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Daily News Briefing: Thursday, July 12, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • STUDENT DEBT - According to a new study by Accounting Principals, 68% of recent grads are leaving school with an average of nearly $40,000 of debt and 31% are finding the job prospects so weak they wish they’d chosen a different major.
  • FEDERAL RESERVE - According to minutes from the Federal Open Market Committee meeting in June 2012, a few U.S. Federal Reserve policy makers said the central bank will probably need to take more action to boost the labor market and meet its inflation target.
  • OBAMACARE - The Republican side of the U.S. Senate Budget Committee released a new estimate on Wednesday that said that Obamacare will cost $2.6 trillion in its first real decade.
  • CONGRESS - The U.S. House of Representatives voted 244-185 Wednesday to repeal in full President Obama's health care law in a symbolic display of opposition to the law after the Supreme Court's decision to uphold it.
  • CONGRESS - Democrats blocked a U.S. Senate vote Wednesday on President Obama's plan to extend expiring tax cuts for a year for everyone but the highest-earning Americans.
  • BUDGET – According to data published by the White House Office of Management and Budget, balancing the federal budget anywhere near the current level of federal spending would require imposing and sustaining a record level of federal taxation.
  • IRAN - Iran is steadily improving its missile capability and could be able to test a missile that could reach the U.S. shores within three years, according to a new Pentagon report assessing the status of the Iranian military.
    • Meanwhile, the U.S. Navy is rushing dozens of unmanned underwater craft to the Persian Gulf to help detect and destroy mines in a major military buildup aimed at preventing Iran from closing the strategic Strait of Hormuz in the event of a crisis, U.S. officials said. 

WHAT WE KNOW

ECONOMIC NEWS

  • UNEMPLOYMENT - U.S. jobless claims fell by 26,000 last week to 350,000, but onetime factors such as fewer auto-sector layoffs than normal likely caused the sharp decline, the U.S. Labor Department said Thursday.
    • The level of claims is the lowest in four years, although they could move higher in the next few weeks as onetime seasonal factors unwind.
    • Continuing claims fell by 14,000 to a seasonally adjusted 3.3 million in the week ended June 30. About 5.87 million people received some kind of state or federal benefit in the week ended June 23, up 17,011 from the prior week.
  • STUDENT DEBT - According to a new study by Accounting Principals, 68% of recent grads are leaving school with an average of nearly $40,000 of debt and 31% are finding the job prospects so weak they wish they’d chosen a different major.
    • Student loan debt for the average recent grad totaled $27,000 according to the survey, while credit card debt per student stood at $12,742 at graduation. Paying down the debts isn’t going to be easy: 83% of those surveyed say they won’t be able to afford basic living necessities including a car, groceries, rent, or a cellular phone.
    • Meanwhile, government data last year found 53.6 percent of people under age 25 with a bachelor's degree -- about 1.5 million people -- were unemployed or underemployed, which is the highest percentage in more than a decade. And according to a recent U.S. Census Bureau report, "Between 2007 and 2010, the number of adult children who resided in their parents' households increased by 1.2 million."
  • FEDERAL RESERVE - According to minutes from the Federal Open Market Committee meeting in June 2012, a few U.S. Federal Reserve policy makers said the central bank will probably need to take more action to boost the labor market and meet its inflation target.
    • Two participants said additional bond purchases are appropriate, while two others said they would be warranted in the absence of “satisfactory progress” in cutting unemployment or if downside risks increase. FOMC members also said strains in global markets stemming from Europe’s debt crisis had increased since their April meeting, and that “U.S. fiscal policy would be more contractionary than anticipated.”
    • The minutes also show policy makers considering the risk that further easing might pose. Some members of the committee noted that excessive purchase of Treasuries could “at some point, lead to deterioration in the functioning of the Treasury securities market that could undermine the intended effects of the policy.”
  • The Dow Jones Industrial Average declined 48.59 points, or 0.4%, to 12,604.53.
  • The S&P 500 edged fractionally lower to 1,341.45.
  • The Nasdaq Composite slid 14.35 points, or 0.5%, to 2,887.98.

COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.38.
    • 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 83 percent higher than they were when Mr. Obama became president.
  • Crude for August delivery advanced $1.90, or 2.3%, to settle at $85.81 a barrel on the New York Mercantile Exchange.
  • Gold for August delivery declined $4.10, or 0.3%, to $1,575.70 an ounce on the New York Mercantile Exchange.

NEWS TO WATCH

  • PROTESTORS – The Occupy Wall Street protests continue around the world, now in their 295th day.
  • OBAMACARE - The Republican side of the U.S. Senate Budget Committee released a new estimate on Wednesday that said that Obamacare will cost $2.6 trillion dollars in its first real decade. The bill does not fully go into effect until 2014, therefore the estimate begins with that year.
    • The Republican U.S. Senate Budget Committee analysis (based on CBO estimates and growth rates) finds that that total spending under the law will amount to at least $2.6 trillion over a true 10-year period (from FY2014–23)—not $900 billion, as President Obama originally promised.
    • Adding up all the different spending provisions in the health care law, however, (including closing the Medicare 'donut hole,' implementation costs, and other spending) total gross spending over the FY 2010–19 period is about $1.4 trillion, based on U.S. Congressional Budget Office estimates.
    • Meanwhile, the Government Accountability Office said Wednesday President Obama is stretching the law to give bonuses to mediocre private Medicare plans — an $8 billion program the auditors had already urged the administration to cancel.
    • Opponents have said the $8 billion project amounts to a slush fund designed to cover up the Medicare cuts in Mr. Obama’s health care law, at least until 2014 when the law kicks into full effect. The administration counters that it’s using the money to learn what kinds of incentives can spur private companies to offer better coverage.
    • The GAO, Congress’s independent auditors, said that’s a stretch, since the demonstration seems designed to produce little useful data and could even reduce incentives for private plans to provide better care
    • Because the demonstrations will likely fail, U.S. Health and Human Services Secretary Kathleen Sebelius and the Center for Medicare and Medicaid Services, which is part of her department, don’t have the authority to enact them, GAO said.
  • MEDICAID - The original purpose of Medicaid was to provide improved healthcare access for poor people, while not turning the safety net into a trap. Under President Obama’s Affordable Care Act, Medicaid will be greatly expanded beyond what Congress originally intended.
    • According to the American Enterprise Institute, it has already expanded beyond what Congress surely originally envisioned and, in the process, has created a terrible fiscal problem for the United States.
    • The American Enterprise Institute says the Obamacare Medicaid expansion will drastically add to an already bleak fiscal situation. Key findings from AEI include:
      • In the 1960s, there were 18 workers per Medicaid recipient. Today that number is 2.5.
      • The number of Americans on disability has risen 19% faster than jobs created during this recovery.
      • There are just 1.2 private sector workers per 1 person on welfare or working for government.
      • There are now just 1.65 employed persons in private sector per 1 person on welfare assistance.
  • CONGRESS - The U.S. House of Representatives voted 244-185 Wednesday to repeal in full President Obama's health care law in a symbolic display of opposition to the law after the Supreme Court's decision to uphold it. Five Democrats sided with Republicans, who were unanimous in support of repeal.
    • It was the 33rd vote to repeal or defund the law since Republicans took control of the chamber last year.
    • None of the GOP's efforts stood a chance of enactment because Democrats control the Senate and the White House, which issued a veto threat Monday on the GOP's repeal bill.
  • CONGRESS - Democrats blocked a U.S. Senate vote Wednesday on President Obama's plan to extend expiring tax cuts for a year for everyone but the highest-earning Americans as the two parties maneuvered to try embarrassing each other on one of the election year's foremost issues.
    • The move came just two days after Obama urged Congress to vote on his proposal. Democrats plan to take up the president's proposal before Congress' August recess.
    • Without action by lawmakers, wide-ranging tax cuts enacted a decade ago under President George W. Bush will expire on New Year's Day. That's an outcome that economists say would be a blow to the already weak economy.
    • U.S. Senate Minority Leader Mitch McConnell, R-Ky., proposed votes on two amendments to a small business tax cut bill the chamber is debating. One was on Obama's plan, the other on a Republican alternative that would include top earners in the extended tax reductions.
  • WHITE HOUSE - President Obama used a White House meeting Wednesday to rally Democratic leaders behind his proposal to raise taxes on families with adjusted gross income above $250,000, an issue that people in both parties see as working to their advantage.
    • Still, a coming Senate vote puts political pressure on vulnerable Democrats who have been wary about the proposal's reach. For Republicans, the issue risks playing into Democratic portrayals of presidential challenger Mitt Romney as an out-of-touch rich guy.
    • U.S. Senate Majority Leader Harry Reid (D., Nev.), who attended the White House meeting, is expected to call a Senate vote this month on the president's proposal for a one-year extension of current tax rates on income up to $250,000 a year.

