Sunday, October 25, 2009

Reclaiming TARP, Reclaiming Public Housing

Land and Housing Action Group

Working Paper: Reclaiming TARP, Reclaiming Public Housing

Since the fall of 2008 the United States Federal Government has purchased millions of foreclosed properties through the Troubled Asset Relief Program or TARP. These acquisitions were made in an attempt to help stabilize the worlds financial markets, which were quite literally on the verge of collapse throughout the latter half of 2008.

The Land and Housing Action Group maintains that all of the properties purchased with public funds via the TARP program constitute public goods that must be utilized to fulfill a public need. To be more direct, we maintain that these homes are now in fact public housing, and that they must be used as such to fulfill the US government’s human rights obligation to provide adequate housing to all the citizens and residents under its jurisdiction.

We reject the approach being employed by the Obama administration, rooted in neo-liberal economics, which allows the banks to determine the use and ownership of the properties purchased and insured with public funds. This approach, although consistent with the imperatives of capitalism, is inconsistent with human rights and constitutes a fundamental violation of the government’s obligations to respect, protect and fulfill economic, social and cultural rights. Rather than allowing these properties to be resold and the profits privately appropriated by the banks, we maintain that these properties must be removed from the commodities markets and placed in the possession of local community land trusts to ensure that the economic, social, and cultural rights of impacted communities are progressively realized utilizing the maximum available resources possessed by the government.

To this point, the concrete result of the TARP bailout has been to transfer of an astounding amount of public wealth (over 1.5 Trillion dollars) to private institutions and individuals to preserve their fortunes. While this transfer has helped forestall the collapse of the worlds financial markets, it has not stopped millions of families throughout the United States, particularly working class African American and Latino families, from being displaced and dispossessed from their homes and communities. In short, the banks have been saved, but the people have been abandoned.

The Land and Housing Action Group is encouraging everyone to join us in changing this shameful reality. We call on everyone committed to protecting and realizing the human right to housing to join us in building the “Take Back the Land” campaign and supporting the declaration that all the properties paid for with public funds must be turned into public housing immediately. It is only by building a mass direct action movement to Take Back the Land that we will realize the fulfillment of our human right to adequate housing.

For more information on how you can join or support the Take Back the Land campaign email Or call 404.588.9761.

Wednesday, September 23, 2009

USHRN Statement on the G20 Summit in Pittsburgh, Pennsylvania

The Group of 20 (G20) Summit is steaming rolling through Pittsburgh, Pennsylvania September 24th and 25th. Led by the United States, the G20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, and the European Union. The Pittsburgh Summit, like all the G20 proceedings, is a closed-door session of the finance ministers and central bank governors of the aforementioned nations. The declared objectives of the summit are to end the financial and economic crisis that is ravaging the peoples of the world and lay a foundation to address climate change. The question must be asked, how do the economic elite of 20 nations decide the fate of the all the inhabitants of the earth? Who appointed them to carry out this monumental task?

The G20 is a self-appointed group. It is the outgrowth of the G6, which was initiated by the United States in the 1970’s as an exclusive club of the worlds richest and most powerful nations to promote “free trade” and monitor world financial flows. The G6 expanded to become the G20 when the G8 (an antecedent of the G6) was forced to recognize the economic strength of China, India, and Brazil and that of other “emerging market” nations of the world.

At its core, the G20 is an institutional reflection of the interdependent systems of inequality – sexism, colonialism, capitalism, and imperialism - that structure the modern world system. The power of the G20 to determine the financial and economic reality for all the 192 recognized member nations of the UN reinforces and perpetuates these relationships of subordination and domination.

The US Human Rights Network (USHRN) condemns the G20 processes which are neither transparent, accountable, nor democratic. They perpetuate the relationships of subordination and domination that systematically deny the human rights of the majority of world’s people. We maintain that the proper forum and mediating body to resolve the world’s financial and economic crisis is the United Nations (UN). Although the financial, economic, and climate crisis were not created by the developing nations of the Global South, the nations of the Global South have been disproportionately effected. Therefore, as a matter of principle, all of the world’s nations should have equal say in their resolution.

The citizens and residents of each nation-state – including those of the United States - must also have a direct say in the mediating processes aimed at resolving the financial, economic, and climatic crises. The US Human Rights Network demands that the United States government fulfill its obligations to citizen participation and transparency in determining its crisis resolution policies. To advance this process, the US Human Rights Network is demanding that the US government comply with following recommendations and processes to ensure that the fundamental human rights of its citizens and residents are duly protected :
1. Channel resources towards protecting rights, not shielding wealth. Revisit tax cuts and the money being used to bail out financial institutions. Increase transparency and accountability to ensure that the funds are being used to prevent the retrogression of rights, not simply the realization of profits.
2. Provide more federal funds to state and local government to prevent cuts to education, health, and core social services. Revisit the need for greater stimulus as the impact on state and local budgets becomes clear.
3. Stop foreclosures – implement a real rescue package for residential housing.
4. Monitor job creation associated with the recovery to ensure that jobs are of decent quality and employment opportunities are equitably distributed. Shift priorities and create new programs to include women and people of color.
5. Introduce a comprehensive set of regulations for the financial sector as a whole. Make sure that prudential safeguards are introduced to prevent future crises. Balanced regulation, not biased regulation.
6. Conduct a national audit of fiscal policy practices of state and local governments to determine which policy decisions (e.g. tax cuts) have reduced available resources and therefore made spending so sensitive to economic cycles. Reform tax systems to prevent similar cuts during future downturns.
7. Recognize that health care is a human right and not a commodity to sell for profit.
8. Extend unemployment insurance, disability benefits, and support to low-income households to help maintain a minimal standard of living.
9. Democratize the Federal Reserve System to improve public participation and hold public and private actors accountable for policy decisions which risk threatening human rights.

The US Human Rights Network calls on all its members and supporters to adopt these demands. We call on everyone to contact the Obama administration and demand that it fulfills its human rights obligations and adheres to these policies and processes.

We also encourage all our members to stand in solidarity with the global civil society movement opposing the G20 and its inhuman policies and undemocratic processes. We must defend the peoples’ right to be heard as we struggle to build the just world we all so desperately need.

Wednesday, September 23, 2009

Kali Akuno
USHRN Director of Education, Training, and Field Operations

For information and updates on the Civil Society resistance to the G20 visit:
1. The Bailout the People’s Movement
2. Grassroots Global Justice Alliance
3. The Pittsburgh G20 Media Project
4. Pittsburgh G20 Resistance Project
5. Pittsburgh United

Saturday, September 5, 2009

African, Asian, Latin American Majority Maintain Solidarity in Geneva (Naomi Klein’s ‘Minority Death Watch’ Disappoints)

On its face, Naomi Klein’s article, “Minority Death Match” , does a disservice to both the movements for reparations and redress for crimes against people of African dissent and for self determination for the Palestinian people. But, given her reputation as an anti-imperialist thinker and recent high-profile visit to Palestine, where she endorsed the international campaign for boycott, divestment and sanctions against Israel, we want to give her the benefit of the doubt.

It is no mean feat to publish an article in a corporate magazine that includes any reportage that exposes Israel’s lies.
1. She reports well on the case for reparations
2. She provides an insightful narrative on aspects of the African reparations movement
3. She recognizes the synergy of interests between US, Israel and Europe
4. She points out that Obama betrayed Black people by waffling on reparations and boycotting the UN’s anti-racist efforts in Geneva.

But the critical failures of the article sabotage her good intentions. At first glance, one might forgive the title “Minority Death Match” as an editor’s attempt to sensationalize Klein’s material. Unfortunately, the theme of “Jews against Blacks” – or more precisely “Blacks must choose between Jews and Palestinians” recurs throughout Klein’s article. This theme takes different forms in Klein’s account of the April 2009 UN Conference on Racism, Xenophobia and Related Intolerance held in Geneva. But regardless of the form, the conclusion is the same: Ahmedinejad, Muslims and by implication: Palestinians,-- not Israel, the US and other Western Countries—have primary responsibility to preventing the UN from holding a conference that would advance a pro-reparations/anti-racist agenda.

Here are the steps Klein takes to let Israel, US and Western imperialism off the hook.

First: She presents Navi Pillay, the UN High Commissioner for Human Rights and main organizer of the Conference, as a naïve champion of African peoples’ struggle against racism. Pillay, according to Klein, attempted to negotiate a shifting array of demands from the United States—most in direct conflict with pressure from Muslim countries—while a phalanx of pro-Israel pressure groups did their best to sink the gathering. Yet, with the assistance of her lieutenants—none of whom were African or from the African Diaspora or accountable to an African constituency—long before the Conference convened, Pillay capitulated to all the demands of the US. For example, Yuri Boychenko, Pillay’s right-hand man and Chair of the Intergovernmental Working Group secured Muslim—including Iranian—capitulation to US demands. He told one of the authors of this article that the Obama Administration had nothing to fear from the endorsement of either the 2001 Program of Action or the 2009 Consensus Document. The 2001 commitment to reparations was “vague”, Boychenko emphasized and, moreover, Obama could have easily signed the Consensus document with “conditions” that would exclude the US from commitment to the 2001 Program on the grounds the US never signed it in the first place.

Klein also neglects to mention Zionist influence within Pillay’s High Commission Office. For example, Pierre Hazan, a staff member of the Office of the High Commissioner for Human Rights, author of a pro-Israel book on the Six Day War and fellow of the Congressionally-funded US Institute of Peace, mocked the Durban Review Conference as “an immense ritual of collective atonement and social purification”. (quoted by April 17, 2009).

