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AP-GfK Poll: Most Americans say they don’t believe Medicare has to be cut to balance the federal budget ditto …,

AP-GfK Poll: Medicare doesn’t have to be cut
May 23, 2011, 7:02 a.m. EDT
Associated Press

Journal By Calvin Lee Ledsome Sr.,

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WASHINGTON (AP) — They’re not buying it. Most Americans say they don’t believe Medicare has to be cut to balance the federal budget, and ditto for Social Security, a new poll shows.

The Associated Press-GfK poll suggests that arguments for overhauling the massive benefit programs to pare government debt have failed to sway the public. The debate is unlikely to be resolved before next year’s elections for president and Congress.

Americans worry about the future of the retirement safety net, the poll found, and 3 out of 5 say the two programs are vital to their basic financial security as they age. That helps explain why the Republican Medicare privatization plan flopped, and why President Barack Obama’s Medicare cuts to finance his health care law contributed to Democrats losing control of the House in last year’s elections.

Medicare seems to be turning into the new third rail of politics.

“I’m pretty confident Medicare will be there, because there would be a rebellion among voters,” said Nicholas Read, 67, a retired teacher who lives near Buffalo, N.Y. “Republicans only got a hint of that this year. They got burned. They touched the hot stove.”

Combined, Social Security and Medicare account for about a third of government spending, a share that will only grow. Economic experts say the cost of retirement programs for an aging society is the most serious budget problem facing the nation. The trustees who oversee Social Security and Medicare recently warned the programs are “not sustainable” over the long run under current financing.

Nearly every solution for Social Security is politically toxic, because the choices involve cutting benefits or raising taxes. Medicare is even harder to fix because the cost of modern medicine is going up faster than the overall cost of living, outpacing economic growth as well as tax revenues.

“Medicare is an incredibly complex area,” said former Sen. Judd Gregg, R-N.H., who used to chair the Budget Committee. “It’s a matrix that is almost incomprehensible. Unlike Social Security, which has four or five moving parts, Medicare has hundreds of thousands. There is no single approach to Medicare, whereas with Social Security everyone knows where the problem is.”

That’s not what the public sees, however.

“It’s more a matter of bungling, and lack of oversight, and waste and fraud, and padding of the bureaucracy,” said Carolyn Rodgers, who lives near Memphis, Tenn., and is still working as a legal assistant at 74. “There is no reason why even Medicare, if it had been handled right, couldn’t have been solvent.”

In the poll, 54 percent said it’s possible to balance the budget without cutting spending for Medicare, and 59 percent said the same about Social Security.

Taking both programs together, 48 percent said the government could balance the budget without cutting either one. Democrats and political independents were far more likely than Republicans to say that neither program will have to be cut.

The recession cost millions their jobs and sent retirement savings accounts into a nosedive. It may also have underscored the value of government programs. Social Security kept sending monthly benefits to 55 million recipients, like clockwork; Medicare went on paying for everything from wheelchairs to heart operations.

Overall, 70 percent in the poll said Social Security is “extremely” or “very” important to their financial security in retirement, and 72 percent said so for Medicare. Sixty-two percent said that both programs are extremely or very important.

The sentiment was a lot stronger among the elderly. Eighty-four percent of those 65 or older said both programs are central to their financial security. Compare that to adults under 30, just starting out. Just under half, or 46 percent, said they believed both Social Security and Medicare would be extremely or very important to their financial security in retirement.

Old, middle-aged or just entering the workforce, most people are keenly aware of the cost of health care, and that may be helping to focus more attention on Medicare.

“Health insurance these days is very costly, and it’s not something that most people can afford to go out and buy on their own,” said Tim Messner, 38, a technology quality assurance analyst from Barberton, Ohio. “I don’t know that we could possibly plan ahead for medical insurance, but if you had to replace Social Security or investments, you at least have an idea of what you can live on.”

Numbers tell the story. As health care goes up, the value of Medicare benefits is catching up to Social Security’s. A two-earner couple with average wages retiring in 1980 would have expected to receive health care worth $132,000 through Medicare over their remaining lifetimes, and $446,000, or about three times more, in Social Security payments.

For a similar couple who retired last year, the Medicare benefit will be worth $343,000, compared to Social Security payments totaling $539,000, less than twice as much. The numbers, from economists at the nonpartisan Urban Institute, are adjusted for inflation to allow direct comparison. For low-income single retirees and some couples, the value of expected Medicare benefits already exceeds that of Social Security.

