U.S. Economic/Financial News
Hamilton Project's 'Wage Insurance' Policy Meets Democratic Opposition
Together with expansion of Medicare into a more universal health insurance, some economists for the Hamilton Project, based at the Brookings Institute, are pushing a Democratic economic policy which embraces globalization and free trade, and uses new forms of "wage insurance" to compensate for outsourcing and the service economyaccepting both as inevitable and beneficial for growth. The proposed Democratic policy, as explained in several Hamilton Project pamphlets (e.g., "Fundamental Restructuring of Unemployment Insurance"), would establish a new universal payroll tax, building up a fund to pay workers temporary "wage compensation" when they lose well-paying jobs and have to take lower-paying service jobs, etc. The "wage insurance" can also apply to disability or illness job loss; and in some versions of the Hamilton proposal, would entirely replace the 1935-vintage Federal unemployment insurance program.
Since the idea is a new universal payroll tax, workers would, in effect, take a small pay cut, to partially, and temporarily, insure themselves againsta large pay cut. The Hamilton pamphlets contain data on household wage drops: The chance of a worker seeing his or her income cut in half during a given year was 7% in the 1970s, but 17% in 2002. Average annual income swings (up or down) were 15% for a household in the 1970s, but are over 30% now.
Basically, the idea its sponsors accept is that the ongoing loss of skilled and well-paid industrial jobs to outsourcing and globalization, is irreversible and positive for the economy. The idea is generating opposition from organized labor, and in Congress.
On Oct. 19, Democratic Congressional aides reported to the LaRouche Political Action Committee (LPAC), a "revolt from below against globalization" among many veteran aides anticipating Democratic victories in 2006 Congressional elections. This, they say, is supported/joined by some few senior Democrats in the House, but not by the Democratic leadership. "There's a real debate going on between 'New Democrats'free-trade Democratsand 'Old Democrats' who have more the FDR model. You're [LPAC] the FDR Democrats; you're in this debate," one aide said.
UCLA Study: Southern California Housing in 'Freefall'
The University of California at Los Angeles (UCLA) Anderson Center released its "Orange County: Economic Outlook for 2007" Oct. 13, which reported that in Orange County, Californiaone of the most populous counties in the countrysales of existing homes were down 29% compared to the same period one year ago. The rate of home sales over the last five months has been "brutally low," the study reported, according to CBS TV's local affiliate KCAL-9 Oct. 13. The whole of California is experiencing a collapsing housing market. By itself, California accounts for one-eighth of all existing homes and home sales in America.
The Anderson Center report stated that, "the long-awaited real estate correction is under way, but there's little agreement about how brutal the landing will be." The report observed that it is possible there will be a long slow decline in home prices, "the economic equivalent of Chinese water torture." However, it acknowledged that "there is a growing notion" that this year's decline may be "the roughest, most sudden correction ever observed."
The problem is not restricted to Southern California. Humboldt County, in Northern California, home prices dropped to $289,500 in August from $316,000 in July, a sharp 8.3% one-month decline.
It's Official: The Fed Lady Sings
In a speech Oct. 16, Janet L. Yellen, President and CEO of Federal Reserve Bank of San Francisco, had some scary things to say about the housing market in her jurisdiction. Addressing the Hong Kong Association of Northern California, Yellen reported that, for the first half of 2006, "quarterly average home sales in California are down nearly four times as much as they are nationwide." And it gets worse. She was told by a major home builder that "the share of unsold homes has topped 80% in some of the new subdivisions around Phoenix and Las Vegas, which he labelled the new 'ghost towns' of the West."
Meanwhile, California mortgage lenders have sent out 26,705 default notices during the July-to-September period, up from 12,606 during the same quarter in 2005, the Los Angeles Times reported.
Home 'Gambling' in Nevada Goes Bad; Foreclosures Rise
In Nevada, the number of home foreclosures increased to 2,016 in August, more than triple the level of 568 in August of last year. Nevada has 20,000 existing homes on the market. But reflecting Nevada's role as the capital of U.S. gambling, real estate experts estimate that more than 40% of these Nevada unsold existing homes were bought by "investors"that is, gamblers (speculators)in late 2005, looking to "flip" the property. But, they gambled wrong: the red-hot Nevada real estate market crashed.
According to Richard Krein, president of national REO Brokers Association, which works with real estate agents specializing in foreclosures, some of the investors who bought these homes for investment, have rented our their properties, while others can't sell them, and can't afford to cut their prices, because it wouldn't be enough to cover the mortgage loans. "This is the tip of the iceberg," Krein stated.
Simultaneously, in Arizona, existing single-family home sales for the first nine months of this year are down a stunning 45.7% compared to the same period last year.
One of the largest national builders, NVR, announced Oct. 17, that its earnings during the third quarter fell 32%, compared to the same quarter last year. NVR reported that the cancellation rate for its homes, during the third quarter, jumped to 24% in Baltimore, and 39% in the large Washington, D.C. market.
Home Building Permits Fall to Five-Year Low
Permits for new home construction fell in September for the eighth month in a row, dropping 6.3% from August, and down 28% in the past year, according to the Commerce Department Oct. 18. Housing starts, although up 5.9% in September, are down 18% in the past year. By region, new construction of homes dropped 14.1% in the Northeast, and declined 2.2% in the West.
World Grain Supplies Cut by Drought, Ethanol Use
Now, as corn harvesting in the United Statesaccounting for nearly half of all the world's corn productionis drawing to a close, there is an extraordinary run-up in corn futures prices, and in numbers of contracts traded in Chicago. Speculative funds are buying like crazy, with 10,000 contracts traded there Mondaya wildly "overbought" situation. December corn futures hit a new contract high of $3.17 per bushel Oct. 16.
Greenspan: Oil Price Rise Fueled by Hedge Funds
Former Fed chairman Alan Greenspan admitted to the Wall Street Journal online Oct. 13 that the recent surge in oil prices was fueled by "hedge funds and other private market players." Financial speculators "did us a great favor in buying oil contracts," he added, by supposedly triggering an "improvement in technology." Now, "speculative positions have come down and prices have come down with it [sic]."
Fact Sheet Details Horrors of Highway PPPs
Rep. Ted Strickland (D-Ohio), now running for governor, has sent out a handy fact sheet on Interstate highway PPPs (public-private partnerships), showing that in Indiana, not only will the tolls nearly double over the next four years, but the state is paying subsidies to the private consortium to keep tolls from rising even further! Tolls could actually increase each year for the remaining 71 years of the lease. In Illinois, after the 99-year lease of the Chicago Skyway, the foreign operators immediately raised tolls 25% and will double them in the next ten years. In Toronto, a highway leased to "a foreign company" in 1999 led to seven court challenges to the "toll cap" the company had agreed to. The courts did not uphold the cap and the operator retains the right to raise tolls without government approval.
In Ohio, where Strickland's Republican opponent Ken Blackwell wants to sell the tollroads to raise cash, Strickland's campaign against the PPPs has resonated with voters, and he is running far ahead in the polls.