Quick Hits

Some of the other stories and other interesting reads making the rounds today.

Lt. General (ret). James Clapper won Senate approval to become the Director of National Intelligence after Senator John McCain removed his hold on the nomination. Senator McCain placed a hold on the Clapper nomination in order to force the Obama Administration to release a report assessing a controversial spy satellite program. McCain released his hold Tuesday once he got the information he was seeking. The retired three-star Air Force general, whose intelligence career spans two score and six years, will be the fourth Director of National Intelligence in five years. More from the Wall Street Journal.

The Senate sent the nomination of Peter Diamond, one of President Barack Obama's three nominees for the Federal Reserve Board, back to the White House because of objections from at least one lawmaker. Alabama Senator Richard Shelby, the senior Republican on the Banking Committee, said last week that Diamond, while a “skilled economist,” may not be qualified to make decisions on monetary policy.

The Senate took no action yesterday on the other two nominees, including San Francisco Fed President Janet Yellen for Vice Chairman and Sarah Bloom Raskin for a Governor slot, leaving them to await confirmation after senators return September 13. That means that if Governor Donald Kohn, whose separate term as Vice Chairman ended in June, departs as planned on September 1, the Fed will work with only four of seven Governors for the indefinite future. More from Bloomberg News.

Jonathan Chait of the New Republic looks at the tightening margins for confirming Supreme Court Justices and wonders if Elena Kagan might be President Obama's last nominee to the Court.

The New York Times profiles US District Court Judge of Vaughan Walker who wrote the landmark decision that overturned Proposition 8 in California. The title Conservative Jurist, With Independent Streak pretty much says it all.

In a related story, Governor Arnold Schwarzenegger and Attorney General Jerry Brown filed briefs asking Chief U.S District Judge Vaughn Walker to lift his stay and allow gays and lesbians to marry while the Perry v Schwarzenegger winds its way through the appeal process. More from CNN.

Michael Cooper in the New York Times writes on the extremes to which state and local governments are going in order to balance budgets. Clayton County, Georgia, a suburb of Atlanta shut down its entire public bus system. Its last buses ran on March 31, stranding 8,400 daily riders. Colorado Springs switched off a third of its 24,512 streetlights to save money on electricity, while trimming its police force and auctioning off its police helicopters while Hawaii closed its schools on 17 Fridays during the past school year to save money, giving students the shortest academic year in the nation.

The FDIC seized the assets of Ravenswood Bank, a bank in Illinois. Ravenswood Bank is the 109th FDIC-insured institution to fail in the nation this year, and the thirteenth in Illinois. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $68.1 million. Twenty-five banks failed in 2008 while 140 banks failed in 2009.

David Weigel, now working for Slate, writes in the Washington Post on the five myths of the Tea Party.

Mark Hurd, the CEO of Hewlett-Packard, was forced to resign today in the wake of a disclosure that he had allegedly falsified documents to conceal a relationship with a former contractor. The HP Board of Directors said in a statement that its standards of business conduct were violated. Hurd's "systematic pattern" of submitting falsified financial reports to hide the relationship convinced the board that "it would be impossible for him to be an effective leader moving forward and that he had to step down," HP general counsel Michael Holston said on a conference call Friday with analysts. Hurd will receive a $12.2 million severance payment.

Editorial of the Day
The editorial board of the New York Times castigates the GOP for their xenophobia and fear-mongering for American votes.

Leading Republicans have gotten chilly toward the Constitution’s 14th Amendment, which guarantees citizenship to people born in the United States. Senators Mitch McConnell, John McCain, Lindsey Graham, Jeff Sessions and Jon Kyl have been suggesting that the country should take a look at it, re-examine it, think it over, hold hearings. They seem worried that maybe we got something wrong nearly 150 years ago, after fighting the Civil War, freeing enslaved Africans and declaring that they and their descendants were not property or partial persons, but free and full Americans.

As statements of core values go, the 14th Amendment is a keeper. It decreed, belatedly, that citizenship is not a question of race, color, beliefs, wealth, political status or bloodline. It cannot fall prey to political whims or debates over who is worthy to be an American. “All persons born or naturalized in the United States, and subject to the jurisdiction thereof,” it says, “are citizens of the United States and of the State wherein they reside.”

 

Quick Hits

Here are some of the other items making news today.

The Senate approved $10 billion to states and local school districts to prevent teacher layoffs and an additional $16 billion in Federal aid to cash-strapped states. The procedural vote in the Senate was 61 to 38, with the Maine Republicans, Susan Collins and Olympia J. Snowe, joining all Democrats in support of cutting off a filibuster. Louisiana Senator David Vitter did not vote. Speaker Pelosi is to summon House back from its summer recess to grant final approval to the bill. The full story in the New York Times.

