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Daily News Briefing: Monday, August 20, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • UNEMPLOYMENT - Unemployment rates rose in 44 U.S. states in July, the most states to show a monthly increase in more than three years and a reflection of weak hiring nationwide.
  • CONGRESS - On Friday, U.S. Senator John Cornyn (R-TX) sent a letter to Chief of Naval Operations Admiral Jonathan Greenert requesting more information after it was reported that a Russian nuclear-powered attack submarine recently traveled undetected in the Gulf of Mexico.
  • WHITE HOUSE - The White House on Friday said it is making $470 million available to states to help jump-start transportation projects, part of a pitch the administration hopes will create jobs for construction workers hurt by the economic downturn.
  • WHITE HOUSE - In his weekly Internet and radio address, President Obama said school districts around the country could begin rehiring the more than 300,000 teachers and other education workers who have lost jobs since 2009 if congressional Republicans would pass his stalled jobs bill.
  • FREDDIE & FANNIE - The U.S. Treasury Department on Friday revamped its financial support of Fannie Mae and Freddie Mac to accelerate the pace at which the mortgage-finance giants will pay back the government for its rescue four years ago.
  • ISRAEL - Preparations in Israel for a possible war are focusing new attention on whether Israel will attack Iran's nuclear facilities and forcing an unwelcome debate in the thick of a presidential campaign about the U.S. role in stopping an Iranian bomb.
  • EURO ZONE - The euro zone will slip into recession and won't grow until 2013, according to the latest Reuters poll of economists who also don't expect any new aggressive policy response from the European Central Bank.

WHAT WE KNOW

ECONOMIC NEWS

  • UNEMPLOYMENT - Unemployment rates rose in 44 U.S. states in July, the most states to show a monthly increase in more than three years and a reflection of weak hiring nationwide.
    • The U.S. Labor Department said Friday that unemployment rates fell in only two states and were unchanged in four. Unemployment rates rose in nine states that are considered battlegrounds in the presidential election. That trend, if it continued, could pose a threat to President Barack Obama's re-election bid in less than three months.
    • Nationwide, hiring improved in July after three months of tepid job gains. But the national unemployment rate ticked up to 8.3 percent from 8.2 percent. Monthly job gains have averaged 150,000 this year. That's barely enough to accommodate population growth. As a result, the unemployment rate is the same as when the year began.
  • EMINENT DOMAIN - With many areas of the country still digging out from the housing crisis, some local governments are considering taking on the underwater mortgages through eminent domain at a substantially lower price, thus making them more affordable for the borrower.
    • With policymakers at the federal, state and local level struggling to find a way to relieve the burden of unaffordable home loans, the eminent domain idea is being met with open ears.
    • The receptive response to the idea has put the financial sector on high alert. Firms are warning that a governmental action to seize private property to reduce its value could throw the entire housing market off kilter.
  • Monday morning futures on the Dow Jones Industrial Average held steady at 13,247.
  • Monday morning futures on the S&P 500 Index gained 1.3 points to 1,416.50.
  • Monday morning futures on the Nasdaq-100 rose 2.25 points to 2,778.25.

COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.72.
    • 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 101 percent higher than they were when Mr. Obama became president.
  • Crude for September delivery fell 3 cents to $95.98 a barrel on the New York Mercantile Exchange.
  • Gold for December delivery fell $2.80 to end at $1,619.20 an ounce on the Comex division of the New York Mercantile Exchange.

NEWS TO WATCH

  • ELECTION - As of today, there are 78 days until the November 2012 presidential election.
  • CONGRESS - On Friday, U.S. Senator John Cornyn (R-TX) sent a letter to Chief of Naval Operations Admiral Jonathan Greenert requesting more information after it was reported that a Russian nuclear-powered attack submarine recently traveled undetected in the Gulf of Mexico.
    • Cornyn said the submarine patrol seems to represent a more aggressive and destabilizing Russian military stance that could pose risks to our national security. Cornyn said this is especially troubling given the drastic defense cuts sought by President Obama, which include reductions in funding for antisubmarine defense systems.
    • Intelligence reports indicate that the Russian nuclear-powered attack submarine armed with long-range cruise missiles recently operated undetected in the Gulf of Mexico for several weeks and its travel in strategic U.S. waters was only confirmed after it left the region.
  • WHITE HOUSE - The White House on Friday said it is making $470 million available to states to help jump-start transportation projects, part of a pitch the administration hopes will create jobs for construction workers hurt by the economic downturn.
    • The money comes from what the White House is calling idle earmarks, or funds previously allocated to projects that have been stalled. "We are freeing up these funds so states can get down to the business of moving transportation projects forward and putting our friends and neighbors back to work," Transportation Secretary Ray LaHood said.
    • The White House says states can use their unspent earmarks-some of which are nearly 10 years old-on any eligible highway, transit, passenger-rail or port project. States will have until Oct. 1 to identify how they will spend the funds and start committing the money by Dec. 31 or risk losing it.
  • WHITE HOUSE - In his weekly Internet and radio address, President Obama said school districts around the country could begin rehiring the more than 300,000 teachers and other education workers who have lost jobs since 2009 if congressional Republicans would pass his stalled jobs bill.
    • President Obama said the jobs bill that he sent to Congress last September included support for states to prevent further layoffs and to rehire teachers who'd lost their jobs. The president said tens of thousands of educators are losing jobs and Congress still has not enacted the president's jobs bill.
    • According to a report released Saturday by the White House, student-to-teacher ratios climbed from 15.3-to-1 in 2008 to 16-to-1 in 2010 as states and local school districts laid off more than 300,000 teachers and education workers.

PRESIDENT'S SCHEDULE

  • In the morning, President Obama will receive the Presidential Daily Briefing at the White House.
  • In the afternoon, the president will speak from the White House with regional television and print news outlets.
  • In the evening, the president will have dinner with winners of a campaign contest at the White House.

