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WASHINGTON (AP) — A burst of hiring in December pushed the unemployment rate to its lowest level in nearly three years, giving the economy a boost at the end of 2011.

The Labor Department said Friday that employers added a net 200,000 jobs last month and the unemployment rate fell to 8.5 percent, the lowest since February 2009. The rate has dropped for four straight months.

The hiring gains cap a six-month stretch in which the economy generated 100,000 jobs or more in each month. That hasn’t happened since April 2006.

“There is no question that today’s employment report is a positive and there is also no question that the pace of job growth has accelerated of late,” said Dan Greenhaus, an analyst at BTIG LLC, a brokerage firm

A better job market is a positive sign for President Barack Obama, who is bound to face voters with the highest unemployment rate of any sitting president since World War II. Unemployment was 7.8 percent when Obama took office in January 2009.

Still, the level may matter less to his re-election chances if the rate continues to fall. History suggests that presidents’ re-election prospects hinge less on the unemployment rate itself than on the rate’s direction during the year or two before Election Day.

For all of 2011, the economy added 1.6 million jobs, better than the 940,000 added in 2010. The unemployment rate averaged 8.9 percent last year, down from 9.6 percent the previous year.

Economists forecast that the job gains will top 2.1 million this year.

The December report painted a picture of a broadly improving job market. Average hourly pay rose, providing consumers with more income to spend. The average work week lengthened, a sign that business is picking up and companies may soon need more workers.

And hiring increased across most major industries.

Manufacturing added 23,000 jobs, as did the health care industry. Transportation and warehousing added 50,000 jobs. Retailers added 28,000 jobs. Even the beleaguered construction industry added 17,000 workers.

Economists cautioned that some of the gains reflected temporary hiring for the holiday season. The government adjusts the figures to account for those seasonal factors, but doesn’t always fully account for them.

The gains in transportation and warehousing, for example, reflected a strong increase in hiring for couriers and messengers. That could stem from a big jump in online shopping over the holidays, the department said.

The nation’s work force, which includes both people working and those searching for jobs, shrank slightly last months and is little changed from this spring. That’s a concern because a strengthening job market normally draws more applicants.

The work force has declined by about 160,000 over the past two months, one reason the unemployment rate has fallen.

“You have to take that unemployment rate decline with a grain of salt when you look at the declines in the labor force,” said Marisa DiNatale, an economist at Moody’s Analytics.

The government only counts people as unemployed if they are actively searching for jobs. Discouraged workers who have given up on looking are not included in the rate.

And some of those who are counted as employed are working part time, but want full-time work.

When including those groups, the broader “underemployment” rate was 15.2 percent. That’s down from 15.6 percent the previous month, but still high. The figure has dropped for three straight months.

And the job market has a long way to go to recover from the Great Recession. The nation has 6 million fewer jobs that it did in December 2007, when the recession began.

More jobs and higher pay are crucial to helping the economy grow. They could enable shoppers to increase spending, which fuels 70 percent of economic activity.

The economy likely grew at an annual rate of above 3 percent, a healthy pace.

A more robust hiring market coincides with other positive data that show the economy ended the year with some momentum.

Weekly applications for unemployment benefits have fallen to levels last seen more than three years ago. Holiday sales were solid. And November and December were the strongest months of 2011 for U.S. auto sales.

Many businesses say they are ready to step up hiring in early 2012 after seeing stronger consumer confidence and greater demand for their products.

Source: The State Journal Register - The Oldest Newspaper in Illinois

 With a promise of 2,400 jobs for Chicago, ComEd on Wednesday launched the hiring blitz it promised in exchange for a $2.6 billion rate hike that will finance “smart-grid” technology.

Mayor Rahm Emanuel held a news conference with ComEd President Anne Pramaggiore to tout the benefits of legislation denounced by Gov. Pat Quinn as “smart greed” for the campaign contributions the utility lathered on state lawmakers who overrode the governor’s veto.

The hiring will begin with 350 to 400 Chicago jobs this year and up to 2,400 over the next decade, Pramaggiore said.

That rosy figure includes 1,000 construction jobs, much of it tied to regular system upgrades. They include putting some power lines underground, shoring up above-ground lines to insulate them from wind and tree damage, making $50 million in improvements at O’Hare and Midway Airports and upgrading the Crawford and Fisk sub-stations.

Another 1,000 jobs will be tied to energy efficiency and renewable energy programs. Annual spending on those projects is expected to increase by at least $40 million or 26.6 percent, under the smart-grid legislation.

Pramaggiore predicted that 150 jobs would be generated by a $22.5 million Science and Energy trust fund created to support “energy innovation entrepreneurs.”

The final 150 jobs will be created by two companies hired by ComEd to support the smart-grid system that will allow consumers to monitor their energy use.

They are: Silver Spring Networks, the Silicon Valley-based company hired to design and deploy the networking platform and communications system and Choctaw-Kaul Distribution, a Native-American owned distributor that will provide Edison with the power tools and protective safety equipment needed to do the work.

“The jobs cover a wide-range of skills: engineers, work planners, construction workers, communications specialists and workers with manufacturing skills,” Pramaggiore told a news conference at the Robert W. Galvin Center for Electricity Innovation at the Illinois Institute of Technology, 10 West 35th St.

“To support the enhanced workload, ComEd will build a new training center on the Southwest Side of Chicago. Here, we will train splicers, laborers and linemen. And we will use the construction of the training center to help train Chicago’s next generation of architects” with a design competition involving college students at accredited architecture schools.

