U.S. ECONOMIC/FINANCIAL NEWS
Greenspan Promises To Print More Money
Following the Nov. 21 announcement by Federal Reserve Governor Ben Bernanke, Fed chairman Alan Greenspan himself on Dec. 19 reassured financial markets that there are no limits to the Fed's providing as much liquidityi.e., printing as much moneyas is needed to keep the financial system afloat.
Addressing the Economic Club of New York, Greenspan said: "One also should not overstate the difficulties posed for monetary policy by the zero bound on interest rates and nominal wage inflexibility even in the absence of faster productivity growth. The expansion of the monetary base can proceed even if overnight rates are driven to their zero lower bound. The Federal Reserve has authority to purchase Treasury securities of any maturity and indeed already purchases such securities as part of its procedures to keep the overnight rate at its desired level."
Otherwise, Greenspan again babbled about bubbles: Central bankers are intrinsically unable to detect speculative bubbles before they burst, he asserted. And, even if they were to detect such a bubble, they couldn't do anything about it, without doing an "unacceptable amount of collateral damage to the wider economy."
Instead, the Federal Reserve likely will clean up after the bubblewhich ends "suddenly, unpredictably, and often violently."
The real dynamic in the American economy is underlined by an unprecedented series of mega-bankruptcies. Just a few days after the insolvency of United Airlines, the largest airline bankruptcy in U.S. history, the insurance and financial giant Conseco was forced to file for Chapter 11 bankruptcy. The company listed $51.1 billion in debts and $52.3 billion in assets, the third largest U.S. bankruptcy ever, just behind WorldCom and Enron. Of the 10 biggest bankruptcies in American history, seven occurred during 2001 and 2002 (Pacific Gas & Electric, Enron, Global Crossing, Adelphia, Worldcom, United Airlines, Conseco).
Bernanke-Greenspan Approach Becoming Hegemonic in Economic and Financial Policy?
"The new trend in economic and financial policy that is now becoming hegemonic, is the one announced in November by Federal Reserve Governor Bernanke," said a leading British financial commentator, who is generally close to certain U.S. Republican Party economic-policy circles. He was referring to the infamous Nov. 21 speech by Bernanke, in which he laid out an "electronic money-printing" "prescription" for the American economy, which has been denounced by LaRouche, for assuring that the U.S. would enter into a Weimar/1923 hyperinflationary spiral.
According to the British source, who spends a lot of time in Japan, the Bernanke trend has been echoed, in one form or another, by various Japanese policymakers.
He said: "In the new situation we have entered, with the Bush Administration personnel shake-ups and the like, it is now being admitted, that the economic outlook is worse than the general assessment had previously been. At last, the complacency that previously prevailed, has been disturbed, and we will now see anti-deflation measures adopted." All of which sounds good in words, but his proposed cure is far worse than the disease itself.
When confronted with LaRouche's view of the matter, he responded, "Yes, there is a hyperinflationary risk. But I wouldn't go overboard; Weimar is not on the cards. The risk is there, but the hyperinflationary trend can be managed and controlled."
Will Big 'Financial Institutions' Soon Crash?
Will big "financial institutions" soon crash, because of a liquidity crunch worldwide? This possibility was raised to EIR by a well-connected City of London source.
He stated that the most "interesting and alarming" factor now, in the global financial system, is "the illiquidity in the money markets." This is apparent in both Japan and in the "Eurozone" countries. "Liquidity is not easy to get," the source stressed, "so some big banks will have to crystallize their losses. This could be life-threatening for some important financial institutions. We are in a time of massive stress, particularly for those institutions that have been at the wrong end of derivatives deals."
He further forecast that "the Central Banks will soon move in, to help some troubled institutions."
Low U.S. Holiday Sales Drove Down Stocks
Despite massive discounting by retailers, holiday sales fell 11% during the period between Thanksgiving and Christmas, to $113.1 billion, compared to $127.3 billion last year, according to ShopperTrak RCT's national estimate.
