103 US Credit shrinks at Great Depression rate; Fed will have to monetise government debt

(1) Even the Part-Time Jobs are Disappearing - Paul Craig Roberts
(2) US Credit shrinks at Great Depression rate; Fed will have to monetise government debt
(3) China pressures US over "money printing" - fears for its loans
(4) It takes time for Renminbi to fully become int'l currency: Chinese Premier
(5) How Long Can the U.S. Dollar Defy the Law of Gravity?
(6) Study reports worst of US mortgage crisis still to come; scams prey on homeowners
(7) Tidal wave of homeless students hits schools

(1) Even the Part-Time Jobs are Disappearing - Paul Craig Roberts

September 23, 2009

Even the Part-Time Jobs are Disappearing

The Economy is a Lie, Too

By PAUL CRAIG ROBERTS

http://www.counterpunch.org/roberts09232009.html

Americans cannot get any truth out of their government about anything, the economy included. Americans are being driven into the ground economically, with one million school children now homeless, while Federal Reserve chairman Ben Bernanke announces that the recession is over.

The spin that masquerades as news is becoming more delusional. Consumer spending is 70% of the US economy. It is the driving force, and it has been shut down. Except for the super rich, there has been no growth in consumer incomes in the 21st century. Statistician John Williams of shadowstats.com reports that real household income has never recovered its pre-2001 peak.

The US economy has been kept going by substituting growth in consumer debt for growth in consumer income. Federal Reserve chairman Alan Greenspan encouraged consumer debt with low interest rates. The low interest rates pushed up home prices, enabling Americans to refinance their homes and spend the equity. Credit cards were maxed out in expectations of rising real estate and equity values to pay the accumulated debt. The binge was halted when the real estate and equity bubbles burst.

As consumers no longer can expand their indebtedness and their incomes are not rising, there is no basis for a growing consumer economy. Indeed, statistics indicate that consumers are paying down debt in their efforts to survive financially. In an economy in which the consumer is the driving force, that is bad news.

The banks, now investment banks thanks to greed-driven deregulation that repealed the learned lessons of the past, were even more reckless than consumers and took speculative leverage to new heights. At the urging of Larry Summers and Goldman Sachs’ CEO Henry Paulson, the Securities and Exchange Commission and the Bush administration went along with removing restrictions on debt leverage.

When the bubble burst, the extraordinary leverage threatened the financial system with collapse. The US Treasury and the Federal Reserve stepped forward with no one knows how many trillions of dollars to “save the financial system,” which, of course, meant to save the greed-driven financial institutions that had caused the economic crisis that dispossessed ordinary Americans of half of their life savings.

The consumer has been chastened, but not the banks. Refreshed with the TARP $700 billion and the Federal Reserve’s expanded balance sheet, banks are again behaving like hedge funds. Leveraged speculation is producing another bubble with the current stock market rally, which is not a sign of economic recovery but is the final savaging of Americans’ wealth by a few investment banks and their Washington friends. Goldman Sachs, rolling in profits, announced six figure bonuses to employees.

The rest of America is suffering terribly.

The unemployment rate, as reported, is a fiction and has been since the Clinton administration. The unemployment rate does not include jobless Americans who have been unemployed for more than a year and have given up on finding work. The reported 10% unemployment rate is understated by the millions of Americans who are suffering long-term unemployment and are no longer counted as unemployed. As each month passes, unemployed Americans drop off the unemployment role due to nothing except the passing of time.

The inflation rate, especially “core inflation,” is another fiction. “Core inflation” does not include food and energy, two of Americans’ biggest budget items. The Consumer Price Index (CPI) assumes, ever since the Boskin Commission during the Clinton administration, that if prices of items go up consumers substitute cheaper items. This is certainly the case, but this way of measuring inflation means that the CPI is no longer comparable to past years, because the basket of goods in the index is variable.

The Boskin Commission’s CPI, by lowering the measured rate of inflation, raises the real GDP growth rate. The result of the statistical manipulation is an understated inflation rate, thus eroding the real value of Social Security income, and an overstated growth rate. Statistical manipulation cloaks a declining standard of living.

In bygone days of American prosperity, American incomes rose with productivity. It was the real growth in American incomes that propelled the US economy.

