From Volume 7, Issue 32 of EIR Online, Published August 5, 2008

U.S. Economic/Financial News

Home Foreclosures May Hit 10% of Mortgages

July 27 (EIRNS)—With Speaker of the House Nancy Pelosi blocking adoption of Lyndon LaRouche's Homeowners and Bank Protection Act, record home foreclosures are piling up.

RealtyTrac reported July 26, that between April and June, 739,714 homeowners nationwide received at least one foreclosure notice, twice the level of the second quarter of last year. This is an annual rate of 3 million foreclosures. Of the foreclosures in the second quarter this year, 222,000 homes were repossessed by banks.

Mark Zandi of told the House Financial Services Committee July 25, that there will be 5.5 million foreclosures over 2008 and 2009—making that 1 out of 10 mortgages across the nation. The Barney Frank/Chris Dodd bailout bill purports that at maximum, it would apply to 400,000 home mortgages; but that is a sideshow to cover its futile attempt to bail out the unsalvageable financial system.

U.S. Home Prices Plummet 16-28% in a Year

July 29 (EIRNS)—Home prices in 20 major U.S. cities have fallen a record 15.8% in one year, as measured by the Case-Shiller home price index, a Standard & Poor's database. But the fall of prices in ten of those cities was much greater, ranging from 17.4% to 28% in the past year. "Prices thus are at the same levels as they were in the summer of 2004, which means four years of appreciation have effectively been wiped out," MarketWatch reported.

Here's the 20-city Case-Shiller index list of annual declines through May: Las Vegas, down 28.4%; Miami, 28.3%; Phoenix, 26.5%; Los Angeles, 24.5%; San Diego, 23.2%; San Francisco, 22.9%; Tampa, 20.2%; Detroit, 17.4%; Washington, 15.4%; Minneapolis, 14.8%; Chicago, 9.4%; Cleveland, 8%; Atlanta, and New York, both 7.9%; Seattle, 6.3%; Boston, 6.2%; Portland, 5.2%; Denver, 4.8%; Dallas, 3.1%; and Charlotte, N.C., 0.2%.

Hyperinflation Zaps Electricity Sector; Cut-offs Spike

July 29 (EIRNS)—A triple-whammy is hitting the U.S. electricity sector, manifest as hyperinflation and worsening service. The disaster is a result of the decade-long policy of deregulation, the hyperinflation of energy fuel prices, and the inflation in the overall economy which has hit construction materials, on top of "not-in-time" repair parts, and aging of the system. The end result is measured in an increasing number of consumers unable to afford electric power.

A study released by the Energy Information Administration on July 8 projects that due to the speculative ratcheting up of fuel prices alone—natural and gas and coal—the price of electricity in some regions could increase by as much as 30%. Overall, due to fuel price increases, electric rates are estimated to rise 5.2% this year, but 9.8% next year, when utilities are granted rate increases to cover costs. About 30 utilities have asked for fuel rate increases. The price of natural gas has risen 40%, and coal has more than doubled.

The cost of everything a utility does that requires energy—from fuel for repair crew vehicles, to manufacturing costs for components, to construction costs for transmission lines and new power plants—is skyrocketing. "Power poles are up 39% since 2003, copper wire has more than doubled" in price, an American Electric Power spokesman said. According to June testimony by the Federal Energy Regulatory Commission, since 2000, capital costs for building new generation capacity have risen from an index of 100, to 178. Primary construction costs (iron, steel, cement, etc.) have doubled.

The chickens of the late 1990s energy deregulation madness—enacted in about half of the states—are coming home to roost. Studies done comparing electric rates in regulated and deregulated states have shown that, without state regulation, rates are higher. State laws placed caps (or ceilings) on prices utilities could charge, for a number of years, to allow "competition" to develop, but when competition didn't develop, some states, such as Virginia, extended the caps, hoping for a miracle. This month, Dominion Virginia Power customers saw electricity rates rise 18%.

In fact, as price caps are lifted, increases can soar out of sight. In 2005, when caps came off the prices of Duquesne Light in Pennsylvania—one of the poster states for deregulation (second to California in enacting dereg)—prices jumped 35-60%. (The customer billing base of Duquesne Power was then bought up by Australia-based Macquarie, part of the British imperial infrastructure cartels.) Texas has seen rate increases in the double digits.

Shut-offs of service for electricity and gas customers are up at least 15% nationally, reports the National Energy Assistance Directors' Association, including 8% for households earning $33-55,500 per year. In Pennsylvania, 7,054 customers were cut off last Winter, up 168% from the previous year; Duke Energy in North Carolina is averaging 11,000 per month! When this Winter hits, the numbers could be off the charts.

States Slash Programs as Revenues Vanish

July 31 (EIRNS)—State and local government revenues are vanishing, leaving them scrambling for resources to keep their governments afloat.

One month into the new fiscal year, which began July 1 for all but four states, vanishing revenues are keeping elected officials busy slashing and burning programs and payrolls. At the end of June, 31 states projected over $40 billion in revenue shortfalls—and that didn't include California, Illinois, Michigan, and North Carolina—all in big trouble. EIR estimates that the shortfall is easily nearing $75 billion. State and local governments cannot cut fast enough to keep up with these lost revenues. For example, New York State announced on July 30 that its deficit had grown by $5 billion since May 1, the start of its new fiscal year, putting its current hole at $6.4 billion.

To balance budgets, as required by law, nearly half the states either have cut, or plan to cut programs, reduce workforces, drain rainy-day funds, or postpone capital budget projects. A few examples are: California's Gov. Arnold Schwarzenegger proposes to slash 200,000 state employees' salaries to the minimum wage; Illinois Gov. Rod Blagojevich axed $1.4 billion in social service programs; Florida cut $332 million from K-12 education. Ten states cut Medicaid; Nevada drained its $267 million rainy-day fund; and Rhode Island expanded the hours casinos can stay open.

All rights reserved © 2008 EIRNS