investors would lose confidence in America’s creditworthiness. China, the biggest foreign holder of U.S. debt, warned Washington this week to protect investors in its debt after Standard & Poor’s rating agency threatened to lower the United States’ coveted AAA credit rating. “The budget issue has international consequences,” one Chinese official in Washington told Reuters. “We are of course following it,” another official said. HAGGLING OVER COFFEE The U.S. Chamber of Commerce, which has held dozens of meetings with Republican freshman on the debt ceiling issue, is sending a letter to every member of Congress next month urging them to vote to raise it. “We have told them we understand it’s a tough vote,” said R. Bruce Josten, executive vice president for government affairs at the Chamber. “But we also tell them this is about the full faith and credit of the United States and the consequences of a no vote will be dramatic.” The Financial Services Forum, a financial policy organization that includes the CEOs of some of Wall Street’s biggest banks such as JPMorgan Chase and Bank of America, has focused almost exclusively on the House Republican freshmen. FSF officials have held meetings with freshmen and their staff in their Capitol Hill offices, in the FSF’s Washington office and in “meet and greet” sessions over coffee. The freshmen are not told how to vote but they are told of the dire consequences if they do not — investors will flee, interest rates will spike, the markets will panic, and higher interest rates will explode the deficit. Yet many are standing firm. “I am not going to vote to raise the debt ceiling if it does not include long-term structural reform to reduce the deficit,” one Republican freshman said. (Reporting by Tim Reid and Rachelle Younglai; Editing by Ross Colvin and Bill Trott) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Air Force Looks to China When American Manufacturing Falls Short

April 20, 2011

Michael Mandel , the chief economist for BusinessWeek, was recently doing some research for a textbook he’s revising when he stumbled upon a surprising entry in the Federal Registry. On March 21, the U.S. Air Force waived the “Buy American” provision of the American Recovery and Reinvestment Act of 2009 for a construction project at Eielson Air Force Base in Alaska. As workers tried to build a few stimulus-backed housing units, it became apparent that a number of simple domestic items couldn’t be procured from American manufacturers – namely, ceiling fans, shower rods, towel racks, toilet-paper holders, and all manner of screws and fixtures. According to the registry entry, a contracting official has determined that the above items of manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality. The domestic nonavailability determination for these products is based on extensive market research and thorough investigation of the domestic manufacturing landscape. This research identified that these products are manufactured almost exclusively in China. In fiscal year 2009, more than 44,000 waivers of federal “Buy American” provisions were granted, worth nearly $14 billion. On his blog, Mandel writes that the Air Force waiver in particular “certifies the weakness of domestic manufacturing in America,” though he also questions whether all the household items listed are actually unavailable in the U.S., given that, according to him, the American production of nuts and bolts has been climbing in recent years. Similarly, the Alliance for American Manufacturing (AAM) wonders whether there isn’t a “single American manufacturer” producing the screws required for the Eielson project. “There’s a great deal of evidence that many agencies, including the Department of Defense, don’t look very wide or deep for procurement,” AAM’s Executive Director, Scott Paul, told HuffPost. “Some agencies are much more aggressive about enforcing it than others.” But in this case, it seems the collated screws in question are certifiably unavailable in the States. Jennifer Baker Reid of the Industrial Fasteners Institute, a trade group for nuts-and-bolts manufacturers, says such screws are “largely, if not entirely, imports” from China nowadays. The waiver, Reid says, “appears to have been issued appropriately based on market research.” That’s not to say Reid’s group hasn’t had other bones to pick with federal agencies over the stimulus package’s “Buy American” stipulation. Her group complained to the Environmental Protection Agency over some 2009 waivers granted for fasteners for stimulus-funded wastewater treatment upgrades. In that case, Reid says her group had two U.S. manufacturers who could have supplied the necessary fasteners. “These waivers have come out fast and furious without checking to see if a U.S. supplier is available,” she says. In the case of the Eielson project, it may be more troubling that the Air Force did its due diligence and still couldn’t find a supplier. “It’s not like China has a competitive advantage in making screws,” says Paul. “Shame on us if we can’t make them.”

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Politics, Ideology Overshadow Debt Limit Talks

April 20, 2011

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

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The 10 Most Peaceful States

April 20, 2011

While the nation as a whole might be in financial disarray, some states have found surprising success in lowering government spending by reducing crime, according to a new report by the Institute for Economics and Peace . When taken together, costs like incarceration, medical, judicial and policing leave the average single American tax payer paying roughly $1,425 per year, the report finds. And that’s before taking into account the productivity lost from pulling potential workers out of the U.S. economy and sticking them in prison. But costs range across states by significant amounts. Of the 10 most peaceful states, for example, seven also ranked in the top 10 for lowest cost of crime per person, with safest-state Maine spending just $656 per person. Compare that with Louisiana, which spends $2,458 per person. The safest states in the U.S. not only scored well on the original five indicators, either. They also performed well in areas like education, one factor highly-correlated with safety, with the safest states tending to have high graduation rates and larger numbers of diplomas per person. Household income also correlates with the peacefulness of a state, with three of the five safest states found to be in the top 10 for household income. According to the report, the U.S. as a whole has become 8 percent safer since 1995, and the country could save much more money if it became even less violent. If California could decrease violence by 25 percent, for example, the state could save the state $16 billion, the report contends. Even Vermont, a relatively small and safe state, could save $253 million if it reduced violence by that same amount. The index on which the report is based has five primary indicators: (1) number of homicides per 100,000 people, (2) number of violent crimes per 100,000 people, (3) number of people in jail per 100,000 people, (4) number of police officers per 100,000 people and (5) general availability of small arms. Below is the list of the 10 most peaceful states in the United States according to the Institute for Economics and Peace.

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Dave Johnson: Why Trump Gets Traction From Trade

April 20, 2011

Donald Trump is getting traction. He is talking about trade, jobs, China, manufacturing, China, jobs, China and China — and it is resonating with a public sick of being told to ignore what they can see in front of their faces. “Nobody, other than OPEC, is ripping off the United States like China,” he says. And he climbs in the polls. Why is blowhard Donald Trump getting such traction from talking about trade problems with China? Self-funded, Trump doesn’t require the support of the multi-national corporate/financial elite to be heard. He is able to use his own money to push his way into the conversation. So unlike politicians captured by the cabal that runs our politics, who have to get past the corporate-journalism gatekeepers to raise money and be heard, he is able to give voice to things that are right in front of our faces. Poll After Poll After Poll Shows Public Wants… Trump can read polls and poll after poll after poll shows that Americans are concerned about jobs, and are especially concerned about how our economy is sending the good jobs and factories out of the country. They are asking why they can’t buy things here that are made here. Whether Trump believes what he is saying or not is irrelevant, he understands what the people are thinking, and is giving voice to those sentiments. Polls show the public wants tax increases on the rich, a focus on jobs not deficits, and more investment in infrastructure, education, transportation and alternatives to oil. A recent Alliance for American Manufacturing poll found that “We have lost too many manufacturing jobs” is the top concern among independents and working-class voters. Other highlights from the poll include: A majority believe the U.S. no longer has the world’s strongest economy — a title they want to regain Voters are anxious about the economy — specifically China debt, spending and loss of manufacturing 86 percent of voters want Washington to focus on manufacturing, and 63 percent feel working people who make things are being forgotten while Wall Street and banks get bailouts Two-thirds of voters believe manufacturing is central to our economic strength, and 57 percent believe manufacturing is more central to our economic strength than high-tech, knowledge or financial service sectors Across all demographics, voters’ economic solutions center on trade enforcement, clean energy, tax credits for U.S. manufacturing and replacing aging infrastructure using American materials, a surprising overlap between Tea Party supporters, independents, non-union households and union households. People are sick of their factories being packed up and sent out of the country to places where people and the environment are exploited . They understand this is done to pit them against workers with no right, in order to lower wages, benefits and rights. They want something done about it. Trump is giving voice to these sentiments. He is saying what people are thinking. Trump says, “We tell China, that if you don’t stop manipulating your currency, we’re going to put a 25 percent tax on your products that come into the United States.” But Turn on Your TV And… But turn on your TV or open a newspaper and you get pundit after pundit saying we need to cut taxes on the rich even more, and cut the resulting deficit by cutting back on the things We, the People (government) do for each other and for our economy. The Elite Are Threatened Here is a typical elite-media response to Trump’s message: CNN Money: ” How ‘The Donald’ could incite a trade war ” Donald Trump’s call for a 25% tariff on Chinese goods is winning him a lot of attention as he weighs a presidential run in 2012. “They have manipulated their currency so violently towards this country, it is almost impossible for our companies to compete with Chinese companies,” Trump told CNNMoney in January, during which he laid out plans for his 25% tariff. Trade wars could arise : Imposing a tariff on China would do little more than irritate the world’s second largest economy, economists say. … China could also respond by closing its increasingly important market to U.S. exporters, which would be a major blow to American jobs and manufacturing. China has become the No. 3 market for U.S. exporters, with sales jumping 31% from the previous year. And that doesn’t even count the goods being made in China by U.S. companies. General Motors sells more cars in China today than it does in the United States, for example. “The sad story is we don’t have much leverage,” said Lardy. “But a tariff certainly would not advance our interests.” This response to Trump shows why Trump is resonating. In a piece that appears to be an ad for the Chinese Exporters Assn, CNN worries that responding to China’s manipulations could “irritate” them, which could lead to a trade war, and says there is nothing we can do to get our jobs back so we should just accept anything China does. We have already in a trade war with China for some time and everyone can see that we are losing. But this story takes the pro-China position typical of Wall Street and DC insiders. Filling the Vacuum The media gatekeepers won’t allow the voice of working people, and working people respond when they finally hear a voice speaking up for them. When the corporate/media elites ignore issues like China and trade, you get blowhards like Trump moving up in the polls. The corporate/financial gatekeepers have engineered the information channels to such an extent that blowhards like Trump can gain traction by filling the vacuum and voicing what the polls say the public is thinking. Examples Here are a few more examples of Trump on China and trade: Dire Warning From Donald Trump – China Will Destroy Our Country Conservative News Media on YouTube : “The Obama administration isn’t equipped to negotiate with and handle the Chinese. … Donald Trump said the Chinese are ripping us off and the Chinese can’t deal with it. … Donald Trump says the Chinese aren’t playing fair. … We need to trade with everybody but we need to be sure it is fair.” And, finally, Frank Sobotka: This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Robert Reich: Extortion Politics: Why Won’t American Business Stop the GOP From Threatening to Blow Up The Economy?

