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For the Washington Area, a Second Lightning Strike

September 29, 2013 by

For a decade, Washington has been the town that the recession forgot, a bastion of economic confidence, low unemployment, growing wealth and healthy property values. But as the rest of the country has started to recover, Washington and its close-by suburbs in Maryland and Virginia have stalled, hit hard by the $1 trillion in budget cuts known as sequestration, as well as by hundreds of billions of dollars in additional cuts to the military.

If the government has a lapse in spending, or if Congress cannot approve an increase in the government’s borrowing limit in mid-October, the pain would only get worse, economists said.

“There’s been a dramatic slowdown in growth” in recent years, said Stephen Fuller, the director of the Center for Regional Analysis at George Mason University. “A potential shutdown, the debt ceiling — those headwinds would come in combination with sequestration, furloughs, job reductions and contract cutbacks.”

“The economy is just limping along,” he said.

Federal workers, in Washington and elsewhere, would feel the brunt of a shutdown if a spending measure were not approved by Congress on Monday, having already faced furloughs this year because of sequestration.

Greg Nudd, an Environmental Protection Agency employee who works on dust and haze issues, was furloughed for a total of 47 hours this year.

“When it became clear sequestration wasn’t going to be resolved, we stopped putting money in the kids’ college fund and put it in an emergency fund,” Mr. Nudd said, adding that he had started looking for a job outside the government. “We’ve cut back on a number of things. We canceled cable, we got rid of our land line, we cut out luxuries, the housekeeper’s not coming — things like that.”

Federal employees ended up being paid for days they were furloughed during the last shutdown, during the Clinton administration. But Congressional aides without permission to talk on the record said that conservative legislators seeking to shrink the government and the deficit might have trouble justifying paying federal workers for time they did not work.

“After three years of frozen pay, unpaid furloughs, huge increases in retirement costs for new employees and the threat of massive layoffs at the Department of Defense and elsewhere, Congress and the administration need to keep their hands off of federal employees once and for all,” said J. David Cox, the national president of the American Federation of Government Employees, which represents about 650,000 federal employees.

Typical Americans outside the Washington area might barely notice a shutdown. They would not be able to get a visa processed or hike in a national park. But important government transfers, like Social Security payments and Medicare bills, would most likely continue undisrupted.

But Washington is a company town, and federal dollars make up the lifeblood of the local economy, even as the region has diversified in recent years. The federal government accounts for about 30 percent of the jobs in the District of Columbia, 20 percent in Arlington County, Va., and 10 percent in Montgomery County, Md. — more than 350,000 jobs over the whole region.

Here, the effect would be visible. Tens of thousands of federal employees would face furloughs. Major contractors would see their business disrupted, with parts of the government unable to process claims and federal contacts offline.

“Oct. 1 is our New Year’s,” said James C. Dinegar, the president of the Greater Washington Board of Trade. “It’s when contracts are supposed to be signed and money starts flowing for the new fiscal year.”

There would be significant secondary effects, too. Those furloughed federal employees might spend less at lunch spots and on shoe shines. With monuments and other sites closed, tourists might head elsewhere. “It’s an amalgamation of tourism, hospitality, restaurants and so on. If the government shuts down, a tourist isn’t going to visit the Smithsonian and then head to the Old Ebbitt for dinner,” Mr. Dinegar said, referring to a restaurant in downtown Washington.

Article source: http://www.nytimes.com/2013/09/30/us/politics/government-shutdown-would-hurt-economy-of-washington-area.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Wooing, and Also Resenting, Chinese Tourists

September 16, 2013 by

Now it is China’s turn to face the brunt of complaints. The grievances are familiar — they gawk, they shove, they eschew local cuisine, and last year, 83 million mainland Chinese spent $102 billion abroad — overtaking Americans and Germans — making them the world’s biggest tourism spenders, according to the United Nations World Tourism Organization.

Their numbers have also placed them among the most resented tourists. Mainland Chinese tourists, often laden with cash and unfamiliar with foreign ways, are tumbling out of tour buses with apparently little appetite for hotel breakfast buffets and no concept of lining up.

The frustrations with the new tourists were summed up on a Thai online message board last spring, when users posted complaints about Chinese tourists using outdoor voices inside and spitting in public, among other transgressions.

Last year, Thierry Gillier, a French fashion designer who founded the Zadig and Voltaire label, caused a small scandal when he told Women’s Wear Daily that Chinese tourists would not be welcome at his new Parisian boutique hotel. A barrage of international criticism persuaded him to apologize.

Like their predecessors, the Chinese are newly wealthy and helpless with foreign languages, a combination complicated by their developing country’s historical isolation.

“That China is a lawless, poorly educated society with a lot of money is going to take its toll on the whole world,” said Hung Huang, a popular blogger and magazine publisher in Beijing.

