47% will pay no federal income tax

An increasing number of households end up owing nothing in major federal taxes, but the situation may not be sustainable over the long run.

By Jeanne Sahadi, CNNMoney.com senior writer

Last Updated: October 3, 2009: 2:58 PM ET

NEW YORK (CNNMoney.com) -- Most people think they pay too much to Uncle Sam, but for some people it simply is not true.

In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center.

Some in that group will even get additional money from the government because they qualify for refundable tax breaks.

The ranks of those whose major federal tax burdens net out at zero -- or less -- is on the rise. The center's original 2009 estimate was 38%. That was before enactment in February of the $787 billion economic recovery package, which included a host of new or expanded tax breaks.

The issue doesn't get a lot of attention even as lawmakers debate how to pay for policy initiatives like health reform, whether to extend the Bush tax cuts and how to reduce the deficit.

The vast majority of households making up to $30,000 fall into the category, as do nearly half of all households making between $30,000 and $40,000.

As you move up the income scale the percentages drop.

Nearly 22% of those making between $50,000 and $75,000 end up with no federal income tax liability or negative liability as do 9% of households with incomes between $75,000 and $100,000.

Of course, income taxes don't tell the whole story. Workers are also subject to payroll taxes, which support Social Security and Medicare.

When considering federal income taxes in combination with payroll taxes, the percent of households with a net liability of zero or less is estimated to be 24% this year, according to the Tax Policy Center's estimates.

A key reason why there is a zero-liability group at all is because the U.S. tax system is progressive. Those who bring in more money pay more than those lower down the income scale to support government functions such as national defense and social safety nets like Medicaid for those in need. That progressivity can be dialed up or down.

"Some think it's too progressive. Some don't think it's progressive enough," said Roberton Williams, a senior fellow at the center.

President Obama falls into the latter camp. He has proposed increasing the income tax burden on families making more than $250,000 and individuals making more than $200,000, while offering new measures to reduce the tax bite for most Americans making less.

One of Obama's proposals is to extend the 2001 and 2003 Bush tax cuts for everyone except high-income tax filers, which was the group that derived the most benefit from those cuts.

As a result, under Obama's budget, he would keep the ranks of the non-payers higher than they would otherwise be.

Why the tax-free matter

The question of who pays and who doesn't is not a trivial matter. But Washington policymakers are not dealing with it in an explicit way.

And that's a problem, given the country's fiscal outlook.

If asked to vote up or down on whether they are comfortable with such a large group of voters contributing no federal income tax or payroll tax revenue, the majority may well decide it is appropriate given the means of the households involved. Or they may decide that it's not.

Either way, that decision should inform the debate about the many costly policies and deficit-reduction strategies that lawmakers will be grappling with for years to come.

"As the number [of nonpayers] becomes larger, we have to question whether we'll make good decisions about how to allocate resources," economist George Zodrow, a professor at Rice University. "Most people don't understand how skewed the tax distribution is."

Experts say that to pay for all the things on the country's growing tab, the money can't just come from a shrunken pool of taxpayers.

"Over the long run, you'll have to have a broader base," Zodrow said.

First Published: September 30, 2009: 12:55 PM ET

Find this article at: http://money.cnn.com/2009/09/30/pf/taxes/who_pays_taxes/index.htm

After aneurysm, Assurant Health causes further headaches -- chicagotribune.com

After aneurysm, Assurant Health causes further headaches

Insurer began review of woman's records to look for pre-existing conditions, stalling payments

Jon Yates What's Your Problem?

September 29, 2009

• • X
    Hospitals and Clinics
    Migraine
    Health Insurance
    Emergency Planning
    Surgery
    Headaches

For a fleeting moment, Romy Kaminski pondered the idea of forgoing health insurance.

The 36-year-old Romeoville resident had just been laid off, and she knew she couldn't afford the $1,300 a month in COBRA payments for her family. She thought perhaps she could hold off until she got another job.

After sleeping on it a night, Kaminski changed her mind and decided she needed a safety net. On Feb. 1, she signed up for a no-frills, $225-a-month, catastrophic-only health insurance policy with Assurant Health.

But when catastrophe struck in March in the form of an out-of-the-blue brain aneurysm, Assurant balked on paying.

With Kaminski's medical bills totaling $279,721.14 and growing, the hospital sent her a letter this month demanding immediate payment.

"I never once in my mind thought this would be a problem," Kaminski said last week after contacting What's Your Problem? for help. "This is why I bought health insurance."

Kaminski's journey through the health insurance quagmire began after she suffered a series of excruciating headaches in February. The headaches were so severe that she spent three days in the hospital while doctors ran tests. The doctors found nothing abnormal and ruled that the episodes were intense migraines.

A month later, on March 13, Kaminski was waiting for a cab outside a hotel on Rush Street when she again was buckled by pain.

"It felt like someone had shot me with a gun in the back of my head," Kaminski said. "I said a lot of profanity. Then I passed out."

When she awoke, she was lying on the ground with paramedics hovering over her. She was taken by ambulance to Northwestern Memorial Hospital, where doctors discovered a ruptured aneurysm in her brain.

After emergency surgery, Kaminski spent almost two weeks in intensive care. She returned home, but later tests revealed the aneurysm had returned. On June 18, she had another surgery.

By then, she already knew she was in for a fight with Assurant. On May 14, she received a letter from Northwestern saying Assurant had not yet paid more than $200,000 in claims from her March surgery. The letter said the insurance company had embarked on a "pre-existing investigation."

Kaminski, a former benefits administrator for an insurance broker, took that as bad news.

"They're stalling, stalling, stalling," she said. "Delay and don't pay, that's their tactic."

More than four months after Assurant launched its investigation, the insurance company still was reviewing Kaminski's file, looking to see if there was anything in her past that would disqualify her for benefits.

If Assurant does not pay, Kaminski said, she would probably be forced to file for medical bankruptcy.

"I'm not scared because I don't have the money, so you can't make me pay something that's not there," she said. "You can't get blood from a turnip. I'm still laid off."

Kaminski said she's tried calling Assurant, but no one there will give her answers.

"I won't give up," she said. "I'll never assume responsibility for these bills no matter what it takes because I did the right thing and I insured myself in case of an emergency, and there was an emergency."

On Sept. 22, the Problem Solver called Peter Duckler, a spokesman for Milwaukee-based Assurant.

Duckler said privacy rules prevented him from discussing Kaminski's case. "We can never comment on an insured's coverage due to confidentiality issues," he said.

Still, Assurant took a fresh look at Kaminski's case.

On Thursday, a company representative called Kaminski and told her Assurant still hadn't received some of her medical records from Northwestern. The Problem Solver called Northwestern, which sent the records later that day.

