Daily News Briefing: Friday, July 27, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • GROSS DOMESTIC PRODUCT - The U.S. economy grew 1.5% in the second quarter, down from 2% in the first quarter, as consumers and businesses spent at a slower rate, according to a preliminary government estimate by the U.S. Commerce Department.
  • TAXMAGEDDON - The Heritage Foundation reports that taxmageddon will devastate the economy and job creation. Included in this briefing are the Heritage Foundation's top five reasons taxmageddon will destroy jobs.
  • ARMS TRADE TREATY - The Arms Trade Treaty being hammered out by the United Nations is nearing completion, and the current draft shows it could lead to perpetual attacks on the U.S. Constitution’s Second Amendment and American foreign policy, critics say.
  • CONGRESS - The U.S. House on Thursday passed legislation that would freeze major government regulations until the unemployment rate, now at 8.2 percent, drops to 6 percent or below.
  • MASSIVE ORDNANCE PENETRATOR - Its been nearly eight months since the Pentagon sent its largest and most powerful bomb, the Massive Ordnance Penetrator (MOP), back to Boeing for modifications necessary to take out Iranian nuclear facilities, but the Air Force says it's now ready to go.
  • BAILOUT - Despite President Obama’s stories about a resurgent GM ready to repay its bailout tab, the automaker and its former bank still owe taxpayers nearly $42 billion, according to an inspector general’s report.
  • EURO ZONE - European Central Bank President Mario Draghi promised Thursday to do whatever it takes to save the European single currency and raised expectations that he could step in to lower the high borrowing costs that are crippling countries like Spain and Italy.

WHAT WE KNOW

ECONOMIC NEWS

  • GROSS DOMESTIC PRODUCT - The U.S. economy grew 1.5% in the second quarter, down from 2% in the first quarter, as consumers and businesses spent at a slower rate, according to a preliminary government estimate by the U.S. Commerce Department.
    • Inflation as measured by the consumer PCE index dropped to 1.6% from 2.4%. Excluding food and energy, the index rose 1.8% compared to 1.9% in the first quarter.
    • According to an analysis by the Wall Street Journal, the current economic recovery is less robust than initially thought and — through its first two-and-half years — the second-weakest rebound of the post World War II era.
  • TAXMAGEDDON - According to the Heritage Foundation, taxmageddon is the one-year $494 billion tax increase that is poised to strike the economy on January 1, 2013. It consists of expiring tax policies such as those set in 2001 and 2003 and the 2010 payroll tax cut. Taxmageddon also includes five Obamacare tax increases.
    • The Heritage Foundation reports that taxmageddon will devastate the economy and job creation. Included below are the Heritage Foundation's top five reasons taxmageddon destroys jobs:
      •  HURTS JOB CREATORS - Taxmageddon will raise marginal income tax rates on small businesses, investors, and entrepreneurs. Higher tax rates will take money away from these job creators that they otherwise could have invested to create new jobs. Higher rates will decrease their incentives for taking on new risk, which will also deter job creation. A recent study by the widely respected firm Ernst and Young found that President Obama’s tax increase would destroy more than 700,000 jobs.
      • UNCERTAINTY - There is no doubt that Taxmageddon would devastate jobs if it strikes in 2013, but as troubling is the mounting evidence that it is slowing job creation today. Businesses and investors do not know what their tax rates will be next year. Without this vital information, they cannot gauge the profitability of investments they could make now. Until they know what their taxes will be next year and can determine the profitability of those potential investments, they will delay.
      • LOWER INVESTMENT - Taxmageddon will raise the tax rates on capital gains and dividends. The capital gains tax would rise from 15 percent to 23.8 percent and the tax on dividends from 15 percent to 43.4 percent.
      • OBAMACARE TAXES - Taxmageddon marks the start of five of the 18 tax increases in Obamacare. Two of those taxes—the 3.8 percent surtax on investment income and the excise tax on medical devices—are major job killers. The investment surtax, like the higher taxes on capital gains and dividends, will lower investment. The medical device tax will force medical device manufacturers to reduce their workforces. In fact, layoffs have already occurred at some manufacturers in anticipation of the tax.
      • DEATH TAX - Taxmageddon would raise the death tax rate to 55 percent with just a $1 million exemption, up from its current 35 percent rate and $5 million exemption.
  • The Dow Jones Industrial Average rose 211.88 points, or 1.7%, to 12,887.93.
  •  The S&P 500 rose 22.13 points, or 1.7%, to 1,360.02.
  • The Nasdaq Composite rose 39.01 points, or 1.4%, to 2,893.25.

COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.48.
    • When President Obama was inaugurated, in January 2009, the U.S. national average for a gallon of regular gasoline was $1.85. Average gasoline prices are currently 88 percent higher than they were when Mr. Obama became president.
  • Crude oil for September delivery rose 42 cents, or 0.5%, to $89.39 a barrel on the New York Mercantile Exchange.
  • Gold for August delivery advanced $7, or 0.4%, to settle at $1,615.10 an ounce on the Comex division of the New York Mercantile Exchange.

