Looking at a looming default

Updated: Thursday, October 17, 2013
Looking at a looming default story image
KALAMAZOO, Mich. (NEWSCHANNEL 3) - We're 10 days along in the partial government shutdown, and if this goes on for another week, our Treasury Secretary Jacob Lew says we, as a country, will no longer be able to pay all of our bills.

What does that mean for our financial security?

Some in Congress say it really wouldn't amount to much. Most economists, on the other hand, say it could spark global economic chaos.

Tonight in Tom's Corner, Tom Van Howe says if he were a betting man, he'd put his money on those who deal in numbers every day.

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If I was going to have heart surgery, I’m fairly certain I’d want the guy holding the scalpel to be someone who does nothing but heart surgeries. A guy who could almost do it in his sleep.

And so it is with our government and our economy.

So if I hear Congressman Justin Amash of Grand Rapids—and only Mr. Amash—say, "there's no way we'll default on October 17. We have enough money to make interest payments. The real question is how do we restructure our government so we don't keep hitting the debt ceiling?"

He sounds pragmatic, confident, and unconcerned.

And there are others in congress who say "not to worry;" that if we have to start cherry picking for a while, to choose who we're going to pay and who we're not, so what?

Confident and reassuring.

Setting aside the fact Congress has a constitutional responsibility to pay who we owe—on time—there are whole bushel baskets full of economists who are saying loudly and repeatedly that the impact of default could be calamitous; not just for us, but for the world.

I know there's  a widely-held, cynical assumption that if you ask 20 economists the same question, you may get 20 different answers. And on some matters that may be true.

But this time around they're pretty much shouting with one voice. And they're telling Congress to get its act together.

Since cherry picking seems acceptable for the moment, let me cherry pick a few.

Gerald Epstein is an economist at the University of Massachusetts. "A default," he says, "will make the Lehman Brothers bankruptcy look like a cakewalk."

Everybody knows who Warren Buffett is. He may not be an economist but he gets a free pass because he understands money as few others do. "Default," he said, "would be like a nuclear bomb - too horrible to use."

And there's Tim Bitsberger, a former Treasury official under George W. Bush. "If we miss an interest payment, it would blow Lehman Brothers out of the water."

And this from Bloomberg news—it would be "an economic calamity like none the world has seen."

There is a FOX News economist, Peter Morici, who thinks default would be the best thing that could ever happen to the United States, but his evaluation gets neutered by the sheer weight of the other side.

At stake is the perception the world has of us. That perception has already been scarred a little by the government shutdown.

But U.S. Treasury Bonds are thought of as the world's primary risk-free asset.

That rock-solid confidence, despite our $17 trillion deficit, is what has made the dollar the world's most widely-used currency.

If we fail to make payments on those bonds, the perception of us as the world's richest and most stable country will take a dive, along with anyone willing to buy a little slice of America’s debt.

And its beyond my perception that the right wing of the Republican party would be willing to carry the specter of of default, with all of its dark possibilities, to the brink or beyond because it doesn't like Obamacare.

And if Justin Amash and his friends are so willing to reject the warnings of economists all over the country, maybe they'll listen to two organizations that have long supported conservative politics: the U.S. Chamber of Commerce and the National Association of Manufacturers.

In letters written a few days ago, both are urging Congress to rise above their differences and do what's right for the country.

Raise the debt limit. And do it now.

I couldn't say it any better myself.

In this corner...I'm Tom Van Howe.

Business News

Last Update on July 31, 2015 18:12 GMT

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WASHINGTON (AP) -- U.S. wages and benefits grew in the spring at the slowest pace in 33 years, stark evidence that stronger hiring hasn't boosted pay. The slowdown also reflects a sharp drop-off in bonus and incentive pay.

The Labor Department says the employment cost index rose just 0.2 percent in the April-June quarter after a 0.7 increase in the first quarter. The index tracks wages, salaries and benefits. Wages and salaries alone also rose 0.2 percent.

Both measures recorded the smallest quarterly gains since the second quarter of 1982.

