In this issue:

Americans Worry More About Economy, Than Saddam

In Senate Surprise, Bush Tax Cut Halved

Will Deflation 'Cause Havoc with the Anemic Recovery'?

U.S. GDP Grows 1.4%: Not Much of a Figleaf for a Depression

Retiring Bethlehem Steel Workers To Lose Benefits

FERC Finally Acts—Too Little, Too Late—in California

Survey Shows: Derivatives Trading Ballooned in 2002

Credit-Card Delinquencies Soar, as Unemployment Rises

New Home Sales Plummet, as Foreclosures Jump to Record Highs


From Volume 2, Issue Number 13 of Electronic Intelligence Weekly, Published Mar. 31, 2003

U.S. Economic/Financial News

Americans Worry More About Economy, Than Saddam

"'It's the Economy,' Says Middle America," headlined an article in the Washington Post March 23, with the subhead, "Concerns About Rising Prices and Unemployment Outweigh the War in Iraq." A recent Gallup Poll found that 67% of those asked, said they expect the economy to get worse; while in a Post poll, 49% disapproved of Bush's handling of the economy. Even as Bush took the nation into war, "something else was bothering Americans as much if not more: the economy."

"I think I'm your typical American," said a Seattle truck driver. "All we talk about is the war. But all I think about is my paycheck." A Seattle bank-loan officer was uncertain about Iraq, but worried, "But after this is over, the economy has got to bounce back, right?" She added, "Terrorism isn't real to me ... but losing my savings is." The Pacific Northwest, as a region, has the highest joblessness in the nation. A "jumpy" stock market, "consumer confidence flaccid," jobs "harder to find," and state and local governments raising taxes and fees, the "long-awaited recovery ... keeps receding into the future" the Post observed.

In Senate Surprise, Bush Tax Cut Halved

The U.S. Senate, by a 51-48 margin, passed an amendment to the $2.2-trillion Y2004 Federal budget resolution, that slashes Bush's $726-billion "stimulus" package to about $350 billion, which would kill the stock dividend tax-cut. Three "moderate" Republicans—Lincoln Chafee (Rhode Island), Olympia Snowe (Maine), and George Voinovich (Ohio)—bolted from the majority and voted with Democrats to limit the tax cut. The move to slash the tax cut, which reverses a 62-38 vote on March 21 against a similar effort, followed Bush's request for Congress to approve nearly $75 billion in emergency spending for Iraq war costs.

Senator John Breaux (D-La.), who sponsored the amendment, told reporters that there was "more concern than there was last week" about the war's costs. The vote, he added, "signals there's not a lot of support for the dividend [tax cut] proposal."

Likewise, Sen. Max Baucus (D-Mont.), who supported the effort, said "concern about the cost and the uncertainty" of the war had convinced undecided Senators to back a smaller tax cut.

Senator Zell Miller (Ga.), the only Democrat who supports Bush's full tax-cut plan, was absent.

The Senate was scheduled to vote March 26 on a Federal budget outline, after which a House-Senate conference will hash out differences. The House version, passed by a 215-212 vote, includes the entire $726 billion in tax cuts.

Will Deflation 'Cause Havoc with the Anemic Recovery'?

This is the question being debated by economists and other experts, who "say record consumer debt and escalating personal bankruptcies combined with widespread deflation could tip the scales into a depression," the New York Post worried March 23.

"When you have high debt ratios, this always increases the risk of a nasty deflationary scenario," said Wells Capital Management chief investment strategist Jim Paulsen. He said deflation causes prices to fall, which results in businesses cutting jobs, in a potential vicious cycle.

"In real terms, the debt is becoming more expensive because prices are going down," said American Bankers Association chief economist Keith J. Leggett.

"For most people, the principal asset is their house," said JP Morgan Chase economist Marc Goloven. "If housing prices crack, the popular perception is there would be a significant bout of deflation."

"Because we have had a significant loss of jobs, we have not had the heavy demand for housing, and that has led to a softening of prices," said Mortgage Bankers Association Vice President Jay Brinkman.

U.S. GDP Grows 1.4%: Not Much of a Figleaf for a Depression

The official growth of U.S. Gross Domestic Product (GDP) was a paltry 1.4% in 2002, according to the latest Commerce Department issuance of final, revised statistics the last week in March. While the economy is actually contracting, the Commerce Department released its latest revised figure for Q4 2002, annualizing the rate of growth as 1.4%—a brutta figura , even for a lie.

