Lobotero’s Info Ink

Job losses in the US are mounting as inflation, the credit crunch, plunging home values and tighter family budgets are combining to produce a perfect storm of economic malaise, which is threatening the livelihoods of tens of millions of working people.

The private sector eliminated 79,000 jobs from May to June, according to a survey of nearly 400,000 US businesses released Wednesday by Automatic Data Processing, Inc. The ADP National Employment Report said the decline was “broad based across industrial sectors and suggests continued weakness in employment.”

The goods-producing sector slashed 76,000 jobs last month, ADP reported, with manufacturing employment falling by 44,000, marking their nineteenth and twenty-second consecutive monthly declines, respectively. Service jobs also declined by 3,000, the first fall-off since November 2002.

Construction and financial services related to home sales and lending are the two sectors of the economy hardest hit by the housing and mortgage crises. In June, ADP reported, construction employment dropped by an additional 34,000 jobs, marking the nineteenth straight monthly decline. A staggering 349,000 construction jobs have been lost since the peak of August 2006. Three thousand jobs in financial services were also lost in June.

One thing to watch is the price of gold–if it continues to rise it is good indication that the indicators will predict a deeping recession.  Sorry, but there is no good news for the middle class in the economy.

“As goes Chevy, so goes America”, an old saying that I do hope is not true.

General Motors Corp. stock closed below $10 per share Wednesday — its lowest level since Dwight Eisenhower was president, power brakes were new and the Bel Air was the automaker’s hot new car — after dreadful June auto sales led one analyst to write that “bankruptcy is not impossible.”

Even if GM management feels it doesn’t need to borrow the money, doing so probably would ease investor anxiety.

Although bankruptcy could make it easier for GM to shrink its brand and dealer network to the size it truly needs in North America, “for a consumer-product company, it’s a fearful prospect to contemplate because of consumer perceptions,” Phillippi said.

A Chapter 11 bankruptcy reorganization might help GM become more competitive, he said, but it would have to worry that customers would stop buying its products for fear parts and service wouldn’t be available or that the company wouldn’t survive.

“We believe that the weakness in demand and deteriorating mix through the first half of 2008 are just the beginning of what is shaping up to be a more severe downturn than even the most bearish industry observers expected,” Murphy wrote. “In the wake of a deteriorating economy, a weakening consumer and rising gas prices, we expect industry volumes to decline significantly.

Congress is finishing work begun in 2006 to remedy an unintended consequence of the Alternative Minimum Tax (AMT)–the treatment of a form of employee compensation called incentive stock options (ISOs).

The House of Representatives passed legislation in May 2008 as part of the Renewable Energy and Job Creation Act of 2008 (HR 6049) fully restoring the economic incentives and benefits Congress intended for ISOs when it allowed companies to offer them beginning in 1981.

Under AMT, thousands of workers who received ISOs have faced enormous unintended tax liabilities. (See “Taxpayers Cry Foul as AMT Affects Millions of Americans,” Budget & Tax News, May 2007, and “Congress Moves to Fix Tax Penalties Against Incentive Stock Options,” Budget & Tax News, January 2008).

Due to an unintended flaw in the tax code, ISO AMT victims–employees of small and large companies across America–were forced to pay taxes sometimes exceeding 300 percent of their annual salaries, based on phantom “income” they never received. In many cases, families were unable to pay, leading the IRS to seize their houses and savings and garnish their wages.

The ISO correction and relief provision in HR 6049 was based on the AMT Credit Fairness and Relief Act, HR 3861, introduced by Rep. Chris Van Hollen (D-MD) and lead co-sponsor Rep. Sam Johnson (R-TX), with original co-sponsors Reps. Richard Neal (D-MA) and Jim Ramstad (R-MN).

“The goal of this legislation is to restore a basic sense of fairness to a provision in the tax code that has gone tragically awry,” said Van Hollen in a press statement. “While everyone should pay a just and proportionate amount of tax on money they actually make, no one should lose their homes, savings, and retirement to a wildly disproportionate tax on phantom income they never saw, because our tax laws failed to anticipate the circumstances in which a number of our citizens now find themselves.”

Presidential candidate Barak Obama recently met with the boss of GM and they talked about ways to save the auto industry from total collapse.  Here are the ways to save the industry according to a report.

• Provide more support for basic research into new technologies, along with tax credits or other incentives for consumers to buy them once they are available.

• Assist manufacturers in converting factories.

Building new technologies “takes a lot of capital,” Wagoner said. “One of the biggest issues the U.S. industry faces is we have relatively weak balance sheets due to a lot of things … so support in improving the manufacturing base is important.”

