History > 2011 > USA > Economy (III)

Joe Heller

The Green Bay Press-Gazette

Wisconsin

Cagle

24 June 2011

U.S. Moves to Block Merger Between AT&T and T-Mobile

August 31, 2011
The New York Times
By EDWARD WYATT

WASHINGTON — The Justice Department filed a lawsuit on Wednesday to block the proposed $39 billion merger between AT&T and T-Mobile USA on antitrust grounds, saying a deal between the nation’s second- and fourth-largest wireless phone carriers would substantially lessen competition, result in higher prices and give consumers fewer innovative products.

The lawsuit sets up the most substantial antitrust battle since the election of President Obama, who campaigned with promises to revitalize the Justice Department’s policing of mergers and their effects on competition, which he said declined significantly under the Bush administration.

AT&T said it would fight the lawsuit. “We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed,” the company said in a statement. “The D.O.J. has the burden of proving alleged anti-competitive effects and we intend to vigorously contest this matter in court.”

AT&T said it had no warning that the government was going to file to block the merger, because it has been actively involved in discussions with both the Justice Department and the Federal Communications Commission since the proposal was announced in March. AT&T has indicated that it would consider some divestitures or other business actions to allow the deal to go forward.

But Justice Department officials said that those discussions led it to believe that it would difficult to arrange conditions under which the merger could proceed. “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer,” said Sharis A. Pozen, acting assistant attorney general in charge of the Justice Department’s antitrust division.

The Justice Department has broad authority to influence proposed deals. On rare occasions, the agency takes the aggressive step of suing to block a deal altogether, as it is doing with AT&T and did earlier this year with H&R Block’s bid for the owner of TaxAct tax preparation software.

Sometimes just the threat of legal action is enough to stymie a deal, as in May when Nasdaq dropped its rival bid for the New York Stock Exchange’s parent company. In other cases, the Justice Department will remain silent, blessing a deal by default.

AT&T’s promise to fight the suit could mean a potentially lengthy fight.

Consumer advocacy groups cheered the announcement. “This announcement is something for consumers to celebrate,” said Parul P. Desai, policy counsel for Consumers Union. “We have consistently warned that eliminating T-Mobile as a low-cost option will raise prices, lower choices and turn the cellular market into a duopoly controlled by AT&T and Verizon.”

Harold Feld, legal director of Public Knowledge, a nonprofit group, said, “Fighting this job-killing merger is the best Labor Day present anyone can give the American people.” But labor groups had generally supported the merger, in part because a substantial number of AT&T employees are members of the Communications Workers of America, while T-Mobile is a largely nonunion company.

Deputy Attorney General James M. Cole said the department decided that among those adversely affected would be wireless customers in rural areas and those with lower incomes. He said he also believed that an independent T-Mobile would be more likely to expand its business and add jobs, while mergers often result in the elimination of jobs.

The future of an independent T-Mobile is more of a question today, however, than before the merger with AT&T was announced. Its parent company, Deutsche Telekom, has said it does not want to continue to invest in the American wireless market, preferring to focus on the growth of its telecommunications business in Europe.

Before AT&T announced its intention to buy T-Mobile, there was consistent speculation in the wireless industry that a merger between T-Mobile and Sprint Nextel, the third-largest provider, was in the works. But such a deal looks unlikely in light of the arguments mustered by the Justice Department against the AT&T deal.

Those arguments include the assertion that a combination that took the number of nationwide wireless phone providers down to three from four would harm competition, because the four nationwide service providers already account for more than 90 percent of the mobile wireless connections nationwide.

The proposed merger has been a topic of robust debate in Congress, where both houses have conducted committee hearings on the merger. At one of them in May, Randall L. Stephenson, the chief executive of AT&T, tried largely unsuccessfully to convince lawmakers that AT&T and T-Mobile should not even be considered as competitors.

In subsequent congressional appearances, he abandoned that assertion, going back to the company’s main talking point: While the two companies are competitors, plenty of other competition exists in local wireless markets, with most potential customers having a choice among at least five providers.

“Certain critics may attempt to create a myth that only a few national competitors exist, but wireless competition occurs primarily on the local level,” Mr. Stephenson said.

But the Justice Department, in its filing in the United States District Court for the District of Columbia, cited AT&T’s own arguments in earlier merger cases in favor of national competition.

“As AT&T acknowledged less than three years ago during a merger proceeding, it aims to ‘develop its rate plans, features and prices in response to competitive conditions and offerings at the national levels — primarily the plans offered by the other national carriers,’ ” the Justice Department said in its lawsuit. “As AT&T recognized, ‘the predominant forces driving competition among wireless carriers operate at the national level.’ That remains the case today.”

The F.C.C. is also reviewing the proposed merger, considering how competition and the public interest would be affected by the transfer of licenses for wireless airwaves that the merger would entail.

“Competition is an essential component of the F.C.C.’s statutory public interest analysis,” said Julius Genachowski, the F.C.C. chairman, in a statement. “Although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition.”

Both the F.C.C. and the Justice Department have to approve the merger, and they usually coordinate their independent reviews in a way that results in the same conclusion. For an antitrust case to fully wind its way through the court system could take years, maybe more than a decade. But AT&T would have to weigh the cost of that action against what it might cost it to get out of the T-Mobile deal.

The F.C.C. and the Justice Department have different standards by which they weigh the merger. The F.C.C. must consider whether a deal is in the public interest, given the public assets – wireless airwaves, or spectrum – that would be transferred from one company to another. The Justice Department must determine whether a deal violates the federal antitrust statutes, which focus on whether a merger substantially reduces competition.

    U.S. Moves to Block Merger Between AT&T and T-Mobile, NYT, 31.8.2011,
    http://www.nytimes.com/2011/09/01/technology/us-moves-to-block-merger-between-att-and-t-mobile.html

David Reynolds, Leader of Metals Company, Dies at 96

August 31, 2011
The New York Times
By ERIC DASH

David P. Reynolds, a metals manufacturing executive who helped bring aluminum foil and aluminum beverage cans into the American kitchen, died on Monday in Richmond, Va. He was 96.

His death was confirmed by his daughter Margaret Mackell.

Mr. Reynolds was the last member of his family to lead Reynolds Metals, which was founded in 1919 by his father, Richard S. Reynolds Sr., and grew to become the nation’s second-largest aluminum manufacturer behind Alcoa. Reynolds was sold to Alcoa in 2000, five years after Mr. Reynolds stepped down from its board.

Mr. Reynolds joined the family business as a salesman out of college in 1937 and began trying to persuade the major St. Louis breweries to affix aluminum labels to their beer bottles. Almost 50 years later, at 71, he retired as Reynolds’s chairman and chief executive, positions he held for a decade.

Mr. Reynolds oversaw the development of aluminum products for the aerospace, automotive and construction industries. But he was best known for bringing the metal to a mass consumer audience.

As aluminum sales slowed after World War II, Mr. Reynolds and his brothers hoped to avoid a glut by aggressively promoting aluminum’s use in consumer goods and packaging. Aluminum foil had been sold since the 1920s, largely as an industrial product, but Mr. Reynolds saw an opportunity for Reynolds Wrap to become a household staple. He developed television commercials to show how aluminum foil could be used in cooking. He arranged demonstrations to educate consumers on how to wrap leftovers.

“David was really the big pusher of Reynolds Wrap,” said Randolph Reynolds, a nephew, who worked at Reynolds Metals for 32 years.

Aluminum beer cans made their debut in the late 1950s, and the Reynolds company was quick to take notice. It began manufacturing 12-ounce aluminum cans for the Theodore Hamm Brewing Company of Minnesota in 1963, and four years later it introduced the first aluminum cans for Pepsi and Diet Pepsi. Today, more than half of all beverages sold in American supermarkets come in aluminum packaging.

“It was very important in helping build the American soft drink business,” said John Sicher, the publisher of Beverage Digest. “It provided consumers with a lightweight, low-cost and highly recyclable package.”

Mr. Reynolds earned a reputation as an environmentalist — promoting the re-use of aluminum as a solution to litter and waste. In 1987, he received an award from the organization Keep America Beautiful for pioneering efforts in recycling.

David Parham Reynolds was born on June 16, 1915, in Bristol, Tenn. He graduated in 1934 from the Lawrenceville School, where he was captain of the football team. Four years later, he graduated from Princeton University and joined his three older brothers — William, Richard Jr. and J. Louis — at Reynolds Metals.

Mr. Reynolds, who lost an eye playing polo during his junior year at Princeton, owned dozens of thoroughbred racehorses, including Tabasco Cat, who won the 1994 Preakness and Belmont Stakes, the final two legs of the Triple Crown.

In retirement, Mr. Reynolds lived at his homes in Richmond, Del Ray Beach, Fla., and Wequetonsing, Mich. His wife, the former Margaret Harrison, died in 1992.

In addition to his daughter Margaret Mackell of Richmond, survivors include two daughters, Julie Swords of Lexington, Ky., and Dorothy Brotherton, also of Richmond; six grandchildren; and nine great-grandchildren.

Beyond beverage cans and kitchen wrap, Mr. Reynolds promoted the use of aluminum in everyday life and frequently tested ideas on his family. The Reynolds house was outfitted with an aluminum solar-paneled roof; an aluminum Christmas tree graced their home during the holidays; and the family freezer was stocked with foil-wrapped ice cream from the Eskimo Pie Company, a subsidiary of the family metals business.

Mr. Reynolds even gave his wife aluminum jewelry, something she wore sparingly, preferring more precious metals.

    David Reynolds, Leader of Metals Company, Dies at 96, NYT, 31.8.2011,
    http://www.nytimes.com/2011/09/01/business/david-reynolds-leader-of-metals-company-dies-at-96.html

Buffett to Invest $5 Billion in Shaky Bank of America

August 25, 2011
The New York Times
By NELSON D. SCHWARTZ

Warren E. Buffett, the legendary investor, is sinking $5 billion into Bank of America in a bold show of faith in the country’s biggest, and most beleaguered, financial institution. It comes amid deepening worries about the long-term health of the company, which has already had to set aside roughly $20 billion to atone for its mortgage misdeeds at the height of the housing bubble.

Bank of America’s problems are emblematic of the economic woes facing the country in general and the housing market in particular. Its fortunes have been waning as the outlook for growth has darkened and the financial markets have gyrated.

More than some other large banks, Bank of America’s fate is also heavily intertwined with that of consumers. It services one in five home loans, and with 5,700 branches assembled through decades of mergers, it counts 58 million customers.

The losses suffered by the bank — $9 billion over the last 18 months — have spurred worries about just how solid its foundations are and raised fears that it will need tens of billions of dollars in fresh capital. Bank executives insist that that is not the case, and they were quick to trumpet Mr. Buffett’s move as a crucial show of support for a management team, especially the chief executive, Brian T. Moynihan.

“In the shaky couple of weeks that we’ve gone through in the financial markets, it’s a good time for this vote of confidence by a savvy investor,” said Charles O. Holliday Jr., the bank’s chairman. “We didn’t need the capital, but it doesn’t hurt to have more in a volatile time.”

Even as investors cheered Mr. Buffett’s investment, lifting the bank’s shares more than 9 percent, analysts cautioned that it did not address more fundamental problems that will take years to correct. Moreover, it does little to lift the uncertainty over how much the company will ultimately have to pay to angry investors holding hundreds of billions of dollars worth of soured mortgage securities. Also hanging over the company is the prospect of a multibillion-dollar mortgage settlement with the government.

“This is a good endorsement but it’s no silver bullet,” said Michael Mayo, a bank analyst with Crédit Agricole in New York. “Bank of America got the Good Housekeeping seal of approval and Buffett got a sweetheart deal, but the company hasn’t been able to get its arms around the magnitude of the losses.”

The bulk of those losses stem from the company’s disastrous acquisition of Countrywide Financial in 2008, the subprime lender whose reckless lending policies have made it a symbol of the housing bubble. Mr. Moynihan’s predecessor, Kenneth D. Lewis, paid $4 billion for Countrywide. It has already cost the company more than $30 billion.

To offset that red ink and strengthen the bank’s capital position, Mr. Moynihan has sold more than $30 billion worth of assets since the start of 2010, most recently unloading its Canadian credit card business and a portfolio of commercial real estate.

Bank of America shares have been pounded in recent weeks amid deepening worries about just how much the mortgage mess will eventually cost the bank, how the downshift in the economy will crimp earnings and whether it can absorb losses without having to raise more capital.

Earlier this week, the stock dropped to its lowest point since the aftermath of the financial crisis, and nearly 30 percent below where it began the month.

Other banks’ stocks have dropped, too, but the speed of the descent and the surge in the cost of insuring the company’s debt awakened memories of the financial crisis, when companies like Bear Stearns and Lehman Brothers found themselves short of capital.

Bank of America’s capital position is much stronger than it was going into the financial crisis — it held $218 billion at the end of the second quarter by one key measure, but was still behind peers like JPMorgan Chase and Wells Fargo.

Still, some investors do not trust the bank’s numbers. The bank has already had to rapidly add to its reserves to pay out claims from investors in its mortgage securities — jumping to $18 billion by the end of the second quarter in June from $4 billion at the beginning of 2010.

The company has said it could face another $5 billion in claims from private investors and insurance companies that guaranteed the mortgage securities.

“They’re the poster child for the unknown,” said Brian Wenzinger, a principal at Aronson Johnson Ortiz, a Philadelphia money management firm. “Nobody knows where it ends.”

Nor have Mr. Moynihan or his team had much luck persuading investors that the bank’s problems were in the rearview mirror.

In addition to the asset sales, Mr. Moynihan disclosed last week that the company planned to cut at least 3,500 jobs in the coming months. He also held an unusual conference call with investors earlier this month, in an effort to convince skeptics that the bank was on track. In June, he offered $8.5 billion to settle claims from investors who held soured mortgages.

But rather than limit liability, that proposed settlement has only spurred fears of more litigation and multibillion-dollar payouts. A $10 billion lawsuit by the insurance giant American International Group filed earlier this month to recover losses on mortgage-backed securities intensified fears that angry litigants were turning Bank of America into a money pit.

“I am surprised that plaintiffs’ hyperbolic allegations and inflated damage claims are given any credence,” said the bank’s top lawyer, Gary Lynch. “Sophisticated investors who bring securities actions have huge burdens to overcome, and courts rightfully have been limiting many of their claims.”

It is not only the holders of bad mortgage securities that are seeking tens of billions in compensation for the housing mess. All 50 state attorneys general, as well as the federal government, are in the final stages of negotiating a settlement with the nation’s biggest mortgage servicers that could ultimately total $20 billion to $30 billion. As the nation’s largest servicer, Bank of America is expected to take the biggest hit.

More than any of the legal entanglements, the arc of the overall economy will determine Bank of America’s fortunes and those of Mr. Buffett. Bank of America holds nearly $300 billion worth of mortgages and home equity loans on its books, and a further decline in the housing market or rising unemployment that feeds more delinquencies could keep the red ink flowing for years.

Given Bank of America’s size and its overall capital position, “five billion isn’t that huge a number,” said Chris Kotowski, an analyst with Oppenheimer & Company. “But Mr. Buffett can afford to take the long view and collect a 6 percent coupon in the meantime.”

Thursday’s deal came together with extraordinary speed and secrecy. Mr. Buffett has a reputation as a savior for companies in trouble, like a $5 billion investment in Goldman Sachs after the collapse of Lehman in 2008. Less than 24 hours after Mr. Buffett’s call to Mr. Moynihan to propose the investment at 11 a.m. Wednesday, the bank’s board met by phone at 7 a.m. Thursday to approve it.

Mr. Buffett’s investment entitles him to $300 million a year in interest and the right to buy 700 million shares of the company at $7.14 each — already a bargain with the stock closing at $7.65 on Thursday.

Bank of America does have some highly profitable businesses, like the former Merrill Lynch, which is now at the heart of its investment banking unit. But even that business has slowed down recently with the volatility on Wall Street and lower trading volumes earlier in the year. Other good news, like better results in its mammoth credit card business, has also been drowned out by all the speculation over future losses.

The speculation on Wall Street grew so intense that the company sent a memo to employees on Tuesday assuring them that a capital increase was not necessary, while specifically shooting down rumors that a merger with JPMorgan Chase was under consideration. It called the talk baseless and said it didn’t “even make practical sense.”

Mr. Holliday, the chairman, acknowledged the challenges facing the bank, notwithstanding Mr. Buffett’s investment.

“This could be a momentum changer for us,” he said. “But I’m not suggesting there’s a quick fix. There’s no magic wand.”

    Buffett to Invest $5 Billion in Shaky Bank of America, NYT, 25.8.2011,
    http://www.nytimes.com/2011/08/26/business/buffett-to-invest-5-billion-in-shaky-bank-of-america.html

Without Its Master of Design,

Apple Will Face Many Challenges

August 24, 2011
The New York Times
By STEVE LOHR

Steven P. Jobs, one of the most successful chief executives in corporate history, once said he never thought of himself as a manager, but as a leader. And his notion of leadership revolved around choosing the best people possible, encouraging them and creating an environment in which they could do great work.

But the Apple team, analysts say, will face a far greater trial in achieving continued success without Mr. Jobs in charge.

Mr. Jobs, who said Wednesday that he was stepping down as Apple’s chief executive, said in an interview shortly after he returned to the company in 1997 that his leadership style had changed over the years, as he matured.

In his early years at Apple, before he was forced out in 1985, Mr. Jobs was notoriously hands-on, meddling with details and berating colleagues. But later, first at Pixar, the computer-animation studio he co-founded, and in his second stint at Apple, he relied more on others, listening more and trusting members of his design and business teams.

In recent years, Mr. Jobs’s role at Apple has been more the corporate equivalent of “an unusually gifted and brilliant orchestra conductor,” said Michael Hawley, a professional pianist and computer scientist who worked for Mr. Jobs and has known him for years. “Steve has done a great job of recruiting a broad and deep talent base.”

At Pixar, with a solid leadership team in place, the studio never missed a beat, and it continued to generate one critically acclaimed and commercially successful hit after another, including “Finding Nemo” and “Wall-E,” long after Mr. Jobs had gone back to Apple.

It is by no means certain, analysts say, that things will go that smoothly for Apple. Mr. Jobs, they note, was far more in the background at Pixar, where creative decisions were guided by John Lasseter. Pixar was sold to Disney for $7.4 billion in 2006.

At Apple, Mr. Jobs’s influence is far more direct. He makes final decisions on product design, if not in detail. No immediate changes, analysts say, will likely be discernible.

“The good news for Apple is that the product road map in this industry is pretty much in place two and three years out,” said David B. Yoffie, a professor at the Harvard Business School. “So 80 percent to 90 percent of what would happen in that time would be the same, even without Steve.”

“The real challenge for Apple,” Mr. Yoffie continued, “will be what happens beyond that road map. Apple is going to need a new leader with a new way of recreating and managing the business in the future.”

