Good morning from Orlando (or, technically, Lake Buena Vista: We?re feeding the Mouse!), where nephew Evan, headed to Providence College in Rhode Island, has played his best lacrosse ever (two midair grabs yesterday) in the Champion All-American Showcase at Disney?s ESPN Wide World of Sports Complex. The decade has flown past since Evan was a first-grader, crushing the 100-yard dash at his elementary school?s First in Fitness Day. Now, he?s an amazingly gifted, charming young man, headed for great things on his own. Maybe it?s because we?ve spent the week in the cotton-candy capital of the world that we?re more appreciative than ever of meaty journalism that hits pause on the dizzying news merry-go-round: If you run the country or the world, what should you be reading? If your boss does ? or wants to ? what should you hand (or forward) her or him? Here?s a worthy trio:
THE BIG PICTURE: TIME?s cover shows Detroit?s Renaissance Center skyline (the iconic image of the 1980 Republican Convention) -- ?IS YOUR CITY NEXT? Lessons from Detroit?s fight to survive (in global editions, cover line is: ?AMERICA?S BROKEN CITIES?), by Rana Foroohar, assistant managing editor in charge of economics and business: ?Detroit?s pain is unavoidable if the city is to save itself -- and it may ultimately help save other cities too. That?s because America?s cities desperately need a wake-up call to fix their finances. Though nearly everyone agrees that Detroit is in particularly bad shape, many of its underlying issues?crushing debt and unfunded and unsustainable retiree ?benefits?are not unique. ? A worst-case scenario comes from banking analyst Meredith Whitney, who famously predicted the financial crisis in 2007: a chain reaction of dozens of big cities going bust. ? [W]hile few will go as far as Whitney in forecasting an epidemic of defaults, most believe that further credit downgrades are likely?which will raise borrowing costs for cities and dig them deeper into the debt hole. Chicago was just downgraded, and the big ratings agency Fitch is considering a broader re-evaluation of local-government debt on the basis of the situation in Detroit.
?But city finances are not the same thing as city economies. In much of the country, unemployment is ticking down, tax receipts are up, and the property market, a huge generator of local income, is starting to recover. Detroit is going bankrupt at a time when it actually has a viable plan for growth, under the leadership of Mayor Dave Bing, with ?businesses relocating downtown, riverfront areas being redeveloped and medical facilities expanding. Chicago is at the forefront of some of the country?s most innovative experiments in education reform, private-public partnerships and ?alternative-?energy investment. Meanwhile, other cities are thinking and working outside the box, from Providence, R.I. (crafting compromises with public employees to reduce long-term liabilities), to Miami (funding infrastructure projects with private consortiums instead of public debt). ?
?Just as the dysfunction in Washington doesn?t characterize the entire U.S. economy, broken city governments and ?pension systems don?t necessarily define the economic fortunes of cities themselves. ? [I]f you stripped government out of the economy, we?d already be at 3% growth rather than 2%. The private sector is in an increasingly robust recovery, and while second-quarter GDP figures are likely to be somewhat weak, many analysts are predicting a good rest of the year for areas like housing, construction, manufacturing and some parts of the retail sector. Meanwhile, government at all levels is still shrinking and cutting, creating a headwind for the overall economy. ? [T]he U.S. doesn?t have a debt problem so much as it has a long-term entitlement problem. The same is true for many cities; Detroit, Chicago, Philadelphia and Portland, Ore., may have unsustainable public finances, but they also have interesting strategies for growth. ?
?The fall of this iconic city will bring many changes in the way local governments function and cities grow. While the broader re?rating of municipal debt that?s very likely to happen ? would increase borrowing costs and reduce the amount of money all cities can raise through bond issuance, it might also prompt many to shift their growth models, rein in unsustainable labor costs and partner in more innovative ways with the private sector (which still has $2 trillion in cash on its balance sheets) in areas like education and infrastructure at a time when federal help is less forthcoming. See the cover and read an abstract. http://ti.me/13hV0pF
THE ECONOMIST?s cover (in North America only) for the issue out today is ?The Unsteady States of America: Why the pensions nightmare is only just beginning ? America?s public finances: It is not just Detroit. American cities and states must promise less or face disaster?: ?WHEN Greece ran into financial trouble three years ago, the problem soon spread. Many observers were mystified. How could such a little country set off a continental crisis? The Greeks were stereotyped as a nation of tax-dodgers who had been living high on borrowed money for years. ? But the contagion was powerful, and Europe?s economy has yet to recover. America seems in a similar state of denial about Detroit filing for bankruptcy ? Other states and cities should pay heed, not because they might end up like Detroit next year, but because the city is a flashing warning light on America?s fiscal dashboard. Though some of its woes are unique, a crucial one is not. Many other state and city governments across America have made impossible-to-keep promises to do with pensions and health care. Detroit shows what can happen when leaders put off reforming the public sector for too long.
