Illinois Government Consultants Incorporated

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

WASHINGTON (AP) — With its first chief now in place, the new Consumer Financial Protection Bureau will start enforcing rules aimed at reining in abusive mortgage servicers, student lenders and payday-loan companies.

It will be months, though, before the agency can police other areas of consumer finance, such as debt collection and credit-reporting bureaus.

Over Republican opposition, President Barack Obama used a congressional recess appointment Wednesday to install Richard Cordray to lead the consumer finance watchdog. The bureau was created in July as part of the 2010 overhaul of the nation’s financial regulations.

The idea behind the new agency was to prevent financial companies, such as mortgage servicers, from exploiting consumers. Such companies, facing scant federal oversight, committed some of the worst consumer abuses before the financial crisis.

In the past, only banks were subject to examination by federal financial regulators. And until now, with no permanent director, the bureau had authority to supervise only big banks.

Senate Republicans had vowed to block Cordray’s nomination until the agency’s structure was changed to allow closer congressional oversight. But Obama took advantage of the congressional break to install Cordray, a former Democratic attorney general of Ohio.

Cordray said he would immediately “begin working to expand our program to non-banks, which is an area we haven’t been able to touch up until now.”

That change will likely start within weeks. Agency officials who are supervising big banks have already been trained to examine non-bank financial firms.

Still, some areas of consumer finance will remain outside the bureau’s reach. Aside from payday, mortgage and student loan companies, the consumer protection bureau can supervise only non-bank companies it defines as “larger participants” in their markets.

In June, the agency sought public comments on a proposal to supervise major debt collectors, credit reporting bureaus, check cashers, issuers of prepaid debt cards and debt-relief companies. The comment period has ended, and the agency is reviewing the responses. It’s not clear how long the review will take.

Once the comments have been reviewed, the proposal must be revised, subjected to further public comment and then approved by the White House. This could take months or years. If the agency’s proposal is approved, it will be able to send inspectors to credit bureaus and others that meet the “large participant” definition.

Here’s a guide to the powers that the CFPB now hold over different categories of companies:

— Non-bank mortgage lenders and servicers:

These companies have been subject to existing laws and rules, but the agency was unable to supervise them without a permanent director. With Cordray’s appointment, the CFPB can have officials monitor mortgage lenders and servicers. That might discourage any from using “robo-signers” to foreclose on borrowers without doing the required paperwork. That practice became widespread over the past decade, and no federal agency was responsible for cracking down.

— Payday lenders:

Companies that make short-term loans to borrowers with weak credit already are governed by federal laws such as the Truth in Lending Act. But there’s been no federal oversight to make sure they comply. The CFPB can now send examiners to payday firms it suspects of illegal or abusive practices. The agency wants to make sure they disclose the full cost of a loan upfront so consumers can make an informed choice.

— Private student lenders:

CFPB examiners also have gained the ability to examine these companies. The federal government has been cracking down on for-profit education companies whose graduates can’t find jobs and have little chance of repayment. The CFPB can now require these lenders to follow existing rules and write new ones intended to guarantee that they lend fairly.

— Prepaid debit card companies, credit bureaus, money-transfer companies, check cashers, debt relief services:

These companies are subject to federal laws. But they’ve faced little oversight in the past. The CFPB proposed in June identifying major participants in those markets that it will oversee to make sure they’re following the rules. It’s unclear when that proposal might take effect.

— Big banks:

Nothing much will change. Since its creation, the agency has been placing full-time examiners in the nation’s biggest banks to enforce laws and rules. It can require them to file regular reports, monitor risks they might pose to consumers and write new rules.

Source: Chicago Tribune

DES MOINES – Caucus day arrived Tuesday morning as Iowans would expect it: sunny, chilly and wonderfully unpredictable. By nightfall, Mitt Romney will know whether his carefully calibrated strategy paid off.

