How Inflation Tax affects the future of our children 5 de Agosto the new York times

As life goes on, the number of taxes we have to pay grows up significantly. We disburse income, corporate, capital gains, payroll taxes and much more. The colossal interference of the government nowadays must ring a bell to us of another enemy inflation tax. According to Gregory Mankiw, a professor from Harvard University, inflation tax is the revenue the government raises by creating money. It is not a secret that the government use money creation as a way to pay for the spending. The insatiable appetite shown in the last 20 years has lifted up a crucial question: Who is going to pay for irrational decisions taken by the government? The answer is fairly palpable our children. The quantity theory of money, developed by a prominent economist Irving Fisher, lends us a hand in understanding how future generation will have to fork out for current mistakes made by politicians. (Equation 1)

Equation 1 Equation of Exchange

M*V=P*Q

The equation of exchange can be read this way: The money supply multiplied by velocity (MV) must equal the price level times Real GDP (PQ). The simple Quantity theory of money states that velocity (the rate at which money changes hands) and Real GDP are constant. Any changes in the money supply (M) lead to strictly proportional changes in the price level (P). It means that any additional percentage increase in the money supply will find its reflection in the price level, whether it will come about now or in the future. It is easy to see that the higher the average annual money supply growth rate in the US, the higher the average annual inflation rate (the US economy from 1981-2010). Therefore, when the Fed increases the money supply, the result is a high rate of inflation. So how does it affect our future from an economic point of view? When the Federal Reserve prints much money and does it frequently, the value of the dollars, along with, the purchasing power of money drops. The large amount of printed dollars causes the prices to go up. People become very cautious about the future economic prospective and tend to consume more than save (on account of the rising inflation). All the books of economics inform us that government policies can influence the economys growth rate using the following options: Encouraging investment from other countries; Maintaining political stability; Encouraging saving and investment; Pursuing high quality education; Promoting the research and development of new technologies. If the government does the opposite, the consequences will have a detrimental outcome. Thats what we can observe in todays America. Low saving leads to low investment and, therefore, to inadequate growth in the long run. The more money the Fed prints, the less valuable it becomes. Since 1913, when the Federal Reserve was created by Congress, the purchasing power has declined by more than 100%.

Over the last few years, we have seen an influx of trillions in government spending. These trillions chase a limited supply of goods. Whenever a country faces a barrier to repay its obligations, it resorts inflation in an effort to monetize its debt. The United States has come close to this line. For the last 20 years, the nations saving rate declined, proving the fact that people are used to living in a big way, and not think about the saving. How can those with saving plan to protect their money from the devaluation? Can we save extra income to pay for our childrens education? The new way of saving must be developed to break a vicious circle of continual spending. Here is the vivid example why we must focus our attention on that. What one dollar bought two years ago costs $1.88 today. With the increasing amount of newly issued money, the rate will inflation will only keep on rising in the near future. This burden will be placed on our children and will have an indelible impact on their wealth. With the way the US government spends the money now, I, personally, do not see a bright future for the US children. The investment on education stays on a low level, the spending on health care reform and defense only grows. As Vern Sumnicht, the founder and president of iSectors said in one of his publicaions, this is likely to be the beginning of a long-term trend that will see higher inflation and interest rates for many years to come. I, for one, agree with him and think that future generation will have to pay a high price for incongruous demeanor that reigns in todays America.

2
WEDNESDAY, JUNE 22, 2011

How the Fed Could Set Off a New Recession

by Mr.Thoma, a professor from Oregon University

Until recently, it seemed unlikely that we were headed for a double-dip recession. We were clearly looking at a very slow recovery, especially for employment, but there was little reason to worry about a second recession. Now widespread weakness in recent economic data makes a double dip much more likely. In May, just 54,000 jobs were added, auto sales declined significantly, retail sales were sluggish even excluding autos, and growth in manufacturing slowed sharply. Meanwhile, house prices continue to decline to new post-bubble lows, home sales have slowed, claims for unemployment insurance have risen, and consumer sentiment has weakened. Both stimulus spending and QE2 are coming to an end, state and local budgets are still a problem, and corporate bond issuance fell to its slowest pace of the year. The fall in investment activity is particularly worrisome because business investment has been growing at near pre-recession rates and has been a key factor in bringing about the moderate output growth weve experienced recently. If business investment falls off, its hard to see what will replace it. The recent data is not the only reason Ive changed my mind about the possibility of a double dip. When the recession started, I was certain we wouldnt repeat the mistakes of the past. One mistake in particular looms large right now, the deficit reduction and interest rate increases that sent the economy into a tailspin in 1937-38. Many people do not realize that there were two recessions within the Great Depression. The first, which came in 1929, is well known. This recession lasted until 1933, and then the economy

began slowly recovering, much like today. As the recovery continued, people began to worry about the budget deficit and the possibility of inflation again much like today. In response, fiscal authorities began reducing the deficit and monetary authorities raised interest rates, and the result was a second recession in 1937-38. This mistake prolonged the economys troubles considerably, and in part was why this became the Great Depression. Fiscal policy makers today seem determined to repeat the mistake of cutting the deficit too soon, the only question at this point is the severity of the error. They also seem determined to make it worse by using the debt ceiling as a bargaining chip in deficit negotiations. If the people pushing the debt ceiling debate to the brink miscalculate, it could create serious economic difficulties. The Feds Federal Open Market Committee begins its two-day meeting Tuesday. QE2, the Feds second round of purchases of Treasury securities, is coming to an end, and policymakers must decide what to do next. Should the balance sheet be expanded further with QE3 or kept on hold at QE2 levels? If the balance sheet is kept on hold for now, when should reversal of the quantitative easing policy begin? When will the Fed begin raising interest rates? The Fed must be very careful not to increase rates before the economy can handle it, but getting the timing right is difficult. There are long and variable lags involved with monetary policy, and the Fed must make policy decisions far in advance of knowing the actual state of the economy. If it moves too soon, it could kill the recovery and even cause a double dip, especially with deficit reduction and spending cuts, troubles in Europe, or other problems we dont yet know about. If the Fed moves too late, the result could be inflation. Which should take precedence, economic output or inflation? The damage from a slower recovery or a second recession would be far greater than the damage from temporary outbreak of inflation, so the Fed should be more worried about output than inflation. But that doesnt appear to be the Feds current stance. Inflation hawks on the policy committee have biased Fed policy in the other direction even though theres very little to suggest an outbreak of inflation is imminent or even likely. The problem goes beyond the inflation hawks at the Fed. Monetary policy has been increasingly politicized in recent years, and worries that the Ron Pauls in Congress will use an outbreak of inflation as an excuse to take away some of the Feds autonomy, and hence its effectiveness, are inhibiting a more aggressive attack on the output and unemployment problems. The politics of fiscal policy are difficult and at times prohibitive. But the Fed is supposed to be above politics. I wish I felt more confident that the Fed is willing to invoke QE3 or whatever policies are needed to minimize the risks of a double dip. Monetary policy is the best hope we have to offset the fiscal insanity in Congress and keep the recovery going. However, at best, I expect the Fed to keep policy on hold for awhile, although theres still the chance that the Fed will raise rates prematurely. And even with the best possible policy from the Fed, the weak economy, problems in Europe, and the determination of fiscal policymakers to make things worse make it hard to shake the worry that we might be headed toward a second recession