The poll found a deep current of pessimism about the future of Social Security and Medicare. As much as Americans say the programs are indispensable, only 35 percent say it’s extremely or very likely that Social Security will be there to pay benefits through their entire retirement. For Medicare, it was 36 percent.

Again, there’s a sharp difference between what the public believes and what experts say. Most experts say the programs will be there for generations to come. But they may look very different than they do today, and Americans should take note.

“Do they have a basis for worrying that these programs are going to pay them much less than they’re currently promising?” asked economist Charles Blahous. “Yes, absolutely. Do they have a basis for being concerned that the programs may have to be structurally changed in order to survive? The answer to that is yes, too.” A trustee of Social Security and Medicare, Blahous served as an economic adviser to President George W. Bush.

Republican lawmakers don’t inspire much confidence right now when it comes to dealing with retirement programs, the poll found. Democrats have the advantage as the party more trusted to do a better job handling Social Security by 52 percent to 34 percent, and Medicare by 54 percent to 33 percent. Often, but not always, major revisions have been accomplished through bipartisan compromise.

Sue DeSantis, 61, a store clerk from West Milton, Ohio, worries she won’t be able to rely on either program. Both are important to her well-being, but she thinks changes are inevitable. And she has little confidence in lawmakers.

“I don’t put my faith in politicians, and I don’t put my faith in the government,” said DeSantis. “I’m a Christian. I believe that God will take care of me. That doesn’t mean I should be foolish and not look at anything, but I don’t believe that the politicians are necessarily going to do the best for the common ordinary person like myself.”

The Associated Press-GfK poll was conducted May 5-9, 2011, by GfK Roper Public Affairs & Corporate Communications. It involved landline and cell phone interviews with 1,001 adults nationwide and has a margin of sampling error of plus or minus 4.2 percentage points.


Associated Press Polling Director Trevor Tompson, Deputy Director Jennifer Agiesta and AP News Survey Specialist Dennis Junius contributed to this report.



Poll results:


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The US government has maxed out its credit card. Setting up 11-week fight to raise the threshold or …

US hits credit limit, setting up 11-week fight
May 16, 2011, 6:28 p.m. EDT
Associated Press

Journal By Calvin Lee Ledsome Sr.,

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WASHINGTON (AP) — The government has maxed out its credit card.

The United States reached its $14.3 trillion limit on federal borrowing Monday, leaving Congress 11 weeks to raise the threshold or risk a financial panic or another recession.

Treasury Secretary Timothy Geithner formally notified Congress that the government would halt its investments in two federal pension plans so it won’t exceed the borrowing limit.

Geithner said the government could get by with bookkeeping maneuvers like that through Aug. 2. After that, the government could default on its debt for the first time, threatening the national credit rating and the dollar.

Geithner sent Congress a letter saying he would be unable to make the pension investments in full. He urged Congress to raise the debt limit “in order to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens.”

Republican leaders in the House have said they won’t raise the debt limit unless the Obama administration first agrees to big spending cuts or to steps to lower the debt over the long run.

House Speaker John Boehner repeated the pledge in a statement Monday. The statement did not address Geithner’s warning about what would happen if the limit were not raised.

“Americans understand we simply can’t keep spending money we don’t have,” Boehner said. “There will be no debt limit increase without serious budget reforms and significant spending cuts.”

Republicans have also ruled out any tax increases, including any plans to end tax cuts for high earners enacted in 2001 and 2003.

“We need to have a vote to lift the debt ceiling because the consequences of not doing so would be quite serious,” White House spokesman Jay Carney told reporters. “And those who suggest otherwise are whistling past the graveyard.”

If it doesn’t raise the limit, Congress would have to come up with $738 billion to make up for what it planned to borrow through the end of the fiscal year on Sept. 30. The options are drastic: Cut 40 percent of the budget through September, which might mean defaulting on payments to investors in government bonds; raise taxes immediately; or some combination of the two.

“In the economic area, this is the equivalent of nuclear war,” says Edward Knight, who was the Treasury Department‘s general counsel during a standoff over the debt ceiling in the mid-1990s.

Here are some questions and answers about the federal debt limit:

Q: What is the debt ceiling?

A: It’s a legal limit on how much debt the government can pile up. The government accumulates debt two ways: It borrows money from investors by issuing Treasury bonds, and it borrows from itself, mostly from Social Security revenue.

In 2010, Congress raised the limit to nearly $14.3 trillion from $12.4 trillion. Three decades ago, the national debt was $908 billion. But Washington spent more than it took in, and the debt rose steadily — surpassing $1 trillion in 1982, then $5 trillion in 1996. It reached $10 trillion in 2008 as the financial crisis and recession dried up tax revenue and as the government spent more on unemployment benefits and other programs.

