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Margaret Thatcher, the former U.K. prime minister who helped end the Cold War and was known as the “Iron Lady” for her uncompromising style, died today. She was 87.

“She had a stroke this morning and died peacefully,” her spokesman, Tim Bell, told Sky News television. “We’ll never see the like of her again. She was one of the great prime ministers of all times. She transformed people’s lives.”

Former Prime Minister Baroness Thatcher meets Prime Minister David Cameron inside Number 10 Downing Street in London, on June 8, 2010. Suzanne Plunkett/WPA Pool/Getty Images

Prime Minister Margaret speaks at a Tory Party conference in 1987. Thatcher served as British Prime Minister from 1979-1990. Photo: Hulton Archive/Getty Images
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Miss Margaret Roberts (later Margaret Thatcher) poses for a photograph during a local election campaign in Dartford, London, in 1951. Photographer: Fox Photos/Getty Images

The Conservative prime minister Margaret Thatcher, center, visits the London Stock Exchange in Feb. 1979. Photographer: Steve Burton/Keystone/Getty Images

A file photo shows former U.K. Prime Minister Margaret Thatcher celebrating her 87th birthday in London, on October 13, 2012. Photographer: Ben Cawthra/Rex Features via AP Images

Margaret Thatcher celebrates victory at the Conservative Party headquarters after being voted in as the U.K.'s first female prime minister in London, May, 1979. Photographer: John Minihan/Getty Images

Margaret Thatcher leaves her Chelsea home to attend the ballot for election as leader of the Conservative Party in London, on Feb. 11, 1975. Photographer: Roger Jackson/Central Press/Getty Images

Thatcher speaks during a visit with then U.S. President Ronald Reagan at the White House. Photographer: Howard Sachs/Consolidated News Pictures/Getty Images

When Thatcher took office in 1979, Britain’s trade unions were strong enough to knock out party leaders they opposed, and key industries, including utilities, were state-owned. By the time she stepped down 11 years later, her arguments for free- market economics, lower taxes and deregulated financial markets had been adopted across the nation’s political spectrum.

The transition was painful. Unemployment (UKUEILOR) peaked at more than 3 million in the mid-1980s, and many places in the north of the country that had been world centers of manufacturing struggled to adapt to the new service economy.

“She was, quite simply, one of the most influential political leaders that the U.K., indeed the world, has ever produced,” said Tim Bale, professor of politics at Queen Mary University of London and author of “The Conservative Party From Thatcher To Cameron” (2010).

Thatcher was defined by the battles she took on: she waged war against Argentina, clashed with striking miners and forced fellow leaders to cut Britain’s financial contributions to the forerunner of the European Union.

Attempted Assassination

She survived an assassination attempt in 1984 when the Irish Republican Army bombed her hotel in Brighton during her Conservative Party’s annual conference, killing five people. She stuck to her schedule and addressed party members the following morning.
After winning three elections, Thatcher was forced out of office by her own party after she refused to compromise either on her policies toward Europe or on a property tax that had led to mass non-payment and violent riots.

“Always a warrior rather than a healer, her deeply ideological determination alienated those who believed in consensus rather than in confrontation,” Bale said. “But her policies and her personality ushered in changes -- social, economic, political, diplomatic and even military -- so profound that the consequences will continue to play out for decades, even centuries, to come.”

She formed a close bond with President Ronald Reagan, whose time in office and political ideology coincided with her own.

‘Always Frank’

“Margaret was always frank and forthright in her dealings with us,” Reagan wrote in the National Review in 1989. “Generally, she and I agreed with each other. Whether we agreed or not, however, I knew that her advice came from someone who was a friend of the American people and who shared the same basic outlook. We place the same high value on freedom.”

Though physically limited by a series of strokes, Thatcher attended the former president’s funeral service at the National Cathedral in Washington in June 2004.
“We have lost a great president, a great American and a great man, and I have lost a dear friend,” she said in a videotaped message played during the tribute, referring to Reagan as “Ronnie” and “the Great Liberator.”

Reagan and Thatcher were both closely involved with Mikhail Gorbachev, the former Soviet leader who evolved from adversary to ally. In 1979, she agreed to place U.S. nuclear missiles in Britain amid protests across Western Europe. Her tough line on the Soviet Union earned her the Iron Lady nickname in the Soviet press.
“If you lead a country like Britain, a strong country, a country which has taken the lead in world affairs in good times and in bad, a country that is always reliable, then you have to have a touch of iron about you,” she said.