Operation Twist and the Effect of Large-Scale Asset Purchases By Titan Alon and Eric Swanson
The Federal Reserve's current large-scale asset purchase program, dubbed "QE2," has a precedent in a 1961 initiative by the Kennedy Administration and the Federal Reserve known as "Operation Twist." An analysis finds that four of six potentially market-moving Operation Twist announcements had statistically significant effects and that the program cumulatively caused a significant but moderate 0.15 percentage point reduction in longer-term Treasury yields. These results can be used to estimate QE2's effects. John F. Kennedy was elected president in November 1960 and inaugurated on January 20, 1961. The U.S. economy had been in recession for several months, so the incoming Administration and the Federal Reserve wanted to lower interest rates to stimulate the weak economy. However, Europe was not in a recession at the time and European interest rates were higher than those in the United States. Under the Bretton Woods fixed exchange rate system then in effect, this interest rate differential led cross-currency arbitrageurs to convert U.S. dollars to gold and invest the proceeds in higher-yielding European assets. The result was an outflow of gold from the United States to Europe amounting to several billion dollars per year, a very large quantity that was a source of extreme concern to the Administration and the Federal Reserve. The Kennedy Administrations proposed solution to this dilemma was to try to lower longer-term interest rates while keeping short-term interest rates unchangedan initiative now known as Operation Twist in homage to the dance craze then sweeping the nation. The idea was that business investment and housing demand were primarily determined by longer-term interest rates, while cross-currency arbitrage was primarily determined by short-term interest rate differentials across countries. Policymakers reasoned that, if longer-term interest rates could be lowered without affecting short-term yields, the weak U.S. economy could be stimulated without worsening the outflow of gold. Similarities between Operation Twist and QE2 In many respects, Operation Twist was similar to the Federal Reserves recently announced program of Treasury purchases, dubbed QE2 by the financial press. First, both programs aimed to lower longer-term interest rates without lowering short-term rates. In the case of Operation Twist, the program sought to prevent further gold outflows. In the case of QE2, lowering short-term rates was not an option because the federal funds rate had already been reduced to its lower bound

of essentially zero. Second, both programs involved purchasing large quantities of longer-term Treasury securities. And third, both programs financed those purchases by selling or issuing short-term government liabilities. During Operation Twist, the Fed sold off some of its holdings of short-term Treasury bills. During QE2, it issued bank reserves, which are nearly identical to Treasury bills in that both are shortterm liabilities of government agenciesthe Federal Reserve in the case of bank reserves and the Treasury in the case of Treasury bills. Table 1 Comparison between Operation Twist and QE2

Operation Twist was much smaller than QE2 in nominal terms. Nonetheless, as Table 1 shows, the programs are comparable when measured relative to GDP or the Treasury market. First, although Operation Twist was about half as large as QE2 relative to term Treasury GDP, it was similar enough in magnitude to be informative. Second, if changes in the supply of long-term Treasuries have any effect on long-term Treasury yields, then the initial quantity of long- securities in the market should be a better benchmark for the size of each program. By this metric, Operation Twist was closer in size to QE2. Third, to the extent that debt issued or guaranteed by U.S. government-sponsored agencies such as Fannie Mae or Freddie Mac are close substitutes for Treasuries, then the relevant market arguably includes all of these Treasury-guaranteed classes of securities. Relative to this market, Operation Twist was even bigger than QE2.

Jobless rate dips slightly, but economic picture remains grim

WASHINGTON The nation added 117,000 new jobs last month and the official unemployment rate dipped fractionally, but the underlying data of the latest government report provided more evidence of the economy's continuing weakness and stoked fears that it could slip back into recession. The new jobs figure stronger than many analysts had predicted was the highest tally since April and helped pull the July unemployment rate down to 9.1 percent from 9.2 percent in June, reversing three straight months of increases.

But welcome as the gains were, they still left the average job growth over the last three months at just 72,000 only about half of what's needed each month to keep pace with the growing population of workers. And the rate drop masked further long-term deterioration in the nation's labor market: The decline was primarily because hundreds of thousands of workers dropped out of the job market, apparently too discouraged or seeing few opportunities worth chasing. Under the government's statistical rules, these dropouts are not counted among the 14 million officially listed as unemployed. The so-called labor participation rate the share of the U.S. working-age population that have jobs or are actively looking for work fell to a new three-decade low of 63.9 percent. Friday's report showed the population of people 16 and over rose by 1.8 million from July 2010 to July 2011. But during that same period, those in the labor market actually dropped by 400,000. In addition, an estimated 8.4 million workers wanted full-time jobs but have no choice but to work part time. "It's unprecedented. There are a lot of people who could be working who are not," said Sophia Koropeckyj, a labor economist at Moody's Analytics. "Clearly, the 9.1 percent does not at all reflect what is going on. "We're barely holding on to the recovery," she said. "It wouldn't take much for us to drop into recession." Many analysts and investors were bracing for the worst on jobs after Thursday's huge Wall Street sell-off, which came after a series of grim economic indicators in the U.S. and deepening debt troubles in Europe that sharply raised fears of a double-dip recession. The numbers in Friday's jobs report were not disastrous and in that sense almost brought a sigh of relief. Stocks swung wildly through the day, eventually closing with little change. But few seemed any more reassured about the overall state of the economy or the way forward. "The current situation looks extremely bad," said Roger Farmer, head of the economics department at the University of California, Los Angeles. The Dow is down about 11 percent from its spring high and unless there's a sharp upturn in confidence, he said, the waning sentiment among investors is certain to produce a negative "wealth effect," dragging down already weak consumer spending and the broader economy and with it, employment. Farmer sees a 50 percent chance of the U.S. falling into recession in the next six months. Seeking to strike an upbeat note, President Obama said, "Things will get better. And we're going to get there together." Obama said he hoped that after the August recess, Congress would work in a more constructive way than it did on the debt ceiling. "I want to move quickly on things that will help the economy create jobs right now," he said. "The more we grow, the easier it will be to reduce our deficits." Beyond the personal and family pain of joblessness, both the officially unemployed and the shadow-unemployed constitute a major and apparently growing drag on the economy as a whole and on those who do have jobs. The cost of government safety-net programs, including unemployment insurance and food stamps, rises. Equally important, the unpaid taxes of the jobless must be made up in the form of

reduced government services, higher deficits, higher levies on those still employed, or some combination of the three. Jim Chamberlain, a volunteer at Forty Plus of Greater Washington, D.C., a job networking and support group for professionals, sees some of the unemployed going back to school, others retiring and still others just walking away from an unforgiving labor market. It's hard to know how they're holding up, he said. "The folks who drop out aren't visible." Labor Secretary Hilda Solis took note of the large numbers leaving the job market. "We want them to come back; we don't want them to be discouraged," she said, adding that the government has one-stop centers to help workers in their job search.

U.S. Loses AAA Credit Rating as S&P Slams Debt levels, Political Process
The U.S. immediately lashed out at S&P, with a Treasury Department spokesman saying the firms analysis contains a $2 trillion error. The spokesman, who asked not to be identified by name, didnt elaborate, saying the mistake speaks for itself. Moodys Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moodys and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens. This move should not be much of a surprise to markets, though the timing is at a point where market sentiment is fragile after the drop in stocks this week, said Ajay Rajadhyaksha, a managing director at Barclays Capital in New York. What really matters is whether the markets are willing to downgrade the U.S. bond market. As this weeks move showed, U.S. Treasuries remain the flight-toquality asset of choice. S&Ps action may hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a downgrade would raise the nations borrowing costs by $100 billion a year. The U.S. spent $414 billion on interest expense in fiscal 2010, or 2.7 percent of gross domestic product, according to Treasury Department data.

Fed May Provide More Guidance on Interest Rates

The Federal Reserve may offer a clearer explanation next week for how long it intends to keep shortterm interest rates at record lows. More explicit language would give financial markets more confidence at a time when the global economy is trying to avoid another recession. Some economists say the central bank may go as far to include a time frame. Others say the Fed may narrow the definition of what it means when it says rates will be kept at record lows for "an extended period." Joel Naroff, chief economist at Naroff Economic Advisors, said the Fed may use the statement to "signal next week that it is prepared to keep rates low for a longer period of time than had been expected." Many economists agree that would signal no rate change in 2012. A string of weak reports in the past week showed the United States economy has weakened and isn't growing fast enough to significantly lower the unemployment rate. And Europe is struggling to keep its debt crisis from spreading to Italy and Spain. Fear of either continent suffering another downturn has rattled Wall Street. Stocks have lost more than 10 percent of their value since July 21. Friday's stronger-than-expected jobs report barely lifted the Dow Jones industrial average to close 61 points up for the day. Prior to the sell-off, Federal Reserve Chairman Ben Bernanke told Congress in July that the Fed stood ready to step in and help the economy, if it continued to sputter. He noted that it could provide "more explicit guidance" about how long it planned to keep the federal funds rate at a record low of zero to 0.25 percent. It has been at that rate since December 2008. Since March 2009, the Fed has said only that it plans to keep the rate at "exceptionally low" levels for an "extended period." Many economists expect the Fed on Tuesday will spell out what "extended period" means. Mark Zandi, chief economist at Moody's Analytics, said the statement could actually include a reference to summer 2012. Some analysts say the Fed may even go further than that. Bernanke also told lawmakers that the Fed could launch a third round of bond purchases. The Fed in June completed its $600 billion Treasury bond purchases, which were intended to help the economy by lowering rates on mortgages and other loans. Many analysts believe that the economy would have to be in much worse shape for Fed policymakers to agree on another round of bond purchases. A few Fed members strongly oppose another round of stimulus, saying it could spark inflation.