In today’s America, the only incomes that rise are in the financial sector that risks the country’s future on excessive leverage and in the corporate world that substitutes foreign for American labor. Under the compensation rules and emphasis on shareholder earnings that hold sway in the US today, corporate executives maximize earnings and their compensation by minimizing the employment of Americans.

Try to find some acknowledgement of this in the “mainstream media,” or among economists, who suck up to the offshoring corporations for grants.

The worst part of the decline is yet to come. Bank failures and home foreclosures are yet to peak. The commercial real estate bust is yet to hit. The dollar crisis is building.
When it hits, interest rates will rise dramatically as the US struggles to finance its massive budget and trade deficits while the rest of the world tries to escape a depreciating dollar.

Since the spring of this year, the value of the US dollar has collapsed against every currency except those pegged to it. The Swiss franc has risen 14% against the dollar. Every hard currency from the Canadian dollar to the Euro and UK pound has risen at least 13 % against the US dollar since April 2009. The Japanese yen is not far behind, and the Brazilian real has risen 25% against the almighty US dollar. Even the Russian ruble has risen 13% against the US dollar.

What sort of recovery is it when the safest investment is to bet against the US dollar?

The American household of my day, in which the husband worked and the wife provided household services and raised the children, scarcely exists today. Most, if not all, members of a household have to work in order to pay the bills. However, the jobs are disappearing, even the part-time ones.

If measured according to the methodology used when I was Assistant Secretary of the Treasury, the unemployment rate today in the US is above 20%. Moreover, there is no obvious way of reducing it. There are no factories, with work forces temporarily laid off by high interest rates, waiting for a lower interest rate policy to call their workforces back into production.

The work has been moved abroad. In the bygone days of American prosperity, CEOs were inculcated with the view that they had equal responsibilities to customers, employees, and shareholders. This view has been exterminated. Pushed by Wall Street and the threat of takeovers promising “enhanced shareholder value,” and incentivized by “performance pay,” CEOs use every means to substitute cheaper foreign employees for Americans. Despite 20% unemployment and cum laude engineering graduates who cannot find jobs or even job interviews, Congress continues to support 65,000 annual H-1B work visas for foreigners.

In the midst of the highest unemployment since the Great Depression what kind of a fool do you need to be to think that there is a shortage of qualified US workers?

(2) US Credit shrinks at Great Depression rate; Fed will have to monetise government debt
From: IHR News <news@ihr.org>  Date: 24.09.2009 03:40 PM

US Credit Shrinks at Great Depression Rate, Prompting Fears of Double-Dip Recession

The Telegraph (Britain)

http://www.telegraph.co.uk/finance/financetopics/recession/6190818/US-credit-shrinks-at-Great-Depression-rate-prompting-fears-of-double-dip-recession.html

US credit shrinks at Great Depression rate prompting fears of double-dip recession

Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.

By Ambrose Evans-Pritchard, International Business Editor
Published: 11:59PM BST 14 Sep 2009

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

It is unclear why the US Federal Reserve has allowed this to occur.

Chairman Ben Bernanke is an expert on the "credit channel" causes of depressions and has given eloquent speeches about the risks of deflation in the past.

He is not a monetary economist, however, and there are indications that the Fed has had to pare back its policy of quantitative easing (buying bonds) in order to reassure China and other foreign creditors that the US is not trying to devalue its debts by stealth monetisation.

Mr Congdon said a key reason for credit contraction is pressure on banks to raise their capital ratios. While this is well-advised in boom times, it makes matters worse in a downturn.

"The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances," he said. "It strengthens the deflationary forces in the world economy. That increases the risks of a double-dip recession in 2010."

Referring to the debt-purge policy of US Treasury Secretary Andrew Mellon in the early 1930s, he added: "The pressure on banks to de-risk and to de-leverage is the modern version of liquidationism: it is potentially just as dangerous."

US banks are cutting lending by around 1pc a month. A similar process is occurring in the eurozone, where private sector credit has been contracting and M3 has been flat for almost a year.

