Its Forecast Dim, Fed Vows to Keep Rates Near Zero

The Federal Reserve made a rare promise on Tuesday to hold short-term interest rates near zero through at least the middle of 2013, in a sign that it has all but written off the chances of an expansion strong enough to drive up wages and prices.

It is now conventional wisdom among forecasters that the economy will plod along through the end of President Obama’s first term in office. Millions of Americans will not find work. Wages will not rise substantially.

By its action, the Fed is declaring that it, too, sees little prospect of rapid growth and little risk of inflation. Its hope is that the showman’s gesture will spur investment and risk-taking by convincing markets that the cost of borrowing will not rise for at least two years.

The Fed’s statement, with its mix of grim tidings and welcome aid, contributed to wild market oscillations as investors struggled to make sense of the economy and the path ahead. The day ended in a huge upward surge on the New York Stock Exchange — the second busiest day this year after the record volume on Monday, during a deep sell-off — that could not be tallied completely until well after the markets had closed.

The Dow swung as much as 600 points in the wake of the Fed statement, at first sinking over 200 points. But after traders absorbed the decision, they quickly reversed course, and the Dow closed the day up 429 points, or 4 percent, to 11,239.77, as some investors expressed hope that the pledge to keep interest rates low could relieve some of the gloom over the economic outlook.

“The economy is in tough shape and the Fed had a difficult job of showing that they understood that without appearing to be alarmist,” said Steven Lear, who helps to manage a $150 billion fixed-income portfolio for J.P. Morgan Asset Management. “We think that they’ve played that hand about as well as they could.”

The policy announced Tuesday is an incremental step that economists described as unlikely to drive significant growth. The Fed already has held rates near zero since December 2008, and the economy is awash in cheap money. The great impediment, beyond the Fed’s easy reach, is the lack of demand from indebted consumers, nervous businesses and a shrinking public sector.

The Fed demurred, however, from taking stronger steps to aid the struggling economy, a decision that reflected deepening divisions on its policy-making committee, which generally tries to move only by unanimous consent. The vote to promise two more years of low rates passed by a margin of 7 to 3, the first time in almost 20 years that at least three members recorded votes in dissent.

The internal controversy parallels the broader debate in Washington between those pleading for the government to redouble its support for the faltering economy, and those who doubt the utility of additional aid and fear the consequences of the vast efforts already made. The three Fed members in dissent all have expressed concern that the central bank is not paying enough attention to inflation.

The Fed said in a statement that it would continue to consider additional measures to support the economy, but the split vote suggested that the Fed’s chairman, Ben S. Bernanke, may struggle to win sufficient support.

The statement, which includes an assessment of the economy, was a patchwork quilt of discouraging language. The labor market is deteriorating, construction is weak, housing depressed, recovery slow.

“Economic growth so far this year has been considerably slower than the committee had expected,” it said. “The committee now expects a somewhat slower pace of recovery over coming quarters.”

Twenty-five million Americans cannot find full-time work, a number the Fed said would decline “only gradually.”

The Fed is charged by Congress with minimizing unemployment, and increasingly vocal critics have questioned why the central bank is standing still even as the economy shows clear signs of faltering. The modest step announced Tuesday did not satisfy many of those critics.
“The Fed took the least action possible given the circumstances,” Sherry Cooper, chief economist at the BMO Financial Group, said in a note to clients. “Bottom Line: Holy Cow!”
In part, the Fed’s answer is that it is already engaged in an immense program of economic aid.

The central bank has held its benchmark short-term interest rate near zero for more than two years, flooding the financial system with the nearest thing to free money. It already had promised, most recently in June, that it would keep rates near zero “for an extended period” — at least several months, Mr. Bernanke said earlier this year.

The Fed also has amassed a portfolio of more than $2.5 trillion in Treasury securities and mortgage-backed securities, putting downward pressure on long-term interest rates. The purchases have pushed investors into the stock market and other riskier investments, and reduced the value of the dollar, helping American exporters.

The decision announced Tuesday is intended to put additional pressure on long-term interest rates, although not with the same direct force as buying $600 billion in securities, a program it completed in June. The rates on long-term securities reflect a combination of expectations about short-term rates and a risk premium for holding a long-term note. Buying bonds reduces that risk premium; by promising to keep rates low, the Fed aims to reduce expectations about future short-term rates.

The Fed’s statement stopped short of an absolute commitment to provide two years of near-zero rates, preserving some room for movement if economic conditions change drastically. But Vincent R. Reinhart, who headed the Fed’s monetary affairs division until 2007, said the meaning was clear.

“It’s as close to an unconditional commitment as you can get out of a central banker,” said Mr. Reinhart, now a scholar at the American Enterprise Institute. “It means that you’ve handcuffed yourself. You can’t change it. You’ve given up unless there’s an overwhelming case to offset inflation risk.”

A second reason for the Fed’s restraint, it is increasingly clear, is the opposition of a group of Fed officials who are concerned that the central bank is overly discounting the risk of inflation.

The three members who dissented from the majority Tuesday were Richard W. Fisher, president of the Federal Reserve Bank of Dallas; Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis; and Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia.

By law the Fed is responsible for keeping prices steady and unemployment as low as possible. But Mr. Bernanke, like his predecessors, places greater emphasis on prices, in part because the Fed has concluded that slow, steady inflation — about 2 percent a year — is the best atmosphere for enduring job growth.

The Fed projected in June that inflation could reach 2.5 percent this year, a crucial reason for its announcement then that it would pause before considering new measures.

There are now signs that inflation is abating, as a temporary spike in commodity prices earlier this year works through the economy, and as growth weakens. Mr. Bernanke and his allies on the committee have predicted as much all year, and the announcement on Tuesday reflects confidence in that judgment.

But conservative members of the policy-making board see evidence in past recoveries that inflation can accelerate quickly, with little warning. Their dissents echo the last time the committee was as deeply divided, in November 1992, when three members pressed to begin raising the short-term interest rate, which then stood at 3 percent.

The Fed’s statement, indicating that it will continue to consider additional options despite those internal divisions, sets the stage for Mr. Bernanke’s speech later this month at a conference in Jackson Hole, Wyo. Last year, he used the opportunity to indicate that the Fed would undertake a new round of asset purchases. “The markets,” Mr. Lear said, “will be actively interested to hear what he says.”

Economy Grinds To Halt As Consumers Pull Back

Consumers all but shut their wallets in the second quarter, causing the U.S. economy to grow at a tepid pace.

To make matters worse, growth in the first quarter was much slower than initially thought, according to new government figures released Friday.

"It's quite worrisome as the economy remains at stall speed in the second quarter," said Sal Guatieri, senior economist with BMO Capital Markets. "If that continues, then it would raise the risks of a double dip."

Gross domestic product, the broadest measure of the nation's economic health, rose at an annual rate of 1.3% in the second quarter, the Commerce Department said.

While that's an increase from the revised 0.4% growth rate in the first three months of the year, it is hardly good news. The government originally reported that the economy grew at a 1.9% annualized rate in the first quarter.

The growth in the second quarter was also below the 1.8% increase expected by economists surveyed by CNNMoney.

Dubbed a "soft patch" by economists and even Federal Reserve Chairman Ben Bernanke, the economy's sluggishness was due to a variety of factors that weighed on consumers and businesses.

Higher gas prices for one, hit Americans hard when they peaked at a national average of $3.98 a gallon in May.

Top 10 consumer complaints

Overall, consumer spending, which accounts for roughly 70% of gross domestic product, picked up only 0.1% in the second quarter -- marking a significant slowdown from growth of 2.1% in the first three months of the year.

"The major disappointment in the report was the weakness in consumer spending, and it wasn't just fewer automobiles being sold due to Japan's earthquake. There was broad-based softness in consumer spending." Guatieri said.

It marked the slowest growth in consumer spending since the fourth quarter of 2009.

Looking back further, it also now appears that American consumers had less disposable income than originally thought from 2007 through 2010, whereas corporate profits were revised significantly higher for 2009 and 2010.

The government revised the GDP data back to 2003 and also found the recession was worse than originally thought.

Overall, the theme of the U.S. recovery continues to be one driven by companies holding cash on the sidelines and building up their infrastructure, rather than a recovery driven by consumers.

