The Collapse of the U.S. Economy and Government Finances
USA Today - Federal tax revenue plunged $138 billion, or 34%, in April vs. a year ago — the biggest April drop since 1981, a study released Tuesday by the American Institute for Economic Research says.
When the economy slumps, so does tax revenue, and this recession has been no different, says Kerry Lynch, senior fellow at the AIER and author of the study. "It illustrates how severe the recession has been." For example, 6 million people lost jobs in the 12 months ended in April — and that means far fewer dollars from income taxes. Income tax revenue dropped 44% from a year ago. "These are staggering numbers," Lynch says.
Big revenue losses mean that the U.S. budget deficit may be larger than predicted this year and in future years...
McClatchy Newspapers - Nearly a million Californians, perhaps hundreds of thousands more, cross the border to Mexico every year because they cannot afford the rising cost of health care in the United States, according to UCLA researchers.
The study by the school's Center for Health Policy Research, published Tuesday in the journal Medical Care, affirms what has long been suspected – that the untamable cost of medicine is forcing many, particularly Latino immigrants, to look outside California for medical and dental care. As casualties from the recession rise and as budget-strapped government programs eliminate health services, more people are expected to head south to fill prescriptions, get teeth fixed or undergo care for chronic illnesses.
According to the study, at least 952,000 California adults – 488,000 of them described by the study as Mexican immigrants and about a quarter as non-Latino whites – head south annually for their medical, dental and prescription services...
AP - Gov. Arnold Schwarzenegger on Tuesday proposed eliminating welfare for 500,000 families and terminating health coverage for nearly 1 million children to help close the state's ballooning budget deficit.
The Republican governor's administration released details of $5.5 billion in cuts, a week after state voters defeated special election ballot measures. The new proposals are on top of those previously announced by Schwarzenegger.
Also among the cuts are stops to college fee assistance for thousands of students, fewer vocational training opportunities for state inmates and the elimination of $70 million in funds for the state park system.
The state is trying to close a $21 billion deficit, although the Schwarzenegger administration said Tuesday that its proposed budget for the 2009-10 fiscal year was outdated. The governor's finance team said the deficit now was projected to grow to $24.3 billion through June 2010.
The revised budget now includes borrowing from local governments that will have to be repaid and consolidating state boards and commissions. The administration wants to eliminate a welfare-to-work program that provides more than 500,000 families, saving $1.3 billion but forgoing $4.2 billion in federal matching funds.
Schwarzenegger also seeks to cut health care coverage for nearly 1 million low-income children under the Healthy Families program, saving about $250 million for the year. For the state's students, he wants to phase out a college aid program and reduce $335 million in funding for the University of California and California State University systems.
Schwarzenegger's previously proposed cuts include laying off 5,000 state government employees and cutting billions of dollars from K-12 schools, potentially shortening the school year by a week. The administration also was expected to announce another $3 billion worth of budget solutions this week.
The governor had warned of "cuts, cuts, cuts" after voters defeated last week's ballot measures...
World Socialist Web Site - Unemployment in North Carolina remained at 10.8 percent in April. The state’s jobless rate has jumped from 7 percent last October and was one of 8 US states with double-digit jobless rates last month, led by Michigan with 12.9 percent unemployed. The national jobless rate rose to 8.9 percent in April, up from 8.5 percent in March.
The NC Employment Security Commission reports that nearly half a million of the state’s 9 million residents are out of work. Harry Davis, a banking professor at Appalachian State University, predicts that the state unemployment rate will rise to 12 percent over the next few months, and will continue to climb for at least a year as the recession deepens and the manufacturing sector contracts.
The state has been devastated by a total of 450 reported factory and business closings this year. Textile and truck manufacturing, construction, finance and insurance, and retail have all been hit hard. The largest job losses came in manufacturing, with 4,600 jobs cut in April. The North Carolina manufacturing sector has shed 80,000 jobs, or 15 percent of its workforce, since December 2007...
AP - A collapse in milk prices has wiped away the profits of dairy farmers, driving many out of business while forcing others to slaughter their herds or dump milk on the ground in protest. But nine months after prices began tumbling on the farm, consumers aren't seeing the full benefits of the crash at the checkout counter.
