In this issue:

Senate Republicans Oppose Amtrak Privatization

Housing Bubble Poised To Burst

Pension Funds Meltdown Like 1980s S&L Debacle

Chicago Bank Lauds Hitler's Economic Policies

Hundreds of Thousands Dropped From Labor Force

Mis-Fortune 500 Companies Cease Operations; Slash More Jobs

U.S. Treasury Borrowing Soars to Record High as Tax Receipts Plunge

Bankrupt States Blamed for Failed Economic 'Recovery'


From Volume 2, Issue Number 31 of Electronic Intelligence Weekly, Published Aug. 5, 2003

U.S. Economic/Financial News

Senate Republicans Oppose Amtrak Privatization

Criticizing the Administration's plan to dismantle the national passenger rail system, four Senate Republicans—Kay Bailey Hutchison (Tex), Trent Lott (Miss), Conrad Burns (Mont), and Olympia Snowe (Me)—on July 30 introduced a bill to give Amtrak $12 billion in Federal funds over the next six years to cover operating expenses, and to issue $48 billion in Federally backed bonds to pay for repairs and new track construction.

The "American Rail Equity Act" also would:

* Establish a national passenger rail system from Amtrak's current routes.

* Create an independent non-profit organization—the Rail Infrastructure Finance Corporation (RIFCO)—to underwrite $48 billion in U.S. government-backed tax-credit bonds, and to administer a trust fund to repay the bonds over 20 years.

* Create a rail office at the Department of Transportation to recommend capital projects for funding by the RIFCO.

The four Republican Senators have adopted the motto "National or Nothing," insisting that more money must be devoted to improve and expand Amtrak throughout the nation. Under their proposal, for every dollar in capital funds spent in the Northeast corridor, four dollars would be spent elsewhere. "[W]e have to make up our minds in America: Do we want a national rail passenger system, or not?" Lott said at a press conference.

Lott blasted the Administration's plan that would likely mean the end of most, if not all, long-distance trains. The proposal would break Amtrak into private companies to operate trains and maintain infrastructure, under contract with multi-state compacts, and end Federal subsidies for operating costs, while providing Federal matching grants for capital improvements. "What they have proposed on Amtrak is a total non-starter," Lott said. "It will get the amount of consideration it deserves, which is nothing."

Hutchison said Amtrak could get $1.4 billion in funding for the fiscal year that starts Oct. 1; the Administration has proposed $900 million, a level that would shut down all passenger service, warned Amtrak president David Gunn.

Housing Bubble Poised To Burst

The housing market is already declining, and may soon crash, states John Talbott, former Goldman Sachs vice president. Bloomberg's special commentary on the "real estate bubble theory" July 28 says that, in spite of Fed chairman Alan Greenspan's claim "that there's no real estate bubble," there is nevertheless evidence that housing prices may be slackening. "A combination of high consumer debt, unemployment, and the flow of hot money back into stocks will trigger a decline in the hottest residential markets. It's time to prepare for the inevitable bursting of the bubble." Applications for new home loans fell 5.4% in the week ending July 18, while rates on 30-year mortgages rose 0.39% to 5.72%, the largest weekly increase since November 2001.

Bloomberg picked up recent statements from Talbott, who this past May published a paperback on The Coming Crash in the Housing Market: Ten Things You Can Do Now To Protect Your Most Valuable Investment. Talbott now states that, in 60% of the top 200 U.S. cities, housing prices have already started to decline during the first quarter of 2003. He notes that big efforts are being undertaken to cover up the price declines. As an example, the U.S. national average of home prices was rising at an annual rate of 7% as of March 31, according to the National Association of Realtors. But, if you look only at the last six months, ending March 31, the "national growth rate for existing home prices is almost 0%." In certain markets, home prices have already declined, including Monmouth, Ocean, Middlesex, Somerset, and Hunterdon Counties in New Jersey; the San Francisco Bay area; and Chicago. Talbott calls on homeowners, who cannot escape the price risk of their own home, to at least "get rid of mortgage company stocks and real estate investment trusts in your stock portfolio," and to "sell your second home."

