There was an unmistakable echo of the dot-com boom Thursday on Wall Street.
LinkedIn, a trailblazer in the online networking craze, went public with a roaring stock offering. Within minutes, shares were trading at twice the value set by the company.
Buyers crowded the floor of the New York Stock Exchange, and by the closing bell, the company had a market value of $9 billion, the highest for any Internet company since Google had its initial public offering seven years ago. Millionaires and even one billionaire were made, at least on paper.
The stock, issued at $45, went as high as $122.70 just before noon and closed at $94.25 on a trading volume of 30 million shares. All this for a company that skeptics say amounts to an online Rolodex, a place on the Internet for professionals to post résumés and connect with one another and potential employers.
It was enough to remind some people on Wall Street of the heady late 1990s and the debuts of companies like Netscape Communications
A massive tsunami that crippled a nuclear power plant also killed two workers there, the Japanese operator announced Sunday, confirming the first deaths at the complex.
The two workers _ a 21-year-old and a 24-year-old _ had been missing since a massive March 11 earthquake spawned the wave, but their bodies were discovered only last week. Engineers have been scrambling to restore power to the Fukushima Dai-ichi nuclear complex in order to restart cooling systems and stabilize dangerously overheating reactors.
“It pains me that these two young workers were trying to protect the power plant while being hit by the earthquake and tsunami,” Tokyo Electric Power Co. Chairman Tsunehisa Katsumata said in a statement.
The announcement of the death was delayed out of consideration for the families, said Naoki Tsunoda, a spokesman for TEPCO no fax pay day loans.
The men sustained multiple external injuries and are believed to have died from blood loss, Tsunoda said. Their bodies had to be decontaminated because radiation has been spewing from the plant over the past three weeks.
On Saturday, authorities said a source of at least some of the radiation was determined when a crack in a maintenance pit was found. Water was still spilling into the Pacific from the crack on Sunday after attempts to seal it with concrete failed.
Congress is facing a busy couple of weeks. Really busy.
And like teenagers with focus problems, lawmakers are racing against the clock because they waited until the last minute to turn in their big assignments.
Here’s what’s ahead:
– Find a way to fund the government beyond April 8. If Republicans and Democrats can’t strike a deal, the government will shutdown.
– Start considering a budget for 2012. (Yes, at the same time they try to wrap up 2011.)
– Move toward a vote to raise the debt ceiling. The Treasury Department will update lawmakers — as early as this week — about how much time they have before the ceiling is reached.
For the moment, uncertainty is the only thing that’s certain.
2011 budget
Here’s the skinny on the 2011 budget: There isn’t one. Lawmakers have instead passed six short-term spending bills. The latest expires on April 8.
The best case scenario is that Congress passes a six-month bill that would cover the remainder of the fiscal year. Or they could cobble together another short-term extension. (Read how short-term fixes impact agencies.)
If lawmakers don’t pass some kind of extension, the government will shut down. (Read what a government shutdown would mean.)
Lawmakers spent last week in their home districts, and by all accounts, senior members of both parties tried to reach a compromise on 2011 spending. Apparently that didn’t work out so well, as lawmakers were back to throwing partisan bombs on Monday.
This is basically where things stand: Republicans want to cut spending. Tea Party types really want to cut a lot of spending. Democrats are willing to give a little, but kinda like spending levels where they are.
At the moment, the two sides are billions of dollars apart. Clock’s ticking!
2012 budget
As if to draw attention to its failure to pass a budget in 2011, Congress will kick off the 2012 budget process next week when House Budget Committee Chairman Paul Ryan, a Republican from Wisconsin, introduces his 2012 budget proposal creditreport.
This deadline isn’t quite as pressing. Lawmakers have until Oct. 1, the start of the fiscal year, to do their constitutional duty and pass a budget.
If the process works as designed, once Ryan reveals his target spending levels, appropriations committees will hammer out spending plans to fit. The result will be 12 separate appropriations bills.
Congress will vote on each, and move them to the president’s desk.
For 2012, there will be an added twist. Ryan is planning to include some sort of entitlement reform in his plan. And that’s a potential sticking point. Programs like Social Security, Medicare and Medicaid are driving projected long-term debt higher — but are cherished, and will require a mountain of political will to reform.
Debt limit
As if they needed another threat — and this is a biggie — the Treasury Department is expected to give Congress an update in the first few days of April as to when the United States will run up against the debt ceiling.
Treasury’s last estimate put the deadline between April 15 and May 31.
If the ceiling is not raised, Treasury will not be allowed to borrow and therefore will not be able to pay the country’s bills in full without taking drastic measures to cut spending or raise taxes.