On Friday, another Assurant representative called Kaminski and told her it had completed the review of her file. The representative told her the insurance company would start processing her claims immediately.

All $279,721.14 of them.

"They're going to pay them, it sounds like," a relieved Kaminski said.

Kaminski said she still hasn't received all of her bills, including several from her June surgery. Those likely will tack on thousands more dollars to her grand total.

No matter the tally, Kaminski said, she will only have to pay $5,000, which includes her $2,500 deductible and her plan's $2,500 out-of-pocket maximum.

"I'm smart," Kaminski said. "I made sure I was covered."

She also made sure she did not continue with Assurant. Kaminski said her original six-month policy expired at the end of July. After that, she went back on her former employer's HMO plan through COBRA.

SOURCE:http://www.chicagotribune.com/news/columnists/chi-tue-problem-insurance-0929sep29,0,1926150.column

Maximum Income Tax Rate - 1910 to 2003

SOURCE: http://www.heritage.org/

Graph

This graph is a plot of year (first column in the table) against the corresponding top marginal rate (second column in the table) (in blue). Where the top marginal rate on earned income differs (1971--1981), it is also plotted (in red).

SOURCE: http://www.truthandpolitics.org/top-rates.php

Lower the Retirement Age to 55 Now!

Cash for Geezers? Lower the Retirement Age to 55 Now!

One of the most powerful forms of stimulus we could apply to our economy right now would be to lower the current Social Security retirement age from the current 65-67 to 55, and increase the benefits back to where they were in inflation-adjusted 1960s dollars by raising them between 10 to 20 percent (so people could actually live, albeit modestly, on Social Security).

The right-wing reaction to this, of course, will be to say that with fewer people working and more people drawing benefits, it would bankrupt Social Security and destroy the economy. But history shows the exact reverse.

Instead, it would eliminate the problem of unemployment in the United States. All those Boomers retiring would make room in the labor market for all the recent high-school and college graduates who are now finding it so hard to find a job.

If enough Boomers left the job market, it would even flip the current dynamic of too-many-people-chasing-too-few-jobs upside down, and create a tight labor markets. Tight labor markets drive up wages.

And as wages go up, tax revenues – which are paying for Social Security (among other things) – would increase.

Additionally, these new-into-the-workforce people can then pay off student loans, buy new houses and cars, and otherwise drive the economy from the bottom up. Which will further increase tax revenues further strengthening the Social Security system.

To further tighten the job market and drive up wages (and tax revenues), modify the Fair Labor Standards Act of 1938 – which tightened the labor market and reduced unemployment by establishing the 40-hour work week – to include all hours worked by a person. We could also, like in France, drop the 40-hour maximum-workweek threshold to 35 hours (used by the Mitterrand government to successfully lower unemployment and stimulate the French economy). A final step would be to emulate the rest of the developed world and require by law that every worker get at least two to four weeks a year of paid vacation – further tightening the labor market.

In Uganda, Joseph Okwakoi gets it. He’s the president of the National Youth Council in that nation, a group that has considerable political power (and an affiliated Member of Parliament, the Central Youth Party’s Joseph Kasozi).

Earlier this month, Okwakoi called on Parliament and President Museveni to lower the age of retirement for government workers (the country’s largest employer) from the current 60 years of age to 55. This single act would instantly create about 15,000 job openings in the country, which could be filled by currently unemployed young people.

President Museveni replied that he’d consider it seriously, pointing out that, “The retirement age was actually 55 when we came but because of manpower shortage we put it at 60.” Now that the manpower shortage has eased, wages are falling, and unemployment is rising, he noted, “We shall study it.”

What Joseph Okwakoi understands is that there is a marketplace for labor. When the supply of labor exceeds demand, the price of labor (“wages”) falls. On the other hand, when the demand for labor is at or greater than the supply of labor, the price of labor – wages – increases.

This is the main reason why the labor movements of the 18th and 19th centuries fought so hard against child labor; they knew that if children were removed from the labor marketplace, then the supply of labor (the number of people available to work) would decrease and the price of labor (wages) would increase. And, sure enough, that’s exactly what happened – and it began the creation of a blue-collar middle class.

It’s also why the labor movement pushed for an 8-hour day and a 40-hour maximum workweek. By reducing the amount of labor available from each worker from the average 60 hours a week or so people were working before 1938, the labor market tightened up, increasing the number of people who could be employed and raising wages.

Of course, this is the exact opposite of American labor policy ever since the Reagan/Bush/Clinton/Bush era. Reagan drove down wages by busting unions (which tighten a labor marketplace); declared an amnesty for millions of then-illegal immigrant workers to increase the supply of labor and depress wages (particularly whacking the carpenters and other construction trades unions); and began the process (completed in a big way by Bill Clinton with NAFTA and GATT/WTO) of dismantling tariffs, taxes, and laws that made it expensive or illegal to export American jobs.

Reagan also put into the chairmanship of the Fed Alan Greenspan, who openly declared that his most important job as chairman of the Fed was to prevent “wage inflation” – a term which he exclusively applied to working-class people. Greenspan is still preaching that now-discredited and anti-American philosophy he learned from Ayn Rand, in fact.

Having already largely wiped out the ability of a blue-collar single-wage-earner family to have a middle class lifestyle over the past 30 years, Greenspan now wants to go after white-collar workers by eliminating limits on H1B visas for skilled workers ranging from computer programmers to physicians to scientists. The investor class would always be protected, in the Greenspan world, but the working class – regardless of skill level – should always be the working poor.

In September of 2007, in an interview on C-SPAN for Book TV, Greenspan said:
“We pay the highest skilled labor wages in the world. If we would open up our borders to skilled labor far more than we do, we would attract a very substantial quantity of skilled labor which would suppress the wage levels of the skilled, because the skilled are essentially being subsidized by the government, meaning our competition is being kept outside the country.”

It’s shocking that ideologues like Greenspan, Reagan, and Clinton believe this, but they do. And the only way to reverse the past 29 years of Reaganomics/Clintonomics is to tighten up the labor market again. While a great start would be to pull out of our insane trade treaties and begin again protecting American manufacturers, that will take a decade for the impact to be truly felt even if we were to go back to our 1980 tariff levels today.

But providing space for a good chunk of the 16 percent of the American workforce over 55 years old will immediately take us to nearly zero unemployment and dramatically stimulate the economy. Then we can begin to bring our manufacturing jobs back home from China and the other important steps (Medicare For All and Card-Check for unionization) to restore the strength and integrity our nation and national economy once had.

