Wow. So here we are again.
Washington is spoiling for a fight over the country’s debt ceiling — less than a year after a showdown that induced a credit downgrade, rocked the markets and eroded confidence in Congress.
Last week, House Speaker John Boehner said he would not permit another increase in the country’s legal borrowing limit without a larger amount of spending cuts and reforms approved in tandem.
"I suspect blood pressure readings went up [that] afternoon," said budget expert Joe Minarik, senior vice president of the Committee for Economic Development.
That would be understandable given how damaging the last debt ceiling showdown turned out to be.
But we’ll get to that in a minute. First, it pays to remember just how the debt ceiling actually works.
What is the debt ceiling exactly? It’s a legal cap set by Congress on the amount of money the federal government can borrow. The ceiling applies to debt owed to the public (i.e., anyone who buys U.S. bonds) plus debt owed to federal government trust funds such as those for Social Security and Medicare.
The first limit, established in 1917, was set at $11.5 billion, according to the Committee for a Responsible Federal Budget. By setting a limit, Congress gave the Treasury Department authority to borrow money as needed. Previously, Congress had to sign off every time the federal government issued debt.
How high is the debt limit right now? The ceiling is currently set at $16.394 trillion. The country’s accrued debt subject to the limit as of Friday was $15.670 trillion. (Here’s where the Treasury posts daily updates of the number.)
When will we hit it? Treasury Secretary Tim Geithner has said he estimates that U.S. borrowing could hit the debt ceiling by the end of 2012.
Fiscal cliff: What you need to know
But by taking "extraordinary measures" — such as suspending investments in federal retirement funds — Geithner might be able to buy enough time to keep borrowing below the legal limit until early 2013.
How is the ceiling determined? They never admit it, but every time lawmakers vote to hike spending or cut taxes and not pay for them, they’re tacitly acknowledging that the debt ceiling will need to raised in the future.
So arguing over the debt ceiling after the fact is essentially arguing over whether to pay the bills the country has already incurred and which Congress has already approved.
How many times has the ceiling been raised? Since March 1962, debt ceiling increases have been enacted 76 times, according to the Congressional Research Service. Congress has voted to raise the ceiling 11 of those times since 2001.
Fiscal cliff: Market sting may come sooner
Expect more of the same over the next decade. Barring major changes to spending and tax policies, "Congress would repeatedly face demands to raise the debt limit," CRS wrote.
Why does Congress even bother to set a debt limit? In theory, the limit is supposed to help Congress control spending. In reality, it doesn’t.
Every time the debt limit needs to be raised, lawmakers and the president are forced to take stock of the country’s fiscal direction, which in theory isn’t a bad thing.
But the decision about how high to set the ceiling is usually a political one — depending on how quickly the minority party wants to raise the issue again for political gain or to extract concessions.
In any case, the vote usually comes after lawmakers have already passed the spending hikes and tax cuts that necessitate an increase in the first place.
What happens if Congress doesn’t raise the debt ceiling? Treasury would not be able to borrow any more money no fax pay day loans.
That means the government would fall short of what it needs to pay all its bills in full, which include funding government operations and paying creditors and contractors.
During last year’s debate, Geithner’s critics said he could prevent default by simply paying the interest due to bondholders.
But since average spending — minus interest — outpaces revenue by about $115 billion a month, Geithner would have to pick and choose whom to pay and whom to put off every day.
And there’s no guarantee that paying interest while shirking other legal obligations will protect the country from the perception of default.
Geithner said it would be akin to a homeowner who pays his mortgage but puts off his car loan and credit cards. Translation: the homeowner’s credit could still be damaged.
Ultimately, if lawmakers fail to raise the ceiling, they will have two choices, both awful.
They could immediately enact massive spending cuts or tax increases. Or they could acknowledge that the country would be unable to pay what it owes in full and the United States could effectively default on some of its obligations.
The first option is impossible to execute without serious economic repercussions. And the second option could cripple the economy and send world markets into a tailspin.
"Not only the default but efforts to resolve it would arguably have negative repercussions on both domestic and international financial markets and economies," according to the CRS.
Will reaching the debt ceiling cause a government shutdown? Technically, no.
A government shutdown occurs if lawmakers fail to appropriate money for federal agencies and programs.
By contrast, if the debt ceiling is breached, Uncle Sam would still have revenue coming in that could be used to fund the government, noted Rudolph Penner, a former Congressional Budget Office director.