In the past, Congress has always ended up raising the cap, if sometimes at the last minute. And some policy experts think they will do so again, but there’s no guarantee precedent will hold.
Treasury Secretary Tim Geithner has warned lawmakers that even a short-term breach of the ceiling could have devastating implications.
FedEx Corp. says slow-but-steady economic growth should produce strong earnings for the current quarter, although fuel prices and Mideast turmoil remain big uncertainties.
The world’s second-largest package delivery company was upbeat about the fourth quarter and year ending in May, saying revenue should continue to improve and its freight unit should return to profitability after 6 money-losing quarters. Shares rose 5 percent.
FedEx issued the outlook on Thursday as it reported that third-quarter earnings fell 3 percent. Rising fuel prices and harsh winter weather offset a double-digit rise in revenue.
The company earned $231 million or 73 cents per share for the quarter that ended in February, compared with $239 million, or 76 cents per share a year earlier. Winter storms reduced net income by about 12 cents per share. Snow and storms hurt operations for about 27 days, or nearly a third of last quarter. Fuel prices went up 30 percent from a year ago. Maintenance costs rose 19 percent as the company flew more aircraft.
Revenue rose 11 percent to $9.66 billion, mostly due to better prices and heavier packages. Rising package weights are a fundamental sign of the improving economy, especially when those heavier packages are shipped through more expensive options like express or priority overnight. It indicates that consumers and businesses are being freer with their spending.
For the current quarter ending in May, the Memphis, Tenn. company is predicting a profit of $1.66 to $1.83 per share. Analysts currently predict $1.66. The company earned $1.33 per share in the quarter a year ago.
For the fiscal year, FedEx forecasts earnings of $4.49 to $4.66. Excluding costs related to the integration of its freight unit and legal costs, it expects adjusted earnings of $4.83 to $5. Analysts currently expect an annual profit of $4.89 per share.
Despite the strong forecast, FedEx warned that political turmoil in the Middle East and North Africa could hurt earnings. The tension there has already helped drive oil prices up 16 percent since the middle of February and an escalation could drive prices higher. It could also slow shipments and make deliveries more difficult.
The full impact of the earthquake and tsunami in Japan is unclear, but property damage was minimal, FedEx said. Japan is a major market for the company. Its business there is mostly comprised of exports including computer and car parts.
In the third quarter, Express unit revenue rose 11 percent from a year earlier. International priority freight pounds _ the total weight of shipments _ rose 21 percent, while revenue per pound rose 3 percent. International priority shipments are being driven by continued growth in emerging economies, especially Asia. Shipments include parts for computers, cell phones and other electronic gadgets.
Ground segment revenue improved the most of any unit, at 14 percent. The ground segment includes packages delivered by truck in the U.S.
FedEx shares rose $4.25, or 5 percent, to $89.53. Shares of UPS, the world’s largest package delivery company, rose $1.67, or 2.4 percent to $72.05.
Rescue workers used chain saws and hand picks Monday to dig out bodies in Japan’s devastated coastal towns, as Asia’s richest nation faced a growing humanitarian, nuclear and economic crisis in the aftermath of a massive earthquake and tsunami.
Millions of people spent a third night without water, food or heating in near-freezing temperatures along the devastated northeastern coast. Also, the containment building of a second nuclear reactor exploded because of hydrogen buildup while the stock market plunged over the likelihood of huge losses by Japanese industries including big names such as Toyota and Honda.
More than 10,000 people are estimated to have died in Friday’s twin tragedy that has caused unimaginable deprivation for people of this industrialized country that has not seen such hardships since World War II. In many areas there is no running water, no power and four- to five-hour waits for gasoline. People are suppressing hunger with instant noodles or rice balls while dealing with the loss of loved ones and homes.
“People are surviving on little food and water. Things are simply not coming,” said Hajime Sato, a government official in Iwate prefecture, one of the three hardest hit.
“We have repeatedly asked the government to help us, but the government is overwhelmed by the scale of damage and enormous demand for food and water,” he told The Associated Press.
“We are only getting around just 10 percent of what we have requested. But we are patient because everyone in the quake-hit areas is suffering.”
He said local authorities were also running out of body bags and coffins.
“We have requested funeral homes across the nation to send us many body bags and coffins. But we simply don’t have enough. We just did not expect such a thing to happen. It’s just overwhelming.”
Sato said local authorities may ask foreign funeral homes to send supplies.
The pulverized coast has been hit by more than 150 aftershocks since Friday, the latest one a 6.2 magnitude quake that was followed by a new tsunami scare Monday. Abandoning their search operations, soldiers told residents of the devastated shoreline in Soma, the worst hit town in Fukushima prefecture, to run to higher ground.