Let me see if I have this about right–the government will basically be bailing the industry out for their bad decisions in the pursuit of profit?  Sorry, but they should be held responsible for their bad decisions, as I am held responsible for mine.

I would say that help from the government should be there, but only after they have illustrated that they are truly concerned with the way the industry is going.  That means they come up with a plan and start down the road and then , only then shopuld the government be involved.

But unfortunately, that is not gonna happen, the industry will get massive amounts of cash shoved up their butts by Washington and will go back to making the decisions that have put them in the dire straights they are in now.

If you really want to know, then the answers are a bit complex but I will try to break it down for you.
How to explain the oil price? Why is it so high? Are we running out? Are supplies disrupted, or is the high price a reflection of oil company greed or OPEC greed. Are Chavez and the Saudis conspiring against us?

The dollar is weak because of large trade and budget deficits, the closing of which is beyond American political will. As abuse wears out the US dollar’s reserve currency role, sellers demand more dollars as a hedge against its declining exchange value and ultimate loss of reserve currency status.

In an effort to forestall a serious recession and further crises in derivative instruments, the Federal Reserve is pouring out liquidity that is financing speculation in oil futures contracts. Hedge funds and investment banks are restoring their impaired capital structures with profits made by speculating in highly leveraged oil future contracts, just as real estate speculators flipping contracts pushed up home prices. The oil futures bubble, too, will pop, hopefully before new derivatives are created on the basis of high oil prices.

There are other factors affecting the price of oil. The prospect of an Israeli/US attack on Iran has increased current demand in order to build stocks against disruption. No one knows the consequence of such an ill-conceived act of aggression, and the uncertainty pushes up the price of oil as the entire Middle East could be engulfed in conflagration. However, storage facilities are limited, and the impact on price of larger inventories has a limit.

Perhaps more difficult to understand than the high price of oil are the low US long-term interest rates. US interest rates are actually below the rate of inflation, to say nothing of the imperiled exchange value of the dollar. Economists who assume rational participants in rational markets cannot explain why lenders would indefinitely accept interest rates below the rate of inflation.

Of course, Americans don’t get real inflation numbers from their government and have not since the Consumer Price Index was rigged during the Clinton administration to hold down Social Security payments by denying retirees their full cost of living adjustments. According to statistician John Williams, using the pre-Clinton era measure of the CPI produces a current CPI of about 7.5%.

By pumping out money in an effort to forestall recession and paper over balance sheet problems, the Federal Reserve is driving up commodity and food prices in general. Yet American real incomes are not growing. Even without jobs offshoring, US economic policy has put the bulk of the population on a path to lower living standards.

The crisis that looms for the US is the loss of world currency role. Once the dollar loses that role, the US government will not be able to finance its operations by borrowing abroad, and foreigners will cease to finance the massive US trade deficit. This crisis will eliminate the US as a world power.

And that is the name of that tune!

Millions of people in the US, and not merely those with the lowest incomes, are being hammered by a combination of job losses, rising prices for basic items such as food and gasoline, and the drop in the value of their homes.

Home prices continued to fall last month, according to the S&P/Case-Shiller home-price indexes, a widely followed measurement. In 20 US metropolitan areas home prices declined in April by the most on record, 15.3 percent from a year earlier, following a 14.3 percent decline in March. The drop in prices has erased gains made since 2004.

The figures for selected major metropolitan areas are staggering. Las Vegas and Miami saw annual price declines of 26.8 percent and 26.7 percent, respectively.

Meanwhile, now that the warmer weather is upon us, combined with the growing economic distress, private utility companies are cutting off electricity and natural gas at rates 15 percent higher than last year. There are restrictions on the ability of the utilities to halt service to homes during the winter months.

USA Today reported Tuesday that “utilities are disconnecting many more customers who fall behind on their bills, and even moderate-income households are getting zapped…Totals for some utilities have more than doubled.”

Utility disconnects are up 56 percent for Detroit Edison; more than one in five of its customers were behind in their electric bills in May.

All in all, it’s no wonder then, as the Wall Street Journal reported Tuesday, that “consumer confidence dropped like a stone in June, and expectations hit an all-time low, according to the latest survey from the Conference Board.” Lynn Franco of the Conference Board told the paper, “Perhaps the silver lining to this otherwise dismal report is that consumer confidence may be nearing a bottom.”

June’s confidence figure, based on a survey of 5,000 households, was the fifth lowest reading ever. Only 11.5 percent of those surveyed said business conditions were good.

One of the most telling social realities, and one with considerable implications, is detailed in the section somewhat blandly entitled, “Heightened Housing Challenges.” The Joint Center study notes that in 2006 nearly 40 million households in the US were at least “moderately cost burdened”—paying more than 30 percent of income on housing—and nearly 18 million “were severely cost burdened (paying more 50 percent)”. The number of severely burdened households “surged by almost four million” from 2001 to 2006, or some 20 to 25 percent.

