Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Tuesday, December 25, 2012
Fiscal Cliff - the cliff hanger heads into the final week of the year... the best one could hope for now is a band aid for a couple of months.... We shall see over the next several days whether Congress and the President can at least achieve that !
( Now there is a meeting - cliff hanger drama never ending..... however , it doesn't appear the leaders are being given anything in advance to consider - will have to see what comes from this meeting . We shall see if the White House offer a new proposal , how long does this meeting last , are there blazing press conferences or lack thereof afterwards ? )
Obama Will Meet With Congressional Leaders On The Fiscal Cliff Tomorrow
Sen. Dick Durbin (D-Ill.) said today on the Senate floor that President Barack Obama will meet with Congressional leaders tomorrow to address the looming fiscal cliff, Bloomberg reported.
Twitter/@BloombergNews
Presumably, that means Obama will meet with Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell, as well as House Speaker John Boehner and Minority Leader Nancy Pelosi.
Boehner spokesman Brendan Buck confirmed the meeting in a statement tonight.
"Tomorrow, Speaker Boehner will attend a meeting with congressional leaders at the White House, where he will continue to stress that the House has already passed legislation to avert the entire fiscal cliff and now the Senate must act," Buck said.
( So , as of 4pm there still is no new proposal from the White House , just an outline of what the White House would like to see in a short term patch . Similarly , as of 4 pm there is no meeting between the White House and Congressional leaders set for Friday. Are we getting the set up here for a loud market reaction over the next few sessions to give the pols cover ? )
McConnell: Still time to reach deal on fiscal cliff
By Alexander Bolton - 12/27/12 04:13 PM ET
Senate Republican Leader Mitch McConnell (R-Ky.) told colleagues Thursday afternoon there is still time to reach a deal to avoid the "fiscal cliff," but warned Republicans would not write Democrats a “blank check.”
McConnell said he is looking forward to a proposal from President Obama, which he said the president mentioned in a phone conversation Wednesday evening.
McConnell said Democrats finally appear to be ready to negotiate, but warned that it might be too late. And he said Democrats should not expect him and other Republicans to sign off on a bad deal only because tax hikes and spending cuts are due to take place after Dec. 31.
“Republicans aren’t about to write a blank check for anything Senate Democrats put forward just because we find ourselves at the edge of the cliff,” McConnell said on the Senate floor. “That wouldn’t be fair to the American people.
“That having been said, we’ll see what the president has to propose,” he added. “Members on both sides of the aisle will review it, and then we will decide how best to proceed.”
“Hopefully there is still time for an agreement of some kind that saves taxpayers from a wholly, wholly preventable economic crisis,” he said.
Senate Majority Leader Harry Reid (D-Nev.) said Democrats have long been willing to strike a deal to avoid the so-called fiscal cliff. He accused Republicans of obstructing an agreement.
“You can’t legislate with yourself. We have nobody to work with, to compromise [with],” Reid said. “The Republicans in the House have left town. The negotiations between the president and the speaker have fallen apart, as they have for the last three and a half years. We tried mightily to get something done.”Reid undercut McConnell’s optimistic tone. He questioned the likelihood of passing a compromise through the House, noting Speaker John Boehner (R-Ohio) pulled from the floor a bill extending tax rates on family income under $1 million last week.
Reid said Boehner is more concerned with keeping his job as speaker than crafting a bipartisan deal to extend tax rates for middle-class families. “The speaker’s number-one goal is to get elected speaker on Jan. 3,” he said. Reid said Republicans must show they can defy conservative groups such as the Club for Growth, which lobbied against Boehner’s Plan B, to extend income tax rates for family earnings below $1 million. McConnell sent an e-mail to Republican colleagues Thursday morning alerting them that he expected to see a proposal from Obama later in the day to extend tax rates. The offer was reported to include an extension of tax rates on family income below $250,000, an extension of the 45-percent estate tax rate and unemployment insurance benefits.
A Senate Democratic leadership aide, however, said Thursday afternoon neither the White House nor Reid submitted a new offer to Senate Republicans, although Obama outlined Friday what he would like to see in last-minute legislation to avoid the fiscal cliff.
The Senate Democratic leadership aide also questioned a report that Obama would meet with Reid, McConnell, Boehner and House Democratic Leader Nancy Pelosi (Calif.) Friday. No such meeting was scheduled as of 4 pm Thursday.
