In this issue:

U.S. Budget Deficit Headed for $500 Billion-Plus

Jobless Claims Above 400,000 for 14th Straight Week

Snow Warns Congress: Treasury To Hit Debt Limit by May 28

Middle-Class Atlantans Seek Mortgage, Other Assistance

Greenspan: Fed Lacks 'Sufficient Information' on Economy

Weirton Steel Files for Chapter 11 Bankruptcy

Industrial Real Estate Vacancies on the Rise


From Volume 2, Issue Number 21 of Electronic Intelligence Weekly, Published May 27, 2003

U.S. Economic/Financial News

U.S. Budget Deficit Headed for $500 Billion-Plus

The U.S. Treasury Department reported last week that for the first seven months of fiscal year 2003 (ending Sept. 30), the U.S. government ran an official budget deficit of $201.61 billion. The U.S. Treasury projects that the U.S. government will run an official budget deficit of a whopping $304.16 billion for the full fiscal year 2003.

However, EIR has determined that the actual budget deficit is much larger than the official one that is reported. The key to understanding why the budget deficit is out of control, is to look at the collapse of the U.S. physical economy, which produced the collapse of revenues, especially of individual income taxes and corporation income taxes. Together, these two taxes form the bulk of all U.S. government revenue.

Table 1 — Individual Income Taxes — ($ billions)

Fiscal Year First 7 Months Entire Fiscal Year
2001 $657.3 $994.3
2002 $536.5 $858.3
2003 $493.8 $790.0 (e)

(e) = estimated source: U.S. Department of Treasury

Table 1 shows the actual amount of individual income taxes taken in for the first 7 months of fiscal years 2001, 2002, and 2003. It also shows the actual amount of individual income taxes taken in for the entire year of fiscal years 2001 and 2002. The table estimates the amount of taxes to be taken in for the entire fiscal year 2003, based on a continuation of the trends of the first seven months of that fiscal year. Were this trend to continue, then U.S. individual income taxes would fall from $994.3 billion in FY2001 to $790.0 billion in FY2003, a staggering decline of 20.5%.

There are two overriding reasons for the collapse in individual income taxes: 1) the plunge in household incomes triggered by lay-offs, wage cuts, etc.; and 2) the sharp drop in capital gains taxes, reflecting the popping of the stock market bubble.

Table 2 — Corporation Income Taxes — ($ billions)

Fiscal Year First 7 Months Entire Fiscal Year
2001 $105.2 $151.1
2002 $88.2 $148.4
2003 $62.8 $105.5 (e)

(e) = estimated source: U.S. Department of Treasury

The method of constructing Table 2 is the same as that employed in Table 1. Assuming that the trend of decline in corporation income taxes of FY 2003 were to continue, then U.S. corporation income taxes would fall from $151.1 billion in FY 2001 to $105.5 billion in FY2003, a decline of 30.2% Between FY 2001 and FY2003, the combined drop in individual and corporation income taxes will total $249.6 billion.

Jobless Claims Above 400,000 for 14th Straight Week

New claims for unemployment benefits rose to 428,000 in the week ended May 17—the 14th consecutive week above 400,000. Continuing claims for unemployment insurance, hit an average 3.68 million over the past four weeks, the highest level since June 2002.

Snow Warns Congress: Treasury To Hit Debt Limit by May 28

Treasury Secretary John Snow, in a letter to House Speaker Dennis Hastert (R-Ill.), said he will continue to suspend new investments in the Civil Service Retirement Fund—and redeem previous ones—until Dec. 19, extending a previous July 11 deadline, in order to free up about $20 billion beneath the $6.4 trillion debt limit. The "debt issuance suspension" gives the government enough cash to operate "until on or about May 28." The move should allow Treasury to resume short-term bill auctions this week on a delayed basis.

"The Treasury has now taken all prudent and legal steps," he warned, "to avoid reaching the statutory debt limit," adding, "An immediate permanent increase in the debt limit is crucial to preserve the confidence in the U.S. government."