April 19, 2011

As the government approaches its borrowing limit of $14.3 trillion, Republicans are seeking political advantage over what conditions should be attached to raising that limit. This is a scandal — or should be. Raising the debt limit shouldn’t be subject to party politics. Economic extortion should be out of bounds. It’s bad enough government shutdowns have become an accepted part of political negotiation. But failure to increase the amount the Treasury can borrow would have far graver results. Not only would the government be unable to issue Social Security or Medicare checks but the United States couldn’t pay interest on its current debt. We’d go into default. The full faith and credit of the United States would be in jeopardy. Treasury bonds would go into free fall. Interest rates would skyrocket. We, and most of the rest of the world, would fall into financial chaos. The recovery is still fragile. All this would force us and most of the rest of the world into a deeper recession or worse. No one in their right mind would threaten this. Yet it’s talked about as if it’s just another aspect of Washington politics — a threat that might be carried out in early July when the Treasury runs out of ways to keep paying our debts. In fact, it’s a giant game of highway chicken, and if one driver doesn’t yield the crash will be catastrophic. Games of chicken are won by drivers able to convince their opponents they won’t swerve. That gives a strategic advantage to Republicans backed by the Tea Party, who are so convinced government is evil they’ve signaled they’d be willing to risk it. But this shouldn’t be a matter of political strategy. Disagreement about the nation’s budget should be worked out through the constitutional process of majority votes in Congress, followed by the president’s signature or veto, and Congress’s right to override the veto. No group of legislators is entitled to threaten to crash the United States economy if its demands aren’t met. The biggest surprise is the silence of American business and Wall Street. They have as much if not more to lose as anyone if this game ends in tragedy. Yet the GOP — which big business and Wall Street fund — insists on playing it. Why isn’t the Business Roundtable decrying the use of this tactic? Where are the leaders of Wall Street? Where are the corporate statesmen? They should insist this game of chicken be called off or they’ll stop the funding. Maybe they think the crash won’t happen, that Obama and the Democrats will cave in to Paul Ryan’s and the Republicans’ before that. If so, they’re wrong. The Republicans’ demands are so far beyond the pale — turning Medicare into vouchers that funnel money to private insurance companies, turning Medicaid and food stamps into block grants that would deliver less to the poor, giving a giant tax windfall to the very rich — they cannot be met without causing the Democratic base (and most Independents) to revolt. Yesterday Standard & Poor’s (hardly a beacon of reliability after the Crash of 2008, to be sure) downgraded America’s credit outlook. Expect more downgrades if the game of chicken continues. 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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Japan Cabinet Ministers Express Confidence In U.S. Debt After S&P Lowers Outlook

April 19, 2011

April 19, 2011 1:27:39 AM By Kaori Kaneko and Tetsushi Kajimoto TOKYO (Reuters) – Japanese cabinet ministers on Tuesday moved to shore up confidence in U.S. debt after Standard & Poor’s threatened to lower its credit rating on the world’s largest economy due to a bulging budget deficit, touching a nerve with one of the largest holders of Treasuries. S&P, which assigns ratings to guide investors on the risks involved in buying debt instruments, slapped a negative outlook on the United States’ top-notch AAA credit rating on Monday and said there was at least a one-in-three chance that it could eventually cut it. Japan is the second-largest holder of Treasuries after China and its confidence in dollar-denominated assets has been steadfast until now, but the prospect of a ratings downgrade could test Japan’s faith in Treasuries. The increasing chance of a downgrade for the United States could also draw unwanted attention to Japan’s large debt burden, which is likely to grow larger as the government secures funding to rebuild after last month’s devastating earthquake and tsunami. “The United States is tackling fiscal issues in various ways, so I still think U.S. Treasuries are basically an attractive product for us,” Finance Minister Yoshihiko Noda told reporters after a cabinet meeting. If investors start demanding higher returns for holding riskier U.S. debt, the rise in bond yields could erode the value of Treasuries held in currency reserves and push borrowing costs up in other countries. Japan’s reserves rose to $1.12 trillion at the end of March from $1.09 trillion at the end of February after Japan and other Group of Seven countries intervened to stem a rise in the yen. The bulk of Japan’s reserves are believed to be held in Treasuries. “Even if a private company downgraded, U.S. treasury bills are in demand from the world,” Economics Minister Kaoru Yosano said. Japan’s public finances are also in a dangerous state, and the timing of S&P’s warning could be a source of discomfort. Japan is set to compile an extra budget worth about 4 trillion yen ($48.4 billion) to start reconstruction after the March 11 earthquake and tsunami, which also triggered the world’s worst nuclear crisis in a quarter century. This is likely to be the first of several spending packages. Japan’s public debt is already twice the size of its $5 trillion economy, and policymakers have said new bond issuance would be needed after the first extra budget to pay for reconstruction costs. S&P cut Japan’s sovereign rating to AA-minus in January, although it said shortly after the March disaster that it did not expect to change its ratings stance on Japan. ($1 = 82.675 Japanese Yen) (Editing by Edmund Klamann) Copyright 2011 Thomson Reuters. Click for Restrictions .

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IMF Scolds Developing Countries’ Economic Policies

April 18, 2011

WASHINGTON – The International Monetary Fund on Monday criticized developing countries for not responding strongly enough to the surge of hot money into their markets, saying the result could be a hard economic landing. After meeting in Washington D.C. on Friday, the IMF said in a note to G20 major economies that huge inflows of speculative capital had sped up economic growth in emerging markets, but also pushed up inflation and the response by developing country governments had “been insufficient to address these rising pressures, portending risks of a hard landing.” It said while capital flows to emerging markets have moderated, and in some cases been reversed, they remained high and volatile. The IMF said emerging market economies have tried to slow the flows through a combination of macroeconomic policies as well as capital control measures, but are delaying further macroeconomic responses such as raising interest rates. In Brazil, the IMF said there was scope to continue monetary policy tightening, while in China there should be less reliance on quantitative limits and reserve requirements and more focus on raising interest rates. The IMF warned last week that overheating pressures were growing in fast-growing emerging market economies that was leading to asset bubbles. Countries such as Brazil have pushed back, blaming near zero interest rates in the United States for sending investors elsewhere in search of returns, and telling the IMF to pay closer attention to the source of the flow. Brazil has resisted efforts to restrict the use of capital controls. Meanwhile, the IMF said the recovery in advanced economies were moving too slowly. In the United States, improvements in the housing and labor markets have been slow and without an increase in exports, growth will remain subdued. The Fund said the U.S. dollar was on the strong side of fundamentals, and a further depreciation of the U.S. unit against undervalued currencies would help to cut the U.S. current account gap. The IMF repeated that the Chinese yuan was “substantially undervalued,” while the values of the euro and Japanese yen are broadly in line with fundamentals. The IMF said the risk of a near-term spike in oil prices back to 2008 peaks, when prices went close to $150 a barrel, has “increased materially”. Global oil prices have risen to $127 highs this month on concerns that a prolonged conflict in Libya could affect supplies. The IMF said the Libyan supply setback was comparable to development around the time of the Iraq war in 2003. Libyan production declines equivalent to 1.5 percent of global supply have been broadly offset by higher production elsewhere. (Reporting by Lesley Wroughton; )

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Ian Fletcher: Japan, the Forgotten Protectionist Threat