Mr. Jobs’s hand-picked successor, Timothy Cook, who has been the company’s chief operating officer, has guided the company impressively during Mr. Jobs’s medical leaves. But his greatest skill is as an operations expert rather than a product-design team leader — Mr. Jobs’s particular talent.

At Apple, Mr. Jobs has been the ultimate arbiter on products. For example, three iPhone prototypes were completed over the course of a year. The first two failed to meet Mr. Jobs’s exacting standards. The third prototype got his nod, and the iPhone shipped in June 2007.

His design decisions, Mr. Jobs explained, were shaped by his understanding of both technology and popular culture. His own study and intuition, not focus groups, were his guide. When a reporter asked what market research went into the iPad, Mr. Jobs replied: “None. It’s not the consumers’ job to know what they want.”

The notion of “taste” — he uses the word frequently — looms large in Mr. Jobs’s business philosophy. His has been honed by a breadth of experience and by the popular culture of his time. When he graduated from high school in Cupertino, Calif., in 1972, he said, “the very strong scent of the 1960s was still there.” He attended Reed College, a progressive liberal arts school in Portland, Ore., but dropped out after a semester.

When discussing Silicon Valley’s lasting contributions to humanity, he mentioned the invention of the microchip and “The Whole Earth Catalog,” a kind of hippie Wikipedia, in the same breath.

Great products, Mr. Jobs once explained, were a triumph of taste, of “trying to expose yourself to the best things humans have done and then trying to bring those things into what you are doing.”

Mr. Yoffie said Mr. Jobs “had a unique combination of visionary creativity and decisiveness,” adding: “No one will replace him.”

    Without Its Master of Design, Apple Will Face Many Challenges, NYT, 24.8.2011,
    http://www.nytimes.com/2011/08/25/technology/without-its-master-of-design-apple-will-face-challenges.html

Jobs Steps Down at Apple, Saying He Can’t Meet Duties

August 24, 2011
The New York Times
By DAVID STREITFELD

SAN FRANCISCO — Steven P. Jobs, whose insistent vision that he knew what consumers wanted made Apple one of the world’s most valuable and influential companies, is stepping down as chief executive, the company announced late Wednesday.

“I have always said that if there ever came a day when I could no longer meet my duties and expectations as Apple’s C.E.O., I would be the first to let you know,” Mr. Jobs said in a letter released by the company. “Unfortunately, that day has come.”

Mr. Jobs, 56, has been on medical leave since January, his third such absence. He underwent surgery for pancreatic cancer in 2004, and received a liver transplant in 2009. But as recently as a few weeks ago, Mr. Jobs was negotiating business issues with another Silicon Valley executive.

Mr. Jobs will become chairman, a position that did not exist before. Apple named Tim Cook, its chief operating officer, to succeed Mr. Jobs as chief executive.

Rarely has a major company and industry been so dominated by a single individual, and so successful. His influence has gone far beyond the iconic personal computers that were Apple’s principal product for its first 20 years. In the last decade, Apple has redefined the music business through the iPod, the cellphone business through the iPhone and the entertainment and media world through the iPad. Again and again, Mr. Jobs has gambled that he knew what the customer would want, and again and again he has been right.

“The big thing about Steve Jobs is not his genius or his charisma but his extraordinary risk-taking,” said Alan Deutschman, who wrote a biography of Mr. Jobs. “Apple has been so innovative because Jobs takes major risks, which is rare in corporate America. He doesn’t market-test anything. It’s all his own judgment and perfectionism and gut.”

Mr. Cook, an expert in logistics, has been instrumental in locking up contracts in advance for critical parts in the company’s devices. It has had the effect of securing favorable prices, keeping Apple’s profit margins high. But it also has prevented rival companies from producing competing products at significantly lower prices.

While Mr. Cook is well respected in the industry, he is little known outside of it. Analysts and Silicon Valley experts said new Apple products were in the pipeline for the next few years, but the company’s success beyond that was already being debated.

Tim Bajarin, president of the technology research firm Creative Strategies, said the news about Mr. Jobs was “a shock because it’s abrupt.” But Mr. Bajarin said that “while there’s definitely concern for Steve as a person,” he had little concern for the company.

“Steve has built a very deep bench of managers, including the leadership of Tim Cook, who clearly understands Steve’s vision, goals and direction,” said Mr. Bajarin, who has followed Apple for 30 years.

Others were not so sure.

“You could make the case that Steve has injected so much of his DNA into Apple that Apple will continue,” said Guy Kawasaki, who was an Apple executive in the late 1980s. “Or you can make the case that without Steve, Apple will flounder. But you cannot make the case that Apple without Steve Jobs will be better. Hard to conceive of that.”

The technology world has never been short of strong-willed leaders (think Bill Gates at Microsoft or Larry Ellison at Oracle). But even in this select group, Mr. Jobs was noted for the control he exerted and the loyalty he commanded. Without him, his devoted team might soon fracture.

“I think the key question is whether the Apple team will continue to work as effectively as a collaborative without the single person to rely on for the final decision,” said Charles Golvin, a Forrester Research analyst.

Mr. Cook, 50, joined Apple in 1998. He was promoted to chief operating officer in 2007, overseeing the day-to-day operations. Wall Street had long assumed the soft-spoken Mr. Cook, who was raised in Alabama and is an Auburn University graduate, would be the successor to Mr. Jobs. While Mr. Jobs convalesced, Apple thrived with the continuing rise in iPhone sales and huge growth in the iPad, the dominant tablet computer.

The company and Mr. Jobs had been criticized in the past for revealing little information about his health to investors. The news of Mr. Jobs’s resignation came after the market closed Wednesday. In after-hours trading, the stock fell 5 percent.

The early years of Apple long ago passed into legend: the two young hippie-ish founders, Mr. Jobs and Steve Wozniak; the introduction of the first Macintosh computer in 1984, which stretched the boundaries of what these devices could do; Mr. Jobs’s abrupt exit the next year in a power struggle. But it was his return to Apple in 1996 that started a winning streak that raised the company from the near dead to its current position.

More than 314 million iPods, 129 million iPhones and 29 million iPads have been sold, according to A.M. Sacconaghi Jr., an analyst with Bernstein Research. This summer, Apple briefly exceeded Exxon Mobil as the most valuable United States company.

Apple does not announce or even telegraph its product pipeline. But there has been strong indication that it is very close to revealing a new iPhone, which would probably include a more powerful processor to handle the expanding multimedia demands.

The new iPhone is also likely to be thinner and lighter, as every new version has been since the original’s release in 2007. A higher-resolution rear camera has also been expected, as well as a more powerful voice recognition features borne out of Apple’s purchase of Siri in April of 2010, a small voice recognition company, is also a possibility.

Twitter, the instant messaging service, filled with an outpouring of grief and gratitude Wednesday night. The few ill-spirited comments or wisecracks were met with immediate retorts.

“Steve Jobs is the greatest leader our industry has ever known,” wrote Marc Benioff, chief executive of Salesforce.com. “It’s the end of an era.”

“Funny how much emotion you can feel about a stranger,” wrote Susan Orlean, the author. “And yet every phone call I make, every time I’m on a computer, he’s part of it.”

“Very sad news about Steve Jobs at $AAPL,” wrote Jim Cramer, the CNBC host. “He is America’s greatest industrialist. Perhaps the greatest ever.”

Andy Baio, a tech entrepreneur in Portland, Ore., may have put it most directly and effectively: “We’ll miss you, Steve.”

 

Contributing reporting were Verne G. Kopytoff, Claire Cain Miller
and Nick Bilton in San Francisco, and Sam Grobart in New York.

    Jobs Steps Down at Apple, Saying He Can’t Meet Duties, NYT, 24.8.2011,
    http://www.nytimes.com/2011/08/25/technology/jobs-stepping-down-as-chief-of-apple.html

Homeowners Need Help

August 21, 2011
The New York Times


Neither Congress, nor federal regulators, nor state or federal prosecutors have yet to conduct a thorough investigation into the mortgage bubble and financial bust. We welcomed the news that the Justice Department is investigating allegations that Standard & Poor’s purposely overrated toxic mortgage securities in the years before the bust. We hope the investigative circle will widen.

But a lot more needs to be done to address the continuing damage from the mortgage debacle.

Tens of millions of Americans are being crushed by the overhang of mortgage debt. And Congress and the White House have yet to figure out that the economy will not recover until housing recovers — and that won’t happen without a robust effort to curb foreclosures by modifying troubled mortgage loans.

Instead of pushing the banks to do what is needed, the Obama administration has basically urged them to do their best to help, mainly by reducing interest rates for troubled borrowers. The banks haven’t done nearly enough. In many instances, they can make more from fees and charges on defaulted loans than on modifications.

The administration needs better ideas. It can start by working with Fannie Mae and Freddie Mac, the government-run mortgage companies, to aggressively reduce the principal balances on underwater loans and to make refinancing easier for underwater borrowers. If the president championed aggressive action, and Fannie and Freddie, which back most new mortgages, also made it clear to banks that they expect principal reductions, the banks would feel considerable pressure to go along.

The housing numbers are chilling. Sales of existing homes fell in July by 3.5 percent, while prices were down 4.4 percent in July from a year earlier. In all, prices have declined 33 percent since the peak of the market five years ago, for a total loss of home equity of $6.6 trillion.

There’s no letup in sight. Currently, 14.6 million homeowners owe more on their mortgages than their homes are worth, and nearly half of them are underwater by more than 30 percent. At present, 3.5 million homes are in some stage of foreclosure. Nearly six million borrowers have already lost their homes in the bust.

Reducing principal is a better solution than lowering interest rates, because it reduces payments and restores equity. Bankers resist, because it could force them to recognize losses they would prefer to delay. The administration has resisted, in part because principal reductions are seen as rewarding reckless borrowers.

But many of today’s troubled borrowers were not reckless. Rather, they are collateral damage in a bust that has wiped out equity and hammered jobs, turning what were reasonable debt levels into unbearable burdens.

Housing advocates and bankruptcy experts are calling for the administration to try new approaches. One would have Fannie and Freddie urge banks to let underwater borrowers who file for bankruptcy apply their monthly mortgage payments to principal for five years — in effect, reducing the loan’s interest rate to zero.

Another solution would be for Fannie and Freddie to ease the rule for refinancing underwater mortgages for borrowers who are current in their payments. The lower payments on refinanced loans would help to prevent defaults and free up money for borrowers to use for paying down principal or consumer spending.

President Obama is reportedly planning to include housing relief measures in his new jobs plan. Unless the plan includes strong support for principal reductions and easier refinancings, it will not get at the root of the problem: too much mortgage debt and too little relief.

    Homeowners Need Help, NYT, 21.8.2011,
    http://www.nytimes.com/2011/08/22/opinion/homeowners-need-help.html

Global stocks slide anew, gold sets fresh record

Fri, Aug 19 2011
Reuters
By Herbert Lash

NEW YORK (Reuters) - Equity markets slid anew and gold set a second-straight record high on Friday as fears of a possible U.S. slide into recession and concerns related to Europe's debt crisis kept investors on edge.

Wall Street marked a fourth week of losses, pulled lower by a 20 percent plunge in Hewlett-Packard (HPQ.N: Quote, Profile, Research, Stock Buzz) -- its worst day since the 1987 market crash -- after the Silicon Valley icon unveiled a dismal outlook and a difficult corporate shake-up.

The benchmark S&P 500 index has shed 13.1 percent so far in August and is on track for its worst month since October 2008, when the financial crisis and deep recession mauled markets.

The day's activity seemed mild when compared with Thursday, when the yield on 10-year U.S. government bonds plummeted below 2 percent for the first time since at least 1950 on fears the U.S. economy was careening toward a new recession.

Those fears appear valid. Bill Gross, manager of the world's largest bond fund at PIMCO, told Reuters Insider that the week's rally in Treasury yields signaled "not only a potential for a recession but the almost high probability of recession."

The Dow Jones industrial average .DJI closed down 172.93 points, or 1.57 percent, at 10,817.65. The Standard & Poor's 500 Index .SPX fell 17.12 points, or 1.50 percent, at 1,123.53. The Nasdaq Composite Index .IXIC lost 38.59 points, or 1.62 percent, at 2,341.84.

Investors halted a rush into bonds but kept pouring into gold, which posted its biggest one-week gain in 2-1/2 years and remains on track for its biggest one-month rise in nearly 12 years in August. Bullion is up 30 percent so far this year.

While rising commodity prices sapped some safe-haven buying of gold, it has gained 6 percent over the past five days.

"Right now, gold is inversely correlated with fear and nothing else. When stocks are down, gold's up," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.

Spot gold shot to a record $1,877 an ounce on volume that was the week's highest but below last week's pace.

U.S. gold futures for December delivery settled up $30.20 at $1,852.20 an ounce.

Commodity prices rebounded after the U.S. dollar plumbed a record low against the yen on speculation Japanese authorities will not intervene too much to halt the yen's surge.

The dollar fell as low as 75.941 yen on trading platform EBS, but later pared most losses. It last traded at 76.500 yen, down 0.1 percent.

Currency traders were emboldened by a Wall Street Journal report citing Japan's top currency official as saying Japanese authorities do not plan to intervene in the market often.

The dollar's slump turned commodity markets, where crude oil prices rose about 2 percent at one point. ICE Brent October crude closed up $1.63 at $108.62 a barrel. U.S. crude oil settled down 12 cents at $82.26 per barrel.

The U.S. dollar index .DXY slipped 0.4 percent to 73.976. The euro was up 0.4 percent at $1.4392.

U.S. stocks at first see-sawed but turned lower by midday as European stocks closed down on recession fears and skittishness about regional bank funding in Europe.

"What I'm seeing right now is basically a crisis of confidence, more-so than an economic crisis or financial crisis necessarily at this stage," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

MSCI's all-country world stock index .MIWD00000PUS was off 1.6 percent, while emerging markets stocks .MSCIEF fell 2.5 percent.

European shares flirted with two-year lows. The FTSEurofirst 300 .FTEU3 index of top European shares closed down 1.7 percent at 909.79.

U.S. Treasury yields inched up from a low of 1.97 percent on Thursday as some investors took profits.

The benchmark 10-year U.S. Treasury note was up 1/32 of a point in price to yield 2.06 percent.

Yields have dropped about 73 basis points on the 10-year note in August as disappointing economic data, the Federal Reserve's low interest rate policy and jitters over rising bank funding costs have driven investors to safe-haven bonds.

Investors are awaiting Federal Reserve Chairman Ben Bernanke's speech on August 26 in Jackson Hole, Wyoming, for hints on how policymakers plan to address the weakness in the economy.

 

(Reporting by Rodrigo Campos, Gertrude Chavez-Dreyfuss and Karen Brettell in New York; Barbara Lewis and Jan Harvey in London; Harro ten Wolde in Frankfurt; Writing by Herbert Lash; Editing by Dan Grebler)

    Global stocks slide anew, gold sets fresh record, R, 19.8.2011,
    http://www.reuters.com/article/2011/08/19/us-markets-global-idUSTRE7725BC20110819

U.S. Stocks Lower After Drops in Asia and Europe

August 18, 2011
The New York Times
By CHRISTINE HAUSER and JACK EWING

Stock market turmoil continued to sweep financial markets worldwide Friday, under pressure from data showing slower economic growth worldwide. Many traders are also questioning the ability of banks and governments to cope with balance-sheet problems.

On Friday, indexes in the United States continued the steep declines seen in Asia and Europe. Stocks on Wall Street opened lower and then wavered between gains and losses, before sinking about 1 percent with less than two hours left in the trading session.

Analysts were quick to point out that on a day before a summer weekend low volumes could unfold into a bumpy and unpredictable trading session.

“I think it is this wrestling match between the fear and paranoia that drove the market yesterday, and people realizing stocks are really cheap here and bargain hunting,” said Uri Landesman, president of Platinum Partners.

With deep concerns about the euro zone and global economic growth overshadowing the financial markets, it is not at all clear whether any gains will stick throughout the trading session.

“There are definitely solid arguments on both sides,” Mr. Landesman said. “We could have two or three directional swings by the end of the day.”

In late afternoon trading, the Standard & Poor’s 500-stock index, which lost 4.5 percent on Thursday, was down about 12 points, or over 1 percent. The Dow Jones industrial average was down 120.79 points, or 1.1 percent. The Nasdaq was down 1.13 percent.

Europe’s major stock indexes ended the day lower. The Euro Stoxx 50 index was off 2.1 percent. The FTSE 100 in London was down 1 percent and the CAC 40 in Paris was down nearly 2 percent. Banks were among the biggest losers once again.

On Friday, gold continued the sharp ascent it has seen over the last months, demonstrating that nervousness remained intense.

The precious metal, seen as a relative haven at times of market turmoil, soared to more than $1,867 an ounce as trading in Europe got under way — a nominal record high and a rise of about 30 percent since the start of July.

The Japanese yen, which has also been rising amid the turmoil, was hovering near a post-World War II high. By mid-afternoon, one United States dollar bought 76.48 yen.

Asia, which had missed the worst of the selling Thursday, suffered painful losses on Friday. The Nikkei 225 index in Japan closed down 2.5 percent, and the major market indexes in Singapore and Hong Kong closed down more than 3 percent.

The losses during the day have reflected an accumulation of bad news, including feeble economic data in the United States and Europe and signs that some banks were having trouble borrowing on the interbank market. Tension on money markets, which some analysts said was overblown, awoke unpleasant memories of the seizure in interbank lending that followed the collapse of Lehman Brothers in 2008.

“It is specifically risk on, risk off,” said George Rusnak, national director of fixed income for Wells Fargo. “Everybody is taking risk off the table.”

“This is probably going to be a trend over the next several weeks,” he said. “There is not a lot of robust trading going on right now.”

Mr. Rusnak and other analysts again noted that concerns have mounted related to the banking sector, especially with respect to the exposure of American banks to European counterparts.

“Really what it boils down to is ripple effects,” Mr. Rusnak said.

One drag on the American markets on Friday was Hewlett-Packard, which is considering plans to spin off the company’s personal computer business into a separate company and is spending $10 billion on Autonomy, a business software maker. It fell more than 20 percent, as the most actively traded share at midday on the technology index, dragging it down nearly 1 percent.

The benchmark 10-year Treasury bond yields, staying in the same range all day, crept up to 2.07 percent, compared with 2.06 percent late Thursday. It had touched record lows below 2 percent earlier on Thursday.

Robert S. Tipp, a managing director and chief investment strategist for Prudential Fixed Income, said global growth concerns and those related to euro zone fiscal health and recent bailouts were undercurrents in the markets.

“Clearly the markets remain on edge not only about the U.S. growth outlook but with the continued tensions among the various parties to the Greek deal,” he said, referring to the recent rescue package for Greece. “The growth outlook being hurt in Europe, and the ongoing sluggish data we have seen in the United States is the underlying issue the stock market is trying to grapple with.”