“The weight of high housing costs falls especially heavily on households in the bottom income quartile. Fully 47 percent of low-income households were severely cost burdened in 2006, compared with 11 percent of lower middle-income households and just 4 percent of upper middle-income households. On average, households with children in the bottom quartile of spenders with severe housing cost burdens have just $257 a month left over for food, $29 for clothing, and $9 for healthcare. With food and energy costs climbing, these households will have less to spend on bare necessities.”

While low-income and minority households have been hard hit, “Affordability problems are edging up the income scale,” the study observes. “A rising number of middle-income homeowners also face cost pressures….For homeowners earning more than the median income, the likelihood of being housing cost burdened nearly doubled between 2001 and 2006.”

The conditions for millions of children are a national disgrace. More than one in six children in the US lives in households paying more than half their incomes for housing. The poorest quarter of American households “spent 32 percent less on food, 56 percent less on clothes, and 79 percent less on healthcare than families with low housing outlays.”

Americans are in dire straits–with the high cost of gas, housing and food–these are essentials not luxuries and there seems to be no relief in sight.  Will the candidates eventually get around to offering real solutions to these problems or will we continue to hear the stuff that does not make sense, it is said to gain votes not solve problems.

When will the American people learn?

No matter who gets the nod from the voters, there are parts of the of thew whole picture that will be a thorn in the next presidents side.  But the question should be can the new president really be up to the challange?

BUDGET

The U.S. budget deficit burgeoned under the Bush administration because of several rounds of tax cuts that slashed revenue while the government pursued wars in Iraq and Afghanistan that cost $11 billion a month.

Bush could leave his successor a record $500 billion budget deficit, compared with the $128 billion surplus he inherited when he took office in 2001.

Under Bush, the national debt has nearly doubled to $10 trillion. That requires interest payments of roughly $200 billion each year — more than any other single category of government expenditure except defense, the Social Security retirement fund and Medicare for the elderly.

With the budget already stretched, finding revenue for new spending programs or to offset further tax cuts could be especially difficult.

ECONOMY

The next president will inherit a sluggish economy hobbled by high energy prices and a housing slump, brought on in part by the Bush administration’s drive to expand home ownership.

Hard times for businesses and consumers means the government collects less tax revenue. Revenue from taxes on corporations dropped 14 percent over much of last year and tax revenue from workers’ paychecks recently has been flat, according to a research note by Goldman Sachs.

McCain has proposed a gas-tax holiday over the summer and other tax cuts to boost the economy. But he will probably have a hard time getting them through a Congress expected to remain under Democratic control.

Obama has said he might defer his proposed tax increases on the wealthy if the economic picture remains grim.

MEDICARE AND SOCIAL SECURITY

Ballooning payments to the elderly through Social Security and Medicare will pose a growing problem with the retirement of the country’s 77 million Baby Boomers, born between 1946 and 1964.

By 2017 when a second Obama or McCain term would end, each household would have to pay an additional $2,000 a year in taxes to cover these costs, according to Brian Riedl, a budget expert at the Heritage Foundation.

Medicare, the $400 billion health-insurance program for the elderly, began paying out more than it takes in this year.

The Medicare program that pays for hospital visits is expected to go bankrupt in 2019 and a program that covers prescription drugs, added during Bush’s tenure, will increase costs as well.

These are just the major problems that will be nibbling at the butt of the new president.  Ask yourself which candidate will be capable of handling these—and there will be your vote.

While you are struggling with high gas, high food, foreclosures and a completely dysfunctional economy, there are some that are doing well regardless of the dark days to come.

Average CEO compensation grew by 3.5 percent last year despite slowing economic growth, falling profits and mass layoffs, according to an Associated Press review published Monday. The review found that the S&P 500 CEO received an average yearly compensation of $8.4 million, up $280,000 (an average raise that is the equivalent of six times the US median household income) during 2006.

The data render ridiculous those apologies for social inequality resting on the idea that CEO pay is linked to ‘performance’ in some meaningful way. The Associated Press review found that “CEO pay rose or fell regardless of the direction of a company’s stock price or profits.” The report also notes that half of the 10 best paid CEOs—who collectively hauled in half a billion dollars last year—presided over companies whose profits shrank “dramatically.”

John Thain, the CEO of Merrill Lynch, ranks first on the list. He received $83 million in compensation for the year, despite presiding over a company that posted a $9.8 billion loss in the fourth quarter. He replaced former CEO Stanley O’Neal on December 1, 2007. O’Neal left the bank with a compensation package worth over $161 million, despite his direct oversight of the bank’s gambling with mortgage-backed securities that ultimately exploded in 2006-2007.

