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Obama’s Budget Fight Starts With His Own Party

Obamas Budget Fight Starts With His Own Party

It’s not exactly the can-do, uplifting kind of message that President Barack Obama or Congressional Democrats want to deliver to the voting public. But in the face of soaring deficit projections and growing Republican and moderate Democratic opposition to the Administration’s $3.6 trillion budget plan, it may just be the best they can do. And so, when the President journeyed to Capitol Hill on Wednesday to rally his party’s support for his agenda, he was seeking to make a counter-argument to the rising chorus to scale back his ambitious plans to reform health care, energy and education even as he tries to save the economy and cut the deficit.

“The real question is are we going to have a huge deficit with investment or a huge deficit without investment,” said Senator Carl Levin, a Michigan Democrat, emerging from the meeting. “Those are my words, not [Obama’s], but I’m kind of summarizing what the argument is here. If you eliminated his investments you’d find the deficit would still be 80% or 90% of what it would be otherwise with his investment.” In other words, since Washington is going to rack up massive deficits, they may as well go all in and get some long-term bang for the buck.

Whether that kind or argument will convince fiscal conservatives and deficit hawks in Congress remains to be seen. Obama’s visit to the other end of Pennsylvania Avenue came as the House and the Senate Budget Committees each introduced their own versions of the budget bill, and less than a week after the Congressional Budget Office estimated that the 10-year shortfall would be $2.3 trillion greater than the White House’s more rosy projections. Both chambers delivered on their recent promises to make sizable cuts to Obama’s budget resolution, which is more of a blueprint for future spending than any kind of binding legislation. But the Administration put its best spin on the differences, arguing that Congress’ offerings retained the commitment to the President’s four “core principles” — universal health care, expanded education aid, renewable energy investments and regulation of greenhouse gases and provisions to halve the deficit in five years.

“Not only do [the House and Senate versions] embody the four key principles that the President has put forward for the budget, but they are 98 percent the same as the budget proposal the President sent up in February,” White House Office of Management and Budget Director Peter Orszag told reporters on a conference call Wednesday morning. “The resolutions may not be identical twins to what the President submitted, but they are certainly brothers that look an awful lot alike.”

Still, even small differences can cause major rifts in any family, and the competing budgets suggest the challenges Obama’s agenda faces. Both the House and Senate, after all, removed Obama’s $250 billion to $750 billion placeholder request for more bank bailout funds. And they both slashed the Administration’s proposed 10% increase in non-defense discretionary spending to 7% in the Senate to 7% and 9% in the House. The Senate also stripped the President’s signature middle class tax cuts, known as “Making Work to Pay,” of $400 for individuals and $800 for families. The Senate plan, crafted by Budget Committee Chairman Kent Conrad of North Dakota, also notably did not include any targeted funding to bankroll health care reform, as Obama’s does with $634 billion over 10 years. “When you lose $2.3 trillion, you have to cut things,” said Conrad, whose plan has $160 billion less in discretionary spending over five years than the President’s, with a target deficit of $508 billion in 2014.

To some degree, Congress scaled back Obama’s budget by resorting to the same kinds of accounting gimmicks that the President had prided himself on avoiding, a fact that Republicans were quick to point out. It dropped the long-term inclusion of the costly Alternative Minimum Tax fix — an annual must-pass bill to prevent the tax once intended for the super rich from hitting the Middle Class — and opted for a shorter time-line of just five years versus the 10-year budget the White House had crafted. “Given the state of the economy, everyone agrees that it’s very difficult to predict the next five years,” said Senator Mark Pryor, an Arkansas Democrat, “let alone 10 years.”

The House bill includes a controversial provision for so-called reconciliation – which would leave the door open to piggyback massive programs like universal health care on the budget in case they fail to make it through the regular legislative process. House Democrats and the Administration support such a move specifically for health care — though, theoretically, the provision would allow for anything, including energy, to be pushed through the Senate with just a simple majority rather than a filibuster proof 60 votes. Several moderate Democratic senators, including Senator Ben Nelson of Nebraska, have said that inclusion of reconciliation instructions in the final bill would be a deal breaker for them. “Reconciliation is not where we’d like to start, but we are not willing to take it off the table,” Orszag said.

