US Senate rejects House budget bill as shutdown looms

BBC News 30 September 2013 Last updated at 20:18 GMT

The US Senate has rejected a budget bill passed by the Republican-led House of Representatives, with just hours left to avert a government shutdown.
The Democratic-led Senate voted 54-46 against the bill, which would fund the government only if President Obama's healthcare law were delayed a year.

If no agreement is reached by midnight (04:00 GMT), the government will close all non-essential federal services.
The shutdown would be the first in the US in 17 years.

More than 700,000 federal government workers could be sent home on unpaid leave, with no guarantee of back pay once the deadlock is over.
One of the key points of contention in the political stalemate has been President Barack Obama's healthcare law, popularly known as Obamacare.

Republicans in the House of Representatives - and their allies in the Senate - have demanded the law be repealed or stripped of funding as a condition for continuing to fund the government.
Major portions of the law, which passed in 2010 and has been validated by the US Supreme Court, are due to take effect on Tuesday.

After the Senate vote on Monday afternoon, the chamber's Democratic majority leader blamed Republicans for the imminent halt to all non-essential government operations.
"It will be a Republican government shutdown, pure and simple," said Senate Majority Leader Harry Reid of Nevada, referring to the Republicans as "bullies".

"We are not going to negotiate on this. We have done everything we can to be fair and reasonable."
Following Mr Reid's pledge, Republican House Speaker John Boehner told reporters the House would not pass a budget bill that did not include concessions from the Democrats regarding Mr Obama's healthcare law.

'Potential default'

In addition to the threat of a shutdown, a second fiscal deadline is approaching in the coming weeks. About 17 October, the US government will reach the limit at which it can borrow money to pay its bills, the so-called debt ceiling.

House Republicans have demanded a series of policy concessions - notably on the president's health law and on financial and environmental regulations - in exchange for raising the debt ceiling.

Although there were no reports that negotiations over either the budget or the debt ceiling were underway on Monday, Mr Obama said he was "not at all resigned" to a government shutdown.

But he warned there could not be "any kind of meaningful negotiations under the cloud of potential default" on the government's debt.

"Our currency is the reserve currency of the world," Mr Obama said after an Oval Office meeting with Israeli Prime Minister Benjamin Netanyahu.

"We don't mess with that. And we certainly don't allow domestic policy differences on issues that are unrelated to the budget to endanger not only our economy but the world economy."

BBC News 1 October 2013 Last updated at 04:13 GMT

The US Congress has failed to agree a budget by 1 October and a federal government shutdown has begun, sending more than 700,000 federal workers home and closing down national parks, museums, federal buildings and services.

Department of Defense
The nation's 1.4 million active-duty uniformed military personnel will stay on duty.
About half of the defence department's 800,000 civilian employees will have to stop work, but there is a blanket exception for activities that "provide for the national security".
But where employees are needed to work, they may have to do so without pay:
"Military and other civilians directed to work would be paid retroactively once the lapse of appropriation ends," according to Defence Department Comptroller Robert Hale.

Department of Energy
Most Department of Energy facilities will close, with only 1,113 out of 13,814 required to work.
Exemptions include staff overseeing the safety of the nation's nuclear arsenal and operating dams and power lines across the country.
The National Nuclear Security Administration, which oversees the nation's nuclear weapons and naval reactor programmes, will have 343 employees on duty to "perform functions related to the safety of human life and the protection of property".
More than 400 employees will stay on to work at the Southwestern Power Administration and the Western Area Power Administration, which are in charge of overseeing hydroelectric power and power lines in the south and western US.
Some staff in other areas will remain at work to oversee "the protection of human life and property."

Department of Transportation
Transport roles ranging from air traffic control to airport and hazardous materials inspections will continue and 36,987 out of 55,468 personnel will remain at work.
Staff involved in overseeing commercial space launches would also continue operations - as at least one of a succession of launches will occur between the end of September and the first week in October in support of the International Space Station, according to the department.
Suspended activities will include facility security inspections, routine personnel security background investigations and the employee drug testing program.

Smithsonian Institution
The National Zoo and 19 museums and galleries, including the Natural History Museum, the Portrait Gallery and the Air and Space Museum, would close.
Of the 4,202 employees, 688 will be retained to "protect life and property" - security guards, maintenance staff and people to care for and feed the animals at the National Zoo.
The Smithsonian Institution says: "During a shutdown, the Institution cannot legally accept voluntary services from federal employees to continue their regular duties."

National Parks
National parks - from Yosemite to Alcatraz and the Statue of Liberty - will be shut down with 3,266 essential staff out of 24,645 remaining on duty. These will include some fire management, law enforcement and emergency responders.
Day-use visitors will be instructed to leave the park immediately and visitors using overnight facilities will be asked to make alternative arrangements and leave.
Where possible, park roads will be closed and access denied.

