Political India: Engaging America

From The Hindu

From The Hindu

 

From The Hindu

Exerting additional downward pressure on an already-muted rate of economic growth in the United States economy the U.S. Commerce Department cut third quarter growth estimates for 2011 from 2.5 per cent to 2 per cent.

The bad news on the growth front compounded Monday's failure in the Congressional supercommittee on deficit reduction, as a gridlock over tax increases and cuts to welfare programmes forestalled a deal on spending cuts to the tune of $1.2 trillion.

In a statement the Commerce Department's Bureau of Economic Analysis (BEA) said that real gross domestic product increased at an annual rate of 2 per cent in the third quarter of 2011, that is from the second quarter to the third quarter, as per a second estimate of the BEA.

In an “advanced” estimate of the growth rate issued in October the BEA had noted that the increase in real GDP was 2.5 per cent; yet it justified the estimate downgrade because “The GDP estimates released today are based on more complete source data than were available for the ‘advance' estimate issued last month.”

Sector level

Deconstructing the various components of the latest growth figure, the BEA said that the rise in real GDP in the third quarter “primarily reflected positive contributions from personal consumption expenditures non-residential fixed investment, exports, and federal government spending that were partly offset by negative contributions from private inventory investment and state and local government spending.” Imports, the BEA added, increased during the period.

At the sector level, final sales of computers were said to have added 0.22 percentage points to the third-quarter change in real GDP after adding 0.07 percentage points to the second quarter change. Similarly, motor vehicle output reportedly contributed 0.18 percentage points following a negative figure of 0.10 percentage point in the second quarter change.

The 0.5 percentage point drop in the most recent estimate of the third quarter increase in real GDP implied that GDP was $15 billion lower than the advance estimate and this lower value primarily reflected downward revisions to private inventory investment, non-residential fixed investment, and personal consumption expenditures, the BEA said.

When the approval rating of an institution is at an all-time low of nine per cent, one would think it would go out of its way to avoid any glaring failure in carrying out its duty.

Yet, even after the reputational debacle that the U.S.Congress suffered over the summer owing to its near-failure to reach a deal on a limit for the ballooning debt, it has again endangered its credibility in the eyes of voters.

In the months following those precipitous negotiations over the debt limit, the Congress' so-called deficit-reduction “supercommittee” failed to hammer out a deal on further public spending cuts before its Monday midnight deadline.

While rating agencies are closely watching these developments, the U.S. may have temporarily escaped an S&P-style downgrade since President Barack Obama's plan, approved by Congress, will now require automatic cuts across vast swathes of the budget, including the Republican-cherished area of defence expenditure.

Though $1.2 trillion in additional cuts was at stake, the committee could not reach a bipartisan consensus on where these cuts would be applied, with Republican intransigence on the continuation of the Bush-era tax cuts for millionaires and billionaires forming the bulwark of their opposition.

Democrats refused to sign off on deep cuts into Medicare, Medicaid and Social Security, welfare programmes aimed at the most vulnerable members of society.

With an unmistakable tenor of shame, the supercommittee co-chairs, Democratic Senator Patty Murray and Republican Congressman Jeb Hensarling, said in a statement, “After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline.”

Mr. Obama, who may well mould the Republican blockades into a campaign plank for the presidential elections, struck a defiant note scarcely an hour after the passage of the deadline.

Broad agreement

“Despite the broad agreement that exists for such an approach, there's still too many Republicans in Congress who have refused to listen to the voices of reason and compromise that are coming from outside of Washington. They continue to insist on protecting $100 billion worth of tax cuts for the wealthiest two per cent of Americans at any cost, even if it means reducing the deficit with deep cuts to things like education and medical research,” said Mr. Obama.

Further warning his opposition against efforts to undermine the automatic cuts, which are expected to kick in by early 2013, he said, “My message to them is simple: No. I will veto any effort to get rid of those automatic spending cuts to domestic and defence spending,” adding, “There will be no easy off ramps on this one.”

From The Hindu

The Obama administration dodged a bullet today when the United States Bureau of Labour Statistics announced in its jobs report for September that non-farm payroll employment edged up by 103,000 although the unemployment rate held at 9.1 per cent.

However the BLS poured cold water on the ostensible pause in the economy’s downward slide when it pointed out that the increase in employment partially reflected the return to payrolls of about 45,000 telecommunications workers who had been on strike in August.

Even as markets continued to be roiled in the wake of uncertainty regarding the pace of the recovery, the BLS however underscored some stability in unemployment numbers, noting that the number of unemployed persons, at 14.0 million, was essentially unchanged in September.

However some worrisome trends persisted beneath the aggregate figures as the number of long-term unemployed, that is those jobless for 27 weeks or more, was 6.2 million in September and they accounted for whopping 44.6 percent of the unemployed.

In a further indication that business hiring and employment were far from brisk the number of persons employed part time for economic reasons, sometimes referred to as involuntary part-time workers, reportedly rose to 9.3 million. “These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job,” the BLS said.