Americans on Main Street continue to be held back by slow job growth and the housing slump, even as major companies report strong profits and have mostly solid balance sheets.

Where the jobs are

According to the latest GDP report, investment in commercial real estate surged 8.1% in the

second quarter, and business spending on equipment and software rose 5.7%.

Meanwhile, exports rose 6%. The U.S. continues to import far more goods and services than it exports to foreign countries, but because imports grew at a slower rate of 1.3%, that also contributed positively to GDP.

The aftermath of Japan's earthquake and tsunami may have been one of the major reasons import growth slowed, as the U.S. bought fewer auto parts from the country.

Friday's GDP report also sparked cries from economists for lawmakers to act quickly in raising the debt ceiling and agree to a deal to cut the national deficit over the long term.

"We don't expect a recession, but if policymakers drag their feet -- which they are doing -- it will be a little more likely," said Paul Dales, senior U.S. Economist for Capital Economics.

Guatieri said: "If the government does not raise the debt ceiling and is forced to cut back spending and Social Security checks, that could undermine consumer spending even further."

U.S. debt downgrade trigger a financial crisis?

As we approach Treasury’s debt-ceiling deadline, attention has shifted from the risks of a default on Treasury debt to the risk of a downgrade of U.S. credit. Many are asking whether a downgrade could itself lead to a financial crisis. With the example of 2008 still fresh in many minds, the question has become: Would it be as bad as the Lehman Bros. bankruptcy?

Some market observers speculate that a downgrade would be a non-event: Japan, for example, went from a rating of AAA to AA without much drama. Others suggest that a downgrade would increase Treasury’s borrowing costs by $100 billion a year or more, making our already unsustainable deficit trajectory even worse.

There are no rules to define what is systemic and what isn’t — or to accurately predict the consequences of an economic shock. Each crisis is unique. How exactly it will affect financial markets, companies and our economy is impossible to know. Nonetheless, recent examples offer guidance.

In 2008, a number of once-cherished beliefs were turned upside down: (1) that home prices in America would never fall; (2) that AAA-rated subprime securities are sound; (3) that a major investment bank would never fail. Consumers, investors and companies allocated capital according to these truths. When the beliefs were revealed to be false, massive shocks were inflicted on the economy as financial markets rapidly adjusted to account for these new risks.

Banks had to reduce their leverage and rein in lending. Companies froze investment. Consumers cut spending and started saving. As a result, the economy plunged into recession, and millions of jobs were lost. Unemployment shot to 10 percent.

The question now is whether U.S. Treasury bonds, which anchor the global economy, really are the gold standard, the risk-free financial instruments they have been trusted to be. What will happen if that truth is revealed to be false?

Four factors in particular can help assess the magnitude of the financial impact from an undermined truth:

(1) How strongly is the belief held?

In 2008, investors around the world generally believed that major U.S. investment banks were so large they would never be allowed to fail. In the six months leading up to Lehman’s bankruptcy, however, it came under increased funding pressure and its stock price slowly collapsed. Markets were not completely convinced that the government would have the will or the ability to save Lehman; otherwise investors would have continued lending to it, as they did to Fannie Mae and Freddie Mac, which had no trouble borrowing money before they were rescued only days ahead of the Lehman bankruptcy.

By comparison, U.S. Treasurys have been defined for decades as the risk-free financial instrument throughout global financial markets. Faith in Treasurys is far stronger than it ever was in Lehman Bros. This suggests a far bigger shock than Lehman if this truth is proven false.

(2) How big an asset class does the belief support?

U.S. Treasurys are a $14 trillion market — the single biggest security market in the global economy. In comparison, Lehman had approximately $600 billion of liabilities before it failed, less than 5 percent of the size of the Treasury market. Treasurys are held by virtually all 8,000 banks in America and nearly all insurance companies, corporations, pension plans and millions of individuals’ 401(k)s. This scale suggests a far larger shock than Lehman.

(3) How wrong was the belief?

Here, Treasurys are not as bad as Lehman. Even if the U.S. credit rating is downgraded, almost no one believes we will actually default on our debt. The United States is not entering bankruptcy, and its debt is not junk. Lehman debt ultimately proved to be worth a fraction of its face value. To some, this suggests a U.S. downgrade would produce a more modest shock than Lehman. But a small deviation from a cherished belief can be as shocking as a large deviation from a weaker belief.

(4) What is the economic context in which the shock is taking place?

Although the United States is technically no longer in recession, the U.S. economy is growing slowly. Unemployment remains at 9.2 percent. Europe is awash in its own fiscal crisis, and much of the developed world is struggling. When Lehman collapsed, U.S. unemployment was at 6 percent, but the economy was contracting and housing markets were plummeting. The global economic context in September 2008 was probably worse than today, but our economy remains vulnerable.

These factors suggest that a U.S. downgrade has the potential to be as bad or perhaps worse than the Lehman shock. The more strongly held a belief, and the larger the asset class it supports, the greater the potential damage to the economy when the belief is turned upside down. We may not be certain what will happen if U.S. credit is downgraded, but there is no upside to finding out.

The writer, a managing director of the investment management firm Pimco, served as an assistant Treasury secretary during the George W. Bush administration. He established and led the Office of Financial Stability and the Troubled Assets Relief Program until May 2009.

Debt ceiling deadlock: Who will get paid?

That's the $14.3 trillion question as each day ticks closer to next week's debt ceiling deadline and Congress shows no sign of brokering a deal.

If lawmakers fail to raise the ceiling by Tuesday, the Treasury Department has said it will no longer be able to guarantee that it can pay all the country's bills in full and on time.

That's because Treasury will not be taking in enough revenue to cover all the bills coming due in August. And without a debt ceiling increase, it will be prohibited from borrowing new money in the bond market to make up the difference.

So, something will have to give.

The consensus thinking has been that Treasury will prioritize who to pay first and who to put off. And at the top of the list of who gets paid will be investors owed interest on U.S. debt. If the investors aren't paid, that would constitute a default, which would have a host of negative consequences for the country.

Of course, it's possible Treasury may decide it doesn't actually have the authority to prioritize and will instead pay interest owed to bond investors but pay other bills as they come due -- first come, first served, said former Treasury official Jay Powell, who coauthored a Bipartisan Policy Center report on the consequences of not raising the debt ceiling.

Assuming, however, that Treasury believes it has the authority to prioritize, it's not clear yet who will be paid first alongside investors. The Treasury has said it will provide more information as Tuesday approaches, and Republican Sen. Orrin Hatch has requested that the department turn over its plan by 5 p.m. on Thursday.

The plan, however, isn't likely to make anyone feel better.

Will I get my Social Security check?

That's because everyone to whom money is owed besides bond investors have either qualified for federal benefits, provided goods or services to the government, are serving in the military or otherwise work for Uncle Sam. Money will also be due to agencies to which Congress has legally appropriated money to run federal programs.

On deck to be paid every month: retirees, veterans, business owners, federal workers, active-duty soldiers, Medicare physicians and government agencies that need money to keep the lights on, to name just a few.

"While at midnight on August 2nd we don't all turn into pumpkins," White House spokesman Jay Carney said in a press briefing, he described the process of picking who to pay and who to put off as a "Sophie's choice."

How the math might work: The Bipartisan Policy Center estimates that Treasury will be short by about $134 billion for the month of August.

That cash deficit will build steadily throughout the month.

So, on Aug. 3, for instance, the center estimates that Treasury will take in $12 billion in revenue and have to pay out $32 billion, creating a $20 billion cash deficit. Among the biggest bills due that day: $23 billion for Social Security payments, $2.2 billion for Medicare and Medicaid payments, and $1.8 billion due to defense vendors.

On Aug. 4, the group estimates that the cash deficit will increase to $26 billion, with only $4 billion in revenue coming in, compared to $10 billion in bills, the largest of which would be for Medicaid and Medicare.

Come Aug. 5, the cash deficit grows another $5 billion to $31 billion.

By Aug. 15, the Bipartisan Policy Center estimates that the running cash deficit will hit $74
billion. That day the Treasury will take in an estimated $22 billion in revenue and have to pay out roughly $41 billion. The biggest bill that day is a $30 billion interest payment.

Cash on hand: What's not yet clear is how much cash Treasury might have on hand going into August.

