David Prosser: Obama plays for time as the deficit hawks begin to circle

Outlook: In the absence of an agreement on how much to cut, a deal on legal backing for a multi-year deficit plan would reassure critics of US fiscal credibility

The twin pressures of having to work with the Republican Party and rising anxiety on international money markets appear to have prompted a change of tone from the White House. In presenting his Budget yesterday, President Barack Obama, whose administration has previously clung doggedly to the line that the US economy needs fiscal support, majored on how to begin cutting the mounting deficit.

Not that the President is a convert to the Republican campaign for fiscal conservatism, or to the rapid deficit reduction agenda being pursued so determinedly by the British Government. This, after all, is a Budget for the 2012 fiscal year which begins in October, and makes commitments that will not bring the US back into balanced budget territory until 2015.

Before then, there is the small matter of next year’s election.

Still, the change of tone is a tacit admission that President Obama’s administration needs to take charge of the finances of the US before the markets step in. Such is the size of the deficit, and the speed with which it is increasing, that warnings of credit rating downgrades – and the sell-off of the dollar they would prompt – no longer seem so fanciful.

For now, the progress the President is aiming for on the deficit is relatively modest – it will certainly not satisfy the Republicans and falls well short of the recommendations made last year by a bi-partisan committee on how quickly fiscal austerity needs to be imposed in order to avoid a debt crisis.

What is more disappointing, however, is that there was no update on the reform for which Timothy Geithner, the US Treasury Secretary, has been pushing.

Mr Geithner would like to see a change to the law that would enable Congress to commit itself to a deficit reduction programme lasting for several years and spanning administrations, in effect signing up future Presidents to the policy of today.

That may be a difficult end to achieve politically, but it would give real authority to this administration’s promises to be tough on the deficit. For now, it is easy to write off the President’s views on the deficit as too Augustine – “Lord make me chaste, but not yet” – and insufficiently committed.

It is too much to hope that President Obama’s administration and the Republicans will ever find common cause on how quickly the deficit should be cut. In the absence of agreement on the size of spending cuts and tax rises, however, a deal on legal backing for a multi-year deficit plan would be a strong signal to those who question the US’s fiscal credibility.

The gold rush claims more victims

It is the inexorable rise of the gold price – as well as the fact that as unemployment mounts, more people are getting into financial difficulties – that has spawned the rapid growth in the “cash for gold” industry. And as with all fast-growing industries operating in poorly regulated sectors, customers are not always being served as well as they should be.

The Office of Fair Trading’s warning yesterday to three companies in this market highlights one way in which customers sometimes lose out. The real scandal, however, is not that some companies have been too quick to melt down customers’ gold, but that the prices paid by far too many cash for gold operators are so pathetically low.

The consumer organisation Which? has been looking into these companies for much longer than the OFT (as is so often the way). Its research shows that should you want to sell a piece of gold jewellery, say, the cash for gold sector will typically offer you just 6 per cent of its value according to the prevailing market price. That compares with 25 per cent in the typical pawnbroker, for example.

It is a buyer’s market, of course. Most people selling gold have no idea about the prevailing gold price and they don’t shop around. Moreover, they are often selling from a position of great vulnerability, motivated by a need to raise cash very quickly, with little regard to how much more they might get if they took a bit of time to find a better deal.

Unfortunately, the powers of the OFT do not give it the opportunity to protect consumers in the most important way of all. The regulator can step in where companies aren’t straightforward with their customers, or deny them some basic consumer rights, but not simply for offering a poor deal. So, despite yesterday’s announcement, vulnerable consumers continue to be at risk of exploitation.

Nokia must not forget that it’s good to text

Day two of Nokia’s plunge into the “freezing waters” – boss Stephen Elop’s metaphor for its decision to try a new approach rather than stand idly on the “burning platform” of its current business – and there is no sign that the market is any more convinced it will be able to swim. Despite some bullish talk from Steve Ballmer, the Microsoft boss, at the Mobile World conference in Barcelona yesterday, Nokia shares continued to slide.

There’s time yet to prove investors wrong, of course, but in the meantime,why has Nokia addressed only one of its difficulties.

The Microsoft deal is an attempt to make more of a splash in trendy smartphones, but Nokia has no new strategy for the other end of the market, where it was once so dominant. Mr Elop’s metaphorical memo made it clear he was equally concerned about a squeeze from low-cost phone providers, but hasn’t yet said what he plans to do to counter this.

Data published in Barcelona by accountant Deloitte reveals that texting is still the activity that mobile phone users engage in most often – and by quite some distance.

Smartphones may be the future and Nokia needs to work out how to compete, but it shouldn’t forget the present while doing so.



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