The Fed is not as Independent as Designers Planned It to Be

The Federal Reserve System was designed to be independent of political influence. The seven members of the Board of Governors serve 14-year terms. Thus, appointees can be in office longer than the U.S. President who appoints them. And the terms are staggered so that one term expires every two years, minimizing the influence of one President on the makeup of the Board. However, resignations and retirements can give a President opportunities to appoint a majority of the Board. As the article below explains, Barack Obama will soon make his fifth appointment and thus will have reshaped the composition of the U.S. central bank that guides monetary policy, controls the money supply, and oversees the banking system.

In the April 29, 2010 article "Obama to name Yellen as Fed's No. 2," Associated Press writer Darlene Superville reports:

WASHINGTON – Putting a bigger stamp on the Federal Reserve, President Barack Obama is set to name Janet Yellen as vice chairwoman of the central bank and fill two other vacancies on the board, which has enormous power over Americans' pocketbooks.

The nominations are subject to Senate approval. If the Senate confirms all three nominees, Obama will have appointed five of the seven members of the Federal Reserve Board.

Obama's moves come as the Fed, whose decisions influence economic activity, employment and inflation, is facing political and economic challenges.

The Fed is steering the economy out of the worst recession since the 1930s, and legislation to overhaul the financial system would eliminate some of the Fed's authority while giving it new responsibilities. Some lawmakers think the Fed overstepped its authority by bailing out some big financial firms during the 2008 financial crisis.

Fed interest rate decisions affect the rates consumers pay on home mortgages and other consumer and business loans. On Wednesday, the Fed ended a two-day meeting by sticking to its pledge to hold rates at historic lows for an "extended period" to help energize the recovery.

Yellen is president of the Federal Reserve Bank of San Francisco. As vice chair, the second-highest ranking Fed official, her duties would include helping build support for policy positions staked out by Fed Chairman Ben Bernanke, who has begun a second term.

Obama also is expected to nominate Sarah Raskin and Peter Diamond to the Fed board. Raskin is the Maryland commissioner of financial regulation. Diamond is an economist at the Massachusetts Institute of Technology.

An official with advance knowledge of the moves spoke to The Associated Press on condition of anonymity because the announcement was pending.

Yellen was a top adviser to President Bill Clinton and is considered a dove on monetary policy. That means she would be expected to be more concerned about high unemployment, currently holding at 9.7 percent nationally, than about rising inflation.

She would succeed Donald Kohn, who plans to depart at the end of June. Kohn has been a member of the Fed board since 2002.

Yellen and Diamond, who is an authority on Social Security, pensions and taxation, are Ph.D. economists. With Kohn's departure, the Fed would have just one professional economist, Bernanke. Of its other current members, Daniel Tarullo was a Georgetown University law professor, Kevin Warsh brought Wall Street experience and Elizabeth Duke was a banker. Warsh and Duke were nominated by President George W. Bush.

Raskin, who served as counsel to the Senate Banking Committee, would expand the Fed's expertise over financial regulation. That would include consumer issues, which are important to Obama and Congress as they seek to impose tighter oversight on the financial industry.
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On the Net:
Federal Reserve: http://www.federalreserve.gov

Bill Clinton Sees 'More Immigrants' As A Way To Reduce Deficit

Bill Clinton Sees 'More Immigrants' As A Way To Reduce Deficit

Dan Froomkin Dan Froomkin
Wed Apr 28, 2:26 pm ET

Former President Bill Clinton enthusiastically weighed into the blistering national debate on immigration today with a resounding assertion that America needs more immigrants -- not fewer -- to ensure its long-term fiscal future.

At a symposium on deficit reduction today (see my earlier story), Clinton said that one key to avoiding massive debt is to maintain a good ratio between people paying into the system, and those receiving payouts (through such programs as Social Security.)

That means more jobs and more people working, he said. "Which to me means more immigrants."

Clinton said he supports immigration reform as proposed by President Obama or as supported by Sen. John McCain before he changed his mind.

Clinton spoke glowingly of the immigrant experience in the United States. "We've got somebody from everywhere here, and they do well," he said.

And looking at the overall budget numbers, comparing money in to money out, "I don't think there's any alternative for us but increasing immigration," he said. "I just don't see any palatable way out of this unless that's part of the strategy."

Clinton didn't mention it, but it's not just legal immigrants who contribute to the plus side of the Treasury's balance sheet. In fact, undocumented immigrants are even more lucrative for the government, particularly Social Security. Many undocumented workers have payroll taxes automatically withheld from their wages, but because they use fake numbers, never collect the benefits.

A Vote for Lower Taxes May Be a Vote for Higher Taxes

When Florida voters approved Amendment 1 to the state constitution with the perceived promise that everyone would pay less in property taxes, most of them failed to consider the economic concept of tradeoffs and the reality that government services must be adequately funded. Amendment 1 essentially allows more of the assessed value of all property to be excluded from taxation. For example, a home valued at $150,000 previously would be liable for taxes on $125,000. With the new provision, only $100,000 is subject to the property tax. Yet, another provision of the amendment allowed the wealthy to exclude as much as $400,000 from taxation when they sold a house and moved. So the benefits of the amendment went overwhelmingly to the rich.