While only a handful of European countries followed the lead of US and Israel, the threat of a wider boycott accomplished another objective. On March 17, Conference organizers announced their attempt to appease Israel, the United States and their fence-sitting allies by revising the Draft Outcome Document. They removed all references to Israel as a perpetrator of racial discrimination, cut out any mention of the Palestinians’ Right to Self Determination and also excised all language related to reparations, any acknowledgement that the Transatlantic slave trade was a crime against humanity; and a proposal to strengthen the Working Group of Experts on People of African Descent. But fearing open rebellion from Non-Aligned Countries, African countries and other Islamic Countries—who repelled Zionist and US machinations break their solidarity-- Conference organizers balked at Obama’s final demand to totally renounce the hard-won Durban Declaration and Programme of Action (DDPA) of 2001.

Second, Klein makes the superficial observation that there was a “synergy of interests between Ahmadinejad, US, Israel and Western Europe”. Here she embraces the ahistoric and false assumption that settler colonial states and Ahmadinejad all shared an equal stake in derailing a serious anti-racist agenda. While Ahmadinejad represents an oppressive regime, within the context of the history of colonialism and imperialism, he has both materially and politically, supported Palestinian liberation and other struggles for self-determination of African peoples. Also, this observation falsely implies an equal and independent status of each of these four forces. Although she recognizes the stake of settler colonial regimes in rejecting reparations and other measures to rectify the crimes of slave trade etc, by equating Iran and the US, she obscures the main contradiction and provides an argument against solidarity among African, Palestinian and all people oppressed by settler colonial regimes.

Third, Klein fails to identify Israel as a settler colonial regime that is occupying Palestinian land and, in several places, equates anti-zionism and anti-semitism. This weakness in her understanding of Israel’s role in relation to Palestine and, historically, in support of oppressive regimes, is the most basic problem with her article. She refuses to acknowledge that Zionism is racism. Instead, she hedges. First she states, “There is a strong argument to be made that Israel’s legal system…meets the international definition of apartheid” (p. 59) And then she concludes the same paragraph with the Zionist red herring— that the 2001 Durban document, in spite of its explicit renunciation of anti-semitism and the holocaust, “carried an unmistakable whiff of denialism.” In the next paragraph, in an inexcusable display of victim-blaming, Klein blames the Islamic states for “upstaging African demands” and giving the U.S. government a perfect excuse to flee the scene.

But she contradicts herself because she has already recognized there was no level of appeasement the Obama Administration would accept. The very Islamic states she blames for upstaging African demands had allied with African countries on every issue and had given up their main demands for a repudiation of Islamophobia. As Obama has shown in his pattern of pandering to Wall Street, Health Insurance Companies, and the US military establishment currently leading policy in Iraq and Afghanistan, he needs no excuse to sell out Black and other oppressed people.

In her most extreme capitulation to the Zionist narrative, Klein excuses the two-year comprehensive campaign waged by Israel and its Zionist supporters against the UN Conference. She excuses it as an “illusory correlation”. According to Klein, “Zionists” –which she sometimes uses interchangeably with “Jewish people” were so traumatized by the anti-semitism at the 1st UN Conference in Durban, and the possibility that Israel might be treated like apartheid South Africa on the international stage, combined with the “shock of September 11, that they acted irrationally when it came to the 2nd UN conference. Here she never mentions the creation and manipulation by the Israeli state and it’s US backers of this “illusory correlation”. The well-organized, military style organization of Zionist activists that invaded the Conference and gloated over their disruption of any sincere discussion of racism is reduced to the presumably misguided actions of traumatized Jews. The well-documented Israeli campaign to protect its status as a settler colonial nation doesn’t seem to matter in Klein’s psychological framework. In fact, Israel launched a campaign using similar tactics against the 2001 Conference in Durban.

And just to emphasize her denial of the critical geo-political role Zionism plays in maintaining settler colonialism in Israel and US hegemony in the Middle East, she implies that all the Zionist mobilization against the UN Conference was about to fizzle for lack of a psychological enemy. (page 62) Such psychological reductionism that conveniently echoes the Zionist narrative leads Klein to conclude that Ahmadinejad saved the day for the Zionists and others opposed the UN’s anti-racist agenda—at least in the PR arena. (It is telling that she misreports the order: the Zionist activist clowns disrupted Ahmedinejad’s speech, at least ten minutes before some of the European representatives walked out.)

Again, Klein succumbs to victim blaming. As she must know, corporate media echo and reinforce the dominant narrative. Whether they define the enemy as “communists”, “terrorists”, “anti-semites”, “welfare queens” or “criminals”—they are never at a loss to demonize oppressed people and find justifications for perpetuating the status quo.

Without question the corporate media won the propaganda war over the UN conference. But that should hardly be the main take-home message for progressives. Klein concludes that after the brouhaha over Ahmedinejad, the press left and “inside the main Assembly Hall low-level bureaucrats were delivering meaningless speeches to an empty room.” (p.64) This statement, along with the characterization of the Black Liberation Movement as merely a “civil rights movement”, is arrogant, insulting and myopic. Like the corporate press Klein often criticizes, this article succeeds in ignoring the real accomplishments of the Conference.

At least 145 UN member states endorsed The Outcome Document by consensus. The very first paragraph reaffirmed the Durban Declaration and Program of Action as it was adopted at the World Conference against Racism in 2001. Moreover, delegate after delegate reiterated the praise that the South African Foreign Minister and spokesperson for the Africa Group gave to the DDPA:
“The DDPA is viewed as an inspiration that would define the 21st century as the century that restored to all their human dignity. It provides a solid and concrete basis for every country to develop its own measures to combat all forms of racism, and to strengthen the protection regime for victims of racism, racial discrimination, xenophobia and related intolerance.”

In the end, only 10 countries—all European or European-settler States—boycotted the DRC. At least 17 State delegates expressed disapproval of the boycott in their official statements. Despite the diplomatic language, they clearly denounced the boycotting countries for their lack of commitment to overcoming racism. More than 100 remaining delegates implicitly criticized the boycott orchestrated by Israel and the U.S.

Yet, pressure from the US and Israel did succeed in preventing serious strengthening of the 2001 DDPA. For example, most delegations from Africa and the Africa Diaspora had been working for the DRC to adopt measures to provide effective tools for implementing a commitment to reparations and establishing a “racial equality index” and timetables by which specific progress could be assessed. They also called for a Permanent Forum for People of African Descent, not simply a “panel of experts”. But in the end, perhaps in order to prevent the majority of European countries from following the boycotters, the Outcome Document was silent on these issues. Moreover, Ban Ki-Moon and Navi Pillay explicitly repudiated Ahmedinejad’s speech which had affirmed Palestine’s right to self-determination. Pillay admitted in her press conference on April 24th that she believed her denunciation of Iran was the price the EU demanded not to join the boycott. Except for Argentina, the 15 countries that explicitly denounced Iran were all European.

Some 18 countries—none of them European- explicitly supported the Palestinian people’s right to self determination and criticized to varying degrees, Israel’s denial of Palestinian rights. Most of these, plus Azerbaijan and Pakistan, were among the 15 that called for stronger measures against Islamophobia. Finally, 16 countries – all from the Global South (except Japan)--expressed concern for protecting migrants against racist attacks and the final Outcome document included protections for migrants that most European countries had opposed. In sum, about half the delegates took progressive stands in their speeches on the most controversial issues of the Conference. Their stands demonstrate the endurance of North-South/oppressor-oppressed relations.

Israel is a bastion of “European civilization”, a settler colonial state, on the edge of the African continent. To survive as a Jewish State – by definition, an apartheid state-- Israel is perpetually consolidating and expanding its narrative that turns the reality of its racist colonial project on its head. The global hegemony of US-led imperialism is cracking. US and European complicity with Israel demonstrates how white supremacist States will continue to join forces, and viciously attack when their positions and privileges are threatened.

The UN’s Durban Review Conference once again dramatized a lesson many learned long ago: appeasing settler colonial, neo-colonial and imperialist powers only emboldens them. The Palestinian Authority and other Muslim States (including Iran) agreed to a “consensus” document that omitted any mention of Israel or Palestine. The African and Caribbean States signed onto a “consensus” document that omitted mention of reparations. But the US never compromised in its unconditional support for Israel and opposition to reparations. Hopefully those NGO’s and others who argued, “Let’s just focus on our issues. The Palestine/Israeli conflict is just a distraction from the real struggle against racism” learned from Israel’s campaign to destroy the Conference. Just as the US, Europe and others bribed by them are united in their project to maintain their hegemony, African and African Diaspora people, Asian and indigenous people-- all colonized and formerly colonized people -- need unity.

