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Analysts: Rich, Poor Far Apart in US

VOA News, Carolyn Presutti


VOA News, WASHINGTON — Many analysts agree there is a wide economic divide in the United States between the destitute and the wealthy. And they say it's not getting any better. But there are differing opinions about what led the country to this divide, and whether President Obama can do anything to close the gap, as he suggested in his State of the Union address Tuesday.

Ameyah doesn’t understand why her mother has to pay bills.

But Tiffany Beroid can think of little else as she struggles to make ends meet. She works part-time, making minimum wage at Walmart. If she takes a full-time job, she won’t be able to afford child care for her two daughters.

Beroid calls herself “the working poor.” And she recently added the label of sole breadwinner, because her husband just got laid off.

“It makes it very very tough for us now, so now we have to really buckle down and there’s nothing extra that we can afford," she said. "After we buy diapers and things for the girls, that’s just it.”

Beroid works at her neighborhood Walmart in Prince George’s County, Maryland. Here, there are no boutiques and no places to stroll.

But 29 kilometers away, life is far different in upscale Chevy Chase, Maryland.

Locals refer to an area in the center of the suburban city as the “Rodeo Drive of Maryland,” named after the famous celebrity shopping district in Beverly Hills, California. The main shopping district is lined with high-end stores for people who can afford them.

People in this neighborhood live in houses that doubled their median value in the past decade - to nearly $1 million.

A University of California Berkeley study says the salaries of America's top 1 percent wage earners soared by 30 percent over three years. While everyone else's salary grew less than half a percent

Peter Cappelli, who is with the Wharton School of Business at the University of Pennsylvania, blames the outsourcing of union jobs as paychecks ballooned in the financial sector.

"The big question is are things going on that have kind of changed the rules and stacked the deck further in favor of people who are already pretty wealthy," he said.

Back in Chevy Chase, another explanation.

“In the last few years because of the economic crisis I would think a lot of people lost jobs,” one woman said.

“Because of greed in the world,” a man added.

Beroid is fighting Walmart to raise its minimum wage. Walmart says its wages are higher than average. As a private employer, the store would not be affected by the president's expected order to raise wages for federal contractors.

Obama had pushed to raise the minimum for all workers, but Congress argued that higher wages would lead to more layoffs.

Cappelli says raising wages is only a short-term fix.

“I don’t think anybody would choose this as the best way to help the working poor, but it’s in place," he said. "We can increase the minimum wage more easily than we could put in place an entirely new program.”

Capelli says the country should focus on future generations and preserving America's middle ground, because that's what it's losing.
Read more...

Obama Proposes 'Grand Bargain' to Aid Middle Class

VOA, U.S. President Barack Obama says the United States must do better to secure a "better bargain for the middle class" to lay a foundation for stronger economic growth.

In his weekly address Saturday, the president said even before the economic crisis hit several years ago, wealth was unfairly concentrated among the rich, while most families were working harder and harder just to get by. He said reversing that trend must be Washington's highest priority.

Obama said he is proposing a "grand bargain" for the middle class. He said he will work with Republicans on simplifying the tax code, but only if the savings are used to make a significant investment in creating good middle-class jobs. He said he wants to put construction workers back to work and help community colleges educate students for a global economy, all without adding to the deficit.


Republican U.S. Senator Susan Collins also addressed the economy in her party's weekly address. She said Obama's health care reforms, known as "Obamacare," are actually discouraging small businesses from creating jobs and hiring new employees. She said she is introducing a bill that would redefine the Obamacare definition of "full-time employee" in order to protect jobs.
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US Economy Advances More Than Expected

VOA News


New reports show the U.S. economy is advancing at a faster pace than some analysts had predicted, but the country's central bank says it is not ready yet to trim its stimulus measures to boost growth.

The government Wednesday said the American economy grew by a 1.7 percent annual rate in the April-to-June period, compared to a newly calculated 1.1 percent pace over the first three months of the year.

The Federal Reserve described the country's expansion as modest. The second quarter growth was nearly twice what many economists had projected, with some saying it pointed to even more robust growth in the second half of the year.

After a two-day meeting in Washington, central bank policy makers said the Fed will continue its monthly $85 billion purchase of securities to pump more money into the economy, and keep its benchmark interest rate near zero.

Analyst Greg McBride of Bankrate.com said there is no urgency for the Fed to scale back its asset purchases.