Bernanke in his July testimony said the Fed would consider more stimulus only if the economy weakened further and the threat of deflation returned. Deflation is a prolonged period of falling prices which the United States has not seen since the Great Depression. Fed officials were worried about deflation and weak economic growth last summer when Bernanke raised the prospect of a second round of bond buying. "There will be a high hurdle for considering a third round of bond buying," said David Jones, chief economist at DMJ Advisors, a Denver economic consulting firm. "Fed officials who opposed the second round will argue that the Fed has done all it can to help the economy and anything more will risk higher inflation down the road."

Many Questions About Money Remain After Financing Is Restored for F.A.A.
By EDWARD WYATT
Published: August 5, 2011 Principio del formulario Final del formulario WASHINGTON It took the Senate all of about 30 seconds on Friday to approve a bill that will put 4,000 employees of the Federal Aviation Administration back to work on Monday. Calculating the cost of the 14-day standoff will take much longer. Enlarge This Image

Paul J. Richards/Agence France-Presse Getty Images Washington Dulles International Airport. Construction workers lost income because the F.A.A. impasse halted building projects.

Democratic and Republican leaders in Congress, meanwhile, made clear on Friday that the fight was not over. The bill, signed into law by President Obama within hours of its approval, expires on Sept. 16. Among the costs, of course, is the $388 million, as calculated by the American Association of Airport Executives, in lost revenue from ticket and fuel taxes that the federal government could not collect during the shutdown. And there could be the salaries of about 3,960 F.A.A. workers who were forced out of work for two weeks and have not been guaranteed that they will receive back pay. The transportation secretary, Ray LaHood, said Friday that as a matter of fairness, we will also do everything we can to get Congress to provide our furloughed employees with the back pay they deserve. The 40 airport safety inspectors who were required to work during the shutdown have been promised back pay. Thousands more construction workers lost income because the F.A.A. halted more than 250 of its own building projects, and many airports asked crews to stop work on airport improvement efforts that they were financing out of their own pockets with the expectation that they would be repaid by the F.A.A. While the government lost revenue on airline ticket taxes, passengers who paid those taxes will not receive refunds, the Internal Revenue Service said Friday. That reversed its earlier position that passengers could apply for refunds if they had paid the tax before the F.A.A. shutdown on a ticket that was used during the last two weeks. The impasse was an unnecessary strain on local economies around the country at a time when we cant allow politics to get in the way of our economic recovery, Mr. Obama said Friday in a statement. While the nations economy will gain some benefit from the return to work of those idled, the impact was not likely to be as big as many politicians made it out to be. Repeated assertions that 70,000 or more construction workers had lost their jobs because of the F.A.A. shutdown were almost certainly overstated. The figure came from the Associated General Contractors of America, which estimated last month that 70,000 construction and related jobs were at risk in an F.A.A. shutdown. The estimate, based on research by Professor Stephen Fuller of George Mason University, included 24,000 construction workers, 11,000 workers in service and supply businesses and 35,000 jobs that will be undermined in the broader economy, from the lunch wagon near the job site to the truck dealership across town. Any nuance in that estimate was quickly lost in the parade of dueling news conferences and press releases that Democrats and Republicans used to cast blame

for the F.A.A. impasse by pointing fingers across the aisle. Even after a CNN.com article debunked the idea on Thursday morning that 70,000 construction workers had lost work, Democrats and Republicans continued to cite the figure. The interim financing measure passed by unanimous consent by the Senate on Friday is the 21st short-term measure passed by Congress since the last long-term bill expired in 2007. Both the House and the Senate have approved long-term measures this year, and there are only about a dozen differences remaining between the two bills. Those could be big enough, however, to keep a long-term agreement on ice. Senator Harry Reid, the Nevada Democrat who is the majority leader, addressed one of those issues on Friday when he said that the F.A.A. employees had been forced out of work because Republicans were holding their jobs hostage to try and jam through a favor for the C.E.O. of one airline. He was referring to Delta Air Lines, which has lobbied Republicans to roll back a National Mediation Board rule that makes it easier for unions to organize airline workers. Delta said this week that it had never pushed for an F.A.A. shutdown. Representative John L. Mica, a Florida Republican who is chairman of the House Transportation Committee, fired off his own warning on Friday. If the Senate refuses to negotiate on the few remaining issues, they can be assured that every tool at our disposal will be utilized to ensure a long-term bill is signed into law.

Volatile Wall Street Ends the Day Mixed

PREV


NEXT
Final del formulario

Like a battered boxer, stocks were knocked down and kept dragging themselves up through trading Friday, closing flat in the end, but capping the worst weekly decline since November 2008. After Thursdays painful rout, the market swung more than 400 points on Friday as nervous investors were buffeted by news about the weak United States economy and Europes debt problems. The decision late Friday by the ratings agency Standard & Poors to downgrade United States long-term debt, dropping it one level from AAA to AA+, was likely to ensure that nervousness continues into next week. At the close of trading on Friday, which came before the downgrade, the broader market as measured by the Standard & Poors 500-stock index ended down 0.69 points at 1,199.38, for a drop of 7.1 percent over the week. With talk of a recession hanging over the markets, many investors still think they have further to fall. Already, attention is turning to the Federal Reserve meeting next week, and whether it will take more steps to mend what appears to be a weakening economy. There is no sign of momentum turning higher, said David Sneddon, a technical analyst at Credit Suisse, adding that the S.& P. 500 could head as low as 1,100. Ciaran OKelly, head of United States equities at Nomura, said he saw some serious issues going forward, noting downward revisions last month to the gross domestic product of the United States.

G.D.P. forecasts are being slashed. There is a very real possibility of a recession in 2012 or 2013, Mr. OKelly said. Earnings models are now being reassessed across all sectors and consequently valuations are tumbling. It is a total re-evaluation. After stocks took a battering in Asia and Europe, the market traded higher at the opening in the United States on better-than-expected jobs numbers. The United States economy added 117,000 jobs in July, hardly robust, but not as terrible as some people had expected. It led to a sigh of relief that the terrible day that some had expected after the worst drubbing in two years in markets on Thursday might not be so awful. Later in the morning, stocks turned decisively downward, as investors continued to readjust their expectations of economic growth. By noon, the S.& P. 500 was down 32 points, or 2.6 percent. Only in the afternoon, when rumors began to swirl that the European Central Bank was preparing to intervene to support bond markets in Italy or Spain, did the market begin to recover. The announcement by Prime Minister Silvio Berlusconi of Italy that he was prepared to accelerate measures to get the governments spending under control also lifted investor confidence. The fears that European governments were not doing enough to address their economic problems had been a major worry hanging over markets. European stocks zigzagged as well. In Britain, the FTSE 100 ended down 2.71 percent. The DAX in Frankfurt moved briefly into positive territory then fell again, ending down 2.78 percent. The French CAC 40 was off 1.26 percent. Yields on Italian and Spanish government bonds, which have risen sharply in recent weeks, suggesting their debt situations are worsening, dipped on Friday. But they remained above 6 percent. In the United States, the Dow Jones industrial average eked out a positive close at 11,444.61, up 60.93 points, or 0.54 percent. It was down 5.7 percent for the week, shedding 698.63 points, making it the largest point decline on the index since the week ending Oct. 10, 2008. The Nasdaq composite index was down 23.98 points, or 0.94 percent, to 2,532.41.

Treasury yields rose after sinking for several sessions. The Treasurys benchmark 10-year note fell 1 12/32, to 104 27/32. The yield rose to 2.56 percent from 2.41 percent late Thursday. But analysts said the trend toward lower Treasury yields was likely to continue as investors looked for safe havens. Despite what everybody says, the concept of a safe haven is still U.S. Treasuries, said Clemente Cappello, the chief investment officer of Sturgeon Capital, a $35 million hedge fund that invests in emerging markets in London. Mr. OKelly said most of the moves upward were caused by short-covering and there had been little buying by investors. He said one worrying trend was that whereas in the past investors bought on dips, few were willing to commit in the falling market because they had been burned by their experience in the financial crisis in 2008. There were some signs of stress in United States credit markets. Otis Casey, a credit analyst at Markit, said interest rates on investment grade corporate debt had widened suggesting investors had revised upward their estimate of corporate credit risk in the light of the weaker economy. As might be expected with the talk of recession and concern about fiscal distress, financial stocks were among the worst hit of all the sectors on the S.& P. Bank of America and Citigroup were widely traded and were down more than 7 percent and nearly 4 percent, respectively. Consumer staples, on the other hand, were up 1.63 percent. If the sentiment in the next couple of months pulls away from the recession cliff, financials could bounce, said James W. Paulsen, chief investment strategist for Wells Capital Management. It was not clear just who was buying on Friday. Mr. Paulsen said he did not think the participants in the market included retail buyers, perhaps scared off by the plummet the previous day.