1. Klein’s refusal to identify Israel as a settler colonial regime in the widely-distributed Harpers article is especially perplexing in light of her June 29, 2009 speech at the Friends School in Ramallah.. There, where her audience was much more critical of Israel, she explicitly explained why she thought Israel was “settler colonial” project.
2. See for documentation of Israel’s two-year campaign to torpedo the UN Conference in Geneva.
3. Brazil, China, Cuba, Ecuador, Organization of Islamic Councils, Indonesia, Iran, Lesotho, Namibia, Nigeria, Norway, Spain, Sri Lanka, Swaziland, Tanzania, Uganda and Uruguay. The UN Secretary General, Ban Ki-Moon, the UN High Commission for Human Rights, Navi Pillay and a number of others explicitly criticized the boycott.
4. Twelve countries explicitly advocated for Reparations: Angola, Barbados, Cuba, Guyama, Haiti, Iran, Jamaica, Libya, Namibia, Suriname, Tanzania and Zimbabwe. Many others suggested that former colonial countries had the responsibility to ease poverty, forgive debt and assist in the economic development of the Global South.
5. Argentina, Austria, Belgium, Denmark, France, Ireland, Lithuania, Luxenburg, Norway, Portugal, Slovenia, Spain, Sweden, Switzerland, and United Kingdom.
6. Bahrain, Cuba, Egypt, Guyana, Indonesia, Iran, Kuwait, League of Arab States, Lebanon, Libya, Morocco, Nicaragua, Palestine (PLO), Qatar, Saudi Arabia, Sudan, Syria, United Arab Emirates
7. Argentina, Burkina Faso, Cuba, Ecuador, Greece, Haiti, Honduras, Japan, Jordan, Mauritius, Mexico, Nigeria, Philippines, Senegal, Tanzania and Turkey.

By Arlene Eisen and Kali Akuno—both of whom attended the UN Conference against Racism, Xenophobia and Related Intolerance in Geneva, April 2009 as part of the United against Racism Delegation. Arlene can be reached at and Kali can be reached at

Friday, August 21, 2009

Mortgage defaults soar to record 13%

In the second quarter, the number of homeowners behind on payments or in foreclosure rose along with the jobless rate, with California among states leading the way.

By E. Scott Reckard and Ronald D. White

August 21, 2009

Widespread joblessness is causing more Americans to fall behind on their house payments, triggering a new round of foreclosures that some analysts fear could delay the nation's economic recovery.

A mortgage trade group reported Thursday that more than 13% of the nation's mortgage holders were delinquent on their mortgages or in the process of having their homes repossessed during the second quarter of this year. That's the highest figure since tracking began in 1972. California's rate, 15.2%, was among the highest of all states.

The numbers underscore a worrisome trend. A spate of foreclosures -- which began with speculators who walked away from their souring investments, then spread to high-risk borrowers who couldn't make their payments when their low-interest mortgages reset -- is now hitting unemployed homeowners with good credit scores, clean financial histories and conventional home loans.

The U.S. has shed 6.7 million jobs since the recession began, employment losses that have left even high-quality borrowers struggling. One in three new foreclosures from April to June was from a prime, fixed-rate loan, up from 1 in 5 a year earlier.

The rising tide of foreclosures could swamp positive economic trends such as improving home sales and a surprise increase in U.S. regional manufacturing, also reported Thursday.

"The broadening of the foreclosure crisis to include prime loans due to high and rising unemployment will delay a bottom in the housing market and threatens the economic recovery," said Mark Zandi, co-founder and chief economist of Moody's

It's also a huge challenge to the Obama administration, which is pressuring banks to restructure troubled mortgages to keep borrowers in their homes. Such modifications are difficult to achieve when a family's income is slashed. The Washington-based Mortgage Bankers Assn. predicts that U.S. job losses will continue at least until the middle of 2010, meaning that mortgage delinquencies and repossessed homes will almost certainly continue rising.

"We would expect delinquencies and foreclosures to peak sometime after that, probably at the end of next year," said Jay Brinkmann, the trade group's chief economist.

The U.S. jobless rate in July was 9.4%, down slightly from 9.5% in June, a 26-year high. California's June unemployment rate was 11.6%. July figures will be released today.

The employment troubles are compounding a messy situation for banks. Faced with a burgeoning backlog of problem loans, loan-servicing giants such as Bank of America Corp. and Wells Fargo & Co. have gotten off to a slow start on the Obama administration's Home Affordable Modification program, recently released government statistics show.

Anxious borrowers who have contacted The Times complain that lenders lose their documents, pass them from employee to employee and make them endure unexplained delays.

They include Janet and Stan Hurwitz, who said they enjoyed pristine credit and good salaries before this recession turned their financial world upside down. Both now unemployed, they're worried about exhausting their savings and losing their spacious Porter Ranch home.

Stan, 58, lost his job as an apparel sales representative in May and has pursued dozens of leads without success. Janet, a 53-year-old commercial pilot, has been unable to find work in the battered airline industry since returning from disability last summer.

The couple have pared expenses drastically and are trying to refinance their 6.25% mortgage to reduce their $2,789-a-month payment. But the Hurwitzes say that the mounds of paperwork they have sent out -- to Bank of America, two government-sponsored home retention plans, credit and debt consolidation agencies and several elected officials -- seem to have disappeared into a black hole.

"No matter what you send in, or where, it just disappears," Stan Hurwitz said.

After The Times contacted Bank of America on Thursday about the case, the bank issued a statement saying it "has reached out to the Hurwitzes to apologize for their experience and to ensure they have a single point of contact to help them through these challenging times."

"Despite our best efforts, there are limits to how far modification programs can go," the Bank of America statement said. With unemployment rates so high, "even the most ambitious modification plan will not help when the homeowner has no income or prospects."

The bank said unemployment benefits count as income under the Obama plan as long as they continue for nine months, adding that it is working with the government "to find solutions for at-risk homeowners who fall outside the eligibility requirements of the current program as well as the growing number of customers now unemployed."

The mortgage bankers group said efforts to aid distressed borrowers, such as the Obama administration's housing affordability program, are providing some relief but are not addressing all the problems.

"While the various loan modification programs continue to have an impact on holding foreclosure rates below where they otherwise would be, the issue is that many of the foreclosures involve homes that are vacant, borrowers who no longer have jobs, or loans where there was fraud involved," Brinkmann said.

Another problem plaguing California and other hard-hit areas is the unprecedented decline in home prices. Falling values have left homeowners who purchased at the peak of the housing boom "underwater," owing far more than their homes are worth. Even drastically reducing interest rates and paying borrowers bonuses to stay in their homes can have little lasting effect if it will be years before homeowner equity is restored,'s Zandi noted.

"The idea [of the Obama plan] is to give homeowners a break so they can get through the recession and the falling housing market and, hopefully somewhere down the road, make full payments again," Zandi said. "That's going to be helpful, but as long as foreclosures keep rising and home prices keep falling, a lot of houses will be so far underwater that it makes no sense to bother modifying them -- from the lender's perspective and from the borrower's."

He said the Obama administration might reach its goal of having lenders offer 3.5 million to 4 million loan modifications -- restructurings that lower rates, extend the time for borrowers to repay what they owe and, in some cases, suspend interest payments on part of the loan balance. But Economy .com is projecting that only half of those offers will result in actual modifications, "and they'll be lucky if they get 1 million successful modifications out of that," Zandi said.

If the problem worsens, the government and lenders may have to revisit some ideas that so far have proved untenable, such as finding a way to reduce the principal owed on large numbers of loans, he added.

The problems are especially thorny in California, Zandi noted, because unemployment is higher and home prices have fallen more than in most states.

Still, he said, the Golden State should recover sooner than other hard-hit states including Nevada, Florida and Michigan because its economy is more diversified. Already, he noted, there are signs of stabilizing prices in areas such as San Francisco and Orange County, as buyers step in on the belief that California's notoriously up-and-down housing market will eventually stage one of its famous recoveries.,0,4202530.story

Rise of the Super-Rich Hits a Sobering Wall

August 21, 2009


The rich have been getting richer for so long that the trend has come to seem almost permanent.

They began to pull away from everyone else in the 1970s. By 2006, income was more concentrated at the top than it had been since the late 1920s. The recent news about resurgent Wall Street pay has seemed to suggest that not even the Great Recession could reverse the rise in income inequality.

But economists say — and data is beginning to show — that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs — as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

The relative struggles of the rich may elicit little sympathy from less well-off families who are dealing with the effects of the worst recession in a generation. But the change does raise several broader economic questions. Among them is whether harder times for the rich will ultimately benefit the middle class and the poor, given that the huge recent increase in top incomes coincided with slow income growth for almost every other group. In blunter terms, the question is whether the better metaphor for the economy is a rising tide that can lift all boats — or a zero-sum game.

Just how much poorer the rich will become remains unclear. It will be determined by, among other things, whether the stock market continues its recent rally and what new laws Congress passes in the wake of the financial crisis. At the very least, though, the rich seem unlikely to return to the trajectory they were on.

Last year, the number of Americans with a net worth of at least $30 million dropped 24 percent, according to CapGemini and Merrill Lynch Wealth Management. Monthly income from stock dividends, which is concentrated among the affluent, has fallen more than 20 percent since last summer, the biggest such decline since the government began keeping records in 1959.

Bill Gates, Warren E. Buffett, the heirs to the Wal-Mart Stores fortune and the founders of Google each lost billions last year, according to Forbes magazine. In one stark example, John McAfee, an entrepreneur who founded the antivirus software company that bears his name, is now worth about $4 million, from a peak of more than $100 million. Mr. McAfee will soon auction off his last big property because he needs cash to pay his bills after having been caught off guard by the simultaneous crash in real estate and stocks.

“I had no clue,” he said, “that there would be this tandem collapse.”

Some of the clearest signs of the reversal of fortunes can be found in data on spending by the wealthy. An index that tracks the price of art, the Mei Moses index, has dropped 32 percent in the last six months. The New York Yankees failed to sell many of the most expensive tickets in their new stadium and had to drop the price. In one ZIP code in Vail, Colo., only five homes sold for more than $2 million in the first half of this year, down from 34 in the first half of 2007, according to MDA Dataquick. In Bronxville, an affluent New York suburb, the decline was to two, from 17, according to Coldwell Banker Residential Brokerage.

