U.S. Economic/Financial News

Midwest Rail and Waterways Infrastructure Downed by Floods

June 17 (EIRNS)—An infrastructure damage report out today, detailing rail and waterway closures due to Mississippi/Missouri Basin flooding, paints a picture of transportation devastation across Iowa. Amtrak passenger rail service—the California Zephyr—is shut between Chicago and Denver. Besides damage to crops in the field, the flooding has stalled grain and other commodity movements; transport for livestock, dairy, and food processing are at a near standstill.

Eight of Iowa's freight rail lines have full or partial shutdowns, due to track or bridge washouts or high-standing flood water over the lines. In central Iowa, the following links are closed along the Iowa River: the Union Pacific main lines near Tama just northwest of Iowa City; the Cedar Rapids & Iowa City Railway Co. main line east of Iowa City—primarily used by the ADM grain cartel to extract ethanol-corn byproducts out of the region; and the Iowa River Railroad just northeast of Des Moines between Gifford and Marshalltown, which is a new start-up line principally owned by shippers.

In the north-central area, there are the following closures on the Cedar and Shell Rock Rivers: the Iowa Interstate Railroad which provides services from Council Bluffs, Iowa to Chicago, Illinois; the Iowa, Chicago & Eastern Railroad; and the Iowa Northern Railway Co.'s (IANR) line in Clarksville. Also in Waterloo, Iowa, a third of a Union Pacific bridge was washed away halting the IANR's service to the John Deere Tractor Works. Near the western Iowa border the Canadian National rail line lost a bridge on the Boyer River near Dow City. Lastly, where the Des Moines River converges with the Mississippi River at Keokuk, Iowa, in the southeastern tip of the state, the Keokuk Junction Railway has closed its yard.

On Iowa's eastern border 300 miles of the Mississippi River is now closed to barge traffic, starting at the northern point of Fulton, Illinois—where Lock & Dam 13 operated by the US Army Corps is located—all the way down to just north of St. Louis, Missouri, at Lock & Dam 24.

The 30-year failure to invest in the transport infrastructure of the U.S., and this region in particular, can be seen in the extensive damage to lives, land and the economy in the wake of these floodwaters.

Oil Price Speculation Hits Airlines 'Worse Than After 9/11'

June 18 (EIRNS)—Some 200 American cities and towns will lose all air service this year, as all airlines shrink operations dramatically due to the oil price bubble, Senate committees were told June 17. This is not a matter of a few small towns being cut off: One recent example is the city of Hagerstown, Md., original home of Fairchild Aviation, and one of the earliest major airports in the history of American air travel. The combined loss of rail and air infrastructure threatens to "break down the integration of the country, as an ocean-to-ocean, continental nation," as economist Lyndon LaRouche warned already during the 2004 Presidential campaign.

The hearing in Sen. Tom Harkin's (D-Iowa) Agriculture Committee—along with a subcommittee of the Senate Appropriations Committee—was the latest in a flurry of reactions by alarmed legislators, to the hyperinflationary speculation in oil futures driven by London's "offshore" markets. Sen. Richard Durbin (D-Ill.) pronounced the committee "shocked and sobered" by what they heard from James C. May, head of the Air Transport Association representing U.S.-based airlines. May said that 30 of the cities losing all service would be in the states of the Senators on the Committee. He also said the current oil price shock was worse than the aftermath of the 9/11 attacks on air travel; that U.S. airlines would lose $7-13 billion in 2008, eliminate another 15,000 jobs, and cancel most orders for new planes.

He added that, out of a one-way (reduced) fare of $191 for a cross-country flight, fuel alone now costs $138/ticket. This means that there is left only about $50 per passenger for safety and maintenance, labor, airport fees, and all other costs!

While May was testifying, Northwest and Continental became the latest airlines to announce big air service cuts. By the end of 2008, Northwest will apparently have reduced flight service by 20-21% during the year, and cut its fleet by 47 planes. United Airlines is cutting its flight capacity by 14%, American Airlines by 11-12%, and Continental by 8%.

Washington Area Foreclosure Rate Soars in First Quarter

June 19 (EIRNS)—While House Banking Committee chairman Barney Frank and his colleagues have fiddled with silly alternatives to Lyndon LaRouche's Homeowners and Bank Protection Act (HBPA), the Washington, D.C. metropolitan area is figuratively burning to the ground with home foreclosures. The Metropolitan Washington Council of Governments on June 18 unveiled the results of a study they had commissioned, which shows that the Washington region now has one of the fastest growing foreclosure rates in the country, with families losing homes six times more frequently during the first quarter of 2008 than in 2007. The study also shows that by 2008, home prices in the area had fallen 11% compared with April 2007. Researchers found that the hardest-hit areas are Prince William County in Virginia and Prince Georges County in Maryland; impending "hot spots" are in Herndon, Centreville, and the Route 1 corridor in Fairfax County, Virginia, and the Germantown area in Montgomery County, Maryland.

Among the astounding figures was the report that the average home sale price dropped in Virginia's Loudoun, Prince William, and Frederick countries by 25%!

A Washington Post article June 19 about the report notes that the D.C. area's foreclosure rate surpasses that in most other regions (except Phoenix, Miami, San Francisco, and Atlanta), but D.C.'s rate of increase of the foreclosure rate is beyond anywhere else.

Counter to the HBPA: A Firewall for Speculators

June 19 (EIRNS)—Without so much as whispering the phrase "mortgage-backed securities," Harvard economist Martin Feldstein took to the op-ed page of the Washington Post June 19 to call for a "firewall"—not for the homeowners and the banks, but for home prices. Feldstein's argument is geared to stopping the collapse of home prices, which is happening so rapidly, he argues correctly, that it is encouraging homeowners to default. That has to be stopped, he argues. While claiming that he is out to help the mortgage-holders, in fact, Feldstein is trying to save the inflated values of real estate—upon which the huge amounts of unpayable debt are based. This is precisely the opposite approach from LaRouche's HBPA, which specifies that home prices should be allowed to fall over a period of years, if necessary, before new mortgages are negotiated.

Specifically, Feldstein called for the Federal government to step in and replace part of the homeowners' mortgage with a government bond, called a mortgage replacement loan. This loan would have lower interest rates, but would "have to be repaid regardless of what happens to the borrower's mortgage or home. It would take priority over all non-mortgage debt."

This would end the incentive to default, Feldstein argues. What he doesn't say, is that it would also loot homeowners to try to save the unsavable—the mortgage bubble.