Describing the unemployment rate of 9.1 per cent as “unacceptably high,” Katherine Abraham, Member of the Council of Economic Advisors, however lauded the private sector for adding 2.6 million jobs for 19 straight months, with a total of 137,000 jobs added last month.

Arguing that there was a clear need for faster economic growth to put Americans back to work, Ms. Abraham said that the BLS report underscored President Barack Obama’s call for Congress to pass the American Jobs Act “to put more money in the pockets of working and middle class families; to make it easier for small businesses to hire workers; to keep teachers in the classroom; to put construction crews to work rebuilding our nation’s infrastructure; and other measures that will help the economy grow while not adding to the deficit over ten years.”

In terms of specific sectors that added jobs last month, employment in professional and business services increased by 48,000; in health care it continued to expand with an increase of 44,000; in construction employment increased by 26,000 jobs; and employment in the information sector rose by 34,000. Among the sectors that shed jobs was retail trade, in which employment declined in electronic and appliance stores by 9,000 jobs.

However it was principally in the public sector that the largest declines in employment levels occurred, with government employment continuing to trend down by 34,000 jobs. The U.S. Postal Service also continued to lose jobs and was down by 5,000, while local government employment which had fallen by 535,000 since September 2008, declined by 35,000.

The BLS said that the average hourly earnings for all employees on private non-farm payrolls increased by 4 cents, or 0.2 per cent, to $23.12.

The United States' recovery from the ongoing economic crisis was ‘much less robust' than what the Federal Reserve had hoped it would be and recent revisions of government economic data showed the recession as having been even deeper, and the recovery weaker, than previously estimated, according to Ben Bernanke, Chairman of the Fed.

In a speech that sought to shift more responsibility for driving the recovery to fiscal policy rather than retain the focus on monetary policy under the Fed Mr. Bernanke added that recent bouts of elevated volatility and risk aversion in financial markets were partly in reaction to fiscal concerns in the U.S. and abroad.

Touching upon the role of the bitter, macroeconmically-damaging debt limit negotiations between Democrats and Republicans earlier this summer, Mr. Bernanke said that the controversy resulting in the downgrade of the U.S. long-term credit rating by the Standard and Poor's rating agency “contributed to the financial turbulence that occurred around that time.”

Four key steps

By way of policy response the Fed Chairman noted that four key steps in terms of fiscal reform were needed. First, he said, it was necessary to achieve long-run fiscal sustainability; second, the federal government ought to avoid fiscal actions that could impede the ongoing economic recovery; third, fiscal policy should aim to promote long-term growth and economic opportunity; and finally, there was a need to improve the process for making long-term budget decisions so as to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy.

Rajiv Shah, head of the United States Agency for International Development, may well want to keep a low profile this week and refrain from lecturing other nations on how to help their poor. For, if he does, he may be gently reminded that in 2010, poverty in his own country jumped by a staggering 20 per cent, from 12.5 per cent of the population to 15.1 per cent.

These were the figures compiled by the U.S. Census Bureau (USCB), which said in its report this week on Income, Poverty and Health Insurance Coverage in the U.S.: 2010, that not only were 46.2 million Americans in poverty after the worst recession since the 1930s, but this worsening trend had continued for the fourth consecutive year and was “the largest number in the 52 years for which poverty estimates have been published.”

The official poverty line applied in the survey was $22,314 for a family of four.

The report also provided food for thought to those opposing President Barack Obama's groundbreaking Affordable Health Care Act, passed last year. Even as the Republicans, led by new Tea Party members in the U.S. Congress and in the States, press for the repeal of the inclusion-focussed Act, the USCB report warned that the number of people without health insurance coverage had risen from 49 million in 2009 to 49.9 million in 2010.

The aggregate picture painted by the USCB report suggests that it was not only those at the bottom of the economic food chain who suffered through the recession years and beyond — median income for the entire population dropped during this time and some racial groups were hit harder than others.

The report argued that since 2007, the year prior to the most recent recession, real median household income has declined 6.4 per cent. While real median income declined for white and African-American households between 2009 and 2010, the differences in the variable for Asian and Hispanic-origin households were not statistically significant.

Putting these results in context Ron Haskins, Senior Fellow at the Brookings Institution and a former White House and congressional advisor on welfare issues, said to The Hindu, that the rise in poverty was caused by “the sluggishness of the American economy, especially the high levels of unemployment and long-term unemployment (more than 27 weeks).”

Arguing that the government's programmes had a dramatic effect in keeping poverty rates from going even higher, Mr. Haskins however said that fiscals that were gaining momentum in the aftermath of the deficit reduction debate could “now and over the next year or two” begin to have an impact on poverty.

“In addition, billions in extra spending on programmes for the poor were included in the 2009 stimulus Bill and those are running out this year,” Mr. Haskins explained, though conceding that neither the states nor the federal government have money to increase the “already huge spending the U.S. does on programmes for the poor.”