“We had a period of roughly 50 years, from 1929 to 1979, when the income distribution tended to flatten,” said Neal Soss, the chief economist at Credit Suisse. “Since the early ’80s, incomes have tended to get less equal. And I think we’ve entered a phase now where society will move to a more equal distribution.”

No More ’50s and ’60s

Few economists expect the country to return to the relatively flat income distribution of the 1950s and 1960s. Indeed, they say that inequality is likely to remain significantly greater than it was for most of the 20th century. The Obama administration has not proposed completely rewriting the rules for Wall Street or raising the top income-tax rate to anywhere near 70 percent, its level as recently as 1980. Market forces that have increased inequality, like globalization, are also not going away.

But economists say that the rich will probably not recover their losses immediately, as they did in the wake of the dot-com crash earlier this decade. That quick recovery came courtesy of a new bubble in stocks, which in 2007 were more expensive by some measures than they had been at any other point save the bull markets of the 1920s or 1990s. This time, analysts say, Wall Street seems unlikely to return soon to the extreme levels of borrowing that made such a bubble possible.

Any major shift in the financial status of the rich could have big implications. A drop in their income and wealth would complicate life for elite universities, museums and other institutions that received lavish donations in recent decades. Governments — federal and state — could struggle, too, because they rely heavily on the taxes paid by the affluent.

Perhaps the broadest question is what a hit to the wealthy would mean for the middle class and the poor. The best-known data on the rich comes from an analysis of Internal Revenue Service returns by Thomas Piketty and Emmanuel Saez, two economists. Their work shows that in the late 1970s, the cutoff to qualify for the highest-earning one ten-thousandth of households was roughly $2 million, in inflation-adjusted, pretax terms. By 2007, it had jumped to $11.5 million.

The gains for the merely affluent were also big, if not quite huge. The cutoff to be in the top 1 percent doubled since the late 1970s, to roughly $400,000.

By contrast, pay at the median — which was about $50,000 in 2007 — rose less than 20 percent, Census data shows. Near the bottom of the income distribution, the increase was about 12 percent.

Some economists say they believe that the contrasting trends are unrelated. If anything, these economists say, any problems the wealthy have will trickle down, in the form of less charitable giving and less consumer spending. Over the last century, the worst years for the rich were the early 1930s, the heart of the Great Depression.

Other economists say the recent explosion of incomes at the top did hurt everyone else, by concentrating economic and political power among a relatively small group.

“I think incredibly high incomes can have a pernicious effect on the polity and the economy,” said Lawrence Katz, a Harvard economist. Much of the growth of high-end incomes stemmed from market forces, like technological innovation, Mr. Katz said. But a significant amount also stemmed from the wealthy’s newfound ability to win favorable government contracts, low tax rates and weak financial regulation, he added.

The I.R.S. has not yet released its data for 2008 or 2009. But Mr. Saez, a professor at the University of California, Berkeley, said he believed that the rich had become poorer. Asked to speculate where the cutoff for the top one ten-thousandth of households was now, he said from $6 million to $8 million.

For the number to return to $11 million quickly, he said, would probably require a large financial bubble.

Making More Money

The United States economy experienced two such bubbles in recent years — one in stocks, the other in real estate — and both helped the rich become richer. Mr. McAfee, whose tattoos and tinted hair suggest an independent streak, is an extreme but telling example. For two decades, at almost every step of his career, he figured out a way to make more money.

In the late 1980s, he founded McAfee Associates, the antivirus software company. It gave away its software, unlike its rivals, but charged fees to those who wanted any kind of technical support. That decision helped make it a huge success. The company went public in 1992, in the early years of one of biggest stock market booms in history.

But Mr. McAfee is, by his own description, an atypical businessman — easily bored and given to serial obsessions. As a young man, he traveled through Mexico, India and Nepal and, more recently, he wrote a book called, “Into the Heart of Truth: The Spirit of Relational Yoga.” Two years after McAfee Associates went public, he was bored again.

So he sold his remaining stake, bringing his gains to about $100 million. In the coming years, he started new projects and made more investments. Almost inevitably, they paid off.

“History told me that you just keep working, and it is easy to make more money,” he said, sitting in the kitchen of his adobe-style house in the southwest corner of New Mexico. With low tax rates, he added, the rich could keep much of what they made.

One of the starkest patterns in the data on inequality is the extent to which the incomes of the very rich are tied to the stock market. They have risen most rapidly during the biggest bull markets: in the 1920s and the 20 years starting in 1987.

“We are coming from an abnormal period where a tremendous amount of wealth was created largely by selling assets back and forth,” said Mohamed A. El-Erian, chief executive of Pimco, one of the country’s largest bond traders, and the former manager of Harvard’s endowment.

Some of this wealth was based on real economic gains, like those from the computer revolution. But much of it was not, Mr. El-Erian said. “You had wealth creation that could not be tied to the underlying economy,” he added, “and the benefits were very skewed: they went to the assets of the rich. It was financial engineering.”

But if the rich have done well in bubbles, they have taken enormous hits to their wealth during busts. A recent study by two Northwestern University economists found that the incomes of the affluent tend to fall more, in percentage terms, in recessions than the incomes of the middle class. The incomes of the very affluent — the top one ten-thousandth — fall the most.

Over the last several years, Mr. McAfee began to put a large chunk of his fortune into real estate, often in remote locations. He bought the house in New Mexico as a playground for himself and fellow aerotrekkers, people who fly unlicensed, open-cockpit planes. On a 157-acre spread, he built a general store, a 35-seat movie theater and a cafe, and he bought vintage cars for his visitors to use.

He continued to invest in financial markets, sometimes borrowing money to increase the potential returns. He typically chose his investments based on suggestions from his financial advisers. One of their recommendations was to put millions of dollars into bonds tied to Lehman Brothers.

For a while, Mr. McAfee’s good run, like that of many of the American wealthy, seemed to continue. In the wake of the dot-com crash, stocks started rising again, while house prices just continued to rise. Outside’s Go magazine and National Geographic Adventure ran articles on his New Mexico property, leading to him to believe that “this was the hottest property on the planet,” he said.

But then things began to change.

In 2007, Mr. McAfee sold a 10,000-square-foot home in Colorado with a view of Pike’s Peak. He had spent $25 million to buy the property and build the house. He received $5.7 million for it. When Lehman collapsed last fall, its bonds became virtually worthless. Mr. McAfee’s stock investments cost him millions more.

One day, he realized, as he said, “Whoa, my cash is gone.”

His remaining net worth of about $4 million makes him vastly wealthier than most Americans, of course. But he has nonetheless found himself needing cash and desperately trying to reduce his monthly expenses.

He has sold a 10-passenger Cessna jet and now flies coach. This week his oceanfront estate in Hawaii sold for $1.5 million, with only a handful of bidders at the auction. He plans to spend much of his time in Belize, in part because of more favorable taxes there.

Next week, his New Mexico property will be the subject of a no-floor auction, meaning that Mr. McAfee has promised to accept the top bid, no matter how low it is.

“I am trying to face up to the reality here that the auction may bring next to nothing,” he said.

In the past, when his stock investments did poorly, he sold real estate and replenished his cash. This time, that has not been an option.

Stock Market Mystery

The possibility that the stock market will quickly recover from its collapse, as it did earlier this decade, is perhaps the biggest uncertainty about the financial condition of the wealthy. Since March, the Standard & Poor’s 500-stock index has risen 49 percent.

Yet Wall Street still has a long way to go before reaching its previous peaks. The S.& P. 500 remains 35 percent below its 2007 high. Aggregate compensation for the financial sector fell 14 percent from 2007 to 2008, according to the Securities Industry and Financial Markets Association — far less than profits or revenue fell, but a decline nonetheless.

“The difference this time,” predicted Byron R. Wein, a former chief investment strategist at Morgan Stanley, who started working on Wall Street in 1965, “is that the high-water mark that people reached in 2007 is not going to be exceeded for a very long time.”

Without a financial bubble, there will simply be less money available for Wall Street to pay itself or for corporate chief executives to pay themselves. Some companies — like Goldman Sachs and JPMorgan Chase, which face less competition now and have been helped by the government’s attempts to prop up credit markets — will still hand out enormous paychecks. Over all, though, there will be fewer such checks, analysts say. Roger Freeman, an analyst at Barclays Capital, said he thought that overall Wall Street compensation would, at most, increase moderately over the next couple of years.

Beyond the stock market, government policy may have the biggest effect on top incomes. Mr. Katz, the Harvard economist, argues that without policy changes, top incomes may indeed approach their old highs in the coming years. Historically, government policy, like the New Deal, has had more lasting effects on the rich than financial busts, he said.

One looming policy issue today is what steps Congress and the administration will take to re-regulate financial markets. A second issue is taxes.

In the three decades after World War II, when the incomes of the rich grew more slowly than those of the middle class, the top marginal rate ranged from 70 to 91 percent. Mr. Piketty, one of the economists who analyzed the I.R.S. data, argues that these high rates did not affect merely post-tax income. They also helped hold down the pretax incomes of the wealthy, he says, by giving them less incentive to make many millions of dollars.

Since 1980, tax rates on the affluent have fallen more than rates on any other group; this year, the top marginal rate is 35 percent. President Obama has proposed raising it to 39 percent and has said he would consider a surtax on families making more than $1 million a year, which could push the top rate above 40 percent.

What any policy changes will mean for the nonwealthy remains unclear. There have certainly been periods when the rich, the middle class and the poor all have done well (like the late 1990s), as well as periods when all have done poorly (like the last year). For much of the 1950s, ’60s and ’70s, both the middle class and the wealthy received raises that outpaced inflation.