April 18, 2011

Everyone’s worried about China today on the trade front. And they should be. But let’s not forget that China is only the most brazen player of one-way free trade out there. We ran a $273 billion deficit with China in 2010, but we also ran an $80 billion deficit with the European Union and a $60 billion deficit with Japan. These rich-country trade deficits are in some ways more alarming than our deficit with China, because they are emphatically not the result of cheap foreign labor. In fact, nearly a dozen European countries now pay their manufacturing workers better than we do. So let’s look at Japan for a minute. In the 1980s, Japanese industrial policy was the object of intense American interest, which has since waned due to the deliberately cultivated misapprehension that Japan is in economic decline (This illusion has been exhaustively debunked by the Tokyo-based Irish journalist Eamonn Fingleton; Japan is playing sick to get us off their back.) There was a flurry of books on the subject and for a while it seemed that America might acquire a serious industrial policy of its own (which never happened). But Japan remains much more relevant to America’s situation than China, simply because Japan has wages comparable to the U.S., while China competes largely on the basis of a low-wage policy that is impossible for a developed nation to emulate. China is following Japan’s old playbook anyway, so it is well worth examining Japan’s trade history. Japan’s protectionism runs very deep in its political and economic system. The Japanese themselves certainly believe their economic success has been due to protectionism. No one in Japan of any standing in business, government, or academe believes that Japan’s success has been due to free trade. In the words of economic historian Kozo Yamamura: Protection from foreign competition was probably the most important incentive to domestic development that the Japanese government provided. The stronger the home market cushion…the smaller the risk and the more likely the Japanese competitor was to increase capacity boldly in anticipation of demand growth. This can give the firm a strategic as well as a cost advantage over a foreign competitor operating in a different environment who must be more cautious. The cultural roots of Japan’s repudiation of free trade are extraordinarily deep–as deep, say, as the roots that make America a capitalist culture. This was, after all, a nation which literally sealed itself off from the outside world for two centuries (1635-1853). This act is regarded by most Westerners as merely odd, but it was, in fact, profoundly consistent with the enduring character of Japanese civilization. Japan’s forcible opening to the modern world in 1853, when U.S. Commodore Matthew Perry sailed his famous “black ships” into Tokyo Bay demanding trading rights, added a new element to Japan’s existing authoritarian social order: the need for economic and technological sophistication sufficient to defend its existence as an independent nation. Japan promptly set about engaging the modern world on terms congenial to its own political priorities–not those of outsiders. The key slogan of the day was fukoku kyohei , “rich country equals strong army.” Thus private economic interests have never, except perhaps for a brief liberal moment in the 1920s, been allowed to be the primary drivers of its national economy. Instead, private interests have been subordinated to the national economic interest under a system most succinctly describable as state capitalism. And protectionism is an innate part of that system. Japan in 1945 was economically crushed, its cities smoking ruins, its empire gone. It was poorer even than some African nations untouched by the B-29. It seemed so far behind the United States that there was no plausible way ever to catch up. It was widely expected that Japan would end up an economic also-ran like that neighboring island chain, the Philippines. And within the economic ideology America was promoting to Japan at the time, free trade according to comparative advantage, there seemed to be no way out, as Japan had comparative advantage only in low-value industries. History records a fascinating exchange on this topic, which encapsulates the entire postwar free trade debate. In 1955, when the U.S. and Japan were negotiating their first post-occupation trade agreement, the head of the American delegation, C. Thayer White, told the Japanese to cut their tariff on imported cars because, in his words: 1. The United States industry is the largest and most efficient in the world. 2. The industry is strongly in favor of expanding the opportunities for world trade. 3. Its access to foreign markets in recent years has been limited by import controls. 4. Although the United States Government appreciates that it is necessary for some countries to impose import restrictions for balance of payments reasons…it would be in Japan’s interest to import automobiles from the United States and ex-port items in which Japan could excel. Upon Ricardian comparative-advantage principles, White was, of course, 100 percent correct. But the Japanese trade negotiator, Kenichi Otabe, replied that: 1. If the theory of international trade were pursued to its ultimate conclusion, the United States would specialize in the production of automobiles and Japan in the production of tuna. 2. Such a division of labor does not take place…because each government encourages and protects those industries which it believes important for reasons of national policy. Needless to say, Japan did not choose to become a nation of fishing villages! Instead, its rulers drew the same conclusion that Alexander Hamilton had drawn 150 years earlier and Henry VII 300 years before that, opting for protectionism and industrial policy. They closed Japan’s markets to foreigners in industries they wished to enter, only welcoming foreign goods insofar as they helped build up Japan’s own industries. They applied administrative guidance to key industries and rigged Japan’s banking system and stock market to provide cheap capital to industry. Tokyo instead protected its fledgling automobile industry in the 1950s, limiting imports to $500,000 per year. (In the 1960s, prohibitive tariffs replaced this quota.) Japan only allowed foreign investment insofar as this transferred technology to its own manufacturers. Today, it produces over two-and-a-half times as many cars as the U.S., mostly for export. As Japan has historically been the economic leader for the whole of Confucian Asia (Japan, Korea, China, Taiwan, Vietnam, Hong Kong, and Singapore), its protectionist policies have been shared with nearby nations to a huge extent. The ultimate basis of these policies is an attitude towards economics that sees the economy not as an end in itself, but as an instrument of national power. As Harvard Asia specialists Roy Hofheinz and Kent Calder have written, “For more than a century, nationalist sentiments…have been a basic driving force underlying East Asian economic growth.” Even today, Chinese industry is 30 percent owned by the state. Over a dozen strategic industries have been slated to remain under outright government ownership and control, including information technology, telecommunications, shipping, civil aviation and steel. Laissez faire this is not. In relation to its neighbors, Japan has employed something called the “flying geese” strategy, christened thus by the Japanese economist Akamatsu Kaname in the 1930s. Japan breaks into an industry, wipes out existing Western competitors, then successively hands the industry down to less sophisticated neighboring economies such as Korea, Taiwan, Thailand, Malaysia, and Vietnam as they mature. This pattern has held for goods from garments to televisions for five decades. Japan’s withdrawal from labor-intensive goods in the 1970s opened up space for Taiwan, South Korea, Singapore, and Hong Kong, and their ongoing withdrawal from these goods is opening up space for China. Among other things, this nicely illustrates how rational protectionism is a dynamic, not a static, strategy, and does not consist in defending every job and every industry.

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

April 17, 2011

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

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Poll: Rich Will Drastically Increase Luxury Spending This Year

April 15, 2011

NEW YORK (Michelle Nichols) – Rich Americans are expected to spend an extra $26.6 billion on luxury goods this year but they will do so with an eye toward value as the country recovers from recession, a poll released on Friday found. Spending on luxuries, excluding cars and travel, is set to rise 8 percent to $359 billion compared to 2010, according to the sixth annual American Express Publishing and Harrison Group survey. While the number of affluent families planning to spend more has almost doubled in the past three years, they are emerging from the recession seeking value, quality and service for their money, said Jim Taylor, vice chairman of Harrison Group. “There will be more money spent, but it doesn’t mean it won’t be spent without the prudent skills learned as the result of a very difficult recession,” Taylor said. “This is a survivor’s economy with people who have succeeded in surviving the recession demanding a new form of respect,” he told a news conference. The Survey of Affluence and Wealth in America polled 1,458 families with a discretionary income of more than $100,000 — representing the wealthiest 10 percent in the United States who account for about 50 percent of all consumer spending. It found that 15 percent of these families plan to spend more in 2011, up a quarter from 2010 and almost double from 2008. The number of families cutting spending was nearly halved from last year to 9 percent and down two-thirds from 2008. LESS ANXIOUS Rich families save an average of a quarter of their incomes annually, the poll found, and 34 percent said they were looking forward to spending more money this year. Taylor said that while 70 percent of affluent Americans still believe the country was in recession, they were less anxious. Concern over job loss has fallen 50 percent from 2010 and worries about the potential failure of their companies are down to 11 percent from 28 percent. Almost three-quarters said they had become more resourceful because of the recession. “In the end, the increase in spending we foresee is not a return to the wanderlust of the past, but rather, an expression of sensible, resourceful, self-confident consumers expanding their portfolio of needs,” he said. “The nearly $4 trillion in their money market funds gives these consumers the power to purchase with cash. Their value equation reflects the price of recession: mature judgment,” Taylor said. A 2010 stock market rally, which pushed up the Dow Jones Industrial Average 11 percent, has also helped sway consumers. Consumer spending, which accounts for 70 percent of U.S. economic activity, grew at a brisk 4 percent pace in the final three months of last year. But U.S. retail sales posted their smallest gain in nine months in March, as auto sales plunged and consumers felt the sting of higher gas prices. The online wealth survey was conducted from January 31 to February 14 and had a margin of error of plus or minus 3 percentage points. (Editing by Xavier Briand) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Howard Steven Friedman: 10 Largest Economies in the World

April 15, 2011

The ten largest national economies in the world comprise nearly 70% of the entire world’s economy. Of these ten countries, four are in Europe, three are in the Americas and three are in Asia. The GDP per capita is greater than $30,000 for seven of the top ten countries with Brazil, China and India having significantly lower GDP per capita. The United States has the largest economy — about the same size as the second (China), third (Japan) and fourth (Germany) largest economies combined. Many economists project that China will supplant the United States as the largest economy in the world within the next few decades. Because China’s population is about 4 times larger than that of the United States, equal size economies would mean that China’s GDP per capita would reach about one-fourth that of the United States. China’s GDP per capita is currently about one-tenth that of the United States. Note: GDP has a number of limitations as a measure of economic strength but is still the most commonly cited measure of economic size. This article uses nominal GDP as reported by the IMF (2010). Nominal GDP refers to the GDP evaluated at current market exchange rates. An alternative is the Purchase Price Parity (PPP) which is a theoretical construct that seeks to represent the exchange rate that would allow for a basket of goods to cost the same in different countries. PPP can vary based on the basket of goods sold and have sometimes undergone major adjustments such as in 2005 when China’s PPP was adjusted by 40%.