SIN TITULO

The Denver business community was rocked Friday by an insider trading case that touched prominent businessmen in the city. H. Clayton Peterson, a former director at Mariner Energy, based in Denver, admitted to tipping off his son about a takeover of the company by the Apache Corporation in April 2010. The son, Drew Peterson, a money manager, traded on the tip and earned about $150,000 for himself, his family and his friends. He also passed the news along to a close friend, the chief executive of a Denver hedge fund, who bought Mariner shares before the deal, making more than $5 million for his fund and his relatives. The father and son appeared Friday morning in Federal District Court in Manhattan to plead guilty to securities fraud and conspiracy charges. Clayton Peterson admitted that in April 2010 he leaked advance news of Apaches $2.7 billion purchase of Mariner to his son. Drew Peterson acknowledged trading on the information and passing it to others. I knew that my actions were wrong, and I deeply regret my conduct, said Clayton Peterson, 65, in a hearing before Judge Robert P. Patterson. It has ruined my life and my sons life, and I apologize.
1 http%3A%2F%2F DealBook%3A%2 A%20former%20 20110805 By%20PETER%2

Business%20Day Business%20Day Dealbook

vSvIPjYmCAb/D7

about

Final del formulario

The criminal complaint does not identify the hedge fund manager, referring to him only as a coconspirator. But according to people involved with the case, he is Bo K. Brownstein, head of Big 5 Asset Management, which is based in Denver, and a former banker at Credit Suisse in New York. Mr. Brownstein, 35, is the son of Norman Brownstein, a Denver lawyer and a longtime power broker in state and national Democratic politics. Bo Brownstein traded in his fathers account, according to these people, who requested anonymity because they were not authorized to speak about the case. Gary P. Naftalis, a lawyer for Bo Brownstein, declined to comment. Harold A. Haddon, a lawyer for Norman Brownstein, declined to comment. A spokeswoman for the United States attorney in Manhattan, which is handling the continuing investigation, declined to comment. The case against the Petersons came at the end of a week in which federal authorities continued their aggressive campaign to ferret out improper stock trading. On Thursday, Douglas DeCinces, the former professional baseball player, settled civil charges brought by the Securities and Exchange Commission for $2.5 million. The agency accused him and three associates of using confidential information to profit from an Abbott Laboratories acquisition in 2009. On Wednesday, the S.E.C. settled another civil case that charged the son-inlaw of Hugh Hefner, the co-founder of Playboy Enterprises, with illegal trading in the magazine publishers shares. The S.E.C. brought related civil proceedings against the Petersons on Friday and described in court papers how Drew Peterson had leaked the deal to Mr. Brownstein, telling him that his father had recently attended Mariner board meetings and something good was going to happen for Mariner. In the days leading up to the deal, Mr. Brownstein referred to as hedge fund A portfolio manager in the S.E.C. complaint loaded up on Mariner shares and options. After the merger announcement, the manager sold his Mariner position for a profit of $4.6 million, the S.E.C. said. He also traded for his relatives and himself, earning $435,000, according to the complaint. H. Clayton Peterson spent 33 years at Arthur Andersen, the accounting firm that went out of business as a result of its involvement in the Enron scandal. He ran the firms Denver office for many years.

Unemployment down to 9.1 percent as employers hire nearly 120,000 in July

By DOUGLAS HANKS
Payrolls jumped in July by 117,000 jobs, a surprising improvement that notched the unemployment rate down to 9.1 percent and injected a dose of good news into an otherwise panicked week on Wall Street. Stock futures reversed their declines after the Labor Department announced the news, though major indices continued their declines once the market opened. Analysts had predicted a gain of fewer than 90,000 jobs, and even that was seen as too rosy in recent days. The addition of 117,000 jobs isnt considered particularly strong. Experts say the United States needs to about 200,000 jobs a month to bring down unemployement quickly. But the numbers reflect last weeks mindset: that the national economy is in the midst of a wobbly recovery, but still putting distance between itself and the Great Recession that ended in 2009. But that was last week. This week, the Dow Jones Industrial Average fell 500 points on Thursday, reflecting a new mindset that a second recession might be looming and this time without the prospect of a rescue from increased government spending. Which of the two mindsets will win out? Fridays stock market performance will go a long way toward answering that question. The national numbers offer no insight into the local job market, where unemployment in June stood at 9.5 percent in Broward and 13.4 percent in Miami-Dade. The local July numbers come out in two weeks

Read more: http://www.miamiherald.com/2011/08/05/2346356/unemployment-down-to-91-percent.html#ixzz1UE5eiUCy

Up, down, up stocks take wild ride

July jobs data could heighten Wall Street jitters

WASHINGTON (AP) Investors seeking reason for optimism after the worst stock-market sell-off since the 2008 financial crisis probably won't find it in Friday's July jobs report.

By DANIEL WAGNER and STAN CHOE Associated Press

NEW YORK -- If you looked away Friday, you missed a market rally. Or a plunge. A soothing government report on employment in July eased concerns that the U.S. might slide back into a recession, and the Dow Jones industrial average rose as much as 171 points soon after trading began. But fears that Europes growing debt crisis might threaten U.S. banks and the fragile economy ruled Friday. After its early rise, the Dow fell more than 400 points and was down 243 just before noon. Then it rose nearly 400 points in less than an hour and was up 135 points. The rest of the day, the blue-chip stock index bounced up and down, sometimes by as much as 100 points in less than half an hour. It ended the day up 61 points, or 0.5 percent. Stocks have been like a tether ball being smacked around the pole by worries about weakening economies around the world, said Sam Stovall, for Standard & Poors Equity Research. Even less-developed countries like Brazil and China, which have been the motor of global growth for three years, are slowing. Brazilian stocks have dropped nearly 30 percent since Nov. 4 as the country tries to stem inflation. Manufacturing in China shrank in July for the first time in a year. In Europe, debt problems are spreading, threatening Italy and Spain, the continents third- and fourth-largest economies. In the U.S, a possible debt default was averted earlier this week, but concerns remain. Chief among them: less spending by consumers, which is leading to anemic growth by both manufacturing and service companies and too few new jobs to lower the unemployment rate significantly. Investors also worry that the federal government is more likely to hurt the economy than help it. Instead of more spending, the government is trying to reduce its budget deficits by spending less. Randy Warren, chief investment officer at the investment company Warren Financial Service, said markets were jittery over how leaders in the U.S. reacted to the debt crisis here and how leaders in Europe have reacted to the growing debt problems there. The fear was that they had no plan to deal with the situation, Warren said. In Europe, either Italy or Spain could become the next country unable to repay its debt. European leaders and central bankers might not have the cash needed to prop them up until a larger financial rescue fund can be established. The burden of debt has become much more onerous because the outlook for growth is sliding back. That is very concerning for the markets, said Don Smith, economist at ICAP, the largest inter-dealer broker in the world. The fear is ultimately about defaults and business failures. In the U.S., few believe the government is likely to stimulate the economy through spending, as it did with its $800 billion stimulus program in 2009. Washington will instead cut spending by more than $2.1 trillion over 10 years to reduce the deficit. When investors took a step back and looked at the deal, it became clear that the long-term debt issues have yet to be resolved and that some hard decisions still need to be made, said Bob Doll, chief equity strategist at BlackRock. Investors do not like uncertainty. That contributed significantly to the up and down trading on Friday and all week, strategists said. Some investors bought stocks after steep price declines, said Ron Florance, an investment strategist at Wells Fargo Private Bank. That helped reverse the midday loss. Others have rushed to sell their holdings before the weekend, he said. That contributed to the declines seen in the morning and the pared-back gains in the afternoon.

