Detroit: Its Rise and Fall … What went wrong?

Captain Rick: Detroit was once the 4th largest city in America and ‘motor capitol’ of the world. Decades of internal destruction caused a mass exodus of people, reducing its population to 18th place. Its automotive manufacturing plants have been shut down or relocated. What went so wrong?

I conducted in-depth research on this important event. I have compiled the following report to accurately present the ‘Rise and Fall of Detroit’ and what went so wrong. I conclude with sobering concerns for all Americans, especially those who have the responsibility of managing our cities and states…many of which are on the same course as Detroit.

The above photo of the GM building in downtown Detroit was taken with a telephoto lens looking southeast from Bush and Watson Streets, about 1.5 miles to its northwest. The large area around this boarded up house contains similar houses and open area where old houses have been removed. 

The Rise and Fall of Detroit

Ford Motor Company ignited the rise in 1903

In 1903 Ford founded the Ford Motor Company. Ford’s manufacturing—and those of automotive pioneers William C. Durant, the Dodge brothers, Packard, and Walter Chrysler—reinforced Detroit’s status as the world’s automotive capital.

Labor Unions took control with strikes for increased wages, benefits, pensions

With the factories came high-profile labor unions such as the American Federation of Labor & the United Auto Workers which initiated strikes & other tactics in support of such things as the 8-hour day/40-hour work week, healthcare benefits, pensions, increased wages & improved working conditions. The labor activism during those years increased influence of union leaders in the city such as Jimmy Hoffa of the Teamsters and Walter Reuther of the autoworkers.

Mergers helped companies expand elsewhere, while causing the disappearance of plants in Detroit … often to escape the profit robbing effects of labor unions

Mergers in the 1950s, especially in the automobile sector increased oligopoly in the American auto industry. Detroit auto manufacturers such as Packard & Hudson merged into other companies and eventually disappeared. Plants in Detroit, with heavy union control, were closed as new plants were built elsewhere in less union-friendly locations. Behind the scenes, it can be said that labor unions played the first major role in the fall of Detroit. 

Detroit became America’s fourth largest city as companies looked to reduce labor costs by importing cheap labor from the South

Tens of thousands flocked to Detroit with the hope of better pay and benefits, particularly black workers from the Southern United States. It resulted in Detroit rocketing to become the fourth largest city in the United States with blacks as its majority residents.

Racial tension took hold to begin the Fall of Detroit

Social tensions rose with the rapid pace of growth. On January 20, 1942, with a cross burning nearby, 1,200 racist whites tried to prevent black families from moving into a new housing development in an all-white area of the city. Later in June 1943, Packard Motor Car Company promoted three blacks to work next to whites in their assembly lines. In response, 25,000 whites walked off the job. The Detroit Race Riot of 1943 occurred 3 weeks after the Packard Motor Car incident. Over the course of three days, 34 people were killed. Of them, 25 were African–American, and approximately 600 were injured.

In June 1963, Rev. Martin Luther King, Jr. gave a major speech in Detroit that foreshadowed his "I Have a Dream" speech in Washington, D.C. two months later. During the African-American Civil Rights Movement of the 1950s and 1960s, Detroit witnessed growing confrontations between the police and inner city black youth, culminating in the Twelfth Street riot in July 1967. Governor George W. Romney ordered the Michigan National Guard into Detroit, and President Johnson sent in U.S. Army troops. The result was 43 dead, 467 injured, over 7,200 arrests, and more than 2,000 buildings destroyed. Thousands of small businesses closed permanently or relocated to safer neighborhoods, and the affected district lay in ruins for decades.

On August 18, 1970, the NAACP filed suit against Michigan state officials, including Governor William Milliken. The original trial began on April 6, 1971, and lasted for 41 days. The NAACP argued that although schools were not officially segregated, the city of Detroit and its surrounding counties had enacted policies to maintain racial segregation in schools.

District Judge Steven J. Roth held all levels of government accountable for the segregation. The Sixth Circuit Court affirmed some of the decision, withholding judgment on the relationship of housing inequality with education. The Court specified that it was the state’s responsibility to integrate across the segregated metropolitan area.

U.S. Supreme Court was most responsible for massive exodus from Detroit

The Governor and other accused officials appealed to the Supreme Court, which took up the case on February 27, 1974. The subsequent Milliken v. Bradley decision would come to have enormous national impact. According to Gary Orfield and Susan E. Eaton in their 1996 book Dismantling Desegregation, the “Supreme Court’s failure to examine the housing underpinnings of metropolitan segregation” in Milliken made desegregation “almost impossible” in northern metropolitan areas. “Suburbs were protected from desegregation by the courts ignoring the origin of their racially segregated housing patterns.” “Milliken was perhaps the greatest missed opportunity of that period,” said Myron Orfield, professor of law and director of the Institute on Metropolitan Opportunity at the University of Minnesota, “Had that gone the other way, it would have opened the door to fixing nearly all of Detroit’s current problems.” John Mogk, a professor of law and an expert in urban planning at Wayne State University in Detroit says “Everybody thinks that it was the riots [in 1967] that caused the white families to leave. Some people were leaving at that time but, really, it was after Milliken that you saw mass flight to the suburbs. If the case had gone the other way, it is likely that Detroit would not have experienced the steep decline in its tax base that has occurred since then."

The Fall of Detroit

Long a major population center and major engine of worldwide automobile manufacturing, Detroit has gone through a continuing economic decline over the past 60 years.

