Little progress in U.S. "fiscal cliff" talks


HATFIELD, Pennsylvania |
Sat Dec 1, 2012 10:10am EST

HATFIELD, Pennsylvania (Reuters) – With barely a month left before the “fiscal cliff,” Republicans and Democrats remained far apart on Friday in talks to avoid the across-the-board tax hikes and spending cuts that threaten to throw the country back into recession.

While President Barack Obama visited a Pennsylvania toy factory to muster public support for tax hikes on the rich, portraying Republicans as scrooges at Christmas time, his primary adversary in negotiations, Republican House Speaker John Boehner, continued to describe the situation as a stalemate.

The argument will resume on Sunday when Boehner, along with Obama’s Treasury secretary, Timothy Geithner, and others, take to weekly political talk shows and pick up further steam next week with a possible confrontation in the House of Representatives between Democrats and Republicans over the timing of a vote on tax hikes.

Lawmakers are nervously eyeing the markets as the deadline approaches, with gyrations likely to intensify pressure to bring the drama to a close.

The markets, in turn watching the politicians, fell as Boehner spoke, but recovered afterward. It was a repeat of the pattern earlier in the week when the speaker offered a similarly gloomy assessment.

The latest round of high-stakes gamesmanship focuses on whether to extend the temporary tax cuts that originated under former President George W. Bush beyond their December 31 expiration date for all taxpayers, as Republicans want, or just for those with incomes under $250,000, as Obama and his fellow Democrats want.

After five days of increasingly confrontational exchanges, the work week drew to a close with an announcement by Democrats of a long-shot effort next week to force an early tax-hike vote in the Republican-controlled U.S. House to break the deadlock.

MEDICARE, SOCIAL SECURITY

House Minority Leader Nancy Pelosi said she would undertake the rarely successful effort unless Boehner agreed by Tuesday to bring a bill to the floor allowing taxes on the wealthy to rise, something Boehner is highly unlikely to do until he is ready.

“The clock is ticking,” Pelosi said at a news conference. “The year is ending. It’s really important with tax legislation for it to happen now. We’re calling upon the Republican leadership in the House to bring this legislation to the floor next week.”

While Boehner offered no immediate response to Pelosi’s threat, Cathy McMorris Rodgers of Washington state, recently elected by Republicans to be the fourth-ranking party leader in the House, told Fox News in an interview not to expect any tax vote next week.

Amid the competing statements from the two sides, there were some actual, albeit modest, signs of potential movement.

Senate Minority Leader Mitch McConnell threw Republican proposals into the mix for reform of Medicare, the government health insurance program for seniors, which has exploded in cost in recent years and is a major contributor to the country’s soaring deficit.

McConnell of Kentucky told the Wall Street Journal in an interview that Republicans would agree to more revenue – although not higher tax rates – if Democrats agreed to such changes as raising the eligibility age for Medicare and slowing cost-of-living increases in the Social Security retirement program.

Rodgers, in her Fox News interview, declined to completely rule out a much-discussed potential compromise in which Republicans would accept some increase in tax rates on the rich, but not to the level desired by Obama.

‘A LUMP OF COAL’

More House Republicans – although still just a handful -expressed flexibility beyond that of their party leaders about considering an increase in tax rates for the wealthy, as long as they are accompanied by significant spending cuts.

Most House Republicans refuse to back higher rates, preferring to raise revenue through tax reform.

Obama, speaking in Pennsylvania, said he was encouraged by the shifting views of some Republicans, and urged House approval of a bill that has already cleared the Democratic-controlled Senate that would lock in the middle-class tax cuts and raise the rates for the rich.

“If we can get a few House Republicans on board, we can pass the bill. … I’m ready to sign it,” Obama said.

But neither he nor the other principals in the debate budged from their basic positions.

Instead, Obama turned up the pressure on Friday, hitting the road to drum up support for his drive to raise taxes on the wealthy and warning Americans that Republicans were offering them “a lump of coal” for Christmas.

