U.S. Economic/Financial News
Rohatyn: U.S. Cannot Afford a Global Empire
The United States cannot afford global dominance and needs European support, is the gist of an op-ed in the June 10 Financial Times of London by Lazard Frères fascist Felix Rohatyn, who says it is "profoundly unwise for the U.S. to go it alone in the world," because "it simply cannot do so without seriously damaging the American way of life and standard of living." The U.S., he says, "is excessively dependent on foreign capital and energy," faces the "long-term liabilities of an ageing population and unmet social needs," and cannot afford "the open-ended costs of global military dominance, preemptive wars and nation-building. America needs the Atlantic alliance to help meet the costs of peaceas well as the costs of warand to sustain economic growth across the Atlantic." The U.S. is already facing a $1.8-$4-trillion Federal deficit over the next 10 years, and further cuts in pensions and health care will be required, the dollar is plunging even as the need for foreign capital inflows increase, "a precarious situation."
Rohatyn says that while the dollar's decline has been orderly so far, it could accelerate, and that Treasury Secretary John Snow's recent comments "amount to a deliberateand highly dangerouspolicy of further devaluation." The Fed "could ultimately be left with a grim dilemma: raise interest rates to protect the dollar... or let the dollar slide further and run the risk of an international financial crisis."
"It is time for the U.S. to stop and think about the contradictory nature of its economic policies and its new international doctrine.... Something will have to give. A crippled Atlantic relationship will only make matters worse," Rohatyn concluded.
Manufacturing Collapse Could Soon Become Irreversible
The nation's manufacturing base could disappear forever, if ongoing factory closings and job layoffs cause the sector to shrink below "critical mass," warned a study released on June 10 by the National Association of Manufacturers, the nation's largest industrial trade association, representing 14,000 companies and 350 member associations. Such a collapse, NAM warns, threatens the survival of manufacturing's "innovation process"research and development, investments in capital equipment and workers, and "spillovers" that benefit the economy as a wholewhich would "deteriorate beyond repair"and with it, the "seedbed of our industrial strength." Moreover, once the manufacturing sector has diminished below its "critical mass," NAM cautions, the process by which economic prosperity and higher living standards have been generated, "may never be recovered."
NAM's report, titled "Securing America's Future: The Case for a Strong Manufacturing Base," counters the lie peddled by the utopians in the Bush Administration, that the manufacturing sector could have a "magical" recovery. Even so, NAM denies that the manufacturing breakdown is due to the economic collapse of the bankrupt international monetary-financial systemreflecting the downshift from a "producer" to a "consumer" society. Instead, it blames global competition and the rising costs (health care, litigation) of doing business in the U.S., as well as the overvalued U.S. dollar. Rather than support LaRouche's "Super-TVA" infrastructure-building policy, NAM foolishly calls for the U.S. to force other nations to lower their tariffs, and for implementation of domestic steps, such as passing litigation reform. On the positive side, it does urge a permanent R&D tax credit.
The report cites the following:
Benefits provided by manufacturing's innovation process:
*Spawn more additional economic activity and jobs than any other economic sector, for a given investment.
*Are responsible for almost two-thirds of all private sector research and development.
*Manufacturing salaries and benefits, are higher than the average for the total private sector.
*Important contributor to tax receipts.
Serious challenges to the long-term viability of the manufacturing base, and the underlying innovation process:
*Since July 2000, manufacturing has lost 2.3 million jobs.
*Manufacturing exports, as a share of GDP, have fallen since 1997.
*U.S. manufacturing's share of capital investment and R&D expenditures, historically a dominant characteristic of our nation's commitment to progress, is diminishing.
*Manufacturing faces a potential shortfall of highly qualified employees.
U.S. Bank Derivatives Jump by One-Third in Year Ending March 31
U.S. commercial banks reported $61.9 trillion in derivatives, for the 12 months ended March 31a 32% increase over the $46.8 trillion reported the previous year, according to the FDIC. The figure is even higher, $64.9 trillion, for the bank holding companies, which includes some investment banking activities done by holding companies outside the banks themselves. Leading the pack are the usual suspects: JP Morgan Chase, with $31.3 trillion; Bank of America, with $13.6 trillion; Citigroup with $12.1 trillion; and in the minor leagues, Wachovia with "just" $2.3 trillion; and Bank One, with $1.1 trillion. The top 25 bank holding companies held $724 billion in credit derivatives, of which $409 billion were at Morgan Chase, $139 billion at Citicorp, and $107 billion at Bank of America.