The Bipartisan Policy Center estimates it might have enough, in theory, to pay bills in full until Aug. 10.

Even if that's right, however, Treasury may still decide to withhold some payments sooner to preserve cash to ensure it can make interest payments after Aug. 10.

It may also keep some cash on hand to ensure it can make principal payments on bonds coming due after Aug. 10.

Treasury will be able to hold bond auctions to roll over existing debt as it matures -- more than $450 billion is expected to come due in August.

However, if there isn't enough demand for Treasuries because of the uncertainty the political crisis in Washington has caused, those auctions may fail to raise all that Treasury needs to pay the principal due.

So Uncle Sam would have to pony up using the revenue coming in. That would mean even less money available to pay seniors, vets, small business owners and others who are part of the lifeblood of the U.S. economy.

Beware the debt ceiling vote

The debt ceiling talks, for weeks now, have been going on behind closed doors. The negotiations have been conducted by a tiny group of legislative leaders and President Obama's top aides.
All the while, the countdown to Aug. 2, when the government will no longer be able to pay all its bills, has marched closer.

Any proposal will still have to be put into legislative language, scored by the Congressional Budget Office and vetted by rank-and-file lawmakers whose votes will decide its fate.

Even after the principal negotiators announce a deal, the rest of Congress will have to be convinced to go along. The closer to D-Day Washington gets, the messier it will be.

Witness what happened on Sept. 29, 2008, when the House at first rejected the $700 billion bank bailout bill.

Weeks earlier, Fannie Mae and Freddie Mac had been placed into conservatorship by the Treasury Department. Lehman Brothers had filed for bankruptcy. AIG Corp, the world's biggest insurer, had been bailed out by the Federal Reserve.

After all that, the Senate passed the bill. And then, as markets watched, the measure was voted down in the House -- a defeat that shocked investors and congressional leaders on both sides of the aisle.

Debt ceiling: What happens if Congress doesn't raise it?

Following the vote, the Dow slumped 778 points, in the biggest single-day point loss ever.
A few days later, the House reversed course and passed a modified version of the bill. Some 58 members switched their votes.

Why was the process so hard? A principal reason is that it was rushed.

Lawmakers who voted against the bill warned that "being stampeded" into a decision would be a serious mistake.

"Wall Street is so hungry for the $700 billion they can taste it. To get it they need to ... create panic, block alternatives and herd the cattle. We ask Congress not to rush," California Democrat

Rep. Brad Sherman said before the vote.

"I am voting against this today because it's not the best bill. It's the quickest bill," Rep. Marilyn Musgrave, Republican of Colorado, told the New York Times. "Taxpayers for generations will pay for our haste and there is no guarantee that they will ever see the benefits."

Norman Ornstein, a resident scholar at the American Enterprise Institute, said lawmakers now face a similar situation, but this time around, "It's worse."

Lawmakers aren't going to have a lot of time to consider their options. And all the negotiations are happening behind closed doors, limiting the involvement of rank-and-file members.

"With TARP, it wasn't clear that another day or two wouldn't make a big difference," Ornstein said. "If you take two to three days messing around with this, you end up with what could be a profound and very long lasting impact."

The White House has already warned that time is running short, saying that a deal needs to be completed in the next couple days in order to give Congress time to pass a bill.

Alabama Republican Sen. Jeff Sessions has voiced concern about the timeline, saying there is a "very real risk that no text will be available until the last minute" and that a bare minimum of seven days is needed to review legislation.

How Washington screwed up the budget

"The real endgame here is not August 2," Ornstein said. "It takes time to put any agreement into legislative language and get it scored. It sure as hell doesn't look to me like we are urgently moving to make sure that happens."

And like 2008, not everyone is dealing with the same set of facts. At that time, every high-ranking government official from then-President Bush on down was warning of dire consequences if TARP faltered in the House.

That moved a few members into the "yes" column, but not all.

"We're on the cusp of a complete catastrophic credit meltdown. There is no liquidity in the market," Rep. Sue Myrick, a North Carolina Republican, said in a statement before the vote. "We are out of time. Either you believe that fact, or you don't. I do."

Right now, despite warnings from Treasury Secretary Tim Geithner, President Obama, Federal Reserve Chairman Ben Bernanke and even House Speaker John Boehner, a number of Republicans remain so-called debt ceiling deniers.

"You've got enough people out there, way too many people, who aren't going to be convinced until Armageddon actually happens," Ornstein said.

U.S. Warned of Possible Downgrade

U.S. lawmakers got another stern warning from a leading credit rating agency on Thursday that there is now a very real possibility that the country's top-notch credit rating could be downgraded in the next three months.

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Standard & Poors said in a statement it was placing the United States' sovereign rating on "CreditWatch with negative implications."

"[O]wing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days," the agency said in a statement.

The action on Thursday follows a move in April when S&P changed its outlook on the U.S. AAA rating to "negative" because at the time it couldn't see how lawmakers would create a path to real debt reduction.

Bernanke: Debt ceiling breach 'calamitous'

Since then "the political debate about the U.S.' fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled," the agency said.

"[W]e believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling," S&P noted.

Indeed, other warnings from ratings agencies Moody's and Fitch in the interim spurred more rhetoric than action from politicians. Seven weeks' worth of talks between the parties led by Vice President Joe Biden broke down in June after House Majority Leader Eric Cantor left the negotiations.

And regular meetings at the White House between President Obama and Capitol Hill brass over the past two weeks have showed no signs of real progress. Obama will hold a press conference Friday to offer an update on the negotiations.

A downgrade of U.S. credit would mean interest rates on U.S. bonds would go up. And it could have ramifications across global markets because U.S. bonds are considered the world's safe haven investment.

The Treasury issued an immediate response to the news.

"Today's action by S&P restates what the Obama Administration has said for some time: That Congress must act expeditiously to avoid defaulting on the country's obligations and to enact a credible deficit reduction plan that commands bipartisan support," Treasury official Jeffrey Goldstein said. (Read: Republican stance on taxes a bust with public)

A downgrade could come for one of three reasons, S&P explained:

-- If Congress and the administration fail to come up with a "credible solution" to U.S. debt and show no signs of agreeing on one in the foreseeable future.

-- If the United States misses any scheduled debt service payments, in which case S&P would issue a "selective default" meaning a default has occurred on some bonds but not others.

-- If S&P concludes that the debt ceiling debate so bogs down that it calls into question policymakers' "willingness and ability to timely honor the U.S.' scheduled debt obligations."

Treasury started sending letters to Congress back in January urging them to raise the $14.3 trillion debt ceiling -- which is the U.S. legal borrowing limit

The Treasury takes in, on average, about $125 billion less than it has to pay out on a monthly basis. To make up the difference it issues U.S. bonds, and because of the country's sterling rating, it is able to do so at very low rates.

If Congress doesn't raise the debt ceiling by Aug. 2, the Treasury will no longer be able to pay all of the country's bills in full and on time without interruption

Debt ceiling: Moody's puts U.S. on notice

The public pressure on lawmakers to raise the debt ceiling was ratcheted up Wednesday when a major rating agency said it would put the sterling bond rating of the United States on review for possible downgrade.

Moody's Investors Services said it had initiated the review because of "the rising possibility" that Congress will fail to raise the debt ceiling by Aug. 2 -- something that could lead to a U.S. default on its debt.

If the debt ceiling isn't raised by then, the Treasury Department says it will no longer be able to pay all the country's bills in full and on time without being allowed to borrow new money. (Read: Debt ceiling FAQ)

"Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis," Moody's said in a statement.

The United States enjoys its AAA rating in part for having always stood behind its debt and paid its bills on time. As a result, U.S. Treasury bonds are considered the world's safe-haven investment.

The Treasury Department issued an immediate response Wednesday.

"Moody's assessment is a timely reminder of the need for Congress to move quickly to avoid defaulting on the country's obligations and agree upon a substantial deficit reduction package," Treasury official Jeffrey A. Goldstein said in a statement.
Debt ceiling: Chaos if Congress blows it

In the still unlikely event the United States would default on any of its interest payments to bondholders, Moody's said it expected the default to be short-lived and the loss to bondholders "minimal or non-existent."

