Economic battle is joined in US race

Unemployment is rising in the US as the credit crunch hits home

With just two months to go before the US presidential election, the state of the economy is far and away the biggest concern for most US voters.

The credit crunch has inflicted severe damage on Wall Street, left millions at risk of losing their homes, and millions more in negative equity.

Unemployment has risen above 6% while high petrol prices and rising inflation have squeezed household budgets to the limit.

Things are unlikely to get any better soon. Most economic forecasts suggest that the economy will slow sharply in the rest of 2008. The first official figures will be published in late October – on the very eve of the election.

TOP ISSUES Economy: 39% Iraq: 14% Gas prices: 4% Source: Washington Post/ABC News telephone poll, 19-22 August 2008, sample size 1108, margin of error +/- 3%

This is the background for a battle over economic policy that has so far been dominated by two issues – energy prices and taxes.Senator McCain made headlines by calling for a temporary suspension of federal gasoline taxes over the summer. He favors a major expansion of nuclear power and further drilling for oil on the US continental shelf. His running mate Sarah Palin, meanwhile, is a strong advocate of further development of Alaskan oil and gas reserves.

Mr Obama has called Mr McCain’s proposals “the same old gimmicks” though he has recently softened his outright opposition to drilling.

His energy plan calls for a big effort to shift the US towards cleaner energy, a windfall tax on oil companies, and a $50bn government investment plan to promote “energy independence”.

Tax cuts

To boost the economy, Senator Obama and many Democrats in Congress would like another stimulus package, worth around $50bn – following on from the $168bn package already put into effect – and more aid to help people at risk of foreclosure to stay in their homes.

But the growing size of the government’s budget deficit, which is expected to more than double to $400bn next year, limits the scope for further action of this kind.

It’s the size of that deficit that has put taxes at the heart of the economic debate between the two candidates.

Mr Obama wants to repeal the “tax cuts for the rich” of the Bush administration, and use the money to give further tax breaks to the “middle class” (all taxpayers earning less than $250,000), including special tax relief for college education.

He also has ambitious plans to use the tax system to boost jobs, provide subsidies for healthcare, and help redistribute income to the working poor.

PORK- BARREL POLITICS Commerce: $9bn Defence: $9bn Military construction: $6.6bn Energy: $4.6bn Transportation: $3.2bn Foreign aid and exports: $14bn Congressional earmarks in FY 2005. Source: Congressional Research Service

Senator McCain, however, reversing his earlier position, wants to keep the Bush tax cuts, which he argues will help small businessmen and lead to more job creation, while balancing the federal budget by eliminating wasteful spending.He has attacked “earmarks”, the system of “pork-barrel” politics where individual Congressmen and Senators get extra spending projects for their districts by attaching riders to important bills.

The most infamous of these pork-barrel projects was the $400m “bridge to nowhere” – which would have linked the 7,000 people in Ketchikan , Alaska, with their airport on Gravina island, replacing a three-minute ferry ride – promoted by the now-disgraced Alaska Republican Senator Ted Stevens.

It was Sarah Palin’s role as governor of Alaska in ultimately blocking this project which first brought her to the attention of Senator McCain.

But earmarks make up only $50bn of the $2,000bn Federal budget, according to the Congressional Research Service, and two-thirds of them relate to military spending or foreign aid, which Mr McCain has pledged to preserve.

Balancing acts

The ability of both candidates to project bold economic policy initiatives has been limited by disagreement within their own camps.

Wall Street wants a fiscal conservative – but small businessmen want tax cuts

Mr Obama’s economic instincts appear to lie with the moderate wing of the Democratic party, to judge from his appointment of Jason Furman, a close associate of former US Treasury Secretary Robert Rubin as his economic advisor.These “Rubin” Democrats persuaded the last Democratic president, Bill Clinton, that balancing the budget was more important for long-term economic growth than new spending programs.

Senator Obama has emphasized “nudge” economics, where the government tries to encourage individuals to take out private pensions and healthcare, rather than big new government programs.