NEWS TO WATCH

  • PROTESTORS – The Occupy Wall Street protests continue around the world, now in their 310th day.
  • ARMS TRADE TREATY - The Arms Trade Treaty is the name of a potential multilateral treaty that would regulate the international trade in conventional weapons. The treaty is being negotiated at a global conference under the auspices of the United Nations from July 2–27, 2012 in New York. The current draft shows it could lead to perpetual attacks on the U.S. Constitution’s Second Amendment and American foreign policy, critics say.
    • According to the Heritage Foundation, under the rhetoric of international security and justice, member states of the U.N. are working on a legally binding treaty to regulate the sale or transfer of all kinds of arms, which treaty supporters say contribute to human rights abuses, violence, crime, and terrorism around the world.
    • U.S. ratification of the treaty would require passage by a 2/3 majority of the U.S. Senate in addition to presidential approval. A bipartisan group of 51 U.S. Senators on July 26, 2012 threatened to oppose a global treaty regulating international weapons trade if it falls short in protecting the constitutional right to bear arms.
    • The National Rifle Association and Gun Owners of America claim that the treaty is an attempt to circumvent the Second Amendment and similar guarantees in state constitutions in order to impose domestic gun regulations. According to critics, the treaty would force the U.S. government to follow the dictates of the United Nations on gun control laws. This would violate U.S. sovereignty, the 2nd amendment, and the 10th amendment. Advocates of the treaty claim that it only pertains to international arms trade, and would have no effect on current domestic laws.
    • According to the Heritage Foundation, the document, which critics say has been framed by countries hostile to U.S. interests, allows for future amendments to be approved by just two-thirds of states showing up at an amendment conference. That means it could be agreed to by the U.S., put into effect and then changed over Washington's objections. And even if the U.S. Senate refuses to ratify it, the deal could have a huge impact on the global arms trade, where the U.S. is the biggest player.
  • CONGRESS - Momentum began to build on Thursday for a U.S. House vote on a short-term extension of the farm bill next week, with key Democrats opening the door to supporting it.
    • U.S. House Republicans have until now been unable to decide whether to try to pass a five-year reform bill, back a one-year extension of current programs or pass a pared-down bill that deals with drought assistance.
    • The U.S. House Agriculture bill cuts $35 billion from the deficit over 10 years and includes $16.5 billion in food stamp cuts. Those cuts are not enough for many conservatives, while liberals oppose them as too extreme.
    • The U.S. Senate passed its bill in June. The U.S. Senate bill cuts only $4 billion from food stamps and has different crop insurance provisions than the House bill. It is also opposed by Southern farmers because it lacks price-based subsidies.
  • CONGRESS - The U.S. House on Thursday passed legislation that would freeze major government regulations until the unemployment rate, now at 8.2 percent, drops to 6 percent or below. The vote was 245-172, with 13 Democrats voting for the GOP bill and two Republicans against it.
    • The latest GOP attempt to rein in Obama administration’s rulemaking, like previous anti-regulation bills, is virtually certain to die in the Democratic-controlled Senate.
    • In familiar arguments, Republicans contended that unelected bureaucrats were costing businesses time and money and preventing hiring new workers. Democrats countered that consumer protection, health care, aid to veterans, food safety and workplace rules would suffer if Washington cannot regulate these areas.
  • WHITE HOUSE - President Obama will sign a bill to strengthen U.S.-Israeli military cooperation on Friday on the eve of a visit to Israel by his Republican presidential challenger, Mitt Romney.
    • Obama will seek to stress his commitment to Israel's security for American Jewish voters at a White House ceremony that appeared timed to upstage Romney, who has accused the president of undermining U.S.-Israeli ties.
    • Congress passed the legislation, the U.S.-Israel Enhanced Security Cooperation Act, with broad support from Obama's Democrats and Republicans last week. The bill deepens the U.S. security cooperation with Israel by expanding U.S. military assistance and providing Israel with access to additional equipment.

PRESIDENT’S SCHEDULE

  • In the morning, President Obama will receive the Presidential Daily Briefing at the White House.
  • Later in the morning, the president will sign the United States-Israel Enhanced Security Cooperation Act at the White House.
  • During the middle of the day, the president will meet with U.S. Ambassador Ryan Crocker and U.S. Secretary of State Hillary Clinton at the White House.
  • In the afternoon, the president will attend a campaign event at the Jefferson Hotel in Washington, D.C.
  • Later in the afternoon, the president will attend a campaign event at a private residence in McLean, Virginia.

HAPPENING IN THE U.S. CONGRESS

U.S. SENATE

  • The U.S. Senate is not in session today.

U.S. HOUSE OF REPRESENTATIVES

  • The U.S. House is not in session today.