He said the crisis of confidence was evident as investors parked money in cash and into short-term fixed-income assets.

“Investors are concerned about being able to get, as they say, return of principal, not return on principal,” he added.

One thing to worry about next week will be whether the European Central Bank can continue to hold down yields on Italian and Spanish bonds. If not, Italian and Spanish borrowing costs might reach the point where they became too expensive, raising the risk of default.

On Friday Italian bonds and Spanish bonds dipped to 4.96 percent.

Laurent Fransolet, head of European Fixed Income Strategy at Barclays Capital, said that the E.C.B. appeared to have spent about 9 billion to 10 billion euros intervening in bond markets Wednesday, after disclosing that it had spent 22 billion the previous week. The action has worked so far, but the E.C.B.’s resolve is likely to be tested when trading volume picks up at the end of the month as the vacation season ends, and as countries seek to sell new debt.

Many analysts regard the E.C.B. intervention as merely a stopgap measure, and that ultimately the onus is on European leaders to find a solution. Efforts so far have fallen short, including promises by President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany this week to take concrete steps toward a closer political and economic union of the 17 countries that use the euro.

Julia Werdigier, Bettina Wassener and Hiroko Tabuchi contributed reporting.

    U.S. Stocks Lower After Drops in Asia and Europe, NYT, 18.8.2011,
    http://www.nytimes.com/2011/08/20/business/daily-stock-market-activity.html

Biden seeks to reassure China on U.S. debt

BEIJING | Fri Aug 19, 2011
6:09am EDT
Reuters
By Jeff Mason

BEIJING (Reuters) - U.S. Vice President Joe Biden on Friday said China had "nothing to worry about" concerning the safety of its vast holdings of Treasury debt, while China's Premier Wen Jiabao gave a ringing endorsement of the resilience of the debt-ridden U.S. economy.

The exchange came on the second day of Biden's five-day visit to China where he is seeking to reduce distrust between the world's two largest economies and build relations with Chinese leaders.

Wen said he was confident that the U.S. economy would get back on track for healthy growth, echoing earlier comments from China's vice president and heir apparent, Xi Jinping.

"It's particularly important that you sent a very clear message to the Chinese public that the United States will keep its word and its obligations with regard to its government debt, it will preserve the safety, liquidity and value of U.S. Treasuries," Wen told Biden.

Both sides have been at pains to project a harmonious image during the trip, although there was an unscripted note of discord on Thursday night when a basketball game between a U.S. college team and a Chinese professional side erupted in a fight.

Wen's comments were the first by a senior Chinese leader to directly address the roiling debt crisis in Washington since this month's credit rating downgrade by Standard and Poor's.

In response, Biden told Wen that Washington appreciated and welcomed China's investment in U.S. treasuries.

"Very sincerely I want to make clear you have nothing to worry about," Biden said.

"DON'T BET AGAINST AMERICA"

Earlier, the U.S. vice president told his hosts that "no one has ever made money betting against America," according to a transcript of remarks made with Xi.

Biden's China stop is the first leg of an Asia tour that will include visits to Mongolia and Japan.

The upbeat tone from Wen and Xi, who is expected to be China's next president, was in stark contrast to the sharp criticism by state media of Washington's handling of its economy, for which China is the biggest foreign creditor.

Their words highlighted the complex and intertwined relationship between the world's two-largest economies. While China has tussled with the United States on trade, Internet censorship, human rights and U.S. arms sales to Taiwan, it has also sought to steady ties with Washington.

Chinese officials have long sought assurances that Beijing's vast holdings of dollar assets including U.S. Treasury debt remain safe, despite the downgrade.

Chinese state media have repeatedly accused Washington of reckless fiscal policies that have created uncertainty about Beijing's dollar assets. Analysts estimate two-thirds of China's $3.2 trillion in foreign exchange reserves, the world's largest, are in dollar holdings, making it the biggest foreign creditor to the United States.

Wu Zhifeng, an economist with China Development Bank, a state bank in Beijing, said Beijing can do little to divest its existing dollar holdings.

"Biden's promise is right in the sense that there will be no U.S. treasury defaults, but his promise does not mean the purchasing power of China's treasury holdings will not be eroded," Wu said.

"MORE PRECIOUS THAN GOLD"

Xi said Biden had briefed him on Thursday "about the efforts of the U.S. government in spurring growth and jobs, cutting (the) budget deficit, properly handling the debt problem, and preserving the confidence of global investors."

"The U.S. economy is highly resilient and has a strong capacity for self-repair," said Xi, who was speaking to business leaders at the roundtable event. "We believe that the U.S. economy will achieve even better development as it rises to challenges."

Xi reiterated the need for China the United States to work together to restore confidence in international markets, adding that "confidence is more precious than gold."

Dong Xian'an, chief economist of Peking First Advisory in Beijing, said China and the United States "need to coordinate their macro policies and make their fiscal system transparent to each other."

"China and the United States are walking through this crisis together. If one loses, the other will, too," Dong said.

Earlier, Biden acknowledged that China had legitimate concerns about its access to U.S. markets, just as Washington is worried about problems U.S. firms face in China.

Xi voiced optimism that China would avoid a so-called hard landing and that China hopes Washington will ease trade restrictions and provide fair treatment to Chinese firms.

He said that China would give all businesses equal treatment when seeking government contracts, addressing concerns raised by U.S. executives that they were being shut out in some cases.

Separately, a U.S. official said the United States would announce nearly $1 billion in commercial deals between U.S. companies and China.

Despite the positive official statements, occasional discordant notes interfered with the two sides' efforts to build trust. At one press conference, media handlers suddenly ushered reporters out of the room while Biden was still speaking, citing an arbitrary time limit.

The previous evening, goodwill between the two nations briefly unraveled at a basketball court at the former Olympic grounds where a 'friendship' game between the Georgetown University Hoyas and the Bayi Military Rockets degenerated into a brawl.

(Additional reporting by Langi Chiang and Zhou Xin; Writing by Sui-Lee Wee;
Editing by Ken Wills and Alex Richardson)

    Biden seeks to reassure China on U.S. debt, R, 19.8.2011,
    http://www.reuters.com/article/2011/08/19/us-china-usa-idUSTRE77H0HA20110819

The Wrong Idea

August 18, 2011
The New York Times

Stocks on Wall Street dropped sharply on Thursday, with investors spooked, again, about the euro-zone debt crisis and the sputtering United States economy.

Yet, even at this hour, leaders on both sides of the Atlantic seem determined to handcuff fiscal policies — the main tools that can increase jobs, consumer demand and economic growth — with an unquestioning devotion to rigid austerity.

Europe’s post-2008 economic problems have differed from America’s in many important ways. Washington has mercifully never had to cope with the problem of a dollar torn apart by the separate taxing and spending policies of 17 sovereign governments.

But as the crisis moves toward its fourth year, there are disturbing common threads.

One is the chilling specter of sovereign default, something that never should have come up in the United States but did for a while because of the reckless brinkmanship of House Republicans. A more real threat of default now haunts European bond markets, as chronically underfinanced bailout plans with punitive terms have made it impossible for the debtor countries to grow fast enough to pay down their debts.

Another grim parallel is the refusal by leaders to take politically tough but economically necessary stands.

On Tuesday, Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France again ruled out the two steps most needed to stem the panic in the financial markets: issuing common European bonds and committing more money for Europe’s depleted bailout fund. Instead, they proposed more meetings and called on all European nations to enshrine an ill-advised “golden rule” of balanced budgets in their constitutions. Markets are rightly unimpressed.

Excessive indebtedness is a real, long-term problem. But Europe’s broad downward trajectory can only be turned around if governments — both those of lenders and debtors — spend more in the near term to put people back to work and get consumers back to spending.

Instead, panicked by market volatility and urged on by Chancellor Merkel, Europe’s leaders have made a bad situation worse by prescribing austerity everywhere they look. The results are painfully clear. Growth is grinding to a halt across Europe.

That is true even in Germany, as its export markets falter and domestic demand fails to take up the slack. It is now growing at an anemic 0.1 percent and the euro zone at only 0.2 percent.

Meanwhile, debt market panic has spread from smaller economies like Greece, Ireland and Portugal to the larger economies of Spain, Italy and even France. Only emergency lending by the European Central Bank now staves off renewed fears of default, and no one knows how much longer the bank can continue without help from European bonds and a better financed bailout fund.

As the crisis quickens, more enlightened voices struggle to be heard. Christine Lagarde, the new managing director of the International Monetary Fund, is calling for balancing long-term debt reduction with “short-term support for growth and jobs.” The financier George Soros this week renewed his pleas for more growth-friendly policies, as has Gordon Brown, the former British prime minister.

Elections are approaching in Spain, France, Germany and other European countries over the coming months. The campaign will soon gear up here. Voters on both sides of the Atlantic need to demand more from their leaders than continued austerity on autopilot.

    The Wrong Idea, NYT, 18.8.2011, http://www.nytimes.com/2011/08/19/opinion/austerity-is-the-wrong-idea.html

Cooperation Is Emphasized as Biden Opens Talks in China

August 18, 2011
The New York Times
By EDWARD WONG

BEIJING — Vice President Joseph R. Biden Jr. on Thursday praised China’s rapid economic ascent while his Chinese counterpart emphasized cooperation between China and the United States as the two began talks that will focus on the global economy, trade and currency.

Mr. Biden arrived with Vice President Xi Jinping of China at 10:30 a.m. at the Great Hall of the People, on the west side of Tiananmen Square. Under blue skies made clear from a night of rain, the pair walked on a red carpet past an honor guard that first played “The Star Spangled Banner” and then the national anthem of the People’s Republic of China.

Both men walked into a meeting room at the Great Hall and exchanged opening remarks. Mr. Biden spoke nostalgically of his first visit to China in 1979 when he was a United States senator and visited the Great Wall. He said nothing had impressed him more than the economic changes in China in recent decades. Before Mr. Biden finished his remarks, foreign reporters were forcefully shoved out of the meeting room by security staff. Mr. Xi praised Mr. Biden for his interest in China and said, “I believe from this new situation, China and the U.S. have ever more extensive common interests and shoulder ever more important common responsibilities.”Mr. Biden arrived on Wednesday for the start of a four-day whirlwind trip to Beijing and the southwestern city of Chengdu, during which he will spend significant time with China’s presumed next leader, Mr. Xi, and defend the economic policies of the United States.

After two sessions with Mr. Xi, Mr. Biden went with his granddaughter Naomi and the new United States ambassador, Gary Locke, to a small restaurant north of Tiananmen Square that specializes in bowls of intestine for breakfast. The restaurant, tucked away behind the ancient building known as the Drum Tower, was crowded with Chinese patrons at lunchtime, many eating small pork buns and stir-fried vegetables. One yelled out “Beijing welcomes you!” in Mandarin Chinese and others shook hands with the vice president. A woman spoke to him about her relatives living in Minnesota.

Mr. Biden, on his first trip to China since becoming vice president, is touring the country at a time when Chinese officials and scholars are raising questions about the stability of Chinese investments in U.S. Treasury securities, given the recent debt-ceiling debate and near-default by the United States government. On Wednesday, the state-run newspaper Global Times ran an article about Mr. Biden’s trip under the headline “Biden Faces Tough Talks in China.”

Shepherding Mr. Biden through some of the meetings will be Mr. Locke, the new U.S. envoy and the former commerce secretary. Mr. Locke presented his credentials to President Hu Jintao on Tuesday to formally begin his posting.

Mr. Locke’s trip here caused a stir among many Chinese. The sensation began last week when a Chinese businessman posted a photograph on the Internet of Mr. Locke buying coffee and carrying a black backpack at a Starbucks cafe in the Seattle airport as Mr. Locke was en route to China with his family. The photo prompted Chinese to comment online that Mr. Locke exhibited a humility many Chinese officials lack.

That sense of humility, whether demonstrated by Mr. Locke or Mr. Biden, will be put to the test in coming days.

China has shown anxiety about the downgrade of the United States’ AAA credit rating by Standard & Poor’s and the potential effect on its investments. Yet it has joined other large investors in continuing to pour money into Treasury securities. The Treasury Department released statistics on Monday that showed that China increased its holdings of the securities in June by $5.7 billion, to $1.17 trillion. China is the largest foreign creditor of the United States.

On Monday, Lael Brainard, the undersecretary for international affairs at the Treasury Department, said in a conference call with reporters that “the economic side of the trip obviously is very important.” But she emphasized that Mr. Biden would be trying to promote his country’s economic interests, noting that United States exports to China had grown faster than exports to other parts of the world, surpassing $100 billion over the last year. Mr. Biden plans to press China to continue letting its currency appreciate. Many economists say the renminbi is undervalued, giving Chinese exports an enormous advantage in the global marketplace.

Chinese leaders look more at domestic pressures when setting currency policy. They are trying to find the right balance between keeping the value of the renminbi low, which allows for stronger exports and thus more jobs in the manufacturing sector, and allowing it to rise enough to help tamp down inflation.

The nuclear programs of North Korea and Iran — and China’s influence over those two countries — are also of concern to the White House and are expected to be discussed. Daniel Russel, senior director for Asian affairs on the National Security Council, said Mr. Biden would also raise the issue of human rights.

On Tibet, Mr. Biden is “expected to reinforce the message to the Chinese that there is great value in their renewing their dialogue with the representatives of the Dalai Lama, with the goal of peacefully resolving differences.”

President Obama met with the Tibetan spiritual leader in Washington in July, prompting relatively muted protests by Chinese officials.

For the Chinese, Taiwan is an equally sensitive issue, and Mr. Biden is not expected to bring up the contentious topic of United States arms sales there, though Chinese leaders will almost certainly raise objections to an upcoming round of sales.

United States officials have said they will decide by Oct. 1 whether to sell 66 new-generation F-16 fighter jets to Taiwan that the island’s leaders requested.

    Cooperation Is Emphasized as Biden Opens Talks in China, NYT, 18.8.2011,
    http://www.nytimes.com/2011/08/19/world/asia/19china.html

A Block Abuzz With the Business of Gold

August 17, 2011
The New York Times
By COREY KILGANNON

On Tuesday morning, Arnie and Laura Goldstein, a retired couple from Rego Park, Queens, took some gold jewelry they had been saving for years to the incredible trinket bazaar that is the diamond district in Midtown Manhattan.

“Things I don’t wear anymore,” Mrs. Goldstein said, folding a stick of chewing gum into her mouth and eyeing a daunting array of hawkers on the block of West 47th Street between Fifth Avenue and Avenue of the Americas.

Mr. Goldstein, a retired New York City schoolteacher, said they hoped to get about $7,500 for the pieces. “We’ve been holding on to them for years,” he said.

“Years,” Mrs. Goldstein added.

“And now that the gold price is up,” Mr. Goldstein said, “we figured we’d come in and see what we could get.”

The price of gold is indeed up. It soared to an all-time high last week, not adjusted for inflation: over $1,800 an ounce for pure 24-karat gold. The spike has set off a flurry of sales in the diamond district, which has become flooded with people like the Goldsteins looking to sell high.

“This is a gold rush,” said Ernie Velez, 48, a jeweler and an owner of Universal Refinery, a glass-counter booth in one of the many mini-mall exchanges on the block where jewelry is bought and sold. Mr. Velez, an immigrant from Ecuador, said things could get even busier.

“A lot of folks are selling, but also a lot of people think the price will keep going up,” he said as jewelers brought small piles of gold jewelry to his counter for estimates. Mr. Velez’s men rasped the pieces on smooth test stones and then dabbed nitric acid on the rubbed-off gold to determine its purity.

Outside, Ramon Barrenechea, 59, of Staten Island, was capitalizing on the rush in his own way. Mr. Barrenechea, an immigrant from Peru, makes his own flat test stones by hand and was selling them for more than $50.

The diamond district does not particularly need a gold rush to invigorate its sidewalks. The block always percolates with business and energy.

About $24 billion is exchanged each year in sales in and around the district, among roughly 3,000 businesses, said Michael Toback, an executive board member of the 47th Street Business Improvement District and an owner of Myron Toback, a jewelry supply and refinery business on the block.

Amid all this industry, the district can be one of the strangest places in the city. Near Fifth Avenue on Tuesday, a scruffy bear of a man with no shirt on was scooping up rainwater and giving himself a cat bath as passers-by stared.

Hawkers from kosher delis handed out menus. One could hear New York accents, as well as Russian and also Yiddish, spoken by the many Hasidic men who work here, in black hats and coats.

Some of the most colorful characters were the hawkers: street-savvy men hired by jewelry dealers to spot potential customers on the block and coax them into their shops. The surging price of gold has cranked up the metabolism of these figures: the swaggering, smooth-talking sidewalk representatives for the many businesses.

“We’ve had a lot more action the past couple weeks,” said a 51-year-old hawker named Al, who wore a “We Buy Gold” sign around his neck and courted customers by showing a piece of paper listing the latest prices for 24-karat and lesser gold. “Business has been good.”

Al would not give his last name (“I got grandkids — I don’t want them to know I do this”) but said he tells customers that gold prices were so high that he was selling rings off his fingers.

“I tell people, ‘I had a ring I bought for $40 back in the day, and I just sold it for $200,’ ” he said.

Not all hawkers were as cheerful, complaining that sales were not brisk enough, even as they still quoted prices as high as $1,790 an ounce on Wednesday morning.

“A lot of people know what they have, and they’re waiting to see if they can sit on it longer, for a better offer,” said Denis Garasimov, who said he was hawking for Diamond District Gold Buyers. “It’s a straight-out gamble right now.”

Victor Velez, 38, an immigrant from the Dominican Republic who held a laminated “We Buy Gold” sign, nodded as he handed out cards for the Royal Gems Corporation.

“A lot of people are holding on to it because they are seeing how high it can go,” Mr. Velez said.

When the Goldsteins first set foot on the block, they were approached by a hawker named Anthony Palmer, 47, of Springfield Gardens, Queens. Mr. Palmer, who works a small patch of sidewalk near Avenue of the Americas, said he earns $100 a day from the company he works for, and sometimes receives tips from customers happy with the price they get for their gold.

“You see there’s no other hawkers in this spot but me — this is my fiefdom,” he said. “That’s how it works. We respect each other’s space. When you get rogue hawkers cutting in, sometimes you got to be forceful.”

The surge in gold prices is attracting more traffic, he said, but when it comes to selling gold, personal needs often trump market price.

“It really ebbs and flows on people’s own economics,” he said. “You get desperate people at the beginning and the end of the month, when they’re facing their bills.”