?Nearly half of Detroit?s liabilities stem from promises of pensions and health care to its workers when they retire. American states and cities typically offer their employees defined-benefit pensions based on years of service and final salary. These are supposed to be covered by funds set aside for the purpose. By the states? own estimates, their pension pots are only 73% funded. That is bad enough, but nearly all states apply an optimistic discount rate to their obligations, making the liabilities seem smaller than they are. If a more sober one is applied, the true ratio is a terrifying 48% ? The hole in Illinois?s pension pot is equivalent to 241% of its annual tax revenues: for Connecticut, the figure is 190%; for Kentucky, 141%; for New Jersey, 137%. ? Americans are living longer, even in Detroit, so promises to pensioners are costlier to keep. But the problem is also political. Governors and mayors have long offered fat pensions to public servants, thus buying votes today and sending the bill to future taxpayers. ?
?Public employees should retire later. States should accelerate the shift to defined-contribution pension schemes, where what you get out depends on what you put in. (These are the norm in the private sector.) Benefits already accrued should be honoured, but future accruals should be curtailed, where legally possible. The earlier you grapple with the problem, the easier it will be to fix. Nebraska, which stopped offering final-salary pensions to new hires in 1967, is sitting pretty.
?Yet sooner or later, some of these problems will end up in Washington, DC. In Detroit, a judge ruled this week that federal bankruptcy law trumps a state law that makes it impossible to reduce pensions. But the issue will arise again, and will not be truly settled until it reaches the Supreme Court. Many places like Detroit will surely have to break some past promises?and rightly so. And given the size of many of the black holes, the state or federal government may have to help out. ? Americans in virtuous states and cities will be just as furious about their tax dollars flowing to Detroit and other distressed places as Germans are about euros going to southern Europe. But the truth is that America?s whole public sector still operates in a financial never-never land. Uncle Sam offers an array of ?entitlements? that there is no real plan to pay for. Barack Obama is on his way to joining George W. Bush as a president who did nothing about that, while Republicans in Congress imagine they can balance the books without raising taxes.? Read the editorial. http://econ.st/14Pv3D9 See the cover. http://econ.st/12PNfqX
--ELSEWHERE around the globe, The Economist?s cover is ?The Great Deceleration ? The emerging-market slowdown is not the beginning of a bust. But it is a turning-point for the world economy?: ?China will be lucky if it manages to hit its official target of 7.5% growth in 2013, a far cry from the double-digit rates ? in the 2000s. Growth in India (around 5%), Brazil and Russia (around 2.5%) is barely half what it was at the height of the boom. Collectively, emerging markets may (just) match last year?s pace of 5%. ? This marks the end of the dramatic first phase of the emerging-market era, which saw such economies jump from 38% of world output to 50% ? over the past decade. Over the next ten years emerging economies will still rise, but more gradually. ?
?The Great Deceleration means that booming emerging economies will no longer make up for weakness in rich countries. Without a stronger recovery in America or Japan, or a revival in the euro area, the world economy is unlikely to grow much faster than today?s lacklustre pace of 3%. Things will feel rather sluggish. It will also become increasingly clear how unusual the past decade was ? It was dominated by the scale of China?s boom ? In [the] future, more balanced growth from a broader array of countries will cause smaller ripples around the world. After China and India, the ten next-biggest emerging economies, from Indonesia to Thailand, have a smaller combined population than China alone. Growth will be broader and less reliant on the BRICs (as Goldman Sachs dubbed Brazil, Russia, India and China).
