Save the Economy, Hike the Deficit!

May 27 - 29, 2011
Careening Toward a Third Depression

By MIKE WHITNEY
http://www.counterpunch.org/whitney05272011.html
How do you light a fire under Congress? How do you get these guys to do what they're paid to do?

We're 5 years into this slump, millions of people have lost their homes and jobs, 44 million people are on food stamps, the economy is in the tank, and congress won't lift a finger to help. What's that all about? You'd think that the revision in GDP and the uptick in unemployment claims would set off alarms on Capitol Hill. But it hasn't. They just shrug it off and move on. What do they care? They get their fat paycheck one way or another, so what difference does it make to them? Besides, if they play their cards right, they'll nab a 6-figure lobbying job as soon as they retire and spend the rest of their lives working on their chip-shot and swilling single-malt at the club with their moneybags friends. Doesn't that piss you off?

Congress just doesn't seem to "get it". They don't understand what people are going through; how maxed out they are. We're in the middle of a Depression and all they want to do is score points playing political circlejerk by stonewalling the debt ceiling or jacking-around with Medicare. Meanwhile, unemployment is on the rise (Initial claims rose to 424,000 on Thursday), GDP is falling (1Q GDP revised to 1.8%), durable goods are down 3.6 percent in April, the market is topping out, business investment is flat, Europe's on the ropes, Japan is in a historic slump, China is overheating, the output gap is as wide as it was 6 quarters ago, bank balance sheets are bleeding red from falling home prices and non-performing loans, and the housing market is crashing.

Did I miss something?

Oh yeah, and the Fed's goofy QE2 program is winding down, which means that the last drop of monetary stimulus will be wrung-out by the end of June. That ought to be good for stocks.

So, excuse me for asking, Mr. Bigshot Congressman, but would you mind lending a hand? A little stimulus would be nice. You know, just enough so we can get a job and feed the kids. And if you're worried about the deficits; don't be. They're not a problem. That's just more GOP scaremongering. Here's how economics professor Bradford DeLong sums it up:

"The biggest problem generated by this right now is that Washington DC's focus on the Dingbat Kabuki theater of the long-run fiscal stability of America is keeping it from taking any effective steps to use government to boost employment and output now. And things aren't helped by the fact that the way the rescue of the banking system was carried out convinced a lot of people that stimulus policies exist to enrich the top 1% of Americans at the expense of everybody else.

This means that our hopes for economic recovery right now rest not on any government boost to aggregate demand--whether through fiscal, monetary, or banking policy--but rather on the natural equilibrium-restoring full-employment achieving market forces of the economy, especially in the labor market.

And so we are in trouble: right now there are no signs that the economy is crawling up back to anything like full employment on its own. ... The economy will grow, but we won't close the gap between actual and potential output. We will not for a long time to come get back to the 62 to 64% of the adult population having jobs that we thought was normal back in the decades of the 2000.

And that is the depressing overall macroeconomic picture. I wish I could paint a better one....("DeLong: The Economic Outlook as of May 2011", Economist's View)

Deficits aren't the problem, they're the solution. The government needs to increase spending to make up for the loss of activity in the private sector, otherwise, we're back in the soup. But, here's the good part; the government can borrow at rates that are lower than ever. Just look at the bond market. The 10-year is stuck at 3.12. That means that money is cheap because no one is borrowing, because, well, because the economy is dead-in-the-water. It's like Treasuries are yelling, "Wake up, you idiots, we're in a Depression!"

Besides, deficit spending isn't always a bad thing anyway. Just ask a guy who's been out of work for 99 weeks how much he cares about deficits. Not much, I'll bet. All he cares about is getting a job and paying the bills. Here's a clip from economist Mark Thoma who explains how deficits can actually rev up the economy:

"When the economy goes into recession, deficit spending through tax cuts or the purchase of goods and services by the government can stop the downward spiral and help to turn the economy back around. Thus, deficits can help us to stabilize the economy. In addition, as the economy improves due to the deficit spending the outlook for businesses also improves, and this can lead to increased investment, an effect known as crowding in. Deficits also allow us to purchase infrastructure and spread the bills across time similar to the way households finance the purchase of a car or house, or the way local governments finance schools with bond issues." (Government Deficits: The Good, the Bad, and the Ugly, Mark Thoma, CBS Moneywatch)

Deficits are just a way of investing in the future, like student loans. You don't hear anyone crybabying about paying for college, do you? No, because it improves their chances for making more money in the future. Sometimes you have to take on a little debt to create better opportunities for yourself. That's just the way it is. It's the same with the economy, the deficits are a bridge to the next credit expansion. But once things are up-and-running and revenues increase, then the government can throttle-back on spending and balance the budget. That's how we've always done it in the past, until we started listening to the Voodoo crackpots, that is. Besides, if we don't increase the deficits now and put people back to work fast, we're going to be stuck in this "underperforming" funk for a very long time. So, we're just shooting ourselves in the foot.

How did we get to where we are today?

