most everyone seemed genuinely surprised early this past week when the house republican leadership caved in, virtually without a fight, on extending the payroll tax cut for the rest of the year without extracting offsetting spending cutsseen as a defeat for the tea party contingent, this rare bit of co-operation began the process towards passage of a package on Friday which included a “reformed” extension of federal unemployment rations,  & the “doc fix”, as well as the payroll tax cut…the payroll tax cut itself was unchanged from the “temporary cut” which has been in effect since the beginning of 2011, ie, adding back 2% to paychecks up to the payroll tax limit of $110,100 per year; thus, those making $500 per week will see $10 more per week, while those making $2000 per week will see $40 more per check…since the payroll tax is meant to fund social security, funds foregone as the result of this cut by the social security trust fund will be replaced by revenues from the general fund…the “doc fix” averts what would have been a 27.4% cut to doctors caring for the elderly under the medicare program, a health care cost control measure which had been legislated in 1997 & eliminated by legislation every year since….there was something of a compromise on the extension of unemployment rations, however, and for every unemployment level the federal addition to state insurance will be cut from anywhere between 19 and 36 weeks, and this also adds a bundle of requirements for eligibility, including a job search requirement, prerequisite for drug testing in some states, and “works” program for 10 individual states (see the 3 page scribd document from house ways & means committee for all the details – interesting in that it closes the “strip club loophole” that had allowed legions of welfare mothers to go out carousing all night rather than feed their babies)…in those high unemployment states currently eligible for 99 weeks of rations (dark red on the top adjacent map), the rations will be cut to 73 weeks for those states with a U-3 rate over 9%, and 63 weeks for the those in the states with a U-3 rate between 8.5% & 9%; those in states with over 7% unemployment, now eligible for between 86 & 93 weeks, will also be cut to 63 weeks total; those in states state with an unemployment rate between 6 & 7% will see their total aid cut to 54 weeks, & those in states with a U-3 rate below 6% (yellow) will only see 40 weeks of rations…since this bill just passed friday, estimates are unavailable as to how many will lose their stipends under its provisions, but with 5 1/2 million currently receiving federal aid, and with the average duration of unemployment near a record 41 weeks, we can guess its likely to be over a million…the lower adjacent map represents the state insurance share in each case, which is 26 weeks for most, (not particularly relevant now, but these maps from the CBPP (Center on Budget and Policy Priorities) came together & were easier to shrink & paste that way rather than use an accessory program to crop the lower map off)… the total cost of this package is expected to be $52 billion, and will be paid for by making federal employees contribute more to their pensions, by the sale of broadcast spectrum, and by cuts made to specific Medicare hospital and specialist fees…. 

   the house also passed a $260 billion transportation bill which would be paid for in part by expanding oil and gas drilling off the nation’s coasts, opening the national wildlife refuge (ANWR) on the alaskan north slope, & fasttacking the keystone pipeline to create gazillions of new jobs…however, TransCanada, the pipeline’s builder-operator, now indicates it cannot start the pipeline until 2015 at the earliest, as they are still planning a new route around the environmentally sensitive Nebraska Sandhills

the administration sent their budget for fiscal 2013 (starts oct 1) to congress on monday, generally a formality since the president’s budget seldom gets passed as submitted, and as you may recall, no budget has even passed on time for at least the past 2 years anyhow, as congress funded the government through a series of continuing resolutions…nonetheless, since it’s the 1st salvo in the budget wars for next year, its worth looking at what the obama team has proposed in what can be considered largely a campaign document…proposing total spending at $3.8 trillion, the administration optimistically expects revenues to increase 18% to just under $3 trillionprimarily accomplished through tax increases on the rich, leaving the deficit at $901 billion, which would be the first deficit under a trillion since fiscal 2008floating a lot of the same proposals made in the “obama jobs act“ advanced late last summer, such as spending for infrastrucure & education, this budget leaves entitlement spending virtually untouched, with the only real cuts coming out of defense, which at $614 billion would be the first real cut in defnese spending in more than a decade; unsurprisingly, this dismayed the hawks in congress, who quickly called in defense secretary panetta & general dempsey to testify, even though most of the savings were already realized from ending the war in iraq…but other than taxes changes and defense cuts, most of this 256 page budget was business as usual, so there were only a handful of other sections that attracted press or blog coverage, including a proposal for an inexpensive, easy to administer automatic IRA, which would encourage all workers to save for retirement, the elimination of funding for the nation’s only program that regularly tests produce for bacteria, which should put an end to those pesky food recalls, funding for a new trade enforcement arm of the commenrce dept which would presumably would get tough on countries which try to give us products for less than it costs them to produce them, and new funds to advance R&D & other initiatives geared toward rebuilding domestic manufacturing