PRESIDENT’S SCHEDULE

  • In the morning, President Obama will receive the Presidential Daily Briefing at the White House. 

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

  • ARMS TRADE TREATY - A treaty being hammered out this month at the United Nations -- with Iran playing a key role -- could expose the records of America's gun owners to foreign governments -- and, critics warn, eventually put the Second Amendment on global trial.
    • The Arms Trade Treaty is the name of a potential multilateral treaty that would regulate the international trade in conventional weapons. Iran was elected to a top post on the UN Arms Trade Treaty conference that is currently ongoing this July.
    • While the treaty’s details are still under discussion, the document could restrict U.S. foreign policy to the point where the U.S. could be restricted from helping arm friends such as Taiwan and Israel.
    • Ratification by two-thirds of the U.S. Senate is necessary before an international treaty negotiated by the executive branch can become U.S. law. But the treaty could still go into effect elsewhere once 65 countries ratify it. Such a development could change the pattern of world arms transfers and reduce the U.S. share, which stands at about 40 percent of up to $60 billion in global deals.
    • The Bush administration opposed a 2006 UN General Assembly resolution launching the treaty process, but President Obama decided the U.S. would take part on condition the final agreement be reached by consensus -- thereby giving any of the 193 participating states an effective veto.

FEDERAL GOVERNMENT

  • BUDGET - Both President Obama and Republican presidential candidate Mitt Romney have recently said they would like to balance the federal budget. However, according to data published by Obama’s own White House Office of Management and Budget, accomplishing that goal at anywhere near the current level of federal spending would require imposing and sustaining a record level of federal taxation as a percentage of GDP.
    • In fiscal 2009, 2010 and 2011, according to the White House Office of Management and Budget, federal spending was 25.2 percent of Gross Domestic Product (GDP), 24.1 percent of GDP, and 24.1 percent of GDP. In fiscal 2012, which will end on Sept. 30, the OMB estimates federal spending will hit 24.3 percent of GDP.
    • Since the U.S. Commerce Department started calculating GDP in calendar year 1929 (and fiscal year 1930), there has not been a single year that federal tax revenues have reached anywhere near 24 percent of GDP.
    • Average federal tax revenues since 1960 have averaged 17.94 percent of GDP. Since 1970, it has averaged 17.96 percent of GDP. And since 1980, it has averaged 17.97 percent of GDP.
    • For the federal government to balance the budget at 24.4 percent of GDP spending it would have to increase federal tax revenue 37 percent above the 17.8 percent of GDP post-World War II average.