Well, when the financial system crashed, the economy plunged and then reset at a lower level of output. So--while we're no longer in freefall--we're still no where near where we should be. And, guess what, we can't get back to trend when 9% of the workforce (16.5% underemployed) is on the sidelines. We have to put people back to work and get them spending. That's the only way to boost demand and kickstart the economy. Of course, big business doesn't mind the current policy, because more of the profits from productivity go to them during a sluggish recovery. So, they're just fine with the way things are right now. They also like the fact that high unemployment puts more pressure on wages. CEO's love that part.

So, how dire is the situation right now?

Well, consider this: QE2 ends on June 30, right? But according to economist David Rosenberg, there's a "89% correlation between the Fed's balance sheet and the movements in the S&P 500 over the past two years." So when the Fed stops purchasing US Treasuries, then stocks will retreat.

Add that to the fact that the states are cutting costs and laying off state workers at record pace to balance their budgets. That just increases deflationary pressures. When money is drained from the system, activity slows, demand weakens, revenues shrink, deficits bulge, and more people are laid off. It's a vicious circle.

Here's how Paul Krugman breaks it down on his blog this week:

"Last year I warned that we seemed to be heading into the "Third Depression" — by which I meant a prolonged period of economic weakness:

' Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.'.....

And nobody in power cares! (Third Depression Watch, Paul Krugman, New York Times)

And that's what makes this political burlesque on Capitoll Hill so excruciating to watch, because it's such a waste. Peoples lives are being ruined for nothing, just because Congress doesn't have the courage to do the right thing. Do you think they'd hesitate if they had to pony-up for another multi-billion dollar weapons system, or another bailout for Wall Street, or more tax cuts for their tycoon friends? Of course not. The only time congress worries about red ink is when it might help working people. Then they throw a major hissyfit, waving their hands overhead and babbling hysterically about the free market. Give me a break. The world's not going to end. The truth is, the rest of the world WANTS us to borrow more because they want to maintain strong demand for their exports and keep their workers busy. That's why they're willing to lend us money so cheap.

So, why don't we oblige them? Why don't we borrow enough money to whittle down unemployment to 4 or 5% and get back on track? After all, we know that fiscal stimulus works, because the non-partisan Congressional Budget Office (CBO) released another report on Wednesday saying that Obama's American Recovery and Reinvestment Act (ARRA) was a booming success.

Here's a clip from the report:

"The economic stimulus package passed by Congress in 2009 raised gross domestic product, created jobs and helped lower the country's unemployment rate this year..... the Congressional Budget Office said Wednesday.

The Obama administration and Congressional Democrats said the American Recovery and Reinvestment Act, passed while the U.S. struggled to emerge from a severe recession, would save or create 3.5 million jobs while cutting taxes, investing in roads, bridges and other infrastructure, extending unemployment benefits and expanding aid to states....

The CBO report out Wednesday said the plan increased the number of people employed by between 1.2 million and 3.3 million, and lowered the unemployment rate by between 0.6 and 1.8 percentage points in the first quarter of 2011.

The stimulus package also raised gross domestic product, the broadest measure of economic output, by between 1.1% and 3.1% in the same period...." ("CBO Says Stimulus Boosted Growth, Will Add More to Deficit", Wall Street Journal)

Okay, so ARRA boosted growth by roughly 2% and added about 2 million new jobs to the workforce just like the administration predicted. So, that settles it, right? We now have solid proof that the program worked, so what are we waiting for? Congress needs to push through a second round of stimulus, put people back to work and get the economy firing on all 6 cylinders. No more foot dragging.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

Drug Laws, Prisons and the Economy

The U.S. imprisons more people per capita than any country on earth, accounting for 25 percent of the world’s prisoners, despite having just five percent of the world’s population.

America currently holds over two million in prisons with double that number under supervision of parole and probation, according to federal government figures.

Mass incarceration consumes over $50-billion annually across America – money far better spent on creating jobs and improving education.

Under federal law persons with drug convictions are permanently barred from receiving financial aid for education, food stamps, welfare and publicly funded housing.

Only drug convictions trigger these exclusions under federal law. Violent bank robbers, white-collar criminals like Wall Street scam artists who steal billions, and even murderers who’ve done their time do not face the post-release deprivations slapped on those with drug convictions on their records, including those imprisoned for simple possession, and not major drug sales.

The Fall of Obama...

Alexander Cockburn, Counterpunch

It is not Obama's fault that for 30 years America's policy – under Reagan,
both Bushes and Bill Clinton – has been to export jobs permanently to the
Third World. The jobs that Americans now desperately seek are no longer
here, in the homeland, and never will be. They're in China, Taiwan,
Vietnam, India, Indonesia.

No stimulus program, giving money to cement contractors to fix potholes
along the federal interstate highway system, is going to bring those jobs
back. Highly trained tool and die workers, the aristocrats of the
manufacturing sector, are flipping hamburgers – at best – for $7.50 an
hour because U.S. corporations sent their jobs to Guangzhou, with the
approval of politicians flush with the money of the "free trade" lobby.

It is not Obama's fault that across 30 years more and more money has
floated up to the apex of the social pyramid till America is heading back
to where it was in the 1880s, a nation of tramps and millionaires. It's
not his fault that every tax break, every regulation, every judicial
decision tilts toward business and the rich. That was the neoliberal
America conjured into malign vitality back in the mid 1970s.