But with more property excluded from taxation, revenues to fund local government services have declined significantly. Marginal tax rates may increase over time in an effort to recoup the lost revenues. In the meantime, however, other taxes and fees are being raised to generate funding for the government services citizens expect. An early response to the amendment from the city council in Jacksonville was the implementation of a new household tax to fund garbage collection. As the article below explains, city leaders want to increase that tax. Property tax savings for people of moderate means have been more than offset by increases in other taxes and fees. The overall tax burden for residents of Florida is being increasingly shifted from the wealthy to everyone else.

So some of the people who voted for amendment 1 in the expectation of paying less in overall taxes are now paying more. Their vote for lower property taxes has increased their overall tax burden.

In the April 24, 2010 Florida Times-Union article "Proposal to double Jacksonville's garbage fee up for vote Tuesday," Matt Galnor reports on the higher garbage fees:

When the City Council first passed a new garbage fee three years ago, it outlined gradual increases to try to cover the actual costs by 2014.

On Tuesday the council is expected to vote on a bill that would blow through that schedule and more than double the fee come Oct. 1.

The fee proposal is part of Mayor John Peyton's plan to bring city fees closer in line with how much the city spends providing the service.

If all of the new fees are approved Tuesday, it will bring in about $25 million to city coffers - and more than $20 million of the new dollars come from raising the garbage fee.

The annual garbage fee would go from $72 to more than $150 - contrary to the 2007 bill that would bring the fees up no more than $12 each year.

"We're catching hell paying this, how we going to pay more?" Southside resident Robert Blackshear said, sitting with friends in a lot off Old St. Augustine Road. "But they don't see it that way downtown."

Council Vice President Jack Webb helped lead the charge for a closer look at all city fees - some of which hadn't been changed in 25 years.

The analysis looked at everything from building permits and facility rentals to zoning change applications and the cost to rename a street.

The increases are tough, especially the garbage fee, Webb said, but added to the reality is the city has to try to capture its costs.

"It's bitter medicine, but we've got to do something to get our financial house in order," Webb said.

Councilman John Crescimbeni said Friday he's preparing an amendment that would change some of the fees.

For example, the fee to apply for a Planned Unit Development is now $1,500, but it costs the city more than $3,500 to process. The proposed fee is $2,000.

"The premise that this thing is being sold on - recovering costs - should be for everybody or nobody," Crescimbeni said.

The garbage fee would cover the cost of collecting residential waste, but there's another $28 a year per household in disposal costs that won't be covered by the new fees, Peyton spokeswoman Misty Skipper said.

The proposal passed two council committees last week - including a narrow 5-4 vote in the Finance Committee.

Crescimbeni was among those voting against it, as were Don Redman and Bill Bishop. Both Redman and Bishop said they were against it because of the original 2007 plan to increase the monthly fee by $1 every year.

"It's going back on our word," Redman said.

Peyton is proposing a $58 million shortfall for the budget that will begin Oct. 1. The mayor says the primary cause is rising employee costs and the city has so far been unsuccessful in getting unions to agree to a 3 percent pay cut and a less lucrative pension for new hires.

matt.galnor@jacksonville.com, (904) 359-4550

Links:
[1] http://jacksonville.com/sites/default/files/JacksonvilleNews1_9.jpg

AP survey: Recovery to remain sluggish into 2011

In the April 12, 2010 article "AP survey: Recovery to remain sluggish into 2011," Associated Press economics writer Jeannine Aversa says a survey of economists suggests U.S. economic growth will remain quite modest until at least 2011.

"Among the first survey's key findings:
• The unemployment rate will stay stubbornly high the next two years. It will inch down to 9.3 percent by the end of this year and to 8.4 percent by the end of 2011. The rate has been 9.7 percent since January. When the recession started in December 2007, unemployment was 5 percent.
• Home prices will remain almost flat for the next two years, even after plunging an average 30 percent nationally since their peak in 2006. The economists forecast no rise this year and a 2.3 percent gain next year.
• The economy will grow 3 percent this year, which is less than usual during the early phase of a recovery and the reason unemployment will stay high. It takes growth of 5 percent for a year to lower the jobless rate by 1 percentage point, economists say."

Tea Party Supporters of Smaller Government Advocate Volunteer State Militias

One way to reduce the size of the U.S. federal government is to decrease military expenditures. Some people advocate a return to state militias as a response to increased federalism. According to the April 12, 2010 article "Okla. tea parties and lawmakers envision militia," members of the Oklahoma tea party movement are considering it.