In his failed campaign to uphold his smart-grid veto, Quinn likened consumer-friendly improvements to the rate-hike bill to putting “perfume on a skunk.”

On Wednesday, Emanuel made the legislation sound and smell rosy.

And the mayor categorically denied that, by embracing smart-grid and the rate hikes that will bankroll the system, he was abandoning his right to hold ComEd’s feet to the fire after the utility’s dismal performance in last summer’s violent storms.

“I don’t think anybody’s ever said Rahm is a very quiet, meek person. That’s never been said. I don’t think [wife] Amy would describe me that way. I don’t think my kids would. I don’t think my family members or my friends would,” the mayor said.

“I will use my voice [when necessary]…They don’t get a pass because they made this investment. They have a resonsibility and I will hold them to that. And they woudn’t expect anything less….This is an essential thing to do. You can’t get from here to there without it. But even if they do this, there will be problems.”

Source: Chicago Sun-Times

The United States economy has slowed considerably this year from a year ago, according to a report from the Commerce Department released on Friday.

The country’s gross domestic product, a broad measure of the goods and services produced across the economy, grew at an annual rate of 1.3 percent in the second quarter, after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.9 percent . Both figures were well below economists’ expectations.

Data revisions going back to 2003 also showed that the 2007-2009 recession was deeper, and the recovery to date weaker, than originally estimated. Indeed, the latest figures show that the nation’s economy is still smaller than it was in 2007, when the Great Recession officially began.

“The word for this report is ‘shocking,’ ” said John Ryding, chief economist at RDQ Economics. “With slow growth, higher inflation and almost no consumer spending growth, it is very tough to find good news.”

The latest figures come as Congress is debating how to put the nation on a more sustainable fiscal path, with measures that some economists worry could further slow the economy and even throw it back into recession. Even in the absence of further austerity measures, some of the government’s current stimulative policies, such as the payroll tax cut, are phasing out, and state and local governments are slashing spending dramatically.

Such fiscal retrenchment was already expected to be a drag on growth in the coming year; the Commerce Department’s report and the Washington debt talks only magnify those concerns.

“There’s nothing that you can look at here that is signaling some revival in growth in the second half of the year, and in fact we may see another catastrophically weak quarter next quarter if things go wrong next week,” said Nigel Gault, chief United States economist at IHS Global Insight. By “things going wrong,” he said he means “if Congress actually starts implementing a massive contraction by suddenly cutting government spending immediately,” as many Republican representatives hope to do.

Prolonging the continuing talks in Washington to raise the amount of money the United States can borrow could also damage prospects for growth in the third quarter, as businesses and families wait to make big purchases until the threat of federal default passes.

“Even if everything gets done, there is still a big hit coming from uncertainty,” said Paul Dales, a senior United States economist at Capital Economics. “Companies have probably put projects on hold and postponed hiring.”

Usually, a sharp recession is followed by a sharp recovery, meaning the recovery growth rate is far faster than the long-term average growth rate; last quarter, though, output grew at only about one-third of the average rate seen in the 60 years preceding the Great Recession. As a result, the country’s output is far below its potential.

Particularly distressing to economists is that consumer spending — which, alongside housing, usually leads the way in a recovery — has been extraordinarily weak in recent quarters. Inflation-adjusted consumer spending in the second quarter barely budged, increasing just 0.1 percent, the Commerce Department report showed.

“People are spending more, but that spending is being absorbed in higher prices, not in buying more stuff,” Mr. Ryding said.

Even the brightest parts of the report were seen as bittersweet. For example, motor vehicle output fell much less than was predicted after the natural disasters in Japan disrupted supply chains. But that means there will likely be a less dramatic bounce back in autos in the coming months, which economists were counting on to raise growth rates later this year.

The economy’s slow growth rate is largely responsible for stubbornly high joblessness across the country, economists say. As of June, 14 million Americans were actively looking for work, and the average duration of unemployment has been reaching record highs month after month. Businesses are sitting on a lot of cash, but are still reluctant to hire because there is so much uncertainty about the future of the economy and whether they will continue to have a steady flow of customers.

Slow economic growth takes not only a human toll, but a fiscal one as well. Tepid output increases mean slower growth in the tax revenue needed to pay down the nation’s debt.

Washington, therefore, has a delicate balancing act in its current debt ceiling debates. Given the unsustainable debt trajectory that the economy is on — primarily because of the country’s growing health care obligations — Congress needs to impose greater fiscal discipline. But imposing too much too soon, or being too focused on the wrong types of spending cuts, could be self-defeating by weakening growth so greatly that tax revenue falls and requires the country to borrow even more.  

Given inflation concerns, it also seemed unlikely that the Federal Reserve will swoop in with another round of monetary easing to goose growth.

“There’s not going to be additional monetary stimulus, and it’s hard to imagine any fiscal stimulus given the current discussion in Washington,” Mr. Ryding said. “So what’s going to get us out of this? The inevitable conclusion is time, and that’s not very satisfactory.”

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Source:  The New York Times

House Republicans and Senate Democrats gained substantial support on Wednesday within party ranks for their separate plans to resolve a looming debt crisis, but the momentum seemed to be pushing both sides further from a compromise.