"We still have a slow-growth economy with high unemployment and low inflation. As a result, there's really nothing urgent that's going to prompt the Fed to scale back their stimulus anytime soon," he said. "What they've done instead is adopt kind of a wait-and-see attitude with more of the same in the meantime."

The Fed's asset purchases have been aimed at spurring the economy and boosting job growth, but the central bank said previously that as the economy improves, it is looking to curtail the program later this year and end it by mid-2014.

The government said the second quarter advance was fueled by more consumer spending, a growth in exports and expanding corporate investment. That offset reduced federal government spending after Washington failed to agree on a new budget plan and automatic cuts took effect in March.

In another report, the government revised last year's U.S. economic performance upward, saying the country's overall output moved ahead by 2.8 percent, up from the 2.2 percent figure it earlier posted.
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Detroit’s Financial Slide Linked to Exodus of Auto Industry

Economists say Detroit’s population most likely will never reach its former peak. And if the city is to come back, it will need to redefine itself post-bankruptcy as something different than “Motor City.”

Kane Farabaugh


DETROIT — Its nickname is the Motor City, but many of the automobile factories that gave Detroit that moniker are now hard to find inside the city limits. Detroit’s financial crisis is linked to the exodus of its auto industry, as it failed to achieve the economic diversity that helped other cities avoid bankruptcy.

At the height of Detroit’s boom in the mid 20th century, this plant manufactured Packard automobiles, employing about 40,000 people.

The promise of good pay and plenty of work at similar plants around the city attracted people like Tennessee native George McGregor in the 1960s. Today, he's president of the United Auto Workers Local 22 in Detroit.

“When I first came here, in the automobile factory, they were begging people to come. The hour rate was something like $3.25 an hour,” he recalled.

But the auto industry stopped begging when demand for American cars slowed and interest in foreign automobiles increased.

The Packard brand became extinct, and the hum of its once mighty factory is silent.

Crumbling buildings are part of one of the largest vacant industrial complexes in the world. They symbolize Detroit’s boom-to-bust story.

“There were about a dozen auto factories, and you know very large employers, and over time those have been shut down to now there’s only one left,” Scorsone said.

Economist Eric Scorsone, at Michigan State University, said although General Motors boasts the most prominent set of buildings in downtown Detroit, the auto industry plays a much smaller role in the city's economy.

“In fact, health care is the biggest employer now in the city,” he said.

There were about 300,000 auto factory jobs in Detroit in the 1950s, when the population was around 1.8 million.

Today, there are fewer than 27,000 jobs in plants operated by Chrysler and GM, and the overall population is just above 700,000.

“We got three casinos and two auto factories," McGregor explained. "We went from manufacturing to gaming for jobs.”

McGregor's UAW Local 22 Detroit represents workers at the GM Hamtramck plant still in operation here. He said many of those who work there don’t live in the city. “In my facility I’m going to say its about fifty. Fifty stay in the city of Detroit and the other 50 percent stay in the surrounding neighborhoods,” he stated.

McGregor said he had the opportunity to leave when others fled Detroit, but decided to stay. He doesn't regret it even in the wake of news that the city is bankrupt.

"I made a living in this city, and I plan on staying in this city, and hopefully it will come back,” he added.

Economists say Detroit’s population most likely will never reach its former peak. And if the city is to come back, it will need to redefine itself post-bankruptcy as something different than “Motor City.”

Read more...

Europe Agrees on How to Deal With Failed Banks

 

Selah Hennessy


LONDON — The European Union (EU) has moved one step closer to forming a long-heralded banking union after finance ministers agreed on a new deal for bank bailouts. Tthe deal came as European leaders meet in Brussels to hammer out Europe-wide policies.

European Union finance ministers tried and failed to tackle the banking issue in negotiations last week but they finally struck an agreement in the early hours of Thursday morning.

According to the deal, in the future, taxpayers will not take the first hit when struggling banks need a helping hand.

Instead, the bank’s creditors and shareholders will take the first hit, followed by those with savings of over $130,000 in the bank.

A taxpayer funded bailout of failed banks will now only be a last resort.

Eurogroup President Jeroen Dijsselbloem said, "That's a major shift from the public means from the taxpayer, if you will, back to the financial sector itself, which will now become for a very large extent, responsible for dealing with its own problems."

Europe’s banking sector has been hit hard by the world financial crisis and sovereign debt crises across a number of European Union countries.

Countries like Ireland, Britain and Germany have had to pump billions of dollars of fresh money into struggling banks to keep them from collapsing.