Department of Homeland Security
About 86% of the Department of Homeland Security's 240,000 employees are expected to be exempt from the shutdown, including uniformed agents and officers at the country's borders and ports of entry.
Most members of the Coast Guard, Transportation Security Administration, Secret Service and other law enforcement agencies are exempt.
US Citizenship and Immigration Services employees will continue to process green card applications.

Department of Justice
Of 114,486 Department of Justice employees, an estimated 96,744 will be exempt from the shutdown.
All Federal Bureau of Investigation (FBI) agents and support personnel in the field will be exempt as their operations are focused on national security and investigations involving protection of life and property.
Drug Enforcement Administration agents working on active counternarcotics investigations, agents in the Bureau of Alcohol, Tobacco, Firearms and Explosives, and US attorneys will be exempt.
Staff at federal prisons will also be expected to work.

US Postal Service
The self-funded US Postal Service will remain open and deliver as usual. The agency receives no tax dollars for day-to-day operations and relies on income from stamps and other postal fees to keep running.

AP DONNA CASSATA 12 hours ago

WASHINGTON (AP) — The government shutdown entered its second week with no end in sight and ominous signs that the United States was closer to the first default in the nation's history as Speaker John Boehner ruled out any measure to boost borrowing authority without concessions from President Barack Obama.

The uncompromising talk rattled financial markets early Monday with the Dow dropping more than 100 points in early trading.
Just 10 days before the threat of default would be imminent, animosity among congressional leaders marked the stalemate and resolution seemed elusive.

A statement from Senate Majority Leader Harry Reid, D-Nev., accused Boehner of a credibility problem and called on him to allow a vote on a straightforward bill to re-open the government.

"There is now a consistent pattern of Speaker Boehner saying things that fly in the face of the facts or stand at odds with his past actions," said Adam Jentleson, a spokesman for Reid. "Americans across the country are suffering because Speaker Boehner refuses to come to grips with reality."

In response, Michael Steel, a spokesman for Boehner, said it was "time for Senate Democrats to stow their faux outrage and deal with the problems at hand. The federal government is shut down because Democrats refuse to negotiate, and the debt limit is right around the corner."

A defiant Boehner insists that Obama must negotiate if the president wants to end the shutdown and avert a default that could trigger a financial crisis and recession that would echo 2008 or worse. The 2008 financial crisis plunged the country into the worst recession since the Great Depression of the 1930s.

"We're not going to pass a clean debt limit increase," the Ohio Republican said in a television interview Sunday. "I told the president, there's no way we're going to pass one. The votes are not in the House to pass a clean debt limit, and the president is risking default by not having a conversation with us."

Boehner also said he lacks the votes "to pass a clean CR," or continuing resolution, a reference to the temporary spending bill without conditions that would keep the government operating.

Treasury Secretary Jack Lew has warned that the budget brinkmanship was "playing with fire" and implored Congress to pass legislation to re-open the government and increase the nation's $16.7 trillion debt limit. Lew reiterated that Obama has no intention to link either bill to Republican demands for changes in the 3-year-old health care law and spending cuts.
The shutdown has pushed hundreds of thousands of workers off the job, closed national parks and museums and stopped an array of government services.

The one bright spot on Monday is a significant chunk of the furloughed federal workforce is headed back to work. Defense Secretary Chuck Hagel ordered nearly 350,000 back on the job, basing his decision on a Pentagon interpretation of a law called the Pay Our Military Act.

Those who remain at home or are working without paychecks are a step closer to getting back pay once the partial government shutdown ends. The Senate could act this week on the measure that passed the House unanimously on Saturday.
Democrats insist that Republicans could easily open the government if Boehner simply allows a vote on the emergency spending bill. Democrats argue that their 200 members in the House plus close to two dozen pragmatic Republicans would back a so-called clean bill, but the Speaker remains hamstrung by his tea party-strong GOP caucus.

"Let me issue him a friendly challenge. Put it on the floor Monday or Tuesday. I would bet there are the votes to pass it," said Sen. Chuck Schumer, D-N.Y.

In a series of Sunday television appearances, Lew warned that on Oct. 17, he exhausts the bookkeeping maneuvers he has been using to keep borrowing.

"I'm telling you that on the 17th, we run out of the ability to borrow, and Congress is playing with fire," Lew said.
Lew said that while Treasury expects to have $30 billion of cash on hand on Oct. 17, that money will be quickly exhausted in paying incoming bills given that the government's payments can run up to $60 billion on a single day.

Treasury issued a report on Thursday detailing in stark terms what could happen if the government actually defaulted on its obligations to service the national debt.

"A default would be unprecedented and has the potential to be catastrophic," the Treasury report said. "Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world."