Congress created the debt limit in 1917. It’s unique to the United States. Most countries let their debts rise automatically when government spending outpaces tax revenue. Raising the debt ceiling doesn’t usually create much of a stir. Congress has raised it 10 times since 2001.

A refusal to raise the debt ceiling wouldn’t mean that Congress had begun to solve the nation’s budget problems. It would just mean that lawmakers were refusing to let the government borrow more money to finance programs and tax cuts already approved.

“Having voted to run up the bill, it is utterly irresponsible to prohibit the government from borrowing the money to pay it,” writes Howard Gleckman, resident fellow at the Urban Institute.


Q: What is the federal debt, and how does it differ from the deficit?

A: The deficit is how much government spending exceeds tax revenue during a year. The government is expected to run a record $1.5 trillion deficit in the current fiscal year. The debt is the sum of deficits past and present. If Congress raises the limit, the debt will reach $15.5 trillion by Sept. 30, the end of the fiscal year. The huge deficits and debt reflect tax cuts, wars, the Obama administration’s stimulus program, higher costs of federal health care programs and the recession, which shrank tax revenue and led the government to spend more on social programs.


Q: What happens now that Treasury has hit its debt limit?

A: It can free up $232 billion by taking what Geithner calls “extraordinary measures.” Besides suspending contributions to federal employee pension funds, the government can halt payments to a government fund that buys and sells foreign currencies.

The most serious debt-ceiling showdown was in 1995. At the time, the debt limit was just $4.9 trillion. Treasury Secretary Robert Rubin used gimmicks and juggled the government’s books to keep government finances afloat for four and a half months before Congress and the Clinton White House reached a deal to end the impasse.

Geithner’s Treasury Department won’t have as much cushion because the debt is growing much faster than in the mid-1990s. Geithner estimates he’ll run out of options Aug. 2.


Q: What would happen if Congress doesn’t raise the debt ceiling by Aug. 2 or whenever Treasury exhausts all its short-options?

A: Things would get ugly fast. “When bills became due, we could not pay all of them,” says Maya MacGuineas, president of the Committee for a Responsible Budget, a bipartisan group that advocates cutting the debt. “If that happens, you shake up markets as you’ve never seen before. … It’s inconceivable we would willingly walk ourselves over the cliff.”

The government needs to borrow $738 billion to get through the fiscal year that ends Sept. 30, according to the Congressional Research Service. Somehow, it would have to close that gap. It could:

— Cut government spending dramatically. To put things in context, $738 billion is equal to 40 percent of the $1.7 trillion that the government is expected to spend in the last six months of the fiscal year. Everything from military salaries to Medicare and Social Security benefits to interest payments on the debt would be vulnerable.

— Come up with $738 billion in new tax revenue, increasing by 66 percent the $1.1 trillion the government is expected to collect in taxes in the second half of the fiscal year.

— Choose a combination of draconian spending cuts and tax increases.

If investors become convinced the U.S. will renege on its debts, they’ll sell Treasurys to avoid the risk that the government might not make good on them. That would drive Treasury prices down and push interest rates up, raising the borrowing costs on everything from mortgages to cars. Higher rates would likely slow the economy.

So far, bond investors are taking the threat in stride; the yield on 10-year Treasury notes remains low at 3.17 percent. U.S. Treasurys are still considered perhaps the safest available investment, a haven for investors worldwide.

As Aug. 2 approaches, there’s a bigger risk that investors will become nervous.

“It would tell the world that the U.S. can’t get its act together, that this is basically a circus,” says William Gross, an influential investor who is managing director of the world’s biggest bond fund, Pimco. “Investors ultimately won’t want to be held hostage by a bunch of clowns.”


Q: If the consequences are so dire, why is Congress suggesting it might not raise the limit?

A: As the political divide between Republicans and Democrats has widened, the debt ceiling has emerged as a divisive issue. In recent years, the party that doesn’t control the White House has used the issue to whack the party that does.

In 2006, for instance, Senate Democrats voted unanimously against raising the debt limit for President George W. Bush to protest his tax cuts and the invasion of Iraq — a vote that President Barack Obama, then a senator, says he regrets. The situation reversed in 2010: No Senate Republicans supported a higher debt limit for Obama, accusing him of reckless government spending. Congress approved the higher limit anyway because Democrats had a majority in both the House and Senate.

Congress has always ended up raising the debt ceiling before a financial crackup.

