Daily News Briefing: Tuesday, July 3rd, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • SLOWDOWN - U.S. manufacturing shrank in June for the first time in nearly three years, a troubling sign that the economy is faltering.
  • TERROR PLOT - There are reports of concern over another terror plot involving Al Qaeda targeting a U.S. airliner. Sources say that Al Qaeda in the Arabian Peninsula (AQAP) has recruited is a Norwegian convert to Islam, who is believed to be in his thirties, with no criminal record.
  • MEDICAID EXPANSION - The U.S. Supreme Court decided last week that the federal government could not penalize states for not participating in the Medicaid expansion, set to begin in 2014.  Florida and South Carolina have decided since then that they will opt out of the program. Republican legislators elsewhere are also mulling the idea.
  • INTERNAL REVENE SERVICE - IRS officials on background tell FOX Business the U.S. Supreme Court ruling on health reform gives the IRS even more powers than previously understood.
  • DISABILITY - A record of 8,733,461 workers took federal disability insurance payments in June 2012, according to the Social Security Administration. That was up from 8,707,185 in May.
  • IRAN - The United States has quietly moved significant military reinforcements into the Persian Gulf to deter the Iranian military from any possible attempt to shut the Strait of Hormuz and to increase the number of fighter jets capable of striking deep into Iran if the standoff over its nuclear program escalates.
  • SOUTH CHINA SEA - The Philippines may ask the United States to deploy spy planes over the South China Sea to help monitor the disputed waters, President Benigno Aquino told Reuters on Monday, a move that could worsen tensions with its giant neighbor China.

WHAT WE KNOW

ECONOMIC NEWS

  • SLOWDOWN - U.S. manufacturing shrank in June for the first time in nearly three years, a troubling sign that the economy is faltering.
    • The Institute for Supply Management, a trade group of purchasing managers, said Monday that its index of manufacturing activity fell to 49.7. That's down from 53.5 in May and the lowest reading since July 2009, one more after the recession officially ended. Readings below 50 indicate contraction.
    • Last week, figures showed that U.S. exports were much weaker than originally thought in the first quarter and that worsening sales overseas led to the first quarterly drop in U.S. corporate profits since the worst of the global financial crisis in late 2008.
  • The Dow Jones Industrial Average fell 8.70 points, or 0.1%, to 12,871.39.
  • The S&P 500 rose 3.35 points, or 0.25%, to 1,365.51.
  • The Nasdaq Composite climbed 16.18 points, or 0.6%, to 2,951.23.

COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.32.
    • 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 79 percent higher than they were when Mr. Obama became president.
  • Crude for August delivery declined $1.21, or 1.4%, to settle at $83.75 per barrel on the New York Mercantile Exchange.
  • Gold for August delivery retreated $6.50, or 0.4%, to $1,597.70 an ounce on the Comex division of New York Mercantile Exchange.