UPDATE: ES -7 after-hours from closing highs (McConnell-Off)
Equity markets started the day off slowly but with confidence disappointing and Harry Reid's name-calling, not even the arrival of the chosen one was enough to juice anything but a minimal bounce in stocks. It looked like S&P 500 futures (ES) were going to retest the flash-crash lows from last week but thanks to a well-timed piece of news that Boehner will be in session on Sunday night(though no accompanying notes on exactly what magical book of crap they will sign off - or not - on) was enough to spur Johhny-5 and his friends into algo-asm action. The initial jerk was perfectly to VWAP and the second jerk took AAPL up to yesterday's closing VWAP. This strength dragged ES higher - reconnecting with a less excited risk-asset market that had remained flat from the day-session open. FX and vol were the main levers to the upside with Treasuries less enamored - though HYG was lifted to fill Monday's gap. Mitch McConnell spoiled the party a little into the unchanged close.
As the markets ramped there were notable blocks and the large delta appeared to be sellers - which accompanied with VIX compression (big roundtrip today) suggests this strength enabled a few more big players to exit their underlying positions and unwind hedges. Gold rose as late-day USD weakness (and Treasury selling) jerked commodities higher. ES auctioned up to pre-Reid levels but was unable to hold those algo gains.
The day in the S&P 500 futures market... with Scott Brown's on-again off-again facebook post impact... ending the UNCH!
Asset classes in general were all over the place with the US Open to EU Close session seeing a big EUR dump (on Reid's comments) after some more reptraiation strength early on. Gold rallied on that and stayed high all day. Evidently Treasuries (red) were not as excited with the ramp as the US and Oil)...
Equities did actually drop considerably more than risk-assets (upper right) in general today and the last day ramp dragged us back up to a more synchronized view of the world - even if correlations were weak overall. ETFs were relatively better-behaved (upper left) and stayed in close sync up and down - with VXX the major driver - though HYG was abused higher into the close (filling Monday's gap)... Cross-asset class correlation picked up notably into the close (lower right)
VIX round-tripped from low 19s to almost 21% and back down - and while much was made of VIX's compression it remains excessively bid relative to stocks - suggesting hedgers remain. Clearly, managers bid protection over the past week or so - knowing they could not sell down their exposures too aggressively; now we see headline-driven ramps that enable puts to be unwound profitably (higher vol and lower underlying price) and also to sell down exposure into the market's levered excitement (of retail) which then fades after-hours - just as it did after the last time - would not be surprised to see another ES cliff dive tonight.
Apple was heading for a 4 handle slowly but surely but the Boehner Boner enabled an absolute algo-gasm as we tested up to yesterday's closing VWAP...and stalled there
The problem, of course, as we tweeted an hour before the close, is that:
House Speaker John Boehner told House Republicans that he’s “not interested” in passing a fiscal cliff deal with “mostly Democrat votes,” his most direct comments about how he’ll manage the remaining negotiations over tax increases and spending cuts.
Boehner’s comment is significant because it means he is going to push for an agreement that most of the 241 House Republican could support.
And then there's this suggestion of unhappiness at Boehner's tactics of keeping members out of Washington:
The optics of not being in Washington are still of concern to House Republicans. Members were worried about being hammered in the press for not being in Washington.
AP has a little more detail on the revelation that House Republican leadership has told GOP members to return to Washington on Sunday night for a new session:
Officials said the Republican leadership informed the GOP rank and file of the plan to meet during a conference call on Thursday.
It is unclear what legislation the House might consider Sunday, since Speaker John Boehner is publicly insisting that the Senate must make the next move to avert the cliff.
The officials who disclosed plans for the Sunday session did so on condition of anonymity, saying no public announcement had yet been made.
Mitch McConnell: 'I'm frustrated'
The Republican leader in the Senate, minority leader Mitch McConnell, is speaking on the Senate floor, and he's firing back at the White House and the Democratic party.
"I'm a little frustrated at the situation we find ourselves in," McConnell says, claiming that Republicans have "bent over backwards" to make compromise, saying that his party has "stepped way, way out out of its comfort zone".
McConnell pauses to denigrate the bill already passed by the Senate and touted by the majority leader Harry Reid:
The so-called Senate bill is nothing more than a glorified sense of the Senate resolution.
You have to understand the ways of the Senate to know what a total zinger that is.
McConnell also says that Senate Republicans aren't bending either:
Republicans aren't about to write a blank check for anything Senate Democrats put forward.
Report: President to meet congressional leaders
Now this: a meeting at the White House tomorrow between the congressional leaders and the president?
Obama will meet with Boehner, Pelosi, Reid and McConnell tomorrow. Maybe there's life, maybe just for show.
Maybe Scott Brown was on to something.
House members to return on Sunday evening
Actual news: the House of Representatives is to return on Sunday evening, the Republicans in the House have just been informed by majority leader Eric Cantor in a conference call.