SOURCE: http://www.thomhartmann.com/2009/08/25/cash-for-geezers-lower-the-retirement-age-to-55-now/

Guess What? Unemployment's Really at 16.3 Percent

John Lott
- FOXNews.com
- August 07, 2009

Guess What? Unemployment's Really at 16.3 Percent

How is it possible for the unemployment rate to essentially remain unchanged when 247,000 jobs have been lost? Because the number of people who gave up and stopped looking for work rose dramatically.

The announcement today that the unemployment rate declined slightly to 9.4 percent in July while only 247,000 additional jobs were lost has been greeted as good news. The change in the unemployment rate puts the rate at what it was in May. Yet, even a rough look at the numbers indicates that the true unemployment rate has been getting significantly worse over the last few months.

How is it possible for the unemployment rate to essentially remain unchanged when 247,000 jobs have been lost? The reason is simple -- the number of people who stopped looking for work rose dramatically. Six hundred thirty-seven thousand additional people (637,000) no longer consider themselves looking for work. This is by far the largest drop in the number of people who consider themselves in the labor force during the last year. -- It is almost twice the 358,000 increase in the people who left the labor force during June and almost four times the average monthly increase of 167,333 over the last year. Jobs are sufficiently scarce and the prospects of people finding them at wages that they are willing to work for so low that many individuals don't think that it is worth their time to even look for a job.

Part of the drop in unemployment is also due to the fact that some people are running out of unemployment benefits and taking part-time jobs. There is usually a big increase in the rate that people find jobs during the last few weeks that they have unemployment benefits. In July 102,670 people saw their unemployment benefits run out. That number rose to 141,538 in August and is expected to soar to 486,049 in September. It will keep on rising each month hitting 1.5 million in just December alone. This past Sunday on ABC's "This Week" Treasury Secretary Tim Geithner only promised "to look very carefully at [these lost benefits] as we get closer to the end of this year." Larry Summers, President Obama's chief economic advisor, was similarly noncommittal when he was interviewed that same day on CBS's "Face the Nation."

If we include the normally counted number of unemployed as well as those who have recently given up looking for work and those who have taken a part-time low paying job because they can't find full-time work, the implication is that the unemployment rate for July would be at 16.3 percent These discouraged workers will again look for work once the economy starts to improve, but this 6.9 percentage point gap between publicly discussed unemployment rate and these discouraged workers is unusually large.

The changes in unemployment also mask the large drops that are still occurring in private employment -- construction, manufacturing, retail trade, and professional and business services all suffered large declines. The two of the three areas where employment has increased are government related, either education and health services or general government employment.

These changes do coincide with what is happening with GDP. During the second quarter the private sector kept on shrinking at an annual rate of 3 percent. Overall, GDP declined by "only" 1 percent at an annual rate, but that was because real federal government consumption expenditures and gross investment soared by 11 percent. Real state and local government consumption expenditures and gross investment increased, too, but by a more modest 2.4 percent.

The large and growing number of discouraged workers will make the real unemployment rate hard to bring down in the future.

John Lott is an economist and author of "Freedomnomics."

White House still warns of 10 percent jobless rate

White House still warns of 10 percent jobless rate

By BEN FELLER, Associated Press Writer Ben Feller, Associated Press Writer 2 hrs 56 mins ago

WASHINGTON – President Barack Obama on Friday welcomed a dip in unemployment as evidence "the worst may be behind us" with the recession well into its second year. Earlier, however, the White House said that the president still expects unemployment to hit 10 percent sometime later this year.

White House press secretary Robert Gibbs said the two positions don't contradict each other.
"I would describe the report that came out today as the least bad report that we've had in a year," Gibbs said. "But we still have a long way to go."

The new Labor Department numbers show that employers cut 247,000 jobs in July, another job loss but also the smallest reduction of any month this year. The unemployment rate dropped marginally from 9.5 percent to 9.4 percent, although one of the reasons for that change is that hundreds of thousands of people left the labor force.

"Today, we're pointed in the right direction," Obama said in brief remarks in the Rose Garden hours after the report was released. "While we've rescued our economy from catastrophe, we've also begun to build a new foundation for growth."

Even so, Obama said: "We have a lot further to go. As far as I'm concerned, we will not have a true recovery until we stop losing jobs." He also said he won't rest until "every American that is looking for a job can find one."

The president used the new jobs figures not only to pitch the benefits of the already passed stimulus package but also to press for policy changes on health care, education and energy that he seeks.

"We can't afford to return an economy based on inflated returns and maxed-out credit cards," he added. "It won't be easy. ... We have a steep mountain to climb and we started in a very deep valley." But he added that he was confident the country could pull itself out of the slump.

The initial White House reaction to the new employment numbers was mostly guarded.

"None of us loses sight of the fact that last month a quarter million people lost their jobs," Gibbs said. "The long-term unemployment rate is increasing. People are going to begin exhausting their even extended unemployment benefits soon."

"I think it's going to be quite some time before we start seeing genuine, sustained, positive job growth," the spokesman said.

Obama has urged Americans to be patient and give time for his $787 billion stimulus package of tax cuts and increased government spending to take hold. Gibbs contended there could be no doubt the stimulus plan has contributed to the slowing rate of job losses.

400,000 and 9.8%

Friday Look Ahead: July Job Losses Seen Slowing

Published: Thursday, 6 Aug 2009 6:51 PM ET

By: Patti Domm

July's employment report could show job losses abating more than expected, even as the unemployment rate creeps closer to 10 percent.

Wall Street economists were still crunching their forecasts Thursday, with some coming in well under what had been the street's consensus.

"The consensus is for right around minus 325,000 and that consensus has slowly risen, as evidenced by Goldman and Deutsche today. That tells me that if it's true, the position of the street is it's bracing for a stronger than consensus print," said RBS head Treasury strategist Bill O'Donnell. He said bonds had been pricing in some fear about the number. "For the bond market, the fear is a less negative number, which would be good for stocks."

Goldman Sachs economists Thursday trimmed their forecast from -300,000 to -250,000 and maintained an expected unemployment rate of 9.7 percent. Deutsche Bank chief U.S. economist Joseph LaVorgna revised his forecast for non farm payrolls to -150,000, from -325,000.

The improved outlook for jobs follows on a batch of raised expectations for third quarter GDP in the past week. Many economists now expect the quarter to show growth, based on recent economic data and some optimism that the automobile industry is gaining traction from the "cash for clunkers" program. The benefit from "clunkers" may be temporary, however.

"The economy is growing this quarter. I think the job loss has been extreme because a lot of it has to do with the financial crisis immediately following Lehman. If GDP is turning positive for the first time against that backdrop, it seems reasonable at some point that the rate of job losses would slow and slow quite markedly," said LaVorgna.