FOREIGN POLICY

MIDDLE EAST

  • SYRIA - International envoy Kofi Annan asked the U.N. Security Council on Wednesday to make clear to Syria's government and opposition that there would be "clear consequences" for not complying with his plan to end the 16-month conflict that has killed thousands.
    • But the Security Council differed greatly over what those consequences should be, with the United States, Britain, Germany and France insisting that Syria should be threatened with sanctions, while Russia said that should be a "last resort."
    • The deeply divided 15-member council must decide the future of a U.N. observer mission in Syria, known as UNSMIS, before July 20 when its 90-day mandate expires. It initially approved 300 unarmed military observers to monitor an April 12 ceasefire, which failed to take hold, as part of Annan's peace plan.
  • IRAN - Prime Minister Binyamin Netanyahu said on Sunday that Israel and the P5+1 countries are operating for the common good against Iran's nuclear program but expressed concern that the P5+1 has decreased and weakened demands made in the previous rounds of negotiations.
    • P5+1 – the US, China, Russia, France, Britain and Germany – held negotiations with Iranian officials in Istanbul last week to discuss the Islamic
    • The prime minister reiterated that the P5+1 should go back to its original demand that Iran totally stop enriching uranium and export all previously enriched material and dismantle the underground nuclear facility near Qom.
  • IRAN - Iran is steadily improving its missile capability and could be able to test a missile that could reach the U.S. shores within three years, according to a new Pentagon report assessing the status of the Iranian military.
    • The missiles were part of war game exercises conducted by Iran last week. Iran's government said it was testing missiles capable of hitting U.S. bases around the Middle East.
    • Meanwhile, the U.S. Navy is rushing dozens of unmanned underwater craft to the Persian Gulf to help detect and destroy mines in a major military buildup aimed at preventing Iran from closing the strategic Strait of Hormuz in the event of a crisis, U.S. officials said.

AFRICA

  • CONGO - A new U.N. report highlights continuing massacres in the African Democratic Republic of the Congo and inaction and silence on the issue from the Obama administration is causing an outrage by some.
    • For sixteen years, a conflict has dragged on in the Democratic Republic of the Congo that rivals or exceeds the Holocaust in lethality. Five to six million people have perished. American policy toward the region, which is still essentially a reaction to the 1994 genocide in the Congo's neighbor, Rwanda, predates President Obama's arrival in the White House. Yet Obama could help stop the continuing flow of blood in the region even now with a minimal commitment.
    • A key culprit in the hostilities is Rwanda, the main U.S. ally in that part of Africa. Rwanda receives $500 million a year in foreign aid, most of it from the United States or international aid organizations in which the United States wields critical influence. By threatening to withhold assistance or cutting it off entirely, President Obama could induce Rwandan President Paul Kagame to halt support for rebels in eastern Congo and help bring about peace.
    • President Obama is uniquely quality to deal with the situation. As a U.S. Senator, was chief sponsor of a bill that called upon the United States to "engage with governments working to promote peace and security throughout the Democratic Republic of the Congo and hold accountable individuals, entities, and countries working to destabilize the country. With Mr. Obama's previous legislative action on the issue, many activists are outraged over his current silence.

ASIA

  • SOUTH CHINA SEA - The United States and China signaled a willingness on Thursday to work together on "sensitive issues" in a move to cool tensions between rival claimants to the potentially oil-rich and increasingly militarized South China Sea.
    • Long-simmering tensions in the waters have entered a more contentious chapter this year as the six parties who claim the territory search deeper into the disputed waters for energy supplies while building up their navies and defense alliances.
    • Chinese Foreign Minister Yang Jiechi said Beijing was ready to work with Washington "to expand our common ground, respect each other, properly handle differences on sensitive issues, and push forward" relations.

SOUTH AMERICA

  • VENEZUELA - President Obama downplayed Venezuelan leader Hugo Chavez's ties to Iran in an interview Tuesday, saying that they haven't posed a “serious” national security threat to the United States.
    • Republicans in Congress have raised concerns about Tehran's ties to Latin American leftists, with the House Foreign Affairs Committee asking in a February hearing if Iranian President Mahmoud Ahmadinejad's visit to Venezuela, Cuba, Nicaragua and Ecuador was spurred by a desire to “attack” the United States or undercut its influence in the region.
    • Critics on the left say the Iranian threat in Latin America has been overblown. Last year, however, elements tied to Iran's elite Quds Force attempted to team up with a Mexican drug gang to assassinate Saudi Arabia's ambassador to the United States.