Retiring Bethlehem Steel Workers To Lose Benefits

A U.S Federal bankruptcy court has given final approval to bankrupt Bethlehem Steel Corporation's plan to end health and life-insurance benefits for 95,000 retirees at the end of March. The termination is part of the deal in which Bethlehem is being bought out by the financier owned ISG company. ISG has just announced that the workforce at Bethlehem's Sparrows Point, Md. plant will be reduced by 1,000 workers, or more than 30%, once the take-over is concluded.

The Washington, D.C/Maryland Beltway area will be particularly hard hit by the benefit termination, since 20,000 steelworker retirees and their dependents live in this region. While Bethlehem has agreed to a COBRA arrangement, whereby the health insurance can be continued for six months at a reduced cost, as a sop to win Steelworkers' approval of the termination, most retirees face astronomical increases in their health-care costs once that period ends. And for the estimated 5,000 retired workers under age 65, the impact will be immediate, since even under the temporary COBRA arrangement they will have to pay an average $700 a month. Local USWA union officials are holding out some hope to the retirees that ISG will agree to set up a retiree benefit fund, but caution that this is discretionary, and that even if set up, it would provide no immediate relief.

FERC Finally Acts—Too Little, Too Late—in California

In a series of reports and orders released March 26, the Federal Energy Regulatory Commission (FERC) said its investigators had found "significant market manipulation" during California's electricity crisis in 2000-01 by more than 30 companies, and recommended $3.3 billion in refunds; however, the state of California has documented nearly $9 billion in overcharges. The refunds were ordered to take into account the hikes in natural gas prices by Enron, Williams, and other suppliers and marketers, which drove up the price of electricity.

As readers of EIR and EIW know, Lyndon LaRouche and these publications are on record as exposing, at the time, the exploitation by the energy pirates of the insane energy deregulation policy, to drive the costs of electricity through the roof, and pocket the profits, before being caught with their hands in the cookie jar.

Now, with the horses already out of the barn, the FERC has suddenly woken up, and decided to shut the barn door. FERC staff proposed requiring that the companies return "any unjust enrichment related to their misconduct," that stemmed from inflated bidding, withholding power, and other market rule violations.

The Commission could not agree on allowing California to overturn more than $40 billion in long-term contracts that the state signed during the crisis to lock in stable prices. FERC did demand that Enron, Reliant Energy Services, and BP Energy show why their right to trade electricity should not be revoked, considering their proven manipulation of the market.

Survey Shows: Derivatives Trading Ballooned in 2002

The credit derivatives market grew 37% in the second half of 2002, to $2.1 trillion from $1.6 trillion in June, and was more than double the $919 billion at the end of 2001, according to the International Swaps and Derivatives Association. The level of "plain vanilla," over-the-counter (OTC) interest-rate and currency derivatives outstanding, rose by 20%, from $82.7 trillion at mid-year, to $99.8 trillion, and from $69.2 trillion at the end of 2001, a 44% annual increase. A record 108 derivatives dealers responded to the ISDA's survey.

"The continued pace of growth in the OTC derivatives markets during times of economic and political uncertainty demonstrates their importance as a mechanism for mitigation and dispersion of the risks our members encounter in the course of their business," said ISDA CEO Bob Pickel, in a fit of remarkable doublespeak. "The acceleration in use of credit derivatives in particular is testimony to the effectiveness of this product set in the redistribution of credit exposures to those firms desirous of adopting them," he added.

Perhaps Mr. Pickel is angling for Alan Greenspan's job, when it opens up?

Credit-Card Delinquencies Soar, as Unemployment Rises

Credit-card delinquencies jumped to 4.07% of a credit-card accounts, during the fourth quarter of 2002, up from a level of 4.0% during the third quarter, the American Bankers Association reported March 26. This constitutes the highest level since the ABA started to track the data in 1990. A prime driver of the process is the collapse of the economy, leading to growing unemployment, especially the elimination of 2.157 million manufacturing jobs during the past 31 months. "The rise in delinquencies is not surprising given the cumulative weight of lay-offs and the poor prospect for re-employment," said James Chessen, chief economist of the ABA.

New Home Sales Plummet, as Foreclosures Jump to Record Highs

New home sales fell 8.1% nationally in February, to the lowest level since August 2000, and the second consecutive monthly decline, despite some of the lowest mortgage interest rates since the early 1960s. Sales of new homes dropped to an 854,000 unit annualized rate, from 929,000 in January (down 12.6% from December), blamed in part on the snowstorm, but well below the level forecast by analysts.

At the same time, the percentage of home loans in the foreclosure process rose to a record 1.18% during October-December 2002, up from 1.15% in the third quarter, reported the Mortgage Bankers Association March 24.

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