The average price for a gallon of milk at grocery stores last month is down just 19 percent from its peak of $3.83 in July. Farmers, on the other hand, got $1.04 a gallon in April — 35 percent less than they were paid last fall. This winter, wholesale prices were down as much as 45 percent.
Price disparities are a fact of life both for farmers and anyone who shops at a supermarket, but the nature of milk — how it's stored, priced and sold around the world — makes the gap all the more dramatic. In fact, the price that farmers get has been wildly volatile for years, creating a succession of booms and busts felt from pastures to the grocery store.
With each turn, proposals are floated to end the pricing seesaw, which at one extreme squeezes the profits of farmers and the other squeezes dairy processors. Any fix that boosts the price of milk runs the risk of bumping up how much consumers pay, too.
Today, frustrations are spilling over as the price crash creates widely divergent fortunes within the milk industry, boosting profits for the middlemen like dairy processors while pushing farmers to the edge of bankruptcy.
Darrell Kraus, a dairyman in Barnhart, Missouri, spends almost as much today on hay and other supplies for his herd of 160 cows as he did a year ago, but he's getting paid less for a gallon of milk than his father in the 1970s. He blames middlemen who buy the milk from the dairies, process it and sell it to grocery stores at higher prices.
"Somebody's getting a cut of this, but it's not the dairy farmer," he said. "It's sad, but they're going to see a lot of dairy farms go out of business."
At a grocery store in Fayetteville, Ark., Katherine Thacker noticed how milk prices were slowly falling — but not as drastically as last year's price hikes. She was surprised to learn that the lower wholesale milk prices were being absorbed by dairy processors.
"That's kind of criminal, isn't it?" she said.
Milk processors and supermarkets see it differently.
Last fall and summer, they swallowed losses because of high wholesale milk prices and government-mandated ceilings on what they can charge. They're now recouping some of what they lost and anticipating a rise in prices this winter, said Mike Nosewicz, vice president of dairy operations at Cincinnati-based Kroger Co., which operates its own dairy processing division and sells milk through 2,400 supermarkets.
At the heart of the problem is the nature of milk. Unlike grain farmers who can hold out for better prices by storing crops in a silo, dairymen must sell raw milk to processors or else it spoils. And cows keep producing whether the economy's expanding or in recession.
The price paid by processors to farmers is set by the US Department of Agriculture based on commodity markets, which rise and fall with global demand. Some of the raw milk is processed into milk for stores as well as butter, yogurt and other products for US consumption. The rest becomes powdered milk, cheese and whey for international and domestic markets...
Financial Times - Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.
The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.
Mr Lula da Silva, who is visiting Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.
An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil...
AFP - Faced with a massive budget crisis, California Governor Arnold Schwarzenegger has outlined major budget cuts and plans to sell some of the state's most treasured landmarks.
Schwarzenegger unveiled proposals on Thursday to replenish California's state coffers and counter an estimated budget shortfall of 15.4 billion dollars.
Plans include drastic budget cuts, as well as the sale of the Los Angeles Coliseum, which hosted the Olympic Games in 1932 and 1984, and sale of the 157-year-old San Quentin state prison, which houses over 5,000 inmates.
"To solve our immediate cash crisis, we simply cannot avoid deep and painful cuts in spending," said Schwarzenegger. "Some of these solutions are things I would never have considered in the past but, unfortunately, our state could be in a worst case scenario if the propositions fail."
But the new plans, which came less then a week before a vote was due in special elections that include five provisions to mend the state's budget woes, have faced strong criticism...
Schwarzenegger has said that if the state fails to vote through his tough measures on May 19, the deficit will increase to 21.3 billion dollars. He has also warned that his contingency plan would see thousands of lay-offs, shorten the public school year by at least seven days, as well as include healthcare cuts to about 225,000 children and the release of thousands of undocumented immigrants.
"Californians have a right to know the truth about the size of the problem our state is facing," he said. California has been battered by the recession, which has sent tax revenues nose-diving. The state, global center of high technology and the movie industry, has a 1.8-trillion-dollar economy that generates about 13 percent of U.S. gross domestic product.