But if Geithner is coming up short by $115 billion on average every month, and lawmakers just decide to cut spending by that amount, that could effectively mean a partial government shutdown.
So what happened last year? The 2011 debt ceiling showdown resulted in a three-part increase to the debt ceiling in exchange for, among other things, at least $2.1 trillion in debt reduction over 10 years.
The debt ceiling deal — known as the Budget Control Act — also empowered a so-called super committee of lawmakers from both parties to negotiate how to achieve at least $1.2 trillion of that debt reduction.
That committee failed, however, thereby triggering a sequester of nearly $1 trillion in automatic spending cuts, mostly across defense and nondefense discretionary spending. That latter category pays for many common and popular governmental functions, from food inspections to the operation of national parks. Those cuts are set to start taking effect in January 2013.
Many lawmakers hate those cuts– but apparently not enough yet to negotiate a bipartisan deal to replace them.
The debt ceiling showdown of 2011 also created a lot of bad blood between the parties and between Republicans and the White House.
And it sparked the first-ever downgrade of the U.S. credit rating by Standard & Poor’s, which cited political brinksmanship as the chief cause.
That, in turn, caused one of the most volatile weeks in world markets and left Americans and investors with the sense that Congress can’t handle even the most elemental tasks without a lot of destructive drama.
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My first ride in Google’s self-driving car was, all at the same time, thrilling, fascinating and a little disappointing.
The car was in Washington DC where Google (, Fortune 500) representatives met with groups like the AARP and the National Council for the Blind, groups which might have an interest in cars that that could act as chauffeurs for those who, for one reason or another, can’t drive themselves.
I got to ride along on a loop around several DC blocks with two Google engineers in the front seats. Google’s "self-driving cars" must always have someone seated at the controls, whether in Nevada — which recently licensed Google’s cars — or anywhere else.
The drive was thrilling and fascinating because, come on, the car drives itself. In traffic! Disappointing because it’s clearly not going to be ready for public use for years and years.
For now, at least, the car only drives routes it’s been trained to drive. My ride in Washington DC was along a route that Google engineers had driven with the car earlier. Google refused to allow the car to be driven anywhere beyond this well-studied environment, at least not with the media tagging along.
Still, that doesn’t mean it was a cake walk.
No Google engineer taught the car that a bunch of kids on a field trip would march out in front of it at an intersection. It stopped and waited for them on its own. And no-one told it that, right after that, another car would run the four-way stop sign right in front of it. It handled that, too, avoiding a collision all on its own.
At first, those interactions seemed boringly normal to me until I remembered… no-one was driving! The car had done that all itself while the man in the driver’s seat sat passively watching.
All of this is made possible by an array of sensors that would make a spy satellite jealous. The Google car has three GPS antennae, radar systems, cameras to read street signs and traffic lights and it’s topped with fast-spinning laser eye that looks like something out of a cheap ’50s sci-fi movie. That all-seeing eye scans for cars, pedestrians and obstacles.
Gallery: Ferrari, Rolls Royce among exotic cars selling fast in China
Google doesn’t make cars or sensors, though, so the part the California tech company is really interested in is the software that ties all this together to let it make — we hope — safe and rational driving decisions.
Since the Google car only just got its learner’s permit, it drives accordingly faxless cash advances. During our test loop, it stopped a few times for phantom threats, like a parked truck that was just a little wider than the cars around it. Then there was the jerking halt on a side street caused by a car that stopped a little abruptly almost two car lengths ahead.
When it wasn’t sure what to do, the car would hand control back to the driver, announcing it was doing so in a friendly female voice. (The driver can always take control at any time by just by moving the steering wheel or touching the pedals, even slightly.) "Self driving" was resumed by pushing a big green button on the Prius’s center console near the even bigger red "kill switch."
Surprisingly, one thing the car can’t do all on its own is use the turn signals. The driver still has to do that.
"That’s been on our to-do list for a long time now," said the engineer riding shotgun.
Back-seat "driver": I had to ride in the back. A second Google engineer rode in the shotgun seat with a laptop computer. On his screen was a triangle — representing us — surrounded by a vast army of colored boxes, representing cars, people and stationary objects, all sliding across a black screen. It was reminiscent of the old arcade game "Tank Commander," minus the explosions.
