PRESIDENT BUSH AND OPEC TRADE BARBS AS OPEC MAKES NO CHANGE IN OUTPUT

Yesterday President Bush criticized OPEC by saying "Understand the consequences of high energy prices. I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices." His statement was likely more than a criticism, it was intended to encourage OPEC to commit to increasing production at its meeting today. It did not work, as OPEC voted to keep output at current levels.

After the OPEC meeting today, OPEC President Chakib Khelil said, "If the prices are high, definitely they are not due to a lack of crude. They are due to what's happening in the U.S. There is sufficient supply. There's plenty of oil there." He went on to say that the global oil market is being impacted by "the mismanagement of the U.S. economy." His mismanagement comment seems to be a reference to the policies that are causing the U.S. dollar to weaken to what some are finding to be uncomfortable levels.

As of 10:15 a.m. Central, light sweet crude it trading at $102.66 on the NYMEX, up $3.14.

From AP via Yahoo:

Khelil said crude stocks were well within their five-year average and the 13-nation group was not inclined to either boost or reduce its current output of about 32 million barrels a day. OPEC satisfies roughly 40 percent of the world's demand for crude.

"In truth, OPEC's decision not to pump more oil is a reflection that supply is relatively good," said Anthony Sabino, a professor of business at St. John's University in New York.

"What is driving oil prices up to the stratospheric level of over $100 per barrel is the U.S. economy, now undeniably in recession," he said. "It's not so much the price of oil is going up -- it's that the value of the U.S. dollar, sad to say, is slumping."

Oil shot up a dramatic 19 percent last month as the falling dollar prompted speculators and other investors to shift cash to crude and other commodities as a hedge.

Key cartel members said this week that prices in the $85 to $90 per barrel range would be optimal.

The 13 OPEC members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

NEXT YEAR'S WAR IN IRAQ AND AFGHANISTAN TO COST APPROXIMATELY $170 BILLION

According to testimony yesterday by Defense Secretary Robert Gates, military operations in Iraq and Afghanistan will cost approximately $170 billion above and beyond the $515.4 billion already budgeted for regular Pentagon expenditures in the next fiscal year. On a per day basis, that calculates to roughly $466 million per day in costs for the military actions in Iraq and Afghanistan, about $1.4 billion per day for regular Pentagon expenditures, and about $1.866 billion per day in total.

From The New York Times:

The military operations in Iraq and Afghanistan could cost $170 billion in the next fiscal year over and above the $515.4 billion regular Pentagon budget that President Bush has proposed, Defense Secretary Robert M. Gates said on Wednesday.

Mr. Gates gave that estimate in testimony before the Senate Armed Services Committee after cautioning the panel that any estimate would be dicey, given the unpredictability of war.

“Well, a straight-line projection, Mr. Chairman, of our current expenditures would probably put the full-year cost in a strictly arithmetic approach at about $170 billion,” Mr. Gates said in response to questions from Senator Carl Levin, the Michigan Democrat who is the head of the committee.

“While the monetary cost is not the most important part of the debate over Iraq or Afghanistan, it does need to be part of that debate, and the citizens of our nation have a right to know what those costs are projected to be,” Senator Levin said.

PRESIDENT BUSH THREATENS VETO OF BILL THAT DOES NOT GRANT TELECOM FIRMS IMMUNITY

Many telecommunications firms complied with government requests for access to telephone conversations, records, and emails, all without FISA court warrants. Now, those firms face at least 40 civil lawsuits for illegally providing that access without warrants. President Bush has urged Congress to grant retroactive immunity to the telecom firms who cooperated with the government.

For more on this issue please read Bush Threatens Veto in Surveillance Laws in USA Today.

USING MONETARY AND FISCAL POLICY TO STIMULATE THE ECONOMY

With most economic indicators heading south, there is little debate that the country is headed for a slowdown or even a recession. To stimulate the economy and lessen the impact of any downturn, the government is prepared to use two weapons: monetary policy and fiscal policy.

Monetary policy is controlled by the Federal Reserve, the United States' central bank. The idea behind monetary policy is that the Fed can increase or decrease the supply of money in the economy. If the economy is overheating and/or inflation is a worry, the Fed can decrease the supply of money in the economy, slowing the economy down to a more acceptable level. This is considered a restrictive or contractionary monetary policy. If the economy is sluggish, as is the case now, the Fed can increase the money supply in the economy. While there are several ways this can be done, none gets more attention than the lowering of key interest rates, which the Fed has done recently, and is expected to do again very soon. So, while there may be debate about whether the Fed acted in a too-little, too-late fashion, there can be no argument regarding the Fed's actions being consistent with an attempt to stimulate the economy, which is called an expansionary monetary policy.