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Joblessness And Hopelessness: The Link Between Unemployment And Suicide

April 15, 2011

Kerri, a 57-year-old living near Seattle, says she lost her software sales job three years ago — and that age discrimination has made her ongoing search for work feel hopeless at times. “I went to an interview and the guy actually excused me before we even started. He said, ‘Well, we’re looking at your resume and we don’t feel that you’d be a good fit,’” Kerri recalls. “Why would I be brought in after two phone interviews with managers?” By the winter of 2009, she says, she’d taken all the rejection she could stand. She swallowed a bunch of pills. “There was a reason: I had no hope,” she recalls. “There was no point for the future. I had just lost another job opportunity that I thought I had done a really good job at and they just dismissed me. I was old, and they’re not going to hire me. With that, I couldn’t have my life back.” She says that when she came to in a hospital, doctors told her she’d called 911 before passing out because she wanted someone to come feed her two dogs. She doesn’t remember making that call. While she says she’s more comfortable now talking about what happened then, she asked that her full name not be used in this story because she’s only told one other person, a family member, that she tried to kill herself. Need help? In the U.S., call 1-800-273-8255 for the National Suicide Prevention Lifeline. How much did Kerri’s joblessness contribute to her decision to try and take her own life? Researchers have long sought to understand the possible link between unemployment and suicide. As layoffs surged late in 2008, the Suicide Prevention Resource Center , a group based in D.C. and Massachusetts that helps organizations develop suicide prevention programs, reviewed two decades’ worth of research on the question. It found that a “strong relationship exists between unemployment, the economy, and suicide.” But, the group cautioned, it’s never just one factor that drives people to the edge. “Economic circumstances themselves are insufficient to cause a suicide; in fact, we do not know of any single factor that is sufficient on its own to ’cause’ a suicide,” says an SPRC memo based on the research. “Stressors such as the loss of a job, a home, or retirement security can result in shame, humiliation or despair, and in that context, can precipitate suicide attempts in those who are already vulnerable or do not have sufficient resources to draw on for support.” A new study by the Centers for Disease Control and Prevention finds that the suicide rate from 1928 to 2007 has risen and fallen in tandem with the business cycle. It spiked at the onset of the Great Depression, rising to its all-time high in 1933. It fell during the expansionary World War II period from 1939 to 1945. It rose during the oil crisis of the early ’70s and the double-dip recession of the early ’80s, and fell to its lowest level ever during the booming ’90s. “Economic problems can impact how people feel about themselves and their futures as well as their relationships with family and friends. Economic downturns can also disrupt entire communities,” the study’s author, Feijun Luo, an economist in the CDC’s Division of Violence Prevention, says in a statement. “We know suicide is not caused by any one factor — it is often a combination of many that lead to suicide.” Has suicide spiked during the worst recession since the Great Depression started in 2007? The government’s official numbers lag, so it’s too early to answer that question. According to the most recent data — a preliminary estimate the CDC released in March — suicide ticked up slightly in 2009, becoming the 10th leading cause of death in the United States. Suicides accounted for 11.7 of every 100,000 deaths in 2009, up from 11.6 deaths the previous year and 11.3 in 2007. A recent paper by Timothy J. Classen of Loyola University Chicago and Richard A. Dunn of Texas A&M found that mass layoffs and long spells of unemployment specifically were associated with increased suicide risk. That study relied on data from 1996 to 2005. In this recession, the long-term unemployment rate (defined by the government as jobless spells lasting at least six months) has soared to unprecedented levels. More than 6 million people — nearly half the total unemployed in March — had been out of work that long. And more than a million people have been out of work for 99 weeks or longer, passing the maximum limit for unemployment insurance. The ranks of the long-term jobless keep growing even as the unemployment rate goes down. “Given our findings for a slightly earlier time period, I would be concerned that the increasing rate of long-term unemployment in the United States is having important consequences on the mental health of many American workers, and I would be concerned that we are going to see increased rate of suicide because of it,” Dunn says. “We won’t be able to study this until the latest data comes out, but we won’t have that data for another two or three years.” For some of those struggling with joblessness, it seems obvious that the ongoing jobs crisis will lead to more suicides. Gerry DePietro, who says she lost her job as an accountant in 2008, became one of a cadre of long-term unemployed who share their troubles with others online. DePietro, who is in her mid 60s and lives in Norristown, Pa., says she got a job this week after 30 months of unemployment. She’s no longer one of the “99ers” — people who’ve exhausted all 99 weeks of their unemployment benefits without finding work — but she says she’ll continue to be an advocate for their cause. “You wonder why I am so passionate about my fight for the 99ers?” wrote DePietro in a February email, one of dozens she’s sent to reporters and Congressional staffers. “I just received word of YET ANOTHER 99ER WHO TOOK HIS OWN LIFE! A young father with a wife and 2 young children! THE SUICIDE RATE IS HIGH, BUT YOU NEVER HEAR ABOUT THAT.” Tales of the jobless committing suicide for lack of work abound online in forums and blogs. Change.org is a website that allows users to create their own petitions and contribute news stories. A 2010 blog item on the site , for instance, drew a bright line connecting job loss and one man’s suicide. “Wayne Zickefoose was facing a desperate situation. With an impending foreclosure and a mountain of credit card debt, he must have felt there was no way out,” the story said. “On June 13th, he picked up a handgun and shot his wife and 3-year-old son before killing himself. The tragedy isn’t just an isolated incident. As joblessness rates rise, people are getting desperate.” For their part, suicide prevention advocates don’t dismiss the notion that joblessness adds to the emotional burden of anyone prone to suicidal thoughts, but they say the array of factors leading to such a decision is too complex to be tied to just one thing — and that 90 percent of people who actually die by suicide have an underlying mental health issue. And advocates warn the media to tread carefully around the topic. “Avoid reporting that death by suicide was preceded by a single event, such as a recent job loss, divorce or bad grades,” say recommendations for media from a coalition of groups led by the American Foundation for Suicide Prevention, the American Association of Suicidology, and the Annenberg Public Policy Center. “Reporting like this leaves the public with an overly simplistic and misleading understanding of suicide.” Contagion is the concern: The suicide prevention groups say studies have shown dramatic, simplistic headlines about suicide motivation can lead to copycat suicides. The anti-suicide groups updated their reporting recommendations on Thursday, including for the first time advice for citizen journalists, bloggers, and message board administrators — a nod to the pivotal role that social media and the Web now play in discussions of the topic. But at least among some of the jobless, media reports about suicide are considered too tame. Bud Meyers, a Las Vegas casino bartender who’s been out of work for more than two years, wrote on his blog in November that he suspected that media avoidance of suicide topics had a worse effect than contagion. “If the news media had reported the full stories of all these unemployed-related suicides, maybe many of those poor souls would still be clinging on to life today, and possibly living with some measure of hope,” he wrote. “And maybe they wouldn’t have had to write their own eulogies or their pathetic suicide notes either.” When Meyers (whose name is a pseudonym) later posted an apparent suicide note online at the beginning of the year (“now I must face the stark reality of the last three weeks of my life,” he wrote), unemployed Twitter users alerted a CNN reporter, Ali Velshi. Velshi took to the CNN Newsroom and told Meyers on air to “hang in there.” Meyers’ online acquaintances also notified Las Vegas police, who visited his home. Meyers said he told the officers that what he’d written wasn’t a suicide note — something he later repeated to a plethora of media outlets, including The Huffington Post and the Associated Press . Still, the coverage at the time made him the despairing, middle-aged face of long-term unemployment. He continues to struggle. In an interview, he says that he tells himself: “Bud, you’ve had a good life. You’ve had a good 55 years. Why not end it now? Why spend the last 15 to 20 years of my life in total poverty when I’ve already had it so good up to a certain point? Why ruin a good life by ending it so badly?’” Yet he’s hanging on. He says he’s accepted the generosity of a stranger who took him in and he is also applying for disability benefits from the Social Security Administration. Whether or not they decide to take their own lives, people in their fifties who’ve been out of work for a long time (and the HuffPost has interviewed dozens of these people in the past few years) say they feel disconnected from society, as though they’re watching the world through a window. The isolation deepens as they sit at their computers, flinging resume after resume at prospective employers who rarely respond — even just to say no. Some hang out in online forums where jobless folks gab over the latest news on the economy or unemployment benefits. Kerri used to do this, too. She says she once closely followed the news on Congress.org because the site had excellent detail on benefits she might receive. The site’s administrators have described their comment boards as “almost like self-organizing self-help groups where people share information on [unemployment] benefits in their states.” Kerri says she also once sought out darker stories. “For some reason I was attracted to a lot of different stories that had to do with suicide,” she says. “I would read about it and I would think, ‘That sounds like a good idea. I could just go to sleep.’” Today, things are different. While Kerri says she’s still depressed, she has been coping more effectively after getting involved with a local church and finding some part-time sales work. “The fact that I’ve been able to get some temp jobs makes me feel like I am still worth something,” she says. Need help? In the U.S., call 1-800-273-8255 for the National Suicide Prevention Lifeline.

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Corporate Partner Cal Smith Joins King & Spalding in Atlanta

April 15, 2011

ATLANTA, GA–(Marketwire – April 15, 2011) – William C. (Cal) Smith, one of the leading corporate lawyers in the southeastern United States, has joined King & Spalding as a corporate partner in its Atlanta, Ga., office, the firm announced today.