Salaries and benefits for private sector workers were unchanged, the weakest showing since the government began tracking the data in 1980.

In some occupations where bonuses are common, compensation fell sharply after spiking in the first quarter, including sales and management.

CONSUMER SENTIMENT

WASHINGTON (AP) -- The University of Michigan says U.S. consumer sentiment slipped this month but remains at high levels.

Michigan's index of consumer sentiment fell to 93.1 in July from 96.1 last month.

Richard Curtin, chief economist for the survey, blamed the drop on the "disappointing pace of economic growth." The government reported Thursday that the economy rose at a steady but unspectacular annual rate of 2.3 percent from April to June.

Curtin said the sentiment index has averaged 94.5 since December, the highest eight-month average since 2004.

The index was at 81.8 a year ago.

TRADE-WTO-CHINA

WASHINGTON (AP) -- The World Trade Organization says China broke global trade rules by failing to comply with an earlier WTO ruling and continuing to impose duties on specialty steel imports.

The decision announced Friday was a victory for the United States and steelmakers AK Steel in West Chester, Ohio, and Allegheny Ludlum in Waynesboro, Pennsylvania.

The case dates back to 2010 when China imposed duties on a high-tech specialty steel used in power plants. Saying the duties violated trade rules, the U.S. took the case to the WTO and won. Despite the ruling, China reintroduced duties on the steel in 2013. The United States went back to the WTO, saying China was not complying with the earlier decision.

The U.S. says the duties cost American steelmakers more than $200 million in annual exports.

FRANCE-GOOGLE

PARIS (AP) -- Google is rejecting an order by the French data privacy agency to remove search results worldwide upon request, saying European law allowing the `right to be forgotten' doesn't apply globally.

In a statement posted late Thursday, Google said bowing to CNIL's request would force it also to agree to similar requests worldwide from any government that doesn't agree with how the company posts content. "The Internet would only be as free as the world's least free place," the company wrote on its Europe policy blog.

Europe's highest court ruled in May 2014 that people have the right to control what appears when their name is searched online. Google said it has received more than a quarter-million requests. In the statement, Google said it had asked CNIL to withdraw the order.

FEDEX-TNT

BRUSSELS (AP) -- The European Union is opening an in-depth probe into whether FedEx's proposed $4.9 billion takeover of Dutch company TNT would strangle competition in the massive market for small package deliveries.

EU Antitrust chief Margrethe Vestager said Friday she had to "make sure that FedEx's takeover of TNT would not impede effective competition and would not lead to higher prices for consumers."

The FedEx-TNT deal came two years after UPS dropped its own takeover bid for the Dutch company, citing objections from EU regulators fearing the combined company would become too dominant.

The European Commission said UPS and DHL would be the only two other viable players in the European market.

JAPAN-NUCLEAR-TEPCO

TOKYO (AP) -- A Japanese judicial committee has decided to send three former utility executives to criminal court for their alleged negligence in the Fukushima nuclear disaster.

A document released Friday showed the committee voted in favor of indicting Tsunehisa Katsumata, who was chairman of Tokyo Electric Power Co. at the time of the crisis, along with two other TEPCO executives.

The 11-member committee's second decision supporting the indictment overrides Tokyo prosecutors' two earlier decisions to drop the case, forcing the three men to be charged with professional negligence. It's the first criminal case from the nuclear disaster.

Three reactors had meltdowns at the Fukushima Dai-ichi plant damaged in the March 2011 earthquake and tsunami, triggering massive radiation leaks that forced tens of thousands of people to evacuate.

GULF OIL SPILL-DELETED TEXTS

NEW ORLEANS (AP) -- Attorneys are eyeing a November retrial date for Kurt Mix, the former BP engineer charged with obstructing a federal investigation into the 2010 Gulf of Mexico oil spill.

Court papers filed Thursday show attorneys are working toward a Nov. 16 date but may seek to push the trial back to Nov. 30.

Federal prosecutors say Mix deleted text messages about the amount of oil flowing from BP's well after a 2010 rig explosion. Mix's lawyers say he shared information about the flow rate throughout the government investigation.