Times when the car lost its nerve and let the engineer take over, such as when it encountered an on-coming car on a narrow street and wasn’t sure there was room to get around it, weren’t just useless glitches, I was assured. The data from each situation would be ingested and analyzed so the car could learn what to do in the future. Those lessons could, hopefully, be applied to a broad range of driving conundrums.
Before Google realizes the dream of a truly "driverless car" there are many steps yet to be taken and some of those steps remain far off. The first will be allowing the car to stray from routes that it has been specifically trained to drive. Until then, this is all just baby steps.
But the biggest step will be to create a car that will let me just sit in the back seat with no-one at all in the driver’s seat. That step still seems — to me — many years off. If Google can get there before a major automaker beats them to it, I’ll be really impressed.
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The discussion started before Michael B. Kennedy was born. By last year, his patience had wore thin.
“I serve on a lot of committees, and I felt like I kept having the same conversation. It took hours and hours of repeating the same thing. And every time, I felt like I had to start all over again,” said the architect and president of KAI Design and Build.
Founded by his father, Michael E. Kennedy, 32 years ago, KAI is recognized as one of the leading minority-owned architectural firms in the country. The senior Kennedy serves as chairman and chief executive.
To the younger Kennedy, 34, the exchanges with contractors, government officials, trade unions, developers and fellow designers inevitably returned to the shortage of minority contractors and trade participation on local construction projects.
The problem has vexed St. Louis, publicly at least, since the afternoon of July 14, 1964, when Percy Green and another activist climbed a leg of the yet-to-be-completed Gateway Arch to protest the lack of African Americans working on the landmark.
Nor has the situation shown much sign of improvement. A March study by the Associated General Contractors of St. Louis that pegged the number of minority workers on local construction jobs at approximately seven percent.
African Americans account for 49 percent of St. Louis City residents and 23 percent of those in St. Louis County.
Kennedy didn’t need census data to drive the point home.
He found proof in the overwhelming number of white faces encountered on visits to area construction sites, particularly those outside the city.
The time had come, he concluded, to move the conversation from board rooms and business meetings to a broader audience.
“I thought if I could capture everything that is being said in these meetings on video, and then get that video in (the right) hands, then maybe we can finally move onto some viable solutions,” Kennedy said.
“Building a Better St. Louis” was initially envisioned as a “ten-minute clip.”
But once Kennedy and the production company, headed by Bobby Edwards Media Group, began the interviews, they learned just how much local business and community leaders, both black and white, had to say about minority hiring.
Thirty hours worth to be exact.
Edited to 41 minutes, the film takes unsparing shots at the insularity of white-dominated local trade unions, the shortcomings of public education in St. Louis and the chronic racial divide.
“Anyone who says St. Louis is not a segregated community is someone who has had his head stuck up his you-know-what for too many years,” volunteers Terry Nelson, the outspoken head of the Carpenters’ District Council of Greater St. Louis.
St. Louis City License Collector Mike McMillan offered a more measured analysis: “What we’ve found at every level of business or corporations or government is that if (change) is not pushed from top and implemented all the way down, then women and minorities, who have always been left out of the picture, will continue to be left out of the picture.”
In an interview this week, Kennedy cited additional factors he believes shift the odds against minority contractors and workers. High on the list are the social and economic forces separating the city and outlying suburbs.
He praises adherence to the ordinance stipulating that minorities perform 25 percent of the work on projects within the city. But frets at how the threshold is rarely met on construction sites in the surrounding counties free credit score online.
Kennedy says a fair share of the blame goes to minority contractors and laborers themselves.
Construction, like all businesses, is about relationships.
African American contractors and laborers, Kennedy charges, don’t forge the necessary connections while working side-by-side with non-minorities on city projects.
The upshot, he says, is that construction companies choose to do business with white subcontractors when jobs materialize in St. Louis, St. Charles, Jefferson and Lincoln counties.
“Building a Better St. Louis” points out that minorities compete for just one percent of the opportunities to participate on area construction jobs.
“It’s not a black and white issue, it’s a cultural issue,” Kennedy says, singling out the “where’d you go to high school?” question. “It’s about the St. Louis cliques. St. Louis is not friendly to outsiders, white or black.”
“Building a Better St. Louis” makes a stab at answering the overarching question of how, or if, minority contractors can ever achieve equity.
It’s a tall order.
Kennedy believes it will occur organically.
He points out that the white males that have dominated the construction trades are retiring. With many of their children exhibiting little interest in continuing the family tradition, the door will swing open for African Americans.