Population Decline from ‘White Flight’ … Detroit reached its population peak of 1.8 million people in the 1950 census and ranked as America’s fourth largest city. Massive ‘white flight’ to the suburbs and other cities took place following the 1974 Milliken case. As of the 2010 census Detroit has lost 60% of its population, falling to 18th place with just over 700,000 residents remaining, of which over 82% are black/African American and 6% Hispanic … a total reversal from 1950 when over 90% were non-Hispanic whites. The city’s tax base eroded along with that population decline. There is no question that ‘white flight’ was the top cause of the fall of Detroit. It in turn led to all of the following problems…

High unemployment … was compounded by white flight and middle-class flight to the suburbs (and in some cases to other states), and the city was left with a reduced tax base, depressed property values, abandoned buildings, abandoned neighborhoods, high crime rates, and a pronounced demographic imbalance.

The unemployment rate, while down from a peak of 27.8% in the summer of 2009 — when General Motors and Chrysler Group were going through their own bankruptcies — is still at 16.3%, nearly twice Michigan’s statewide average.

Loss of Tax Revenue … Most of the auto industry’s Michigan plants moved out of our build in locations outside of Detroit city limits, severely limiting how much tax revenue they contribute to Detroit. General Motors, is the only automaker with headquarters inside of city limits, and Chrysler Group operates just one plant inside the city. Both companies declared bankruptcy and were bailed out at the expense of U.S. tax payers.

More than half of the owners of Detroit’s 305,000 properties failed to pay their 2011 tax bills, exacerbating the city’s financial crisis. According to the Detroit News, 47 percent of the city’s taxable parcels are delinquent on their 2011 tax bills, resulting in about $246 million in taxes and fees going uncollected, nearly half of which was due to Detroit. The review also found 77 blocks in Detroit had only one owner who paid taxes in 2011.

Urban Decay … The ongoing decline has left its mark on the city, most notably in severe urban decay and thousands of empty homes, apartment buildings, and commercial buildings around the city. Some parts of Detroit are sparsely populated resulting in the city having difficulty providing municipal services such as policing, fire protection, schools, trash removal, snow removal, lighting, etc. The city has sought and considered various solutions such as demolition of abandoned homes and buildings, though there are tens of thousands of abandoned structures; removal of street lighting from large portions of the city; and encouraging the small population in certain areas to move to more populated areas of the city as there may not be a quick response for city services such as police in de-populated areas.

Crime … Detroit has the sixth highest total rate of violent crime, five times the national average. At 16.73 per 1,000, it has the highest per capita rate of violent crime among the 25 largest U.S. cities in 2007, those with a population exceeding 200,000.

Nearly two-thirds of all murders in Michigan in 2011 occurred in Detroit. It has been reported that about 65 to 70 percent of homicides in the city are drug related. he police department closes only 8.7% of its criminal cases.

Detroit was rated the most dangerous city in the United States for the 4th year in a row in a 2010 survey by the FBI. It has been reported that 4 of the top 10 most dangerous neighborhoods in the nation reside in Detroit.

Blight: 78,000 blighted buildings either abandoned or ruined. 

Lack of Lighting: 30,000 defunct streetlights– about 40% of the 88,000 street lights don’t work.

Response time: Call for a police officer takes 58 minutes to get help — more than five times what it takes elsewhere in the United States. Response times for Emergency Medical Services and the Detroit Fire Department average 15 minutes, which is more than double the 7-minute averages seen in other cities.

Hazardous waste sites: 70 Superfund hazardous waste sites

Parks: Two-thirds of parks closed since 2008, with only 107 remaining open

Aging equipment: Fire stations are old and not adequately maintained. A fleet of city vehicles is aging and poorly maintained. A power grid that is deteriorating. A city-owned power plant that has been idle for two years. 31 sub-stations that need to be decommissioned. Information technology systems in multiple departments that urgently need to be upgraded or replaced.

Detroit Files for Bankruptcy

The situation reached a crisis and almost resulted in the state of Michigan taking over administrative control of the city. The state governor declared a financial emergency in March 2013, appointing Kevyn Orr as emergency manager. On July 18, 2013, Detroit filed for bankruptcy.

Orr said the city had filed for bankruptcy because it would take more than 50 years to pay off the city’s $11.5 billion in unsecured debt while not conducting even the most basic maintenance, such as filling potholes and plowing snow.

Current Fiscal Situation … What is at stake? 

Detroit halted payments on about $2 billion in debt last month to preserve its dwindling supply of cash. The city faces total liabilities of about $18 billion.

The reorganization plan argues that the city needs to shed $9.5 billion of its $11.5 billion in unsecured debt in order to be able to pay its bills and make necessary improvements in services. Much of the debt targeted for elimination is related to pension benefits and retiree health care coverage required by union contracts. That would mean that investors and retirees would receive an average of just 17% of what they are owed.

When employees of a bankrupt business lose their promised pensions, the Pension Benefit Guaranty Corp. steps in and provides a minimal level of benefits. But that federal agency doesn’t back pensions in the public sector.

Detroit appears to be the first municipal bankruptcy that has ever involved involuntary cuts to retiree benefits.  The possibility exists that U.S. tax payers could get stuck bailing out Detroit to cover its workers pensions, similar to the Obama bailout of two of Detroit’s largest companies…GM and Chrysler. Given the poor state of funding for many public sector pension funds nationwide, its an issue which is likely to end up being addressed by the U.S. Supreme Court.