Pension Funds Meltdown Like 1980s S&L Debacle

U.S. pension funds are facing a meltdown, not unlike the 1980s Savings and Loan blowout. Not only are corporate pension plans underfunded by about $300 billion, but the main insurer of retirement plans—the government-sponsored Pension Benefit Guaranty Corp. (PBGC)—does not have enough assets to pay promised future benefits. On July 23, the U.S. Government Accounting Office designated the PBGC's pension insurance program for large companies as "high risk," calling for "urgent attention" by Congress. PBGC's "single-employer" program, which takes over pension plans that bankrupt firms have defaulted on, but pays only a portion of retirement benefits due to 34 million workers enrolled in private "defined-benefit" plans.

Pension plans, warned U.S. Treasury Secretary John Snow in July, are in danger of a financial meltdown "not unlike" that of the Savings & Loans institutions in 1989. "Defined-benefit plans are under more pressure than at any time in a decade," cautioned Steven Kandarian, PBGC's executive director, adding that the Agency's program could require a "general revenue transfer"—i.e., taxpayer bailout.

As of April, the program's unaudited deficit had soared to an estimated $5.4 billion—the largest in PBGC history—a marked changed from its $9.7 billion surplus in 2000. The major cause of the deficit, was the massive increase in large underfunded pension plans of bankrupt companies in the steel and airlines sectors, taken over by PBGC. Moreover, PBGC likely faces "additional severe losses," the GAO warned, as the financial weakness of firms increases. The stock market collapse during the past three years, as well as the decline in interest rates, also contributed to the PBGC's insurance program deficit, as many pension plans are invested in stocks.

Under defined-benefit pension plans, companies set aside funds to pay a predetermined monthly stipend to workers upon retirement.

Chicago Bank Lauds Hitler's Economic Policies

Executives of Chicago-based Glenview State Bank apologized after its July newsletter praised Adolf Hitler as the only leader during the 1930s who revived his country's economy, while others such as U.S. President Franklin Roosevelt could not, according to the Chicago Sun-Times July 30. Hitler was praised for leading "German workers to work harder than anyone else in Europe," by instilling confidence in them.

This "isolated economic analysis," wrote officials, was not meant to glorify the broader consequences of Hitler's monstrous rule. "We did not intend to offend anyone. Please forgive us for this mistake." The newsletter, written by bank president Dave Raub, has been removed from the bank's website.

"The Great Depression of the 1930s saw falling prices, staggering unemployment, and shattered stock markets all over the world, and the world's leading statesmen seemed helpless to defeat it. Except for one," the newsletter read.

"His name was Adolf Hitler. Unlike France and Britain, and unlike the United States, Germany spent most of the 1930s growing economically, not declining. If we can understand why Depression-era Germany resisted the disease, we may better understand how alarmed we should be today in the 21st century."

Hundreds of Thousands Dropped From Labor Force

U.S. payrolls fell by 44,000 in July, while massaged unemployment shrank to 6.2%, as hundreds of thousands of workers were dropped from the labor force, the U.S. Labor Department reported Aug. 1. The official unemployment rate slid to 6.2% in July, from 6.4% in June, according to the Department of Labor's household survey, as the number of unemployed workers declined by 296,000 to 9.06 million. But, those who had been unemployed did not find jobs; rather, they were dropped from the labor force. Employment actually fell by 260,000; while the so-called "not in the labor force" category rose by 794,000.

The number of non-farm payroll jobs fell by 44,000 in July, bringing the total number of jobs lost since January to 486,000. Manufacturing was especially hard-hit, losing 71,000 jobs (with larger-than-usual seasonal shutdowns of automobile plants for retooling), including 56,000 production jobs. Manufacturing has lost jobs every month since July 2000. Overall, goods-producing employment fell in July by 67,000, while services gained 23,000 jobs.