Yet there is also a reason to think that the incomes of the wealthy could potentially have a bigger impact on others than in the past: as a share of the economy, they are vastly larger than they once were.

In 2007, the top one ten-thousandth of households took home 6 percent of the nation’s income, up from 0.9 percent in 1977. It was the highest such level since at least 1913, the first year for which the I.R.S. has data.

The top 1 percent of earners took home 23.5 percent of income, up from 9 percent three decades earlier.

Foreclosures Plunge People Into Depression

New U.S. study finds many also skip food and needed drugs in an effort to cut costs

Posted August 19, 2009

WEDNESDAY, Aug. 19 (HealthDay News) -- The epidemic of home foreclosures is having a serious impact on Americans' health, suggests a study that looked at 250 Philadelphia homeowners facing foreclosure.

More than half of them reported being depressed, and 37 percent of them had major depression. In addition, almost 60 percent reported skipping meals because they couldn't afford food and 48 percent said they couldn't afford prescription drugs.

The study also found that for 9 percent of participants, a medical condition in their family was the primary reason for the home foreclosure, and more than 25 percent said they had significant unpaid medical bills.

"The foreclosure crisis is also a health crisis. We need to do more to ensure that if people lose their homes, they don't also lose their health," the study's lead author, Dr. Craig E. Pollack, who conducted the research while at the University of Pennsylvania School of Medicine, said in a news release.

The financial strain of foreclosure may cause people to reduce what they consider discretionary health care spending, for such things as preventive care visits, healthy foods and drugs for chronic conditions. This can have a serious effect on long-term health, Pollack said.

He and his colleagues also found that the stress of foreclosure may lead to an increase in unhealthy behaviors. For example, 65 percent of smokers in the study said they smoked more since receiving notice of foreclosure.

The findings from Philadelphia may represent only the tip of the iceberg when compared to some other cities, Pollack said. While foreclosure filings in Philadelphia almost doubled between 2007 and 2008, other large cities have higher unemployment and foreclosure rates.

In order to reduce foreclosure-related health effects, mortgage counseling agencies and health care workers need to coordinate their efforts to help people at risk of foreclosure access both housing and medical help, the researchers said.

The study appears online this week in the American Journal of Public Health.

Thursday, August 20, 2009

New jobless claims rise unexpectedly to 576K

New jobless claims rise unexpectedly to 576,000; total benefit rolls show little change

By Christopher S. Rugaber, AP Economics Writer
On Thursday August 20, 2009, 11:08 am EDT
WASHINGTON (AP) -- The number of first-time claims for unemployment benefits rose unexpectedly for the second straight week, a sign that jobs remain scarce even as other data show the economy is stabilizing.

Many economists expect the economy to grow at a modest pace in the second half of this year, bringing an end to the longest recession since World War II. But jobs are likely to remain scarce and many analysts worry that persistently high unemployment could cause consumers to hold back on spending, threatening a recovery.

The Labor Department said Thursday the number of new jobless claims rose to a seasonally adjusted 576,000 last week, from a revised figure of 561,000. Wall Street economists expected a drop to 550,000, according to a survey by Thomson Reuters.

Economists closely watch initial claims, which are considered a gauge of layoffs and an indication of companies' willingness to hire new workers.

"Consumer spending is going to have a very difficult time recovering with the labor market as weak as it is," said Joshua Shapiro, chief U.S. economist at MFR Inc.

The Conference Board's index of leading economic indicators rose for a fourth straight month in July, gaining 0.6 percent. That was slightly less than economists expected and a slower rate than in the prior three months.

Still, the Conference Board said its index, which is meant to project economic activity in the next three to six months, suggests the recession has bottomed out and growth in economic activity will begin soon. Six of the 10 indicators that comprise the index increased in July, including employment data and stock prices. Consumer expectations were the biggest negative factor.

Meanwhile, the Mortgage Bankers Association said more than 13 percent of American homeowners with a mortgage are either behind on their payments or in foreclosure, a record tally as the recession leaves more people unemployed. About a third of new foreclosures between April and June were prime, fixed-rate loans, up from one in five a year earlier.

The jobless claims figures are volatile, and had been trending down, after remaining above 600,000 for most of this year. The new report indicates that the labor market is still weak. In a healthy economy, initial claims are usually around 325,000 or below.

The four-week average of initial claims, which smooths out fluctuations, rose for the second straight week to 570,000.

The number of people remaining on the benefit rolls dropped by 2,000 to 6.24 million. Analysts had expected a slight decline. The continuing claims figures lag initial claims by a week.

The stock market rose slightly in morning trading. The Dow Jones industrial average added about 35 points, while broader indices also edged up.

When federal emergency programs are included, the total number of jobless benefit recipients was 9.18 million in the week that ended Aug. 1, the most recent data available. That was down from 9.25 million in the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.

The large number of people remaining on the rolls is an indication that unemployed workers are having a hard time finding new jobs.

Still, layoffs have slowed recently. The department said earlier this month that companies cut 247,000 jobs in July, a large amount but still the smallest number in almost a year.

The unemployment rate dipped to 9.4 percent in July from 9.5 percent, its first drop in 15 months. But many private economists and the Federal Reserve think the rates could top 10 percent by next year.

The recession, which began in December 2007 and is the longest since World War II, has eliminated a net total of 6.7 million jobs.

More job cuts were announced this week. Bethesda, Md.-based defense contractor Lockheed Martin Corp. said it will eliminate about 800 jobs in its space systems division, and San Francisco-based video and audio conferencing company Polycom Inc. said it will cut 3 percent of its 2,600 person work force.

Among the states, Tennessee had the largest increase in claims with 2,525 for the week ended Aug. 8, which it attributed to more layoffs in the transportation equipment, industrial machinery, and rubber and plastics industries. The next largest increases were in North Carolina, Wisconsin, Georgia and Washington.

California reported the largest drop in claims of 5,635, which it attributed to fewer layoffs in the construction, trade and service industries. Michigan, Ohio, Kentucky and Delaware had the next largest decreases.

AP Business Writers Alan Zibel in Washington and Tali Arbel in New York contributed to this report.

U.S. productivity soars as employers slash payrolls

WASHINGTON — Associated Press
Last updated on Friday, Aug. 14, 2009

U.S. productivity surged in the spring by the largest amount in almost six years while labour costs plunged at the fastest pace in nine years. The results point to a recession losing steam, but they do not bode well for the unemployed or those forced to work shorter weeks who were hoping for more hours.

The U.S. Labour Department said yesterday that productivity, the amount of output per hour of work, rose at an annual rate of 6.4 per cent in the April-June quarter, while unit labour costs dropped 5.8 per cent. Both results were greater than economists expected.

Productivity can help boost living standards because it means companies can pay their workers more, with those wage increases financed by rising output. However, in this recession, companies have been using their productivity gains from layoffs and other cost cuts not to hire again but to bolster their profits.

The result: Many companies have been reporting better-than-expected second-quarter earnings despite falling sales.

Businesses producing more with fewer employees means millions of unemployed Americans likely will continue to face a dismal job market. Some analysts also worry that companies' aggressive cost-cutting could make it hard to mount a sustainable recovery. That's because a lack of wage growth and a shortage of jobs will likely depress consumer spending, which accounts for about 70 per cent of U.S. economic output.

Ideally, businesses would use the current productivity gains to stabilize their own financial situations and as the economy rebounds, resume hiring to meet the rising demand, analysts said.

"Hopefully, businesses will stop the layoffs and start hiring again so that consumers will have the ability to spend, but that is a tricky transition," said Mark Zandi, chief economist at Moody's

In a second report, the Commerce Department said wholesale inventories declined for a record 10th consecutive month, falling 1.7 per cent in June. That was nearly double the 0.9 per cent decrease economists had expected.

But in an encouraging sign, sales rose 0.4 per cent for a second straight month. The first back-to-back increases in a year boosted hopes that businesses will begin to ramp up production to meet rising demand.

The second-quarter productivity increase reflected that the number of hours worked fell much faster than output dropped. Total hours worked dropped at an annual rate of 7.6 per cent, while the output of non-farm businesses fell at a 1.7 per cent rate.

The U.S.'s total output of goods and services, as measured by the gross domestic product, fell at an annual rate of 1 per cent in the second quarter. That was a much slower rate of decline than the previous two quarters when the economy shrank at the fastest pace in more than a half-century.

Many economists believe the recession is on the verge of ending. Should the economy start to grow in the second half of this year, some companies might boost employment - if demand for their products showed a sustained increase.

Still, the leaner work force should help keep productivity rising in coming quarters although the gains are not expected to be as large as the jump in the spring.

