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Tapering No, Obamacare Yes

Federal Reserve Chairman Ben Bernanke surprised analysts on Wednesday by announcing there would be no tapering at this time. The announcement sent waves around the planet as global equities turned up sharply. US equities surged off the news and continued their upwards movement Thursday. It had been expected the Federal Reserve would announce initial tapering of between $10 and $20 billion per month.

Bernanke’s move was a pullback from his original tapering announcement in May, when he indicated a tapering in the $85 billion bond buying measure was likely in three months and that the program would end when US unemployment hit 7 percent, around the middle of 2014. Unemployment dipped to 7.3 percent last month but the progress is due to more people leaving the labor force and is not reflective of new job growth.

The Federal Reserve’s balance sheet is now at $3.6 trillion and growing every month. Bernanke’s decision not to taper will give the incoming Chairman, presumably Janet Yellen, a dove, greater flexibility to start and end QE3 according to her own standards. Further policy statements could be made at the October meeting but at this point it appears no trimming will take place before December.

Yellen will face major decision as soon as she takes the reins in February.

  • When to begin asset purchase tapering
  • When to halt the buying program
  • How much to taper
  • Whether to trim purchase of Treasuries or mortgage-backed securities first.

The announcement boosted equities and weakened the dollar. Yellen is due to make a high-profile speech in New York on October 1. Investors may get insight into future Federal Reserve policy at that time. President Obama may propose Yellen for confirmation as early as next week.

Canada And Mexico

Canada had one eye on the Federal Reserve decision and another on its weakening employment sector. However, August inflation fell to 1.1 percent from 1.3 percent in July. The Bank of Canada is expected to hold its interest rate at 1.0 percent, where the rate has been since September 2010.

On Friday, the Canadian dollar was trading at $1.0289 USD or at $0.9719, down from Thursday. The loonie had posted  significant gains immediately after Bernanke’s startling announcement. The benchmark 10-year Canadian bond held with a yield of 2.713 percent.

Board minutes from Mexico’s Central Bank showed the Board was divided over the lowering of interest rates earlier in the month. Mexico has reduced the interest rate to 3.75 percent, down 25 basis points. This marks the lowest  Mexican rates have been since before the recession in 2008.

Euro Watches German Elections

The USD moved up against a basket of currencies in early Friday morning trading. Immediately after Bernanke’s announcement on Wednesday, the dollar had slumped to 80.060. Friday morning, a slight comeback bumped the dollar to 80.37. Nervousness about an undefined Federal Reserve policy was weighing on the greenback.

All eyes in Europe are on the elections in Germany where Chancellor Angela Merkel is expected to win a third term. However, Merkel may lose control of Parliament as her centre-right coalition looks to be losing seats.

The euro was up 0.01 percent against the yen to 134.60. Against the USD, the euro was trading at $1.3545 Friday morning after striking a 7-month high on Thursday.

The dollar was flat at 99.39 yen. The yen endured a broad selloff on Thursday. The yen hit a 3-month low against the Australian dollar on Thursday and touched a 4-year low against the euro.

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Federal Reserve Uneasiness Weighing On Markets

Uneasiness about Federal Reserve policy and about the succession plan have sent equity markets into a tailspin and currency markets into a state of high volatility. On Monday, US equities posted their fourth consecutive losing day. In overnight trading, global shares again lost ground as concerns about the Fed weighed heavily on the global marketplace.

And, not to be overlooked is concern about who will replace current Fed Chair Ben Bernanke. President Obama has apparently narrowed the field to the two most popular candidates, former Treasury Secretary and former President of Harvard, Lawrence Summers, and current Fed Vice Chair, Janet Yellen.

As Obama considers his options and refines his choice, he seems to be adding additional weight to the job description. On Monday, the President addressed the lingering need for more legislation in line with the controversial 2010 Dodd Frank law. The President called upon regulators to move forward with much of the regulatory reform cited in the law that has been slow to develop. Only 40 percent of the new Dodd-Frank regulations have been implemented and some of the bill’s most protective regulations remain in flux, tied up between five groups of regulators who cannot agree on policy.

On Monday, the President called upon the Federal Reserve, the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau to more aggressively overhaul regulations and ensure protection against another meltdown similar to 2008.

The beleaguered Consumer Protection Agency has been leaderless since its inception. In July, the Senate finally confirmed long-time candidate Richard Cordray to lead the agency, which is charged with reforming a host of consumer credit products, including mortgages.