Bankruptcy could slash pension benefits to city workers and retirees, and leave bond holders with only pennies on the dollar. Investors say the bankruptcy will make it more difficult for cities and towns everywhere to raise the money they need to build bridges, schools and other infrastructure. It will also hurt municipal bonds held by individual investors. There are more than $1 trillion worth of bonds at risk. There is bound to be a ripple effect nationwide.

Many American Cities and States are following in Detroit’s steps

The lucrative pension and benefit plans that cities and states across America have adopted…with a hefty helping hand from the powerful America-destroying unions…are on a rapid course heading for the edge of the real ‘Fiscal Cliff’. None of America’s pension plans are sustainable. It will not be long before they all begin to fiscally implode.

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Associated ATRIDIM NEWS JOURNAL Report Categories:

Detroit

Labor Unions

Eurozone now in longest Recession —Unemployment and Debt at record levels — Is America next ?

Captain Rick: The 17-nation Eurozone economy contracted for a record sixth consecutive quarter, making this the longest period of recession in the Eurozone’s history. The recession has depressed business confidence, sent unemployment to record highs, inflation to record lows and blown attempts to cut government record debt.

Gross domestic product in the Eurozone fell by 0.2% in the first quarter. The GDP estimate was worse than economists were expecting, largely due to disappointing growth in Germany and could increase pressure on the ECB to take further action to try to stimulate activity.

Unemployment continues to hit new record highs. Unemployment broke through 12% for the first time in March, meaning 19.2 million people were without work in the Eurozone, 1.7 million more than a year ago.
Youth unemployment rose sharply, hitting 24% and leaving 3.6 million people under 25 looking for work.

Prices slumped and inflation has fallen way below the central bank’s target. Inflation posted its biggest monthly drop in four years in April. It fell to 1.2% and touched its lowest level since February 2010.

Eurozone debt hit 8.6 trillion euros, a record 90% of GDP, last year and is forecast to rise to 95% in 2013. As bad as this is … in contrast, U.S. debt to GDP ratio is 107%, trumping it as the worlds worst. One has to wonder if America is next in line to experience the hardships facing those in the Eurozone.

Future Concern: Economists are becoming increasingly concerned at the growing divergence between France and Germany, historically the twin motors of the EU economy and political integration.

France: French President Francois Hollande (shown above) who was elected a year ago after campaigning to put growth before austerity and introduce higher taxes on the rich, has seen his approval ratings fall sharply as unemployment continues to climb. In recent months he has begun to reform labor markets and pensions, and announced plans to cut capital gains tax. But he is moving too slowly for some, and his government continues to send mixed messages.

France, the Eurozone’s second-biggest economy, slipped back into recession. Its output fell by 0.2% for a second consecutive quarter as it suffered from weak exports and falling investment.  France faces a heavy financial burden from its labor unions and pension systems.

Italy: The pace of contraction eased. GDP shrank by 0.5% in the quarter.
Italy, the region’s third largest economy, nominated a new prime minister. Enrico Letta is a pro-European from Italy’s center-left. He wants Europe to ease up on austerity.

Spain: The recession deepened in the first quarter. The economy contracted by 2% compared with the same period a year ago, and by 0.5% compared with the final quarter of 2012. Spain has been stuck in recession for 21 months. It has been given two more years to bring its budget deficit to below 3% of gross domestic product. In contrast, the U.S. deficit ratio is 6.5% of GDP … more than twice as bad. One has to wonder if America is next in line to experience the hardships facing those in the Eurozone.

The number of unemployed in Spain broke the 6 million barrier during the first quarter, a new record. The unemployment rate rose to 27.2%, tied with Greece for the Eurozone’s highest. For Spaniards aged 16 to 24, the unemployment rate is 57.2%.

Greece: The jobless rate was 27.2% for January, tied with Spain for the Eurozone’s highest. In Greece, 34.2% individuals aged 25 to 34 are unemployed. It’s even worse for younger workers — 59.3% of Greeks aged 15 to 24 are out of work.

Portugal: Portugal was able to slow the pace of contraction to 0.3% from 1.8% in the fourth quarter.

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Info from previous reports:

European Debt Crisis: https://atridim.wordpress.com/category/european-debt-crisis/

Europe: https://atridim.wordpress.com/category/europe/

France: https://atridim.wordpress.com/category/france/

Germany: https://atridim.wordpress.com/category/germany/

Greece: https://atridim.wordpress.com/category/greece/

Italy: https://atridim.wordpress.com/category/italy/

Portugal: https://atridim.wordpress.com/category/portugal/

Spain: https://atridim.wordpress.com/category/spain/

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U.S. Hiring plummets … Unemployment drops because 1/2 million gave up job hunt … Participation rates reach record lows

Captain Rick: U.S. Hiring plummeted in March to 88,000, its lowest level since last June. Unemployment ticked down 0.1% to 7.6% for the wrong reason…because 500,000 people dropped out of the labor market. This is my personal report that skips all of the hype and gets right to the facts. It’s a report you can believe.

Hiring plummets to 88,000

March hiring plummeted to 1/3 that of February and 1/2 of the number of a year ago.

Private Sector: 95,000 jobs added, mostly in professional and business services and healthcare. Growth was dragged down by the retail sector, which lost 24,000 jobs. The drop in retail was particularly disappointing, considering that the sector had averaged an increase of 32,000 jobs a month for the past six months. Construction jobs added 18,000 jobs in March.