In a visit to the Pennsylvania toy factory, Obama portrayed congressional Republicans as scrooges who risked sending the country over the fiscal cliff rather than strike a deal to avert the tax increases and spending cuts that begin in January unless Congress intervenes.

“We already all agree, we say, on making sure middle-class taxes don’t go up. So let’s get that done. Let’s go ahead and take the fear out for the vast majority of American families so they don’t have to worry,” Obama said at the Rodon Group factory, which makes K’NEX building toy systems as well as Tinkertoys and consumer products.

In Washington, Boehner said Obama’s plan to raise taxes on the rich was the wrong approach.

“There is a stalemate. Let’s not kid ourselves,” the Ohio Republican said. “Right now we are almost nowhere.”

(Additional reporting by Richard Cowan, Thomas Ferraro, Kim Dixon, Edward Krudy; Writing by John Whitesides; Editing by Fred Barbash and Todd Eastham)

Cliff fight may knock out December rally


NEW YORK |
Fri Nov 30, 2012 7:56pm EST

NEW YORK (Reuters) – In normal times, next week’s slew of U.S. economic data could be a springboard for a December rally in the stock market.

December is historically a strong month for markets. The SP 500 has risen 16 times in the past 20 years during the month.

But the market hasn’t been operating under normal circumstances since November 7 when a day after the U.S. election, investors’ focus shifted squarely to the looming “fiscal cliff.”

Investors are increasingly nervous about the ability of lawmakers to undo the $600 billion in tax increases and spending cuts that are set to begin in January; those changes, if they go into effect, could send the U.S. economy into a recession.

A string of economic indicators next week, which includes a key reading of the manufacturing sector on Monday, culminates with the November jobs report on Friday.

But the impact of those economic reports could be muted. Distortions in the data caused by Superstorm Sandy are discounted.

The spotlight will be more firmly on signs from Washington that politicians can settle their differences on how to avoid the fiscal cliff.

“We have a week with a lot of economic data, and obviously most of the economic data is going to reflect the effects of Sandy, and that might be a little bit negative for the market next week, but most of that is already expected – the main focus remains the fiscal cliff,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Concerns about the cliff sent the SP 500 .SPX into a two-week decline after the elections, dropping as much as 5.3 percent, only to rally back nearly 4 percent as the initial tone of talks offered hope that a compromise could be reached and investors snapped up stocks that were viewed as undervalued.

On Wednesday, the SP 500 gained more than 20 points from its intraday low after House Speaker John Boehner said he was optimistic that a budget deal to avoid big spending cuts and tax hikes could be worked out. The next day, more pessimistic comments from Boehner, an Ohio Republican, briefly wiped out the day’s gains in stocks.

On Friday, the sharp divide between the Democrats and the Republicans on taxes and spending was evident in comments from President Barack Obama, who favors raising taxes on the wealthy, and Boehner, the top Republican in Congress, who said Obama’s plan was the wrong approach and declared that the talks had reached a stalemate.

“It’s unusual to end up with one variable in this industry, it’s unusual to have a single bullet that is the causal factor effect, and you are sitting here for the next maybe two weeks or more, on that kind of condition,” said Sandy Lincoln, chief market strategist at BMO Asset Management U.S. in Chicago.

“And that is what is grabbing the markets.”

BE CONTRARY AND MAKE MERRY

But investor attitudes and seasonality could also help spur a rally for the final month of the year.

The most recent survey by the American Association of Individual Investors reflected investor caution about the cliff. Although bullish sentiment rose above 40 percent for the first time since August 23, bearish sentiment remained above its historical average of 30.5 percent for the 14th straight week.

December is a critical month for retailers such as Target Corp (TGT.N) and Macy’s Inc (M.N). They saw monthly retail sales results dented by Sandy, although the start of the holiday shopping season fared better.

With consumer spending making up roughly 70 percent of the U.S. economy, a solid showing for retailers during the holiday season could help fuel any gains.

Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, believes the recent drop after the election could be a market bottom, with sentiment leaving stocks poised for a December rally.

“The concerns on the fiscal cliff – as valid as they might be – could be overblown. When you look at a lot of the overriding sentiment, that has gotten extremely negative,” said Detrick.

“From that contrarian point of view with the historically bullish time frame of December, we once again could be setting ourselves up for a pretty nice end-of-year rally, based on lowered expectations.”

SOME FEEL THE BIG CHILL

Others view the fiscal cliff as such an unusual event that any historical comparisons should be thrown out the window, with a rally unlikely because of a lack of confidence in Washington to reach an agreement and the economic hit caused by Sandy.

“History doesn’t matter. You’re dealing with an extraordinary set of circumstances that could very well end up in the U.S. economy going into a recession,” said Phil Orlando, chief equity market strategist at Federated Investors in New York.

“And the likelihood of that is exclusively in the hands of our elected officials in Washington. They could absolutely drag us into a completely voluntary recession.”

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: charles.mikolajczak(at)thomsonreuters.com )

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

3 Biggest Email Marketing Mistakes

Turns out, a significant portion of your emails might be going directly into a black hole. Here’s what you’re doing wrong.

Junk mail

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Spam is a big problem. People get tired of seeing one bogus offer after another show up in their email inboxes. So, they and their service providers use sophisticated filters to separate the wheat from the irritating chaff.

Unfortunately for legitimate marketers, often consumers and anti-spam technology don’t see much difference between a legitimate marketing message and a Nigerian scam email. How often? A study by email analytics firm Return Path reports that at least 16% of commercial emails never reach their intended inboxes.

Marketers end up with bad reputations among ISPs for two main reasons. One is spam complaints. Indiscriminate or sloppy tactics can be indistinguishable from shadier pitches in consumers’ minds–it all looks like unwanted mail. So they mark it as spam in an effort to avoid similar emails in the future.

The other reason is spam traps. A spam trap is an inactive email address that should get no messages. The address may be one that an ISP explicitly set up for the purpose, or it might be an abandoned account. ISPs assume that mail reaching such accounts must be spam. However, real mail from marketers makes up 70% of spam complaints and 60% of spam-trap hits, although marketing mail comprises only 18% of total email volume. Even botnets cause only 3% of complaints and 11% of spam-trap hits.

Return Path examined 315,000 campaigns run by its clients to track how many emails went missing, were received successfully, and were caught by an ISP in a spam folder. Although the study is not necessarily statistically representative of all marketers–there may be characteristics of the companies using Return Path that are unusual, and the firm didn’t specify how many companies were responsible for the total number of campaigns–it is enough data to make you consider whether it should apply to you, as well.

According to Return Path, there are three things marketers should do that many don’t:

  • Pay attention to and track email complaints
  • Discover the underlying causes for email not going through
  • Confirm continued interest on the part of people receiving marketing email

Ignore these three important steps to managing email and you may find that your newsletters, offers, and other messages also disappear into the Great Spam Void.

America: Home of the Brave (Entrepreneurs)

A new report showed that American entrepreneurs are the least afraid to start a business and the most confident in their business skills.

Crowd Funding Fists

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When it comes to entrepreneurship, fear is not a factor in the U.S.

A study released today from the Global Entrepreneurship Monitor and Babson College revealed that most Americans are not plagued by the fears and insecurities that prevent people in other countries from starting a business.  

According to the report, just less than a third of Americans will not start a business out of a fear of failure. The study also found that 55% of Americans felt they were capable of starting their own business.

Compared with the 53 other global economies–including many in Western Europe and Asia–surveyed for the study, these figures made U.S. entrepreneurs one of the least fearful among developed nations (Slovenia and Switzerland had a similarly low fear rate). For the report, the GEM surveyed working adults ages 18 to 64.

“It does help that we have a pretty big and diverse market,” said Donna Kelley, the report’s primary author. “It helps in some way that people are very knowledgeable about their whole market, and the conditions of starting a business.”