    A Block Abuzz With the Business of Gold, NYT, 17.8.2011,
    http://www.nytimes.com/2011/08/18/nyregion/as-gold-soars-diamond-district-hawkers-lure-sellers.html

In Texas Jobs Boom, Crediting a Leader, or Luck

August 15, 2011
The New ork Times
By CLIFFORD KRAUSS

HOUSTON — Texas is home to at least one-third of the jobs created nationwide since the recession ended. The state’s economy is growing about twice as fast as the national rate. Home prices have remained stable even as much of the country has seen sharp declines.

Is Texas lucky, or has the state benefited from exceptional leadership? As Gov. Rick Perry campaigned Monday in Iowa for the Republican presidential nomination — with the economy dominating the national political landscape — the answer to that question is central to his candidacy.

Even before he formally entered the race over the weekend, Mr. Perry and his allies set out to dictate an economic narrative on his terms. A radio spot last week in Iowa told voters that the governor “has a proven record of controlling spending and creating jobs” and suggested that he could replicate the success of Texas on a national scale. In a budget speech a few months ago, Mr. Perry, who declined through a spokesman to be interviewed for this article, boasted that Texas stood “in stark contrast to states that choose to burden their residents with higher taxes and onerous regulatory mandates.”

But some economists as well as Perry skeptics suggest that Mr. Perry stumbled into the Texas miracle. They say that the governor has essentially put Texas on autopilot for 11 years, and it was the state’s oil and gas boom — not his political leadership — that kept the state afloat. They also doubt that the Texas model, regardless of Mr. Perry’s role in shaping it, could be effectively applied to the nation’s far more complex economic problems.

“Because the Texas economy has been prosperous during his tenure as governor, he has not had to make the draconian choices that one would have to make in the White House,” said Bryan W. Brown, chairman of the Rice University economics department and a critic of Mr. Perry’s economic record.

And if Mr. Perry were to win the nomination, he would face critics, among them Democrats, who have long complained that the state’s economic health came at a steep price: a long-term hollowing out of its prospects because of deep cuts to education spending, low rates of investment in research and development, and a disparity in the job market that confines many blacks and Hispanics to minimum-wage jobs without health insurance.

“The Texas model can’t be the blueprint for the United States to successfully compete in the 21st-century economy, where you need a well-educated work force,” said Dick Lavine, senior fiscal analyst at the Center for Public Policy Priorities, an Austin-based liberal research group.

On the campaign trail, Mr. Perry is hearing none of it. In announcing his candidacy in South Carolina on Saturday, he pointed to his policies of low taxes, reduced government spending and regulatory easing as “a recipe to produce the strongest economy in the nation” and one that Washington would do well to duplicate.

Since Mr. Perry succeeded George W. Bush as governor in 2000, he has viewed his role as mostly staying out of the way of the private sector. When he has stepped in, he has tweaked the system, not remade it. For example, he pushed through tort reform to limit lawsuits against doctors, which encouraged the continued expansion of major medical centers. He also set up an enterprise fund that gave businesses nearly a half a billion dollars in grants and financial incentives over the last eight years to encourage their expansion.

For homeowners, he cut real estate taxes to make the state’s already cheap housing a bit more affordable. And a few months ago, with the state facing a $27 billion deficit in its two-year budget, Mr. Perry called lawmakers into a special session and insisted they not raise taxes. The Republican-dominated Legislature complied, slashing billions of dollars in aid to public schools.

“He’s been a promoter of stability in regulatory policy and stability in spending,” said Talmadge Heflin, director of the Texas Public Policy Foundation’s Center for Fiscal Policy and a former Republican state representative. “That gives him something to show for whatever he runs for.”

As the Republican race pits the Texas governor against a former Massachusetts governor, Mitt Romney, the economies of the two states are bound to be contrasted. Texas has far outstripped Massachusetts in the number of jobs created over the last two years. But by other measures, the Massachusetts economy has been stronger, with a lower unemployment rate in June and economic growth of 4.2 percent last year, compared with 2.8 percent in Texas.

Few debate that Mr. Perry, 61, has been true to a “less government is better government” philosophy in one of the few states without an income tax. The question his detractors raise, however, is whether Mr. Perry has gotten a free ride — and has gone untested — because of the state’s natural resources.

When Mr. Perry succeeded Mr. Bush, a barrel of oil was $25. Experts warned that Texas’s natural gas and oil fields, which directly and indirectly support about one-third of its jobs, were in steep decline. But during his first term, global market forces began driving oil prices up. They peaked at $147 a barrel in 2008 and have largely remained above $80 over the last two years.

At the same time, a technological revolution in drilling — the combination of hydraulic fracturing and horizontal drilling of shale rock — has opened up new gas and oil fields throughout the state. In North Texas, companies are drilling under schools, airports and parks. Tens of thousands of rig jobs have been created and many residents have received thousands of dollars in lease sales and royalties.

The oil and gas industry now delivers roughly $325 billion a year to the state, directly and indirectly. It brings in $13 billion in state tax receipts, or roughly 40 percent of the total, financing up to 20 percent of the state budget.

“He’s been lucky,” said Bernard L. Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University in Dallas. “Obviously, neither the governor nor public policy in Texas has pushed oil prices up, and clearly the technological innovation has created a whole new industry in Texas.”

Other external factors have also helped.

Trade between the United States and Mexico has grown by 60 percent since Mr. Perry’s inauguration, and last year alone more than $100 billion worth of goods passed through Texas border crossings and ports.

El Paso, the state’s largest border city, is straining to keep up. Manufacturers have been running extra shifts to make parts for automobile and electronics plants in nearby Juárez, Mexico.

The federal government has also helped support Texas. Federal spending in the state, home of NASA and large Army bases, more than doubled over the last decade to over $200 billion a year.

And well before Mr. Perry’s arrival in the Statehouse, Texas had digested the lessons of the recession in the late 1980s, when oil prices plummeted, real estate prices crashed, and savings and loan institutions failed and required a federal bailout.

Afterward, a succession of governors and mayors worked with business leaders to diversify the economy, and the Legislature enacted tight restrictions on mortgage lending, which helped Texas avoid the kind of real estate bubble that devastated states like Florida and Arizona.

This time around, the state has not escaped the downturn. The unemployment rate is 8.2 percent, a full percentage point below the national rate but still higher than other boom states like North Dakota and Wyoming, and Texas has one of the highest percentages of workers who are paid the minimum wage and receive no medical benefits.

And Mr. Perry could still be tested before next year’s election. Oil prices have fallen almost 30 percent since April, and a broad economic slowdown could depress prices further. Texas will also feel the pain as Washington cuts spending on the military and space exploration, and the state trims spending.

Still, over all, Texas remains in an enviable position. The state has created more than 260,000 jobs since June 2009, according to the Federal Reserve Bank of Dallas, and the state’s economy is growing at an estimated annual rate of about 3 percent, compared with the national growth rate in the last quarter of 1.3 percent.

At a recent ceremony celebrating the expansion of a video game company, Electronic Arts, that will bring 300 new jobs to Austin, Mr. Perry claimed credit.

“Thanks to our low taxes, reasonable and predictable regulatory climate, fair legal system and skilled work force, we continue to attract companies from around the nation,” he said.

This article has been revised to reflect the following correction:

Correction: August 15, 2011

An earlier version of this article rendered incorrectly part of the name of the Maguire Energy Institute at Southern Methodist University.

    In Texas Jobs Boom, Crediting a Leader, or Luck, NYT, 15.8.2011,
    http://www.nytimes.com/2011/08/16/business/in-texas-perry-rides-an-energy-boom.html

Charles Wyly Dies at 77; Amassed Fortune With Brother

August 8, 2011
The New York Times
By CHARLES DUHIGG

Charles Wyly, who amassed a fortune building and trading companies that sold products as diverse as crafts supplies and electricity, died on Sunday in a traffic accident in Colorado. He was 77.

The Colorado State Patrol said Mr. Wyly was killed when the Porsche he was driving was hit by a sport utility vehicle close to the airport that serves Aspen, Colo., near where Mr. Wyly has a home. He had gone to the airport for a cup of coffee and a newspaper. The driver of the S.U.V. suffered moderate injuries.

With his younger brother, Sam, Charles Wyly left rural Louisiana to build a business empire that, at various times, encompassed restaurants (Bonanza Steakhouse), crafts supplies (Michaels Stores), a hedge fund (Maverick Capital) and renewable electricity (Green Mountain Energy).

In Texas, where the brothers were based, they and their wives gave $20 million to help build the Dallas performing arts center.

They also used their wealth, estimated at more than $1 billion, to support Republican candidates and causes, donating $300,000 to Gov. Rick Perry of Texas, according to the Texas Ethics Commission, and, by their own estimate, more than $10 million to Republican candidates and causes since the 1970s.

They gave about $30,000 for the Swift Boat campaign against Senator John Kerry in 2004. Mr. Wyly later said he regretted not studying the ads more closely. Last summer, the Securities and Exchange Commission filed a lawsuit against the Wylys’ empire, accusing it of using offshore havens to hide more than $500 million in profits over 13 years of insider stock trading. The brothers denied wrongdoing, saying that the suit, which is still pending, was “good politics” and that they would be cleared.

Charles Wyly was born Oct 13, 1933, in Lake Providence, La., and for a period lived with his family in a shack without electricity or plumbing. Charles focused on the details and operations of companies they acquired. Sam plotted grand strategy. Both were practicing Christian Scientists. They worked for I.B.M. in the early 1960s, but quickly started University Computing, a software company. They bought or founded other companies and developed a reputation as fast and skilled investors, with an appetite for risk and occasional ruthlessness in taking over companies and cutting payroll costs.

They sold Sterling Software for $4 billion in 2000, and six years later, they sold Michaels for $6 billion.

By then, the S.E.C. had started investigating trusts and shell companies in two tax havens — the Isle of Man and the Cayman Islands — that were eventually linked to the brothers. In 2006, a Senate subcommittee report said the Wylys had used hundreds of millions in untaxed dollars to buy such items as a $622,000 ruby and a $937,500 painting. The S.E.C. contended they had used those shell companies to obscure their ownership of stock in companies where they were board members. Its lawsuit sought to impose penalties and seize $550 million it said they had made from improper activities.

The brothers declined to discuss the suit, though Charles told a New York Times reporter that he regretted the stain.

“My reputation is more important to me than anything,” he said last year. “To the extent that people are bombarded with information, they might have the wrong impression. That bothers me.”

Besides his brother, Mr. Wyly is survived by his wife, Caroline; three daughters, Martha Miller, Emily Wyly and Jennifer Lincoln; a son, Charles; and seven grandchildren.

    Charles Wyly Dies at 77; Amassed Fortune With Brother, NYT, 8.8.2011,
    http://www.nytimes.com/2011/08/09/business/charles-wyly-dies-at-77-amassed-a-fortune-with-brother.html

Amid Criticism on Downgrade of U.S., S.&P. Fires Back

August 6, 2011
The New York Times
By NELSON D. SCHWARTZ and ERIC DASH

The day after Standard & Poor’s took the unprecedented step of stripping the United States government of its top credit rating, the ratings agency offered a full-throated defense of its decision, calling the bitter stand-off between President Obama and Congress over raising the debt ceiling a “debacle.” It warned that further downgrades may lie ahead.

In an unusual Saturday conference call with reporters, senior S.& P. officials insisted the ratings firm hadn’t overstepped its bounds by focusing on the political paralysis in Washington as much as fiscal policy in determining the new rating. “The debacle over the debt ceiling continued until almost the midnight hour,” said John B. Chambers, chairman of S.& P.’s sovereign ratings committee.

Another S.& P. official, David Beers, added that “fiscal policy, like other government policy, is fundamentally a political process.”

Initial reactions from Congressional leaders suggested that S.& P.’s action was unlikely to force consensus on the fundamental divide over spending and taxes. Politicians on both sides used the decision to bolster their own long-standing positions.

Officials at the White House and Treasury criticized S.& P.’s move as based on faulty budget accounting that did not factor in the just-enacted deal for increasing the debt limit.

Gene Sperling, the director of the White House national economic council, called the difference, totaling over $2 trillion, “breathtaking” and said that “the amateurism it displayed” suggested “an institution starting with a conclusion and shaping any arguments to fit it.”

Even as the ratings agency insisted on Saturday that its move shouldn’t have come as a shock, it reverberated around the world. Officials from China to Europe scrambled to assess the downgrade’s impact on the already troubled global economy, and political leaders in the United States sought to frame the issue in their favor.

Republican presidential candidates on Saturday seized on the downgrade as a new line of criticism against President Obama, suggesting that ultimate responsibility rests in the Oval Office.

“It happened on your watch, Mr. President,” Representative Michele Bachmann said, drawing applause at an afternoon rally in Iowa. “You were AWOL. You were missing in action.”

In a statement, the White House made no mention of the downgrade. “We must do better to make clear our nation’s will, capacity and commitment to work together to tackle our major fiscal and economic challenges,” the White House press secretary, Jay Carney, said.

The ratings agency’s action puts additional pressure on a still-to-be-named Congressional committee to find additional spending cuts, tax increases or both to bring down the inexorably rising national debt.

The debt-limit law agreement set spending caps in the fiscal year that begins Oct. 1 and calls for the bipartisan Congressional “supercommittee” to propose more deficit reduction — for up to $2.5 trillion in combined savings over a decade.

Senate Majority Leader Harry Reid said the downgrade affirmed the need for the Democrats’ approach, balancing spending cuts with higher revenue from the wealthy and corporations.

The decision, he said, “shows why leaders should appoint members who will approach the committee’s work with an open mind — instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S.& P. are demanding.”

House Speaker John A. Boehner of Ohio, who runs the House with his anti-tax Republican majority, said that, “decades of reckless spending cannot be reversed immediately, especially when the Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground.”

While American politicians sparred, China, the largest foreign holder of United States debt, said on Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the S.& P. downgrade.

Europeans had girded for a possible downgrade, but the news was received with a degree of alarm in the corridors of power across the Continent.

Finance Minister François Baroin of France questioned the move Saturday, noting that neither Moody’s nor Fitch, the two other major ratings agencies, had reached a similar conclusion.

The downgrade could lead investors to demand higher interest rates from the federal government and other borrowers, raising costs for local governments, businesses and home buyers.

The wrangling over S.& P.’s downgrade to AA+ from AAA stretched on for days. But interviews with both officials from the administration and S.& P. reveal sharply differing perceptions on whether a downgrade was imminent. The rating agency argued that their intentions had been plain for months if the government didn’t take strong action to curb the debt; administration officials claimed they were blindsided.

The drama, which would culminate late Friday and into the weekend, actually began to gather speed Wednesday, when S.& P. executives came to the Treasury Department to meet with a group of administration officials led by Mary J. Miller, the assistant secretary for financial markets.

At the meeting, the S.& P. executives walked the Treasury Department team through its analysis. Government debt was growing rapidly, they said, and the just-completed deal wasn’t going to do enough to slow it down, endangering the AAA rating.

As early as April, S.& P. had changed its credit outlook on the United States to negative. By July, S.& P. warned that if the government did not agree to a deficit reduction package of about $4 trillion, there was a one-in-two chance a downgrade.

Still Treasury officials claim they were taken by surprise on Wednesday. Just the day before, Ms. Miller and her team met at the Hay-Adams Hotel with a group of senior Wall Street executives who advise the Treasury on its borrowing. None of the members believed that the government’s credit rating would be lowered in the near-term.

On Thursday, the ratings agency informed the Treasury that its seven-person panel would meet Friday morning to assess the creditworthiness of the United States government.

Even then, one administration official said, “We didn’t think they would actually do it.”

At 8 a.m. Friday, S.& P. convened a global conference call of its sovereign rating committee including Mr. Beers, Mr. Chambers and others. By 10 a.m., they’d reached a majority decision — the United States no longer was entitled to its top rating. Mr. Beers would not say whether the verdict was unanimous.

Rumors of a downgrade were already swirling in the markets — a prime reason the Dow dove more than 200 points at lunchtime, and at 1:15 p.m., the three men called the Treasury to inform them of the decision. “They were not pleased with the news,” Mr. Beers said.

Half an hour later, Treasury Secretary Timothy F. Geithner called William M. Daley, the White House chief of staff, as well as Mr. Sperling, according to administration officials. They delivered the news to President Obama in the Oval Office, before he took off to Camp David for the weekend.

Inside Treasury, meanwhile, John Bellows, an acting assistant secretary, flagged a concern over S.& P.’s methodology. In its analysis, S.& P. had projected the nation’s debt as a share of gross domestic product to reach 93 percent by 2021. That was around 8 percentage points higher than the figure administration officials believed the rating agency should have used — what they now call a $2.1 trillion error.

In a Treasury blog entry, Mr. Bellows wrote that the difference raised “fundamental questions about the credibility and integrity of S.& P.’s ratings action.”

Around 5:30 p.m., S.& P. officials called the group of Treasury officials. “You were right,” Mr. Chambers told them, but said he was prepared to proceed because the revisions didn’t meaningfully affect S.& P.’s conclusion.

In one final effort to prevent what was once unthinkable from becoming inevitable, the Treasury officials again pressed S.& P. to reconsider. At 8 p.m., the ratings agency sent them the final press release on the downgrade. By 8:20 p.m., the news was out.

“For those who follow the fiscal situation of the United States, this shouldn’t be news to anyone,” Mr. Chambers said.

 

Jackie Calmes, Binyamin Appelbaum, Louise Story, Julie Creswell, Liz Alderman, Jack Ewing, James Risen and David Barboza contributed reporting.

    Amid Criticism on Downgrade of U.S., S.&P. Fires Back, NYT, 6.8.2011,
    http://www.nytimes.com/2011/08/07/business/a-rush-to-assess-standard-and-poors-downgrade-of-united-states-credit-rating.html

The Wrong Worries

August 4, 2011
The New York Times
By PAUL KRUGMAN

In case you had any doubts, Thursday’s more than 500-point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things.

It’s not just that the threat of a double-dip recession has become very real. It’s now impossible to deny the obvious, which is that we are not now and have never been on the road to recovery.

For two years, officials at the Federal Reserve, international organizations and, sad to say, within the Obama administration have insisted that the economy was on the mend. Every setback was attributed to temporary factors — It’s the Greeks! It’s the tsunami! — that would soon fade away. And the focus of policy turned from jobs and growth to the supposedly urgent issue of deficit reduction.

But the economy wasn’t on the mend.

Yes, officially the recession ended two years ago, and the economy did indeed pull out of a terrifying tailspin. But at no point has growth looked remotely adequate given the depth of the initial plunge. In particular, when employment falls as much as it did from 2007 to 2009, you need a lot of job growth to make up the lost ground. And that just hasn’t happened.

Consider one crucial measure, the ratio of employment to population. In June 2007, around 63 percent of adults were employed. In June 2009, the official end of the recession, that number was down to 59.4. As of June 2011, two years into the alleged recovery, the number was: 58.2.

