In this issue:

British Lord Warns of Dollar Crash

Nationwide General Strike Against Pension Reform in Italy

Eichel: Germany Budget Deficit Is Triple Estimates

China Resists Pressure To Float Yuan

German Federal Budget Deficit Hits 54 Billion Euro

Euro Construction Firms Urge Change in Maastrict Rules

Even Some Monetarists Cool to Maastricht Rules

Wall Street Firm Understates Worldwide Job Losses


From Volume 2, Issue Number 43 of Electronic Intelligence Weekly, Published Oct. 28, 2003

World Economic News

British Lord Warns of Dollar Crash

London Times editor Lord William Rees Mogg warned of a pending dollar crash and end of the post-Bretton Woods monetary system Oct. 21, echoing Lyndon LaRouche for the second time in recent weeks. On Oct. 7, Rees-Mogg editorialized against the California recall, cautioning that Arnold Schwarzenegger was "relying on the appeal of fascism." Now, Rees-Mogg cites a new report by Lehman Brothers, the New York bank, describing the outcome of the current international financial crisis as "extremely worrying," based on 10 economic indicators. In addition, history shows the "unsustainable" U.S. current account deficit, he cautions, "will not, in the end, be sustained."

"The world has now lived with the post-Nixon dollar for 32 years," he declares, as the "key currency" of a "confused" system of floating currencies. The dollar is not limited in quantity, or convertible into anything but itself. Plus, the world's most competitive currency (the yuan), does not float relative to the dollar, but is linked to it. "Such an anomaly can hardly survive."

He concludes: "At some as-yet unpredictable point, major devaluations of the dollar relative to the yuan and the yen, a milder devaluation relative to the euro, and an even smaller devaluation relative to the pound, seem inevitable."

"The dollar ceased to be strong enough to sustain the Bretton Woods system in 1968, and is not now strong enough to sustain the post-Nixon role of a key currency in a world of floating rates. The U.S. has too much debt."

Nationwide General Strike Against Pension Reform in Italy

A four-hour nationwide general strike shook Italy Oct. 23, organized by all Italian trade unions, to protest the government's plans to reform the pension system, according to the guidelines issued by the EU and the IMF. Union figures give workers' participation to 70-80%, whereas the employers' association downplays it to 30%. As usual, the true figures are probably in the middle. Major demonstrations with tens of thousands of workers each took place in Rome, Bologna, Milan, Turin, Naples.

The Italian government has announced a reform to increase by five years the retirement age, starting in 2008, according to the Lisbon EU guidelines, and gradually transform the pension system from a "pay-as-you-go" system into a capitalization one, introducing private pension funds. Trade unions threaten to keep the mobilization if the government does not withdraw its reform plans.

Eichel: Germany Budget Deficit Is Triple Estimates

With his report to the Parliament Oct. 23, Finance Minister Hans Eichel confirmed the news that, during the first nine months of the current year, a new government deficit of 54 billion euros (three times the forecast made at the end of 2002) has accumulated. In particular, unemployment expenses have required an extra 12 billion.

Eichel is now forced to go for a new record borrowing of 43.4 billion, and plans, in addition to budget cuts, to sell assets of Telekom and German Post in the range of 5-6 billion. For the latter move, an ominous maneuver is chosen: The Kreditanstalt für Wiederaufbau will take these assets and loan Eichel 5-6 billion, selling the assets at some preferable time in the future, then.

China Resists Pressure To Float Yuan

Speaking to the Asia-Pacific Economic Cooperation (APEC) CEO Summit in Bangkok on Oct. 19, Chinese President Hu Jintao reaffirmed his government's commitment not to float its currency, despite pressure from the United States, Japan, and others to strengthen it. He said the stable exchange rate between the yuan and the U.S. dollar had contributed to China's economic growth, and was beneficial to all. The currency peg, which has remained unchanged at 8.28 yuan to the dollar for the past nine years, would be maintained for the time being, Hu told the summit. "Keeping the exchange rate stable serves China's economic performance and conforms to the requirements of the economic development in the Asia-Pacific region and the whole world," he said. Hu later explained this to President Bush in their private meeting.