Sirens wailed and soldiers shouted “find high ground! Get out of here!” Several uniformed soldiers were seen leading an old woman up a muddy hillside. The warning turned out to be a false alarm.
“This is Japan’s most severe crisis since the war ended 65 years ago,” Prime Minister Naoto Kan told reporters Sunday, adding that Japan’s future would be decided by its response.
On Sunday, search parties arrived in Soma for the first time since Friday to dig out bodies. Ambulances stood by and body bags were laid out in an area cleared of debris, as firefighters used hand picks and chain saws to clear an indescribable jumble of broken timber, plastic sheets, roofs, sludge, twisted cars, tangled powerlines and household goods.
Helicopters buzzed overhead, surveying the destruction that spanned the horizon. Ships were flipped over near roads, a half mile (a kilometer) inland. Officials said one-third of the city of 38,000 people was flooded and thousands were missing.
According to officials, more than 1,800 people have been confirmed dead _ including 200 people whose bodies were found Sunday along the coast _ and more than 1,400 were missing in Friday’s disasters. Another 1,900 were injured.
But police in Miyagi prefecture say 10,000 people are likely dead in their area alone. Miyagi, with a population of 2.3 million, was one of the hardest hit areas.
“I’m giving up hope,” said Hajime Watanabe, 38, a construction industry worker, who was the first in line at a closed gas station in Sendai, about 60 miles (100 kilometers) north of Soma. Just then, an emergency worker came over and told him that if the station opens at all, it would pump gasoline only to emergency teams and essential government workers.
“I never imagined we would be in such a situation” Watanabe said guaranteed high risk personal loans. “I had a good life before. Now we have nothing. No gas, no electricity, no water.”
He said he was surviving with his family on 60 half-liter bottles of water his wife had stored in case of emergencies like this. He walked two hours to find a convenience store that was open and waited in line to buy dried ramen noodles.
The government has sent 100,000 troops to spearhead the aid effort. It has sent 120,000 blankets, 120,000 bottles of water and 29,000 gallons (110,000 liters) of gasoline plus food to the affected areas. However electricity would take days to restore.
At least 1.4 million households had gone without water since the quake struck and some 1.9 million households were without electricity.
One reason for the loss of power is the damage to at least three nuclear reactors, two of them at the Fukushima Dai-ichi power plant.
Operators dumped seawater into the two reactors in a last-ditch attempt to cool their super-heated containers that faced possible meltdown. If that happens, they could release radioactive material in the air. On Monday, the containment building of the second reactor exploded, just as the first one had on Saturday.
But Japan’s Chief Cabinet Secretary Yukio Edano said the reactor’s inner containment vessel holding the nuclear fuel rods was intact, allaying some fears of the risk to the environment. The containment vessel of the first reactor is also safe, according to officials.
Still, people within a 12-mile (20-kilometer) radius were ordered to stay inside homes following the blast. AP journalists felt the explosion 25 miles (40 kilometers) away.
More than 180,000 people have evacuated the area in recent days, and up to 160 may have been exposed to radiation after the first blast.
Also, Tokyo Electric Power held off on imposing rolling blackouts planned for Monday, but called for people try to limit electricity use.
Edano said the utility was still prepared to go ahead with power rationing if necessary. The decision reflected an understanding of the profound inconveniences many would experience.
Many regional train lines were suspended or operating on a limited schedule to help reduce the power load.
The planned blackouts of about three hours each were meant to help make up for a severe shortfall after key nuclear plants were left inoperable due to the earthquake and tsunami.
Japan’s central bank has injected 7 trillion yen (US$85.5 billion) into money markets Monday to stem worries about the world’s third-largest economy.
Stocks fell in early trading Monday on the first business day after the disasters. The benchmark Nikkei 225 stock average shed 494 points, or 4.8 percent, to 9,760.45 just after the market opened.
Preliminary estimates put repair costs from the earthquake and tsunami that struck Friday in the tens of billions of dollars _ a huge blow for an already fragile economy that lost its place as the world’s No. 2 to China last year.
In the town of Minamisanrikucho, 10,000 people _ nearly two-thirds of the population _ have not been heard from since the tsunami wiped it out, a government spokesman said.
About a third of the town of Soma was wiped out, with several hundred homes washed away. Three districts of town on the shoreline are now covered in rubble, overturned cars and trucks and waist-high, dirty green water. A tiny pink girl’s bicycle, all twisted up, sits near a child’s backpack _ just some of the personal belongings littering the landscape.