However, the new Fed czar will have to add tighter regulation to its list of primary responsibilities. For the past 5 years, Chairman Bernanke has concentrated upon jobs and inflation. With Obama’s new mandate, regulation will be a top priority. This announcement may give some insight into who the President favors to replace Bernanke.

Summers vs. Yellen

As the world watches this drama play out, the minutes from the last meeting are due out tomorrow. The Federal Reserve is also meeting this week at Jackson Hole. What markets want to know is when tapering will commence and to what extent. The lack of definition has created shifts in emerging economy currency markets and propped up British sterling and the euro.

However, global equity markets are uneasy fearing that money will become tighter in the world’s largest economy. Fiscal conservatives say a pullback from current stimulus spending is overdue. Less conservative economists believe there is nothing to fear and the Fed should continue its aggressive buying policy.

Conservatives are at peace with inflation and are content with the slow job growth. More liberal economists believe inflation is under control and there is no reason to halt bond buying until employment shows significant progress.

In the backdrop to the Summers – Yellen selection, the Federal Reserve will be closely watching the September bank stress tests. A spokesperson for the Fed said on Monday; “Large bank holding companies have considerably improved their capital planning processes in recent years, but have more work to do.” When the stress tests were applied in 2013, 18 banks were scrutinized. Beginning in September, 12 additional banks with assets of more than $50 billion will be added. In the round of testing concluded in March, JPMorgan Chase and Goldman Sachs were reprimanded. The spokesperson said that although 14 banks met Federal Reserve expectations, there were consistent issues with modeling techniques.

As the President considers the two possible new Fed leaders, Summers clearly has a higher profile than Yellen. However, many of Summers’ decisions and policies have been controversial and he has pulled back from many of his positions prior to the recession. Obama’s Monday declaration that regulation is an important part of the Federal Reserve may well shift the momentum to Yellen.

Summers, who served as Treasury Secretary under President Clinton, played an important role in overturning Glass-Seagall, which had restrictions between commercial and investment banking. This lack of regulation gave birth to the aggressive investment banking policies that helped create the financial meltdown and allowed for the creation of “Too Big To Fail “ banks.

Summers also supported a lack of regulation of the swaps market. The opposition allowed for the explosion of derivatives that were major causes in the collapse of the country’s financial institutions. Summers resisted and in fact is on record as scoffing at concerns that abuses in derivatives were putting the nation’s investment banks at risk.

Since 2009, Summers has reversed direction in keeping with Obama’s response to the challenges. As a trusted Obama adviser, Summers may have an inside track but his political history is muddled and unclear. Obama has consistently stated that regulators should not be politically connected. It would be difficult to distance Summers from politics.

During her tenure as President of the San Francisco Federal Reserve, Yellen saw the housing collapse coming before the actual meltdown. She spoke publicly about the risks and the exposure of the nation’s banks. Yellen warned that banks should be required to raise their capital requirements. As Vice Chair, Yellen has continued to call for higher standards.

If Obama can separate the politics from the mission at hand, Yellen appears the highly qualified choice. From a consistent policy standpoint and as an early advocate of tighter financial regulation, Yellen should be the candidate to take the reins from Bernanke. The possibility of her appointment and the undefined tapering policy are adding edge to the markets.

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Nervous Markets Await Fed and Employment

Nervous global markets anxiously await news from the US Federal Reserve and the new Labor Department unemployment data to be released on Friday. Improved data from Europe boosted European equity markets and raised the euro against the USD as the dollar regained footing against the yen.

Markets appear edgy about what Federal Reserve Chairman Ben Bernanke will announce regarding the possible tapering of the current stimulus. Most likely the news will be tempered at best. With unfavorable growth in GDP expected and with modest gains of about 185,000 new jobs expected, there simply is not enough impetus for the Fed to alter policy significantly, if at all. A gain of 185,000 jobs would trim unemployment to 7.5 percent, a step in the right direction but not a level likely to dissuade the Fed.

On Tuesday, US equities continued paring down but are poised to post record gains for the month. Eight of ten S&P 500 sectors declined for the day. All three major indices lost ground Tuesday. Yet, equities are ready to close the month with the sharpest gains since October, 2011. Early Wednesday trading indicated a rally in equities.

Also of interest to Wall Street is the successor to Chairman Bernanke. President Obama’s choice will likely influence markets with hawks boosting markets and selection of a dove bolstering the dollar.

The European Central Bank (ECB) is meeting this week and new forward guidance is expected from the ECB and from the Bank of England (BOE). The euro and the pound have strengthened in anticipation of new guidance and in response to encouraging data.

