In this issue:

Gold Surges to Six-Year High, as Dollar Plunges

Trade Deficit Hits Record, Over $40 Billion in November

Fannie Mae Socked with Massive $4.545-Billion Derivatives Losses in 2002

Companies See Pension Funds Vaporate with Stock Market Collapse

US Airways Pilots May Lose 75% of Their Pensions

Machine-Tool Consumption Continues Downward Spiral

Families with Young Children Face Rapid Rise in Long-Term Joblessness

Depression-Style Breadlines Are Back as Economy Tanks


From Volume 2, Issue Number 3 of Electronic Intelligence Weekly, Published Jan. 20, 2003

U.S. Economic/Financial News

Gold Surges to Six-Year High, as Dollar Plunges

Gold for February delivery, traded on New York's commodity exchange (COMEX), jumped an incredible $7 to $358.10 an ounce Jan. 16, its highest since March 1997, and briefly hit $359—even before the UN said it found empty chemical warheads in Iraq. Crude oil for February delivery rose 1.4% to $33.66 per barrel in New York trading.

The U.S. dollar, after losing about 16% of its value against the euro last year, continued to fall, hitting $1.0617 per euro, its lowest since Oct. 27, 1999. And the dollar fell to 117.89 yen, close to a four-month low. In the past three months, the dollar has lost 7.6% against the euro, 5.5% against the yen, and 8% against the Swiss franc.

Trade Deficit Hits Record, Over $40 Billion in November

The U.S. trade deficit soared 13.9% in November 2002 to a record $40.1 billion, including a surplus in the services portion, the Commerce Department reported Jan. 17. The goods portion of the deficit rose about 12% to a record level of $44.3 billion, as imports skyrocketed—a marker of both the economic breakdown, and the dollar collapse, as the international financial-monetary system disintegrates. For January-November 2002, the goods deficit reached $435.44 billion—about 10% higher than the same period in 2001.

Fannie Mae Socked with Massive $4.545-Billion Derivatives Losses in 2002

Fannie Mae, which buys mortgages from lenders and bundles them for resale, posted a loss of $1.88 billion on the value of options (a type of derivative) in the fourth-quarter of 2002—due to falling interest rates—compared with a gain of $578 million a year earlier. As a result, fourth-quarter net income tumbled by 52% to $952 million—even though home mortgage loan refinancings surged. (Under an accounting rule, the company must record changes in the market value of its derivatives even if they are not sold.)

During 2002, the government-sponsored Fannie Mae said net interest income jumped 31% and guaranty-fee income rose 23%, but those gains were more than offset by a $4.51-billion increase in losses on derivatives, compared to 2001. The company reported annual earnings of $4.62 billion.

Companies See Pension Funds Evaporate with Stock Market Collapse

U.S. companies, their pension-fund investments disintegrating with the stock-market meltdown, have been forced to spend large amounts to shore up the underfunded retirement plans; and are trying to find ways to cut their pension obligations, such as shifting from defined-benefit plans to cash-balance plans that lower promised benefits. Low interest rates are also affecting pension plans, by increasing pension liabilities.

The sickest pension plans, overall, are at steel companies, followed by airlines, where shortfalls climbed by 50% to $18 billion at the end of 2002. General Motors had a pension plan deficit of $19.3 billion at the end of last year, even though the automaker pumped in $2.6 billion. IBM put almost $4 billion into its pension funds in December.

US Airways Pilots May Lose 75% of Their Pensions

US Airways pilots face losing up to 75% of their pensions, under a takeover plan of the bankrupt airlines' severely underfunded pensions by the Pension Benefit Guaranty Corp. (PBGC). The Federal government agency, in a hearing before a Senate subcommittee on Jan. 14, refused to allow the bankrupt airline to repay the $3.1-billion pension fund shortfall in 30 years instead of the maximum seven years. US Airways likely will terminate the pension plan and shift its liabilities—currently twice its assets—to the PBGC.

The benefits promised to the pilots, would exceed the maximum insured by the Federal pension agency. "The danger now is that even benefits that pilots have already earned over many years of service, will be slashed dramatically due to a potential plan termination," said Duane Woerth, president of the Air Line Pilots Association.

Machine-Tool Consumption Continues Downward Spiral

Machine-tool consumption, a key indicator of the physical (real) economy, is now in a breakdown collapse, and way below last year's level. In November 2002, machine-tool purchases plummeted by 9.7%, compared to October, to $145.52 million, according to a report issued Jan. 13 by the American Machine Tool Distributors Association and the Association for Manufacturing Technology. For January-November 2002, U.S. machine-tool consumption, at $1,856.58 million, compared to the same period in 2001, represented a steep fall of 25.8%.

Annual U.S.
Machine Tool **** ($ billions)
Consumption
1997
$5.56
1998
4.91
1999
3.90
2000
3.99
2001
2.67

Thus, U.S. machine-tool consumption in 2001, at less than half the level of 1997, was already in a depression, and the first 11 months of 2002 are 25.8% below the first 11 months of 2001.

Families with Young Children Face Rapid Rise in Long-Term Joblessness

Unemployment among families with young children is rising at an alarming rate, meaning more children are living in poverty, and without health insurance. Moreover, the long-term effects will be devastating for the nation's future labor force. In October 2002, more than half a million parents experienced long-term unemployment (more than 26 weeks), 2.7 times the number in October 2000, or a 171% increase, according to the Children's Defense Fund. Among parents of children under 6 years of age, the number of long-term unemployed jumped from 71,000 in October 2000, to 235,000 in October 2002—3.3 times higher, or an increase of 229%.

The most dramatic increases in long-term joblessness occurred among parents whose unemployment was caused by layoffs and disappearing jobs, or completion of a temporary job. In these categories, the number of long-term unemployed parents quadrupled from 75,000 in October 2000, to 305,000 two years later (306% increase). An even sharper increase hit parents with children under age six—the level of 127,000 was more than five times higher than two years before.

About 26% of children of unemployed parents lack health insurance, according to a RAND report.

Depression-Style Breadlines Are Back as Economy Tanks

A segment of the Jan. 8 CBS-TV show "60 Minutes" featured coverage of breadlines in southeastern Ohio. In Marietta, just before Thanksgiving, a line of 896 people began at dawn, with many waiting for five hours for donated commodities. In MacArthur, the number seeking food relief is up 40% in three years, while the National Conference of Mayors' latest survey reports that the demand for emergency food donations shot up 19% in one year, on average. In Ohio, since 1999, the number of people getting food relief has more than doubled from 2 million to 4.5 million.

In the rural areas, commonly, jobs available are paying $6-7 per hour. And contrary to the old stereotype of a "down-and-outer" of the Depression era, at least 40% of those on the Marietta line represent families where at least one parent is working—most, fulltime. Some typical people on Ohio breadlines: Former employees—some for over 30 years—of the Goodyear Tire plant, which shut in 1993; an Air Force and Air National Guard senior, who had a stroke while detailed to flood-relief duty a few years ago, and now gets Veterans Administration medical care, but cannot meet living expenses; a man who works fulltime at a home improvement store—at $7.50/hour—but cannot meet expenses for his wife and four kids.

About 50% of domestic food relief now goes to children. The U.S. Department of Agriculture estimates that 12 million American children—one out of every six—experience hunger. Many in southeastern Ohio depend on free school lunches for their one full meal a day.

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