Interest Rates Have Nowhere to Go but Up

Interest Rates Have Nowhere to Go but Up

Murdoch rips competitors for bias even as more Fox critics emerge on the right

Murdoch rips competitors for bias even as more Fox critics emerge on the right

Nearly half of US households escape fed income tax

In the April 7, 2010 article "Nearly half of US households escape fed income tax," Associated Press writer Stephen Ohlemacher reports that almost half of all U.S. households pay no income tax. Does this infer that the Tea Party movement is people of modest means advocating for more financial gains for the wealthy?

According to Ohlemacher:

WASHINGTON (AP) -- Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it's simply somebody else's problem.

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.

Most people still are required to file returns by the April 15 deadline. The penalty for skipping it is limited to the amount of taxes owed, but it's still almost always better to file: That's the only way to get a refund of all the income taxes withheld by employers.

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners -- households making an average of $366,400 in 2006 -- paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

"We have 50 percent of people who are getting something for nothing," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.

The vast majority of people who escape federal income taxes still pay other taxes, including federal payroll taxes that fund Social Security and Medicare, and excise taxes on gasoline, aviation, alcohol and cigarettes. Many also pay state or local taxes on sales, income and property.

That helps explain the country's aversion to taxes, said Clint Stretch, a tax policy expert Deloitte Tax. He said many people simply look at the difference between their gross pay and their take-home pay and blame the government for the disparity.

"It's not uncommon for people to think that their Social Security taxes, their 401(k) contributions, their share of employer health premiums, all of that stuff in their mind gets lumped into income taxes," Stretch said.

The federal income tax is the government's largest source of revenue, raising more than $900 billion -- or a little less than half of all government receipts -- in the budget year that ended last Sept. 30. But with deductions and credits, especially for families with children, there have long been people who don't pay it, mainly lower-income families.

The number of households that don't pay federal income taxes increased substantially in 2008, when the poor economy reduced incomes and Congress cut taxes in an attempt to help recovery.

In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.

In 2008, President George W. Bush signed a law providing most families with rebate checks of $300 to $1,200. Last year, Obama signed the economic recovery law that expanded some tax credits and created others. Most targeted low- and middle-income families.

Obama's Making Work Pay credit provides as much as $800 to couples and $400 to individuals. The expanded child tax credit provides $1,000 for each child under 17. The Earned Income Tax Credit provides up to $5,657 to low-income families with at least three children.

There are also tax credits for college expenses, buying a new home and upgrading an existing home with energy-efficient doors, windows, furnaces and other appliances. Many of the credits are refundable, meaning if the credits exceed the amount of income taxes owed, the taxpayer gets a payment from the government for the difference.

"All these things are ways the government says, if you do this, we'll reduce your tax bill by some amount," said Roberton Williams, a senior fellow at the Tax Policy Center.

The government could provide the same benefits through spending programs, with the same effect on the federal budget, Williams said. But it sounds better for politicians to say they cut taxes rather than they started a new spending program, he added.

Obama has pushed tax cuts for low- and middle-income families and tax increases for the wealthy, arguing that wealthier taxpayers fared well in the past decade, so it's time to pay up. The nation's wealthiest taxpayers did get big tax breaks under Bush, with the top marginal tax rate reduced from 39.6 percent to 35 percent, and the second-highest rate reduced from 36 percent to 33 percent.

But income tax rates were lowered at every income level. The changes made it relatively easy for families of four making $50,000 to eliminate their income tax liability.

Here's how they did it, according to Deloitte Tax:

The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.

With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.

The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.

Internal Revenue Service: http://www.irs.gov

Tax Policy Center: http://www.taxpolicycenter.org

Signs the economy is really getting better

In the April 6, 2010 U.S. News & World Report article How To Tell When The Recession Is Really Over, Rick Newman says "the recession is officially over, but many Americans won't feel the recovery until these things happen."

There are two kinds of recessions: the one that economists measure, and the one that ordinary people feel.

The official recession is over. That's because the economy is growing again after a sharp decline, with GDP back to the levels of mid-2008. For people who have kept their jobs, suffered no loss of income and enjoyed a rebound in their investments thanks to the year-long stock market rally, things are pretty good.

Then there's the unofficial recession, which clearly persists. More than 8 million people have lost their jobs over the past two years, and the economy has barely started to add those back. Many others have had their pay or hours cut. The housing bust, in its fourth year, still isn't over. Foreclosures continue to mount, businesses and consumers remain gloomy, and many families are struggling to get by on reduced income. "It's a recovery, but it sure doesn't feel like it," says Nariman Behravesh, chief economist for forecasting firm IHS Global Insight. Here are five things that still must happen for a robust recovery to kick in.