?Corporate strategists who assumed that emerging economies were on a straight line of ultra-quick growth will need to revisit their spreadsheets; in some years a rejuvenated, shale-gas-fired America may be a sprightlier bet than some of the BRICs. ? In the 1990s ?the Washington consensus? preached (sometimes arrogantly) economic liberalisation and democracy to the emerging world. For the past few years, with China surging, Wall Street crunched, Washington in gridlock and the euro zone committing suicide, the old liberal verities have been questioned: state capitalism and authoritarian modernisation have been in vogue. ?The Beijing consensus? provided an excuse for both autocrats and democrats to abandon liberal reforms. The need for growth may revive interest in them, and the West may even recover a little of its self-confidence.? Read the editorial. http://econ.st/12oITME See the? cover. http://econ.st/1c8gdsZ
SUCCESS STORY ? L.A. Times A1, ?Impala?s leap points to U.S. car rebound: Once-maligned model is named top sedan by Consumer Reports,? by Jerry Hirsch: ?Once a muscle car icon and a symbol of U.S. automotive dominance, the Chevrolet Impala has more recently seen its image suffer. ? So it marked a stunning turnaround Thursday when the Impala secured the influential magazine?s top overall rating among sedans ? a distinction held by Japanese and European models for at least two decades. ? [T]he Impala ranked behind only such distinguished company as the Tesla Model S and BMW 135i. The critical acclaim is emblematic of a resurgence by U.S. automakers in sales, profits and consumer perceptions of quality and imaginative design.? http://lat.ms/12PTgE6
SUNDAY SO FAR: Treasury Secretary Jack Lew reprises the President?s economic speech on ?Meet,? ?This Week,? ?Fox News Sunday? and CNN?s ?State of the Union.? Lew will call for Washington to get away from the box score of short-term wins/losses, and start focusing on what the economy needs. ?Face? includes a baseball panel with Bob Nightengale of USA Today, who has been covering this week?s performance-enhancing drugs drama, and Bill Rhoden, a sports columnist for the N.Y. Times.
WEST WING DEPARTURE LOUNGE: Today is Marie Aberger?s last day in the White House Press office before moving to San Francisco to join the corporate communications team at AirBnB. Marie has managed the White House press corps ? and pool reports from around the world -- with grace, skill and a passion for her job that made her a favorite among reporters and staff. Before working in the West Wing press shop, she worked as a press assistant for Vice President Biden.
** A message about Argentina: Human rights groups such as Committee to Protect Journalists, Inter American Press Association and Freedom House have criticized Argentine President Kirchner for violence against journalists and limitations on press freedoms. Here are 10 questions U.S. Leaders should be asking Argentina:?www.atfa.org. **
COMING ATTRACTIONS ? ?Fiscal Armageddon could remake battle for Congress,? by Alex Isenstadt: ?The 2014 midterm season is about to heat up -- and President Obama and his Democratic allies are eager to tag the GOP as the root cause of Washington dysfunction. ? ?The only way Republicans will lose the House is to shut down the government or default on the debt,? said Oklahoma Rep. Tom Cole, a former NRCC chairman. ? Capitol Hill has been immersed in debate over immigration and the farm bill, but that will change once Congress returns from its August recess. There?s an Oct. 1 due date for passing a continuing resolution to keep the government funded, and the nation is expected to hit its borrowing limit sometime between October and the end of the year.
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?Congressional Republicans are just beginning to put together a debt ceiling and government funding strategy, and there?s growing division ? over what path to take. House GOP leaders and many rank-and-file lawmakers appear to be itching for another showdown with the White House over raising the debt ceiling ? In the Senate, a trio of potential 2016 GOP contenders ? Marco Rubio of Florida, Ted Cruz of Texas, and Rand Paul of Kentucky ? want to defund Obamacare as part of a deal to keep the government open. ? Republicans head into 2014 heavily favored to retain control of the House. ? The Cook Political Report actually projects that Republicans will expand their 17-seat majority by between two and seven seats. To lose the chamber, Republicans argue, something drastic would need to happen ? an epic event that Democrats could blame them for. Something, say, on the magnitude of a default or a government shutdown.? http://politi.co/19m5U53
--THE NARRATIVE ? AP?s Andrew Taylor: ?There hasn't been a government shutdown in nearly two decades, but top lawmakers on Capitol Hill are finding trickier-than-usual obstacles in their path as they try to come up with must-do legislation to keep federal agencies running after Sept. 30.?