Republicans, many of them elected in November on a pledge to slash spending, are betting that the debt-ceiling deadline offers leverage to demand deep budget cuts from the Obama administration.

Obama wants to narrow the federal gaps and reduce debts, in part by reducing spending, in part by ending tax cuts for higher-income Americans enacted under President George W. Bush. But Republican lawmakers say they refuse to consider tax hikes.


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Republicans controlling the House announced plans Wednesday to cut $30 billion from the day-to-day budgets

House GOP: $30B in further agency spending cuts
May 11, 2011, 6:21 p.m. EDT
Associated Press

Journal By Calvin Lee Ledsome Sr.,

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WASHINGTON (AP) — Republicans controlling the House announced plans Wednesday to cut $30 billion from the day-to-day budgets of Cabinet agencies, doubling down on cuts to domestic programs just weeks after a split-the-differences bargain with President Barack Obama.

The moves by the powerful lawmakers atop the House Appropriations Committee are the first concrete steps to try to implement a tight-fisted 2012 budget plan approved by Republicans’ last month. It would build on $38 billion in savings enacted in a hard-fought agreement with Obama over the current year’s budget.

The $30 billion in savings from agency operating budgets that have to be annually approved by Congress seems small compared to deficits that could top $1.6 trillion this year. But they’re actually a key building block in eventually wrestling the deficit under control, assuming Congress can make the cuts now and stick with them year after year in the face of inflation.

That’s a big “if.”

Obama and his Democratic allies controlling the Senate are sure to battle hard against cuts of this size.

And since the Pentagon — which accounts for more than half of the budget that passes through the Appropriations panel each year — actually receives a $17 billion, 3 percent boost, the cuts to domestic programs like education, housing subsidies and infrastructure projects will feel much more severe. Domestic agencies and foreign aid accounts would have to absorb $47 billion in cuts, averaging about 9 percent.

“Brutal … brutal,” said Rep. Norm Dicks of Washington, the top Democrat on the Appropriations panel, who warned of cuts to food inspection, Pell Grants (college aid for low-income students), community development grants, food aid to low-income pregnant women and their children, and grants to community action agencies that serve the poor. “Those are all things that are going to hurt the lowest-income people in this country.”

A third of the entire budget passes through the Appropriations panel, once reviled in some GOP circles for its free-spending ways and addiction to home-state projects known as earmarks. The spending bills are likely to produce a long, angry summer of House floor fights, but the ultimate fate of the spending bill probably lie in broader budget talks with the White House involving must-do legislation to allow the government to continue to borrow to meet its obligations. The Senate has yet to pass a budget blueprint that’s a precursor to action on spending bills.

Appropriations Committee Chairman Harold Rogers, R-Ky., released a broad outline of the panel’s plan to cut $30 billion from appropriated accounts. That’s on top of $38 billion carved from agency budgets in last month’s spending showdown legislation and it keeps a campaign promise to bring domestic agency budgets, on average, to levels in place before Obama took office. The slow, steady advance of the actual legislation begins in two Appropriations subpanels on Friday.

“There are going to be some cuts to agencies that people aren’t used to because they’ve seen double-digit increases,” said Rep. Jeff Flake, R-Ariz. What are we going down to? 2008 levels? That wasn’t exactly austere times.”

The cuts are far larger, however, when measured against Obama’s budget request for the 2012 budget year that begins in October. The GOP plan whacks $122 billion from Obama’s request, with cuts falling particularly hardest on foreign aid, agricultural programs, and education, job training and health care accounts.

Veterans’ accounts would be spared and Congress’ own budget would face a 5 percent cut that’s well below the double-digit hits most domestic agencies would take. Homeland security spending would absorb a $1.1 billion decrease of 3 percent.

The plan also endorses Obama’s $119 billion request for military operations in Iraq and Afghanistan and $7.6 billion in anti-terror foreign aid.

It may not sound like much measured against the nation’s $14.3 trillion debt, but the GOP’s broader budget plans are in fact largely anchored by promises to cut domestic agency budgets this year and then freeze them well into the future. These “caps” on the spending that Congress approves each year — if lawmakers can stick to them — would produce more than $1.6 trillion in savings when measured against official “baseline” estimates.

Other elements of the GOP’s budget plans are dead on arrival with the White House, including sweeping cuts to Medicaid and food stamps and a plan to transform Medicare into a voucher-like program in which future beneficiaries — those presently 54 years old and younger — would purchase health insurance instead of having the government pay doctor and hospital bills directly.

