U.S. Economic/Financial News
PBGC Pension Troubles Mount
The Pension Benefit Guaranty Corp. has revealed another $150-billion deficit, on top of the $450 billion already reported, according to the Wall Street Journal May 26. The PBGC is now worried about multi-employer pension plans which, as of 2004, were underfunded by $150 billion. (Multi-employer plans were established to cover workers who move from employer to employer within various unionized industries.) PBGC's growing pool of pension liabilities, following the United Airlines bankruptcy ruling allowing the airlines to offload its pension on the PBGC, and the looming auto-sector blowout, compounds the vulnerability of pension coverage.
The $150-billion underfunding of multi-employer plans represents a 50% increase in their deficit over 2003. There are about 1,600 such plans, paid for by 65,000 mostly small companies with 10 million unionized workers, in industries such as trucking, construction, groceries, etc. A plan by Rep. John Boehner (R-Ohio) to introduce a bill to overhaul the pension system, when Congress reconvenes in June, includes multi-employer plans.
Pilots Lobby for Pension Protection
A group of airline pilots with Southwest Airlines, JetBlue, and others, have formed a group, Airline Pilots Against Age Discrimination, and are lobbying to have the Federal Aviation Administration's mandatory retirement age raised from age 60 to 65, the Baltimore Sun reported May 26. The pilots hope this will give them more time to recover pension benefits lost due to slashing of pensions resulting from the many airline bankruptcies, mergers, etc. Under the PBGC assumption of their pensions, when they worked for other airlines, they no longer get a maximum payout unless they retire at age 65.
United Airlines opposes the change, as does the FAA. Senator James Inhofe (R-Okla) has legislation pending to raise the limit, while Sen. Daniel Akaka (D-Hi) introduced a bill that would keep the age 60 requirement but allow PBGC to treat a 60-year-old pilot the same as 65-year-old workers.
Senator Murray Rebukes Mineta for 'Starving' Amtrak
Amtrak CEO David Gunn testified on May 12 before the Senate Transportation Appropriations subcommittee, that the Bush Administration's stated policy of putting Amtrak into bankruptcy has had a "negative impact on Amtrak's cash position"resulting in Amtrak's bond rating being downgraded, in turn causing the railroad's insurance and accounting costs to increase and suppliers to tighten financial requirements. Now, Transportation Secretary Norman Mineta has called for Gunn to "implement cost-cutting measures" immediately, to conserve cash. In response to Mineta's demand, Sen. Patty Murray (D-Wash) issued a statement calling on the Adminstration to "rethink [its] short-sighted funding policy." It reads in part:
"Secretary Mineta shouldn't be surprised that Amtrak is facing a financial crisis. His own Administration's budget policies have been one of the largest contributors to it.... After starving the patient for the last four years, Secretary Mineta is now complaining that the patient is malnourished. Secretary Mineta and the Bush Administration should have been thinking about Amtrak's ability to sell tickets and control other costs before they proposed zeroing out Amtrak's budget and pushing the railroad into bankruptcy.
"The Bush Administration's budget policies have been severely detrimental to Amtrak's financial condition...."
Senators Defend Amtrak
Republican Senators Conrad Burns (Montana) and Christopher "Kit" Bond (Missouri) took a rail and airplane tour of Montana's northern tier, over the May 21-22 weekend, to survey and assess the impact on both states' economies of passenger rail and certain water infrastructure. Both Burns and Bond oppose the Bush/Mineta plan to "kill Amtrak," and both sit on the Senate Appropriations Committee. A Burns spokesman said transcontinental rail service is vital to America and should be protected, and that Federal funding may be needed for Amtrak. Senator Bond, who also serves on the Transportation Appropriations subcommittee, issued a press release in which he vowed that he would not allow the Bush Administration "to bankrupt Amtrak."
To rally bipartisan support in Montana for the Amtrak Empire Builder route, a two-day whistle-stop tour is planned with town hall meetings in Glasgow, Havre, and Whitefish on June 1 and 2, led by Montana Gov. Brian Schweitzer. Participation is expected from Montana's Sen. Max Baucus (D) and Rep. Denny Rehberg (R), and Amtrak CEO David Laney among others.
U.S. Housing Bubble Still Superinflating
The runaway U.S. housing market, recently described by Federal Reserve Board Chairman Alan Greenspan as "frothy," continued to run after its tail in April. Sales of existing homes reached 15% above April 2004 levels, and the national median price of existing homes, at $206,000, was 12% higher than one year earlier. "Frenzied buying" was the way the chief economist of the National Association of Realtors characterized the situation. Price differentials of 600-800% between comparable houses in different local housing markets, have appeared. "Economists worry that real estate is to this decade, what technology stocks were to the 1990s," said the New York Times May 25. PIMCO bond-fund chief Bill Gross, on MSNBC, said that without the "homes as ATMs" consumer phenomenon, the U.S. economy would be in recession, and that he expected GDP growth rates to fall below 2% later this year.
Atlanta Fed Head Warns Against Housing Speculation
While speaking to the Atlanta home-builders group May 25, Jack Guynn, the Atlanta Federal Reserve president, said, "There are some local markets where home prices have risen 30% in the past year, and that is unsustainable, and this behavior can only be characterized as nothing other than speculation," USA Today reported May 26. Guynn added, "some buyers and some lenders are going to get burned."