But it is Obama's fault that he did not understand this, that always, from
the getgo, he flattered Americans with paeans to their greatness, without
adequate warning of the political and corporate corruption destroying
America and the resistance he would face if he really fought against the
prevailing arrangements that were destroying America. He offered them a
free and easy pass to a better future, and now they see that the promise
was empty.

It's Obama's fault, too, that, as a communicator, he cannot rally and
inspire the nation from its fears. From his earliest years he has schooled
himself not to be excitable, not to be an angry black man who would be
alarming to his white friends at Harvard and his later corporate patrons.
Self-control was his passport to the guardians of the system, who were
desperate to find a symbolic leader to restore America's credibility in
the world after the disasters of the Bush era. He is too cool.

So, now Americans in increasing numbers have lost confidence in him. For
the first time in the polls negative assessments outnumber the positive.
He no longer commands trust. His support is drifting down to 40 per cent.
The straddle that allowed him to flatter corporate chieftains at the same
time as blue-collar workers now seems like the most vapid opportunism. The
casual campaign pledge to wipe out al-Quaida in Afghanistan is now being
cashed out in a disastrous campaign viewed with dismay by a majority of
Americans.
--

Our Economy Needs at Least $2 Trillion in Stimulus Spending Right Now -- Tens of Millions of Jobs Are at Stake

Posted on July 16, 2009

http://www.alternet.org/story/141344/

By Dean Baker, Guardian

When her husband was in the oval office Laura Bush launched an initiative to promote literacy across the country. Unfortunately, there was no comparable effort to promote numeracy in our nation's capital. This has been evident in the discussion of the stimulus among politicians and commentators in the week since the June job numbers were released.

Republicans were anxious to pronounce the stimulus a failure, while Democrats insisted that the package just needed more time, pointing out that most of the money had not yet been spent. Neither assertion can withstand the test of third grade arithmetic.

The basic story is that the stimulus was too small, pure and simple. It would have been too small even if the Obama's administration's projections for the severity of the recession had proven accurate. However, since the downturn is considerably steeper than they had projected, the inadequacy of the stimulus is even greater.

Here are the numbers. The unemployment rate is currently 9.5 percent and virtually certain to cross 10.0 percent by the end of the summer. It is likely to hit 11.0 percent early next year, but we'll just work off the 10.0 percent figure.

The target for unemployment should be no higher than 5.0 percent. (The year-round average for unemployment in 2000 was 4.0 percent.) This leaves a gap between actual unemployment and our employment target of 5 percentage points. As a rule of thumb, it takes a 2 percentage points increase in GDP to reduce the unemployment rate by 1 percentage point. This means that in order to reach our target of 5 percent unemployment, we would have to increase GDP by 10 percent, or $1.5 trillion.

Different types of stimulus have different multiplier effects. One dollar of addition spending is generally estimated to have a multiplier effect in the neighborhood of 1.5, meaning that for every dollar we spend on a government project, we increase GDP by $1.50 as the people we hire go out and spend their paychecks, creating new demand.

The multiplier effect on tax cuts is generally estimated as being in the neighborhood of 0.9, or less. This means that $1 of tax cuts will end up increasing GDP by about 90 cents. Unlike spending on things like road construction or health care, a tax cut does not directly generate demand. It only generates demand when people go out and spend their tax cuts. Since much of any tax cut will be saved, the stimulus effect of tax cuts is almost always less than the effect of direct spending.

Okay, if we have an annual GDP shortfall of $1.5 trillion and we decided to fill it by spending, then we would need approximately $1 trillion per year of additional spending. Alternatively, if we tried to fill the gap with tax cuts, we would need $1.65 trillion per year in tax cuts. After pulling out spending for later years, and the alternative minimum tax fix, the Obama package provides about $300 billion a year in stimulus. This is obviously inadequate.

When the Republicans jump on the June jobs numbers and say that stimulus doesn't work, it is like the obese person complaining that dieting and exercise don't work because he is still overweight after passing up dessert and taking a walk around the block. There is a question of magnitude here that they seem to have missed.

The "give it time" crew don't fare too much better. While only about 15 percent of the stimulus has gone out the door thus far, it is the rate of spending that matters.

To put this point simply, suppose that we would spend the $600 billion 2-year stimulus at the rate of $25 billion a month. Assume that we have ramped up to this spending rate, so that by May we have reached the $25 billion rate of monthly spending. While it may be true that at the end of June that we have only spent 15 percent of the stimulus, the rate of spending will not be increasing substantially from current levels. This means that whatever boost to monthly consumption and output we expect from the stimulus, we are now currently seeing. This boost will continue through 2010, but we will not get an additional boost from the stimulus further down the road.

The actual story of stimulus spending is somewhat more complicated, but this simple story captures the basic picture. The additional boost from new projects that are yet to be started will not make a big dent in the economic picture.

In short, we badly need another very big dose of stimulus. Unfortunately, the politicians and pundits in Washington are either too ignorant, dishonest, or scared to talk about the $2 plus trillion stimulus that this economy needs. As a result, tens of millions of people will lose their jobs and/or their homes because of continued economic mismanagement. In economic policy circles, mismanagement is a job qualification, not a fault.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy.