With President Obama is headed to fundraisers in Austin and Dallas, Texas junior senator, Republican John Cornyn accuses the President of "using Texas as an ATM." This will be the President's third visit to the Lone Star state. The fundraisers are on behalf of the Democratic National Committee and the Democratic Senatorial Campaign Committee. However among the Democratic political establishment in Texas, Obama's visit is proving to be as toxic as Gulf Coast oil spill. Former Houston Mayor Bill White, the Democratic nominee for governor, has said he'll be elsewhere during Obama's visit. Ditto for Barbara Radnofsky, the Democratic candidate for Attorney General.

Up in the Big Sky country, $90 million in Federal stimulus funding to expand high-speed Internet is coming Montana's way, for projects on the Fort Peck Indian Reservation and rural Gallatin County, U.S. Agriculture Secretary Tom Vilsack announced today. The story in the Billings Gazette.

New York state lawmakers finalized a $136 billion budget for fiscal 2011 late Tuesday, approving a final piece of legislation that will raise about $1 billion through a mix of tax hikes and other measures. More from Reuters.

Divorced from reality, Tim Geithner seems married to indifference. The Secretary of the Treasury has an op-ed in the New York Times entitled Welcome to the Recovery.

In another New York Times op-ed, Rep. Anthony Weiner of the New York Ninth Congressional District explains that anger that led to his outburst on the House floor.

Mayor Ron Dellums of Oakland announced Wednesday that he won't seek re-election in November. Dellums, 74, was elected mayor in June 2006 and took office in January 2007. His term expires next January. Dellums served 13 terms in the House before becoming mayor of Oakland. More from CBS-5 San Francisco.

The birther madness will not die. CNN has a poll showing the 27 percent of Americans do not believe the President Obama was born in Honolulu or anywhere else in the United States. Twenty-seven percent of Republicans say he was probably not born here, and another 14 percent of Republicans say he was definitely not born in the US. In other words, 41 percent of Republicans view the President as a Constitutional usurper. Today, by the way, is the President's 49th birthday which is spending at home alone in Chicago.

Quick Hits

Three U.S. troops died in blasts in Afghanistan, bringing the death toll for July to at least 63 and surpassing the previous month's record as the deadliest for American forces in the nearly 9-year-old war. More coverage in the Los Angeles Times.

Florida Gov. Charlie Crist leads the three-way race for the U.S. Senate seat with 37 percent, followed by 32 percent for Republican Marco Rubio and 17 percent for Jeff Greene, the leading candidate for the Democratic nomination, according to a Quinnipiac University poll released today.

In Nevada Senate Race, the Las Vegas Review Journal reports that Senate Majority Leader Harry Reid and Tea Party candidate Sharron Angle are locked in a dead heat. The new survey by Mason-Dixon Polling & Research shows Reid and Angle neck and neck. The Senate majority leader would win 43 percent and Angle 42 percent of support from likely Nevada voters if the election were held now. The margin of error is plus or minus 4 percentage points . A July 12-14 Mason-Dixon poll showed Reid 7 points ahead of Angle, 44-37 but Angle has countered with ads blaming the Nevada economy on Reid.

Judicial confirmation rates have nosedived in the Obama Presidency as flibusters, anonymous holds, and other obstructionary tactics have become the rule. The Center for American Progress has the story.

The financial blog Credit Writedowns has more on the report by Fed Governor James Bullard on deflation which I covered yesterday. Their post has a great summation of the situation we face:

In our view the case for deflation is a strong one as most of the classic symptoms are present in the U.S. today. Record historic debt is already in the process of deleveraging, and there is still a long way to go. Consumer demand is restrained. There is an excess of labor supply with five people available for every open job. Capacity utilization rates are historically low. Household net worth is far below peak levels. Credit is available only to the most highly qualified borrowers. Money supply has been flat or decreasing despite massive stimulus. All of this is a classic recipe for deflation. We also believe that there is little the Fed can do to avoid the outcome. Japan kept both short and long-term interest rate exceedingly low for many years and ran massive budget deficits with little to show for it, although they did prevent a complete collapse of their economic and financial system. While there is a difference between the U.S. and Japan, two major differences were in favor of Japan rather than the U.S. During most of Japan’s two-decade malaise the global economy was quite strong and Japan was able to support its economy with a substantial amount of exports. Furthermore, Japan started with a 12% household savings rate and was able to run it down, thereby providing some support for consumer spending.

Michael Whitney over at Firedoglake covers the latest madness from Senator Dianne Feinstein of California. Senator Feinstein's “Saving Kids from Dangerous Drugs Act of 2009″ (S. 258) that targets pot brownies and other marijuana edibles preferred by some medical marijuana patients passed the Senate unanimously.

The D-Word

For some time now, the US economy has had all the ingredients—soft, anemic labour markets and wage growth, slack consumer demand, a real estate sector that has to revive after a three year downturn—for a deflationary cycle. Deflation was last seen in the US in the 1930s and in Japan in the 1990s, when the inflation rate fell to zero and then turned negative for several years. But now the Federal Reserve is increasingly concerned that we may be on the cusp of a deflationary asset spiral.

