Sunday, May 13, 2012

Is America in fiscal austerity yet?

The short-term importance of the budget bill which the House approved this week is that Democrats now have another vote which they can use against Republicans running in tough races this fall.


The NOW with Alex Wagner panelists discuss how Rep. Paul Ryan, R-Wis., is defending his budget proposal that cuts billions of dollars from welfare programs while saving the Defense Department from a budget slash.

Sixteen House Republicans voted against the measure -- called the Sequester Replacement Reconciliation Act -- which would replace some of the automatic spending cuts mandated by last summer’s Deficit Control Act with reductions in spending on programs for low-income people.

Championed by Budget Committee chairman and potential GOP vice presidential candidate Paul Ryan, the bill stands no chance of becoming law but does indicate where the vast majority of House Republicans want to spend more (on the military) and spend less (on outlays for lower-income people).

From Ryan’s point of view, the bill makes sensible changes in benefit rules, such as ending the practice of sending money under the Child Tax Credit to people who are not eligible to work in the United States.

The House vote was part of the debate over “austerity” -- a term that has gained new currency this week as a Washington buzzword since voters rejected French President Nicolas Sarkozy and voters in Greece refused to back a government that is pursuing a policy of cutting public spending and selling government assets.

“Austerity” implies a government sector that’s on short rations, with programs being scrapped, and government workers being laid off.

That is not exactly what’s happening in the United States at the federal level right now.
One way to measure “austerity” or lack of it is to look at what federal spending was before the recession started at the very end of 2007.

In FY2008, which began in October of 2007, outlays were $2.98 trillion, or about 21 percent of gross domestic product. In the current fiscal year Congressional Budget Office expects that spending will be $3.6 trillion or 23.4 percent of GDP.

The CBO reported this week that federal spending for the first seven months of fiscal year 2012 “was about the same as it was during the same period last year,” accounting for shifts in the timing of certain federal payments.

So far in FY2012, the federal government has spent about 0.8 percent less than it did for the comparable period last year.

To be sure, spending in certain categories is down: Medicaid outlays fell by $26 billion, or 15 percent, because the increases in the federal government’s share of Medicaid spending – part of President Obama’s stimulus plan enacted in 2009 -- expired.

The CBO also reported that outlays for unemployment benefits dropped by more than one-fifth, compared to the same period last year, because fewer claims were filed in recent months.

Defense spending decreased by about 3 percent, compared to the same period in the prior year. But spending for Social Security and Medicare benefits were up.

As for the number of federal employees, it is hard to see austerity in the most recent available data from the Office of Personnel Management which showed 2.1 million executive branch employees as of December, an increase of nearly 3.7 percent over December of 2009 and an increase of about 13 percent over September of 2007, before the recession began.
The data from the Bureau of Labor Statistics, however, does show a reduction in the number of state and local government workers. For example, since the summer of 2008 the number of local government employees has shrunk by 3.6 percent.

“The concern about austerity is that we are still in a very, very weak economic recovery and this slashing of spending at the state level and to some extent at the federal level – we’re under a wage freeze on federal employees… that is hampering the recovery and hampering the robust creation of jobs,” said Roger Hickey, co-director of the progressive group Campaign for America's Future.

Hearkening back to his 2009 stimulus plan, which helped avert state and local government layoffs in 2009 and 2010, Obama proposed in his American Jobs Act to send $35 billion in federal funds to the states so they can hire and retain public school employees, firefighters and police officers.

He also wants to spend another $50 billion on highways, subways, railroads, and aviation.
In an election year, such spending saves the jobs of members of public employee unions who tend to be loyal Democratic allies and donors.

The debate over austerity is in large part the traditional policy struggle over what the preferred or “right” mixture of spending should be: how much should government spend on a missile defense shield for the East Coast of the United States, for instance, on which House Republicans want to spend $100 million for openers, versus medical care for poor people.
And because the Republicans control the House, they have been able to prevail in some of their battles with Obama and the Democrats over which groups should be singled out to bear the burden of less spending.

Case in point: in February as part of the deal to extend the Social Security payroll tax cut, Republicans were able to force newly hired federal employees, as of next year, to pay a higher share of their paycheck for their pensions.

“For federal employees it feels like an attack, because no one else is being asked to do anything. When millionaires in this country, who have done very well, have not been asked to put in anything more from their pay check, but middle-class federal workers are asked to put in more from their paycheck, it feels like they are being singled out,” said Julie Tagen, the legislative director for the National Active and Retired Federal Employees Association.