European equity markets closed flat for the day but the MSCI index of world stocks fell 0.5 percent.

Dollar Nervous

The dollar gained some strength overnight but slumped 0.5 percent against the yen on Tuesday to 97.93. Just last week, the dollar hit new highs against the yen. The dollar index briefly touched a five week low at 81.785.

Lee Hartman, a currency strategist with the bank of Tokyo explained; “The dollar faces a lot of key event risk in the week ahead with the release of the U.S. Q2 GDP report and the latest FOMC policy meeting on Wednesday, followed by the release of the U.S. employment report for July on Friday.”

The 10-year Treasury notes fell 3/32 with yields closing at 2.57 percent on Friday. Over the last two weeks, yields have ranged from a low of 2.l3 percent to a high of 2.63 percent, uncommon volatility. On July 8, 2013, yields hit 2.78 percent, a two-year high.

The German bund ended a comfortable bounce with a decline on Tuesday. Disappointing trade caused the decline.

Japan’s Nikkei touched a three-week low, sliding 3.3 percent. The stronger yen and poor data from Japan’s exporters hit equities unusually hard. The possibility of a new sales tax is weighing heavily on Japan’s economy.

Latin American Currencies

As the USD has strengthened and become more appealing to foreign investors seeking quality, Latin American currencies have suffered. As the Fed has considered tapering, Latin American currencies have fallen sharply over the past two weeks. A number of factors could continue to impact these currencies negatively in coming months.

Brazil’s industry index slumped to its lowest level in four years. The Brazilian real lost 0.4 percent on Tuesday on a sharp plunge in industry confidence.

  • The Mexican peso slid 0.6 percent to 12.7555 per USD, a two-week low.
  • The Chilean peso lost 0.7 percent to 511 USD, a one-month low.
  •  The Argentine peso shed 0.58 percent to 8.61 USD and has lost 21.25 percent this year.
  • The Mexican peso slid 0.6 percent to 12.7555 per USD, a two-week low
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Global Markets Await Federal Reserve Report

The two-day Federal Reserve meeting will conclude on Wednesday with Chairman Ben Bernanke scheduled to conduct a press conference following release of the much-awaited report. Global markets have experienced great volatility since Bernanke’s mixed message released on May 22, 2013.

Ever since, Bernanke has been in the news. On Sunday, President Obama suggested that Bernanke would be stepping down in 2014 after serving 8 years as Chairman. Bernanke’s handling of his press release in May, stirred concerns in global equity and currency markets. It is expected a more carefully worded explanation of current monetary policy will be put forth on Wednesday.

Economic data released today would support a continuation of the existing $85 billion per month bond buying policy. New home construction signaled a stronger recovery in housing that was indicated with strong starts in April. Housing starts are up 6.8 percent to a seasonally adjusted annual rate of 914,000 units. April’s report was also raised from 853,000 to 856,000 new starts.

New permits dipped below April’s strong performance but still reflect the largest number of permits for single family construction in five years. The construction industry has been hit hard by unemployment and contractors report difficulty finding qualified workers and a shortage of building supplies.

May’s 12-mointh core inflation rate remains below the Federal Reserve’s stated goal of 2 percent but does suggest stabilization. The overall CPI jumped 1.4 percent easing concerns about prolonged deflation. This data should not negatively affect the Fed’s decision to scale down its stimulus.

However, the “tapering” of the extraordinary support from the Federal Reserve will be forthcoming but with disappointing growth data from China, high volatility in Japan and unstable conditions in Europe, the dollar is expected to continue today’s improvements against international currencies.

Asian Currencies Decline    

In India and Indonesia, the strengthening dollar or the prospects of a stronger dollar have led to massive withdrawals by international investors. The Indian rupee closed in on another record low to 58.98 per USD compared to the record low of 58.69 set last week. India had attracted more than $12 billion in foreign investment since 2012. The fall could be more severe if markets get what they expect from the Fed’s two-day meeting.

In the last 17 trading session, foreign investors have been net sellers of more than $4.5 billion in Indian bonds.

Indonesia, another Asian entity that relies heavily upon a growing China, saw its rupiah fall 0.7 percent on Tuesday. The fall came on the heels of government action to reduce fuel costs. The central bank was forced to intervene.  The finance ministry was only able to raise 2.65 trillion rupiah of an 8 trillion rupiah offering.

Meanwhile, in the Philippines, the peso fell 0.8 percent to 43.22 USD. The Malaysian ringgit fell 0.8 percent to 3.1580 USD, its lowest rate since July 30, 2012.