Republicans latched on to the gap between Obama’s budget request and the Democratic caucus’s counteroffer as evidence that Obama’s budget is “so far out of the mainstream” that even members of his own party won’t support it, said Rep. Eric Cantor, the number two Republican in the House. Republicans in both chambers almost all oppose the budget, though there are a few moderates still making up their minds. “I intend to listen and I intend to be willing to think about things,” Senator Arlen Specter, a Pennsylvania Republican, told reporters Wednesday.

Both chambers are expected to pass their respective versions by the end of next week, and then the real fun begins, as members work to hammer out the differences into a final bill. During this process everyone, Obama noted at the Senate lunch, will have to give a little.

Given GOP opposition, support from a group of moderate Democrats known as the Gang of 16, led by Sen. Evan Bayh of Indiana, is essential. Though most insisted Obama’s presence on Capitol Hill was not a sales job, the luncheon was dominated by talk of his budget. “These initiatives — education, better health care — are not free,” said Senator Mary Landrieu, a Louisiana Democrat, who asked Obama about a provision she strongly opposes that would raise taxes on independent oil and gas producers. “But he was very open to consider some of those changes, which is what I wanted to accomplish.

See Obama’s top 10 gaffes.

See TIME’s pictures of the week.

IBM and the Rebirth of Outsourcing

A couple of month ago, India’s chief finance minister may have made calls to the heads of IBM and several other large U.S. tech companies to tell them that the huge developing nation was hemorrhaging high-end tech jobs. Whether the call happened or not, looking at statistics from India it would be easy to see that the costs of outsourcing technology work to firms based there is dropping as unemployment in the country rises.

For a number of years, unions and members of Congress spent a great deal of time complaining about the number of U.S. jobs being sent abroad. The bitterness about the issue seems to have receded recently, especially as the recession has deepened and large American companies have been inclined to cut jobs as much or more than they have been able to export them. Perhaps with the economy losing about 600,000 jobs a month, the need for efficiency though outsourcing has become less immediate.

But, outsourcing may be making a big comeback as word leaked that IBM would cut about 5,000 jobs in the U.S. and move the work to India. This may be the beginning of a new wave of exporting of American jobs to developing countries which have large pools of well-educated workers.

India’s GDP grew at a rate of 7% or better the last two years. That rate is expected to move down sharply due to the recession. The central government has the goal of continuing the growth rate it enjoyed until last year, but as GDP falls throughout the balance of the developing and developed world, it will be nearly impossible for the government to meet those goals.

The IBM news is troubling because labor costs in the U.S., even among highly educated adults, are falling. American workers should be available for employment at salaries much lower than they were two years ago. But, it appears that IBM has elected to move jobs offshore rather than keep them in the U.S. despite the trend of more tech workers losing their jobs here.

But, the cost of labor in India, which was already below that in the U.S., is likely to be falling even faster than it is in the U.S. The outsourcing business in India has been hit with a sharp drop in demand, and the major Indian employers in the sector are doing poorly.

India’s outsourcing giant WiPro recently posted mediocre financial results, especially based on Wall St expectations. Its stock traded for $14 a little over a year ago. Recently it was as low as $5. Wall St. expects that the situation at the firm is going to get worse. The other large outsourcing operation in India, Infosys , is also doing poorly.

While labor prices drop in the U.S., they are probably dropping faster in countries like India and China. India’s official unemployment rate is 8.2%, but is expected to rise throughout the balance of the year. IBM clearly arbitraged the joblessness in the U.S. and India as it made its decision about where to employ several thousand people. To put it crassly, IBM is looking for the equivalent of the lowest cost bidder.

The IBM move may be a precedent for other U.S. companies who need to staff essential positions if the recession goes on for a long time. More jobs will be sent abroad and that could easily take hundreds of thousands of American people out of work.

— Douglas A. McIntyre

Read a TIME cover story on IBM.
For constant business updates, go to 24/7wallst.com.

Third man charged over Northern Ireland police shooting

Stephen Carroll's coffin is carried from St Therese's chapel in Banbridge, Northern Ireland, on March 13.
A 21-year-old man appeared in court Thursday in Belfast, Northern Ireland, charged in connection with the murder of a police officer earlier this month, police said.