"When you're at an economic inflection point, as we are, we think right now the improvement in payrolls tends to be greater than the improvement in (unemployment) claims," he said.

On Thursday, the government said new claims for unemployment benefits fell to 550,000 last week, from a revised 588,000 the week earlier. Economists had expected 580,000 new claims.

Goldman Sachs economists, in a note, said one reason they changed their forecast is because of a stabilizing in the economy and an improvement in jobless claims, which indicates improvement in the labor market. Goldman pointed out that its view is for a better outcome even after correcting for the seasonal distortions created by the shut down of auto plants. It also notes that the short-term hiring and then firing of government census workers reduced payrolls by 49,000 in June.

However, Mesirow Financial chief economist Diane Swonk said she's sticking to her forecast for losses of 400,000 payrolls. "I actually think it's going to be a worse number, more like 400,000, but I'm not sure how relevant that is because we're going to see improvement in August and September given the (automobile) production schedule," she said.

"The other issue is the shadow unemployment rate. How are people who are so discouraged and long-term unemployed doing? These are the issues that are becoming part of the cost to the budget regardless of whether you a have stimulus or not. It really underscores that no matter how you cut it, it costs revenues when you have a recession. The other subplot is the chronically unemployed. It's a big deal," she said.

Swonk said the "shadow" unemployment rate — including the underemployed and people who no longer look for jobs — is about 16 or 17 percent.

While manufacturing job losses may show some signs of abating, previously strong areas like health care and education should show reductions. "A lot of hospitals are cutting back. They're cutting back on administration," she said.

One sector that may see a pickup sooner than others is small business. If you look at statistics provided by the National Federation of Independent Business, which represents small business, it sees the unemployment rate lower by October, at 9.1 percent. This contrasts with the expectation of most Wall Street economists, who believe the unemployment rate will continue to climb and peaks at double digit levels some time between late this year to mid next year.

William Dunkelberg, an economist for the group, reports that small businesses were still shedding jobs in July — with 24 percent surveyed reducing employment by 4.1 workers.

"I looked at the July numbers and by industry and by region, everything was flat to down...As far as job creation, we need the consumer to come back," he said.

In the next three months, the NFIB's survey shows that 14 percent of the businesses plan to reduce employment, while 9 percent plan to create new jobs. Owners are also cutting compensation as well.

The NFIB's forecast tends to forecast the actual unemployment rate fairly well, if you look at a chart. Dunkelberg said it went off course once, during the recession of the early 1980s.

"Fortunately we don't have a lot of recessions to look at. I think it probably squares up with me okay because we're not firing as many people ... that could bring the unemployment rate down. It's still very high, " he said. "If we quit firing people, the unemployment rate will come down. Even in the best of times of 4.5 percent unemployment — there are 350,000 people every week filing for unemployment claims."

Dunkelberg also said the summer is a slow season for hiring and fall hiring doesn't show up until August and September.

Stocks traded in a narrow range Thursday, in subdued trading ahead of the jobs report. The Dow as down 24 at 9256, while the S&P 500 was down 5 at 997, its first close below 1,000 since last Friday. The worst performers were defensive telecom, down 1.2 percent and health care, off 1 percent. Industrials were the best performer, up 0.6 percent.

Bonds drifted in slow trading. "If you look at the 10-year, they were sharply unchanged," said O'Donnell.

The 10-year was trading 3.76 percent. The dollar was slightly higher and commodities were mostly lower.

Besides the 8:30 employment report, other data includes consumer credit at 3 p.m. AIG reports earnings Friday. The stock has moved sharply higher this week, in what traders describe as a short squeeze.

Questions? Comments? marketinsider@cnbc.com

© 2009 CNBC.com

Why Obama Likes His Odds

Why Obama Likes His Odds
By E.J. Dionne Jr.Monday, July 20, 2009
It was not the soaring rhetoric that is Barack Obama's signature, but he recently offered the sound bite that may define his presidency: "Don't bet against us."

There are reasons to believe that his confident words -- they were about health-care reform but have broader application -- were not the bombast of a bluffer exaggerating the strength of his hand. They reflect the high cards that Obama holds and has only now started to play.

Of course, no one ever thought passing a health-care bill would be easy, and the effort hit some bumps last week over costs and how to cover them.

But Obama doesn't quite see things the way his more nervous Democratic allies do because he missed the years in Washington during which his party was beaten down. Many Democrats had their perceptions of political reality shaped by the failure of Bill Clinton's health proposal, the 1994 Republican revolution and the GOP's triumphalism during President Bush's first term.

That world, however, turned upside down in 2005 -- the year Obama arrived in Washington. Bush's power dissolved in the failure of his Social Security privatization proposal, the Hurricane Katrina backlash and rising disillusionment with the Iraq war. By the end of 2006, less than two years after Obama's arrival, Democrats had seized control of both houses of Congress.

The paradox is that Obama's limited experience under Republican sway makes him more comfortable than many of his allies are with wielding the power that comes from large Democratic majorities.

And it's real power. Nothing made that clearer than the trajectory of Judge Sonia Sotomayor's Supreme Court nomination battle -- or non-battle.

It has often been said that Republicans have not put up much of a fight against her, but the reason for their pacifism is rarely mentioned: Republicans were severely constrained simply because they lack numerical clout.

Had the Senate been more closely divided, the GOP might have mounted a more aggressive campaign that, if nothing else, could have raised the cost for moderate Democrats of supporting Sotomayor. But knowing they'd never get the votes to stop her, Republicans decided to wait for a more opportune moment to pick a real fight.

The numbers work Obama's way on other issues. Much was made of the 44 House Democrats who defected from the president's position by opposing the cap-and-trade bill last month. The more important fact is that Democrats have such a big majority that they could lose all those votes and still prevail, even if narrowly. The same numbers give Speaker Nancy Pelosi significant room to maneuver in selling the House health-care bill.

And with 60 votes in the Senate, Democrats can, in principle, work their will on health care without any Republican support. Obama is bound to make compromises, partly to bring along moderate Democrats. But the size of the Democrats' Senate majority means they won't be able to blame the Republicans if health reform dies. This increases the pressure on moderate Democrats to get something done.

There is thus an irony to the game Obama must play. He will continue to speak in bipartisan terms to keep open the possibility of picking off Republicans if they're needed -- Sen. Olympia Snowe (R-Maine) already seems inclined to work with him -- and because such an approach appeals to moderate Democrats whose sensibilities he must soothe.

The open-to-the-other-side style also helps him hold support from political independents around the country. He needs them to preserve his good approval ratings, which are themselves a form of political capital.

