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Friday, July 15, 2011

S&P warns that chance of downgrading U.S. credit rating is 50 percent

 Debate heats up between Obama, lawmakers over debt limit: Negotiations are in limbo as the clock is ticking toward an Aug. 2 deadline for raising the debt ceiling.

Obama on debt talks: 'Enough is enough'

As bond-rating agencies warn they could soon downgrade U.S. debt, the U.S. Treasury secretary warns default is looming and an increasingly frustrated President Barack Obama is giving crisis deficit talks a deadline. (July 14) (The Associated Press)

By  and , Published: July 14

Standard & Poor’s said late Thursday that it could downgrade the U.S. credit rating as soon as this month, and there is a 50 percent chance it will do so within three months, if Washington fails to come to an agreement over the nation’s debt.
In a statement, S&P indicated a “substantial likelihood” of downgrading the U.S. credit rating, citing a stalemate in Washington over raising the federal limit on borrowing.
S&P managing director John Chambers said in an interview that the downgrade could come by the end of the month if Congress has not voted to raise the $14.3 trillion debt ceiling.
“The positions of the administration and the Republican leadership are still very far apart,” Chambers said. “The tone of the debate has made us wonder whether a compromise can be achieved.”
All three major credit rating agencies have now threatened the United States’ coveted status as the world’s most secure economy. Its AAA rating identifies U.S. Treasury bonds as one of the world’s safest investments — and has helped the nation borrow at extraordinarily cheap rates.
A downgrade would drive up the cost of borrowing and throw into question the global role of the Treasury bond. The Treasury serves as a crucial risk-free place to invest money — and has been a stalwart of stability amid the economic upheaval of the past few years.
S&P earlier warned in April there was a one-third chance of a U.S. downgrade. With its action Thursday night, it is saying it is now more skeptical that political leaders can find a compromise that both raises the debt ceiling and tames the future growth of the debt.



“Despite months of negotiations, the two sides remain at odds on fundamental fiscal policy issues,” S&P said in the statement.
Chambers added in the interview that even if the parties agree to raise the debt ceiling, it may not be enough to avert a downgrade. Chambers said the country must implement a plan to reduce the annual budget deficit by roughly $4 trillion over 10 years, which makes the debt manageable over the long term.
The White House and Congress have discussed a plan that big, but negotiations have more recently centered on a smaller deal, at $2 trillion or less.
“That could still lead to a downgrade,” Chambers said.
“Today’s action by S&P restates what the Obama Administration has said for some time: that Congress must act expeditiously to avoid defaulting on the country’s obligations and to enact a credible deficit reduction plan that commands bipartisan support,” said Jeffrey Goldstein, under secretary for domestic finance at Treasury.
Treasury’s tone was markedly different from what it was in April, with the initial S&P action. At the time, Treasury officials said the credit rating agency underestimated the ability of political leaders to come to an agreement.
Treasury now says leaders must come together by July 22 to get legislation through Congress by Aug. 2, when the government is slated to run out of borrowing authority.
S&P said it still thought the risk that the U.S. government would not pay bond investors because of a failure to raise the debt ceiling “is small, though increasing.” Any default on a debt payment would prompt a downgrade of U.S. debt from AAA to “SD,” or “selective default,” because the expectation would be that the United States would ultimately pay back investors.
If that were to happen, many investors would have to immediately sell their holdings, and many others wouldn’t be able to buy Treasury bonds.
But S&P says that if the government attempts to dramatically cut spending to stay under the debt ceiling while servicing the debt payments, “we think that the effect on consumer sentiment, market confidence, and, thus, economic growth will likely be detrimental and long lasting.”
That, S&P said, could also lead to a downgrade.
The S&P action follows a warning from another large credit ratings agency, Moody’s Investors Service, on Wednesday.
Moody’s put the U.S. government’s credit rating on review for a possible downgrade and said that even a brief failure of the government to pay its bills would mean that the United States’ current credit rating “would likely no longer be appropriate.”