But, the agency added, a default "would fundamentally alter Moody's assessment of the timeliness of future payments." Translation: The United States would be downgraded to AA status.

Beyond the debt ceiling: Even if lawmakers raise the debt ceiling in time, Moody's also made clear that it is expecting progress on the long-term debt.

The agency said it would likely change its outlook on the AAA rating to "negative" from "stable" absent a "substantial and credible" debt-reduction deal.

Moody's had alerted investors in early June that it was considering putting the U.S. rating under review unless it saw forward movement in the debt talks by mid-July. It cited as a concern the "heightened polarization" in the debate.

Since then, negotiations led by Vice President Biden to find a compromise broke down and the prospects for a "grand bargain" have been called into question.

Market reaction: Just how the bond market -- i.e., the investors around the world who lend to the federal government -- will respond to Moody's action is not clear yet.

Bond traders may take note but not blink since the agency already signaled its intention -- "so no surprise factor," said Steve Van Order, a fixed income strategist at Calvert Investments.

And Moody's isn't the ultimate arbiter.

"The bond market will follow its own judgment of how Washington is approaching deficit reduction, not the decisions of the rating agencies," said Jim Vogel, head of interest rate strategies at of FTN Financial.

But, Vogel noted, "Moody's action will focus the market's attention on the debt ceiling more than it has been in recent days. Rating agency actions also may provide a rationale for policy makers to alter their voting stance as deadlines loom."
Bernanke: Default would cause 'major crisis'

Moody's isn't the first ratings agency to announce a negative action.

In April, Standard & Poor's revised its outlook on the country's AAA rating to negative from stable.

S&P's reason: Relative to its peers, the United States has "very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us."

Fitch Ratings, meanwhile, said in early June that if lawmakers fail to raise the debt ceiling by Aug. 2, it would put the country on "ratings watch negative," meaning there is a "heightened probability" of a rating change.

Who would follow Geithner?

Timothy Geithner said Thursday that he plans to stay on as Treasury Secretary for the foreseeable future. But that hasn't stopped speculation about who might take his place later this year.

Sources told CNN and other news outlets Thursday that Geithner is considering leaving the Obama administration later this year, once negotiations on raising the government's debt ceiling and cutting the budget deficit are complete.

Geithner's family is moving back to the New York suburbs where they lived before he took office so his son can finish high school there. And as the head of Treasury through the worst financial crisis in a generation, and the last key member of President Obama's original economic team still on the job, a desire to leave wouldn't be a shock.

Geithner tried to tamp down the reports of his imminent departure when speaking in Chicago Thursday by saying he wasn't planning on leaving anytime soon.

Still, economists and Washington experts were already talking about who might take over the high-profile job.

Near the top of the list is current White House Chief of Staff Bill Daley, a close Obama confidant and someone who was brought in at least partly because of his good relationship with the business community.

Before taking the job in the administration earlier this year, Daley had been an executive at JPMorgan Chase (JPM, Fortune 500). He also served as Secretary of Commerce in the second term of the Clinton Administration.

Also at the top of many lists is Erskine Bowles, the Democratic co-chairman of the president's bipartisan commission on cutting the budget deficit. Bowles, who had served as White House Chief of Staff in the Clinton administration, would be an relatively easy pick to get confirmed given the budget cutting emphasis in Congress today, according some experts.

But when contacted Friday, Bowles, 65, appeared to take himself out of running for the job, saying that he is not interested in any full-time job at this point in his career.

"I am looking forward to being useful in part-time endeavors," he said.

Investment banker Roger Altman is another name that has been mentioned, but his name has surfaced for previous openings on the Obama economic team without ever getting tapped for a position.

And White House Budget Director Jacob Lew, who has been central to negotiations on the debt ceiling and deficit reduction, is another name suggested by experts.

Jamie Dimon, chairman and CEO of JPMorgan Chase, who is often described as "Obama's favorite banker" is another prominent name mentioned. A spokesman for the nation's second largest bank holding company had no comment on whether his boss would be interested in the job.

Greg Valliere, chief political strategist, Potomac Research Group, said he doesn't think it'll be a good idea for Obama to pick someone from Wall Street, given the government help banking giants like JPMorgan -- along with rivals likeCitigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) -- received during the crisis three years ago.

"I just think that Wall Street is not the way they would go. It could be an albatross for this administration," said Valliere. "And having him berating [Federal Reserve Chairman Ben] Bernanke in public three weeks ago certainly didn't help his case."

Valliere said that he thinks Obama should try to go with a high-profile Treasury Secretary outside of banking and Washington -- someone like Berkshire Hathaway (BRKA, Fortune 500) Chairman Warren Buffett, an earlier supporter of Obama four years ago, or New York Mayor Michael Bloomberg.

"I think he should do something bold and swing for the fences. I think Mike Bloomberg would be an electrifying pick," he said. "The only problem is that he could stray from the reservation on the message. But he's an entrepreneur who knows about creating jobs."

Bloomberg has denied interest in an administration post in the past, and has said he intends to complete his term as mayor which runs through 2013. A spokesman in the mayor's press office declined to comment Friday.

But the political reality is that it might be impossible to get any replacement for Geithner confirmed by the Senate in the year before a presidential election, said Jaret Seiberg, a research analyst at MF Global Inc.'s Washington Research Group.

Seiberg pointed out that 44 Republican senators have vowed not to confirm any nominee to head the new Consumer Financial Protection Bureau because they want the new agency's powers substantially trimmed. The same political battle could lead that group to block a Treasury nominee as well, he said. Even Alexander Hamilton would have trouble getting confirmed today, he said.

"The problem is there is no ideal candidate out there," said Seiberg. "I think it's a Herculean task to get anyone through the Senate right now. That's why at the end of the day, we're likely to have Geithner stay in place."

Valliere said if confirmation becomes the major hurdle to a new Treasury chief, he could see Secretary of State Hillary Clinton moving over to Treasury, with Sen. John Kerry taking her spot at State. Past and current senators have an easier time winning confirmation than do outsiders, he said. And he said that the Treasury job has become a diplomatic job as much as a finance job in the current interconnected global economy

Greece Get $17 billion Bailout Package

The European Union approved the disbursement of it's last $17 billion tranche of bailout funding Saturday, putting Greece's debt crisis at bay -- for now.

With the last part of the $156 billion bailout package in place, the struggling nation will be able to keep functioning for a little while longer. The disbursement, which will be made by July 15, follows the Greek Parliament's approval of new austerity measures.

This latest piece is the fifth tranche of a bailout that was approved by members of the European Union last year.

"The Greek authorities provided a strong commitment to adhere to the agreed fiscal adjustment path, and to the growth-enhancing structural reform agenda, which are essential components of our strategy to restore fiscal sustainability and safeguard financial stability," ministers said in a statement Saturday.

European officials will now work on a second proposed bailout.

The bailout is a highly contentious subject in Greece. As the Greek Parliament voted in favor of the funding on June 28, thousands of protesters descended on Athens and clashed with riot police. Tear gas choked the streets as protesters and police pounded each other with clubs and firebombs.

Greece: Back from the brink - for now

However, the bailout won't take care of the nation's long-term budget problems, according to Mark Blyth, an economics professor at Brown University in Providence, R.I.

"This is simply giving them more breathing space, while they're kicking the can down the road," Blyth said, referring to the bailout. "They need to have enough money to cover the primary fiscal debt, and for keeping the lights on at the hospitals and military bases. Once they've got that, they're able to default without shutting down the country."

Blyth believes that a Greek default is inevitable. "Ultimately, there's no way the Greeks can pay back what they've borrowed," he said.

The debt-ridden nation has "heavy near-term financing requirements," according to S&P, with about $135 billion in government debt maturing between now and the end of 2013. An additional $82 billion is set to mature in 2014.

Still, the rest of Europe does not want Greece to default, because it would rupture the bond market and undermine the European banking system so severely that the repercussions could be felt on Wall Street.

Greek austerity: Cure or poison?

The French banking association and the German Finance Ministry, as well as German banks, have offered proposals to keep the Greeks from defaulting on $152 billion worth in bonds.
These proposals offer different variations on the same theme: rolling over Greek debt. As explained by Barclays (BCS), one of the options is to roll the debt into a 30-year bond, with at least 70% backed by private sector investors.