It was a day in which Capitol Hill seemed to operate in alternate realities: Republicans in the House sharing near universal belief that the Senate will eventually cave and accept their plan, and Senate Democrats assured that they will have the last word over the weekend and ultimately force the hand of the House.

As the House headed for a vote on Thursday, Congressional officials suggested that Senate leaders from both parties were keeping an open line for a potential compromise they could both brook. So far no such agreement appeared likely, and the Senate moved toward its own series of votes that could run through the weekend and perhaps into Monday, just one day short of the Aug. 2 date that the White House has insisted is the deadline for extending the debt ceiling for paying the nation’s bills.

Earlier in the day, at a House hearing, a representative of one of the credit rating agencies said that while the United States was unlikely to default on its obligations, its credit rating could still be cut if Congress failed to come up with a plan to reduce spending sufficiently. In the markets, investors sought alternatives to Treasury bonds and pushed down American stock prices for the fourth straight day as reverberations from the legislative impasse appeared to take a toll. The Dow Jones industrial average closed down 198.75 points, or 1.59 percent, on Wednesday; the broader Standard & Poor’s 500 stock index lost more than 2 percent.

Speaker John A. Boehner began mustering support for his budget-cutting plan early in the day as he cracked a verbal whip in meetings with his members even as Senator Harry Reid, the majority leader, made it clear the House legislation was dead on arrival in his chamber.

Less than a day after an unfavorable evaluation from the Congressional Budget Office forced Mr. Boehner to delay a vote and rework his bill to gain support, the speaker and other Republican leaders met with their conference Wednesday morning and bluntly commanded that they line up behind the reworked plan to cut spending at least as much as the $1 trillion increase proposed for the debt ceiling.

With the hope of picking up more votes, Mr. Boehner revised his deficit-reduction plan to achieve additional savings of $65 billion over 10 years. The Congressional Budget Office said the revised proposal would save $915 billion over 10 years, up from an estimate of $850 billion in savings from the original plan.

The revisions involved technical changes in annual limits on spending in 2012 and 2013, but they produced substantial additional savings.

In a meeting with House Republicans on Wednesday morning, Mr. Boehner and the majority leader, Representative Eric Cantor, scolded members for allowing Democrats to unify in protest against them. “This is the bill,” Mr. Boehner said, according to those who attended the meeting, who said he advised them to “get your ass in line.”

On the other side of the Rotunda in the Senate, Mr. Reid sent Mr. Boehner a letter signed by all 51 Senate Democrats and two independents assuring that his legislation, which would raise the debt ceiling for roughly six months — far less than President Obama wants — faced certain failure in his chamber. “Your approach would force us once again to face the threat of default in five or six short months,” the letter said. A number of Senate Republicans also oppose the House bill, largely because they find the spending cuts insufficient.

Senator Mitch McConnell, the minority leader, reiterated his support for Mr. Boehner’s bill on the Senate floor on Wednesday. “The fact is, Republicans have offered the only proposal at this point that attempts to get at the root of the problem, and which actually has a chance of getting to the president’s desk,” he said.

Mr. McConnell’s aides vehemently denied that their boss was negotiating any side deal with Mr. Reid or that he intended to do so.

Mr. Reid’s package would cut roughly $2.2 trillion in spending over 10 years and raise the debt limit through 2012, according to an analysis from the budget office. “The bottom line is there’s only one bill in Congress that’s a true compromise,” he said Wednesday. “We’re running out of time, and it’s time to get serious about finding that compromise.”

Despite Mr. Reid’s warnings to the House, rank-and-file House Republicans — scores of whom initially seemed inclined to flee the House bill over what they felt were insufficient spending cuts — fell back in line behind Mr. Boehner, sensing that a compromise with Senate Democrats, which they would less favor, might otherwise be in the offing.

Mr. Boehner made it clear he needed members, even those who believed the bill did not go far enough in cutting spending, to help him avert either a default or Senate victory. “I can’t do this job unless you’re behind me,” people who attended the meeting recalled him saying.

The appeal was apparently effective.

“We’ve got this back and forth between have we cut enough, how much have we cut, how do we get a long-term solution on this,” said Representative James Lankford, Republican of Oklahoma. “I like tea sweet enough to stand the spoon up in it,” he said. “This is not super-sweet tea. But it is not unsweetened, either.”

Mr. Reid’s members threw their support behind him in equal measure. Senator Barbara A. Mikulski, Democrat of Maryland, a leading liberal voice in the Congress, endorsed the majority leader’s plan on the Senate floor, calling it “substantive; it’s real and it’s achievable.”

Mr. Reid’s plan would save $2.2 trillion over 10 years, less than the $2.7 trillion that the Democrats had claimed. Even discounting the savings achieved from winding down the wars in Afghanistan and Iraq (about $1.04 trillion) and related savings in interest on the public debt (about $250 billion), that would mean total savings of $900 billion compared with the Republicans’ $850 billion as tallied by the budget office.

Assuming the House is able to pass its bill on Thursday, the Senate has several options. The first is to simply vote to table the House measure, which would likely inflame Republican senators, deprived of the right to have a substantial debate on it.

Another option would be to have a quick vote on the House bill, and assuming it fails, immediately take up either Mr. Reid’s bill as a substitute for the House bill — a procedural move that allows it to be voted over the course of the weekend rather than Monday — or perhaps, some form of a compromise measure drafted with Republican senators, for a Saturday vote.

Alternatively, Mr. Reid could begin the procedural clock on his own bill on Thursday, requiring votes on Saturday and Monday, dragging the process out further.