Ahead of the Bell: Productivity

(AP) – Aug 10, 2009
WASHINGTON — Productivity likely surged by a sizable amount in the spring as businesses worked to hold down costs in the face of the worst recession to hit the country in the post World War II period.
Economists surveyed by Thomson Reuters expect productivity grew at an annual rate of 5.3 percent in the April-June quarter. The Labor Department will release the report at 8:30 a.m. EDT Tuesday.
A productivity increase of 5.3 percent would be more than three times higher than the 1.6 percent advance recorded in the first three months of the year.
Economists are expecting the surge in productivity because they believe that businesses continued to lay off workers and trim the number of hours being worked by their remaining employees aggressively in an effort to trim their labor costs.
This effort is expected to show that unit labor costs fell at an annual rate of 2.4 percent in the second quarter, compared to a 3 percent rise in the first three months of the year.
The improvement in productivity is occurring because businesses have been successful in cutting the number of hours worked at an even faster pace than their output has been falling.
The nation's total output of goods and services, as measured by the gross domestic product, fell at an annual rate of 1 percent in the second quarter, a much slower rate of decline than the previous two quarters, when the economy shrank at the fastest pace in more than a half-century.
Productivity, the amount of output per hour of work, is a key ingredient for rising living standards because it means that companies can pay their workers more with the wage increases financed by rising output.
However, in the current hard times, companies are expected to use the productivity gains to bolster their bottom lines, meaning that the increases will go to shoring up company profits rather than boosting workers' wages and benefits.
But many economists believe that the current recession, already the longest in the post World War II period, is on the verge of ending. If the economy starts to post better growth in the second half of this year, companies are expected to switch from layoffs and trimming workers' hours to boosting employment as demand for their products increases.
The leaner work force, however, should help keep productivity rising in coming quarters although the gains are not expected to be as large as the jump in the spring.
Copyright © 2009 The Associated Press. All rights reserved.

Labor costs fall as productivity increases slightly

Humboldt Beacon
Posted: 08/20/2009

According to the latest the Bureau of Labor Statistics, worker productivity increased at an annual rate of 6.4 percent in the second quarter of 2009. This is the biggest quarterly gain since a 9.7 percent increase in the third quarter of 2003.
As worker productivity increased, unit labor costs fell by 5.8 percent, indicating employees are doing more work with less pay. Economists are concerned that instead of hiring more people, businesses are holding on to profits earned from increased productivity and lower labor costs.

In additon, the recession eased up in the second quarter. The gross domestic product (GDP) fell at a lower pace than economists expected, according to a recent government report. The GDP fell by 1 percent in the second quarter of 2009 after falling at an annual rate of 6.4 percent in the first quarter, the Commerce Department reported. Key factors in bettering GDP performance included fewer spending cuts by businesses, increased spending by federal and local governments, and improved trade, the report showed. However, consumers are still held back on spending due to rising unemployment, decreased retirement savings, and falling home values.

Thursday, July 2, 2009

California in 'fiscal emergency'

The governor of California has declared a fiscal emergency in the US state to address a budget deficit of some $24.3bn (£14.5bn).

Governor Arnold Schwarzenegger also ordered many state offices to close for three days each month until June 2010, with staff unpaid for those days.

California has been one of the US states hardest hit by the recession.

The moves comes after state legislators missed a 1 July deadline to approve a budget for the coming financial year.

State Controller John Chiang has said the failure to meet the deadline means the state deficit will increase by up to $6.5bn by September.

Mr Chiang told the BBC that many vulnerable people had been put in harm's way by the state's failure to agree the budget and to provide "essential dollars to help these people pay their rent, to put food on the table or to pay their utility bill".

He had earlier warned that drastic measures would have to be taken to conserve cash, including delaying payments to companies working for the state and to those relying on benefits and grants.

Under the emergency measures, some state offices will be closed on the first, second and third Friday of every month until June 2010, with staff not paid for those days.

Mr Schwarzenegger said in a statement that although the legislature had failed to remedy the budget problems, "solving the entire deficit" remained his "first and only priority".

"I will not rest until we get it done. I will not be a part of pushing this crisis down the road - the road stops here," he said.

The White House said it was closely monitoring the situation in the state.

'Still proud'

On Tuesday, the Californian Senate failed to agree on Democratic proposals to shave $3.3bn from education and other programmes as a stopgap measure to address the shortfall.

Democrats believe cuts should not slash vital social programmes while Republicans argued that much deeper spending cuts were needed to balance the budget.

Republicans and Mr Schwarzenegger have also ruled out tax increases.

California struggles to balance its budget every year, but this year has been particularly difficult.

And the size of the Californian economy - it is the world's eighth largest economy and generates nearly 13% of US gross domestic product - means what happens there matters for the rest of the country.

But Mr Schwarzenegger said that despite the crisis, he was proud of California, saying 30 more states were also yet to agree a budget.

For many states, 30 June heralded the end of the fiscal year, but several were facing crucial decisions to balance the books as the deadline neared.

Many of the states are legally required to have a balanced budget, which can mean cutting services and firing workers.


Today's California visionaries are calling for a constitutional convention to rewrite the plainly dysfunctional rules by which the state governs itself. It is not only Californians but also America that has a stake in their success. A California that decimates itself during recessions drags the rest of the nation down with it.
Harold Meyerson, writing in the Washington Post, says California

Democrats and the governor, and the Republican lawmakers who take pride in never voting in favour of any budget, have set us on a road toward two possible cataclysms: a popular revolt that will further diminish the power of government as we know it, and ruinous default that keeps the recession alive for another decade and plunges Californians, and perhaps all Americans, into nearly unimaginable misery. Sacramento players should check their rear view mirrors. Both objects are closer than they appear.
A Los Angeles Times editorial also warns that financial collapse in California

Why is this happening to California? The worst economic downturn in 60 years is playing a big role. But so is the US Senate's moronic decision to cut nearly $100 billion in state stabilization funds from the stimulus earlier this year. That money would have gone to states like Illinois and California, helping keep schools open, keep kids on health care, and prevent budget cuts from strangling economic recovery.
Blogger Eugene, writing in the Daily Kos, says Republicans are

Both the social and physical infrastructure of California is deficient and continues to degrade. It is no exaggeration to say that the health, welfare and safety of our society are endangered. "California has become ungovernable" has evolved from an observation to a cliche... The state now stares into a $24.3 billion budget hole. As the governor and the legislature play more political games, California faces the possibility of literally going broke.
On SDNN, Chris Crotty and Tom Murray say the budget crisis has

Story from BBC NEWS:

Published: 2009/07/02 11:20:35 GMT

US job losses worse than expected

The number of jobs lost in the US last month came in at 467,000, which was much more than had been expected.

The jobless rate rose to 9.5% in June, from 9.4% in May, as the US economy continued to struggle.

Since the start of the recession in December 2007, the number of jobless people has risen by 7.2 million, the Department of Labor said.

The unemployment rate was slightly lower than had been expected, but was still the highest since August 1983.

The number of people losing their jobs can be higher than expected at the same time as the jobless rate is lower than expected, because they are measured in different ways.

The former is a measure of how many people are working, while the latter shows the number of people looking for work.

Not everybody who has lost a job will be looking for another one.

'Terrible' market

The non-farm payrolls number would usually be released on a Friday, but has been announced a day early because US markets will be closed on Friday.

The latest set of figures also included revisions to data for the two previous months, with the number of jobs lost in April rising 15,000 to 519,000 and the number lost in May falling 23,000 to 322,000.

Average hourly earnings were unchanged at $18.53 (£11.33).

A total of 14.7 million people were unemployed in June, the figures showed.

The job losses come despite recent signs of optimism from surveys.

"The job market is terrible. It's as bad as we've seen in our lifetime," said Keith Hembre, chief economist at FAF Advisors in Minneapolis.

"The light at the end of tunnel is that we see some stability in domestic demand and some demand overseas."

'Longer process'

In its separate weekly jobs report, the Department of Labor said that the number of newly laid-off workers applying for employment benefits last week fell to 614,000, while the number of people continuing to claim benefits unexpectedly fell to 6.7 million.

The average working week for production and non-supervisory workers fell 0.1 hour to 33.0 hours, which was the lowest since records began in 1964, suggesting that more people are working part-time.

The average working week for manufacturers rose 0.1 hour to 39.5 hours.

"I don't think it means that the story that the economy is bottoming out is wrong, I still think that is the right story," said Nigel Gault, chief US economist at IHS Global Insight.

"But it's evident that it's going to be a much longer process to bottom out in the labour market than it is to bottom out in the auto market or industrial production or GDP."

Story from BBC NEWS:

Published: 2009/07/02 13:36:06 GMT

Monday, June 15, 2009

Recession fears cripple stocks

Worries that the economy is not likely to recover as soon as had been hoped drag on markets. Dow, S&P 500 and Nasdaq drop over 2%.

By Alexandra Twin, senior writer
Last Updated: June 15, 2009

NEW YORK ( -- Stocks slumped Monday as weaker oil prices and more geopolitical unrest raised worries that the recession may not be waning as soon as some had hoped.

The Dow Jones industrial average (INDU) lost 187 points, or 2.1%. After ending last week in positive territory, the Dow is now back in the red for 2009.

The S&P 500 (SPX) index lost 22 points, or 2.4% and the Nasdaq composite (COMP) fell 42 points, or 2.3%.

Wall Street has been steadily rising for three months on bets that the pace of the recession is waning, with the S&P 500 up 40% during that period. But a lack of new evidence to support the rally has left stocks rangebound over the last few weeks.

"People are re-evaluating the run up," said Kim Caughey, senior equity analyst at Fort Pitt Capital Group.

In the short term, she said that comments coming out of the Group of Eight finance ministers' meeting last weekend were exacerbating worries about the health of the global economy.

"At the conference, some countries expressed interest in pulling back on spending and that has some investors worried," Caughey said. "We're looking for those mythical green shoots of the recovery and you have people saying they are going to take the fertilizer away."

She said the ongoing weakness in the labor market and the outlook for consumer spending were also in play. And investors are starting to conclude that second-quarter results due out next month are going to remain lackluster.

"I think a selloff was way overdue," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. "There are some encouraging signs out there, but we are still in a recession."

In addition, geopolitical factors were in force, he said. "I think Iran adds fuel to the fire. But we also had comments from North Korea over the weekend about nuclear weapons, and that's a factor too."

