bank run blog

A report released last week by the Government Accountability Office reveals that two-thirds of US corporations claimed zero federal income tax liability between 1998 and 2005. The report, which was compiled at the request of Democratic Senators Carl Levin of Michigan and Byron Dorgan of North Dakota, also finds that 68 percent of foreign-controlled corporations with US operations paid no taxes over the same period. The GAO concluded that together the companies reported trillions in US revenues during the years studied.

“It’s shameful that so many corporations make big profits and pay nothing to support our country,” said Dorgan, who called the report “a shocking indictment of the current tax system.” Levin highlighted the sophisticated accounting practices that enable companies to legally reduce their tax liabilities through the transfer of funds, saying, “corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States.” The report comes in the wake of the Bush administration announcement that the US budget deficit for next year will reach a record $486 billion.

In 2005, the most recent year for which figures are available, 66.7 percent of US corporations, more than 1.2 million companies, paid no federal income tax. Additionally, more than 38,000 foreign corporations also avoided US corporate tax in the same year. The companies avoiding income tax reported a combined $2.5 trillion in sales. The GAO also found that 72 percent of foreign corporations and 57 percent of US companies paid zero income taxes for at least one year between 1998 and 2005. More than 42 percent of US corporations and half of all foreign companies avoided all taxes for two or more years during that period.

The GAO report did not name specific companies. Corporations typically claim zero liability when they report an operating loss, or by the application of tax credits or other government incentives, which may include tax deferments. Critics of US corporate tax policy accuse large corporations of aggressively avoiding tax liability through elaborate transfer pricing structures that shift profits and losses to the most advantageous tax jurisdictions.

cross posted at

redstateupdate.net

For at least four years, perceptive analysts have been predicting that the economic meltdown that began with massive securities fraud on Wall Street would eventually precipitate a steady decline in US prestige internationally, along with a dramatic reduction in American living standards. Among the more extreme scenarios, early on, was the nation losing its triple A credit rating.

Now that has become a possibility that mainstream media outlets are willing to consider. Three recent news stories contemplate different circumstances that could lead to the US being downgraded. USA Today reports that the country’s aging population threatens its credit rating :

“The United States may lose its “AAA” top credit rating unless the government adopts ‘concerted’ policy and fiscal reforms to mitigate the ‘intense’ pressures on the budget from an aging population, ratings agency Standard & Poor’s said Tuesday.

Unless the government takes measures to cut its fiscal deficit, the country’s credit rating would fall to single-A after 2015 and as low as the ‘BBB’ category by 2020, S&P said in a press release.”

The Treasury assures us that the staggering record budget deficit recently announced by the Bush administration will not lead to an immediate downgrade, according to the Washington Times :

“Two days after the White House revealed that the budget deficit for fiscal 2009 will set a record approaching $500 billion, the Treasury Department announced its strategy to finance all that extra borrowing.

Anthony Ryan, Treasury’s acting undersecretary for domestic finance, announced Wednesday that the federal government will borrow $171 billion during the July-September quarter. That’s the second-largest quarterly financing requirement in history - and fiscal 2009 doesn’t even begin until Oct. 1.

Mr. Ryan expressed confidence that the federal government would continue to maintain its AAA credit rating even as budget deficits rise.”

MarketWatch reports that even after the inevitable bailout of Fannie Mae and Freddie Mac, the US will still be a triple A debt customer :

“Although extending aid to Fannie Mae and Freddie Mac could test the resiliency of the U.S. government balance sheet, it would not endanger the U.S. government’s strong Aaa rating, Moody’s Investors Service said Thursday.”

USA Today : Aging population threatens USA’s “AAA” credit rating

Washington Times : Treasury confident it will keep AAA rating

MarketWatch : Moody’s: Fannie, Freddie woes no threat to U.S. ‘Aaa’ rating

George W. Bush led a high level delegation to Beijing for the opening of the Summer Olympics, becoming the first US president to attend the games overseas. In what was the final scheduled visit to Asia during his presidency, Bush attempted to strike a difficult balance in his public statements, occasionally reproaching his Chinese hosts over the usual human rights issues. But such criticism was designed largely for US domestic consumption, because in geopolitical terms these Olympics mark the culmination of a process that began more than thirty years ago under the supervision of senior members of the Nixon administration, including George H.W. Bush and Henry Kissinger, who were both present in Beijing last week.

The elevation of China to “superpower” status was inevitable given an international paradigm that demands such neoimperialist hyperstates, but there has been a longstanding consensus among DC think tankers from both parties that posing as a facilitator to Chinese modernization would be good for business. A secondary objective of alienating Beijing from Moscow seemed superfluous after the collapse of the USSR, and was all but forgotten until the tiny Georgian military provoked Russia, oddly while President Bush and Russian Prime Minister Vladimir Putin were both in China for the games. Against the backdrop of the fantastically choreographed opening ceremony, Bush sought to reassure the Chinese government about the state of the US economy, including emergency market interventions that have already been tremendously beneficial to Chinese investors. It is likely that the president also tipped off his hosts on the Georgian action, as well as preparations for a US naval blockade against Iran.

