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.
No faxing fast cash advance gets you cash fast and easily.
An Egyptian court has acquitted 14 policemen charged with killing protesters during last year’s popular uprising.
The verdict is the latest in what activists claim to be a pattern of acquittals for police blamed for the deaths of nearly 850 people during the 18-day revolt that toppled longtime leader Hosni Mubarak.
A Cairo court on Thursday found the policemen not guilty of shooting protesters in front of police stations on Jan. 28, 2011, one of the most violent days of the uprising.
The 14 are among nearly 200 security officers and former regime officials _ including Mubarak himself _ who face trial for the deaths of protesters during the uprising.
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Pharmacy benefits manager Express Scripts said this afternoon its first-quarter profit fell 18 percent as it worked to close its $29 billion acquisition of competitor Medco.
The north St. Louis County-based company earned $267.8 million, or 55 cents per share, down from $326.5 million, or 61 cents per share, in last year’s first quarter.
Excluding one-time items, it earned 73 cents per share. Analysts forecast earnings of 77 cents per share on $11.47 billion in revenue, according to FactSet.
Revenue climbed 9 percent to $12.13 billion. It filled 192.8 million adjusted prescriptions, up 3.6 percent from a year ago.
Express Scripts Holding Co. completed its acquisition of Medco Health Solutions on April 2. The deal made Express Scripts the largest pharmacy benefits manager by far.
Express Scripts expects the combined company to earn $3.36 to $3.66 per share in 2012, while filling 1.4 billion adjusted prescriptions.
Analysts are expecting a profit of $3.58 per share, on average.
Express Scripts said the deal should be “slightly accretive” while it integrates Medco and forecast a moderate increase in its profit after that process is finished in the first half of 2014. The company expects to create $1 billion in annual savings after it fully integrates Medco into its business.
The company said Medco’s first-quarter profit fell about 26 percent to $245.1 million, or 62 cents per share. Excluding transaction and amortization costs, it said Medco earned 79 cents per share.
Express Scripts shares rose 44 cents to $54.34 Thursday. The stock slid 60 cents to $53.74 in after-hours trading.
French President Nicolas Sarkozy is widely expected to be kicked out of office in elections Sunday. If he goes, he’ll be in good company: Almost every crisis-hit European country that has held an election since disaster struck in 2009 has thrown out its leader.
Here’s a look at countries where political cadavers litter the landscape.
_ SPAIN: A burst real estate bubble also deflates faith in a Socialist government, which is nonetheless reluctant to admit Spain has problems. Blips of good economic news are seized upon as “green shoots” pointing to recovery. Wrong. Stimulus measures are enacted, then crushing austerity. Unemployment soars. The Socialists of Jose Luis Rodriguez Zapatero are wiped off the map in November 2011 elections; Mariano Rajoy’s conservatives take over.
_ ITALY: Silvio Berlusconi, the long-serving Teflon leader accused of everything from bedding escorts to serial corruption, finally bites the dust in November 2011. He resigns to cheers and jeers as investors lose confidence in his ability to spur economic growth and rein in debt. It’s the end of a political era. Mario Monti, a former European Commissioner, is named to replace him and lead a technical government until elections in 2013.
_ BRITAIN: Gordon Brown leads the Labour Party to defeat in the May 2010 election; Conservative Party leader David Cameron becomes leader of a coalition government. Brown had been finance chief for a decade before succeeding Tony Blair in 2007. Brown had boasted endlessly of ending the cycle of boom and bust _ but as prime minister he presided mostly over bust.
_ IRELAND: Brian Cowen, promoted to prime minister in 2008 after being finance minister, doesn’t even get to run. He resigns as leader of the Fianna Fail Party weeks before the February, 2011 election. It doesn’t help his party, which suffers its worst ever defeat. Cowen was finance minister during Ireland’s banking crisis and the collapse of its housing bubble.