From the New York Times:

On Thursday, James Bullard, the president of the Federal Reserve Bank of St. Louis, warned that the Fed’s current policies were putting the American economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”

The warning by Mr. Bullard, who is a voting member of the Fed committee that determines interest rates, comes days after Ben S. Bernanke, the Fed chairman, said the central bank was prepared to do more to stimulate the economy if needed, though it had no immediate plans to do so.

Mr. Bullard had been viewed as a centrist and associated with the camp that sees inflation, the Fed’s traditional enemy, as a greater threat than deflation.

But with inflation now very low, about half of the Fed’s unofficial target of 2 percent, and with the European debt crisis having roiled the markets, even self-described inflation hawks like Mr. Bullard have gotten worried that growth has slowed so much that the economy is at risk of a dangerous cycle of falling prices and wages.

Among those seen as already sympathetic to the view that the damage from long-term unemployment and the threat of deflation are among the greatest challenges facing the economy, are three other Fed bank presidents: Eric S. Rosengren of Boston, Janet L. Yellen of San Francisco and William C. Dudley of New York.

Deflation is a particularly vexing economic problem because as prices fall, people who already owe money have to pay back loans in dollars that will buy more goods than the dollars they borrowed. Assets are worth less than the amount owed. For new loans, it raises the real, or inflation-adjusted, cost of credit, the opposite of what monetary policy needs to do to combat falling demand. Plus, in the effort to boost spending, policymakers cannot cut the target rate below zero. At that point, negative inflation can keep the real rate high enough to restrict economic growth.

Here's a recent note from the Federal Reserve Bank of San Francisco on the Risks of Deflation.

A Dark Beige Report

Commonly known as the Beige Book, this report produced by the nation's central bank  covers economic conditions in all 12 Districts that are part of the Federal Reserve system. It is published eight times per year. The latest report, published on Wednesday, describes the economy as struggling under the weight of a depressed real estate market, continued high unemployment with consumers largely wary and lacking confidence with many consumers still reluctant to spend because of worries about the job market.

Two of the Federal Reserve 12 districts — Atlanta and Chicago — reported that "the pace of economic activity had slowed recently," while the Cleveland and Kansas City districts said that "activity generally held steady."

The other eight districts — including San Francisco, which covers California and other Western states — reported "improvements in economic activity" from the spring, the Fed said. But it added that "a number of them noted that the increases were modest."

More from the New York Times:

The manufacturing sector especially appears to be losing steam. The Federal Reserve regional report, said manufacturing activity in most of the 12 districts experienced some growth since the last report in early June.

But the pace of activity “slowed” or “leveled off” in half of them, including Cleveland and Chicago. In both cities, automobile manufacturing grew, while steel manufacturing declined.

Business contacts in Atlanta and Chicago said economic activity slowed in June and July, with significant worries in Atlanta related to the Gulf Coast oil spill.

Analysts say the book offers a qualitative, rather than quantitative, general overview of various sectors and regions across the country.

The report said the retailing and transportation service sectors showed signs of solid growth. Several districts reported that apparel, food and other necessities were strong sellers. However, consumer spending on big-ticket items was weak, reflected in the decline in auto sales in New York, Philadelphia, Cleveland, Richmond, Chicago and San Francisco. The report also said consumers remained price conscious as they continued to reduce their debts.

Almost all districts reported that they had “sluggish” housing markets as a result of the April expiration of the government’s homebuyer credit. Commercial and residential construction activity was weak in almost all districts. Cleveland, in particular, said it did not expect an improvement in new home construction this year.

The Beige Book report also noted that labor market conditions “improved gradually” in New York, Chicago, Minneapolis, Richmond, and Atlanta, but that San Francisco reported high levels of unemployment. California remains the state with the third-highest unemployment rate in June at 12.3 percent seasonally adjusted. Nevada had the highest rate, with 14.2 percent, followed by Michigan at 13.2 percent. Not surprisingly, wage pressures remained largely contained across most Districts.

Retail sales, the largest component of the US economy, were higher than year-earlier sales in the New York, Philadelphia, Minneapolis, and Kansas City Districts,  while Dallas reported solid gains. But sales in the Boston District were mixed compared with the previous year. Recent sales increased slightly in the Cleveland, Atlanta, Chicago, and San Francisco Districts; sales in the Richmond District weakened; and sales in the Kansas City District were flat compared with the previous report. Several Districts cited apparel, food, and other necessities as recent strong sellers, while big-ticket items were weak sellers.

The report is likely to give credence to those have been arguing that US economy faces continued weakness and that efforts to rein in the deficit may further undercut the economic recovery which remains tepid and jobless.

Diaries

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