Wednesday, December 29, 2010

State Budget Crises: A Storm On The Horizon


Back in August, the Independent Report featured a story about the tattered balance sheets of the states. Even then, it was quite obvious that trouble was brewing.

However, the dire condition of state budgets across the nation is something the mainstream media has largely ignored — until now. The problem has reached such catastrophic proportions that it can no longer be disregarded.

In fact, 60 Minutes recently featured a story highlighting the unfolding crisis.

Meredith Whitney, one of the most respected financial analysts on Wall Street, warned 60 Minutes about the next financial meltdown — in state and local governments.

Whitney, who made her reputation by warning that the big banks were in big trouble long before the 2008 collapse, was blunt.

"It has tentacles as wide as anything I've seen. I think, next to housing, this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy," she told 60 Minutes.

New Jersey Governor Chris Christie concurs.

"It's not like you can avoid it forever, 'cause it's here now," said Christie. "And we all know it's here. And the federal government doesn't have the money to paper over it anymore, either, for the states. The day of reckoning has arrived. That's it. And it's gonna arrive everywhere. Timing will vary a little bit, depending upon which state you're in, but it's comin'."

Nationwide, state and local governments are now sitting on a mountain of debt that has reached an all-time high of 22 percent of U.S. GDP.

Historically, municipal bonds have been viewed as the safest of investments. However, many analysts are now openly talking about the possibility of a municipal bond market crash in 2011.

If such an event does occur, things such as roads, sewer systems, water systems, etc., would no longer be repaired, much less constructed. State and local governments would have to raise taxes significantly. Even then, it's likely that many would still be unable to meet their funding needs.

New Jersey faces a $10 billion deficit.

California faces a $19 billion budget deficit next year and its credit rating approaches junk status. It now spends more money on public employee pensions than it does on the state university system.

And Illinois spends twice much as it collects in taxes and is unable to pay its bills. The state currently owes about $5 billion and has no credible solution to its problems. State Comptroller Dan Hynes calls Illinois "a deadbeat state".

Nationwide, the generous retirement and health care packages given to public employee unions are now grossly underfunded. Two prominent university professors have calculated that the combined unfunded pension liability for all 50 U.S. states is approximately 3.2 trillion dollars.

According to Whitney, no one really knows how deep the holes are. She and her staff spent two years and thousands of man hours trying to analyze the financial condition of the 15 largest states. She wanted to find out if they would be able to pay back the money they've borrowed and what kind of risk they pose to the $3 trillion municipal bond market, where state and local governments go to finance their schools, highways, and other projects.

"The lack of transparency with the state disclosure is the worst I have ever seen," Whitney says. "Ultimately we have to use what's publicly available data and a lot of it is as old as June 2008. So that's before the financial collapse in the fall of 2008."

The deficit problems of the states have become the problems of local governments, which depend on their state for a third of their revenues. Whitney is convinced that some cities and counties will be unable to meet their obligations to municipal bond holders who financed their debt.

"There's not a doubt in my mind that you will see a spate of municipal bond defaults," Whitney predicted. "You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults."

That's a frightening prospect. Since huge numbers of municipal bonds are held by big banks, even a few defaults could affect the entire financial market.

According to Whitney, there's a gathering storm on the horizon.

"It'll be something to worry about within the next 12 months," she warns.

This spring, the $160 billion in federal stimulus money that has helped states and local governments limp through the great recession will run out. The states will need additional help and will almost certainly ask for another bailout.

However, right now, bailouts are political dynamite in Washington. That's because the federal government is also broke and facing a national debt that has now reached $14 trillion.

These problems have been mounting for many years and now the moment of reckoning has finally arrived.

We're in for some rather ugly political battles, and even worse outcomes. A total economic collapse is quite likely, if not inevitable.

Tuesday, December 28, 2010

Home Prices Continue To Decline, Threaten Overall Economy & Recovery


The latest news from the housing sector continues to be bad. Home prices declined sharply in October.

The non-seasonally-adjusted S&P/Case-Shiller 20-city composite home-price index fell 1.3% on a monthly basis and 0.8% on an annual basis in October.

Prices hadn’t dropped on an annual basis since January and are 29.6% below their 2006 peak.

Six cities — Atlanta, Charlotte, Miami, Portland, Seattle and Tampa — hit their lowest levels since home prices started to fall in 2006 and 2007.

The Case-Shiller report is based on prices over a three-month period, so this report included prices from August, September and October. That makes it more accurate in revealing trends than a single month report.

According to Bank of America Merrill Lynch, there’s an inventory of 7.2 million homes, or roughly 21 months of supply, nationwide. That includes homes that are in, or close to, foreclosure.

Think about that; there's nearly a two-year supply of foreclosures either on the market or headed to market. What will that do to home prices? Imagine what this portends for stable owners seeking to sell their homes? There's a lot of competition from very cheap foreclosures out there.

And then consider the fact that banks are holding onto foreclosed properties without listing them for sale. They're doing this with the hope that these homes will recover their lost value. The banks are hoping to at least break even, if not make a profit.

They may be waiting for years.

If banks were required to report the true value of the homes on their books, and thereby report their true losses, many more of them would be insolvent. As it stands, 157 US banks have already gone under in 2010. But even some of the biggest banks, the Mega Banks, are on very shaky ground.

The price declines will inevitably push even more mortgages underwater. At present, nearly a quarter of all homes with a mortgage already have a lesser value than they are mortgaged for. That number will only increase.

The process of price discovery, which is necessary to determine the final value of housing, is still years away. Prices will continue to fall in 2011 and in 2012.

That's because there's still the problem of option-ARM loans that will reset over the next two years. Option ARMs — which became widespread in 2005 — let borrowers choose to make very low payments for the first five years.

During that initial period, borrowers were allowed to pick their payment option, including just the interest. According to Fitch Ratings, 94 percent of option ARM borrowers elected to make minimum payments only.

The bulk of option ARMs reset dates are spread out from 2010 through 2012, meaning the foreclosure waves will drag on for at least the next two years. That has federal and state officials bracing themselves for the next tidal wave of foreclosures

Almost all the homes with mortgages have already lost value, thereby lowering the homeowner's equity. Most of them will have a difficult time refinancing as a result.

The artificially low interest rates set by the Fed are still masking true home values. Easy money is still providing at least some incentive to buy, yet even that cannot thwart the brutal combination of price declines and falling demand.

Eventually, home prices will fall back to levels not seen since the 1990s, the 1980s, and perhaps even the 1970s in some areas.

Millions of prospective buyers are currently sitting on the sidelines, believing that the bottom has not yet been touched. They may be left waiting for a while. And the longer they wait, the longer it will take to see any meaningful sort of recovery.

At best, it is probably still years away.

Monday, December 27, 2010

US Recovery Facing Strong Headwinds In 2011


Though the recession officially ended in June 2009, when the economy started to grow again, many Americans still feel the lingering after effects.

Gross domestic product, the broadest measure of the country’s output, grew at an annualized rate of 3.7 percent in the first quarter of 2010. But then it stalled, with the rate falling to a mere 1.7 percent in the second quarter and 2.6 percent in the third quarter.

Some believe that the $858 billion tax-cut compromise between President Obama and Congressional Republicans will stimulate the economy by putting more cash in the hands of consumers.

Additionally, unemployment insurance benefits for the long-term unemployed were extended, yet again. This will keep these people afloat and recirculate that money back into the economy.

However, these moves have only inflated the government’s huge debt burden (now $13.9 trillion) and pushed onerous decisions further off into the future, when they will be even more difficult to grapple with.

Analysts at large bond brokerages say the extension of the Bush tax cuts will push the federal deficit to about $1.4 trillion in fiscal 2011.

After the tax extension was signed into law, Moody's Investors Service warned that the tax deal raises the chance that it would issue a negative outlook on the U.S. government's AAA credit rating.

Unemployment benefits have overwhelmed many states, who have turned to the federal government for help.

According to the Economic Policy Journal, over 60% of Americans receiving state unemployment benefits are getting these directly from the US government, as 32 states had borrowed $37.8 billion from Uncle Sam to fund unemployment insurance as of May. Obviously, the problem has grown worse since then.

Roughly 15 million Americans do not have jobs, which is cutting into tax revenues, increasing unemployment payouts, and hurting consumer spending. At 9.8 percent, the unemployment rate remains at its highest level since the early 1980s.

Unfortunately, even the optimists recognize that unemployment is likely to remain above 9 percent through all of next year. And even if the economy managed to grow at 4 percent in 2011, that would hardly alter the unemployment picture.

Economists estimate the economy would need to grow by 5 percent for a full year to push down the unemployment rate by a full percentage point.

There are many reasons to question the ability of a recovery to take truly hold.

The US economy is overly reliant on consumer spending, which accounts for a whopping 70 percent of GDP. With so many people out of work, earning less, and working only part-time, spending is strained and will remain so until those problems are rectified.