EU Relations

Her relations with European leaders were strained. While contemporaries such as French President Francois Mitterrand and German Chancellor Helmut Kohl worked for a politically united Europe, Thatcher called for a network of individual states joined only as a free-trade area, like the North American Free Trade Agreement. The debate about whether Britain should stay part of an EU seeking an ever-closer union or leave has been a recurring theme in British politics since she left office.

In 1984, she won a permanent rebate of Britain’s yearly contributions, telling European leaders, “I want my money back.” She later argued against Britain abandoning the pound for the European single currency.
She predicted in the early 1970s that no woman would lead the country in her lifetime. Before the decade ended, she had become the country’s first -- and so far only -- female prime minister.

‘Iron Lady’

Her rise from a grocer’s daughter to prime minister was dramatized in the 2011 film “The Iron Lady.” Meryl Streep won the best-actress Oscar for her portrayal of Thatcher both in office and in her declining years, as she began to suffer from dementia.
“In politics if you want anything said, ask a man,” Thatcher said in 1975. “If you want anything done, ask a woman.”

Margaret Hilda Roberts was born on Oct. 13, 1925, in Grantham, a town in the east of England. She said her father’s small business was a seminal influence on her views, including her emphasis on prudent economic management.

During World War II, she graduated with a chemistry degree from Somerville College at the University of Oxford and worked as a research chemist.

In 1951, she married businessman Denis Thatcher and gave birth to twins, Carol and Mark, two years later. During the decade she trained as a tax lawyer while looking for a chance to get into Parliament. Denis Thatcher died in 2003, at age 88.

Enters Parliament

After losing her first election in 1950 and again the following year, Thatcher entered parliament in 1959 representing Finchley, a north London suburb. At the time she was one of 25 women in Parliament, 4 percent of the total.

After putting her foot on the lowest rung of government as a parliamentary bag-carrier in 1961, she rose through the ranks once the Conservatives lost power in 1964, becoming one of its leading spokesmen in 1967. When the Conservatives returned to power in 1970, Thatcher, 44, joined the Cabinet as secretary of state for education. She was the only woman around the Cabinet table, a situation she later perpetuated for all but one year of her 11 as prime minister. To cut costs, she abolished a government program that provided free milk in schools for children older than age 7, earning the nickname “Margaret Thatcher, Milk Snatcher.”

Opposition Leader

The 1974 general election defeat of Prime Minister Edward Heath after a series of policy reverses left Conservative lawmakers ready for an alternative. Thatcher had begun to deal with some of her deficiencies, including a voice that the journalist Clive James described as being “like a cat sliding down a blackboard.” She challenged Heath for the party’s leadership in 1975 and won.

She served as opposition leader for four years, formulating free-market economic policies influenced by Austrian philosopher Friedrich Hayek and University of Chicago economist Milton Friedman. Even in opposition she got a taste of the battles to come when, weeks before the 1979 general election, the Irish National Liberation Army used a car bomb to kill her friend, fellow lawmaker and former campaign manager Airey Neave.
The start of 1979 was dubbed “the winter of discontent.” Much of the country was in chaos, with those on strike including water and rail workers, truckers and oil tanker drivers, ambulance personnel and gravediggers, teachers, dock workers and garbage collectors. Labour Prime Minister James Callaghan considered declaring a state of emergency until colleagues persuaded him not to.

Persuading Voters

Under those circumstances, it wasn’t difficult for Thatcher to persuade voters it was time for a change in the May general election. Once in office, she faced the more difficult challenge of convincing government officials, and her own ministers, of the need to cut spending.
Documents from the time show that while Cabinet members agreed in principle to the need for 10 percent staff reductions, when asked to deliver them in their own departments, most resisted.

Reluctant ministers weren’t the only focus of her ire. In 1980 she accused the governor of the Bank of England, Gordon Richardson, of blocking her policy of controlling money supply. One of his aides later recalled her “breathing fire and fury” during a meeting.

Privatizing Industries

The country fell into recession in 1980, with gross domestic product contracting for five consecutive quarters.