Atsushi Shishito sat in a daze on the concrete foundation of his home, now completely washed away. He sleeps at an evacuation center. The 30-year-old carried his grandmother to higher ground to escape the tsunami.
“All my other relatives are all dead,” he added. “Washed away.”
European manufacturing growth accelerated to the fastest pace in more than 10 years in February, a further sign the economy is gathering strength.
A gauge of manufacturing in the euro region rose to 59 last month from 57.3 in January, London-based Markit Economics said in an e-mailed report today, confirming a Feb. 21 estimate. That’s the highest since June 2000. A reading above 50 indicates expansion.
European manufacturers have helped bolster the region’s economic growth as export growth countered the impact of austerity measures on consumer demand. Peter Bauer, chief executive officer at Infineon Technologies AG, said on Feb. 17 that the world’s second largest chipmaker is “firing on all cylinders” and that the “volume of orders is excellent free online credit report.”
“Having slowed late last year, manufacturing production growth has revived to a pace even stronger than the 3.3 percent quarterly rate seen at the peak last May,” Chris Williamson, chief economist at Markit, said in the report. “Especially encouraging is the indication that growth is picking up in the region’s periphery, led by rising exports.”
The International Monetary Fund said on Jan. 25 that the world economy may expand 4.4 percent this year with the euro region growing 1.5 percent and the U.S. 2.5 percent. In “many emerging economies, activity remains buoyant,” the Washington- based IMF said.
European confidence in the economic outlook jumped to the highest in more than three years in February, a report showed Feb. 24.
Police say the death toll in New Zealand’s earthquake has risen to 144.
Police Superintendent Dave Cliff told reporters the toll reached 144 on Saturday after more bodies were pulled from wrecked buildings, and that more than 200 people remain missing after last Tuesday’s 6.3-magnitude quake.
Prime Minister John Key said Saturday that the disaster may be New Zealand’s “single most tragic event” and called for two minutes of silence next Tuesday.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
CHRISTCHURCH, New Zealand (AP) _ The neighborhood’s toilet is a portable one out on Keller Street. The water supply is cut, making showers and clean laundry distant dreams. Residents stay fresh with bottles of hand sanitizer, and they’re running low.
“Don’t stand too close to anyone,” Judy Prime said with a chuckle as she took a break from shoveling huge piles of wet sludge out of her garage in the shattered Christchurch suburb of Avonside.
The days since Tuesday’s massive earthquake rumbled through Christchurch, killing at least 123 and toppling buildings, have brought a level of misery unusual for the residents of this modern city of 350,000. Some 226 people remain missing, said Police Superintendent David Cliff.
Water and power supplies to thousands have been cut, and many have been forced to sleep in their cars or tents as their unstable houses sway with the relentless aftershocks.
Many Christchurch residents first started getting used to some deprivation five months ago, when an earlier quake struck the city. Now, life is even worse.
Tuesday’s temblor brought a fresh surge of water up through cracks in the yards of Prime and her neighbors along Keller Street. Most houses on the street suffered damage, and many will need to be demolished.
Prime, 66, has spent each night sleeping on a rubber mat under the dining room table, worried that aftershocks will send parts of her home crashing down. Every evening, she and her neighbors gather in her back yard to share beers and barbecue the meat from her freezer _ still good, because it was encased in thick ice when the power went out.
“We’ve become a family, you know?” she said. “What one hasn’t got, the other has.”
Across the road, Christmas lights adorn the portable toilet that has stood outside Paul Stokes’ house since the September quake knocked out the sewage line. Officials still hadn’t gotten around to fixing the pipes from that disaster when Tuesday’s temblor hit.
“Only Christmas lights I put up this year _ it’s really handy in the middle of the night,” said Stokes, who was wearing a T-shirt that said “Tested to 7.1″ _ a reference to the magnitude of the September quake.
Mayor Bob Parker said 780 portable toilets have been installed throughout the city, and hundreds more are on their way. But many residents have resorted to digging holes in their gardens to take care of business. For those on Keller Street, the Stokes’ toilet is a blessing.
Inside their home, Stokes’ wife Yvonne sat by a wood stove, warming up from the chilly drizzle outside. Thursday was the first night since the quake that she slept _ while sitting up in a chair in the living room. The ceiling in her bedroom is sagging, the walls are cracked and she worries the roof might cave. The whole house will have to be destroyed, she said.
Thursday also marked the first day she’d managed to eat since the disaster; the family cooked up sausages and mashed potatoes on a gas stove.
She clutched the hand of her sister-in-law, Christine Lagan, and cried as the two sat side by side. Lagan took the family’s laundry back to her house outside Christchurch on Thursday and returned with fresh clothes _ giving the family a small measure of dignity amidst the dismal conditions.