_ GREECE: Greek Socialist leader George Papandreou swept to power in October 2009 over conservative opponents, pledging to spend his way out of a deteriorating economic situation. Two years later, at the height of Greece’s worst financial crisis since World War II, Papandreou’s own deputies force him out after he endangers a hard-won bailout by announcing he would put it to a referendum. He’s replaced by caretaker Prime Minister Lucas Papademos.
_ PORTUGAL: A month after Portugal requests a 78 billion-euro bailout, the center-left Socialist government of Jose Socrates is voted out of power in June, 2011. Portugal’s woes stemmed from a decade of feeble growth as it failed to modernize amid increasing global competition and dug itself deeper into debt.
_ DENMARK: A center-right government in Denmark loses power in September in part due to discontent over austerity measures introduced amid the debt crisis. It is replaced by a center-left coalition.
_ FINLAND: Finland’s government is reconfigured after June elections following a sharp surge in support for nationalists who oppose bailouts for debt-stricken eurozone countries. A conservative-led coalition spanning left and right is formed to keep the nationalist True Finns out of power.
Bucking the Trend:
_ ROMANIA: Romanian President Traian Basescu wins re-election in 2009, the year Romania’s economy shrinks by 7 percent and Romania takes a 20 billion-euro bailout loan from the International Monetary Fund, the World Bank and the European Union. Basescu, a former ship captain, prevails because he is seen as a strong leader in a time of crisis.
_ POLAND: This has been a rare European success story: It’s the only European Union country that did not to slip into recession during the global crisis of 2008-2009. Last fall the center-right party of Prime Minister Donald Tusk wins a second straight term in parliamentary elections, making history by becoming the first government since the fall of communism in Poland in 1989 to be re-elected.
_ ALSO: Sweden’s prime minister is re-elected in 2010 and the prime ministers of Latvia and Estonia are re-elected in 2011.
A new report says Apple Inc. uses subsidiaries in Ireland, the Netherlands and other low-tax nations as part of a strategy that enables the technology giant to cut its global tax bill by billions of dollars every year.
A New York Times article published Sunday outlines legal methods used by Cupertino, Calif.-based Apple to avoid paying millions of dollars in federal and state taxes.
It cites a study by a former Treasury Department economist that estimates Apple’s federal tax bill would have been $2 payday loans.4 billion higher last year without such tactics.
The newspaper says Apple paid $3.3 billion in cash taxes globally on $34.2 billion in profits last year. That’s a tax rate of 9.8 percent.
Apple tells the Times that it complies with all laws and accounting rules.
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.
A federal agency says a remote underwater vehicle is surveying plugged undersea oil wells and looking for natural seepage as authorities seek the source of a 10-mile oil sheen in the Gulf of Mexico off Louisiana.
The Bureau of Safety and Environmental Enforcement says it has instructed operators of pipelines in the area to survey their lines.
The sheen is about 130 miles southeast of New Orleans. Royal Dutch Shell PLC has two production platforms in the area. The company said Thursday it is confident the sheen didn’t originate from its operations instant personal loans guaranteed.
The federal agency said it directed Shell to conduct a seafloor assessment using a robot vehicle. Natural seepage is known to occur in the area.
The sheen was spotted on Wednesday.
While the experts would have you believe that identity theft is a growing problem, the chance of losing money to this type of consumer fraud is actually fairly small. But while the dollar amount of losses and number of people it affects may not be big, if it does happen to you it can be a mess to untangle.
Identity theft is a broad term that includes things ranging from a credit or debit card being compromised to a more severe problem like real estate title fraud, when a thief mortgages your property and disappears with the money. The Canadian Anti-Fraud Centre says about 18,500 Canadians were victims of identity theft in 2010, the latest year complete figures are available for. They lost a collective $9.4 million, or about $510 a person. In many cases banks and other lenders absorbed the losses when their customers were victimized.