The housing market remains anemic, and continues to be a drag on the economy. Nearly a quarter of all mortgages are under water. Home ownership continues to decline. Foreclosures are up. Demand is down. And home values are also down; US homes will lose a whopping $1.7 trillion in value in 2010.

Aside from the housing market, financial markets and the US banking system also remain vulnerable to the continued fallout from the European debt crisis. So far, the problems have been limited to the smaller economies of Greece, Ireland, and Portugal. Should a larger economy (such as Spain) reveal similar strains, the ensuing panic could be widespread and the effects crippling.

Then there is the mounting concern about the tattered balance sheets of state and local governments. At least a few — such as California, Illinois, New York, Michigan and even Texas — may eventually require a federal bailout. Given the current political environment, such an outcome would be deeply unpopular.

After gutting budgets, many states have no reasonable way to further reduce deficits and spending. They face a quandary that seems to lack a solution. No US state has defaulted since Arkansas, during the Great Depression. That could change in the next year or so.

States continue to borrow in order to fund their day-to-day operations, continually worsening their already burdensome deficit problems. The states are truly too big to fail, and that is the horrific prospect currently facing the federal government.

The state deficit problems are enormous and unwieldy, making them the next bubble to inevitably burst. The Center on Budget and Policy Priorities estimates that the cumulative state budget shortfalls are somewhere around $425 billion for fiscal 2009 through fiscal 2011.

When this economic domino falls, or any of the aforementioned, the prospects of recovery will fall with it.

Monday, December 20, 2010

Housing Is The Bellwether Of Our Economy, And The News Isn't Good


Ownership Is Down. Foreclosures Are Up. Supply Is Up. Demand Is Down. And Values Are Down.

Housing is not recovering, and until it does there can be no economic recovery in the US.

Home ownership has declined in the US for the third year in a row. And since 2005, home ownership has declined by 3 million households, according to a report from the US Census Bureau.

A combination of spiking foreclosures, high unemployment, falling wages and a lack of savings for a down-payment (once again a required 20 percent) have eroded the American dream of home ownership.

The share of households that own their homes has been sliding since the housing bubble burst in 2006. The rate fell again in the second quarter of this year to 66.9 percent — the lowest since 1999 — from a peak of 69.4 percent in 2004, the Census Bureau says.

However, millions of houses on the verge of foreclosure threaten to send homeownership to its lowest level in 50 years. According to new industry estimates, the rate could plummet to about 62 percent as early as 2012 and almost certainly by the end of the decade. Homeownership rates haven't been that low since they hit 61.9 percent in 1960.

There are not enough first time-buyers, or those with adequate credit, to thwart the slide.

More than half of applicants (53 percent) don't have a high enough FICO score to get the best mortgage rates. Even worse, 35 percent of US consumers—some 70 million people—are now considered sub-prime and simply cannot qualify for credit. This huge segment of Americans cannot get a mortgage and are not participants in the housing market. That, alone, significantly hurts demand.

Some Americans cannot afford to own a home. Others see ownership as a bad investment, at present. And millions more have lost, or are about to lose, their homes. The combination is crushing home ownership.

Yet, even those who own their homes, and who do not appear to at risk of losing them, are facing their own unique struggles.

CoreLogic reports that 10.8 million, or 22.5 percent, of all residential properties with mortgages were in negative equity at the end of the third quarter of 2010, down from 11.0 million and 23 percent in the second quarter. However, this decline is due primarily to foreclosures of severely negative equity properties rather than an increase in home values.

During this year the number of borrowers in negative equity has declined by over 500,000 borrowers. An additional 2.4 million borrowers had less than five percent equity in the third quarter. Together, negative equity and near-negative equity mortgages accounted for 27.5 percent of all residential properties with a mortgage nationwide.

That will eventually spur even more defaults and foreclosures. As it stands, the housing inventory data is muddled due to the number of foreclosures that are not yet listed for sale.

The decline in ownership is having a negative effect on prices. Supply is easily exceeding demand. The Census Bureau reports that 18.8 million homes are currently vacant.

US homes will lose a whopping $1.7 trillion in value in 2010. About $9 trillion has been lost since June 2006, according to report from Zillow.com. These losses are simply stunning.

Worse, Fitch Ratings forecasts that home prices will drop an additional 10 percent next year.

An excess housing supply—due to defaults, pending foreclosures, or vacant homes—is holding down home prices. And, according to many analysts, there is every indication that excess supplies and falling prices will continue into next year. It's not hard to imagine.

The so-called 'shadow inventory' continues to grow. According to Morgan Stanley, 8 million foreclosure-bound homes have yet to hit the market.

Laurie Goodman, senior managing director at Amherst Securities, reports that 1 in 5 distressed homeowners in the US faces, or may face, foreclosure. She says 11.5 million home loans are non-performing or highly distressed at present.

All of that excess inventory will eventually push housing prices even lower than they already are, which will result in even lower equity for millions of homeowners. That could, in turn, make millions of homeowners more vulnerable to foreclosure.

Homeownership has generally built personal assets. But for millions of Americans, that is no longer the case. The most valuable asset of millions of Americans continues to decline.

With unemployment hovering near 10 percent, and housing showing no signs of a bottom, any sort of recovery seems like a very distant prospect.

Monday, December 13, 2010

Is Ben Bernanke a Liar, an Abettor, or Just Wildly Incompetent?


Last week, 60 Minutes conducted an interview with Federal Reserve Chairman Ben Bernanke. At the outset, correspondent Scott Pelley noted that this is the worst recovery the nation has ever seen.

Perhaps that's the reason that Bernanke, who is charged with finding a way out of this mess, decided to do a prime-time interview on national television. It was an unusual event.

As Pelley noted, Fed Chairmen rarely do interviews. But Pelley said that Bernanke feels the need to speak out because he believes his critics may not understand how much trouble the economy is in.

Oh, I think they know, Ben. I think everyone knows.

Bernanke felt the need to get in front of the camera and provide the Fed's spin in order to counter all of the resistance the central bank is simultaneously facing from seemingly all quarters.

It's reasonable to assume that Bernanke never gives an honest assessment of anything, and that the Fed keeps all of its most harrowing data to itself. Whatever dire economic numbers the Fed reveals, it's safe to assume the real numbers are even worse. That's because the Fed, like the government, lies.

For that reason, some of Bernanke's assessments were rather sobering.

"Between the peak and the end of last year, we lost eight and a half million jobs", said Bernanke. "We've only gotten about a million of them back so far. And that doesn't even account the new people coming into the labor force. At the rate we're going, it could be four, five years before we are back to a more normal unemployment rate. Somewhere in the vicinity of say five or six percent."

Got that? The Federal Reserve Chairman was willing to admit on a nationally-televised, prime-time news show that it may take as long as five years before unemployment comes back down to six percent.

It was a stark and stunning revelation. But to readers of The Independent Report, it's not the least bit surprising.

In an effort to jump start the economy, the Fed plans to buy $600 billion in US Treasury securities, with the intention of lowering rates on long term loans for things like cars and homes.

Bernanke wanted to emphasize that this $600 billion quantitative easing program comes from the Fed's own reserves. "It's not tax money. It does not add to the federal deficit."

Bernanke never bothered to mention where the Fed gets those reserves. That was pretty convenient.

"One myth that's out there is that what we're doing is printing money. We're not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way."

That's technically true. The Fed doesn't actually need to print any paper currency. It simply extends credit to various banks by electronic transfer. It all amounts to nothing more than key strokes on computers, in which billions in credit are instantly conjured and then moved from the Fed's balance sheet to the balance sheets of numerous banks. It's like magic.

When asked if there was a scenario in which the Fed would commit to more than $600 billion in quantitative easing, Bernanke replied, "Oh, it's certainly possible. And again, it depends on the efficacy of the program. It depends on inflation. And, finally, it depends on how the economy looks."

That surely spooked Treasury markets. The notion of the Fed buying Treasuries and propping up the market with conjured money is certainly unsettling.

Bernanke went on to say that what passes for a 'recovery' may not be self-sustaining.

"It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting. We're not very far from the level where the economy is not self-sustaining."

Notice that he said nothing about actually reducing the unemployment rate? Current GDP growth will merely serve to maintain the current unemployment rate and keep it from rising. That's hardly reassuring.

Most disturbingly, this economic collapse occurred right under the noses of Bernanke and his comrades at the Fed. And now they are being entrusted with managing a recovery. It's hardly reassuring.

Even though the Fed was the regulatory watchdog of the largest banks when outrageously risky lending led to a worldwide financial crisis, Bernanke doesn't assume any responsibility or blame.

When asked if there is anything he wishes he'd done differently over these last two and a half years or so, Bernanke replied, "Well, I wish I'd been omniscient and seen the crisis coming, the way you asked me about. I didn't."