The House will then remain in session "for the balance" of the 112th Congress – which would suggest it's staying put until 2 January?
In the week ending December 22, the advance figure for seasonally adjusted initial claims was 350,000, a decrease of 12,000 from the previous week's revised figure of 362,000. The 4-week moving average was 356,750, a decrease of 11,250 from the previous week's revised average of 368,000.
Well now that's actually a decent number, if it's real.
But I still ignore the headline and look at the big table:
And again, remember that the 900lb Gorilla in terms of the "fiscal cliff" is not the tax rate changes or spending cuts -- it's that EUC 2008 number, which is ~2.1 million people who will instantly lose their unemployment on January 1st.
That, friends, is to be expected at this point in time.
That's a program that now, four years after it was instituted, needs to die. But for those who receiving it the short-term impact is still going to be pretty severe.
and Fiscal Cliff drama will dominate news from Europe and Asia for the balance of the short oiliday week.....
While the market will look with some last trace of hope to Obama's return from Hawaii to D.C. today, the reality is that even the mainstream media, which had so far gotten everything about the cliff spectacularly wrong (proving that sample polling and actual "predicting" are two very different things), is waking up and smelling the coffee. As Politico reports, "nearly all the major players in the fiscal cliff negotiations are starting to agree on one thing: A deal is virtually impossible before the New Year.Unlike the bank bailout in 2008, the tax deal in 2010 and the debt ceiling in 2011, the Senate almost certainly won’t swoop in and help sidestep a potential economic calamity, senior officials in both parties predicted on Wednesday. Hopes of a grand-bargain — to shave trillions of dollars off the deficit by cutting entitlement programs and raising revenue — are shattered. House Republicans already failed to pass their “Plan B” proposal. And now aides and senators say the White House’s smaller, fall-back plan floated last week is a non-starter among Republicans in Senate — much less the House. On top of that, the Treasury Department announced Wednesday that the nation would hit the debt limit on Dec. 31, and would then have to take “extraordinary measures” to avoid exhausting the government’s borrowing limit in the New Year."
Which means Obama must be particularly angry: his return to DC has nothing to do with negotiations, and everything to do with optics, and giving the popular impression that he is hard at leadership work. And what is supremely ironic is that suddenly everyone wants to go over the cliff: a move which incidentally is critically needed in a country which needs to apply some brakes to its runaway spending, where not even the mandatory expenditures (excluding military) could be covered in their entirety by government rax receipts.
Of course, all of this does not matter to the market which, just like the broader media, is incapable of rational thought, and especially not of forecasting, and will be grasping at straws onto any flashing red headline promising a deal is imminent in the 3 remaining trading days of 2012. In the meantime, instead of selling, traders will continue buying near-term puts, and sending the VIX ever higher because, as we noted last week, the fear is that once onestarts selling, everyone starts selling, and nobody knows just how far the selling goes in a market as illiquid and broken as this one.
In this regard, watch out around 2:30 pm Eastern when House Republicans will hold a conference call to discuss next steps in the fiscal cliff stalemate. There will be many market moving headlines then.
In terms of actuall irrelevant newsflow, Italy sold some €11.75 billion in Bonds and Bills at a slighlty higher yield in its first debt auction to be settled in 2013. The treasury issued the targeted 8.5 billion euros of six-month bills, paying a yield of 0.949 percent, slightly up from 0.919 percent at a similar auction one month ago. Rome also sold 3.25 billion euros of two-year zero-coupon bonds at a yield of 1.884 percent, down from 1.923 percent in November. The tremors sent the yield on the benchmark 10 year BTP to a 10 day high. Is this merely the precursor of Italy taking the center bond stage in Europe in 2013: sit back in your easy chair and find out very soon.
Elsewhere, the Shanghai Composite did not share the enthusiasm of the Nikkei which is following the plunging Yen ever higher (but remaining flat in dollar terms), and posted its first red close in days, closing 0.6% lower as it flirts with the unchanged for the year level.
In far more important news out of China, we learned that the country plans to increase its budget deficit by a whopping 50% to 1.2 trillion yuan ($192b) in 2013, including sale of 350b yuan of bonds to fund local governments, a person familiar with matter tells Bloomberg News. Central government deficit is budgeted at 850 billion yuan, according to the person. Govt targets about 8% trade growth, down from this year’s 10% goal. So is China now becoming the US and joining every other country in the world in posting a whopping budget deficit? With all signs pointing to yes, one wonders: who in this world has a budget surplus left?