Vance Goes 1-on-1 With Obama


Friday, Jul 15, 2011  |  Updated 10:34 AM EDT




News4 anchor Jim Vance sat down Thursday for a one-on-one interview with President Barack Obama at the White House.
Vance was the only local TV anchor-reporter to interview Obama on this crucial day of talks between Democrats and Republicans as they try to agree to terms on the debt ceiling.
Vance asked the president a series of questions, include on on voting rights for D.C. residents.
"I've said before and I'll say again: I'm fully supportive of voting rights for D.C. citizens," Obama said. "I'm fully supportive of home rule. I'm fully supportive of making sure that Washington, D.C., government has its own budget authority. I'm supportive of folks in D.C. being treated like people everywhere else in the country -- in Maryland or Virginia. We have not gotten a lot of support from the other side on the issue, but I will continue to stand by those in D.C. who believe they should not be paying taxes like everyone else, serving in the military like everyone else, and doing everything that is expected of citizens and yet not have the same voting rights as everybody else in America.
"I've been pretty public in my belief on this thing," he added. "It requires action by Congress, and Congress has a tendency to move slowly on things, even when they're the right thing to do."
"Michelle and the girls have fully embraced Washington, because they can get out of the bubble a little more easily than I do," Obama said. "If I go someplace, everybody's got to get magged and patted down, so I'm pretty disruptive.
"Malia and Sasha are doing great in school. They love the community. Michelle has the opportunity to travel around the city," he continued. "Whenever I visit schools or parks or restaurants in D.C., you really get a sense that there is a real community here. This is not just about politics in this town. The people here care deeply about what happens in Washington, and what's happening in the school system. We care about it too. But, unfortunately, as a resident of 1600 Pennsylvania Avenue, it's a great privilege, but it also means you're living in a bubble most of the time. My best memories of Washington were when I was in the US Senate when I could

View more videos at: http://www.nbcwashington.com.
View more videos at: http://www.nbcwashington.com.

Vance also asked if the Obamas, who have strong Chicago ties, are at least finding D.C. becoming their true home away from home.
actually walk down the street once in a while and not be surrounded by Secret Service."
Vance then asked about the future. With everything that is going on in the country and across the world, why is the president going after four more years?
"First of all, I just enjoy the job. I enjoy the challenge of it. It's interesting. You deal with extraordinary people every day. ... You meet people, you're engaged in issues that are vital to the United States," Obama said. "I love this country, and the more I see it the more I know that we've got so much more potential than we're realizing right now. All those young men you were talking about who were unemployed here in Washington ... all that energy could be unleashed, but it can't be unleashed if the country is constantly divided and the political parties are constantly worried about positioning themselves for the next election rather than solving problems. I believe that I've got a role to play -- an important role to play -- in helping unleash that potential."
So the upside of being president is better than the downside?
"Almost every day," Obama said. "There are days when you come up from the Oval Office and you say, 'What the heck is going on here?', but that's true in any job. ... I consider myself extraordinarily lucky and blessed and if the American people think that I'm the person to do the job, then I'm happy to continue to do it."
Vance interviewed first lady Michelle Obama in April 2010.  You can watch that interview on this page.
Posted Thursday, Jul 14, 2011 - 2:35 PM EDT

Obama To WSB-TV: America Is Stressed Out


President Barack Obama said America is a “stressed out” nation in an exclusive interview with Channel 2 Action News at the White House on Thursday.
 
The Obama administration invited Channel 2’s Scott MacFarlane to a short interview with the president, who is addressing negotiations over raising the federal debt limit.
 
There are just 20 days until the Aug. 2 deadline that requires a budget deal or the nation risks defaulting on loans and getting into serious financial trouble.
 
MacFarlane asked the president about the status of the negotiations, and if the president walked out of the last negotiating session.
 
"No. At the end of the meeting, what I said to the group was what the American people feel. 'We have a responsibility to do the right thing. We shouldn't be partisan, we should solve problems,'" Obama replied.
 
 
RAW VIDEO: Scott MacFarlane Interviews President Obama



Obama told MacFarlane that he’s pushing for federal cuts, but when MacFarlane asked about 12,600 education jobs cut last month across the country and more potential cuts, like in Cobb County, he pulled back on cuts for schools.

"I'm wondering if these spending cuts aren't going to throw schools into a deeper hole?" MacFarlane asked.

"Look, we can make some cuts to programs that don't work anymore. But we've got to make sure we're still funding education," Obama answered.