In the healthcare field, the welfare outcomes may be more positive depending on the course of legal action across U.S. challenging the constitutional validity of President Obama's landmark reform Bill.

“If the Affordable Care Act is not repealed or stopped by the courts, health insurance coverage will begin to go up in 2014 and 2015,” Mr. Haskins noted, adding that the Act has already had a positive impact through its provision to allow adult children up to 25 years of age to be covered by their parents' health insurance policies.

Federal Reserve Chairman Ben Bernanke knows when to respond to market expectations — and when not to. Although speculations were rife this week that he might announce a further round of quantitative easing in a major speech on Friday, Mr. Bernanke disappointed observers did not outline any new expansionary monetary policy measures that the Fed might adopt.

The sober speech at an annual economic conference in Jackson Hole, Wyoming, reflected his cautious optimism on economic growth in the United States, which, Mr. Bernanke however warned, “has been much less robust than we had hoped.” He also expressed concern on the question of stubbornly high unemployment levels, noting that the “extraordinarily high level of long-term unemployment,” had led to a situation where nearly half of the unemployed had been out of work for more than six months.

‘Unusual circumstances'

While Mr. Bernanake noted that such “unusual circumstances” warranted policies that promoted a stronger recovery in the near-term, he shied away from announcing any unconventional policies such as an additional large-scale bond purchase.

Instead the Chairman focused on an area of economic policy that is beyond the Fed itself — fiscal policy — and spoke with surprising candour about the recent debt ceiling battle in the U.S. Congress and the White House. Implicitly criticising lawmakers for allowing a crisis to foment around the debt limit negotiations, which ultimately led to a downgrade of the U.S.' credit rating by S&P earlier this month Mr. Bernanke said, “There seems little doubt that [these developments] have hurt household and business confidence and that they pose ongoing risks to growth.” Mr. Bernanke also sought to underscore the link between the urgent need for fiscal reform and the imperative to steer the U.S. economy back to a high-growth path. Pointing out that the issue of fiscal sustainability had to be quickly addressed he cautioned that fiscal policymakers “should not, as a consequence, disregard the fragility of the current economic recovery.”

Instead, he said, they ought to promote stronger economic performance through the design of tax policies and spending programs, a hint that the Fed preferred to see balanced approach of tax hikes as well as spending cuts in getting the U.S back to fiscal health.

From The Hindu

Deven Sharma (55), Indian-American president of credit rating agency Standard & Poor's, has resigned less than three weeks after his company found itself at the receiving end of the Obama administration's ire following its downgrade of the United States' credit rating from AAA to AA+.

S&P's announcement, that Mr. Sharma would be stepping down immediately and leaving the company at the end of the year, also follows reports last week that the U.S. Justice Department had initiated an investigation into the mortgage securities ratings allocation process at the McGraw-Hill subsidiary. In particular, authorities were said to be examining whether S&P “improperly rated dozens of mortgage securities in the years leading up to the financial crisis.”

S&P's downgrade of the U.S.' debt from AAA to AA+ on August 5, based on its perception that the deficit reduction measures agreed by the administration were insufficient to stabilise national debt, saw further market turmoil in its wake as the downgrade triggered a massive global sell-off.

Credit ratings allocation, which yielded enormous profits in the boom years to the major agencies including S&P, Moody's and Fitch, have come under fire from regulators for their role in fuelling the financial markets collapse in 2008. The U.S. Congress and White House have both challenged S&P's “secretive process, its credibility and the competence of its analysts.”

In this week's announcement, S&P said Douglas Peterson (53), chief operating officer of Citibank N.A., would be its next President effective September 12, while Mr. Sharma “will take on a special assignment working on the Company's strategic portfolio review,” until the year's end.

Mr. Sharma's resignation also marks intensifying woes faced by the McGraw-Hill Group internally, with activist investors demanding stridently to break up the media conglomerate into four parts including splitting up the S&P into its indexes operations and ratings and financial business, reports said.

In announcing the change, Harold McGraw III, Chairman, President and CEO of the McGraw-Hill Companies said, “I particularly want to thank Deven for his dedicated leadership of S&P. Four years ago, in one of the most difficult times facing S&P in the midst of the financial crisis, I turned to Deven whose background as head of S&P's Investment Services, head of McGraw-Hill's Global Strategy and as a partner at Booz Allen & Company, brought the right kind of skills to address the situation.”

Mr. Sharma was however known for his outspoken views on imbalances in the market, for example saying last month to members of the House of Representatives Committee On Financial Services that, “The independence of rating agencies to develop their own methodologies, rather than be pushed by regulation toward a common methodology, mitigates the systemic risk that ratings could become indistinguishable from agency to agency.”