Next Tuesday the focus will shift for a day to the long-term struggle over the federal debt and the entitlement programs, as former Commerce Secretary Peter Peterson holds his third annual fiscal summit, a kind of Woodstock for numbers crunchers, economists, and those who worry about the nation’s ability to pay for the benefits it has promised to future retirees.
The lineup of speakers includes Ryan, former President Bill Clinton, Sen. Rob Portman, R-Ohio, and Treasury Secretary Tim Geithner.

Hickey said Peterson “is trying to buy Democrats into an austerity focus.”

Hickey, Sen. Bernie Sanders of Vermont and other progressives will be on the sidewalk outside the summit protesting: “We will be there to say if you look at the polls, the American people are very, very worried about jobs… We seem to be stuck in a permanent level of high unemployment and these deficit proposals are threatening basics like unemployment insurance….”

He added, “The best way to address the short-term deficit is to get the economy growing in a robust way so that unemployment actually comes down instead of just being stagnant. A stimulus – an investment in growth through infrastructure and aid to the states, getting the growth rate up, – will in fact bring down the deficit.”

Obama does not use the word “stimulus” anymore and he hasn’t focused on his American Jobs Act in his campaign ads, but that stimulus proposal is essentially his antidote to austerity too.

Chase, Europe may weigh on markets this week

NEW YORK --- More volatility could be in store for stocks next week as investors grapple with less certainty about the economic outlook and a new blow to the financial sector after JPMorgan Chase's trading loss.

Europe is expected to keep investors jumpy as well, with inconclusive results from the recent Greek election and the country's future appearing more worrisome.

The economic picture appears cloudy these days, with some data showing a more positive trend and other reports showing the opposite. An index of consumer sentiment rose to its highest in a more than four years, but last week's jobs report showed another monthly decline in hiring.

Next week brings minutes from the last Federal Reserve meeting, which investors will look to for more guidance on whether the central bank plans to give additional help to the economy.
Stocks closed lower for a second straight week on Friday after a week of choppy trading. Strategists say that's likely to be the case again in days to come.

"Expect more volatility. We're still seeing this natural risk aversion. We expect any source of bad news to trigger a sell-off, but we're still not in a red-alert area," said Omar Aguilar, chief investment officer of equities for Charles Schwab in San Francisco.

"The good economy in the U.S. is leading the way, with the Federal Reserve being very accommodating."

Citigroup's chief U.S. equity strategist, Tobias Levkovich, said the market has likely begun a pullback, and that the Standard & Poor's 500 index could fall 5 percent to 7 percent from its April 2nd intraday high of 1,422.

"We're going to probably spend several months in kind of choppy trading," he said.
News that JPMorgan Chase & Co, the largest U.S. bank by assets, lost billions of dollar on bad trades raised fresh worries that the financial sector was not on the mend. The KBW bank index fell 1.2 percent for the day.

Chase CEO: We made a terrible, egregious mistake

There's likely to be more focus on the company next week. After the close of trading, Fitch Ratings cut JPMorgan's credit rating one notch and cited the bank's $2 billion trading loss, and Standard & Poor's revised its outlook of JPMorgan to negative.

The S&P financial index has lost ground since rallying 21.5 percent in the first quarter. The index is still up 13.6 percent since the start of the year.

Wall Street will scrutinize the minutes from the FOMC's late April meeting, which the Fed will release on Wednesday at around 2 p.m. Eastern time.

At that April 24-25 meeting, the FOMC repeated its expectation that interest rates would not rise until late 2014 at the earliest, and it took no action on monetary policy.
But Federal Reserve Chairman Ben Bernanke spurred stock market gains when he told reporters on April 25 that "we remain entirely prepared to take additional balance-sheet actions as necessary to achieve our objectives. Those tools remained very much on the table and we would not hesitate to use them, should the economy require that additional support."
More focus may be on the Fed and economic data next week, with the first-quarter U.S. earnings period nearly done. Ninety percent of S&P 500 companies have already reported results.

Major retailers set to report earnings next week include Home Depot , a Dow component, and JC Penney Co., both on Tuesday, followed by Limited Brands, parent of Victoria's Secret, and discount chain Target Corp on Wednesday. Wal-Mart Stores, Inc, the world's largest retailer and a Dow component, is set to report earnings on Thursday before the opening bell.

The week's mostly closely watched economic indicators will include the U.S. Consumer Price Index and retail sales, both for April, on Tuesday, followed by April housing starts and April, industrial output and capacity utilization, all on Wednesday.

