Economic Daily Outlook




Treasury: Tax receipts not changing deadline on $16.4T debt limit (The Hill)

By Peter Schroeder

Lawmakers will not have to re-fight their epic battle over raising the debt ceiling until after the November elections, according to the Treasury Department.

April tax receipts have not moved Treasury’s debt-ceiling target date, and Secretary Timothy Geithner still expects lawmakers will have until the tail end of 2012 to raise the $16.394 trillion ceiling.

“Treasury anticipates that the debt limit will not be reached again until late this year,” a Treasury spokesman told The Hill on Wednesday.

Lower-than-expected tax receipts could have moved up the date on the debt ceiling, forcing a vote both parties would like to avoid before the election.

The government has borrowed $15.673 trillion, and the limit is still too far off for Treasury to more accurately predict when it will be reached, an official said Wednesday.

But the Treasury spokesman insisted the agency has the tools to prevent the United States from going over the limit if it draws near prior to Nov. 6, when voters go to the polls.



Progress Is Seen in Advancing a Final Volcker Rule (New York Times)

By Ben Protess and Peter Eavis

A major new rule that has drawn the ire of Wall Street is on track for completion sooner than some bankers had expected, dashing the hopes of financial industry lobbyists, who have pressed for a delay.

Regulators are making significant progress on a final draft of the regulation, the Volcker Rule, and some officials expected to complete it by September and possibly as early as this summer, people with direct knowledge of the matter said. The people, who spoke on the condition of anonymity, cautioned that regulators have not set a firm date for completing the rule.

The Volcker Rule aims to rein in risky trading on Wall Street. Named for Paul A. Volcker, the former chairman of the Federal Reserve, it would ban banks from placing bets with their own money, a practice known as proprietary trading.

On Wednesday, the chief executives of six large banks voiced concerns about new regulations like the Volcker Rule at a meeting with Daniel K. Tarullo, a Federal Reserve governor. The gathering, held at the Federal Reserve Bank of New York in Lower Manhattan, was arranged by Mr. Tarullo and JPMorgan Chase’s chief executive, Jamie Dimon, who has criticized elements of the Volcker Rule.

When regulators first proposed a version of the rule last year, they received a torrent of criticism from the financial industry, which complained about the length and complexity of the proposal. It was the most hostile response to any provision of the Dodd-Frank financial overhaul law, which created the Volcker Rule with the notion that banks should not make risky wagers while enjoying government deposit insurance and other types of backing.

Some opponents of the Volcker Rule urged regulators to tear up the draft and start from scratch. That tactic, which even gained support among some high-level regulators, was seen by some as a ploy to delay the rule-writing process until after the 2012 election, which might end the Democratic control of the Senate and the White House.

But regulators driving the rule-writing process have not discussed scrapping the draft and currently have no plans to repropose a new version, the people briefed on the matter said. In fact, regulators are moving forward on the wording of critical provisions, like exemptions that allow banks to hold a certain amount of securities for customers.



U.S. health care spending ‘dwarfs’ other countries (Politico)

By Kathryn Smith

The United States spends more on health care than 12 other industrialized countries, a new Commonwealth Fund study finds – but that doesn’t mean this country’s care is any better.

The U.S. spent nearly $8,000 per person for health care services in 2009, the study found, confirming that “health care spending in the U.S. dwarfs that found in any other industrialized country.”

David Squires, senior research associate at The Commonwealth Fund and the primary author of the study, found Norway and Switzerland were a distant second and third, respectively, on medical spending, at a little more than $5,000 per person.

The Commonwealth Fund concluded that this country’s high price tag for health care isn’t because of more doctor visits — the U.S., with an average of about four visits per person in 2009, ranked at the bottom for the number of doctor consultations. And it isn’t because of lengthy hospital treatments — the study found the U.S. had shorter hospital stays, as well as a smaller number of hospital beds and discharges.

So what’s causing the U.S.’s cost problem? The Commonwealth Fund points to high prices for medication and medical services, as well as a good deal of use of expensive technology, such as MRIs and CT scans. And at least a third of the American population is obese, a condition that drives up health spending.



Long-awaited ‘fracking’ rules coming soon (The Hill)

By Andrew Restuccia and Ben Geman

The Interior Department is expected to issue long-awaited regulations for “fracking” on public lands as early as Thursday, according to industry officials closely following the rules.

The regulations mark the latest effort by the Obama administration to exert more federal oversight over hydraulic fracturing, or fracking, the drilling technique that has helped usher in the natural gas boom, but has also raised environmental concerns.