Yet all the above news is as always irrelevant: the only thing that matters is how the market, and the permawrong pundits spin any word coming out of Obama and Boehner, and how it digests the realization that it is increasingly likely that nothing at all will happen - as we have been saying for over 2 months - until the actual debt ceiling D-day deadline, some time in March.
More from DB's Jim Reid
Just five days to go until the year-end and the moment in which the US will reach its $16.4 trillion debt ceiling. According to a written warning from Tim Geithner to the Congress that was released after US market close overnight, the government will hit the debt ceiling this coming Monday and the Treasury will soon begin to take a series of “extraordinary measures” to create $200bn in debt ceiling headroom. According to CNN such measures include suspending the reinvestment of federal workers’ retirement account contributions in short-term government bonds. The headroom aims to buy the government approximately two months of time before it faces “default on its legal obligations” unless the ceiling is raised prior to that.
To briefly summarise the fiscal cliff discourse over the last week or so, we’ve gone from a “grand bargain” including a proposed extension of the debt ceiling debate for two more years, to Boehner’s Plan B which was abandoned before a House vote, followed by Obama’s fallback plan, and now reports of Senate Majority Leader Harry Reid’s so-called Plan C.
Reid’s plan, which is being described as a “stop-gap” measure, aims to extend tax rates for incomes up to $250k, limits tax deductions, sets the dividend/capital gains tax rate at 20% and delay across-the-board spending cuts until early in the New Year when Congress will again need to negotiate an increase in the debt ceiling (NY Times). It comes after Boehner insisted on Wednesday that “lines of communication remain open” but held firm that the Senate must make the next move.
So with the Senate reconvening today and President Obama returning to Washington from his Christmas vacation in Hawaii, all eyes will be on whether Harry Reid can broker a deal with the GOP to pass last-minute legislation that could then be brought to the House later in the week. House leaders have told lawmakers that they would receive a 48-hour notice before being called back to Washington. According to the NY Times, House leaders haven’t yet given that notice and are still discussing the schedule, so as we stand it appears that the earliest the House could reconvene would be Saturday if the 48-hour notice stands to be true. On that note, DB’s Head of Government Affairs, Frank Kelly, is hosting a daily conference call this week providing updates on the Fiscal Cliff. Details are provided at the end of today’s EMR for those interested.
Turning to markets now and the S&P 500 closed 0.48% lower yesterday led by Retailers (-1.27%) on reports of sluggish holiday season sales. The WSJ reported that US holiday retail sales grew at 0.7%yoy, the weakest pace since 2008, citing data from Mastercard. However, CNBC noted that the survey period included the week of Hurricane Sandy which explains some of the weakness in sales. In other data, the Case-Shiller October reading confirmed the continuing upward trend in house prices with the 20-city index up 0.66% mom (vs 0.48% expected) but this positive print was largely outweighed by the concerns over the looming fiscal cliff deadline. The VIX jumped another 4.8% on Wednesday to close at a 5-month high, bringing the total rise over the last 5 sessions to 25%.
As a reflection of the risk-off sentiment, 10yr UST yields edged 2bps lower to 1.751% while Gold rose marginally by 0.1% for its fourth gain in as many sessions.
In overnight markets, most Asian bourses are trading higher led by gains on the Nikkei (+1.0%) and Hang Seng (+0.42%). In Japan, Mr. Abe officially took office as the PM on Wednesday and was quick to reiterate his policy of pushing for “bold monetary easing” and “flexible” fiscal policy. Abe also named key members of his cabinet which included Taro Aso as finance minister. As Prime Minister in 2008-2009, Aso oversaw a JPY14 trillion stimulus package which was the largest Japanese spending plan on record (Nikkei). The JPY continued to slide against major currencies on Wednesday. USDJPY gained 1% on Wednesday and is consolidating at 85.80 overnight, its highest level since September 2010.
The other big mover of late in Asian markets has been onshore Chinese equities which have rallied 13% since the multi-year trough reached on 3rd December, or approximately two weeks after China’s new leaders were appointed. Following solid gains over Christmas, the Shanghai Composite has managed to claw back into positive territory for the year-to-date (+0.7%) although it still remains the worst-performing major equity index in Asia.
In European headlines, caretaker Italian PM Monti tweeted on Christmas night that “Together we have saved Italy from disaster. Now we have to renew politics…Let rise to politics!” which some saw as a strong indication of Monti’s intention to run in the next elections. Monti also published his pro-European political manifesto, titled “Change Italy. Reform Europe”, which drew endorsements from a number of centrist parties including Pier Ferdinando Casini’s Catholic UDC. According to the FT, Monti will meet with prospective coalition partners on Thursday to discuss strategy and candidate lists amidst reports of a likely Centrist-Democrats coalition heading into next year’s election (FT).