They call Iowa a three-person race between Romney, Rep. Ron Paul (Tex.) and former Pennsylvania senator Rick Santorum, the dark horse who suddenly emerged from back in the field in the final two weeks here. Any of the three might win, or so the gossip that is swapped as intelligence in hotel lobbies and at candidate rallies suggests.

Paul has his committed army and a turnout operation that has a good reputation but has yet to prove its mettle. Santorum is surging, or at least rising, and the shorthand on Iowa has always been to get hot late and ride the wave. Romney has a veteran operation and the longest initial list of supporters. Whatever. In reality, this contest is mostly about Romney — at least until one of the other candidates proves otherwise.

Months ago, the former Massachusetts governor and his campaign team were telling anybody who would listen that he couldn’t or wouldn’t win here. Memories of 2008 were still unhappy ones. Romney had poured millions of dollars into the state, won the straw poll in August 2007 and led in public opinion polls into the fall. Then he saw Mike Huckabee and his organic grass-roots organization suddenly rise up and overtake him in the final month. The loss was crushing.

There would be no repeating that sad exercise in this campaign, or so his team vowed. Among the lessons learned from 2008 was not to be put too many resources where they weren’t absolutely necessary. Headquarters slimmed down. Campaign events — other than fundraising — were fewer. Television interviews were kept at a minimum.

Iowa was Exhibit A of that change in thinking. Romney has been parsimonious about investing in Iowa from the start. When other candidates started making repeated visits in 2010 (remember Tim Pawlenty!), Romney stayed away. In the fall of 2010, he came to campaign for Terry Branstad, who was running (successfully) for governor, but barely left any footprints.

While other candidates put their hopes into Iowa—Santorum and Michele Bachmann particularly—Romney held back. He kept everyone guessing, and there were repeated waves of media stories saying, “Is he in or isn’t he? Is he trying to win or not?”

The shifting sentiments of Republican voters and the ups and downs of other candidates made decision-making at Romney headquarters that much more challenging, as the campaign tried to manage expectations and lay out a game plan for this first caucus state.

At different points over the past few months, Romney’s advisers have been presented with conflicting scenarios. At one moment it would be, “Well, with a little more effort, maybe victory is possible.” At another it might be, “Well, it will take a little more effort to avoid an embarrassing finish,” however defined.

Back in Iowa, his small team, led by strategist Dave Kochel, kept working the lists, maintaining contact with past supporters, showing up at party functions and tending to business.

Sometime in December, managing expectations became a losing proposition. Public opinion polls showing Romney narrowly ahead overrode the spin coming from the Romney team about “anything can happen.” Although not incorrect, that assessment was drowned out by everything else. Which is why on caucus morning, so much attention focused on the former governor.

Romney might not need to win here, but he is certainly in a position to do so, and victory would be particularly sweet if Paul and Santorum finished immediately behind him. That would relegate to fourth place or lower Texas. Gov. Rick Perry and former House speaker Newt Gingrich, the two rivals who have felt the negative sting of the Romney operation and who have been seen as the most threatening overall.

Romney would be happy to finish off the race as quickly as possible, although it seems destined to run through South Carolina and into Florida no matter what happens in Iowa and New Hampshire. His rivals have vowed to keep going. Several are largely avoiding New Hampshire (except for weekend debates) to campaign in South Carolina, where Romney doesn’t have the kind of built-in advantage that any Massachusetts politician has in New Hampshire.

Still, as caucus day opened, no one could say with any certainty what the order of finish would be. And so the wait began.

Source: Washington Post

Mayor Rahm Emanuel today said he erred last month when he said tighter protest rules and higher fines for thwarting police would be temporary measures designed just for a pair of spring meetings of international leaders in Chicago.

“I misspoke, and I take responsibility for the confusion,” Emanuel said at an unrelated news conference. The mayor meant to say that only the blanket spending authority for the G8 and NATO conferences, which he is seeking along with the other measures, would be temporary.

The mayor’s description of his errant statement came after protest leader Andy Thayer, noting today’s Tribune story that explained how the measures were permanent, accused the mayor of lying.