Private economists generally agree that a default on the U.S. debt would be extremely harmful, especially if the impasse was not resolved quickly.

"If they don't pay on the debt, that would cost us for generations to come," said Mark Zandi, chief economist at Moody's Analytics. He said a debt default would be a "cataclysmic" event that would roil financial markets in the United States and around the world.

Zandi said that holders of U.S. Treasury bonds would demand higher interest rates which would cost the country hundreds of billions of dollars in higher interest payments in coming years on the national debt.
Sen. Ted Cruz, R-Texas, a force in pushing Republicans to link changes to the health care law in exchange for keeping the government running, spelled out his conditions for raising the borrowing authority.

"We should look for three things. No. 1, we should look for some significant structural plan to reduce government spending. No. 2, we should avoid new taxes. And No. 3, we should look for ways to mitigate the harms from 'Obamacare,'" Cruz said, describing the debt ceiling as an issue that is among the "best leverage the Congress has to rein in the executive."

Boehner and Schumer were interviewed on ABC's "This Week," and Lew and Cruz on CNN's "State of the Union." Lew also appeared on CBS' "Face the Nation," ''Fox News Sunday" and NBC's "Meet the Press."
___

Associated Press writer Martin Crutsinger contributed to this report.

Lydia DePillis for the Washington Post Guardian Weekly, Tuesday 24 September 2013 22.58 AEST

The San Francisco municipality of Richmond wants to use a legal loophole to protect its citizens from mortgage default, but critics are warning of dire consequences

The city council of a San Francisco suburb is at the centre of a US national controversy: reeling from the foreclosure crisis, it is trying to use a novel legal tool to seize mortgages to help its citizens avoid losing their homes.

Richmond, California, a city of 110,000 people, will use the power of eminent domain to take troubled home loans away from financial firms, ignoring dire warnings from the banking industry of unintended consequences. Supporters say the approach would keep people in their homes who otherwise might have lost them, at a minimal cost to taxpayers. Critics warn it could set a precedent that would make mortgages harder and more expensive to obtain across the country.

The decision to proceed with the plan came earlier this month after a night of impassioned debate at Richmond's city hall, where residents were colour-coded by their position. Some wore red T-shirts distributed by plan opponents reading "Stop Investor Greed", others yellow T-shirts distributed by supporters.

At the centre of the debate are the many homeowners who, despite rising house prices, still owe significantly more than their homes are worth. These "underwater" borrowers are at higher risk of defaulting on their mortgages.

Cities can take over a mortgage through the power of eminent domain since the loans are a form of property, just like a house or a piece of prairie. City manager Bill Lindsay explained that Richmond would be using that power as a creative solution for a city racked by foreclosures. It would designate new investors to buy the mortgages with the intention of lowering what is owed to levels more homeowners can afford.

The bond market is already miffed at the city for trying to stiff the investors who currently own Richmond's mortgages. When the city tried to issue $34m in bonds, nobody bought them, forcing the city to withdraw the offering. "When investors have choices in the market, they tend to choose the safe, plain vanilla option, rather than one that requires them to research and fully understand the story," Lindsay said. "Those bonds are called 'story bonds', and investors tend to avoid them."

He says he heard from a few municipal finance experts who said that any nervousness about the eminent-domain plan on the part of investors was "baseless" and should fade away. But as long as Richmond is the only one pursuing the option, it is much easier for bond-buyers to punish the city.

"One of the things that's been really difficult is going forward as a single entity," Lindsay told the council. "We're really the only city right now that's on board with the programme. That is an issue also for you to consider, that right now, we are the only one."

Meanwhile, banks are suing Richmond to prevent it from using eminent domain. And to further deepen the council's worries about forging into unknown territory, Mortgage Resolution Partners – which has lined up investors to take over the loans once they have been seized by the city – has said that while it will pay for Richmond's legal defence, it can't buy insurance to cover a large judgment against the city.

The plan's defenders, most prominently Cornell University law professor Robert Hockett, who designed it, say the city is on rock-solid legal ground and should not fear catastrophic losses.

But that's hardly a sure thing. And for those on the council who remember having to fire a third of the city's workforce after a fiscal crisis in the early 2000s, it's an untenable risk – especially for the lower-income areas that are disproportionately affected by a loss of city services.

"We knew the empire was going to strike back. This is no surprise," said councillor Jim Rogers. "And we have to look at the seriousness of their threats. We have to look at the damage they could wreak … A 1% chance of bankruptcy for this programme is a deal breaker for me."

The meeting largely turned on whether the city should take that chance, sticking its neck out for municipalities around the country that might want to explore eminent domain as well. Two council members staunchly opposed to the plan, Corky Booze and Nat Bates, argued it wasn't worth it.

"We cannot fight with Wall Street and their big money," Booze said. "If we lose in court, I'll be sitting here and say, 'I told you so.'"