For the Greeks, there is one part of their future that is crystal clear: more austerity. In order to qualify for the final tranche of the bailout, the Greek Parliament had to agree to a new raft of austerity measures, in addition to the ones that were imposed on the Greek people last year. This is why people were rioting in the streets of Athens.

Since 2010, the Greeks have faced a myriad of austerity measures including pension cuts, a boost to the sales tax, excise taxes on fuel, cigarettes, alcohol and luxury goods, more stringent eligibility for disability benefits, and a hike in the retirement age to 65 from as low as 61.
On June 29 and 30, the Greek Parliament approved a new raft of austerity measures that included reducing the pay of public workers, increasing the attrition of public jobs and ramping up taxpayer compliance.

Tax dodging, in particular, is one of the most chronic fiscal problems in Greece. Many of the protesters in Athens blame rich tax evaders for their nation's troubles. The protesters -- particularly the young and unemployed -- believe they're being forced to shoulder an unfair burden to get their country out of hock.

The pain of Greece's crisis

Marko Mrsnik, the lead analyst in the recent Standard & Poor's downgrade of Greece, blames the austerity measures for exacerbating the shoddy job market. The unemployment rate has soared to 16.2%, compared to 11.6% in March 2010, he said.

The contradiction of the austerity measures is that they're harming the economy even as they're keeping it afloat, according to Jurgen Odenius, a strategist for Prudential Fixed Income.

Stock Rally due to Manufacturing Report

Stocks went into rally mode Friday, following a stronger-than-expected report on the nation's manufacturing sector.

After starting the day barely changed, the Dow Jones industrial average (INDU) gained 115 points, or 0.9%, after the manufacturing data was released. 3M (MMM, Fortune 500), Alcoa (AA, Fortune 500) and Caterpillar (CAT, Fortune 500) were the biggest gainers on the blue chip index.

The S&P 500 (SPX) added 10 points, or 0.8%; and the Nasdaq composite (COMP) gained 22 points, or 0.8%.

The Institute of Supply Management's manufacturing index jumped to 55.3 in June -- well above the 51.1 that economists had expected.

"Investors thought the economy would continue to be fairly weak through the summer, but the Chicago PMI number yesterday and the national manufacturing data this morning caused a huge swing in investor sentiment," said Michael Sheldon, chief market strategist at RDM Financial Group.

A strong manufacturing sector will help drive economic growth and corporate profits, he added.

Volume is expected to be light as many market participants head out for the holiday weekend. U.S. markets are closed Monday in observance of Independence Day.

Market outlook: More turbulence ahead

Stocks ended the first half of the year solidly higher Thursday, following a turbulent six months. Regional manufacturing data helped fuel Thursday's rally.

Economy: The University of Michigan consumer sentiment survey for June fell to a reading of 71.5, slightly below the initial reading of 71.8.

Construction spending fell 0.6% in May, after rising 0.4% the prior month. Economist were expecting spending to hold steady in May.

Companies: University of Phoenix operator Apollo Group Inc. (APOL, Fortune 500) was the best performing stock on the S&P 500 and Nasdaq. Shares of the education company jumped more than 7%, after it reported better-than-expected third-quarter earnings late Thursday.

Major auto makers including General Motors (GM, Fortune 500), Toyota (TM) and Ford (F, Fortune 500) are scheduled to report their May sales figures starting around 11 a.m. ET. Shares of Ford were up 0.3% in morning trading.

Meanwhile, shares of Eastman Kodak (EK, Fortune 500) slid 14%, a day after the company received a mixed ruling on the company's patent infringement suit against Apple (AAPL, Fortune 500) and Research in Motion (RIMM).

Cablevision (CVC, Fortune 500) spun off AMC Networks (AMCX), known for popular hits like Mad Men. AMC started trading on the Nasdaq Friday under the ticker "AMCX." Shares fell 8% on the news. Cablevision shareholders are getting one share of AMC Networks for every four shares of Cablevision.

World markets: European stocks were mostly higher in afternoon trading. Britain's FTSE 100 rose 0.3%, the DAX in Germany rose 0.1% and France's CAC 40 was flat.

Asian markets ended the session mixed. The Shanghai Composite ticked down 0.1%, while the Hang Seng in Hong Kong soared 1.5% and Japan's Nikkei added 0.5%.

Currencies and commodities: The dollar rose against the euro, the Japanese yen and the British pound.

Don't fear the commodities bear

Oil for August delivery slipped $1.02 to $94.40 a barrel.

Gas prices snapped a 27-day streak of declines Friday. The price of regular unleaded gasoline increased nine tenths of a cent to $3.550 a gallon, according to motorist group AAA.

Gold futures for August delivery fell $17.40 to $1,485.40 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury edged higher, pushing the yield down to 3.14% from 3.16% late Thursday

Tim Geithner considering leaving White House

Tim Geithner is considering leaving his post as Secretary of the Treasury after a deal to raise the debt ceiling is reached, a source familiar with the discussion told CNN Thursday.

Geithner is the lone remaining member of President Obama's original economic team.

Asked by former President Bill Clinton on Thursday at a Clinton Global Initiative event about his future plans, Geithner said he would be doing his job "for the foreseeable future."

A Treasury official said that Geithner will not make any decisions while he's focused on negotiations over the debt limit and deficit reduction.

Another source familiar with the discussions between Geithner and the White House said it could be a while before Geithner's ultimate departure. "You have to have somebody lined up for the job -- you can't just leave," this source said. "And there's a relative scarcity of people who would fit the bill."

Obama nominated Geithner to be the 75th Secretary of the Treasury, and the Senate confirmed him on Jan. 26, 2009.

Geithner went on to spearhead the administration's response to the financial crisis that threatened to unravel economic growth around the globe.

That response included a bailout of the U.S. auto industry, a massive economic stimulus package and a landmark Wall Street reform effort. So-called stress tests of the nation's largest banks in early 2009 also helped shore up confidence in financial markets.

Geithner's first days in the administration were not without stumbles, as markets met his efforts to support the banking industry with skepticism, and giant bonuses paid to executives at bailed-out insurer AIG sparked public outrage.

But Geithner emerged as one of the strongest voices on Obama's economic team.

"I think he has done a great job in a backbreaking position," Clinton said Thursday.

Another member of Obama's original team, Council of Economic Advisers chairman Austan Goolsbee, has said he will leave the administration in August to return to the University of Chicago.

That leaves the administration with two holes to fill in the months leading into the 2012 presidential race, where the economy is expected to be issue No. 1.

National Economic Council director Lawrence Summers, and Office of Management director Peter Orszag left the administration last year. Christina Romer, the original chair of the Council of Economic Advisers, has also left.

Before joining the administration, Geithner held the top post at the Federal Reserve Bank of New York, where he played a crucial advisory role during the financial crisis of 2008.

Before joining the Fed, he held posts at the IMF and worked in the Clinton administration Treasury Department.

Congress moves forward on free trade deals

The Senate will officially take up three trade deals and a scaled-back version of a jobs retraining program for laid-off workers on Thursday.

Senate negotiators will have to start pounding out the details of the trade deals, as well as

funding for the jobs retraining program -- whose funding ran dry in February.

"This was truly a bipartisan negotiation on all sides ... we think this is a strong package that reflected the different priorities," said one senior administration official on a call with reporters Tuesday.

But final passage on all the measures is not a done deal. Republican support depends on how closely the trade deals and jobs retraining program are linked together.

Republicans want to vote on the trade pacts, and have agreed to consider the new compromise that would extend the jobs retraining program, according to congressional aides. But they refuse to have the issues stuck together on the same bill, in a way that would prevent them from making changes to the jobs retraining program.

"I would strongly urge the Administration to re-think this action, and urge them to send up all three pending trade agreements without delay -- and without extraneous poison pills included," said Senate Minority Leader Mitch McConnell in a statement Tuesday.

If Congress were to pass the trade pacts without the jobs retraining program, President Obama would face a tough choice as he had previously said he couldn't have one without the other.

At issue is the Trade Adjustment Assistance program, which got a big funding boost with the 2009 economic Recovery Act.

The program gives unemployed workers financial help and job training when employers move jobs overseas. White House officials had previously said that more than 435,000 workers would be eligible for the program if it were reinstated. But Republicans have said they are concerned about funding such stimulus programs, because of the big deficits the nation faces.