The key, Kennedy says, is getting young minorities interested and prepared to step into the breach.
He sees “Building a Better St. Louis” as prompting a dialogue to move the black community in that direction.
The video was screened this week for a group of contractors and Kennedy ultimately hopes to bring it to a wider audience of government officials, civic groups and – his big goal – an airing on a public broadcasting station.
“This industry lags farther behind any other industry that I’ve seen,” Kennedy says in the video. “The more I talked to people the more I decided other people needed to hear what I was hearing. And that was to listen to the voices of reason.”
QUOTE OF THE WEEK
“… workforce professionals we interviewed said that some employers are reluctant to hire older workers. Because of legal prohibitions against age discrimination, employers are unlikely to explicitly express a lack of interest in hiring older workers; however, one workforce professional told us that local employers had asked her to screen out all applicants over the age of 40.” - U.S. Government Accountability Office on plight of older Americans suffering bouts of long-term unemployment.
Source: U.S. Government Accountability Office
BY THE NUMBERS
7.3 percent - Missouri’s seasonally-adjusted unemployment rate in April, the lowest in 40 months.
Source: Missouri Department of Economic Development
FINAL WORD
“There has been a lack of progress on this issue, and too many families are struggling right at the time when they should be celebrating the birth of a new family member. Working parents should have the benefit of these programs.” Vicki Shabo, director of work and family programs at the National Partnership for Women & Families on study that found only 11 percent of privately-owned companies provide paid family leave for new parents.
Source: The Chicago Tribune
Stock futures are rising ahead of economic data focusing on consumers and businesses.
Dow Jones industrial average futures are up 57 points to 12,712. Standard & Poor’s 500 futures are up 7.9 points to 1,342. Nasdaq composite futures are up 19.25 points to 2,604.25.
The Commerce Department is expected to report Tuesday that consumer spending growth slowed to 0.2 percent in April after a very strong start to the year.
And economists expect the Labor Department will report that spending cooled even though prices likely increased only modestly last month. Consensus estimates are for a consumer price index increase of only 0.1 percent in April.
The government also releases business inventory data from March. Predictions are that companies likely restocked at a slower pace.
China
Dow Chemical’s first-quarter earnings fell 50 percent after it took a pre-tax charge of $357 million to close some of its plants.
The nation’s largest chemical maker reported income of $412 million, or 35 cents per share, from January to March. That compares with $625 million, or 54 cents per share, for the same part of 2011.
Excluding restructuring costs related to the plant closures and other special items, Dow said it earned 61 cents per share. Revenue was flat at $14.7 billion.
Analysts, who typically exclude special items, expected earnings of 59 cents per share and revenue of $14.96 billion, according to FactSet.
The Midland, Mich., company has benefited from growth in emerging economies in the Asia-Pacific region and Latin America. But sales have weakened in Europe, where a growing debt crisis is pushing parts of the eurozone back into recession. In March, Dow decided to restructure its international business to account for the slowdown in Europe.
Dow cut 900 jobs, closed plants in Charleston, Ill., Portugal, Hungary and Brazil, and it idled operations at a plant in the Netherlands. The changes are expected to cut costs by about $250 million each year.
Dow Chairman and CEO Andrew Liveris said that Western Europe will continue to deal with “recessionary conditions” this year. The economic picture is better in the U.S., thanks to cheap natural gas prices. Natural gas prices have a huge influence on company margins because it’s such a big input in the process.
China’s economy appears to be moderating and Germany is showing signs of improvement, he said.
Shares of The Dow Chemical Co. fell by 59 cent to $35.49 in premarket trading.
Stocks in the U.S. fell slightly at midday Thursday as investors weighed stronger corporate earnings against disappointing economic reports.
The Dow Jones industrial average fell 23 points to 13,010 at noon. The S&P 500 dropped 3 points to 1,382.
Morgan Stanley rose 1.4 percent after the bank trounced Wall Street’s earnings and revenue estimates. UnitedHealth Group Inc. rose 2.7 percent after reporting higher profits. EBay, Southwest Airlines and Bank of America also beat forecasts.
Stock indexes fell after two relatively weak economic reports came out mid-morning. An index of regional manufacturing compiled by the Philadelphia branch of the Federal Reserve dropped sharply, and the National Association of Realtors said home sales fell 2.6 percent last month.