With the American public fixated on an orgy of self-congratulatory “support” for a few individual competitors, notably uber-winner and future serial endorser Michael Phelps, China has remained solidly in the lead in gold medals throughout the games. Similarly, the tail of US consumerism will be allowed to wag the dog of Chinese growth for a while, as long as the gold accumulates in acceptable locations. After all, the Americans were good customers, back when they had money. Eventually, the emergence of the new BRIC bloc (Brazil, Russia, India, China), for which the US team is utterly unprepared, will lead to the Americans being shut out of precious medals altogether.

cross posted at

redstateupdate.net

As the third anniversary of Hurricane Katrina approaches, analysts are generally pessimistic about the long-term prospects for economic recovery in New Orleans. Today CNN Money is reporting New Orleans still searching for economic elixir :

“Almost three years after Hurricane Katrina, interest increasingly is focusing on New Orleans’ economy, and whether rebuilding now under way has breathed new life into what had been a back-in-the pack business climate.

Buoyed by billions of federal aid dollars, construction companies are doing well. Tourism is rebounding. But overall, there’s not a lot of glow in the city’s economic situation.”

Most of the “growth” is just contractors milking government funds, a diminishing source of financial activity for which local economists don’t see a replacement. According to the New Orleans Times-Picayune :

“As hurricane rebuilding continues, the New Orleans economy is “plodding along” but not showing signs of growth with new businesses coming into the area, economist and consultant Loren Scott said Monday.”

CNN Money : New Orleans still searching for economic elixir

New Orleans Times-Picayune : Local economy ‘plodding along’

Reuters : FACTBOX: New Orleans before, after Hurricane Katrina

The US Labor Department reported that the jobless rate rose to a four year high last month. Unemployment increased in 45 of 50 states in July with some of the hardest hit states in the sun belt losing between 15 and 20 thousand jobs. Florida alone lost 21,400 jobs as tourism and construction sectors contracted registering heavy job losses.

Mississippi and South Carolina had the biggest increases in unemployment last month, each rising 0.9 percentage point with the joblees rate in Mississippi reaching 7.9 percent and the jobless rate in South Carolina climbing to 7 percent. Bloomberg reports, “Payrolls decreased in 36 states…The tally of individual state figures showed the U.S. lost 111,000 jobs last month.”

In California, where the jobless rate has risen to 7.6 percent, a total of 371,000 people were unemployed in July in Los Angeles County and the jobless rate in San Diego County the highest it has been in thirteen years. The San Diego Union Tribune reports, “job losses were concentrated in the housing sector. Construction, real estate and mortgage companies have lost 14,100 jobs over the past year.”

But the pain has been felt deeper in the community;

“With foreclosures and defaults continuing to rise, San Diegans have less money to spend, meaning less business at local stores. As a result, retailers shed 2,200 jobs, mostly at auto dealerships, furniture stores, home-improvement outlets, clothing boutiques and general merchandisers.”

see stories-
Bloomberg : Florida, Georgia Had Biggest Job Losses in July, Labor Says
KNBC News : Gov’t: Local, State Unemployment Rates Increase
San Diego Union Tribune : Experts blame bust in housing market

The Federal Reserve reports that the nation’s banks have tightened lending standards across the board for all types of loans responding to both delinquencies and a slowing economy. The Fed said that a survey of federal banks revealed, “domestic institutions reported having tightened their lending standards and terms on all major loan categories over the previous three months.” About 75 percent of institutions polled said that they had tightened lending practices on all types of loans, including home mortgages. Bloomberg reported;

“Funds were scarcer for homebuyers and small businesses, credit card loans became tougher to get, and even banks’ best customers were subject to greater scrutiny. Tighter credit may delay any recovery in economic growth, which economists forecast will slow well into next year.”

Bloomberg reports that since the Fed began lowering interest rates last year, rates that banks charge for home loans have actually increased. The Fed has cut its main lending rate by 3.25 percentage points over the past year to 2 percent while banks are charging homeowners 6.52 percent on a 30-year mortgage as of this month. Bloomberg writes;

“Banks may be reluctant to lend against housing collateral that is falling in value. Home prices in 20 U.S. metropolitan areas dropped 15.8 percent in May, the biggest decline since record keeping began in 2001, according to the S&P Case-Shiller Home-Price Index.”

