Feds respond to Houston judge questioning Obama on health care

In responding to the request of a federal appeals judge in Houston, U.S. Attorney General Eric Holder on Thursday affirmed his department's belief in the time-honored concept of judicial review and said nothing in President Barack Obama's recent comments on a pending Supreme Court decision should be interpreted otherwise.

"Where a plaintiff properly invokes the jurisdiction of a court and presents a justiciable challenge, there is no dispute that courts properly review the constitutionality of Acts of Congress," Holder wrote in a letter to a three-judge panel of the 5th U.S. Circuit Court of appeals that is reviewing a case from East Texas involving an obscure element of the Affordable Care Act, the landmark health care law being challenged as unconstitutional. "The (Justice) Department has not in this litigation, nor in any other litigation of which I am aware, ever asked this or any other court to reconsider or limit long-established precedent concerning judicial review of the constitutionality of federal legislation."

Justice Jerry Smith, a member of the panel, told a government lawyer earlier this week that he was concerned about the president's comments on the upcoming Supreme Court decision and demanded that the Justice Department submit a three-page letter clarifying its position on the role of courts in reviewing federal laws. Smith claimed the president "has troubled many people" with his comment Monday in support of the health care law. "I just remind conservative commentators that for years, what we've heard is, the biggest problem on the bench was judicial activism or a lack of judicial restraint, that an unelected group of people would somehow overturn a duly constituted and passed law," Obama said.

Obama's Approval Rating Drops to Lowest Ever, According to Gallup

The poll released Sunday says 39 percent of Americans approve of Obama’s performance, while 54 percent disapprove.

The slide comes as Obama launches a political counteroffensive this week, while he’s weighed down by wilting support among some of his most ardent backers, a stunted economy and a daily bashing from the slew of Republicans campaigning for his job.

"We've still got a long way to go to get to where we need to be. We didn't get into this mess overnight, and it's going to take time to get out of it," the president told the U.S. over the weekend, all but pleading for people to stick with him.

A deeply unsettled political landscape, with voters in a fiercely anti-incumbent mood, is framing the 2012 presidential race 15 months before Americans decide whether to give Obama a second term or hand power to the Republicans. Trying to ride out what seems to be an unrelenting storm of economic anxiety, people in the United States increasingly are voicing disgust with most all of the men and women, Obama included, they sent to Washington to govern them.

The Democratic president will try to ease voter worries and sustain his resurrected fighting spirit when he sets off Monday on a bus tour of Minnesota, Iowa and Illinois. The trip is timed to dilute the buzz emanating from the Midwest after Republicans gathered in Iowa over the weekend for a first test of the party's White House candidates. The state holds the nation's first nominating test in the long road toward choosing Obama's opponent.

The three-day tracking poll was conducted from Aug. 11-13. The margin of error is plus or minus 3 percentage points, according to Gallup.

Obama officials attack S&P's credibility after downgrade

(Reuters) - The Obama administration attacked the credibility of the analysis underlying Standard & Poor's decision to downgrade the United States' top credit rating on Friday, saying it had found a $2 trillion error.

S&P was forced to remove the number from its analysis after Treasury officials discovered that the rating agency's estimates of the government's discretionary spending was $2 trillion too high, sources familiar with the discussions said.

There was evident dismay, and some anger, within the Obama administration at S&P's decision to downgrade U.S. debt despite the errors officials said they had found in the calculations.

"A judgment flawed by a $2 trillion error speaks for itself," a Treasury spokesman said after S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

The comment marked the first time the U.S. Treasury had publicly chastised S&P. Administration officials have privately grumbled that the rating agency's understanding of the U.S. political system was unsophisticated.

David Beers, the top S&P official behind the ratings decision, told Reuters in an interview that any change in the rating agency's calculations would have been taken into consideration before the decision was made public.

Sources familiar with talks that took place between S&P and the U.S. Treasury on Friday afternoon said the rating agency had wanted to see $4 trillion sliced from future budgets as part of a hard-fought deal secured earlier this week to lift the nation's debt limit. That agreement would reduce deficits by $2.1 trillion over 10 years.

Even after the error was pointed out, the rating agency declined to hold off on its downgrade, sources said.

With the threat of a downgrade looming, Treasury officials earlier in the week had played down the potential impact and said markets already were aware it was under consideration and that two other agencies were maintaining their triple-A rating.

The Federal Reserve effectively shrugged off the downgrade, saying it would not affect the operation of the central bank's emergency lending window or its buying and selling of Treasury securities to conduct monetary policy. The Fed can only extend emergency loans to banks against good collateral.

PLENTY OF FINGER POINTING

Treasury officials, who spoke on condition of anonymity, said on Wednesday that top bond dealers were questioning S&P's credibility, which took a heavy blow during the 2007-09 financial crisis when mortgage-related debt lost much of its value after originally being awarded high ratings. The reputations of two other big rating agencies, Fitch and Moody's, were also tarnished.