Mix was acquitted on one criminal count in 2013 but convicted on an obstruction of justice charge. That conviction was thrown out, however, because the forewoman was found to have improperly told a deadlocked jury about remarks she heard outside of the trial.

EARNS-EXXON MOBIL

IRVING, Texas (AP) -- Exxon Mobil Corp. (XOM) on Friday reported second-quarter profit of $4.19 billion.

On a per-share basis, the Irving, Texas-based company said it had net income of $1.

The results fell short of Wall Street expectations, but Exxon does not adjust its reported results based on one-time events such as asset sales. The average estimate of nine analysts surveyed by Zacks Investment Research was for earnings of $1.11 per share.

The oil and natural gas company posted revenue of $74.11 billion in the period.

EARNS-CHEVRON

SAN RAMON, Calif. (AP) -- Chevron Corp. (CVX) on Friday reported second-quarter earnings of $571 million.

On a per-share basis, the San Ramon, California-based company said it had net income of 30 cents.

The results missed Wall Street expectations, but Chevron does not adjust its reported results based on one-time events such as asset sales. The average estimate of 10 analysts surveyed by Zacks Investment Research was for earnings of $1.13 per share.

The oil company posted revenue of $40.36 billion in the period.

SOCIAL MEDIA-STOCKS DIP

NEW YORK (AP) -- It hasn't been an easy week in social media, despite double-digit revenue growth from Twitter, LinkedIn and Facebook. Investors are looking beyond headline numbers and finding reasons to sell.

Not even Facebook, with stronger-than-expected profit and revenue numbers and bulletproof mobile advertising strategy, was spared. Its stock is down 2.6 percent for the week, compared with a roughly 1 percent increase for the Standard & Poor's 500 index.

On Tuesday, Twitter disappointed investors with a report of stalling user growth that executives acknowledged isn't likely to change any time soon. Its stock hit its lowest level in two years and is down 12 percent for the week.

LinkedIn delivered solid results, but said one of its business segments, display advertising, is seeing some softness.

UPS-COYOTE LOGISTICS

ATLANTA (AP) -- UPS is buying Coyote Logistics for $1.8 billion as it maneuvers for a slice of the burgeoning freight brokerage business.

Coyote has helped support UPS in the past during the busy holiday season, the last two of which have caused headaches for the shipping giant.

Coyote booked revenue of $2.1 billion last year.

UPS said Friday that it expects the acquisition adding to its earnings next year. The Atlanta company anticipates the transaction could result in $100 million to $150 million in annual operating savings.

The deal is targeted to close within 30 days.

VILLAGE RANSOM

ALBANY, N.Y. (AP) -- New York auditors say an upstate village made ransom payments of $300 and $500 last year to keep its computers running after two official-looking emails released malware throughout its system.

The mayor says the attack locked up the village's accounting systems.

New York Comptroller Thomas DiNapoli says the cyberattacks should be a wake-up call. He says it shows how a lack of information technology safeguards can cost taxpayers money and cripple day-to-day operations.

Other agencies around the country have also paid ransom to get their computers back.

In Maine this year, the Lincoln County sheriff's office paid about $300 to hackers after several unsuccessful attempts to retrieve their records themselves. A suburban Chicago police department paid a $500 ransom in January to restore access to their data.

BREWERY FATAL

PORTSMOUTH, N.H. (AP) -- A $1.2 million settlement has been reached in a wrongful death lawsuit over a keg explosion at a New Hampshire brewery.

The Portsmouth Herald reports (http://bit.ly/1IcLXea) 26-year-old worker Benjamin Harris died in April 2012 while pressurizing a plastic beer keg with air at the Redhook Ale Brewery in Portsmouth. The keg exploded, and first responders found Harris suffering from cardiac arrest with chest and head injuries.

He died at a hospital.

The lawsuit was brought against Plastic Kegs, Medway and Satellite Logistics Group, which were involved in the manufacture and distribution of the exploded keg.

The settlement benefits Harris' sister, his son born after his death and the boy's mother. Terms of the settlement were approved July 15.

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