But Obama must simultaneously convince Democrats that they are not living in the Republican congressional eras of 1995 or 2003 -- that if it's necessary, they have the strength on their own to win. This was the implicit message Obama conveyed to Sen. Max Baucus (D-Mont.) to push him to conclude his frustratingly protracted health-care negotiations with Republicans in the Senate Finance Committee.

Getting Baucus to move this week is essential to maintaining momentum. If Obama seems likely to win, interest groups will be more forthcoming, his own party will be more likely to hold together and more Republicans will be inclined to cut a deal.

And that, finally, is why Obama wants to make sure his party bets with him, not against him. His core message to fellow Democrats is that the only things they have to fear are the fears and insecurities bred into them when they were a battered minority. Obama is free of those doubts because he never knew them.

ejdionne@washpost.com

SOURCE: www.washingtonpost.com

Reagan's Net Approval and Unemployment Rate 81-88

SOURCE: http://www.realclearpolitics.com/horseraceblog/2009/06/reagan_obama_and_presidential_1.html

Pentagon Pulls Question That Called Protests a Form of Terrorism

Pentagon Pulls Question That Called Protests a Form of Terrorism

Thursday, June 18, 2009

By James Osborne

The Pentagon has removed a controversial question from its anti-terrorism training exam that labeled “protests” a form of “low-level terrorism,” calling the question “poorly worded.”

A Pentagon spokesman said the question failed to make clear the difference between illegal violent demonstrations and constitutionally protected peaceful protests.

Civil libertarians and activist groups, interviewed by FOXNews.com for a story that appeared on Wednesday, had objected strongly to the exam question, which a Department of Defense employee had printed and given to the American Civil Liberties Union.

The question asked:

“Which of the following is an example of low-level terrorism?”

— Attacking the Pentagon

— IEDs

— Hate crimes against racial groups

— Protests

The correct answer, according to the exam, was "Protests."

“They should have made it clearer there’s a clear difference between illegal violent demonstrations and peaceful, constitutionally protected protests,” Pentagon spokesman Lt. Col. Les Melnyk said on Thursday.

Asked when a protest becomes an “illegal, violent demonstration,” Melnyk said, “I’m not a lawyer. I couldn’t get into the specifics of when you cross the line.”

“If you’re doing physical damage to people or property, that could fall into that,” he said.

The ACLU had written a letter to the Pentagon last week asking it to remove the question from the exam, which is a part of defense employees' routine training.

The Pentagon will not try to identify the employee who printed out the question and gave it to the ACLU, Melnyk said.

“Sharing that with the ACLU wouldn’t be any sort of misconduct,” he said.

Of the Defense Department’s 3 million employees, 1,546 took the exam, Melnyk said. All will be sent e-mails “explaining the error and the distinction between lawful protests and unlawful violent protests,” he wrote in an e-mail.

He added that many Defense employees work in countries where violent demonstrations are regular occurrences.

“In those situations, that anti-Americanism might be taken out on an American in the crowd,” Melnyk said.

George Martin, national co-chairman of United for Peace and Justice, an anti-war group, said he was satisfied with the decision to remove the question.

"There is a distinction between legal, non-violent action and violent demonstrations. That’s where the mainstream peace movement comes from," Martin said.

"I'm glad to see that question was removed. How the government directs its employees to deal with its citizens is critical."

Ann Brick, an attorney with the ACLU, said "I'd like to talk to them about what steps they're going to take to make sure mistakes like this don’t happen in the future.

"There's a need for some education, not just for the people taking the course, but for the people designing these tests. They need some education in fundamental constitutional principles."

Earlier this week, Brick called the question “part of a pattern of equating dissent and protest with terrorism.”

"It undermines the core constitutional values the Department of Defense is supposed to be defending,” Brick said, referring to the First Amendment right to peaceably assemble.

The language of the question raised flags across the political spectrum, with both anti-war demonstrators and tea party participants interpreting it as an indication of the Pentagon’s indifference to citizens’ civil liberties.

“To equate that in any degree with citizens being able to express themselves seems to me to be headed down a road where all dissent is suspect and questionable,” Bill Wilson, president of the Americans for Limited Government, said on Wednesday.

The recession tracks the Great Depression

The recession tracks the Great Depression

By Martin Wolf

Published: June 16 2009 19:41 | Last updated: June 16 2009 19:41

Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one.

Two economic historians, Barry Eichengreen of the University of California at Berkeley and Kevin O’Rourke of Trinity College, Dublin, have provided pictures worth more than a thousand words (see charts).* In their paper, Profs Eichengreen and O’Rourke date the beginning of the current global recession to April 2008 and that of the Great Depression to June 1929. So what are their conclusions on where we are a little over a year into the recession? The bad news is that this recession fully matches the early part of the Great Depression. The good news is that the worst can still be averted.

First, global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely. Within Europe, the decline in the industrial output of France and Italy has been worse than at this point in the 1930s, while that of the UK and Germany is much the same. The declines in the US and Canada are also close to those in the 1930s. But Japan’s industrial collapse has been far worse than in the 1930s, despite a very recent recovery.

Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression. Indeed, the decline in world trade in the first year is equal to that in the first two years of the Great Depression. This is not because of protection, but because of collapsing demand for manufactures.

Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression.

The two authors sum up starkly: “Globally we are tracking or doing even worse than the Great Depression ... This is a Depression-sized event.”

Yet what gave the Great Depression its name was a brutal decline over three years. This time the world is applying the lessons taken from that event by John Maynard Keynes and Milton Friedman, the two most influential economists of the 20th century. The policy response suggests that the disaster will not be repeated.

Profs Eichengreen and O’Rourke describe this contrast. During the Great Depression, the weighted average discount rate of the seven leading economies never fell below 3 per cent. Today it is close to zero. Even the European Central Bank, most hawkish of the big central banks, has lowered its rate to 1 per cent. Again, during the Great Depression, money supply collapsed. But this time it has continued to rise. Indeed, the combination of strong monetary growth with deep recession raises doubts about the monetarist explanation for the Great Depression. Finally, fiscal policy has been far more aggressive this time. In the early 1930s the weighted average deficit for 24 significant countries remained smaller than 4 per cent of gross domestic product. Today, fiscal deficits will be far higher. In the US, the general government deficit is expected to be almost 14 per cent of GDP.

All this is consistent with the conclusions of an already classic paper by Carmen Reinhart of the university of Maryland and Kenneth Rogoff of Harvard.** Financial crises cause deep economic crises. The impact of a global financial crisis should be particularly severe. Moreover, “the real value of government debt tends to explode, rising an average of 86 per cent in the major post–World War II episodes”. The chief reason is not the “bail-outs” of banks but the recessions. After the fact, runaway private lending turns into public spending and mountains of debt. Creditworthy governments will not accept the alternative of a big slump.