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Source:  The New York Times

“Don’t call my bluff,” President Obama reportedly warned House Majority Leader Eric Cantor (R-Va.) during a tough bargaining session over the debt ceiling July 13. “I’m going to the American people with this.”

It was no empty threat. As the high-stakes negotiations with Congress to avoid financial default Aug. 2 have bogged down, Obama has taken his case directly to the public with increasing urgency. This month, he has appeared in front of reporters at the White House briefing room four times, taken the stage before a friendly crowd of 1,200 in a town hall-style event at the University of Maryland and delivered a rare televised prime-time address to the nation Monday night from the East Room.

The gambit is aimed at winning public support that could give him an upper hand at the negotiating table, though polls suggest Americans are frustrated both with the president and his Republican rivals.

With each appearance, Obama has not altered his message as much as his persona: He verged from poised early in the process — the “only adult in the room” strategy aimed at contrasting him against a squabbling, childish Congress — to frustrated and emotional by the end of last week, when House Speaker John A. Boehner (R-Ohio) abruptly left Obama “at the altar.” He returned to a more collected and determined demeanor Monday night, as he tried to leave the public with a lasting impression with just a week left until the deadline.

Along the way, Obama has perhaps revealed more public emotion than he has during his 2 1/2 years in office.

The last time the American people saw him up close, in a pair of appearances last Friday, Obama went through a dramatic mood swing before the cameras in a single day.

At a morning town hall appearance at the University of Maryland, Obama used humor and an easy-going manner to walk the crowd through his impasse with Congress.

During the question-and-answer portion, a high school government teacher told Obama that she was having trouble teaching her students the importance of compromise in a two-party political system when they saw the partisanship on Capitol Hill.

“Are things changing?”she asked “ Do we not use compromise anymore?”

Obama smiled.

“I think you should keep on teaching your students to compromise, because that’s not just how government works; that’s how life works,” he said. “How many people here are married?”

The crowd laughed. “For those of you who are not but intend to get married, let me just tell you,” the president continued, “you better get used to compromise.”

What the crowd did not know was that Obama had placed a call to Boehner earlier in the day. The president expected to begin wrapping up a “grand bargain” compromise that would include a mix of spending cuts and tax increases to slice the deficit by $3 trillion over the coming decade.

But Boehner, whose House Republican caucus revolted over the tax hikes, decided to walk away from the negotiating table. Not until late in the business day, many hours after Obama had left him a message, did Boehner call back to say the deal was off.

Obama instructed his communications team to assemble reporters, and the president appeared just after 6 p.m. Friday in the White House briefing room. He was as frustrated and emotional as he has ever been in public.

“Up until sometime early today when I couldn’t get a phone call returned, my expectation was that Speaker Boehner was going to be willing to go to his caucus and ask them to do the tough thing but the right thing,” Obama told reporters. “I think it has proven difficult for Speaker Boehner to do that. I’ve been left at the altar now a couple of times.”

He continued: “And I think that one of the questions that the Republican Party is going to have to ask itself is can they say yes to anything? Can they say yes to anything?”

Though the president summoned Boehner and other congressional leaders to his office over the weekend, pundits concluded that Obama risked being sidelined as the House and Senate crafted their own emergency debt limit proposals without him.

Perhaps fearing that the defining public image of him during the negotiations would be one of anger, Obama appeared again Monday night, this time bypassing reporters and speaking directly to the public from the East Room.

In the stately hall where he had feted the World Series champion San Francisco Giants only hours earlier, Obama appeared in a blue suit and red tie, looking equal parts grim, annoyed and determined.

His address included most of the same talking points and catch phrases that he has been using all month. He talked of reducing the deficit to put the economy on sounder footing for investments in jobs and avoiding a default that would raise interest rates on student loans. He trotted out populist lines about oil companies and corporate jet owners needing to pay their fair share in taxes. He even urged his audience to “make your voice heard” by contacting their representative in Congress.

But he strayed from the usual script when he got historical, noting that Republican hero Ronald Reagan and even George W. Bush had raised the debt ceiling 25 times between them. Calling for compromise, he quoted Thomas Jefferson: “Every man cannot have his way in all things. . . . Without this mutual disposition, we are disjointed individuals, but not a society.”

Summing up, Obama reached for some of the rhetorical flourish that large numbers of voters found so appealing three years ago.

“History is scattered with the stories of those who held fast to rigid ideologies and refused to listen to those who disagreed,” Obama said. “But those are not the Americans we remember. We remember the Americans who put country above self, and set personal grievances aside for the greater good. We remember the Americans who held this country together during its most difficult hours; who put aside pride and party to form a more perfect union.

“That’s who we need to be right now,” Obama said. “The entire world is watching.”

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Source:  The Washington Post

As Washington continues to debate a debt deal, the Obama administration has been preparing the country for the worst, with officials essentially saying the sky is about to fall.

But so far, oddly enough, nothing has happened. Despite warnings that a deal would need to be brokered by Sunday night before the Asian markets opened, stocks merely stumbled on Monday — the type of weakness usually associated with soft corporate earnings instead of an economic apocalypse.

Wall Street’s blasé response presents a serious challenge for the administration. The government has been ringing the alarm bells of an impending catastrophe to add urgency to its efforts to get Republicans to hash out a compromise.

President Obama, in his address on Monday night, again warned of dire consequences if a deal is not reached.