In Bernanke's estimation, seeing the oncoming crisis, which was rushing at him like a financial freight train, required the sort of omniscience that only a genie or wizard might possess.

How did the Fed miss the looming financial crisis?

"There were large portions of the financial system that were not adequately covered by the regulatory oversight," said Bernanke. "So, for example, AIG was not overseen by the Fed... Neither [was] Lehman Brothers, the company that failed. Now, I'm not saying the Fed should not have seen some of these things. One of things that I most regret is that we weren't strong enough in putting in consumer protections to try to cut down on the subprime lending problem. That was an area where I think we could have done more."

What a joke.

Bernanke is not committed to consumer protection. In fact, he lobbied against the Consumer Financial Protection Agency.

In 2008, federal regulators had the power to supervise Citigroup, Bank of America, Wachovia, Washington Mutual, Lehman Brothers, Bear Stearns, and Countrywide and force them to pare back their risky activities – and yet they didn’t.

It is absurd to say that regulators didn’t have the authority to manage systemic risk. It was simply a lack of interest.

William K. Black, a former bank regulator and now an associate professor of Economics and Law at University of Missouri as Kansas City, says the Fed was completely derelict in its duties as a regulator.

"The most severe failure was at the Federal Reserve," said Black. "The Fed’s failure was the most harmful because it had unique authority to prevent the fraud epidemic and the resulting economic crisis. The Fed refused to exercise that authority despite knowing of the fraud epidemic and potential for crisis."

The Fed is entirely and completely against regulation. In fact, it can accurately be described as an anti-regulatory, regulating agency.

As Mr. Black further notes, "The anti-regulator policies that Bernanke championed were the principal drivers of the fraud epidemic that have produced recurrent, intensifying crises."

It is true that the Fed wasn't the regulator in charge of insurance giant AIG. That distinction belonged to the Office of Thrift Supervision, which — like the Fed — showed a complete dereliction of duty. Like other US federal bank regulators, the OTS is paid by the banks it regulates. How's that for conflict of interest?

However, Bernanke was a member of the board of governors of the Federal Reserve system for most of the period from 2002 to 2006, when historically low interest rates set by the central bank sparked the housing bubble, the resulting financial crisis, and subsequent recession.

Bernanke, and others like him, prefer to blame the whole financial disaster on sub-prime lending. But the reality is that many perfectly conventional mortgages went bust. And commercial real estate was at least as overblown as housing, and it went bust too.

It's simply stunning to hear the man who failed to supervise regulation blame weak regulation for the financial crisis, but Bernanke did just that while speaking to the American Economic Association in January. And, in his view, low interest rates were not to blame.

“Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates,” said Bernanke.

However, Bernanke's predecessor, Alan Greenspan, rejected advice about the risks of subprime lending. And Bernanke followed the same lax regulatory course when he was appointed to head the Fed. The reality is that the Fed had the authority to regulate in many ways; it simply chose not to.

Bernanke, like Greenspan, believes that self-regulatory mechanisms are inherent in free markets. Both men believe in the "free hand" of the market, which makes outside regulation unnecessary.

In 2006, Chairman Bernanke professed, "Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

Not exactly.

All along, Bernanke has displayed a continual propensity for getting it wrong.

While speaking at the Federal Reserve Bank of Chicago's annual conference in May 2007, Bernanke famously stated, “Importantly, we see no serious broader spillover to banks or thift institutions from problems in the subprime market; the troubled lenders, for the most part, have not been institutions with federally insured deposits”

That was absolutely, positively, untrue. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed.

And the fallout has continued to be brutal; so far this year, 151 US banks have failed. Yet, the Fed hasn't shown the same mercy to small local and regional banks that it has to the mega banks.

Of particular concern is the recent revelation that the Fed made 21,000 transactions, stretching from December 2007 to July 2010, that totaled $3.3 trillion. These transactions included loans and purchases with financial firms including Citigroup, Morgan Stanley, Goldman Sachs, major industrials companies including GE, and even to foreign corporations and foreign banks, including the Bank of England.

The loans were nearly interest-free. And the revelations of these secret transactions make the Federal Reserve appear to be the Central Bank of the World. None of this would have been known if Congress had not forced the Fed to reveal these transactions. Yet, we now know that the Fed has been acting as a sort of global bailout machine.

So Bernanke is either a liar, an abettor, or just wildly incompetent. And yet he was reappointed as Fed Chairman by President Obama in January of this year.

However, Bernanke received stiff opposition on the way to confirmation for his second term. The full Senate voted 70–30 in his favor, the narrowest margin for any Fed Chairman in history.

Even before he went on national TV to plead his case, all eyes were on Bernanke, and they will continue to be. The American public is on to him. Before this crisis most Americans had no clue what the Fed was, or what it did. Now nearly everyone knows. The opposition is vast. The doubt and mistrust are massive, and perhaps even historic.

According to a new Bloomberg Poll, a majority of Americans are dissatisfied with the Federal Reserve and say it should either be brought under tighter political control or abolished outright.

Perhaps Congressman Ron Paul put it best when he said, referring to Bernanke:

"There is something fishy about the head of the world’s most powerful government bureaucracy, one that is involved in a full-time counterfeiting operation to sustain monopolistic financial cartels, and the world’s most powerful central planner, who sets the price of money worldwide, proclaiming the glories of capitalism."

Sunday, December 05, 2010

A Totally Corrupt and Dysfunctional Government


The Independent Report seeks to analyze economic events in an apolitical manner. The goal is objectivity, an unbiased analysis and, well, independence.

So much of what passes for news these days is highly politicized, and the goal here is to analyze and dissect economic developments minus the political spin, and absent any particular ideology.

Normally, The Independent Report doesn't focus on politics. In fact, politics is typically avoided because of the ugly circus that it is.

It is clear is that our political system is broken in many ways. Washington appears quite divided and highly partisan.

But one political event (or, rather, charade) occurred this week that is worth mentioning because it revealed just how broken, how corrupt, and how dysfunctional our government truly is. And it also revealed that, when push comes to shove, Congress isn't nearly as divided as we're typically led to believe.

Once again, Congress proved that it is an old boys network whose members even include women. And that club takes care of its own, no matter how egregious, how unscrupulous, how unethical, or how illegal its members behaviors are.

This week, the House of Representatives chose to merely censure Rep. Charles Rangel, despite behavior that should have led to his expulsion, arrest and prosecution.

The 80-year-old Democrat admitted he had failed to pay all his taxes, filed misleading financial statements, and improperly sought money from corporate interests in exchange for a college center bearing his name.

That's typically known as tax evasion, taking bribes, a quid pro quo, and an abuse of one's power and authority. And all of it is illegal, in addition to unethical.

Last month, the House ethics committee found Rangel guilty of 11 of 13 charges of financial misdeeds, overwhelming evidence of his misconduct and guilt.

Yet, the chairman of the ethics committee, Democratic Rep. Zoe Lofgren of California, said Rangel simply "violated the public trust." However, it's far more accurate to say he violated the law — in numerous ways.

Despite this fact, Rangel's colleagues chose to merely censure him, which amounts to a slap on the wrist.

It was only the 23rd time in the nation's history that a House member has been censured. Yet, there is no real punishment, other than to say, "Mr. Congressman, this will go down on your permanent record."

What a sham. What an injustice.

Rangel's many friends and staunch allies in the House — including members of the Congressional Black Caucus and the New York delegation — tried to reduce the punishment to a simple reprimand, though that effort failed. But it didn't really matter. The punishment is the same; nothing at all.

Clearly, Congress protects its own, just like cops do.

Even Rangel's constituents seemed to care little about his conduct or the charges against him. Rangel was re-elected to a 21st term last month with more than 80 percent of the vote despite being under an ethics cloud for more than two years.

Despite the overwhelming evidence of his guilt — which was the opinion of his colleagues — Rangel hubristically argued that censure is reserved for corrupt politicians — and he's not one of them. That reveals the height of Rangel's delusion and arrogance.

The reality is that Rangel ignored rules of conduct and avoided paying his taxes despite his knowledge of tax law due to his long service on the tax-writing Ways and Means Committee. In other words, Rangel knew the rules because he helped write them. He also thought he knew how to circumvent them. How precious is that?

Rangel chaired that panel until last March, when he stepped down after the committee — in a separate case — found that he improperly allowed corporations to finance two trips to Caribbean conferences.

That is simply stunning. Rangel was booted from the committee on separate charges! This is a man who is utterly and consistently corrupt, and who is devoid of any decency or ethics.

Rangel shortchanged the IRS for 17 years by failing to pay taxes on income from his rental unit in a Dominican Republic resort. He filed misleading financial disclosure reports for a decade, leaving out hundreds of thousands of dollars in assets he owned.

He used congressional letterheads and staff to solicit donations for a monument to himself: a center named after him at City College of New York. The donors included businesses and their charitable foundations that had issues before Congress and, specifically, before the Ways and Means Committee. That's called a conflict of interest.

