January 18, 2020

House Takes On Fiscal Cliff

House Republicans were planning to meet at 1 p.m. to discuss the Senate legislation, cobbled together after furious negotiations between Vice President Joseph R. Biden Jr. and the Republican Senate leader, Mitch McConnell, to avert automatic tax increases for all but the wealthiest Americans and put off, for two months, large cuts to the Pentagon and other areas of government.

Representative Nancy Pelosi of California, the House Democratic leader, said she would also present the plan to House Democrats and Mr. Biden, who helped sell the deal to Senate Democrats on Monday night, was set to meet with members of his party in the House just after noon.

With just two days to go before a new Congress convenes, the House has essentially three choices: reject the bill, pass it as written by the Senate after what is certain to be a robust, even rancorous debate, or amend the bill and quickly return it across the rotunda to the Senate. Should the House choose to amend the measure, it would almost certainly imperil its chances of becoming law before the new Congress convenes. The Senate compromise, which enjoyed wide bipartisan support, was so hard fought and senators do not anticipate taking another vote on it.

Any failure to pass the measure before the 112th Congress ends as of noon Thursday would require the process to start over in the new 113th Congress, meaning the Senate would have to vote again with a changed membership due the departure of several veteran lawmakers and the arrival of newcomers from both parties as a result of victories in the November elections.

But the strong, bipartisan 89-to-8 vote in the Senate about 2 a.m. on Tuesday will put strong pressure on the House to approve the legislation since a defeat would essentially leave the House responsible for a steep series of tax increases and spending cuts that some economists warn could send the nation back into a recession.

Yet it was clear Tuesday morning that many House Republicans were disenchanted with the plan, which, while containing many concessions that angered Democrats, still favors the latter party’s priorities and imposes a tax increase on the wealthiest Americans.

“I am halfway through reading it and haven’t found the cuts yet,” said Representative Trey Gowdy of South Carolina, who generally votes against budget bills. “It’s part medicinal, part panacea, and part treating the symptoms but not the underlying pathology.”

Democrats have their own issues with the measure due to what they see as too many concessions on taxes, making it apparent some combination of Democrats and Republicans will have to come together behind the measure if it is too clear the House and be sent to President Obama for his signature.

Speaker John A. Boehner and Representative Eric Cantor of Virginia, the House majority leader, arrived at the Capitol early Tuesday to begin working, but a spokesman for Mr. Cantor, Doug Heye, said no decision had been made on how to proceed.

Article source: http://www.nytimes.com/2013/01/02/us/politics/house-takes-on-fiscal-cliff.html?partner=rss&emc=rss

Stocks & Bonds: Investors Stay Calm, if Cautious, as Stalemate Simmers

Politicians remain locked in a rancorous debate over impending tax increases and spending cuts, and it remains unclear if a deal will be reached by the end of the year. But investors are already betting that lawmakers will do enough to avoid heading over the so-called fiscal cliff.

Fears that the divide separating Republicans and Democrats might be too great to bridge helped send markets down in the week after the election. More recently, share prices have climbed steadily, rising for most of the last three weeks to reach their highest point since late October.

The Standard Poor’s 500-stock index ended Wednesday flat, up 0.04 percent, to 1,428.48, after briefly spiking after the Federal Reserve’s announcement that it was expanding its bond-buying programs to stimulate the economy. The afternoon drop was attributed to the Fed’s projection that the economy would grow slightly less than expected next year. The benchmark index is now up almost 14 percent for the year.

“Clearly there is no nervousness in the market at all,” said David Woo, the head of global interest rate research at Bank of America Merrill Lynch. “There is a lot of complacency.”

The current rally has been fueled by the broad consensus among investors that Congress and the White House have narrowed their differences enough to make an agreement inevitable. But these same traders and strategists also are waiting for the first sign that negotiations in Washington are going to derail. In a survey conducted by the Potomac Group, nearly two-thirds of investors said that if an agreement was not reached by Dec. 31, the Dow Jones industrial average was likely to fall at least 10 percent.

Greg Valliere, a researcher at the Potomac Group, is among a loud minority on Wall Street that believes the current confidence is misplaced, given the recent track record of politicians on finding solutions to tough fiscal problems.

“Many people in the markets feel that its unthinkable that Washington would do something this irresponsible,” said Mr. Valliere. “After following Washington for 30 years, I would argue it is not unthinkable.”

The debate over taxes and spending is not the only thing that has helped stock prices higher. A growing stream of economic data has pointed to a strengthening recovery in the housing market and an improvement in the employment picture. The Fed also has continued its efforts to support the economy by keeping borrowing costs down and pushing investors into riskier assets.

Still, Wall Street has been fixated on every twist and turn in the negotiations in Washington. A Barclays survey of 400 of its clients found that a significant majority believed that “mismanagement” of fiscal policy posed the most significant near-term threat to markets.

The state of the debate in Washington seems to vary by the hour and the politician at the microphone. Speaker John A. Boehner said Wednesday morning that he and President Obama remained “far apart” on a possible deal.

Ken Taubes, the chief investment officer at Pioneer Investments, said that despite such rhetoric, he was betting on a last-minute agreement because many Republicans had already conceded that taxes needed to rise and many Democrats, including the president, had said that spending would fall.