I'm an American Worker and I'm Tired of Getting Screwed

Betcher fuckin' ass!--Pete

By Rick Kepler, TruthOut.org
http://www.alternet.org/story/108144/

I am an American worker, and you are damn right I want the wealth to be shared and spread. I am talking about the wealth my hard work helped to create, but was taken from me by George Bush's base, the very rich, or as I know them, my corporate bosses. For the past eight years I have watched W.'s and McCain's (Country Club First) base grab the largest share of our country's wealth. Where did they take it from? They took it from my family's pocketbook, and my co-workers' families' pocketbooks. They stole the wealth that I was trying to build for me and my family when they stripped my pension plan from me and told me to invest in a 401k. Then they stole most of that 401k and other workers' 401k savings with this economic meltdown. This was a massive transfer of wealth from the workers' pockets into the already stuffed pockets of the rich. My retirement savings and my coworkers' savings all across America have been looted by the corporate bosses, who just got bailed out while we got left out. Again!

The American worker, whether black, brown, white, red, yellow, or rainbow color, has been fleeced over these past eight years. We are the ones who go to work every day. We don't own our places of work, nor do we help manage them. We just go in and do the job. And we must be doing one hell of a good job because we are told that we are the most productive workers in the world. We are working longer and harder, but our paychecks keep shrinking! Where are those productivity gains going then? Not into our pockets. Our standard of living has been going down these past eight years ($2,000 less in family income since W. took office) This is another damn transfer of wealth into the hands of the extremely rich.

Their greed is insatiable. Take our family's health care. They do. They keep passing on their increased costs to us, or they just drop coverage for the worker completely. That means we either join the 50,000,000 who have no health care, or we end up having to buy it privately, thus eating up a huge portion of our family's income. If we manage to hang onto our health care plans, our deductibles, co-pays, and out-of-pay contributions keep skyrocketing. This amounts to another massive transfer of wealth from our pockets into the overflowing pockets of our corporate bosses.

The list goes on for the American worker. We saw overtime pay stripped from millions of workers during this past nightmare eight years. The worker was still working overtime, but due to a new "boss law" passed by W. and McCain's party that assists these thieves, the workers didn't receive overtime pay because they were declared exempt. They also weakened the workers' health and safety standards or just plain didn't enforce the laws already on the books. As a result, the American worker pays the price in lost days due to accidents from unsafe conditions or from lingering, expensive illnesses suffered from unhealthy working conditions. This too is a massive transfer of wealth from our pockets into our corporate bosses' bulging pockets.

To further sweeten their own pots, they took full-time jobs and converted them to part-time with no benefits, or they just made their employees line up and reapply for their exact same jobs at half the pay. Are we beginning to see what a true transfer of wealth looks like? So, do I want to see a spreading of the wealth? You bet your sweet hind-end I do. But all I ask of Obama is to give me and my co-workers the ability to retrieve some of the wealth that has been stolen from us.

Strengthen the laws that give workers the right to organize and bargain for a contract with our bosses. The current laws on the books have been torn to shreds by W. and McCain on behalf of their base. This is just part of their attack on American workers. Under globalization, the bosses seek a much cheaper workforce, which always means non-union, which means "can't fight back." That is why they have gutted the laws that protect workers. The laws that once gave us a level playing field with our bosses have been rendered useless, including our legal right to strike. That law said I had a right to strike, and could.

The American worker doesn't want a handout. Never did. We do want a hand up from our government. We still believe and have hope that this is a government of, by and for the people. We do want to know that our government will finally stand with us against this onslaught, this Robin Hood in reverse, being conducted by the bosses against the workers. The bosses know that W. and McCain have been on their side for the past eight years - and so do we workers. We just want our government to now stand on our side as we stand up against this corporate attempt to create third world working conditions right here in America. Restore our right to fight for a better living for ourselves and our families, and let the power of pissed-off workers, united in struggle, spread corporate America's stolen wealth back into the pockets of those whose pockets got picked these last eight years - the American worker.

Rick Kepler has driven beer trucks in New Orleans, Louisiana; Colorado Springs, Colorado and Oakland, California. He has tended bar in San Francisco, and worked on the railroad and loading docks in Ohio. Currently he's a Teamsters organizer who speaks to thousands of unorganized workers every year.

© 2008 TruthOut.org All rights reserved.
View this story online at: http://www.alternet.org/story/108144/

Retailing Chains Caught in a Wave of Bankruptcies

The end is near for corporate capitalism, or will the chieftains invent a new re-animation formula?--Pete

By MICHAEL BARBARO

The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.

But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.

Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117, and the jeweler Zales will close 100.

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.

“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners.

“For years, no deal was too ugly to finance,” he said. “But now, nobody will throw money at these companies.”

Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-short chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.

When it filed for bankruptcy, Sharper Image owed $6.6 million to United Parcel Service. The furniture chain Levitz owed Sealy $1.4 million.