As joblessness rose, Thatcher’s popularity plummeted. She didn’t flinch. Responding to calls from within her own party to change her policies, as Heath had done, she told the 1980 Conservative Party conference: “You turn if you want to. The lady’s not for turning.”

One of her main domestic policies involved reducing the state’s role in the economy by privatizing state-owned companies. This, with her rejection of Keynesian stimulus policies in favor of a focus on controlling inflation, and a desire to cut the public sector workforce, carried a high cost in terms of jobs. Unemployment reached 11.9 percent in the middle of the decade, still its highest-ever level.

The Thatcher image of inflexibility, which has hardened into legend since she left office, isn’t borne out by government documents released in recent years. They show that in 1981 she considered giving up British involvement in Northern Ireland in the face of terrorism and hunger strikes, and in 1982 was willing to discuss peace terms with Argentina over its invasion of the Falkland Islands.

Popularity Soars

The Falklands War, over a group of islands in the South Atlantic populated by a few thousand people, could have cost Thatcher her job had Britain lost. Argentina had disputed Britain’s ownership of the islands for more than a century and in 1982 occupied them in the belief the U.K. wouldn’t attempt to retake them by force. In the face of doubts about whether such an operation could be successfully mounted, Thatcher dispatched a task force.

After fierce fighting, which saw ships sunk on both sides and hand-to-hand fighting on the islands, the Argentine forces surrendered. The death toll included 255 British soldiers, 649 Argentinians and three woman from the islands, killed accidentally by British fire.

Thatcher’s popularity soared. In 1983, she won a national election with a 143-seat majority in the 650-seat House of Commons.

Miners’ Strike

During her second term, she faced a new opponent in Arthur Scargill, the leader of the National Union of Mineworkers, who had helped organize the strike a decade earlier that brought down Heath. In 1984, he called a national strike to protest mine closures. Thatcher didn’t waver, outlasting a violent, yearlong dispute. She then implemented rules to curb unions’ power.

She also sold state-owned companies, making Britain the first European country to engage in a major privatization effort. British Airways Plc, Centrica Plc (CNA), British Telecommunications Plc, BP Plc and BAE Systems Plc all traced their origins as public companies to the Thatcher government. Ordinary people were encouraged to buy the shares. To further expand the middle class, Thatcher ordered the government to sell public housing units to its occupants, to create owner- occupiers, rather than tenants of the state.

Poll Tax

A third election victory came in 1987, a feat not achieved since women gained the vote on equal terms in 1928. Thatcher took it as an endorsement to continue what she now regarded as her revolution of British economic and social life.

The economy rebounded, with annual GDP growth peaking at 6.7 percent in the first quarter of 1988. Growth in the U.K. mirrored the activity in much of Western Europe during Thatcher’s term of office.

Buoyed by the successes of her previous policies, she moved to change local property taxes, producing a plan for the so- called poll tax, a flat-rate levy on every resident.
Public protests against the policy, including riots in central London, triggered outcries even within the Conservative Party. In 1989, Chancellor of the Exchequer Nigel Lawson resigned over disagreements with her on economic policy. In November 1990 Deputy Prime Minister Geoffrey Howe quit to protest Thatcher’s opposition to Europe’s single currency. Within days she had to fend off a challenge to lead the party waged by Michael Heseltine, another former Cabinet minister with whom she had quarreled.

Stepping Down

He failed to secure enough votes to unseat her, but she didn’t win outright. Thatcher resigned Nov. 28, 1990, the night before a second ballot, nominating John Major as her favored successor. Her tenure lasted 11 years, 209 days. Only four prime ministers in British history have served longer continuous terms.

Major won, and governed until 1997, when the Conservatives were defeated by the Labour Party under Tony Blair.

Thatcher’s status meant she effectively overshadowed the next three Conservative leaders: Major, William Hague and Iain Duncan Smith. When Michael Howard took over the party leadership in 2003, she had retired from the public eye, and David Cameron, elected in 2005, represented the final break, a young leader who entered Parliament 11 years after Thatcher left office.

The Labour Party was still using her image in campaign materials in Scotland, where she remains particularly unpopular, in the 2010 election. Cameron, unable to take seats in Scotland and Northern England, led the Tories back to power at that election, in a coalition with the Liberal Democrats.