A White House official outlined a compromise made on the program, saying it would be scaled back. He added that it wouldn't add to the deficit, thanks to cuts in unemployment insurance; and due to a new proposal that would penalize tax preparers who have "bad records," claiming tax credits for those who don't qualify.

But the White House couldn't give a final tab on Tuesday for the scaled back Trade Adjustment Assistance program.

An additional roadblock is that even though House Ways and Means Chairman Rep. David Camp was involved in the compromise, it's unclear whether even a scaled-back version could pass the GOP-controlled House

"We're pleased the President may finally send us the three job-creating trade agreements we've requested, but we have long said that TAA -- even this scaled-back version -- should be dealt with separately from the trade agreements," said Brendan Buck, spokesman for House Speaker John Boehner.

The one thing many congressional Republicans and Democrats can agree on is wanting to pass the trade deals to help boost the U.S. economy, particularly since some say the treaties could add as many as 250,000 jobs.

Despite Obama's effort to tie the trade pacts to something the unions want, the AFL-CIO and other labor groups continue to oppose the treaties -- which they say don't do enough to protect workers' rights.

But business groups from the U.S. Chamber of Commerce to the Business Roundtable applauded the move forward.

"With our economic recovery stalling, the time is now for Congress to act on these deals," said Thomas J. Donohue, president and CEO of the U.S. Chamber. "We simply cannot afford to put American jobs at risk any longer."

Debt ceiling: Just do it

Warnings from all three credit ratings agencies didn't do it. Seven weeks of talks among lawmakers didn't do it. Maybe President Obama's talks with Capitol Hill brass will do it.

But as of now, there's still no debt-reduction deal. And many lawmakers are still demanding one in exchange for their vote to increase the debt ceiling.

Here's an idea: Even if they can't come up with a deal by Aug. 2, lawmakers should raise the debt ceiling anyway. Then they should make a pot of coffee and go back to hammering out a debt-reduction plan.

Fiscal responsibility isn't a one-off proposition; it's an ongoing process.

If Congress fails to raise the debt ceiling by Aug. 2 -- the day when the Treasury Department estimates it will no longer be able to pay all the country's bills -- any number of damaging and utterly preventable scenarios could occur.

Deadbeat nation: For starters, the United States would look ridiculous. The debt ceiling needs to be raised because of obligations that Congresses past and present chose to incur.

Not raising the ceiling would signal to the world that Americans are willfully choosing not to pay their bills. The message won't be "We can't pay." It will be "We could pay, but we've decided not to. Sorry."

Market mayhem: To date, investors have been trading on the assumption -- the rock-solid belief, actually -- that there is just no way Congress would fail to raise the debt ceiling in time.

If Congress dashes those expectations, no one can know exactly how the markets will react. But most think markets will react, and not well.

Some bond experts expect that contrary to popular belief, Treasury rates won't rise but stocks may tank. In other words, there will be a move out of risk-based assets and a flight to safety in bonds.

Bond experts to Congress: Don't mess it up

So interest rates may stay low, but Americans' investments get whacked.

Or, Treasury yields could become volatile and start to climb as investors smell political instability in Washington. That would push the cost of U.S. debt higher.

Hopping mad republic: If Treasury is technically and legally able to prioritize the payment of interest to bond investors, the country may avoid the kind of default that would trigger rating downgrades.

A growing number of lawmakers say that it's OK not to raise the debt ceiling as long as Treasury continues to make payments to bondholders.

But that doesn't mean there wouldn't be seriously negative consequences.

"Someone -- perhaps millions of someones -- won't be paid on time. Contractors, federal workers, program beneficiaries, or state and local governments will suddenly find themselves short on their cash flow," former Congressional Budget Office Donald Marron wrote in a recent op-ed in the Christian Science Monitor.

That could hurt the economy, which is still trying to find its sea legs, and won't do much for the country's mood.

Damaged reputation: Even if bond investors continue to be paid, investors and credit rating agencies won't take it lightly when Treasury has to delay payments to others.

Such delayed payments -- and the public anger that would result -- could cause investors to worry that even if they're getting paid today, tomorrow may be another story. And they could trade on that concern, even if it's unfounded. That, in turn, could cause interest rates to rise.

Fitch Ratings Agency said it would put the country on "Ratings Watch Negative" in such a scenario.

"Extensive payment arrears to suppliers of goods and services to the government ... would damage perceptions of U.S. sovereign creditworthiness and signal growing financial distress," the agency said in a recent report.

The S&P already has already downgraded its credit outlook on the United States to "negative" from "stable." And Moody's is considering doing the same.

Downright default: This is the very worst and still least likely of outcomes, because most believe that there's no way the U.S. government would not pay its bondholders.

But if they don't raise the ceiling, lawmakers would raise the chance that those bondholders don't get paid over time.

Debt ceiling: What you need to know

That could theoretically happen if the Treasury a) is somehow not able to prioritize payments to bondholders; or b) has to pay out more to bondholders than it has coming in on any given day.

On some days Treasury brings in more money than it has to pay out. And on some days it doesn't. But on average, the United States comes up short by about $125 billion every month.

To cut that much spending or raise that much extra in tax revenue overnight would hobble the U.S. economy and very likely de-stabilize world markets.

A U.S. default would be catastrophic, influential bond investor Mohamed El-Erian said Sunday on CNN's "Fareed Zakaria GPS."

His advice to Congress? Raise the ceiling, even if you can't complete a debt-reduction deal in time.

"If ... you're going to kick the can down the road, kick the can rather than face something that could be catastrophic in terms of legal contracts being triggered," said El-Erian, CEO of PIMCO

Inflation & possible RBI rate hike

Share investors are likely to cheer the increase in fuel prices that is expected to improve India's deteriorating finances, partly weighed down by fuel subsidies and demonstrate the government's commitment towards reforms. But this optimism is unlikely to translate into gains for stocks as the much-awaited decision on diesel and cooking gas prices will add to inflationary pressures in the short-term and may prompt the central bank to increase rates further.

"It is a bold move by the government after a long time and investors will like it," said Motilal Oswal, chairman & managing director, Motilal Oswal Financial Services . "While the move is inflationary in short term, the market has more or less discounted it, but a lot will depend on the monetary policy reaction," he said.

On June 16, the Reserve Bank of India raised key rates for the tenth time since March 2010 and is widely expected to tighten the screws further in July.

Focus to be on Europe, Crude Oil

Investors fear more rate increases would be excessive and would delay the economy's ability to bounce back once inflation settles around the central bank's comfort level of 6%. India's wholesale price inflation jumped to 9.06% in May. Fund managers expect inflation to accelerate to over 10% over the next few weeks as higher fuel prices would increase transportation costs of food.

In the longer run, most economists say, the higher price of diesel will encourage more rational use of the fuel and benefit the wider economy. "The increase in diesel and LPG prices may have an effect on inflation in the short term and in turn worry the market, but the move is beneficial for the economy and long-term investors will be happy," said Aneesh Srivastava, chief investment officer, IDBI Federal Life Insurance.

Brokers said the focus this week will continue to remain on the debt situation in Europe and the direction of crude oil prices. Benchmark Indian share indices - Sensex and Nifty - rose almost 3% on Friday, as foreign investors bought shares worth Rs 890 crore after global crude oil slid, Europe pledged to rescue Greece, and China hinted that it may be nearing the end of monetary tightening.

In the past few months, the perception of a government in disarray has gained ground as it has increasingly given the impression of being unable to deal with a blizzard of scams and agitations by groups claiming to represent civil society.

A widely-followed CEO poll carried out by industry body Ficci and published by ET in its edition dated June 13 reported that a majority of respondents expected little of the Congress-led UPA government. The price hikes may help reshape the impression of haplessness. Late on Friday, the government raised diesel rates by Rs 3, LPG by Rs 50 per cylinder and kerosene by Rs 2 per litre.

In May, the government had increased petrol prices by Rs 5 per litre. The government last increased prices of diesel and cooking gas on June 26 last year, despite global crude strengthening since then. "If all petro product prices are passed on properly, markets will bottom in the next three months and recover significantly thereafter because growth is still there," said Sankaran Naren, chief investment officer, ICICI Prudential Asset Management.