Fiscal policy concerns governmental revenues, which are primarily taxes, and expenditures. Fiscal policy is controlled by the president and congress. Neither usually get to dictate a preferred policy, but rather must work together through compromise to establish a tax and spending program. During an economic downturn, as we are experiencing now, fiscal policy can be used to stimulate the economy. How? Typically by some combination of cutting taxes, tax rebates, and governmental spending, all designed to put money into the pockets of consumers and businesses so that they will spend, spend, spend. The more and the faster they spend, the less likely a downturn will continue or worsen.

President Bush is working on a stimulus plan to put approximately $150 billion into the economy, which is roughly 1% of GDP. Democrats agree that a stimulus plan is needed, but there is disagreement about how to tailor such a plan. Democrats want tax rebates for most Americans combined with one-time increases in programs such as food stamps, unemployment benefits, and home heating assistance for the poor. President Bush wants a tax relief-only plan that gives $100 billion to individuals and $50 billion to businesses. Both plans would likely provide needed relief and stimulate the economy. Now, it is up to our governmental leaders to compromise on a plan that both they and the American people can live with and benefit from.

For more information on the fiscal stimulus plans being developed, check out the following articles:

BUSH PUSHES $150B ECONOMIC AID PACKAGE - AP via Yahoo

BUSH PROPOSING $145 BILLION PLAN TO SPUR ECONOMY - The New York Times

TAX REBATES SEEN AS ECONOMIC STIMULUS - USA Today

GREENSPAN BOOK CRITICIZES BUSH AND REPUBLICANS FOR LACKING FISCAL DISCIPLINE

From The Wall Street Journal:

In a withering critique of his fellow Republicans, former Federal Reserve Chairman Alan Greenspan says in his memoir that the party to which he has belonged all his life deserved to lose power last year for forsaking its small-government principles.

In "The Age of Turbulence: Adventures in a New World," published by Penguin Press, Mr. Greenspan criticizes both congressional Republicans and President George W. Bush for abandoning fiscal discipline.

Mr. Greenspan, who calls himself a "lifelong libertarian Republican," writes that he advised the White House to veto some bills to curb "out-of-control" spending while the Republicans controlled Congress. He says President Bush's failure to do so "was a major mistake." Republicans in Congress, he writes, "swapped principle for power. They ended up with neither. They deserved to lose."

Mr. Greenspan writes that when President Bush chose Dick Cheney as vice president and Paul O'Neill as treasury secretary -- both colleagues from the Gerald Ford administration, during which Mr. Greenspan was chairman of the Council of Economic Advisers -- he "indulged in a bit of fantasy" that this would be the government that would have resulted if Mr. Ford hadn't lost to Jimmy Carter in 1976. But Mr. Greenspan discovered that in the Bush White House, the "political operation was far more dominant" than in Mr. Ford's. "Little value was placed on rigorous economic policy debate or the weighing of long-term consequences," he writes.

From serving under so many presidents, Mr. Greenspan concludes that there's something abnormal about anyone willing to do what it takes to get the job. Mr. Ford, he writes, "was as close to normal as you get in a president, but he was never elected." The Watergate tapes, he says, show Richard Nixon as "an extremely smart man who is sadly paranoid, misanthropic and cynical." He recalls telling someone who had accused Nixon of anti-Semitism that he "wasn't exclusively anti-Semitic. He was anti-Semitic, anti-Italian, anti-Greek, anti-Slovak. I don't know anybody he was pro."

Ronald Reagan's ability to instantly tap one-liners and anecdotes in support of a particular policy represented an "odd form of intelligence." He describes Bill Clinton as "a fellow information hound" with "a consistent, disciplined focus on long-term economic growth" whose relationship with Monica Lewinsky "made me feel disappointed and sad."

Mr. Greenspan retired in early 2006 after 18 years as chairman of the Federal Reserve. He had served under six presidents as either Fed chairman or adviser. He now runs a private consulting company; his only formal public role is adviser to British Prime Minister Gordon Brown.

FEDERAL HOUSING ADMINISTRATION TO PROVIDE SAFETY NET

From USA Today:

President Bush announced a series of "limited" steps Friday designed to help homeowners struggling to pay their mortgages, expanding the role of the Federal Housing Administration and proposing a temporary change in tax law to prevent people from being penalized when they refinance risky "subprime" adjustable-rate mortgages.

Under Bush's proposal, an estimated 80,000 homeowners with bruised credit and subprime ARMs they can no longer afford will be able to refinance loans, which the Federal Housing Administration (FHA) would insure.

The move marks a historic expansion of the role of the FHA, a Depression-era agency that has traditionally served low- and moderate-income families and first-time buyers, but not delinquent borrowers. Nearly 16% of subprime borrowers are behind on their ARMs, and an estimated 2 million subprime ARMs totaling about $600 billion will reset to higher rates through the end of next year.

To qualify for the new benefit, homeowners would have to prove they paid their loan on time before it reset to a higher rate and must have at least 3% equity in the home.

Under current rules, the maximum loan the FHA can guarantee is $202,000 in most states and up to $362,000 in high-cost states such as California and New York.

