Daily News Briefing: Thursday, August 2, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • FEDERAL RESERVE - The U.S. Federal Reserve announced no policy changes Wednesday, reiterating its position that the economy needs careful attention but no action.
  • SEQUESTRATION - The Obama administration’s Office of Management and Budget chief warned Wednesday that threatened automatic budget cuts would have a devastating effect on the government, but he provided few details of the specific impact on federal workers and agencies at a congressional hearing.
  • CONGRESS - The U.S. House approved the Republican plan Wednesday to extend all the Bush-era tax rates for a year. The GOP plan was approved on a 256-171 vote. Meanwhile, the U.S. House voted (170-257) against a Democrat plan to extend the Bush-era tax rates for families making less than $250,000 while letting them rise for top earners.
  • WHITE HOUSE - President Obama has signed a secret order authorizing U.S. support for rebels seeking to depose Syrian President Bashar al-Assad and his government. Indications are that U.S. agencies have not been involved in providing weapons to Assad's opponents. A central reason cited by the Obama administration for limiting support to the resistance is that it did not want arms flowing to Islamic radicals.
  • AL-QAEDA - The U.S. State Department on Tuesday said the attempted smuggling of nuclear arms-grade uranium in recent years illustrates a continued risk that terrorists could acquire the ingredients for a weapon of mass destruction.
  • FREDDIE & FANNIE - The regulator for government-seized housing giants Fannie Mae and Freddie Mac said Tuesday the firms will not reduce loan balances for underwater mortgages.
  • ISRAEL - Israeli Prime Minister Benjamin Netanyahu said Wednesday without qualification that international economic sanctions have had no effect on Iran's nuclear program and suggested Israeli patience was wearing thin.

WHAT WE KNOW

ECONOMIC NEWS

  • UNEMPLOYMENT - The number of people who filed applications for unemployment benefits rose by 8,000 last week to a seasonally adjusted 365,000, the U.S. Commerce Department said Thursday.
    • Meanwhile, continuing claims decreased by 19,000 to a seasonally adjusted 3.27 million in the week ended July 21. About 5.96 million people received some kind of state or federal benefit in the week ended July 14, down 69,672 from the prior week.
  • FEDERAL RESERVE - The U.S. Federal Reserve announced no policy changes Wednesday, reiterating its long-held position that the flagging U.S. economy warrants careful attention but no immediate action.
    • No new stimulus programs were announced and interest rates were maintained at their historically low levels and will stay there until at least late 2014.
    • Analysts have suggested the Federal Open Market Committee, which sets most fiscal policy and wrapped up two days of meetings today, likely realizes that a shift in fiscal policy at this point probably won’t have much impact on a sluggish labor market, clogged housing sector and slowing growth.
    • The Fed’s statement shows policymakers are not pleased with the recovery and they downplayed some of the improvement in the housing market. The odds of the Fed launching a third round of quantitative easing in September are lower but Friday’s nonfarm payroll employment report could be a deciding factor.
  • The Dow Jones Industrial Average fell 32.55 points, or 0.3%, to 12,976.13.
  • The S&P 500 index shed 4 points, or 0.3%, to 1,375.32.
  • The Nasdaq Composite lost 19.31 points, or 0.7%, to 2,920.21.

COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.53.
    • 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 91 percent higher than they were when Mr. Obama became president.
  • Crude for September delivery rose 85 cents, or 1%, to settle at $88.91 a barrel on the New York Mercantile Exchange.
  • Gold for August delivery retreated $6.80, or 0.4%, to settle at $1,603.70 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 316th day.
  • DEFICIT – According to a new study, the U.S. federal deficit is higher than it has been since the 1940s, in the years immediately after World War II.
    • A new visual from the "Face the Facts USA," a non-partisan election project from George Washington University, shows the federal deficit has risen significantly under President Obama, and that the government is increasingly spending money it doesn't have.
    • In every second of 2011, for example, the government spent $114,253—even though it was only taking in $73,043 in revenue. According to Face the Facts, that means the federal government spent $41,210 every second that it didn't actually have. The deficit this year, however, looks as if it will be lower than it was the day President Obama assumed office.
    • In the 1943, the federal deficit as a percentage of the total U.S. economic was 30.3 percent. In 2011, the federal deficit was 8.7 percent of the total U.S. economy.
  • SEQUESTRATION - The Obama administration’s Office of Management and Budget chief warned Wednesday that threatened automatic budget cuts would have a devastating effect on the government, but he provided few details of the specific impact on federal workers and agencies at a congressional hearing.
    • OMB has already said programs administered by the Veterans Affairs Department will be protected from sequestration. However, war funding — contained in the overseas contingency operations budget — will not.
    • Last week, the U.S. Congress approved the Sequestration Transparency Act, which requires the President to provide a detailed report to Congress on how sequestration will be applied. OMB has not said if the President plans to sign the bill. The administration has maintained the cuts would be damaging and that Congress should work to avoid them.
    • Meanwhile, Republican Governors Bob McDonnell of Virginia and Chris Christie of New Jersey penned a letter to President Barack Obama on Wednesday, calling on him to take a leadership role with Congress to avert steep spending cuts that are set to begin in January.
    • The cuts which would amount to roughly $1.2 trillion over 10 years and are a product of the bipartisan budget deal last year that raised the debt ceiling. Congress was given time to try and agree on a package of changes that would reduce the deficit by an equal amount over 10 years, but Democrats and Republicans in what was known as the “super committee” couldn’t agree whether there should be changes in tax policy as part of the deal.
  • CONGRESS - The U.S. House of Representatives passed a new package of sanctions against Iran on Wednesday that aim to punish banks, insurance companies and shippers that help Iran sell its oil.
    • The U.S. House voted 421-6 to send the measure to the U.S. Senate, where a vote has not yet been scheduled. The vote was expected to be held before lawmakers leave at the end of the week for an extended recess.
    • The bill was endorsed by the American Israel Public Affairs Committee, a powerful pro-Israel lobby group, which said the measure when coupled with existing U.S. sanctions "represents the strongest set of sanctions to isolate any country in the world during peacetime."
  • CONGRESS - The U.S. House approved the Republican plan Wednesday to extend all the Bush-era tax rates for a year. The GOP plan was approved on a 256-171 vote. Only one Republican voted against the plan, while 19 Democrats voted to approve.
    • Meanwhile, the U.S. House voted (170-257) against a Democrat plan to extend the Bush-era tax rates for families making less than $250,000 while letting them rise for top earners. The Democrat-backed plan was the same as the one that narrowly passed the U.S. Senate last week.
    • The White House has vowed that President Obama would veto a bill that extends tax rates on incomes over $250,000.
  • WHITE HOUSE - President Obama has signed a secret order authorizing U.S. support for rebels seeking to depose Syrian President Bashar al-Assad and his government, Reuters reported Wednesday.
    • A U.S. government source acknowledged that under provisions of the presidential finding, the United States was collaborating with a secret command center operated by Turkey and its allies. Last week, Reuters reported that, along with Saudi Arabia and Qatar, Turkey had established a secret base near the Syrian border to help direct vital military and communications support to Assad's opponents.
    • Indications are that U.S. agencies have not been involved in providing weapons to Assad's opponents. In order to do so, Obama would have to approve a supplement, known as a "memorandum of notification, to his initial broad intelligence finding. Further such memoranda would have to be signed by Obama to authorize other specific clandestine operations to support Syrian rebels.
    • The U.S. State Department said on Wednesday the U.S. government had set aside a total of $25 million for "non-lethal" assistance to the Syrian opposition. A U.S. official said that was mostly for communications equipment, including encrypted radios.
    • Meanwhile, intelligence reports indicate that members of al-Qaeda and other foreign jihadist organizations have joined the opposition forces fighting Bashar al-Assad's regime. A central reason cited by the Obama administration for limiting support to the resistance is that it did not want arms flowing to Islamic radicals.