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Simon Johnson: Could Goldman Sachs Fail?

April 14, 2011

If Goldman Sachs were to hit a hypothetical financial rock, would they be allowed to fail — to go bankrupt as did Lehman — or would they and their creditors be bailed out? I asked this question on Sunday to four leading experts (Erik Berglof, Claudio Borio, Garry Schinasi, and Andrew Sheng) from various parts of the official sector at the Institute for New Economic Thinking (INET) Conference in Bretton Woods — and to a room full of people who are close to policy thinking both in the United States and in Europe.  In both the public interactions (for which you can review video here) and private conversations later, my interpretation of what was said and not said was unambiguous: Goldman Sachs would be bailed out (again).

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Geithner: Congress Will Increase Debt Limit

April 14, 2011

April 13, 2011 10:55:23 PM WASHINGTON (Reuters) – Treasury Secretary Timothy Geithner said Wednesday that Congress will allow the country to borrow more by agreeing to increase the $14.3 trillion debt limit. “Congress will pass an increase in the debt limit,” Geithner told PBS Newshour. Republicans have said they are unwilling to raise the debt ceiling without some reforms to the government spending. Geithner said there were some lawmakers who want to take debt ceiling negotiations “to the brink” and warned that the United States could not take that risk. “So you want Congress to move as quickly as possible to raise that, and of course, they recognize that they have to do that,” he said. Treasury has forecast that the limit will be reached by May 16. After that point, Treasury can take emergency measures to avoid hitting the debt ceiling. But those actions will only give the United States about a two-month window before Treasury is unable to issue debt to fund government operations. (Reporting by Glenn Somerville and Rachelle Younglai; Editing by Jan Paschal) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Motorola Settles Trade Secret Dispute With Chinese Telecom

April 13, 2011

By Paul Thomasch (NEW YORK) – Motorola Solutions Inc and China’s Huawei Technologies Co have settled a legal dispute over trade secrets, clearing the way for Motorola to complete the sale of one of its business units to Nokia Siemens Networks. The settlement puts to rest charges by Huawei that Motorola, one of its long-standing partners, could disclose a variety of its trade secrets in selling a networks business to rival Nokia Siemens Networks. Motorola agreed to pay an unspecified transfer fee to Huawei as part of the settlement, it said on Wednesday. Motorola, in a separate announcement, also said it had lowered the sale price of the networks business to Nokia Siemens to $975 million from $1.2 billion. That should help ensure the deal goes through by April 29, Motorola said. While Motorola and Nokia Siemens can now press ahead with their deal, Huawei will likely use the legal settlement to help improve relations with the U.S. business community and government. Huawei is one of the world’s largest makers of telecommunications equipment but has said its ability to do business in the United States has been hurt by a series of unproven allegations and misperceptions. Legal disputes have not helped its reputation, particularly when they involve a long-term partner such as Motorola. Last summer, Motorola filed suit against Huawei alleging theft of trade secrets via former Motorola employees who gave information to Huawei’s founder. “Huawei hopes the recognition of the value of its intellectual property and withdrawal of claims about it would help put behind rumors of its association with the Chinese government,” said Robert Haslam, an attorney at Covington & Burling, who is representing Huawei. Concerned about its reputation, Huawei recently challenged the United States to launch a formal investigation into its business, It was a highly unusual moved and followed a recent U.S. government foreign investment review that is forcing Huawei to sell assets it bought from 3Leaf, a small U.S. company. Three years ago, Huawei had to pull back from a bigger proposed investment in 3Com, in similar circumstances. Huawei says it has been the victim of misperceptions about its relationship with the Chinese military because its founder, Ren Zhengfei, served in the People’s Liberation Army until 1983. In its case again Motorola, Huawei demanded that the deal with Nokia Siemens be altered to avoid infringing intellectual property rights. It said that Motorola, its partner since 2000, had information including its plans for future products and technical specifications related to product performance and testing. Huawei wanted assurances that none of that would be transferred to Nokia Siemens, a venture of Finland’s Nokia Oyj and Germany’s Siemens AG. Nokia Siemens, or NSN, had grown impatient to close the deal, originally due to occur by the end of last year. For Nokia Siemens, the delayed Motorola deal was intended to strengthen it against Chinese rivals and make it the second-largest mobile telecom gear maker ahead of Huawei. The delay, according to analysts, may also have been holding up plans by the parent companies of Nokia Siemens to sell a minority stake in the venture. Nokia and Siemens said last August they had been approached by private equity firms interested in buying a stake. “This is a good thing for Nokia as they have been able to cut a new deal, which will be closed in the second quarter,” said Swedbank analyst Jari Honko. “This means they can proceed with selling of minority stake in NSN.” Shares of Motorola were up 31 cents at $44.14. (Additional reporting by Tarmo Virki in Helsinki and Kenneth Li in New York; editing by Dave Zimmerman)

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Robert E. Scott: Putting U.S.-China Trade in its Proper Perspective

April 11, 2011

An April 7 column in the New York Times Economix blog highlighted the rapid growth of U.S. exports to China, which look impressive in isolation. But this is a biased and one-sided view — exports have been overwhelmed by the growth of U.S. imports from China and the bilateral trade deficit, as shown in the graph below. When trying to assess the costs and benefits of the U.S./China trade relationship, counting only exports is like judging a baseball game by only counting runs scored by the home team. It might make you feel good, but tells you nothing about who is winning or losing the game. Properly measured, U.S. imports from China were $364 billion in 2010, vs. domestic exports of only $85.8 billion (excluding transshipments of goods from other countries), for a trade deficit of $278.3. Even when goods made in other countries are included with U.S. exports, the deficit in 2010 was $273.1 billion, substantially more than estimates reported by the Times (“$180 to $250 billion”). A sizable share of U.S. exports to China is raw materials used to produce goods that are re-exported back to the United States. Four of the top six industries producing exports are waste and scrap products, semiconductors, resins and synthetic rubber and fibers, and basic chemicals. Sectors such as cash grains (the top export commodity) and waste and scrap support very few U.S. jobs. Such trade may be good for U.S. multinational companies (MNCs), but provides few benefits for the domestic economy. Overall, the large and growing trade deficit with China has displaced millions of U.S. jobs , most in the manufacturing sector which has lost 5.5 million jobs since 2000. The Economix report relies on data published by the U.S. China Business Council, a trade association representing MNCs doing business in China. These firms have profited enormously by outsourcing production to China. China has subsidized these firms through massive currency manipulation, which reduces the costs of their exports by 25 to 40%, and by pouring tens of billions of dollars into subsides of products like steel , glass and paper products . U.S. MNCs should not be allowed to dictate U.S. trade policy. The U.S. needs to get tough and demand that China and other currency manipulators revalue their currencies and end other unfair trade practices. Nibbling around the edges with a WTO case for one sector and import surge protection for another will not get the job done. The U.S. should start by threatening to impose large tariffs on all U.S. imports from currency manipulators.

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Obama Adviser Weighs In On Trump’s Presidential Ambitions

April 10, 2011

Senior White House adviser David Plouffe weighed in on the presidential ambitions of Donald Trump on ABC’s “This Week” on Sunday. “I saw Donald Trump kind of rising in some polls and given his behavior and spectacle the last couple of weeks, I hope he keeps on rising,” said Plouffe. “There is zero chance that Donald Trump would ever be hired by the American people to do this job.” In recent weeks, Trump has captured headlines and sparked controversy by repeatedly raising skepticism over whether President Barack Obama is a citizen of the United States. He has released his own official birth certificate and has called on Obama to do the same despite the fact that the president’s birth records have been available online for over three years. Last week, Trump signaled that he has investigators on the ground in Hawaii in search of more details on the president’s birthplace. Plouffe called the actions demonstrated by Trump “sideshow behavior.” “There may be a small part of the country that believes these things, but mainstream Americans think it’s a sideshow,” he said, adding that voters want political leaders to focus on the economy and pressing policy issues. Karl Rove and Sen. Marco Rubio (R-Fla.) are two conservatives who have expressed dissatisfaction with the fact that Trump continues to hammer the issue. Nevertheless, Trump raised doubt over the president’s citizenship once again in an interview that aired on CNN’s “State of the Union” on Sunday. He called the ordeal “a strange situation” and suggested that it’s because of the media that “the word birther is a negative word.”