Kelley also pointed out that larger American corporations hold more entrepreneurial opportunities than their global counterparts. With the flexibility and resources of a larger company, people with entrepreneurial aspirations will feel more confident in their ability to launch a business idea, she said.

This latest annual study from the GEM, which reflects the entrepreneurial trends of 2011, surveyed 54 economies across the world. Within the United States, more than 5,800 adults were interviewed.

 The study discovered some other statistics on small-business owners and entrepreneurs, including:

  • In 2011, there were eight female entrepreneurs for every 10 male entrepreneurs, indicating that the gender gap among business owners is narrowing.
  • 39% of the small-business owners surveyed said they plan to hire more than five employees over the next half-decade.
  • The number of global business owners jumped 17 percentage points from 2010 to 2011.  
  • Most entrepreneurs make their revenue from domestic sales. Only 13% of the surveyed American entrepreneurs said that 25% or more of their sales came from global business deals.

“There are positive signs, but others still see that the tough times are languishing,” Kelley said. “The upside is that some people are seeing that it’s time to jump in.” 

 

Square: $10 Billion in Transactions & Counting

This innovative payment company enables smartphones to act like wallets–or like cash registers. And it’s changing the way we think about money.

Square

Courtesy Company

Money is a problem. And not just how to acquire it–but also how to accept it, spend it, analyze it, save it, and transact with it.
 
The idea that a business owner might lose a sale simply because the exchange of currency between buyer and seller is inconvenient or impossible–well, that’s an absurd problem to have.
 
And yet that’s precisely the problem Square co-founder Jim McKelvey confronted one day several years ago when trying to make a sale. You see, in his spare time, McKelvey–a serial tech entrepreneur known for founding Mira Digital Publishing–blows glass, and occasionally he sells his pieces.
 
That day, he was set to make the sale of a $2,500 sink faucet, but he didn’t have a way to accept the customer’s credit card. He lost the sale–but he gained an idea. What if there was a way for a business owner–really anyone, for that matter–to accept a credit card on his or her phone but without all the hassle?
 
Coincidentally, McKelvey was talking to Jack Dorsey later that day on his iPhone. The two had worked together at Mira when Dorsey was 15 years old, and they had stayed friends.

“I’m talking to Jack on my iPhone, and I look at my iPhone and I think, Here is everything that I needed to save that sale,” he told St. Louis Magazine in 2011. “So I said, ‘What we ought to do is build a payment system to prevent little businesses from getting screwed the way they’ve been getting screwed, because it’s really tough if you’re a small-business man to accept payment cards.”

Dorsey had left Twitter in 2008 a newly minted multimillionaire, but he was eager for new projects. Specifically, he was interested in doing something on mobile devices–and he liked this idea. Over the next few days, McKelvey and Dorsey began strategizing about how to build a mobile payment company. 

By 2010, once the company had gained some traction, McKelvey stepped back to let Dorsey, the CEO, drive the growth of the company.

“I said I’d do whatever was necessary to get Square to the point where they could hire people that were better than me,” McKelvey recalls.

Dorsey’s career trajectory has been anything but traditional. He’s written dispatcher-software code for taxi companies (some of which is still used by cab companies); he’s studied to be a masseur; and later, of course, he became well known in the Silicon Valley circuit for co-launching Twitter with Evan Williams and Biz Stone, whom he met while working at Odeo.
 
“I like building utilities,” Dorsey said recently at a talk at Stanford University.

He’s good at it, too. Just as Twitter was useful for a variety of purposes (from sharing your breakfast habits to breaking down regimes in the Middle East), Square can be leveraged for simple monetary transactions (like paying your friend for movie tickets) as well as complex transactions (according to a company representative, a surprisingly high number of doctors, lawyers, and other service professionals use Square as their main form of payment).

By streamlining payments for both consumers and merchants, Square has found particular adoption among small-business owners–a point of pride for Dorsey.