He had further warned that it was critical that new regulations preserved the ability of credit rating agencies “to make their own analytical decisions without fear that those decisions will later be second-guessed if the future does not turn out as anticipated or that, in publishing a potentially controversial view, they will expose themselves to regulatory retaliation.”

From The Hindu

Barack Obama is all set to create a new record — for being the first incumbent Democrat President of the United States to get re-elected primarily by Republican voters. During his time in office, which began with high hopes for a strong, liberal-Democratic policy agenda, Mr. Obama has steadily drifted to the right, nudged along by a series of drastic compromises with a truculent opposition party and a stalemated Congress.

After reneging on campaign promises to close the legally-dubious Guantanamo Bay prison, after soft-peddling on comprehensive immigration reform, and after prevaricating on the U.S. troop drawdown in Afghanistan, the President's latest compromise poses a grave threat to the country's largest social welfare programmes, Social Security and Medicare.

After secret negotiations with Republican House of Representatives Speaker John Boehner, the President, last week, delivered the unkindest cut of all to the liberal base of the Democratic Party. In his much vaunted “Twitter Townhall,” the President took no more than 140 characters to reveal that he had buckled under Republican pressure to put cuts to Social Security and Medicare back on the table.


Some context is necessary here. Social Security and Medicare, along with Medicaid, are among the largest so-called “entitlement programmes” — a term that Republicans and Tea Partiers now use in a pejorative sense. Yet these programmes have, since their inception in 1935 and 1965 respectively, comprised the “centrepiece of the nation's social contract, an intergenerational commitment to provide at least a subsistence income to the most vulnerable of citizens.”

Certainly, their Leviathan-like magnitude today has made them a tempting target for public expenditure cuts, especially as the August 2 deadline for raising the U.S. debt ceiling of $14.3 trillion approaches. Social Security accounts for more than 20 per cent of the federal budget, and, according to its operator, it handed out close to $672 billion in benefits to around 51 million Americans in 2009. Medicare is similarly massive.

The ongoing discussions between Mr. Obama and Mr. Boehner reflect a genuine effort to forestall the nightmare scenario of sovereign default. Mr. Obama was not exaggerating when he warned that if no agreement on the debt limit was reached, then “our credit could be downgraded, interest rates could go drastically up, and it could cause a whole new spiral into a second recession, or worse.”

Yet at the heart of these negotiations lies a gun that is aimed squarely at the head of the poor, the elderly, the infirm and those who have watched what savings and assets they had at the start of the 2000s wiped out by eight years of unbridled free-market policies under George W. Bush.

The threat that Republicans now hold out to Mr. Obama, to compromise on cuts to welfare programmes or else face the prospect of plunging the nation into a debt crisis, is both opportunistic and, ultimately, internecine. The fallout of a sovereign default will be electorally catastrophic for both sides. A second recession would push American middle class families, already struggling with a sinking housing market and rampant joblessness, into a tailspin of economic despair. They will not forget to punish those responsible.

So far as Republicans' political incentives are concerned, their leadership is still highly contested and struggling to throw up a candidate who might have a realistic chance of defeating Mr. Obama in November 2012. For the Grand Old Party then, it makes no sense to do anything but try and discredit Mr. Obama and Democrats, especially in such high-profile negotiations.

Ironically it would appear that GOP and fiscally conservative Tea Partiers are succeeding in their efforts and the President seems to be walking these policies to the fiscal guillotine. If he permits free-market forces to whittle them down into a shadow of their current form then no longer will those born in this country with fewer than average opportunities rise to become the great entrepreneurial successes, the school-dropout billionaires of the future.


Yet to the consternation of top Democrats, last week Washington was abuzz with news that Mr. Obama was considering a “back-door” reform to cut Social Security spending. This reform would see the current methodology for cost-of-living adjustments substituted with a chain-weighted version of the Consumer Price Index.

The problem with using such chain-weighted indexes, as Max Richtman of the National Committee to Preserve Social Security and Medicare explained in the New York Times, is that “Social Security beneficiaries did not receive a cost-of-living adjustment this year or in 2010 because inflation, as measured by the standard Consumer Price Index (CPI), was so low.”

It is certain, then, that in the current low-inflation, slow-growth U.S. economy, the hard-to-reverse inclusion of the chain-weighted CPI could have devastating consequences for senior citizens and the poor. The fact is there would be no need to resort to such obscure definitional manipulations if the President had not allowed Republicans to block all negotiations on one vital component of the public accounts — tax revenue.

Some background is in order here too. During the last few months of 2010 — by which time the House was already lost to Democrats and Republicans had the numbers to hold the legislative process hostage on a whim — there was a negotiation between the two parties that was similar to the present one. The discussion focussed on whether to extend the Bush-era tax cuts for the wealthiest one per cent of Americans, those earning above $250,000 per year, or let them expire per deadline.