Looking at the day ahead, major European markets will reopen today after the Christmas/Boxing Day break. In Europe, the data flow will remain thin with French jobseekers and Italian business confidence the main highlights. In the US, the House Republicans will hold a conference call at 2:30pm USEST to discuss next steps in the fiscal cliff stalemate. In terms of US data, consumer confidence, jobless claims and new home sales are the major data points – although the next few days of data will likely be overshadowed by developments in Washington.
Report: Obama ‘likely’ to leave Hawaii for DC on Wednesday night
By Meghashyam Mali - 12/25/12 08:08 PM ET
An administration official says President Obama is “likely” to leave Hawaii for Washington, D.C. late Wednesday, according to a report.
Fox News reported Tuesday night that a White House official said the president, who is vacationing with his family in Hawaii, will return to address January’s looming “fiscal cliff.”
The report adds that officials are unsure if Obama will invite congressional leaders for face-to-face talks on Thursday, when he arrives in Washington.
Efforts to craft a deficit-reduction package to avoid a set of tax hikes and automatic spending cuts taking effect in 2013 appear deadlocked as the year-end deadline approaches.
Last week, Speaker John Boehner (R-Ohio) was forced to withdraw his “Plan B” backup tax proposal after House GOP leaders were unable to find enough support in their caucus to pass the measure.
Before leaving for Ohio for the Christmas holidays, Boehner said that Republicans had put their best offer on the table. He added that while he was not abandoning negotiations, that the onus for a deal now rested with the president and the Senate.
Obama on Friday urged lawmakers to return to the table and consider a smaller package focused on extending middle class tax rates, extending unemployment insurance and laying a framework for future deficit reduction.
"That's an achievable goal that can get done in 10 days," he said.
Obama told reporters that “I’ll see you next week,” but did not specify when he expected to return from the Hawaii trip.
The president expressed hope that the holidays would help both sides “cool off” and resume talks. "As we leave town for a few days to be with our families, it will give us some perspective," Obama said.
The president has enjoyed a quiet stay in Hawaii, with no public events other than a memorial service he attended for the late Sen. Daniel Inouye (D-Hawaii) on Sunday.
and.....
http://www.cnbc.com/id/100337304
Top U.S. lawmakers voiced rising fear on Sunday that the country would go over "the fiscal cliff" in nine days, triggering harsh spending cuts and tax hikes, and some Republicans charged that was President Barack Obama's goal.
"It's the first time that I feel it's more likely that we will go over the cliff than not," Senator Joe Lieberman, an independent from Connecticut, said on CNN's "State of the Union."
"If we allow that to happen it will be the most colossal consequential act of congressional irresponsibility in a long time, maybe ever in American history," Lieberman added.
The Democratic president and Republican House of Representatives Speaker John Boehner, the two key negotiators, are not talking and are out of town for the Christmas holidays. Congress is in recess, and will have only a few days next week to act before Jan. 1. (Read more: Stop-Gap Fix the Most Likely Outcome)
On the Sunday news shows, no one signaled a change of position that could form the basis for a short-term fix, despite a suggestion from Obama on Friday that he would favor one.
The focus was shifting instead to the days following Jan. 1 when the lowered tax rates dating back to the George W. Bush administration will have expired, presenting Congress with a redefined and more welcome task that involves only cutting taxes, not raising them.
"I believe we are," going over the cliff, said Republican Senator John Barrasso of Wyoming. "I think the president is eager to go over the cliff for political purposes. I think he sees a political victory at the bottom of the cliff," Barrasso said on Fox News Sunday.
Some Republicans have said Obama would welcome the fiscal cliff's tax increases and defense cuts, as well as the chance to blame Republicans for rejecting deal. Obama has rejected that assertion.
Congress started the clock ticking in August of 2011 on the cliff. The threat of about $600 billion of spending cuts and tax increases was intended to shock the Democratic-led White House and Senate and the Republican-led House into bridging their many differences to approve a plan to bring tax relief to most Americans and curb runaway federal spending.
Economists say the harsh tax increases and budget cuts from the fiscal cliff could thrust the world's largest economy back into a recession, unless Congress acts quickly to ease the economic blow.
The most immediate impact could come in financial markets, which have been relatively calm in recent weeks as Republicans and Democrats bickered, but could tumble without prospects for a deal. (Read More:Markets Teetering on Edge of Cliff)
Markets will be open for a half-day on Christmas Eve, when Congress will not be in session, and will be closed on Tuesday for Christmas.
Wall Street will resume regular stock trading on Wednesday, but volume is expected to be light throughout the week with scores of market participants away on a holiday break.