Rangel also set up a campaign office in the Harlem building where he lives, despite a lease specifying the unit was for residential use only.

The representative is obviously a man of enormous ego and hubris. He believes he is as important as he is powerful.

But instead of expelling Rangel and ordering his prosecution, his Congressional colleagues chose to merely censure him. Besides the embarrassment, censure carries no practical effect. The next level of punishment was expulsion, and yet Congress stopped short of that. In the process, it stopped short of assuring justice.

It is abundantly clear that Congress is a kangaroo court and that it cannot — will not — police itself. It is an elitist old boys network, where they all watch each others' backs. Congress is a totally corrupt institution and it is plainly despicable.

Like any other American citizen who is convicted of such charges, Rangel should be in jail. But instead he remains a Congressman. How disgusting.

This is what passes for justice in America. It clearly proves that there are two justice systems in the land of the free and the home brave; one for the powerful and connected, and one for everybody else.

Friday, December 03, 2010

Deficits, Tax Cuts, Budget Cuts and Reality


Taxes Are Unpopular, But Voter Sentiment Is Unrealistic

In the current political climate, many Americans want less government spending, lower taxes and the elimination of the deficit. Yet, they simultaneously demand that their (or their parents/grandparents) Social Security and Medicare benefits remain untouched.

Republicans have long embraced the idea that tax cuts don’t need to be paid for. And it seems that the Democrats have joined them in this reckless belief.

The Republicans strongly pushed the extension of the Bush tax cuts. And the Democrats feared letting them expire for all but the richest Americans. After all, raising taxes is one of the 'third rails' of Americans politics.

The problem was, extending all of the Bush tax cuts increased the deficit by about $4 trillion. Even if Congress had extended the cuts only for people making less than $250,000 a year, it would have increased the deficit by more than $3 trillion.

That's a whole lot more than the Obama stimulus or Bush's bank bailouts, both of which were wildly unpopular. This deficit increase via tax cuts occurred after the election of the Tea Partiers and other conservatives to Congress. How could that be acceptable to anyone concerned about the deficit?

Ultimately, cutting taxes or increasing spending both have the same effect on the government's balance sheet. One takes money out of the Treasury at the front end, while the other takes it out at the back end.

The Democrats have long been labelled as the party of 'tax and spend'. Yet, it's also fair to describe the Republicans the party of 'borrow and spend'.

At least one dyed-in-the-wool, true-blue conservative has called out his party for the reckless irresponsibility of their unyielding tax cut mantra.

"This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts," said former Reagan budget director David Stockman in a NY Times op-ed last summer.

Stockman is not a lone voice in the wilderness.

In 2006 William Niskanen, the former chairman of the libertarian Cato Institute, published an influential paper titled “Limiting Government: The Failure of ‘Starve the Beast.’ ”

In it, he critiqued the conservative idea that cutting taxes now would “starve” the government of revenue, and thus force it to reduce spending. The reality, he said, was the opposite. If politicians found they could cut taxes without paying for it, they realized they could increase spending without paying for it, too.

Between 1981 and 2005, tax cuts led to more, rather than less, spending. The other problem with the theory, Niskanen wrote, was that it let Republicans off the hook. The belief that you could cut taxes without reducing spending had “substantially reduced the traditional Republican concern for fiscal responsibility.”

At present, there is a lot of anger about the size of the federal government's budget deficit, and rightly so. Americans, who are tightening their belts, want the government to do the same. People are looking for governmental responsibility and restraint. The anger and concern is coming from across the political spectrum.

However, the current deficit was not caused just by over-spending and under-taxation. It was caused by the collapse in tax revenues that resulted from the 2008 financial crisis and the subsequent economic downturn. And tax revenues will only improve when the unemployment problem improves. That may be a long way off.

There is no doubt that the federal government is too big, has too many employees, and spends too much money. But the deficit problems won't be solved with budget cuts alone.

After all, we're now in year-nine and year-11 of two separate wars that are both part of America's larger and ongoing 'War on Terror'. And since tax revenues were not raised to pay for those wars, but were in fact cut, they were put on the government's credit card.

The reality is that there are no easy solutions. Rather, there are only painful ones. There will be austerity measures that deeply affect most Americans, and budget cuts of all varieties that will anger just about everyone.

But the reality is that the US won't eliminate its deficit, balance its books, and pay down its debt without tax increases. But that's the problem; any tax increases in such tenuous times could ultimately cool the ailing economy even further.

A recent LA Times/USC Poll of California voters is reflective of the general American sentiment. The poll found that Californians oppose tax hikes in favor of budget cuts to balance the state budget. Yet, they object to most of the cuts that could be made. Reality bites.

Naturally, everyone favors cutting 'waste', 'fraud' and 'abuse', however vague those terms may be. Most voters favor cuts over taxes because they believe we're already taxed too much.

The government has gotten itself — and, by extension, the rest of us — in quite a pickle. Cuts need to be made, revues need to be raised, and voters want neither.

Meanwhile, the tax base has been shrunken considerably because so any people are out of work.

Dick Cheney, who argued for a tax cut despite a looming shortfall, famously declared, "Reagan proved that deficits don't matter."

While many conservatives may have agreed with him then, most Americans — regardless of political affiliation — would beg to differ right now.

Wednesday, December 01, 2010

David Stockman: The Voice of Reason


60 Minutes recently aired a story about the GOP's knee jerk opposition to taxes. What made the story particularly compelling was that David Stockman, President Reagan's budget director, called out his own party for their extreme orthodoxy against taxes.

Stockman has gravitas because he is the Republican who once helped engineer the largest tax cut in history during Reagan's presidency.

But these are different times.

The Bush tax cuts were never rescinded, even while the US was engaged in two lengthy, costly, wars. Both of those unfunded wars were put on the federal government's credit card to be paid in the future.

However, this borrowed war money will be much more expensive to pay back in future years, due to the interest on the exorbitant debt that's been created.

Stockman says all the Bush tax cuts should be eliminated - even those on the middle class.

"It's become, in a sense, an absolute. Something that can't be questioned. Something that's gospel. Something that's sort of embedded into the catechism. And so scratch the average Republican today and he'll say 'Tax cuts, tax cuts, tax cuts,'" Stockman explained.

"It's rank demagoguery," he added. "We should call it for what it is. If these people were all put into a room on penalty of death to come up with how much they could cut, they couldn't come up with $50 billion, when the problem is $1.3 trillion. So, to stand before the public and rub raw this anti-tax sentiment. The Republican Party, as much as it pains me to say this, should be ashamed of themselves."

Stockman is also quite critical of President Obama for saying things like, "I believe we ought to make the tax cuts for the middle class permanent."

"We have now got both parties essentially telling a big lie, with a capital 'B' and a capital 'L' to the public," he told Leslie Stahl. "And that is that we can have all this government, 24 percent of GDP, this huge entitlement program, all of the bailouts. And yet, we don't have to tax ourselves and pay our bills. That is delusional."

The national debt is now growing by $100 billion a month. So, the massive hole continues to grow ever deeper.

"We're going to be in a period of austerity. We've had a 30-year spree of really phony prosperity in this country," said Stockman.

Yet, Stockman says neither party is truly committed cutting spending.

"Even Republicans have said there's nothing significant we want to cut. They don't want to cut Social Security entitlements; they don't want to cut Medicare reimbursements to doctors; farm subsidies; education loans for middle class students. Certainly not defense!" he said.

Stockman says there should be a one-time 15 percent surtax on the wealthy that he estimates would cut the national debt in half. But he knows it is highly unlikely in such a strong anti-tax environment in America today.

"We've demonized taxes. All right. We've created almost the idea they're a metaphysical evil," he said.

"In 1985, the top five percent of the households, wealthiest five percent, had net worth of $8 trillion, which is a lot. Today, after serial bubble after serial bubble, the top five percent have net worth of $40 trillion," he explained. "The top five percent have gained more wealth than the whole human race had created prior to 1980."

The antipathy to raising any taxes or making any real spending cuts is so intense in Washington, Stockman despairs that when the new Congress returns after the holidays, they'll do what they often do: nothing.

Tuesday, November 30, 2010

U.S. Facing Lingering Deficits, Crushing Debt, Difficult Choices


The U.S. is not only the world's biggest economy, it also the world's biggest debtor nation.

Just 10 years ago the national debt was $6 trillion. Today, it has more than doubled, to $14 trillion.

And it was just 10 years ago that the Clinton administration handed off a large surplus to the new president, George W. Bush.

Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, says those surpluses were projected to continue. But they didn't.

"We were running deficits in the past decade when we shouldn't have been," she says. "They came from tax cuts that weren't paid for. They came from fighting two wars without paying for them, when normally in our past, we have. They came from the addition of things like the prescription drug program — not paid for — and high growth in government spending in general."

A reflexively anti-tax ideology resulted in a 'borrow and spend' mentality.