Public Sector: 7,000 jobs lost. The U.S. Postal Service shed 12,000 positions, but were offset by other gains. This sector is continuing to be an overall strain on job creation. While the impact of the forced federal budget cuts, which began March 1, was a concern, it doesn’t appear to have directly affected the March payroll figures much. The federal government, excluding the U.S. Postal Service, shed only 2,200 positions.

The red line in the chart above represents the 150,000 jobs that need to be created each month to keep up with population growth.  The average over the past 12 months is 159,000 jobs added per month…only 9,000 positive gain over the number needed to keep up with population growth. Overall, the U.S. economy lost 8.8 million jobs during the Great Recession, and is still down about 3.2 million jobs from the labor market’s height in January 2008. At the current pace of a positive gain of 9000 jobs per month, 30 years would be required to restore the lost jobs.

In the Labor Department’s survey, 206,000 fewer people said they had a job than in the previous month, even though a separate survey of employers in the March jobs report showed 88,000 jobs were added.

In addition, 290,000 fewer people were counted as unemployed because they were not actively looking for work. That drop in those seeking jobs was the reason the unemployment rate fell to 7.6%, the lowest since December 2008.

Unemployment Rate drops to 7.6%

The March reading was a .1 decline, but it is not good news because nearly 500,000 people dropped out of the labor market. 11.7 million people are receiving unemployment benefits.

Economists believe the rate will fall to 6.7% by the end of 2014. That would put it close to the 6.5% level that the Federal Reserve has said it wants to see before considering raising interest rates. Some of the anticipated drop will result from baby boomers retiring. If unemployed people continue giving up on finding a job at the rate experienced during March, the unemployment rate could drop even faster. Unfortunately the young looking for their first job are not figured into the unemployment rate because they do not yet qualify for unemployment compensation yet. All of this makes the unemployment figure really ambiguous…almost meaningless.

The nonpartisan Congressional Budget Office shows there are 3.9 million workers who should be in the labor force but are not because of the weakness in the job market. Counting them as unemployed would take the unemployment rate up to 9.8%.

Underemployment Rate drops to 13.8%

The underemployment rate, a more meaningful term, includes persons marginally attached to the labor force such as part time workers seeking full time employment and “over qualified” workers working in jobs below their caliber.

U.S Labor Force Participation Rate fell to 63.3%

The March reading is the lowest level since May 1979 when women were less likely to be working. For men age 25 and older, March was the lowest participation on record. The participation rate for those age 16 to 24 was near a 50-year low. The participation rate of “prime-age” workers, age 25 to 54, also fell to match the lowest reading since 1984.

Generally, this consists of everyone of working age (around 16), who are participating workers, that is people actively employed (either part-time or full-time) or people actively seeking employment. In the U.S., not maximum age is considered.
People not counted include people who are not employed and not seeking employment including students, retired people, stay-at-home parents, people who do not report income (tax evaders) and people in prisons or similar institutions.
Discouraged workers who want to work, but cannot find work and have thus stopped looking for work for at least a month are not included in the labor force in the United States.

Some of the downward trend in the participation rate in recent years is due to more baby boomers reaching retirement age, along with the longer life span of those who are retired. The greater the percentage of the population that is retired, the lower the participation rate.
The difficulty for younger workers finding jobs is also a factor, as more young adults unable to find work return to school to try to improve their prospects.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Previous reports:

Jobs: https://atridim.wordpress.com/category/jobs/

Unemployment: https://atridim.wordpress.com/category/unemployment/

U.S. Jobs: Stuck in neutral … with little hope things will pick up any time soon … unless…

Captain Rick: The January Jobs Report shows a continuing drop in new jobs created and a reality that job creation in America is stuck in neutral … or possibly reverse. 150,000 new jobs are needed to be created every month just to keep pace with population growth as represented by my red line in the chart below. Overall, the U.S. economy lost 8.8 million jobs during the Great Recession, and is still down about 3.2 million jobs from the labor market’s height in January 2008. The 5.6 million jobs that were created since the Great Recession also had to provide for the 9 million new job seekers entering the market since January 2008, due to population growth. Realistically, another 8.8 million jobs would have been needed to be added during the past few years to equal the American job scene of January 2008. At the current pace, those jobs will not be returning any time soon. Making things even worse is the fact that many of the jobs being added are relatively low paying in comparison to the jobs that were lost.

The U.S. economy added 157,000 jobs in January. That’s slower growth than in December, when employers hired 196,000 workers. Some call it “Groundhog Day in the labor market” and say “We’ve been waking up to this same story for four years.”

The biggest job sector gainers
In January, businesses added 166,000 jobs while federal, state and local governments cut 9,000. The government continued to cut jobs for the fourth month in a row.

Retail added 33,000 jobs, with about a third of those gains at clothing stores.

Construction firms added 28,000 jobs, reflecting a stronger housing market and rebuilding efforts after Superstorm Sandy.

Health care added 23,000 jobs. Most of those jobs were in ambulatory health care services, a category that includes doctors’ offices and outpatient care centers.

Manufacturers added only 4,000 jobs. The Labor Department noted that employment in this sector has changed little since July. Manufacturing once was the job sector that built and sustained America as a great country. America’s manufacturing jobs have mostly been lost to places like China because of lower wages and NO unions!

Unemployment Rate
The unemployment rate increased to 7.9% in January, as 12.3 million people were counted as unemployed.
The number of jobless Americans out of work at least six months was roughly unchanged at 4.7 million and that group represents only 38% of the unemployed.

A broader measure of the job market’s health called the underemployment rate — it includes the unemployed, discouraged Americans who have stopped looking for work and part-time workers who want full-time jobs — was unchanged last month at 14.4%.