And it is not just large companies that are absorbing the losses. When Domain, the furniture retailer, filed for bankruptcy, it owed On Time Express, a 90-employee transportation and logistics company in Tempe, Ariz., about $30,000.

“We’ll be lucky to see pennies on the dollar, if we see anything,” said Ross Musil, the chief financial officer of On Time Express. “It’s a big loss.”

Most of the ailing companies have filed for reorganization, not liquidation, under the bankruptcy laws, including the furniture chain Wickes, the housewares seller Fortunoff, Harvey Electronics and the catalog retailer Lillian Vernon. But, in a contrast with previous recessions, many are unlikely to emerge from bankruptcy, lawyers and industry experts said.

Changes in the federal bankruptcy code in 2005 significantly tightened deadlines for ailing companies to restructure their businesses, offering them less leeway.

And the changes may force companies to pay suppliers before paying wages or honoring obligations to customers, like redeeming gift cards, said Sally Henry, a partner in the bankruptcy law practice at Skadden, Arps, Slate, Meagher & Flom and the author of several books on bankruptcy.

As a result, she said, “it’s no longer reorganization or even liquidation for these companies. In many cases, it’s evaporation.”

Several of the retailers that filed for Chapter 11 bankruptcy protection over the last eight months, like the furniture sellers Bombay, Levitz and Domain, have begun to wind down — closing stores, laying off workers and liquidating merchandise.

In most cases, the collapses stemmed from a combination of factors: flawed business strategies, a souring economy and banks’ unwillingness to issue cheap loans.

Bombay, a chain with 360 stores, was considered a success in the furniture world, after its sales surged from $393 million in 1999 to $596 million in 2003.

Then the chain decided to move most of its stores out of enclosed malls into open-air shopping centers. It started a children’s furniture business, called BombayKids. And it started carrying bigger items, like beds and upholstered couches, with higher prices than its regular furniture.

Consumers balked at the changes, hurting Bombay’s sales and profits at the same time that its expenses for the ambitious new strategies began to grow. The timing was unenviable: By early 2007, the housing market began to falter, so purchases of furniture slowed to a trickle.

The company was running out of money, but banks refused to lend more. “They did not want to take the chance that we might not repay the loans,” Elaine D. Crowley, the chief financial officer, said in an interview.

In September 2007, Bombay filed for bankruptcy protection. The highest bid for the company came from liquidation firms, who quickly dismembered the 33-year-old chain. Bombay, which once employed 3,608, now has 20 employees left. “It is very difficult and sad,” Ms. Crowley said.

The bankruptcies are putting a spotlight on a little-discussed facet of retailing: heavy debt.

Stores may appear to mint money by paying $2 for a T-shirt and charging $10 for it. But because shopping is based on weather patterns and fashion trends, retailers must pay for merchandise that may sit, unsold, on shelves for long periods.

So chains regularly borrow large sums to cover routine expenses, like wages and electricity bills. When sales are strong, as they typically are during the holiday season, the debts are repaid.

Fortunoff, a jewelry and home furnishing chain in the Northeast, relied on $90 million in loans to help operate its 23 stores, using merchandise as collateral.

But by early 2008, as the housing market struggled, the chain’s profits dropped, meaning its collateral was losing value and the amount it could borrow fell.

In better economic times, the banks might have granted Fortunoff a reprieve. But with a recession looming, they refused, forcing it to file for bankruptcy in February. In filings, the chain said it was “facing a liquidity crisis.” (Fortunoff was later sold to the owner of Lord & Taylor.)

Plenty of retailers remain on strong footing. Arnold H. Aronson, the former chief executive of Saks Fifth Avenue and a managing director at Kurt Salmon Associates, a retail consulting firm, said the credit tightness and consumer spending slowdown have only wiped out the “bottom tier” companies in retailing.

“This recession dealt the final blow to these chains,” he said. But several big-name chains are looking vulnerable. Linens ’n Things, which is owned by Apollo Management, a private equity firm, is considering a bankruptcy filing after years of poor performance and mounting debts, though it has additional options, people involved in the discussions said Monday.

Whether more chains file for bankruptcy or not, it will be hard to miss the impact of the industry’s troubles in the nation’s malls.

J. C. Penney, Lowe’s and Office Depot are scaling back or delaying expansion. Office Depot had planned to open 150 stores this year; now it will open 75.

The International Council of Shopping Centers, a trade group, estimates there will be 5,770 store closings in 2008, up 25 percent from 2007, when there were 4,603.

Charming Shoppes, which owns the women’s clothing retailers Lane Bryant and Fashion Bug, is closing at least 150 stores. Wilsons the Leather Experts will close 158. And Pacific Sunwear is shutting a 153-store chain called Demo.

Those decisions were made months ago, when it was unclear how long the downturn in consumer spending might last. If March was any indication, it is nowhere near over. Sales at stores open at least a year fell 0.5 percent, the worst performance in 13 years, according to the shopping council.

Prices for Key Foods are Rising Sharply; Half of Eligible Poor Don't Get Food Stamps

By Kevin Hall and Rob Hotakainen, McClatchy Newspapers
Posted on August 14, 2007
http://www.alternet.org/story/59713/

Prices for Key Foods are Rising Sharply
By Kevin G. Hall

The Labor Department's most recent inflation data showed that U.S. food prices rose by 4.1 percent for the 12 months ending in June, but a deeper look at the numbers reveals that the price of milk, eggs and other essentials in the American diet are actually rising by double digits.