Ian Lyngen, a senior government bond strategist at CRT Capital Group in Connecticut, agreed S&P now had more than just a credibility problem.

"The fact that they have now downgraded the United States suggests to me that they are now going to be dealing with a relevance issue," he said. "Because the fact of the matter is that 10-year (Treasury note) yields are near 2.5 percent, and that in no way suggests a lack of sponsorship for U.S. debt."

Yields on U.S. 10-year notes, a benchmark for borrowing rates throughout the economy, fell as far as 2.34 percent on Friday -- their lowest since October 2010 and very low by historical standards.

POLITICAL POINT SCORING

Lawmakers used the downgrade to square off over how best to rein in the nation's budget gap, with Democrats saying more revenue was needed and Republicans focusing on spending cuts.

S&P's action "reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures," said Senate Majority Leader Harry Reid, a Democrat from Nevada.

House of Representatives Speaker John Boehner, a Republican from Ohio, called the downgrade "the latest consequence of the out-of-control spending that has taken place in Washington for decades."

Sen. Jim DeMint, a leading conservative, went further, saying Treasury Secretary Timothy Geithner should resign.

The White House maintained silence, but Dan Pfeiffer, Obama's communications director, signaled the administration's strategy -- to put the blame on the Republicans -- when he added bits of media commentary to his Twitter.com feed, an increasingly common vehicle for transmitting the White House viewpoint.

One "retweet" he sent from a Washington Post columnist said, "This didn't happen because an earthquake wrecked our factories or a plague hit our workers. It was Congress. Particularly (Republicans)in Congress."

Another "retweet" from a Fox News reporter read: "Remember President Obama pushed for a 'Grand Bargain' that would have cut approximately $4 trillion in debt, but Speaker John Boehner walked."

A Republican-led congressional panel is probing whether the administration had tried to influence S&P before the rating agency revised its outlook on the U.S. debt rating to negative in April.

Americans wonder where the misery will end

(Reuters) - America is on the fritz.

From Times Square to St. Petersburg, Florida, and Portland, Oregon, people are trying to understand how the downgrading of America's AAA credit rating by Standard and Poor's agency caused a stock market crash and torpedoed their economic prospects so badly again.

Out of work, unable to sell their homes and with bills piling up, many wonder how they will make ends meet.

"My fridge is on the fritz, my washing machine is on the fritz, my oven is on the fritz, my roof is on the fritz," said Maria Thuy of Jenkintown a suburb of Philadelphia, who lost her job as a director of a non-profit a few weeks ago and wonders how she will stop her house falling down around her.

Like many, Thuy looked on in horror as the stock market crashed on Monday and she fears for her retirement savings.

Barbara Barak, 32, has a job selling cosmetics in an Orlando, Florida mall. But working largely on commission and with business "nonexistent," she may resign.

"People are afraid to spend money," she said.

Since her husband lost his steel industry job at the start of the 2008 recession and took a job with an ice cream maker, their annual income has fallen by $50,000. She could care less about the stock market because she has no savings.

Her financial plan? "Just survive."

On Monday, panicked selling resulted in the S&P 500's worst day since December 2008, down more than 6 percent with every stock in the benchmark index ending in negative territory.

PSYCHOLOGICAL IMPACT

Concern that Washington can't control rising debts or create enough jobs to spur growth contributed to the crash as did the loss of America's pristine AAA credit rating. Rising fears about Europe's debt woes made matters worse.

The S&P 500 is down 17.9 percent from its late April peak.

Consumer spending makes up about 70 percent of the U.S. economy and economists fear steep stock declines will have a psychological impact on households, causing them to cut spending, and force businesses to defer hiring and spending.

Miami store clerk Antonio del Valle said he blamed former President George W. Bush for the current woes. "If he hadn't wasted all that money on the wars in Iraq and Afghanistan, we wouldn't be discussing the debt ceiling," he said.

A decade of war in Afghanistan and eight years in Iraq have hurt the national budget and the 2008 financial crisis, with its resulting bailouts to stop a global financial collapse, led to less aid flowing from Washington to U.S. states.

As a result, working Americans were squeezed as U.S. states and municipalities hiked charges on everything from water to property taxes. Meanwhile, with inflation low and unemployment high, employers cut jobs, kept pay raises to a minimum and passed on soaring health insurance costs to employees.

Sammy Rubin, a 64-year-old electrical contractor in Birmingham, Alabama, blames politicians. A self-described conservative, he said he was angry at recent political fighting over the debt ceiling.

"If I had the power, I would freeze every congressman's bank account ... and make them go get a job, to see what it's like out here. And I wouldn't care if the whole government shut down, except for the military," he said.