If Congress fails to reach any agreement, income tax rates will go up on just about everyone on Jan. 1. Unemployment benefits, which Democrats had hoped to extend as part of a deal, will expire for many as well.
In the first week of January, Congress could scramble and get a quick deal on taxes and the $109 billion in automatic spending cuts for 2013 that most lawmakers want to avoid.
Once tax rates go up on Jan. 1, it could be easier to keep those higher rates on wealthier taxpayers while reducing them for middle- and lower-income taxpayers. Lawmakers would not have to cast votes to raise taxes.
Some lawmakers expressed guarded hope that a short-term deal on deficit-reduction could be reached in the next week or so, with a longer more permanent deal hammered out next year.
But a short-term deal would need bipartisan support, as Obama has said he would veto a bill that does not raise taxes on the wealthiest Americans.
Democratic Senator Kent Conrad, chairman of the Budget Committee, said Obama and Boehner are not that far apart and that both sides should keep pushing for a long-term big deal.
"I would hope we would have one last attempt here to do what everyone knows needs to be done, which is the larger plan that really does stabilize the debt and get us moving in the right direction," Conrad of North Dakota told Fox News Sunday.
and what may come down the road from crossing over the so called Fiscal Cliff.....
Time running out on defense industry efforts to avoid sequestration cuts
By Carlo Muñoz and Jeremy Herb - 12/25/12 06:00 AM ET
The clock has all but run out on the defense industry's efforts to stave off billions in looming budget cuts under sequestration.
At the Pentagon, administration officials have given Defense Department number crunchers the green light to begin planning for the $500 billion in budget cuts set to go into effect in January.
Weeks of intense, last-minute negotiations between Speaker John Boehner (R-Ohio) and President Barack Obama on a potential deal to avoid January’s “fiscal cliff” of looming tax hikes and automatic spending cuts appeared to come to an unceremonious end last Thursday.
After a furious effort to draw GOP support for his "Plan B" tax proposal, the Ohio Republican was forced to pull his bill from the floor, unable to secure the 218 votes needed for passage.
Boehner's defeat at the hands of his own party draws the curtain on a multimillion-dollar campaign by top defense industry lobbyists and interest groups to gin up opposition to the sequestration plan.
While lawmakers and the White House may still craft a bargain by year's end, most in the defense industry are showing pessimism.
"I don’t think anything [will] happen now," the source said about further efforts at a compromise.
The pervasive message of doom and gloom over the fiscal impact of sequestration that came from the U.S defense sector largely fell on deaf ears on Capitol Hill, according to one defense industry source.
Defense company executives expressed frustration at being pushed aside in the deficit talks between President Obama and congressional leaders, where attention has centered on the fate of the Bush-era tax rates that are set to expire in January.
Earlier this month, several top industry chiefs struck a hard line on the GOP's stance against tax increases, in an attempt to steer the debate back to the devastating impact sequestration would have on the Pentagon.
But as congressional Republicans and the White House slugged it out over tax increases and spending cuts, defense issues were largely relegated to the sidelines, despite having over half of the $1.2 trillion in cuts under sequestration over the next decade falling on DOD accounts.
"I think there's a creeping sense of pessimism in the defense sector … I don’t think most people in the industry really understand why their pleas have [been ignored]," top defense analyst Loren Thompson said last Friday.
Despite its best efforts, defense lobbyists could not move sequestration's impact on U.S. national security to the front burner during the fiscal cliff debate in Washington, according to Thompson.
He added that among lawmakers and the White House “there was no great urgency about avoiding cuts to the defense budget," since even when the cuts go into place, the U.S. defense budget will still dwarf those of any near-peer nation across the globe.
But Thompson believes the U.S. defense sector will be able to handle the looming fiscal hit to the Pentagon's bottom line, at least in the near term.
"They don’t want sequestration but they’re capable of dealing with it," Thompson said, adding that after the initial hit in January, defense firms will have more financial leeway in managing the additional rounds of DOD reductions.
That breathing room may provide more time to come up with a mid-term solution to sequestration, according a defense source.
Some in the defense industry remain hopeful a compromise may be found early next year.
There's resignation among defense firms that the fight over sequestration is all but over for this year, but they are “hopeful that we won’t have to live with it all year," a source told The Hill.
"I think people resigned to the fact that this needs to be addressed in January," the source said.
Murmurs of a possible mid-term deal began bubbling up on Sunday, when Sen. Mark Warner (D-Va.) said there is some room for a compromise to be worked out..