These may sound like dry statistics, but they reflect a truly terrible reality. Not only are vast numbers of Americans unemployed or underemployed, for the first time since the Great Depression many American workers are facing the prospect of very-long-term — maybe permanent — unemployment. Among other things, the rise in long-term unemployment will reduce future government revenues, so we’re not even acting sensibly in purely fiscal terms. But, more important, it’s a human catastrophe.

And why should we be surprised at this catastrophe? Where was growth supposed to come from? Consumers, still burdened by the debt that they ran up during the housing bubble, aren’t ready to spend. Businesses see no reason to expand given the lack of consumer demand. And thanks to that deficit obsession, government, which could and should be supporting the economy in its time of need, has been pulling back.

Now it looks as if it’s all about to get even worse. So what’s the response?

To turn this disaster around, a lot of people are going to have to admit, to themselves at least, that they’ve been wrong and need to change their priorities, right away.

Of course, some players won’t change. Republicans won’t stop screaming about the deficit because they weren’t sincere in the first place: Their deficit hawkery was a club with which to beat their political opponents, nothing more — as became obvious whenever any rise in taxes on the rich was suggested. And they’re not going to give up that club.

But the policy disaster of the past two years wasn’t just the result of G.O.P. obstructionism, which wouldn’t have been so effective if the policy elite — including at least some senior figures in the Obama administration — hadn’t agreed that deficit reduction, not job creation, should be our main priority. Nor should we let Ben Bernanke and his colleagues off the hook: The Fed has by no means done all it could, partly because it was more concerned with hypothetical inflation than with real unemployment, partly because it let itself be intimidated by the Ron Paul types.

Well, it’s time for all that to stop. Those plunging interest rates and stock prices say that the markets aren’t worried about either U.S. solvency or inflation. They’re worried about U.S. lack of growth. And they’re right, even if on Wednesday the White House press secretary chose, inexplicably, to declare that there’s no threat of a double-dip recession.

Earlier this week, the word was that the Obama administration would “pivot” to jobs now that the debt ceiling has been raised. But what that pivot would mean, as far as I can tell, was proposing some minor measures that would be more symbolic than substantive. And, at this point, that kind of proposal would just make President Obama look ridiculous.

The point is that it’s now time — long past time — to get serious about the real crisis the economy faces. The Fed needs to stop making excuses, while the president needs to come up with real job-creation proposals. And if Republicans block those proposals, he needs to make a Harry Truman-style campaign against the do-nothing G.O.P.

This might or might not work. But we already know what isn’t working: the economic policy of the past two years — and the millions of Americans who should have jobs, but don’t.

    The Wrong Worries, NYT, 4.8.2011,
    http://www.nytimes.com/2011/08/05/opinion/the-wrong-worries.html

Time to Say It: Double Dip Recession May Be Happening

August 4, 2011
The New York Times
By FLOYD NORRIS

Double dip may be back.

It has been three decades since the United States suffered a recession that followed on the heels of the previous one. But it could be happening again. The unrelenting negative economic news of the past two weeks has painted a picture of a United States economy that fell further and recovered less than we had thought.

When what may eventually be known as Great Recession I hit the country, there was general political agreement that it was incumbent on the government to fight back by stimulating the economy. It did, and the recession ended.

But Great Recession II, if that is what we are entering, has provoked a completely different response. Now the politicians are squabbling over how much to cut spending. After months of wrangling, they passed a bill aimed at forcing more reductions in spending over the next decade.

If this is the beginning of a new double dip, it will have two significant things in common with the dual recessions of 1980 and 1981-82.

In each case the first recession was caused in large part by a sudden withdrawal of credit from the economy. The recovery came when credit conditions recovered.

And in each case the second recession began at a time when the usual government policies to fight economic weakness were deemed unavailable. Then, the need to fight inflation ruled out an easier monetary policy. Now, the perceived need to reduce government spending rules out a more accommodating fiscal policy.

The American economy fell into what was at first a fairly mild recession at the end of 2007. But the downturn turned into a worldwide plunge after the failure of Lehman Brothers in September 2008 led to the vanishing of credit for nearly all borrowers not deemed super-safe. Banks in the United States and other countries needed bailouts to survive.

The unavailability of credit caused a decline in world trade volumes of a magnitude not seen since the Great Depression, and nearly every economy went into recession.

But it turned out that businesses overreacted. While sales to customers fell, they did not decline as much as production did.

That fact set the stage for an economic rebound that began in mid-2009, with the National Bureau of Economic Research, the arbiter of such things, determining that the recession ended in June of that year. Manufacturers around the world reported rapidly rising orders.

Until recently, most observers believed the American economy was in a slow recovery, albeit one with very disappointing job growth. The official figures on gross domestic product showed the United States economy grew to a record size in the final three months of 2010, having erased the loss of 4.1 percent in G.D.P. from top to bottom.

Then last week the government announced its annual revision to the numbers for the last several years. New government surveys indicated Americans had spent less than previously estimated in 2009 and 2010 on a wide range of things, including food, clothing and computers. Tax returns showed Americans even cut back on gambling. The recession now appears to have been deeper — a top-to-bottom fall of 5.1 percent — and the recovery even less impressive. The economy is still smaller than it was in 2007.

In June, more American manufacturers said new orders fell than rose, according to a survey by the Institute for Supply Management. The margin was small, but the survey had shown rising orders for 24 consecutive months. Manufacturers in most European countries, including Germany and Britain, also reported weaker new orders.

Back in 1980, a recession was started when the government — despairing of its failure to bring down surging inflation rates — invoked controls aimed at limiting the expansion of credit and making it more costly for banks to make loans. Those controls proved to be far more effective than anyone expected, and the economy promptly tanked. In July the credit controls were ended, and the economic research bureau later determined that the recession ended that month.

By the first quarter of 1981 the economy was larger than it had been at the previous peak.

But little had been done about inflation, and the Federal Reserve was determined to slay that dragon. With interest rates high, home sales plunged in late 1981 to the lowest level since the government began collecting the data in 1963. Now they are even lower.

There is, of course, no assurance that a new recession has begun or will do so soon, and a positive jobs report on Friday morning could revive some optimism. But concerns have grown that the essential problems that led to the 2007-09 recession were not solved, just as inflation remained high throughout the 1980 downturn. Housing prices have not recovered, and millions of Americans owe more in mortgage debt than their homes are worth. Extremely low interest rates helped to push up corporate profits, but companies have hired relatively few people.

In any other cycle, the recent spate of poor economic news would have resulted in politicians vying with one another to propose programs to revive growth. President Obama has called for more spending on infrastructure, but there appears to be little chance Congress will take any action. The focus in Washington is now on deciding where to reduce spending, not increase it.

There have been some hints that the Federal Reserve might be willing to resume purchasing government bonds, which it stopped doing in June, despite opposition from conservative members of Congress. But the revised economic data may indicate that the previous program — known as QE2, for quantitative easing — had even less impact than had been thought. With short-term interest rates near zero, the Fed’s monetary policy options are limited.

Government stimulus programs historically have often appeared to be accomplishing little until the cumulative effect suddenly helps to power a self-sustaining recovery. This time, the best hope may be that the stimulus we have already had will prove to have been enough.

    Time to Say It: Double Dip Recession May Be Happening, NYT, 4.8.2011,
    http://www.nytimes.com/2011/08/05/business/economy/double-dip-recession-may-be-returning.html

Markets Fall as Global Worries Multiply

August 4, 2011
The New York Times
By MATTHEW SALTMARSH AND BETTINA WASSENER

LONDON — Stock markets dropped again Friday in Europe following sharp sell-offs in Asia and on Wall Street, as fears about weak growth in the United States piled onto longstanding worries about debt levels in the euro area.

Investors continued to pull funds away from stocks — including from emerging markets with their solidly growing economies — and shifted instead into the perceived safety of assets like U.S. Treasury bonds, German bunds and gold.

In London, traders were awaiting an important jobs report from Washington later in the day for more clues on the health of the U.S. economy. A weak number, they said, had the potential to intensify the downward selling spiral seen this week.

Luc Van Heden, chief strategist at KBC Asset Management in Brussels, said fears of a “double dip” in U.S. growth, where the recovery falters and turns into a second recession, were becoming even more of a concern than the sovereign debt crisis in Europe.

“We’ve known about the euro’s debt crisis for months,” he said. “Fears of a double dip in the U.S. are making the market very, very nervous at the moment.”

Mr. Van Heden said he thought it would take a really strong labor report — perhaps with the addition of 150,000 or so jobs in July — to durably lift investor sentiment.

China, as the United States’s largest foreign creditor, is closely watching developments there and the impact these may have on the value of China’s holdings. On Friday, the Chinese foreign minister, Yang Jiechi, said he hoped the United States would take “responsible monetary policies” to support the global economy, and “take tangible measures to protect the safety of assets” held by foreign nations.

China has increased its holdings of euro bonds in recent years, Mr. Yang said in a written response to questions from the Polish press during a visit to that country. He added that China believed Europe could overcome its “temporary difficulties,” and would continue to support Europe and the euro in the future.

Chancellor Angela Merkel of Germany and the French president Nicholas Sarkozy were interrupting their vacations Friday to hold a telephone conference on the euro zone debt crisis.

Stock markets in Europe opened sharply lower after steep losses at the end of the trading day on Thursday, then struggled to regain ground.

The FTSE-100 in London and the DAX in Frankfurt were each down around 3 percent in morning trading, while the CAC40 in Paris and the Euro Stoxx 50 Index of euro-zone blue chips were both off about 1.5 percent. Yields on Italy and Spanish 10-year yields whipsawed, as in recent days, but remained above the stressed level of 6 percent.

Futures on the Standard & Poor’s 500 were also down, indicating another weak opening in New York.

The Nikkei 225 in Tokyo and the Kospi in Seoul both closed 3.7 percent lower. The Taiex in Taipei slumped 5.6 percent, and the Australian market shed 4 percent. The Hang Seng in Hong Kong closed down 4.3 percent.

Neither the Japanese central bank’s efforts on Thursday to dampen the rise of the yen, nor the European Central Bank’s move to buy bonds of some European countries served to reassure the markets.

The bank intervened with a show of support to buy bonds of some smaller countries, but not Italy and Spain, whose mounting troubles have come into the spotlight. This was taken as a sign that the recent rescue packages by Europe could soon be overwhelmed by the huge debt burdens in those two countries.

Analysts said the market still might have further to fall, as investors reassess the dimming economic prospects. And some in the markets are already questioning whether the Federal Reserve has done enough to mend the U.S. economy and whether it could soon take further steps to stimulate growth.

Wall Street saw the worst day in more than two years Thursday, with the Dow Jones industrial average ending down 4.3 percent, and the broader Standard & Poor’s 500 finishing 4.8 percent lower.

The S.& P. 500 has now fallen 10.7 percent from 1,345 on July 22, underlining the new negative investment sentiment.

“We are now in correction mode,” said Sam Stovall, chief investment strategist at Standard & Poor’s. “We could have another couple of weeks to go before it bottoms.”

The yen, which had weakened against the U.S. dollar after the Japanese central bank intervened in the currency markets on Thursday to halt the Japanese currency’s ascent, crawled higher again on Friday, to 78.6 yen per dollar.

The Japanese Economics Minister, Kaoru Yosano, suggested on Friday that more interventions may follow.

“We will continue to intervene at the most effective moments,” Mr. Yosano told reporters. “It would be rash to assume a one-off action, and we will continue to assess the situation going forward.”

Elsewhere in the region, the Australian central bank underlined the general unease by lowering its economic growth forecast for this year. Although ravenous demand from China will continue to buoy Australia’s commodities sector, the bank cited the sovereign debt problems in other parts of the world as a risk.

With investors in the United States already focusing anew on fragile economic growth and high unemployment, waves of selling of stocks began late in the trading day in Europe and continued throughout the day Thursday in the United States.

The last time the market was in a correction was last summer, when it fell 16 percent before recovering.

Analysts said credit markets were still healthy and the United States was now stronger than just a few years ago, so that a repeat of the financial crisis was unlikely.

“There is a huge difference — during the financial crisis the banking sector broke down. Right now it’s a crisis of confidence based on weak economies but the banking sector is not broken,” said Reena Aggarwal, professor of finance at Georgetown University.

The Vix, which measures the implied volatility of options on the S.& P. 500 index, and is called the fear index by traders, spiked on Thursday, though it is still much lower than during the depths of the financial crisis in 2008.

Washington’s reaction to the market’s tumble was muted. The Treasury Department said it did not plan to issue any statements or provide officials to comment.

“Markets go up and down,” said the White House spokesman, Jay Carney. “We obviously are monitoring the situation in Europe closely.”

 

Graham Bowley contributed reporting from New York, Hiroko Tabuchi from Tokyo
and David Barboza from Shanghai.

    Markets Fall as Global Worries Multiply, NYT, 4.8.2011,
    http://www.nytimes.com/2011/08/06/business/daily-stock-market-activity.html

End the Debt Limit

August 4, 2011
The New York Times

It has long been clear that the federal debt limit is far too dangerous and unstable for lawmakers to use as a political weapon. Allowing that to happen in the last few traumatic weeks created an artificial national crisis that put the economy and the savings of Americans at risk and helped produce a loss of confidence that lingered as a cause of Thursday’s stock-market plunge.

None of that, however, has stopped Republican leaders, who announced this week that they intend to repeat this explosive episode over and over, in perpetuity. With the bad memory still fresh, President Obama should quickly seize the opportunity to make clear that he will not allow it even once more, never mind permanently. Instead of raising the debt ceiling every few years, it’s time to eliminate this dangerous game once and for all.

As this page said in 1961 — not remotely for the first time or the last — the “debt limit does not limit the debt.” It’s an illusion of a law, instituted in World War I, to persuade gullible taxpayers that Congress is exercising responsible oversight over borrowing. Congress already controls spending and taxation, and if it wants a smaller debt it can cut spending or raise taxes at will. To allow the deficit to rise, and then refuse to pay for it months later, is the definition of financial irresponsibility.

But being irresponsible worked for Republicans this time. They refused to raise the limit without cuts in spending and won $2.5 trillion in cuts in the deal wrapped up on Tuesday. Now they want to make permanent the arbitrary and simplistic standard devised by Speaker John Boehner — a dollar of cuts for every dollar in the debt increase.

Senator Mitch McConnell, the Republican leader, said on Tuesday that no president of either party should ever be allowed to raise the ceiling “without having to engage in the kind of debate we’ve just come through.”

Mr. McConnell may call it a “debate,” but what his party really did was threaten the economy with catastrophe in the blind pursuit of huge spending cuts with no tax increases. He admitted that he saw the ceiling as “a hostage that’s worth ransoming.” No president or voter should tolerate that level of disregard for the national good.

The debt limit should ideally be dispensed with, but, at a minimum, it can no longer be held for ransom. The president and Congress are free to continue talks to reduce the deficit, but not while the economy is dangling in the balance. The president should assemble a coalition of business leaders, mayors, governors and ordinary Americans ready to spend the next year explaining to voters why the debt limit should be eliminated, or blunted as a tool to change budgetary policy. If Democrats continuously remind the country how dangerous this path is, Republicans may think twice about repeating it.

If they do not, Mr. Obama could meet their challenge with a legal threat. The White House has repeatedly demurred when asked if a provision of the 14th Amendment could be used to declare the debt ceiling invalid, saying it was an untested theory. There is more than a year for administration lawyers to find ways to put it into practice.

The 14th Amendment, adopted during Reconstruction, says the validity of the public debt of the United States cannot be questioned. Threatening the economy with calamity to achieve partisan goals does just that. President Obama should use every power at his disposal to fend off Republicans’ irresponsible threats and invite them to meet him in court if they want to resist.

    End the Debt Limit, NYT, 4.8.2011,
    http://www.nytimes.com/2011/08/05/opinion/end-the-debt-limit.html

Stocks Plunge on Fears of Global Turmoil

August 4, 2011
The New York Times
By GRAHAM BOWLEY

What began as a weak day in the stock markets ended in the worst rout in more than two years, as investors dumped stocks amid anxiety that both Europe and the United States were failing to fix deepening economic problems.

With a steep decline of around 5 percent in the United States on Thursday, stocks have now fallen nearly 11 percent in two weeks. Markets have been plunging as investors sought safer havens for their money — including Treasury bonds, which some had been avoiding during the debate over extending the nation’s debt ceiling.

Sparking the drop was an unsuccessful effort by the European Central Bank to reassure the markets, which instead ended up spooking investors. The bank intervened with a show of support to buy bonds of some smaller countries, but not Italy and Spain, whose mounting troubles have come into the spotlight. This was taken as a sign that the recent rescue packages by Europe could soon be overwhelmed by the huge debt burdens in those two countries.

Investors were further unnerved by a candid remark by José Manuel Barroso, the European Commission president, who seemed to confirm fears about the sense of political paralysis. Rather than play down the problems, as European officials have done since the debt crisis began last year, he said, “Markets remain to be convinced that we are taking the appropriate steps to resolve the crisis.”

With investors in the United States already focusing anew on fragile economic growth and high unemployment, waves of selling of stocks began in Europe and continued throughout the day in the United States. Analysts said the market still might have further to fall, as investors reassess the dimming economic prospects. In the short run, attention will be focused on critical unemployment numbers for July to be released on Friday morning. And some in the markets are already questioning whether the Federal Reserve has done enough to mend the economy and whether it could soon take further steps to stimulate growth.

On Thursday, more than 14 billion shares changed hands, the heaviest selling in more than a year. In addition to being unnerved by weaker economic data reported in recent days, investors appeared to lose their optimism about the strength of corporate profits that had driven increases in the stock market in the first half of this year.

At the close, the Standard & Poor’s 500-stock index was down 60.27 points, or 4.78 percent, to 1,200.07. The Dow Jones industrial average was off 512.76 points, or 4.31 percent, to 11,383.68, and the Nasdaq was down 136.68, or 5.08 percent, to 2,556.39.

The S.& P. 500 has now fallen 10.7 percent from 1,345 on July 22, underlining the new negative investment sentiment about the economy and about Europe.

“We are now in correction mode,” said Sam Stovall, chief investment strategist at Standard & Poor’s. “We could have another couple of weeks to go before it bottoms.”

The last time the market was in a correction was last summer, when it fell 16 percent before recovering.

Analysts said credit markets were still healthy and the United States was now stronger than just a few years ago so that a repeat of the financial crisis was unlikely.

“There is a huge difference — during the financial crisis the banking sector broke down. Right now it’s a crisis of confidence based on weak economies but the banking sector is not broken,” said Reena Aggarwal, professor of finance at Georgetown University.

The Vix, which measures the implied volatility of options on the S.& P. 500 index, and is called the fear index by traders, spiked on Thursday, though it is still much lower than during the depths of the financial crisis in 2008.

Washington’s reaction to the market’s tumble was muted. The Treasury Department said it did not plan to issue any statements or provide officials to comment.