Is Another Market-Manipulation Bailout Attempt Underway?
A small group at JP Morgan Chase has racked up more than $100 million in trading profits so far this year "on prescient bets on currency and interest rate moves," the Wall Street Journal reported June 3, noting that the bets were being made with the bank's own money. The Financial Times reported June 6 that currency traders have been "minting" money this year, "helping offset parts of Wall Street that are in a slump." Placing currency and bond bets and then manipulating the markets to make those bets winners was a staple of 1990s systemic bailouts, earning bankrupt insider banks billions of dollars in profits. Perhaps a similar game is afoot today, or maybe they are just profiteering off the collapse of the dollar.
Monetary 'Hair of the Dog' May Give Economy 'a Worse Hangover'
Noting that "a torrent of money, courtesy of another likely slash by the serial rate cutter Alan Greenspan, and George W. Bush's humongous tax cuts, is poised to sluice into the market," columnist Alan Abelson writes in the June 9 Barron's: "The idea of resorting to the hair of the dog that bit you is both the oldest known remedy for a hangover and a longstanding pillar of Fed policy. There are inherent and obvious dangers, of course, in using moonshine to alleviate the after-effects of too much moonshine. Not the least of them is ending up with a worse hangover, and that's an evident risk, whether the hair of the dog happens to be a magnum of the bubbly or another stock-market bubble."
New Jersey Electric Rates To Skyrocket, Thanks to Dereg
In 1999, when New Jersey's electricity deregulation measure, known as the Electric Discount and Energy Competition Act became law, consumers were told that competition in the electricity sector would lower their prices. The utilities were forced to implement a 14% rate cut, and a cap was put on that price. That cap expires on July 31, wrote The Record of Hackensack on June 8. The fairy tale that competitors would come in who were cheaper, never materialized.
On Aug. 1, when the cap is removed, rates will immediately rise 14%, back to where they were in 1999, because today it is no cheaper to produce power than it was then. In addition, the law had also allowed the incumbent utilities to recoup, when the cap expires, the difference between what they could charge for electricity over the past four years, at the artifically low rate, and what it actually cost them to buy power for their customers. (In California, the law simply allowed the utilities to go bankrupt.)
And, because natural-gas prices are double what they were in 1999, the utilities have already applied for an increase in rates to cover increased delivery costs, which will push rates even higher.
Will New Jersey wise up and consider a bill, like that in California, to get rid of deregulation? Stay tuned.
Massachusetts Gambles with State Pension Funds
In the rearranging-the-deck-chairs department, the Commonwealth of Massachusetts will sell $5 billion of stocks and bonds in its pension fund, and invest the money in hedge funds and real estate, to try to bolster returns and lower risk, according to the London Financial Times June 10. This will work about as well as the deck-chair tactic on the Titanic. The Massachusetts fund, with $27.8 billion in assets, is the 21st-largest public pension fund in the United States, owning $11.4 billion of stocks. It plans to sell $3.3 billion of those shares, reducing its U.S. stock holdings from 38% to 26%, and to cut its bond holdings from 16% to 10%. The average state allocations are 42% for stocks and 37% for bonds, as a percentage of total assets. The plan lost 9% of its value last year, and hopes to do better under the new allocation, which also targets increased investment in commodities, junk bonds, and emerging markets.
Large Firms See Big Jump in Health-Insurance Premiums
Health-insurance premiums for large firms have jumped in 2003 by the largest amount in a decade, and exceed the increase in health-care spending during 2002, according to a report released June 11 by the Center for Studying Health System Change. CSHSC cites the Towers Perrin survey of large companies, which found that premiums climbed 15% on average in 2003the biggest jump in at least a decadeafter rising 13% in 2002. Likewise, the Watson Wyatt Worldwide survey reports that the median premium increase was 15% in 2003.
Since premium increases for small employers are usually higher than those for large companies, these estimates are probably low, CSHSC notes.
Health-care spending rose 9.6% in 2002, CSHSC found.
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