Weekly Audit: GOP Plays Chicken with the Debt Ceiling

By Lindsay Beyerstein, Media Consortium blogger

Sen. Jim DeMint (R-SC) is calling for a “big showdown” over the upcoming vote to raise the nation’s debt ceiling to $14.3 trillion from $13.9 trillion. The debt ceiling is simply the maximum amount the government can borrow.

Congress routinely raises the debt ceiling every year. It’s common sense: Since the government has already pledged to increase spending, Congress must authorize additional borrowing. (Remember that the government is now forced to borrow billions of extra dollars to pay for tax cuts for the wealthy, which Republicans insisted on.) If the ceiling isn’t raised, the United States will be forced to default on its debts, with catastrophic consequences.

Why would default be catastrophic? The principle is the same for countries and consumers alike: If you have a good track record of paying your bills, lenders will lend you money at lower interest rates. If you don’t pay your bills on time, or default on your obligations altogether, lenders will demand higher interest rates.

Congressional Republicans say they oppose raising the debt ceiling because they favor fiscal responsibility. This kind of rhetoric is the height of recklessness. The interest on our debts is a big part of government spending. Even idle talk about defaults could spook some creditors into raising interest rates on U.S. debt and cost taxpayers dearly.

Steve Benen of the Washington Monthly quotes Austan Goolsbee, chair of the White House’s Council of Economic Advisers, who says that congressional GOP members are flirting with the “the first default in history caused purely by insanity.”

Making work pay (for real)

An astonishing 80% of full-time minimum wage workers can’t afford the necessities of life, according to new research by labor economist Jeannette Wicks-Lim of the Political Economy Research Institute, featured on the Real News Network.

Wicks-Lim argues for a two-part solution to the crisis of working poverty in America: i) raising the federal minimum wage to $12.30/hr from $7.50/hr; ii) Increasing the earned income tax credit to 40% of income. She estimates that these two policy changes would raise the income of a minimum wage worker from $15,000 to about $36,000 at a manageable cost to employers and taxpayers.

Her proposal is a revamp of President Bill Clinton’s attempt to “reform” welfare by cutting social service benefits and shifting government spending to tax credits. Currently, the Earned Income Tax Credit is a subsidy for the working poor that is designed to “make work pay”–i.e., if workers aren’t making enough in wages to secure a decent standard of living, the government provides an income subsidy to reward them for working.

However, if a decent standard of living remains out of reach for 80% of full-time minimum wage workers, Wicks-Lim argues that the minimum wage is too low and the subsidies are too modest to achieve the stated goal of making work pay.

Colorado minimum wage inches up

Speaking of minimum wage issues, Scot Kersgaard of the Colorado Independent reports that the minimum wage in the state ticked up from $7.25 an hour to $7.36 on January 1. The modest increase represents the annual adjustment for inflation. Every bit counts, but Colorado families are falling further behind. According to a new report by the Denver-based Bell Policy Center, 8.3% of working families in Colorado live below the federal poverty line, which is $22,050 for a family of four. Fully one-fourth of Colorado families do not earn enough to meet their basic needs, which requires an income approximately twice the FPL, according to the report.

Colorado is one of only 10 states that automatically adjust their minimum wages for inflation.

Wage theft epidemic

Unscrupulous employers are stealing untold millions of dollars from hardworking Americans, Dick Meister reports in AlterNet:

The cheating bosses don’t take the money directly from their employees. No, nothing as obvious as that. The employers practice their thievery by underpaying workers, sometimes by paying them less than the legal minimum wage. Or they fail to pay employees extra for overtime work, or even force them to work for nothing before or after their regular work shifts or at other times. Some employers make illegal deductions from employee wages. And some withhold the final paycheck due employees who quit.

In New York City alone, an estimated $18 million worth of wages is stolen every week. Workers in the restaurant, construction, and retail sectors are at increased risk of wage theft. Wage thieves disproportionately target undocumented workers because they assume that these employees will be less likely to report the crime.

Debt collection from beyond the grave

The dead don’t tell tales, but they have been known to sign debt collection papers, Andy Kroll reports in Mother Jones. Martha Kunkle died in 1995, but her printed name and signature appear on paperwork filed by the debt collection agency Portfolio Recovery Associates as late as 2006 and 2007. The ruse was discovered and PRA, facing a fraud lawsuit, agreed in 2008 that the “Kunkle’s” documents couldn’t be used in court. That didn’t stop the agency from trying to use them again in 2009.

The attorney general of Missouri has announced that he will investigate whether any of Kunkle’s handiwork was used to support debt collection in his state. The attorney general of Minnesota is already investigating whether debt collectors have used fraudulent paperwork in court.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

China's growth: still real

Cross-posted at River Twice Research.

This week, the Chinese government announced that China’s economy had expanded by a stronger-than-anticipated 10.7 percent in the last quarter of 2009 and that it had grown 8.7 percent for the entire year. This news, however, was not greeted with relief but with the skepticism that has typically met such news emanating from China in recent years. The Wall Street Journal ran a story on its front page with the headline “China Seeks to Tame Boom, Stirs Growth Fears.”