But the regulations — combined with recent Environmental Protection Agency rules aimed at cutting air pollution that results from fracking — could be politically treacherous for Obama going into the election.

Republicans and business groups have mounted an aggressive lobbying campaign against the rules, arguing that states are better prepared to oversee fracking. The GOP will likely use the regulations to paint the Obama administration as an opponent of oil-and-gas development, a tactic Republicans hope will pay off amid concern about high gasoline prices.

Gas Drilling Slows, Heating Up Prices (Wall Street Journal)

By Carolyn Cui and Liam Pleven

Energy producers are showing the first significant signs of scaling back their natural-gas output, responding to a glut that has driven prices to the lowest level in more than a decade.

Energy takes center stage as WSJ’s Liam Denning takes a seat on Mean Street to discuss signs of a possible bottoming in natural gas prices, and Chesapeake Energy CEO trying to make amends with investors. Photo: Getty Images.

Exxon Mobil Corp., XOM -0.97% Encana Corp. ECA -3.29% and ConocoPhillips, COP -3.40% among the country’s largest natural gas producers, said in recent days they reduced production in the first quarter and pledged to reduce drilling further in coming months. And government data earlier this week showed output in February had the biggest percentage drop in a year.

The production decline could be the beginning of a trend that would help alleviate what has been a huge oversupply of natural gas, industry experts say.

Importantly, they say, the pullback in production has coincided with a sudden pickup in demand from users, such as power plants, which are trying to capitalize on falling prices. Even homeowners, who are typically slow to switch from one fuel to another, are starting to switch to natural gas, suppliers say. February saw a record amount of natural gas used to generate electricity for that month.



OPINION: Short-Term Fixes (New York Times)

By The Editorial Board

Federally subsidized student loan rates were bound to become an election-year fight, since Congress provided only enough money for five years of low-interest rates in 2007. Now that the rates are about to double, both Democrats and Republicans are failing to do the right thing again.

Members of Congress from both parties say they want to prevent interest rates on subsidized Stafford student loans from going up in July, but they are fighting over how to pay for a solution. And by proposing quick-fix methods to pay for only a year’s worth of loan subsidies, both parties suggest they are not really serious about helping students afford college.

The Republican proposal, passed by the House last week, is unquestionably worse than the Democrats’ plan. To cover the $6 billion cost of keeping interest rates at 3.4 percent for a year, it would eliminate a farsighted fund established by the health care reform law to help states and communities prevent obesity, heart disease, diabetes, cancer and infectious diseases, among other ailments.

The Republicans never see any reason to offset the cost of tax cuts for the rich, but are always happy to raid “Obamacare” to pay for something that helps needy people, correctly guessing that the president would threaten to veto a bill because he wants to avoid paying their ransom price.

The Democratic bill, now before the Senate, would pay for the cost by eliminating a loophole that allows owners of some small S-corporations to avoid paying their payroll taxes. The loophole has long been an unfair use of the tax code, and the bill would apply only to those who make more than $250,000 a year.

But the money the bill would raise in a decade would pay for only one year’s subsidy of student loans, keeping rates from rising to 6.8 percent in July. In a Congress that routinely passes 30-day extensions of funding for transportation and other necessities, a year is apparently considered a long-term solution.



Army Will Reshape Training, With Lessons From Special Forces (New York Times)

By Thom Shanker

The Army is reshaping the way many soldiers are trained and deployed, with some conventional units to be placed officially under Special Operations commanders and others assigned to regions of the world viewed as emerging security risks, like Africa.

The pending changes reflect an effort by the Army’s top officer, Gen. Ray Odierno, to institutionalize many of the successful tactics adopted ad hoc in Afghanistan and Iraq. As the Army shrinks by 80,000 troops over the next five years, General Odierno is seeking ways to assure that it is prepared for a broader set of missions, including in hot spots around the world where few soldiers have deployed in the past.

The initiatives are a recognition that the role and clout of Special Operations forces are certain to grow over coming years. Faced with impending budget cuts and public exhaustion with large overseas deployments, the military will focus on working with partner nations to increase their ability to deal with security threats within their borders. The goal is to limit the footprint of most new overseas deployments.

Senior Pentagon policy makers briefed on the plans say they are fully in keeping with the new military strategy announced early this year by Defense Secretary Leon E. Panetta and Gen. Martin E. Dempsey, the chairman of the Joint Chiefs of Staff.

Creating new sets of formal relationships between Army general-purpose units and the Special Operations Command would be a significant change in Army culture. For more than a generation, the large, conventional Army and the small, secretive commando community viewed each other from a distance, and with distrust. Armor and infantry units trained and operated separately from counterterrorism and counterinsurgency teams.