From Volume 38, Issue 14 of EIR Online, Published Apr. 8, 2011

U.S. Economic/Financial News

What Recovery? Texas and California on the Road to Hell

April 1 (EIRNS)—All the lying statistics pumped out by Federal and state agencies, filling the media, about the "vigorous economic recovery" which is "comin' 'round the corner," cannot hide the fact that the two largest states in the United States, California and Texas, are beyond bankrupt, and that their cowardly and ideologically-driven leaders are incapable of anything but presiding over mass murder of their states' poor, elderly, and disabled citizens. While the Democrats and Republicans are locked into an idiotic, and controlled dispute over raising taxes versus cutting spending to achieve a balanced budget, the state governments are collapsing into gridlock, education for the future is being savaged, and whole sections of the populations are being tossed onto a human scrap-heap.

For California, the recycled governor, Jerry Brown, shows that his years out of office taught him nothing. With a $25 billion-plus deficit, on top of years of deficits, and Draconian cuts, under his predecessor Arnie Schwarzenegger, he tried to draw four Republicans—two in the State Senate, and two in the Assembly—to join with the Democrats to place a tax initiative on the ballot. "Just let the voters have a choice," he pleaded. And the Republicans argued back, "No new taxes." After six weeks of "negotiations," filled with promises that there could be a "bipartisan compromise," the usual occurred: The Republicans walked away, in spite of Brown imposing $12.5 billion of budget cuts! His hope that the other $12.5 billion of shortfall would be covered with tax increases shattered, he now is threatening to proceed with another $12.5 billion in cuts.

He has already cut higher education, health care, and social services to the bone, beyond what Schwarzenegger had done. Another $12.5 billion in cuts will leave poor children with no access to health care; the elderly with no health care or aid from the state, with a slashing of "at-home services"; cuts in education, drastically undermining the hopes of millions for higher education, as tuition hikes are certain, loans and grants will be cut, and the numbers accepted at state schools, including community colleges, cut dramatically. The cuts in funds to colleges and universities will further deplete research programs, in essential programs involving geologic and seismic studies. And the cuts in infrastructure will leave the state in even worse shape, to deal with evacuations, and aid from first responders, in a state threatened with problems ranging from earthquakes and tsunamis, to mud slides and forest fires, to water and power shortages.

Texas is facing a $28 billion shortfall, and its myopic, Bush-League governor, Rick Perry, is cheerfully willing to cut everything, going so far that even some Republicans are beginning to protest. Perry's main focus is education, with billions in cuts to education, which will result in mass firing of teachers, increased class sizes, and underfunded classrooms. Local school districts have responded to the cuts by ending special programs in science, languages, and culture—especially music—but the allocations for public schools still need an additional $7 billion in cuts, beyond what has already been agreed upon. The Legislative Budget Board estimates that the cuts demanded by the GOP will mean a loss of 335,000 jobs by 2013, as this is a two-year budget.

The April Fools' Employment Report

April 1 (EIRNS)—The Obama Administration's report of about 200,000 new part-time jobs, and a nearly permanently shrunken U.S. workforce, brought smiles to Wall Street speculators on April 1, while inability to find a full-time job remained the reality for 30 million American workers.

The Bureau of Labor Statistics (BLS) said there was net job creation of 216,000 in March. Leaving aside that 44,000 of these "jobs" were actually only imputed by the BLS's computers, not actually found in its survey, virtually all of the jobs created, 197,000, were part-time, and overwhelmingly in financial services, leisure and hospitality, retail sales, and health care. Of these, 93,000 of the new part-time job takers need full-time work and can't find it. As for productive full-time unemployment: Construction employment fell again, manufacturing work rose by just 17,000.

The result is that America's "dropped-out work force" keeps swelling in the economic collapse, having increased by 76,000 in the past two months, and by 2,330,000 in the past year of supposed "slow but steady" growth. The labor force itself is 490,000 smaller than one year ago, although there are 3 million more Americans than in that time, and half that many should have been added to the workforce in a healthy economy. The rate of so-called participation in the labor force has fallen 0.7% over the year. And further, the number of Americans officially unemployed for a long period, more than 6 months, keeps growing; it is now 46% of all the officially unemployed, 6.1 million people. And if the "unofficial" (i.e., discouraged, dropped out) long-term unemployed were counted, that number would double.

Minneapolis Fed President Wants Action Against Inflation

April 1 (EIRNS)—Minneapolis Federal Reserve President Narayana Kocherlakota said on March 31 that the Federal Reserve may need to increase short-term interest rates, now near zero, by the end of 2011 if core inflation (which excludes food and energy price increases) continues to rise. Kocherlakota said he expects core inflation to increase from about 0.8% in late 2010 to 1.3% by the end of 2011. According to a nostrum called the "Taylor Rule," a increase in core inflation of 0.5% would call for an interest rate increase of three-quarters of a percentage point.

Kocherlakota is one of five regional Fed presidents with a vote this year on monetary policy, along with the Fed governors based in Washington. Two other regional Fed presidents with votes—Charles Plosser of Philadelphia and Richard Fisher of Dallas—have suggested they would favor raising interest rates in the future.

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