Projected incoming government receipts, Snow cautioned, will not be sufficient to cover government payments coming due by the end of the month, including $21 billion in individual and business income tax refunds, $40 billion to Social Security recipients, and $12 billion in payments to defense contractors.

Middle-Class Atlantans Seek Mortgage, Other Assistance

In a crisis that is repeated in many cities around the country, charities in Atlanta, Ga. are faced with dramatically rising requests for mortgage assistance—even from "typically self-sufficient families"—while contributions are shrinking, according to a recent survey of 175 local non-profit agencies by the United Way of Metropolitan Atlanta. "What's apparent and disturbing," said Betty Hanacek, vice president of United Way 211, "is that more of our calls are from middle-class families who themselves never thought they would need help from others, and more callers are desperate. The resources just aren't available to help in many cases."

In 2002, in a survey of Atlanta's non-profit service providers, 69% reported an increase in requests for assistance, compared to 2001—with nearly one-third saying demand has grown by 25% or more—while about half of the agencies reported a decline in contributions from individuals as well as from corporations, foundations, and institutions.

Requests for mortgage-payment assistance skyrocketed by 46% in 2002, as even middle-class families have been hit, not only by job layoffs (United Airlines, which has a hub in Atlanta, filed for bankruptcy), but also by other "economic difficulties": Rent requests rose by 16%; requests for help in paying gas bills jumped 52%. "Where we used to have maybe one request for mortgage assistance every month, we're having 10 or maybe 15 a month," said on assistance provider.

As need is rising sharply, 29% of non-profits said they were forced to cut back services, with one-third having to cut staff. Nearly three-quarters of the charities rely on government funding to operate their programs and/or services, even as state and local governments impose cuts.

Greenspan: Fed Lacks 'Sufficient Information' on Economy

As the U.S. economy slipped deeper into depression, Federal Reserve Chairman Alan Greenspan on May 21 babbled that the Fed lacks "sufficient information" to "make a firm judgment about the current underlying strength of the real economy." "We're not quite clear at this stage what the path of short-term economic activity is," he told the Congressional Joint Economic Committee. Still, he claimed it is "not unreasonable" to expect an economic recovery to appear—as if by magic—but cautioned that the "timing" and "extent" of growth, "continue to be uncertain."

Greenspan indicated that the Fed would continue its lunatic policy of hyperinflating the money supply. Were the federal funds rate to approach zero, he said, the Fed does have the capability of further "expanding the monetary base." "We see no credible possibility," despite whatever would happen, that the Fed will "run out of monetary ammunition to address" economic problems.

The Ayn Rand devotee opined, "an endeavor to fix exchange rates in the face of imbalances, induces financial breakdowns," and "requires a degree of flexibility in capital and labor flows (i.e., looting) which we have not yet achieved."

Weirton Steel Files for Chapter 11 Bankruptcy

Continuing the collapse in the steel industry, West Virginia-based Weirton Steel—the nation's sixth largest integrated steelmaker—announced it was filing for Chapter 11 bankruptcy protection on May 18, Reuters reported. The company was forced into Chapter 11 despite two major reorganizations in the past three years, which cut costs by laying off workers, reducing pay, eliminating work rules, and reducing health benefits. Weirton, which was celebrated as the largest wholly employee-owned company in the U.S.—employees bought the company when it was threatened with closing in 1984—is the second largest tin producer in the country, second only to U.S. Steel. The Debtor in Possessor Management has already announced that the bankruptcy declaration will permit further reduction in "legacy" costs—pension and health benefits owed to retirees.

Industrial Real Estate Vacancies on the Rise

Vacant space in the industrial real-estate market, rose in the first quarter of 2003 to 10.06%, the highest level since Q3 1994, from 8.89% a year earlier, according to a report by Grubb & Ellis Co, reported in the Wall Street Journal May 21. Chicago and Seattle were hit hard, while San Jose, Calif. had the highest industrial vacancy rate at 18.5%. Average asking rents (requested by landlords) continued to fall, both for distribution warehouses as well as research and development facilities.

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