GOP, Democrats seem to harden stance on debt

By JIM KUHNHENN
Associated Press

(AP:WASHINGTON) President Barack Obama plunged into deadlocked negotiations to cut government deficits and raise the nation's debt limit Monday, and the White House expressed confidence a " significant" deal with Republicans could be reached. But both sides only seemed to harden their positions as the day wore on, the administration insisting on higher taxes as part of the package but Republican leaders flatly rejecting the idea.

Obama and Vice President Joe Biden met with Senate Majority Leader Harry Reid, D-Nev., for about 30 minutes at the White House, and then met with Senate Republican leader Mitch McConnell of Kentucky for about an hour in the early evening.

White House spokesman Jay Carney said Obama reported after the morning session that " everyone in the room believes that a significant deal remains possible." But Carney also affirmed that Obama would only go for a deficit-reduction plan that included both spending cuts and increased tax revenue, an approach that Republicans say would never get through Congress.

Said Carney: " It's the only way to get it done if you want to do it right."

Obama and the vice president spent more time with McConnell than they did with Reid, an indication of the differences they still need to bridge. McConnell also was seen speaking with White House Chief of Staff Bill Daley moments before his meeting with Obama and Biden.

" The meeting concluded but they will continue to talk," McConnell spokesman Don Stewart said afterward.

Hours earlier McConnell reaffirmed Republican opposition to more tax hikes in a speech from the Senate floor.

" It's time Washington take the hit," he said, " not the taxpayers."

McConnell said any tax increase or new spending would be counterproductive to economic recovery, and he pointed out that Democrats had been unable to pass tax increases on the wealthy when they controlled both chambers of Congress last year.

" Let's move past tax hikes, talk about what's actually possible, and let's talk about what has and hasn't worked over the past two years," said the Kentucky Republican.

Reid said, " I hope my Republican colleagues will put the economy ahead of politics." Speaking on the Senate floor, he said, " I hope they'll join us to create jobs and set aside their desire to please the tea party and defeat President Obama."

At issue is not just the staggering national debt but a showdown on the federal borrowing limit that carries enormous risks.

Absent an agreement that cuts long-term deficits, Republicans say they will not vote to increase the nation's borrowing, which will exceed its $14.3 trillion limit on Aug. 2. The administration has warned that if Congress does not raise the debt ceiling, it could mean the first U.S. financial default in history and send economic shockwaves around the world.

To meet government obligations, a two-year increase in the debt ceiling would have to be about $2.4 trillion. Republicans are insisting on deficit reduction of a similar amount over 10 years.

So far the financial markets remain unrattled by the impasse, and some say it might take a massive market upheaval to move Congress to pass an increase in the debt ceiling. That's what it took in 2008 for Congress to approve the financial bailout known as the Troubled Asset Relief Program. Politically, raising the debt ceiling is considered a more difficult vote than the bank bailout plan.

Failure to raise the ceiling " would do serious damage," Said Mark Zandi, chief economist at Moody's Analytics whose views are frequently cited by the Obama administration. " It will unhinge the already very fragile collective psyche."

Zandi said a deficit reduction plan that includes some tax increases would be " more credible and more appropriate from an economic perspective."

But he said that if Republicans are being asked to give up their deep-seated opposition to tax increases, then Obama needs to abandon a major campaign promise, such as his demand that the wealthy give up their Bush-era tax cuts.

" The president needs to take a chance himself, and do something that shows he's willing to give up something that's very large to move this forward," Zandi said in an interview.

The president stepped up his personal involvement in negotiations after bipartisan talks led by Biden stalled last week. Republican lawmakers abandoned the negotiations, saying the issues still on the table had to be addressed by the president.

Obama already has met privately with House Speaker John Boehner, R-Ohio, and with House Democrats.

Until Friday, Biden had held a series of meeting over several weeks with bipartisan teams from the House and Senate, focusing on areas where the two sides were amenable to cuts until the dispute over taxes caused Republicans to walk out.

Carney rejected suggestions that Obama should have become more involved earlier. " If you honestly believe that the public is out there wondering why the president wasn't in every one of these meetings, you know, I think that's nuts."

The White House is pushing for some tax increases on the wealthy or the elimination of tax breaks for big companies and wealthy individuals as part of a deficit-cutting plan. During the Biden-led negotiations, Democrats proposed about $400 billion in additional tax revenue, including ending subsidies to oil and gas companies, an idea that has failed previously in the Senate.

The administration also would tax private equity or hedge fund managers at higher income tax rates instead of lower capital gains rates, change the depreciation formula on corporate jets and limit itemized deductions for wealthy taxpayers. It also has called for repealing a tax benefit for an inventory accounting practice used by many manufacturers.

Republicans are demanding huge cuts in government spending. While they are insisting there be no tax increases, they have been willing to consider other forms of revenue, particularly higher user fees.