Already stung by a two-year rise in gasoline prices, American consumers now face sharply higher prices for foods they can't do without. This little-known fact may go a long way to explaining why, despite healthy job statistics, Americans remain glum about the economy.

(click for larger version)

Meeting with economic writers last week, President Bush dismissed several polls that show Americans are down on the economy. He expressed surprise that inflation is one of the stated concerns.

"They cite inflation?" Bush asked, adding that, "I happen to believe the war has clouded a lot of people's sense of optimism."

But the inflation numbers reveal the extent to which lower- and middle-income Americans are being pinched.

The Bureau of Labor Statistics said in its June inflation report that egg prices are 19.5 percent higher than they were in June 2006. Over the same period, according to the department's consumer price index, whole milk was up 13.3 percent; fresh chicken 10 percent; navel oranges 19.8 percent; apples 11.7 percent. Dried beans were up 11.5 percent, and white bread just missed double-digit growth, rising by 9.6 percent.

These numbers get lost in the broader inflation rate for all goods and services, which measured 2.7 for the same 12-month period. Across the economy, rising food prices were offset by falling prices for things bought at the mall: computers, cameras, clothing and shoes.

"All of that stuff is going down in price, but prices for gasoline have gotten higher, and food prices have gone up," said Mark Vitner, a senior economist for Wachovia, a large national bank based in Charlotte, N.C.

People also go to the mall a lot less than they go to the grocery store, so they're constantly reminded that dietary staples are up sharply.

Why are food prices rising?

It's partly because of corn prices, driven up by congressional mandates for ethanol production, which have reduced the amount of corn available for animal feed. It's also because of tougher immigration enforcement and a late spring freeze, which have made farm laborers scarcer and damaged fruit and vegetable crops, respectively. And it's because of higher diesel fuel costs to run tractors and attractive foreign markets that take U.S. production.

The Labor Department's last detailed survey of consumer spending, in 2005, showed that Americans spent about 12.8 percent of their income on food. A bit more than 7 percent of their income was spent on food at home, and 5.7 percent was spent on food away from home.

These percentages suggest that higher food prices, while unwelcome, won't break the bank for most consumers. But for retirees such as Jacqueline Wilson, 60, of Upper Marlboro, Md., rising food and fuel prices take a big bite out of fixed income. "I make every dollar count," said Wilson, outside a Giant supermarket. "I cut back. … I get only as much as I need. I don't buy it because it is 10 for $10, but so that I'm using it and not wasting my money."

Asked about her view of the economy, she answered, "Terrible."

In broad terms, the economy isn't terrible. Unemployment is near record lows, and the second quarter posted a strong 3.4 percent growth rate. But it is for those Americans who are pinched by rising food and gasoline costs, and that's a lot of folks. Half the nation's families earn below the median family income of about $56,000. Three-fifths of American families report income under $70,000.

At the Al-Mara farm in Midland, Va., Jeff and Patty Leonard run a large dairy operation where about 600 cows produce 19,000 pounds of milk each day. They plant about 1,000 acres of corn, so they don't face all of the rising feed costs like some farmers. But they sympathize with consumers because the costs of nitrogen fertilizers and diesel fuel have all gone up sharply, raising production costs by nearly 30 percent.

"That's how your farmer feels here at home when we're trying to buy soybean meal, food for our cows and trying to maintain our equipment," said Patty Leonard. "I can understand exactly what the shopper is going through."

Milk prices aren't set on the farm. That's done by marketing cooperatives, which this year have been successful in passing on higher production costs after several dismal years of prices that took dairy farmers back to the 1970s.

"It's pretty much a realignment of the actual value of milk in today's dollar," Patty Leonard said. "Milk has been cheap for a long, long time."

Globalization also explains higher milk prices. Australia, a leading milk exporter, is struggling through a drought, and European governments are pulling back dairy subsidies. So U.S. farmers, aided by a weak dollar, are stepping in to meet growing demand for milk products in China and India. That's pinched supply at home and abroad, driving up prices.

"U.S. per capita dairy consumption is the highest it's been since 1987," said Chris Galen, vice president of the National Milk Producers Federation, pointing to rising U.S. demand for cheese, made from milk. "Americans are eating more cheese than ever -- not just volume but per capita."

To make more milk, or raise more chickens that lay more eggs, farmers need feed corn and other feed products. But corn prices have soared over the past year as Congress pushes ethanol, a renewable fuel made from corn. Fields that previously grew soybeans are now yielding corn, and that's driven up the price of soybeans as they become scarce.

Iowa State University's Center for Agricultural and Rural Development shocked the farm sector earlier this summer with a report that corn farmers are expected to lock in prices of $4 a bushel through 2010, about double what corn fetched two years ago.

"You will probably be seeing these prices rise for quite a long time and stabilizing, maybe, but not going back to the $2-a-bushel corn," said Jacinto Feitosa, co-director of the center in Ames, Iowa.