“We think [Square] has a social impact,” Dorsey explained to St. Louis Magazine. “From the merchant perspective, it’s giving everyone access to the tools that we use. Everyone has a payment card in their pocket, but very few people can accept that. With Square, everyone can participate in commerce, and it’s taking a lot of the financial risk off the table. I think that’s a big deal.”

A company spokesperson says the start-up has processed nearly $10 billion worth of transactions (on an annualized basis) among some 200,000 merchants and three million users. The customer loyalty is remarkable. Square takes a 2.75% transaction fee, but it ends up paying more than half that fee to credit card companies. Still, business is booming: In 2011, there were 150 employees. By 2013, the company projects to have about 1,000. In just three years, the company has raised a total of $200 million, with its most recent valuation at $3.25 billion.

The company is aggressively pursuing partnerships with major retailers to solidify its place in the world of payments. Last year, Starbucks and Square partnered up, with Starbucks injecting $25 million of its own capital into the company. With Square Wallet, Starbucks customers can purchase their cappuccino simply by holding their phone up to a small receptor.
 
“We have seen a tremendous response from our customers, with more than 100 million mobile transactions occurring in our U.S. stores since its launch,” Adam Brotman, Starbucks’s chief digital officer, recently said in a statement.

But perhaps what’s most impressive about Square is the company’s desire to disrupt an industry many people don’t even think of as an industry, per se. Square recognizes that our transactional relationship to money–to cash and credit cards, specifically–is completely outdated, especially for merchants.

Many small-time entrepreneurs, for instance, can’t afford the fees imposed by credit cards. Square charges its merchants a straightforward 2.75% fee to swipe any major credit card–with no additional merchant account fees. This is in direct contrast to most credit card companies, which usually charge businesses a flat rate of anywhere from 8 cents to 15 cents per transaction. For businesses that have a high number of transactions–with a relatively low average transaction cost–Square can make a big difference to their bottom line.

Take a coffee shop, for instance. If a cup of coffee costs $1, a 2.75% transaction fee barely eats into the coffee’s margin. But a 15 cent transaction fee is essentially a 15% fee on that cup of coffee–a pretty huge cost for a simple transaction. Multiplied out over hundreds of cups of coffee every day, it’s easy to understand why coffee shops would dislike accepting credit cards: It’s just not worth it.

But it is also changing the way sales happen, taking the Apple retail experience as a cue.

Dorsey is also known to be something of a retail pundit, if not a retail philosopher. Square, he says, brings “the point of purchase to the decision.” With Square, he says, there’s no more waiting in lines or dealing with unnecessary paper, which, in turn, brings people closer to the products and services they desire.
 
“The more you can minimize the thinking around the mechanics in the moment, then more people are going to use it,” Dorsey says. “In Square’s case, it gets you to the value of what you’re actually intending to purchase, and getting the mechanics of the purchase out of the way.” 

5 Things Disruptive Start-ups Do Well

Some entrepreneurs think it’s crazy to go after an industry dominated by big players. Not this guy.

Explosion

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Lately, I’ve been fascinated by a start-up called Pheed. The self-made and self-funded company is trying to do something few start-ups successfully attempt, let alone accomplish: disrupt an industry that’s dominated by big-name players. Will it work? We’ll see–but how Pheed is going about the task offers a number of lessons for any entrepreneur.

So what is Pheed? I like to call it Twitter with a business model. The site allows users to post digital content such as text, photos, and live video and audio. The catch? Influencers can charge a small fee for their content.

In just six weeks, Pheed has grown to more than one million users, drawn celebrities such as Miley Cyrus and Paris Hilton, and gone viral in France. What’s the secret?

I sat down with O.D. Kobo, co-founder of Pheed, to see what he’s done to set his start-up apart.

Be a fan first.

Build something you want to use. “If you want to improve something, you have to be a user of it first,” Kobo says. “When we launched Pheed, it was because we, as users, wanted it to exist. If the CEO or the junior engineer does not have the same level of fascination with the product, it shows. Build something you are proud of and make a statement.”