The President did not rule out making changes to eligibility for Social Security, and he again pitched tax hikes on the wealthiest Americans. President Obama told MacFarlane, “You can’t ask for sacrifices from working people who haven’t seen a raise in a decade and not ask anything from folks who can afford to do a little bit more.”

"People can't sell their houses, can't refinance. They're in a constant state of panic about losing their jobs," MacFarlane asked the president. "Even the fun stuff, the sports leagues are locked out. Is America stressed out and in a state of malaise?" MacFarlane asked.

"There's no doubt America is stressed out. We just went through the worst economic crisis since the Great Depression. That's why it's so important for us to get this thing settled now," Obama replied.

The debt deal that’s taking shape, and its drawbacks

Posted at 07:26 PM ET, 07/14/2011



(Alex Wong - GETTY IMAGES)
My colleague Lori Montgomery reports that Harry Reid and Mitch McConnell are working together on a three-part deal that would get us past the debt ceiling:
Senate Majority Leader Harry M. Reid (D-Nev.) is working with McConnell on this approach. Aides said the two are discussing a strategy that would pair McConnell’s debt-limit proposal with at least $1.5 trillion in spending cuts identified through bipartisan talks that Vice President Biden has led in recent weeks.
The deal also could create a committee of 12 lawmakers who would be assigned with identifying trillions of dollars in additional savings. The panel’s recommendations would be fast-tracked to votes in the House and the Senate and would not be subject to amendment, a process similar to the one Congress uses for closing military bases.
Congressional Democrats welcomed the approach, as did rank-and-file Republican senators. The Obama administration has reacted more cautiously, but views the approach as a last resort.
This looks a lot more plausible than McConnell’s proposal, in part because it puts Democrats in a structurally worse position on two fronts:
1. It creates a fast-track process for spending cuts but not, as far as I know, tax increases. That is to say, it creates a new process in which it’s much easier to cut spending, but no easier to raise taxes. And process matters for outcomes.
2. A $2 trillion deal is not sufficient to get deficits down to manageable levels. In a year or two, we’ll need another $2 trillion, and if growth doesn’t pick up, even more than that. If this deal uses up most of the spending cuts that Democrats can accept, it means the next deal, which will also rely heavily on spending cuts because Republicans are better at refusing tax increases than Democrats are at refusing deals, will require spending cuts that go much deeper into the bone of Democratic priorities.
Think of it this way: The $4 trillion deal that the White House offered Boehner was 3:1 spending cuts to tax increases. If we move to a two-deal scenario in which the first deal is $2 trillion in spending cuts and then there’s a second $2 trillion deal that is, let’s say, 3:1 spending cuts to tax increases, the final deal is actually 7:1 spending cuts to tax increases, which means the spending cuts will have to go very, very deep.

The Government’s Backup Plan for Default


AUTHOR

Nobody wants to push America into default, but the ongoing stalemate has some White House officials preparing for Aug. 3, and the worst.



In front of the cameras, President Obama and his top spokesmen have said they’re confident negotiators will reach a debt-ceiling deal by the Aug. 2 deadline.  
Click here to find out more!
But considering the perilous state of daily negotiations, which adjourned Wednesday in a stalemate after a terse exchange between Obama and House Majority Leader Eric Cantor, a top Republican negotiator, the White House isn’t leaving to chance the possibility of not reaching a deal by next month. 
White House officials are reticent to disclose details of the government’s backup option if differences aren’t ironed out over the next two weeks. Some even deny a plan exists, since the postdefault landscape would be so dire that it would be unreasonable to think of operating the government at its usual pace. “There is no alternative to raising the debt limit,” says Colleen Murray, a Treasury spokeswoman. 
But in the interest of being prepared, two administration officials told THE DAILY BEAST that the Office of Management and Budget and the Treasury Department have begun discussing an early contingency plan to keep parts of the government running in case no agreement passes Congress in time. 
“You have to prepare for that as a matter of due diligence,” Press Secretary Jay Carney told reporters Wednesday, adding that the process of deciding how to fund the government would be “heinous.” 
debt-plan-white-house-stone
Mandel Ngan, AFP / Getty Images
The government is the nation’s biggest funder, making more than 1 billion payments each year. “I have to pay 80 million checks a month to Americans,” Treasury Secretary Tim Geithner said on Sunday’s Face the Nation. Most of those checks cover Social Security payments (54.2 million checks), followed by benefits for veterans (4.1 million) and federal retirees (2.6 million). Medicare and Medicaid beneficiaries and government contractors collectively take in about 4 million checks every 30 days. 
But on Aug. 3, the government’s bank account would be partially depleted, leaving Geithner without the money he says he needs to continue funding all current programs—and leading, according to an analysis by the Bipartisan Policy Center, to “chaos.” The situation would require Treasury to only use money it is taking in through tax revenue to fund the government, the equivalent of living paycheck to paycheck. But the disparity between the government’s income and spending would leave nearly a $135 billion shortfall in August alone, according to estimates by the BPC
The scene would resemble what was threatened in the would-be government shutdown of early April, which threatened to shutter federal agencies until funding was restored. Except in this case, a default would restrict Washington from keeping parts of the government open, however essential they were. 
One obvious solution would be to print more money, an option that Bernanke and other Fed officials have not publicly discussed. But printing hundreds of billions of dollars in the span of several months would set off intense inflation that would quickly undercut the economic recovery. 

