U.S. Economic/Financial News
Dollar Falls on Record U.S. Trade Deficit
The U.S. trade deficit for the month of November rose to an all-time high of $60.3 billion, up 7.7% over the October figure which had been the previous monthly record. The release of the news by the Commerce Department sent the dollar into a tailspin, falling by almost 2 cents against the euro within an hour. The dollar also fell against the yen and other currencies.
The record U.S. trade deficit brought the total for the first 11 months of 2004 to $561.3 billion, far above the previous record deficit of $496.5 for the 12 months of 2003.
Bush Denies Private Pension Crisis While Inventing One in Social Security
Labor Secretary Elaine Chao spoke at the National Press Club on Jan. 10, claiming to be presenting another of George W. Bush's "plans to strengthen" the Pension Benefit Guaranty Corporation, which backs up private-sector pension plans. Chao denied that there is any immediate problem, much less a crisis, with the PBGC, despite the fact that it recently announced its own insolvency, with a $23-billion deficit of assets vs. liabilities, and since then, has had the bankrupt airlines' pensions start to fall into its lap. But the Press Club moderator contradicted Chao before she began, citing "PBGC officials who say that the number of beneficiaries in defined-benefit pension plans now exceeds the number of workers employed in these industries." (Contrast to this, the better than 3-1 ratio of contributors to recipients of Social Security, which is claimed by Bush to constitute an immediate crisis.)
Obviously, the PBGC is indeed in a bankruptcy crisis, and only a broader policy-shift of protection and creation of industrial employment, backed by a bridge of additional support from Congress, could save the drastically shrunken private pension system.
But what Chao proposed instead, was a roughly 50% increase in the insurance premiums which corporations pay into the PBGC, with large additional "risk premiums" above that, placed on those companies which are now underfunding, or not paying their plans, or which have impaired credit ratings. This, and penalties against over-promising on pension plans, would be backed up by much stiffer enforcement under Bush's "strengthening" plan, Chao said. Hardly a plan likely to stop the plunge of the PBGC toward bankruptcy.
The contrast to the invented "WMD" Social Security crisis couldn't have been more blatant; however, a question pointing this out, submitted by EIR, was passed over by the moderator during the Q&A. Discussions with journalists later, found that a number of them were thinking, or would have liked to submit the same, or very similar questions, but did not.
PBCG Deficit Real and Growing
A plan announced Jan. 10 by Labor Secretary Elaine Chao, for a 58% increase in the premiums that corporations pay to the Pension Benefit Guaranty Corporation, left no doubt that the PBGC soon expects to absorb the pensions of already bankrupt United Airlines and U.S. Airways, as well as the remaining "legacy" carriers.
PBGC Executive Director Brad Belt testified before the U.S. Senate Commerce Committee on Oct. 24, 2004 that United Airlines' pension plans were then underfunded by $8.3 billion on a termination basis, of which $6.4 billion is guaranteed by the PBGC. On Dec. 30, the PBGC went to court to take over the United pilots' pension plan before its liabilities increased.
Belt also testified then, that U.S. Airways had suspended all contributions to its pension plans, which were already underfunded by $2.3 billion on a termination basis, "almost all of which$2.1 billionwould be guaranteed by the PBGC," he stated. Belt warned the Senators that the total exposure of the pension plan participants and the PBGC to the airline industry was, in the event of termination, a whopping $31 billion at the end of 2003.
Belt delivered his testimony at same time that the PBGC, which guarantees the pensions of employers with "defined benefit plans" (plans which pay set monthly amounts for the lifetime of a worker, and often a spouse), doubled its deficit to $23.3 billion (from 2003 to 2004), due largely to the PBGC's takeover of the pensions of the nation's former steelmakers.
As in the savings-and-loan debacle, if the PBGC were unable to meet its obligations, the U.S. government would be politically forced to pick them up.
The airline industry's pensions are underfunded because the airlines are bankrupt. Plans to make near-bankrupt airlines "catch up" on pension funding, or pay "high-risk" premiums, such as announced by Chao, are dead on arrival, because all the non-budget airlines are within a hair of bankruptcy. The decision of third-largest Delta Airlines to cut fares by 50%-60%, and the other major carriers to follow suitand thus lose another $2-3 billion in revenue in 2005will only hasten their demise.
