In comments that echoed those of the Federal Reserve Open Market Committee, Douglas Elmendorf suggested that economic growth appears tepid. Sluggish growth and persistently high unemployment were hallmarks of a recovery from a financial crisis, he noted. And he added that factory underutilization and home vacancies – on top of minimal income growth – will conspire to keep the economy in a state of torpor.

Those factors, "along with the waning of federal fiscal support, will tend to restrain spending by individuals and businesses – and, therefore, economic growth – during the recovery," Elmendorf wrote.

His assertions come on the same day that the Labor Department reported an unexpected rise in new jobless claims. Half a million new unemployment claims were filed last week, the government said – the first time the 500,000 mark had been reached since last November.

Sustainable job creation won’t occur, however, until the number of new weekly claims falls to about 400,000, the Washington Post noted.

And while some sectors are growing – the nation’s manufacturing output rose 1.1 percent last month, according to government figures released this week – modest growth in some parts of the economy will not be sufficient to drive down unemployment or spur widespread business investment.

President Barack Obama seized on the Labor Department’s new-claims figure to call for the passage of a small-business aid bill. "If we want this economy to create more jobs more quickly, we need to help" small companies, Dow Jones Newswires quoted him as saying. The GOP’s opposition to the bill has been fierce.

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By keeping the fed-funds rate exceptionally low, the Fed hopes to stimulate interbank lending and free up capital for business expansion and economic growth; purchasing Treasuries should serve a similar purpose. Bonds’ prices and yields move inversely to each other, so when demand for bonds rises – when a central bank steps in to buy them, in other words – their yields, or rates of return, fall. Depressing bond yields in this manner will, Fed officials hope, encourage investment and spur economic activity.

The decision to buy Treasuries is an unusual step, and one that signals the seriousness of the economy’s slowdown. In explaining its policy decision Tuesday, the central bank noted that "the pace of recovery in output and employment has slowed in recent months" and added that "investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls."

The markets were generally receptive to the Fed’s plans Tuesday: Stocks and Treasuries pared their losses and the dollar fell. The dollar slumped because of inflation concerns; the bonds that the Fed is buying will be monetized – i.e., added to the money supply – at some point in the future, a move that could reduce the greenback’s real value.

But monetization won’t happen for some time. And, considering the precarious state of the economy – manufacturing activity, retail sales growth and consumer confidence have all declined in recent months – the Fed’s decision to buy government bonds may be warranted.

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Governor Arnold Schwarzenegger – a Republican whose popularity has declined as unemployment rose and the state’s money woes mounted – declared Wednesday a state of fiscal emergency.

The state budget, which should have been completed by July 1, is facing a $19 billion shortfall – a gap so large that closing it will be all but impossible without major budget cutbacks or concessions from state workers.

The latter may have already begun taking effect, and not on a voluntary basis. In concert with the state of emergency declaration, Schwarzenegger ordered 150,000 state workers to take three days of unpaid vacation time. The move, it’s hoped, will help California save on its payroll costs – and while it may not provide significant savings, a spending plan may well be crafted by a thousand tiny cuts to payrolls and state programs.

"Our cash situation leaves me no choice but to once again furlough state workers until the legislature produces a budget I can sign," Schwarzenegger said in a statement.

Bloomberg reports that about 37,000 critical state workers are exempt from the furloughs, which take effect August 1. Exempted are forest firefighters and highway patrol officers – state workers who are seen as vital to the well-being of California residents.

The furloughs come as California continues to struggle with high unemployment. The Labor Department reported July 28 that 12 metropolitan areas have unemployment rates above 15 percent – and fully 10 of those are in California.

The state’s real estate market is still troubled, as well. Between the second quarter of 2009 and the same period this year, foreclosures rose by 4 percent, San Diego real estate data firm MDA DataQuick says.

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Hayward was sharply criticized for his response to the Gulf of Mexico oil spill, saying – in what may have been a stab at dry humor – that he wished he could have gotten his life back in the wake of the disaster. His remarks came as callous and harsh, though, in light of the fact that 11 workers on the Deepwater Horizon rig were killed when it exploded in late April.

More broadly, BP’s response has come under fire; the company has been tarred for not keeping the public apprised of the scale of the crisis and shunning offers of help from engineers outside the company.