“We would risk sparking a deep economic crisis, this one caused almost entirely by Washington,” he said.

While the sky indeed may fall if the sides cannot compromise, the fact that the market has been calm has served only to deepen the resistance to a deal. People who perhaps should be worried don’t seem to be, and worse, appear to have stopped listening to the warnings.

How did it come to this?

The administration may have made a strategic mistake in warning too soon that the market would react negatively. It ultimately undercuts the government’s negotiating position because the doomsday scenario has not played out, even though the deadline is fast approaching.

“They have lost all credibility,” said Neil M. Barofsky, the former special inspector general for the Troubled Asset Relief Program. “It’s so typical of the way Treasury and the Fed treat everything — it is always to warn that Armageddon is coming.”

The Treasury secretary, Timothy F. Geithner, is among those who may have miscalculated.

He has consistently held out Aug. 2 as the cutoff date for lawmakers to reach a compromise. After that, Mr. Geithner has said the government might not be able to continue sending out Social Security checks or Medicare payments. “On Aug. 2, we’re left running on fumes,” he told the CBS program “Face the Nation.”

He told me back in May that he was expecting to reach a deal by mid-July, way ahead of the final deadline. “Why would you want to experiment? In July, you’d want this done.”

But increasingly, the market seems to believe it was a false deadline. Some economists have said the government would have enough cash on hand to continue making payments for several days at least. The administration could also decide how to prioritize payments. The government, for instance, could opt to pay interest on Treasuries and put off other bills.

In other words, the United States has some wiggle room.

“The Aug. 2 deadline is not as hard as indicated by Secretary Geithner,” said Mohamed El-Erian, the chief executive of Pimco, the large bond manager.

It doesn’t help the government’s case that investors believe the debate over the debt ceiling amounts to political posturing. Wall Street is counting on lawmakers to work out a deal, albeit at the last minute — a big reason the markets remain sanguine.

“The markets believe the political parties will reach a compromise agreement to avert a default,” Mr. El-Erian said, especially considering that they may have a bit more time on the doomsday clock.

Investors have good reason to ignore the drama. In years past, politicians have rubber-stamped an increase in the debt ceiling with little discussion or dissent. Since 1962, Congress has voted to increase the limit 74 times, according to the Congressional Research Service, a division of the Library of Congress. It happened 17 times under President Ronald Reagan and four times during the Clinton administration.

But investors may have been lulled into a false sense of security and, as a result, they may have missed the bigger picture.

Whether lawmakers reach an agreement about the debt ceiling may be beside the point. Republicans and Democrats are likely to comprise at some eventual date.

The question is how rating agencies will view the country’s creditworthiness, even if a deal is reached.

To some extent, that’s why lawmakers are wrangling over whether to pursue a stop-gap measure for the next couple of months versus a long-term plan. Standard & Poor’s threatened that it would cut the United States rating if lawmakers didn’t come up with a “credible” solution.

“What I think is underappreciated until now is a possible outcome whereby the debt ceiling is increased, debt default is avoided, but one of the rating agencies feels compelled to downgrade America’s AAA because of insufficient agreement on medium-term fiscal reform,” Mr. El-Erian said.

If the country were to lose its vaunted rating, the federal government, companies, homeowners and innumerable others would see their costs skyrocket — a situation that would certainly send the markets into a downward spiral.

How rating agencies will view the country’s creditworthiness will end up being a bigger deal than the current back and forth over the debt ceiling.

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Source: The New York Times

A few days ago, former President Bill Clinton identified a constitutional escape hatch should President Obama and Congress fail to come to terms on a deficit reduction plan before the government hits its borrowing ceiling.

He pointed to an obscure provision in the 14th Amendment, saying he would unilaterally invoke it “without hesitation” to raise the debt ceiling, “and force the courts to stop me.”

On Friday, Mr. Obama rejected the idea, though not in categorical terms.

“I have talked to my lawyers,” Mr. Obama said. “They are not persuaded that that is a winning argument.”

Adding another element of uncertainty, and possible court battles, to the debate do not seem to appeal to the White House. And it is, in any event, not clear that the nation’s creditors would continue to lend money to the United States were the president to take unilateral action.

The provision in question, Section 4 of the amendment, was meant to ensure the payment of Union debts after the Civil War and to disavow Confederate ones. But it was written in broader terms.

“The validity of the public debt of the United States, authorized by law, including debts incurred for payments of pensions and bounties for services in suppressing insurrection or rebellion,” the critical sentence says, “shall not be questioned.”

The Supreme Court has said in passing that those words have outlived the historical moment that gave rise to them.

“While this provision was undoubtedly inspired by the desire to put beyond question the obligations of the government issued during the Civil War,” Chief Justice Charles Evans Hughes wrote for the court in 1935, “its language indicates a broader connotation.”

In recent weeks, law professors have been trying to puzzle out the meaning and relevance of the provision. Some have joined Mr. Clinton in saying it allows Mr. Obama to ignore the debt ceiling. Others say it applies only to Congress and only to outright default on existing debts. Still others say the president may do what he wants in an emergency, with or without the authority of the 14th Amendment.

The words of the provision are in important ways quite vague. “Nobody would argue,” said Sanford Levinson, a law professor at the University of Texas, “that Section 4 is clear in its meaning, other than at the time everyone thought that the South, if they ever got back in control, would not pay Civil War debt.”

But Jack M. Balkin, a law professor at Yale, said it was possible to infer a broader principle.