Mis-Fortune 500 Companies Cease Operations; Slash More Jobs

*Pillowtex, a major textile and home fashions manufacturer said it is shutting down, closing its 16 plants and terminating 6,450 jobs, blaming a "severe liquidity crisis." Economic conditions had made it impossible to operate profitably, said officials of the Kannapolis, N.C.-based maker of towels, sheets, and other home furnishings. Pillowtex, which had emerged from bankruptcy in May 2002, said it will file for a second Chapter 11 bankruptcy "as soon as practicable," and sell off its assets. Also facing unemployment are an additional 1,200 employees who are helping with bankruptcy proceedings and employee communications.

Workers were told that they have no health insurance, effective immediately; moreover, they will not be paid for work done in the past few weeks, according to a 38-year Pillowtex employee.

The textile giant was facing a July 31 debt payment to its lenders, led by Bank of America.

*Kistler Aerospace, which has been working to develop the world's first unmanned, fully reusable satellite-launching vehicle, also filed for Chapter 11 bankruptcy. The Washington state-based company, founded in 1993, had debts totaling more than $500 million.

*May Department Stores said it will close 32 upscale Lord & Taylor stores nationwide, including all three stores in Atlanta, eliminating 3,700 jobs.

*Verizon Communications, the largest U.S. local phone company, and split-off from AT&T Bell system, expects to eliminate 4-5,000 more jobs this year, in order to reduce costs amid falling demand. During the past year, Verizon has dropped 18,000 workers.

*VF Jeanswear, the maker of Wrangler jeans, plans to cut more than 1,800 jobs in August and September, as it closes plants in Oklahoma and North Carolina. Since November 2001, the subsidiary has axed 11,000 jobs—35% of its workforce.

U.S. Treasury Borrowing Soars to Record High as Tax Receipts Plunge

The U.S. Treasury announced plans July 28 to borrow $104 billion during July-September—one-third higher than its previous estimate—to finance the growing Federal budget deficit, officially projected at $455 billion for the year. The increase in borrowing, up from $76 billion estimated by Treasury in April, was blamed on lower than expected income tax receipts, and higher spending. During October-December, Treasury expects to borrow (by selling notes and bonds) a record $126 billion. This would bring total Federal borrowing to $230 billion for the second half of 2003.

GDP 'Growth' in 2nd Quarter Due to Big Increase in Defense Spending

Phony U.S. Gross Domestic Product rose by 2.4% in the second quarter, the Commerce Department reported July 31, thanks to a 44% increase in defense spending—even as the U.S. Treasury borrowed $60 billion (even with April income tax receipts) to help finance the growing budget deficit, now estimated at $455 billion for the year, excluding costs for the Iraq occupation. During April-June, the Commerce Department's fraudulent monetarist GDP grew by $89 billion, inflated by the hedonic "quality adjustment," with $45.6 billion due to increased Federal defense spending; but, at the same time, exports of goods and services fell by 3.1%. The whopping increase in defense spending, the biggest since the Korean War, came even as Boeing slashed thousands more jobs. Which raises the question: How much of the rise in defense spending was borrowed money?

Bankrupt States Blamed for Failed Economic 'Recovery'

In a front-page story titled, "Red Ink in States Beginning To Hurt Economic Recovery," the New York Times July 28 posits that "the states [have become] a net minus for the national economy," due to their multibillion-dollar budget crises. Why? Because now that revenues have fallen so drastically, and with states cutting spending and laying off workers, their surplus coffers of the 1990s no longer exist, and so states have become a drain on the national economy. Without this inconvenience, "the economy would probably be growing" at 3% per year, "enough to create jobs rather than eliminate them." The Times acknowledges that the "slowing" of the states' economic activity is due to a "sharp drop in state tax revenue," but fails to point to the cause of the collapse of these revenues, i.e., the looting of the real physical economy, to feed the consumer bubble economy.

Not covered by the Times is the magnitude and nature of the continuing revenue collapse. As EIR has reported, national average personal income tax (PIT) revenues into states' coffers, declined from 2001 to 2002, by -12%. For example: California (-25.6%), Massachusetts (-18.5%), Vermont (-16.6%), New York (-14.3%), New Jersey (-13.8%), and Connecticut (-13.7%). The 2003 data are not yet tallied, but these too plummeted.

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