The question is whether today’s unprecedented stimulus will offset the effect of financial collapse and unprecedented accumulations of private sector debt in the US and elsewhere. If the former wins, we will soon see a positive deviation from the path of the Great Depression. If the latter wins, we will not. What everybody hopes is clear. But what should we expect?

We are seeing a race between the repair of private balance sheets and global rebalancing of demand, on the one hand, and the sustainability of stimulus, on the other.

Robust private sector demand will return only once the balance sheets of over-indebted households, overborrowed businesses and undercapitalised financial sectors are repaired or when countries with high savings rates consume or invest more. None of this is likely to be quick. Indeed, it is far more likely to take years, given the extraordinary debt accumulations of the past decade. Over the past two quarters, for example, US households repaid just 3.1 per cent of their debt. Deleveraging is a lengthy process. Meanwhile, the federal government has become the only significant borrower. Similarly, the Chinese government can swiftly expand investment. But it is harder for policy to raise levels of consumption.

The great likelihood is that the world economy will need aggressive monetary and fiscal policies far longer than many believe. That is going to be make policymakers – and investors – nervous.

Two opposing dangers arise. One is that the stimulus is withdrawn too soon, as happened in the 1930s and in Japan in the late 1990s. There will then be a relapse into recession, because the private sector is still unable, or unwilling, to spend. The other danger is that stimulus is withdrawn too late. That would lead to a loss of confidence in monetary stability worsened by concerns over the sustainability of public debt, particularly in the US, the provider of the world’s key currency. At the limit, soaring dollar prices of commodities and rising long-term interest rates on government bonds might put the US – and world economies – into a malign stagflation. Contrary to some alarmists, I see no signs of such a panic today. But it might happen.

Last year the world economy tipped over into a slump. The policy response has been massive. But those sure we are at the beginning of a robust private sector-led recovery are almost certainly deluded. The race to full recovery is likely to be long, hard and uncertain.

martin.wolf@ft.com
More columns at www.ft.com/martinwolf

* ‘A Tale of Two Depressions’, June 2009, www.voxeu.org; ** ‘The Aftermath of Financial Crises’, Working Paper 14656, www.nber.org.

Copyright The Financial Times Limited 2009

India lodges protest against Chinese drugs with fake 'Made in India' tag

India lodges protest against Chinese drugs with fake 'Made in India' tag 12 Jun 2009, 0509 hrs IST, TNN

NEW DELHI: India has asked the Chinese government to take action against bootleggers who are making fake drugs and shipping them abroad with `Made in India' tags as a tactic to cover the origin. The commerce department has lodged a complaint with the Chinese embassy here and the Indian embassy in Beijing has been asked to push for action against the impostors. The Indian action comes after Nigeria's pharma regulator reported the detention of a large consignment of fake drugs for treating malaria. The consignment carried `Made in India' labels but was produced in China. A laboratory test of the consignment of Maloxine and Amalar tablets proved these were fake. Had the drugs flowed into the market, over 600,000 lives would have been affected. After getting information from Nigerian authorities, the Indian high commissioner in Nigeria indicated that the consignment containing drugs were produced, packed and shipped from China. Fake Chinese drugs with `Made in India' tag hurts reputation of Indian pharmaceuticals industry and is expected to give rise to more trouble for genuine Indian consignments to Africa and elsewhere transiting through Europe. The government is making efforts at brand promotion of Indian pharmaceuticals and generic drugs in Africa. An Indian delegation recently met African health ministers and officials to assure them that genuine Indian generic pharma was as safe as patented versions and was available at more reasonable prices. The African ministers were also informed that the Indian government had launched a massive offensive against manufacture and sale of spurious medicines. Drug Controller General of India regularly conducts on-the-spot inspections and lift samples at random. A study of samples of drugs tested all over the country in the last 4-5 years revealed that about 0.3% to 0.4% of around 40,000 samples fell within the category of spurious drugs.

Projection: It'll be years before jobs return to much of U.S.

Projection: It'll be years before jobs return to much of U.S.

By Tony Pugh McClatchy Newspapers

WASHINGTON — Unlike the labor market collapse that killed millions of U.S. jobs in a matter of months, the nation's return to peak employment will not be nearly as uniform nor as swift.

While signs indicate that the worst of the recession may be over, only six metropolitan areas across the country are expected to regain their pre-recession employment levels by the end of 2009, according to projections from IHS Global Insight, a leading economic forecaster.

The areas poised for a jobs rebound later this year are: Anchorage, Alaska; Champaign-Urbana, Ill.; Coeur d'Alene, Idaho; Columbia, Mo.; Laredo, Texas; and the Houma-Bayou Cane-Thibodaux areas of Louisiana.

Only five areas are expected to see a similar jobs recovery in 2010: Las Cruces, N.M. and El Paso, San Antonio and the McAllen-Edinburg-Pharr and Austin-Round Rock areas of Texas.

Most of the country — 286 of 325 metro areas covered in the IHS analysis_ aren't likely to regain their pre-recession employment levels until at least 2012.

Of these areas, 112 probably won't return to their recent peaks until 2014 or later. These include Rust Belt towns such as Cleveland, Dayton and Akron, Ohio; Detroit, Warren and Flint, Mich.; the hurricane-ravaged Gulfport-Biloxi, Miss., area and the greater Los Angeles region, where the housing bubble and high unemployment have strangled the local economy.

The bleak jobs picture underscores the long, tough road ahead in rebuilding the U.S. economy after the worst recession since the Great Depression.

Of the 6 million jobs lost since the recession began 18 months ago, nearly 4 million were eliminated between November and April. The six-month freefall included a record four straight months with more than 600,000 job losses.

"This recession is unique because of the way it leveled the playing field," said James Diffley, IHS managing director of U.S. regional services. "The precipitating factor, after housing, was the finance industry, and that affected everybody. Now everybody's cutting back on debt, and the banks are being more cautious about lending, so there's less spending. All those things mitigate against a quick turnaround."

The IHS analysis covers 325 of 363 U.S. metropolitan areas, or population centers, as defined by the Census Bureau. Thirty-eight metro areas weren't included because of a lack of government data, said Jeannine Cataldi, an IHS senior economist.

Diffley said the projections reflect a local economy's response to various economic factors based on a statistical analysis of recent history.

IHS expects Texas, Oklahoma and Alaska to be among the first to match their previous employment peaks because their economies never fell as far as those in the rest of the country.

All three states are dominated by the energy industry and are benefitting from rising oil prices. They also have lower unemployment rates than the national average and have weathered only light-to-moderate job losses compared to the rest of the country. In April, Alaska was one of two states that had more people employed than it had in the previous year.