If the Federal Reserve announces tapering of its stimulus, the outflows from these nations could be devastating. In Indonesia, foreign investors sold about $1 billion in bonds from May 31 through June 13, 2013. Foreign holdings decreased to 32.4 percent.

Dollar Rallies Against Yen  

Tuesday marked the second consecutive day that the dollar has made headway against the yen. Traders anticipate that Bernanke will extend the current buying initiative but add definition to the inevitable tapering. Tomorrow’s announcement should stabilize equity markets but also give strength to the USD.

Joe Manimbo, a senior market analyst at Western Union Business Solutions in Washington, echoed market sentiment; “The yen’s fresh leg lower today could be a sign that many investors think the Fed will signal a reasonable chance of a taper as later in the third quarter. The yen is seen vulnerable to less policy accommodation from the Fed, a move that would tend to put upward pressure on U.S. Treasury yields, burnishing the greenback’s allure.”

The USD rose 1.1 percent to 95.96 yen after falling to a two-month low of 93.78 yen on Thursday last week. The dollar has touched record highs against the yen since Prime Minister Shinzo Abe radicalized the nation’s currency policy by extreme monetary easing. The liquidity has given rise to Japan’s equities but has greatly weakened the currency.

The Euro Climbs

Despite disappointing data from Germany and the lowest demand for new autos, the euro rose to $1.3385. The climb was based on surprising report from ZEW data, a German analyst firm that showed investor sentiment was improved in June. The FTEU3 shares climbed 0.1 percent on Tuesday.

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Troubling Data Across The Board

Politics continued to plague the euro zone and US economies and China’s rising housing crisis added fuel to the fire as currency markets trembled under the weight. European and Asian equity markets slipped on Monday as the US markets trended down by midday.

The euro slumped to 1.30USD. Britain’s pound slumped to a 2-year low against the yen and to 1.50USD on Monday.

In the euro zone, the lack of resolution to last week’s elections had markets on edge. The yield on Italian bonds rose, but the lack of a permanent government has many economists worried about how ECB Chairman Mario Draghi can help the struggling economy. Without a government, no commitment of austerity can be made to the ECB thus sealing off the infusion of more euros.

In the US, markets received the news of the sequester without blinking but by Monday a sobering tone was noted in Washington. President Obama reached out to Congressional Republicans and to Democrats in the hopes of composing middle ground legislation.

Obama apparently asked for consideration of a new direction for the massive spending cuts, specifically throwing entitlement reform and tax reform on the table.  Several Republican s have said they would consider closing some tax loopholes as long as entitlement reform is art of the package.

Public consensus is that the US must deal every aspect of the entitlement scenario. A lack of progress will certainly affect every sector of the US economy.

A revealing report from China on 60-Minutes confirmed what many analysts already realize. The Chinese construction market is overdue for a slowdown. 60-Minutes showed cities of unoccupied, new housing. All apartments in the massive buildings are sold but they remain vacant, unaffordable for the majority of the population.

On Sunday, China announced that its residential construction sector had slowed to its lowest activity in five years. China added more damaging data indicating that factory output slowed to multi-month lows in February.

China is already curtailing its ever expanding residential development but the effects have yet to be felt. This could be a housing bubble that has the potential to dwarf the US housing collapse.

In the UK, the pound fell because of reaction to a decline in the construction industry. This decline could push the country into its third recession in five years.

The data has supported the Bank of England’s cries for further quantitative easing, but there is unrest throughout the economy. Ian Stannard, the Head of European FX Strategy at Morgan Stanley explained, “The construction PMI today was quite weak, but the really big one is the services PMI which comes tomorrow and if that comes in weak as well it would increase the possibility of further action at this week’s BoE meeting.”

Forecasts for a global slowing in 2013 seem more likely now that politics has entered the economic fray.

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Currency Manipulation Questioned At G-7

As an anxious world awaits President Obama’s State of The Union address, a bitter game of cat and mouse seems to be circulating global currency markets. At the center of the controversy is Japan’s yen causing the Group of Seven nations to call for cessation of devaluing of currencies to gain trade advantages.

Of late, currency markets have been volatile. As the USD has given ground to the euro, the euro has also soared against the yen. The euro has gained 24 percent against the yen in just three months. China has long been accused of manipulating its currency and international tensions are high.

Mario Draghi of the ECB spoke on Tuesday saying that exchange rates are equally important for growth and stability. Japan has implemented a large quantitative easing initiative that has lowered the US policy of continuing assistance from the Federal Reserve have kept the two currencies at low levels.