In Europe, problems with the Greek elections raised the risk of it exiting the euro zone.
"I think earnings and valuations are still very compelling. Unfortunately, what we're looking at on earnings and valuations is going to be overshadowed by the fact that we've got these global issues we're dealing with: Greece and France and their elections, and debt issues and the possible breakup of the euro," said Evan Nowack, managing director at HighTower's Leventhal Group in Bethesda, Maryland.

Technical charts indicate bearishness ahead.

"My 'bigger picture' view is that in the near or intermediate term, further downside is favored," said Chris Burba, short-term market technician at Standard & Poor's in New York.
S&P 500 charts are showing a "head-and-shoulders top," he said, noting that demand earlier this month was not strong enough to push the benchmark index above its April high.
He sees support just below 1,300, while resistance could come at 1,415 for the S&P 500.
"The outlook stays bearish unless you get above 1,415," Burba said.

CNBC's Tyler Mathisen looks ahead to what are likely to be next week's top business and financial stories.

JPMorgan CEO Jamie Dimon: We were 'dead wrong' to dismiss trading concerns

The CEO of JPMorgan Chase said the bank reacted badly to warning flags last month that it had large trading losses in complex financial derivatives and he was "dead wrong" when he initially dismissed the concerns.
"We made a terrible, egregious mistake," Jamie Dimon said in an interview broadcast Sunday on NBC's "Meet The Press." "There's almost no excuse for it."
Dimon said he did not know the extent of the problem when he said in April that the trading concerns were a "tempest in a teapot."
"I was dead wrong when I said that. I obviously didn't know, 'cause I never would have said that. And one of the reasons we came public was because we wanted to say, "You know what? We told you something that was completely wrong a mere four weeks ago.'"
On Thursday, the bank disclosed $2 billion in trading losses over the past six weeks. Investors shaved almost 10 percent off JPMorgan's stock price the next day.
"We got very defensive. And people started justifying everything we did,'' Dimon said.
NYT: JPMorgan lobbied for big loophole on risky trading
In the interview, Dimon said that while mistakes revealed in the past week were "bad," they did not jeopardize JPMorgan Chase.
Asked if any laws or Securities and Exchange Commission rules were broken, Dimon responded thatit was too soon to tell.
"So we've had audit, legal, risk, compliance, some of our best people looking over that. We know we were sloppy. We know we were stupid. We know there was bad judgment. We don't know if any of that's true yet. And of course regulators should look at something like this."
Dimon told NBC that he supported giving the government the authority to dismantle a failing big bank and wipe out shareholder equity. But he stressed that JPMorgan, the largest bank in the United States, is "very strong."
He acknowledged the the trading fiasco has given financial regulators more ammunition against the banks.
"Absolutely. This is a very unfortunate and inopportune time to have had this kind of mistake, yeah."
Below, Dimon talks about the company's recent $2 billion trading loss with NBC's David Gregory.

North Carolina Anti-Gay Marriage Amendment 1 Reportedly Written To Protect 'Caucasian Race' [UPDATED]

Posted: 05/02/2012 11:54 am Updated: 05/07/2012 12:09 pm

Boston U. holds vigil for students in New Zealand van crash

Bizuayehu Tesfaye / AP
Boston University students including Tori Pinheiro, third right, of New Bedford, Mass., and Austin Brashears' girlfriend, holds a candlelight vigil on Marsh Plaza at Boston University, Saturday, May 12, in Boston, for three students studying in New Zealand who were killed when their minivan crashed during a weekend trip. Daniela Lekhno, 20, of Manalapan, N.J.; Austin Brashears, 21, of Huntington Beach, Calif.; and Roch Jauberty, 21, whose parents live in Paris, were killed as they traveled in a minivan Saturday near the North Island vacation town of Taupo when the vehicle drifted to the side of the road and then rolled when the driver tried to correct course.
Bizuayehu Tesfaye / AP
Boston University student Blake Wrobbel, of Los Angeles, right, gets emotional during the vigil.
Brashears' mother, Julie, told The Boston Globe that he frequently posted new photos on Facebook documenting his adventures in New Zealand, including bungee-jumping off the Auckland Harbor Bridge on his birthday. She said he planned weekend outings for the study abroad group.
"Everyone called him the cruise director," she said. "He wanted to include everybody on the trips. He loved having an eclectic group of friends."
-- Reported by the Associated Press

John Cowpland / New Zealand Herald via AP
Police and fire crew examine the scene of the accident near Turangi, New Zealand, Saturday, May 12.