Warner, who appeared alongside Sen. Kay Bailey Hutchison (R-Texas) on CNN's “State of the Union,” said that deal would likely fall short of the long-term fix Congress is looking for. But both Senators agreed a mid-term deal may be reached and relieve some of the fiscal pressures stemming from sequestration.
Thompson agrees that a plan like the one described by Warner and Hutchison was doable in the new year, but that grand compromise being sought by lawmakers on both sides of the aisle is still a far way off.
"We may get an ad hoc legislative delay [on] implementation, or we may get increase in debt ceiling," Thompson said. "But nobody’s talking grand compromise anywhere."
EUGENE, Ore. (AP) — A scenario that police in western Oregon feared came true in the thick of holiday season after two dozen inmates were freed from a county jail that could no longer afford to hold them.
Less than an hour after one low-level offender walked out, authorities say, he was demanding that a bank teller hand over money.
In a time of budget cuts, cases where inmates get out of jail with little punishment only to commit more serious crimes shortly after their release have become all too common, authorities say.
Many in law enforcement predicted this would happen, and it could get worse if the nation goes over the so-called fiscal cliff.
The recession and a steady reduction in federal subsidies to timber counties have led Oregon sheriffs and district attorneys to juggle deep cuts. There are fewer jail beds, sheriff’s patrols, prosecutors, parole officers and specialized investigators.
Prosecutors have to toss out more than a quarter of the cases that cross their desks, just because there aren’t enough people to handle them.
“It makes me crazy,” said Patricia Perlow, chief deputy district attorney for Lane County.
When Christopher Franklin Weaver was released the week after Thanksgiving it represented the sort of decision that has become routine for law enforcement officials. There wasn’t enough room for all the offenders, and since he was in custody on a nonviolent parole violation, he was deemed safe enough to turn loose.
“Everybody we’re releasing is dangerous to society,” said Lane County Sheriff Tom Turner. “But we’re having to choose which ones to keep and which ones to let out.”
As common as such lesser-of-two-evils calls have become, authorities could find themselves making them more often depending on what happens in the nation’s capital. If the ongoing budget negotiations between Republican House Speaker John Boehner and President Barack Obama end without an agreement and automatic spending reductions kick in, it would trigger an 8 percent cut in nearly $2 billion in federal grants that go to state and local law enforcement.
That would come on top of $1.5 billion cuts to federal law enforcement grants since fiscal 2010, said Elizabeth Pyke, director of government affairs for the National Criminal Justice Association.
“It would not be unreasonable to envision a day in the not too distant future when federal support for state and local law enforcement will be virtually eliminated,” she said.
As the details get worked out, the grants could take even deeper cuts, as appropriators shift funding to higher priority agencies such as the FBI. Over the next nine years of the Budget Control Act of 2011, the slashes would become deeper and deeper.
“Every time we have a budget cut, we have to get creative,” said Lane County sheriff’s Sgt. Rob White. “But we’re getting pretty good at it.”
In Oregon timber country, where voters have consistently refused to raise taxes to make up for sharp revenue drops, jail commanders already are making the best use they can of a protocol affectionately known as “the RAT.”
Their risk assessment tool ranks inmates based on nearly 80 questions about their criminal history and other factors to predict how likely they are to reoffend.
Weaver’s ranking put him in the middle of the 30 released that day. After holding up the bank, he walked out with nearly $500 stuffed in his back pocket, authorities say.
Police spotted him on the street within minutes, and after a foot chase, Weaver was back in jail, where he is not likely to be let out any time soon — there is plenty of room, according to officials, for someone facing a federal bank robbery charge.
Weaver remains in custody and was not available for comment. He has not been indicted on the most recent arrest and has not been asked to enter a plea. His next court date has not been scheduled.
Repeated attempts to reach his lawyer, Craig E. Weinerman, for comment were not successful.
Former Coburg police officer Michael Anson regularly brought criminal suspects to the Lane County Jail.
“I’d bring somebody in the back door, and watch ‘em walk out the front,” he said.
Now he owns a metal fabrication business, which has been hit by two burglaries, neither of which he bothered to report because he figured nothing would happen. When crime hits, he said, “you deal and adjust.”
For Perlow, the county’s chief assistant prosecutor, further cuts would be untenable.
“Unless somebody buys a winning Powerball ticket and donates it to the county,” she said. “We are going to need a secure continuous funding source.”
Federal employees have been skeptical for months that the biggest cuts to government spending in history could really happen. But with the “fiscal cliff” a week away, workers are now growing increasingly alarmed that their jobs and their missions could be on the line.
