U.S. Economic/Financial News

Fuel Inflation Closes School Programs, Food for Elderly

July 9 (EIRNS)—Hyperinflation kills, and the situation building up around heating fuel and gas costs is a pending disaster. National Public Radio reported yesterday on an energy hearing in the U.S. Senate, where horror stories included:

* Maine: The average household is facing spending $5,000 more for heating this coming Winter, according to Sen. Susan Collins (R).

* Florida: A Collier County school district is facing an increase of $480,000 in gas costs for busing students this next school year. In Palm Beach County, there is now a backlog of 1,500 homes that cannot get help through Meals-on-Wheels, because the gas costs cannot be paid by volunteers.

* Education Week reported that schools across the country are dealing with higher fuel costs by cutting the school week and limiting the number of stops for bus pick-ups, forcing students to take longer walks. "This is completely unprecedented," said Michael J. Martin, the executive director of the Albany, N.Y.-based National Association for Pupil Transportation, or NAPT. "I don't think it was on anyone's radar screen." "The decision [to go to a four-day week] is primarily a result of the higher prices in gas," said Greg A. Schmidt, the superintendent of the 700-student MacCray school district. The shift to a Tuesday-through-Friday schedule, with each day about one hour longer, will save the district an estimated $65,000 annually in fuel costs alone, said Schmidt.

Treasury Undersecretary Resigns To Spend More Time with Wachovia's Family

July 10 (EIRNS)—Robert K. Steel resigned as Undersecretary of the Treasury this week and immediately signed on as CEO of Wachovia, the bank rumored to be on the verge of bankruptcy. At the same time, Wachovia warned of new losses, expecting a second-quarter loss of $2.6 billion to $2.8 billion. Wachovia, in 2006, acquired Golden West Financial, a large California mortgage lender specializing in pay-option mortgages, which has taken vast losses in the past year's "mortgage crisis." The New York Times reports that Wachovia also faces mounting losses on loans to builders and commercial real estate developers, and its stock has fallen more than 60% this year, which the Times says casts doubt over the bank's ability to survive as an independent company.

Steel, who was a stock-trading executive and vice chairman under Henry Paulson at Goldman Sachs until his 2004 retirement to join Harvard's Kennedy School, joined the Treasury Department with Paulson in 2006, where he has been Paulson's point man for financial crisis management, notably the Bear Stearns "rescue" and the mortgage crisis. Although he has no experience in commercial banking, the Wachovia board of directors unanimously chose him as CEO, apparently to have direct Treasury takeover of the bank's management and a promise of bailout.

Fuel Price Rises Send Airline Industry into Shutdown Spiral

July 10 (EIRNS)—The death-spiral of America's airline industry took another downward turn today as Northwest Airlines announced it will cut 2,500 jobs, blaming skyrocketing oil prices. This cut is about 7% of its current, 34,000-person workforce. Northwest's job cuts pile on top of those announced by American Airlines (7,000 jobs) and Delta (4,100) last week. Earlier, Continental Airlines had said it would cut 3,000 jobs, United Airlines 2,550, and U.S. Airways 1,700, bringing the total planned layoffs of airline workers to 20,850. This level layoffs makes it the second-worst year this decade for airline job reductions. Airlines laid off more than 100,000 workers in 2001, after the 9/11 attacks in New York and Washington.

As fuel costs have soared, doubling since last year, the nation's airlines have also begun to slash many domestic flights, as well as some international routes, cut their fleets, and now, pare work forces, as costs have jumped and stock prices have sunk.