As a result of that uncontrolled deficit spending, says MacGuineas, the government was taking on more debt when it should have been saving to prepare for the big Medicare and Social Security payouts it has promised to current and future retirees.

But then the government's fiscal position got even worse when the financial crisis hit. Unemployment skyrocketed when millions of people lost their jobs. That shrunk the tax base and cut government revenues. At the same time, all those millions of people started collecting unemployment benefits. Add in the bailout bills and President Obama's giant stimulus package, and the deficit soared even higher.

"All of these factors came together and just piled on the trillions of dollars of debt," MacGuineas says. "And our debt climbed to levels that are well above the historical averages, and the problem is it's on a trajectory to grow even more."

As big as our deficits and debt are today, they will only get bigger as a result of entitlement spending. Due to our aging population, Medicare will become a budget buster. Add in Social Security obligations to a larger group of retirees than there are workers, and it spells trouble.

Social Security's shortfall can be solved by modestly raising payroll taxes, cutting benefits, raising the retirement age or some combination. But Medicare is a different story, MacGuineas says.

"When it comes to Medicare and health care in general, we just don't know how to fix it," she says.

If rising healthcare costs remain unchecked, Medicare and Medicaid, the health program for the poor, could consume nearly a third of the total budget just 10 years from now.

The first wave of the 76 million strong Baby Boomer generation — a group that represents 25% of the U.S. population — will begin retiring on January 1, 2011, little more than a month from now.

Think of it as a coming tsunami.

To address the continuing deficit problems and begin chipping away at the underlying debt, taxes will have to be raised, deductions and write-offs eliminated, and significant and widespread budget cuts enacted.

Even then, the gap opened by the tax cuts and new entitlements enacted during the George W. Bush administration will be difficult to overcome.

President Obama's deficit commission has delivered its plan, and the Bipartisan Policy Center has issued its own. There will be many choices, many debates, and many tough decisions to make in coming months and years. They will all be difficult, uncomfortable and unpopular.

That's why Washington hasn't done anything about the debt problem for the past decade.

Monday, November 29, 2010

Irish Austerity Measures Offer Preview For U.S.

Ireland has managed to negotiate a €85 billion ($115 billion) EU/IMF bailout to save itself from bankruptcy. In addition, the Irish government plans to slash €15 billion from its deficits over the next four years, with the harshest cuts and tax hikes slated for the next budget, which will be published December 7.

The pain of such cuts — or so-called 'austerity measures'— will be widespread and they will lower the standards of living of almost the entire Irish population, some 4.5 million people.

There will be cuts to welfare, pensions, and other public programs. The government has no choice; it's 2010 deficit is 32 percent of GDP, the highest in Europe since World War II.

Prime Minister Brian Cowen is proposing €4.5 billion in spending cuts and raising an extra €1.5 billion in taxes. That will put a tremendous burden on Irish citizens.

What's more, the bailout only raises the possibility of a future default since the banking sector’s losses will be transferred to the state. That means the Irish people are now fully responsible.

Like all European governments, the Irish austerity measures will only undermine growth, thereby lowering tax revenues. That in turn will just lead to further deficits. Think of it as a cycle of indebtedness.

Receiving an €85 billion ($115 billion) bailout will significantly increase Ireland’s debt-to-GDP ratio. Irish debt will equal 50% of its GDP.

Irish media report that the EU-IMF fund could charge interest rates of up to 6.7 percent, higher than the 5.2 percent that applied to Greece's €110 billion bailout in May.

This bailout is not a solution. It is a path to perpetual indebtedness. This plan only pushes Irish debt further off into the future, while making it even larger due to added interest payments. Such a bailout is not a plan for retiring Irish debt. It is merely a plan for delaying and enlarging it, making the current situation even worse.

If you're wondering why this matters to you, it's because these sorts of austerity measures will soon be coming to America.

Though projected to be lower than anticipated, the fiscal 2011 budget deficit will once again exceed $1 trillion, largely due to shrinking revenues. With fewer people working and millions earning less than in previous years, there is less tax money being collected by the government.

When you add the costs of two unfunded wars, absolutely massive additional defense expenditures, and expanding entitlements, you have a recipe for disaster. Current deficits and the mounting debt are simply unsustainable.

The National Commission on Fiscal Responsibility and Reform, better known as the debt or deficit commission, has proposed making nearly $4 trillion in cuts over the next decade.

The plan has already infuriated nearly everyone cross the political spectrum. That's because the proposed cuts will be quite painful and are sure to offend or outrage just about everyone.

All of the sacred cows have been put on the chopping block, including defense, Social Security, Medicare, and assorted tax breaks and deductions.

Entitlement cuts won't just piss off grandma and grandpa either; they'll outrage anyone over 50, or anyone who's been paying into the system for 20 years or more. And those folks vote.

So as we witness protests, marches, strikes and even violence across the European continent, it will be interesting to see how Americans react when they eventually realize that their taxes are going to be raised and their services reduced.

The politicians have so far avoided these eventualities, and they fear enacting them for political reasons. Tax hikes and budget cuts aren't exactly vote getters. But the longer Congress puts them off, the worse the problems — and their eventual outcomes — become.

As it stands, the debt commission projects that the interest on the debt could reach $1 trillion by 2020 if Congress doesn't act immediately.

But in America, political expediency has always trumped the bitter reality of sound, yet painful, decision-making. How soon will Congress have the courage and conviction to do what Ireland and the rest of Europe are already doing?

Tax hikes and budget cuts will amount to some very bitter medicine because they will constrict the economy and further shrink GDP.

There are no good choices; just ugly ones.

Sunday, November 28, 2010

The Cost of Obesity


The Cost Of Obesity Can Be Measured Not Just In Dollars, But Also In Our Nation's Priorities And Well-Being

A new study finds that obesity costs the US about $168 billion annually, or about 17 percent of all healthcare costs.

The new research suggests that the nation's weight problem may be having close to twice the impact on medical spending as previously estimated.

So, aside from the human toll — poorer health, more disease, diminished physical ability — we now have a dollar value for America's obesity crisis.

And it is indeed a crisis. More than two-thirds (68%) of American adults are overweight or obese, and more than a third (34%) are obese.

Obesity goes hand-in-hand with a variety of diseases including: Type II diabetes, coronary heart disease, high LDL (bad) cholesterol, stroke, hypertension, fatty liver disease, gallbladder disease and more.

In fact, the prevalence of diabetes and hypertension have now reached crisis or epidemic levels, and obesity is the primary contributing factor.

According to a report from the Organization for Economic Cooperation and Development (OECD), "soaring obesity rates make the US the fattest country in the OECD."

The OECD is comprised by 33 industrial, or developed, nations. These are the nations with the highest standards of living and the greatest abundance of food. Simply put, this means that the US is the fattest nation in the world!

Most alarmingly, the problem of obesity in the US is not limited to adults: America also has the highest rate of child obesity among developed nations.

Obesity rates among children have tripled in the last three decades, and one in three children are now obese. Perhaps most alarmingly, one-third of all children born after 2000 will suffer from diabetes.

The reason for all of this seems fairly simple; American kids have unhealthy diets consisting largely of high-calorie, high-fat, high-sodium, high-sugar foods, and they are also plagued by inactivity. Children are less active today than at any other time in American history, spending 7.5 hours a day watching TV, playing video games or simply involved in efforts that don't require movement.

The problem is so bad that it's gotten the attention of our military leadership. Recruiters are finding it increasingly difficult to find recruits who are healthy enough and fit enough to qualify for military service.

A study released in April by 'Mission: Readiness', a nonprofit group of more than 150 retired generals and admirals, concluded that 27 percent of 18- to 24-year-olds are too fat to join the military.

The study blames the poor diets of young Americans and their sedentary lifestyles.

"Today, otherwise excellent recruiting prospects, some of them with generations of sterling military service in their family history, are being turned away because they are just too overweight," read the study. "Our standards are high because we clearly cannot have people in our command who are not up to the job. Too many lives depend on it."

In testimony before Congress, the former head of the California Army National Guard, retired U.S. Army Major Gen. Paul Monroe, said that "80 percent of children who were overweight between the ages of 10 to 15 were obese by age 25."

Monroe went on to tell Congress, "In the past, retired admirals and generals have stood up to make it clear that America is only as healthy as our nation's children. Childhood obesity is now undermining our national security and we need to start turning it around today."

He and other military leaders want Congress to enact a massive child nutrition bill to remove all junk food and high-calorie beverages from schools, improve nutrition standards in schools, upgrade school menus and, the group said, "Help develop new school-based strategies, based on research, that help parents and children adopt healthier lifelong eating and exercise habits."

Ultimately, fat kids grow into fatter adults. Our nation's poor diet and sedentary behavior are both detrimental and destructive. It leads to diminished quality of life, shorter life spans and massive medical costs that the nation simply cannot afford.

