Benefit Spending Hits $2 Trillion, Highest Percent Since 1929; One Dollar Out of Every Six From Vouchers

As economic conditions deteriorate and unemployment continues to soar, one in nine Americans are now on food stamps. Moreover, a staggering one of every six dollars of Americans' income is now coming in the form of a federal or state check or voucher.

One in Nine Americans on Food Stamps

According to the USDA One in nine Americans on food stamps.

One in nine Americans are using federal food stamps to help buy groceries as the country's deep recession forced another 591,000 people onto the federal anti-hunger program at latest count.

Enrollment jumped 2 percent to 33.2 million people in March, the fourth consecutive month that rolls hit a record, said the Agriculture Department. The average monthly benefit was $113.87 per person.

"It's tough out there for struggling families and will be for many months to come," Jim Weill, president of the Food Research and Action Center, said. In 20 states, as many as one in eight are on the food stamp program, according to the Food Research Center.

Benefit Spending Accounts for 16.2% of Personal Income

According to the Bureau of Economic Analysis, Benefit spending soars to new high.

The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans' income is now coming in the form of a federal or state check or voucher.

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That's the highest percentage since the government began compiling records in 1929.

In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show. Benefits rose at a 19% annual rate in the first quarter compared to the last three months of 2008.

The recession caused about half of the increase, according to the report. Unemployment insurance nearly tripled in the past year. The other half is the result of policies enacted during President George W. Bush's first term.

"The increase in social spending is still relatively modest given the severity of the downturn," says economist Dean Baker of the liberal Center for Economic and Policy Research. "We're not France."

Adam Lerrick, economist at the conservative American Enterprise Institute, says the benefits' explosion will eventually lead to an economic crisis. "We've seen this movie before in many countries. It always has the same ending," he says.

Nevada, Michigan and California had the biggest per-capita increase in bankruptcy filings in May, according to AACER.

California Unemployment Fund Short By Billions

The San Francisco Chronicle is reporting State's unemployment fund short by billions.

California is paying out so much for jobless benefits and collecting so little in payroll taxes that its unemployment insurance fund could be $17.8 billion in debt by the end of 2010, according to a new report from the state Employment Development Department.

This latest fiscal crisis won't immediately affect the 1.1 million Californians now collecting benefits because the state is using an interest-free federal loan to cover their checks.

But the state is supposed to repay that loan and restore its unemployment fund to solvency by 2011 - and right now, policymakers aren't sure exactly how to do that, or at what cost.

"The deficit that California looks like it is facing is staggering," said Bud Bridger, fiscal officer for the unemployment insurance program.

To rebalance the system and pay back the federal loan, lawmakers must raise payroll taxes on employers, reduce benefits for recipients, or both. In 2009 and 2010, the state expects to pay out $29 billion in benefits. It will collect just $11 billion.

Alicia Trost, spokeswoman for state Senate President Pro Tem Darrell Steinberg, D-Sacramento, said legislative leaders met with business and labor officials Monday to discuss the unemployment issue, but it took a back seat to more pressing problems.

"We're going to have to address it," Trost said. "But the most important thing now is to close the current budget shortfall."

Collectively this is a stunning series of problems, both nationally and locally.

California is $17.8 billion in the hole (and counting) on unemployment insurance but the legislature is not even looking at the situation because of more pressing problems and because the state is using an interest-free federal loan to cover benefits.

Excuse me but is this $17.8 billion deficit in addition to the $24 billion budget deficit? How the Hell is California going to pay that back and fix a $24 billion budget deficit that without a doubt will cause a massive increase in unemployment? Has anyone factored that in?

How can loans of $17.8 billion not be considered as part of the deficit that needs to be fixed? What about California pension promises that cannot possibly be met?

One final question: Are we France or does it just look like we're headed that way?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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