U.S. Economic/Financial News
Prominent Economist Warns of Currency and Oil Shock
In a presentation to the Council on Foreign Relations Feb. 11, economist C. Fred Bergsten laid out a scenario for dealing with an expected world monetary crisis and oil-price shock. He included a critique of the Bush Social Security reform as not strong enough in forcing savings, and proposed that the sales pitch for reform must link the issue to the international economic crisis.
Bergsten is Director of the Institute for International Economics, the chairman of the "Shadow Group of 8," and a former U.S. Treasury official. His proposals came in a colloquy with moderator Peter G. Peterson, President of the Concord Coalition. Bergsten's remarks give an idea of the thinking of certain top levels in the financial community who are admitting the prospect of an imminent crash. Bergsten's remarks included the following:
"We focus [in our new book] on a series of immediate problems, to which we would attach a great degree of urgency, ... one which you mentioned, the current account deficit, and a possible sharp fall of the dollar; and the other of the new sharp rise in energy prices. We think energy prices can easily go back up to $60 or $70 a barrel. If that combines with the sharp fall of the dollar, you could have a vicious scenario of a sharp spike in inflation, a rapid rise in interest rates, and a sharp turndown in the economy. It was a combination of those two things ...higher oil prices and a falling dollarthat ... in the late 1970s produced the worst period for the American economy since the 1930s: double-digit inflation, 20% interest rates, the sharpest recession since the Great Depression. I hasten to say I don't think things will get that bad this time, but the combination of those two immediate risks implies moving in that direction....
"The most urgent of the problems I think is ... the risk of a sharp fall in the dollar. The latest numbers suggest the U.S. current account deficit has now risen to about 7% of our GDP, well over $700 billion a year at an annual rate....
"The previous peak, which led to a decline of the dollar by 50% in two years in the middle '80s, was just under 4% of GDP. Now we're at 7. And, even more importantly than the level, rising by about $100 billion a year. We are on a trajectory that is not only in unsustainable and unprecedented territory now, but is rising even more into terra incognita.
"Catherine Mann [ph] in our institute ... has recently updated her projections, and suggests another $100 billion per year into the foreseeable future. In short, when Chairman Greenspan tried to paint a rosier picture on this last FridayI understand why he did itI do not believe it. The outlook is not for a turnaround or even a leveling off; it's for getting worse."
U.S. Trade Deficit Hits All-Time High
The figures for the U.S. annual trade deficit rose to an all-time high of $617.7 billion in 2004, up a whopping 24.4% from the previous record set in 2003. Imports of food products hit a record, resulting in a deficit for the third straight year; while imports of foreign autos, industrial supplies, and consumer goods all set records, according to the Commerce Department. Fed Chairman Greenspan had said the gap would fall.
Democratic Sen. Jack Reed (R.I.), a member of the Joint Economic Committee, blamed the Bush Administration's "reckless fiscal policies," and warned of a sharp fall in the value of the dollar. "The Bush Administration's huge Federal budget deficits encourage us as a nation to spend more than we earn and to pay for our excess imports with IOUs. If foreigners stop accepting our IOUs, we will face a sharp drop in the dollar, greater inflation, a sharp rise in interest rates, and ultimately a weaker economy," Reed said in a Feb. 10 statement.
House Democratic Leader Rep. Nancy Pelosi (Calif) pointed to de-industrialization. "The trade situation is ... undermining our manufacturing base, the industrial base in our country. It becomes a question of our national security."
House Committee Holds Hearings on Flu Vaccine Supply
As the flu season takes hold, the good news is that it appears to be relatively normal and mild, although fewer Americans over 65, the highest risk group, were vaccinated than last year. In this context, the House Government Reform Committee convened a hearing Feb. 10 on the question of the flu vaccine supply. The hearing, titled, "Government Reform to Examine Management of U.S. Flu Vaccine Supply," took testimony from the Director of the Centers for Disease Control and Prevention, Dr. Julie L. Gerberding, and Dr. Jesse L. Goodman, Director of the Center for Biologics Evaluation and Research, Food and Drug Administration. The hearing was called to cover lessons learned from the sudden lack of half the expected vaccine supply for this current flu season, and how to plan for future needs for flu vaccine. But the question remains: Without regulation, how can you expect to have any reliable companies, and production of vaccines?