Mr Congdon said IMF chief Dominique Strauss-Kahn is wrong to argue that the history of financial crises shows that "speedy recovery" depends on "cleansing banks' balance sheets of toxic assets". "The message of all financial crises is that policy-makers' priority must be to stop the quantity of money falling and, ideally, to get it rising again," he said.

He predicted that the Federal Reserve and other central banks will be forced to engage in outright monetisation of government debt by next year, whatever they say now.

(3) China pressures US over "money printing" - fears for its loans
China alarmed by US money printing

By Ambrose Evans-Pritchard, in Cernobbio, Italy

The London Telegraph

Published: 9:06PM BST 06 Sep 2009

http://www.telegraph.co.uk/finance/economics/6146957/China-alarmed-by-US-money-printing.html

The US Federal Reserve’s policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”.

“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

China’s reserves are more than – $2 trillion, the world’s largest.

“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added.

The comments suggest that China has become the driving force in the gold market and can be counted on to
buy whenever there is a price dip, putting a floor under any correction.

Mr Cheng said the Fed’s loose monetary policy was stoking an unstable asset boom in China. “If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.

“Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down.”

Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.

“This is where Greenspan went wrong from 2000 to 2004,” he said. “He thought everything was alright because inflation was low, but assets absorbed the liquidity.”

Mr Cheng said China had lost 20m jobs as a result of the crisis and advised the West not to over-estimate the role that his country can play in global recovery.

China’s task is to switch from export dependency to internal consumption, but that requires a “change in the ideology of the Chinese people” to discourage excess saving. “This is very difficult”.

Mr Cheng said the root cause of global imbalances is spending patterns in US (and UK) and China.

“The US spends tomorrow’s money today,” he said. “We Chinese spend today’s money tomorrow. That’s why we have this financial crisis.”

Yet the consequences are not symmetric.

“He who goes borrowing, goes sorrowing,” said Mr Cheng.

It was a quote from US founding father Benjamin Franklin.

(4) It takes time for Renminbi to fully become int'l currency: Chinese Premier

www.chinaview.cn 2009-09-12 00:26:36

http://news.xinhuanet.com/english/2009-09/12/content_12036333.htm

DALIAN, Sept. 11 (Xinhua) -- Chinese Premier Wen Jiabao said it still takes time for Renminbi (RMB), the Chinese currency, to fully become an international currency.

The status of RMB has been enhanced on the global market, but it is only convertible under the trade account, not under the capital account, he said on Thursday, when answering questions at an entrepreneur symposium after delivering a speech at the opening ceremony of the Summer Davos in Dalian.

"We need to have a correct view of ourselves when pushing forward the internationalization of RMB," Wen said.

He said China has started to settle cross-border trade deals in RMB in Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan.

China's State Council, or Cabinet, announced in April a pilot program to allow exporters and importers in the five cities to settle cross-border trade deals in RMB.

China has signed currency swap agreements with some countries with a totaling 650 billion yuan (95.5 billion U.S. dollars), which also helps to lay a foundation for the RMB internationalization, he said.

(5) How Long Can the U.S. Dollar Defy the Law of Gravity?

Date: Wed, 8 Jul 2009 18:07:17 -0700 (PDT) From: chris lenczner <chrispaul@netpci.com>

By: Gary_Dorsch

www.marketoracle.co.uk/Article11862.html

Jul 07, 2009 - 12:56 PM

In the midst of the longest and deepest, post World-War II recession, America's financial position with the rest of the world has deteriorated sharply. Three decades of massive trade deficits have turned the United States from the world's top lender to the world's largest debtor, - and dependent upon the whims of the so-called emerging nations, laden with huge foreign currency reserves, to finance the bailout of Wall Street Oligarchs, and President Barack Obama's social programs.

Foreigners own roughly half of the US-government's publicly traded debt, or $3.47-trillion, representing nearly 25% of the size of the US-economy, the highest level in history. If foreign lenders were to significantly reduce their purchases of US-Treasury notes, without even dumping their current holdings, US long-term interest rates could zoom higher, and the US-dollar could crumble.

That would deal a double whammy to the US-economy. Higher yields on Treasury debt could translate into higher mortgage borrowing rates for homebuyers, - weighing on the housing market, while a weaker US-dollar could lift the price of crude oil to above $70 per barrel, inducing an "Oil Shock" to the world economy. This nightmare scenario has been relegated to the den of doomsayers and fear mongrels, yet is starting to become an increasingly realistic proposition.