A falling dollar has given a boost to oil, gold and other dollar-traded commodities of late, as well as the underlying commodity stocks. But the dollar was mixed Monday and the price of oil settled at $70.62.

Tuesday: A heavy spate of economic news is on tap, including reports on May housing starts and building permits. The Census Bureau readings, due before the start of trading, are expected to show modest improvements from earlier levels.

The June Producer Price Index (PPI), a measure of wholesale inflation, is also due out before the start of trade. The release, from the Labor Department, is expected to have risen from May levels, as is so-called core PPI, which strips out volatile food and energy prices.

The Federal Reserve releases its reports on industrial production and capacity utilization shortly before the start of trading.

On the move: Oil stocks such as Dow components Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500) retreated. The Amex Oil index lost 2.8%.

Other commodity stocks fell in active trade as well, including aluminum producers such as Alcoa (AA, Fortune 500) and gold producers such as Yamana Gold (AUY).

But, declines were broad-based. A variety of tech shares slipped, dragging on the Nasdaq, including Intel (INTC, Fortune 500), Cisco Systems (CSCO, Fortune 500), Dell (DELL, Fortune 500) and eBay (EBAY, Fortune 500).

Intel and Cisco are Dow stocks. The Dow's other big losers were Boeing (BA, Fortune 500), United Technologies (UTX, Fortune 500), 3M (MMM, Fortune 500), General Electric (GE, Fortune 500), Merck (MRK, Fortune 500), Wal-Mart Stores (WMT, Fortune 500) and Johnson & Johnson (JNJ, Fortune 500).

All but 2 of the 30 Dow stocks suffered losses, with American Express (AXP, Fortune 500) and Microsoft (MSFT, Fortune 500) the two gainers.

Declines were broad-based across other major indexes as well.

Market breadth was negative and trading volume was moderate. On the New York Stock Exchange, losers beat winners by over five to one on volume of 1.15 billion shares. On the Nasdaq, decliners topped advancers by almost four to one on volume of 2.19 billion shares.

Iranian elections: The disputed presidential election has sparked violent protests in Iran, as reformist leader Mir Hossein Moussavi's declared loss to President Mahmoud Ahmadinejad has raised questions of ballot fraud. Iran has agreed to a ballot probe. (Full story)

In other geopolitical news, on Saturday, North Korea said it would strengthen its nuclear capacities, despite the U.N. Security Council's move to increase sanctions against it.

Currencies and commodities: In currency trading, the dollar gained versus the euro and fell against the yen, following comments from Russia's finance minister that seemed to support a stronger dollar.

The movement in the dollar contributed to a retreat in oil and gold prices.

U.S. light crude oil for July delivery fell $1.42 to settle at $70.62 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery fell $13.20 to settle at $927.50 an ounce.

The national average price for a gallon of regular unleaded gas rose to $2.67 Monday, according to AAA. Prices have risen for 48 days straight, adding 62 cents, or over 30%.

Bonds: Treasury prices rallied as investors sought safety in government debt. The 10-year note yield added 18/32, lowering the yield to 3.72% from 3.79%. Treasury prices and yields move in opposite directions.

Washington: President Obama will release details Wednesday of a broad overhaul of how financial markets are regulated.

On Monday morning, Treasury Secretary Timothy Geithner called the nation's current regulatory system a "spectacle." Geithner spoke at an economic discussion sponsored by CNNMoney parent Time Warner.

He said that the recent stock market rally is a "broad validation" of the administration's efforts to get the economy back on track, but also said that the economy faced an "enormously challenging period ahead."

Health care reform is also front and center this week, including questions about whether workers' health care benefits should be taxed.

Economy: New York manufacturing conditions continued to retreat in June, according to the Empire State index. Conditions fell to negative 9.4 in June from negative 4.6 in May. Any reading below zero indicates weakness.

Other news: In global trading, Asian and European markets tumbled.

First Published: June 15, 2009: 9:47 AM ET

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Saturday, June 13, 2009

G8 prepares for economic crisis end


Geithner, right, said the world economy was still 'well below potential' [AFP]
The Group of Eight industrial nations have discussed how to prepare for an economic recovery and how to roll back rescue measures when the global financial crisis eventually is over.

Concluding a two-day meeting in the Italian city of Lecce, ministers said that although the global economy is still weak, so-called exit strategies from stimulus measures such as tax cuts and lower interest rates are "essential to promote a sustainable recovery over the long term".

The G8 - the US, Japan, Germany, France, Britain, Italy, Canada and Russia - said in a statement on Saturday that it had asked the International Monetary Fund to study ways to unwind hefty stimulus packages.

However, the group said that the outlook for the world economy remain uncertain.

"There are signs of stabilisation in our economies ... but the situation remains uncertain and significant risks remain to economic and financial stability."

Forecast revised

The IMF has raised its forecast for global growth in 2010 to 2.4 per cent.

Dominique Strauss-Kahn, the IMF chief, said the increase in the forecast was due to "improvement in the United States, in Asia and particularly in Japan".

However, he cautioned that the situation in emerging economies is "very concerning".

"We have to think about exit strategies but before the exit strategy we have to exit the crisis."

Dominique Strauss-Khan, IMF chief

"We have to stay very careful, recovery is weak ... we have to think about exit strategies but before the exit strategy we have to exit the crisis," Strauss-Kahn said.
He also said global unemployment would peak in 2011.

Timothy Geithner, the US treasury secretary, said: "I don't think we're at the point yet where we can say we have a recovery in place.

"It's too early to shift towards policy restraint."

He said the global economy was still "well below potential" and encouraging growth should still be "the main focus of policy" for world powers.

While US and Britain want the G8 to stay committed to stimulus packages, some European countries like Germany are urging the preparation of exit strategies to prevent inflation and to cut the massive debts which bailouts have brought.

Peer Steinbrueck, the German finance minister, said that rescue measures for economies hit by the crisis must "increasingly be combined with a credible exit

"This means we must now think about how will go about it once we are getting out of this hole, this valley."

Big economies 'stabilising' - G8

The world's largest economies are beginning to stabilise but still face major risks amid an ongoing global recession, G8 finance ministers say.

At a meeting in Italy of G8 nations, the ministers said stock markets were rising, interest rates more stable, and consumer confidence was returning.

However, US Treasury chief Tim Geithner led warnings that it was too early to wind down economic stimulus packages.

He said they should remain in place until a global recovery was under way.

At the meeting in Lecce, which aimed to lay the groundwork for a full G8 heads of government conference next month in the earthquake-hit town of L'Aquila, the finance ministers conceded that the global situation "remains uncertain".

"Significant risks remain to economic and financial stability," the ministers said in a statement released at the end of their meeting.

It highlighted the possibility that unemployment could continue to rise even after output growth resumes.

Joint problems

But they agreed a joint statement which offered signs of hope after nine months of gloomy economic news.

"We have taken forceful and co-ordinated action to stabilise the financial sector and provide stimulus to restore economic growth and there are signs of stabilisation in our economies," the statement said.

Mr Geithner said the "early signs" were encouraging, but injected a note of caution.

"The global economy is still operating well below potential and we still face acute challenges," he said.

"I don't think we're at the point yet where we can say we have a recovery in place," Mr Geithner warned, saying it was "too early" to move away from the interventionist economic policies put in place around the world since the banking crisis of September 2008.

UK Chancellor Alastair Darling said Britain's economic prospects remained linked to those of other G8 nations.

"A lot will depend on other countries making progress: on cleaning up their bank balance sheets; volatility in commodity prices, oil for example. So I think there are reasons to be cautious," he told Reuters news agency.

The meeting comes two months after a full G8 heads of government meeting in London agreed to inject billions of dollars into the global economy.

Story from BBC NEWS:

Published: 2009/06/13 15:52:21 GMT

China’s Economy Takes a Sharp Domestic Turn

June 12, 2009

HONG KONG — Since China entered the World Trade Organization in November 2001, a rising tide of exports, combined with a torrent of investment, has lifted the country’s economy ever higher, while consumer spending has lagged.

But now, the Chinese economy relies increasingly on growth at home, as data released Thursday made clear. A decline in exports has become a serious drag on growth, while government spending has led domestic investments higher at a remarkable pace and consumer spending appears to have been fairly strong as well.

Some economists wonder whether China is actually becoming too reliant on investment spending and whether the government’s economic stimulus program may be making this worse.

“For China’s nascent economic recovery to be sustainable beyond the short term, policy makers must take steps to ensure that consumption remains on a firm growth trajectory and that the investment boom does not exacerbate the economy’s structural imbalances,” the chairwoman of China equities at JPMorgan, Jing Ulrich, said in a research note.

Chinese exports plunged by a record 26.4 percent in May from a year earlier, the Chinese customs agency announced Thursday, as buyers in industrialized countries remained cautious about placing orders.

But investments in fixed assets like roads, factories and apartment buildings set a record in the opposite direction.

Chinese investment expenditures rose 32.9 percent in the first five months of this year, compared with the investments in the period last year, the National Bureau of Statistics announced in Beijing.

Yu Song, a Goldman Sachs economist, calculated that after adjusting for inflation, Chinese investment spending had grown in May at a breakneck pace, rising close to 50 percent from May of last year.

The government’s stimulus program is powering much of that increase, with spending on railroads soaring 110.9 percent in the first five months of 2009, compared with the same period last year.

The Chinese media reported that retail sales in May, scheduled to be announced Friday morning, are likely to show an increase of 15.2 percent. That would represent a modest acceleration from April, when the increase from a year earlier was 14.8 percent, and a robust gain when adjusted for the gradual decline in overall prices in China.