Bloomberg - Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to conserve cash...
MSN Money - Prices dropped last year. But we still need to invest to protect ourselves from inflation. That’s why our retirement-plan investing needs an inflation “tilt.” You’ll understand why in a few paragraphs.
How bad will future inflation be? I don’t know. Neither does anyone else. It could be a normal inflation of 3% to 4% a year. It could also be a banana-republic 10% a month.
What we know is that all governments make promises they can’t fulfill. Our government certainly has. Under both political parties, it has taken promise making to a high art. This is not hyperbole. The figures can be found in regularly published government reports.
The figures exist, but they are ignored. News reports regularly inform us of the growing federal deficit, projected at a stunning $1.75 trillion for fiscal 2009 and $1.17 trillion for 2010. But regularly reported, less visible government obligations have been growing much faster.
In the nearly five years from January 2003 to December 2007, the Medicare trustees reported that the unfunded liabilities of Social Security and Medicare grew by a stunning $10.4 trillion. The average annual growth topped $2 trillion...
Financial condition of Social Security and Medicare worsening
AP - The government will have to borrow nearly 50 cents for every dollar it spends this year, exploding the record federal deficit past $1.8 trillion under new White House estimates. Budget office figures released Monday would add $89 billion to the 2009 red ink — increasing it to more than four times last year's all-time high as the government hands out billions more than expected for people who have lost jobs and takes in less tax revenue from people and companies making less money...
Reuters - Three large U.S. banks deemed by the government to have sufficient capital Monday announced large common stock offerings, and will use proceeds to repay government investments under a bank bailout plan.
U.S. Bancorp said it plans to raise $2.5 billion, Capital One Financial Corp roughly $1.75 billion and BB&T Corp $1.5 billion. Capital One said its offering will total 56 million shares...
The three banks were among the 19 lenders to undergo government "stress tests" of their ability to weather a long and deep economic downturn, and were among the nine found not to need more capital.
U.S. Bancorp took $6.6 billion from the government's Troubled Asset Relief Program, while Capital One took about $3.55 billion and BB&T $3.1 billion.
Hundreds of lenders took money from the program, which was designed to spur lending and improve the economy. Yet many now view TARP as an albatross that imposes too many restrictions, including on executive pay, and suggests that recipients are desperate for capital...
On Friday, Wells Fargo & Co. and Morgan Stanley each found to need more capital under the stress test, sold a respective $8.6 billion and $4 billion of stock. Morgan Stanley also sold $4 billion of debt.
Wall Street Journal - The federal government projected that 19 of the nation’s biggest banks could suffer losses of up to $599 billion through the end of next year if the economy performs worse than expected...
Associated Press – In twin strokes, President Barack Obama is calling on Congress to award generous budget increases to domestic programs while proposing relatively modest cuts to wasteful or obsolete programs that just won't seem to die.
Officials said Wednesday that Obama's promised line-by-line scrub of the federal budget had produced a roster of 121 budget cuts totaling $17 billion — or about one-half of 1 percent of the $3.4 trillion budget Congress has approved for next year. The details were being unveiled Thursday.
White House budget director Peter Orszag said the president's plan for program cuts is just a start and that a lot more needs to be done to dig the government out of its fiscal hole, especially curbing the growth of the Medicare and Medicaid health care programs for the elderly and the poor. "But $17 billion a year is not chump change by anyone's accounting," Orszag said on MSNBC's "Morning Joe."
Those savings are far exceeded by a phone-book-sized volume detailing Obama's generous increases for domestic programs that will accompany the call for cuts. Most of the major elements of Obama's budget for next year were released in February. Additional details were coming out Thursday and next week.
The roster of cuts won't be easy for Congress to swallow. Lawmakers from the potent California, New York and Florida delegations are sure to fight the elimination of the State Criminal Alien Assistance Program, which gives money to states to help defray the cost of incarcerating illegal immigrants who commit crimes. President George W. Bush tried and failed to kill the $400 million program several times.