Know that opportunities are everywhere.

“There is always an opportunity to be the next establishment,” Kobo says. When Apple first launched, it disrupted big-name contenders such as HP and IBM. “Even a small company opening today can be a large corporation tomorrow,” he says.

Develop a culture.

True disruption starts by introducing a culture that’s different from the establishment. When Microsoft first launched the Surface tablet, the company spent millions on marketing efforts. That’s because the company attempted to introduce a product without creating a culture first, Kobo says. “[In contrast,] before Apple launched the iPhone 5, fans scoured the Web for a glimpse of what it might look like,” he says. “Then, they flocked to stores like fans running to see their favorite entertainer at Madison Square Garden, waiting in long lines, all for a phone. Why? Because Apple is as much about great product as it is about culture.”

Build anticipation.

Pheed is one of those rare start-ups that had a number of fans supporting it before it even launched. Kobo says he built a following the old-fashioned way: offline. He went around L.A. with his laptop showing the service to everyone from local tattoo artists and record producers to Suzanne Kolb, president of E! Entertainment–and they liked what they saw. “That demonstrates to me that Pheed is in sync with the current culture of today’s youthful society,” Kobo says. Your start-up should allow fans to “see a part of themselves in [your] endeavor, as underdogs with a shot at the title.”

Be resourceful.

Kobo was in the fortunate position of being able to fund his own company. If you’re not, seek seed or first-round capital from wealthy individuals who believe in you, as opposed to obtaining funding from a venture capitalist who is just looking to add to his portfolio. Choose a partner with energy. “You wouldn’t walk down the aisle with a girl you don’t love, regardless of whether her father is a billionaire,” Kobo says. “It is about good energy, not the money–so look at the people first. A lot of start-ups think a large funding round is an exit, and their ego balloons. More ammunition simply means more targets you need to take out.”

When it comes down to it, Kobo says, never be afraid to compete with big names. Use your fear as fuel. “The great thing about the Internet is that it never sleeps, it never stops moving, and there is always somebody out there looking to take out the establishment,” he says. “Just go for it, because if you don’t, somebody else will.”

Fed’s Stein backs QE3, says policy remains effective

The Federal Reserve should continue buying long-term bonds to support economic growth until the outlook for U.S. employment gets considerably better, Fed Board Governor Jeremy Stein said on Friday.

Stein, who joined the U.S. central bank in May, defended the Fed’s unconventional monetary policies on a panel with Minneapolis Fed President Narayana Kocherlakota, who focused his comments on regulating big U.S. banks, arguing that the perceived risk of a failure has receded in recent years.

The Fed has kept short term rates almost at zero for four years and has bought some $2.5 trillion in bonds to drive down longer-term borrowing costs and boost the recovery from recession.

Stein argued that these policies have not only brought down rates on long-term government bonds, but also have made it cheaper for corporations to borrow in capital markets.

“While this is not entirely uncontroversial, my own reading of the evidence is that there has also been substantial pass-through to corporate bond rates,” Stein, who was a Harvard finance professor before joining the Fed, said at a conference hosted by the Boston Fed bank.

He estimated an additional $500 billion on Treasury purchases would lower long-term bond rates in the government and corporate markets by around 0.15-0.20 percentage point.

The effectiveness of the “pass-through” of the Fed’s aggressive policies have been a hot topic since the central bank launched a third quantitative easing program in September, dubbed QE3, to buy $40 billion in mortgage bonds per month. Policymakers could decide to ramp that up when they meet in Washington on December 11-12.

While some have bemoaned the very incremental reduction in rates on home loans since QE3, others such as Stein and Kocherlakota, argue that every bit of support from the Fed helps in spurring economic growth and lowering the 7.9 percent unemployment rate.

Stein expressed frustration with the “constraint” lenders are showing in, for example, issuing mortgage loans.

He admitted that the impact of purchasing assets tends to diminish over time because, in a weak economic environment, companies opt to lower their funding costs by refinancing rather than make new investments.