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 depart Washington, D.C. and travel to Orlando, Florida.
  • In the afternoon, the president will deliver remarks at a campaign event at Rollins College in Orlando, Florida.
  • Later in the afternoon, the president will deliver remarks at the Blog'H!er Conference at Harold and Ted Alfond Sports Center in Winter Park, Florida.
  • In the evening, the president will depart Orlando, Florida and travel to Dulles International Airport in Sterling, Virginia.
  • Later in the evening, the president will deliver remarks at a campaign event at Loudoun County High School in Leesburg, Virginia.
  • Later, the president will return to Washington, D.C.

HAPPENING IN THE U.S. CONGRESS

U.S. SENATE

  • The U.S. Senate is in session today.

U.S. HOUSE OF REPRESENTATIVES

  • The U.S. House is in session today.

TOPICS OF INTEREST

NATIONAL SECURITY

  • AL-QAEDA - The U.S. State Department on Tuesday said the attempted smuggling of nuclear arms-grade uranium in recent years illustrates a continued risk that terrorists could acquire the ingredients for a weapon of mass destruction.
    • The department's Country Reports on Terrorism 2011 touts as "largely successful" multilateral programs aimed at locking down chemical, biological, radiological and nuclear (CBRN) materials around the globe.
    • However, the report said the illicit trafficking of these materials persists, including instances involving highly enriched uranium in 2010 and 2011. The report said that caches of dangerous material may exist on the black market and that the U.S. must complement efforts to consolidate CBRN materials and secure facilities with broader efforts to detect, investigate, and secure CBRN materials that have fallen outside of proper control.
    • The report said the U.S. must remain vigilant if it hopes to prevent terrorist groups from obtaining the means and methods for generating CBRN weapons.

FEDERAL GOVERNMENT

  • FREDDIE & FANNIE - The regulator for government-seized housing giants Fannie Mae and Freddie Mac said Tuesday the firms will not reduce loan balances for underwater mortgages.
    • The acting chief of the regulator for Fannie and Freddie, the Federal Housing Finance Agency, concluded that Fannie and Freddie’s participation in the Obama administration’s program to cut the amount owed by underwater borrowers would “not make a meaningful improvement in reducing foreclosures in a cost effective way for taxpayers.” The chief said a key concern with principal reduction is whether borrowers who are current on their loans and have the ability to pay will “claim a hardship or actually become delinquent” to capture the benefits of the program.
    • Fannie and Freddie already have cost taxpayers over $188 billion. Roughly 56% of all U.S. mortgages are owned or guaranteed by Fannie and Freddie and about 11 million homeowners owe more than their properties are worth. Borrowers with negative equity are often referred to as “underwater” homeowners, because they owe more than their homes are worth.
  • MEDICARE - Medicare's war on fraud is going high-tech with the opening of a $3.6 million command center that features a giant screen and the latest computer and communications gear. That's raising expectations, as well as some misgivings.
    • Medicare fraud is estimated to cost more than $60 billion annually, and for years the government has been losing a game of "pay and chase," trying to recoup losses after scam artists have already cashed in.
    • Utah's Orrin Hatch and Oklahoma's Tom Coburn say Medicare's new computerized fraud detection system, a $77-million investment that went into operation last year, is not working all that well. In a letter to HHS Secretary Kathleen Sebelius, they questioned spending millions more on a command center, at least until the bugs get worked out.
  • GOVERNMENT MOTORS - General Motors plans to shell out as much as $600 million to sponsor a European soccer team despite owing $27 billion to American taxpayers.
    • GM’s Chevrolet logo will appear front and center on the jerseys of soccer powerhouse Manchester United, as part of one of the largest sponsorship deals in U.S. history. GM will pay $60 million per year for the logo—nearly double the $31 million European insurance company Aon paid—despite plummeting sales and massive liabilities.
    • The U.S. Treasury owns 26.5 percent of the stock of the Detroit-based automaker, which has been reeling from a dwindling European car market.
    • Meanwhile, General Motors says its U.S. sales fell more than 6 percent last month as a money-back guarantee offer failed to attract many buyers.