Banks need to lend more. The government's emergency measures helped stabilize the financial system, but banks haven't taken the next step and increased lending. With trillions in bad loans still on their books, many banks continue to hoard cash and turn down loan applications. That depresses the market for homes, cars, appliances and other costly items that many consumers can't pay for in cash. It also squeezes small businesses, which often rely on credit to meet payroll, order supplies, invest and grow. Behravesh predicts that lending could bottom out and start to pick up by late this year or early next year--although that would probably be the point at which the Federal Reserve starts to raise interest rates to subdue inflation. A few things that will signal improvements in the credit market: a drop in the required down payment for well-qualified home buyers, which is typically 30 percent or more now; increased availability of car loans for subprime borrowers with a credit score below 680; and banks' willingness to increase their customers' credit-card limits, if asked.

Incomes need to rise. Median income was stagnant for about a decade leading up to the recession, and it probably fell 5 percent or more over the past couple of years. Some economists worry that reduced incomes could indefinitely curtail consumer spending, which has long fueled the U.S. economy. A glut of unemployed workers will keep wages low in many industries for years. And since many families have lost wealth because of falling home values or declining investment portfolios, or both, they need to save more to prepare for retirement. That leaves less money to buy stuff. The good news is that inflation is low and energy prices are stable, which helps stretch a dollar.

Housing needs to stabilize. Most of the pain is probably in the past, but home values continue to erode in many regions. Moody's Economy.com predicts that house prices, which have fallen more than 30 percent from their 2006 peaks, could still fall another 5 to 10 percent through the end of this year. Since many families still have the majority of their wealth invested in their homes, the economy can't really get healthy again as long as such a huge asset is falling in value. The end of the federal home-buyer tax credit and other government programs throughout the year will test whether the housing market can stand on its own. If it can't, the government could step back in, but that would only signal further weakness in a sector that accounts for more than 15 percent of the economy. The silver lining is that falling prices make it a great time to buy, for those with enough cash or the ability to get a mortgage.

Confidence needs to rebound. Americans remain gloomy, with most consumer-confidence surveys showing only modest improvements from the low points hit during the recession. The most obvious reasons are the weak job market and a sense that the recovery will be weak at best. Businesses are downbeat too, with CEOs worried that strapped consumers will put their wallets away. That makes them reluctant to hire, which perpetuates the malaise. Confidence is a perplexing psychological phenomenon, and economists aren't sure what it will take to make consumers upbeat enough to propel a robust recovery. But once home prices stop falling, jobs seem more secure, and people feel like the bloodletting is over, that will certainly help.

Jobs need to return. The availability--or lack--of jobs is the single biggest factor in the economy, and unfortunately, a pickup in hiring is likely to be painfully slow. Many of the 8 million lost jobs are probably gone forever, as manufacturers downsize their operations and many companies substitute technology or cheaper foreign labor for American workers. The unemployment rate, which is 9.7 percent now, might even rise throughout the year, as workers who gave up looking for jobs try again and the labor force swells.

Still, economists recognize some familiar patterns in the job market that suggest things are finally getting better instead of worse. Corporate profits are strong, thanks to aggressive cost-cutting over the past two years. That means companies can afford to hire workers, if they decide to. And productivity gains have hit record levels recently, which means companies are extremely efficient; if demand picks up, they may only be able to meet it through increased staffing. A good indicator of real improvement would be several consecutive months of six-figure job gains, due to permanent hiring and not temporary factors like the census or weather-related events. "The recent resumption of employment growth will be sustained and gather strength over time," insists T. Rowe Price chief economist Alan Levenson. That's not the kind of roaring endorsement most Americans want to hear, but it suggests that sooner or later, the recovery in your neighborhood will catch up with the one that economists see in the data.

$1 million isn't enough for retirement anymore

In the March 21, 2010 article "$1 Million Doesn't Cut It for Retirement, Joe Mont explains that "A majority of experts now say $1 million is not nearly enough for a truly secure retirement."

Conventional wisdom says you need to save $1 million for retirement.

That target may be easy to remember, but it falls short of the true cost of what's required for post-career comfort. Longer life spans, the threat of inflation and the uncertain future of Social Security benefits make this long-touted savings advice inadequate for most, advisers say.

Scottrade recently polled 226 registered investment advisers on the topic and found that 71% don't believe $1 million is enough for the average American family. Most said families need to save double, or more than triple, the amount.

"Younger generations, especially, need to set their retirement goals higher than other generations and start saving as early as possible," says Craig Hogan, Scottrade's director of customer-relationship management and reporting.

The survey solicited opinions about the current investment habits of Americans. Questions were broken down by generations to determine advisers' opinions on average investment goals in today's dollars for various groups.

Generation Y (ages 18 to 26) needs to save at least $2 million, according to 77% of advisers. Forty percent put the figure at $3 million.

Nearly half of advisers (46%) said Generation X (ages 27 to 42) should at least double the $1 million goal. Twenty-two percent suggested more than $3 million.

For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million. Thirty percent suggested $1.5 million to $2 million.

According to Scottrade's analysis, seniors are the only generation that may come close to needing only $1 million. Forty-four percent of advisers said $500,000 to $1.5 million is sufficient for average families in that age bracket.