Outlook for 2013 and beyond
Economists are expecting job growth to remain stalled during 2013.  Political uncertainty that is still hanging over employers, as they wait for Congress to hash out a budget deal. Amid an impasse between Democrats and Republicans, chances are growing that automatic spending cuts, which aim to reduce deficits by $1.2 trillion over a decade, could take effect starting in March. All of this will likely have significant negative impact on the job scene.

The best hope we have of seeing an improving job scene in the next few years is for the U.S. Congress to pass legislation to permanently solve the U.S. Debt Crisis, including working towards balancing the budget. Our nation can not continue living on deficit spending … money it does not have. That is a recipe for eventual total economic failure. While it’s continuing practice of ‘kicking the can down the road’ might prevent further erosion of jobs short term, it will most assuredly will set our nation up for a much larger recession and loss of jobs in a few years.

View prior reports on Jobs: https://atridim.wordpress.com/category/jobs/

U.S. Economy: GDP Stalled at ‘break-even’

Captain Rick: Gross domestic product (GDP), the broadest measure of the nation’s economic health, grew at an annual rate of 3.1% from July to September (Q3). That’s more than double the sluggish 1.3% rate in the second quarter, however it only measures even with the break-even line. 3% economic growth, represented by the red line in the chart below, is necessary to provide enough jobs and wages to keep pace with U.S. population growth. America has fallen short of the line in all but three quarters during the past four years. A GDP growth rate of 5% for 4 quarters is required to reduce the unemployment rate by 1%.

Consumer spending, which typically accounts for more than two-thirds of the U.S. economy, was the single largest driver of economic growth between July and September. U.S. households bought more motor vehicles and health care services, leading consumer spending to rise at a 1.6% annual rate in the quarter.

Government defense spending was another large driver, rising 12.9% in the third quarter. And home sales picked up, also contributing to economic growth.

Meanwhile, businesses built up their stockpile of goods and were hesitant to make new investments. Business spending contracted at a 1.8% annual rate in the quarter, dragging on overall economic growth. The largest cuts in business spending were on equipment and software.

Economists point to uncertainty about 2013 taxes and government spending cuts as the culprit that’s weighing on business investment decisions. The uncertainty generated by fiscal ineptitude has basically shut down investment spending. 

Economic Outlook: Overall, economic recovery remains sluggish. On average, the U.S. economy has grown about 2% a year for the last three years. Essentially this means the economy has actually going backwards at a rate of about 1%. Major portions of the fiscal cliff remain unresolved. The fiscal cliff and the pending debt ceiling will have to be addressed by about March 1 to prevent government default. The manner in which they are addressed will play a role in whether America dips into another recession next year.

Wall Street terminates 18,000 jobs: Citigroup: 11,000 … American Express: 5,400 Morgan Stanley: 1,600

Captain Rick: The Wall Street ‘chopping block’ has been in ‘full swing’ as large financial corporations cut 18 thousand jobs in recent weeks. Its more of the same story that is sweeping our world as businesses strive to ‘shore up’ their ‘bottom line’ in an economy that is as fragile as ‘thin ice’. 

Citigroup announced it will cut 11,000 jobs as part of plan to trim costs. Citigroup has already begun making the layoffs, but expects them to continue throughout 2013. Layoffs are nothing new at Citi. Since November 2008, the bank has slashed about 25% of its staff. The 11,000 job cuts that were announced Wednesday amount to 4% of Citigroup’s current workforce, which stood at 261,000 full-time employees at the end of September.

American Express announced Thursday that it was cutting 5,400 jobs, becoming the latest large financial firm to reduce its headcount. American Express said it expects to see its current work force of 63,500 reduced by between 4% and 6% by the end of the year.

Morgan Stanley is expected to cut 6% of its workforce (1,600 jobs) in the coming weeks, due to "market conditions." Morgan Stanley, which currently employs nearly 58,000, has been trimming its workforce over the past couple of years. With this round of cuts, Morgan Stanley’s total headcount will have been reduce by 10% since September 2011, to roughly 56,000.

Eurozone Unemployment hits another record high

Captain Rick: Eurostat data published Tuesday showed unemployment in the 17-nation Eurozone hit a record high of 11.8% in November, leaving 18.8 million people without work – two million more than a year ago.
At nearly 27%, Spain has the highest unemployment rate in the European Union, and youth unemployment is more than twice as high at 56%. Thousands of Spanish bank employees will lose their jobs as a result of an EU-backed bailout of Spanish banks. Only Greece, which is facing a sixth year of recession, has a greater proportion of young people out of work.

The Eurozone economy shrank in the second and third quarters of 2012, and official data due next month are expected to confirm a contraction in fourth quarter output.

Forecasts for 2013 are not much better, ranging from stagnation to another year of recession as governments continue to grapple with the fallout of the credit crisis, cutting spending and raising taxes to rein in budget deficits.

Hopes that stronger growth in Asia and the U.S. could spark a Eurozone recovery also took a knock, as Germany said its exports fell 3.4% in November, from the previous month, and were flat year over year.

View other reports about Europe: https://atridim.wordpress.com/category/europe/

U.S. Jobs: Stalled . . . 5 Million discouraged Workers hopelessly Unemployed

Captain Rick: The December Jobs Report marked the tenth month in a row of lackluster job creation. Only 155,000 jobs added, just above the red break-even line of enough jobs to keep pace with population growth. That leaves 4.8 million discouraged workers … hopelessly unemployed.