Last Contribution

In her 2002 book “Statecraft,” Thatcher repeated her opposition to European integration and the euro. It was her last contribution to public life. Citing the strokes she had suffered since 2001, her office announced on March 22, 2002, that she would stop giving speeches.

“If you set out to be liked, you would be prepared to compromise on anything at any time, and you would achieve nothing,” Thatcher once said.

She is survived by her two children. Her daughter Carol gained national attention in December 2005 when she won the reality television survival program “I’m a Celebrity -- Get Me Out of Here!” Her son, Mark, made headlines for his alleged funding of an attempted coup in Equatorial Guinea, leading to his arrest in South Africa in August 2004. He agreed to pay a fine of 3 million rand as part of a plea-bargain settlement to spare him a possible prison term.

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net
To contact the editor responsible for this story: Charles W. Stevens at cstevens@bloomberg.net

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Eagle Ford Shale Boom Fuels ‘Madhouse’ in South Texas Counties
By Frank Bass - Mar 14, 2013 11:00 PM CT
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For the last 30 years, the quiet, dusty crossroads of Texas Routes 119 and 72 in Yorktown mostly consisted of a Dairy Queen on one corner, a gas station across the street and some traffic, usually heading somewhere else.
Ranchers joked that it was possible to make a small fortune in raising cattle on the mesquite and cactus range -- if you started with a very large fortune. Population in rural, south Texas grew slowly or not at all during the 2000s as suburbs boomed around Houston, Dallas and Austin.
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A floor hand signals to the driller to pull the pipe from the mouse hole on a drilling rig near Encinal in Webb County, Texas, on March 26, 2012. Photographer: Eddie Seal/Bloomberg
The shale boom has changed all that here and throughout an oil-rich swath of counties extending to the Canadian border. Figures released yesterday by the U.S. Census Bureau show counties in south and west Texas are now among the fastest- growing places in the U.S. as oilfield workers rush to the Eagle Ford Shale. The underground formation holds an estimated 3 billion barrels of oil and 150 trillion cubic feet of natural gas reserves.
“It’s a madhouse,” J.E. Wolf III, a Yorktown real estate broker, said in a telephone interview. “I’ve been selling real estate here for 43 years, and I’ve never seen it like this.”
While half of the 10 fastest-growing U.S. counties between 2011 and 2012 were in North Dakota, where the Bakken shale formation draws people to the sparsely populated Great Plains, Texas is catching up.
Since the 2010 Census, Yorktown’s DeWitt County has grown 1.8 percent, more than four times faster than the entire previous decade’s 0.4 percent growth rate.
New Businesses
A new Southern Inn and Suites sits near the intersection in Yorktown, offering free wireless and challenging the aging White Top Motel on the east side of town for traveler dollars. A Mexican restaurant has been reopened, and a Valero gas station with a café competes with the Texan gas station across the street for convenience store supremacy.
An abandoned building has been turned into a shop offering donuts and kolaches, a south Texas breakfast snack consisting of a buttery roll wrapped around link sausage -- cheese and jalapeno peppers optional.
The Dairy Queen isn’t the only game in town any more, although it’s clearly the establishment of choice at lunch for a
dozen oilfield workers conspicuous in their red jumpsuits and
hardhats.
Eagle Ford
Those workers earn their wages at the Eagle Ford formation, which stretches from the far north Houston exurbs southwest to the Mexican border. While the shale was a known quantity for a generation of geologists, techniques for extracting oil and gas from it have only become practical in the last decade. The first Eagle Ford well was drilled in 2008.
The formation could provide as many as 900,000 barrels per day by 2016. The Permian Basin, deep in west Texas, may reach 1 million barrels daily, Texas Railroad Commission Chairman Barry Smitherman said in a March 6 interview in Houston.
By 2020, Texas’ crude output may exceed the 3.45 million barrels a day seen in 1972 if prices stay high enough to make drilling economical, he said.
Eagle Ford oil output rose to more than 352,000 barrels a day in 2012, compared with 358 barrels a day in 2008, according to the commission. The number of drilling permits surged to 4,143 in Eagle Ford last year, up from just 26 in 2008, the commission said.
In Yorktown, trucks filled with pipes or fluids rumble down Main Street, with smaller, late-model pickups following them like fish. Campers and recreational vehicles dot the roadsides in the shade of live oaks. A good parking spot in the area can command as much as $500 per month.
‘All Full’
While the shortage of housing stock doesn’t appear as critical as it did in North Dakota during the early days of the Bakken boom, at least a half-dozen trailers and mobile homes are parked in a pasture on the outskirts of town.
People aren’t buying homes. Wolf said a 2,000-square-foot, three-bedroom, stone house has been marked down from $225,000 to $165,000. He has rented 30 homes in the area, though, and the calls keep coming.
“They’re all full,” he said. “I’m keeping a waiting list.”
The city of Midland in the Permian basin was the fastest- growing metropolitan area in the country during the last year, posting a 4.6 percent gain to 151,662 people. Soaring demand for energy workers there has driven up wages, and not just for jobs in the oil and gas fields.
“You can make $15 an hour washing dishes at Wendy’s,” said Karl Gulick, vice president of Western National Bank in Midland, one of the largest independent banks in the state.
$75,000 Teens
Boomtown anecdotes among locals are as common as one-liners in a stand-up routine: The granddaughter who can’t get married in town because there aren’t available hotel rooms for guests; teenagers who earn $75,000 driving trucks the day they graduate from high school; the Cracker Barrel that couldn’t open until three months after the building was finished because of a lack of workers.
On a recent drive through town on Big Spring Street, there were few fast-food restaurants or local banks without a “Now Hiring” sign. A one-night stay at the Fairfield Inn cost $300.
“If you can pass a drug test and get a commercial driver’s license, you can get $80,000 in one phone call,” Gulick said.
The Eagle Ford is responsible for one of every 50 jobs created in Texas, according to a study last spring by the Federal Reserve Bank of Dallas. Landowners are benefiting as well. The Fed study conservatively estimated that mineral rights are being assigned for $1,500 per acre over a 5-million-acre territory, yielding $7.5 billion in compensation since 2007.
Sunbelt Rising
Large Texas cities that feed equipment and workers to the fields are prospering, recording the biggest numerical population increases in the nation.
The Dallas metropolitan area added 131,879 people during the last year, more than any other in the nation, raising its total to 6.7 million. The Houston metro area increased its population by 125,185 to 6.2 million. The two Texas cities gained more people than the Seattle, San Francisco, Miami and Phoenix metro areas combined.
William Frey, senior fellow at the Washington-based Brookings Institution’s Metropolitan Policy Program, said the latest Census estimates could be an early sign of a resurgence of migration to the Sunbelt.
“We may be turning a corner here,” he said.
To contact the reporter on this story: Frank Bass in New York at Fbass1@bloomberg.net
To contact the editor responsible for this story: Flynn McRoberts in Chicago at fmcroberts1@bloomberg.net; Mark McQuillan in Washington at mmcquillan@bloomberg.net