Boston U. reels with New Zealand tragedy

updated 2 hours 14 minutes ago
With graduation approaching, a time for celebration turned somber at Boston University on Saturday as students who were packing up at the end of the school year learned that three classmates studying in New Zealand were killed when their minivan crashed during a weekend trip.
Boston University spokesman Colin Riley said those killed in the accident early Saturday were Daniela Lekhno, 20, of Manalapan, N.J.; Austin Brashears, 21, of Huntington Beach, Calif.; and Roch Jauberty, 21, whose parents live in Paris.
The students were traveling in a minivan near the North Island vacation town of Taupo when the van drifted to the side of the road and then rolled when the driver tried to correct course, New Zealand police said.
3 BU students killed, 5 injured in New Zealand crash Another BU student, Margaret Theriault, was airlifted from the crash site to a hospital in Taupo and was in critical condition, the university said. At least four other students suffered moderate injuries.
About 250 students, faculty members and well-wishers gathered in Boston on Saturday evening for a candlelight vigil for the victims.
Brashears' girlfriend, junior Tori Pinheiro, cried at the vigil as she recalled how friendly he was and how much she loved him. She said he recently had left her a voicemail saying he missed her and she has been playing it repeatedly.
Efforts by The Associated Press to reach family members of Lekhno and Brashears were unsuccessful Saturday.

Brashears' mother, Julie, told The Boston Globe that he frequently posted new photos on Facebook documenting his adventures in New Zealand, including bungee-jumping off the Auckland Harbor Bridge on his birthday. She said he planned weekend outings for the study abroad group.
"Everyone called him the cruise director," she said. "He wanted to include everybody on the trips. He loved having an eclectic group of friends."
Student body president Howard Male, a friend of Brashears, said the Boston University students had posted Facebook updates in anticipation of the trip, saying they hoped to view scenery captured on film in the "Lord of the Rings" movies.
"They were all so excited to be able to go explore what many guidebooks ... have called some of the most beautiful places on the planet," Male said.
At the university, final exams ended Friday, and there were few outward signs of any socializing on Saturday morning. The student union was deserted. The main activity involved students in the dorms hauling out boxes and pushing rolling bins filled with their belongings to waiting moving trucks or their parents' cars as they scurried to meet a noon deadline to clear out.
Student Marcelle Richard, who was moving out after finishing her freshman year, said news of the other students' deaths was "really upsetting."
"They were abroad, and it's so sad that something has to happen when you are supposed to be experiencing one of the best times of your life," said Richard, 18.
Richard, of New Orleans, said the tragedy will not stop her from going abroad to study later in her college career.
"It's just like tragedies happen, and I don't want that to stop me from a good learning experience," she said.
Jordan Nunez, 22, a senior who is graduating next week, said the study abroad program is very popular among Boston University students. He estimates 25 percent to 30 percent of his friends traveled to foreign countries to study.
Still, the New Zealand accident has darkened the mood on campus, he said.
"You think everything's always taken care for you, but things can happen wherever you are in the world," he said. "It's just something that's sad for our community."

Study abroad program executive director Bernd Widdig called the students' deaths an "unprecedented tragedy," the worst to hit the program since it began in the 1980s. The New Zealand part of the program began in 2003 and involves courses at the University of Auckland and Auckland University of Technology.


Three Boston University students were killed in a traffic accident while studying in New Zealand. 

University President Robert Brown called the students' deaths "a horrible tragedy" and said in an online statement his "prayers go out to the students and their families."
All the students except Theriault were enrolled in a BU study abroad program in Auckland, the BU website said. Theriault was enrolled in a study abroad program in Sydney, Australia.
Sixteen students were traveling in two minivans, on their way to hike the Tongariro Crossing, a famous trek rated as one of the most spectacular in New Zealand. The hike crosses a volcanic crater in the central part of North Island.
None of the eight students in the second van was injured. Seven of those eight students were also from Boston University.
Police official Kevin Taylor said it was unclear why the van drifted to the side of the road. He said some of the students were thrown from the vehicle, indicating they may not have been wearing seat belts.
Dean of Students Kenneth Elmore said it was a terrible end to the year at the school, where commencement is scheduled for May 20.
"This is an unusual time on our campus," Elmore said in a statement on the school website. "We have a lot of people who are traveling and some people who are celebrating the end of final exams. I'd like everyone to please take a moment to pay our respects to the families of those who have been killed."
Associated Press writer Nick Perry contributed to this story from Wellington, New Zealand; AP writer Rodrique Ngowi contributed from Boston.