“We go to the toilet and can’t even flush,” Yvonne said, tears running down her face. “We are in tatters.”
Still, Yvonne said neighbors were keeping each other sane by banding together. Neighbors were dropping off meat pies, chocolate and bottles of water to those in need, and the couple who runs a nearby corner store was giving away any food they could spare.
“We’re all looking after each other,” she said.
Across the road, she embraced a weeping 71-year-old Wyn Tinnion, who said she has not been able to stop crying since the quake sent nearly everything she owned crashing to the floor.
“You just don’t know what to do _ at least we’re alive,” Tinnion said, burying her face into Yvonne’s shoulder.
“At least we’ve got each other,” Yvonne added, giving her a squeeze.
Tinnion and her 75-year-old husband Kelvin have been surviving on donated water and cooking on a gas stove lent by a neighbor. Tinnion was too scared to lock herself in any of the city’s portable toilets, so she has been using a bucket instead. Her husband has the unenviable task of emptying it for her.
At night, the couple uses flashlights and candles to see around their house. They whittle away the hours listening to their battery-operated radio.
The walls are cracked, and her garage is flooded with murky water and mud. She hasn’t changed her clothes since Tuesday, and her face crumpled again as she looked down at her nails, ringed with purple residue from the blueberries she scrounged from her freezer.
“I’m so filthy. I haven’t had a wash since last Tuesday,” she said, eyes welling with tears.
“Hey,” Yvonne said gently, slipping an arm around her friend. “I don’t look like a beauty queen.”
For a moment, Tinnion’s eyes cleared _ and the two women began to laugh.
Treasury Secretary Timothy Geithner says the U.S. economy is in a “much stronger position” than it was two years ago.
The same could be said of him.
Once the focal point for criticism of the administration’s struggle to resolve the financial crisis, opposed by almost all Senate Republicans for confirmation, and the butt of jokes by late-night comedians, Geithner has emerged as President Barack Obama’s most powerful economic policy maker. His influence on everything from overhauling housing finance to remaking the corporate tax code is reminiscent of the clout that Robert Rubin and James Baker enjoyed when they ran Treasury.
“Many would have faltered during those tough days at the beginning, but he didn’t,” said Roger Altman, founder of the investment bank Evercore Partners Inc. and a former deputy Treasury secretary under President Bill Clinton. “And, between the success of the TARP investments, the auto rescues, and the overall recovery in the banking system, he’s now on top.”
At a Bloomberg Breakfast yesterday, the 49-year-old Geithner parried with leading reporters from nine news organizations on a variety of subjects, from budget battles with Republicans to U.S. differences with China over its currency policy.
He outlined a two-pronged approach to closing the federal budget gap: lowering the record $1.6 trillion deficit to more manageable levels over the next five years, and then tackling the longer-term peril posed by entitlement programs such as the Medicare health-insurance system.
Avoiding Shutdown
He voiced hopes that Congress would avoid a government shutdown in the standoff between Republicans and Democrats over this year’s budget, even as he reiterated his criticism of the Republican spending-reduction plans as unrealistic.
And he said the U.S. has picked up support over the last six months for its campaign to pressure China for a stronger yuan to help ease global trade imbalances.
Two years ago, it was Geithner who was feeling the pressure. Tarred by an uproar over his underpayment of federal taxes, he won Senate confirmation as Treasury secretary by the slimmest margin since World War II. His rollout of a bank-rescue plan on Feb. 10, 2009, triggered a 4.9 percent drop in the Standard & Poor’s 500 Stock Index as investors dismissed his proposal as inadequate.
A lot has changed since, for the economy, the financial system and for Geithner himself. After contracting at a 4.9 percent annual clip in the first quarter of 2009, the economy has righted itself, helped by Obama’s $814 billion stimulus package, and is on course to rack up its fastest growth in seven years, according to economists surveyed by Bloomberg.
“By really almost any measure you look at, the economy is just gradually getting stronger,” Geithner said.
S&P Surge
So is the financial system. U.S. banks had net income of $87.5 billion in 2010, the highest since 2007, the Federal Deposit Insurance Corp. said yesterday.
“The core of the American financial system is in a much stronger position than it was before the crisis,” Geithner said.
The Treasury chief deserves much of the credit, said Douglas Elliott of the Brookings Institution in Washington and a former managing director of JP Morgan Securities Inc.
“The administration handled the crisis quite well and Secretary Geithner played a key role,” he said.
‘Longer-Term Vision’
Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. In Newport Beach, California, agreed one hour payday loan.