1.84 million jobs were created during 2012. That sounds huge, but it only broke even with the 1.8 million needed to keep pace with population growth.

U.S. Unemployment rate is inept and meaningless … the real unemployment rate is about 15%

I no longer report on the U.S. Labor Department unemployment percentage, which basically counts only those who are registered and receiving unemployment compensation. It does not include the other half of the workers that dropped off of the government’s ‘radar screen’ … the 4.8 million who have exhausted their unemployment compensation and remain discouraged and hopelessly unemployed. The Labor Department should abandon the ‘unemployment rate’ and replace it with a figure that is closer to reality. The actual unemployment rate, sometimes called the ‘underemployment rate’, stands at about 15%, among the highest since the Great Depression of the 1930s.

The growing number of hopelessly unemployed is worrisome

Studies widely show the longer a person is unemployed, the weaker his or her chances are of getting a job. At some point, long-term unemployment can lead workers to become permanently detached from the labor force. That’s not good for the economy.

How long will it take to reduce unemployment to pre recession levels?

The Hamilton Project, an economic research arm of the Brookings Institution, publishes a “jobs gap” calculator that estimates just how long it will take to get back to pre recession levels, assuming the only major job market dropouts are Baby Boomers who are retiring. At the current rate of hiring, the Hamilton Project estimates it would take until 2025 to get back to a pre-recession job market. I must caution … that report does not consider the monumental fiscal challenge America faces with the upcoming Fiscal Cliff Sequester and Debt Ceiling issue. If President Obama and the U.S. Legislature continue to ‘kick the fiscal can down the road’, it could be far beyond 2025 before America recovers to pre recession unemployment levels, possibly never.

Caution for U.S. State Governors and City Managers

If you think America is on the road to recovery … THINK AGAIN !!! America is on a very serious fiscal downhill slide …headed for the ultimate ‘Fiscal Cliff’. Continue to spend money like there is ‘no tomorrow’ or prepare for coming reality by shoring up fiscal defenses.

Get Educated about the serious fiscal problems facing America … and the world

A great source: Captain Rick’s Fiscal Cliff Course 101 … The course starts at the very bottom.

2012 in review

The WordPress.com stats helper monkeys prepared a 2012 annual report for this blog.

Here’s an excerpt:

The new Boeing 787 Dreamliner can carry about 250 passengers. This blog was viewed about 1,300 times in 2012. If it were a Dreamliner, it would take about 5 trips to carry that many people.

Click here to see the complete report.

You will be greeted with a full-screen animation of fireworks and rockets. Each rocket represents one of my posts during 2012. Scroll down to view the entire report.

Captain Rick’s FISCAL CLIFF Course 101: Lesson 5: Solution Scenarios

Captain Rick: 2012 is drawing to a close with no congressional deal in sight, which means the ‘Fiscal Cliff’ will happen automatically, by law, on January 1, 2013. The ‘Fiscal Cliff’ is a combination of the expiration of temporary tax cuts and spending extensions and other spending cuts from laws passed previously. In total, it reduces half of Americas deficit ($600 billion per year…approximately $7 trillion over the next 10 years). Previous laws allowed America’s staggering national debt to be raised to keep the U.S Government running in exchange for the ‘Fiscal Cliff’ if the congressional appointed ‘super committee’ did not produce a better solution. No agreeable alternative solution was found, as appears likely with current negotiations…so America will most likely witness the ‘Fiscal Cliff’, by law, on January 1, 2013.

‘Fiscal Cliff’ Solution Scenarios:

Scenario of Congress agreeing to stop, postpone or ‘water down’ (lower) the ‘Fiscal Cliff’

Captain Rick’s chances of this happening: Near 0%

Captain Rick’s rating for such action: “F” (FLUNK)

Captain Rick’s prognosis: While this is what is being portrayed by the news media as the best solution, it is mathematically impossible and fiscally irresponsible…because America’s National Debt Clock continues to tick. Its just a short time before America will need to raise the debt ceiling again, because it spends $1.2 trillion more per year than it receives in revenue. That will foster ‘Fiscal Cliff 2’…perhaps twice as high as ‘Fiscal Cliff 1’. Keep in mind that even if America were to balance its budget (a far off dream), it would be left with its staggering debt of $16.2 trillion and its annual interest of $258 billion, the 5th largest U.S. expenditure of tax revenue. This money is paid to America’s debt holders…the largest being Japan and China.

Scenario of America going over the ‘Fiscal Cliff’

Captain Rick’s chances of this happening: Near 100%

Captain Rick’s rating for such action: “B” (Best possible current solution, but America can and must do much better in the future)

Captain Rick’s prognosis: As horrible as the news media has made the ‘Fiscal Cliff’ sound, it is Americas best hope to get ‘back on track’ to prosperity. Yes, it might mean a small drop in GDP and small rise in unemployment…but that is far better than a large drop in GDP and large increase in unemployment and possible recession or even depression a few years from now if America does not confront its extremely serious debt problem ‘head on’ NOW.

Captain Rick’s hope for the future of America

Once we go over the ‘Fiscal Cliff’ and begin to realize the shock of it all, our Congress needs to ‘come to bat’ for America and produce constructive legislation to fix a few urgent, very serious problems like the Medicare ‘Doc Fix’. Historically congress provides for a periodic ‘cost of living’ adjustment for reimbursement to Medicare doctors. This years adjustment has been stopped by the ‘Fiscal Cliff’. If this is not fixed, eventually many doctors might stop seeing Medicare patients, leaving them without a doctor. Congress will also need to begin serious reform to its entitlement programs…Medicare, Medicaid, Social Security and federal pensions, which have expenditures growing at astronomical speed in comparison to tax revenue. The U.S. fiscal problem is monumental and deserves our immediate attention now, in an effort to ward off significant fiscal failure of the U.S. with a ripple effect to the entire world in years to come.