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

FEDERAL GOVERNMENT

  • FREDDIE & FANNIE - The U.S. Treasury Department on Friday revamped its financial support of Fannie Mae and Freddie Mac to accelerate the pace at which the mortgage-finance giants will pay back the government for its rescue four years ago.
    • In the latest change to a nearly four-year-old rescue, the Treasury Department will capture all the profits that they post in any given quarter, rather than requiring a 10% annual dividend payment. They won't require payments in periods when the firms lose money, ending a perverse cycle where Fannie and Freddie were borrowing from the government simply to make quarterly repayments.
    • The U.S. Treasury took over Fannie and Freddie in September 2008 through a legal process known as conservatorship. Since then, taxpayers have injected a total of nearly $188 billion into the companies.
    • U.S. House Financial Services Committee Chairman Spencer Bachus (R-AL) said that the move by Treasury makes it less likely taxpayers will be repaid for funds injected into Fannie and Freddie. Instead enacting a meaningful reform, Rep. Bachus said the administration opted to create a permanent, off-budget source of funding for housing that it will control.
  • ETHANOL - A federal appeals court on Friday dismissed legal challenges to the Environmental Protection Agency's move to expand ethanol use in the U.S.
    • Most gasoline in the U.S. contains about 10% ethanol. Ethanol manufacturers asked the EPA in 2009 to allow the use of 15% blends in a bid to expand their market. The EPA, which regulates fuels based on the pollution they create, granted the industry a partial victory when it approved so-called E15 fuel for use in vehicles dating back to model year 2001, though not in older models.
    • Trade groups representing the oil and auto industries in late 2010 challenged that decision, saying a "partial" approval of the product would expose them to lawsuits from customers who put the fuel in the wrong engine. Food companies, fretting that more ethanol use would drive up the costs of corn-based animal feed, also sued.
    • On Friday, the U.S. Court of Appeals for the District of Columbia Circuit, in a 2-1 ruling, dismissed the challenges on jurisdictional grounds, saying none of the parties had a legal right to challenge the EPA decision.

FOREIGN POLICY

MIDDLE EAST

  • ISRAEL - Preparations in Israel for a possible war are focusing new attention on whether Israel will attack Iran's nuclear facilities and forcing an unwelcome debate in the thick of a presidential campaign about the U.S. role in stopping an Iranian bomb.
    • A flurry of public statements and anonymous quotes to the Israeli news media in the past week has raised speculation that an Israeli attack could come before the U.S. presidential election in November.
    • The government appears to be readying the country for war by issuing gas masks, building underground bomb shelters and testing an early-warning system for missiles. The outgoing Israeli home-front defense minister said he had worked to ensure that the nation was ready for a month-long war "on multiple fronts."
  • SYRIA - United Nations military observers left Damascus on Monday after a four-month mission in which they became helpless spectators of Syria's spiraling conflict, instead of monitoring a ceasefire between President Bashar al-Assad's forces and rebels.
    • Battling a 17-month-old uprising against his family's 42-year rule, Assad has used fighter jets and helicopter gunships to pound rebel strongholds. Insurgents have stepped up their attacks, hitting tanks, military convoys and security buildings.
    • At least 18,000 people have now been killed in Syria since the anti-Assad revolt began. At least 170,000 people have fled the country, according to the United Nations, and 2.5 million need aid inside Syria.
  • IRAN - When President Obama announced last month that he was barring a Baghdad bank from any dealings with the American banking system, it was a rare acknowledgment of a delicate problem facing the administration in a country that American troops just left: for months, Iraq has been helping Iran skirt economic sanctions imposed on Tehran because of its nuclear program.
    • The little-known bank singled out by the United States, the Elaf Islamic Bank, is only part of a network of financial institutions and oil-smuggling operations that, according to current and former American and Iraqi government officials and experts on the Iraqi banking sector, has provided Iran with a crucial flow of dollars at a time when sanctions are squeezing its economy.
    • The Obama administration is not eager for a public showdown with the government of Prime Minister Nuri Kamal al-Maliki over Iran just eight months after the last American troops withdrew from Baghdad.
    • Still, the administration has held private talks with Iraqi officials to complain about specific instances of financial and logistical ties between the countries, officials say, although they do not regard all trade between them as illegal or, as in the case of smuggling, as something completely new.

AFRICA

  • EGYPT - Egyptian President Mohamed Morsi plans to visit Iran this month for an international summit in what would mark the highest level official contact between the two nations in more than 30 years, according to Egypt's state news agency.
    • Official relations between Egypt and Iran -- dominant players in the Middle East for generations -- broke off following the Iranian Revolution and Cairo's 1979 peace treaty with Israel. Iran has been trying to repair the rift, but former Egyptian President Hosni Mubarak, a strong U.S. ally who was toppled in an uprising last year, refused to restore full diplomatic ties.
    • Morsi's expected trip potentially changes that dynamic and gives Iranian President Mahmoud Ahmadinejad a public relations bump at a time when Tehran is facing increased international pressure on its nuclear program and over its ties to Syrian President Bashar Assad.

EUROPE

  • EURO ZONE - The euro zone will slip into recession and won't grow until 2013, according to the latest Reuters poll of economists who also don't expect any new aggressive policy response from the European Central Bank.
    • The latest monthly survey results, released on Thursday, follow news that the euro zone just barely skirted recession in the first half of the year, with only Germany growing in the three months to June and France, the second largest euro zone economy, flatlining.
    • Taken together with a worsening outlook for the euro zone's most vulnerable economies in a Reuters poll published last week, there appears to expectation for an end to the euro crisis or any prospects for a meaningful economic rebound.