As it played out, Republicans demanded that the tax breaks that these wealthy sections enjoyed be retained in exchange for which they would permit tax breaks for ordinary, middle-class families to also continue. As a consequence the federal income tax rate for the top income bracket is 35 per cent today, far less than the 70 per cent that it was under Republican President Richard Nixon in the 1970s and certainly less than the 91 per cent that it was under Republican President Dwight Eisenhower in the 1950s.

What Mr. Obama was hoping to achieve in the last round of negotiations was merely to knock the tax rate for the wealthiest back up a few points to the 39 per cent-level that it was under President Bill Clinton — and that too only on income in excess of $250,000. Extrapolating from estimates by the non-partisan Pew Charitable Trusts, this could have netted the exchequer an additional $1.1 trillion over the next decade, a not-inconsiderable proportion of the $2 trillion that both sides are hoping to agree in cuts.

Yet the fiscal hawks who are effectively holding the nation hostage have insisted that the very mention of tax cuts being withdrawn is unacceptable. In late June, Republican negotiator Eric Cantor walked out, in an almost impetuous fashion, from meetings convened by Vice-President Joe Biden as part of a serious effort to find a common ground. In the face of such truculence, White House officials were reduced to pleading for no more than “positive revenue increases.”

While Mr. Obama has acquired a reputation for carefully hedging his bets in various policy dealings, the debt negotiation may well be the one situation where he cannot please all parties concerned. This zero-sum game may require him to call the Republican bluff. The President should not fear this outcome but have faith that Americans believe that their nation was built on firm social justice foundations.

From The Hindu

Marking a potentially worrisome trend in the United States economy, the United States Bureau of Labour Statistics (BLS) on Friday revealed that for the month of June the unemployment rate ticked up by one percentage point to 9.2 per cent, and over 14 million people still remained without a job.

The only spot of good news was that private sector payrolls continued their plodding upward march, increasing by 57,000 in June having added 2.2 million jobs over the past 16 months.

Austan Goolsbee, Chairman of the White House Council of Economic Advisers, admitted cause for concern when he said, “This month’s report reflects the recent slowdown of economic growth due to headwinds faced in the first half of this year. The unemployment rate remains unacceptably high and faster growth is needed to replace the jobs lost in the downturn.”

Shifting the focus from some of the political barriers to job-creating policies, Mr. Goolsbee added that the grim news on unemployment underscored the need for bipartisan action, for example, through measures such as extending payroll tax cut, passing pending free trade agreements, and creating an infrastructure bank.

With the looming August 2 deadline for raising the constitutionally-mandated debt limit of $14.3 trillion, Mr. Goolsbee stressed that faster job creation also required “a balanced approach to deficit reduction that instills confidence and allows us to live within our means without short-changing future growth.”

Currently negotiations between President Barack Obama and Republican leaders in the U.S. Congress have come down to a tussle between the Republican push for expenditure cuts to major programmes such as Social Security and the Democrats’ focus on tax revenues.

Regarding the June unemployment results, the BLS noted that among the sectors with employment increases were leisure and hospitality, health care, and manufacturing. Sectors with employment declines included government, financial activities, and construction, the BLS added. Local governments, many reeling under the pressure of large deficits at the state level, were said to have lost 18,000 jobs in June and have shed 355,000 jobs since the start of 2010.

From The Hindu

The United States labour markets continued to be buffeted by the economic downturn, with a mere 54,000 payroll employment jobs added in May, which left the overall unemployment rate essentially unchanged at 9.1 per cent.

The grim news came when U.S. Bureau of Labour Statistics released its monthly jobs report, in which it said although private-sector employment continued to trend up with a net addition of 83,000 jobs, even that figure was a much smaller amount than the average for the prior three months, which was 244,000.

Reacting to the negative news, even as President Barack Obama continued to keep job creation at the top of his 2011 policy agenda, the Chairman of the Council of Economic Advisers, Austan Goolsbee, said, “There are always bumps on the road to recovery, but the overall trajectory of the economy has improved dramatically over the past two years.”

While he sought to focus attention on private-sector job growth arguing that this sector added more than 2.1 million jobs over the past 15 months, Mr. Goolsbee conceded that the unemployment rate was “unacceptably high and faster growth is needed to replace the jobs lost in the downturn.”

The slowdown in the jobs growth rate comes at a particularly challenging time for the Obama White House, as the recent clashes with the U.S. Congress over raising nation’s the debt limit are likely to put the brakes on any further initiatives to boost employment. In this context Mr. Goolsbee noted, “We will continue to work with Congress to responsibly reduce the deficit and live within our means.”

Thus while numerous measures such as the payroll tax cuts and business incentives for investment have already been implemented and may well have contributed to employment growth thus far, even Mr. Goolsbee admitted that the latest BLS report “is a reminder of the challenges that remain.”

Most worrying for the current administration must be what the BLS report indicates about stalled recovery in the manufacturing, real estate and construction sectors. The report said that employment in some manufacturing areas actually dipped in May, with 5,000 jobs being lost.