Likewise, John Mack of Morgan Stanley, also in the top 10, received a compensation package worth $41.7 million, even though his firm announced the writing down of $9.8 billion worth of loans and a loss of $3.61 billion in the fourth quarter.

And what have been the social consequences of all this? Who has paid the cost of this enrichment of a tiny layer at the top of the social ladder? According to the latest estimates, one in twenty Americans will soon have negative equity in their homes, and millions already face foreclosure. Energy prices have shot up by 17 percent in the past year alone. Real wages have fallen by about 1 percent during the same period, with far steeper declines threatened.

Now do you feel better?

All media economic reporters are gonna tell the viewer just how good the economy is, but as usual they are talking to people with NO monetary problems.

A record number of US homeowners faced foreclosure on their properties in May, according to statistics published Friday. That same day, the Bureau of Labor Statistics released data showing a sharp increase in consumer prices for the month of May.

The latest foreclosure data released by the real estate research firm RealtyTrac showed a 4 percent increase in foreclosure filings in May over the previous month, representing a 65 percent increase over April 2007. One in every 519 properties in the US received a foreclosure filing in May.

As homeowners’ wealth plummets together with their home values, the cost of living has continued to increase. Consumer prices increased 0.6 percent in May, or at an annualized rate of 7.2 percent, significantly higher than the 4.2 percent rise seen during the past 12 months. The price increases were sparked by a sharp rise in energy and transportation costs. Energy costs—driven by spiraling oil prices—surged by 4.4 percent in May alone. Transportation costs spiked by 2 percent in May, as airlines and trucking firms passed high oil prices on to their customers.

Despite high “headline” consumer prices, the most recent figures were portrayed as reassuring by economists, who noted that “core” inflation remained under control. Core consumer prices—which are calculated by stripping out food and energy costs—rose only 0.2 percent in May, and in general have stayed at a relatively low 2.3 percent year-to-year rise.

It is important to understand the relationship between the population’s real income and the various measures of prices. Inflation—or more specifically the differential between its core and headline measures—is one of the major indices of the class struggle. From an individual standpoint, “core” (as opposed to headline) inflation is essentially meaningless because, after all, everyone eats and most people drive. But, on a social level, core inflation is more sensitive to wage demands. When rising prices lead workers to successfully struggle for higher wages, producers tend to pass on the extra costs in the price of finished products, thus pushing up core inflation.

If you are a working class occupant, then your economic future is not as rosy as the future for the monied few.

This is an editorial that was sent to me in an email–the source was not given.

Senate Republicans gave people a slap in the face June 10, voting to block a windfall profits tax on oil companies that are robbing us blind at the gasoline pump with $4.35 per gallon gasoline. Democrats mustered a majority, 51 senators, but GOP leaders rallied 43 senators to block the bill, effectively killing it.

It would have imposed a 25 percent tax on “unreasonable” profits of the five largest U.S. oil companies, which reported $36 billion in profits in the first three months of this year. The legislation would have given the government more power to curb oil company speculation and would have made energy price gouging a federal crime.

The AFL-CIO Working Families network called for a “Week of Action” to protest the price gouging. AFL-CIO President John Sweeney said both George W. Bush and John McCain “have handed the reins of the economy over to Big Oil and other corporate interests whose only concern is maximizing their profit margins.”

Since Bush-Cheney seized office in 2000, the five oil giants have reaped $525 billion in profits and presided over gasoline prices that zoomed from $1.47 per gallon to well over $4 per gallon. Oil CEOs are wallowing in money. Exxon Mobil CEO Rex Tillerson reports $21.7 million income last year. Occidental Petroleum’s Ray Irani pocketed $34 million.

GOP presidential nominee McCain voted in 2005 against curtailing windfall profits for oil companies. In 2007, he was the only senator to miss a vote on an energy bill that repealed billions in tax subsidies for oil companies. McCain promises if elected to push through a new $3.8 billion tax giveaway for the oil companies. His election in November would ensure another four years of Bush-Cheney giveaways to Big Oil. Democratic nominee Barack Obama, by contrast, vows to “make oil companies like Exxon, pay a tax on their windfall profits.”

If this highway robbery continues, can calls for nationalization of the oil companies be far behind? Venezuela’s example of using nationally-owned oil wealth to lift the living standards of the people is becoming an ever more attractive alternative.

I have said that I would not be opposed to the nationalization of the oil industry…my state has a monopoly on the liquor sales and it generates mush needed revenue for state programs–so I say why not?