Bill Smith, president of Ohio-based Great Lakes Retirement Group, is among the advisers who took part in the survey. As he sees it, too many people rely on online retirement calculators. Much of that guidance uses a target based on making do with 70% to 80% of pre-retirement income.

"I've never been a big fan of planning to earn less in retirement than you are making now," he says. "I'd like to see an individual continue making the same amount of retirement as when he was working. Who wants to set themselves up in retirement to make less?"

While most people will spend less when they retire, inflation or the onset of a long-term illness could wipe out savings without proper protection or planning.

That said, there's no secret to meeting a retirement goal: maximize your contribution rate, have a greater tolerance for risk when you're younger and downshift to bonds as you grow older. Successful preparation, however, begins with setting a realistic goal and understanding your true financial picture.

Debt needs to be carefully considered as well as leaving money for the kids.

"There are two extremes," Smith says. "There are individuals who say, 'We don't care if we have anything left the day we die -- we are OK with that last check bouncing when we are gone.' Then there are the individuals who don't do anything in retirement because all of their decisions are made around, 'I've got to leave it for the kids.' "

John Stewart's parody of Glenn Beck illustrates the folly of jumping to wild conclusions on the basis of unsound reasoning.

John Stewart's parody of Glenn Beck illustrates the folly of jumping to wild conclusions on the basis of unsound reasoning.

http://www.huffingtonpost.com/2010/03/19/jon-stewart-glenn-beck-parody_n_505329.html

What Happens If Greece Really Defaults?

In the March 11, 2010 U.S. News & World Report article "What Happens If Greece Really Defaults?," Matthew Bandyk reports:

Earlier this week, Greek Prime Minister George Papandreou traveled to the United States to promote a message: We're in this together. The debt crisis that has threatened the Greek economy and the stability of the European Union's monetary policies "very much involves America's interests," Papandreou stated in a speech at the Brookings Institution in Washington.

The prime minister--who was born in St. Paul, Minn.--even connected the current crisis to the Great Depression as well as the Great Recession. "If the European crisis metastasizes, it could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago," he said.

But the path from a Greek crisis to a U.S. crisis is not a direct one. The European Union is hoping it can contain Greece's debt crisis before the problems spread across the continent--threatening the stability of all countries that use the euro, or the euro zone--and then over the Atlantic.

The crisis began shortly after the election last fall of the new socialist government led by Papandreou. State officials revealed that Greece's budget deficit was at 14 percent of GDP--almost twice what the official Greek government statistics had reported. Two months later, Moody's downgraded Greece's debt to A2, raising the possibility of Greece defaulting on its debt.

If Greece defaults, "it risks exacerbating the economic downturns and could even reignite an acute financial crisis" through higher interest rates, Marc Chandler, global head of currency strategy at investment firm Brown Brothers Harriman, wrote in a report.

A Greek default would hit Americans hard in one major area: exports. According to the Economic Report of the President by the White House's Council of Economic Advisers, in order to "fill the gaps left in demand" by the recession, "net exports need to rise." President Obama announced in his State of the Union address a goal of doubling exports over the next five years. That goal might be hard to reach if Greece's debt crisis is not contained. "Under the scenario where things get much worse in Europe, the dollar would get strengthened relative to the euro, and that would create a policy headache for the Obama administration," says Steve Hanke, an economist at Johns Hopkins University. A stronger dollar would make U.S. exports more expensive. In addition, as interest rates in Europe soar and the euro falls in value in response to the credit crunch, Europeans would be unable to buy as many U.S. products.

The likelihood of that scenario depends partially on what the European Union decides to do about Greece. In reaction to this panic in Greece, much of the rest of Europe became frustrated over Greece's ability to hurt the rest of the continent economically but with little accountability owing to the fact that Greece is an independent state. Because Greece uses the euro, its fiscal problems can weaken the currency and lead to higher interest rates for all Europeans. A February poll found that a majority of Germans want Greece out of the euro zone.

Greek officials have received reassuring signs from Europe's leaders that the European Union will bail out the country in some way to assure creditors that it will not default on its debt. Jose Manuel Barroso, president of the European Commission, also announced this week that whatever mechanisms the EU uses to help Greece will be in line with the laws of the EU--assuaging fears that a bailout would violate the Maastricht Treaty, the agreement that created the euro.

But it is not guaranteed that bailing out Greece will save it and, by extension, the euro zone. Hanke worries that even with a bailout, wealthy Greeks and foreign investors will not stop withdrawing their money from Greek banks, from which they have already pulled out billions of euros. In order to get the rest of Europe's support for a bailout, Greece has had to promise to fill in its budget with more tax revenue. But paradoxically, those taxes might cause even more people to flee the Greek financial system, says Hanke. "In effect, with bank runs coupled with capital flights, you would get a collapse in credit in Greece," he says.

Such a collapse would have two major potential effects. First, a credit crunch would spread to other European countries that have vulnerable economies. For example, "if you had a lot of capital flight out of Greece, all of a sudden people in Spain say, 'We're going to be next,' " says Hanke.