The US has made headway in its trade balance in the past two months with December closing the imbalance to its lowest level since the mid 1990’s. China also rode a strong export balance to its main buyers the US and Europe to a big spike in its January GDP.

Draghi said that he believes Spain is “on the right track” towards economic recovery. Meanwhile, Italy captured a significant windfall from its 2012 property tax enforcement. Italy collected 23.7 billion euros in property taxes, surpassing Treasury’s estimate by 1.2 billion euros.

It is expected that the windfall will be used to reduce the nation’s budget deficit below 3 percent of 2012 GDP. The target was 2.6 percent but analysts think that bar will not be achieved even with the windfall. The 2012 annual review will be published on march 1, 2013.

The US, Britain, France, Germany, Japan, Canada and Italy, the member nations of the G-7, was called to consider Tokyo’s expansive monetary policy. Reuters quoted a spokesperson for the G-7 as saying; “The G7 statement signaled concern about excess moves in the yen. The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend.”

The G20 finance ministers are scheduled to convene in Moscow this weekend. It is a full plate this time around and currency valuations will be at the fore.

Britain heads the G-8 which includes the G-7 nations and Russia and released a statement saying that as far as Britain’s easing and restructuring: “We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.” This is the intent of easing to assist national economies meet oppressive challenges.

Japan’s Finance Minister, Taro Aso, insists that the country’s policy is aimed at reviving the stagnant economy. It is unclear what leverage the G-20 has to stabilize the disparities.

Japan gained support for the US when Treasury official Lael Brainard told the media that the US recognized Tokyo as easing efforts as a remedy for the lackluster economy with massive unemployment.

Regarding the euro, France has been most vocal about setting a large for the currency that does not yield a competitive edge. Many euro members have concerns about the exchange rate but Germany lowered the anchor on such speculation. Finance minister Wolfgang Schaeuble said, “There’s no foreign exchange problem in Europe. There are concerns that there could be something like this in other parts of the world.”

Since December 2012, the euro has climbed 10 cents against the USD. This is the effect of the ECB tightening its balance sheet while Japan and the US continue to expand their easing programs.

Analysts hope that the President’s State of the Union will pave the way for a political compromise to reduce the deficit in reasonable terms and engage the public sector in a powerful growth initiative.

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Republicans Reeling, Boehner Surrenders

Republicans Reeling, Boehner Surrenders

House Majority Speaker, John Boehner, supposedly the most powerful Republican politician in the country, met his match Thursday in an embarrassing non-vote that once again demonstrates the ineptitude of the conflicted GOP. Boehner did not absorb the humiliating lack of support for his Plan B solution well. To put an end to the Republicans self-destruction mode, Boehner dismissed the House for the Christmas Holiday burying his head in the sand and leaving a concerned middle class wondering “who are those guys?”

Boehner turned the reins over to the Senate and President Obama and left middle class taxpayers hanging out to dry. The conservative Tea Party refused to support Boehner in his hour of need, making very clear that there are at least three political factions working against each other in Congress. While it is easy to criticize the politics, the middle class will pay their dues for not ousting Republicans from the House and Senate in the 2012 elections. The price will be a self-inflicted recession.

It is painfully clear that the majority of Republicans are more interested in standing behind Grover Norquist and the wealthiest 0.005 percent of the voting public than they are about preserving the nation’s credit rating or preventing a recession that could make the 2008 recession pale.

If there was ever doubt about the mechanics of Washington, they should be eliminated now. The international community appears a smoothly operating engine compared to the dysfunction that threatens to take the country apart. On the heels of the tragedy in Newtownn, Ct. Americans are struggling for identity socially, economically and financially. The morale of the country is low and the state of mind for middle class America, the apparent conscience of the country, is distraught. Soon to be bombarded by irresponsible tax increases, massive layoffs and more irresponsible politics, American consumers will hit the crisis mode when the bills for holiday shopping arrive. The middle class can soon look forward to working half the year to pay new taxes and new healthcare levies.

It’s a disaster. A disaster caused by political subsidies, self-interest and the absence of moderate politicians.

Senate Republican Leader, Mitch McConnell had the audacity to call the failure of his party to embrace a real problem, the President’s fault. In another self-serving, stumbling statement from the aged Republican, the Republican leader continued the rhetoric that has accomplished nothing in three years.

The Republican Party is broken and the sooner Americans fight back, the better. This is an inexcusable breach of the public’s trust. Last Monday, Boehner and Obama came to a sweeping tentative agreement. When Boehner returned to the dark corners of the House offices, the deal fell apart rapidly.