The man, who was not named, is charged with withholding information in connection with the murder, the Police Service of Northern Ireland said. He is the third person charged in connection with the shooting death of Constable Stephen Carroll, 48, on March 9. The other two men, 37 and 17, have been charged with his murder, police said. Four others have been released in the case. Carroll was killed as he responded to a call in the town of Craigavon, in County Armagh. News reports said he was shot in the back of the head. The Continuity IRA, which does not accept the Good Friday peace accord, claimed responsibility for Carroll’s killing. The shooting happened two days after the murder of two soldiers at a base in Massereene, in County Antrim. It was the first fatal attack on British troops in the province for more than 12 years. One person is in custody in connection with the soldiers’ deaths, police said. The 41-year-old has not yet been charged, police said.

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The 41-year-old man is one of six suspected dissident republicans whose lawyers successfully challenged a court order granting detectives more time to question them in the case, British news reports said. The six were released without charge on instructions from a judge, a police spokeswoman said, but the 41-year-old was quickly rearrested.

The shooting of the soldiers sparked fears of a return to the sectarian violence that Northern Ireland suffered until the Good Friday Agreement of 1998, a period known as The Troubles. Another militant splinter group, the Real IRA, reportedly claimed it had carried out the attack on the soldiers.

Can top luxury brands survive downturn?

Companies suggest the top tier of luxury goods is less affected by the downturn.
Over the next week CNN has special coverage of one of the world’s biggest gatherings of the luxury industry from Basel, Switzerland, bringing you the views of the people behind some of the biggest brands.

In this time of economic upheaval, these brands are being put to the test. People are spending their hard-earned money much more carefully. If they’re going to shell out thousands of dollars for a timepiece or a trinket they want to know it’s worth it. A luxury brand’s name, history, and quality are cornerstones of their marketing and advertising. But is that enough That is the question we will ask the CEOs of brands like Chopard, Bulgari, Patek Phillippe and Tag Heuer, to name a few. There are conflicting reports over whether luxury brands are immune to the effects of a recession. Some suggest that people are not spending as much as they used to. Renowned British department store Harvey Nichols, which houses high-end luxury goods, posted a 40 percent drop in profits and a 5 percent drop in sales in the year ending March 31, 2009. Other reports however suggest that consumers are still spending, just more carefully. The CEOs of the high-end brands like Boucheron and Patek Phillippe tell us there are three tiers in the luxury industry: the lower level where the brand’s name is licensed and goods are mass marketed, the mid range where products are expensive but still widely available, and then there’s the top tier where the goods are only available to a select few. These products are very expensive and only a few pieces are produced. Companies suggest this top tier isn’t really affected by the downturn as consumers at this level still can afford to spend. Can luxury brands survive Send us your views The CEOs also suggest this downturn means a return to the notion of true luxury that is defined by its aspirational, not affordable quality of a product or a lifestyle. Geography plays a big part in a brand and company’s sales and profitability. Before the credit crunch, the United States was the top market for luxury goods. Today some reports indicate that China has surpassed the U.S. for its hunger for designer brands. According to chinadaily.com, China consumed $8.6 billion worth of luxury goods in the two years ending January 2009. The Middle East and emerging markets like India are also major hubs of luxury consumption as importers of luxury brands. Here companies have set up shop in cities from Dubai to Delhi. These markets have been seen almost as the life rafts in this turbulent economy because there, the thinking is, people will still spend, spend, spend on known brands. Last year at Baselworld, the then-CEO of the luxury watch brand Ebel, Thomas van der Kellen, told us that consumers in the emerging markets “are growing opportunities for the luxury watch business…the money is there, it’s very much a branded culture..so we see a lot of opportunity to make up for potential loss on the western hemisphere.” The bottom line for all brands in the luxury industry is no one is exempt from feeling the constrictions of the market. Every aspect of the business is and will be affected in some way, whether it’s at the production end (rising costs of raw materials and manufacturing) to the retail end (flow of traffic into their stores). What separates those who will survive and even flourish in this industry are the ones that define themselves as true and aspirational luxury where the product is seen as an investment and worth it.