Instead of directing our money toward treating unpreventable diseases, we spend far too much of it treating preventable and obesity-related diseases. This is wasteful. It is not money well-spent.

A nation that disregards its health and well-being to such an extent is not a well nation in any sense.

Our nation's obesity rate and all of its burdensome costs are signs of a very unhealthy, over-indulged nation — a nation in decline.

Wednesday, November 24, 2010

Q3 GDP Revision: Good News That Won't Make A Difference

The Commerce Department has revised third-quarter GDP up to 2.5 percent, from the previous 2 percent. The revision was due to increased consumer spending and stronger US exports.

While good news, it's not quite good enough. GDP growth must be above 3 percent to create enough jobs to lower the unemployment rate, which remains stuck at 9.6 percent.

Economists estimate the economy would need to grow by 5 percent for a full year to push down the unemployment rate by a full percentage point.

This means that if the US managed to maintain the third-quarter GDP growth rate for the entire year, it would still put us only half-way to lowering unemployment to 8.6 percent.

That's as unlikely as it is unexciting.

While the economy continues to grow, it's growing at a slower pace than in past economic recoveries. Since 1965, U.S. economic growth has averaged 3.2 percent.

Consumer spending accounts for more than two-thirds of US economic activity. The problem is that consumers are heavily in debt and have been curtailing spending from the levels seen in the go-go years of the past two decades.

You could say everyone is now finally sobering up from the spending and debt binges.

The US will remain hampered by the facts that exports account for just 12 percent of GDP and manufacturing just 11 percent of GDP.

We buy far too much from overseas, and we manufacture and sell far too little in exchange. Those issues will not be rectified any time soon. And given the cost of labor in the US compared to the developing world, they may never change.

The reality is that, as a mature, developed economy, we may have now entered a long term period of lower growth and higher unemployment.

As of September, the US trade deficit stood at $379.1 billion, up 40% from the same period in 2009. Much of that was due to our reliance on foreign oil, and that is a massive drag on our economy.

According to the Energy Information Administration, the US imported 4.3 billion barrels of oil in 2009 and 3.6 billion through the first 10 months of 2010.

So, we are on track to match, and likely exceed, last year's level. With oil at roughly $80 per barrel, this means that nearly $1 billion a day is being sent out of the US.

As oil prices continue to rise due to increasing global demand, that will put even further pressure on the US economy, slowing growth and hampering the employment picture even further.

From now on, we'll have to get used to good news being when things aren't as bad as expected.

Diabetes Projected To Become Most Costly Disease


A new study released Tuesday by the insurance company UnitedHealth projects that diabetes will cost $500 billion by 2020 — meaning it would become the nation's most expensive disease.

That massive sum would amount to a tenth of all health care spending, or $3.4 trillion in total costs over the next 10 years.

About a sixth of that money would actually go toward treating diabetes and another third would go to diabetes-related diseases and complications, like heart disease.

However, much of the the disease's burden is not due to medical expenses, but rather to associated costs like lost productivity and extra time and money spent by families for care.

Alzheimer's is another disease with overwhelming costs and many additional complicating factors, such as extra personal care, nursing homes, and unpaid time spent by spouses and children.

Joel Hay, an economist at the University of Southern California, says the costs of the two diseases could cripple the US economy.

"Alzheimer's and diabetes, if nothing changes, will bankrupt our society," says Hay.

That's a powerful and frightening projection, one that should give us all pause.

Trying to fathom the notion of billions and trillions of dollars is both mind-numbing and overwhelming. It's hard to wrap your head around numbers that large.

Despite all the warnings about diabetes and the need for a healthy diet and regular exercise, Americans seem to have ignored every bit of it. Doctors now classify diabetes as an American epidemic. That was not the case just 20 years ago, or at any time prior to that.

According to the American Diabetes Association, urgent action is needed because nearly 24 million American children and adults now have diabetes, and another 57 million Americans are at high risk of developing the disease.

If current trends continue, one-third of all children born in the United States (and half of all minority children) will face a future with diabetes.

The harsh reality is that people die from diabetes, most often from its associated diseases, like heart disease, heart failure, and organ failure. In fact, two out of every three people with diabetes will die from heart disease or stroke.

Since 1987, the death rate from diabetes has increased by 45% while the death rates from cancer, heart disease, and stroke have declined.

While 90% of diabetes cases are Type II and almost entirely preventable, Americans refuse to change their behaviors. The costs to individual families, the healthcare system, and the nation as a whole are enormous. Those expenses draw much needed money away from the treatment other diseases.

Aside from all the direct and indirect human suffering, the costs associated with diabetes could overwhelm our healthcare system and our economy by the end of this decade, draining much needed money away from other vital national needs.

Diabetes primarily affects developed nations with abundant food resources and an excess of processed foods. It is the hallmark of an overly indulged, gluttonous and indolent society.

It is the mark of a society in decline.

Sunday, November 14, 2010

The American Decline: Infrastructure

By Sean M. Kennedy

The following is Part III in a three-part series documenting 'The American Decline'. You can read Part I here and Part II here.

Last year, the American Society of Civil Engineers (ASCE) gave our nation's infrastructure a cumulative grade of "D".

"Bridges collapsing, highways cracking, levees breeching, state power grids failing ... our roads, ports, dams, water systems, highways, power plants, airports, etc., are all in desperate need of new investment," the ASCE report said. "Our infrastructure has been badly neglected and has been allowed to deteriorate for far too long."

The findings were nothing new. In fact, they just highlighted a continuing pattern of disrepair and neglect.

The ASCE had previously given US infrastructure a "D" grade in 2005 as well. Getting the same grade again in 2009 just indicated a total lack of national commitment to improving these problems.

Infrastructure refers to the basic facilities and capital equipment that a society, country, state or community needs to function. These are things like power stations, utilities, roads, airports, railways, and sewers.

How important is infrastructure? Well, a report from Credit Suisse called infrastructure "the backbone of the world economy."

However, the US has an aging, crumbling infrastructure that is not prepared for the 21st Century. It is yet another economic albatross around our nation's neck. The decay is costing us heavily right now, and it will cost us even more in the future.

According to the ASCE, America's crumbling infrastructure is sapping our economy and our way of life.

The ASCE estimates that government and the private sector need to invest $2.2 trillion from 2009 through 2013 - roughly three times the size of the $787 billion stimulus package passed by Congress in February of 2009.

It should be noted that tax cuts amounted to $288 billion of the so-called "Recovery Act", and that $233 billion went toward food stamps and unemployment for those hit most hard by the Great Recession.

The remaining $275 billion went to economic stimulus, and that spending wasn't nearly enough to addresses all of the assorted problems with our nation's infrastructure. In fact, it barely scratched the surface.

The current state of our nation's infrastructure is simply unacceptable for a 21st Century, first-world, industrialized nation and it's a sign of decline.

Failing infrastructure is not the mark of a world leader; it's the mark of a country in decay. It not only lessens our competitiveness with other developed nations, but even developing ones. This cannot be ignored and it cannot be overlooked.

Without question, our nation's failing infrastructure needs to be addressed and rebuilt. The 2005 levee failures in New Orleans following Hurricane Katrina and the 2007 Minneapolis bridge collapse are symptoms of our broken and decaying infrastructure.

After that tragic bridge collapse (which killed 13 people and injured 145), more than 73,000 US bridges were rated structurally deficient by the Federal Highway Administration and another 80,000 were rated functionally obsolete.

The problem is that the US is already running massive annual budget deficits and is burdened by a cumbersome national debt exceeding $13 trillion. Our politicians have squandered our national wealth and the opportunities to address these problems for many years. This decay didn't just happen overnight.

It's worth remembering that Hurricane Katrina swept away New Orleans and much of the Gulf Coast region five years ago, and the federal government still hasn't rebuilt the region or replaced New Orleans' failed levees.

If the US doesn't have the money (or the will) to rebuild the Gulf region, what happens when the "Big One" strikes LA or San Francisco?

Additional spending on the necessary repairs and improvements to our national infrastructure will certainly incur additional debt. However, it is an investment in our country and an investment in our future. It is tangible, and all Americans would benefit from it each and every day.

These investments are long overdue, and if they are not made immediately our economic problems are guaranteed to worsen.

Yet, these investments won't be made because maintaining tax cuts and slashing spending are politically in vogue at the moment.

However, repairing, rebuilding and modernizing our national infrastructure would also create jobs, increase demand, and circulate money back into the US economy and tax base.

Whatever the cost, the price of not investing is even higher.

If we're not motivated or inspired by the long term economic impact of failing to make the necessary investments needed to correct these shortcomings, and prepare for the century we're already living in, then maybe the human cost will spur us.

When it comes to infrastructure, real, actual human lives are on the line. Just ask the citizens of Minneapolis and New Orleans.

Here's a look at the American Society of Civil Engineer's 2009 report card on America's infrastructure; it's simply awful.