NEWS TO WATCH

  • PROTESTORS – The Occupy Wall Street protests continue around the world, now in their 286th day.
  • TERROR PLOT - There are reports of concern over another terror plot involving Al Qaeda targeting a U.S. airliner. Sources say that Al Qaeda in the Arabian Peninsula (AQAP) has recruited is a Norwegian convert to Islam, who is believed to be in his thirties, with no criminal record.
    • Al Qaeda has recruited a Norwegian convert who goes by the Islamic name of Muslim Abu Abdurrahman at a training camp in Yemen to carry out the plot, the paper reports.
    • Abdurrahman is thought to be in his thirties and a "clean skin," meaning he has no previous criminal record. He converted in 2008, became radicalised and later travelled to Yemen, where he's spent several months, to complete his training.
    • An earlier AQAP plot to blow up a plane was foiled two months ago when a man working with British intelligence infiltrated the group and volunteered to be a suicide bomber - then delivered the bomb to intelligence officials.
    • Meanwhile, officials in Kenya say that two Iranian agents arrested with explosives planned to attack Israeli, American, British or Saudi Arabian targets inside Kenya.
  • OBAMACARE - Last week, there was speculation that U.S. Chief Justice John G. Roberts Jr. had originally planned to strike down the Affordable Care Act’s individual mandate, before changing his mind and ruling to uphold the mandate as a tax. Now, new reports that Roberts did switch his vote, and that the court’s conservatives tried for a month to win him back to their side.
    • In the court’s private vote after oral arguments in March, Roberts sided with the other four conservative justices to strike down the law, the report said. But, it said, about six weeks later, while writing the decision that would invalidate the health-care law, he changed his mind.
    • There were some signs of a shift in the four conservatives’ dissent. The dissent read more like a majority opinion. There was no engagement with Roberts’s opinion, and the dissent includes a long passage on whether the remainder of the health-care law could be severed from the mandate — as if the mandate had been struck down.
  • MEDICAID EXPANSION - The U.S. Supreme Court decided last week that the federal government could not penalize states for not participating in the Medicaid expansion, set to begin in 2014.  Florida and South Carolina have decided since then that they will opt out of the program. Republican legislators elsewhere are also mulling the idea.
    • Medicaid already eats up a huge share of state budgets. In Texas, for example, more than 20 percent of the state budget is spent on Medicaid. The crisis facing states across the country is that Obamacare forces states to massively expand their already burdensome Medicaid rolls. Starting in 2014 states must expand Medicaid to all non-elderly individuals with family incomes below 138 percent of the federal poverty level. At first, Obamacare picks up the first three years of benefit costs for expansion. But in 2017 states begin to shoulder a larger and larger share of these benefit costs, maxing out at 10 percent by 2020.
    • But that is just the benefit costs. Obamacare does not pay for any of the costs necessary to administer the expansion of the Medicaid rolls, rolls that are expected to increase by approximately 50 percent in states like Nevada, Oregon, and Texas. The Heritage Foundation found that just the administrative costs of the Obamacare Medicaid expansion will cost almost $12 billion by 2020.
  • INTERNAL REVENE SERVICE - IRS officials on background tell FOX Business the U.S. Supreme Court ruling on health reform gives the IRS even more powers than previously understood.
    • The IRS now gets to know about a small business's entire payroll, the level of their insurance coverage -- and it gets to know the income of not just the primary breadwinner in your house, but your entire family’s income, in order to assess/collect the mandated tax.
    • According to the Taxpayer Advocate Office [TAO], the new Obamacare laws require that Americans tell the IRS the following details:
      • Insurance plan information, including who is covered under the plan and the dates of coverage;
      • The costs of your family’s health insurance plans;
      • Whether a taxpayer had an offer of employer-sponsored health insurance;
      • The cost of employer-sponsored insurance;
      • Whether a taxpayer received a premium tax credit; and
      • Whether a taxpayer has an exemption from the individual responsibility requirement.
  • CONGRESS - U.S. House Speaker John Boehner (R-Ohio) said U.S. House Republicans will take a “practical, step-by-step” approach, compared to the 2,700-page reform bill that has been called a complete government takeover of the insurance industry.
    • The U.S. House could hold a repeal vote as early as July 11, but such a measure would almost certainly be defeated in the Democrat-controlled Senate.
    • The U.S. House has attempted to repeal the Affordable Care Act numerous times and is scheduled to take up the issue again July 11, less than two weeks after the Supreme Court ruled the law was constitutional.

PRESIDENT’S SCHEDULE

  • President Obama is currently at Camp David in Sabillasville, Maryland.
  • The president will remain at Camp David through Tuesday.

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

  • NUCLEAR ARSENAL - The Obama administration is edging toward decisions that would further shrink the U.S. nuclear arsenal, possibly to between 1,000 and 1,100 warheads, reflecting new thinking on the role of nuclear weapons in an age of terror, say current and former officials.
    • The reductions that are under consideration align with President Obama’s vision of trimming the nation’s nuclear arsenal without harming national security in the short term, and in the longer term, eliminating nuclear weapons.
    • The White House has yet to announce any plan for reducing the number of nuclear weapons, beyond commitments made in the recently completed New Start treaty with Russia, which obliges both countries to reduce their number of deployed long-range nuclear warheads to no more than 1,550 by 2018. As of March 1, Russia had already dropped its total to 1,492 and the U.S. stood at 1,737.