But he faces pressure from the Democratic base, which is expecting him to tackle the lack of healthcare coverage for one in six Americans, and from the unions, which want him to do more to protect American jobs from “unfair” foreign competition.

Expanding health coverage to all children, as he has proposed, could cost at least $100bn a year.

And his support for renegotiating trade talks to include clauses recognising workers’ rights has worried businessmen.

Senator McCain, meanwhile, also has to appease two conflicting constituencies.

Many traditional Republicans share Mr McCain’s original beliefs in small government, low taxes and a balanced budget – as, mostly, does Wall Street, the US financial centre.

However, the Republican Party in power increased spending, especially on defence, while cutting taxes, leading to growing deficits.

Mr McCain backs higher defense spending, and in recent months he has increasingly leaned to the “supply-siders”, Republicans who believe that tax cuts are more important than balancing budgets – a view many small businessmen on Main Street, struggling in the economic downturn, would endorse.

Empathy

Both parties are also divided on how far the government should go in bailing out homeowners and banks who are the victims of the credit crunch.

Many Main Street Republicans are outraged by the idea that people who undertook irresponsible home loans, when they knew they could not afford them, should be bailed out – a view Mr McCain sometimes reflects.

And many left-leaning Democrats believe that the big banks and their shareholders who irresponsibly promoted sub-prime lending should be allowed to fail, rather than being bailed out by the US Treasury – as happened with Wall Street investment bank Bear Stearns and now the government-sponsored giant mortgage lenders Fannie Mae and Freddie Mac.

The policy solutions so far put forward to ease the credit crunch have been agreed on a bipartisan basis between Congress and the Bush administration.

WHO DO YOU TRUST MORE TO HANDLE THE ECONOMY? Barack Obama: 50% John McCain: 39% Neither/None: 9% Source: Washington Post/ABC News telephone poll, 19-22 August 2008, sample size 1108, margin of error +/- 3%

But voters have consistently expressed more confidence in the Democrats’ ability to handle the economy than the Republicans’ – so it’s a puzzle why this has not translated into a decisive poll lead for Senator Obama.

This may be because the battle is really over perception – which candidate has more empathy for the economic plight of ordinary Americans.

The choice of Sarah Palin as Mr McCain’s vice-presidential candidate was partly an attempt to put an “ordinary hockey mom” at the heart of his campaign.

Senator Obama, for his part, devoted much of his speech at the Democratic convention to the difficulties faced by hard-working Americans – perhaps hoping to banish the memory of his comments in March about “bitter” small-townspeople.

“It’s not because John McCain doesn’t care – it’s because John McCain doesn’t get it,” he said.

If Americans are persuaded that one candidate both understands their problems and can fix them, that could be the key to an election victory.

So far there is still everything to play for.

US campaign reaches final phase

Republicans can’t be trusted with the economy, Mr Obama says

US presidential rivals Barack Obama and John McCain have begun the final phase of their campaigns following their anointment by the party conventions.

Mr Obama, the Democratic candidate, seized on high unemployment figures to tell a rally that Republicans must be driven from the White House.

Republican John McCain promised to work to fix the economy.

Both candidates are focusing on key battleground states ahead of the presidential election in November.

Campaigning in the industrial north-east, Mr Obama criticized Mr McCain’s acceptance speech at the Republican convention on Thursday, citing the country’s economic woes.

“If you watched the Republican National Convention over the last three days, you wouldn’t know that we have the highest unemployment in five years,” Mr Obama told workers at a factory near Scranton, Pennsylvania, on Friday.

“They didn’t say a thing about what is going on with the middle class.”

They’re tough times in Wisconsin, they’re tough times in Ohio, tough times all over America John McCain

Government figures show that the jobless rate reached 6.1% in August.

Mr McCain told supporters in Wisconsin – another swing state – that the sagging economy had squeezed everyone in the country.

“These are tough times,” he said. “They’re tough times in Wisconsin, they’re tough times in Ohio, tough times all over America.”

But he promised that “change is coming”.

The candidates were gearing up for the last weeks of campaigning up to the 4 November election.

They used their respective party conventions to address vulnerabilities in their campaigns.