The Chinese government has struggled to keep economic data secret, and leaks to the media have frequently been right.

One of the biggest supports for retail sales in China has been the auto market, with car sales rising briskly as the government has offered various subsidies, especially in rural areas.

The big question for China is how long the economy can stay strong without the support of vigorous exports. Wages and profits have slipped in export-oriented coastal zones of China, limiting the spending power of consumers.

Chinese imports fell a little more slowly than exports last month, dropping 25.2 percent from the period a year earlier. The Chinese trade surplus last month was $13.39 billion, compared with $13.14 billion in April and $16.37 billion a year ago.

The Big Hate

June 12, 2009

Back in April, there was a huge fuss over an internal report by the Department of Homeland Security warning that current conditions resemble those in the early 1990s — a time marked by an upsurge of right-wing extremism that culminated in the Oklahoma City bombing.

Conservatives were outraged. The chairman of the Republican National Committee denounced the report as an attempt to “segment out conservatives in this country who have a different philosophy or view from this administration” and label them as terrorists.

But with the murder of Dr. George Tiller by an anti-abortion fanatic, closely followed by a shooting by a white supremacist at the United States Holocaust Memorial Museum, the analysis looks prescient.

There is, however, one important thing that the D.H.S. report didn’t say: Today, as in the early years of the Clinton administration but to an even greater extent, right-wing extremism is being systematically fed by the conservative media and political establishment.

Now, for the most part, the likes of Fox News and the R.N.C. haven’t directly incited violence, despite Bill O’Reilly’s declarations that “some” called Dr. Tiller “Tiller the Baby Killer,” that he had “blood on his hands,” and that he was a “guy operating a death mill.” But they have gone out of their way to provide a platform for conspiracy theories and apocalyptic rhetoric, just as they did the last time a Democrat held the White House.

And at this point, whatever dividing line there was between mainstream conservatism and the black-helicopter crowd seems to have been virtually erased.

Exhibit A for the mainstreaming of right-wing extremism is Fox News’s new star, Glenn Beck. Here we have a network where, like it or not, millions of Americans get their news — and it gives daily airtime to a commentator who, among other things, warned viewers that the Federal Emergency Management Agency might be building concentration camps as part of the Obama administration’s “totalitarian” agenda (although he eventually conceded that nothing of the kind was happening).

But let’s not neglect the print news media. In the Bush years, The Washington Times became an important media player because it was widely regarded as the Bush administration’s house organ. Earlier this week, the newspaper saw fit to run an opinion piece declaring that President Obama “not only identifies with Muslims, but actually may still be one himself,” and that in any case he has “aligned himself” with the radical Muslim Brotherhood.

And then there’s Rush Limbaugh. His rants today aren’t very different from his rants in 1993. But he occupies a different position in the scheme of things. Remember, during the Bush years Mr. Limbaugh became very much a political insider. Indeed, according to a recent Gallup survey, 10 percent of Republicans now consider him the “main person who speaks for the Republican Party today,” putting him in a three-way tie with Dick Cheney and Newt Gingrich. So when Mr. Limbaugh peddles conspiracy theories — suggesting, for example, that fears over swine flu were being hyped “to get people to respond to government orders” — that’s a case of the conservative media establishment joining hands with the lunatic fringe.

It’s not surprising, then, that politicians are doing the same thing. The R.N.C. says that “the Democratic Party is dedicated to restructuring American society along socialist ideals.” And when Jon Voight, the actor, told the audience at a Republican fund-raiser this week that the president is a “false prophet” and that “we and we alone are the right frame of mind to free this nation from this Obama oppression,” Mitch McConnell, the Senate minority leader, thanked him, saying that he “really enjoyed” the remarks.

Credit where credit is due. Some figures in the conservative media have refused to go along with the big hate — people like Fox’s Shepard Smith and Catherine Herridge, who debunked the attacks on that Homeland Security report two months ago. But this doesn’t change the broad picture, which is that supposedly respectable news organizations and political figures are giving aid and comfort to dangerous extremism.

What will the consequences be? Nobody knows, of course, although the analysts at Homeland Security fretted that things may turn out even worse than in the 1990s — that thanks, in part, to the election of an African-American president, “the threat posed by lone wolves and small terrorist cells is more pronounced than in past years.”

And that’s a threat to take seriously. Yes, the worst terrorist attack in our history was perpetrated by a foreign conspiracy. But the second worst, the Oklahoma City bombing, was perpetrated by an all-American lunatic. Politicians and media organizations wind up such people at their, and our, peril.

Rush and Newt Are Winning

By E.J. Dionne Jr.
Thursday, June 4, 2009

A media environment that tilts to the right is obscuring what President Obama stands for and closing off political options that should be part of the public discussion.

Yes, you read that correctly: If you doubt that there is a conservative inclination in the media, consider which arguments you hear regularly and which you don't. When Rush Limbaugh sneezes or Newt Gingrich tweets, their views ricochet from the Internet to cable television and into the traditional media. It is remarkable how successful they are in setting what passes for the news agenda.

The power of the Limbaugh-Gingrich axis means that Obama is regularly cast as somewhere on the far left end of a truncated political spectrum. He's the guy who nominates a "racist" to the Supreme Court (though Gingrich retreated from the word yesterday), wants to weaken America's defenses against terrorism and is proposing a massive government takeover of the private economy. Steve Forbes, writing for his magazine, recently went so far as to compare Obama's economic policies to those of Juan Peron's Argentina.

Democrats are complicit in building up Gingrich and Limbaugh as the main spokesmen for the Republican Party, since Obama polls so much better than either of them. But the media play an independent role by regularly treating far-right views as mainstream positions and by largely ignoring critiques of Obama that come from elected officials on the left.

This was brought home at this week's annual conference of the Campaign for America's Future, a progressive group that supports Obama but worries about how close his economic advisers are to Wall Street, how long our troops will have to stay in Afghanistan and how much he will be willing to compromise to secure health-care reform.

In other words, they see Obama not as the parody created by the far right but as he actually is: a politician with progressive values but moderate instincts who has hewed to the middle of the road in dealing with the economic crisis, health care, Guantanamo and the war in Afghanistan.

While the right wing's rants get wall-to-wall airtime, you almost never hear from the sort of progressive members of Congress who were on an America's Future panel on Tuesday. Reps. Jared Polis of Colorado, Donna Edwards of Maryland and Raul Grijalva of Arizona all said warm things about the president -- they are Democrats, after all -- but also took issue with some of his policies.

All three, for example, are passionately opposed to his military approach to Afghanistan and want a serious debate over the implications of Obama's strategy. "If we don't ask these questions now," said Edwards, "we'll ask these questions 10 years from now -- I guarantee it."

Polis spoke of how Lyndon Johnson's extraordinary progressive legacy "will always be overshadowed by Vietnam" and said that progressives who were challenging the administration's foreign policy were simply trying to "protect and enhance President Obama's legacy by preventing Afghanistan and Iraq from becoming another Vietnam."

As it happens, I am closer than the progressive trio is to Obama's view on Afghanistan. But why are their voices muffled when they raise legitimate concerns, while Limbaugh's rants get amplified? Isn't Afghanistan a more important issue to debate than a single comment by Judge Sonia Sotomayor about the relative wisdom of Latinas?

Polis, Edwards and Grijalva also noted that proposals for a Canadian-style single-payer health-care system, which they support, have fallen off the political radar. Polis urged his activist audience to accept that reality for now and focus its energy on making sure that a government insurance option, known in policy circles as the "public plan," is part of the menu of choices offered by a reformed health-care system.

But Edwards noted that if the public plan, already a compromise from single-payer, is defined as the left's position in the health-care debate, the entire discussion gets skewed to the right. This makes it far more likely that any public option included in a final bill will be a pale version of the original idea.

Her point has broader application. For all the talk of a media love affair with Obama, there is a deep and largely unconscious conservative bias in the media's discussion of policy. The range of acceptable opinion runs from the moderate left to the far right and cuts off more vigorous progressive perspectives.

Democrats love to think that Limbaugh and Gingrich are weakening the conservative side. But guess what? By dragging the media to the right, Rush and Newt are winning.

World Bank sees even worse slump

The world economy will shrink by much more than previously thought, according to the World Bank.

The world economy will contract by 3% this year, far more than the 1.75% drop it predicted earlier this year.

"Most developing country economies will contract this year and face increasingly bleak prospects," World Bank president Robert Zoellick said.

The gloomier forecast comes despite recent signs that the worst of the recession is over.

This year is likely to be the first global recession since World War II.


The revised figure brings it closer in line with the OECD, which represents rich nations, who predicted that the world economy will shrink by 2.7%.

The World Bank's sister institution, International Monetary Fund (IMF), said in April the world economy will shrink by 1.3% this year.

However, the forecasts are broadly compatible as the World Bank methodology gives a smaller weight to China, still the world's fastest growing large economy.

Mr Zoellick still predicted a recovery next year.

"Although growth is expected to revive during the course of 2010, the pace of the recovery is uncertain and the poor in many developing countries will continue to be buffeted by the aftershocks," he said.

The World Bank said the International Development Association (IDA), a division of the World Bank that focuses on the 78 poorest countries, had received a record number of pleas for help.

For the year to 30 June, the number of grants and interest-free loans are expected to be $13bn, the most ever. In the previous year, the figure was $11.2bn.

The World Bank forecast comes before a meeting of the finance ministers from the Group of Eight richest nations on Friday in Lecce, Italy.

Story from BBC NEWS:

Published: 2009/06/11 14:35:00 GMT