Stocks continued the collapse begun in March 2000. The Dow Jones Average tumbled 128.83 points (1.5%) to 8303.78; the S&P 500 Index dropped 1.6%; and the Nasdaq fell 1.4%. So far this month, the Dow has fallen 6.7%its worst performance in December since 1931while the S&P is down 6.5%, and the Nasdaq 8.8%. European markets all fell, anywhere from 2-5%.
Bush will announce his (delusionary) economic package in a mid-January speech, according to unnamed Administration officials cited by the Wall Street Journal.
Soros Convicted in France
Mega-speculator and drug-legalizer George Soros was found guilty by a French judge of insider trading in his 1988 aborted takeover of Société Générale. Two others indicted with him were acquitted. Soros faces a fine of $2.22 million, which is the sum prosecutors are askingi.e., what he made from this illegal operation.
Soros was not in the French court to hear the verdict. Instead, he was busy "predicting" to BBC News that the U.S. dollar could lose one-third of its value over the next few years and the stock market could fall "much lower." This generally means he's speculating in this direction.
Malaysian Prime Minister Dr. Mahathir Mohammad commented that the verdict backs up his evaluation that Soros was not only a menace to his country, but "the menace to the world' economy."
Collapse of State Revenues Begins To Affect Cities, Counties
Two new reports say state revenue deficits will hit $60-85 billion in fiscal 2004, while planned health-care cuts will leave 1 million low-income people uninsured. That size deficit represents 13% to 18% of state expenditures.
Planned cuts to health care in 11 states will result in 1 million losing health insurance coverage, including Medicaid. With cuts hitting mostly the working-poor families and children of low-income homesalthough some elderly and disabled people are affected toothe report gives a few examples: 500,000 in California are slated to lose coverage; 160-250,000 in Tennessee; 80,000 in Oklahoma; 26,000 in Nebraska; 36,000 in Missouri; and 50,000 in Massachusetts.
As state deficits soar, hundreds of American towns and counties are considering laying off police, firemen, and teachers in response to collapses in state revenues, just as governors plan to cut state aid to towns and countiesthe front line of America's safety net. The slashing of local aid will also jeopardize municipal bond ratings and cause debt defaults. Here's a sample of the "slaughter," as one elected official called it:
*Massachusetts: "We can't deny the monster that's at our door: It's this huge, precipitous revenue free-fall, the worst in the state's history," State Rep. John Rogers (D) said of the state's $2-billion deficit, as he urged aid cuts to cities and towns. State Sen. Mark Montigny said tax hikes are required, even as he admitted, "There's no scenario where we won't have cuts.... Anything that, in the past, has been an unscathed sacred cow is very likely to be, if not slaughtered, then significantly injured," referring to "drastic cuts in local aid."
Governor-elect Mitt Romney (R) said, "We're getting pretty close to empty in terms of our cash ability to pay bills," as he asked cities and town to make "contingencies" for a likely "delay in local aid payments" due them on Dec. 31. Springfield Mayor Michael Albano says an 8% cut would force him to lay off 300 teachers, 20 school nurses, and 60 counselors and custodians. Fall River Mayor Ed Lambert said, "We've cut services to the bone" this year by laying off 40 police officers and firefighters. Boston Mayor Tom Menino said he'd have to raise taxes and lay off teachers.
*Connecticut: "We're at the bottom of the food chain," Newtown First Selectman Herbert Rosenthal said, noting that, unlike the state, municipalities have to pass on costs to their citizens "with property tax increases or [cuts] in services, neither of which we want to do." Governor Rowland plans to cut at least $85 million in local aid. New Haven Mayor John DeStefano said he'd have no choice but to lay off police officers, firefighters, and teachers. Hartford Mayor Eddie Perez has laid off 220 and will have to lay off more if the cut is adopted. On top of the $85 million, $24 million has already been cut and another $94 million may be cut from education cost-sharing funds for local school budgets, bring the total loss to cities and towns to $203 million.
*Pennsylvania: The Allegheny County Controller Dan Onorato warned that the county government will shut down in less than two weeks due to budget differences. Nearly $2 million is being cut by line-item veto exercised by Chief Executive Jim Roddey. But County Council Democrats object, and have raised legal objections. Onorato says that under state law he cannot sign checks for the county unless he has a single budget authorizing spending, hence the potential shutdown.