Search continues for Turkish ultra-nationalist in chopper crash

Turkish officials continued searching Thursday for the leader of an ultra-nationalist political party whose helicopter crashed a day earlier in the mountains of eastern Turkey.

Are U.S. Missile Defenses Geared for the Wrong Missiles?

More than 25 years and $100 billion ago, Ronald Reagan ordered the
Pentagon build a system to “intercept and destroy strategic ballistic missiles
before they reached our own soil.” This week, the vice chairman of the Joint
Chiefs said there wasn’t much point. Marine General James Cartwright told an audience invested in missile-defense that the bad guys have already abandoned the notion of shooting ballistic missiles toward the United States. “Ballistic missiles are about as passe as e-mail,” said Cartwright, who before becoming the nation’s No. 2 military officer headed U.S. Strategic Command, which grapples with these issues. “Nobody does it anymore. Okay? It’s just gone.”

It wasn’t so long ago that we were told the threat was imminent. Ballistic missiles were the dire peril that Reagan warned of in his famous 1983 “Star Wars” speech. Donald Rumsfeld rode the same issue into the Pentagon for his second tour as defense secretary in 2001. The so-called Rumsfeld commission, established during the Clinton era and officially known as the Commission to Assess the Ballistic Missile Threat to the United States, had warned in 1998 of “concerted efforts by a number of overtly or potentially hostile nations to acquire ballistic missiles with biological or nuclear payloads pose a growing threat to the United States, its deployed forces and its friends and allies.”

Cartwright doesn’t think the bad guys have decided to play nice. They’ve simply decided to make their missiles less ballistic and even more diabolical — a ballistic missile follows a regular arc, its fuel pushing it into space on a specific trajectory that follows a predictable pattern back to its target on Earth. The predictability of its ballistic arc is the basis on which the interception systems built under the Missile Defense program operate. What Cartrwright was saying is that U.S. foes — who to date have shown no ability to marry a warhead of any kind to a simple, garden-variety ocean-spanning ballistic missile — are simply going to skip that step, and
deploy more crafty weapons atop their rockets.

Of course, there’s a certain symmetry to the fact that current foes don’t have a missile for us to shoot down, because the existing U.S. shield has not proven its capacity to intercept and destroy such a missile. While the shield, based in Alaska and California, has “demonstrated a capability against a simple foreign threat… flight testing to date will not support a high level of confidence in its limited capabilities,” the Pentagon’s top weapons tester reported recently.

Instead of lobbing missiles towards the U.S. and letting physics and gravity handle
the rest, Cartwright predicted that enemy warheads will be the military equivalent of a screwball. They’re “going to maneuver, they’re going to fly out of the atmosphere, they’re going to fly in the atmosphere,” Cartwright said. “No stupid person, enemy out there would be so silly as to come at us anymore with a minimum-energy trajectory. Come on. Give me a break. There’s just no reason to. I mean, even the people that we would call ‘Third World’ have gone beyond that.” Cartwright’s one consolation: various components of the missile-defense system in which the U.S. has already invested could be used against these more sophisticated warheads.

But Cartwright wasn’t exactly reassuring that the adaptations will come in time. Yet something else he said is cause to ask why anyone should take this
retooled view of the missile threat seriously. “The reality is that our ability to stay up with the pace of change, to outguess the enemy, to be able to be in the right place at the right time, has never been a forte of the military,” he noted. “We almost always guess wrong.” Now he tells us.
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Classic cars in Cuba

But after chewing the fruit and rubbing the pulp against the tongue, the berry, known by a promising name — “miracle fruit” or Synsepalum dulcificum — releases a sweetening potency that alters the taste buds. For about 15 to 30 minutes, everything sour is sweet. Lemons lose their zing and taste like candy. Oranges become sickeningly sweet. Hot sauce that usually burns the tongue tastes like honey barbecue sauce that scorches as it trickles down the throat. Through word of mouth, these miracle fruits have inspired “taste tripping” parties, where foodies and curious eaters pay $10 to $35 to try the berries, which are native to West Africa. About five months ago, a Miami, Florida, hospital began studying whether the fruit’s sweetening effects can restore the appetite of cancer patients whose chemotherapy treatments have left them with dulled taste buds. “What happens in patients is the food tastes so metallic and bland, it becomes repulsive,” said Dr. Mike Cusnir, a lead researcher on the project and oncologist at Mount Sinai Medical Center. “Most of the patients undergoing chemotherapy have weight loss. Then they cut further into their diet and then this furthers the weight loss. It causes malnutrition, decreased function of the body and electrolyte imbalance.” Watch a flavor tripping demonstration and the interview with Cusnir. »