And the organizational structure of BP may have had a role to play in the spill: A panel of scientists wrote that the energy giant’s culture encouraged "cost-cutting and cutting of corners – that reward workers for doing it faster and cheaper, but not better." BP was responsible for more than 750 safety violations in the years leading up to the explosion of the Deepwater Horizon.

Whether Hayward is to blame for the structural problems at BP remains up for debate. Wall Street, at least, appears to believe that sacking him would be best for the company: BP’s shares were up nearly 5 percent on the news that Hayward would receive the boot.

Robert Dudley, the American BP exec who is expected to replace Hayward, will take the helm by October 1, the Houston Chronicle reports. BP’s board is meeting Monday night and may issue a formal statement about Hayward’s firing shortly thereafter.

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"The economic outlook remains unusually uncertain," Bernanke said to the Senate Committee on Banking, Housing and Urban Affairs Wednesday.

"In all likelihood," he added, "a significant amount of time will be required to restore the nearly 8.5 million jobs that were lost over 2008 and 2009."

His testimony comes amidst an atmosphere of mounting bad news. The government reported last week that retail sales fell in June; it was the second straight month of retail spending declines. While June’s sequential fall was not large – 0.5 percent, or 0.1 percent with auto sales excluded – it could portend further spending cutbacks among American consumers.

The dip in spending was corroborated by consumer confidence figures, which slumped in June: The Reuters/University of Michigan consumer sentiment index fell to an 11-month low. "Income and job prospects were extraordinarily weak, and those bleak prospects have made consumers much more cautious spenders," survey director Richard Curtin said on the release of the data.

The economy is heavily dependent on consumers. Without an upswing in consumer spending, there’s little hope for a sustainable recovery; higher business spending in late 2009 and early 2010 helped drive economic growth but has since abated.

Fears that the consumer won’t return to his profligate ways are driving business optimism down, too. This week, the National Association of Homebuilders reported that builder confidence fell in July.

"Builders are reporting continuing consumer hesitancy regarding home purchases due to uncertainty in the overall economy and job markets," NAHB chairman Bob Jones said.

It appears likely that Bernanke’s predictions for slow growth will be borne out.

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The move would come as a blow to the White House, which had pushed lawmakers to include dealers in the bill’s consumer-protection laws. The Obama administration and the Pentagon argue that auto dealers can be just as guilty of predatory lending as mortgage originators; young service members in the military are particularly vulnerable, the Department of Defense claims.

An exemption for auto dealers, President Barack Obama said in May, "would allow them to inflate rates, insert hidden fees into the fine print of paperwork and include expensive add-ons that catch purchasers by surprise."

While the old saws about unscrupulous car dealers may still ring true, dealerships are a powerful political force with a significant amount of clout in their communities. There are 17,000 auto dealers nationwide – a group that lawmakers in the House didn’t want to upset.

It was the House version of the reform bill that included a dealer exemption. Members of the Senate agreed in principle to the measure last month; on Tuesday, auto dealer exemptions appear poised to make it into the final bill.

Not everyone in the House is onboard with the measure, however. Illinois Democrat Luis Gutierrez introduced an amendment this week that would have given consumer-protection officials the power to investigate auto dealers for predatory lending if the Federal Trade Commission failed to act.

Gutierrez’ amendment was narrowly defeated, 10-9, by the members of the House charged with reconciling their bill with the Senate package.

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A commodities expert at Morgan Stanley suggested last week that governments would regulate oil producers more closely in the coming months and years. Greater regulation, commodities strategist Hussein Allidina said, should raise the cost of deepwater drilling substantially.

Already, he said, the government of Norway is restricting drilling activity so it can assay the risks involved. "Norway has announced that it will not open new deepwater areas for drilling until a better understanding of what has happened in the [Gulf] is attained," the Financial Times quoted him as saying.

Norway’s drilling moratorium follows similar restrictions enacted by President Barack Obama in the U.S. The White House imposed a six-month ban on new deepwater projects, a move that the International Energy Agency warned could imperil 300,000 barrels per day of future production.

That prediction came as the IEA raised its global demand forecast by 60,000 barrels per day. Worldwide oil consumption will average 86.4 million barrels every day this year, the agency anticipates.

The Obama administration appeared likely to restrict new shallow-water drilling projects, as well, but it indicated that shallow-water activity would be allowed to move forward if it complied with new safety and environmental regulations. The problem, the Houston Chronicle reports, is that the government has yet to finalize those regulations, leaving oil companies in the lurch.