Increasingly, some of the biggest foreign lenders to the US Treasury, such as Brazil, China, India, Russia, and Qatar, are grumbling aloud, about the endless string of trillion dollar US-budget deficits projected in the years ahead. Lenders are crying foul over the Federal Reserve's radical experiment with "Quantitative Easing" (QE) - the printing vast quantities of US-dollars, and monetizing the US-government's debt. ...

Since the Fed shocked the global markets on March 18th, by unleashing the "nuclear option" for monetary policy - "QE," or printing an extra $1.1-trillion US-dollars, in order to buy US T-Notes and mortgage backed bonds, there has been a new dynamic influencing the psychology of the US-credit markets, namely, - latent paranoia over foreign flight from the US-dollar and Treasury Notes.

On March 24th, the People's Bank of China's (PBoC) chief Zhou Xiaochuan, emphasized his worry over the inflationary risks from the Fed's money printing scheme, by proposing to replacing the US-dollar with the SDR currency, that is controlled by the IMF, as the new global reserve currency. Suresh Tendulkar, an adviser to Indian Prime Minister Manmohan Singh, is urging New Delhi to diversify its $265-billion foreign-exchange reserves and hold fewer US-dollars.

China's holdings of US-Treasury debt have soared by $257-billion from a year ago, to $763-billion today, exceeding Japan's holdings of $686-billion. Increasingly, the functioning of the massively indebted American economy is dependent upon China's willingness to recycle much of its export earnings, (largely dependent on sales to the US-consumer), to provide loans to the US-government. ...

The Fed's promise to put nuclear "QE" on ice after August, helped to block the Euro's advance at $1.4200. But trying to push the Euro lower was like pushing a helium balloon under water, after the Fed had already injected $1.5-trillion into the world money markets. The Fed was caught in a desperate position, and needed outside support to prevent the greenback from plummeting. Luckily, the European Central Bank (ECB) came to the rescue on June 26th, by pouring 442-billion Euros ($613-billion) into one-year deposits, to encourage banks to start lending again.

Surprisingly, the ECB's injection of 442-billion Euros barely moved the gold market, which stayed locked within a tight trading range between 645-euros and 690-euros /ounce. In fact, gold stayed flat in the second quarter, lagging behind the broader commodities markets, when crude oil gained +45%, London copper added 27%, and wheat rose almost 30-percent. Overall, the Reuters/Jefferies CRB index of 17-exchange traded commodities posted a 15% gain in the second quarter. ...

New lending by Chinese banks is likely to hit 7-trillion yuan ($1.1-trillion) in the first six-months of this year, easily topping Beijing's full-year target of 5-trillion yuan. Banking regulators are now warning that credit is being channeled into the property sector and the stock market, creating asset bubbles instead of supporting small businesses and the broader economy. New lending by Chinese banks is likely to exceed 10-trillion yuan ($1.46-trillion) this year, or roughly equal to one-third of the size of China's economy, the Shanghai Securities News reported on July 3rd.

The surge in Chinese bank lending has resulted in a large increase in real estate transactions of a speculative nature, and into projects that are wasteful, making it hard for investors to repay bank loans in the future, China's central bank chief warned on July 4th. The Shanghai Composite Index has risen by over 50% this year, reflecting not so much the strength of the underlying economy, but rather, the large amounts of speculative capital flowing into equity markets. ...

Japan fights Deflation by defending US-dollar

Japan does not disclose the currency breakdown of its $1-trillion of foreign reserves but most of its FX-stash is parked in US-dollars. Tokyo doesn't favor a change in the dollar's status as the key currency, since it's comfortable with a gentleman's arrangement with the US Treasury that allows it to manipulate the yen's value. The Bank of Japan (BoJ) still commands a lot of respect as a tough currency manipulator, when its economic interests are threatened by speculators.

The BoJ's reputation for hard nosed intervention was etched in stone during the 15-months ending March 31, 2004, when it sold 35-trillion yen ($327-billion) in the currency market to support Nikkei-225 multinationals and exporters, and prevent the dollar from falling below 100-yen. As a result, Japan's FX-stash ballooned to a record $826-billion, with the US-dollars acquired, recycled into US-Treasuries.