Banks also tightened their lending standards on non-mortgage loans with 60 percent of the polled institutions reporting that they have increased interest rates on credit card loans, up from 30 percent earlier this year.

see story-
Bloomberg : Fed Says Banks Toughen Lending Standards Amid Slump

The Commerce Department reports that retail sales fell in July, the decline in sales was the first drop seen in five months. Reuters writes the government stimulus package of so-called “tax rebate” checks may have helped to boost consumer spending during the month of June, “but their influence appears to have petered out by July.” Consumer spending makes up more than two-thirds of the US economy.

The White House says high fuel prices are among the factors creating “substantial headwinds faced by households” that bought fewer automobiles last month, causing the drop in consumer spending. Commerce reported that sales at auto dealers and parts stores dropped 2.4 percent.

Bloomberg said that consumer spending “is likely to keep fading as a boost from tax rebates wanes and households try to cope with job losses and house-price declines.” Bloomberg quoted an executive of the Manufacturer’s Alliance who believes;

“A whole host of factors - unemployment growing, wages flat to stagnating, the wealth effect of lower house prices and stock prices - all are conspiring to forecast, I think, weaker sales ahead.”

One bright spot in the retail sales numbers was in the sale of gasoline since last year at this time. Although the American Petroleum Institute reported that gasoline use has declined by more than 2 percent since last year at this time and the Federal Highway Administration said that Americans drove 12.2 billion fewer miles this June compared to last year, the rise in gas prices pushed sales up by 0.8 percent over last years figures.

see stories-
Bloomberg : U.S. Economy: Retail Sales Fell in July, Led by Autos
Associated Press : Retail sales drop for first time in 5 months
Reuters : Check Out Line: The short-lived tax rebate boost

The Telegraph writes that a Merrill Lynch economist said that US unemployment figures suggest that the US is in a recession.

Although the “official” government reported statistics relate that the US economy has not dropped into recession, Merrill Lynch’s David Rosenberg said that the fact that the unenployment rate has risen for each of the past six months confirms that the US has been and continues to languish in a recession. Rosenberg said, “At no time in the past 50 years has this happened without the economy being in an official recession.”

Merrill Lynch predicts that “massively revised” governemnt data will be released that reveals that the US has been in a recession for perhaps the past 10 months.

see article-
Telegraph UK : US is in recession: Merrill Lynch’s David Rosenberg

A year after the Interstate 35W bridge in Minneapolis collapsed at rush hour, sending cars, trucks, buses and debris hurtling 60 feet down an embankment into the Mississippi River, little has been done to comprehensively address the nation’s deteriorating civil infrastructure despite public support and various state and federal legislative initiatives. The Minneapolis tragedy, which killed 13 and injured 145, briefly focused public attention on the issue, but opposition from the Bush administration and private corporate interests has effectively halted action at the federal level, while fallout from the economic downturn has overwhelmed state and local efforts. Experts have warned that more than one in four US bridges is classified as either “structurally deficient” or “functionally obsolete”.

A study released last week by the American Association of State Highway and Transportation Officials concluded that more than 152,000 public road bridges in the country remain at risk, out of a total of about 600,000. The findings are in line with the most recent survey by the Federal Highway Administration, conducted in 2006. At that time the American Society for Civil Engineers estimated that repair costs would exceed $200 billion over 20 years. An independent investigation by the Associated Press found that in the year since the I35W collapse just 12 percent of the nation’s most heavily used bridges with known structural deficiencies received any repairs at all.

Pennsylvania Governor Edward Rendell told the Los Angeles Times, “The push to repair bridges and our country’s infrastructure has become a victim of the bad economy. If we don’t put money into our roads and bridges and infrastructure, our economy will get even worse. We won’t be able to transport anything across this country.” Rendell has joined with other prominent state and municipal officials, including California Governor Arnold Schwarzenegger and New York Mayor Michael Bloomberg, in a bipartisan coalition to promote a national infrastructure-rebuilding program and lobby for a massive increase in federal funding.

US bridges were built to last about 50 years, and the average bridge in the country is 43 years old in 2008, according to the AASHTO report released last week. Pennsylvania alone has more than 6000 deficient bridges, with an average age of 51.

cross posted at

redstateupdate.net

A California construction company chosen by the US government for civil and military infrastructure projects worth hundreds of millions of dollars wasted millions on “incomplete, terminated and abandoned projects,” according to a report by Special Inspector General for Iraq Stuart Bowen. The report found that Pasadena-based Parsons Corp. received more than $142 million, or 43 percent of its total revenues under its Pentagon contract, for projects that were left unfinished or abandoned in various stages of completion. According to the Inspector General, Parsons completed only 18 of 53 construction projects under its contract, which was worth up to $900 million.

In one notable case detailed in the report, Parsons was paid $31 for its work on a prison before being fired from the job in 2006 for delays and shoddy work. Although the Pentagon subsequently paid another contractor a further $9 million to continue work at the site, it was finally abandoned and remains vacant.

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redstateupdate.net