Daily News Briefing: Wednesday, July 18, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • FEDERAL RESERVE - U.S. Federal Reserve Chairman Ben Bernanke told a congressional committee that progress in reducing U.S. unemployment is likely to be “frustratingly slow” but remained guarded about what the Fed would do about the disappointing outlook.
  • DISABILITY, INSTEAD OF WORK - A new chart set to be released by the Republican side of the U.S. Senate Budget Committee details an alarming fact: In the last three months, more Americans have joined disability than have found a job.
  • CONGRESS - U.S. Senate Democrats — holding firm against extending tax cuts for the rich — are proposing a novel way to circumvent the Republican pledge not to vote for any tax increase: Allow all the tax cuts to expire Jan. 1, then vote on a tax cut for the middle class shortly thereafter.
  • WHITE HOUSE - Accounting firm Ernst and Young released a study showing that his proposed tax hikes on the wealthy could cost the already sputtering economy more than 700,000 jobs.
  • SEQUESTRATION - According to the study of the economic impact of the 2011 Budget Control Act on the Defense Department and other federal agencies, the budget-cutting tool known as sequestration would reduce the nation’s gross domestic product by $215 billion, decrease personal earnings of the workforce by $109.4 billion, and cost the economy 2.14 million jobs.
  • UNSUSTAINABLE PATH - Even if the U.S. economy rebounds from the meltdown of 2008, leading budget experts said Tuesday that the financial crises facing many states will continue indefinitely.

WHAT WE KNOW

ECONOMIC NEWS

  • FEDERAL RESERVE - U.S. Federal Reserve Chairman Ben Bernanke told a congressional committee that progress in reducing U.S. unemployment is likely to be “frustratingly slow” but remained guarded about what the Fed would do about the disappointing outlook.
    • Bernanke said the "recovery could be endangered by the confluence of tax increases and spending reductions that will take effect early next year if no legislative action is taken. The Congressional Budget Office has estimated that if the full range of tax increases and spending cuts were allowed to take effect, a scenario widely referred to as the fiscal cliff, a shallow recession would occur early next year and about one-and-a-quarter million fewer jobs would be created in 2013.”
    • The Fed chief highlighted two main risks to the U.S. economy: intensifying tensions in Europe's debt crisis and the unsustainable path of U.S. budget policy. Mr. Bernanke repeated a plea for U.S. lawmakers to act sooner rather than later to resolve questions of whether scheduled spending cuts and tax increases will hit the economy at the start of next year.
    • Mr. Bernanke repeated a statement the Fed made in June, saying central bank officials were prepared to take additional action. He refrained from being specific about what he had in mind, but in his answers to questions he appeared at times to be leaning toward action.
    • Bernanke said easing tools include further purchases of assets, such as mortgage-backed securities, reducing the interest rate that the Fed pays on reserves banks keep with the Fed, and altering its communications on the outlook for interest rates.
    • Bernanke and his colleagues on the Federal Open Market Committee are considering whether the economy will need additional stimulus to reduce a jobless rate stuck above 8 percent since February 2009. Last month, they decided to extend to the end of the year their program, known as Operation Twist, to lengthen maturities of assets on the Fed’s balance sheet.
  • DISABILITY, INSTEAD OF WORK - A new chart set to be released by the Republican side of the U.S. Senate Budget Committee details an alarming fact: In the last three months, more Americans have joined disability than have found a job.
    • Between April-June 2012, an estimated 246,000 Americans were added to U.S. Social Security's disability insurance program. In that same time period, only 225,000 American jobs were created.
    • Since 2008, 3.6. million Americans have been added to U.S. Social Security's disability insurance program. In that same time period, a net total of 1.3 million jobs were lost.
  • The Dow Jones Industrial Average rose 78.33 points, or 0.6%, to 12,805.54.
  • The S&P 500 index climbed 10.03 points, or 0.7%, to 1,363.67.
  • The Nasdaq Composite gained 13.1 points, or 0.5%, to 2,910.04. 

COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.42.
    • 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 85 percent higher than they were when Mr. Obama became president.
  • Crude for August delivery gained 79 cents, or 0.9%, to settle at $89.22 a barrel on the New York Mercantile Exchange.
  • Gold for August delivery declined $2.10, or 0.1%, to settle at $1,589.50 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 301st day.
  • CONGRESS - U.S. Senate Democrats’ second attempt in less than 24 hours to advance the campaign finance bill failed Tuesday — even after at least 16 senators held the floor for six hours Monday night in support of the measure.
    • On a strictly partisan 53-45 vote, it fell short of the 60 votes needed to break a GOP filibuster. The bill, sponsored by Sen. Sheldon Whitehouse (D-R.I.), would force unions, nonprofits and corporate interest groups that spend $10,000 or more during an election cycle to disclose donors who give $10,000 or more. Whitehouse’s version no longer required sponsors of electioneering ads to have a disclaimer at the end and pushed the effective date to 2013.
    • Republicans, led by Minority Leader Mitch McConnell (R-Ky.), maintain that the measure favors unions and violates the First Amendment.
  • CONGRESS - U.S. Senate Democrats — holding firm against extending tax cuts for the rich — are proposing a novel way to circumvent the Republican pledge not to vote for any tax increase: Allow all the tax cuts to expire Jan. 1, then vote on a tax cut for the middle class shortly thereafter.
    • The proposal illustrates the lengths lawmakers are going to in an effort to include new federal revenues in a fix for the “fiscal cliff,” the reckoning in January that would come when all Bush-era tax cuts expire and automatic spending cuts to military and domestic programs kick in.
    • Numerically, Republicans and Democrats are not as far apart as the exchanges would suggest. President Obama has proposed allowing tax cuts to lapse on incomes over $250,000, raising the top two income tax brackets, allowing capital gains tax rates for affluent families to rise slightly and letting dividend income be taxed as ordinary income, as it was before 2003. Of the $5 trillion in tax increases that will ensue over 10 years if nothing is done, Mr. Obama’s plan would stave off all but $849 billion.
  • WHITE HOUSE - Prominent business groups are joining conservatives and Republican presidential candidate Mitt Romney in calling out President Obama for his recent comments about the relationship between government and business.
    • David Chavern, chief operating officer of the Chamber of Commerce, accused Obama of slighting the remarkable achievements of extraordinary individuals.
    • The National Federation of Independent Business said the president's "unfortunate remarks over the weekend show an utter lack of understanding and appreciation for the people who take a huge personal risk and work endless hours to start a business and create jobs."
    • Kevin Hassett, an economist with the conservative American Enterprise Institute, said Obama's comments are "so far from the current debate," but setting the stage for the administration's tax argument.
  • WHITE HOUSE - Accounting firm Ernst and Young released a study showing that his proposed tax hikes on the wealthy could cost the already sputtering economy more than 700,000 jobs.
    • This report examined four sets of provisions that would increase the top tax rates:
      • The increase in the top two tax rates from 33 to 36 percent and from 35 to 39.6 percent.
      • The reinstatement of the limitation on itemized deductions for high-income taxpayers (the "Pease" provision).
      • The taxation of dividends as ordinary income and at a top income tax rate of 39.6 percent and increase in the top tax rate applied to capital gains to 20 percent.
      • The increase in the 2.9 percent Medicare tax to 3.8 percent for high-income taxpayers and the application of the new 3.8 percent tax on investment income including flow-through business income, interest, dividends and capital gains.
    • The accounting firm's report concluded would happen as a result of the above changes:
      • Output in the long run would fall by 1.3 percent, or $200 billion, in today's economy.
      • Employment in the long-run would fall by 0.5 percent, or roughly 710,000 fewer jobs, in today's economy.
      • Capital stock and investment in the long run would fall by 1.4 percent and 2.4 percent, respectively.
      • Real after-tax wages would fall by 1.8 percent, reflecting a decline in workers' living standards relative to what would have occurred otherwise.


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 meet with U.S. Agriculture Secretary Tom Vilsack at the White House to discuss the administration's efforts to respond to the U.S. drought.
  • In the afternoon, the president will congratulate the 2012 NCAA Women's Basketball Champion Baylor Bears at the White House on their 40-0 season and for their work with students and the homeless.
  • Later in the afternoon, the president will meet with U.S. Secretary of State Hillary Clinton and U.S. Defense Secretary Leon Panetta at the White House.
  • In the evening, the president will attend a campaign event at The Mandarin Oriental Hotel in 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

  • SEQUESTRATION - Severe, across-the-board budget cuts slated to kick in January 2013 would cause a sharp uptick in both federal and private-sector unemployment, according to an academic report commissioned by the Aerospace Industries Association and released on Tuesday.
    • According to the study of the economic impact of the 2011 Budget Control Act on the Defense Department and other federal agencies, the budget-cutting tool known as sequestration would reduce the nation’s gross domestic product by $215 billion, decrease personal earnings of the workforce by $109.4 billion, and cost the economy 2.14 million jobs — with the most severe impact coming in 2013 in what is shaping up to be a continually weak economy. Sequestration will trigger automatic cuts on Jan. 2 unless Congress can agree on an alternative savings plan.
    • The analysis is similar to other cautionary reports that have emerged in recent months from independent organizations that analyze federal spending and the process known in Washington as sequestration. All the reports carry a degree of uncertainty as the government hasn't spelled out where it would make the cuts.


ENVIRONMENT

  • FUKUSHIMA - It’s been over a year since natural disaster ravaged a nuclear plant in Fukushima and interrupted the lives of millions of Japanese. Scientists now fear though that contaminated water is on course to America, and it could be more toxic than thought.
    • Researchers have released the findings of an intense study into the aftermath of last year’s Fukushima nuclear disaster and warn that the United States isn’t exactly spared just yet. In fact, scientists now fear that incredibly contaminated ocean waters could be reaching the West Coast of the US in a matter of only five years, and the toxicity of those waves could eventually be worse than what was seen in Japan.
    • A team of scientists led by Joke F Lübbecke of the National Oceanic and Atmospheric Administration’s (NOAA) Pacific Marine Environmental Laboratory have published the findings of an experiment recently conducted to measure the impact of last year’s nuclear disaster and the results are eye-opening to say the least. By simulating the spreading of contaminated ocean waters and seeing how currents could carry them across the Pacific from Japan to the US, scientists believe that the worst might be still on the way.