Meanwhile, on Jan. 13, United Airlines flight attendants accepted a tentative deal with the carrier that calls for a 9.5% pay cut. The agreement which was made available to the members of the Association of Flight Attendants doesn't include provisions related to the termination of pension benefits.
GM Again Cuts U.S. Workforce; 8,000 Jobs To Go This Year
General Motors will cut its workforce by about 7% over the next 12 months, chairman and chief executive Rick Wagoner told the Detroit Free Press Jan. 10, the fourth straight year of cuts. The cuts represent about 8,000 hourly and salaried jobs, which will be eliminated through attrition and retirement. Since George Bush came into office in 2001, GM's U.S. workforce has been gutted by 45,000 jobsnearly 23%!falling from 198,000 hourly and salaried workers in 2000, to 153,000, today.
Failed Labor Movement Grist for Mergers, Backed by Soros Bucks
A so-called "left-wing" opposition centered around Andy Stern, president of the Service Employees International Union, will challenge John Sweeney for the AFL-CIO presidency in the July election, according to Thomas Edsall of the Washington Post writing Jan. 3. Stern has been a longtime critic of Sweeney, and of the AFL-CIO's support for Democratic Presidential candidate John Kerry; in July, Stern told the Post that if Kerry were to win, it would be a "hollow victory," that would "hurt" the dialogue needed for reform of the Democratic Party and the labor movement.
Stern is a leader of five unions called "the New Unity Partnership," which includes SEIU; the Laborers; the Hotel and Restaurant Employees, who are merged with UNITE, (the needle and textile unions); and the Carpenters, who quit the AFL-CIO a few years ago. The Teamsters and the United Food and Commercial Workers also support a challenger to Sweeneypossibly John Wilhelm, head of the "Hospitality Division" of United Here, according to the Post.
Stern advocates mergers of unions, so that workers who work for the same employer, or in the same industry, join together, "so that every union has responsibility for some part of the economy," rather than continuing to allow unions to organize any group of unrelated workers, just to keep up membership numbers.
The first such merger was announced Jan. 12, in a merger of the United Steelworkers of America with PACE (Paper, Allied-Industrial, Chemical and Energy Workers International Union), to form a union of 850,000 active members, with 400,000 retirees, making it the dominant union in North America. The merger will be voted on by the union memberships in May, and, if passed, USWA President Leo Gerard would head the new entity.
Enter pro-drug moneybags George Soros, who, according to the Jan. 11 Financial Times, is the leader of a group of "billionaire philanthropists," who will "invest in the intellectual future of the left"; through a "joint investment to build intellectual infrastructure" to rival the Heritage Foundation, AEI, etc. Besides Soros and his son, Jonathan, billionaires Herb and Marion Sandler, of California S&L fame, Peter Lewis, and Stephen Bing, will contribute double-digit millions. Andy Stern is trying to sell the labor movement to Soros.
New York Fed Head Warns of Potential Financial Shocks
New York Federal Reserve president Timothy Geithner warned of financial shocks and called for action to mitigate risk, in a speech Jan. 13 to KRI's Global Operational Risk Forum. He prefaced his list of recommended "policy actions" with, first, glib praise for how the "economic landscape" may not appear too bad, with the IMF projecting a 4% rate of "real global GDP growth," and the fact that the "global economy has weathered the oil price shock well." But then Geithner identified four "challenges," stressing that their "combined mix" is very serious:
* "fiscal sustainability problems [meaning committed social benefits are exceeding tax revenues];
* "large external imbalances [meaning, the U.S. is borrowing "at an unprecedented scale, between 5 and 6% of GDP in the case of the U.S. current account deficit"];
* "the tension in the existing exchange-rate system [meaning the disparity in currencies]; and also, the fact that India and China are integrating into the world system and this creates "adjustment pressures," and "creates the risk of unanticipated shocks to financial prices, even in a context where monetary policy credibility is strong."
What are policy makers to do? He offers a list of actions:
First, commit to using the Fed funds rate to "keep inflation expectations stable at a low level," and to allow flexibility so that we can "confront future shocks that have the potential to cause damage to the financial system and the economy."
Second, build more confidence that a better balance will be achieved in the U.S. between "commitments and resources." Watch out, or there will be a "decline in the willingness of foreigners to acquire claims on the United States in the present scale."
Third, encourage "evolution in the international monetary system" to handle currencies with care, in particular, in Asia.
Fourth, some private financial institutions are getting too big and risky, with no cushion. Any shock will be magnified if this doesn't stop.