President Obama and members of Congress headed out of town late last week for a Christmas break without reaching a deal to avoid $110 billion in automatic across-the-board spending cuts, which would hamstring operations ranging from weather forecasting and air traffic control to the purchase of spare parts for weapons systems. So civil servants are bracing for the blow, wondering whether their work will be upended — and whether they may be forced to take unpaid days off.
“This could change day by day,” said Antonio Webb, 25, who works in the mail service that handles correspondence for the Department of Homeland Security. “You could come into work and the next day they say, ‘We don’t need you because we have to cut so much.’ ”
Many federal workers have become jaded after a two-year pay freeze and congressional fights over spending that keep agencies lurching from one stopgap budget to another. Until recently, few employees thought it could come to this: Budget cuts of 8 to 10 percent divided equally between military and domestic agencies. Only a few programs, like Social Security, veterans benefits and some services for the poor, are exempted.
“Sure, we continue to do our jobs,” said Carl Eichenwald, who works in enforcement at the Environmental Protection Agency. “But all of this uncertainty is disruptive for our mission. A lot of time gets spent spinning wheels. We won’t know whether we can do inspections. Do we have 100 percent of our budget, or 85 percent?”
Top congressional aides said Monday that discussions of how to avert the fiscal cliff had come to a virtual standstill. Obama and House Speaker John A. Boehner (R-Ohio) had not spoken since Friday.
Each side in the negotiations urged the other to come up with a way around the impasse. A senior Democratic aide said Boehner needs to return from the holiday with a “cleared head and a readiness to deal.” The aide said that there is no time for Democrats to unilaterally advance a bill in the Senate, adding that they can press forward with legislation only if they are assured by Republican leaders of GOP support.
A senior Senate Republican aide insisted, however, that it is now up to Senate Majority Leader Harry M. Reid (Nev.) and his fellow Democrats to figure out what they can pass in the Senate without worrying about the Republican-controlled House.
As the year-end deadline approaches, federal employees have been told very little by their bosses about how their agencies are preparing to carry out huge spending reductions.
“It seemed like we were almost immune to thinking that something real was going to come of it,” said Fernando Cutz, an analyst for the U.S. Agency for International Development.
Then came an e-mailed memo on Thursday from agency heads to employees. The cuts would be “significant and harmful to our collective mission.” Furloughs “or other personnel actions” — layoffs — remain a real possibility.
Comptroller General Eugene Dodaro, in a lengthy video message, for instance, told employees of the Government Accountability Office that the agency would absorb a $42 million cut this year through a hiring freeze, slashed bonuses, eliminated technology projects and restricted travel. But those cuts “will not get us all the way there,” he said, and he did not mince words. “Some number of agency-wide furlough days” would be necessary.
The memos were also meant to make clear that the government would be open for business the day after New Year’s even if Obama and Congress fail to reach a deal to avoid the spending cuts.
“We wanted to make sure there was no confusion before people left for the holidays that they should come back to work,” said GAO spokesman Charles Young.
Outside the Capital Beltway, the budget battle loomed less large among federal employees.
“Once in a blue moon, we’ll exchange barbs and quips about the situation,” said Timothy Flavin, who handles disability claim appeals for the Social Security Administration in Rochester, N.Y. “They’re either apathetic, or they’re afraid to say anything,” he said of his colleagues.
Even if there is no last-minute agreement, Jan. 2 would not be doomsday because some cuts could be put off until later in the fiscal year. Most agencies would continue spending, but with caution, eliminating travel and training programs and slowing or halting hiring. Overtime would be phased out, as would temporary help. Managers may have to decide whom to furlough and for how long.
The Budget and Control Act of 2011 gives agencies 30 days to figure out exactly how they would juggle their finances, down to specific contracts and programs that would be eliminated. Union officials say they would demand bargaining over furloughs and possible layoffs. Unions would also want to bargain over the use of contractors to ensure they’re cut before federal employees.
Managers say that without knowing how long the cuts will be in effect, they can’t make smart decisions.
“As a manager, you’re effectively placing bets,” said Carol Bonosaro, president of the Senior Executives Association, which represents 7,300 top career executives in the government. “Do I start this contract or not start it? Let this vendor go?” she asked. “I stop training, but what if they don’t have that opportunity for a year? At what point do I say, ‘You’re not going’? ”
The Office of Management and Budget has instructed managers to consider furloughs as a last resort. But for agencies where labor makes up most of the budget, they would be hard to avoid.
“Employees understand that they will still be working on January 2nd,” said Patty Viers, a customer account specialist for the Defense Logistics Agency and president of Local 1148 of the American Federation of Government Employees. “But they’re getting more and more concerned about what’s going to happen in three months.”
Submitted by Tyler Durden on 12/27/2012 16:14 -0500
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