Second, the credit crunch would increase the likelihood of Greece defaulting on its debt. In such a scenario, Greece could temporarily leave the euro zone and return to its former currency, the drachma, which would be heavily devalued against the euro.

There are still several signs that Greece can use the market to navigate out of the crisis without a default. Last week, Athens sold 10 billion euros of 10-year sovereign bonds to foreign investors. But an amount of 23 billion euros is needed to meet government obligations through May. And Greece has only begun to implement changes to its budget that will bring it out of a fiscal hole. Earlier this month, the government announced a plan of cuts to wages of government employees, tax hikes on tobacco and alcohol, and other measures expected to raise 4.8 billion euros. But these steps will reduce Greece's budget deficit by only 2 percent of GDP. It now stands at 12.7 percent of GDP, well above the European Union's target of 3 percent. Even the changes so far have not been easy politically. Several of the country's labor unions are striking in protest of the spending cuts and tax increases.

Perhaps, however, Greece can breathe its biggest sigh of relief over the fact that the international investors who recoiled in horror over the country's fiscal problems just a few months ago appear now to be softening their stance. Investors trade credit-default swaps on Greek sovereign debts, which are contracts that function as a kind of insurance on the chance the government will default. According to credit-default-swap prices from financial information company Markit, the annual cost to insure a five-year government bond for Greece hit a high of $425,000 on February 4. That was a 67 percent increase from the previous three months. But as of March 9, the cost had fallen to $289,000, down to the levels of December.

Social Security to start cashing Uncle Sam's IOUs

In the March 14, 2010 article "Social Security to start cashing Uncle Sam's IOUs," Associated Press writer Stephen Ohlemacher reports the Social Security system will pay out more in benefits than it collects in revenues this year. As baby-boomers increasingly shift from working and paying into the system to retiring and collecting benefits, this problem will exacerbate:

PARKERSBURG, W.Va. – The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.

It's time to start cashing them in.

For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.

Social Security's shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program's finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there's concern that the looming crisis will lead to reduced benefits.

"This is not just a wake-up call, this is it. We're here," said Mary Johnson, a policy analyst with The Senior Citizens League, an advocacy group. "We are not going to be able to put it off any more."

For more than two decades, regardless of which political party was in power, Congress has been accused of raiding the Social Security trust funds to pay for other programs, masking the size of the budget deficit.

Remember Al Gore's "lockbox," the one he was going to use to protect Social Security? The former vice president talked about it so much during the 2000 presidential campaign that he was parodied on "Saturday Night Live."

Gore lost the election and never got his lockbox. But to illustrate the government's commitment to repaying Social Security, the Treasury Department has been issuing special bonds that earn interest for the retirement program. The bonds are unique because they are actually printed on paper, while other government bonds exist only in electronic form.

They are stored in a three-ring binder, locked in the bottom drawer of a white metal filing cabinet in the Parkersburg offices of Bureau of Public Debt. The agency, which is part of the Treasury Department, opened offices in Parkersburg in the 1950s as part of a plan to locate important government functions away from Washington, D.C., in case of an attack during the Cold War.

One bond is worth a little more than $15.1 billion and another is valued at just under $10.7 billion. In all, the agency has about $2.5 trillion in bonds, all backed by the full faith and credit of the U.S. government. But don't bother trying to steal them; they're nonnegotiable, which means they are worthless on the open market.

More than 52 million people receive old age or disability benefits from Social Security. The average benefit for retirees is a little under $1,200 a month. Disabled workers get an average of $1,100 a month.

Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers' earnings up to $106,800. Retirees can start getting early, reduced benefits at age 62. They get full benefits if they wait until they turn 66. Those born after 1960 will have to wait until they turn 67.

Social Security's financial problems have been looming for years as the nation's 78 million baby boomers approached retirement age. The oldest are already there. As that huge group of people starts collecting benefits — and stops paying payroll taxes — Social Security's trust funds will shrink, running out of money by 2037, according to the latest projection from the trustees who oversee the program.

The recession is making things worse, at least in the short term. Tax receipts are down from the loss of more than 8 million jobs, and applications for early retirement benefits have spiked from older workers who were laid off and forced to retire.

Stephen C. Goss, chief actuary for the Social Security Administration, says the crisis has been years in the making. "If this helps get people to look more seriously at that in the nearer term, that's probably a good thing. But it's only really a punctuation mark on the fact that we have longer-term financial issues that need to be addressed."

In the short term, the nonpartisan Congressional Budget Office projects that Social Security will continue to pay out more in benefits than it collects in taxes for the next three years. It is projected to post small surpluses of $6 billion each in 2014 and 2015, before returning to indefinite deficits in 2016.

For the budget year that ends in September, Social Security is projected to collect $677 million in taxes and spend $706 million on benefits and expenses.