A failure to reach a compromise “just seems like such a low probability event given that everyone knows what has to happen, and how bad the consequences are if it doesn’t,” Mr. Taubes said.

A number of indicators, such as the price of military contractors’ stocks, suggest that Mr. Taubes’s view is widely shared. The Department of Defense is to have its budget slashed next year if there is no resolution to the negotiations. But since the election, shares of military contractors are actually doing better than the broader market.

Article source: http://www.nytimes.com/2012/12/13/business/investors-stay-calm-if-cautious-as-stalemate-simmers.html?partner=rss&emc=rss

Some Concern Abroad About U.S. Downgrade

While officials in both Europe and Asia had girded for such a possibility, the news that Standard Poor’s had lowered Washington’s AAA rating to AA+ was nonetheless received with a degree of concern in the corridors of power on the Continent.

The French finance minister, François Baroin, questioned the move Saturday, which he said appeared to be based on “nonconsensual figures.” The Obama administration had disputed the judgment, noting that Standard Poor’s had made a significant mathematical mistake and overstated the federal debt by about $2 trillion.

Standard Poor’s said the downgrade was based more on the view that the effectiveness, stability and predictability of American policymaking had eroded during the rancorous debate over lifting the debt ceiling. Mr. Baroin said he found it curious that neither Moody’s nor Fitch, the two other major ratings agencies, had reached a similar conclusion. Moody’s has said it was keeping its AAA rating on the nation’s debt, but that it might still lower it.

“We have total confidence in the solidity of the American economy,” Mr. Baroin said in an interview on French radio. Nonetheless, he added, the decision “confirms” that the world’s most developed economies are confronted with the same urgent priorities: to lift growth and reduce public and private debt.

The Australian prime minister also warned against overreacting to the downgrade.

Standard Poor’s “had been signaling for some time that unless they saw a certain figure of budget cutbacks out of the discussion that there’s been in Washington about the American budget and fiscal consolidation, that they were intending to do that downgrade,” Prime Minister Julia Gillard said, according to Agence-France Presse. “At the same time, the other two major ratings agencies, Moody’s and Fitch, continue to have the American economy rated at AAA. So I think people just need to look at all of the facts.”

Japan’s reaction was also more muted, according to media reports. Officials in Tokyo said their trust in American Treasuries remained unchanged.

In Germany, however, commentators saw the downgrade as further evidence of the decline of American prestige.

The weekly newsmagazine Focus called the downgrade “a public humiliation.”

The magazine noted a scolding that the United States received from Chinese officials.

“Now the country must allow itself to be reprimanded and lectured before the eyes of the world,” Focus said, referring to the United states.

Group of 7 ministers could hold a telephone conference call Saturday night or Sunday, Reuters reported. A flurry of phone calls between European leaders to discuss Europe’s snowballing debt crisis continued on Saturday in the wake of the American downgrade, said one French official who was not authorized to speak publicly.

The possibility that the Washington’s sterling sovereign rating would be tarnished, together with the dawning realization that the United States and Europe may be grappling with fundamental problems in their economies for years to come, stoked the worst global selloff in stocks this week since the financial crisis blew open in 2008.

Yet even with Standard Poor’s downgrade, American debt is still seen as one of the world’s safest investments. The action may lift borrowing costs on a variety of debt around the world, although perhaps not enough to do serious damage.

That is cold comfort to China, the largest foreign holder of American debt. The country has issued several warnings to Washington about the possibility of a downgrade. On Saturday, just hours after the downgrade, Beijing admonished the Obama administration to “cure its addiction to debts” and “live within its means.”

One senior European official who has been involved in debt crisis negotiations said Europeans were “not especially happy” about the downgrade decision, but there was a feeling the ratings agency was fair in its relative treatment of Europe and the United States.

“We all feel the consequences of the crisis on our public finances,” the official said, “and we all need to take serious action to restore their sustainability while being attentive to the strengthening of growth.”

While the political atmosphere in the United States has not been helpful in that regard, the official added, the ruling was unlikely to “aggravate things for us.”

Still, it confirms that sovereign risks are not totally risk free and that governments must prove that they are undertaking sounder governance and greater sustainability of public finances, the official added.

Chancellor Angela Merkel of Germany, who spent hours on the phone Friday conversing with President Barack Obama, President Nicolas Sarkozy of France and the leaders of Italy and Spain, who are now in the eye of Europe’s debt storm, issued no statement Saturday.

But German newspapers summed up the general sentiment, with Die Welt calling the news a “thunderbolt” and saying Standard Poor’s was “brave” to downgrade the United States.

“This is not Spain or Ireland,” the normally pro-American Die Welt said.

“This is the debtor nation U.S.A., that in contrast to other countries has always fulfilled its obligations.”

The daily Süddeutsche Zeitung said that Germany might even profit from the downgrade, because money will flow to safe-haven investments like German Bunds. “This effect could become even stronger following the downgrade of the U.S.,” the newspaper said.

Phillip Rösler, the German economics minister, said he did not want to comment on decisions by ratings agencies. But he told the newspaper Bild am Sonntag, “It’s obvious that the competitiveness of the economies of other countries is also an important issue for us.”

Jack Ewing contributed reporting from Frankfurt

Article source: http://www.nytimes.com/2011/08/07/business/global/nations-react-to-downgrade-of-us-debt.html?partner=rss&emc=rss