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The Easiest Way to Cripple Our Economy: Let Politicians Run the Federal Reserve

By: Inoljt, http://mypolitikal.com/

Several weeks ago, the House Financial Services Committee approved an amendment that would quite negatively impact our economy's future well-being. If passed, this change could hamper GDP growth for decades to come.

Offered by Congressman Ron Paul, the amendment vastly expands the Congressional Accounting Office's auditing powers over the Federal Reserve. Consequently, the Federal Reserve's cherished independence would be drastically curbed. Every unpopular action the Federal Reserve made could potentially be scrutinized by vote-seeking politicians. This would effectively intertwine politics into the serious business of running the economy - and if the Soviet Union taught us anything, that is a terrible, terrible idea.

Imagine, for example, if this policy had been in place three decades ago - during the 70s and 80s. The great economic challenge of those decades was stagflation, a ruinous combination of high inflation, high unemployment, and stagnant economic growth initiated by oil shocks. Presidents from Nixon to Carter attempted to combat the demon, instituting policies that ranged from price controls to handing out WIN (Whip Inflation Now) buttons.

The problem with stagflation, however, was that defeating it required extremely unpopular action - action no poll-reading politician was willing to take.

More below.

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A Recovery, But For Whom and For How Long?

Last Thursday, the Bureau of Economic Analysis at Department of Commerce released preliminary Third Quarter GDP figures. Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.5 percent in the third quarter of 2009, the first sequential growth in four quarters. The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment.

The figures released also mark the strongest growth rate in two years and a pause in the economy's dark slide. Over the past 12 months, the US economy  had contracted 2.3 percent. In 2008, the American economy grew a scant 1.1 percent shedding 2.6 million jobs, a number equal to the number of jobs found in states such as Wisconsin, Missouri or Maryland. And throughout 2009, the US economy has continued to shed jobs. Since the start of the recession in December 2007, the number of unemployed has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled to 9.8 percent. The job losses have been particularly brutal in a number of sectors. Employment in manufacturing has contracted by 2.1 million since the onset of the recession while the construction industry has lost another 1.5 million jobs. So in looking at this recovery, one must ask for whom.

Nearly 63 percent, or 2.2 percent, of the 3.5 percent increase in GDP was due to temporary government tax credits to consumers that have either expired or are set to expire before the end of the year. For example, durable goods spending surged 22.3 percent boosted by the Federal government's "cash-for-clunkers" program. Federal spending outlays added another 0.6 percent to growth. But for the fiscal stimulus, we would be looking at an essentially flat-lined third quarter.

Furthermore though corporate profits - 81 percent of the S&P 500 topped expectations - rebounded, most of the increase in profit, however, came from cost cutting rather than from robust sales, which should raise concerns about the sustainability of the nascent economic recovery. And corporate cost cutting was achieved largely by depressing wages and cutting employees' hours. The Obama recovery, such as it is, is little more than another vast redistribution of wealth from the bottom to the top. Wall Street gains mask Main Street pain. The players may be different, but this is still a neo-liberal game being played.

On Meet the Press, Secretary Geithner described the growth in the economy as "broad based." He must have a rather narrow definition of "broad based." This is a recovery that is leaving millions of Americans further behind and eroding living standards. While corporate profits rise, real average weekly earnings continue to fall. Average weekly earnings in the manufacturing sector rose by only 0.7 percent in September, as the average number of weekly hours worked fell to a record low of 33 hours. That's the lowest annualized weekly earnings growth since such data began to be tracked in 1964. Overall, the BLS reports that average weekly earnings have fallen by 1.9 percent since the beginning of the year with disposable income decreasing 3.4 percent in the quarter. It is simply incumbent upon the Administration to do more for the average American worker. The budget was a start but the Administration needs to address the structural unemployment problem and fully commit to broad redistributive policies that will create truly broad-based prosperity and not just one for investment bankers.

The economy has still has some major hurdles to confront. In February I began harping on the coming crash in commercial real estate. US commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. Thankfully, this is beginning to get some press as billionaire investors Wilbur Ross and George Soros "freak out."

There continue to be deflationary pressures in a wide range of asset classes: housing and rents being the most noticeable. But there are also inflationary pressures in the commodities markets. Since the start of the year, oil prices have more than doubled, copper is up more than 120 percent and gold has gained more than 10 percent. Zinc prices despite a 5 percent decline in demand are up over 75 percent. And while food inflation has so far remained in check, there are warning signs of creeping food prices.

It is to the Administration's credit that we have averted a systemic crash. However, as the Federal Reserve and the Treasury Department begin to wind down the extraordinary programs implemented over the past year, the likelihood of further financial turmoil is not just extant but high. And for too many Americans, the financial turmoil never ceased to begin with.

Below the fold, the thoughts of Joseph Stiglitz on the recovery.

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Weekly Audit: Radical Inequality Fueled the Wall Street Meltdown

by Zach Carter, Media Consortium MediaWire Blogger   

Now that Treasury Secretary Timothy Geithner isn't going to impose pay restrictions on bailed out Wall Street executives, it's critical to remember that severe economic inequality was a major factor in the financial meltdown. Our tax code funnels money into the hands of our wealthiest citizens, which means that our financial system protects the interests of the affluent—not the the average citizen. The broad divergence between our core democratic values and the existing U.S. economic structure must become part of the public debate over financial reform.    

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