Boehner has no control He has fallen from the most powerful Republican in Washington to the depths of an impotent fraud, like the party he represents. Wake up America! This is a disgrace and if you do not pick up the phone and ruin Christmas and New Year’s for your representative, you have no one but yourself to blame.


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Fiscal Cliff Hostility

Has the fiscal cliff come down to this? With Europe entering another recession and with the billions of dollars of damages and millions of emotionally paralyzed Americans on the East Coast, do we need to take time out to remind Congress they need to do their job?

Americans placed their votes but Republicans still don’t get it. The majority of Americans rejected the Republican platform and supported the President’s position. The party has no credibility with the majority of voters and the divide is only going to increase in the next two years.

It is not President Obama that put us in this financial mess. It is Congress. It is the Republicans in the worst Congress in the history of the nation that have brought us to the fiscal cliff. Thank you Congress.

Now, these same Republicans are preventing a full-scale, comprehensive debt reduction plan that should surpass the Simpson-Bowles initiative; the bill the GOP prevented from coming to the floor two years ago.  One can only ask, “What moronic ideology do these numbskulls cling to?”

All one has to do is look at Eric Cantor to know he is a bad loser. Can you imagine Romney and Cantor whining in unison? No member of Congress has his self-interest at heart more than Eric Cantor. This guy loves the limelight. Unfortunately, he stands for everything that is wrong with the Republican Party. His constituents should be taken to the woodshed.

And, then there is Paul Ryan! This guy not only cost Romney any legitimate chance at the Presidency but could not deliver his home state. Ryan’s demeanor was so unappealing that he made Palin look like a wise choice. Ryan managed to make Joe Biden look like a gifted debater. If this guy runs for the top job in 2016, the Democrats will win in a landslide. What are his constituents thinking?

As for Boehner and McConnell, they are prehistoric remnants of a party that is in chaos and deteriorating from the core out. These guys make “conservative” smell like yesterday’s catch. How many more ludicrous politicians can these guys find? Is this what the Koch brothers wanted to buy?

When Alan Simpson and Erskine Bowles speak about the debt crisis in this country, they are believable. They have no vested interest in the outcome. Why can Republicans and Democrats not sit down, and use the Simpson-Bowles Deficit Reduction Plan as an blueprint for a grand solution to two unpaid wars, an unregulated Wall Street catastrophe and unacceptable unemployment numbers?

There are a number of reasons this country is in the shape it is but the primary ones are the Republican mandate to unseat Obama, at the expense of the American people, and the Grover Norquist Pledge.

Wake up! Barack Obama is the President of the United States. George Romney is sulking at home reveling in his undisclosed tax returns and making a fool of himself in post-election analysis. The President has twice been elected by a majority of Americans.

I don’t recall Grover Norquist’s name on any ballot. Nobody voted for this manipulator. I did not see an entity on my ballot that listed the Tea Party. So, why are Republicans allowing these influences to destroy conservative principles and our country at the same time?

Republicans need a shining star and it is not someone who insults women, Hispanics, blacks, gays or our young. Yesterday, 30 Republican Governors met in Las Vegas. The takeaway is that the party is in need of a fix from top to bottom and inside out. Is anyone on the Hill listening?

As for the matters at hand, the American people are prepared to pay down on our debt. We are exhausted with the rhetoric. There are no new arguments. We do not want a Band-Aid. We want a meaningful, clearly defined and balanced deficit reduction plan. When you are climbing a mountain, it is nice to know where the peak is.

We are tired of hearing what the political parties will not do. We are footing the bill for your sins. No more last minute negotiations! Just address the issues and provide viable solutions. Understand that group photo shots and disgraceful rhetoric is hurting national morale as much as your sins of the past.

America wants to re-take our global leadership role economically and socially. Put your personal agendas aside and do the right thing. After all, that is why you were elected.

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The Financial Cliff

The pressure is on in Washington. With President Obama returning to office and signs that some Republicans understand that the party’s ultra-conservative mindset does not resonate with the majority of Americans, it would seem the stage is set for meaningful solutions about the country’s bludgeoning debt. Congress will either follow the Obama lead or the country will fall off the fiscal cliff on December 31. 2012.

Given the erratic record of the Republican House, Americans are edgy about the possibility of a solution to a dilemma that could sink the economy. There is no historical support to think that Congress can coordinate a long-term solution to this pressing problem and place the country’s best interests ahead of their personal own politics.