Speaker John Boehner, R-Ohio, says he wants “trillions” in spending cuts attached to the so-called debt limit measure. “Caps” on the amount of money available for the appropriations bills are being eyed as a component of any deal between the White House and Republicans controlling the House.

The nuts-and-bolts work of the appropriators comes amid lots of motion — but little movement — on other deficit-reduction fronts:

—A bipartisan “Gang of Six” senators is struggling behind closed doors to reach agreement on a plan cutting $4 trillion from the deficit over the coming decade with a 3/1 mix of spending cuts to tax increases. House Republicans say that even if the group reaches agreement, its prescriptions are nonstarter.

—The chairman of the Senate Budget Committee, Kent Conrad, D-N.D., is preparing a draft plan with a 50/50 mix of spending cuts to tax increases. Even if moderate Democrats could stomach voting for $2 trillion in tax increases over 10 years to help pass the measure, the chances of Senate Democrats and tea party-backed House Republicans reaching agreement seem extremely unlikely.

Vice President Joe Biden is hosting talks with a bipartisan group of lawmakers aimed at producing deficit cuts to attach to the debt limit increase legislation. Even Biden admits it’s an open question as to whether the group will “get to the finish line.”

—Obama invited Senate Democrats to the White House for a Wednesday afternoon meeting, with Republicans heading down on Thursday. House Democrats and Republicans are getting audiences soon.


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AP analysis: Economic stress drops to 3-month low

AP analysis: Economic stress drops to 3-month low
May 4, 2011, 7:19 a.m. EDT

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An Associated Press monthly analysis finds that lower unemployment, bankruptcies and foreclosures in March reduced the nation’s economic stress to its lowest point this year.

More than 85 percent of the nation’s 3,141 counties and every state but two — Louisiana and South Dakota — fared better than in February.

Manufacturing activity has helped ease hardship in the Great Lake states and Indiana over the past 12 months — more than in any other region.

Louisiana, Iowa and the Mountain states of Idaho and Montana have suffered the sharpest increases in stress, year over year. Post-Hurricane Katrina projects are winding down in Louisiana. The Mountain states have felt the effects of government job cuts more severely than elsewhere because of their small populations. And Iowa has suffered from more foreclosures.



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World stocks rise after death of Osama bin Laden

World stocks rise after death of Osama bin Laden
May 2, 2011, 4:54 a.m. EDT
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TOKYO (AP) — Major world stock markets rose, the dollar strengthened and oil prices were lower after news that U.S. forces killed terror mastermind Osama bin Laden following a near-decade-long manhunt.

President Barack Obama announced during holiday-thinned Asian trading hours that the man who inspired the deadly Sept. 11, 2001, terror attacks in the United States was killed in Pakistan in a U.S.-led operation.

Japan’s Nikkei 225 gained 1.6 percent to 10,004.20 — the highest closing since an earthquake and tsunami on March 11 decimated the country’s northeastern coast.

South Korea’s Kospi index, meanwhile, advanced 1.7 percent to a new record high of 2,228.96, bringing the Seoul benchmark’s gain so far this year to 8.7 percent.

European markets opened higher. France’s CAC-40 rose 0.3 percent to 4,120.03 and Germany’s DAX gained 0.7 percent to 7,563.52. Britain’s FTSE 100 was closed for a holiday.

Wall Street, meanwhile, was set to open higher. Dow Jones industrial futures rose 0.6 percent to 12,837 and S&P futures gained 0.6 percent 1,367.80.

Ben Potter, market strategist at IG Markets in Melbourne, Australia, said that bin Laden’s death was an immediate boost for equity markets.

“However, like many euphoric bounces, they are often short lived, especially given the possibility for reprisal attacks from extremists,” he wrote in a report.

The greenback rose to 81.51 yen from 81.10 yen. The euro, meanwhile, was weaker at $1.4819 from $1.4839 late Friday in New York.

The dollar was bought on the belief that “terror risk will get smaller” for the United States, said Yuji Kameoka, chief currency strategist at Daiwa Securities Capital Markets in Tokyo. He said that yen weakness and a decline in the price of crude oil were boosting Japanese stock prices.

Oil prices eased off 2½-year highs to below $113 a barrel after Obama announced bin Laden’s had been killed.

Benchmark crude for June delivery was down $1.40 at $112.53 a barrel in electronic trading on the New York Mercantile Exchange. The contract settled at $113.93 per barrel on the Nymex on Friday and reached $114.18 during in the session, the highest since September 2008.

Declining oil prices helped boost shares of airlines, which are sensitive to fuel prices. Korean Air Lines Co. Ltd., the country’s largest air carrier, soared 6.6 percent. Rival Asiana Airlines Inc. soared 12 percent. Japan’s All Nippon Airways Co. Ltd. jumped 2.5 percent.