Wolfgang Schaeuble, the Finance Minister for Germany, Europe’s largest economy, said it’s clear that in principle when banks get into difficulties in the future, the taxpayer should not be the first in line to pay.

Instead, a so-called banking union for Europe will be eventually established which would be aimed at creating financial stability across Europe.

European Union governments will still have to negotiate the legislation with the European Parliament - but the rules could come into effect by 2018.

Financial analysts said Thursday that the decision will be good for the markets because it creates some certainty that individual states will not have to prop up failing banks in future.

But Joe Rundle, head of trading at Britain’s ETX Capital, said it’s yet to be seen how the policy will play out.

"I think the big fear is when it comes to a bank in trouble, is, are the countries going to stick to the rules or are there going to be exceptional circumstances which require a different set of rules for that bank," he said.

Also on Thursday the heads of the European Parliament and European Commission agreed on a new European Union budget for the next seven years that is worth $1.3 trillion and will finance EU projects through the year 2020.

Read more...

Millions of US Students Face Higher Costs Unless Congress Acts

 

Jim Randle


Seven million low-income U.S. college students face higher costs unless President Barack Obama and both Democrats and Republicans in Congress reach an agreement by July.

Many experts doubt the bickering politicians will act in time to prevent a doubling of the interest charged on education loans for students who need the financial help the most. This dispute comes as a college education is more important than ever to get good jobs, and college costs are soaring.

About one-third of college students in the United States rely on low-cost loans that are subsidized by the government.

Right now, the interest rate is 3.4 percent a year, but it will double to 6.8 percent if Congress doesn't act.

That could add up to thousands of dollars in additional repayments if low-income college students borrow $20,000 or more for the four years of undergraduate studies.

Spencer Hughes, student government president at Iowa State University, says the higher costs will hurt the students who can least afford it.

"For many of them this assistance is necessary for them to be able to afford a college education. So there are going to be some serious considerations if it is worth it for me to consider pursuing a degree with this increased burden," said Hughes.

Hughes says students are fed up with politicians who spend their time blaming each other for the impasse. He says it is time for Congress to do its job and reach an agreement so students know what their costs will be as they pursue higher education.

The evolving debate includes some who want to extend current rates, while others say it is too costly for taxpayers. Some want to tie interest rates to market conditions, while others say to do so would be okay if there were an upper limit on rates and a way to set the rate for a term in college.

Terry Hartle of the American Council on Education says he hopes the various factions can work out a deal. He says the issue is important to students and the national economy.

"Countries with a high percentage of educated and skilled workforce will do better than countries that do not have a highly educated and well-trained workforce," said Hartle.

Hartle says if Congress misses the deadline, members could work out a deal later and set interest rates retroactively.

Read more...

Stock Markets Watch Bernanke

 

VOA News


Top officials of the U.S. central bank are discussing how much and how soon to reduce their efforts to speed up economic growth.

The chairman of the Federal Reserve will report their decisions Wednesday afternoon at 2:30 p.m. Ben Bernanke has previously said the bank will cut stimulus efforts if the unemployment situation improves further or inflation rises strongly.

Stock markets have been very volatile as nervous investors try to guess what the Fed will do.

Back in 2008, the Federal Reserve cut short-term interest rates to a record low level in a bid to boost economic growth. When that produced disappointing results, the Fed added a complex program to cut long-term interest rates involving $85 billion a month in asset purchases.

Stimulus efforts focus on low interest rates, because they make it cheaper for businesses to finance new equipment, expand factories, and hire new people. But if a stimulus program goes on too long, it can overshoot and spark inflation.

Read more...

US Financial Concerns Recede as Economy Improves

 

VOA News


Just weeks ago, the political focus in Washington was on reaching a "grand bargain" on taxes and spending to cut the country's burgeoning debt, but now a string of events seems to have pushed the issue into the background.

The U.S. government's debt is nearing $17 trillion, as its annual budget deficit topped $1 trillion each of the last four years. That prompted U.S. President Barack Obama and his key congressional opponents to start talks about curbing the deficit, reforming spending plans for popular government pension and health care plans for older Americans and altering the country's complex tax laws.

But such talks have been halted, and part of the reason is that the U.S. economy seems to be on the upswing, and as a result government tax collections are increasing. A key congressional budget agency says the government budget deficit will shrink to $642 billion this year, the smallest in five years, and continue to fall in the next two years.

The senior economist at one the country's biggest banks, James Glassman at JPMorgan Chase, told VOA that actions by Congress contributed to the country's revived outlook.