“You’re not supposed to hold the validity of the public debt hostage to achieve political ends,” Mr. Balkin said. He added, though, that “Section 4 is a fail-safe that only comes into operation when everything else is exhausted.”

Mr. Obama’s statement largely dismissing the possibility of invoking the provision may have had a strategic element to it. A deficit reduction deal would seem to be more likely, after all, if both sides thought there was no alternative but economic chaos.

Mr. Obama’s reference to “a winning argument” suggested the likelihood that the courts would weigh in if he took unilateral action. But that is not certain.

“This is not a circumstance,” said Laurence H. Tribe, a law professor at Harvard, “in which the courts have any plausible point of entry.”

Professor Balkin agreed. “This is largely a political question,” he said. “It is unlikely courts would decide these questions.”

Some law professors have put forward possible legal claims that might overcome threshold requirements for lawsuits, like the one in which plaintiffs show that they have been directly injured and so have standing to sue. “It’s unthinkable,” Professor Tribe responded, “that the courts would allow a gimmicky lawsuit to proceed.”

The president, moreover, can move quickly, but court cases take time. “At the point at which the economy is melting down, who cares what the Supreme Court is going to say?” Professor Balkin said. “It’s the president’s duty to save the Republic.”

Another possible reaction to unilateral action from Mr. Obama is impeachment. Professor Tribe said that was “not politically a very plausible scenario.”

Professor Levinson was less certain. Impeachment by the House of Representatives “seems to me quite likely.” But, he added, “it is also literally unimaginable that the Senate would convict.”

A third possible response is what some law professors call “popular constitutionalism.” The meaning of the Constitution, these professors say, is in the end what the public believes it to be. The president and members of Congress may thus pay a political price for taking stands at odds with what the public understands to be their constitutional obligations.

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Source:  The New York Times

The federal debt ceiling debate is already complicating life for state and local governments.

Maryland is postponing a bond sale that had been scheduled for Friday, after the state was warned that its credit rating would probably be lowered in the event of a federal downgrade. California, which typically issues short-term bonds at this time of year, is working to arrange bank loans instead, citing the market uncertainty. And state officials across the nation are trying to figure out what will happen to the federal payments they rely on for everything from Medicaid to unemployment to highway construction if a deal is not reached to raise the debt ceiling by the Aug. 2 deadline.

States whose economies rely on the federal government — including Maryland and Virginia, home to many federal employees and contractors — are at the greatest risk if there is no agreement and Washington has to decide which payments to make and which to skip. They were among the states warned by Moody’s Investors Service this week that their credit ratings were being jeopardized by Washington — which would make it more expensive for them to borrow for costs like construction, through no fault of their own.

“For nearly 75 years we have worked hard to earn the highest credit ratings from all three rating agencies,” Gov. Bob McDonnell of Virginia, a Republican, wrote this week to President Obama and members of Congress, urging them to raise the debt limit. “Now your failure to get the job done is hurting the businesses and citizens of our commonwealth.”

Many state and local officials are still hoping that a deal will be reached, averting a situation in which federal payments to the states could start to be cut in August. But a number of states have begun preparing for the worst.

Ric Brown, Virginia’s secretary of finance, said that it was a difficult task, made much more difficult by the lack of concrete information coming from Washington. “What you’ve got at the federal level, let’s face it, is outright chaos,” he said in an interview. “It’s hard to make sense out of that.”

In Maryland, the uncertainty over what will happen in Washington is complicating the state’s plans to sell bonds for school construction and to refinance some existing debt. The sale was pushed back to Monday after the state was warned that the debt ceiling debate could harm its credit rating.

Of course, if the debt limit is not raised and the federal government cannot meet all its costs, states and localities will face a new set of more serious problems. The National Conference of State Legislatures told members this week that there was little experience to guide their many “what if” questions, citing instead “a potpourri of ‘coulds,’ ” including the possibility that the federal government could pay its debts in the order in which they were received, or could prioritize which payments to make.

If the federal government were to stop paying some employees or contractors next month, or were to hold back Social Security checks, it could have a “profound effect on state and local tax revenues,” according to a report issued this week by the Pew Center on the States. On top of that, a delay in the payments that states and local governments rely on would pose cash-flow problems for many states. The Pew report noted that the federal government owed $10.4 billion in tuition assistance next month, when the academic year begins.

August is also the peak of the road construction season. In June, the states got $4 billion worth of reimbursements for transportation projects from the federal government, said Jack Basso, the director of program finance and management for the American Association of State Highway and Transportation Officials. Now the association is trying to figure out whether money in the highway trust fund — which comes mostly from the federal gas tax — would be protected if the debt limit were not raised.

An interruption in payments would put states in a bind, Mr. Basso said, since they use the money to pay private contractors. “They would have to face ‘How are we going to pay our bills?’ ” Mr. Basso said.

California had been preparing to issue $5 billion worth of short-term bonds next month, but now its treasurer, Bill Lockyer, is seeking to put together a bridge loan with banks instead.

“Given the situation in Washington, the treasurer decided it would be prudent to develop a contingency plan, a Plan B,” said Tom Dresslar, a spokesman.

Mayors are also watching the debate in Washington nervously. Several said in interviews that they were not worried in the short term. But some, including Mayor Ralph Becker of Salt Lake City, said they were worried about the general economic harm that a federal default would cause. “We all fear and see the specter, the dark clouds that would hide our beautiful blue skies and mountains,” he said. “It’s hanging over us.”