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China Posts First Quarterly Trade Deficit In Six Years

April 10, 2011

BEIJING — China reported its first quarterly trade deficit since 2004 on Sunday as surging prices for commodities pushed up its import bill. The General Administration of Customs said in an online statement that China posted a trade deficit of $1.02 billion from January to March this year. However, China reported a small trade surplus of $140 million in March, up from a deficit of $7.3 billion the month before, it said. Export growth in the first quarter was strong, it said, increasing 26.5 percent to $399.64 billion compared to a year earlier, but imports soared 32.6 percent during that period, to $400.66 billion. “The value of imports in the first quarter hit a record high for the first time of more than $400 billion,” the administration said. It said China imported more mechanical and electrical equipment, including cars, as well as iron ore and soybeans, than it did a year ago and that the prices of those commodities had all shot up. Analysts expect a Chinese global trade surplus this year of $160 billion-$200 billion but say that should narrow if oil and commodity prices stay high. Last year, China ran a trade surplus of about $16 billion a month. A smaller trade surplus might help to ease trade strains with Washington and other governments that complain Beijing is giving its exporters an unfair advantage with currency controls and other policies. Stronger imports could help economies looking to China’s robust growth to drive demand for their goods. Imports also might benefit from ongoing government efforts to boost consumer spending to reduce reliance on exports and investment. China is a major importer of oil, iron ore and raw materials and runs a deficit with suppliers such as Saudi Arabia and Australia. It pays for that by running multibillion-dollar surpluses with the United States and Europe. ___ Online: General Administration of Customs of China (in Chinese): http://www.customs.gov.cn

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Andrew Berg: Warning! Inequality May Be Hazardous to Your Growth

April 8, 2011

Many of us have been struck by the huge increase in income inequality in the United States in the past thirty years. The rich have gotten much richer, while just about everyone else has had very modest income growth. Some dismiss inequality and focus instead on overall growth — arguing, in effect, that a rising tide lifts all boats. But assume we have a thousand boats representing all the households in the United States, with boat length proportional to family income. In the late 1970s, the average boat was a 12 foot canoe and the biggest yacht was 250 feet long. Thirty years later, the average boat is a slightly roomier 15 footer, while the biggest yacht, at over 1,100 feet, would dwarf the Titanic ! When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss. In fact, inequality matters. And it matters in all corners of the globe. You need look no further than the role it might have played in the historic transformation underway in the Middle East. The increase in U.S. income inequality in recent decades is strikingly similar to the increase in the 1920s. In both cases there was a boom in the financial sector, poor people borrowed a lot, and it all ended in huge financial crises. Did the recent financial crisis result somehow from the increase in inequality? Some time ago, we became interested in long periods of high growth (“growth spells”) and what keeps them going. The initial thought was that sometimes crises happen when a “growth spell” comes to an end, as perhaps occurred with Japan in the 1990s. We approached the problem as a medical researcher might think of life expectancy, looking at age, weight, gender, smoking habits, etc. We do something similar, looking for what might bring long “growth spells” to an end by focusing on factors like political institutions, health and education, macroeconomic instability, debt, trade openness, and so on. Somewhat to our surprise, income inequality stood out in our analysis as a key driver of the duration of “growth spells”. We found that high “growth spells” were much more likely to end in countries with less equal income distributions. The effect is large. For example, we estimate that closing, say, half the inequality gap between Latin America and emerging Asia would more than double the expected duration of a “growth spell”. Inequality seemed to make a big difference almost no matter what other variables were in the model or exactly how we defined a “growth spell”. Inequality is of course not the only thing that matters but, from our analysis, it clearly belongs in the “pantheon” of well-established growth factors such as the quality of political institutions or trade openness. While income distribution within a given country is pretty stable most of the time, it sometimes moves a lot. In addition to the United States in recent decades, we’ve also seen changes in China and many other countries. Brazil reduced inequality significantly from the early 1990s through a focused set of transfer programs that have become a model for many around the world. A reduction of the magnitude achieved by Brazil could — albeit with uncertainty about the precise effect — increase the expected length of a typical “growth spell” by about 50 percent. The upshot? It is a big mistake to separate analyses of growth and income distribution. A rising tide is still critical to lifting all boats. The implication of our analysis is that helping to raise the lowest boats may actually help to keep the tide rising! The immediate role for policy, however, is less clear. More inequality may shorten growth duration, but poorly designed efforts to reduce inequality could be counterproductive. If these distort incentives and thereby undermine growth, they can do more harm than good to the poor. Still, there may be some “win-win” policies, such as better-targeted subsidies, better access to education for the poor that improves equality of economic opportunity, and active labor market measures that promote employment. When there are short-run trade-offs between the effects of policies on growth and income distribution, the evidence in our paper doesn’t in itself say what to do. But our analysis should tilt the balance towards the long-run benefits — including for growth — of reducing inequality. Over longer horizons, reduced inequality and sustained growth may be two sides of the same coin . Stepping further back, all this reminds us of the 1980s debt crises and the resulting “lost decade” of slow growth and painful adjustment. That experience brought home the fact that sustainable economic reform is possible only when the benefits are widely shared. In the face of the current global economic turmoil and the need for difficult economic adjustment and reform in many countries, it would be better if these old lessons could be remembered rather than relearned. Crossposted from iMFdirect .

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Daniel Michaeli: Let’s Negotiate an Investment Treaty with China

April 8, 2011

In recent years, Beijing has asked repeatedly for a treaty that would give U.S. investors in China greater and more enforceable rights. It is high time for the Obama administration to respond seriously — by concluding its open-ended review of bilateral investment treaties and working one out with China. The U.S. and China should work aggressively over the next several weeks to prepare to announce a timeline for negotiations at the U.S.-China Strategic and Economic Dialogue in Washington next month. American firms have nearly $50 billion invested in China, and a recent survey of companies investing in China indicates that most intend to increase their investments substantially this year. The performance of these investments is crucial to the U.S. economy: they enable American companies to access China’s huge domestic market and catalyze American exports — U.S. multinationals send half of their total exports from the United States to their own foreign affiliates. American corporations, when successful overseas, bring jobs and investment back to the United States. Recent data indicates that U.S.-based multinational corporations locate more than half of their employees in the United States, where they have 70 percent of their operations and spend 87 percent of their research and development budget. U.S. companies face serious challenges operating in China. But the good news is that some of their most significant concerns cover areas effectively addressed in bilateral investment treaties, such as intellectual property theft, local content requirements, expectations of technology transfer, and regulatory discrimination. China has already signed 120 investment treaties around the world, including with Japan, Germany and the United Kingdom. The most recent ones have clauses providing foreign investors with the option to resort to binding international arbitration for intellectual property disputes, if Chinese local courts cannot resolve such issues satisfactorily (as, indeed, too often they cannot). Language already in China’s existing treaties, promising foreign investors regulatory treatment equal to domestic investors, also provides remedies for foreign companies in China facing biased enforcement of regulations. With $3 billion invested in the United States, Beijing has also sought negotiations on a treaty with Washington for several years, to protect its investments in the United States. It is in the U.S. interest to sign such a treaty. China is now the world’s largest capital-surplus economy. Its annual flows of outward investment more than doubled between 2007 and 2009, and China is expected to become the second-largest source of global foreign direct investment within two years, after the United States. So even as protecting American investments in China is crucial, the U.S. economy would benefit greatly from increased Chinese investment in the United States, subject to proper national security considerations. A bilateral investment treaty would help lay the groundwork. Chinese investment in the U.S. has so far been quite limited. An ongoing $3.6 billion investment of South Korea’s Samsung Electronics in Austin, Texas, is larger than all the active Chinese investments in the United States combined, according to the most recent data. There is much more potential for Chinese investment that would create jobs and opportunities for American entrepreneurs to access China’s massive financial resources. And China is eager to invest; despite the economic pessimism of many Americans, Chinese investors recognize there is still a lot of money to be made in the United States. At an investment forum in Beijing several days ago, a senior official with the China Investment Corporation revealed that the fund earned 40% returns on clever investments in American commercial real estate last year. If U.S. does not begin negotiations now, the European Union, which in December began exploring the prospect of an investment treaty with China, might beat the United States to the punch. A better approach would be to coordinate treaty negotiations between the U.S. and the EU, as China’s largest trading partners. By preparing for an announcement of negotiations at the Strategic & Economic Dialogue, the U.S. can work towards an investment treaty that would respect U.S. national security interests, level the playing field for U.S. firms operating in China, and attract Chinese investment — signed and ratified by the end of 2011. Failing to act quickly could damage the U.S. economic position in China and harm longer-term prospects for the U.S. economic recovery.

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David Wallechinsky: 25 Hedge Fund Managers Make as Much Money as 1,150,000 Average Americans

April 7, 2011

Here is one more example that the gap between the super-wealthy in the United States and the rest of Americans is growing wider and wider. A group of 25 hedge fund executives in 2010 managed to earn a combined $22.1 billion — an amount equivalent to 441,400 American households each making $50,000 a year (roughly the current average). Considering that the median household size is 2.6 persons, that means that these 25 took home as much as the average 1,150,000 Americans combined. That’s bigger than the population of Dallas… or Rhode Island. Ten years ago, the same 25 Wall Street barons would have taken home a total of $5 billion. Now, a single hedge fund chief, John Paulson, was able to make that much ($4.9 billion) in 2010. Paulson made billions during the worst of the financial downturn because he bet that the mortgage bubble would burst. Most of his profits in 2010 came from investing in gold, buying and selling stock in Citigroup… and collecting an estimated $1 billion in management fees. Cross-posted at AllGov.com

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Economists: Gridlocked Congress ‘Playing With Fire’