Social Security will also collect about $120 billion in interest on the trust funds, according to the CBO projections, meaning its overall balance sheet will continue to grow. The interest, however, is paid by the government, adding even more to the budget deficit.

While Congress must shore up the program, action is unlikely this year, said Rep. Earl Pomeroy, D-N.D., who just took over last week as chairman of the House subcommittee that oversees Social Security.

"The issues required to address the long-term solvency needs of Social Security can be done in a careful, thoughtful and orderly way and they don't need to be done in the next few months," Pomeroy said.

The national debt — the amount of money the government owes its creditors — is about $12.5 trillion, or nearly $42,000 for every man, woman and child in the country. About $8 trillion has been borrowed in public debt markets, much of it from foreign creditors. The rest came from various government trust funds, including retirement funds for civil servants and the military. About $2.5 trillion is owed to Social Security.

Good luck to the politician who reneges on that debt, said Barbara Kennelly, a former Democratic congresswoman from Connecticut who is now president of the National Committee to Preserve Social Security and Medicare.

"Those bonds are protected by the full faith and credit of the United States of America," Kennelly said. "They're as solid as what we owe China and Japan."
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On the Net:
Social Security Administration: http://www.socialsecurity.gov/
Trustees' reports: http://www.ssa.gov/OACT/TR/
National Committee to Preserve Social Security and Medicare: http://www.ncpssm.org/
The Senior Citizens League: http://www.seniorsleague.org/
Bureau of Public Debt: http://www.publicdebt.treas.gov/
Congressional Budget Office: http://tinyurl.com/ydgrl5d

Young war veterans returning home to unemployment

In the March 12, 2010 article "Young war veterans returning home to unemployment," Associated Press writer Kimberly Hefling reports:

WASHINGTON – The unemployment rate last year for young Iraq and Afghanistan veterans hit 21.1 percent, the Labor Department said Friday, reflecting a tough obstacle combat veterans face as they make the transition home from war.

The number was well above the 16.6 percent jobless rate for non-veterans of the same ages, 18 to 24.

As of last year, 1.9 million veterans had deployed for the wars since the Sept. 11, 2001, terrorist attacks. Some have struggled with mental health problems, addictions, and homelessness as they return home. Difficulty finding work can make the adjustment that much harder.

The just-released rate for young veterans was significantly higher than the unemployment rate of young veterans in that age group of 14.1 percent in 2008.

Many of the unemployed are members of the Guard and Reserves who have deployed multiple times, said Joseph Sharpe, director of the economic division at the American Legion. Sharpe said some come home to find their jobs have been eliminated because the company has downsized. Other companies may not want to hire someone who could deploy again or will have medical appointments because of war-related health problems, he said.

"It's a horrible environment because if you're a reservist and you're being deployed two or three times in a five-year period, you know you're less competitive," Sharpe said. "Many companies that are already hurting are reluctant to hire you and time kind of moves on once you're deployed."

One veteran looking for work is Dario DiBattista, 26, of Abingdon, Md., a graduate student who did two tours in Iraq in the Marine Reserves with a civil affairs unit. He said he's found that a lot of military skills don't readily transfer into the workplace, and in many cases, there aren't jobs to apply for even if companies want to hire veterans.

"If you don't have a strong family support system ... it's hard to get over the hump to make the decision of where you're going to live, what you do for work, where you're going to go to school, if you can even qualify to get into school," DiBattista said.

Justin Wilcox, a 30-year-old Iraq veteran who is participating in a work-study program at a vet center operated by the Veterans Affairs Department in Charleston, W.Va., said he hasn't just had problems finding jobs, but keeping them. He's done work as a coal miner, as a salesman selling drill bits and in other positions, but he said mental health problems stemming from the war with side effects such as anger and difficulty concentrating have made it difficult.

There's a lack of understanding about the needs some veterans have, said Wilcox, who is studying to become a teacher.

"Basically, it's been a real hard time for me. Because when I do get a job, it's not a real high paying job," Wilcox said. "I have a difficult time relating to people and ... one job that I had that paid really good, I couldn't comprehend what I was supposed to do and how I was supposed to do it."

For veterans of all ages from the recent wars, the unemployment rate in 2009 was 10.2 percent. Historically, younger veterans have had more difficulty than their older counterparts finding a job because they often have less training and job experience. Some joined the military right out of high school.

Lisa Rosser, an Army veteran and company owner who sits on the advisory board of the Call of Duty Endowment that funds projects focused on veterans employment issues, said she encourages veterans to emphasize to prospective employers what they learned about managing people in a stressful combat environment.

"If they talk about their general leadership skills and their ability to supervise and to manage people, especially at a very young age, that is a good sell ... because the average 24-year-old and 27-year-old in the military has similar supervisory and managerial experience as someone in their 30s on the civilian side," Rosser said.

One possible solution is to make it easier for veterans to transfer certifications they have for jobs they did in the military into the civilian workforce, Sharpe said.