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Source:  The New York  Times

The contentious budget talks that have dominated Washington for months intensified Wednesday, prompting President Obama to say he would accept a short-term hike in the debt ceiling if it gave lawmakers time to finalize a comprehensive deal.

Obama had pledged to veto any short-term measure, but White House spokesman Jay Carney said Wednesday that the president could accept an extension of “a few days” if it allowed a long-term deficit-reduction and debt-ceiling deal to work its way through Congress.

The White House concession added to a whirlwind week in which negotiations appeared to be changing daily. At first, leaders were focused on a fallback plan that would raise the debt ceiling but do little to control future borrowing. Then they started considering an ambitious, but complicated, bipartisan strategy for raising taxes and cutting cherished health and retirement programs.

By Wednesday evening, as House Speaker John A. Boehner (R-Ohio) and Majority Leader Eric Cantor (R-Va.) huddled with Obama at the White House, aides in both parties said a grand bargain to slice $4 trillion out of the federal budget over the next decade was back on the table.

All of those options remain in the mix. “There are multiple trains heading towards the station, and we have to decide,” Carney said before Obama met with the two GOP leaders. “We need to be sure that that fail-safe option is there — even as we pursue, aggressively, the possibility of doing something bigger.”

Republican leaders went on record 10 days ago against the Obama proposal, saying that as long as the deal included higher tax revenue, it could not pass the House. And they maintained that stance after Wednesday’s meeting.

In a brief interview after the White House meeting, Cantor said he remained committed to “not raising taxes” but did not deny that discussions included a larger plan. “Again, there are a lot of things that may or may not be possible, but we’re just trying to drive toward a result right now,” he said.

The mood has changed in the past two days after the bipartisan “Gang of Six” senators unveiled a plan to shave at least $3.7 trillion off the deficit. Despite the fact that the plan included new tax revenue by closing loopholes, it received a relatively warm reception in some Republican quarters.

That has given Democrats hope that GOP resistance may be weaker than previously believed to a rewrite of the tax code that would raise significant new revenue — a key goal of negotiations between Obama and Boehner.

Still, the proposal came under fire Wednesday from some key Republicans, including House Budget Committee Chairman Paul Ryan (R-Wis.), who said it calls for a tax increase of at least $2 trillion over the next decade.

By Wednesday afternoon, Senate Budget Committee Chairman Kent Conrad (D-N.D.), a leader of the Gang of Six effort, said his primary push now is for “an option at some point for the Senate and the House to vote on the plan we’ve put together — which is the only bipartisan plan that’s come from anywhere.”

As the negotiations moved closer to the Aug. 2 deadline, the key obstacle to a deal remained the vehement opposition among many House Republicans to the proposals, especially ones that include higher tax revenue.

Some Democrats and administration officials question whether the GOP leadership can effectively sell a compromise to a fractious caucus determined to cut spending at all costs, particularly the bloc of 87 freshman Republicans. Democrats say they are not sure if there is any way to satisfy the needs of that faction. “We want to accommodate their needs,” Sen. Benjamin L. Cardin (D-Md.) said of the House leaders. “We just don’t understand what their needs are.”

In part, this is the same dilemma facing GOP leaders as they try to negotiate. They don’t know what will sell, and selling is the only option they have. Boehner is not an arm-twister — as he campaigned for the speaker’s chair last year he vowed that he would take a more gentle, consensus-driven approach. Rank-and-file lawmakers are surveyed, their opinions sought out, their temperature taken, and then decisions are made about how to maneuver.

“It’s not an issue of style as much as it is an issue of the American people just aren’t where we need them to be yet in order to move the Congress,” said Rep. Devin Nunes (R-Calif.).

“Part of this is just a slow education process of having people come to the realization of what it’s really going to take to balance the budget,” Nunes said. “I don’t think having a strong-arm style would have been any more helpful. It probably would have hurt early on.”

For the moment, Democrats are still waiting for an answer from House Republicans about the direction to take. “We have a plan to go forward over here, so I await word from the speaker,” Senate Majority Leader Harry M. Reid (D-Nev.) said Wednesday.

Later, after the meeting with Obama and Vice President Biden, Boehner huddled in the Capitol with a group of freshman lawmakers. GOP aides said it could be several more days before Boehner’s leadership team makes clear which path it intends to pursue.

Republicans are awaiting the outcome of the Senate’s debate on a bill that places caps on federal spending and then sends a constitutional amendment to the states mandating a balanced budget.

With Democrats in control of the Senate, that proposal’s defeat is likely to come by the weekend.

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Source:  The Washington Post

 President Obama seized on the re-emergence of an ambitious bipartisan budget plan in the Senate on Tuesday to invigorate his push for a big debt-reduction deal, and he summoned Congressional leaders back to the bargaining table this week to “start talking turkey.”

The bipartisan proposal from the so-called Gang of Six senators to reduce deficits by nearly $4 trillion over the coming decade — and its warm reception from 43 other senators of both parties — renewed hopes for a deal days after talks between Mr. Obama and Congressional leaders had reached an impasse.

Financial markets rallied on the news. And with time running out before the deadline of Aug. 2 to raise the government’s $14.3 trillion debt ceiling, Mr. Obama’s quick embrace of the plan left House Republicans at greater risk of being politically isolated on the issue if they continue to rule out any compromise that includes higher tax revenues.

