U.S. Economic/Financial News

California Legislature Approves Budget: Next Crisis 3-4 Months Away!

July 24 (EIRNS)—With a final vote this afternoon, as the California Assembly joined their Senate colleagues in passing a new fascist austerity budget, the latest chapter in the California budget crisis came to an end. Two questions remain: How many lives will be lost, due to the savage cuts enacted in the budget? And how many weeks will pass before the next crisis is declared?

LaRouche PAC (www.larouchepac.com) has already presented a partial accounting of the damages that will result from the cuts, and a fuller accounting will be forthcoming. What must not be missed, in evaluating the budget process, is the actual reason behind it: the spectacular collapse of the real economy of California. When the 2009-10 budget was first proposed, it called for spending nearly $104 billion. Due to the drastic drop in state revenue, the final budget will allocate only $84.1 billion, an 18% drop in spending.

As to the crisis-in-waiting, LPAC estimates that a new budget shortfall is just around the corner, and that before January 2010, when Gov. Arnie "the Terminator" Schwarzenegger presents his final budget, the state will be dealing with a new deficit of between $10-15 billion. An actual budget is impossible, because there is no economic competence among the economists relied on by the state. The budgets are based upon absurd estimates of revenue, which come from the belief that the economy is fundamentally sound, and that a post-industrial economy relying on tourism, gambling, and entertainment can sustain more than 36 million people.

This resulted in the semi-annual routine of the buffoonish governor ranting about over-spending, while insisting that, as much as it pains him, he must eliminate programs which preserve lives, to balance the budget. Each step of the way, as Democratic Party legislators succumbed to the pressure from Schwarzenegger to enact more cuts, he proclaimed a new, permanent victory, only to re-emerge within five months with even greater demands.

State Unemployment Funds Running Out

July 25 (EIRNS)—As unemployment skyrockets and state tax bases shrink, state unemployment insurance funds are finding it increasingly difficult to meet the needs of the unemployed. Not only are states running out of funds, but the processing of unemployment compensation applications has slowed dramatically.

The New York Times reported on July 24 that 16 states, having exhausted their funds, are now paying benefits with borrowed money, and that number could double by year's end. About 9.5 million people are now collecting benefits, up from only 2.5 million in 2007, and state spending is expected to reach nearly $100 billion, about triple the level of two years ago.

Potential Exposure of Taxpayers to Bailout: $23.7 Trillion

July 21 (EIRNS)—While President Obama demands that Congress slash $2 trillion from health care in this country, the Troubled Asset Relief Program (TARP) could potentially cost American taxpayers 12 times that much. Neil Barofsky, the Special Inspector General for TARP, testified to the House Oversight Committee this morning, that, once all of the programs to bail out the financial system, both inside and outside of TARP, are added up, and were they to be totally subscribed, the potential exposure of the government to the financial system is $23.7 trillion. (It's not clear if this includes the liquidity pumping by the Federal Reserve, which has been reported to be in the neighborhood of $8 trillion.)

Barofsky added that the total amount of government funds out now in these programs, is about $3 trillion (including $441 billion of the original $700 billion TARP authorization); at the peak, these programs had about $4.7 trillion out. Yet, despite all this money, banks are still barely lending. Barofsky told the committee that without more transparency from the Treasury, "we can't answer the question about why they aren't lending."

The potentially huge costs of the program have given rise to other concerns as well, that were noted in this morning's hearing. The U.S. Treasury has not been very forthcoming with information about what the banks have been doing with the TARP money they've received. What Barofsky was able to report about that, has come from the banks themselves, not from Treasury. Secondly, the Treasury Department has queried the Department of Justice about legal action to bring Barofsky's office under the control of the Treasury Secretary, something which particularly incensed members of the committee. Congress specifically created the TARP Inspector General to be an independent office within the department, so that it would have complete freedom to carry out audits and investigations of TARP and conduct the oversight authorized by the Congress.