In addition, none of the states has suffered through the kind of major housing bubble that has sapped housing wealth nationwide. In fact, Alaska has one of the nation's lowest foreclosure rates.

Michigan, Ohio and Indiana, on the other hand, will take years to recover from manufacturing job losses, particularly in the troubled automobile industry.

President Barack Obama this week said that he expects the economic stimulus bill to create 600,000 jobs over the next 100 days, but most economists expect the economy to continue bleeding jobs for the foreseeable future.

"Although we expect the economy to bottom out in GDP terms during the second half of the year, job losses should continue throughout 2009, with the unemployment rate peaking just above 10 percent," said IHS chief U.S. economist Nigel Gault in a recent letter to investors. "We still expect total job losses to exceed 7 million. But the worst news is behind us, and employment declines should progressively soften as the year proceeds."

In fact, by the end of the year, the economy is expected to begin adding jobs. "We'll start to have an uptick, but it won't be very strong," Diffley said.

At least not until mid-2010, when a majority of states are likely to be adding jobs, Diffley said.

Expect much of the new job growth to occur in areas where the population is growing, Cataldi said. Many of the new jobs will be in the areas of professional and business services.

"We expect that to be a large growth sector going forward," Cataldi said.

SOURCE: http://www.mcclatchydc.com/227/story/69823.html

Roubini: Emerging Markets Will End Dollar's Reign

Roubini: Emerging Markets Will End Dollar's Reign

By: Reuters 16 Jun 2009 02:38 PM ET

The influence of emerging markets in the world economy will continue to expand and ultimately contribute to ending the dollar's reign as global reserve currency, economist Nouriel Roubini said on Tuesday.

Roubini, who predicted the current financial crisis, said at a Reuters Investment Outlook Summit in New York "the rise of emerging markets is a fundamental change" and predicted China's economy will eventually grow larger than that of the United States'.

China and other heavyweight emerging economies such as Russia and Brazil are now among the top U.S. creditors, and as they grow stronger will gradually lose appetite for financing rising U.S. budget and current account deficits, he said.

"Over time, the willingness of the U.S. creditors to finance (U.S. spending) and buy dollar reserves is going to be reduced," Roubini said. "People are getting nervous rightly about us devaluing or inflating our way out of the debt problem and causing real losses on the holdings of those assets."

The process of moving away from the dollar, however, will take many years, said Roubini, who is chairman of New York-based research firm RGE Monitor.

"Declines of major reserve currencies do not occur overnight. It's a slow process that takes decades," he said, noting the gradual shift in the 20th century from sterling to the dollar. "This century could be the Asian or Chinese century, but that will occur over time."

For now, he said China and others with large dollar holdings have no choice but to keep accumulating dollar assets.

Otherwise, they would face upward pressure on their currencies and an accelerated decline in exports.

Emerging market heavyweights Brazil, Russia, India and China, also known as the BRICS, who were meeting in Russia on Tuesday called for a "diversified, stable and predictable currency system."

Though they did not explicitly mention the U.S. dollar or an alternative supranational reserve currency, Chinese and Russian officials in recent months have questioned the dollar's ability to remain the world's currency of choice.

Roubini said some emerging markets are in better shape than others, however, citing Mexico, Poland and Colombia as examples of countries well-placed to weather the financial crisis.

That is less the case in Eastern Europe, where the International Monetary Fund has initiated aid programs for Hungary, Ukraine, Romania and Latvia.

Latvia's economy may contract by up to 20 percent in 2009.

The government has resisted pressure to devalue its currency because of the Baltic country's high foreign currency debt burden and Swedish banks' exposure to its economy.

But Roubini said efforts to maintain the lat's peg to the euro are doomed.

"Devaluation in Latvia is unavoidable at this point. If you don't do it, the economic contraction, depression, debt deflation will only get worse," he said.

To prevent the currency from plunging uncontrollably, he said the European Central Bank might consider "euroization," though he conceded this could be a tough sell in Frankfurt.

Copyright 2009 Reuters.

1 of every 6 dollars of Americans' income is government check or voucher...

Benefit spending soars to new high
1h 12m ago By Jay LaPrete for USA TODAY

A customer paying with a "food stamp" card at a Kroger store in Columbus, Ohio. Enrollment for food stamps hit a record 33.2 million people in March, up 5.2 million from last year.

By Dennis Cauchon, USA TODAY

The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans' income is now coming in the form of a federal or state check or voucher.

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That's the highest percentage since the government began compiling records in 1929.

In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show. Benefits rose at a 19% annual rate in the first quarter compared to the last three months of 2008.

The recession caused about half of the increase, according to the report. Unemployment insurance nearly tripled in the past year. The other half is the result of policies enacted during President George W. Bush's first term.

Following the 2001 recession — when costs normally decline — social spending soared to pay for the Medicare drug benefit, expanded health care for children and greater use of food stamps.

The safety net is working, advocates say.

"We're not seeing the hunger we saw in the 1930s because the food stamp program is doing what it's supposed to do," says Florida food stamp director Jennifer Lange.

What's driving the $209 billion increase in benefit costs from a year ago:

•Unemployment insurance. One-fourth of the extra spending covers jobless benefits, a program started in the Depression. The stimulus law, passed in February, increased benefits.

• Social Security. The bad economy has prompted a 10%-15% jump in early retirements, the program's actuary says. A 5.8% increase took effect January 1. Bottom line: $55 billion in new costs.

• Food stamps. Enrollment hit a record 33.2 million people in March, up 5.2 million from last year. The stimulus law boosted the size of the benefit. Average March benefit: $114 per person.

"The increase in social spending is still relatively modest given the severity of the downturn," says economist Dean Baker of the liberal Center for Economic and Policy Research. "We're not France."

Adam Lerrick, economist at the conservative American Enterprise Institute, says the benefits' explosion will eventually lead to an economic crisis.

"We've seen this movie before in many countries. It always has the same ending," he says.

GM unloads Hummer to Chinese buyer

Bankrupt automaker discloses details of plan to sell truck line to China's industrial company Sichuan Tengzhong.

By Aaron Smith, CNNMoney.com staff writer

Last Updated: June 2, 2009: 4:53 PM ET

Hummer is one of the brands GM is shedding as it restructures.

GM's junk heap

Over its history General Motors has made its share of bad products. Some were poorly built, some were badly executed, others suffered from lousy timing.

NEW YORK (CNNMoney.com) -- General Motors Corp. has struck a deal to sell its Hummer truck unit to a Chinese industrial business, the two companies confirmed Tuesday.

Privately owned Sichuan Tengzhong Heavy Industrial Machinery Company Ltd., based in China, will acquire the truck brand, which has been part of GM since 1999. Tengzhong said it plans to keep Hummer's management team.