as bad as the foreclosure fraud settlement seemed on the initial examination last week, it looks like it’s turning out to be even worse than we had expected…first of all, its worth noting that even with all the hoopla last week over a settlement and agreement in principle, the details arent even finalized and nothing has been signed, and likely wont be until next month…one of the things we’ve learned is that the states have broad latitude into how they will use the funds provided by the banks as part of the settlement; already, missouri has diverted $40 million of its take to offset budget cuts to its universities, and both wisconsin and maine are allocating large portions of their settlement for their general funds…and a good portion of the mortgage principal writedowns, which if you recall is the lion’s share of this settlement, will be funded by the taxpayers, because the banks will get triple credit for those writedowns under changes to HAMP that were made in january to incentivize writedowns, wherein instead of the 18 cents on a dollar credit they originally got from HAMP for writedowns, they now get 63 cents for every dollar of mortgage writedown they make, which has been confirmed to also apply to those writedowns under this settlement as well…moreover, the immunity from prosecution for the mortgage servicers now seems it will much broader than what was originally described in the press releases…

  we also got results from another audit of recent foreclosures, this time in san francisco, wherein the county officials examined records of 400 homes and found that 85% of the mortgage transfers were faulty, with 45% of the homes sold at auction sold by “a ‘stranger’ to the deed of trust,” hence invalidating those sales; this was pretty much in line with findings elsewhere, ie, the registrar of southern essex county massachusetts had found 75% of the assignments of mortgage were invalid, & one of two counties in new york where there was a complete failure to transfer notes during securitization, and others…as this seems pervasive across the country, a real estate correspondent writes that the trouble is once the chain of title is broken, you can no longer get clear title on any of those homes anymore; she believes the banks or corporations will eventually end up holding them for rental because they can no longer be sold with title insurance

  there was also other housing related news this past week; the MBA (mortgage bankers assoc) reported that 11.96% of mortgage loans were either delinquent or in foreclosure in the 4th quarter, which, since they seasonally adjust delinquencies, is a finding pretty much in line with the reports from LPS that we cover in detail monthlyTransunion, the credit reporting agency, also reported mortgage holders more than 60 days delinquent for the 4th quarter at 6.01% of those they track, which was the second quarter over quarter increase in a row for their report…and RealtyTrac reported a 3% rise in foreclosures in january, with one out of every 624 homeowners receiving a new foreclosure filing for the month…tom lawler, a real estate economist using proprietary software, estimated from reports that foreclosures were down about 21.2% in 2011 and short sales were up 12% YoY in the 4th quarter…and there was guarded optimism that home construction had bottomed out, as housing starts rose 1.5% over december on a seasonally adjusted basis, which is easy to explain considering january was 6F degrees above normal for a large part of the country...

chart

few more economic reports to note: january retail sales reported by census.gov were up 0.4% over december, which month’s sales were revised down to unchanged; adjusting for seasonally holiday differences but not for prices, this january was up 5.8% over january of 2011…spending increased on electronics, home and garden supplies, sporting goods, & general merchandise & decreased on cars, even though auto makers reported higher unit sales, as did the commerce dept…the BLS reported consumer prices rose 0.2% in january on a seasonally adjusted basis, and that CPI-U was up 2.93% from last yearcore inflation, or the CPI less food and energy, was up at a 2.7% annualized rate, higher than the Fed’s target, although the Fed is now using PCE inflation instead of this measure…and somewhat ominously, Gallup’s survey of unemployment for this week, which will be the reference week for the Labor Dept release on March 9th, finds unemployment at 9%, up from 8.6% in january and up from 8.3% for january’s BLS reference week…they also find their underemployment measure corresponding to U-6 to have risen to 19%

i just want to add one last graph here, something to think about next time you hear someone ranting about our unsustainable debt….what this graph to the right shows is the annual interest payments on the Federal government debt as a percentage of GDP…this is the metric that really matters, ie, its how much it’s costing us as a percentage of the economy to service that debt, and as you can see, the cost of our debt in those terms is still less than half of what it was during the Reagan-Bush years…

(the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)