" Revenues have never been off the table," said Sen. Jon Kyl of Arizona, the Senate's Republican participant in the Biden talks. " There are some user fees that are probably way low compared to when they were originally set."

Obama's budget wants $85 billion in new user fees over 10 years, including raising the airline passenger security fee from a maximum of $5 per one-way trip to $11. Other proposals range from Food and Drug Administration food inspection fees to duck hunting fees.The $85 billion also includes federal auction of parts of the broadcast spectrum and the sale of surplus federal property.

Complicating matters is the congressional schedule. While the Senate is in session, the House is off this week ahead of the July 4 holiday. The House is scheduled to return next week when the Senate will be away. That makes it difficult for leaders in both chambers to find consensus among their respective memberships.

" It will take time, and that is a bit troublesome," Kyl said. " It will take time to both reach the agreement, to put it all together and to debate it on the floor. Nobody wants this to be just parachuted in three days before they vote on it. They want time to take it back to their constituents, talk about it, debate it on the floor."

Carney wouldn't set a deadline for a deal, saying he didn't want to name a " token timetable." He said Obama and Biden would hold additional meetings with congressional lawmakers, though none is scheduled at this point.

Obama and Unemployment

 

One year after US President’ Obama’s Summer of recovery, US jobless rate remains high

Last year, the White House kicked off its “Summer of Recovery” a publicity initiative promoting US President Barack Obama’s promise that more Americans would be going back to work soon.

But 1 yr later, unemployment remains high, at 9.1%, and underemployment, the number of those working part-time but seeking full-time positions, stands at nearly 16%, according to the Bureau of Labor Statistics.

While new home construction increased to an annual rate of 560,000 units, that number falls considerably short of the 1.2 million new houses economists said are required for a sound housing market.

To make matters worse, consumer prices have been rising every month since June last year 25% of homeowners owe more on their mortgages than their homes are worth and gross domestic product (GDP) did not grow last quarter at a rate high enough to generate new jobs.

But despite those grim figures, how much, or how little, is the Obama administration’s performance tied to the economy’s still sluggish performance?

Barry Bosworth, senior fellow at the Brookings Institution and former presidential adviser, said the administration has done nothing “wrong” per se, and has followed the advice of many policy advisers and economists.

Still, the President has underestimated the Country’s economic problems and now displays very little leadership about what to do, he said recently.

Others argue that the President has inherited a basket-case economy and is trying to make the best of a bad situation.

Still, Mr. Bosworth said it has been a mistake to keep pumping up consumption when the main problem lies in investment and exports.

And despite both Democrats’ and Republicans’ contentions that they know what is best for the economy, neither the White House nor Congress have any effective answers, he said.

Greece Default Threat Has Passed

 

Eurozone finance ministers have said they will decide on the “main parameters” of a new international bailout plan by early July

With the current 110 billion bailout insufficient to keep Greece going, European leaders are working on a further package of a similar size including a contribution from private banks which would agree to a “voluntary” rollover of their Greek debt.

Whether such a deal will be enough to stave off problems in the longer term remains uncertain. Many investors and economists believe that even if the austerity package is passed this week, it will merely delay an inevitable restructuring or default.

With the fate of both the existing aid plan and the new package dependent on this week’s vote, major rallies are planned by the protestors who have been occupying Syntagma Square outside the Greek parliament in Athens for the past month.

Public anger has been fuelled by Greece’s worst recession since the 1970s, a youth unemployment rate of more than 40 percent and public finances that have been shattered by a debt equivalent to some 150 percent of gross domestic product.

The powerful public sector union ADEDY and its private sector equivalent GSEE are due to hold a 48-hour strike on June 28 and 29, that will hit public transport, telecoms, the post office and many hospitals.

Many companies, including the main electricity group PPC which is slated for partial privatisation next year, have already started rolling stoppages.

On Monday, protestors hung a huge banner off the Acropolis, the ancient rock outcrop which dominates Athens, proclaiming: “People have the power, they never surrender”.

With financial markets watching the Greek crisis anxiously, Sarkozy told a news conference in Paris that the French authorities had reached an agreement with the banks on a voluntary rollover of maturing bonds.

“We concluded that by stretching out the loans over 30 years, putting (interest rates) at the level of European loans, plus a premium indexed to future Greek growth, that would be a system that each country could find attractive,” he said.

Banking sources confirmed that was part of an outline deal under which banks would reinvest 70 percent of the proceeds when Greek bonds fall due. Of that amount, 50 percent would go into the new 30-year bonds and 20 percent would be reinvested in a zero-coupon guaranteed fund based on high-quality securities.

European Union officials were discussing the French idea with international bankers and the Institute of International Finance (IIF) in Rome on Monday, eurozone sources said, and German banks voiced interest in the “French model”.

Any new financial rescue for Athens, including official lending and private sector participation, depends on the Greek parliament approving this week a five-year austerity plan and legislation to implement structural reforms and privatisations.