April 6, 2011

NEW YORK — Political infighting in Washington may seem irrelevant to many Americans. But in the coming weeks, as Congress attempts to pass a budget and debates whether to increase the federal debt limit, these rivalries now have the potential to devastate the U.S. economy. If lawmakers don’t reach an agreement to fund the government by Friday, an array of programs will shut down. The freeze, if it lasts for several weeks, could wound Americans’ confidence enough to tip the economy into recession , Mark Zandi, chief economist of Moody’s Analytics, said last week. But even that scenario wouldn’t be as damaging as if the government defaulted on its debt, a consequence that could come sometime in the next several months if lawmakers, locked in a political stalemate, fail to increase the federal debt limit. A government shutdown has the potential to cause a recession if it lasts long enough, experts say. A default would likely ravage the economy almost immediately. Both could be caused by gridlock in Congress. “It would be a big, big, big deal” if the United States defaulted on its debt, said Nariman Behravesh, a chief economist at IHS Global Insight, a financial and economic analysis firm. “It could mean the collapse of the dollar. People would run away from the U.S.” “That’s playing with fire,” he added. At stake is the ability of the United States government — and indeed of all of its citizens — to borrow money cheaply, something Americans have long taken for granted as an essential feature of their first-world economy. If interest rates rise high enough, the economy essentially grinds to a halt. “People playing chicken think it’s a good idea to put at risk something that the country paid a dear price to preserve for so many years,” said Gary Burtless, a former Labor Department economist and a current fellow at the Brookings Institution, in Washington. “For a rich country to play these types of games does strike me as being foolish in the extreme.” For months, top economic officials in the Obama administration have warned of the perils of refusing to increase the federal debt ceiling, while Republicans in Congress have portrayed the limit as a means of enforcing fiscal austerity. The U.S. government continuously issues new debt to pay principal and interest on older debt, which means that if the debt burden isn’t allowed to grow, the U.S. could be forced to miss payments to creditors. If lawmakers fail to legislate, the debt ceiling will likely be hit. But in the current political climate, legislation has been met with a fierce, protracted stalemate . In the past few weeks, lawmakers on both sides of the aisle have dug in their heels, generally refusing to compromise on a budget bill. Gridlock could lead to a shutdown on Friday. A month later, the costs of not legislating will be even more dire. Treasury Secretary Tim Geithner testified before the Senate appropriations subcommittee on Tuesday, laying out the dangers of inaction. Failing to raise the debt ceiling would send the country into crisis mode by May 16, he said, at which point the government would resort to emergency measures to stave off default for a few more weeks. “Default by the United States would precipitate a crisis worse than the one we just went through,” Geithner said, according to a transcript of his remarks. “I think it would — it would make the crisis we went through look — look modest in comparison.” A default by the United States could set off a dangerous chain reaction. It would likely cause interest rates to rise and the value of bonds to fall, as what is arguably the world’s safest security would now be perceived as risky. Those higher rates would ripple throughout the economy, raising borrowing costs for homeowners, students, car-buyers, entrepreneurs, investors and all types of businesses. Financial markets everywhere would likely be thrown into panic. Credit ratings agencies would likely be forced to lower the United States’ top ranking, a seal of approval that investors across the world take for granted. The Federal Reserve’s massive asset-purchase program, designed to lower interest rates to encourage the flow of money through the economy and stimulate a recovery, would likely be undermined. As the United States would scramble to calm investors, the government would be forced to cut payments to the military, Geithner said. The full ramifications, moreover, cannot be foretold. “That would be absolutely catastrophic and very likely set the stage for the U.S. economy to have a relapse into recession,” said Bernard Baumohl, chief economist of the Economic Outlook Group. “That is the worst possible kind of outcome that we could have from Washington. It would be absolutely irresponsible.” In the event of a government shutdown, payments for struggling families could be delayed. In the case of a federal default, something similar could happen, but on a far larger scale. Investors across the nation and around the world hold U.S. government paper. If that debt weren’t paid, myriad investors — from retirees just scraping by to the biggest Wall Street firms — would see their investments suffer. Eventually, these investors would almost certainly be made whole. But even a brief hiccup on the part of the U.S. government could trash the nation’s borrowing ability for years to come. “There’s no question people will be paid back on their bonds,” said Mark Vitner, a senior economist at Wells Fargo. “The risk to the economy is: Does the stature of the U.S. debt market suffer because people misinterpret a temporary glitch in the Treasury market?” That glitch could be ruinous. “It’s a hell of a mess,” Vitner said.

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Women-Owned Businesses On The Rise

April 2, 2011

Today, American Express OPEN released The American Express OPEN State of Women-Owned Businesses Report, a comprehensive look at the growth of women-owned businesses in the United States as well as challenges that they still face.

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Georges Ugeux: Does the NASDAQ-ICE bid on the NYSE Make Sense?

April 1, 2011

You have to be Robert Greifeld, the Chairman and CEO of NASDAQ, to describe the offer as a move ” to build a global exchange platform.” This is indeed a transaction that reinforces the monopolistic position of two Exchanges inside the United States. But Mr. Greifeld is a man of bold moves, and I understand why he is trying: if he does not succeed, NASDAQ will be the next target of Hong Kong, Sao Paolo or another bidder. Three key questions need to be addressed: Is it good for shareholders? Clearly, one of the advantages of the NASDAQ-ICE offer is that a substantial part of it is in cash, while the Deutsche Boerse Offer is in shares. The 19% “premium” over the Deutsche Boerse however, is going to fluctuate until the closing of the day. The final pricing is far from being certain, and the question of a possible counter-offer of Deutsche Boerse is clearly open. Is it good for investors and listed companies? The fact that there might be a single major listing and trading venue should not be good news for any of them. Listed companies enjoy the different requirements of the two exchanges and the competition between them. As to investors, facing a single regulated and dominant platform for their trading activities is a loss. Is it good for The United States? At first sight, the fact that Deutsche Boerse bids for NYSE could appear as a national loss. But in the space where the NYSE operates, the cash market for equities, it remains the dominant US and global market, a position that is not threatened by the Deutsche Boerse offer. Optically and emotionally, however, it raises national reactions. The added value of the NASDAQ ICE bid is not clear and we should avoid jumping to conclusions. Deutsche Boerse could therefore state that it was the “best combination for shareholders and stakeholders.” On both sides of the Atlantic, the antitrust authorities will have a view on the two offers. They might well be the decisive factor.

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Libyan Opposition Strikes Oil Deal

April 1, 2011

BENGHAZI, Libya — A plan to sell rebel-held oil to buy weapons and other supplies has been reached with Qatar, a rebel official said Friday, in another sign of deepening aid for Libya’s opposition by the wealthy Gulf state after sending warplanes to help confront Moammar Gadhafi’s forces. It was not immediately clear when the possible oil sales could begin or how the arms would reach the rebel factions, but any potential revenue stream would be a significant lifeline for the militias and military defectors battling Gadhafi’s superior forces. Rebel units were pushed back about 100 miles (160 kilometers) this week along the Mediterranean coast, but still held parts of oil-rich eastern Libya and the key city of Benghazi. In recent clashes, rebels displayed more firepower including mortars and rockets, but remain significantly outgunned. Ali Tarhouni, who handles finances for the opposition’s National Transitional Council, said that Qatar has agreed to market oil currently in storage in parts of southeastern Libya. He said one sticking point is how to truck the oil out of the country. Tarhouni said money from oil sales will be put into an escrow account the opposition will use to pay for weapons, food, medicine, fuel and other needs. He said the rebels had asked visiting U.N. and French envoys to have sanctions lifted on the parts of Libya controlled by the rebels. He said that if transport issues are solved, the rebels could immediately start exporting 1 million barrels per week. When asked, he said the rebels would certainly use oil revenues to buy arms. “People are dying,” he said. He said the council was exploring “buying arms, any kind of arms that we can get to. We have a list of the arms we need and we’re trying some different fronts to buy them. There was no immediate comment from officials in Qatar, one of the few Arab states taking part in the international military contingent enforcing a no-fly zone in Libya. Qatar is also assisting a rebel satellite TV operation that began broadcasts this week from Qatar’s capital Doha and has agreed to host a meeting of Libyan opposition groups. A spokesman for Qatar Petroleum, the state company responsible for selling the Gulf nation’s oil, declined to comment. In London earlier this week, Britain’s foreign secretary, William Hague, said Qatar had offered to “facilitate” oil sales that are consistent with international law. Hague did not provide details about who would be supported, how the facilitation process would work, or how Qatar’s offer has been received by diplomats. It has been unclear how exactly such an arrangement would work. The effort to get oil out is hampered by several factors, including the rebels’ ability to hold eastern oil production and export facilities, the departure of skilled foreign oil-field workers and international sanctions that technically apply to the country as a whole. OPEC member Libya produced about output of 1.6 million barrels per day of oil before the conflict, just under 2 percent of world production. Qatar – host of the U.S. Army’s Middle East command hub – has significantly boosted its international profile in recent years with diplomatic initiatives and top-level sporting events, including being picked to host the 2022 World Cup. The 22-member Arab League was critical in winning U.N. Security Council support for the no-fly zone. But only Arab League members Qatar and the United Arab Emirates have contributed aircraft to the mission. Qatar also has agreed to host the first meeting of an international contact group aimed at coordinating political action and opening channels with Libya’s opposition. No date for the meeting has been set. A Qatari aid plane carrying 30 tons of relief supplies including medicine, medical equipment and blankets landed in the Libyan city of Tobruk on Wednesday, according to the official Qatar News Agency. Last month, Qatar sent ground troops to join a Saudi-led force aiding the rulers in Bahrain, which has been wracked by anti-government protests and violence for more than six weeks. In the Arab world, however, Qatar may be best known as the headquarters for the powerful Al-Jazeera broadcasting network, which was founded by the country’s rulers in 1996. A Libyan rebel spokesman, Mahmoud Shamam, said a satellite channel, Libya TV, began broadcasts from Doha earlier this week with financial and logistical support from Qatar. A top rebel official, Mustafa Abdul-Jalil, offered a cease-fire Friday if Gadhafi pulls his military forces out of cities and allows peaceful protests against his regime. ___ Associated Press writers Adam Schreck and Brian Murphy in Dubai, United Arab Emirates, contributed to this report.