Despite these faux pas, countries are practically tripping over themselves to attract Chinese tourists. Wedding companies in South Korea are trying to lure Chinese couples with bling-heavy ceremonies inspired by the viral music video “Gangnam Style.” A coastal county outside Sydney, Australia, is building a $450 million Chinese theme park centered on a full-size replica of the gates to the Forbidden City and a nine-story Buddhist temple. France, one of the most popular destinations for Chinese tourists already — 1.4 million visited in 2012 — is working to further bolster its appeal.

Parisian officials recently published a manual for the service industry that offers transliterated Mandarin phrases and cultural tips for better understanding Chinese desires, including this tidbit: “They are very picky about gastronomy and wine.”

To judge from the grumbling across the globe, such guidelines may be necessary. But the greatest opprobrium seems to be coming from fellow Chinese. In May, a mainland Chinese tourist in Luxor, Egypt, discovered that a compatriot had carved his own hieroglyphics on the wall of a 3,500-year-old temple. “Ding Jinhao was here,” it declared. A photo of the offending scrawl spread rapidly on Chinese social media, and outraged citizens tracked down the 15-year-old vandal. The uproar subsided after his parents issued a public apology.

Embarrassed by the spate of bad press that month, Wang Yang, China’s vice premier, publicly railed against the poor “quality and breeding” of Chinese tourists who tarnish their homeland’s reputation. “They make loud noises in public, scratch graffiti on tourist attractions, ignore red lights when crossing the road and spit everywhere,” he said, according to People’s Daily.

Despite his admonition, articles with headlines like “Chinese Bride Brawls in French Lavender Field” continue to appear in the state media.

Ms. Hung, the blogger, blames the Communist Party’s tumultuous rule for China’s uncivilized behavior abroad. “There’s an entire generation who learned you don’t pay attention to grooming or manners because that’s considered bourgeois,” she said. While Chinese are more open to Western ideas now, that has not necessarily sunk in when actually interacting with the outside world. “They think, ‘The hell with etiquette. As long as I have money, foreigners will bow to my cash.’ ”

Joshua Hunt contributed research.

Article source: http://www.nytimes.com/2013/09/17/business/chinese-tourists-spend-and-offend-freely.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Bucks: Computer Snag Limits Insurance Penalties on Smokers

July 10, 2013 by Leave a Comment

A computer glitch involving the new health care law may mean that some smokers won’t bear the full brunt of tobacco-user penalties that would have made their premiums much higher — at least, not for next year.

The Obama administration has quietly notified insurers that a computer system problem will limit penalties that the law says the companies may charge smokers, The Associated Press reported Tuesday. A fix will take at least a year.

The problem relates to the computer system where insurers submit their “qualified” health plans to be offered on the new exchanges where individual insurance plans will be sold beginning Oct. 1.

“This is a temporary circumstance that in no way impacts our ability to open the marketplaces on Oct. 1, when millions of Americans will be able to purchase quality, affordable insurance for the first time,” said Joanne Peters, a spokeswoman for the Department of Health and Human Services, in an e-mailed statement.

Starting in 2014, the law requires insurance companies to accept all applicants regardless of pre-existing medical problems. But it also allows them to charge smokers up to 50 percent higher premiums to ward off bad risks. For an older smoker, the cost of the full penalty could be prohibitive.

The underlying reason for the glitch is another provision in the health care law that says insurers can’t charge older customers more than three times what they charge the youngest adults in the pool.

According to a June 28 guidance from the government to insurers quoted by The A.P., “Because of a system limitation … the system currently cannot process a premium for a 65-year-old smoker that is … more than three times the premium of a 21-year-old smoker,” the guidance said. If an insurer tries to charge more, “the submission of the (insurer) will be rejected by the system,” it added.

Ms. Peters said in her statement that the problem is temporary. For 2014 only, “tobacco ratings across age groups cannot produce premiums that are more than a three-to-one ratio,” she said. “In 2015 and beyond, the system will expand to allow issuers to increase this ratio, if they choose to do so.”

Older smokers are more likely to benefit from the delay, experts say. But depending on how insurers respond to it, it’s also possible that younger smokers could wind up facing higher penalties than they otherwise would have.

The glitch could mean that insurers could charge all smokers the maximum allowable surcharge to get around the ratio problem, which would end up penalizing younger smokers with higher penalties than they might otherwise have received. But it is unclear what insurers will do.

“‘We are aware of the issue,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, an insurance industry group. “But I can’t speak to how insurers will respond to it.”

He said he was unaware of any estimates of how many people would be affected by the law’s insurance smoker surcharges.

Premiums for a standard “silver” insurance plan would be about $9,000 a year for a 64-year-old nonsmoker, according to the online Kaiser Health Reform Subsidy Calculator. That’s before any tax credits, available on a sliding scale based on income.