Representative Eric Cantor, the House majority leader who has led opposition to any deal including tax increases, later issued a statement saying the bipartisan Senate plan includes “some constructive ideas to deal with our debt.”

But Mr. Cantor stopped far short of endorsing it. And House Republicans passed legislation on Tuesday evening calling for deep spending cuts and the adoption of a constitutional amendment requiring a balanced budget. Though the legislation has no chance of passing the Senate, the 234-to-190 vote was a symbolic statement by conservatives heading into the end game of a confrontation whose economic and political stakes are hard to overstate.

The Senate group’s plan, modeled on the recommendations last year of a bipartisan fiscal commission established by Mr. Obama, calls for both deep spending cuts and new revenues through an overhaul of the income-tax code.

But while its sponsorship by staunch conservatives as well as liberals suggested enough flexibility within both parties to get a deal eventually, it would be all but impossible to turn it into detailed legislation — at the moment it is a four-page outline — and pass it in less than two weeks. Both parties were considering ways to use the proposal as the basis for a broader budget agreement if they can find a way to get past the immediate pressure to increase the debt limit.

Tuesday marked the return to the bipartisan Senate group of Senator Tom Coburn, a conservative Republican of Oklahoma, two months after he abandoned the effort by two other Republicans and three Democrats to reach a deal, saying it would not cut spending enough. On Monday he had laid out his own $9 trillion debt-reduction plan, but acknowledged it could not be passed.

Mr. Coburn’s willingness to sign on to the bipartisan approach signaled that at least some conservatives, having made their principled point, might now be ready to bargain.

And Republicans increasingly are showing signs of splintering. Some conservatives within Congress and outside have become increasingly vocal in asserting that the party is at risk of putting ideological purity ahead of the chance for a major deficit reduction that includes substantial Democratic concessions, including cuts in Social Security, Medicare and Medicaid spending.

In appearing in the White House briefing room just hours after the Gang of Six went public with its proposal, Mr. Obama sought to use the development to increase the pressure on House Republicans even as they moved toward a vote on their bill.

The bill passed by the House would slash spending for next year, cap future spending levels and advance a constitutional amendment requiring a balanced budget. Its passage was a rejoinder of sorts to a plan hatched by the Republican leader, Senator Mitch McConnell of Kentucky, that would allow Republicans to accede to a $2.4 trillion increase in the government’s debt limit without actually voting for it, but also without the dollar-for-dollar spending cuts that House Republicans had demanded in return.

The House bill “isn’t the easy choice,” said Representative Rich Nugent, Republican of Florida, “but it’s the right choice.”

House Democrats excoriated the Republican plan, which they said would devastate entitlement programs though the mandatory spending cuts as a result of the cap. “Regardless of what other parts of this bill say,” said Representative Jerrold Nadler of New York, ”there is no way to meet these goals without destroying Medicare, Medicaid, Social Security, veterans’ programs, and military preparedness.”

Democrats are certain to make the House Republicans’ proposal an issue in the 2012 elections, along with the House Republicans’ budget passed earlier this year that would remake Medicare and Medicaid. But most attention shifted to the Gang of Six blueprint, and the reaction to it from the White House and Congressional leaders, who were cooler to it than Mr. Obama. 

While Mr. Obama said he did not agree with all of the senators’ plan, by his endorsement of its thrust and his remarks to reporters, he plainly sought to isolate further the House Republicans.

“We have a Democratic president and administration that is prepared to sign a tough package that includes both spending cuts and modifications to Social Security, Medicaid and Medicare that would strengthen those systems” while also providing new revenues, Mr. Obama said. And, he added, “we now have a bipartisan group of senators” and a majority of Americans who agree with such a balanced approach.

Forty-nine senators, 25 Democrats and 24 Republicans, were present for a closed-door meeting in the Capitol where those in the Gang of Six, except Mr. Coburn, outlined the debt-reduction plan that had been seven months in the works.

“It is early to say, but their timing is good,” said Senator Lamar Alexander, Republican of Tennessee. He added, “It helps that the three Republicans senators are three of the most conservative, most respected members of the Senate who are Republicans.”

Besides Mr. Coburn, those are Senators Michael D. Crapo of Idaho and Saxby Chambliss of Georgia, who formed the group with Senator Mark Warner, Democrat of Virginia. The other two Democrats are Senators Richard J. Durbin of Illinois and Kent Conrad of North Dakota, chairman of the Senate Budget Committee.

A spokesman for Speaker John A. Boehner said, “This plan shares many similarities with the framework the speaker discussed with the president, but also appears to fall short in some important areas.”

The timing displeased both Senate leaders — the majority leader, Harry Reid, Democrat of Nevada, and Mr. McConnell — who have been negotiating the fallback plan to raise the debt limit that Mr. McConnell initiated last week. At a closed-door luncheon for Democratic senators, Mr. Reid gave Mr. Warner 24 hours to develop a plan on how to move forward — a challenge the Gang of Six met later to discuss.

“I’m happy to work and use anything in the Gang of Six that we can,” Mr. Reid said. “But remember we only have 13 days — 13 days — and there’s a number of senators who have said they’ll do everything they can to stop the debt ceiling from being increased, that they would in effect allow us to default on our debt.”

After the Republican senators’ luncheon, Mr. McConnell said of the Gang of Six outline, “I haven’t had a chance to decide how I feel about it.”

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Source:  The New York Times