Construction employment was essentially unchanged in May, the report said, noting that employment in the industry has “shown little movement on net since early 2010, after having fallen sharply during the 2007-09 period.”

Further the report suggested that states and local governments were continuing to reel under deficit pressures. Employment in local government declined during May, by 28,000 jobs. In fact since an employment peak in September 2008 local governments in the U.S. have lost 446,000 jobs, the report cautioned.

Yet Mr. Goolsbee struck a note of hope on the employment-boosting policies of the administration. He said, “We are focused on promoting exports, reducing regulatory burdens and making the investments in education, research and development, and infrastructure that will grow our economy and create jobs.”

From The Hindu

Economists are concerned that the U.S. debt ceiling now stands at $14.29 trillion, could be breached yet again later this month

The use of the U.S.' constitutionally-mandated debt ceiling as a political bargaining chip could risk further worsening the country's deficit or even lead to another meltdown in the U.S. economy, the head of the U.S. central bank, Federal Reserve Chairman Ben Bernanke warned this week.

Speaking before the Senate Committee on Banking, Housing, and Urban Affairs, Mr. Bernanke said, “Using the debt limit as a bargaining chip is quite risky.” His comments came in the wake of a series tussles over the U.S.' debt limit between Democrats, who control the Senate and the White House, and Republicans, who control the House of Representatives.

While the U.S. came perilously close to a federal government shutdown in April, owing to a stalemate over negotiations on increasing that limit, an eleventh-hour bipartisan deal was reached, averting the crisis.

However, economists are concerned that the U.S. debt ceiling currently stands at $14.29 trillion, and could be breached yet again later this month. In this context Republicans led by House Speaker John Boehner and Senate Minority Leader Mitch McConnell have said they would not agree to raising the debt limit unless Democrats conceded to major spending cuts to major mandatory expenditure programmes. Yet at his Senate testimony Mr. Bernanke cautioned, “It is a risky approach not to raise the debt limit in a reasonable time... At minimum the cost will be an increase in interest rates that will actually worsen our deficit”. He also indicated that more severe consequences could follow, arguing, “The worst outcome would be one in which the financial system was again destabilised... which of course would have extremely dire consequences for the U.S. economy.

Yet even as Mr. Bernanke addressed the Senate Committee, Mr. McConnell reiterated the Republican position, saying, “The things I'm talking about have already been studied to death. We don't need any more hearings... we know what the options are. The only question remaining is what will we pick up and agree to on a bipartisan basis”.

While President Barack Obama and his Democratic colleagues have agreed to numerous cuts in discretionary expenditure, they have thus far been reluctant to make sweeping cuts in three of the largest components of public expenditure – Medicare, Medicaid and Social Security.

Along with job creation and the economic recovery, curtailing the explosive growth of debt is likely to be one of the highest policy priorities as the November 2012 presidential elections approach.

From The Hindu

With his domestic political standing boosted by last weekend's killing of Osama Bin Laden in Pakistan, United States President Barack Obama has now trained his guns on the U.S.' economic competitors and upped the ante on India and China in particular.

Speaking to factory workers at a clean-energy auto manufacturer called Allison Transmission, headquartered in Indianapolis, Indiana, Mr. Obama said that the U.S. was in a competition all around the world with other countries, and those countries knew that clean energy technology was going to help spur job creation and economic growth for years to come.

Arguing that that was the reason why the U.S. had to “make sure that we win that competition,” he added, “I do not want the new breakthrough technologies and the new manufacturing taking place in China and India. I want all those new jobs right here in Indiana, right here in the U.S, with American workers, American know-how [and] American ingenuity.”

While the early part of 2010 saw many of the President's statements refer to emerging markets such as India as a source of competition in global commerce and jobs, his November 2010 visit to India marked a lull in that trend. Contrarily towards the end of last year Mr. Obama spoke of numerous deals signed with Indian companies that would help create American jobs, including the example of one such link between Schenectady, New York, and Samalkot, Andhra Pradesh.

Yet it would appear that Mr. Obama is once again focussed on the domestic economic recovery and job creation policy agenda, which is also significantly centred on cutting the size of the U.S. budget deficit and its dependence on imports of oil.

Underscoring the need to “get gas prices under control” through a reduction in the U.S. dependence on oil, Mr. Obama also said that his administration aimed to boost the production of fuel-efficient cars and trucks across the country.

To that end they had “reached an historic agreement with every major auto company,” Mr. Obama announced, for these companies to ramp up the fuel economy of their cars and trucks.

“That will not only save 1.8 billion barrels of oil, it's going to save you, the average driver, about $3,000 at the pump as cars increasingly get better gas mileage,” Mr. Obama explained.

As part of this agreement the White House has also proposed a $7,500 tax rebate for electric vehicles, aimed at encouraging people to use these new technologies. This rebate would be paid for by “putting an end to the unwarranted subsidies that we are giving oil companies right now through the tax code,” the President added, noting that the top five oil companies through the last five years of the recession had profits ranged between $75 billion and $125 billion.