For a smoker of the same age, the full 50 percent penalty would add more than $4,500 to the cost of the policy, bringing it to nearly $13,600. And new tax credits available to help pay premiums cannot be used to offset the penalty.

The administration is suggesting that insurers limit the penalties across all age groups. The guidance document from the Department of Health and Human Services used the example of a 20 percent penalty for young and old alike.

In that case, the premium for a 64-year-old would be about $10,900, a significant cut from the $13,600 if insurers charged the full penalty.

Workers covered through job-based health plans would be able to avoid tobacco penalties by joining smoking cessation programs, because employer plans operate under different rules.

Article source: http://bucks.blogs.nytimes.com/2013/07/10/computer-snag-limits-insurance-penalties-on-smokers/?partner=rss&emc=rss

Filed Under: Your Money Tagged With: , ,

Large Banks in Europe Struggle With Weak Bonds

August 4, 2011 by Leave a Comment

Now, another type of contagion is causing concern: the risk of problems spreading to big banks, especially in Italy and Spain.

The growing vulnerability of the giant banks in these two countries is spurring investor fears that Europe’s latest bid to get a handle on its festering debt crisis, adopted just a few weeks ago, has come up short.

The banks own so many bonds issued by their home countries that they are being weakened as the value of those bonds falls, amid concerns that the cost of government borrowing could become too expensive for Italy and Spain to bear.

Now there are signs that these concerns are, in turn, starting to making it harder and costlier for the banks to borrow money to finance their day-to-day operations, a troubling trend that, at the worst, could lead to liquidity problems.

Since Europe’s second major rescue package was announced last month — aimed as much at calming fears over Spain and Italy as providing funds to Greece — the yields on Spanish and Italian bonds have hit more than 6 percent, sharply higher than they were paying on new borrowings just a couple of months ago.

In doing so they have entered what analysts refer to as the “danger zone” for 10-year bond yields, with the cost of government borrowing so high that investors become unnerved, as was the case with bailed-out Greece, Portugal and Ireland.

Bearing the immediate brunt of this development are regional banking heavyweights such as UniCredit in Italy and Santander and BBVA in Spain, which traditionally have been reliable financing machines to their home governments and as a result are now saddled with large bond holdings that are losing value by the day.

Many of these banks hold domestic bond portfolios that exceed their capital levels.

According to a report issued on Wednesday by Sanford Bernstein, a research firm, UniCredit’s exposure to mostly Italian bonds is 121 percent of its core capital ratio. For Intesa, a less-diversified competitor, that figure rises to 175 percent. For Spain, the ratios are no less daunting: a startling 193 percent for BBVA, Spain’s second-largest bank, and a less alarming 76 percent for the global banking giant Santander.

As a result, the markets have begun to focus on a number of warning signs that some European banks are finding it harder to meet their funding needs, especially in dollars.

They are borrowing larger amounts directly from the European Central Bank in its weekly lending operations, suggesting they can’t find all the money they need from the private sector to keep themselves going.

Some analysts said perhaps most worrying was that the rate it costs European banks to borrow dollars in the open foreign exchange market, by swapping their holdings of euros, has shot up twofold in the past few days — still far below the levels seen in 2008 when the market virtually froze but the highest since May 2010 when the European debt crisis first started to intensify.

Recent write-offs by French banks over their own Greek bond holdings have compounded fears over the health of Europe’s banks.

“I don’t think anyone wants to be long European banks right now,” said Simon White, an analyst and partner at Variant Perception, a London-based research firm.

UniCredit, Italy’s largest lender, reported better-than-expected second-quarter earnings on Wednesday and in a conference call, the bank’s chief executive said it had completed 83 percent of its borrowing needs for the year.

Nevertheless, that profit snapshot does not fully take into account the steep rise in Italian government bonds, from about 4.6 percent in early June to just over 6 percent now, which means that the value of those bonds has fallen.

Even more worrying is the fact that the European Financial Stability Fund, Europe’s so-called bazooka rescue fund that it endowed last month with the powers to recapitalize weak banks, will not be able to offer any such aid for at least two months.

According to a stability fund official, staff members there are working night and day to recast the entity, but do not expect to be finished until the end of August. At that point, it must be approved by the parliaments of the 17 countries that use the euro currency.

Only then could it go to the market and raise funds to help a bank in need.

That may well be too late.

As investors flee Spanish and Italian government bonds, these huge bond holdings have become a significant millstone on their countries’ banks — curbing their ability to lend and, consequently, heightening the prospect of a double-dip recession in Italy and Spain, two of the euro zone’s slowest-growing economies.

Graham Bowley contributed reporting from New York.

Article source: http://feeds.nytimes.com/click.phdo?i=65b9053950a6055945f01f22b8875e4b

Filed Under: Business News Tagged With: , ,