Read more: http://www.miamiherald.com/2011/08/05/2347193/up-down-up-stocks-take-wild-ride.html#ixzz1UE7K9XbX

U.S. debt rating cut, agency cites more risk

By BINYAMIN APPELBAUM and ERIC DASH New York Times News Service
WASHINGTON -- Standard & Poors removed the U.S. government from its list of risk-free borrowers Friday night, citing concern about the rising burden of the federal debt. The nations rating was reduced to AA+ for its long-term debt, one notch below the top rating of AAA. S&P, one of the three major agencies that assign grades to the credit of companies and governments, had threatened the downgrade if the government did not act to reduce the federal debt by at least $4 trillion over the next decade. Earlier this week, Congress instead passed a plan to reduce the debt by at least $2.1 trillion. Treasury Department officials said that the S&P announcement was delayed after Treasury found a serious mathematical error in a draft of the downgrade announcement, which was provided to the government Friday afternoon. The officials said that S&P inadvertently added $2 trillion to its projection of the federal debt, significantly overstating the problem confronting the government. Treasury said that S&P conceded the problem after about an hour of discussion. The other rating agencies, Moodys and Fitch, have said they have no immediate plan to downgrade the countrys credit rating, giving the government more time to make progress on debt reduction. The split verdict limits the impact of the S&P downgrade as many consequences would be set off only by a reduction by two agencies. The company did not return a call for comment. The lowering of the countrys rating could rattle confidence and raise borrowing costs for the government and consumers, impeding the already fragile recovery. Even so, some White House strategists and independent analysts have concluded that the economic impact would be modest, despite the embarrassing blow to the global financial standing of the United States. The announcement by S&P came after a week of turmoil on Wall Street not seen since the days of the financial crisis. After plunging around 5 percent Thursday, stocks bounced up and down Friday and closed relatively flat. The day opened with some good news when a report on job creation in July came in unexpectedly high at 117,000 and a separate report lowered the unemployment rate one notch to 9.1 percent. Even with the rating agencies split, S&Ps downgrade could become an election-year liability for President Barack Obama. Fair or not, critics are likely to point to it as evidence of his failure to get the governments finances under control. There is also a financial cost. The federal government makes about $250 billion in interest payments a year. So even a small increase in the rates demanded by investors in U.S. debt could add tens of billions of dollars to those payments. In addition, the credit rating agencies have said that a downgrade of government debt would probably be followed by downgrades of other entities backed by the government. For example, they said, Fannie Mae and Freddie Mac, the government-controlled mortgage companies, would be downgraded, raising rates on home mortgage loans for borrowers. Dozens of counties and even a handful of states including Maryland, Virginia, and New Mexico might also be downgraded because of their local economies strong ties to Washington. The United States has maintained the highest credit rating for decades. S&P first designated it AAA in 1941, reflecting a steadfast belief that the worlds richest nation would not default on its debt payments. The rating was also bolstered by the role of the dollar as the worlds leading currency, ensuring that demand for U.S. debt securities would remain strong in spite of burgeoning deficits.

Read more: http://www.miamiherald.com/2011/08/05/2347391/us-debt-rating-cut-agency-cites.html#ixzz1UE9Rg1Nb 14

Stocks enter an eight-day losing streak, the worst since 2008

WORRIES OF A SECOND RECESSION GROW AS WALL STREET RETREATS. CONSUMERS ARE SLOWING THEIR SPENDING IN SOUTH FLORIDA AND BEYOND.

By DOUGLAS HANKS dhanks@MiamiHerald.com

Fears of a second recession helped rout Wall Street on Tuesday, as Washington finally agreed to borrow more but consumers started spending less. The ugly day for stocks handed the Dow Jones Industrial Average its worst losing streak since the dark days of the 2008 financial crisis and wiped out the years gains for the S&P 500 Index. But beyond the equity scorecard hung a looming sense that a shaky recovery was hitting some sort of wall, and might be sliding backward. Previously we would say the chances of a double-dip recession were minimal, said Mark Vitner, a Wells Fargo economist. But the odds have increased. Theyre high enough now that you dont want to dismiss them. The setbacks came despite Washingtons resolving its gridlock over lifting the nations debt ceiling, a moment predicted to bring calm to Wall Street, not despair. I really thought the market would react positively, said Juan del Busto, regional executive for the Federal Reserves Miami branch. But its back to uncertainty. This recession weve had is completely different from anything weve ever experienced. Six days after beating profit estimates, supply giant Ryder saw its stock plunge 5 percent Tuesday. AutoNation, an owner of car dealerships across the country, lost 4 percent. Carnival and Royal Caribbean, Miamis cruising titans, lost 3 percent and 5 percent. Despite its first eight-day losing streak since October 2008, the Dow is back to where it was in March. And though sounding more gloomy, many experts see the economy more likely to grow in 2011 than shrink. But the stock shudders on Tuesday reflected a string of hints that the economy is weaker than previous thought. The bad news came in drabs during recent days. Last week was a major revision of the Great Recessions damage and legacy, with the Commerce Department revealing the economy retreated much further during the downturn in 2008 and 2009, and regained much less ground in 2010 and 2011. On Monday, a manufacturing index showed disappointingly faint growth, followed by Tuesdays report that in June consumers cut spending for the first time since September 2009. Meanwhile, the official end of Washingtons debt-ceiling drama reinforced a coming drag from the public sector as the economy tries to regain a growth footing. The deal to cut $2.1 trillion in 10 years comes as state and local governments prepare to cut jobs once insulated by federal stimulus dollars. I dont know how many government jobs will be lost over the next year, but I would not be surprised if its 10,000 or 20,000, said David Denslow, a University of Florida economist. The problem is, nobody can do anything about it. Denslow put the chances of a double dip shorthand for a second recession at about 30 percent. Months ago, he would have put the likelihood closer to 15 percent. Sean Snaith, a University of Central Florida economist, agreed that a second recession was unlikely. He blamed the debtcrisis drama for part of Wall Streets woes. With a deal in hand, investors realized they were merely back to where they started. It is the realization that the debt-ceiling deal was not a panacea for our fiscal problems, let alone for the economy as a whole, he wrote in an e-mail. In South Florida, spending continued growing in May but at a slower pace than earlier in the year, according to new figures from the Department of Revenue. Taxable sales grew 2.7 percent in Broward County over 2010 levels, thanks largely to weak auto sales. It was the slowest pace since August. In Miami-Dade County, the first drop in spending on durable goods kept growth at 2.9 percent, the weakest since February. But sales in the tourism industry surged, as vacationers continue to bolster the local economy. On Tuesday the parent company of Delano on South Beach reported that per-room revenue increased 22 percent over a year ago, thanks largely to the average guest paying $465 a night. Splurging aside, Fridays national employment report will offer a big clue as to whether the country is heading for another downturn more than two years after the last one ended in June 2009. If the Labor Department figures show employment drops in June and July, Vitner said he would assume another recession has already started. Weve got much less momentum than we thought, he said.

Read more: http://www.miamiherald.com/2011/08/02/2342371/stocks-enter-an-eight-day-losing.html#ixzz1UEAiw5Iv 15

Stocks fall steeply on concern economy is faltering

By Rita Nazareth Bloomberg

U.S. stocks tumbled, erasing the 2011 gain for the Standard & Poors 500 Index, after an unexpected drop in consumer spending increased concern that growth in the worlds largest economy is faltering. United Technologies Corp. and Caterpillar Inc. dropped at least 3.5 percent, pacing losses in companies most-dependent on economic growth. The Dow Jones Transportation Average, which is considered a proxy for the economy, slumped 3.7 percent. Ford Motor Co. retreated 4.1 percent as sales increased less than analysts estimated. Coach Inc., the largest U.S. luxury handbag maker, declined 6.5 percent after saying that a measure of profitability may not improve this year. Stocks extended losses even after the Senate passed legislation to raise the debt limit. The S&P 500 fell 2.6 percent to 1,254.05, its lowest level since Dec. 20, at 4 p.m. in New York. The gauge has fallen for seven straight days, its longest slump since October 2008. The Dow Jones Industrial Average lost 265.87 points, or 2.2 percent, to 11,866.62. The Russell 2000 Index of small companies fell 3.3 percent, also erasing its 2011 gain. Were in a sluggish economy, Mark Bronzo, a portfolio manager at Security Global Investors in Irvington, New York, said in a phone interview. His firm manages $26 billion. Now that weve moved past the debt ceiling fears, people are really focused on growth. The market is very unforgiving. Were in this period where people dont love the stock market. They think economic growth is slow. So, theres a flight to safety. The S&P 500 fell 5.6 percent from this years high on April 29 through Monday amid concern about Europes debt crisis and speculation that U.S. lawmakers would fail to reach a compromise to boost the nations ability to borrow by a deadline set for today. The index was still up 2.3 percent this year through yesterday on government stimulus measures and higher-thanestimated corporate earnings. The S&P 500 retreated below its average price of the last 200 days of about 1,286. A drop below the 200-day moving average might trigger further losses, according to analysts who study charts to make forecasts. Stocks fell after Commerce Department figures showed purchases slid 0.2 percent, after a 0.1 percent gain the prior month. It was the first drop in consumer spending in almost two years. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase. Incomes grew at the slowest pace since November and the savings rate climbed. A slump in confidence threatens to derail the economy. The Thomson Reuters/University of Michigan final index of consumer sentiment fell in July to the weakest since March 2009. The Bloomberg Consumer Comfort Index also dropped in the week ended July 24 to the lowest since May. Gross domestic product climbed at a 1.3 percent annual rate in the second quarter after a 0.4 percent gain in the prior period that was less than earlier estimated, Commerce Department figures showed July 29. Auto companies are feeling the pinch as consumers rein in spending. Ford slumped 4.1 percent to $11.85 as its lightvehicle sales rose 5.9 percent to 180,315 vehicles from 170,208 a year earlier, the Dearborn, Michigan-based automaker said Tuesday. The average estimate of six analysts surveyed by Bloomberg was for a 7.6 percent increase in Ford sales.