Bush also called on Congress to pass his proposal to reform the FHA, in part by raising those loan limits to $262,000 in most states and $417,000 in pricier areas.

SENATOR CLINTON EXPRESSES CONCERN ABOUT FOREIGN-OWNED U.S. DEBT

Senator Hillary Clinton expressed concern about the "economic vulnerabilities" posed by foreign interests owning large amounts of U.S. debt. On the Senate floor, and in letters to Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson, Senator Clinton said that President Bush's economic policies have contributed to an "erosion of U.S. economic sovereignty" and added that it is "undeniable that the exponential growth of foreign debt in the last six years has undermined our economic standing."

From The Wall Street Journal:

Currently, the U.S. imports more goods than it exports from places like China, resulting in a trade deficit, and it borrows heavily from abroad to finance its domestic investment. Foreign interests own about $2.2 trillion of U.S. Treasury securities -- or about 52% of the public debt not held by the U.S. government, compared with about 20% in the early 1990s, during the Clinton administration. The U.S. has come to rely on foreign capital because Americans don't save enough to finance the nation's domestic investment.

...there is broad concern that the growing reliance on foreign investors puts the U.S. at risk, and some say the way to address it is to begin saving money at home by erasing the current $248 billion budget deficit, moving into a surplus and putting money aside to pay for costly obligations like Social Security and Medicare.

EXECUTIVE PAY BECOMING A SERIOUS ISSUE

How does a $210 million severance package sound? $200 million? Well, Robert Nardelli did a poor job of running Home Depot and got pushed out of the executive suite recently, but was handed the $210 million king's ransom on his way out the door. Henry A. McKinnell did perhaps an even worse job of running Pfizer. His reward? A cool $200 million.

Things have gotten so bad on the executive pay front that even President Bush has recently weighed in on the issue. In a speech on Wall Street in January he said that corporate board members "need to pay attention to the executive compensation packages that you approve."

From the AP:

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, is expected to introduce legislation on the issue. Frank said in a January speech at the National Press Club that high CEO pay is "not just a matter of envy. It has reached a point where it has some macroeconomic significance."

Frank pointed to research done by Harvard professor Lucian Bebchuk showing that compensation of the top five officers at the country's public companies between 1993 and 2002 totaled about $250 billion — nearly 10 percent of aggregate profits. CEO pay grew by a median 11.29 percent in 2005, according to The Corporate Library, which tracks governance, compensation and performance.

PRESIDENT BUSH UNVEILS HEALTH INSURANCE PLAN DETAILS IN STATE OF THE UNION ADDRESS

As expected, President Bush outlined some details of his controversial health insurance plan in last night's State of the Union Address. His plan calls for an end to tax-free premiums in employer-provided health insurance plans, making the premium paid taxable income. To offset some of the tax burden, all taxpayers who either have employer-provided health insurance or purchase their own insurance would receive a deduction of $15,000 for a family plan or $7,500 for an individual. Currently, the average cost of an employer-provided family plan is $11,500, while the average for individual plans is $4,300.

From USA Today:

"For a lot of people, it would be a bonanza," says Joe Antos of American Enterprise Institute. He and other supporters of the plan say it would encourage employers to offer less-generous insurance plans. They say generous plans drive up the cost of health care.

Paul Fronstin of the Employee Benefit Research Institute says the proposal might lead more employers to drop coverage. Some employers might also find that younger, healthier workers would opt out of company plans to buy their own insurance, leaving sicker, more expensive workers behind, he says.

PRESIDENT BUSH PROPOSES HEALTH INSURANCE TAX CHANGES

In his weekly radio address this morning, President Bush said that he wants to change tax codes to make insurance more affordable for the uninsured. From The Wall Street Journal:

"Rising health care costs are making insurance too expensive for millions of our citizens," Mr. Bush said Saturday in his weekly radio address. To remedy the situation without hiking taxes or creating a new entitlement program, he says the tax code can be rewritten to treat health insurance more like home ownership.

"The current tax code encourages home ownership by allowing you to deduct the interest on your mortgage from your taxes," Mr. Bush said. "We can reform the tax code, so that it provides a similar incentive for you to buy health insurance."

Mr. Bush didn't outline the nuts and bolts of his tax-code proposal, but it is expected to include capping some taxpayers' ability to exclude employer-based healthcare benefits from their income, subjecting them to federal income tax. Savings could go toward tax credits for lower-income people who buy health insurance or for state insurance pools.

Altering the tax benefits for employer-provided health care involve far-reaching changes to the tax code affecting millions of taxpayers and companies. Bush's Advisory Panel on Federal Tax Reform proposed in November 2005 to limit the tax benefit for employer-provided health care to $11,500 for families and $5,000 for singles. The recommendation, which has languished with the tax panel's other reform proposals, came after witnesses told the tax panel the existing federal tax subsidies for health insurance were benefiting rich workers while raising insurance prices for the poor and increasing the number of uninsured.