TOPICS OF INTEREST

NATIONAL SECURITY

  • MASSIVE ORDNANCE PENETRATOR - Its been nearly eight months since the Pentagon sent its largest and most powerful bomb, the Massive Ordnance Penetrator (MOP), back to Boeing for modifications necessary to take out Iranian nuclear facilities, but the Air Force says it's now ready to go.
    • Called the Massive Ordnance Penetrator (MOP), the 30,000-pound bomb – which contains over 5,000 pounds of explosives – was originally designed to take out hardened fortifications in Iran and North Korea.
    • The Massive Ordnance Penetrator is designed to destroy deeply buried bunkers that protect chemical, biological and nuclear weapons, but Defense Secretary Leon Panetta told the Wall Street Journal earlier this year that the bomb needed more development to be able to take out Iranian bunkers.

FEDERAL GOVERNMENT

  • BAILOUT - Despite President Obama’s stories about a resurgent GM ready to repay its bailout tab, the automaker and its former bank still owe taxpayers nearly $42 billion, according to an inspector general’s report.
    • GM owes $27 billion on the nearly $50 billion it received from the auto bailout and Ally Bank, the company’s lending arm, owes $14.7 billion of the $17.2 billion taxpayer-funded bailout it received.
    • GM’s stock has plummeted in recent months after stagnant development in overseas markets. It hit a new low on Wednesday, falling to $18.80, a 52 percent drop from its January 2011 high of $38.90. The rapid decline of the stock price has kept taxpayers on the hook for billions in unpaid bailout dollars. The stock would need to make a quick—and meteoric—turnaround for taxpayers to break even.
  • NEPOTISM - The U.S. Justice Department’s internal watchdog said Thursday that eight current or former officials at one of its divisions steered jobs to children and other relatives, violating laws and regulations that forbid nepotism.
    • Similar allegations of improper hiring practices at the department’s Justice Management Division, which oversees administrative and back-office staff, have been the subject of repeated investigation by the department’s inspector general. Reports in 2004 and 2008 also found instances of family members being promoted or hired in violation of the law. And each time officials promised to make lasting changes to hiring practices.
    • The report said that the eight executives made the violations by “improperly manipulating the hiring process to ensure that their own children or the children of other JMD employees were appointed to DOJ positions. In at least one case, we found that two senior officials simultaneously attempted to assist each other’s relative in securing DOJ employment.”

ENERGY

  • NUCLEAR - Strong expansion of nuclear power as a carbon-free energy source in Asia is expected to press ahead despite the Fukushima accident in Japan that soured sentiment in some countries, a benchmark report said on Thursday.
    • An earthquake and tsunami crippled the Fukushima plant in February 2011, leading to the closure of Japan's 50 reactors and spurring Germany to pledge to close all of its nuclear reactors by 2022.
    • World nuclear capacity is, however, expected to grow by 44 percent to 99 percent by 2035, according to a biennial report from the United Nations nuclear body and the Organisation for Economic Cooperation and Development.

FOREIGN POLICY

MIDDLE EAST

  • SYRIA - The United States said on Thursday it appeared that forces loyal to Syrian President Bashar al-Assad were "lining up" for a massacre in the city of Aleppo, but again ruled out military intervention in the conflict.
    • The U.S. State Department said that credible reports of tank columns moving on Aleppo along with air strikes by helicopters and fixed-wing aircraft represented a serious escalation of the government's efforts to crush an armed rebellion.
    • The United States and its allies reacted with outrage after Russia and China last week lodged their third consecutive vetoes of U.N. Security Council resolutions intended to set specific consequences such as economic sanctions for Assad's failure to end the violence.
  • IRAN - Iran is rapidly gaining new capabilities to strike at U.S. warships in the Persian Gulf, amassing an arsenal of sophisticated anti-ship missiles while expanding its fleet of fast-attack boats and submarines, U.S. and Middle Eastern analysts say.
    • The new systems, many of them developed with foreign assistance, are giving Iran’s commanders new confidence that they could quickly damage or destroy U.S. ships if hostilities erupt, the officials say.
    • Although U.S. Navy officials are convinced that they would prevail in a fight, Iran’s advances have fueled concerns about U.S. vulnerabilities during the opening hours of a conflict in the gulf.

EUROPE

  • EURO ZONE - European Central Bank President Mario Draghi promised Thursday to do whatever it takes to save the European single currency and raised expectations that he could step in to lower the high borrowing costs that are crippling countries like Spain and Italy.
    • Draghi told an audience of business leaders in London that the ECB would "do whatever it takes to preserve the euro" and added, "believe me, it will be enough."
    • Fears about the 17 countries that use the euro have intensified over the past few weeks as evidence builds that economies across the region face deepening recessions. Spain and Italy, in particular, are finding it increasingly expensive to raise money on the debt markets due to spiraling borrowing costs. Investors are losing confidence that the countries will be able to control their debt while they are in recession.