U.S. Economic/Financial News

As Economy Sinks, Congress Gives Greenspan Free Pass

Federal Reserve chairman Alan Greenspan was permitted to come before the Joint Economic Committee of the U.S. Congress June 9, and proclaim that "the U.S. economy seems to be on a reasonably firm footing"—with not a single member of Congress bringing up the General Motors crisis, which had dramatically accelerated just two days earlier with the announced intention to lay off 25,000 workers.

Committee chairman Jim Saxton (R-N.J.) instead opened the hearing by praising "the current economic expansion." Senator Jack Reed (D-R.I.) took issue with this, saying that the American worker has been "short-changed" by this recovery, and pointed to economic insecurity, falling real wages, and private pensions being in jeopardy. Reed was the only Democratic Senator to speak, and his statements, mild as they were, were as tough as anything got.

Only Rep. Ron Paul, the Libertarian-Republican from Texas, talked about the country's dwindling manufacturing base.

All in all, it was a tremendous missed opportunity.

Greenspan Denies Real Estate Bubble, Acknowledges 'Froth'

Fed chairman Alan Greenspan devoted about half of his opening statement to the Joint Economic Committee (see above) to the situation in real estate markets.

"Although a bubble in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels," Greenspan said. Because of the immobility of housing, Greenspan contended, speculation in residential real estate is largely local.

"The apparent froth in housing markets may have spilled over into the mortgage markets," Greenspan allowed, citing the "dramatic increase in the prevalence of interest-only loans," and other "exotic" types of adjustable-rate mortgages. Then, after all this, in Greenspan-speak, he tried to argue why a real-estate crash would not cause a crash of the entire financial system.

FAA Slow To Adjust to Changes in Airline Industry

The Inspector General for the Department of Transportation said that the Federal Aviation Administration has been slow to adjust for recent changes in the airline industry. According to the report, issued June 3, the FAA has been unable to conduct all of the required inspections, especially those required after an airline enters bankruptcy. These are needed because of the loss of trained personnel for maintenance, the reduction in the number airplanes, and the loss of revenue to maintain the equipment. According to the report, there was an overall lack of inspection due to budget cuts over the last period. The report also notes that the FAA is going to lose 300 more inspectors, due to the current Bush Administration budget, further reducing the number of inspections.

The report notes a trend of not reporting new risks, since such reports demand more inspections—which can't be done. It further notes that about only 1% of the needed inspections are done at night, when mistakes and faulty maintenance are more likely to be spotted, since this is when 90% of airline maintenance is done.

The report cites an increase in the psychological stress level among pilots, who are logging more flight hours to make up for big pay cuts. The low-cost airlines, it says, are increasing the number of flight hours for each plane, by reducing the turn-around time at their hubs. With the maintenance being increasingly outsourced, there is a real risk that the planes and equipment are not up to standard; the FAA carries out only a limited number of inspections in third-party maintenance shops. The report calls this a major problem that must be addressed soon.

The FAA admits that it has not kept up with all of the changes in the airline industry, and has agreed to fix the problems noted. However, it also says that it will be difficult to do with the loss of inspectors.

Detroit City Council, Mayor Battle Over Budget

The Detroit City Council is in a pitched battle with Mayor Kwame Kilpatrick over how to close a $300-million deficit in the city's budget. The Mayor put forward a budget for the fiscal year beginning July 1, which was rejected by the Council. The Council, in turn, put forward its budget, and on June 3, Kilpatrick quickly vetoed it. The Council, arguing that the Mayor's plan is not fiscally responsible, overrode the veto on June 6.

From the Council's budget statement: "Fifty years of disinvestment in the city, national housing and highway policies that subsidized suburbanization, the state's fiscal problems, and the profound challenges faced by General Motors and Ford have all coalesced to create a financial storm that has engulfed this city." EIR a year ago documented this deindustrialization/deregulation policy which devastated Detroit, causing a population exodus, disappearance of housing, and impoverishment of those who remained.

The Bush Administration's Iraq war policy is also scored: "The cost of war in Iraq continues to mount and directly affects our tax revenues. Each U.S. household is now paying approximately $1,475 on average for this disastrous war.... If the expenditure for the war in Iraq was allocated instead to cities and states, Detroit's share would have been $369 million."

Utility Shutoffs Triple in Western Pennsylvania

Utility shutoffs have nearly tripled this year, so far, in western Pennsylvania. Under a new law passed by the Pennsylvania State Legislature, without hearings, less restrictive requirements have been enacted, allowing power companies to terminate service when people get too far in arrears on their bills, the Pittsburgh Tribune-Review reported June 8. The six major natural gas and electric companies in the area terminated service to 18,201 households from January through April, up from just 6,681 last year, according to the state Public Utility Commission figures.