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Nasdaq Makes Huge Rival Bid To Buy NYSE

April 1, 2011

Nasdaq OMX and IntercontinentalExchange unveiled a rival bid to buy NYSE Euronext for about $11.3 billion in cash and stock, a 19 percent premium to an offer made by German competitor Deutsche Boerse. The move, announced on Friday, represents an intense bidding war for NYSE Euronext, whose derivatives trading operations are highly valuable. The new bid could also sit better politically, because the idea of a German company taking over the emblematic NYSE headquarters had stirred some political opposition in the United States. The offer is valued at $42.50 per share, a premium of 19 percent to the agreement proposed by Deutsche Boerse in February, the companies said in the statement. Shares of NYSE Euronext were up 11.6 percent at $39.26 in trading before the market opened. (Reporting by Supantha Mukherjee in Bangalore and Lauren Tara LaCapra in New York; Editing by Unnikrishnan Nair and Lisa Von Ahn) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Auto Union Grows For First Time In Years

March 31, 2011

DETROIT – United Auto Workers membership rose for the first time in six years in 2010, helped by a recovering U.S. auto industry and expanding to include workers outside that industry, the UAW said in a federal filing on Thursday. UAW membership rose 6 percent in 2010 to 376,612 members, the first rise since 2004, when UAW-represented workers totaled 654,657. Still, membership is way down since 1979, when it hovered near 1.5 million. “This increase is a reflection of new organizing by the UAW, the recovery of the domestic auto industry and UAW members who won a first contract during the year,” said UAW President Bob King. “We hope to continue this growth in 2011 and beyond, as we fight to win a more fair and democratic process for workers to organize unions in the United States.” Membership has risen in areas outside of the auto industry as the UAW expanded its footprint with gaming workers in Atlantic City, New Jersey, post-doctoral workers at the University of California system and other public and private company workers. The UAW is currently trying to increase membership by appealing to auto workers at U.S. plants of companies based in Japan including Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz), Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz), and Nissan Motor Co (7201.T: Quote, Profile, Research, Stock Buzz), South Korea’s Hyundai Motor Co (005380.KS: Quote, Profile, Research, Stock Buzz) and Kia Motors (000270.KS: Quote, Profile, Research, Stock Buzz) and Germany’s Volkswagen AG (VOWG_p.DE: Quote, Profile, Research, Stock Buzz) and BMW (BMWG.DE: Quote, Profile, Research, Stock Buzz). The UAW enters contract talks this summer with the three major U.S. automakers General Motors Co (GM.N: Quote, Profile, Research, Stock Buzz), Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) and Chrysler, which is managed by Fiat SpA (FIA.MI: Quote, Profile, Research, Stock Buzz). (Reporting by Bernie Woodall; Editing by Gary Hill) Copyright 2011 Thomson Reuters. Click for Restrictions .

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WATCH: Trump Suggests Obama Birth Certificate Could Say He’s ‘Muslim’

March 31, 2011

During an appearance on “The O’Reilly Factor” on Fox News on Wednesday night, Donald Trump suggested that President Barack Obama’s birth certificate could indicate that “he’s a Muslim.” The billionaire real estate mogul and potential presidential candidate made the indication in raising skepticism over whether Obama is a citizen of the United States. It was only the latest instance in recent weeks that Trump has sounded off on the debunked conspiracy theory issue. “He may have one, but there is something on that birth certificate,” he explained , suggesting the document could highlight something the president doesn’t want voters to see. “Maybe religion. Maybe it says he’s a Muslim. I don’t know. Maybe he doesn’t want that. Or he may not have one. I will tell you this: if he wasn’t born in this country, it’s one of the great scams of all time.” Trump released his own official birth certificate to ABC News earlier this week and called on Obama to do the same. The president’s birth records, however, have been accessible online for more than three years. Meanwhile, Karl Rove signaled a sense of discontent that Trump continues to discuss the issue. Business Insider relays what Rove had to say about the matter on “The O’Reilly Factor” following Trump’s appearance: “You know, the troubling thing in the interview tonight was he said as time has gone on here, over the last couple of weeks, he has become more interested and more believing in the issue. You know, when he first brought it up, he said ‘of course I accept that he’s a citizen. He ought to just release the, release his birth certificate.’ Different tone tonight. This is a mistake. It will marginalize him and he’s falling into Barack Obama’s trap. Barack Obama wants Republicans to fall into this trap because he knows it discredits us with the vast majority of the American people when they do.” During an appearance on MSNBC’s “The Daily Rundown” on Thursday morning, Trump said , “I am embracing the issue, and I’m proud of the issue. I think somebody has to embrace it.” Trump has repeatedly insisted that his talk of exploring a run for president in 2012 is not an attempt to garner publicity for his reality television show. He recently said he’s looking at mounting a campaign “fairly seriously.” WATCH: Watch the latest video at video.foxnews.com

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Peter Neill: IRS Topic 556: Alternative Minimum Tax

March 31, 2011

IRS.gov describes Topic 556 — Alternative Minimum Tax — as follows: The tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain kinds of expenses. The alternative minimum tax (AMT) attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax. The AMT is a separately figured tax that eliminates many deductions and credits, thus increasing tax liability for an individual who would otherwise pay less tax. The tentative minimum tax rates on ordinary income are percentages set by law. For capital gains and certain dividends, the rates in effect for the regular tax are used. The recent report of the General Electric Company’s failure to pay any tax to the United States government, indeed to be owed a tax refund, may not have surprised the beltway cognoscenti and business cynics, but it sure stunned the folks around here. If there were ever a simple fact to infuriate a population already damaged and embittered by corporate actions on the employment and political front, this was it. But we have the Citizens United case to hand. Corporations may act as individuals. So here is a simple proposal: let’s tax corporations as individuals and make them subject at least to the Alternative Minimum Tax. And let’s make sure to include all government subsidies as ordinary income. Will someone do the math? Might help the deficit.

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Real Estate Remains Major Focus for Fading Industries

March 31, 2011

Although the U.S. economy is headed further into recovery, not every industry is expected to perform well. Some in fact, may be at the tail-end of their lifecycle and on the verge of extinction in the United States, according to market research firm IBISWorld.com. The company analyzed its database of more than 700 industries and identified 10 that may not be around long. CoStar Group went a step further and analyzed some of the major firms in those…

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Bryce Covert: The Return of the Debtor’s Prison

March 30, 2011

Judges have signed off on more than 5,000 warrants allowing borrowers who don’t pay to be jailed since the start of 2010. Portfolio Recovery Associates, a debt buyer, made $44 million last year on $281 million in revenue, a 16% net margin. You wouldn’t be crazy to think that debtor’s prisons are a thing of the past. Debtors have historically been treated pretty poorly: under Roman law, a debtor’s body could be chopped up and the pieces given to his creditors (although they were more likely to be turned into slaves). So debtor’s prisons, in comparison, might seem less harsh. But they were squalid and debtors weren’t given any provisions. No sentences were set; you were there until you paid up. Borrowers owing as little as 60 cents could be jailed indefinitely. They were officially abolished in the United States in 1883. But they’re now making a comeback in a modern form. As the debt-collection industry buys up bad debt and then seeks payment, it’s started relying on arrest warrants to get its way, throwing those who miss court appearances or don’t pay in jail. The Minneapolis StarTribune was one of the first to report on the resurgence : after analyzing court data it found “the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009.” The practice is inconsistent, varying state-by-state, and the actual punishment varies. But there have been some cases that stand out: In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January, a judge sentenced a Kenney, Ill., man “to indefinite incarceration” until he came up with $300 toward a lumber yard debt. It’s impossible to say how widespread this is across the country as no national statistics are kept. But the Wall Street Journal recently reported on the same phenomenon: More than a third of all U.S. states allow borrowers who can’t or won’t pay to be jailed. Judges have signed off on more than 5,000 such warrants since the start of 2010 in nine counties with a total population of 13.6 million people, according to a tally by The Wall Street Journal of filings in those counties. In Minnesota, arrest warrants have been issued for debts totaling as little as $85. It’s not free to put people in jail, either, and taxpayer dollars cover the cost. Not to mention the distraction from pursuing violent offenders. Law enforcement “can’t quickly access arrest orders for dangerous criminals because their computer system is clogged with debt cases,” reports the WSJ . And there’s something else we’re being distracted from. In Joe Nocera’s weekend NYTimes column , he told the story of Charlie Engle, a marathoner who has been serving a 21-month sentence for mortgage fraud. Was he a lender who suckered borrowers into loans they couldn’t afford? A banker who sliced and diced mortgages into securities with AAA ratings? No. He’s a borrower who supposedly lied on two liar’s loans (although as Nocera reports, the evidence for that is pretty fuzzy). So while Angelo Mozilo walks free, making a nice profit for his company and himself, Engle goes to jail. Banks and debt collectors are making a tidy profit, while the customers they prey upon are being thrown in the slammer. “We have now imprisoned one generation of debtors after another,” Samuel Johnson observed in 1758, “but we do not find that their numbers lessen.” His words ring true today. Cross-posted from New Deal 2.0 .

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