Study: Half of Nation's Poor Don't Get Food Stamps
By Rob Hotakainen

Half of the nation's eligible poor aren't getting the food stamps to which they're entitled, a study released Tuesday found.

The District of Columbia had the highest participation rate in 2004, at 71.8 percent, while Missouri ranked first among the 50 states in getting food stamps to its low-income residents. Nevada ranked last among states, with 32 percent of its eligible residents getting food stamps.

Overall, 50.2 percent of the nation's qualified poor received food stamps in 2004, according to the study by the National Priorities Project, a nonprofit and nonpartisan research group that examines the local impact of federal budget policies.

"We've got over 35 million people in this country struggling to get enough food to eat, and 50 percent of all low-income people are not receiving the benefit that is intended to alleviate this food insecurity," said Greg Speeter, the project's executive director. "While the food-stamp program provides a vital service, clearly too many people are still going without."

After Missouri, the states with the highest participation rates were Tennessee, Maine, West Virginia and Oklahoma. After Nevada, the states with the lowest participation rates were Wyoming, Utah, Colorado and Idaho.

The food-stamp program, founded in 1964 and run by the Department of Agriculture, is the largest of the federal government's food and nutrition programs. In 2004, the program cost $28.6 billion, or 1.2 percent of total federal spending, and served 23.2 million people, according to the study.

In examining state participation rates, the authors of the study focused on county data for 2004, finding wide differences.

The study found that a significant number of counties, 13.2 percent, had below-average percentages of low-income people participating in the program, even though they had above-average poverty rates.

The authors cited many reasons for the disparities, including the stigma of government benefits, eligibility rules and lack of information about the benefits.

Under the food-stamp program, a family is eligible for aid if its income is 130 percent of the poverty level.

Nearly all of the states followed a national trend of increasing the number and percentage of low-income people participating in the food-stamp program in recent years. The study said that much of the increase was the result of changes in eligibility rules that took effect in 2002. And since 2004, all states are now using electronic benefits transfer systems, which allow food-stamp beneficiaries to appear to be using debit cards.

Only three states — Hawaii, Rhode Island and Connecticut — had decreases in the proportion of low-income people participating in the program between 2000 and 2004.

Percentage of low-income people receiving food-stamp benefits in 2004 by state, from low to high:

United States - 50.2

1. Nevada - 32.3
2. Wyoming - 35.0
3. Utah - 35.2
4. Colorado - 36.6
5. Idaho - 38.7
6. New Jersey - 38.9
7. Wisconsin - 40.0
8. Kansas - 40.4
9. Maryland - 40.4
10. New Hampshire - 40.8
11. Massachusetts - 41.2
12. Florida - 43.2
13. Minnesota - 43.7
14. California - 44.2
15. Iowa - 44.4
16. Nebraska - 46.0
17. Rhode Island - 46.1
18. Arizona - 46.1
19. Connecticut - 46.2
20. Montana - 46.8
21. North Carolina - 47.1
22. Texas - 47.2
23. North Dakota - 47.3
24. Virginia - 47.5
25. New York - 47.5
26. South Dakota - 48.2
27. Washington - 50.0
28. Mississippi - 51.3
29. Alaska - 52.0
30. Alabama - 53.1
31. Georgia - 53.3
32. Pennsylvania - 53.3
33. Delaware - 53.7
34. Ohio - 53.7
35. Illinois - 55.1
36. Indiana - 55.2
37. New Mexico - 55.7
38. Vermont - 55.8
39. Michigan - 58.9
40. South Carolina - 59.3
41. Hawaii - 60.1
42. Arkansas - 60.6
43. Kentucky - 61.0
44. Louisiana - 64.6
45. Oregon - 64.7
46. Oklahoma - 65.1
47. West Virginia - 65.3
48. Maine - 67.1
49. Tennessee - 67.9
50. Missouri - 71.5
District of Columbia - 71.8

(Source: National Priorities Project)

AlterNet is making this material available in accordance with Title 17 U.S.C. Section 107: This article is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

© 2007 Independent Media Institute. All rights reserved.
View this story online at: http://www.alternet.org/story/59713/

If This Is Such a Rich Country, Why Are We Getting Squeezed?

By Heather Boushey and Joshua Holland, AlterNet
Posted on July 18, 2007,
http://www.alternet.org/story/57180/

The commercial media is telling us two perfectly contradictory stories about the American economy. The first is how wonderfully rich we are in the United States. The stock market's booming -- some analysts predict the Dow will break the 15,000 this year -- the economy is expanding at a healthy clip, productivity growth is up and unemployment and inflation are relatively low.

But, at the same time, we're also told that we don't have the money to pay for a robust social safety net. When it comes to paying for universal health coverage, affording retirement security for our elderly, investing in programs for the poor or educating our children, we need to pinch pennies. According to this story line, we face a looming "entitlement crisis" -- we won't be able to afford to keep the Baby Boomers in good health and out of poverty, we're told, unless we slash their benefits and privatize the programs that their elderly parents enjoy today.