“Markets go up and down,” said the White House spokesman, Jay Carney. “We obviously are monitoring the situation in Europe closely.”

As the prospects for economic growth dimmed, several commodities, including oil, silver and palladium, fell by more than 5 percent, perhaps producing some good news for consumers.

With oil prices dropping below $87 a barrel, wiping out the rise caused by unrest in the Middle East and North Africa earlier in the year, drivers can expect sharply lower gasoline prices just in time for the Labor Day weekend and back-to-school shopping.

Agricultural crops and most industrial metals fell somewhat less drastically, with copper falling 1.9 percent, aluminum by 1.7 percent, corn by 1.9 percent, wheat by 3.4 percent and soybeans by 1.8 percent.

Taken together, the drops should mean lower input costs for manufacturers and give the Federal Reserve more policy options should the economy continue to slow.

A closely-watched survey of American investor attitudes provided by the American Association of Individual investors on Thursday showed the biggest increase in bearish sentiment for five years in the latest week. As investors fled assets like stocks, they piled into the perceived safety of United States Treasuries where 10-year interest rates fell to 2.41 percent, recording the biggest one day fall since March 2009.

Yields on one-month United States notes actually fell into negative territory before closing at zero.

Besides piling into Treasuries, institutional investors are also seeking out the safety of cold, hard cash, pouring billions into commercial bank accounts backed up by the Federal Deposit Insurance Corporation. Investors had also been buying Swiss francs and Japanese yen. But earlier this week, Switzerland unexpectedly cut interest rates in an effort to weaken the franc. Japan on Thursday also intervened to weaken its currency, raising the specter that more nations could take similar steps to try to protect their economies.

Around the world, markets from Brazil to Turkey were battered.

In Britain, stocks closed down 3.43 percent. In Germany, the DAX index dropped 3.4 percent. In France, the CAC 40 closed down 3.9 percent.

“It really is Europe today,” said Barry Knapp, head of United States equity strategy at Barclays Capital. “The market feels that European leaders are one step behind, and they are.”

Asian markets quickly followed suit in trading lower. In midday trading on Friday, the Nikkei 225 in Japan was down 3.47 percent to 9,312.22 while the S.& P./ASX 200 index in Australia fell 3.98 percent to 4,106.40. The Hang Seng index in Hong Kong opened sharply lower as well, and was down 4.6 percent to 20,865.95 by midday.

With some warning signs that weaker European banks are struggling to fund themselves, the central bank moved to help weaker banks by expanding its lending to institutions in the euro zone. Bank stocks nevertheless fell sharply in Europe.

In the United States, as the stock market fell, it broke through critical support levels, leading to more selling as traders rushed to reduce exposure to plummeting prices. That included computerized program traders, one analyst said.

 

Reporting was contributed by Nelson D. Schwartz, Clifford Krauss, Mark Landler, Motoko Rich and Bettina Wassener.

    Stocks Plunge on Fears of Global Turmoil, NYT, 4.8.2011,
    http://www.nytimes.com/2011/08/05/business/markets.html

We’re Spent

July 16, 2011
The New York Times
By DAVID LEONHARDT

THERE is no shortage of explanations for the economy’s maddening inability to leave behind the Great Recession and start adding large numbers of jobs: The deficit is too big. The stimulus was flawed. China is overtaking us. Businesses are overregulated. Wall Street is underregulated.

But the real culprit — or at least the main one — has been hiding in plain sight. We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble that was decades in the making.

The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago — and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem.

The Federal Reserve Bank of New York recently published a jarring report on what it calls discretionary service spending, a category that excludes housing, food and health care and includes restaurant meals, entertainment, education and even insurance. Going back decades, such spending had never fallen more than 3 percent per capita in a recession. In this slump, it is down almost 7 percent, and still has not really begun to recover.

The past week brought more bad news. Retail sales in June were weaker than expected, and consumer confidence fell, causing economists to downgrade their estimates for economic growth yet again. It’s a familiar routine by now. Forecasters in Washington and on Wall Street keep saying the recovery’s problems are temporary — and then they redefine temporary.

If you’re looking for one overarching explanation for the still-terrible job market, it is this great consumer bust. Business executives are only rational to hold back on hiring if they do not know when their customers will fully return. Consumers, for their part, are coping with a sharp loss of wealth and an uncertain future (and many have discovered that they don’t need to buy a new car or stove every few years). Both consumers and executives are easily frightened by the latest economic problem, be it rising gas prices or the debt-ceiling impasse.

Earlier this year, Charles M. Holley Jr., the chief financial officer of Wal-Mart, said that his company had noticed consumers were often buying smaller packages toward the end of the month, just before many households receive their next paychecks. “You see customers that are running out of money at the end of the month,” Mr. Holley said.

In past years, many of those customers could have relied on debt, often a home-equity line of credit or a credit card, to tide them over. Debt soared in the late 1980s, 1990s and the last decade, which allowed spending to grow faster than incomes and helped cushion every recession in that period.

Now, the economic version of the law of gravity is reasserting itself. We are feeling the deferred pain from 25 years of excess, as people try to rebuild their depleted savings. This pattern is a classic one. The definitive book about financial crises has become “This Time Is Different: Eight Centuries of Financial Folly,” published in 2009 with exquisite timing, by Carmen M. Reinhart, now of the Peterson Institute for International Economics, and Kenneth S. Rogoff, of Harvard.

Surveying hundreds of years of crises around the world, Ms. Reinhart and Mr. Rogoff conclude that debt is the primary cause and that the aftermath is “deep and prolonged,” with “profound declines in output and employment.” On average, a modern financial crisis has caused the unemployment rate to rise for more than four years and by 7 percentage points. (We’re now at almost four years and 5 percentage points.) The recovery takes many years more.

 

THE notion that the United States needs to begin moving away from its consumer economy — toward more of an investment and production economy, with rising exports, expanding factories and more good-paying service jobs — has become so commonplace that it’s practically a cliché. It’s also true. And the consumer bust shows why. The old consumer economy is gone, and it’s not coming back.

Sure, house and car sales will eventually surpass their old highs, as the economy slowly recovers and the population continues expanding. But consumer spending will not soon return to the growth rates of the 1980s and ’90s. They depended on income people didn’t have.

The choice, then, is between starting to make the transition to a different economy and enduring years of stop-and-start economic malaise.

The easy thing now might be to proclaim that debt is evil and ask everyone — consumers, the federal government, state governments — to get thrifty. The pithiest version of that strategy comes from Andrew W. Mellon, the Treasury secretary when the Depression began: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” Mellon said, according to his boss, President Herbert Hoover. “It will purge the rottenness out of the system.”

History, however, has a different verdict. If governments stop spending at the same time that consumers do, the economy can enter a vicious cycle, as it did in Hoover’s day.

The prospect of that cycle is one reason an impasse on the debt ceiling, and a government default, could do so much damage. Global investors may be the only major constituency that has been feeling sanguine about the American economy. If Washington unnerves them, and sends interest rates rising, the effect really could be calamitous.

But the debt-ceiling debate doesn’t have to be yet another problem for the economy. The right kind of agreement could help soften the consumer bust and also speed the transition to a different kind of economy.

What might that agreement look like? First, it could reduce deficits in future years, to keep investors confident that Washington too could begin living within its means after years of excess.

Second, a deal could avoid the Mellon-like problem of having government cut back at the same time as consumers. The Federal Reserve, the Obama administration and Congress seemed to learn this lesson in 2009, when they aggressively responded to the crisis, only to turn more passive in 2010 and spend much of the year hoping for the best. It didn’t work out. Today, the most obvious options for stimulus are extensions of jobless benefits and of a temporary cut in the Social Security tax.

But they probably shouldn’t be the only options. The biggest flaw with the past stimulus was that it imagined that the old consumer economy might return. Households received large tax rebates, usually with little incentive to spend the money (the cash-for-clunkers program being the exception that proves the rule). People did spend some of these across-the-board rebates, and kept economic growth and unemployment from being even worse, but also saved a sizable portion.

A more promising approach could instead offer a tax cut to businesses — but only to those expanding their payrolls and, in the process, helping to solve the jobs crisis. Along similar lines, a budget deal could increase funding for medical research and clean energy by even more than President Obama has suggested. These are the kinds of investments that have brought huge returns in the past — think of the Internet, a Defense Department creation — and whose price tags are tiny compared to, say, Medicare or the Bush tax cuts.

Politics, of course, makes many of these ideas unlikely to happen anytime soon. Unfortunately, though, these debt-ceiling talks won’t be the final chance for Washington to help the country recover from the great consumer bust. That’s the thing about consumer busts. They last for a very long time.

 

David Leonhardt is the Economic Scene columnist for The New York Times.

    We’re Spent, NYT, 16.7.2011,
    http://www.nytimes.com/2011/07/17/sunday-review/17economic.html

Blundering Toward Recession: Beyond the Debt Stalemate

July 15, 2011
The New York Times

“Catastrophic.” “Calamitous.” “Major crisis.” “Self-inflicted wound.” Those are some of the ways Ben Bernanke, the chairman of the Federal Reserve, has described the fallout if Congress fails to raise the debt limit by the Aug. 2 deadline.

In Congressional testimony this week, Mr. Bernanke also warned that the Fed would not be able to fully counter the damage from a default, including the possibility that spiking interest rates would roil borrowers worldwide and worsen the federal budget deficit by making it costlier to finance the nation’s debt.

That’s not all of it. Brinkmanship over the debt limit is only one of many epic economic policy blunders now in the making. Even if lawmakers raise the debt limit on time, the economy is weak and getting weaker, as evidenced by slowing growth and rising unemployment.

Instead of coming up with policies to strengthen the economy, the Republicans are demanding deep, immediate spending cuts, which would only add to current weakness. The White House, meanwhile, has suggested cuts should be phased in slowly and has said that more near-term help would be good for the economy. That is a better approach. But President Obama has done too little to argue the case, on Capitol Hill or with the public.

Upfront spending cuts could make sense if the budget deficit were the cause of the current economic weakness. If it were, interest rates would be rising, not at generational lows, as the government competed with the private sector. The real cause is lack of consumer demand in the face of stagnant wages, job uncertainty and the continuing payback of household debt from the bubble years. Without strong and steady consumer demand, businesses will not hire, and a self-sustaining recovery cannot take hold.

In such a situation, government must fill the gap with spending on relief and recovery measures. Premature spending cuts will only make things worse by pulling dollars out of a frail economy. Contrary to the claims of Republicans, and some Democrats, that the nation cannot afford new spending, the government could, and should, borrow cheaply at today’s low rates in an effort to bolster demand and, by extension, support jobs.

A place to start would be to extend what little stimulus remains on the books, including the $57 billion-a-year federal unemployment insurance program and the $112 billion payroll tax cut for employees. Both are scheduled to expire at the end of 2011, despite the fact that conditions have deteriorated since they were enacted last year.

Another crucial step would be to reauthorize the highway trust fund, at least at existing levels. The fund, which is paid for mainly by the federal gasoline tax, will allocate $53 billion to states in 2011 for roads and mass transit, supporting millions of jobs. The House version of the highway bill calls for deep cuts, and the better Senate version has not garnered enough Republican support to pass.

It is also past time for lawmakers to move forward with plans for a federal infrastructure bank to provide seed money for major public works.

In his testimony, Mr. Bernanke emphasized that the deficit was a serious problem, but not an immediate one. He is right. It can be solved over time, with spending cuts and tax increases, as the economy recovers.

Recovery, however, requires the creation of millions more jobs, starting now, than the current economy is capable of generating. It is time for the government to step up. If it doesn’t, the weakening economy is bound to become even weaker.

    Blundering Toward Recession: Beyond the Debt Stalemate, NYT, 15.7.2011,
    http://www.nytimes.com/2011/07/16/opinion/16sat1.html

As a Watchdog Starves, Wall Street Is Tossed a Bone

July 15, 2011
The New York Times
By JAMES B. STEWART

The economy is still suffering from the worst financial crisis since the Depression, and widespread anger persists that financial institutions that caused it received bailouts of billions of taxpayer dollars and haven’t been held accountable for any wrongdoing. Yet the House Appropriations Committee has responded by starving the agency responsible for bringing financial wrongdoers to justice — while putting over $200 million that could otherwise have been spent on investigations and enforcement actions back into the pockets of Wall Street.

A few weeks ago, the Republican-controlled appropriations committee cut the Securities and Exchange Commission’s fiscal 2012 budget request by $222.5 million, to $1.19 billion (the same as this year’s), even though the S.E.C.’s responsibilities were vastly expanded under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Charged with protecting investors and policing markets, the S.E.C. is the nation’s front-line defense against financial fraud. The committee’s accompanying report referred to the agency’s “troubled past” and “lack of ability to manage funds,” and said the committee “remains concerned with the S.E.C.’s track record in dealing with Ponzi schemes.” The report stressed, “With the federal debt exceeding $14 trillion, the committee is committed to reducing the cost and size of government.”

But cutting the S.E.C.’s budget will have no effect on the budget deficit, won’t save taxpayers a dime and could cost the Treasury millions in lost fees and penalties. That’s because the S.E.C. isn’t financed by tax revenue, but rather by fees levied on those it regulates, which include all the big securities firms.

A little-noticed provision in Dodd-Frank mandates that those fees can’t exceed the S.E.C.’s budget. So cutting its requested budget by $222.5 million saves Wall Street the same amount, and means regulated firms will pay $136 million less in fiscal 2012 than they did the previous year, the S.E.C. projects.

Moreover, enforcement actions generate billions of dollars in revenue in the form of fines, disgorgements and other penalties. Last year the S.E.C. turned over $2.2 billion to victims of financial wrongdoing and paid hundreds of millions more to the Treasury, helping to reduce the deficit.

But the S.E.C. has become a favorite whipping boy of those hostile to market reforms. Admittedly the agency has given them plenty of fodder: revelations that a few staff members were looking at pornography on their office computers; a questionable $557 million lease for new office space, subsequently unwound; and the agency’s notorious failure to catch Bernard Madoff. Nonetheless, in the wake of the recent Ponzi schemes, evidence of growing insider-trading rings involving the Galleon Group and others, potential market manipulation in the still-mystifying flash crash, not to mention myriad unanswered questions about wrongdoing during the financial crisis, the need for vigorous securities law enforcement seems both self-evident and compelling.

A bribery scandal at Tyson Foods — a scheme that Tyson itself admitted — resulted in charges against the company earlier this year. But no individuals were charged. While the S.E.C. wouldn’t disclose its reasons, the case involved foreign witnesses and was therefore expensive to investigate and prosecute. The decision not to pursue charges may have involved many factors, but one disturbing possibility was that the agency simply couldn’t afford to, given its limited resources.

Robert Khuzami, the S.E.C.’s head of enforcement, told me his division was underfunded even before Dodd-Frank expanded its responsibilities and that the proposed appropriation would leave his division in dire straits. The S.E.C. oversees more than 35,000 publicly traded companies and regulated institutions, not counting the hedge fund advisers that would be added under the new legislation. While he wouldn’t comment on Tyson, he noted that with fixed costs like salaries accounting for nearly 70 percent of the agency’s budget, “you have to squeeze the savings out of what’s left, like travel, and especially foreign travel, at a time we see more globalization, more insider trading through offshore accounts. It’s highly cost-intensive.”

An S.E.C. memo on the committee’s proposed budget warns: “We may be forced to decline to prosecute certain persons who violate the law; settle cases on terms we might otherwise not prefer; name fewer defendants in a given action; restrict the types of investigative techniques employed; or conclude investigations earlier than we otherwise would.”

It’s not just that cases aren’t being adequately investigated and filed. Under Mr. Khuzami and the S.E.C.’s chairwoman, Mary L. Schapiro, the enforcement division has tried to be more proactive, detecting complex frauds before they cost investors billions. Mr. Khuzami stressed that analyzing trading patterns involves a staggering amount of data, especially the high-frequency trading that crippled markets during last year’s flash crash, and requires investment in state-of-the-art information technology the S.E.C. lacks. Sorting through the wreckage of the mortgage crisis, with its complex derivatives and millions of mortgages bundled into esoteric trading vehicles, is highly labor-intensive.

By way of comparison, in 2009 Citigroup and JPMorgan Chase, two institutions the S.E.C. regulates, spent $4.6 billion each — four times the S.E.C.’s entire annual budget — on information technology alone. Under the House’s proposed budget, the S.E.C.’s resources for technology would be cut by $10 million and a $50 million reserve fund earmarked for technology would be eliminated.

If anything, the agency’s failure to detect the Madoff scheme despite four ineffectual investigations would argue in favor of more, not less, enforcement spending. One investigation foundered when the Madoff team was abruptly shifted to mutual fund market timing, since the S.E.C. lacked the manpower to do both. An important tip got lost in the system because of inadequate tracking mechanisms. Another Madoff investigation didn’t get logged into the computer system, so one office didn’t know what the other was doing. And the most glaring problem identified by the S.E.C.’s inspector general was that investigators lacked the expertise to ask the right questions.

Mr. Khuzami said the agency had addressed all the Madoff issues that didn’t involve additional funding. But “at some point you have to develop the expertise. We’ve done some hiring, but that is threatened now.” One consequence of the proposed appropriation is “to essentially freeze hiring for 2012,” according to the S.E.C. memo.

It’s hard to believe that enforcing the securities laws — most of which long predate the recent Dodd-Frank reforms — would be a partisan issue. Yet it has sparked a fierce ideological clash, with Republicans lining up to criticize the agency and withhold funds. “Republicans are falsely invoking the deficit to effectively repeal Dodd-Frank,” Representative Barney Frank, Democrat of Massachusetts, said. “These people are ideologues.” My requests for comment to two vocal critics of the S.E.C. in Congress —Representatives Spencer Bachus, the appropriations committee chairman from Alabama, and Scott Garrett of New Jersey, both Republicans — went unanswered.

Given the magnitude of the S.E.C.’s task, Congress could make Wall Street firms pay more and not less to police the mess they helped create. A government that wants to hold wrongdoers’ feet to the fire and prevent future abuses could finance an S.E.C. enforcement surge analogous to the military’s strategy in Iraq and Afghanistan. Congress could fully finance the S.E.C.’s requested $1.4 billion — and add another $100 million for technology spending. The $1.5 billion would be paid entirely through fees. Financing the S.E.C. adds nothing to the federal deficit and, on the contrary, will help reduce it. It is an investment that would most likely generate increased fines and penalties that could be returned to defrauded investors and taxpayers.

“People say we aren’t charging enough individuals,” Mr. Khuzami said. “But we have a strong enforcement record. We aren’t acting recklessly, or operating in the gray areas, but rather bringing cases involving real frauds and misconduct and returning funds to victims. We need funding to continue those efforts, efforts that even Milton Friedman” — the noted free market economist — “conceded were an appropriate role for government.”