OMCS TO BENEFIT

Shares of oil marketing companies may surge on Monday as the government's decision to increase petroleum product prices will help trim losses that they incur from subsidised sale of oil and cooking gas. Brokers said the step has brought cheer to investors in these companies as they expected a lesser increase in diesel prices and none in kerosene and cooking gas.

Though the three oil marketing companies - Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) - together will still incur revenue losses from fuel subsidies of Rs 121,000 crore this year, the increase in product prices will reduce their monthly borrowings and improve cash flows.

"Shares of oil marketing companies will rise this week not because the petro price increases will bring these companies back into profits, but that there were very little expectations from the government," said the investment head of a mutual fund owned by a public sector bank. "Also, their valuations are almost at rock bottom because these stocks have hardly seen any movement," he said.

Shares of BPCL and IOC have fallen about 4% so far in 2011 against the 10% fall in the Sensex during the period. HPCL shares, which surged 6% on Friday, have been unchanged since January. BPCL and IOC gained almost 3% each on Friday ahead of the meeting of the government representatives to decide on the prices. Oil marketing companies buy crude at international prices, but sell diesel, kerosene and LPG at subsidised prices fixed by the government.

The government compensates them through a mix of cash subsidies and discounts from oil exploration and production companies, including Oil & Natural Gas Corporation (ONGC) and Oil India. Shares of ONGC and Oil India could also rise on Monday as their share of the overall subsidies will drop after the price increases. "Outlook of upstream companies have been clouded by the ad hoc nature of the subsidy-sharing formula. Lack of concrete subsidy-sharing mechanism has resulted in earnings/valuations of upstream companies being contingent upon government directives," said Enam Securities, in a note prior to the rise in prices.

Distrust of Government Impedes Reform in Greece

Demonstrators projected the word across the facade of Parliament last week, and it underscored the hurdle that Prime Minister George Papandreou faces in selling an increasingly resentful electorate on a tough new round of austerity measures: “Thieves.”

Most Greeks say they have little confidence in a political class that they see as corrupt and unaccountable. A recent study by Transparency International in Greece found that 9 out of 10 Greeks believed that their politicians were corrupt, and 80 percent said that Parliament had lost credibility.

“We’re here because we have lost confidence in the present political system, which has brought us to the edge,” Christos Siveris, 35, said last week as he waved a Greek flag outside Parliament during a crucial confidence vote, which Mr. Papandreou won. “This is our Thermopylae,” he added, referring to the ancient battle in which an outnumbered army of Greek warriors held out against a Persian force before ultimately succumbing.

This week Mr. Papandreou will seek parliamentary approval for an austerity package that was agreed on Thursday with European officials and the International Monetary Fund. He is expected to succeed, despite tensions within his Socialist Party and in the face of intransigence from the center-right opposition, which was in power when Greece’s debt soared.

But as the crisis extends into a second year, a growing number of Greeks are turning a critical eye on their own government. They are questioning why members of Parliament have immunity from prosecution unless Parliament votes to lift it, and they want to see more transparency and accountability in party financing.

And having faced across-the-board wage and pension cuts, they have come to question why the lawmakers have benefits that include state cars, generous double pensions (from the government and their own professional guilds), bonuses for attending committee meetings on top of their $8,500-a-month salaries, and personal staff who are widely perceived to attend to a tradition of providing favors in exchange for votes.

In recent years, a number of former officials from both the conservative New Democracy and the Socialist Parties have been implicated in a range of corruption scandals. In one episode, which occurred when New Democracy was in power, the government approved a highly complex land swap in which a Greek Orthodox monastery on Mount Athos received prime, state-owned real estate in exchange for much less valuable land in a rural area. But to date, no officials have been charged with wrongdoing.

Such scandals “add to the frustration and the popular perception that they’re crooks,” said Costas Bakouris, the president of Transparency International’s Greek branch.

Aggravating that perception, the legislators have immunity from prosecution unless the full Parliament votes to lift it, something that has happened only 17 times out of the hundreds of requests since democracy was restored in 1974 after a military dictatorship. Even after they leave office, former lawmakers can be prosecuted only during the parliamentary session in which they are accused of breaking the law and the subsequent session.

In addition to the austerity votes, Parliament is expected to vote this week on whether to broaden an investigation into Akis Tsochatzopoulos, a former defense minister from the Socialist Party who is accused of corruption in the Greek Navy’s procurement of German submarines.

Greece’s Skai television and the related Kathimerini newspaper reported that Mr. Tsochatzopoulos had been living in one of Athens’s most exclusive areas in an apartment purchased from an offshore company. To many here, the case has come to represent everything they consider wrong about the political system, not least because as a former government minister, Mr. Tsochatzopoulos is immune from prosecution. He denies wrongdoing.

In a rare move and an acknowledgment of public sentiment, the two main parties have proposed that his immunity be lifted so that he can be prosecuted.

In another high-profile case, a former Socialist Party transport minister was charged with money-laundering this year after he admitted that he received several hundred thousand dollars from a Greek subsidiary of Siemens.

This month, Kyriakos Mitsotakis, a lawmaker from the New Democracy Party and the son of a former prime minister, caused a stir when he proposed reducing Parliament to 200 members from 300; eliminating double pensions, special payments for serving on committees and immunity for government ministers and lawmakers; and opening up the books on party finances.

“It was received extremely well by the average person on the street, but not so well by my colleagues,” said Mr. Mitsotakis, a Harvard-educated former venture capitalist who is clearly positioning himself as the “new” New Democracy, not least because he has criticized his party’s near total opposition to the austerity measures. (Although he, too, said he planned to vote against them.)

“We have a fundamental trust problem in Greece. We asked people to make huge sacrifices that we’re not willing to make,” he said of his colleagues. “There’s something wrong with that.”

In a nod to the growing popular outrage, Mr. Papandreou said in a speech last week that he would form a committee to look at reducing the number of Parliament members and to abolish the law protecting members from prosecution, although it remains to be seen whether he has the political capital to carry out the constitutional changes those moves would entail.

But other analysts believe that anger at the political class is deeper than the government has acknowledged and will not be easily assuaged. In Syntagma Square each night, Greeks from across the political spectrum have gathered to air their grievances. This collaboration of right and left is new in a country that endured both a civil war after World War II and a military dictatorship from 1967 to 1974.

“That’s unique for Greece,” said Nikos Alivizatos, a constitutional lawyer. “I’m not sure the politicians are conscious of that.”

Job Jugglers, on the Tightrope

WHEN someone asks Roger Fierro “What do you do?” — which he knows is shorthand for “Where do you work?” — he laughs. Then he says, “I do everything.”

Mr. Fierro, who is 26, has four jobs: working as a bilingual-curriculum specialist for the textbook publisher Pearson; handling estate sales and online marketing for a store that sells vintage items; setting up an online store for a custom piñata maker; and developing reality-show ideas for a production company. So far this month, he’s made about $1,800.

Whereas most 9-to-5ers have some kind of structure in their lives, each workday can be wildly different for him. On a recent day, he worked on and off from 7 a.m. to midnight, making business calls, working on the piñata store’s Web site and visiting the vintage store, among other things. (To maintain his sanity, he made sure to schedule some “me” time from 2 to 4 and 6 to 8.)

“I have eight million things going on,” said Mr. Fierro, who lives in the West Town area of Chicago. “It’s exhausting. Sometimes I just want to take a nap.”

Some portions of the population — especially young, creative types like actors, artists and musicians — have always held multiple jobs to pay the bills. But people from all kinds of fields are now drawing income from several streams. Mr. Fierro, for one, has a degree in international studies and Latin American studies at the University of Chicago.

Some of these workers are patching together jobs out of choice. They may find full-time office work unfulfilling and are testing to see whether they can be their own boss. Certainly, the Internet has made working from home and trying out new businesses easier than ever.

But in many cases, necessity is driving the trend. “Young college graduates working multiple jobs is a natural consequence of a bad labor market and having, on average, $20,000 worth of student loans to pay off,” said Carl E. Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers.

“There are two types of people in this position: the graduate who can’t get a full-time job, and the person whose income isn’t sufficient to meet their expenses,” he said. “The only cure for young people in this position is an economic recovery of robust proportions.”