“The situation would require Treasury to only use money it is taking in through tax revenue to fund the government, the equivalent of living paycheck to paycheck.”


Instead, OMB’s jockeying would help Obama make difficult decisions about which government programs are worth keeping open and which can be temporarily shut down. In an interview with CBS on Tuesday, Obama said he couldn’t guarantee the Social Security Administration would continue to mail out checks. Officials have also discussed the possibility of unemployment benefits, student loans, and the military being partially or completely scaled back without enough government income to fund them. 
No combination would be particularly helpful, or politically advantageous. “The important point is that it doesn’t matter who gets paid and who doesn’t,” says Chad Stone, chief economist with the Center for Budget and Policy Priorities. “The fact that some people don’t get paid is one of the most important things people will look to.” 
Few analysts think the final talks will end without a deal before the deadline. But as the drop-dead date nears, the warning signs of default have become more ominous. The venerable credit rating agency Moody’s warned the U.S. government Wednesday that its credit may be downgraded if no ceiling increase is passed. Fed Chairman Ben Bernanke told lawmakers the same day that a default would be calamitous and send “shock waves through the entire financial system.” That’s the reason for these emergency preparations.

Energy Tomorrow (American Petroleum Institute)



The American Petroleum Institute (API) is the only national trade association that represents all aspects of America's oil and natural gas industry. 


We speak for the petroleum industry to the public, Congress and the Executive Branch, state governments and the media.

The oil and natural gas industry fuels U.S. job creation, the American economy and our way of life


For consumers, API provides the API’s Engine Oil Licensing and Certification System (EOLCS). It is a voluntary licensing and certification program that authorizes engine oil marketers who meet specified requirements to use the API Engine Oil Quality Marks. These emblems go directly on each container of oil that retains the certification for and is there to help consumers identify quality engine oils for their gasoline- and diesel-powered vehicles.


 Did You Know?
  1. The oil and natural gas industry paid $95.6 billion in 2008 income taxes alone.   
  2. The oil and gas industry has invested nearly $2 trillion in U.S. capital projects in the last decade. 
  3. Increased domestic oil shale production could add as many as 100,000 American new jobs 
  4. Greater Canadian oil sands production could create more than 340,000 new U.S. jobs. 
  5. Hydraulic fracturing has been used safely in 1 million wells over the past 60 years. 
  6. Developing off-limits resources could increase U.S. crude oil production by nearly 2 million barrels per day 
  7. The Eastern Gulf of Mexico may hold 3.8 billion barrels of oil and 21 trillion cubic feet of natural gas.
  8. Expanding natural gas development in PA’s Marcellus Shale could add 280,000 U.S. jobs over the next 
  9. More than 1 million barrels of oil per day could be developed from non-park land in Alaska and western states. decade 
  10. America has enough oil and natural gas to power 65 million cars for 60 years. 
  11. America has enough oil and natural gas to heat 60 million households for 160 years.
  12. Allowing offshore drilling in the Atlantic could create 37 trillion cubic feet of natural gas.
  13. Royalty revenue from energy production provides the U.S. Treasury with more than $25 million each day.
  14.  Offshore energy development in the Atlantic could create another 3.8 billion barrels of oil.