    As a Watchdog Starves, Wall Street Is Tossed a Bone, NYT, 15.7.2011,
    http://www.nytimes.com/2011/07/16/business/budget-cuts-to-sec-reduce-its-effectiveness.html

JPMorgan quarterly profit rises, loan book grows

NEW YORK | Thu Jul 14, 2011
10:00am EDT
Reuters
By David Henry

NEW YORK (Reuters) - JPMorgan Chase & Co posted a higher-than-expected jump in second-quarter profit as it wrote off fewer bad mortgages and credit card loans.

The second-largest U.S. bank managed to make more loans during the quarter than in the first quarter and added staff, signs that bright spots are emerging in a sector long plagued by credit losses and questions about future profitability. The bank's shares rose in premarket trading.

"For this company to put up these kinds of numbers, given all the pressures the industry is facing, is phenomenal," said Richard Bove, a bank analyst with Rochdale Securities.

JPMorgan is the first major U.S. bank to post quarterly results, and its performance gives hints about how other banks fared in the period.

While there was positive news from the bank, it still faces headwinds. It said it still expects big expenses in mortgages as the housing crisis continues to saddle banks with high costs. Foreclosures could take another 12 to 18 months to start declining, Chief Executive Jamie Dimon said on a conference call with reporters.

Bond trading revenue, long a profit engine for many banks on Wall Street, declined from the first quarter.

And although loans at the end of the second quarter rose from the first quarter, the average loans outstanding declined, signaling that even if loan demand is improving, growth is uneven.

JPMorgan earned $5.43 billion, or $1.27 a share, in the second quarter, beating the average Wall Street estimate by 6 cents a share, according to Thomson Reuters I/B/E/S.

The results were up from year-earlier earnings of $4.8 billion, or $1.09 a share.

JPMorgan's loan book grew to $689.74 billion at the end of the quarter from $686 billion at the end of March as increased business lending offset a 2 percent decline in consumer lending. Compared with a year earlier, total loans were down 1 percent. Average loans fell to $686.11 billion from $688.13 billion in the first quarter.

Shrinking loan books and low interest rates since 2008 have made it difficult for banks to post profits, or increase them. A large part of earnings over the past year has come from reversing allowances the banks made earlier for bad loans.

Many analysts are hoping banks will start to post loan growth in the coming quarters, which would be a sign of sustainable increases in profits.

JPMorgan reduced the expense it recorded for credit costs to $1.81 billion in the second quarter from $3.36 billion a year earlier. However, that was up from $1.17 billion in the 2011 first quarter.

JPMorgan shares were up 2.5 percent to $40.60 in premarket trading Thursday following the results. Stock futures edged higher as the bank's strong earnings offset concern about the U.S. budget deficit talks and Europe's sovereign debt crisis.

TAKING SOME TIME WITH MORTGAGES

Dimon said in the earnings announcement that mortgage costs were down slightly, but cautioned that the housing market was still working through difficulties.

"Unfortunately, it will take some time to resolve these issues and it is possible we will incur additional costs along the way," he added.

In a sign of the lingering difficulties that JPMorgan and other banks are facing with home loans, JPMorgan said it expects to have to repurchase $3.6 billion of mortgages that it packaged into bonds. These repurchases are usually because the bank failed to properly collect payments on the mortgages, or should never have sold them to investors in the first place.

JPMorgan's investment banking profit fell 13 percent from the first quarter but rose 49 percent from the 2010 second quarter. Fixed income trading revenue fell 18 percent from the first quarter to $4.28 billion.

JPMorgan's investment bank last year went a long way toward making up for the drag of mortgages on the company. The bankers generated 38 percent of the bank's profits in 2010, about 10 points higher than their target contribution. The unit has been allocated nearly 40 percent of the capital JPMorgan assigns to its six business units.

JPMorgan's pre-provision profit, a measure of how much the bank earns before setting aside money for credit losses, fell 5 percent from a year earlier to $9.94 billion in the second quarter. The change was an improvement from a 20 percent drop in the same measure in the first quarter.

In the latest quarter the bank did not have to pay a UK tax on bonuses. In the year-earlier period, that tax reduced profits by $550 million, or 14 cents a share.

 

(Reporting by David Henry; editing by John Wallace)

    JPMorgan quarterly profit rises, loan book grows, R, 14.7.2011,
    http://www.reuters.com/article/2011/07/14/us-jpmorgan-idUSTRE76D0GT20110714

As Plastic Reigns, the Treasury Slows Its Printing Presses

July 6, 2011
The New York Times
By BINYAMIN APPELBAUM

WASHINGTON — The number of dollar bills rolling off the great government presses here and in Fort Worth fell to a modern low last year. Production of $5 bills also dropped to the lowest level in 30 years. And for the first time in that period, the Treasury Department did not print any $10 bills.

The meaning seems clear. The future is here. Cash is in decline.

You can’t use it for online purchases, nor on many airplanes to buy snacks or duty-free goods. Last year, 36 percent of taxi fares in New York were paid with plastic. At Commerce, a restaurant in the West Village in Manhattan, the bar menus read, “Credit cards only. No cash please. Thank you.”

There is no definitive data on all of this. Cash transactions are notoriously hard to track, in part because people use cash when they do not want to be tracked. But a simple ratio is illuminating. In 1970, at the dawn of plastic payment, the value of United States currency in domestic circulation equaled about 5 percent of the nation’s economic activity. Last year, the value of currency in domestic circulation equaled about 2.5 percent of economic activity.

“This morning I bought a gallon of milk for $2.50 at a Mobil station, and I paid with my credit card,” said Tony Zazula, co-owner of Commerce restaurant, who spoke with a reporter while traveling in upstate New York. “I do carry a little cash, but only for gratuities.”

It is easy to look down the slope of this trend and predict the end of paper currency. Easy, but probably wrong. Most Americans prefer to use cash at least some of the time, and even those who do not, like Mr. Zazula, grudgingly concede they cannot live without it.

Currency remains the best available technology for paying baby sitters and tipping bellhops. Many small businesses — estimates range from one-third to half — won’t accept plastic. And criminals prefer cash. Whitey Bulger, the Boston gangster who lived in Santa Monica for 15 years, paid his rent in cash, and stashed thousands of dollars in his apartment walls.

Indeed, cash remains so pervasive, and the pace of change so slow, that Ron Shevlin, an analyst with the Boston research firm Aite Group, recently calculated that Americans would still be using paper currency in 200 years.

“Cash works for us,” Mr. Shevlin said. “The downward trend is clear, but change advocates always overestimate how quickly these things will happen.”

Production of paper currency is declining much more quickly than actual currency use because the bills are lasting longer. Thanks to technological advances, the average dollar bill now circulates for 40 months, up from 18 months two decades ago, according to Federal Reserve estimates.

Banks regularly send stacks of old notes to the Fed, which replaces the damaged ones. Until recently, notes were simply stacked facedown and destroyed, as were dog-eared notes, because the Fed’s scanning equipment could not distinguish between creases and tears. Now it can. In 1989, the Fed replaced 46 percent of returned dollar bills. Last year it replaced 21 percent. The rest of the notes were returned to circulation where they may lead longer lives because they are being used less often.

The futurists who have long predicted the end of paper money also underestimated the rise of the $100 bill as one of America’s most popular exports.

For two decades, since the fall of the Soviet Union, demand has exploded for the $100 bill, which is hoarded like gold in unstable places. Last year Treasury printed more $100 bills than dollar bills for the first time. There are now more than seven billion pictures of Benjamin Franklin in circulation — and the Federal Reserve’s best guess is that two-thirds are held by foreigners. American soldiers searching one of Saddam Hussein’s palaces in 2003 found about $650 million in fresh $100 bills.

This is very profitable for the United States. Currency is printed by the Treasury and issued by the Federal Reserve. The central bank pays the Treasury for the cost of production — about 10 cents a note — then exchanges the notes at face value for securities that pay interest. The more money it issues, the more interest it earns. And each year the Fed returns to the Treasury a windfall called a seigniorage payment, which last year exceeded $20 billion.

To meet foreign demand, the Fed has licensed banks to operate currency distribution warehouses in London, Frankfurt, Singapore and other financial centers.

In March, largely because of the boom in $100 notes, the value of all American notes in circulation topped $1 trillion for the first time.

In the United States, research suggests that the spread of electronic payment technologies is steadily reducing the share of payments made in cash. Drivers use E-Z Pass at toll plazas for roads and bridges. Commuters swipe stored-value cards at turnstiles. Christmas stockings are stuffed with gift cards.

Mr. Zazula, the restaurateur, made his decision in 2009, inspired by a flight on American Airlines, which had just introduced a no-cash policy. He said that 85 percent of his customers already paid with credit cards, and taking cash to and from the bank was a nuisance and security risk.

Two years later, Mr. Zazula said he had no regrets.

“You still have some people that are outraged that we won’t accept cash,” he said, “but most of it is a show because they end up having a credit card.”

But Commerce remains a rarity. Experts on payments cannot name another no-cash restaurant. Snap, a cafe in the Georgetown neighborhood of Washington, rejected cash in 2006, then reversed the policy a few years later.

Businesses are not required to take cash. The famous phrase “legal tender for all debts” means that lenders — and only lenders — are required to accept the bills. But most merchants don’t see the point in frustrating customers.

“It’s a rarity for a retailer of any size to go cash only, and it’s a rarity to decline to accept cash at all,” said Brian Dodge of the Retail Industry Leaders Association, a trade group.

Even the financial industry, which has promoted the spread of electronic payments, has moved away from grand predictions.

“There’s always going to be some people, for good or nefarious reasons, who want to use cash,” said Doug Johnson, vice president for risk management policy at the American Bankers Association. “I’m glad I had it yesterday,” Mr. Johnson said. “I blew out a fan belt on my car, and it’s nice to be able to give the tow driver a twenty.”

    As Plastic Reigns, the Treasury Slows Its Printing Presses, NYT, 6.7.2011,
    http://www.nytimes.com/2011/07/07/business/07currency.html

Preserving Health Coverage for the Poor

July 5, 2011
The New York Times


The poor and disabled people who rely on Medicaid to pay their medical bills could be in grave jeopardy in this sour I’ve-got-mine political climate.

Older Americans, a potent voting bloc, have made clear that they won’t stand for serious changes in Medicare. Medicaid, however, provides health insurance for the most vulnerable, who have far less political clout.

There is no doubt that Medicaid — a joint federal-state program — has to be cut substantially in future decades to help curb federal deficits. For cash-strapped states, program cuts may be necessary right now. But in reducing spending, government needs to ensure any changes will not cause undue harm to millions.

As Medicaid currently works, the federal government sets minimum requirements for eligibility and for services that must be covered; states can expand on services and include more people. The federal government is required to pay from half to three-quarters of the cost, depending on the wealth of a state’s population. In tough economic times, Medicaid enrollments typically soar as government revenues shrink, adding budget woes.

House Republicans led by Paul Ryan want to turn Medicaid into a federal block grant program that would grow slowly and shift more costs to states and patients. Their plan would save $771 billion over a decade. Mr. Ryan also wants to repeal a big expansion of Medicaid required by the health care reforms. All told, he would cut $1.4 trillion over 10 years — roughly a third of the more than $4 trillion in projected federal spending in that period.

President Obama, who would retain the Medicaid expansion, has proposed a cut of $100 billion, less than 2.5 percent of projected federal spending, which would be much more manageable, though a lot will depend on how it is carried out. The great danger in proposing $100 billion in cuts at the start is that Republicans will take that as an opening bid that can be negotiated upward, toward the unreasonable Ryan-level cuts the House has already approved.

The best route to savings — already embodied in the reform law — is to make the health care system more efficient over all so that costs are reduced for Medicaid, Medicare and private insurers as well. Various pilot programs to reduce costs might be speeded up, and a greater effort could be made to rein in malpractice costs.

Congressional Democrats and advocates for the poor are most worried that the administration will use a new “blended rate” for federal matching funds — which would replace a patchwork of matching formulas for poor people and children with a single rate for each state — as a way to lower the federal contribution. This could lead some states to reduce the benefits they offer, seek waivers to cut people from the rolls, or reduce their already low payments to hospitals and other providers.

The deficit-reduction push could also threaten the health care reform law’s aim to have states cover more people under Medicaid starting in 2014 with the help of greatly enhanced federal matching funds. President Obama might be tempted to reduce higher federal contribution rates as part of his $100 billion savings. He must be careful not to trade away his goal of near-universal coverage to burnish his credentials as a deficit-cutter.

    Preserving Health Coverage for the Poor, NYT, 5.7.2011
    http://www.nytimes.com/2011/07/06/opinion/06wed1.html

More Folly in the Debt Limit Talks

July 4, 2011
The New York Times


Congressional Republicans have opened a new front in the deficit wars. In addition to demanding trillions of dollars in spending cuts in exchange for raising the nation’s debt limit, they are now vowing not to act without first holding votes in each chamber on a balanced budget amendment to the Constitution.

The ploy is more posturing on an issue that has already seen too much grandstanding. But it is posturing with a dangerous purpose: to further distort the terms of the budget fight, and in the process, to entrench the Republicans’ no-new-taxes-ever stance.

It won’t be enough for Democrats to merely defeat the amendment when it comes up for a vote. If there is to be any sensible deal to raise the debt limit, they also need to rebut the amendment’s false and dangerous premises — not an easy task given the idea’s populist appeal.

What could be more prudent than balancing the books every year? In fact, forcibly balancing the federal budget each year would be like telling families they cannot take out a mortgage or a car loan, or do any other borrowing, no matter how sensible the purchase or how creditworthy they may be.

Worse, the balanced budget amendment that Republicans put on the table is far more extreme than just requiring the government to spend no more than it takes in each year in taxes.

The government would be forbidden from borrowing to finance any spending, unless a supermajority agreed to the borrowing. In addition to mandating a yearly balance, both the House and Senate versions would cap the level of federal spending at 18 percent of gross domestic product.

That would amount to a permanent limit on the size of government — at a level last seen in the 1960s, before Medicare and Medicaid, before major environmental legislation like the Clean Water Act, and long before the baby-boom generation was facing retirement. The spending cuts implied by such a cap are so draconian that even the budget recently passed by House Republicans — and condemned by the public for its gutting of Medicare — would not be tough enough.

Under the proposed amendments, the spending cap would apply even if the government collected enough in taxes to spend above the limit, unless two-thirds of lawmakers voted to raise the cap. More likely, antitax lawmakers would vote to disburse the money via tax cuts. Once enacted, tax cuts would be virtually irreversible, since a two-thirds vote in both houses would be required to raise any new tax revenue. It isn’t easy to change the Constitution. First, two-thirds of both the Senate and House must approve an amendment, and then at least 38 states must ratify the change.

But expect to hear a lot about the idea in the days ahead and in the 2012 political campaign, with Republicans eagerly attacking Democrats who sensibly voted no.

Democrats, undeniably, have a tougher argument to make. A fair and sustainable budget deal will require politically unpopular choices on programs to cut and taxes to raise. Americans deserve to hear the truth: There is no shortcut, no matter what the Republicans claim. Nor is their urgency to impose deep spending cuts now, while the economy is weak, as Republicans are insisting.

What is needed is enactment of a thoughtful deficit-reduction package, to be implemented as the economy recovers. If politicians respect the voters enough to tell them the truth, the voters may reward them at the polls.

    More Folly in the Debt Limit Talks, NYT, 4.7.2011,
    http://www.nytimes.com/2011/07/05/opinion/05tue1.html

Vulnerable Feel the Pinch of Minn. Gov't Shutdown

July 2, 2011
The New York Times
By THE ASSOCIATED PRESS

ST. PAUL, Minn. (AP) — Minnesota lawmakers headed home for a long holiday weekend, bracing for likely public anger as some of them meet constituents for the first time since a failure to reach a budget agreement forced a government shutdown.

The reception they get starting Saturday, and during 4th of July parades around the state, could go a long way toward determining how long the shutdown lasts. Democratic Gov. Mark Dayton and GOP leaders had no plans for new talks before Tuesday, five full days after the shutdown started.

Minnesota's second shutdown in six years was striking much deeper than a partial 2005 shutdown. It took state parks and rest stops off line, closed horse tracks and made it impossible to get a fishing license. But it also was hitting the state's most vulnerable, ending reading services for the blind, silencing a help line for the elderly and stopping child care subsidies for the poor.

The shutdown was rippling into the lives of people like Sonya Mills, a 39-year-old mother of eight facing the loss of about $3,600 a month in state child care subsidies. Until the government closure, Mills had been focused on recovering from a May 22 tornado that displaced her from a rented home in Minneapolis. Now she's adding a new problem to her list.

"It just starts to have a snowball effect. It's like you are still in the wind of the tornado," said Mills, who works at a temp agency and was allowed to take time off as she gets back on her feet — but after the shutdown also has to care for her six youngest children, ages 3 through 14, because she lost state funding for their daycare and other programs.

Minnesota is the only state to have its government shut down this year, even though nearly all states have severe budget problems and some have divided governments. Dayton was determined to raise taxes on the top earners to help erase a $5 billion deficit, while the Republican Legislature refused to go along with that — or any new spending above the amount the state is projected to collect.

Here, as in 21 other states, there's no way to keep government operating past the end of a budget period without legislative action. Even so, only four other states — Michigan, New Jersey, Pennsylvania and Tennessee — have had shutdowns in the past decade, some lasting mere hours.

The shutdown halted non-emergency road construction and closed the state zoo and Capitol. More than 40 state boards and agencies went dark, though critical functions such as state troopers, prison guards, the courts and disaster responses will continue.

On Friday, former state Supreme Court Chief Justice Kathleen Blatz started the court-appointed job of sifting through appeals from groups arguing in favor of continued government funding for particular programs.

Nonprofit groups helping the state's poor have already been hit hard. Some closed their doors immediately, while others continued services, at least for now. Some were looking at layoffs, said Sarah Caruso, president and CEO of Greater Twin Cities United Way, which funds 400 programs serving poor people. She said the impact will depend on how long the shutdown lasts.

"If we go well beyond that two-week window, I think then we will start seeing much more significant closure of programs to support the vulnerable, and the long-term financial viability of some of these agencies will really be called into question," she said.

So far, 30 agencies had accepted United Way's offer of advances on their grants, seeking cash to stay up and running.

The stoppage suspended some programs for the blind and visually impaired, including a radio reading service run by volunteers and training for blind people who are learning to walk with a cane. Bonnie Elsey, director of the state's Workforce Development Division, said a vocational rehabilitation program that places people with disabilities in jobs or school was halted.

Minnesota food pantries scurried to make sure they would still get 700,000 pounds of food — about 30 percent of their total volume — in the next two months through a federal program. Nearly a million pounds already in warehouses were also put on hold by the shutdown. Colleen Moriarty, executive director of Hunger Solutions Minnesota, said the federal program's operation depended on a single state employee working in a data management system. Later Friday, Moriarty said the employee had been called back to work.

