ECONOMICS NEWS DIGEST
BIS Admits: BIS-ness Ain't Exactly Booming
The Basle, Switzerland-based Bank for International Settlements (BIS) published its latest quarterly review on "International Banking and Financial Market Developments," May 27, with an accompanying press release headlined, "Waning confidence in strong recovery." In its typically understated fashion, the BIS, known as the Central Bank of Central Banks, notes: "The early months of 2002 dissipated the earlier ebullient mood that had built up in financial markets during the fourth quarter. From the start of the year to the first week of May, stock prices declined and U.S. long rates edged lower with the waning of confidence in a strong economic recovery."
But, the BIS adds, it's not only the U.S. that's in trouble: "In Europe, rising oil prices and new wage negotiations raised the specter of inflation, pushing up long rates. In equity markets, investors' hopes were dashed by a lack of evidence that corporate earnings were recovering with the economy as a whole. Share prices were depressed further by continued skepticism about corporate disclosure and accounting practices, by new reports about stock analysts' biased recommendations, and by a sudden aversion to corporations that relied heavily on short-term debt."
Translation? There is no recovery, only faked accounting reports. Just as LaRouche told you.
Brazil To Drop 'Debt Bomb'? Warnings of 'Systemic Risk' Abound
Brazil's country-risk rating is nearing 900 basis points over U.S. Treasuries, and the real has fallen again to over 2.5 to the dollar, both factors which are potential detonators of the Brazilian debt bomb. The country risk rose by almost 200 points between January and May, much of it since mid-April. Two economistsPaulo Nogueira of Brazil's Getulio Vargas Foundation, and Martin Grandes of Paris's School of Social Sciences Higher Studiestold Argentina's Clarin that if Brazil's country-risk hits 1,000 or above, its debt load becomes "unsustainable."
Nogueira was emphatic: "There is a risk of default in Brazil." The market can be fooled, but not when risk hits 1,000, he said. He pointed, as EIR has repeatedly, to Brazil's gigantic domestic debt, largely short-term, and much of it coming due this year. The Central Bank is refinancing this debt, but at great cost, given the current interest rates and rate of devaluation, he said. And he noted that Central Bank reserves are insufficient, in light of the $20 billion which Brazil must pay this year, between foreign debt service and foreign companies' transfers abroad of profits and dividends.
Under the headline, "Fears of the Tango Effect," Clarin wrote on May 30: "Spain, Uruguay, and Brazil are already infected, and if the picture worsens, South Africa and Egypt are on the list of candidates. Could there be another systemic crisis?"
A French banker is cited, naming South Africa and Egypt, along with Brazil, as the "weak links" which will blow "if" there is chaos in Argentina (which there has been for months, now; see below). Grandes listed the similarities between Brazil and pre-collapse Argentina: a heavy public debt load indexed to the dollar; high short-term interest rates which could become "explosive"; deterioration of its fiscal balance; $26 billion in debt coming due this year without a clear source of financing, etc. He warned that a Brazilian collapse could set off "systemic contagion."
Argentine Collapse Hits Brazilian Industry
Until its economy hit the skids, when the banking system collapsed last December, Argentina was the biggest market for Brazilian industry, buying 20% of Brazil's manufactured products. Since then, Brazilian industrial sales to Argentina have fallen by 70%. In part because of this, industrial GNP in Brazil fell by 3.91% in the first quarter of 2002. Unemployment in Brazil's industrial heartland, the Sao Paulo metropolitan area, hit a record high of 20.4% in April, a bit over the 20.3% registered in April 1999, in the wake the real devaluation. That means 1.9 million workers in one of Brazil's most advanced areas, are unemployed.
Nor is Mexico exempt from the economic catastrophe: The Mexican peso has fallen 7% since April 1, and hit a 16-month low of 9.7705 to the U.S. dollar, on May 29. The lack of a U.S. economic recovery had to affect the peso's value at some point, A Bank of America securities strategist acknowledged that the biggest factor is the economic woes north of the Rio Grande, that is, the U.S. non-recovery. Notice is being taken, of the 35% drop in foreign direct investment recorded in the first quarter of 2002.
Japanese Economy Continues To Tank; Huge Corporate Losses in FY01
Total machine-tool orders placed in Japan during April fell 26% on the year, the Japan Machine Tool Association reported May 25. Domestic demand plunged 31%, while exports fell 21%. In the construction sector, five of the nation's seven mid-size contractors just posted net losses for fiscal 2001. Fujita, Hazama Corp, Tobishima Corp, Haseko Corp, and Sumitomo Construction lost, net, a total of over $1.3 billion together. Haseko Corp. May 28 announced a group net loss of 122 billion yen, almost $1 billion by itself, with debt exceeding assets by 121 billion yen, so it is on the verge of closing.
At the same time, corporate Japan suffered its first-ever net loss in FY01, Nikkei reported May 25-28. Japan's top 1,416 publicly traded firms will have posted a combined net loss for fiscal 2001, when all the figures are in next month, "the first time corporate Japan bled red ink as a whole in the history of the nation."