This is the line we hear from the administration when it talks about entitlement "reform": Treasury Secretary Henry Paulson says that "the biggest economic issue facing our country is the growth in spending on the major entitlement programs: Medicare, Medicaid and Social Security." The solution, according to the Heritage Foundation, is to cut entitlement spending. "Reforming Social Security, Medicare, and Medicaid is the only way to get the budget under control," it says.

How can two narratives that are so clearly at odds with each other be so pervasive? Are we seriously supposed to believe that Paris Hilton has to dig between the cushions of her sofa to buy a can of tuna?

What reconciles these two themes is absent from our mainstream economic discourse: We "can't afford" all sorts of programs that are clearly in the common good because most of the benefits of our growing economy have gone to a very small group of Americans, who have, in turn, seen their taxes slashed again and again in the past six years. It's a story that isn't told as often as it should in the commercial press, because it's a supposedly "liberal" narrative -- never mind that über-conservative former Fed Chairman Alan Greenspan told Congress that there is a "really serious problem here, as I've mentioned many times … in the consequent concentration of income that is rising."

Saying that the majority of the country's economic gains in recent years have gone to the top 1 percent of the income ladder understates the trend. You have to cut the pie into even smaller slices to get the full picture. Because, while the bottom half of the top 1 percent of the income distribution have done far better than the average wage slaves, it is a smaller slice still -- the top .01 percent -- that has grabbed most of the gains, seeing an impressive 250 percent increase in income between 1973 and 2005 from an economy that's grown by 160 percent.

An analysis by economists Thomas Piketty and Emmanuel Saez gives us the best perspective of what's going on for everyone else. They found that despite several periods of healthy growth between 1973 and 2005, the average income of all but the top 10 percent of the income ladder -- nine out of ten American families -- fell by 11 percent when adjusted for inflation. For three decades, economic growth in the United States has gone first and foremost to building today's modern Gilded Age. The recipients of those gains don't care about a fully funded Social Security system or a healthy Medicare program -- they don't need them.

Meanwhile, even as the top earners' incomes have gone through the roof, their tax burden has shriveled. At the same time, the share of federal revenues contributed by corporations has declined -- by two-thirds since 1962.

It's important to understand how that plays out in our national economic discourse. When people tell us that our economy cannot "afford" things like universal healthcare or paid sick days, it fits with the economic experience that most Americans have had in their real lives -- the benefits of our boom-boom economy have not gone to the great masses but to "someplace else."

Americans feel pinched. Polls show that they feel a time crunch -- not having enough time for family and friends -- and that they're anxious about getting into or staying in the middle class. Over the past generation, the economy has not been good to the typical, married-couple family (let alone single-parent families) and families feel, rightly, that they need to be careful about where their dollars go.

It's not that they're not working hard. The typical U.S. family puts in more time at work than ever before. The typical married couple works an additional 13.3 weeks per year -- 533 hours -- compared to a generation ago. But even though families are working more, their incomes have grown by only a third between 1973 and the present. That's much worse than the generation before; between 1947 and 1973, the typical married-couple family saw their income rise by 115 percent, and that was often just one parent's income. This was a period when most families could afford a stay-at-home mother. Of course, fewer families have that luxury today -- those with stay-at-home moms have the same inflation-adjusted median income in 2007 as they did in 1973. They haven't gained a penny from three decades of growth.

When we talk about the slow growth of family income, economists like to mention globalization, mechanization or other factors that require us to be lean and mean and more "competitive." The story line is that U.S. families have not seen their income grow because America has had to fight it out in a wide-open global economy, and these are lean times for workers.

But that's simply not true.

The economy -- as measured by gross domestic product (GDP) -- has grown by over 160 percent since 1973 (PDF). This is only slightly less than the period from 1947 to 1973 when GDP grew by 176 percent. That has come as Americans have become much more productive -- by over 80 percent since 1973 -- meaning it now takes fewer workers to produce the same number of widgets as it did in the past.

As each worker in the U.S. economy produces more "stuff" per hour, be that DVD players or clients served, those goods and services are being sold in greater numbers. In a healthy economy, that growth is shared between workers and investors, and wage growth should rise with productivity. This was the case in the decades between World War II and the early 1970s, when productivity and median wages both increased by an average of two percent to three percent every year. But since 1973, productivity has increased sharply, especially after the late 1990s, but median wage growth has been flat. So firms are getting much more output per worker, but they're not paying for it. They've pocketed the difference in executive compensation and corporate profits. The share of national income going to wages is at the lowest level ever recorded, while the piece of the pie gobbled up by corporate profits is at its highest point since 1960.

But when the masses ask for help paying for health insurance or child care, or request that everyone be given the right to paid sick days, we're told we cannot afford it. "Afford" seems to be a very special term in the current American context: Letting the wealthy take ever-bigger pieces of our national product is something we always seem able to afford.

We work hard. We -- the 99.9 percent -- and deserve a bigger piece of the pie. With a growing economy, we can afford it, and we all know just where to look for how to pay for it.

Heather Boushey is a senior economist with the Center for Economic Policy and Research. Joshua Holland is an AlterNet staff writer.

© 2007 Independent Media Institute. All rights reserved.
View this story online at: http://www.alternet.org/story/57180/