--GROUNDHOG DAY: WashPost A1, White House prepares for budget showdown.?
TOP STORY ? ?Obama vs. Texas,? by Edward-Isaac Dovere: ?Attorney General Eric Holder?s announcement Thursday that he?s taking Texas to court over its voting laws is the latest battle between the White House and Lone Star State Republicans ? The White House gets applauded in many parts of the country for casting Texas as the evil outlaw, and Republicans in the state count the money and the votes they get back home for telling the federal government to stuff it. ? The latest round began last month, when ? the Supreme Court struck down of Section 5 of the Voting Rights Act ? Thursday morning, Holder [announced] in a speech to the National Urban League in Philadelphia that the Justice Department would ask a court to consider a new avenue to force those laws to go through federal pre-clearance, since he says they are clearly discriminatory.
?Voting rights, like immigration and affirmative action, go directly to the question that will likely define the fate of Texas politics within the decade: How much will the growing black and Latino populations there spell the end of Republican dominance in the state ? and any hopes the GOP has of staying competitive in the Electoral College? Democrats say state Republicans are on the wrong side of history, and sacrificing short term wins for long term decimation. Republicans ? feel confident they?ve got a lot less to worry about than people think, and that fighting the Obama administration can only increase their popularity with Texans, no matter their ethnicity.? http://politi.co/1692YWk
--HOW IT?S PLAYING: N.Y. Times A1, below fold, ?U.S. Asks Court To Limit Texas On Ballot Rules? ? WSJ A1, above fold, ?U.S. Aims To Reassert Federal Voting Oversight? ? WashPost 2-col. lead, ?State voting laws to be challenged.?
TODAY?S TABLOIDS: N.Y. Post cover, ?HARD NUMBERS: He sexted 13 women ? 30 seconds of ?Danger? ? Poll support shrinks to 16%? (love that Post doesn?t need to say who ?he? is) ?? N.Y. Daily News: ?SAME OLD SCHLONG & DANCE: Cops to 3 more sext gals ? Uncensored pics hit Web ? Says he?s so sorry AGAIN!? ? Newsday: ?UP TO 10 WOMEN.? (We need Nate Silver to sort out all these crazy nums!)
--NYPOST.com lead, ?SPLIT-ZER! Exclusive: Fed-up Silda plans to divorce Eliot after election: Silda Spitzer is privately telling friends she plans to divorce her hooker-loving husband, Eliot Spitzer, Page Six can exclusively reveal.?
--AP this a.m., following up on Post: ?Eliot Spitzer says his wife won't be accompanying him on the campaign trail for New York City comptroller, noting ?she's got a career.? ? He made the remark Thursday in the Bronx. He was asked whether his wife, Silda, would appear at his side during the campaign.?
BIRTHDAYS: Namrata Kolachalam, Dag Vega?s deputy, who celebrated by sky-diving last week for the first time ? Linda Feldmann ... Mike McConnell (hat tips: Patrick Gavin) ... DGA?s Bill Raines (h/ts Greg Scanlon, Bharat Krishnan) ? Mick Jagger is 70 ? Helen Mirren is 68 ? Dorothy Hamill is 57 ? Kevin Spacey is 54 ? Sandra Bullock is 49 ? Jeremy Piven is 48 (h/ts AP)
** A message about Argentina: Human rights groups such as Committee to Protect Journalists, Inter American Press Association and Freedom House have criticized Argentine President Kirchner for violence against journalists and limitations on press freedoms. The groups and other civil rights proponents have called on the Argentine government to stop harassing and stigmatizing journalists. International groups such as Human Rights Watch have also warned that President Kirchner?s recent reforms to the justice system are an attack on democracy and would compromise the independent judiciary, leading to greater government control over the freedom of speech, more political corruption, and pressure on civil institutions. Here are 10 QUESTIONS that U.S. Leaders should be asking Argentina:?www.atfa.org. *
Source: http://www.politico.com/playbook/0713/playbook11255.html
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Wednesday, July 24, 2013 04:45:51 UTC Tuesday, July 23, 2013 09:45:51 PM at epicenter Depth : 13.60 km (8.45 mi) ...
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Public release date: 21-Jul-2013
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