View Captain Rick’s entire FISCAL CLIFF Course 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

Captain Rick’s FISCAL CLIFF Course 101: Lesson 4: Chemistry … The composition of the “Fiscal Cliff” + How it will effect Americans

Captain Rick: In Lesson 4 we examine the Chemistry of the “Fiscal Cliff”… the composition of the $600 billion of tax revenue increases and spending cuts that will automatically take place by law on January 1, 2013, unless the U.S. Congress agrees to revised legislation and President Obama signs it into law before then. Agreement does not appear to be very likely as the two sides are currently far apart. The Democrats are for minimizing spending cuts and maximizing tax revenue increases, while the Republicans are for the opposite.

As large as $600 billion sounds … we learned in the “Fiscal Cliff” Math of Lesson 2 … it will only eliminate half of America’s deficit (the extra amount that is spends every year over that which it receives in revenue). In simple terms, it would take two “Fiscal Cliffs” to fix America’s deficit problem. That would balance the budget but do nothing to reduce America’s staggering $16 trillion national debt (the accumulation of all of deficit spending in past years). Even with the “Fiscal Cliff” spending cuts and tax revenue increases, Americas National Debt will continue to grow by $600 billion a year.

Congress and the President are currently trying to find ways to agree to cut the size of the “Fiscal Cliff” spending cuts and tax increases … ways to “water it down” and “kick the can” down the road for future generations to solve the U.S. Debt Crisis. It would require over 26 “Fiscal Cliffs” to eliminate the U.S. National Debt. In perspective, the “Fiscal Cliff” more closely resembles the slope of an ant hill.

“Fiscal Cliff” Spending Cuts that take effect on January 1, 2013

Defense will be cut $55 billion in 2013 from projected levels of discretionary defense spending. That translates into at least a 10% cut to every program, project and activity that’s not explicitly exempt.

Non-defense will be cut $55 billion in 2013 from projected levels of nondefense spending, which includes things like education, Medicaid, food inspections and air travel safety. Budget experts estimate the cuts will result in at least an 8% cut to programs, projects and activities. These cuts include:

Medicare Doc Fix expires. Payment to care providers will drop 2%.

Unemployment benefits extension expires. Unemployment benefits will revert back to the old norm of 26 weeks, down form the current 99. That means workers who lose their jobs after July 1, 2012, will only receive up to 26 weeks in state unemployment benefits, down from as many as 99 weeks in state and federal benefits that had been available until recently. By one estimate, more than 2 million claimants will lose their benefits by January.

“Fiscal Cliff” Tax Revenue Increases

Bush era tax cuts will end on December 31, 2012. As a result:

Income tax rates: Rise to 15%, 28%, 31%, 36% and 39.6%, up from 10%, 15%, 25%, 28%, 33% and 35%.

Capital gains rate: Rises to 20% from 15% for most filers.

PEP/Pease limitations: Restored. High-income households may not be able to take some itemized deductions and personal exemptions in full.

Child tax credit: Falls to $500 per child from $1,000. The refundable portion also reduced.

American Opportunity Tax Credit: Expires. The lesser value HOPE tax credit for college tuition is reinstated. Several smaller education tax benefits also expire.

Earned Income Tax Credit: Expansion of eligibility for the credit expires.

Marriage penalty relief: Expires. Effectively that means a low- or middle-income two-earner couple will owe more to the IRS than they would if they were single making the same income.

Estate tax: Parameters revert to pre-2001 levels. The exemption level falls to $1 million from $5 million; and the top tax rate on taxable estates rises to 55%, up from 35%. AMT patch

Expired already for 2012. Income exempt from the Alternative Minimum Tax in 2012 — for which taxpayers will file returns next year — falls to $33,750 for individuals and $45,000 for married couples. That’s down from $50,600 and $78,750, respectively, if the exemption amounts had been adjusted for inflation. As a result more than 30 million people will be hit by the so-called “wealth” tax, up from 4 million to date.

Obama’s Payroll tax holiday expires. The Social Security tax rate reverts to 6.2%, up from 4.2%, on the first $110,100 in wages. Effectively, someone making $50,000 will pay another $1,000 in payroll taxes next year;  someone making $150,000 will pay $2,425 more.

Some budget experts count as part of the fiscal cliff the onset of a new Medicare surtax on high-income households under health reform. They include:

A 0.9% surtax will apply to wages on earned income over $200,000 ($250,000 if married). That’s on top of the 1.45% Medicare currently owed on all wages. Those making between $200,000 and $500,000, for instance, will only pay about $633 extra while households making $1 million or more would pay another $11,242.

A 3.8% Medicare surtax will also apply for the first time to at least a portion of high-income households’ investment income.

How the “Fiscal Cliff” could effect America’s citizens

The top 1% of households, which have incomes above $506,210, would face an increase of $121,000. Within that group, the top 0.1% — those making more than $2.66 million — would get hit with a tax hike of nearly $634,000.

By contrast, households making up to $20,113 would see a $412 average increase. That may simply represent a smaller refund to those households, many of which have very little if any federal income tax liability to begin with.