Ranking Democrat Henry Waxman (Calif) has released new information on the history of the Liverpool plantPowderJect Pharmaceuticals, which the FDA approved in June 2003 for Chiron, its new buyer, to use to make vaccine for the USA for the 2004-2005 flu season. It turns out that the FDA has in its possession, reports from previous years, documenting deficiencies in the Liverpool facility, and in its vaccine products (lack of potency; incorrect labelling), which were ignored by the FDA and HHS!
Gerberding reported that many older Americans are foregoing flu shots this year. Only 59% of Americans 65 and older had been vaccinated as of December, in contrast to 65.5% in 2003. About 90% of the 36,000 flu deaths annually, occur in this upper age bracket.
New York Times Blasts Bush Administration Medicare Lies
In its Feb. 10 editorial, the New York Times called the Bush Administration's figures on Medicare intentionally misleading. Beware of Bush Administration figures for their new programs, cautioned the editorial: "The math isn't just fuzzy, as the current euphemism would have itit is often downright misleading, and deliberately so." The latest case is the Medicare bill, which the Administration now admits will cost nearly $1 trillion, about twice their estimate when they "bulled through Congress in late 2003 over the objections of conservatives who railed that the price tag would be too high." The Times (although weakly) hints at the fact that the bill is nothing but a drug company subsidy, by noting that "Congress went out of its way to deny Medicare officials the right to negotiate for lower drug prices from manufacturers. That was a mistake when the costs were projected at $400 billion. It is doubly disastrous at $720 billion."
The Times also draws the parallel to the Social Security lies and the lies on Iraq: "The administration is trying a similar dodge in its efforts to sell the idea of converting part of Social Security to private accounts. Those accounts are a bad idea on the merits, but even many who might be inclined to support them are fearful of the enormous transition costs, which could exceed a trillion dollars over the first 10 years of the program. So the administration has conjured up a more palatable number. By delaying the new accounts until 2009, it is able to project that costs over the 10-year period from 2006 until 2015 will be $754 billion. That presents less of a target than a trillion-dollar bull's-eye, but all it does is delay the real accounting.
"Any resemblance to pronouncements on Iraq is probably not coincidental."
Senators Introduce 'Resolution of Disapproval' on Cattle Import Policy
Senators from five states introduced, Feb. 10, a "resolution of disapproval" of the Bush/U.S. Department of Agriculture plan for resumption of Canadian cattle and beef imports. This type of action, if passed, will nullify the USDA's Dec. 29th administrative ruling to reopen the border March 7. The Resolution was entered by Sen. Kent Conrad (D-N.D.), and endorsed by eight others, including Senators from Wyoming, Montana, Colorado, South Dakota, and New Mexico. Conrad called it "outrageous" that the USDA is going ahead with cattle and beef trade with Canada, "a country known to have mad cow [disease] in its herd and a record of failure in its attempts to ban illegal feed."
The Feb. 10 initiative is a strong, public action of opposition to Bush, and also targets the "Big Beef" cattle and meatpacker cartel behind Bush.
The Senators' action came one day after Agriculture Secretary Mike Johanns backed down on part of the USDA demand to renew imports; Johanns announced that Canadian-processed beef imports into the U.S., instead of being allowed from animals of any age (as allowed in the Dec. 29 USDA ruling), could come from only animals under 30 months (likely to have less risk of BSE presence, because they are young, and less exposed to potentially tainted cattle feed).
Johanns was caught out on this specific question of beef imports last week, at the Feb. 3 Senate Agriculture hearing. Namely, several Senators pointed out vehemently, the "inconsistency" (in actuality, on behalf of the cross-border cartel meatpackers, like Tysons, Cargill, et al.) that the USDA proposes opening the border March 7 to Canadian live cattle coming into the U.S. for slaughter, only if the animals are under 30 months old; but the border was to be opened to beef processed in Canada, from animals of any age.