Roads; D-
One-third of the nation's major roads are in poor or mediocre condition.

Drinking water: D-
Leaking pipes waste 7 billion gallons of clean drinking water every day, and many aging facilities are near the end of their useful life.

Waste Water: D-
Billions of gallons of untreated waste water are discharged into the nation's waterways each year.

Levees: D-
More than 85% are locally owned and the reliability of many is unknown, though increased development near levees has increased the number of lives at risk.

Inland waterways: D-
Of the 275 locks in use, 30 were built in the 1800s, another 92 are more than 60 years old.

Aviation: D

Dams: D

Hazardous waste: D

Schools: D

Mass Transit: D

Energy infrastructure: D+
This was the only sector to show improvements since the last ASCE report card in 2005.

Solid waste: C+
The highest grade on the list, due to recycling efforts.

What all of this clearly indicates is that our nation has fallen behind in the world and continues to decline.

The lack of infrastructure maintenance and modernization was seen most recently in San Bruno, CA, where an entire neighborhood was wiped out after a half-century-old gas line ruptured and exploded. The blast destroyed 38 homes and killed seven people.

State and local governments around the US are expected to spend roughly $150 billion a year on infrastructure during the coming decade. Meanwhile, Congress has yet to approve nearly $500 billion in proposed infrastructure spending over the next six years. That amounts to just over $83 billion per year, a paltry sum by modern US standards.

Even the Chinese suggested this amount should be doubled in preference to quantitative easing since it would provide more jobs.

While the US is underfunding its crumbling infrastructure, other nations are not.

According to The Journal of Commerce, infrastructure spending in Asia (not including Japan) could total roughly $1.4 trillion in the next two years, with China committing $585 billion or more. India is also projected to spend more than $500 billion by 2015.

That kind of government investment will only spur even greater private investment, as those nations are continually seen as the rising economic giants of the 21st Century.

The 20th Century was called the 'American Century'. Absent adequate, effective and dedicated infrastructure spending that keeps up with the times, the same will not be said of the US in the 21st Century.

Wednesday, November 10, 2010

The American Decline: Health & Healthcare

By Sean M. Kennedy

The following is Part II in a three-part series documenting 'The American Decline'. You can read Part I here and Part III here.

As Teddy Roosevelt so famously noted, "No country can be strong if its people are sick and poor."

Americans are indeed a sick and unhealthy bunch. Poor? Well, that's another story for another time.

At present, one-third of American adults are obese. And another third are overweight. Yet, researchers at Harvard University are predicting that the worst is yet to come. If current trends continue, they say, the obesity rate in the US could reach at least 42 percent by mid-century.

As it stands, obesity has already reached epidemic proportions in the US, and it is taking a staggering toll on the nation's health and its healthcare system. It is also driving a variety of other diseases.

According to the American Diabetes Association (ADA), nearly 24 million American children and adults now have diabetes, and another 57 million Americans are at high risk of developing the disease. Doctors across the nation call the scourge a modern American epidemic.

Diabetes is a particularly nasty disease. Two out of every three people with diabetes will die from heart disease or stroke, both largely preventable diseases. And 90 percent of diabetes cases are Type II, which is also largely preventable with lifestyle changes.

Since 1987, the death rate from diabetes has increased by 45%. And the total annual diabetes-related costs may exceed $218 billion, according to the ADA.

Americans are afflicting themselves with a variety of preventable lifestyle diseases, and the average American's life span is shorter than it ought to be. However, according to a new report, a lack of access to proper healthcare seems to be the reason.

Researchers at Columbia University report that the US is now 49th in life expectancy, putting it lower than a dozen other developed nations.

While some might assume that things like smoking, obesity, traffic accidents and a high murder rate are the reason, they are not to blame. Instead, the Columbia researchers say the culprit seems to be poor healthcare.

The researchers compared the United States to Australia, Austria, Belgium, Britain, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden and Switzerland, all of which provide universal health insurance. On the other hand, the US, where 15 percent of the population lacks health insurance, just passed healthcare reform in March.

The Columbia team noted that the US has been dropping in life expectancy tables for decades.

“In 1950, the United States was fifth among the leading industrialized nations with respect to female life expectancy at birth, surpassed only by Sweden, Norway, Australia, and the Netherlands,” they wrote. At last count, the United States was 46th in female life expectancy; 49th for both sexes.

As recently as 1999, the US was ranked 24th in life expectancy by the World Health Organization. So we are moving in the wrong direction very quickly.

Apparently, this is not a problem that money can solve. In fact, the US is plowing trillions into healthcare and getting very little in return.

The US commits a staggering $2.5 Trillion annually to healthcare spending. Yet, we have worse outcomes than many third-world nations. We spend more than any other nation in total dollars, per capita, and as a percentage of GDP. And yet we still have terrible results. That's neither wise nor efficient. In fact, it can only be described as an utter failure.

Despite that absolutely massive amount of spending, health outcomes in the US are simply awful.

Whoever says, “You get what you pay for,” clearly hasn’t seen America's deplorable healthcare statistics.

The findings are not unique, and they are not new either.

In 2000, the World Health Organization ranked the US 37th of 191 countries for "overall health system performance," 72nd for "level of health," and first for "health expenditures per capita."

Sadly, American adults aren't the only ones with a shortened life expectancy. Even American babies have shorter life spans than babies in other nations.

In 2009, the National Center for Health Statistics ranked the US 30th in global infant mortality rates, behind most European countries, Canada, Australia, New Zealand, Hong Kong, Singapore, Japan, and Israel.

And out of 20 “rich countries” measured by UNICEF, the US ranks 19th in “child well-being”.

How many more statistics do we need, from different groups and agencies, to conclude that the American healthcare system is a mess? If it were a patient, it would be listed in critical condition and on life support.

Once again, this isn’t due to a lack of money.

In June, the Commonwealth Fund, which researches and advocates for healthcare reform, reported that Americans spend twice as much on healthcare as residents of other developed countries — $7,290 per person — but get lower quality and less efficiency.

Despite all of these facts, last year, many people were screaming that our healthcare was just fine and should just be left alone. In the end, we ended up with a 2,000 page monstrosity for a healthcare bill, written by the pharmaceutical and insurance industries.

It was just further proof that corporations own and run America, serving their own narrow interests. They have bought and paid for our elected officials. Unlike the rest of America, corporations are certainly getting what they paid for.

Yet, we don't even do the simple things right in the US.

Despite its advanced technologies, the US suffers from alarming rates of medical errors and poor results, even though it spends absolutely massive sums on healthcare.

The US has an ass-backwards system that relies on drugs and surgery instead of wellness and prevention. The US now ranks last out of 19 countries in deaths that could have been prevented with timely and effective medical care.

Americans simply lack access and preventative care. And when they do get care, the results are often disastrous.

According to new findings from the Inspector General’s office of the Department of Health and Human Services, medical mistakes kill 15,000 Medicare patients a month, which equates to 180,000 Medicare deaths per year.

Equally disturbing, two million Americans enter the hospital for what should be routine surgery each year, only to be afflicted by hospital-acquired infections. And those hospital infections are the 4th leading cause of death in the United States. In fact, hospital acquired infections kill as many people in the US annually as AIDS, breast cancer, and auto accidents combined.

Are you feeling outraged and ripped off yet?

Prescription painkillers have now surpassed heroin and cocaine as the leading cause of fatal overdoses.

According to the American Journal of Preventive Medicine, accidental — or unintentional — poisoning from prescription opioids, sedatives and tranquilizers is now the second leading cause of unintentional injury death in the US.

Among people 35 to 54 years old, unintentional poisoning has surpassed motor vehicle crashes as the leading cause of unintentional injury death.

And according to Johns Hopkins Medical School, medical errors and prescription drugs together may actually be the leading cause of death.

In other words, our primary forms of healthcare appear to be the biggest killers of Americans. Imagine that.

We don't spend our money wisely to prevent disease in the first place. We spend most of it after people are already in crisis and at the end-stage of their lives.

In 2008, Medicare paid $50 billion just for doctor and hospital bills during the last two months of patients’ lives — that’s more than the budget of the Department of Homeland Security or the Department of Education.

While care goes down, costs just keep going up.

Last year, in the midst of a historic recession, the nation’s five largest health insurers increased their profits by 56%, to over $12 billion. Of greatest concern is that insurance premiums are growing at four times the rate of wages.

This litany of problems only provides further evidence that our nation is in rapid decline. It’s both sad and disturbing. We are spiraling downward at a breakneck pace. This is backed by facts, by evidence and by research.

There is a pervasive lie passed around that the US has the greatest healthcare system in the world. That is clearly untrue. It could be more accurately described as an inefficient mess, a disaster, and a complete failure to our citizenry. But many people love to delude themselves behind the mantra that the US is No. 1.

Sadly, the US' healthcare rankings are shameful, embarrassing and perhaps irrevocable. There are many forces aligned who like this messy disaster of a system just the way it is.