Mr McCain – who has a reputation as a maverick – tried to strike a balance between distancing himself from an unpopular presidency and rallying the party’s conservative base.

His selection of conservative Sarah Palin as a vice-presidential running mate helped rally supporters of President George W Bush.

A week earlier, Mr Obama – who needed to heal Democratic divisions after his primary election battle with Hillary Clinton – got a boost when her husband, former President Bill Clinton, gave him unqualified backing in his convention speech.

US jobless rate near 5-year high

Jobs are being lost in the service, business and manufacturing sectors

The unemployment rate in the US is at its highest level in nearly five years after a higher-than-expected 84,000 jobs were lost last month.

The jobless rate has risen to 6.1%, the highest since December 2003, adding to concern about the US economy and its ability to stave off a recession.

In a further blow, the Labor Department revised upwards job loss figures for each of the past two months.

The Federal Reserve said earlier that economic activity remained “weak”.

Worse than thought

The number of jobs lost last month was significantly higher than the 75,000 forecast by economists.

All sectors of the economy were affected with manufacturing worst hit, shedding 61,000 jobs.

This is more convincing evidence that the economy is still in trouble Gary Thayer, Wachovia Securities

The labor market has worsened noticeably in recent months, reflected by the fact that it is now apparent that more jobs were lost in June and July than was previously thought.

Revised figures show that in June, 100,000 jobs were lost while in July 60,000 jobs disappeared. This was up from the 51,000 figure initially forecast for both months.

In the first eight months of 2008, 605,000 jobs have been lost.

Employers have now reduced their payrolls for eight straight months, with the dramatic downturn in the housing market and the credit crunch hurting all sectors of the economy.

“This is more convincing evidence that the economy is still in trouble,” said Gary Thayer, senior economist at Wachovia Securities.

“The economy is clearly deteriorating.”

Political focus

Both candidates in November’s Presidential election are under pressure to come up with concrete proposals to help the growing number of people out of work and families battling against rising living costs.

Although the US economy grew a robust 3.3% in the second quarter, businesses are struggling to cope with the high cost of raw materials and energy, fragile consumer confidence and weaker export markets.

The Federal Reserve, which meets to decide on interest rates next week, has warned that the US is facing the twin threats of weak growth and rising inflation.

The bleak employment picture means the Fed is unlikely to raise rates in the foreseeable future while further cuts seem equally unlikely against a background of rising inflation.

“The jobs number is weak again but we think this probably is not the time to panic,” said Steve Goldman, strategist at Weeden & Co.

Clinton urges party to back Obama

Clinton urges party to back Obama

Hillary Clinton urges her supporters to get behind Barack Obama

Hillary Clinton has called on Democrats to unite behind Barack Obama as the party’s presidential candidate, saying she was his “proud supporter”.

Speaking at the party’s nominating convention, Mrs Clinton said they could not afford to lose to the Republicans.

“Whether you voted for me or voted for Barack, the time is now to unite as a single party with a single purpose.”

Mr Obama, who beat Mrs Clinton in the primary race, will formally accept the party’s nomination on Thursday night.

He will stand against Republican John McCain in the presidential election on 4 November.

Mrs Clinton, who was given a standing ovation as she took the stage, thanked those who supported her through her campaign but said Mr Obama was now “my candidate”.

The party could not afford “to see another Republican in the White House squander the promise of our country and the hopes of our people”, she said.

“We are on the same team and none of us can sit on the sidelines,” she said.

She described Mr McCain as “my colleague and my friend” but went on to attack his record and links with President George W Bush.

“We don’t need four more years of the last eight years,” she said.

‘Deep faith’

Giving the convention’s keynote speech beforehand, ex-Virginia Governor Mark Warner said Mr Obama was the leader the US needed in the “race for the future”.

“We need a president who understands the world today, the future we seek, and the change we need,” he said.

We need a President who understands the world today, the future we seek, and the change we need
Mark Warner
Former Governor of Virginia

Key excerpts: Mark Warner

“We need Barack Obama as the next president of the United States.”

He also attacked Republican presidential contender John McCain as promising “more of the same” as the Bush administration.