The Royal Canadian Mounted Police, Ontario Provincial Police and Competition Bureau Canada jointly manage the CAFC. The agency says that the most likely targets of identity theft are between 50 and 59 and the victims are often duped into giving the information that leads to the fraud. One common scam is through phone calls and emails that claim you
U.S. stocks drifted lower but rebounded in later trading Thursday to end at nearly breakeven.
A string of weak economic reports — including jobless claims that fell below expectations — failed to inspire investors to move off the sidelines.
Both the S&P 500 and the Nasdaq closed in the red for the third straight day, while the Dow broke a two-day losing streak.
The Dow Jones industrial average () added 20 points, or 0.2%. The S&P 500 () dropped 2 points, or 0.2%. The Nasdaq () was down 10 points, or 0.3%.
Even with a few days of losses, all three indexes are up more than 10% in 2012. But investors are continuing to seek economic reports that beat expectations in order to justify that run up.
On Thursday the number of Americans filing for unemployment benefits only narrowly missed economists’ forecasts, but that still pushed stocks mostly lower.
U.S. economy to outpace Europe
"There’s a general sense in the market that we’re at lofty levels, so investors get worried when disappointments pop up," said Bruce McCain, chief investment strategist at Key Private Bank.
The week has been filled with a string of disappointing economic numbers on durable goods orders, consumer confidence and home prices. Ongoing concerns about a growth slowdown in China have added pressure on world markets.
"I think, overall, the market has had a good run, and investors are trimming some exposure," said Paul Powers, head of U.S. equity trading at Raymond James.
Most large financial stocks dropped more than 1% Thursday, including Bank of America (, Fortune 500), JPMorgan Chase (, Fortune 500), Citigroup (, Fortune 500), Morgan Stanley (, Fortune 500) and Goldman Sachs (, Fortune 500).
While stocks are suffering, the initial public offering market has been buoyant and is on track for a record week with 10 companies set to debut.
Still, it was a mixed bags for the three companies that started trading Thursday. Millennial Media’s () shares nearly doubled, but T-shirt maker Cafe Press () ended the day roughly flat after an initial surge. Both companies priced above their initial trading range. Merrimack Pharmaceuticals () ended the day down roughly 14% after it started trading.
Stocks closed in the red Wednesday amid worries about slowing growth overseas and in the U.S.
Economy: First-time claims for unemployment benefits in the week ended March 24 fell to 359,000 — a four-year low — from 364,000 the previous week. But that was still higher than the 350,000 forecasted.
U.S. gross domestic product — the broadest reading of economic growth –increased at an annual rate of 3% in the fourth quarter, according to the Bureau of Economic Analysis. That was the third revision, and was in line with analysts’ estimates.
Companies: Best Buy’s (, Fortune 500) stock dropped after the company narrowly missed expectations and said it would close 50 stores.
Sears Holdings’ (, Fortune 500) stock rose but closed lower on reports that the retailer was shopping its Lands’ End brand for $2 billion.
Like a bear in a China shop
Red Hat’s () stock jumped after the software maker reported quarterly earnings that beat expectations and a stock buyback of $133 million.
Research in Motion () shares dropped after hours as the BlackBerry maker missed expectations on revenues and earnings. The company said it’s considering strategic alternatives, and one director left its board.
World markets: European stocks closed down. Britain’s FTSE 100 () was off 1.2%, the DAX () in Germany lost 1.8% and France’s CAC 40 () was down 1.4%.
Asian markets ended lower. The Shanghai Composite () declined 1.4%, the Hang Seng () in Hong Kong dropped 1.3% and Japan’s Nikkei () lost 0.7%.
Currencies and commodities: The dollar lost ground against the Japanese yen, but strengthened against the euro and the British pound.
Oil for May delivery slipped $2.63 to $102.78 a barrel.
Gold futures for April delivery rose $2.20 to $1,660.40 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury rose, sending yields down to 2.16% from 2.20% late Wednesday.
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