“Geithner has done very well in tackling the difficult problems that confronted the country when he took office, including a battered banking system and an economy in virtual freefall,” said El-Erian, who is also co-chief investment officer of Pimco, which manages the world’s largest bond fund.
“His major challenge now is to articulate and mobilize broad-based support for a longer-term vision,” he said.
A lot of that revolves around the budget.
Obama aims to reduce the deficit by $1.1 trillion over a decade. His budget, his first since Republicans took control of the House of Representatives, includes cuts to energy, transportation, housing and other programs popular with Democrats. Republicans have attacked the budget as inadequate, saying it doesn’t go far enough to address long-term deficits.
‘Multiyear Strategy’
“You have to look at things that have a multiyear strategy so that you can phase in the deficit reduction as the economy recovers,” Geithner said, “And you have to make sure you’re giving a lot of care and attention to sustaining the ability to invest in things that matter for the future.”
He is skeptical that Republicans can carry through with promises to cut the deficit more deeply than the administration does while eschewing tax increases and repealing a health-care program that the Congressional Budget Office said will save the government money.
“I don’t think there is a realistic prospect they can do it politically,” he said.
Congress needs to enact a new spending plan by March 4 to avoid a government shutdown, and congressional Republicans and Democrats are preparing competing plans to prevent that outcome.
“Both sides have an interest in working to avoid this, in part because of the risks it would hurt the recovery,” Geithner said.
Corporate Taxes
He sees a chance the administration and Congress can agree this year on a plan to overhaul the corporate tax code.
“There’s a lot of interest in doing it,” Geithner said.
Obama said in his Jan. 25 State of the Union address that the corporate code is riddled with “loopholes” because of the influence of a “parade of lobbyists.” He hasn’t offered details on what changes he’s seeking except to say any reforms shouldn’t result in lost revenue for the government.
Businesses are clamoring for relief from a top 35 percent corporate tax rate that is among the developed world’s highest.
Geithner also put forward this month a series of proposals for attracting private capital back into the $11 trillion mortgage market while shrinking the role played by Fannie Mae and Freddie Mac, the government-sponsored enterprises that have been sustained by U.S. aid since September 2008.
“I’m very encouraged by the reaction so far,” Geithner said, while adding that it will take a couple of years to reach a consensus with Congress.
Cajoling China
On the international front, Geithner is trying to reorient the world economy to avoid the imbalances that helped contribute to the financial crisis. At the heart of the effort is his attempt to cajole China into accepting a faster appreciation of its currency.
He said the U.S. has gained backing for its campaign for a stronger yuan, pointing to growing concern in Brazil and India about China’s policies.
“People want to see them move faster,” he said.
China has allowed the yuan to appreciate about 3.8 percent against the U.S. dollar since June, or at a 10 percent annual rate in real terms, Treasury Assistant Secretary Charles Collyns said in a speech this week in San Francisco.
While Geithner’s role in helping settle these issues has grown since his rocky start in the administration, he still jokes that he doesn’t get enough respect.
Told that he was the second policy maker to appear at a Bloomberg Breakfast — White House chief of staff William Daley was first — he feigned umbrage.
“I’m so offended that I’m number two,” he said. “You know, the story of my life.”
Barack Obama may lose the advantage of low borrowing costs as the U.S. Treasury Department says what it pays to service the national debt is poised to triple amid record budget deficits.
Interest expense will rise to 3.1 percent of gross domestic product by 2016, from 1.3 percent in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015, according to page 23 of a 24-page presentation made to a 13-member committee of bond dealers and investors that meet quarterly with Treasury officials.
While some of the lowest borrowing costs on record have helped the economy recover from its worst financial crisis since the Great Depression, bond yields are now rising as growth resumes. Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration’s adjusted 2011 budget.
“It’s a slow train wreck coming and we all know it’s going to happen,” said Bret Barker, an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about $115 billion in assets. “It’s just a question of whether we want to deal with it. There are huge structural changes that have to go on with this economy.”
The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008, according to the Treasury Department. Debt-service costs will climb to 82 percent of the $757 billion shortfall projected for 2016 from about 12 percent in last year’s deficit, according to the budget projections.
Budget Proposal
That compares with 69 percent for Portugal, whose bonds have plummeted on speculation it may need to be bailed out by the European Union and International Monetary Fund.
Forecasts of higher interest expenses raises the pressure on Obama to plan for trimming the deficit. The President, who has called for a five-year freeze on discretionary spending other than national security, is scheduled to release his proposed fiscal 2012 budget today as his administration and Congress negotiate boosting the $14.3 trillion debt ceiling.