An entry-level salary often doesn’t go very far these days. According to a study by the Heldrich Center, the median starting salary for those who graduated from four-year degree programs in 2009 and 2010 was $27,000, down from $30,000 for those who graduated in 2006 to 2008, before the recession. (Try living on $27,000 a year — before taxes — in a city like New York, Washington or Chicago.)

Many earn even less than $27,000. Maureen McCarty, 23, who graduated from American University in 2010 with a journalism degree, makes $25,000 before taxes as managing editor of TheNewGay.net, a blog focusing on gay issues, with no benefits like health insurance or a 401(k). The salary doesn’t cover her expenses, so she often baby-sits five nights a week for six families in the Washington area.

Without the baby-sitting jobs, she says, she couldn’t afford to live in Adams Morgan, a hip neighborhood in Washington, or take a vacation: “I’m working in online publishing, an industry that is struggling to monetize, so if I want to do anything fun, like take a trip to New Orleans, I have to have additional income.”

Juggling jobs has its perils. “I do sometimes get my schedules mixed up and will double- or even triple-book myself,” Ms. McCarty said. Maintaining a social life can be challenging, and it might consist of “dragging a friend along while I run errands on a Saturday.”

“Sometimes I do get burnt out from all of the juggling, but caffeine, for the most part, keeps me going,” she said. “I try when I get to that point to take some time by myself even if it’s just 30 minutes during lunch.”

All told, Ms. McCarty says, she works 75 to 80 hours a week, a schedule more typical of investment bankers or lawyers aspiring to make partner in a firm — but for just a fraction of the pay.

Between her salary at TheNewGay.net and the $5,000 she makes at her various baby-sitting jobs, Ms. McCarty has a pre-tax income of $30,000, or about $2,500 a month. More than $700 a month goes to the apartment she shares with two roommates.

Some months, however, when she doesn’t have enough baby-sitting jobs lined up, Ms. McCarty has to make that “horrible phone call” to her parents to tell them that she can’t make her rent.

LOUISE GASSMAN, 28, has a rotating schedule of multiple jobs: as an actress; as an assistant to dance instructors at the Circle in the Square and Juilliard schools; as a baby-sitter; and in a variety of administrative roles and as a spinning instructor at SoulCycle, an indoor cycling studio in New York.

Ms. Gassman’s monthly income, which can vary greatly depending on whether she books an acting job, ranges from $1,800 to $4,000. Some months, almost all of her income goes to the $1,450 rent on her 290-square-foot studio on the Upper West Side of Manhattan. Whatever is left after essentials goes toward paying off her remaining $16,000 in college loans.

“I worry about money all the time,” Ms. Gassman said. “I live on a really tight budget, and I live paycheck to paycheck.”

Periodically, the accountant who cuts her check at SoulCycle reminds her that someone her age should be putting away $300 a paycheck for retirement, an amount that is sometimes almost half of her pay. “I’m like, retirement?” she asks. “Then I have the ‘Oh my God, Oh my God’ feelings.”

Ms. Gassman has come up with creative ways to save money. She has a policy not to spend $5 bills and instead puts them in a Tupperware container. So far, she’s been able to use this cash to pay for a new air-conditioner, for three plane tickets, and for her dog to be neutered.

Mia Branco, 23, says she is always worried about money, even though she also works four jobs. She is the house manager at the Discovery Theater at the Smithsonian Institute in Washington, teaches drama and music at Imagination Stage in Bethesda, Md., supervises the box office at the Woolly Mammoth Theater Company and works as a nanny.

Ms. Branco says she logs 40 to 50 hours a week, including travel time, and takes home $1,300 in a good month.

Still, Ms. Branco, who graduated magna cum laude with a degree in musical theater from American University in 2009, says she feels lucky to be employed at all. “The majority of the jobs I have right now are because people were laid off and they didn’t want to hire back full-time employees,” she said. “My willingness to have a hodgepodge schedule makes me more marketable.”

But very few part-time employers offer health insurance, and job jugglers tend to worry: What happens if I become really sick or get into an accident?

At least Ms. McCarty is covered through her parents under the new health care law that allows anyone under 26 to stay on their parents’ insurance.

Mr. Fierro still receives insurance from a teaching job he used to have, but it runs out in August. He doesn’t know what he’ll do after that.

Ms. Branco pays $89 a month for very basic health insurance that has a high deductible, the kind of plan that she says makes her “bank on not getting sick.”

Ms. Gassman, who does not have health insurance and hasn’t had a physical since 2004, says she is extra careful when crossing the street because anything medically catastrophic is simply not an option right now. “I can’t afford to get hit by a taxi,” she said.

ON the brighter side, when or if these job jugglers get on a career path, they may offer an attractive skill set: they are expert multitaskers, hyper-organized and often very knowledgeable in technology. Having multiple jobs is an exercise in mental dexterity.

Ms. Branco says that because of her four jobs, which require skills as diverse as developing lesson plans and mastering an online ticketing system, she has become more adept at dealing with a wide range of people and situations: “I’ve learned to be very adaptable, because one day I’m corporate, the next day I’m start-up, and the next day I’m nonprofit.”

Mr. Fierro describes himself as “MacGyver.” He might have to transport some furniture, “read and synthesize documents, find obscure bits of information on Google and give presentations in Spanish, all in one day,” he says.

But beware: Too much multitasking makes it harder to sustain attention, according to Kirk Snyder, an assistant professor of communications at the Marshall School of Business at the University of Southern California, who researches the changing workplace values of Gen Y.

“I think being focused on more than one professional pursuit at the same time makes it easier to give up on those pursuits that take more effort or have a longer payoff curve because there are always other options to focus on,” he said.

More damaging, however, may be the economics. A national study by the Johns Hopkins Institute for Policy Studies found that young women who worked primarily in part-time jobs did not make higher wages in their 30s than in their 20s.

“The study was clear. Women don’t benefit wage-wise from working part time,” said Andrew Sum, director of the Center for Labor Market Studies at Northeastern University and a co-author of the study. The reason is that part-time jobs generally provide fewer training opportunities and often don’t put workers on a track for advancement.

More college graduates are working in second jobs that don’t require college degrees, part of a phenomenon called “mal-employment.” In short, many baby-sitters, sales clerks, telemarketers and bartenders are overqualified for their jobs.

Last year, 1.9 million college graduates were mal-employed and had multiple jobs, up 17 percent from 2007, according to federal data. Almost half of all college graduates have a job that doesn’t require a bachelor’s degree.

The goal for most, Mr. Sum said, is to be upgraded to full-time jobs. “That is where there is the most payoff for a college degree,” he said.

But full-time jobs don’t suit everyone. Ms. Gassman, for example, has been offered a full-time job at SoulCycle, complete with full benefits, but she doesn’t want it. “I wouldn’t be able to go on auditions in the middle of the day,” she explained. “Of course, it stresses me out not to have health insurance, but what is my choice? Work in an office and be unhappy? Being happy is a superhigh value to me.”

Mr. Fierro is much happier now than when he was working as a bilingual reading specialist for a public school in Chicago. “I was working 12 hours a day and making $38,000 a year and it wasn’t making a dent in the $120,000 in loans I had to pay off. Plus, I was miserable.”

Mr. Fierro, who calls himself an “aesthetic consultant,” would ultimately like to create his own line of merchandise, along the lines of Marc Jacobs. He is optimistic that he is more likely to achieve his goal by working on many projects than if he held a traditional job.

Ms. Branco says that while she is often exhausted and hasn’t had two consecutive days off in months, she isn’t ready to commit to one employer. “The jobs are allowing me to wander and figure out what I really want to do,” she said.

Professor Snyder at Southern Cal doesn’t see multiple job-holding as a trend that will disappear anytime soon.

“The likelihood of this generation devoting their professional life to just one job or career at the same time is simply counterintuitive to their worldview,” he said. “I think we would be seeing this generation pursuing multiple jobs and careers at once even in a robust economy.”

Still, is job-juggling really sustainable, particularly when the next stage of life hits and there may be a mortgage and children?

Ms. McCarty doesn’t think so. She is looking for an end to her 80-hour weeks and meager paychecks. “I don’t want to be 30 and working a bunch of small jobs so I can pay my bills,” she said.