Emphasising that the jobs of the future were to be found in areas such as clean energy, Mr. Obama reiterated his intention to jump start manufacturing in the U.S. economy. “America's economy is always going to rely on outstanding manufacturing, where we make stuff – where we're not just buying stuff overseas, but we're making stuff here, and we're selling it to somebody else,” he said.

From The Hindu

Presenting a mixed picture of the U.S. economy the April jobs figures released by the U.S. Bureau of Labour Statistics (BLS) suggested that 2.44 lakh new jobs were added and yet the overall unemployment rate climbed to 9 per cent from 8.8 per cent a month earlier.

While the results suggest an improvement from March's addition of 2.21 lakh jobs they also indicated possible sources of stagnation within state and local government employment. Across the U.S. states have come under increasing pressure from burgeoning budget deficits.

The BLS monthly survey reported, “Employment in both state government and local government continued to trend down, with April losses concentrated in the non-educational components”.

However, the private sector showed a stronger, positive trend with employment in retail trade rising by 57,000. Professional and business services were reported to continue their expansionary trend in April, with an increase of 51,000. Employment in leisure and hospitality continued to increase in April, the BLS said, adding 46,000 jobs in April and 1.51 lakh jobs over the past three months.

Commenting on the results, the Chairman of the White House' Council of Economic Advisers, Austan Goolsbee, sought to strike a positive note saying, “Today's employment report shows that private sector payrolls increased by 2.68 lakh in April, the strongest monthly growth in five years.” He added that the economy had created 2.1 million private sector jobs over 14 consecutive months, including more than 8 lakh jobs since the beginning of 2011.

Identifying Japanese earthquake and political turmoil in the Middle East as factors affecting crude oil prices, now above $4 a gallon in the U.S., Mr. Goolsbee said, “Despite headwinds from high energy prices and disruptions from the disaster in Japan, the last three months of private job gains have been the strongest in five years.”

While arguing that the “solid” pace of employment growth in recent months was “encouraging,” he conceded that faster growth was needed to replace the jobs lost in the downturn.

Mr. Goolsbee further spoke of the domestic debate on deficit reduction, a subject that President Barack Obama addressed in a recent speech, saying, “We will continue to work with Congress to find ways to reduce spending, so that we can live within our means without neglecting the investments in education, infrastructure, and clean energy that will strengthen our economy”.

Yet, he cautioned, while the overall trajectory of the economy had improved dramatically over the past two years, “There will surely be bumps in the road ahead.”

From The Hindu

In news that is likely to dampen the enthusiasm behind the ongoing economic recovery in the U.S., gross domestic product in the country grew at a rate of 1.8 per cent during the first quarter of 2011, according to the U.S. Commerce Department.

The news came even as the Chairman of the U.S. Federal Reserve, Ben Bernanke, indicated that a lower-than-expected rate of economic growth was likely and rising food and petrol prices would lead to weakened consumer spending and higher inflation.

Data corroborated Mr. Bernanke's statements, especially figures suggesting that “projected annual growth slowed to 1.8 per cent, from the bullish 3.1 per cent recorded in the final quarter of 2010.” Further, figures showing jobless claims unexpectedly rose, reports noted, “adding to the dismal picture.” According to reports the dampened growth projections along with a surge in inflation to 3.8 per cent is likely to be weaken President Barack Obama's prospects this year, particularly as the President has made the economic recovery and job creation the front and centre of his policy agenda for 2011.

Yet some economists still expressed optimism in the longer term, with the New York Times quoting Kathy Bostjancic, Director for Macroeconomic Analysis at the Conference Board, saying that the previous quarter's news was “a pause, not a trend,” and many of these problems would fade later in the year and economic growth will hasten through the spring.

From The Hindu

In positive news that could improve the prospects for the Obama administration the United States Bureau of Labour Statistics announced on Friday that the net addition to jobs in the U.S. economy was 192,000 during the month of February, with the private sector in particular creating 220,000 jobs.

The BLS noted that even as the world’s largest national economy continued to create new jobs, its rate of unemployment also dipped to a two-year low of 8.9 per cent after hovering above 9 per cent for many months. This followed from job gains occurring in manufacturing, construction, professional and business services, health care, and transportation and warehousing.

However despite the progress in job creation the total number of unemployed persons remained near its post-recession highs, at 13.7 million.

Sustained growth, job creation

Reacting to the news Austan Goolsby, Chairman of President Barack Obama’s Council of Economic Advisors, said, “Though unemployment remains elevated, we are seeing signs that the initiatives put in place by this administration — such as the payroll tax cut and the investment tax credit — are creating the conditions for sustained growth and job creation.”

Mr. Goolsby added that while the steep decline in the unemployment rate and the overall trend of economic data in recent months were encouraging, there was still “considerable work to do” to replace the jobs lost during the downturn.

