U.S. Economic/Financial News

Bernanke, Greenspan Jawbone While Dollar System Crashes

In a futile effort to stem the crash of the dollar through sophistry, Federal Reserve chairman Ben Bernanke suggested that interest rate cuts were unlikely to take place, by warning that inflation remained "uncomfortably high." Economic growth outside of the housing market and automotive industry remains "solid," he told the National Italian American Foundation in New York Nov. 28. The slowdown is proceeding largely as expected, he said, and will lead to more moderate growth. Bernanke said the housing market appears to be stabilizing, adding that there is "little evidence" that a weak housing market is "spilling over more broadly to consumer spending or aggregate employment."

Former Fed chief Alan Greenspan again said that the worst of the housing market collapse was over, in a speech at an investor conference in New York organized by investment bank Friedman, Billings, Ramsey Group Inc.

Despite these speeches, the dollar fell Nov. 29, and although it then stabilized against the euro, it fell further against the British pound (to a 15-year low), gold, and the Japanese yen. The International Institute of Economics and the American Enterprise Institute welcomed the new slide as "a good sign, not a bad sign." AEI economist Desmond Lachman said the fall so far was "negligible" compared to what was needed! Challenged by EIR on this earlier in the fall, Fred Bergsten of IIE said that a 20% drop was called for, and "with a two-year lag," this would produce a substantial rise in U.S. exports.

This is the sort of lunacy against which Lyndon LaRouche has repeatedly warned.

News of Dollar's Fall Can No Longer Be Covered Up

The decline in the dollar, which has fallen by 10.8% against the euro since the beginning of the year, is now being reported globally. Here are excerpts:

* "The Buck Stops Where? How a Tattered Dollar Could Quickly Lose Further Allure" is the title of a full-page spread in the Nov. 28 Financial Times. The article is accompanied by a large photo of a dollar bill, utilized as the backdrop for a graph, in which the dollar is disappearing. The FT mentioned a BNP Paribas Bank projection that the euro would rise to $1.40 (from its current level of $1.31) by the end of the second quarter of 2007, which would translate into an additional dollar fall of 7.1%. But this understates the outcome.

"The violence of last week's move [dollar fall] was exacerbated by thin trading conditions, but it was driven by fundamental factors which aren't going to go away any time soon," reported Simon Derrick, currency research chief at Bank of New York. The reference is to the fact that the United States is on course to register an $869 billion U.S. current account deficit for 2006, driven by its widening trade deficit. This deficit has to be covered by foreigners investing, net, at least that much in the United States. However, it is anticipated that within the next six weeks, or sooner, the European Central Bank will raise interest rates, while the Federal Reserve Board will lower its interest rates, which would make investments more attractive in Europe, shifting investment there. This would result in a shift in capital flows, exactly in the opposite direction required to support the dollar.

The article reported that global currency reserves have leapt from $2.0 trillion in 2001 to $4.7 trillion today. Over the past six months, the central banks of Russia, Switzerland, Italy, the United Arab Emirates, and China have each announced plans to cut the proportion of dollars held in their reserves.

* The Nov. 28 Marketwatch carried the headline "Dollar is at 20-Month Euro Low," documenting the dollar's fall to its lowest level since March 2005.

The Nov. 28 Toronto Globe and Mail, carrying the subhead of "Long-Term Threat of 'Trade Chaos' Cited," underlined that the "chief concern is that if China's central bank begins to unload its reserves, the dollar will plunge."

New Home Sales Fall in October

U.S. sales of new single-family homes in October declined 3.2% to an annualized rate of 1.004 million from a pace in September that was lower than previously announced, and dropped 25.4% compared to October 2005, the Commerce Department reported. At the same time, the median price of a new home rose 13% from September, and up 1.9% compared to October 2005. Sales fell in three of the four regions of the nation, rising only in the West: in the Northeast, they tumbled 39%; the Midwest, 5.6%; the South, 1.7%.

Ford Sheds Another 30,000 Workers

Almost half of Ford's U.S. hourly production workforce has taken a buy-out/early retirement. The automaker announced Nov. 29 that some 30,000 of its 75,000 hourly employees accepted buy-outs during the recent enrollment period that ended Nov. 27, in addition to the 8,000 who took deals offered at certain plants earlier this year. Together, this reduction represents 46% of the 83,000 unionized employees that Ford had at the start of 2006. They will begin to leave the company starting in January, with the gutting process completed by September 2007.

At General Motors, more than 34,400 union workers accepted buy-outs. Meanwhile, Ford projected a $3 billion loss for its automotive operations in the fourth quarter.

Industry sources have told EIR that Ford, with a target of shedding 45,000 employees, will soon be offering yet another round of buy-outs.

Durable Goods Orders Slump in October

U.S.-made durable goods orders slid 8.3% during October, the U.S. Department of Commerce reported Nov. 28. The monthly drop was the biggest since July 2000, and far exceeded expectations. During September, durable goods orders had risen by 8.7%, so it might seem that the upward movement of orders in September, followed by equal downward movement in October, would produce a wash. However, during October, excluding transportation equipment, such as Boeing jets, new non-transportation durable goods orders still fell by 1.7%, the largest single monthly drop since July of last year. Elisabeth Denison, an economist at Kleinwort Benson stated, "We're going to see manufacturing edging down further in coming months. Inventories among automakers and other companies are still too high."

SEC Chairman Cox Discovers Axles of Evil

U.S. Securities and Exchange Commission chairman Christopher Cox "is concerned about Ford Motor Co.'s business ties with terrorist states and their backers," the Nov. 27 Investment News reported. In letters dating back to July 5 between the SEC and Ford's chief financial officer, Don Leclair, the SEC asked Ford if its "reputation and share value" were at risk because of its connections with Syria, Iran, and Sudan. Cox, a former Congressman who in his SEC capacity has blocked all attempts to regulate hedge funds or private equity funds—the actual purview of the SEC—asked if Syrian officials showed an interest in Ford dealerships and if business volumes had notably changed over in Syria the last three years.

This investigation is damaging in two ways. First, it could further push Ford toward bankruptcy. Syria, Iran, and Sudan are not likely large Ford markets, but as this past week Ford just borrowed $18 billion, and experienced a credit-rating downgrade on its unsecured debt, this type of investigation produces a cumulative effect of weakening the company. Second, this unprecedented case shows that the SEC, far removed from its mission, is using terrorism as a threat to drive U.S. businesses out of certain countries.