Foxconn Technology Group and other electronics makers are saving little in wages by opening plants in inland China and are making the move because of labor shortages in traditional manufacturing hubs, according to Bloomberg Industries.

Apple Inc. (AAPL) supplier Foxconn, which has boosted its China workforce 50 percent in two years to 1.2 million, needs to use employees in more parts of the country to meet demand, Jitendra Waral, a Bloomberg Industries technology analyst, said in a note published today. The labor-cost savings are minimal as wages in western Sichuan province and central Henan, where Foxconn makes iPads and iPhones, are similar to those in coastal Guangdong.

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A worker tests the circuit boards at a factory in Mianyang, Sichuan province, China. Inland migration of factories is fueling China’s development, with economic growth in Sichuan and Henan outpacing that of Guangdong as the government seeks to reduce income disparity in the face of a workforce decline. Source: AFP/GettyImages

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“Henan and Sichuan have always been the largest sources of migrant workers. That was why we moved to both of these provinces to tap their labor pool,” said Louis Woo, special assistant to Foxconn Chief Executive Officer Terry Gou. Photographer: Forbes Conrad/Bloomberg

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Employees work on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen, Guangdong province, China. Foxconn began operations in Guangdong’s Shenzhen city in 1988 as the Communist government used the region as a test bed for efforts to ease economic restriction. Photographer: Qilai Shen/Bloomberg

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A worker walks past a shopping and retail pedestrian street in Chongqing. Wages in Sichuan and Henan have surged 120 percent in six years because of economic growth, increasing local competition for labor and slower population-growth nationwide. Photographer: Nelson Ching/Bloomberg

“The trend is toward inland, and it’s driven by manufacturers’ need to keep finding workers,” Hong Kong-based Waral said. “As that drives wages higher, any cost benefits from inland labor are likely to continue shrinking.”