Stock trading in Asia was thin amid a slew of holidays this week in the region. Hong Kong’s Hang Seng index and mainland China’s Shanghai Composite Index were closed Monday as were stock markets in Taiwan, Malaysia and Singapore. The Nikkei, Asia’s largest market, will be closed Tuesday through Thursday for Japan’s annual Golden Week holiday.

Australia’s S&P/ASX 200, meanwhile, recovered from early losses to rise less than 0.1 percent to 4,825.30. Markets in the Philippines and Indonesia also rose, but New Zealand and India were lower.

Markets in Japan and South Korea started in positive territory after the Dow Jones industrial average rose Friday on positive earnings news as construction equipment manufacturer Caterpillar reported strong first-quarter profit.

The Dow rose 47.23 points Friday, or 0.4 percent, to close at 12,810.54, rounding out April 4 percent higher, its best month since December.

Caterpillar, the world’s largest maker of mining and construction equipment, rose 2.5 percent after its earnings increased more than fivefold. The company also raised its sales and profit forecast for the year.

Japan’s Komatsu Ltd., the world’s No. 2 equipment maker, rose 1.7 percent in Tokyo.

Broader indices in the U.S. also gained.

The Standard & Poor’s 500 index rose 3.13 points, or 0.2 percent, to close at 1,363.61. The index gained 2.8 percent in April. The Nasdaq composite added 1.01 point to 2,873.54. It rose 3.3 percent for the month.


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United States government risk losing the nation’s sterling credit rating.

S&P warning: Fix deficit or risk credit rating

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WASHINGTON (AP) — A key credit agency issued an unprecedented warning to the United States government Monday, urging Washington to get a grip on its finances or risk losing the nation’s sterling credit rating.

For the first time, Standard & Poor’s lowered its long-term outlook for the federal government’s fiscal health from “stable” to “negative,” and warned of serious consequences if lawmakers fail to reach a deal to control the massive federal deficit.

An impasse could prompt the agency to strip the government of its top investment rating in the next two years, S&P said. A loss of the triple-A rating would ripple through the American economy, making loans more expensive and credit more difficult to obtain.

The downgrade was interpreted as a rebuke to President Barack Obama and congressional Republicans, admonishing them to put politics aside and come up with a long-term financial plan as soon as possible.

“This is a warning: Don’t mess around,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that is pushing for deficit reduction.

Analysts at S&P have never before used the outlook to cast doubt on the nation’s credit worthiness.

In response, stocks suffered their worst slide in a month. The Dow Jones industrial average plunged 245 points before recovering to close down 140 points for the day.

“The credit quality of U.S. debt is sacrosanct, and legislators will do everything within their power to avoid a downgrade,” said Jack Ablin, chief investment officer at Harris Private Bank.

The government is on pace to run a record $1.5 trillion deficit this year, the third consecutive deficit exceeding $1 trillion.

But so far, S&P sees little chance that the White House and Congress will agree on a deficit-reduction plan before the November 2012 elections, and the rating agency doubts that any plan would be in place until 2014 or later.

Obama and congressional Republicans are sparring over how to reduce the nation’s red ink. If Congress refuses to raise the nation’s debt limit this spring, and the U.S. Treasury lost authority to borrow additional money, the government would not be able to pay its bills and would default on its debt.

Although it’s a worst-case scenario that’s highly unlikely, default by the government means anyone owning federal debt of any kind — bills, notes, bonds — could go unpaid.

Both sides have proposed cutting $4 trillion from future deficits over the next 10 to 12 years.

The White House wants to reduce the deficit through spending cuts and by ending the Bush-era tax cuts for the wealthy. Republicans reject that, calling it a tax increase. They seek instead to narrow the deficit largely by overhauling Medicare and cutting spending elsewhere.

The credit report called the two proposals a “starting point” of the process, but warned that the gap between the parties remained wide.

S&P took no position about how to reduce the deficit or how to change spending and revenue plans.

“But for any plan to be credible, we believe that it would need to secure support from a cross-section of leaders in both parties,” S&P said in its report.

A lower credit rating would drive up the government’s borrowing costs. It could lead to higher interest rates on everything from mortgages to car loans and threaten to slow U.S. economic growth.

Ablin said the credit worthiness of the country is the underpinning on which all other asset classes are valued.

“If all of a sudden the credit quality of U.S. Treasurys isn’t as high as people perceive, we could see erosion of confidence,” he said.