The House of Representatives will once again attempt to hold Americans hostage, but this time they are negotiating with a President who will not be running for another term and who is committed to represent the middle class, or what is left of it. Analysts have suggested that a temporary debt reduction plan might be implemented but this would be the ultimate kick the can strategy. Americans expect meaningful action.

Three Wings of Fiscal Cliff

The fiscal cliff includes three main components. The temporary payroll tax reduction, the expiration of the Bush Tax cuts and $600 billion in spending cuts are in place to activate on the last day of the year. If negotiations about a remedy are not successful, every American taxpayer will have a heavier burden next year. This will dramatically cut back on consumer spending and severely hurt the Gross Domestic Product (GDP).

The payroll tax reduction has helped many Americans survive the recession and timid recovery. This reduction will most definitely expire.

The $600 billion cuts will cause loss of jobs and send shock waves through the economy. If a debt reduction plan is not in place by December 31, the defense department will suffer the biggest cutbacks.

Bigger Package Needed

As important as avoiding the fiscal cliff is, the country needs a substantial debt reduction plan. The most viable framework for a meaningful debt reduction initiative is the Simpson-Bowles, $4.6 trillion plan. While Simpson-Bowles is an aggressive approach to reduce the deficit, the country needs an even deeper plan.

Americans are exhausted with the dysfunction that has come to symbolize Washington. At a time when the US needs a balanced approach to reduce the debt, the Republican based Grover Norquist Pledge which opposes all legislation with a tax increase, could be the biggest fly in the ointment.

Two other flies in the ointment are Republican Vice Presidential candidate Paul Ryan, whose fiscal approach probably cost Mitt Romney the Presidency and Republican leader of the House, Eric Cantor. Cantor and Ryan have signed the pledge and cannot be relied upon to have any meaningful input in the negotiations. Frankly, the country would be better off if these two thugs were not re-elected.

The only hope to get a substantial deficit reduction plan in place lies with moderate Republicans, a dying breed in Washington. There are signs that the Senate is agreeable to a plan that crosses the aisle. The Congressional Budget Office reports that if a remedy for the fiscal cliff is not resolved, the economy will shrink by 0.5 percent during 2013. More importantly it is very possible that 5 million or more jobs will be lost in 2013, an outcome that apparently is acceptable to Cantor and Ryan. The country will find itself in a deeper recession than the previous recession.

David Cote, CEO of Honeywell explained the intense need for cooperation and action. “If the last debt ceiling discussion was playing with fire, this time they’re playing with nitroglycerin. If they go off the cliff, I think it would spark a recession that’s a lot bigger than economists think. Some think it would just be a small fire. I think it could turn into a conflagration.”

On Wednesday, President Obama met with a number of CEOs. Many of these CEOs are unsympathetic to the gridlock in Congress. Several major corporations have said they are hoarding cash and unwilling to invest in the US in the current political and economic climate. That possibility is another consequence of the fiscal cliff. Some of the country’s biggest corporations will invest in enterprises in other countries.

When the Bush Tax Cuts were introduced as a temporary tax reduction plan. They have been renewed every year since. The President ran on a platform of increasing the tax rate for workers who earn $250,000 or more. Ryan and Cantor are vehemently opposed to this approach despite the fact that many of the country’s wealthiest individuals have said they were amenable to the proposal.

Republicans favor changing the deductions, such as the interest paid on mortgages and other changes to add revenue. At a time when the country desperately needs positive news on the housing crisis, eliminating the deduction for interest would cripple the housing market further.

Just as Republicans did during the election, they continue to step on themselves. MSNBC reported that 60 percent of persons interviewed in exit polls favored tax increases for the nation’s wealthy. It is time for Congress to put their differences aside and negotiate in good faith for a long-term solution.

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Simpson-Bowles-Blankfein Over Ryan-Biden

In the US, there is a tradition of political debates. The US once had memorable debates. For the most part, the current debates are not only disappointing but reveal very little about the candidates or their solutions across a host of challenges..  The media would have us believe that everyone was waiting for another meaningless debate between VP Biden and VP candidate Ryan.

After two debates, viewers should be asking one big question, “What will change and how?” Here, we have two candidates for the Presidency of the US and not one word has been said about the fiscal cliff.

The fiscal cliff is scheduled for January 1, 2013. At that point, the payroll tax reduction will expire. The Bush tax cuts will expire and a series of budget cuts will be automatically triggered. This fiscal cliff will have serious, serious repercussions for the US and the global marketplace.