“We will continue to work with Congress to find ways to reduce spending, but not at the expense of derailing progress in the job market, making the investments we need to educate our workers, investing in science, and building the infrastructure our companies need to succeed,” Mr. Goolsby said.

Similarly issuing a caution to his political opposition about the dangers of cutting investment education, science and infrastructure Mr. Obama said in his weekly address, “We need to come together, Democrats and Republicans, around a long-term budget that sacrifices wasteful spending without sacrificing the job-creating investments in our future.”

Commenting on the federal government budget that he recently authorised in order to avoid a government shutdown, the President said that both parties needed to come together around a budget that cuts spending without slowing the U.S.’ economic momentum. “We need a government that lives within its means without sacrificing job-creating investments in education, innovation, and infrastructure,” Mr. Obama said.

Speaker of the House of Representatives Republican John Boehner said, “The improvement seen in this report is a credit to the hard work of the American people and their success in stopping the tax hikes that were due to hit our economy on January 1,” adding that removing the uncertainty caused by looming tax hikes provided much-needed relief for private-sector job creators in America.

However the President emphasised the fiscal austerity dimension of his budget proposals, arguing that they would reduce the U.S.’ deficits by $1 trillion over the next decade. “In fact, the cuts I’ve proposed would bring annual domestic spending to its lowest share of the economy under any president in more than 50 years,” he said.

From The Hindu

Delivering a jobs-focused State of the Union address before a packed chamber in the United States House of Representatives, President Barack Obama on Tuesday night struck a largely bipartisan note and unofficially launched his 2012 re-election campaign.

Effectively offering an olive branch to his Republican opposition after two years of bitter political division across most policy areas, Mr. Obama also warned that the U.S. risked losing out to countries such as India and China, which were pressing ahead with investments in education, technology and research.

“Nations like China and India realised that with some changes of their own, they could compete in this new world,” he said, adding, “So they started educating their children earlier and longer, with greater emphasis on math and science. They are investing in research and new technologies.”

On the other hand, Mr. Obama said, the quality of the U.S.’ math and science education lagged behind that of many other nations and the country had fallen to the ninth place in terms of the proportion of young people with a college degree.

The President however highlighted the importance of emerging markets in spurring job creation in the U.S., as he argued, “Recently, we signed agreements with India and China that will support more than 250,000 jobs in the U.S. And last month, we finalised a trade agreement with South Korea that will support at least 70,000 American jobs.”

Kicking off his annual health report for the nation on an emotional note, Mr. Obama said “We are also mindful of the empty chair in this chamber, and we pray for the health of our colleague and... friend [Congresswoman Gabrielle] Giffords.”

He said that the tragedy in Tucson, Arizona, where Ms. Giffords was critically shot by a gunman on a rampage, reminded Americans that regardless of their background they were all part of “something more consequential than party or political preference.”

In arguing that it was imperative for the U.S. to retain its position as a global technology leader, Mr. Obama showcased recent examples of outstanding American innovation. Key among these was the story of small business owner Brandon Fisher, who, last October, helped design the capsule that ultimately saved the lives of miners trapped in a collapsed shaft in Chile.

Highlighting the importance of such innovation for job creation, clearly marked as the top policy priority for 2011 in the State of the Union speech, Mr. Obama said, “We know what it takes to compete for the jobs and industries of our time. We need to out-innovate, out-educate, and out-build the rest of the world.”

Despite Mr. Obama’s focus on areas of agreement between the Democrats and the Republicans, many in the Opposition argued that he papered over serious differences of opinion between the two major parties.

While the President briefly alluded to tax code reform, deficit reduction and healthcare policy amendments towards the latter half of his speech, Congressman Paul Ryan, of the Republican Party, and Congresswoman Michele Bachmann, of the Tea Party, criticised his approach to tackling these challenges.

Delivering successive speeches following Mr. Obama’s address, both Mr. Ryan and Ms. Bachmann criticised the President’s failure to rein in the burgeoning federal deficit and to cut down government control of the U.S. economy.

“Instead of a leaner, smarter government, we bought a bureaucracy that now tells us which light bulbs to buy and which may put 16,500 Internal Revenue Service agents in charge of policing President Obama's health care bill,” Ms. Bachmann said.

However Mr. Ryan acknowledged that some of the economic problems that the U.S. faced were engendered by Republican administrations. He said, “There is no doubt the President came into office facing a severe fiscal and economic situation.”

Yet he argued, “Unfortunately, instead of restoring the fundamentals of economic growth, he engaged in a stimulus spending spree that not only failed to deliver on its promise to create jobs, but also plunged us even deeper into debt.”

Despite Ms. Bachmann’s repeated attacks on “Obama-care” Mr. Obama sought to keep the lines of communication with Republicans open on healthcare reform.

He said, “Let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you... What I am not willing to do is go back to the days when insurance companies could deny someone coverage because of a pre-existing condition.”