The larger aspects of our mammoth healthcare bill will kick in by 2014. Along the way, we should find out about many of the hidden clauses and language that were inserted by the pharmaceutical and insurance industries, which were designed to benefit only them.

Meanwhile, the Republicans will seek to repeal the bill and return us to the failing system we already had. In the end, the people can't win.

The road to hell is paved with good intentions, bad intentions, special interests and politicians.

Enjoy the ride, America.

Saturday, November 06, 2010

Bank Failures Reach Highest Level Since 1992

With two additional bank closures Friday, a total of 143 US banks have now failed this year, exceeding the 140 banks that failed in 2009. There will be more to come since there are still two months to go in this calendar year.

Since the creation of the FDIC in 1933, there have been only 12 years in which 100 banks have failed in a single year. And it has now happened in back-to-back years.

It's a good bet that that there are still many more failures to come; by the end of the second quarter, the number of lenders on the FDIC's "problem" banks list had climbed to 829, the highest since 1992. It was also nearly double the number that were on the list a year earlier.

What this means is that more than 10 percent of US banks are now on the problem list. Bank failures over the past two years have pushed the number of FDIC institutions to below 8,000 for the first time in the agency's 76-year history.

Two decades ago, the FDIC insured more than 16,000 institutions nationwide. As a result of the massive number of failures since that time, banks have not only become fewer, but also bigger as a result of consolidation.

The 143 bank failures this year amount to the highest total since 1992, at the height of the savings and loan crisis.

For comparison's sake, twenty-five banks failed in 2008 and only three succumbed in 2007.

The growing number of bank failures have sapped billions of dollars out of the FDIC's deposit insurance fund. It fell into the red last year, and its deficit stood at $15.2 billion as of June 30.

The deposit insurance fund has lost about $21 billion so far this year, compared with $36 billion in 2009.

Due to the pace of home foreclosures and commercial property losses, bank troubles will continue into the foreseeable future.

The vacancy rate at malls and in office buildings has spiked across the country. The number of delinquencies and defaults are straining the capacity of many community and regional lenders to survive.

According to CoreLogic, more than 11 million homeowners across the country are underwater. It's estimated that number could double in the next year, which means nearly half of all American mortgage holders will owe more on their homes than those homes are currently worth.

That would spell disaster for the banking system. And the FDIC would be quite challenged to cover all the losses.

Many US banks are severely under-capitalized, hence the reason they are failing.

The government changed accounting rules for banks during the financial crisis so that they no longer have to mark foreclosed properties to market values. Banks have been allowed to "extend and pretend," as they await for the housing market to recover. That could take many years.

If the banks had to mark these "assets" — which at this point could be more accurately described as liabilities — to current market values, even more institutions would be revealed as bankrupt.

As the commercial real estate market continues to falter and more loans go bad, the losses at banks will become overwhelming.

And, as always, US taxpayers will end up footing the bill for all these failures.

Wednesday, November 03, 2010

Midterm Election Post-script

It's quite clear that President Obama totally understated and downplayed the dire condition of the US economy since coming into office. It's the nature of a president to be optimistic and to encourage a despondent nation.

However, Obama never should have predicted that unemployment wouldn't rise above 8%. That was quite foolish, and he's now paying for it.

Obama should have seen the economic writing on the wall and gotten rid of all those econo-clowns that were feeding him such bad information — before most of them decided to leave on their own.

Hell, a savvy politician — even one who knows nothing about economics — would have given the public the worst-case scenarios in order to diminish unrealistic expectations. But raising hopes — even false hopes — has been the hallmark of Obama the candidate and Obama the President.

Obama might have gotten away with an unemployment rate near 10% had he been telling the people to expect something considerably higher from the beginning. The U-6 unemployment reading for October (which includes both the unemployed and part-time workers seeking full-time employment) was 17.1%.

Obama should have been honest and forthright with the public, telling the nation to expect the worst because things aren't going to change for the better any time soon.

Exit polls found that nearly nine in ten voters believe the economy is in bad shape. The same percentage said they feel pessimistic about America's economic future. That's practically unanimous.

Regardless of where — or how — this mess started, the public clearly holds Obama accountable for not fixing it. That's simple and unrealistic, but the public always gives the president too much credit and too much blame.

Americans were not going to be mollified by health care reform that doesn't kick in until 2014 and financial reform that isn't slowing down foreclosures or making borrowing money easier for small businesses.

So, the GOP now controls the House, and yet nothing will change. Americans will only grow more depressed, distressed, angry and cynical.

Don't believe in any politician, and you'll never be let down.

Meet the new bosses; same as the old bosses.

Monday, November 01, 2010

The American Decline: Education

By Sean M. Kennedy

The following is Part 1 in a three-part series documenting 'The American Decline'. You can read Part II here and Part III here.

If you're not aware of how bad the high school dropout problem is, there is good reason. For many years, states, school districts and administrators tried to hide the depth of the dropout problem, which might be better classified as a crisis.

According to the Bill & Melinda Gates Foundation, nationally about 1 in 3 high school students quits school. Among black and Hispanic students, the rate is closer to 50%.

Yes, it's that bad.

School officials in most states obscured the problem for decades with lax accounting. Some states wouldn't even submit graduation data. In fact, many couldn't even agree on what exactly constituted a dropout. If a kid merely promised to get his or her GED, they weren't counted as dropouts.

But the majority of analysts and lawmakers now admit that the dropout rate has remained steady at approximately 30%, despite two decades of intense educational reform.

In 2001, Jay Greene, a senior fellow at the Manhattan Institute, published a study which found that the national graduation rate is anywhere from 64% to 71%. Most researchers say this rate has remained fairly steady since the 1970s, despite increased attention and a vigorous educational-reform movement.

According to the National Center for Education Statistics, kids from the lowest income quarter are more than six times as likely to drop out of high school as kids from the highest.

In essence, the dropout problem is creating a permanent underclass.

Some blame the dropout problem on a lack of funding. However, according to the Manhattan Institute, spending per pupil has doubled since the '70s, and the problem still hasn't improved.

Incredibly, nearly half the states allow kids to drop out at the age of 16 without parental consent. That makes it pretty easy for a troubled, unmotivated, or bored kid to just walk away.

Interestingly, the Gates Foundation funded a report which found that 88% of dropouts said they had passing grades in high school. Asked to name the reasons they had left school, more respondents named boredom than struggles with course work.

Whatever the reasons are, the dropout problem is an issue for more than just the dropouts themselves; it creates huge social problems and leaves America less competitive in a global economy.

Kids who drop out of school are typically relegated to a lifetime of unskilled, low-paying jobs. As a result, they are more likely to be poor. And a 2002 Northeastern University study found that nearly half of all dropouts ages 16 to 24 were unemployed.

Dropouts are also more likely to be incarcerated; an estimated 67% of prison inmates nationwide are high school dropouts.

And dropouts are more likely to raise future dropouts, creating a generational problem of failure and often hopelessness.

The US is the only industrialized nation in the world where children are now less likely to receive a high school diploma than their parents were, according to a 2008 report by the Education Trust.

At the same time, two-thirds of new jobs in the U.S. require at minimum a college degree.

This education gap affects the US economy in that many companies feel compelled to move overseas, or simply outsource additional jobs to foreign nations.

The problem isn't just that dropouts are more likely to be unemployed; they are often unemployable, typically lacking even the most basic skills.

No matter how you slice it, US students are falling behind globally, and that does not bode well for our nation's future prospects.

Money alone will not solve the crisis. In fact, the US ranked 5th in cumulative K-12 education spending per student in 2006. Only Luxembourg, Switzerland, Norway, and Iceland outspend the US.

From 1971 to 2006, there was a 123% increase in per-pupil spending in the US. Yet, there was a 0% change in the academic performance of 17-year-olds in a national test for reading.

It seems fair to say that a lack of money isn't the issue.

Despite all that spending, the US still trails most other rich nations in science and math scores.

Consider the following:

• US students ranked 21st in science literacy out of 30 developed countries in 2006

• US students ranked 25th in math literacy out of 30 developed countries in 2006

• In 2009, 69% of eighth-graders scored below proficient in reading

• In 2009, 68% of eighth-graders scored below proficient in math

Some point to larger class sizes as part of the problem. However, we currently have the smallest elementary class sizes in 45 years. In 2007, the US student-to-teacher ratio was 16:1, compared with 22:1 in 1970.

And yet our kids — even the more affluent, suburban ones — perform worse than kids in comparable nations.

The failures in education and graduation affect the nation as a whole. It ultimately leads to higher unemployment, higher incarceration levels, higher poverty rates, and less global competitiveness.

Far too many young Americans are unprepared for the modern American workforce, in which the best jobs — sometimes the only jobs — are high skill jobs.

Taken as a whole, all of this is just further evidence of the American decline.