Vice President Joe Biden squared off against would-be Vice President, Paul Ryan, last night. After three minutes it was clear that this debate, like the debate between Obama and Romney, would be nothing more than name-calling, accusations and denial. Like the first Romney-Obama debate, nothing quantitative was put forth for voters to consider. It is clear that Romney is playing not to lose and that Obama is promising more for less.

The debate system is a media-driven farce. These are not debates. These are politicians doing what they do best; speaking loudly but never saying anything.

Last week, the consensus was that Romney defeated Obama in their first of three presidential debates.  There were no winners, just losers and those losers are us. If you can tell me how Romney will create tax reform, please send it in.

Obama mistakenly misunderstood his mandate during the first two years when he had the House and the Senate majority. He wasted those years. When gridlock set in, politicians put constituencies to the side while the people who pay political salaries were the losers. As both sides point fingers, there is nothing concrete and nothing responsible coming from either presidential candidate regarding the four internal fiscal crises facing the US. Those four crises are:

  • The Fiscal Cliff
  • The Bush Tax Cuts
  • The national debt
  • Unemployment

Romney says he has a plan.  If so, it must be a secret plan because he never presents facts. Romney appears to think he can win the office without revealing any specifics.

Romney makes bold promises. Lower taxes, fiscal responsibility, reducing the deficit, tighter border controls, cuts to education and increased defense spending and maybe a war or two mixed in with a less efficient healthcare system.

State or federal health insurance plans are expensive. But, it is more expensive to have the uninsured go to an emergency department and receive care. Rather than propose politically motivated solutions, let’s get to the core. If the US is to bring healthcare under control, billions of dollars could be saved every year by controlling the way healthcare providers operate and how they are compensated.

The US medical system, including Medicare, Medicaid and private insurance, is badly broken.  In this system, waste is everywhere. Insurance providers private and public, physicians, hospitals and care givers all know the system is deeply flawed. Before we change how persons will be treated, this country needs policies that dig much deeper into waste and corruption. The cost and availability of health insurance is not the major flaw in the system. The flaw is waste and corruption.

After running against national health during the Republican debates, Romney appears to have had a change of heart. Now, he favors state-sponsored health insurance programs, like he initiated in Massachusetts. Had he mentioned this at the Republican debates, he would not be a presidential candidate. Obama’s position on health insurance is clear.

Romney says he can fix the problems. Our poor educational system, which will suffer further budget hits under Romney, will come together and produce the greatest workforce on the planet. How is that possible?  We will add millions of jobs. How?  We will pay less in taxes and the government will shed jobs and everything will be fine.  How?

Meanwhile, Obama tries to smooth over the failings of the last four years. He identifies Ben Laden’s assassination and Obama-care as his two primary achievements. Granted he had a Republican Party that cared more about ousting Obama than they did their constituents, but it is his job to work on both sides of the aisle.

Romney believes in trickledown economics and Obama believes in trickle-up economics.

Romney says he will be aggressive with foreign diplomacy, especially in the Middle East. Can the US afford more loss of life and the massive, unfunded expenses of another war?

Obama prefers diplomacy and economic sanctions.  Obama’s strategy and strength is diplomacy. He regards economic sanctions as a major deterrent against terrorism.

Romney is a hawk, Obama a dove.        

Yesterday, Lloyd Blankfein, Alan Simpson and Eskine Bowles and CNBS commentator Steve Liesman had a compelling interview with CNBC. These fellows talked facts and reality.

It is clear that the financial markets believe the Simpson-Bowles budget and tax plan is the correct way to go. It is also clear that these very knowledgeable people subscribe to a balanced plan to reduce the country’s debt. Simpson-Bowles details how to handle the four major crises in a quantitative program of relief.

There will be pain and hardship but as the economy grows those difficulties will diminish. The burning question is why neither Romney nor Obama talk specifics the real issues. Obama has been battered by Republicans and can only say what he will try. Romney is afraid to alienate his fragile electorate.

The most terrifying threat to a reasonable American lifestyle does not lie in the Presidential election. Instead, the nation’s remedies rest on the composition of the Congress. Simpson and Bowles correctly identified the Norquist pledge as the major deterrent to an economic recovery. If pledge subscribers dominate the Republican Party, the next President will not have the capability to implement responsible legislation.

The time has come for the candidates to present the public with some specific changes and quantify them. The idea of voting for change verses no change is no on the table. Change is mandatory so can someone say precisely their plan to implement change across the land. Is forthrightness missing from the election experience? Our debates lack candidates that stand up and say what will do. Our debates are really about picking which untruth sounds better. How sad is that?”     

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