“They allowed the social security payroll taxes to go back up a couple percentage points," said Glassman. "You’ve got sequestration, which is kind of holding government spending, not cutting government spending, but holding it down. And meanwhile the economy is recovering, and so the deficit has been coming down.”

Patrick Socci, dean of the Hofstra University business school in New York, told VOA that while the country's economic fortunes improved, Congress diverted its attention from spending and debt concerns to investigate how the country's tax agency, the Internal Revenue Service, targeted conservative groups for extra scrutiny as they sought tax-exempt status.

“The bandwidth [attention span] of the American public, I think, is relatively limited. And now you have the IRS scandal. And that I think occupied everybody’s bandwidth," said Socci. "And so they’re concentrating on that and it impinges on the discussion of a balanced budget or attempting to move in the direction of closing the deficit because here you have the arm of the government that collects taxes being significantly compromised by these alleged scandals that have taken place.”

Some Washington leaders originally thought Congress would have to increase the country's borrowing limit in the next few weeks. But Socci said that with the improving economic fortunes, that has been pushed off for months.

“I think the debt ceiling they thought originally would have to been resolved sometime around now, and now they don’t think that they have to touch the debt ceiling for at least another six months, which in political terms is an eternity," said Socci.

But Glassman sees trouble ahead for the government if it fails to rein in rapidly increasing spending for a popular program covering health care expenses for older Americans.

“The problem is when you look out over the horizon, the longer-term picture is not so great," said Glassman. "Federal spending for health is growing steadily, has been for a long time, and the Congressional Budget Office tells us eventually, if we don’t do anything, today’s cyclical deficit may go away, but that then we’ll start to see the deficit growing again. And that’s really the issue that should have been addressed.”

But he said that as the government deficit retreats, "everybody is sort of losing interest" in acting now. Glassman said Washington's leaders "tend not to deal with issues unless they are staring us in the face."

Read more...

Europe Hands 6 Nations a Deficit Reprieve

 

VOA, Europe is giving six of its financially struggling countries, including the major economies in France and Spain, more time to control the deficit spending of their governments.

Austerity - calling for cuts in spending and increased taxes - has been the dominant prescription in the last two years for European countries looking to rein in budget shortfalls. But with unemployment surging and the continent mired in an 18-month recession, the European Union on Wednesday softened its demands.

The EU granted the Netherlands and Portugal an extra year to cut their deficits below the mandated level of 3 percent of their economic output. France, Spain, Poland and Slovenia were given an additional two years to meet the same standard.

Meanwhile, the Organization for Economic Cooperation and Development [OECD] said the economic weakness in the 17-nation euro currency union "could evolve into stagnation with negative implications for the global economy."

The Paris-based OECD, which promotes global economic well-being, said eurozone growth will shrink six-tenths of a percent this year, on top of a half-percentage point drop last year. Six months ago, the group predicted a smaller contraction, and a year ago said the eurozone economy would advance in 2013.

The OECD predicted 3.1 percent global growth this year, increasing to 4 percent next year.

But the OECD's secretary general, Angel Gurria, said unemployment across the world remains a major problem.

"The failure of the global economy to recover more strongly has posed a heavy burden on people. Unemployment remains far too high, In some countries it's already at record levels, and still rising in the case of the euro area," said Gurria. "It's still rising, it went through the 12 percent mark and moving up. The jobless, particularly youth and [the] less skilled, risk losing contact with the labor market and dropping out of the labor force all together. Even when activity eventually picks up, they will have been out of the market for so long that it will not be easy for them to hook up again."

Read more...

Obama says IRS Problems Will be Fixed

 

VOA News


U.S. President Barack Obama says he did not know about abuses by tax officials who targeted conservative groups until a report into the affair was leaked to the press last week.

During a White House news conference with visiting Turkish Prime Minister Recep Tayyip Erdogan, Obama said the minute he found out about it, his focus was about making sure the Internal Revenue Service problem gets fixed.

The president added he has complete confidence in Attorney General Eric Holder, who has ordered a criminal investigation into the matter.

Acting IRS chief Steven Miller was fired Wednesday because of the scandal. Senate Republican leader Mitch McConnell said Thursday that is an "important symbolic step," but a thorough investigation of IRS misdeeds must go forward.

Obama has pledged to make sure the IRS does not engage in partisan politics, and said he will work with Congress in an oversight role.

A report released this week by the U.S. Treasury's independent inspector general said ineffective management allowed IRS agents to improperly target conservative groups opposed to the Obama administration tax and budget policies.

Read more...
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