According to the survey, 30% of the companies in Japan are posting losses. The combined net loss of the surveyed firms totalled 130 billion yen, over $1 billion. "That is a drop of historic proportions, worse than in fiscal 1977 when earnings were hit by a global recession," they note. By sector, manufacturing companies suffered a 96% plunge in net profit. Electrical machinery makers, which were forced to slash their work forces, saw their net balance deteriorate by 3.4 trillion yen. Machinery makers posted a net
UK's Vodafone Posts Record Loss After 'Upbeat' Report
Vodafone stock prices rose strongly following the release of "upbeat" annual figures May 28 by the British telecom giant. The good news was a 44% increase of Vodafone's "operating profits" to 10.1 billion pounds, somewhat higher than analysts had forecast. Vodafone chief executive Sir Christopher Gent commented: "I believe these are very strong operating results."
Whoops! Unfortunately, those "operating profits" were only what is known in the trade as EBITDA profits, that is, "earnings before interest, tax, depreciation and amortization." And, there is quite a lot that is depreciating, or rather melting down, in the Vodafone balance sheet, including the market value of Mannesmann AG, which Vodafone bought up for $168 billion in history's biggest-ever hostile takeover about two years ago. As a consequence, Vodafone ended up reporting an annual net loss of 16.2 billion pounds$23.6 billionthe single largest loss ever by any European corporation.
Israel Blames Inflation on War, Not Economic Crisis
The Israeli Central Bank raised interest rates by 1% May 30, ostensibly to curb inflation that is running far higher than the European official level of 2-3%. It remains unclear how large a budget deficit there will be this year. Rating agencies such as Standard & Poors have been threatening for almost a month to lower Israel's credit rating, unless it "reforms" its economy.
One effect of the fear of this, is that many Israelis are buying U.S. dollars, driving down the value of the shekel, which, at last report, was 4.93. Ha'aretz blames this on the war, beginning with the Sept. 28, 2001 start of the Al-Aqsa Intifada. Its editorial explains that it would hardly be possible "to be on a war footing without it costing something in the standard of living." While there may be a grain of truth in this, there seems to be no recognition that even Israel's economy is affected by the global financial and economic collapse.
New Census Data Show Growing Gulf Between Rich and Poor
Newly released U.S. Census data for the Washington, D.C. metropolitan area, including Northern Virginia, the Maryland suburbs, and the District, show that, for the 1990s, "the middle class has shrunk and income disparities have increased." Indeed, the number of households in the area "with incomes of $100,000 or more increased by 40% over the decade," while "growth in poverty ... went up in a dozen of the region's 20 cities and counties," the Washington Post reported May 30. As the data reflect the 2000 Census, the impact of the dot.com and telecommunications bust, and the New Economy blowout of in 2000-2001, are not factored in the rosy picture of "well-off newcomers" living in "luxury mansions" reaping the benefits of a "decade of prosperity" painted by the Post. These are the deluded ones who soon will have a rude awakening as the housing bubble bursts.
The dichotomy between the housing-bubble boom, on the one hand, and the crisis in affordable housing in the area, on the other, is noted. For example, the Post reports the data show "nearly one in five ... homes was built after 1990," and that "the number of homes with nine or more rooms ... grew by one-third," during the decade. Yet, at the same time, an "increase in the number of homes considered severely crowded, meaning they average more than 1.5 people per room" was also shown. In the District, where the "Negro removal" plans of the Lazard Freres' Federal City Council have prevailed, the poverty rate among children grew by 6% over the decade, while those with $100,000 plus incomes grew by 2%. Across income categories in Maryland suburbs and the District, an increase of households spending "more than one-third of their incomes on mortgage payments" occurred.
The tables below show just a few of the parameters of the Washington area data:
Table 1 |
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Household income during the 1990s |
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% of households earning less than $25,000/year |
% of households earning $100,000 or more |
N.Va |
10% |
31% |
MD suburbs |
18% |
24% |
DC |
30% |
16% |
Table 2 |
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Growth in Poverty: People living Below Poverty Level |
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% of people 18yrs or older |
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% of Children under 18yrs |
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N.Va |
MD subs |
DC |
N.Va |
MDsubs |
DC |
1990 |
4% |
5% |
17% |
4% |
6% |
25% |
2000 |
5 |
6 |
20 |
6 |
7 |
31 |
The widening split between what Lyndon LaRouche has identified as the lower 80% of income brackets and the upper 20%, is thus beginning to be reported across the nation.
Median Price of Single-Family House in San Franciso Soars to Half-a-Million Plus
The median price of an existing, single-family home in California, jumped 26.1% in April, compared to a year ago, to a record $321,950, reported the California Association of Realtors on May 28. In the San Francisco-Bay Area (but excluding Napa and Sonoma Counties), only 23% of people could afford the incredible median price of $530,000 for an existing single-family homethe highest in the countryaccording to a CAR survey done in April. For condominiums and homes combined, the median price rose to a record $402,000, compared to $378,000 a year ago, for the nine-county Bay Area, according to DataQuick Information Systems.
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