For now, S&P continues to give the U.S. government its top investment ranking. That means S&P believes that the U.S. government can and will repay its debts and that Treasury investments are virtually risk-free. But the agency says the U.S. faces a one in three chance of a downgrade in the next two years. That would likely happen if the White House and Congress could not come up with a credible plan for reducing debt.

The other major credit agencies — Moody’s and Fitch Ratings — did not match S&P’s outlook warning.

S&P gives its top investment rating to just 19 of the 127 countries it analyzes. But it says Britain, France and Germany moved much faster to contain deficits after the 2008 financial crisis and 2007-2009 recession, which cut tax revenues and forced governments to spend more on unemployment benefits, aid to the poor and bailouts of the banking system. Those countries also have top-notch investment ratings.

S&P noted that the U.S. deficit grew to 11 percent of economic activity in 2009, a risky percentage. The deficit averaged less than half that percentage in the previous six years.

The government was beginning to run surpluses at the end of the Clinton administration. But deficits returned after President George W. Bush’s tax cuts, a 2001 recession, wars in Afghanistan and Iraq, and a massive expansion of Medicare’s drug coverage.

The deficit widened even more after the Great Recession started in 2007, depleting tax revenue and raising spending to stimulate the economy and provide benefits for the unemployed and the poor.

In the past, credit warnings have jolted politicians into action.

In May 2009, Standard & Poor’s downgraded its long-term outlook on the United Kingdom to negative, saying that the country’s debt could double in four years.

Prime Minister David Cameron and his Conservative-Liberal coalition government laid out plans to cut nearly 500,000 jobs and reduce welfare spending. Britain’s economy also posted modest gains, and the ratings agency changed its outlook in October back to “stable,” noting the government’s “political resolve.”

In recent months, at least two countries — Portugal and Greece — have had their credit ratings downgraded as they endured financial woes of their own.

The Obama administration embraced Monday’s warning as a welcome call for cooperation among the two political parties. Press secretary Jay Carney said the White House believes the political process will outperform the agency’s expectations because the president and Congress recognize the problem.

A budget showdown is likely in the next few weeks. Treasury Secretary Timothy Geithner has said the government will reach its debt limit no later than May 16. He can juggle funds to keep the government running until about July 8, after which the government could not pay its bills.

On Sunday, Geithner said Republican leaders have privately assured the Obama administration that Congress will raise the government’s borrowing limit in time to avoid an unprecedented default on the nation’s debt.

But Rep. Eric Cantor, the No. 2 Republican in the House, took a hard line Monday, calling the S&P announcement “a wake-up call to those in Washington asking Congress to blindly increase the debt limit.” He said Republicans would only agree to raise the debt ceiling if the White House agrees to “serious reforms that immediately reduce federal spending and to end the culture of debt in Washington.”

A bipartisan deficit-reduction commission appointed by Obama recommended late last year that about $4 trillion be slashed from budget deficits during the coming decade.

Under the commission’s plan, roughly two-thirds of the savings would come through spending cuts and one-third through increased tax revenue. Although overall tax rates would decline, dozens of popular tax breaks would be scaled back or eliminated, including the child tax credit, mortgage interest deductions and deductions claimed by employers who provide health insurance.

Obama praised the panel for its work, but embraced few of its recommendations, and none of the major ones on new taxes.

For now, U.S. politicians are at a stalemate. “There is bipartisan agreement on the need to reduce the debt by $4 trillion over roughly the next decade,” said Sen. Charles Schumer, D-N.Y. “Now we just need to resolve how to do it.”


Associated Press writers Pallavi Gogoi and Janna Herron in New York and Derek Kravitz, Andrew Taylor, Jeannine Aversa and Ben Feller in Washington contributed to this report.


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Obama administration warned federal government shutdown would undermine the economic recovery

Obama administration: Shutdown would hurt economy
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WASHINGTON (AP) — The Obama administration warned Wednesday that a federal government shutdown would undermine the economic recovery, delay pay to U.S. troops fighting in three wars, slow the processing of tax returns and limit small business loans and government-guaranteed mortgages during peak home buying season.

The dire message, delivered two days before the federal government’s current spending authority expires, appeared aimed at jolting congressional Republicans into a budget compromise. Billions of dollars apart, congressional negotiators were working to strike a deal by Friday that averts a shutdown by setting federal spending limits through the end of September. The last such shutdown took place 15 years ago and lasted 21 days.

President Barack Obama told congressional leaders he would have them back at the White House on Wednesday if they didn’t make progress. Obama did call House Speaker John Boehner Wednesday morning. Boehner’s office said the call lasted just three minutes and that the speaker told Obama he was hopeful a deal could be reached.