Still, Stein argued the Fed’s strategy of buying mortgage-backed securities was particularly effective in helping the housing finance sector.

“I suspect that mortgage purchases may confer more macroeconomic stimulus dollar-for-dollar than Treasury purchases,” Stein said.

The U.S. economy expanded 2.7 percent in the third quarter, but growth is expected to be significantly slower for the last three months of the year. Consumer spending posted its first drop in five months during October, according to a report on Friday.

TOO BIG TO FAIL

Turning to the Fed’s other key function, financial regulation, Kocherlakota highlighted that studies using measures of market risk, including credit default swaps, show “that the size of the too-big-to-fail problem has fallen over the past couple of years but remains large.”

While the perceived risk of a big U.S. bank failure has receded, more study is needed to understand whether the improvement is due to government policies or simply an improved economic outlook.

For any given financial institution “it could be that creditors believe that there is little likelihood of that financial institution becoming distressed” perhaps because new rules require banks to put up more capital, Kocherlakota said.

It could also be that creditors believe a government bailout is unlikely, suggesting that other policies – such as the requirement banks devise blueprints for a wind-down should they become insolvent – are working.

But metrics could be improving “simply because creditors’ assessments of future macroeconomic conditions improve,” he said.

Teasing apart the reasons for the improvement in the too-big-to-fail problem is key to understanding whether approaches like those enshrined in the 2010 Dodd-Frank financial reform act are having the intended effect, Kocherlakota said.

The wide-ranging law, written in response to the 2007-2009 financial crisis, aims to reduce the likelihood of banks failing and to lessen the cost to society if they do.

Kocherlakota has urged the Fed to adopt guideposts for policy in terms of unemployment and inflation, and on Friday reiterated his view that without such metrics “it is challenging to know whether monetary policy is overly accommodative or not.”

The same point can be made for the too-big-to-fail bank problem, which Congress has set out to resolve.

“The public can only hold Congress and its (delegates) responsible for achieving this mandate if there are quantitative measures of the size of the too-big-to-fail problem,” he added.

(Additional writing and reporting by Pedro Nicolaci da Costa and Ann Saphir. Editing by Andre Grenon)

France announces ArcelorMittal steelworks deal

The French government backed away on Friday from a threat to nationalize a steelworks, saying it secured promises from the owner, ArcelorMittal , to invest and avoid any forced layoffs at the site where the company has idled two blast furnaces.

Workers at the plant said the announcement fell well short of what they had hoped from a government that won power in May on promises to combat industrial decline and mass job losses in Europe’s second-largest economy.

Prime Minister Jean-Marc Ayrault said ArcelorMittal, under fire for mothballing the site 18 months ago, would invest 180 million euros ($234 million) and had promised there would be no forced layoffs among some 630 workers there.

Ayrault said the two furnaces in Florange, a small town of some 11,000 people near the border with Germany, would not be restarted for now, given weak European steel demand.

ArcelorMittal would keep them in working order, however, for future use in a test project for environmentally friendly steel production.

“The government decided against the idea of a temporary nationalization that was floated in recent days,” Ayrault told reporters, three hours before a midnight deadline to strike a deal. “It ruled that option out given the commitments secured from ArcelorMittal.”

Ayrault said the investment would reinforce cold-steel and packaging operations at Florange and secure jobs in those areas. ArcelorMittal had pledged its investment in Florange would not come at the expense of other sites in France.

The deal, the result of months of talks, came as the Italian Cabinet was meeting to approve a rescue plan for ILVA, Europe’s largest steel plant, which has 20,000 workers and is threatened with closure after accusations that emissions from the site had caused an environmental “disaster.

Labour leaders from the Florange site responded angrily and vowed to fight on to make sure that what concessions had been wrung out of ArcelorMittal were respected.

“We’ve been betrayed,” said Martin Edouard, a member of the CFDT union at the Florange furnaces, told reporters.