Read more: http://www.miamiherald.com/2011/08/02/2342086/stocks-fall-steeply-on-concern.html#ixzz1UEBZbDFR

16

Moodys warns of Broward credit downgrade as debt crisis worsens

CAUGHT UP IN A REVIEW GOVERNMENTS WITH STERLING CREDIT, BROWARD COULD LOSE AAA RATING IF THE UNITED STATES DOES, TOO.

By DOUGLAS HANKS dhanks@MiamiHerald.com

Moodys warned Thursday it might yank Broward Countys sterling credit score as part of a nationwide downgrade sparked by the Washington debt crisis. The ratings firm released a list of 177 local governments at risk of losing their stellar AAA credit ratings if Moodys downgrades the national debt of the United States. Broward is already calculating how it would keep services running if

federal funds stopped flowing next week, and the Moodys list raised the possibility of long-term costs from the Washington stand-off. Palm Beach also made the Moodys watch list, which includes cities and counties throughout the country. Miami-Dades debt is rated AA, slightly below Browards and Palm Beachs, and so wasnt included for Moodys review of local governments that until now were considered the safest bets for borrowing money. With the possibility of a U.S. default threatening to upend every corner of the global debt markets, Moodys said it would only review governments deemed to have the best credit. Once it is done with AAA-rated governments, Moodys may move on to lesser ratings, a spokesman said. Only about 1 in 4 of AAA-rated local governments made Moodys list, which scored the candidates partly on their dependence on federal funds, particularly through public hospitals. Broward operates hospitals throughout the county. The Moodys action could be a local footnote to a political drama quickly resolved by a vote in Congress. For that to happen, Republicans and Democrats must agree to extend the countrys borrowing authority past Aug. 2, when the White House says the United States will not have enough revenue to meet obligations. Or the move could mark the first concrete sign that the nations debt woes will spread to South Florida, with borrowing at all levels made more expensive if Washington is also forced to pay higher interest rates on debt. Even worse, the Moodys analysis hints at a true crisis: Washingtons cutting off its coffers to the point that hospitals and agencies relying on Medicare and Medicaid would see those federal reimbursements stop. Browards financial staff this week was analyzing its cash holdings, revenue streams and expenses to see what would happen if Washington cut off funding next week, said CFO Dinah Lewis. We certainly have been reviewing our cash situation and trying to evaluate if there was a hiccup in federal payments, would that affect us? she said. Since most federal dollars come in as reimbursements, Broward could probably get through at least part of August without much disruption during an extended debt crisis, Lewis said. We have cash flows that would get us through a couple of weeks before we got tight, she said. That scenario Washingtons cutting off funds would pose a crisis for all governments throughout Florida, not just the ones on Moodys new AAA watch list. But political prognosticators see the consequences as so severe that theyre mostly discounting the possibility of Washingtons not extending its debt ceiling and borrowing more money. If such a moment did arrive, they think it would last hours or a day or two before financial chaos forced a compromise.

Read more: http://www.miamiherald.com/2011/07/28/2335807/moodys-warns-of-broward-credit.html#ixzz1UECjYesd

17

South Florida unemployment rises again

By Ina Paiva Cordle icordle@MiamiHerald.com

NOT ENOUGH JOBS WERE ADDED TO OFFSET SEASONAL DECLINES AS BROWARD COUNTYS UNEMPLOYMENT RATE INCREASED TO 9.5 PERCENT, AND MIAMI-DADES TO 13.9 PERCENT. THE STATEWIDE FIGURE WAS UNCHANGED: 10.6 PERCENT.

New monthly figures show Broward Countys unemployment rate increasing to 9.5 percent, and Miami-Dades to 13.9 percent. The statewide figure remained unchanged at 10.6 percent. Jonathan Alcorn / Bloomberg Photo

With the economic recovery moving at a halting pace, unemployment in South Florida continued to rise in June, still high above the national average, while the statewide rate among the nations worst didnt show any improvement. New jobs just are not being churned out fast enough, as employer and consumer confidence wane, while seasonal fluctuations are taking a toll in the summer months, experts say.

Its going to be a long, slow slog, said Frank Nero, president and chief executive of the Beacon Council, Miami-Dades economic development agency. Its not something thats going to turn around overnight. Unemployment jumped in June to 9.5 percent in Broward County from 9.0 percent in May, and rose to 13.9 percent in Miami-Dade, up from 13.7 percent. Its the highest rate since 1975. On a seasonally adjusted basis, the unemployment rate for Miami-Dade dropped slightly, though it remained high at 13.4 percent, compared to 13.5 percent in May. The rosters of individuals without jobs soared, as did the number of people seeking employment in South Florida, according to figures released Friday from the Agency for Workforce Innovation, the states labor agency. So, if you are looking for a job, you are far from alone. Statewide, the unemployment rate stayed at 10.6 percent, representing 982,000 jobless out of a labor force of 9,234,000. The rate remains above the national unemployment rate of 9.2 percent, which hit a peak for this year. Were just holding steady, said Rebecca Rust, chief economist with Floridas Agency for Workforce Innovation. Were just stable this month. Were not showing the improvements at the same level that we showed in May. In fact, unemployment rose in every county in the state. But that reflects seasonal factors, including agricultural and education-related jobs, Rust said. That could include, for example, non-instructional personnel, or teachers on a one-year contract. At the core of the problem: job creation is not happening fast enough. Miami-Dade County added 12,700 new non-agricultural jobs between June 2010 and last month, an increase of 1.3 percent. The number represented the largest year-over-year gain statewide, surpassing Orlando and Jacksonville. Yet, between May and June of this year, Miami-Dade lost 12,300 jobs, largely in the service sector and at the local government level. Industries showing job gains and offsetting the losses included construction and healthcare. Similarly, in Broward, 12,500 jobs were lost in June, compared to May, mostly in the service and local government sectors. Were creating jobs, but were not creating them fast enough for the folks out there looking for jobs, said Nero, of the Beacon Council. In fact, there are four people unemployed for every Internet job posting statewide, Rust said. Just ask anyone who has dropped off a rsum or filled out an application. Im applying for just about anything I have done in the past, from retail to open castings for TV or as an extra, said Eric Joseph, 27, of Miami Beach, who lost his job recently. In Miami-Dade, 182,279 people were without a job in June, up from 181,376 in May. In Broward, those unemployed rose to 94,075 in June, from 88,633.

Read more: http://www.miamiherald.com/2011/07/25/2325983/south-florida-unemployment-rises.html#ixzz1UEDhmWVA 18

Overdraft fees still steep at largest banks

A NEW SURVEY SHOWS THAT THE COUNTRYS LARGEST BANKS CONTINUE TO CHARGE OVERDRAFT FEES OF $35 AND HIGHER, SOMETIMES WITH FEW SAFEGUARDS FOR CONSUMERS.

By CANDICE CHOI Associated Press

NEW YORK -- The countrys largest banks are still charging steep overdraft fees. A survey released Wednesday by the Consumer Federation of America found that the median overdraft fee is $35, the same as it was last year. The highest fees also remain $33 to $37 per overdraft. The fees can be triggered if customers overdraw their checking accounts by as little as $5. In addition, the survey found that two-thirds of banks continue piling on fees if customers fail to balance their accounts within a set time. For example, JPMorgan Chase charges an extended overdraft fee of $15 after each five-day period that an account stays in the red. In other cases, the survey noted that banks are making changes that benefit consumers. Earlier this year, for example, Citibank said it would start clearing checks starting with the smallest amounts first.