Foxconn has raised spending in the past three years to build factories, and competitors Quanta Computer Inc. (2382), Pegatron Corp. (4938) and Wistron Corp. (3231) followed.

That inland migration is fueling China’s development, with economic growth in Sichuan and Henan outpacing that of Guangdong as the government seeks to reduce income disparity in the face of a workforce decline.

Surging Wages

“Closer to the pool of workers has always been one of the major reasons,” said Louis Woo, a spokesman for Taipei-based Foxconn. “Henan and Sichuan have always been the largest sources of migrant workers. That was why we moved to both of these provinces to tap their labor pool.”

Wages in Sichuan and Henan have surged 120 percent in six years because of economic growth, increasing local competition for labor and slower population-growth nationwide. That threatens to dent the migrant workforce that Guangdong factories rely on, even as Foxconn, Quanta and Compal Electronics Inc. (2324) gear up for sales that are likely to grow a combined 30 percent through 2015, Waral said, citing consensus estimates.

Capital expenditures at Foxconn’s Taipei-listed flagship, Hon Hai Precision Industry Co., surpassed $6 billion during the past three years, according to company filings.
Foxconn employed 300,000 people in Henan in the fourth quarter of last year, compared with almost none in 2010. The Sichuan and Chongqing workforce has jumped to 150,000 from almost none in the same period. The company employs 400,000 people in Guangdong.

The government has also spurred investment in inland regions through its “Go West” policy, which is designed to help curb regional differences in economic development. Growth in Sichuan and Henan will probably outpace Guangdong’s for a third straight year in 2013, according to Nomura Holdings Inc.

Falling Population

Foxconn began operations in Guangdong’s Shenzhen city in 1988 as the Communist government used the region as a test bed for efforts to ease economic restriction. The drive lured migrant workers to Guangdong, boosting its population by 66 percent in the two decades through 2010. The province is now China’s most populous and has the largest economy, government statistics show.

Manufacturers also are looking inland as a slower birthrate dents China’s workforce. The working-age population fell by 3.45 million last year to 937 million, according to National Bureau of Statistics data. That was the first decline in “quite a long period,” Ma Jiantang, the head of the agency, said in January.

Differences in average wages between inland provinces and Guangdong have more than halved in the past six years, driving the two locales toward labor-price parity, according to a Bloomberg Industries analysis of workforce, wages and labor demand. Wages in Chongqing, central China, have surpassed those in Guangdong, it shows.

Migrant Workers

Migrants accounted for 99 percent of workers at Foxconn’s two Shenzhen facilities producing Apple products, according to data from the Fair Labor Association, which was hired by the Cupertino, California-based company last year to investigate conditions among its suppliers. About 14 percent of workers at its Chengdu factory were migrants, it said.

“Manufacturers are spurred to move inland because that’s where most of their employees come from and are likely to be the source of their workforce in coming years,” he said. “Faster rising wages inland have the effect of both reducing possible incentives for migrants to travel thousands of miles for work, and forcing wages higher as employers compete for labor.”

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.

Obama Orders Cuts That Will Be ‘Slow Grind’ on Economy
By Julianna Goldman & Margaret Talev - Mar 1, 2013 11:01 PM CT

Obama Says Cuts to Be `Slow Grind' on U.S. Economy

President Barack Obama ordered the start of $85 billion in government spending cuts, beginning a potentially decade-long wave of belt-tightening that risks curbing U.S. economic growth this year.

March 1 (Bloomberg) -- U.S. House Speaker John Boehner, a Republican from Ohio, talks about his opposition to tax increases as part of a plan to avoid across-the-board federal spending cuts that start today. Boehner spoke to reporters after a meeting with President Barack Obama at the White House. (Excerpts. Source: Bloomberg)

March 1 (Bloomberg) -- Defense Secretary Chuck Hagel speaks at a news conference in Washington about the impact of automatic federal spending cuts set to kick in today on U.S. armed forces. Deputy Defense Secretary Ashton Carter also speaks. (Source: Bloomberg)