The Labor and Veterans Affairs departments have a variety of programs addressing the problem, including one that educates employers about how to work with veterans with special needs. The hope is that another program, the Post-9/11 GI Bill rolled out last year, will be particularly effective. Under it, $78 billion is expected to be paid out in education benefits over the next decade for veterans of the recent wars to attend school.

The national unemployment rate last year was 9.3 percent, the highest since 1983.
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On the Net:
Department of Labor: http://www.dol.gov/
Department of Veterans Affairs: http://www.va.gov/
Call of Duty Endowment: http://www.callofdutyendowment.org/
American Legion: http://www.legion.org/

Why Rush Limbaugh would go to Costa Rica if Obama's healthcare plan passes

In the March 11, 2010 Christian Science Monitor article "Why Rush Limbaugh would go to Costa Rica if Obama's healthcare plan passes," Chrissie Long reports:

San José, Costa Rica – Conservative talk-show host Rush Limbaugh said this week he’d go to Costa Rica for medical treatment if Congress passes proposed reforms to the US healthcare system.

That might sound like an unusual choice, since this is a country with one of the longest standing socialized healthcare systems on the planet. Everyone here (including resident foreigners), are required to pay into the government-run health system, whether they use it or not.

But Limbaugh’s choice may also serve to advertise what many Americans traveling here for medical treatment already know: Costa Rica is a fabulous place for medical tourism.

Life expectancy in this little Central American country surpasses that of the United States and at one point, back in the early 2000s when the World Health Organization rated countries’ general health, Costa Rica ranked higher (No. 36) than its northern neighbor (No. 37), despite spending 87 percent less on health care per capita.

Some who've studied Costa Rican health care consider it better overall, and attribute that to the fact that free coverage extends to 86.8 percent of the population.

But the Cadillac-style private hospitals at Chevy Aveo prices are what really draw 25,000 Americans to Costa Rica every year.

“People travel to Costa Rica (and) receive the same quality of medical services for a fraction of the cost,” said Jorge Cortés, president of the Council for International Promotion of Costa Rica Medicine and medical director of Hospital Biblica, one of three internationally-accredited private hospitals in Costa Rica. “When people see they can get the same surgery for three or four times less, they decide to get medical care abroad.”

Lower labor costs and fewer malpractice suits keep the prices down here. In Costa Rica’s private system, a teeth-cleaning might run $40 and a general check-up costs $50.

A facelift averages $2,800 to $3,200 in Costa Rica, compared to $7,000 to $9,000 in the United States. A knee replacement may cost $11,000 in Costa Rica, but can be as much as $45,000 in the United States.

But there’s another arm of the country’s medical system – the public system – which is relied upon by a majority of the population. While celebrated by Costa Ricans for “universal access,” it’s often criticized for long wait times and delays in treatment.

“There’s a difference between the healthcare system that serves people living in Costa Rica versus that which is known to foreigners,” said Robert Book, a healthcare economist for the conservative think tank, the Heritage Foundation. “It’s the private option for foreigners that Mr. Limbaugh was referring to when he said he would go to Costa Rica.”

On Tuesday, Mr. Limbaugh clarified his comment about leaving the United States, after “the liberal media” celebrated his vow of self-imposed exile, viewing healthcare reform as a way to rid themselves of the conservative talk show host.

“If I have to get thrown into this massive government health care insurance business and end up going to the driver's license office every day when I need to go to the doctor, yeah, I'll go to Costa Rica for treatment, not move there,” he told listeners Tuesday, according to a transcript on his website.

Mr. Cortés said Limbaugh would not be alone in traveling abroad for medical care. He’s expecting medical tourism to increase by 5-7 percent over the next year, regardless of what happens with the US healthcare reform bills.

And that increase is building upon a growth Costa Rica has already seen. Since the recession forced many Americans out of jobs, Costa Rica has seen a surge in the number of their northern neighbors coming here for health services. In fact, there’s an entire industry catering to the medical tourist, including post-surgery spa services, sightseeing packages, hotels, and transportation.

But, if Limbaugh did move to Costa Rica and chose to initiate the process of residency, he’d be required to pay into the government-run social security system – which runs the health care system too. Under law, all people employed in Costa Rica must contribute 5.5 percent of their salary to the state-run social security system and employers are required to match their payment with 9.25 percent. Even those here for retirement are obligated to contribute under new immigration laws, regardless of whether they hold private insurance.

“The strengths of our health system (is) that it is universal, that it’s based on the idea of solidarity and that it’s fair,” says Dr. Ana Morice, vice health minister in Costa Rica. “What we need to improve is access to health services. Many times someone requests an appointment and doesn’t receive it until a year later. In that area, we have much to improve.”

Of course, if Limbaugh decided to move to or buy real estate in Costa Rica, he wouldn’t be the first celebrity. His neighbors might include actor Mel Gibson, model Gisele Bundchen, AOL executive Steve Case, or Vice President Joe Biden’s brother, Frank.