“This is unbelievable, if that’s what politics is about, what a joke,” said Walter Broccoli of the FO union.

The European steel industry is struggling with overcapacity at a time of recession in the euro area and cheap competition in emerging markets.

Florange, located in France’s former industrial heartland, has become symbolic of the country’s long industrial decline and a test case for whether Socialist President Francois Hollande can make good on a vow to reverse a relentless surge in unemployment.

ArcelorMittal said earlier this year the Florange site’s two furnaces were not viable, but Hollande insisted they should be kept open and threatened a temporary state takeover of the site while the government sought a permanent buyer.

The two blast furnaces together employ about 630 out of the 2,700 workers at the entire site.

Ayrault offered no details on what workers would do beyond not being laid off, or a time frame for any future project to revamp the furnaces using European Union credits to produce environmentally friendly steel.

MONTEBOURG HUDDLE

Hollande’s government faced roars of criticism from business leaders this week over its threat to nationalize Florange.

Industry Minister Arnaud Montebourg, who shocked foreign investors this week by saying Arcelor’s Indian chief executive, Lakshmi Mittal, was no longer welcome in France, had said the government had identified an industrialist ready to inject 400 million euros into the site.

Earlier on Friday, Montebourg huddled in a cafe with a group of orange-vested metal workers protesting near the Finance Ministry, telling them nationalization was still an option.

Yet Hollande, who is battling to appease both left-wing voters angry at unemployment and foreign investors impatient to see structural reforms, is wary of the stigma even a temporary nationalization would carry abroad.

Officials had defended the idea of a temporary nationalization, saying it was a special case because ArcelorMittal had broken promises to keep the furnaces running.

But ArcelorMittal denies breaching commitments. Sources close to the group say Arcelor planned in 2003 – before its 2006 takeover by Mittal – to wind down inland blast furnaces in Europe, including the two in Florange, by 2010.

The group says overcapacity in Europe’s steel market, with demand 28 percent below peak 2007 levels, has made Florange’s furnaces uneconomical and that a buyer would have to absorb deep losses to take them on, even with the rest of the site.

Florange Mayor Philippe Tarillon relayed the extent of dismay with ArcelorMittal’s boss, telling French media: “I understand the workers would have preferred to get rid of Mr Mittal. And I will share a secret with you. Me too.” ($1 = 0.7689 euros)

(Additional reporting by Nick Vinocur and Emmanuel Jarry in Paris and Phil Blenkinsop in Brussels; Writing by Catherine Bremer and Brian Love; Editing by Sophie Hares and Peter Cooney)

"The euro is a currency with a state", says ECB’s Coeure

European Central Bank policymaker Benoit Coeure urged euro zone governments on Saturday to forge a closer political union, arguing “the euro is a currency with a state” whose branches of government need more clearly defining.

At an economic forum in Paris, Coeure said the ECB had acted to prevent the break-up of the euro by agreeing its new bond-purchase program, dubbed Outright Monetary Transactions (OMT).

OMTs aim “to price out a type of catastrophic risk premium that investors demand in conditions of market paralysis,” Coeure said in the text of a speech for delivery at the forum.

“It was breakdown risk in the early stage of the crisis, the risk that the payments system would seize up completely. It is break-up risk now,” he added.

The ECB will do everything within its mandate “to ensure price stability in the euro area and therefore trust in the euro as a currency,” he said.

But he added that the euro zone needed closer political cooperation to coordinate crisis management policies.

“The notion that the euro is a currency without a state is in my view misguided,” he said. “The euro is a currency with a state – but it’s a state whose branches of government are not yet clearly defined.”

Former ECB President Jean-Claude Trichet’s idea for a euro area Treasury would be an important step in bringing greater clarity to the role of government in the bloc, Coeure said.

“The ECB is independent and fully accountable, but it needs clearly identifiable and fully empowered interlocutors,” he added.

(Reporting by Lionel Laurent; Writing by Paul Carrel, Editing by Gareth Jones)