Japan is now facing the threat that deflation will become deeply entrenched in its economy, preventing a rebound from its worst postwar recession. Japanese wholesale prices were -5.4% lower in May from a year earlier, the sharpest decrease since 1971, reflecting the collapse of key commodities, in the second half of 2008. Deflation is a vicious cycle, where companies start cutting prices to attract customers, as falling wages and the worsening job outlook dampen spending.

The primary tool that Tokyo has at its disposal to fight deflation, is pressure on the Bank of Japan (BoJ) to print more yen, in order to prevent the dollar from moving lower, and exerting more downward pressure on commodity prices, in yen terms. On March 18th, the BoJ increased its monthly purchases of government bonds (JGB's) by a third to 1.8-trillion yen ($18.3-billion) from 1.4-trillion yen, in order to inflate the supply of its currency. The BoJ pegs interest rates at 0.1-percent. ...

Ironically, the yen has become a so-called safe haven currency, during times of strife in the global banking sector. While European and US-banks are writing down more than $1-trillion in subprime losses, Japanese banks have been surprisingly stable. Japanese banks, hammered by the collapse of a real estate bubble in the early 1990's, haven't reported gigantic losses related to the collapse of the American real estate bubble since its peak in August 2006.

Instead, Japan's megabanks, - Mitsubishi UFJ Financial, Mizuho Financial, and Sumitomo Mitsui Financial, have admitted to only $5-billion of sub-prime losses so far. "The maximum losses of Japanese financial institutions are 1-trillion yen ($9.4 billion), not big enough for the government to act," said Kaoru Yosano, former chairman of the ruling Liberal Democratic Party's fiscal reform panel.

Tokyo has laid out plans to sell a record 44-trillion yen ($460-billion) of new debt in the fiscal year thru March 2010, to finance regular and stimulus spending to ease the pain of recession. Yet despite the record issuance, Japanese 10-year bond yields still remain depressed near historic lows. The Tokyo bond market is the world's second largest, with $8.5-trillion outstanding, yet 10-year JGB yields have been locked in a super-tight range between 1.15% and 2.00% for the past eight years.

The BoJ will monetize roughly half of the supply of new debt to hit the market this year. Yet massive yen printing and record debt sales haven't translated into sharply higher JGB yields. Instead, Japanese 10-year yields are trending lower, weighed down by the specter of deflation. The Fed hasn't been able to duplicate the BoJ's mastery over the Tokyo bond market, because the US has the distinction of being the world's largest debtor nation, and dependent upon the whims of other lender nations, while Japan is the opposite – the largest creditor. ...

(6) Study reports worst of US mortgage crisis still to come; scams prey on homeowners

Study reports worst of US mortgage crisis still to come

By Charles Knause
10 September 2009

http://www.wsws.org/articles/2009/sep2009/mort-s10.shtml

A recent Deutsche Bank report made public last month indicates that the mortgage crisis for US homeowners is still in an early phase, and the worst is still to come.

According to the report by analysts Karen Weaver and Ying Shen, by 2011, half of all US mortgage holders will be “underwater,” meaning they will owe more on their homes than they are worth (negative equity). In terms of overall numbers, this translates into 25 million homes. ...

The report states that 69 percent of sub-prime loans will be “underwater” by 2011. Homeowners with adjustable-rate mortgages or ARMs—whose interest rate is tied to the prevailing Fed funds rate—are predicted to suffer the greatest loss of home equity value, with a staggering 89 percent of these homeowners expected to be “underwater” by 2011. Presently, 77 percent of homeowners with ARMS have negative equity in their homes.

According to Reuters, areas suffering the worst negative equity rates are in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. “Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011,” according to Reuters. ...

A whole new breed of predatory scam artists has cropped up to prey upon these homeowners in crisis, calling themselves “mortgage consultants” and offering “foreclosure services” in an effort to lend their shoddy operations an aura of respectability.

One of the most common schemes employed by these con artists is the “Bait and Switch,” where the homeowner does not fully understand that he/she is actually selling his/her home in exchange for a rescue that means nothing.