Health Library
MayoClinic.com: Nutrition during cancer treatment

MayoClinic.com: Tips for eating during treatment

One of Cusnir’s patients, Don Blechman, told him about the fruit after discovering it while he and his wife volunteered at a tropical fruit garden in Coral Gables, Florida. “We didn’t need it, but we thought it’s wonderful and told a lot of people,” said his wife, Terry Blechman. “If you can’t eat because everything tastes bitter, and one berry gives you back your taste for a meal, what is it worth It’s worth everything.” Cusnir filed for an investigational new drug application, which is required by the U.S. Food and Drug Administration to use an unapproved product in a new patient population. His study seeks 40 cancer patients. “The majority have given good feedback that it did improve taste,” Cusnir said. “A few patients felt there wasn’t much change. The feedback is mixed as it usually is in any situation. It’s been encouraging, but we haven’t analyzed the data so far.” If the results show promise of helping cancer patients to maintain a healthy body weight and appetite, there will be bigger studies, Cusnir said. The process is expected to take several years. “If this doesn’t work, we move on and spend resources on something else instead,” he said. It’s not only cancer patients and foodies turning to the miracle fruit. Carmen Duporte, a Fort Lauderdale,Florida, resident, integrated the miracle fruit into her routine drinks of aloe vera juice. Duporte drinks the juice to cleanse her digestive system, but hates its thick and long-lasting taste. “It’s really bitter,” she said. “If I don’t take [the miracle fruit], I’d be having that taste for a long time. When I drink it with the fruit, there’s no taste in my mouth.” Duporte told her friends about the berries, because “it’s such a friendly fruit.” Through word of mouth, the miracle fruit has picked up buzz. “This new resurgence of interest is fascinating,” said Linda Bartoshuk, a professor at the University of Florida’s Center for Smell and Taste. “It popped on the scene and people are having fun with it. It motivated us to go back and do research.” Bartoshuk seeks to better understand how the berry works. In the 1970s, she studied the fruit while working for the U.S. Navy and Army labs. The miracle fruit contains a natural protein, called miraculin, which has sugar molecules that bind to the tongue, she said. When acid enters the mouth, the sugar molecules press into the sweet receptors. Some of her colleagues are looking into how the berries could help people with diabetes and obesity, because they sweeten the taste of food. Unlike sugar, the miracle fruit has very few calories and unlike artificial sweeteners, the berries are natural. Bartoshuk said she hasn’t seen any reports of dangers from eating the berries, but warned against premature health benefit claims. “Everyone’s immediate response is it’s an artificial sweetener, it’ll help you lose weight,” she said. “But the bad side is artificial sweeteners don’t help you lose weight. Any real claims for health benefits are going to have to be supported by good research.” After the FDA in 1974 declared that miraculin was a food additive, the miracle fruit grew in obscurity in South Florida and remained a local treat. Individual farmers, like Curtis Mozie, a retired post office employee, raised the berries and began shipping them to customers who found him on the Internet. “I felt like everyone else needs to be aware of this fruit,” said Mozie of Fort Lauderdale. “Why was it kept hush-hush I wanted people to enjoy the fruit and enjoy the experience and any edible item that doesn’t taste good with the help of the miracle fruit.”

Curiosity about the fruit began to circulate among exotic fruit seekers. After a few media reports, other small farms cropped up and companies started selling the miracle fruit and tablets. “No offense meant to people who want to pay money to eat miracle fruit and weird things. We used to do that every Friday,” said Richard Campbell, who oversees the tropical fruits at the Fairchild Tropical Fruit Garden. “We grew up with miracle fruit. People came over, ate miracle fruit and sat around eating limes. I feel stupid I didn’t think of charging anyone.”