The debt debate in Congress has strengthened the case of those who think the two-party system is failing. According to a CNN poll last week, 77 percent of Americans say that elected officials in Washington have behaved "like spoiled children" in the tug-of-war over raising the debt ceiling.

Josh Greenwood, a 24-year-old, who moved from California to New York and is working as a bartender, urged President Barack Obama to end partisan fighting in Washington.

"Obama needs to use his power and influence to get everyone on the same page," he said.

Susan Knight-Allen, a 55 year-old medical social worker, was getting her hair cut at a salon in the Hollywood neighborhood of Portland, Oregon.

"Maybe this time it is not going to correct," she said of the stock market. She and her partner put their money into cash two years ago and now she wonders if she can help, perhaps by getting some backyard work done.

"We have the money and somebody could probably really use that job," she said.

"HANGING ON"

Rachelle Markley, 48, worked at her nearby store Second Glance Books. The second-hand book store is cozy but, she says, "I am hanging on by the skin of my teeth."

As well as a weak economy, her business is suffering as sales shift to e-books. After an employee left in January, she left the job unfilled, leaving her overworked and alone.

Antoine Sykes, a 37-year-old security officer and doorman on Chicago's west side said he fears for his financial security and plans to save what he can, but doesn't trust the banks. "I'm leaving it under my bed or in my grandmother's closet."

Matthew Tavares, 43, and his wife Julia, 31, want to sell their home in the beach community of Marshfield, south of Boston. On the market for a year already, they worry they will have to drop the price more to sell it and will have to use their savings to cover their eventual losses.

The country's latest financial woes have also compounded the concerns of 51-year-old Harry Crown, a commercial painter in St. Petersburg, Florida. He says he lives paycheck to paycheck and expects to get laid off soon due to lack of work.

"It's scary," said Crown, nursing a pitcher of Miller beer at a bar. "You can't get ahead. You live to survive."

Another customer, 65-year-old Roger Dyke agreed. "The country's in a mess," he said. "I don't know any way of fixing it."

Debt Deal May Depend on Obama Staying Silent

Obama Talked His Way Into Trouble on Debt Ceiling

“We got rid of the tax increase, no naked debt limit increase and now we've got a bill that does what we said it should do. Is it perfect, like John said? No, it's not. But it's a good step on spending cuts.”

-- Rep Paul Ryan “On the Record w/Great Van Susteren” rising in defense of Speaker John Boehner’s alternate debt-ceiling legislation

Whether Congress can reach a deal on increasing the federal government’s $14.3 trillion borrowing limit may depend on whether President Obama can stay silent on the issue for the rest of the week.

House Republicans are getting ready today for a high-drama vote on an alternate plan to cut spending and increase the federal credit limit, and the best thing the bill may have going for it is Obama’s opposition.

Most House Republicans are disappointed with the fact that the bill doesn’t take on the main drivers of federal indebtedness, entitlement and welfare programs. The most crystalline conservatives in the caucus oppose it because it actually increases the debt ceiling. They would rather have an immediate 44 percent cut to federal spending than increase borrowing by a dime.

But the fact that White House and Democrats in the Senate keep dumping on the Boehner plan is a dynamite sales pitch for the speaker. As one of the biggest rattlers in the Tea Party Caucus, Rep. Allen West, tweeted: “Boehner Plan is not a perfect bill. However, the fact Pelosi, Reid and Obama hate it doggone makes it perfect enough- where is their plan?”

Senate Majority Leader Harry Reid has a plan, but it might be best described as a double, fake Boehner. The Reid plan is based on the same kitty of cuts as the Speakers’ plan, but rather than running for six months before a mandatory review of long-term spending reform and another vote it would carry the government through the next election.

Reid relies on putative savings from the fact that the war in Afghanistan will not continue until 2022, so he’s basically asking to get the final 12 months of borrowing for free.

Reid likely couldn’t get his plan through the Senate today, as Republicans will certainly give their House colleagues the deference of running their own legislation before Senate GOPers agreed to back Reid’s plan.

If Boehner can get his bill passed today, he will increase the odds that Republicans will get the advantage on the duration of the final debt increase.

While all Senate Democrats said in a letter that they would oppose the House bill, they didn’t say anything about amendments. And that’s what will happen if Boehner can get this duck off the pond. It will go to the Senate, where Minority Leader Mitch McConnell will start working in his wily ways, and produce something that can pass both Houses in an almost orderly fashion.

The question now is whether Obama can remain out of the debate until Congress can finish its work.

Obama has so far managed in speeches and press conferences on the debt debate to hand Republicans a series of big wins and to kill off hopes for a grand bargain.