FEDERAL GOVERNMENT

  • DISABILITY - A record of 8,733,461 workers took federal disability insurance payments in June 2012, according to the Social Security Administration. That was up from 8,707,185 in May.
    • It also exceeds the entire population of New York City, which according to the Census Bureau's latest estimate hit 8,244,910 in July 2011.
    • There has been a dramatic shrinkage in the United States over the past 20 years in the number of workers actually employed and earning paychecks per worker who is not employed and is taking federal disability insurance payments.

FOREIGN POLICY

MIDDLE EAST

  • SYRIA - The Syrian army pressed its offensive against rebels on Tuesday, bombarding the suburban Damascus city of Douma, while President Bashar al-Assad said he wished his forces had not shot down a Turkish warplane two weeks ago.
    • The downing of the Turkish F4 in disputed circumstances aggravated tensions between Syria and Turkey, which responded with high-profile military moves to ward off Syrian helicopters from Turkey's border zone where rebels and refugees are camped.
    • There were few signs that diplomacy might stem Syria's 16-month-old conflict, in which Syrian opposition leaders say more than 15,000 people have been killed. World powers at the weekend made a show of unity by pledging to back talks on a transitional government. But they failed to narrow differences between the West and Russia over Western demands that Assad must go.
  • IRAN - The United States has quietly moved significant military reinforcements into the Persian Gulf to deter the Iranian military from any possible attempt to shut the Strait of Hormuz and to increase the number of fighter jets capable of striking deep into Iran if the standoff over its nuclear program escalates.
    • The deployments are part of a long-planned effort to bolster the American military presence in the gulf region, in part to reassure Israel that in dealing with Iran, as one senior administration official put it last week, “When the president says there are other options on the table beyond negotiations, he means it.”
    • But at a moment that the United States and its allies are beginning to enforce a much broader embargo on Iran’s oil exports, meant to force the country to take seriously the negotiations over sharply limiting its nuclear program, the buildup carries significant risks, including that Iran’s powerful Islamic Revolutionary Guards Corps could decide to lash out against the increased presence.
    • Meanwhile, days after being hit with more tough sanctions over its controversial nuclear program, Iran has started new war games simulating an attack on foreign bases in the desert region.

ASIA

  • PAKISTAN - The United States and Pakistan are expected to soon reach an agreement to reopen ground routes key for supplying NATO troops in Afghanistan, a Pakistani official said on Monday, in a move that could ease a seven-month crisis in the two countries' ties.
    • A senior Pakistani security official said that a deal was expected to be announced soon. U.S. Deputy Secretary of State Thomas Nides departed Islamabad on Monday following discussions with Pakistani officials, the U.S. State Department said.
    • Senior Pakistani government and defense officials are expected to meet on Tuesday in Islamabad to discuss the latest negotiations with American officials.
  • SOUTH CHINA SEA - The Philippines may ask the United States to deploy spy planes over the South China Sea to help monitor the disputed waters, President Benigno Aquino told Reuters on Monday, a move that could worsen tensions with its giant neighbor China.
    • The two countries only recently stepped back from a months-long standoff at the Scarborough Shoal, a horseshoe shaped reef near the Philippines in waters they both claim - the latest round of naval brinkmanship over the resource-rich sea.
    • The United States has stressed it is neutral in the long-running maritime dispute, despite offering to help boost the Philippines' decrepit military forces. China has warned that "external forces" should not get involved.

EUROPE

  • EURO ZONE - The European Central Bank is widely expected to make an interest rate cut this week to try to invigorate the eurozone’s ailing economy after unemployment in the region climbed to a record high and a key survey of manufacturing showed the sector to be at its weakest in three years.
    • Joblessness in the eurozone reached 11.1 per cent in May, the highest in the history of the single currency, the EU’s statistics office said on Monday. The rate climbed in Spain, where almost one in four people is out of a job, and edged higher in France, where President François Hollande’s government is this week to set out key parts of its policies to boost growth and cut the budget deficit.
    • Meanwhile, a leading voice at the European Central Bank on Monday urged the new Greek government to focus on getting its economic reform program back on track instead of trying to postpone the fiscal targets and renegotiate its bailout loans.