Bates agreed: "We are the guinea pig. Is 110,000 people worth fighting Wall Street?"

After the council laid out its positions, 100 people from the audience lined up to take two-minute turns at the microphone. Opposition came from real estate agents and polished businessmen from the posher areas of town fearing the repercussions, but also from some smaller retail associations and those sceptical after learning that many of the 624 homes on the city's seizure list are not in poor neighbourhoods, because of a decision to include underwater homeowners who are current on their payments as well as those who are delinquent.

As the hearing crossed into the early hours, though, more supporters came forward. Ali Marshall said she bought her house 13 years ago, but now it is worth $112,000 less than what she owes on her mortgage. " None of this could've been predicted," she said. "We're paying currently, but any day we could face foreclosure, because of the financial stress. We love our home. It is our first home. My daughter was born in our home. We want to do the honourable thing. We want to pay our debt. We simply deserve a new loan."

At around 1am, the politics of the situation got ugly. Bates and Booze, who are African American, accused white mayor Gayle McLaughlin's Richmond Progressive Alliance of attempting to speak for the black community and derided her black allies on the council as being "not African American". As the race-based squabbling escalated, McLaughlin gaveled the session into a recess to cool things off.

In the end, the council defeated the resolution to kill the eminent domain plan, and approved another one to set up an authority that could administer it. The city is still a long way from actually exercising its power to seize property. "Nothing in life is 100% risk-free," McLaughlin said. "But leadership demands that we sometimes take risks on behalf of our community."

This article appeared in Guardian Weekly, which incorporates material from the Washington Post

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Heather Stewart The Observer, Sunday 6 October 2013 04.29 AEST

800,000 federal workers sent home without pay and estimated $400m knocked off economic output each day in lost pay

How is the shutdown affecting the US economy?
The most direct impact is that 800,000 federal workers, at agencies as diverse as Nasa and the US Treasury, have been "furloughed" – in other words, sent home without pay. Since the pay of public sector workers counts as government spending in official calculations of the size of the economy, every dollar of earnings forgone will feed into third-quarter GDP.

Goldman Sachs has estimated that each day of shutdown means $400m (£250m) knocked off economic output in lost pay alone. In total, it says, economic growth will be cut by 0.2% points by a week-long shutdown. Some of that would be made up in later quarters if workers were given backpay to make up what they've lost, but that would require legislation.

The longer the closure goes on, however, the more likely it will do wider economic damage, as those sidelined public sector workers tighten their belts, companies which rely on federal contracts become more nervous and consumers fret about the risks of a prolonged budget crisis. Danny Gabay, of City consultancy Fathom, said: "The only certainty is that the US economy currently does not have the luxury of just 'taking time off'."

Have the markets panicked?
Not exactly. Initially, Wall Street reacted quite calmly, as investors calculated that even a brief shutdown could prompt the Federal Reserve to postpone any decision to start phasing out its $85bn-a-month quantitative easing scheme. Since markets love the cheap money the Fed pumps out through QE, they saw a postponement of so-called "tapering" as good news.

By Friday, however, when the shutdown had proved to be more than a 24-hour flash in the pan, investors had begun fretting about the deadline of 17 October, by which time Congress must agree an increase in the government's debt ceiling or Washington may start to default on some of its debts. That had seemed unthinkable, but the poisonous political standoff over the shutdown made it seem like a real possibility. Perhaps not surprisingly, the yield, or interest rate, on short-term government bonds jumped: a signal that investors had begun pricing in a tiny risk of default. Jack Lew, Barack Obama's treasury secretary, warned in an article that "if the US cannot pay its bills in full and on time, each and every American will be affected".

How about the rest of the world?
Again, it depends how long the crisis lasts. A few days of unpaid gardening leave for 800,000 employees in a total workforce of more than 155 million is unlikely to have a devastating effect on consumer spending, or on America's demand for imports from foreign producers, but if some form of default cannot be avoided it could spark financial chaos, which would ripple out through world markets, including London.

How does this look to America's creditors?
It's a fair guess they are not impressed. After the last debt ceiling debacle in 2011, which cost the US its AAA credit rating, China, which holds more than $1tn in IOUs from Washington, urged America to "cure its addiction to debt", and "re-establish the commonsense principle that one should live within one's means". It has since been taking more rapid steps towards floating the yuan, which would remove the need for Beijing to pile up such vast reserves of American assets as it strives to keep its currency cheap. City analysts say that is a deliberate policy. Simon Derrick, of BNY Mellon, said: "The only way to avoid lending more money to the US is to stop accumulating reserves in the first place. This seems to be the real significance of current events."

In the longer term, the absence of a keen buyer for US bonds in China could push up the cost of borrowing for America significantly.

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