DOMESTIC ISSUES

STATE ISSUES

  • UNSUSTAINABLE PATH - Even if the U.S. economy rebounds from the meltdown of 2008, leading budget experts said Tuesday that the financial crises facing many states will continue indefinitely.
    • The State Budget Crisis Task Force — an independent group led by former U.S. Federal Reserve Chairman Paul Volcker and former New York Lieutenant Gov. Richard Ravitch — said rising Medicaid costs, expected federal budget cuts, underfunded pensions, volatile tax revenue and encumbering laws will prevent states from developing a sustainable budget unless significant changes are made.
    • One the biggest issues the findings highlighted is the growing discrepancy between Medicaid spending and tax revenue. The report found that Medicaid spending is the single largest spending category in most state budgets and grows at an average rate of 7.2%, while state revenue grow at a rate of just 3.9%. If that trend continues over the next five years, the report said the gap between the two would widen by $23 billion.
  • ARIZONA - Opponents of Arizona's hardline immigration enforcement law launched a new effort Tuesday aimed at thwarting a U.S. Supreme Court ruling that will allow police to enforce so-called "show me your papers" provision.
    • A coalition of civil rights groups, religious leaders and business organizations filed a new request seeking a court order that would prevent authorities from enforcing a rule that requires police to check the immigration status of people they stop for other reasons.
    • The groups are asking U.S. District Judge Susan Bolton to block enforcement of the requirement before it takes effect, arguing that Latinos in Arizona would face systematic racial profiling and unreasonably long detentions under the contentious section of the 2010 law.

FOREIGN POLICY

MIDDLE EAST

  • SYRIA - The Obama administration on Tuesday said it was concerned that Syrian President Bashar Assad would use his nation's stockpiles of chemical weapons to put down the 17-month uprising against his government.
    • Despite mounting fury from the Syrian rebels, who are seeking assistance for their efforts to overthrow the Syrian president Bashar al-Assad, the White House has refused all requests for heavy weapons and intelligence support.
    • Syrian lobby groups in Washington, who only a few weeks ago were expressing hope that the Obama administration might give a green light to the supply of anti-tank and anti-aircraft missiles, said they had now been forced to “take a reality pill” by the US government.
    • Fears that the disparate rebel groups are being infiltrated by Al Qa’eda have also reduced appetite in the US for better arming the rebels, either directly or with the help of third-party countries such as Libya, Qatar or Saudi Arabia.
  • IRAN - The United States and about 20 other nations will hold a major anti-mine operation near the Gulf in September, the Pentagon said July 17, after Iran threatened it could block oil shipments.
    • The maneuvers, including a symposium on mine countermeasures, will be held between Sept. 16 to 27, 2012.
    • The U.S. is also building a missile defense radar station at a covert location in Qatar. The site will be part of a system intended to defend the interests of the U.S. and its regional allies against Iranian rockets, unnamed U.S. officials told the newspaper.

ASIA

  • PAKISTAN - The United States and Pakistan are resuming high-level counterterrorism talks suspended over a deadly border incident last year, with Pakistan’s spy chief set to visit Washington late this month, according to U.S. and Pakistani officials.
    • They start at an impasse, with the U.S. already determined to reject Pakistan’s demands to end CIA drone strikes. Pakistani officials will also be pushing a plan to replace the CIA drone campaign with Pakistani F-16 strikes, and eventually its own armed drone fleet — a proposal that U.S. officials say they have rejected many times before.
    • The divergent views reflect the deterioration in U.S.-Pakistani ties over the last 18 months, and the hardening of positions on both sides. The clash over CIA drone strikes that the U.S. sees as crucial to routing militants sets a combative tone for the first meeting between Pakistani intelligence chief Lt. Gen. Zaheerul Islam and CIA Director David Petraeus, at CIA headquarters in Virginia.
  • NORTH KOREA - North Korea elevated a little-known general to the rank of vice marshal—the top title of the senior military official ousted Monday—as diplomats and analysts puzzled over the biggest shake-up in the regime since Kim Jong Eun took power after the death of his father, Kim Jong Il, in December.
    • Military figures in recent years have taken a huge number of positions in the ruling Worker's Party, and when Kim Jong Il died they held more posts than at any previous point in his 17-year reign. But the ouster Monday of Ri Yong Ho, coming after three civilians were put in military positions and two military leaders were removed in April, appears to signal a reversal of that trend, some analysts said.
    • Others cautioned that it is too early to know precisely why Mr. Ri, a longtime confidante of the Kim family, lost his job—though most outsiders doubt the official explanation that he was ill. They note Mr. Ri appeared healthy in recent pictures, frequently at Kim Jong Eun's side.