“Mayor Emanuel has frankly lied when he said that these ordinance changes would be temporary,” Thayer said. “He knew what it was about.”

Thayer and other members of the Coalition Against the NATO/G-8 War and Poverty Agenda this morning filed a permit application for a mass march on May 19 that would start at Daley Plaza and end at McCormick Place, where the NATO and G-8 summits are to be held.

Before filing the application, Thayer stood before a throng of television cameras, calling on Emanuel to reverse course on the proposed protest changes and aldermen to reject them before the Jan. 18 City Council meeting.

Don Rose, a political consultant who was an anti-Vietnam War spokesman during the troubled 1968 Democratic National Convention that led to riots, also spoke. He said tougher protest restrictions could trigger “acting out” by frustrated protestors seeking to peaceably demonstrate.

“I was one of the organizers when the whole world was watching, and I see some unfortunate parallels here,” Rose added, saying the “Battle of Michigan Avenue” was touched off in 1968 after marchers took to the sidewalks after being unable to get permits. “If they are serious about protecting first amendment rights, they will expedite and cooperate in giving the parade permits.”

Emanuel’s proposed new rules would double the maximum fine to $1,000 for protestors charged with resisting or obstructing a police officer, as well as those helping protestors escape custody. The minimum fine would soar to $200 — a $175 increase.

The duration of demonstrations would be reduced by 15 minutes to exactly two hours. Public parks and beaches would be closed until 6 a.m., two hours later than now. Loud noise, amplified sound and music at parades and public assemblies would be allowed only between 8 a.m. and 10 p.m.

“Every piece of sound equipment would need to be registered with the city a week in advance,” Thayer said, citing one of the proposed revisions he believes is unworkable. “You can’t predict who’s going to show up with a bullhorn, who’s going to show up with a megaphone or what have you.”

Emanuel, meanwhile, again said his intent is to allow world leaders to meet and conduct their business while also protecting protestors rights to free speech.

“Our fee structure hadn’t been updated in 20 years,” he said of the proposed fine increases. “We’re bringing it more in line.”

The NATO and G-8 summits are scheduled for May 19-21 at McCormick Place. Emanuel has stressed that the event in President Barack Obama’s hometown is a chance to showcase the city, while some observers note riots have resulted in other cities where those groups have met.

Emanuel was back on the job today with a tan after spending much of the last two weeks vacationing with his family in South America. The mayor, his wife, Amy Rule, and his three school-aged children went to Chile and Argentina on a 70-mile white water rafting trip. They also spent their time outdoors fly fishing and hiking, the mayor said. And the Emanuels brought in the New Year in Buenos Aires.

“Every year we try to take the kids to a different part of the world to see,” Emanuel said. “When you grow up again, you want to be an Emanuel child at some point.”

Source: Chicago Tribune 

In this Sept. 20, 2011 file photo, a phone is held in a car in Brunswick, Maine. Texting, emailing or chatting on a cellphone while driving is simply too dangerous to be allowed, federal safety investigators declared Tuesday, Dec. 13, 2011, urging all states to impose total bans except for emergencies. (AP Photo/Pat Wellenbach, File)

——————————————————————–

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.

——————-

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.”

——————–

Source:  The Washington Post

The newest Jerry Costello in Illinois politics says he’s proud of the family name and will strive to live up to it.

Jerry Costello II was sworn in Monday to fill a vacant seat in the Illinois House in a district that includes parts of Monroe, St. Clair, Randolph and Perry counties.

The son of Congressman Jerry Costello is an Army veteran and former police officer who’s worked as a financial adviser. He’ll complete the term of the newly retired state Rep. Dan Reitz. That term expires in January 2013.

The 42-year-old Smithton resident was picked by Democratic leaders from St. Clair, Monroe, Perry and Randolph counties. Costello’s Illinois House district covers all or parts of those counties.

The elder Costello has served in Congress since 1988.

—————————–

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

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.

——————————

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.

————————-

Source:  The New York Times