March 1 (Bloomberg) -- William Cohen, chairman of the Cohen Group and a former U.S. Defense secretary, talks about the impact of budget cuts on defense contractors. Cohen speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

March 1 (Bloomberg) -- Douglas Holtz-Eakin, president of the American Action Forum and a former director of the U.S. Congressional Budget Office, and Maya MacGuineas, head of the Committee for a Responsible Federal Budget, talk about automatic federal spending cuts set to kick in today and the outlook for budget negotiations. They speak with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

March 1 (Bloomberg) -- Retired U.S. Army General Wesley Clark talks about impending U.S. spending cuts, defense policy and the economy. He speaks with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Attachment: OMB Report to Congress on Sequestration

Attachment: President Obama's Sequestration Order

The White House released the order last night, the deadline set by a law passed two years ago to avoid a debt default, and the Office of Management and Budget sent Congress a detailed list of program cuts. The reductions’ impact will become clear over the next several weeks, as agencies inform affected government contractors and notify employees about furloughs, most of which wouldn’t begin for at least a month.

“What’s important to understand is that not everyone will feel the pain of these cuts right away,” Obama said at the White House earlier yesterday, after meeting with the top four leaders of Congress. “The pain, though, will be real.”

The across-the-board cuts, known as sequestration, were intended to be so onerous that Congress and the president wouldn’t let them occur and would come up with a plan to replace them. Instead, Democrats and Republicans deadlocked on an alternative. Obama insists that any plan must include new tax revenue and Republicans, led by House Speaker John Boehner, reject that approach.

The cuts under the law total $1.2 trillion over nine years. Of that, $85 billion comes out of the budget for the remaining seven months of this fiscal year, making for effective reductions of about 13 percent for defense programs and 9 percent for non-defense programs, according to the OMB.

Government Funding

Obama and Boehner, an Ohio Republican, indicated they would avoid another showdown when spending authorization for government operations expires March 27. After they met at the White House, Boehner said the House would vote on funding legislation so Congress won’t need to deal with the risk of a government shutdown while negotiating an agreement on cutting the deficit. Obama indicated he would sign it.

Obama met for just less than an hour at the White House with Boehner, Senate Republican leader Mitch McConnell of Kentucky, Senate Majority Leader Harry Reid, a Nevada Democrat, and House Democratic leader Nancy Pelosi of California to discuss the way forward.

If they stay in effect, the spending cuts eventually may lead to longer waits for air travelers, delays in production permits for oil and gas drilling, shorter opening hours at national parks, and the closing of meat plants that the Agriculture Department doesn’t have the manpower to inspect.

Markets View

Private and government economists have said the cuts may trim economic growth. Investors have signaled they aren’t concerned about the impact on the $15.8 trillion U.S. economy.

The Standard & Poor’s 500 Index (SPX) has risen 6.4 percent this year and the dollar led gains in world markets last month.

The S&P 500 gained 0.2 percent to 1,518.20 yesterday in New York trading, after dropping as much as 0.9 percent earlier as consumer confidence increased and manufacturing grew at the fastest pace since June 2011. The Dollar Index, which tracks the currency against six U.S. trading partners, rose 0.4 percent.

Once Obama’s order went out, the budget office transmitted a document to Congress itemizing reductions to hundreds of federal programs, updating an earlier report to lawmakers.

“The cuts required by sequestration will be deeply destructive to national security, domestic investments, and core government functions,” acting White House Budget Director Jeffrey Zients said in a letter to Boehner accompanying the budget office list.

Park System

Medicare will see a 2 percent reduction, while the National Institutes of Health, which funds medical research, will be cut by 5 percent, or about $1.5 billion, according to the OMB. Space operations at the National Aeronautics and Space Administration will be cut by 5 percent, or $212 million, and operations for the national park system, which includes 398 parks across the country, would get a reduction of 5 percent, or $113 million.

Agencies began technical procedures to deal with immediate effects. In one example cited by administration officials, computer systems had to be taken offline and reset for the Internal Revenue Service to cut $210 million in payments to municipalities with projects under the Build America Bonds program for infrastructure financing.

Separately, Cabinet departments issued letters to governors explaining the impact on states.

Congress’s ‘Failure’

A letter to Governor John Kasich of Ohio from U.S. Housing Secretary Shaun Donovan says that Obama was issuing the sequestration order “due to the failure of Congress.”