Mr Warner is running for a Senate seat in Virginia, targeted as an important swing state by the Democrats in the November elections.

He commented on the daunting prospect of speaking after the last convention keynote speaker – Mr Obama in 2004 – and before Mrs Clinton in 2008, but said Americans should let hope replace fear.

“Tonight, looking out at all of you, and with a deep faith in the character and resolve of the American people, I am more confident than ever that we will win that race and make the future ours,” he concluded.

Democratic Party chairman Howard Dean sought earlier to dampen criticism that the convention so far had been too soft on Mr McCain, saying there was still “plenty of time” for tough-talking.

He also played down suggestions of a rift between supporters of Mr Obama and Mrs Clinton, saying there was “not a unity problem”.

Personal tensions

Mrs Clinton had already thrown her political weight behind Mr Obama and dismissed suggestions that the party is divided.
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But opinion polls had indicated that despite her repeated statements of support for Mr Obama, many of her supporters said they would rather vote for Mr McCain than for her former rival.

The BBC’s Jamie Coomarasamy, in Denver, says her many supporters seem divided between those who are, however reluctantly, supporting Mr Obama and those who say they may vote for Senator McCain.

Terry McAuliffe, who was the chairman of Mrs Clinton’s campaign, told the BBC: “Every single night we need to be laying out why John McCain’s bad for America.
John McCain speaks to veterans in Phoenix, Arizona, 26 Aug 2008
Some Democrats feel the party needs to focus its attack on Mr McCain

“Bush is the worst president in our nation’s history. We need to remind people every single day, and John McCain is nothing but Bush’s third term.”

A poll from CNN/Opinion Research Corp suggests that American voters are evenly divided between Mr Obama and Mr McCain, at 47% each.

Mr McCain is due to be nominated next week at the Republican Party’s convention in Minneapolis-St Paul, Minnesota.

He campaigned in Arizona on Tuesday, telling veterans that Mr Obama’s opposition to the Iraq war and preference for multilateral diplomacy could undermine US leadership in the world.

On the attack

While the first night of the convention was devoted to fleshing out the life story of Barack Obama, Tuesday was billed as “Renewing America’s Promise” and featured political heavyweights, including state governors and prominent House and Senate leaders.

Iowa Governor Chet Culver used his time on the convention floor to suggest big oil firms were backing Mr McCain, “bankrolling his campaign and gambling with our future”.

Pennsylvania Governor Ed Rendell, a Clinton supporter, also attacked Mr McCain’s energy policy, suggesting he was more interested in giving tax cuts to oil firms than in safeguarding the environment.

CONVENTION AGENDA
Tuesday: Hillary Clinton speech; keynote speech by former Virginia governor Mark Warner
Wednesday: Speeches by Bill Clinton and Joe Biden; vote to confirm Barack Obama as party’s candidate
Thursday: Barack Obama to accept nomination with speech in stadium

Convention programme
Voters’ views on the convention
Convention diary

Vermont Senator Patrick Leahy said: “John McCain offers four more years of the same Bush-Cheney policies that have failed us.”

Mrs Clinton’s husband, former President Bill Clinton, takes the stage on Wednesday night, when Mr Obama is to be formally nominated.

Democratic officials are said to have brokered a deal between the Obama and Clinton camps for the nomination that is meant to appease die-hard Clinton supporters.

Some states would be allowed to cast votes for both Mr Obama and Mrs Clinton on Wednesday before the roll call is ended with the unanimous nomination of Barack Obama.

The first African-American to be nominated as a US presidential candidate, he makes his appearance on the closing night of the conference, when he is to address a crowd of an expected 80,000 people at a sports stadium.

After being attacked as a “celebrity” by the McCain campaign, the Democrats used the opening night of the convention to try to show the Illinois senator as a family man with normal concerns.

Le Pen sells party HQ to Chinese

The National Front party headquarters was dubbed The Cruiseliner

France’s anti-immigrant party, the National Front, is selling its  headquarters to a Chinese university, according to the party leader.

Jean-Marie Le Pen has confirmed that the party base has been purchased by a Shanghai university.