Each time he scolded or lectured House Republicans on the subject since January, he strengthened their resolve to stand united against his requests for first an unconditional debt-limit increase and then later, tax increases.

As we are seeing repeated now, no matter how much outsiders bemoan and berate Boehner for failing to slay the government leviathan, House members understand that they are less than halfway through a two-year struggle with Obama and the Senate Democrats. Though the bonds may strain, the House GOP can still hang together against Obama.

But that may have been unavoidable. There may have been nothing that Obama could have done to sway the House on small-scale deals on debt. The president’s defeat on an unconditional increase and a tax increase may have been unavoidable. But as we saw with his Monday speech, he has certainly made Boehner’s job much easier.

What was certainly avoidable, though, was the derailment of a compromise plan that traded a debt increase for Obama now for changes to entitlement programs later on.

As one House Democrat told Power Play after the president surprisingly emerged in the White House briefing room to embrace the now-moribund Gang of Six plan: “He probably killed it right there.”

Had Obama stayed silent on the plan, conservative and moderate Republicans already on board would have had time to sell the package to their skeptical fellow Republicans. The same for the Democrats. Obama left Democratic budget hawks no time to work with suspicious liberals to assure them that the cuts were gradual and potentially reversible if the Democratic political position improved.

Obama’s support for the plan was the kiss of death for conservative support and possibly with liberals too. Obama has come to be seen as weak by many on the left. They still support him, but they believe that left unsupervised, the president will give away the farm.

Even with the public, the president has lost his ability to persuade on fiscal issues. Polls show that voters have concluded the president isn’t serious about the subject.

Obama’s endorsement of any plan is no longer a plus, and his opposition only tends to help Republicans.

Perhaps he knows it. After his blame gaming speech on Monday, Obama has mostly stayed out of the fray this week, emerging for a campaign speech to a Democratic Hispanic group and little else. He’s scheduled to talk about his 20-year plan on vehicle emissions and global warming Friday, but nothing that generates much heat on its own.

It’s hard for any politician to do, but to get the deal on debt he needs to avert a disaster, Obama may need to just hush.

---

Wall Street Starts Taking Washington Seriously

“We know he’s going to turn up the heat soon because fear mongering is the only thing that works for him.”

-- Aide to a senior House Republican talking to Power Play about President Obama

While Power Play has always held that there would almost certainly be a deal on debt, this is not the kind of political note that discounts the possibility of congressional crackups.

Wall Streeters, though, have mostly discounted the idea that a divided Washington would break under the pressure and cause a partial government shutdown when the Treasury runs out of rainy day funds.

As we get closer to the edge, which Treasury insists remains set for Tuesday, investors are starting to get kind of edgy. Because many bottom-line driven investors regard all the ideological differences and abstruse procedural rules of Congress as backwards or antique, they frequently fail to understand that lawmakers are playing for keeps.

Now it’s occurring to them that these people might just be serious.

We should also take care to separate the twin financial threats from the current debate. First, there’s the concern that a government shutdown will ensue and cause a short-term disruption to the already crumbling economy. This isn’t a concern that the U.S. will pay its debts, but instead a concern that federal spending could conk out.

A partial shutdown, aside from depriving contractors and government workers of checks, would also cause deepening anxiety and uncertainty among the capitalists who were anxious and uncertain already. The specter of that, plus some crummy economic news, is helping to keep the securities markets on the bearish tip.

But even if a debt ceiling impasse doesn’t mean that there’s no default on debt, that doesn’t mean there aren’t bond problems and bond-trader worries.

The ratings agencies have been at pains to point out that the looming U.S. credit downgrade isn’t over the debt limit, per se, but that the conflama over the debt limit has demonstrated what they’ve been maintaining all along: The current political climate will not allow the government to change its ways on the long-term debt that is threatening the future health of the nation’s economy.

Entitlement (i.e. Social Security and Medicare) and welfare (i.e. Medicaid and food stamps) programs constituted $2.1 trillion of federal outlays in 2010 – 66 percent of federal spending. There will almost certainly be no change to these issues in the final debt-ceiling plan, except for perhaps some kind of J. Wellington Wimpy solution in which a super committee will come up with a plan. Washington did that last year and has so far done nothing but talk about it.

The U.S. tax code is a rat’s nest of crony capitalist deductions and populist wealth transfers. This problem will go untouched too, save for a promise of future consideration.

U.S. bond ratings will drop not because of the debt ceiling, but the debt ceiling demonstrates the degree of political dysfunction on the subject. That’s embarrassing but not fatal. American debt will continue to look good compared to the fetid heaps of European debt and China’s crackpot jackpot of fiscal policies.

But it is the concerns over a government shutdown and economic disruption that will drive the final deal. As Washington sputters, Wall Street starts listening. And as investors panic, Washington will start listening to Wall Street.