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Here is my short-form take on President Obama’s State of the Union address. This is written to outline four major areas that concern stock market investors.
I have excerpted the first three sections -- Labor Markets, Sector Priorities, and Fiscal Progress -- out of the actual address. The fourth section comes from a piece written in Europe, which addresses the European Free Trade perspective.
I. Labor Markets – Alan Krueger, President’s Chief Economics Advisor
Minimum Wage Hike, Incentives to Hire LT Unemployed, Early Education
How do we attract more jobs to our shores? How do we equip our people with the skills to get those jobs? And how do we make sure that hard work leads to a decent living?”
- Obama outlined steps to help all children get high-quality preschool.
- Offer incentives to companies that hire Americans who’ve got what it takes to fill that job opening, but have been out of work so long that no one will give them a chance anymore.
- Increase in the minimum wage, from $7.25 an hour now, to $9 an hour, was the most tangible of a raft of initiatives.
II. Sector Priorities
Obama’s address indicates he wants federal government prioritized into sectors where investments make high returns:
Last year, we created our first manufacturing innovation institute in Youngstown, Ohio. A once-shuttered warehouse is now a state-of-the art lab where new workers are mastering the 3D printing that has the potential to revolutionize the way we make almost everything. There’s no reason this can’t happen in other towns.
So tonight, I’m announcing the launch of three more of these manufacturing hubs, where businesses will partner with the Department of Defense and Energy to turn regions left behind by globalization into global centers of high-tech jobs. And I ask this Congress to help create a network of 15 of these hubs and guarantee that the next revolution in manufacturing is made right here in America. We can get that done.
So tonight, I propose we use some of our oil and gas revenues to fund an Energy Security Trust that will drive new research and technology to shift our cars and trucks off oil for good. In fact, much of our new-found energy is drawn from lands and waters that we, the public, own together.
Obama likewise called for a doubling of energy production by 2030 and urged Congress to take up climate-change legislation that failed during his first term.
He said that if Congress didn’t act on climate change, he would prepare a series of executive actions to “prepare our cities and nation for the worsening effects” of a hotter climate.
So tonight, I propose a “Fix-It-First” program to put people to work as soon as possible on our most urgent repairs, like the nearly 70,000 structurally deficient bridges across the country. And to make sure taxpayers don’t shoulder the whole burden, I’m also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods, modern pipelines to withstand a storm, modern schools worthy of our children.
Let’s put people back to work rebuilding vacant homes in run-down neighborhoods. And this year, my administration will begin to partner with 20 of the hardest-hit towns in America to get these communities back on their feet. We’ll work with local leaders to target resources at public safety, and education, and housing.
But even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected. Too many families who never missed a payment and want to refinance are being told “no.” That’s holding our entire economy back. We need to fix it. Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats and Republicans have supported it before, so what are we waiting for? Take a vote, and send me that bill.
The Committee for a Responsible Federal Budget said Monday that policy makers need to find at least $2.4 trillion more in savings.
On March 1, about $85 billion in automatic spending cuts for the military and various domestic agencies are set to take effect. Both the White House and Republicans have said they want to avert the cuts, but they still disagree on how to do it. Obama shot down a Republican idea to protect the military alone from the draconian cuts.
Economists and the Congressional Budget office have warned that if the cuts, known as “the sequester,” are not avoided, it would cut U.S. growth in half in 2013. The Congressional Budget Office has projected an $845 billion deficit this year, which would be a 40% drop from the deficit in 2009.
Obama offered fiscal conservatives an olive branch, however, saying he was prepared to achieve the same amount of healthcare savings as proposed by the bipartisan Simpson-Bowles commission. That plan called for $341 billion in savings from federal entitlement programs.
Already, we have brought home 33,000 of our brave servicemen and women. This spring, our forces will move into a support role, while Afghan security forces take the lead. Tonight, I can announce that over the next year, another 34,000 American troops will come home from Afghanistan. This drawdown will continue and by the end of next year, our war in Afghanistan will be over.
From a BBC article, so this is the European view:
Mr Obama announced US support for talks as part of his annual address to Congress on Tuesday, saying a free-trade deal would "boost American exports, support American jobs and level the playing field in the growing markets of Asia."
EU-US trade is worth around 455 billion euros (£393B; $613B) a year.
In a joint statement, US and EU leaders said trade between the US and EU supported millions of jobs on both sides of the Atlantic. "We are committed to making this relationship an even stronger driver of our prosperity," the statement said. The EU estimates that a "comprehensive and ambitious agreement" will boost annual GDP growth by 0.5%.
One aim of the free-trade agreement would be to eliminate or reduce tariffs -- taxes that apply to imported goods. For both the EU and US average tariffs are already low, below 3%. But further reductions could nonetheless stimulate additional trade and there are some areas where tariffs are much higher, notably food.
Beyond that, the negotiations would try to reduce regulatory barriers to trade. That is more complex, but the experience of Europe's internal market shows it is sometimes possible.
The desire for bilateral trade liberalization, on both sides of the Atlantic, reflects the failure of negotiations for a global deal in the World Trade Organization.
Those talks were launched 11 years ago and are nowhere near concluding. The big powers are anxious to use any opportunity to boost their economic performance.
Free trade between the US and the EU has been under informal discussion for years. It is not clear how long the talks will take, but similar trade deals have involved years of negotiations.
The idea was discussed following the formation of a working group in 2011, and the formal talks may begin in the summer, EU Trade Commissioner Karel De Gucht said.
He said the deal would focus on bringing down remaining tariffs and other barriers to trade, and standardise technical regulations, standards and certifications.
Previously, politicians have been discouraged from pursuing free trade deals for fear of exposing domestic industries to greater competition from abroad.
But Steve Davies from the Institute of Economic Affairs, a think tank, said the economic crisis in Europe has injected more urgency into the talks. "It's happening now because there has been seriously depressed growth in the EU, and this will be good news for economic growth," he said. Mr Davies said agriculture was likely to be particular area of contention, along with intellectual property, which could lead to political wranglings on both sides of the Atlantic.
"On the American side, the critical factor is that Obama is now in his second term, so he doesn't have the protectionist pressures from US businesses to worry about."
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