As the talks continued, the White House sought to put the prospect of a shutdown in terms people would care about, warning even that the beloved Cherry Blossom parade in the nation’s capital would be wiped out. The Smithsonian Institution and national parks around the country would also be closed.

A shutdown would come at an especially busy time for the Smithsonian. The Cherry Blossom Festival, which concludes this weekend, draws many tourists to an area near the museums. The Smithsonian counts about 3 million visits each April and has already sold 23,000 IMAX movie and lunch combos to school groups for the month.

Under long-standing federal rules, agencies would not be affected that provide for U.S. national security, dispense most types of federal benefit payments, offer inpatient medical care or outpatient emergency care, ensure the safe use of food and drugs, manage air traffic, protect and monitor borders and coastlines, guard prisoners, conduct criminal investigations and law enforcement, oversee power distribution and oversee banks.

Under the shutdown scenario described by the administration, the government would have to significantly cut staffing across the executive branch, including workers at the White House and civilian employees at the Defense Department; close to 800,000 workers would be affected. Congress and the federal court system will also be subject to a shutdown.

At the Pentagon, defense officials were finalizing plans that would lay out how the department would deal with a shutdown. But they already have acknowledged that U.S. military troops — including those in war zones — would receive one-week’s pay instead of two in their next paycheck if the government closes.

Military personnel at home and abroad would continue to earn pay, but they won’t get paychecks until there is a budget agreement and government operations resume.

Col. Dave Lapan, a Pentagon spokesman, said that the Pentagon will be open on Monday and will be staffed. He said decisions on which Defense Department employees must report to work will depend on their jobs, rather than where they are based.

Key national security responsibilities, including operations in Afghanistan, Iraq and Libya and earthquake assistance to Japan would not be interrupted by a shutdown, the Pentagon said.

The CIA also won’t be closing, though it will be drawing down some non-essential personnel, to be in compliance with federal law, according to a senior intelligence official, speaking on condition of anonymity to discuss matters of intelligence.

Officials familiar with the shutdown say essential counterterrorism functions in other parts of the intelligence community will continue, like monitoring of the terrorist watch lists, and essential intelligence collection and analysis.

At the Internal Revenue Service, the tax filing deadline remains April 18 — delayed three days because of a local holiday in Washington. Tax audits, however, will be suspended if there is a shutdown.

The IRS won’t process paper returns during a shutdown. Those expecting a refund should file their returns electronically and ask that the money be deposited directly into their bank accounts. Tax payments are welcome, though it is still unclear whether help lines for taxpayers will be staffed.

Social Security payments will continue to be delivered, and applications for benefits will continue to be processed. But some services will be limited, Social Security Commissioner Michael Astrue said.

“The checks will continue to go out. The problem will be on an extended CR, it will be increasingly difficult to get changes in address, changes in status, and those types of things done,” Astrue said.

Astrue said Social Security headquarters and field offices will be closed. Some limited services will still be available at field offices, but the details are still being worked out, he said.

Medicare would still pay medical claims for its 48 million recipients, who are mainly seniors but also several million younger people who are permanently disabled or have kidney failure. Payments to doctors, hospitals and other service providers could be delayed, however, should a shutdown continue for several months.

At the National Institutes of Health, groundbreaking medical research would experience a disruption. Patients already being treated at the NIH’s famed hospital in Bethesda, Md., would continue to get that care, but new patients could not be admitted. Likewise, no new studies of drugs or other treatments could begin.

The Federal Housing Administration, which guarantees about 30 percent of home mortgages, would stop guaranteeing loans. The issuance of government backed loans to small businesses would be suspended, according to the White House.

The Obama administration said the impact on the housing market would be more severe than in 1995, the last time there was a government shutdown. The Federal Housing Administration accounts for 30 percent of the mortgage market, nearly three times the amount 16 years ago.

Among other consequences cited by the administration:

—The Environmental Protection Agency would cease issuing permits and stop reviewing environmental impact statements which will slow approval of projects.

— Most government websites would not be updated, unless they were deemed essential.

— The Environmental Protection Agency will stop issuing permits of industrial facilities for air, land and water pollution limits.

— Federal courts would be unable to hear cases as employees like clerks, stenographers, bailiffs, and security guards would not be at work.


Associated Press writers Lolita Baldor, Anne Gearan, Stephen Ohlemacher, Lauran Neergard, Ricardo Alonso-Zaldivar and Brett Zongker contributed to this report.


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