"We plan to ... allow Humer to innovate and grow in exciting new ways under the leadership and continuity of its current management team," said Yang Yi, chief executive of Tengzhong.

Yang said the deal "will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S."

The companies said the deal would likely close by the end of September.

As part of the deal, some GM plants will continue to build the Hummer brand for the new owner, at least for awhile. The company said its Shreveport, La., plant will keep building Hummers for the new owner until at least 2010.

The news comes a day after GM (GMGMQ) filed for bankruptcy protection in New York.

"I'm confident that Hummer will thrive globally under its new ownership," said Troy Clarke, president of GM North America, in a press release. "And for GM, this sale continues to accelerate the reinvention of GM into a leaner, more focused, and more cost-competitive automaker."

GM also said that the deal should protect more than 3,000 jobs in manufacturing and engineering, and at dealerships "around the country."

The sale of the Hummer brand to a Chinese company will not impact the production of U.S. military vehicles. Military Humvees are produced by a different company, privately held AM General, based in South Bend, Ind.

The Hummer and other large vehicles have been a drag on the U.S. auto industry since fuel prices spiked in 2008 and the recession deepened.

GM said it sold 5,013 Hummers worldwide in the first quarter, down 62% from the 13,050 that it sold in the same period the prior year.

Hummer isn't the only brand that GM is leaving behind. The automaker will also shed its Pontiac, Saturn and Saab brands and cut loose more than 2,000 of its 6,000 U.S. dealerships by next year.

That could result in more than 100,000 additional job losses if those dealerships are forced to close.

GM filed for bankruptcy hours after Chrysler's bankruptcy process cleared a hurdle when a federal judge approved its asset sale.

The GM bankruptcy was hailed by President Obama, who wants a complete overhaul of the U.S. auto industry, even though the Chapter 11 filing is expected to result in the loss of 20,000 jobs and the closure of a dozen facilities.

Citigroup (C, Fortune 500) was financial adviser in GM's Hummer deal.

--CNNMoney.com senior writer Peter Valdes-Dapena contributed to this report.

First Published: June 2, 2009: 7:03 AM ET

Dilemma for the Fed as property recovery falters

Dilemma for the Fed as property recovery falters

By Krishna Guha and Sarah O’Connor in Washington

Published: May 28 2009 19:02 Last updated: May 29 2009 00:32

A record 9.1 per cent of all US mortgages were delinquent at the end of the first quarter, the Mortgage Bankers’ Association reported on Thursday, highlighting the pressure on policymakers as they attempt to engineer a still elusive bottom in the US property market.

Housing starts and sales appear to be stabilising, and homes no longer look expensive. But house prices are still falling rapidly – down 2.2 per cent in March alone, according to the Case-Shiller index.

Delinquencies and foreclosures are rising and spreading to so-called prime mortgages.

Now a partial rebound in mortgage rates – in conjunction with the growth of negative equity – threatens to maintain downward pressure on prices, while also limiting the capacity of indebted households to refinance at ultra-low rates.

“The housing recovery hasn’t even started, and it is already at risk,” said Ed Yardeni, president of Yardeni Associates.

Bank examiners say house prices and unemployment are critical for determining bank credit losses.

While the Federal Reserve and US Treasury have never set out to target house prices, they have attempted to mitigate the risk that house prices undershoot their fundamental value.

The Fed has sought to compress risk spreads on mortgages by buying up to $1,450bn (€1,040bn, £906bn) in securities issued by Fannie Mae and Freddie Mac, the home loan giants. Its strategy pushed mortgage rates down to levels not seen for decades.

But yields on Fannie and Freddie paper have moved higher in recent days as yields on government securities jumped. Mortgage rates – already back above 5 per cent – may climb higher.

Fed officials do not appear alarmed by the rise in mortgage rates thus far, which still leaves them low by historic standards, with ample room for borrowers to refinance. However, some analysts worry the financial market is moving too fast for the housing market. While cheap mortgages prompted a wave of refinancing applications, the downsizing of the mortgage industry since 2006 means the system cannot process large numbers of borrowers quickly. The danger is that mortgage rates rise before a large chunk of total household debt can be refinanced at very low rates.

Some economists say the Treasury should reconsider directly providing low-cost loans for new borrowers – an idea debated by George W. Bush’s administration.

Negative equity threatens to compound house price declines. Celia Chen, director of housing at Moody’s Economy.com, says one in five US homeowners has negative equity, and about one in 10 has a loan to value ratio of 130 per cent or higher.

US officials are considering whether Fannie and Freddie should be allowed to refinance mortgages worth more than 105 per cent of the underlying house.

Some administration officials are wondering whether they also need a policy that directly tackles the risk that households deeply “underwater” on their loans will start to walk away, fuelling further price declines.

Barack Obama’s administration has focused on making monthly payments affordable – and avoided subsidising politically controversial debt forgiveness.

A push towards debt renegotiation by giving bankruptcy judges the power to force writedowns failed in the Senate.

Some officials think they may have to revisit the negative equity problem and look at ways to revamp initiatives such as Hope for Homeowners, which set out to support loan writedowns but never gained scale, in part because of a lack of subsidies.

However, some analysts are sceptical. “You have so many properties so far underwater that foreclosure or at least a short sale ... is probably the only way out of the problem,” said Adam York, economist at Wachovia. “You’ve got to clean out the negative equity.”

Copyright The Financial Times Limited 2009

Indians refuse Air France compensation, demand more

Indians refuse Air France compensation, demand more

29 May 2009, 1935 hrs IST, PTI

MUMBAI: A group of 53 Indian passengers, who were allegedly subjected to racial profiling by Air France at Paris Airport on May 10, have threatened to move court if the airlines did not provide compensation in accordance with law.

Air France has offered €350 per passenger to settle the matter. But the aggrieved passengers have said they cannot accept anything less than €650 as compensation. "Air France has offered us €350 to settle the matter. This is a violation of the European Union law on such matters," Sachin Gupta, an aggrieved passenger, told PTI here. As many as 53 Indian passengers have accused the airlines of subjecting them to 'racial profiling', during their journey to Mumbai from US via Paris on an Air France flight on May 10.

The airline, while denying the charges, had regretted "any and all inconvenience caused to the passengers due to this incident" and offered a non-refundable voucher of Rs 23,500 or €350 per passenger as full and final settlement of the matter. "We have refused the offer and have written to the airline to duly compensate us, failing which we will be left with no option but to take to legal action," Gupta. According to him, the airline is liable to pay, by law, a cash compensation of €650 to all passengers who were subjected to "ill-treatment and denied certain rights by Air France authorities."

(SOURCE: http://timesofindia.indiatimes.com)