"We just need to know the rules of the road," Hercules Offshore vice president Jim Noe said to the paper.

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Europe was, perhaps, the likeliest venue for American officials’ efforts to calm the frayed nerves of global investors. Concerns about the debt levels of some European countries – Greece, Spain and Portugal, chiefly – have dogged the markets for months, and fears have grown in recent weeks that the euro-zone’s struggles with debt could slow the region’s economic growth and derail the global recovery.

But St. Louis Federal Reserve Bank president James Bullard dismissed that notion out of hand. Speaking in Stockholm on Thursday, Bullard suggested that the economies of the U.S. and Asia are growing nicely and would continue to do so, even with the euro-zone’s problems taken into account.

"There is no particular reason why a sovereign debt crisis has to mean anything for the global economy," he said at the Swedbank Economic Outlook Seminar.

As the Wall Street Journal notes, the Fed could help Europe directly, if need be. The central bank may reduce the rate on the dollar-denominated loans it grants to European commercial banks, a move that would increase liquidity in the region.

Treasury Secretary Tim Geithner was ebullient about Europe’s future on Thursday. He was in Berlin to discuss financial-sector regulatory reform with Germany’s finance minister, Wolfgang Schäuble, and the New York Times quoted him as saying that, despite different approaches, he was confident about the prospects for a better financial regulatory framework.

"I think we’re in a very good position to reach agreement on a global framework that works," he said to reporters.

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The National Association of Realtors reports this week that existing-home sales increased 6.8 percent in March and rose 16.1 percent on a year-on-year basis.

One of the main reasons for the spike in home sales, NAR chief economist Lawrence Yun said, is the impending expiration of the homebuyer tax credit, which is slated to run out at the end of the month.

The credit was initially authorized last year to spur home sales among first-time buyers. It was only available to first-timers; in the months leading up to its scheduled expiration last November, home sales jumped. But, recognizing the role the credit played in supporting the housing market, lawmakers agreed to extend it to April and expand it to include repeat buyers.

And the pattern observed last fall is taking place once more. Buyer activity is increasing as the expiration of the tax credit nears – a sign that government intervention in the housing market is boosting sales substantially.

Another factor in the home-sales upswing is low mortgage rates, NAR President Vicki Cox Golder said. "Historically low mortgage interest rates with affordable prices and a sense that the market is turning have created optimal [buying] conditions in much of the country," she suggested.

Low home-loan rates can be credited to the government, too. The Federal Reserve was until late March buying more than $1 trillion of mortgage-backed securities; by buying MBS on the open market, the Fed helped boost the securities’ prices and, in turn, lower the rates on the mortgages that underpinned them.

The MBS-purchase program is over. But rates are staying low – slightly below 5 percent, according to real estate website Zillow.com – as private investors take the place of the Fed in the mortgage market.

The central bank can be credited for keeping rates low for much of the past year – and, again, helping to prop up housing.

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There have been calls for stricter oversight of the financial industry since September 2008, when a cataclysmic chain of events in the banking sector threatened to upset the balance of the global economy. Now, though, financial-industry reform is politically possible – and administration officials have indicated it’s their top domestic priority.

Reuters reports that deputy Treasury secretary Neil Wolin pushed for reform Monday in a speech delivered to the Council for Independent Investors.

Referring to Senator Chris Dodd’s financial reform bill, Wolin said, "We will fight hard against any effort to weaken that legislation, and we will work to strengthen it further where we can."

"We cannot afford to let the memory of the (financial) crisis fade without taking action," he added.

The Dodd bill would restrict predatory lending, give federal regulators the power to wind down failing financial institutions and set up a $50 billion fund – paid for by banks – that would help the government in that wind-down process, should it become necessary.

In addition, banks would have to hold more capital in their loss reserves. One contentious measure – backed by former Federal Reserve chairman Paul Volcker and dubbed the Volcker Rule – would prohibit financial institutions that held federally insured deposits from trading with their own money, a process called proprietary trading.

It remains to be seen whether the Volcker Rule will make it into the final legislation; Wolin indicated on Monday that Dodd’s bill would make it to the Senate floor soon for a vote. However reform looks, though, it’s clear that banks and nonbank financial firms will face stricter oversight moving forward.

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