“If government debt and deficits were actually to grow at the pace envisioned, the economic and financial effects would be severe,” Federal Reserve Chairman Ben S. Bernanke told the House Budget Committee Feb. 9. “Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners, with adverse long-run effects on U.S. output, incomes, and standards of living.”
Yield Forecasts
Treasuries lost 2.67 percent last quarter, even after reinvested interest, and are down 1.54 percent this year, Bank of America Merrill Lynch index data show. Yields rose last week to an average of 2.19 percent for all maturities from 2010’s low of 1.30 percent on Nov. 4.
The yield on benchmark 10-year Treasury note will climb to 4.25 by the end of the second quarter of 2012, from 3.63 percent last week, according to the median estimate of 51 economists and strategists surveyed by Bloomberg News. The rate was 3.64 percent as of 2:08 p.m. today in Tokyo. The economy will grow 3.2 percent in 2011, the fastest pace since 2004, according to another poll.
“People are starting to come to the conclusion that you’ve got a self-sustaining recovery going on here,” said Thomas Girard who helps manage $133 billion in fixed income at New York Life Investment Management in New York. “When interest rates start to go back up because of the normal business cycle, debt service costs have the potential to just skyrocket. Every day that we don’t address this in a meaningful way it gets more and more dangerous.”
‘Kind of Disruption’
While yields on the benchmark 10-year note are up, they remain below the average of 4.14 percent over the past decade as Europe’s debt crisis bolsters investor demand for safer assets, Bank of America Merrill Lynch index data show.
“The market is still giving the U.S. government the benefit of the doubt,” said Eric Pellicciaro, New York-based head of global rates investments at BlackRock Inc., which manages about $3.56 trillion in assets. “What we’re concerned with is whether the budget will only be corrected after the market has tested them. Will we need some kind of disruption within the bond market before they’ll actually do anything.”
Still, U.S. spending on debt service accounts for 1.7 percent of its GDP compared with 2.5 percent for Germany, 2.6 percent for the United Kingdom and a median of 1.2 percent for AAA rated sovereign issuers, according to a study by Standard & Poor’s published Dec. 24. Among AA rated nations, China’s ratio is 0.4 percent, while Japan’s is 2.9 percent, and for BBB rated countries, Mexico devotes 1.7 percent of its output to debt service and Brazil 5.2 percent, the report shows.
Auction Demand
Demand for Treasuries remains close to record levels at government debt auctions. Investors bid $3.04 for each dollar of bonds sold in the government’s $178 billion of auctions last month, the most since September, according to data compiled by Bloomberg. Indirect bidders, a group that includes foreign central banks, bought a record 71 percent, or $17 billion of the $24 billion in 10-year notes offered on Feb. 9.
Foreign holdings of Treasuries have increased 18 percent to $4.35 trillion through November. China, the largest overseas holder, has increased its stake by 0.1 percent to $895.6 billion, and Japan, the second largest, boosted its by 14.6 percent to $877.2 billion.
‘Killing Itself’
“China cannot dump Treasuries without killing itself,” said Michael Cheah, who oversees $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. “They’re holding Treasuries as a means to an end,” said Cheah, who worked at the Singapore Monetary Authority from 1982 through 1999, and now teaches finance classes at New York University and at Chinese universities. “It’s part of what’s needed to promote exports.”
At least some of the increase in interest expense is related to an effort by the Treasury to extend the average maturity of its debt when rates are relatively low by selling more long-term bonds, which have higher yields than short-term notes. The average life of the U.S. debt is 59 months, up from 49.4 months in March 2009. That was the lowest since 1984.
The U.S. produced four budget surpluses from 1998 through 2001, the first since 1969, as the expanding economy, declining rates and a boom in stock prices combined to swell tax receipts.
Tax cuts in 2001 and 2003, the strain of the Sept. 11 terror attacks, the cost of funding wars in Afghanistan and Iraq, the collapse in home prices and the subsequent recession and financial crisis has led to the three largest deficits in dollar terms on record, totaling $3.17 trillion the past three years.
‘Demonstrates Confidence’
The U.S. needs to manage its spending decisions “in a way that demonstrates confidence to investors so we can bring down our long-term fiscal deficits, because if we don’t do that, it’s going to hurt future growth,” Treasury Secretary Timothy F. Geithner said in Washington on Feb. 9.
The Treasury Borrowing Advisory Committee, which includes representatives from firms ranging from Goldman Sachs Group Inc. to Soros Fund Management LLC, expressed concern in the Feb. 1 report that the U.S. is exposing itself to the risk that demand erodes unless it cultivates more domestic demand.