By contrast, consumer watchdogs say a high-to-low check clearing method increases the potential for multiple overdraft violations. But thats how most major banks processed payments last year. The banking industry has long defended the practice, saying bigger checks tend to be for more important payments that customers want paid first. The new opt-in rule on overdraft programs applies to point-of-sale transactions; banks can still enroll customers for overdraft protection on checks without their consent. The findings come a year after a new regulation went into effect requiring banks to obtain permission from customers before enrolling them in overdraft programs. Previously, it was industry practice to automatically enroll customers without giving them a way to opt out. Critics said that led to consumers unwittingly racking up overdraft fees. The problem was that customers would often continue using their debit cards, not realizing they could spend more than they had in their bank accounts. Under the new rule, customers must now actively consent to be enrolled in overdraft programs. If they opt out, their debit card would simply be declined at the register if they didnt have enough money to cover the transaction. The rule does not limit how much banks can charge in overdraft fees, however. Theres also no limit on the number of times banks can continue fining customers for a single violation. The survey by the Consumer Federation of America also found that banks still allow multiple overdraft fees to be charged in a single day. In two cases, banks hiked the total number of overdraft fines that could be charged daily. The Consumer Federation of America survey was based on the overdraft policies of the 14 largest banks as of June. The group noted that all surveyed banks provide lower cost forms of overdraft protection, such as transfers from savings accounts.

Read more: http://www.miamiherald.com/2011/08/03/2344057/overdraft-fees-still-steep-at.html#ixzz1UEFMj5aq

20

Debt ceiling debate not end of the world

MIAMI FINANCIAL ADVISORS SAY PEOPLE SHOULD AVOID MAKING EMOTIONAL INVESTMENT DECISIONS WHILE THE DEBATE IN WASHINGTON RAGES ON.

By Amrita Jayakumar ajayakumar@MiamiHerald.com

If you listen to Washington rhetoric long enough, it might seem like financial Armageddon is just round the corner. But is there really reason to worry and, if so, how should people manage their investments? The consensus among Miami advisors is that everyone should stay calm and not make panic-driven decisions. Most of them agree that the negotiations, although serious, are little more than partisan bickering. They are optimistic that an agreement will be reached before the Aug. 2 deadline. If not, then its not really the end of the world. Heres a sampling of opinion: Gene Sulzberger, Senior VP, PRS Investment Advisory: Were recommending away from U.S. Treasury bond exposure right now, Sulzberger said. He said clients were more pessimistic about the political climate negatively affecting economic growth. The stock market has been patient with Washington for now, thinking this will resolve itself. Cathy Pareto, President, Cathy Pareto & Associates: Pareto said retirees who depend on investments for income are particularly on edge. But as long they stick to their risk profiles, things should be fine. Were focused on rebalancing our clients portfolios, she said. In most cases, this means selling stock and buying shortterm bonds. For people who have long-term bonds or fixed income, Pareto has a general piece of advice. They should stay pretty short on the maturity scale, she said. Whatever the outcome, Pareto said the U.S. had suffered in the eyes of global investors. I think its taken one on the chin in terms of perception. Stanley Foodman, CEO, Foodman & Associates: Foodman said he doesnt know anybody whos not nervous right now. But he says that even if negotiations fail, the market will weather the storm. We have the dollar, the U.S. Treasury, and were still the worlds biggest economy, he said.

At the moment, people should focus on investing in themselves. Invest in what you know, your business and whats proven, he said. He also advises clients to be as cash-strong as possible without changing their lifestyles. Richard Bermont, Senior VP-Wealth Management, The Bermont/Carlin Group: Bermont agrees that the market is strong enough to bounce back. Corporate profits and liquidity are extremely strong, he said. So that might put a cushion under the market. For global portfolio holders, the group recommends a 5 percent holding in precious metal mining companies. For equity investors looking to protect profits, they suggest hedging strategies. And for those who need cash, selling stocks or bonds is an option. Bermont is also confident the debt ceiling will be raised by the deadline. I dont see anyone throwing in the towel, he said. Meg Green, CEO, Meg Green & Associates: The first thing Im telling clients is to turn off the TV, said Green, who contributes a regular financial column to The Herald. When people make decisions in panic, theyre not the best ones. If clients are really worried, Green suggests that they should take a small amount of cash and put it aside for a few months. Investment should always be for the long term, she said. People who are trying to invest for the short term are setting themselves up to make mistakes. Even if the worst happens, Green said that doesnt mean things will change. Will Apple stop selling iPads or Starbucks stop selling coffee? she said. Im a believer in staying invested.

Read more: http://www.miamiherald.com/2011/07/26/2332139/debt-ceiling-debate-not-end-of.html#ixzz1UEHEDs4c

G.M. Sees Cost Cuts Continuing for Years in Effort to Sustain Long-Term Growth
By NICK BUNKLEY Published: August 9, 2011 RECOMMEND TWITTER SIGN IN TO E-MAIL PRINT

Principio del formulario Final del formulario

REPRINTS

SHARE

DETROIT General Motors, already much leaner and more efficient after going through bankruptcy and a painful reorganization, still has to undertake years of sharp cost cuts to ensure it remains profitable, its executives said Tuesday.
Enlarge This Image

Rebecca Cook/Reuters

Daniel F. Akerson, the chairman of G.M., criticized the company's new product development.

G.M. executives said that they intended to cut the number of different platforms and engines used in the companys vehicle lineup roughly in half within the next decade. By 2018, G.M. will use 14 different platforms globally, down from 30 last year. A platform is the basic underpinnings of a vehicle, and building multiple vehicles on a single platform reduces development and production costs. The executives also said G.M. was working to eliminate wasted spending on new products by keeping its investments more stable from one year to the next, rather than trying to follow the ups and downs of the market The start-stop, herky-jerky, on-again, off-again product development was grossly inefficient, the chief executive, Daniel F. Akerson, said, and it resulted in poor product. The plans, outlined at an analyst conference that G.M. organized at its Detroit headquarters, call for using 12 engine families by 2018 and eventually just 10, compared to 20 in 2009. Daniel Ammann, the chief financial officer, said G.M. had been putting about $1 billion a year into projects that were later canceled. Last week, G.M., which is 26 percent government-owned, reported that it earned $5.4 billion in the first half of the year as second-quarter earnings grew 89 percent. Its profit margins have increased as a result of higher revenue as well as wrenching cost cuts that included closing many plants and eliminating tens of thousands of jobs. On Tuesday, the company said that its annual manufacturing labor costs in the United States had fallen by $11 billion since 2005. The executives added that they were working to keep labor costs under control, even as demand for G.M. vehicles increased. Diana Tremblay, G.M.s global chief manufacturing officer, said the company did not need to add plants anytime soon, even though its capacity utilization rate a measure of how fully and efficiently

plants are used was near 100 percent. G.M. is particularly hesitant to add production capacity in the United States during a time of such volatile economic and market conditions. Ms. Tremblay said that G.M. could meet demand largely by adding shifts, running plants on overtime and finding creative ways to run existing plants more efficiently. Leaders of the United Automobile Workers union, which is negotiating a new contract with G.M., could have a difficult time persuading the automaker to reopen idled plants in Tennessee and Wisconsin. They are also trying to prevent the planned closing of a plant in Louisiana, a top priority during the talks. Mr. Akerson expressed some doubt about whether total industry sales across the country would reach 13 million vehicles this year. G.M. and other automakers had generally projected sales between 13 million and 13.5 million, up from 11.6 million in 2010; from January through July, the industry sold 7.4 million vehicles. Theres a lot of turmoil in the business and turmoil means uncertainty, Mr. Akerson said, so were a little unsure of these numbers.

U.S. Workers Were Less Productive in the Spring

By THE ASSOCIATED PRESS Published: August 9, 2011 at 11:43 AM ET

Productivity dropped 0.3 percent in the April-June quarter, following a decline of 0.6 percent in the first three months of the year, the Labor Department said Tuesday. It was the first back-to-back decline in productivity since the second half of 2008. The drop in productivity helped push unit labor costs up 2.2 percent. That follows a 4.8 percent rise in labor costs in the first three months of this year, the biggest increase since the last three months of 2008. Rising labor costs reduce corporate profits. Labor represents the largest expense for most companies. And when workers are less productive and cost more, companies are less likely to add jobs. The stock market shrugged off the report and rebounded a bit after Monday's almost 635-point plunge. The Dow Jones industrial average rose 180 points in midday trading Tuesday. Productivity measures the amount of output per hour worked. Higher productivity is generally a good thing because it can raise standards of living by enabling companies to pay workers more without raising their prices and increasing inflation.

