More gov't money being given out

http://online.wsj.com/article/SB10001424052970203771904574177673022851160.html

Fed Open to Buying More Securities

By BRIAN BLACKSTONE

WASHINGTON -- Some Federal Reserve officials are open to raising the amounts of mortgage and Treasury securities purchase programs beyond the $1.75 trillion that they have already committed to buying, according to minutes from the Fed’s April meeting.

Officials, meanwhile, projected an even deeper recession than they expected three months earlier and a more sluggish recovery over the next two years as labor markets remain under pressure.

“Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery,” according to the minutes of the April 28-29 meeting, released Wednesday with the usual lag. (Read the full minutes.)

As widely expected, the Fed kept the target federal funds for interbank lending in a range near zero at that meeting. In a statement, officials said rates will stay “exceptionally low...for an extended period” suggesting rates could stay where they are into next year.

Policymakers also said in the policy statement three weeks ago that the economic outlook had improved “modestly” in the weeks since their March meeting, fanning hopes that the recession is in its final stages.

Economic data have been mixed since late April, though, with some signs of stability in consumer and business surveys offset by ongoing weakness in spending and employment.

Data since the March FOMC meeting “provided some tentative evidence that the pace of contraction in real economic activity was starting to diminish,” according to the April minutes, citing “strengthened” financial conditions and indications of a pickup in household and business confidence.

Fed staff economists, meanwhile, revised up their projections for the economy in the second half of this year and 2010, “with real GDP expected to edge higher in the second half and then increase moderately next year.”

Still, quarterly economic projections included in the April meeting minutes highlight just how much the economic outlook had eroded since the beginning of the year. Fed officials see the economy contracting between 1.3% and 2% this year, versus forecasts for only a 0.5%-1.3% decline in January.

Gross domestic product is only expected to advance 2% to 3% next year, which is below what officials thought in January. They also downgraded their 2011 forecasts, though they are still centered around a solid 3.5% to 4.8% rate of growth.

The unemployment rate is expected to end 2009 between 9.2% and 9.6%, significantly higher than what officials expected in January. One official expects it to reach 10% this year. It’s expected to stay above 9% in 2010, too.

Inflation should remain “subdued,” the Fed said, although many officials thought the risk of deflation “had diminished.”

The suggestion in the minutes that some officials think more asset purchases may be in the offing should cheer those on Wall Street that were disappointed when the Fed kept the size of their mortgage-related and Treasury security purchase programs unchanged last month at $1.45 trillion and $300 billion, respectively.

The FOMC “discussed its strategy for communicating the anticipated path of its asset purchases and the circumstances under which adjustments to that path would be appropriate,” according to the minutes.

“All members agreed that the statement should note that the timing and overall amounts of the Committee’s asset purchases would continue to be evaluated in light of the evolving economic outlook and conditions in financial markets,” the minutes stated.

Officials also signaled that while they are open to more transparency, they are also unlikely to name names when it comes to the banks that use the Fed’s lending facilities.

“It was noted that disclosing the identities of individual borrowers would very likely discourage use of the Federal Reserve’s liquidity and credit facilities,” the Fed said.

Write to Brian Blackstone at brian.blackstone@dowjones.com

 

Meanwhile, California is already bankrupt. The "emergency" stimulus bill of $850B would pay all of California's deficits for the next 20+ years (at $40B/year deficit). California seems like a way better investment than Detroit.

http://www.latimes.com/news/local/la-me-props20-2009may20,0,6360585,print.story

California voters kill budget measures

Only salary curbs survive in a rout of Schwarzenegger's slate of reforms
By Eric Bailey

May 20, 2009

Reporting from Sacramento — The "big five" elected leaders -- Schwarzenegger and the legislative chieftains from both houses -- are slated to begin closed-door meetings today upon the governor's return from Washington, where he spent election day after casting a last-minute absentee ballot.

On Thursday a small group of Senate and Assembly members will hold the first of what's expected to be a slew of daily public sessions to wrangle over the details of the budget.

Schwarzenegger has called for cuts that would hit every corner of the state. He announced plans to lay off 5,000 of the state's 235,000 workers and has proposed slashing education by up to $5 billion, selling state properties, borrowing $2 billion from local governments and potentially reducing eligibility for healthcare programs.

Los Angeles Mayor Antonio Villaraigosa predicted that the city's budget could take a hit -- but he vowed a fight: "I'm going to do everything I can to protect the city coffers."

Worst-case scenarios also call for the release from state prisons of up to 19,000 illegal immigrants, who would face deportation, and the transfer of up to 23,000 other prisoners to county jails.

The governor also wants to borrow up to $6 billion, but awaits word on whether Washington would guarantee those loans. The White House has never done so for the state but is considering the action as Wall Street expresses concern that California could become a deadbeat borrower.

In a bid to salt those prospects, Schwarzenegger met privately Tuesday in the U.S. Capitol with members of California's congressional delegation. "We have a major problem in California, and I think if we work together, we can make it through this crisis," he told reporters after attending the White House announcement on tougher vehicle emission standards. "We need assistance. . . . I didn't come for any bailout. We're going to make the necessary cuts."

Afterward, the lawmakers appeared split over the idea of a federal backstop for state borrowing, said Rep. Dan Lungren (R-Gold River). And some saw irony in Schwarzenegger's appearance in Washington while voters decided the fate of his ballot package back home.

"If the governor thought that the initiatives were going to win a smashing victory, he'd be in California right now," said Rep. Brad Sherman (D-Sherman Oaks).

Though he stepped squarely into the spotlight in the days before the election, Schwarzenegger had largely stuck to the wings during the three-month run-up to the vote.

The campaign for the measures hit hard with mailers, TV and radio ads early on, but the message shifted dramatically in the final weeks. Earlier, backers emphasized fiscal responsibility. But in the last stretch, the commercials tilted toward fears that the cash crunch would cut into critical services.

Schwarzenegger helped behind the scenes to garner big contributions for the measure's proponents, who raised about $30 million and outspent foes by nearly 10 to 1. Among the big contributors were businesses hoping to avoid tax increases if state finances slumped further: oil companies, tobacco and alcoholic beverage firms, sports teams and Hollywood studios.

Despite a big advantage in cash and manpower, the campaign failed to gain traction from the start. Polls throughout the race showed all the ballot measures -- except Proposition 1F -- losing badly, as voters expressed equal parts confusion over the package and disdain for the Sacramento politicians who crafted it.

Californians seemed upset partly by Sacramento's call for more money at a time when employment was sagging, retirement accounts were plunging and the average resident was struggling. Others expressed irritation at being called back to the polls just months after a presidential election.

The short campaign also created confusing bedfellows in support and opposition to the ballot measures.

Schwarzenegger joined with liberal Democrats and the California Teachers Assn., the group that helped defeat a 2005 ballot package championed by the governor. Foes of Proposition 1A, meanwhile, included several unions, which didn't like the effect spending limits could have on the state workers they represent, and anti-tax groups that hated its extension of tax increases.

eric.bailey@latimes.com