Tuesday, September 9, 2008

Economy (The Third Horseman – Rev. 6)

WASHINGTON (AP) — The federal highway trust fund will run out of money this month, requiring delays in payments to states for transportation construction projects, Transportation Secretary Mary Peters said Friday. The trust fund — a federal account used to help pay for highway and bridge projects — will run about $200 million short of its commitments for the fiscal year, which ends Sept. 30, Peters said during a conference call with reporters. The shortfall will mean short delays — and in some cases a temporary reduction — in payments to states for infrastructure projects the federal government has agreed to help finance. Although the fund started with a $8.1 billion balance in October 2007, transportation officials say revenue for the past year was $8.3 billion below what the government had committed to spend. Peters blamed the funding shortage on the high price of gasoline, which has prompted Americans to drive less. This means less fuel has been purchased, and less gasoline taxes collected for the trust fund. Americans drove 50 billion fewer miles between November and June 2008 than during the same period a year earlier. Arizona is delaying as much as $171 million in new highway projects funded by federal money as Congress fights over how to pay the tab.

USA TODAY: The sharp rise in joblessness is draining unemployment insurance trust funds in many hard-hit states, setting the stage for a federal bailout to keep the funds solvent. The unemployment rate reached a five-year high of 6.1% in August, putting the number of jobless people at 9.5 million, up 2.4 million from a year earlier. About one-third of the jobless collect unemployment insurance from state governments. The federal government is required to loan states money when their trust funds run short. In the short term, bailouts increase the federal deficit. In the long term, businesses pay higher unemployment insurance taxes to replenish the trust funds.

NEW YORK (CNNMoney.com) -- Federal officials unveiled an extraordinary takeover on Sunday of troubled mortgage giants Fannie Mae and Freddie Mac, signaling the most dramatic move to date aimed at shoring up the nation's housing market. The plan, which was delivered by Treasury Secretary Henry Paulson and James Lockhart, director of the Office of Federal Housing Enterprise, places the twin mortgage buyers into "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing. Both agencies will be open for business Monday morning. Dividends on both common and preferred shares will be eliminated in an effort to preserve capital. Freddie and Fannie, which were created by the U.S. government, own or back $5.4 trillion worth of home debt - half the mortgage debt in the country. Since last summer, they have suffered about $12 billion in losses. Fannie and Freddie have become virtually the only source of funding for banks and other home lenders looking to make home loans. Their ability to do so is crucial to the recovery of the battered home market and the broader U.S. economy.

WASHINGTON — The unprecedented federal takeover of mortgage giants Freddie Mac and Fannie Mae announced on Sunday is a bold attempt to stabilize financial markets and restore the faltering housing market, but it thrusts trillions of dollars of risk directly onto taxpayers' shoulders. "You can call it a bailout, you can call it a safety net or you can call it a rescue package, but the bottom line is the American taxpayer is left footing the bill," says Richard Yamarone, director of economic research at Argus Research.

WASHINGTON (AP) — The federal government will run a near-record deficit of $407 billion for the budget year ending Sept. 30, according to the latest Capitol Hill estimates. The Congressional Budget Office figures released Tuesday say the flood of red ink will spill over into next year, when the deficit would reach a record $438 billion — and could go even higher as the government takes over mortgage giants Fannie Mae and Freddie Mac. The numbers represent about 3% of the size of the economy, which is the deficit measure seen as most relevant by economists. That's considerably smaller than the deficits of the 1980s and early 1990s, when Congress and earlier administrations cobbled together politically painful deficit-reduction packages. Still, the new figures are so eye-popping in dollar terms that it may restrain the appetite of the next president, who takes office Jan. 20, to add to it with expensive spending programs or new tax cuts. Pressure may build to allow some tax cuts enacted in 2001 and 2003 to expire as scheduled at the end of 2010, with Congress also feeling pressure to curb spending growth.

ARIZONA REPUBLIC — Porfirio H. Gonzales Elementary in Tolleson can't collect the $153,000 from the state needed to fix a collapsing sewer line - unless sewage starts backing up into its preschool and kitchen. Gonzales is one of many schools across Arizona struggling to make do without the cash to repair their buildings. In May, the Legislature halted the second half of repair payments many districts expected. The state also emptied this school year's entire repair fund, pulling back $86 million, to plug holes in the state budget. The moves by the state to withhold money are but the latest in a decade-long trend of not giving schools the full amount of repair funds that state law requires. Over the past 10 years, the Legislature has given schools less than half the money the formula requires.

Alaskans hit the annual oil jackpot Saturday — and it was a gusher. Every man, woman and child in the 49th state will receive $3,269, their cut of the state's yearly oil wealth, plus a special cash bonus to offset soaring fuel costs. In all, 610,768 people are receiving the payouts. The oil royalty works out to $2,069 and the fuel rebate $1,200. Last year's payout was $1,654. People must live in Alaska one calendar year to qualify. The fund was created in 1976 after North Slope oil was discovered. Since the first payout of $1,000 in 1982, Alaskans have received $16.5 billion. Two questions are contentious: Is the oil Alaska's oil or America's oil? And should the state reduce its request for federal funding by the total amount of the dividend?

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