*Minnesota: Governor-elect Tim Pawlenty (R) met with Gov. Jesse Ventura to ask that he hold back $544 million in aid to cities and counties as a short-term measure to plug the growing deficit. Localities here get aid payments twice a year and use them to pay for social services, police, and schools. Executive Director Jim Miller of the League of Minnesota Cities said these cuts would put localities into the hole before next year's expected cuts. The city of Hanncock would default on a U.S. Department of Agriculture loan used for sewer and water projects. Duluth could default on a short-term loan it took out to cover its operating budget.
Meanwhile, hunger is growing. In Washington, D.C., 285,000 people annually seek food aid from food banks. But this Christmas time demand is up. A crisis looms as food donations are down and fundraising is 30% below projections.
In New York City, without soup kitchens, pantries, and shelters, 20% of New Yorkers would go hungry. The Food Bank of New York City reports an "unrelenting surge in demand for food since Sept. 11." As of September 2002, more than 1.5 million of the city's 8 million people depended on free food to survive, including 500,000 children and 300,000 seniors.
U.S. Budget Deficit Leapt to $59.10 Billion in November
The U.S. Treasury Department announced that the U.S. budget, when reported on a unified budget basis, amassed a $59.10-billion deficit in November. During the previous month, the budget ran a $53.99-billion deficit. The fiscal year 2003 Federal budget started Oct. 2, 2002; thus, through just the first two months of FY 2003, the U.S. has run an enormous combined deficit of $113.09 billion. This is $51 billion greater than the budget deficit it registered for the first two months of fiscal year 2002.
But the real situation is worse. The "official" budget deficit the Treasury reports on, which is called the "unified budget," is a sham agglomeration, which illegally mixes the actual budget, the U.S. General Revenue Budget, with the off-budget surplus of the Social Security Trust Fund. But the Social Security Trust Fund is a special fund, with its own dedicated tax revenue stream, and should not be mixed in. If one correctly refuses to count the surplus of the Social Security Trust Fund, the U.S. government's General Revenue budget (the real budget) was $119.72 billion in deficit during the first two months of fiscal 2003.
It is realistic to expect that the U.S. government will run a real General Revenue FY 2003 budget deficit of $400 to $500 billion.
U.S. Air Gets $200 Million More Back from Unions
All U.S. Airways union negotiators agreed to significant work-rule and benefit concessions on Dec. 20, thus cobbling together an additional $200 million in cost savings for U.S. Air. The debtor-in-possession lender, Retirement Systems of Alabama (RSA), threatened to liquidate U.S. Air without $200 million in further givebacks. The pilots ratified concessions worth $100 million on Dec. 14, and the remaining unions will vote in early January on the new givebacks recommended by the negotiators.
International Association of Machininsts (IAM) 141-M chief negotiator Scotty Ford wrote the members, "We believe this agreement affords U.S. Airways the best opportunity to avoid liquidation and preserve our members' jobs.... Our members have to examine their own personal situation, compare employment alternatives, and determine if this agreement is in their best interest." The spokesman for the flight attendants' union, Jeff Zack, commented, "If it keeps the airline from liquidating, it's a positive development."
Gold Keeps Rising, Dollar Keeps Falling
Gold for current delivery closed at $349.20 per troy ounce Dec. 27 on the New York Commodity Exchange (Comex), rising 50 cents from its close on Dec. 26. It is approaching its highest level since 1996; gold has risen for 11 of the last 12 trading sessions. At the same time, U.S. crude for February delivery set a fresh two-year high of $32.72 per barrel at the close of trading on the New York Comex. In New York, crude oil prices have now risen $10 per barrel since the start of 2002. In London, Brent (North Sea) oil closed at $30.16 per barrel, an increase of 55 cents from Dec. 26.
The U.S. dollar fell against the euro, as the euro is now worth $1.044 as of Dec. 27; this is the dollar's lowest level since November 1999. The euro has gained 4% against the dollar just during the month of December. The dollar fell to 1.3905 Swiss francs, a fresh four-year low. The Swiss franc is serving as a safe haven for those moving out of the dollar. The dollar broke below the psychological level of 120 Japanese yen to the dollar, closing at 119.85 yen.
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