Earlier, the Labor Department said applications for unemployment benefits dipped 2,000 to 386,000. When the number is above 375,000, investors take it as a sign that hiring isn’t strong enough to lower the unemployment rate.
“None of these (reports) were disastrous, but they’re not as strong as we like to see,” said Brian Lazorishak, a portfolio manager at Chase Investment Counsel in Charlottesville, Va. Still, he added, “We’ve had good numbers out of some companies, so maybe we have some room for upside here.”
In other trading, the Nasdaq composite index fell one point to 3,030.
On Wednesday, U.S. stocks fell on worries that European efforts to help governments there pay off their debt could hit new roadblocks bad credit personal loan lenders. The Bank of Spain had reported that bad loans at the country’s banks had hit an 18-year high.
Before the opening bell Thursday, investors were nervously watching a sale of new Spanish government bonds. The auction met with high demand, and more bonds were sold than expected. But yields rose anyway. The yield on Spanish 10-year notes rose to 5.87 percent, an increase of 0.06 percentage point.
European markets mostly fell. Spain’s IBEX index fell 2.4 percent, Greece’s main index 1.8 percent and France’s CAC-40 fell 2 percent.
In other corporate news, Tumi Holdings, a maker of high-end luggage, jumped 47 percent to $26.50 on its first day of trading.
The U.S.-listed shares of cell phone maker Nokia sank 3.6 percent after the Finnish company reported a loss for the first three months of the year and a 40 percent plunge in device sales. The company faces fierce competition from Apple’s iPhone and handset makers that use Google’s Android software.
Human Genome Sciences doubled to $14.31 after the company spurned a takeover offer from GlaxoSmithKline of $13 per share, saying it undervalues the company. The biotech drug maker, which produces the lupus treatment Benlysta, said it would consider other options including a sale of the company.
Here are two words to guide you financially through the rest of 2012
Iranian and European officials expressed confidence in the results of Saturday’s negotiations on Tehran’s disputed nuclear program as it was announced that the two sides will meet again in Baghdad on May 23.
The very fact that there will be another round adds to a growing sense among diplomats that the two sides were making notable progress in talks that have grown increasingly tense as the West has tightened sanctions on Iran and Israel has threatened a pre-emptive military strike on the Islamic republic.
But the challenges in the next round could be far more significant. That’s when the six powers will likely seek further commitments from Tehran to reduce concerns that it could use its uranium enrichment program to make the fissile core of nuclear missiles.
EU foreign policy chief Catherine Ashton called Saturday’s talks in Istanbul constructive and said future talks will be guided by the “principle of a step-by-step approach and reciprocity.”
That indicates the international community is ready to reward Iran if it moves to alleviate fears that it intends to weaponize its nuclear program _ rewards that could include delaying or easing some sanctions.
Iran’s chief negotiator, Saeed Jalili said his team “saw a positive approach (from the other side) and we consider it a step forward.”
Iran insists its nuclear program is peaceful, and Ashton said Saturday that Tehran has a right to such a peaceful program. At the same time, she added, the Nuclear Nonproliferation Treaty must be the “key basis” for future talks.
Iran asserts that it has not violated the treaty, and that it has a right under that agreement to enrich uranium for peaceful purposes. Asked about the making the treat the basis of the talks, Jalili said, “We expect that we should enjoy our rights in parallel with our obligations.”
Iran is under four sets of U.N. sanctions for refusing to stop uranium enrichment _ which can be used both to make reactor fuel and the fissile core of nuclear warheads _ and the international community continues to demand that Tehran stop the activity.
But the last set of nuclear talks broke up without result more than 14 months ago after the Iranian team had refused to even discuss enrichment.
The six countries negotiating with Iran _ the U.S., Russia, China, Britain, France and Germany _ came to Saturday’s meeting with modest expectations.
Diplomats said before the meeting began that even general Iranian readiness to accept the need to discuss its enrichment program would be considered enough of a success to warrant a follow-up round.
Earlier Saturday, one of the diplomats, who like the others demanded anonymity because he was sharing confidential information, said the Iranians appeared to be moving toward that readiness, engaging in discussion about the peaceful use of nuclear energy and the nonproliferation treaty.
He said the Iran’s team had mentioned Iranian Supreme Leader Ayatollah Ali Khamenei’s “fatwa,” or edict, prohibiting nuclear weapons for Iran, in the course of the plenary discussions.
NEW YORK, N.Y.
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