‘Miracle fruit’ turns sour things sweet

The small fruit has the color of a cranberry, the shape of an almond and tastes like a flavorless gummy.

Health Library
MayoClinic.com: Nutrition during cancer treatment

MayoClinic.com: Tips for eating during treatment

Iraq bombing leaves 22 dead

Supporters of former PM Thaksin Shinawatra confront riot policemen outside Government House.
At least 22 civilians were killed and 38 other people were wounded Thursday in a Baghdad car bombing, the Iraqi Interior Ministry said.

The number of protesters outside Government House had grown sharply since the afternoon, said Worapong Tuepreecha, the chief of the Metropolitan Police. He said they set up a stage and tents in front of the building. The red-shirted protesters are with the United Front for Democracy Against Dictatorship (UDD). They have been protesting since December to oust Prime Minister Abhisit Vejjajiva and his government. UDD core leader Jatuporn Prompan, also a member of parliament from the Opposition Puea Thai Party, told the Thai News Agency the group’s rally would go on for at least a month and that they could even sustain the protest for up to a year if they wish. The demonstrators gathered Wednesday night at Bangkok’s Sanam Luang plaza before marching to Government House on Thursday afternoon, the Thai News Agency reported. They used a crane to take apart police barriers so they could gain access and surround Government House, the news agency said. They are now blocking several roads and have set up a stage, the news agency said. Civil servants working at Government House were asked to leave in the early afternoon.

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The protesters support former Prime Minister Thaksin Shinawatra, who was replaced by Abhisit in December after some members of the former ruling coalition broke ranks to support him. Thailand’s recent woes date back to a 2006 coup that initially ousted Thaksin. His ruling People Power Party regained office in 2007 elections. Thaksin’s opponents staged more than two months of sit-ins last year, occupying the headquarters of the government and blockading Bangkok’s major international airport. The demonstrations ended December 2 when a court ruled that Thaksin’s party was guilty of electoral fraud and threw his brother-in-law out of the prime minister’s seat. Jatuporn said Thaksin might speak to his demonstrating supporters at Government House via video link Thursday evening, the Thai News Agency reported.

Sacked French workers free 3M manager

The manager of 3M's French operations, Luc Rousselet, eats while he was held hostage in his office.
French workers on Thursday freed the manager of a factory run by U.S. company 3M held hostage for more than 24 hours in a labor dispute over terms for laid-off staff.

Luc Rousselet was allowed to leave the plant in Pithiviers, central France, early on Thursday morning after talks between unions and officials from 3M France. “We have an agreement with 3M that they will provide the means to respond to our demands,” union representative Jean-Francois Caparros told news agency AFP. “The negotiations will resume and that’s a very good thing,” said Rousselet as he left an office where he took refuge on Tuesday afternoon. “I am very happy for the employees of the Pithiviers factory. I know that this was a very difficult lay-off plan for them,” he said as workers shouted “Scoundrel boss!” The 3M factory at the center of the dispute makes pharmaceutical products and employs 235 people. Of those 110 are being cut this year and 40 more are being transferred to another plant. Rousselet was briefing the laid-off workers about a compensation package but retreated to an office after feeling threatened. Maryse Bulte, 44, one of the employees, said: “Initially we didn’t want to hold him. We just sought talks and concrete results. “It was despair and distress which made us do this,” added Cyril Foufelle, 36.

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The manufacturer 3M, based in Minnesota, has announced thousands of job cuts around the world amid the economic downturn. Anger has been growing in the U.S. and Europe over job cuts and high bonuses for executives whose companies have been rescued with taxpayers’ money. Earlier this month the boss of Sony France was held overnight before workers freed him after he agreed to reopen talks on compensation when the factory closed. And last week angry tire factory workers threw eggs at their bosses in a protest over the closure of their plant.

The drama at Pithiviers, about 80 kilometers (50 miles) south of Paris, came as figures showed the number of jobless in France rose nearly 80,000 in February to reach 2.38 million. More than a million striking workers protested last week urging President Nicolas Sarkozy to do more to protect their jobs.