“A more diversified debt holder base would prepare the Treasury for a potential decline in foreign participation,” the report said.
Foreign investors held 49.7 percent of the $8.75 trillion of public Treasury debt outstanding as of November, down from as high as 55.7 percent in April 2008 after the collapse of Bear Stearns Cos., according to Treasury data.
Potential Demand
The committee projects there may be $2.4 trillion in latent demand for Treasuries from banks, insurance companies and pension funds as well as individual investors. New securities with maturities as long as 100 years, as well as callable Treasuries or bonds whose principal is linked to the growth of the economy might entice potential lenders, the report said.
“They are opening up a can of worms with the idea of all these other instruments,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “They should try to keep the Treasury issuance as simple as possible. The more issuance you have in particular issue, the more people will trade them — whether it be domestic or foreign investors.”
White House Budget Director Jacob Lew said the Obama administration’s 2012 budget would save $1.1 trillion over the next 10 years by cutting programs to rein in a deficit that may reach a record $1.5 trillion this year.
“We have to start living within our means,” Lew said yesterday on CNN’s “State of the Union” program.
Still, about $4.5 trillion, or 63 percent of the $7.2 trillion in public Treasury coupon debt, needs to be refinanced by 2016. That gives the government a narrowing window as growing interest expense will curtail its ability to spend.
“There is roll-over risk,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 20 primary dealers that trade with the Fed. “It’s a vicious cycle.”
Toyota reported a 39 percent slide in quarterly profit but raised its full-year forecasts for earnings and car sales as business booms in Asia and other emerging markets.
The results show a mixed picture for the world’s biggest automaker, which is enjoying booming sales in high-growth markets in Asia, Africa and South America, while facing lingering worries about quality lapses in the key U.S. market.
Toyota Motor Corp. reported Tuesday a net profit of 93.63 billion yen ($1.1 billion) for its fiscal third quarter, down from 153 billion yen a year earlier. Quarterly sales at the Japanese automaker declined 11.7 percent to 4.673 trillion yen ($57 billion).
The drop was largely due to damage from the strong yen, which erodes the value of Japanese exports, and the end of government-backed incentives for green cars in Japan, according to Toyota.
The maker of the Lexus luxury model, Camry sedan and the Prius hybrid now expects to sell 7.48 million vehicles around the world in the year ending March 31, up from the previous forecast for 7.1 million vehicles.
Toyota raised its annual net profit forecast to 490 billion yen ($6 billion) from 350 billion yen ($4.3 billion).
The new projection is more than double Toyota’s annual profit the previous year.
Senior Managing Director Takehiko Ijichi shrugged off the threat from a strong yen, saying that solid demand from emerging markets was growing into “one of the pillars supporting our earnings.”
The one area where Toyota has been stumbling is the U.S., where it has been losing market share because of worries about the quality of its cars after the massive series of recalls that began in 2009.
The recalls, which have ballooned to more than 12 million vehicles around the world, include sticky gas pedals, faulty floor mats, braking software glitches and other defects.
Ijichi acknowledged Toyota had not fully put the recall mess behind it, but was going in the right direction because of its efforts to be quicker and more responsive over the past year and a half.
“We think that the wound is now half-healed,” he told reporters at Toyota’s Tokyo office. “It is going to be a gradual effort, but we are starting to regain the trust of our customers. We are only halfway there.”
Later in the day, an investigation into the runaway cars in the U.S. by the National Highway Traffic Safety Administration and NASA is set to be released. Toyota officials said they were also awaiting the report and declined comment.
Toyota said it will continue efforts to beef up quality controls and speed up responses in each region.
Ijichi was relatively upbeat about how Toyota sales in North America had not collapsed despite the recall fiasco, holding up at about 14 percent market share, and rising in number of vehicles sold compared to the previous fiscal year.
In recent months, other automakers have seen jumps in sales as the U.S. auto market bounced back from the recession.
Toyota has also earmarked unprecedented generous incentives in the U.S. to woo customers to its cars. Ijichi declined comment on the incentives.
For the first nine months of the fiscal year, Toyota’s profit quadrupled to 382.7 billion yen ($4.7 billion) from 97.2 billion yen in the same three quarters the previous year. Sales improved 5 percent to 14.35 trillion yen ($175 billion).
Japanese rival Honda Motor Co. also raised its full-year earnings forecast despite reporting lower profit for the October-December quarter. Nissan Motor Co., Japan’s No. 2 automaker, reports earnings Wednesday.
Toyota shares were unchanged at 3,490 yen ($43). Results were announced shortly after trading ended on the Tokyo Stock Exchange.
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