Economy Watch: No Deal Yet
- Jul 28, 2011
Debt-ceiling imbroglio quote for Wednesday: “Get your ass in line.” That was the widely reported imperative voiced by House Speaker John Boehner to members of his own fractious party. A vote in the House on the Republican debt-ceiling plan had been scheduled for the same day, but was postponed until Thursday ostensibly to retool the bill in the wake of Congressional Budget Office calculations that showed its budget cuts to be smaller than Boehner had earlier said.
Will the Republican rank-and-file, especially those who have been sounding off about the perniciousness of a higher debt ceiling lately, get in line or continue to defy the speaker? That’s the question for the vote Thursday. Also, the Senate will likely be voting on its version of the debt ceiling adjustment sometime the same day, which includes deeper cuts and a longer term–until past the 2012 election, something the House version does not do.
Also on Wednesday the head of Standard & Poor’s, Deven Sharma, told a House Financial Services subcommittee hearing on oversight of the credit-rating agencies that he didn’t think default by the United States was too likely, or as he put it, “our analysts don’t believe they would.” He was a little more coy about whether or not S&P would downgrade the debt of the United States anyway, saying the agency has to see what kind of rabbit Congress pulls out of its hat before he could comment on that.
Beige Book reports mediocre economic recovery
The Federal Reserve released its latest “Summary of Commentary on Current Economic Conditions
by Federal Reserve District,” better known as the Beige Book, and it characterized the U.S. economy as middling at best. “Reports from the twelve Federal Reserve Districts indicated that economic activity continued to grow; however, the pace has moderated in many Districts,” the Beige Book notes.
Falling gasoline prices seem to have encouraged an uptick in shopping trips among consumers and some additional spending since the previous Beige Book in early June, the report continues with moderate optimism, but then almost immediate reports economic crosscurrents that are less hopeful. “Price pressures from food, energy, cotton, and other supplier inputs continued to squeeze retail margins,” it says.
As for real estate, the Beige Book reports that “most residential real estate activity was little changed and remained weak, although construction and activity in the residential rental market continued to improve since the previous Beige Book … activity in the nonresidential real estate market has improved slightly for specific submarkets, although conditions generally remained weak across all twelve Districts.”
U.S. takes UBS to court Over MBS
The U.S. Federal Housing Finance Agency filed suit against Swiss banking giant UBS in federal court on Wednesday for allegedly fobbing off a lot of bum mortgages on Fannie Mae and Freddie Mac back when many mortgages were packed like sausages back before the Pure Food & Drug Act. The suit, filed in the Southern District of New York, asserts that the GSEs have lost 20 percent of their $4.5 billion investment in such UBS-sold mortgages.
This isn’t the only suit the FHFA, which is the conservator of the GSEs, plans to initiate. “From the issuance of 64 subpoenas last year to the filing of this lawsuit and further actions to come, we continue to seek redress for the losses suffered by [the GSEs],” Edward DeMarco, acting director of the agency, says in a statement.
Are investors now officially nervous that Congress will drive the nation over the default cliff? It seems so. Wall Street had a crummy day on Wednesday as deadlock on Capitol Hill continued. The Dow Jones Industrial Average lost 198.75 points, or 1.59 percent, while the S&P 500 was down 2.03 percent and the Nasdaq was thumbed to the tune of 2.65 percent.