FOREIGN POLICY

MIDDLE EAST

  • ISRAEL - Israeli Prime Minister Benjamin Netanyahu, standing next to the U.S. defense chief, said Wednesday without qualification that international economic sanctions have had no effect on Iran's nuclear program and suggested Israeli patience was wearing thin, a statement that amounted to an indictment of President Obama's policy toward the Islamic republic.
    • Netanyahu dismissed U.S. Defense Secretary Leon Panetta's assurances that the United States shared its goal of a non-nuclear Iran, saying the central features of Washington's strategy for stopping the Islamic republic's nuclear ambitions - sanctions and diplomacy - were perilously close to failure.
    • The Obama administration has steadily ratcheted up the severity of economic sanctions on Iran, and on Monday Congress agreed on a new package of sanctions that expand financial penalties and further target Tehran's energy and shipping sectors. Iran angrily equated the moves to economic "warfare."
  • IRAN – U.S. Defense Secretary Leon E. Panetta stressed Wednesday that if economic sanctions do not compel Iran to end its nuclear program, the United States will have to consider military options to destroy it.
    • Panetta’s repeated emphasis on pursuing other options if diplomacy fails did not mark a change in policy but gave his remarks a harder edge than his previous statements.
    • Meanwhile, the United States is quietly setting up an array of proposed arms sales across the Middle East as part of a wider effort to counter Iran.
    • In the past two months, the U.S. Defense Department has notified Congress of possible deals totaling more than $11.3 billion to Gulf states such as Qatar and Kuwait, seen as some of America’s critical front-line partners in containing Iran and protecting oil shipping lanes.
    • The proposed sales, including Patriot missile batteries and Apache attack helicopters, are still modest compared with massive Gulf purchases, such as Saudi Arabia’s $60 billion package last year. That deal included more than 80 new F-15SA fighter jets, missiles, radar warning systems and other equipment.
  • SYRIA - Failed efforts to curtail escalating violence in Syria led policy experts to unanimously call for direct U.S. assistance to rebel forces during a hearing at the Capitol on Wednesday, pushing for a new intelligence operation to identify legitimate opposition leaders and supply them with military support.
    • With the Assad government composed mostly of Alawites — a branch of Shiite Islam — and the opposition hailing mostly from the Sunni sect, many fear a drawn-out war in Syria could lead to violence elsewhere and give extremist organizations like al Qaeda a foothold in the region.
    • Reports indicated that Wednesday's consensus from the U.S. Senate Foreign Relations Committee was that the U.S. must reach out to opposition leaders directly.
    • Each panel member said the U.S. must begin aiding the opposition leaders that are committed to a overthrowing dictator Bashar Assad — a development most at the hearing viewed as an inevitable — with at least intelligence information and military equipment. The panel stopped short of advocating for immediate intervention by U.S. troops,

EUROPE

  • GREECE - Greece's government on Wednesday agreed to take fresh austerity measures of €11.5 billion ($14.1 billion) for 2013 and 2014 after junior partners in the ruling coalition dropped demands to implement the steep cuts over a longer period, paving the way for the recession-ravaged country to secure crucial funding from its international creditors.
    • Greece will now hold talks on the cuts with a delegation of international lenders in Athens who need to sign off on the austerity package before approving the next aid tranche from a €173 billion bailout. Without the funds, Greece could run out of cash, possibly in coming weeks.
    • Greece's five-week old government will face another crucial test in September when lawmakers in the country's fragmented parliament will be called to approve the unpopular cutbacks, in the face of an increasingly powerful leftist opposition and growing backlash from unions and an austerity-stricken public.