Another tactic, “The False Intermediary,” forbids a homeowner from talking to the lender, credit counselor, or anyone else so that assistance can be sought to negotiate a way out. Sometimes, homeowners are required to make all mortgage payments to these “intermediaries,” resulting in the bank foreclosing on the loan and the scam artist pocketing the alleged mortgage payments.

The “Rent to Buy” scheme is a method whereby the homeowner surrenders his home to the illegitimate operator in the hope that by paying rent he/she will be able to buy the home over time. The terms of such a buy-back are usually stacked against the original homeowner, with the resale value well above market value. Rental fees are often hiked significantly over time. If the former homeowner misses a rent payment he/she is evicted and the “rescuing” owner is now free to sell the home. ...

The government essentially covered the bad gambling debts of the banks and big financial houses. The handover of trillions in public assets to the banks shored up their bottom lines and accelerated the monopolization of the finance industry in the hands of a few mega-banks. At the same time it has done nothing to provide relief to tens of millions of homeowners facing the loss of their houses.

(7) Tidal wave of homeless students hits schools

From: ummyakoub <ummyakoub@yahoo.com>  Date: 21.09.2009 10:34 AM

School districts across U.S. struggling to pay for needs of uprooted kids

TIDAL WAVE OF HOMELESS STUDENTS HITS SCHOOLS
By Karl Huus
http://www.msnbc.msn.com/id/29356160/

OXNARD, Calif. - Nine-year-old Daniel Valdez is absorbed in "The Swiss Family Robinson," the fictional story of a family shipwrecked on a tropical island. In real life, he and his family also are marooned, but there is little romance in their tale of survival in this seaside town northwest of Los Angeles.

Daniel, his mother and five brothers, ages 1 to 17, live in a garage without heat or running water in a modest, low-lying neighborhood that sits between celebrity-owned mansions in the hills and the Pacific Ocean. Each morning, they arise at 6:30, get dressed and then leave quietly; they return only after dark — a routine born out of the fear that detection could mean the loss of even this humble dwelling.

Daniel and his brothers have been sleeping in the garage for more than a year — members of what school officials and youth advocates say is a rapidly growing legion of homeless youth. While the problem may be worse in economically stricken regions like Southern California, where foreclosures and job losses are taking a harsh toll on families, anecdotal evidence suggests it is a growing issue nationally and one with serious ramifications for both a future generation and the overburdened public school system.

Research shows that the turmoil of homelessness often hinders children's ability to socialize and learn. Many are plagued by hunger, exhaustion, abuse and insecurity. They have a hard time performing at grade level and are about 50 percent less likely to graduate from high school than their peers.

"Homeless children are confronted daily by extremely stressful and traumatic experiences that have profound effects on their cognitive development and ability to learn," said Ellen Bassuk, a Harvard Medical School psychiatry professor and president of the nonprofit National Center on Family Homelessness.

"They tend to have high rates of developmental delays, learning difficulties and emotional problems as a product of precarious living situations and extreme poverty." Mary Aguilar, Daniel's mother, said she believes the family's tenuous existence is largely responsible for her son's struggles with his third-grade lessons.

"He's depressed a lot," she said of Daniel, whom she says has been the most affected of her sons by the loss of their home. "He does his work for class, but very slowly, like he's thinking. He worries a lot about living like this." Under federal law, schools are charged with keeping homeless students like Daniel from falling behind their peers academically. This can mean providing a wide range of services, including transportation, free lunches, immunizations and referrals to family services.. But with insufficient federal funding and budgets that are severely strained, many schools are struggling to meet the rising need. In Vista, Calif., about 35 miles north of San Diego, the population of homeless kids in the local school district reached 2,542 this year — about 9 percent of the student body and nearly 10 times the number just two years ago, said Rebecca Benner, the district's homeless liaison.

"It's like a tidal wave this school year," she said. Benner's role as homeless liaison — only part of her job providing student services — is now full time, as she scrambles to register homeless students for free lunches, arrange for transportation, provide P.E. uniforms, line up counseling and cover SAT fees. "It was supposed to be one small piece of my day," she said. "… Now it's almost insurmountable to get to the bottom of the phone messages."  ...