Mr Le Pen, 79, has campaigned to become president several times under the slogan “Keep France for the French”.

But his party faces growing financial difficulties. It has already sold its bullet-proof car on Ebay.

The party has a total debt of some 9m euros ($13.4m; £7m), according to French newspaper Le Monde, partly due to a poor showing in the 2007 legislative elections which meant it had to cover its own campaign costs.

Language school

“A formal sale offer has been signed with a university in Shanghai,” the National Front’s press service said, quoted by AFP.

The unnamed Chinese higher education institution has reportedly paid between 12 and 15m euros ($18 – 22m; £9.4m – 11.7m) for the sprawling mansion in the western Paris suburb of Saint Cloud, known as The Cruiseliner.

The university is reportedly considering turning the building into a French language school.

The building, thought to be the party’s biggest asset, was inherited from a millionaire supporter in the 1970s.

The organization has already had some bank accounts frozen after disagreements with creditors.

Right-wing firebrand Mr Le Pen startled Europe by reaching the second round of the 2002 presidential election. In 2007, he achieved some 10% of votes in the presidential race.

Obama urges opening oil reserves

US presidential hopeful Barack Obama has outlined his plans to tackle the growing cost of energy and its impact on the American economy.

It is an issue that is expected to play a critical role in the presidential election in November.

In a reversal of policy, Mr Obama said the US should release 70m barrels of oil from its strategic reserves to lower petrol prices in the short-term.

He also suggested releasing more of the national petroleum reserve in Alaska.

Mr Obama reiterated a statement made at the weekend that he could support limited US offshore oil drilling if it were needed to enact a compromise energy policy.

In a similar reversal, his Republican rival, John McCain, has expressed his support for new offshore drilling, as part of an energy plan that includes nuclear energy and tax relief on gas production.

Mr Obama said US politicians have failed for three decades to deal with the energy crisis, and that Mr McCain has been “part of that failure.” In a new TV advert he accuses Mr McCain of being under the sway of big oil firms.

The ad shows Mr McCain with President George W Bush, as a narrator says: “After one president in the pocket of big oil, we can’t afford another.”

A spokesman for Republican Senator McCain said the advert was misleading.

The advert’s narrator says that “big oil’s filling John McCain’s campaign with $2m in contributions”.

The ad also promotes Mr Obama’s plan to use a windfall profits tax on big oil companies to give American families a $1,000 (£508) tax rebate, at a time when many are struggling with high energy prices.

‘Suffering’

In a statement, McCain campaign spokesman Tucker Bounds said the advert failed to mention that Mr Obama had voted in favour of a 2005 bill giving tax breaks to energy producers.

Mr McCain voted against the bill, which was supported by Mr Bush.

“Barack Obama’s latest negative attack ad shows his celebrity is matched only by his hypocrisy,” Mr Bounds said.

“Also not mentioned is the $400,000 from big oil contributors that Barack Obama has already pocketed in this election.”

Mr Obama said his proposal to sell 70 million barrels from the reserve could help in the short-term to drive down the price of petrol at the pump.

His call to release oil from the US strategic reserves represents a change from the energy policy he proposed in June, in which he advocated keeping the reserve intact in case of emergency.

Campaign spokeswoman Heather Zichal said Mr Obama had reconsidered.

“He recognises that Americans are suffering,” she said.

During a speech in Lansing, Michigan, Mr Obama said: “Breaking our oil addiction is one of the greatest challenges our generation will ever face.

“It will take nothing less than a complete transformation of our economy.”

Mr Obama proposed releasing light crude oil from the stockpile, to be replaced at a later date with heavy crude oil.

Light crude oil is easier to turn into fuel for vehicles and other petroleum products.

The Bush administration has opposed tapping the reserve, saying it should be kept for dire emergencies. In 2005, some 10 million barrels were released in the wake of Hurricane Katrina, after supplies to refineries were disrupted.

Mr Obama’s comments came two days after he confirmed he was broadly supportive of a plan for energy independence, which includes limited offshore drilling in the Gulf of Mexico.