Greek Finance Minister Evangelos Venizelos met ruling socialist party (Pasok) rebels in Athens to push them to toe the line in parliamentary votes on Wednesday and Thursday, where a defeat could plunge the country into default.

Greece’s conservative opposition has rejected calls for national unity, forcing Prime Minister George Papandreou to rely on his slim parliamentary majority to push through a painful mix of spending cuts, tax hikes and state selloffs.

However, with Greece stuck in deep recession, at least three Pasok deputies have expressed serious reservations or outright opposition to a plan they say will crush any hope of growth for years to come and it is unclear how the numbers will play out.

Without parliamentary approval for the measures, which have caused a wave of strikes and demonstrations, the European Union and International Monetary Fund say they will not release the fifth tranche of the 110 billion-euro bailout agreed last year.

If the 12 billion-euro tranche is not forthcoming, the Greek government, which has been shut out of financial markets because of the ruined state of its public finances, will run out of money within weeks, probably triggering a Europe-wide crisis.

STI index chart 24 Jun 11 shown STI had bounced off from the 3000 support level region(purplish and green line). Given the uncertainty of the European debt crisis, STI might test the 3000 support level again. Any strong breakout of the 3000 support level   will lead STI to go to the next support level of 2900-2920 region.

So trade with care in such a uncertainty market!

#Source Taken: http://www.stocktraderabc.com

Next Week’s Tape: Greece Is the Word

By Mark Gongloff

China’s Inflation coming Under Control

 

China’s Premier Wen Jiabao said that China’s efforts to stem inflation have worked and that the pace of consumer-price increases will slow, an assessment that contrasts with some economists advocating further steps.

“There is concern as to whether China can rein in inflation and sustain its rapid development, and my answer is an emphatic yes,” Wen wrote in an newspaper opinion piece today.

“China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked. The overall price level is within a controllable range and is expected to drop steadily.” he is quoted as saying.

In a sign manufacturing expansion is easing, passenger-car sales fell for the 1st time in more than 2 yrs in May as the government phased out incentives.

China’s efforts to cool real-estate prices are damping demand for housing, prompting Standard & Poor’s to cut the outlook on Chinese developers to negative from stable last week.

The value of land sales in Beijing this year has dropped 75%, the Securities Times reported this week, citing data from Centaline Property Agency Ltd.

But, demand for steel and cement can be sustained by Wen’s campaign to start building 10 million low-cost homes this year.

Local government financing vehicles will be allowed to sell bonds to fund the construction of such projects, according to a notice on the website of the NDRC’s Anhui province branch on June 16.

US Data Points to Recovery

 

US data points to underlying factory strength
New orders for US manufactured goods and a gauge of business spending plans rose in May, easing fears of a sharp slowdown in factory activity.

Durable goods orders increased 1.9% after dropping 2.7% in April, the Commerce Department said on Friday.

An improvement across the board in May and revisions to April’s figures that showed smaller declines than previously reported, pointed to underlying strength in a sector that has powered the economic recovery.

Economists had expected durable goods orders, a leading indicator of manufacturing health, to rise 1.5% in May.

The report came as a relief to investors after recent regional factory data had shown some signs of fatigue. Supply chain disruptions after the March earthquake and tsunami in Japan have been constraining manufacturing.

Prices for US government debt showed little change, while stocks on Wall Street opened lower after a brief suspension in the trading of some big Italian banks raised new concerns about the European debt crisis.

The USD was little changed against a basket of major currencies.

Market Oversold on News Not Information

 

Stocks seen heavy losses on Friday based on News sparked worries about the Italian banking sector and Greek austerity plan, but the S& P 500 managed to hold its 200-day moving average, there was not spike in the Gold price and the VIX was little changed in a sign of market strength.

Aside from the misleading doomsday headlines, the US economy showed a strong turnaround and the EU have agreed to stop any default in Greece.

The U.S. economy expanded at a 1.9 percent annual rate from in January through March after expanding at a 3.1 percent pace during the last three months of 2010, revised figures from the Commerce Department showed. The government reported in May a quarterly expansion of 1.8 percent.

The Fed said after the June 21-22 policy meeting that it would maintain monetary economic stimulus after its $600 billion program of debt buying ends this month. The central bank purchased $4.6 billion of Treasuries maturing from April 2014 to May 2015 today.

Economic growth will pick up in the second half while remaining slow, and the Fed will maintain its record asset holdings for an “appropriate” period, according to Dallas Fed President Richard Fisher.

Europe’s leaders prepared the way for a second, large, bailout of Greece on Friday, pledging not to abandon the debt-laden nation to a default providing it votes a tough package of austerity measures through its Parliament next week.

“We have agreed that there will be a new program for Greece,” Chancellor Angela Merkel of Germany told reporters at the end of a two-day summit meeting in Brussels. “This is an important decision that says once again we will do everything to stabilize the euro overall.”