About half the budget savings would come from an effort by Defense Secretary Robert Gates to curb defense programs, including ending production of the F-22 fighter and killing a much-maligned replacement helicopter fleet for the president.
Budget Director Peter Orszag briefed Democratic lawmakers on a partial roster of the cuts Wednesday. Obama also is fleshing out the details of the $1.3 trillion portion of the budget that he requested Congress pass through appropriations bills for the budget year beginning Oct. 1.
And just as Congress is beginning work on a new war bill to fund military operations in Iraq and Afghanistan into the fall, Obama is sending up a $130 billion request to fund them next year. That figure may not be adequate considering the increase in the tempo of operations in Afghanistan.
Obama has said repeatedly his administration will go through the budget "line by line" to eliminate waste. But the resulting savings are relatively minor compared with the government's fiscal woes, especially a deficit that's likely to exceed $1.5 trillion this year.
Administration and congressional officials described elements of the budget proposals only on condition of anonymity to discuss them before they're made public.
Republicans weren't impressed with the cuts. "While we appreciate the newfound attention to saving taxpayer dollars from this administration, we respectfully suggested that we should do far more," House Minority Leader John Boehner, R-Ohio, said.
Many of the cuts mirror those proposed previously by Bush but largely rejected by Congresses controlled by both Republicans and Democrats.
Rep. Dennis Cardoza, D-Calif., said Obama's recommendations won't be "universally embraced" but said Congress also would weigh in with savings recommendations of its own to cut spending. "This is something that's sorely needed," Cardoza said. In fact, Democrats already have pared about $10 billion from Obama's appropriations requests in passing the $3.4 trillion congressional budget plan last month.
And lawmakers are unlikely to go along with a call to raise — after 2010 — per-ticket fees on airline travel to fund airport security programs.
In a preview, administration officials named a few examples Thursday which mostly represented easy-to-pluck targets, like ending the Education Department's attache in Paris, at a savings of $632,000 a year. Another example: the obsolete LORAN-C aircraft navigation system, which still gets $35 million a year despite being made obsolete by the satellite-based Global Positioning System.
In other budget areas, the administration would keep paying for private-school vouchers for about 1,700 children receiving them in Washington, D.C., an administration official said. Obama is proposing $12.2 million for the 2010-11 school year and would like to continue the funding until the kids in the program graduate. He would not allow new students into the program.
Business Week - Are American employers too picky? Are they rejecting reasonable candidates at the same time they claim to have lots of openings they would like to fill?
That's a key question because the job market is still getting worse even as the overall economy shows signs of reaching bottom. On May 6 the ADP National Employment Report said the private sector shrank payrolls by an estimated 491,000 jobs in April. Economists -- who don't always trust the ADP numbers -- expect the Bureau of Labor Statistics to report on May 8 a decline of about 600,000 jobs in the private and public sectors combined. The median unemployment-rate forecast in the latest Bloomberg survey of economists is 8.9% for April, vs. 8.5% in March.
With the labor market so weak, it's hard to understand why so many jobs are unfilled. As BusinessWeek pointed out in a recent magazine cover story, employers reported that they had 3 million openings they were actively trying to fill as of the end of February. (The March job-openings total will be released May 12.) By contrast, there were more than 13 million people unemployed in March.
So what gives? Why don't employers give jobs to some of those 13 million people who are eager to work? Wouldn't that make everybody happy?
Employers don't see it that way. They say that jobless people don't necessarily have the skills they're looking for -- especially since the sectors with the most openings (education and health care) are very different from the ones that are losing the most workers, manufacturing and construction. Even within the same industry, employers say, there are people whose skills are outdated or out of sync with what's needed for the jobs that need filling.
But BusinessWeek was deluged with comments from people, many of them unemployed, who said employers are too picky, want to avoid paying for training, want to export jobs, or would rather hire cheap foreigners on H-1B visas. Here's a typical comment from someone who signed herself Lucy: "I don't believe this article at all; it's hogwash. IBM is not laying off people because of a skills-mismatch problem. They are laying off people because they want to offshore all U.S. jobs to low-wage countries, or bring in more people to the U.S. under the H-1B visa program. They also don't want to train U.S. employees..."