The shutdown also idled a state hotline set up to help seniors and their caregivers find services, housing options, help with Medicaid and Medicare insurance and more. A call to the 800 number Friday got a recording saying callers could leave a message.

The political stalemate meant instant layoffs for 22,000 state workers, including Paul Bissen, a road and bridge inspector for more than 26 years. Bissen said he cut back on spending last month. He figured he could go a couple of months without worrying, but on the first day of the shutdown, he said it looked like his washing machine had died — adding another expense.

"I want to work. I've got road construction projects to build, to try to make them safe and make them smooth so people can get back to forth to their work," Bissen said.

Fearful of voter anger, both parties blasted each other for Minnesota's second shutdown in six years.

GOP Chairman Tony Sutton called Dayton a "piece of work" and accused him of inflicting "maximum pain" for political reasons.

Democratic-Farmer-Labor Party Chairman Ken Martin laid the blame on Republicans, saying they drove the state to a shutdown to protect millionaires from tax increases sought by Dayton.

The Alliance for a Better Minnesota, a left-leaning group supportive of Dayton, plans to run weekend radio ads in three popular vacation areas blaming Republicans for the impact of the shutdown, including closed state parks. The group also debuted a "shutdown shame" website.

The shutdown has been a slow-motion disaster, with a new Democratic governor and new Republican legislative majorities at odds for months over how to eliminate the state budget deficit. Dayton has been determined to raise taxes on high-earners to close the deficit, while Republicans insisted that it be closed only by cuts to state spending.

Even after the shutdown looked like a certainty, Dayton and Republicans did not soften their conflicting principles. Dayton said he campaigned and was elected on a promise not to make spending cuts to a level he called "draconian."

    Vulnerable Feel the Pinch of Minn. Gov't Shutdown, NYT, 2.7.2011,
    http://www.nytimes.com/aponline/2011/07/02/us/AP-US-Minnesota-Government-Shutdown.html

IMF cuts U.S. growth forecast, warns of crisis

SAO PAULO | Fri Jun 17, 2011
10:41am EDT
Reuters
By Luciana Lopez

SAO PAULO (Reuters) - The International Monetary Fund cut its forecast for U.S. economic growth on Friday and warned Washington and debt-ridden European countries that they are "playing with fire" unless they take immediate steps to reduce their budget deficits.

The IMF, in its regular assessment of global economic prospects, said bigger threats to growth had emerged since its previous report in April, citing the euro zone debt crisis and signs of overheating in emerging market economies.

The Washington-based global lender forecast that U.S. gross domestic product would grow a tepid 2.5 percent this year and 2.7 percent in 2012. In its forecast just two months ago, it had expected 2.8 percent and 2.9 percent growth, respectively.

Overall, the IMF slightly lowered its 2011 global growth forecast to 4.3 percent, down from 4.4 percent in April. Its forecast for 2012 growth remained unchanged at 4.5 percent.

The IMF said it was slightly more optimistic about the euro area's growth prospects this year, but a lack of political leadership in dealing with Europe's debt crisis and the wrangling over budget in the United States could create major financial volatility in coming months.

"You cannot afford to have a world economy where these important decisions are postponed because you're really playing with fire," said Jose Vinals, director of the IMF's monetary and capital markets department.

"We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis," he said in an interview in Sao Paulo, where the updates to the IMF's World Economic Outlook and Global Financial Stability Report were published.

In the United States, the political problems include a fight over raising the legal ceiling on the nation's debt. A first-ever U.S. default would roil markets and Fitch Ratings said even a "technical" default would jeopardize the country's AAA rating.

Olivier Blanchard, the fund's chief economist, told reporters that while the risk of a double-dip recession in the United States is small, growth is unlikely to be fast enough to quickly bring down the 9.1 percent U.S. unemployment rate.

The IMF said the outlook for the U.S. budget deficit this year has improved somewhat due to higher-than-expected revenues. In a separate report, it forecast a deficit of 9.9 percent of GDP -- still high, but better than the deficit of 10.8 percent of GDP it foresaw in April.

 

MARKETS INCREASINGLY ON EDGE

Despite the relative improvement, Blanchard said financial markets were becoming increasingly worried by the lack of a "convincing" plan in the United States and other countries to reduce their budget deficits.

"If you make a list of the countries in the world that have the biggest homework in restoring their public finances to a reasonable situation in terms of debt levels, you find four countries: Greece, Ireland, Japan and the United States," Vinals said.

Greece has edged closer to default as euro zone officials disagree on a planned second aid package for the indebted country. With strikes and protests around the country, political turmoil has added to uncertainty, stoking fears that the government will not be able to tighten its belt enough to reduce crippling deficits.

Fears of contagion in the euro zone have driven global stock markets lower in recent sessions.

The IMF raised its growth view for the euro area in 2011 to 2.0 percent from 1.6 percent. For 2012, the IMF saw growth at 1.7 percent, nearly stable from its previous 1.8 percent.

It raised its forecast for Germany, the powerhouse of the euro zone, to 3.2 percent from 2.5 percent, with growth moderating to 2 percent in 2012.

Forecasts for large emerging markets remained stable or slipped. While China's GDP view stayed at 9.6 percent this year, the IMF lowered its forecast for Brazil to 4.1 percent from 4.5 percent in April.

Those countries, along with Russia, India and South Africa, make up the fast-growing BRICS, a group of emerging economies whose brisk expansion has outstripped that of developed markets recently.

Robust economic growth and rising inflation has caused emerging economies to tighten monetary policy with higher interest rates and reserve requirements, even as many developed nations keep policy ultra-loose to try to boost anemic growth.

The IMF warned that many emerging markets still need more tightening. In China, for example, the high inflation rate means negative real interest rates.

Some emerging markets have been reluctant to tighten too far, fearful of derailing growth or attracting speculative flows that could pressure currencies ever higher.

 

(Editing by Brian Winter and Leslie Adler)

    IMF cuts U.S. growth forecast, warns of crisis, R, 17.6.2011,
    http://www.reuters.com/article/2011/06/17/us-imf-idUSTRE75G2VD20110617

Nearly a Year After Dodd-Frank

June 13, 2011
The New York Times

Without strong leaders at the top of the nation’s financial regulatory agencies, the Dodd-Frank financial reform doesn’t have a chance. Whether it is protecting consumers against abusive lending, reforming the mortgage market or reining in too-big-to-fail banks, all require tough and experienced regulators.

Too many of these jobs are vacant, or soon will be, or are filled by caretakers. So it was a relief last week when President Obama said he had decided on a well-qualified nominee to be the new chairman for the Federal Deposit Insurance Corporation and would make other nominations soon. The White House needs to move quickly and be prepared to fight.

Much of the blame for the delays lies with Republican lawmakers who have consistently opposed qualified candidates. In the case of the new Consumer Financial Protection Bureau, they have vowed to obstruct any nominee unless Democrats first agree to gut the agency’s powers. Until now, the administration hasn’t pushed back.

Mr. Obama’s choice to lead the F.D.I.C., Martin Gruenberg, is a solid one. Mr. Gruenberg has earned widespread respect for his work as vice chairman of the F.D.I.C. since 2005. His confirmation could be eased by the fact that he is well known to senators from his long previous tenure on the staff of the banking committee.

Thomas Curry, reported to be under consideration to lead the Office of the Comptroller of the Currency, is also a strong choice. A lawyer, former state bank regulator and current F.D.I.C. board member, he has a firm grasp of federal and state regulation. That is a crucial attribute for running the historically antiregulatory O.C.C. If nominated, Mr. Curry’s confirmation could be smoothed by the fact that he is a registered independent who was chosen for the F.D.I.C. by President George W. Bush.

It remains to be seen whether Republicans will just-say-no to even uncontroversial candidates like Mr. Gruenberg and Mr. Curry. Any potential fight pales compared to the one under way over the new Consumer Financial Protection Bureau where, as ever, the Republicans are more interested in protecting bankers than consumers.

As their price for confirming a director, they want to vastly expand the power of bank regulators to veto the bureau’s decisions and put controls on the bureau’s financing that will make it more vulnerable to political pressure. They have also made clear their particular disdain for Elizabeth Warren, the Harvard law professor and prominent reformer who has been working as a presidential adviser to set up the bureau.

The White House has recently floated another possible nominee, Raj Date, a former banker who is now working with Ms. Warren. Mr. Date has an impressive résumé, but not nearly as impressive as Ms. Warren’s.

Why go with a compromise candidate when Republicans have vowed to block any nominee? Mr. Obama and Senate Democrats should back Ms. Warren and expose to American voters just exactly whose interests the Republicans put first.

Mr. Obama has been criticized for not doing battle for another excellent nominee, Peter Diamond, a Nobel Prize laureate in economics who withdrew his name after Republicans vowed to block him from the Federal Reserve Board of Governors. They said his background in labor economics made him unqualified, even though full employment is one of the Fed’s mandates. Mr. Diamond clearly could have served ably, but Republicans were more interested in obstruction. It’s past time for President Obama to take off the gloves.

    Nearly a Year After Dodd-Frank, NYT, 13.6.2011,
    http://www.nytimes.com/2011/06/14/opinion/14tue1.html

Analysis: Economy shadows Obama 2012 re-election hopes

WASHINGTON | Wed Jun 1, 2011
5:21pm EDT
Reuters
By Patricia Zengerle

WASHINGTON (Reuters) - Disappointing news on the economy -- the issue most important to American voters -- has cast a cloud over President Barack Obama's hopes of re-election next year.

Polls show the president favored to win the election, with his approval ratings buoyed by foreign policy successes, most notably the killing of Osama bin Laden.

Obama has also benefited from the Republicans' failure so far to assemble a field of strong presidential candidates, which has given him a head start on building his campaign apparatus and raising millions of dollars to pay for it.

But the economy remains the major downside for Obama's 2012 prospects, with U.S. economic growth at a tepid 1.8 percent annual rate in the first three months of 2011.

Economists do not foresee a sharp decline in the country's financial fortunes before the November 2012 election, but a double-dip in home prices, the impact of high gasoline prices on consumers and a slowdown in regional manufacturing are raising concerns the current soft patch could become protracted.

"The economy is always part and parcel of people's general psyche as they walk into the voting booth," said Neera Tanden, who was director of domestic policy for Obama's 2008 campaign against Republican challenger John McCain.

Even an economic upturn, if it is not strong, might not be enough to boost the Democrats, said Tanden, who is now with the Center for American Progress in Washington.

"What's tricky about a recovering economy -- if we're in a time when we don't have particularly high growth rates but we have good trends -- that's more of a jump ball in terms of how people are approaching the option."

Private-sector payroll growth slowed sharply in May, falling to the lowest level in eight months.

The closely watched monthly jobs report on Friday is likely to show unemployment declined slightly to 8.9 percent in May from 9.0 percent in April.

"If economic growth slows, stays slow and unemployment is between 8.5 and 9 percent next fall, I'd hate to be running for re-election under those circumstances," said William Galston of the Brookings Institution in Washington.

"Candidates and campaigns make a difference. But the candidates and campaigns are structures erected on top of the fundamentals, and next year you don't require a very clear crystal ball to see that the economic fundamentals will be the most important fundamentals," he said.

Economists say the window of opportunity for Obama to significantly bring down the 9 percent unemployment rate is narrowing. They say the economy must grow by at least 3 percent each quarter to lower the jobless rate and the first quarter's tepid growth rate is expected to be followed by a 2.5 percent to 3.3 percent rate in the second quarter.

WORRIES OVER DEFICIT

Voters also are concerned about the U.S. budget deficit, which is expected to hit $1.4 trillion this year and stay in the trillion-dollar range for several years. Experts do not expect an agreement from Washington on a long-term, comprehensive debt-reduction strategy before November 2012.

Vice President Joe Biden is leading talks with lawmakers over spending cuts that could be folded into an agreement to raise the debt ceiling, the legal U.S. borrowing limit, before August 2, when Treasury Secretary Tim Geithner has said the government will run out of money to pay its bills.

"The overarching theme is going to be the economy and probably linked to that is deficit reduction," Ipsos pollster Cliff Young said.

However, the deficit issue could cut both ways.

"The Republicans have a strong brand on budget cutting, and voters are worried that it is going to go too far," said Ryan McConaghy, director of the economic program at the centrist Third Way think tank. "They are concerned the Republicans will slash and burn the budget, but they are not quite sold that Democrats will go far enough."

A Democrat won what had been a Republican-held seat in the U.S. House of Representatives in a special election in New York State last week, largely due to voter concerns about a Republican plan to scale back the government's Medicare health insurance for the elderly.

Republicans in Congress who swept to power in 2010 on promises that they would steer the economy better than Obama and other Democrats have done since he took office in 2009 could also suffer if the financial picture is weak.

"The challenge for Republicans is that people believe that they actually control part of the government now, and they no longer have the luxury of the free ride that they had in the first two years," Tanden said.

However, voters typically hold the president more accountable for the health of the economy, which means that Obama will face more pressure to show that his policies can boost employment. And Obama's fortunes will set the tone for his party.

(Additional reporting by Lucia Mutikani; Editing by Alistair Bell and Paul Simao)

    Analysis: Economy shadows Obama 2012 re-election hopes, R, 1.6.2011,
    http://www.reuters.com/article/2011/06/01/us-usa-campaign-obama-idUSTRE7505PU20110601

Employment Data May Be the Key to the President’s Job

June 1, 2011
The New York Times
By BINYAMIN APPELBAUM

WASHINGTON — No American president since Franklin Delano Roosevelt has won a second term in office when the unemployment rate on Election Day topped 7.2 percent.

Seventeen months before the next election, it is increasingly clear that President Obama must defy that trend to keep his job.

Roughly 9 percent of Americans who want to go to work cannot find an employer. Companies are firing fewer people, but hiring remains anemic. And the vast majority of economic forecasters, including the president’s own advisers, predict only modest progress by November 2012.

The latest job numbers, due Friday, are expected to provide new cause for concern. Other indicators suggest the pace of growth is flagging. Weak manufacturing data, a gloomy reading on jobs in advance of Friday’s report and a drop in auto sales led the markets to their worst close since August, and those declines carried over into Asia Thursday.

But the grim reality of widespread unemployment is drawing little response from Washington. The Federal Reserve says it is all but tapped out. There is even less reason to expect Congressional action. Both Democrats and Republicans see clear steps to create jobs, but they are trying to walk in opposite directions and are making little progress.

Republicans have set the terms of debate by pressing for large cuts in federal spending, which they say will encourage private investment. Democrats have found themselves battling to minimize and postpone such cuts, which they fear will cause new job losses.

House Republicans told the president that they would not support new spending to spur growth during a meeting at the White House on Wednesday.

“The discussion really focused on the philosophical difference on whether Washington should continue to pump money into the economy or should we provide an incentive for entrepreneurs and small businesses to grow,” said Eric Cantor, the majority leader. “The president talked about a need for us to continue to quote-unquote invest from Washington’s standpoint, and for a lot of us that’s code for more Washington spending, something that we can’t afford right now.”

The White House, its possibilities constrained by the gridlock, has offered no new grand plans. After agreeing to extend the Bush-era tax cuts and reducing the payroll tax last December, the administration has focused on smaller ideas, like streamlining corporate taxation and increasing American exports to Asia and Latin America.

“It’s a very tough predicament,” said Jared Bernstein, who until April was economic policy adviser to Vice President Joseph R. Biden Jr. “Is there any political appetite for something that would resemble another large Keynesian stimulus? Obviously no. You can say that’s what we should do and you’d probably be right, but that’s pretty academic.”

More than 13.7 million Americans were unable to find work in April; most had been seeking jobs for months. Millions more have stopped trying. Their inability to earn money is a personal catastrophe; studies show that the chance of finding new work slips away with time. It is also a strain on their families, charities and public support programs.

The Federal Reserve, the nation’s central bank, has the means and the mandate to reduce unemployment by pumping money into the economy.

As financial markets nearly collapsed in 2008, the Fed unleashed a series of unprecedented programs, first to arrest the crisis and then to promote recovery, investing more than $2 trillion. The final installment, a $600 billion bond-buying program, ends in June.

Now, however, the leaders of the central bank say they are reluctant to do more. The Fed’s chairman, Ben S. Bernanke, said in April that more money might not increase growth, but there was a growing risk that it would accelerate inflation.

Congress charged the Fed in 1978 with minimizing unemployment and inflation. Those goals, however, are often in conflict, and the Fed has made clear that inflation is its priority. Fed officials argue in part that maintaining slow, steady inflation forms a basis for enduring economic expansion.

Eric S. Rosengren, president of the Federal Reserve Bank of Boston, said in a recent interview that the Fed had reached the limits of responsible policy.

“We’ve done things that are quite unusual. We’re using tools that we have less experience with,” Mr. Rosengren said. “Most of the criticism has been that we’re being too accommodative. That is a concern that we have to put some weight on.”

Heather Boushey, senior economist at the Center for American Progress, a liberal research group, said that the Fed was being too cautious about inflation and too callous about joblessness.

“We have a massive unemployment problem in this country right now. It is festering. It’s not good for our economy. It’s not good for our society. And we have the tools to fix it,” she said. “We certainly need to be concerned about what happens down the road, but shouldn’t we first be concerned about getting the U.S. economy back on track?”

Ten presidents have stood for re-election since Mr. Roosevelt. In four instances the unemployment rate stood above 6 percent on Election Day. Three presidents lost: Gerald Ford, Jimmy Carter and George H. W. Bush. But Ronald Reagan won, despite 7.2 percent unemployment in November 1984, because the rate was falling and voters decided he was fixing the problem.

The Obama administration hopes to tell a similar story.

“We have undertaken some of the biggest policy actions to create jobs that any administration has ever done,” said Jason Furman, deputy director of the National Economic Council, which advises the president on economic policy. Mr. Furman said that the economy was still benefiting from last year’s tax cuts, and from the dollop of federal stimulus spending that Democrats pushed through in 2009.

The White House is pursuing a number of smaller initiatives, like persuading China to buy more American goods and services; increasing business confidence in the health of the economy, to spur new investment; and striking a deal with Republicans to overhaul corporate taxation.

It is also pushing to renew federal financing for transportation projects with an important twist: The six-year plan would be front-loaded so that $50 billion would be spent in the first year.

But Christina Romer, who headed the president’s Council of Economic Advisers until fall 2010, said in a recent speech at Washington University in St. Louis that no part of the government was addressing unemployment with sufficient urgency or hope.

“Urgency, because unemployment is a tragedy that should not be tolerated a minute longer,” she said. “And hope, because prudent and possible policies could make a crucial difference.”

Jackie Calmes contributed reporting.

    Employment Data May Be the Key to the President’s Job, NYT, 1.6.2011,
    http://www.nytimes.com/2011/06/02/business/economy/02jobs.html