From Financial Armageddon

December 13, 2008

Not Quite a Sound Economy

It was only three months ago when President George W. Bush reassured us that the fundamentals of the economy were sound.

Since then, the Natural Bureau of Economic Research has determined that the U.S. has been in recession since December 2007. Weekly jobless claims have hit their highest level in 26 years. Washington has committed trillions of dollars in taxpayer funds to bail out an imploding financial industry. The commercial real estate market has begun playing catch-up with the freefall in the residential property market. Panicky investors have driven yields on the short-term Treasury bills to zero. And around the country, more and more Americans are finding themselves in dire straits, as indicated by the following Agence France-Presse report, "Homelessness, Hunger on Rise in US Cities: Report."

Homelessness and hunger increased in an overwhelming majority of 25 US cities in the past year, driven by the foreclosure crisis and rising unemployment, a survey showed Friday.

Out of 25 cities across the United States surveyed by the US Conference of Mayors, 83 percent said homelessness in general had increased over the past year while 16 cities, or nearly two-thirds of those polled, cited a rise in the number of families who had been forced out of their homes.

In Louisville, Kentucky, the number of homeless families increased 58 percent in 2008 to 931 families from 591 people in 2007, with the rise blamed on soaring food, health care, transportation and energy prices.

Boston, Massachusetts and Providence, Rhode Island blamed the rise in family homelessness on evictions by landlords whose rental properties were foreclosed.

Meanwhile, the number of people seeking food assistance for the first time was up in all 21 cities with data on the issue, and was "particularly notable among working families stressed by the increase in food prices and the slowdown in the economy," the report said.

Officials in Philadelphia told the survey that "new people coming to food cupboards are people that are employed with children.

"With food prices increasing as much as 30 percent and incomes either staying the same or decreasing, it is impossible for them to feed their families," the report said.

When asked to identify the three main causes of hunger, 83 percent of cities cited poverty, 74 percent cited unemployment and 57 percent cited the high cost of housing.

And while demand for food assistance was up, providing it was more difficult for cities as the faltering economy and rising joblessness -- two key reasons for the increased demand -- also caused the number of donations to fall.

Greater efficiency in large grocery stores and food suppliers has also shrunk the availability of food assistance because it has decreased food donations from the large organizations, which are the main donors to food banks.

Food banks -- places where donated food is made available free-of-charge to needy people -- are the main providers of food aid in most US cities.

They have struggled in the past year to maintain stock levels due to the increased cost of food and fuel.

"Los Angeles, Boston and Portland reported that increases in the price of food have lead to a decrease in the quantity of food they are able to purchase," the report said.

"In Phoenix, where the cost of fuel and trucking expenses has increased by as much as 72 percent, the total amount of food distributed decreased by 13 percent even though the level of funding increased by 30 percent," it said.

The price of food increased 6.2 percent on average over the last year, the largest increase in nearly 20 years, the report said.

And during the 12-month period ending in September for which most of the cities provided data, gasoline (petrol) prices skyrocketed in the United States to reach record highs of more than four dollars per gallon to the consumer, with the price of diesel fuel used by truckers going even higher.

If this is Mr. Bush's idea of sound fundamentals, I'd love to hear his thoughts on what a bad economy looks like.