Households in the middle — with total incomes between $39,790 and $64,484 — can expect a roughly $2,000 increase.

Captain Rick’s closing thoughts …

The sacrifices presented by the “Fiscal Cliff” for Americans are small in comparison to the positive effects towards solving America’s monumental debt crisis for the benefit of our generations to come. Many of the “Fiscal Cliff” elements originate from the expiration of very fiscally irresponsible previous tax cuts by Bush and Obama … ones that should have never been implemented in the first place. Giving them up is a “no-brainer”.  We should all hope that the U.S. Congress goes home early for the holidays and does not do anything to “water down” the fiscally intelligent “wheels-in-motion” that the “Fiscal Cliff” will automatically bestow on January 1, 2013.

View Captain Rick’s entire FISCAL CLIFF Course 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

Eurozone: Record high unemployment: 11.6%Spain and Greece are worst, both above 25%

Captain Rick: Unemployment in the 17 country Eurozone hit a record high in September of 11.6%, up 1.2% from a year ago. The sluggish economies of Spain, Greece and Portugal lead the pack with unemployment rates above 25%.  Portugal is at 15.7%. Austria has the lowest rate of 5.2%, followed by Germany and the Netherlands at 5.4%.

The unemployment rate for the entire 27 member-states of the European Union, including countries that do not use the Euro, was unchanged at 10.6%, up from 9.8% a year ago. The total number of of unemployed people in this area rose by 169.000 to 25.75 million.

U.S. October 2012 Jobs Report: . . . . . . . . . . . Hiring and Unemployment up slightly + Captain Rick’s Mathematical Jobs Analysis

Captain Rick: Hiring ticked up to 171,000 new jobs in October … along with the unemployment rate, up .1% to 7.9%. The biggest job sector gainers were business services at 51,000 positions. Health care added 31,000, construction 17,000. Caution…many of the jobs added were low-paying service jobs.

Captain Rick’s REAL Mathematical Jobs Analysis:

At least 150,000 jobs need to be created each month (1,800,000 per year) to keep pace with the growing population, as represented by my red line in the chart above.

In the past 12 months, beginning November 2011, America has added 1,950,000 new jobs. Subtracting the needed addition of 1,800,000 to keep pace with population growth, America added just 125,000 REAL jobs in the last year. That represents a move in the positive direction, but is far short of what is needed to regain the nearly 9 million jobs lost during the Great U.S. Recession in 2008-2009. At the pace American jobs have been restored during the past year, America will not experience a return to pre-recession job conditions for decades, if ever. Many economists share my feeling that what we are seeing now is the new job norm. The great job conditions of the mid 2000s will not be returning … possibly ever.

The U.S. Fiscal Cliff: This is the most important fiscal challenge facing America … perhaps the most monumental in U.S. history. How our legislators manage this crisis will determine America’s Jobs outlook and fiscal status for years to come. If not handled properly, our legislators are in position to reduce America to a third world country during the coming years. This is very serious ‘stuff’. I will do my best to keep you informed. Read my report on the Fiscal Cliff: https://atridim.wordpress.com/2012/09/26/fiscal-cliff-what-the-heck-is-it-how-will-it-affect-us/

U.S. 3Q GDP estimate rises to 2% … still far short of growth needed to keep pace with population growth

Captain Rick: The U.S. economy grew a bit faster in the third quarter than the sluggish 1.3% of the second quarter, according to the first of three estimates for the third quarter. First estimates are notoriously optimistic, especially when they come before a presidential election. The first estimate for the second quarter was 1.5%, raised to 1.7% on the second estimate and then sank to the ‘final’ 1.3% figure. We will have to wait until December for the more realistic third estimate.

Gross domestic product (GDP) is the broadest measure of the nation’s economic health. 3% economic growth, represented by the red line in the chart below, is necessary to provide enough new jobs to keep pace with U.S. population growth. America has fallen short in all but two quarters of the past four years. This means that the percentage of eligible workers who are working continues to drop almost every month. Real unemployment is continuing to increase, in spite of the bogus and meaningless unemployment percentages the U.S. government publishes each month that show a slow decline. America’s unemployment rate is currently published to be 7.8%, but the real number is actually about twice that…and rising, not falling.

I do not see anything on the horizon that is going to raise America continuously up above that red line, where we need to be to enjoy a healthy and growing economy … at least for the next several years, perhaps 2017 or beyond. Even the Fed, the IMF and other global financial authorities forecast similar sluggish growth through 2015. Europe appears to in recession or close to it. U.S. growth of 1.3% in the second quarter is knocking on recessions door. China’s economy is slowing quickly as a result of economic sluggishness in the West. This paints an anemic image of America’s economic health, with a global ripple effect. If the U.S. legislature attacks the “Fiscal Cliff” with vengeance when they return to work in January, we might see a boost in GDP in coming quarters. I am referring to major spending cuts and yes…tax increases. Anything short of that means “kicking the can down the road”, as has been done for many years, and will give us continued economic stagnation and possible recession.

Cummins to cut 1,500 jobs by end of 2012 due to weakening global economy

Captain Rick: Cummins, the world’s largest producer of diesel technology with $1.85 billion in 2011 sales,  announced that it will cut as many as 1,500 jobs by the end of 2012 because of uncertainty regarding the direction of the global economy. Cummins employs about 44,000 people worldwide. Based in Indiana, it also has factories in Minnesota, New Mexico, North Carolina and several overseas. It instituted a global hiring freeze after a recent drop in sales in North America, China and Brazil.