Still, productivity gains can be painful in the short run if they are a result of job cuts. That's what happened in the recession, when productivity rose sharply as companies laid off millions of workers and figured out how to do more with less. Employees worked harder and companies invested in labor-saving technology and machinery. A slowdown in productivity growth is bad for the economy if it persists for a long period. It can be good in the short term when unemployment is high, if it means companies are reaching the limits on how much extra output they can get from their existing work forces. If economic growth increases later this year, less productive companies may have to step up hiring. But the gains are unlikely to be large. Many economists forecast growth of roughly 2.5 percent in the final six months of the year. That's barely enough to keep up with population growth. Economists say a drop in productivity when economic growth has declined is a troubling sign. That likely means companies hired too many workers earlier this year, based on the assumption that growth was picking up. The result: weaker output from a larger work force. "If demand remains weak, there's a danger that businesses may try to boost productivity by cutting jobs," said Paul Dales, an economist at Capital Economics. The productivity trends are a sharp reversal from last year, when worker efficiency grew and labor costs fell. Productivity rose 4.1 percent in 2010, the most since 2002. Labor costs, meanwhile, dropped 2 percent, the biggest decline on records dating back to 1948. The productivity figures were revised for several previous years based on recent updates to the government's estimates of economic growth, which were released late last month. The economy was weaker in 2009 and a bit stronger last year than originally estimated. Growth estimates for the first six months of this year were also marked down. Economic growth slowed to a 0.8 percent annual rate in the first six months of the year. That's the weakest pace since the recession ended two years ago. Consumers have cut back on spending in the face of stagnant wages, high unemployment and high gas prices. Supply disruptions stemming from Japan's March 11 earthquake also reduced output, primarily in the auto sector. Employers responded by cutting back on hiring. They added an average of only 72,000 jobs per month from May through July. That's far fewer than the average of 215,000 per month added in February through April.

Growing fears that the country could be on the verge of another recession, concerns about the European debt crisis and the first-ever downgrade of U.S. debt have caused the stock market to plummet by about 15 percent in the past 2 weeks. The Federal Reserve, which is meeting on Tuesday, watches productivity and unit labor costs carefully. Since increases in productivity allow companies to pay workers more without raising the prices of their products, productivity gains can help keep inflation at bay.

As Inflation Climbs, Chinese Policy Makers Face a Problem

By KEITH BRADSHER Published: August 9, 2011

HONG KONG Chinas vast industrial, retail and construction sectors all grew a little more slowly than expected last month while inflation, already uncomfortably above the governments target, accelerated a little further, according to official data released Tuesday. The latest economic indicators pose a choice for Chinese policy makers: whether or not to ease up on their anti-inflation campaign of restraining economic growth through five interest rate increases since last October and stringent restrictions on banks lending. Rising prices could make it harder for the Chinese government to cut interest rates or take other measures to stimulate the economy if weakness in the U.S. and European economies causes a slowdown in Chinese exports. The initial assessment of private-sector economists was that inflation remained a greater threat to Chinas economic health than slowing output. They predicted that the central bank would not ease policy but might slow the pace of further interest rate increases while watching the effect on Chinese exports of steep drops in stock markets and of any signs of further economic weakness in the United States and Europe. Despite current turmoil in international financial markets, domestic inflationary pressures remain high, Qu Hongbin and Sun Junwei, two economists at HSBC, wrote in a research note. It is not yet the right time to ease. Consumer prices in China were up 6.5 percent in July from the level of a year earlier, well above the governments target of 4 percent inflation this year. Prime Minister Wen Jiabao acknowledged at the end of June that the target might not be met. Rising food costs are the main culprit as inflation creeps up; consumer prices had been up 6.4 percent in June. The consumer price increase in the year through July was the largest since June 2008.

Further price increases might be on the way. The National Bureau of Statistics announced in Beijing on Tuesday that producer prices, which are mainly wholesale prices measured at the factory gate, had been 7.5 percent higher in July than a year earlier. But Jing Ulrich, the chairwoman of China markets at J.P. Morgan, said in a research note that inflation could soon peak in China and then decline. The increase in consumer prices last month was slightly higher than expected while the rise in producer prices was a little smaller than expected. Economists saw one small hopeful sign in the consumer price data from July. While food prices were up 14.8 percent from the level of a year earlier, nonfood prices were up only 2.9 percent. They had been up 3 percent in June from a year earlier, suggesting that they might have already peaked. Industrial production, retail sales and fixed asset investment all rose last month at paces that would be enviable and even breathtaking in the West, but that were below expectations for China. Industrial output rose 14 percent in July from a year earlier. It had been up 15.1 percent in June and had been expected nearly to match that in July, although output growth had been 13 percent to 14 percent in the spring. Retail sales were up 17.2 percent in July from a year earlier, compared with a gain of 17.7 percent in June that economists had expected to see repeated. Fixed asset investment like the construction of new office buildings, apartment towers and factories was up 25.4 percent for the first seven months of this year compared with the same period last year; the year-over-year gain had been 25.6 percent for the first six months of the year, a pace that economists had also expected to see maintained. Chinas last burst of inflation, as the economy overheated in the spring of 2008, ended abruptly when the global financial crisis worsened through the summer and autumn that year and the Chinese export sector slowed precipitously, dragging down the rest of the economy as well. The authorities responded by rapidly increasing the money supply in early 2009 through currency market interventions and the authorization of heavy lending by state-owned banks. That policy helped rekindle economic growth but sowed the seeds of a new round of inflation that has grown worse over the past year. High world commodity prices through July have also buoyed food prices in particular.

Tommy Yeh, the sales manager at Beijiale Playground Equipment in Wenzhou, China, said that wages were up 10 percent in the past year while prices for raw materials were also climbing, squeezing profit margins. We can only transfer part of these increased costs gradually onto our customers, as our customers have found it hard to accept any major price adjustments, he said. Hilda Wang contributed reporting.

28-07-2011 Moodys warns of Broward credit downgrade as debt crisis worsens CAUGHT UP IN A REVIEW GOVERNMENTS WITH STERLING CREDIT, BROWARD COULD LOSE AAA RATING IF THE UNITED STATES DOES, TOO.
BY DOUGLAS HANKS DHANKS@MIAMIHERALD.COM

Productivity Falls for 2nd Quarter in a Row

By BLOOMBERG NEWS Published: August 9, 2011 RECOMMEND TWITTER SIGN IN TO E-MAIL PRINT

Principio del formulario Final del formulario REPRINTS

SHARE

The productivity of workers dropped from April through June for the second consecutive quarter, leading to an increase in labor costs that may restrain gains in profits.

The New York Times

The measure of employee output per hour fell at a 0.3 percent annual rate in the second quarter after a revised 0.6 percent drop in the previous three months, figures from the Labor Department showed Tuesday. The median estimate of economists surveyed by Bloomberg News was a 0.9 percent decrease. Expenses per employee rose 2.2 percent. With higher labor costs, profitability will come under pressure, said Eric Green, chief market economist at TD Securities in New York, who had forecast a decline in productivity. This would create more caution in expanding payrolls, especially at a time when there is so much uncertainty. Economists productivity forecasts in the Bloomberg survey ranged from a decrease of 2 percent to a 2.2 percent gain. Efficiency in the first quarter was previously reported as having increased 1.8 percent. The back-to-back drop in productivity was the first since the third and fourth quarters of 2008. Unit labor costs, which are adjusted for efficiency gains, were projected to rise 2.4 percent. Labor expenses in the first quarter were revised to 4.8 percent, the biggest gain since the fourth quarter of 2008, from a previously reported 0.7 percent advance. From the second quarter of 2010, productivity rose 0.8 percent compared with a 1.2 percent year-over-year increase in the first quarter. Labor costs rose 1.3 percent from

the year-earlier period after a 1.1 percent increase in the 12 months ended in the first quarter. The productivity report incorporated revisions to previous years. Worker efficiency growth was revised to 4.1 percent in 2010 from a previously reported 3.9 percent. For 2009, it was revised to 2.3 percent from 3.7 percent. Labor costs fell 2 percent in 2010, the biggest decline since records began in 1948. A lack of productivity gains, combined with stagnant growth, may slow hiring and wages, hurting Americans living standards. Employment grew by 117,000 in July and the jobless rate fell to 9.1 percent, the Labor Department reported last week