BP said Tuesday that it plans to cut its U.S. tax bill by $9.9 billion, or about half the amount pledged to aid victims of the disaster, by deducting costs related to the oil spill

A portion of that could be refunded from taxes BP paid in earlier years.

The company disclosed its intentions as part of its second-quarter earnings report, in which it said it would record a $32.2 billion charge to reflect the costs of the spill.

Under U.S. corporate tax law, companies can take credits on up to 35 percent of their losses.

As a follow-up to point 6 of the previous posts on the 2nd half slowdown (cutbacks at the state and local level), here is a new report released today: Job losses projected to approach 500,000 (ht Brian)

The effects of the Great Recession on local budgets will be felt most deeply from 2010 to 2012. In response, local governments are cutting services and personnel. This report from the National League of Cities (NLC), National Association of Counties (NACo), and the U.S. Conference of Mayors (USCM) reveals that local government job losses in the current and next fiscal years will approach 500,000, with public safety, public works, public health, social services and parks and recreation hardest hit by the cutbacks.
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According to the BLS, local governments (ex-education) have cut 89,000 jobs over the last year, and this survey suggests there will be much deeper cuts ahead.

Ironically, the country's state of permanent crisis has perhaps had the effect of staving off the worst during the current crisis. It doesn't have to weather a burst real estate bubble or a construction crisis. Italy didn't have to bail out any banks, either. The government already had its hands full with its own debts.

Avoiding Others' Mistakes

While in Spain and Ireland a debt-financed construction boom and dubious deals by investment bankers were generating high growth rates, Italy was busy tinkering with its high government debt. "A more highly regulated banking system offered fewer opportunities to copy the mistakes made by other EU countries," says Alexander Kockerbeck, an analyst at the US rating agency Moody's. Italy hasn't engaged in the excesses of the past few years.

Now some concrete data is starting to emerge regarding the potential size of the problems that may be lurking on China's bank balance sheets -- in particular, the losses that may be incurred from risky stimulus loans made to development entities (known by some as LGFVs, or Local Government Financial Vehicles) sponsored and supposedly guaranteed by provincial and local governments...

According to analysts... at the end of this June, LGFV loans amounted to RMB 7.7 trillion (US$1.1 trillion), or 16.2% of all loans in the banking system.  (Rough estimates I've heard had placed LGFV loans at 40% of all of new loans made last year and this year, which may still be possible, but there is nothing in the new data to confirm it). 

Of these LGFV loans, 27% were found to have funded projects with sufficient cash flow to repay the loans.  50% must rely on "alternative sources" for loan repayment (which I take to mean either seizing collateral or invoking the public guarantee).  23% are categorized as "facing high credit risks (ie invalid qualification of borrowers, invalid guarantee by local governments, or loans misappropriated)."  According to the BoA-Merrill analysts, if those 23% "high risk" loans (totaling RMB 1.7 trillion) were downgraded to NPLs and assigned 20% provisions, "it would lead to 74bp of extra credit cost for the sector, or some 30% cut to [bank] earnings."  Or as Andrew Peaple of the Wall Street Journal points out, the roughly US$230 billion in new bad debt would amount to more than three times the US$67 billion in NPLs currently recognized by China's banks.

China's quest to transform the renminbi into an international reserve currency - and thereby challenge America's dominance of the global monetary system - may take decades, if it happens at all. But this month, for the third time this year, China took another big step in that direction.

Regulators lifted a raft of restrictions blocking the free flow of renminbi in Hong Kong, the semi-autonomous region that is open to international investors and is the designated launchpad for the renminbi's global expansion.

Any company in the world can open a renminbi bank account in Hong Kong and exchange the currency as they please, while financial institutions in the former British crown colony are free to create investment products denominated in the Chinese currency.

Contrary to a widespread view, the deficit does not impose a burden on future generations. There is no repayment burden because the government, unlike private individuals, can and normally does repay its maturing debts by borrowing again. (In the last resort, it can print money).

As for the interest burden that is said to arise when the interest is paid by taxation rather than by fresh borrowing, it is merely a transfer payment. Income is transferred from taxpayers to bond-holders. In the case of the UK, most of these bond-holders are domestic. The transfer is therefore a redistribution rather than a loss of income.

If, however, the public deficit is cut now, there will undoubtedly be a burden on both present and future generations. Income and profits will be lowered straight away; profits will fall, pension funds will be diminished, investment projects cancelled or postponed, schools not rebuilt - with the result that future generations will be worse off, having been deprived of assets they might otherwise have had.

Banks have started early-stage planning to deal with the potential fallout on the derivatives and bond markets of a European country being forced to leave the euro.

After having received queries by some banks about the impact of such an event, the body representing the swaps and derivatives industry last week contacted some of its members to form a group to consider what they may need to do if a eurozone state is ejected.

While those close to the process believe the likelihood of such an event is remote, the sovereign debt crisis of recent months has led banks and other firms to start questioning what impact it could have.

From the Sacramento Bee: Schwarzenegger orders more furloughs

[Gov. Arnold Schwarzenegger's] new executive order requires employees take three unpaid days off per month. But unlike that policy, it has no termination date: Furloughs will end when lawmakers pass a 2010-11 budget.
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The governor made the decision this week after Controller John Chiang said that unless lawmakers enacted a budget soon, the state's cash would go into the red by October. Chiang said he'll start issuing IOUs in August or September to conserve funds as long as possible.

And the beat goes on ...