In a letter to Governor Bob McDonnell of Virginia, U.S. Deputy Defense Secretary Ashton Carter wrote that while “we do not yet have a complete inventory of the required cutbacks,” the known reductions include $146 million in funding for Army bases.
Carter said the department will keep states informed “as we compile a more complete list.”

Speaking after his meeting with the lawmakers, Obama said agreement on a deficit-reduction package will be reached once members of Congress hear from voters feeling the pinch of cutbacks in government programs.

“There is a caucus of common sense up on Capitol Hill,” Obama said. “It’s a silent group right now, and we want to make sure that their voices start getting heard.”

Tax Revenue

Boehner left the White House saying Republicans won’t budge from their rejection of raising tax revenue again as part of the negotiations on sequestration.

“The president got his tax hikes on Jan. 1,” Boehner said, referring to the deal at the end of last year that let income tax rates rise for top incomes. “The discussion about revenue, in my view, is over.”

Obama has urged replacing sequestration with a combination of reduced spending, including in entitlement programs, and higher revenue from closing loopholes in the tax code for the wealthiest Americans.

Pelosi said House Democrats are prepared to consider ways to reduce spending for Medicare, Social Security and other entitlement programs as long as Republicans are willing to compromise on “their sacred cows -- tax giveaways for special interests” and “excessive deductions for the wealthiest people in our country.”

Republicans would be willing to close tax loopholes, though not to replace spending cuts, Boehner’s office said.

“I will not be part of any back-room deal and I will absolutely not agree to increase taxes,” McConnell said in a statement.

Obama said he can’t lock both parties in a negotiating session until a deal is struck.
“I am not a dictator; I’m the president,” Obama said. If McConnell and Boehner want to leave town without a deal, “I can’t have Secret Service block the doorway.”

To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net; Margaret Talev in Washington at mtalev@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

The White House made public an order at about 8:30 p.m. ET signed by President Obama making the budget cuts known as sequestration official and giving the federal government the authority to begin implementing $85 billion in across-the-board decreases.

The order released by the White House demands that "budgetary resources in each non-exempt budget account be reduced by the amount calculated by the Office of Management and Budget."

The cuts would run through Sept. 30, the end of the federal fiscal year.

According to a letter dated today from Jeffrey Zients, deputy director for management of the Office of Management and Budget, to House Speaker John Boehner, R-Ohio, the sequestration calls for a 7.8% cut in non-exempt defense discretionary funds and 5% cut in non-exempt non-defense discretionary funding. It also calls for 2% cuts to Medicare, 5.1% to other non-exempt non-defense mandatory programs and 7.9% to non-exempt defense mandatory programs.

The federal government has said the cuts will soon translate into furlough notices to government workers, and that there will be cuts to government spending on defense contracts and domestic government programs. The plan protects active military personnel and anti-poverty programs.

The letter to Boehner, which introduced a detailed OMB report on the cuts, noted that federal lawmakers voted for sequestration "as a mechanism to compel the Congress to act on deficit reduction." The letter continued, "As a result of Congress's failure to act, the law requires the President to issue a sequestration order today canceling $85 billion in budgetary resources across the Federal Government for FY 2013."

An identical letter was sent to the president of the Senate, Vice President Biden.

The order comes after both Republican and Democratic alternatives to imposing across-the-board spending cuts failed to pass in the U.S. Senate.

The Democratic plan would have imposed a tax of 30% or more on millionaires, and cuts to defense and farm programs. The Republican plan would have forced responsibility on the president to determine how to implement the cuts as opposed to imposing an across-the-board decrease.

Contributing: The Associated Press


***Definition of Discretionary Spending

What is "discretionary spending"? What is the definition of the term "discretionary spending"?

"Discretionary spending" and "mandatory spending" are the two types of spending that make up the sum total US government expenditures on a yearly basis.

"Mandatory spending" is spending that is automatically obligated due to previously-enacted laws. This would include things such as Social Security and the interest on the national debt.

"Discretionary spending", on the other hand, consists of US government expenditures that are set on a yearly basis. This is money that members of Congress can adjust on a yearly basis.

Examples of discretionary spending in the United States:

-defense budget
-education
-Environmental Protection Agency
-Department of Veterans Affairs

When looking to cut costs, lawmakers usually look to trimming discretionary spending.