David Hale, founder of Hale Advisers LLC, told the forum that the Bush Administration had come under growing pressure to blame the 2.7-million American job loss on the Chinese exchange rate, but he pointed out that more than 17 million jobs have been lost in China in the same period (since 2000).

German Federal Budget Deficit Hits 54 Billion Euro

After the first nine months of this year, 2003, the German Federal budget deficit is 54 billion Euro, almost three times as high as the 18.9 billion Euro deficit projection by the German government for the full year of 2003. Total expenditures of the Federal government in the first nine months of 2003 amount to 200.6 billion Euro, an increase of 9.1 billion Euro compared to one year ago.

The main driver for the increase of expenditures is the worsening economic and in particular employment situation, which caused a 6.7 billion Euro rise in social expenditures. At the same time, federal revenues declined by 3.4 billion Euro compared to one year ago to 146.6 billion Euro. Usually, tax income speeds up at the end of the year. Therefore, the government hopes that the full year 2003 federal budget deficit would be "only" 43 billion Euro, which is a rather optimistic expectation. In this case, the overall German public deficit—federal, state, and municipal budgets combined—would add up to about 80 billion Euro or 4% of gross domestic product (GDP).

The total public debt of Germany has now reached 1.28 trillion Euro, following a doubling from 500 billion to about 1 trillion Euro within the first five years of reunification.

Euro Construction Firms Urge Change in Maastrict Rules

Concluding talks with officials of the Italian Government in Rome, the Federation of European Construction Industries (FIEC) issued a resolution yesterday, calling for an increase of funds for the already existing TEN projects of infrastructure development.

The FIEC also urged a more prominent role of the state, in mixed private-public projects, saying that the genuine long-term revenue character of such projects of public infrastructure implies that the private-sector share cannot be higher than 20%.

Furthermore, the FIEC called for "an interpretation of the [Maastricht] Stability Pact criteria in a way that incentives for investments can be given. It is not justified from an economic viewpoint, to put current expenses on the same level as expenses for infrastructures, for which the common sense justifies a longer term financing as well as a specific mode of borrowing."

Even Some Monetarists Cool to Maastricht Rules

Even some monetarists are beginning to warm up to the idea of modifying the Maastrict rules, according to Die Zeit Oct. 23. Michael Rogowski, otherwise a staunch neo-liberal and Maastricht supporter, said in Berlin, after a private meeting with Italian Finance Minister Giulio Tremonti Oct. 22, that European nations should find ways to ease budget conditions to allow investment in infrastructure projects, "without undermining" the Pact.

Whereas Rogowski restated full loyalty to the Pact, Karl Otto Poehl, former governor of the German central bank, argued in a somewhat more differentiated way, in an interview with the Oct. 23 issue of the weekly Die Zeit. He said that the "original decision on the 3% GDP rule was rather arbitrary. It could be foreseen that this magical mark could not be met in a recession."

"Credit-financing in an economy with efficient capital markets and high savings ratios cannot be seen as negative, in general terms. Future generations benefit as well from reasonable public investments into infrastructure or education," Poehl added.

And finally, Pedro Solbes, EU Commissioner for Finances, said in Brussels yesterday that if Germany was heading for a 4% GDP deficit in 2004, it could be tolerated, because "the German economy is in a worse shape than the French one," and France had already gotten permission to violate the Maastricht 3% GDP rule, for 2004.

Wall Street Firm Understates Worldwide Job Losses

Manufacturing employment fell by about 22 million in the 20 largest national economies, during 1995-2002, a decline of 11%, according to a misleading pro-outsourcing study released Oct. 10, by Alliance Capital Management, a Wall Street investment firm. In the seven-year period, 15 of the 20 countries saw factory jobs drop, despite having lower production costs than in the U.S. Of the five countries that did show an increase in factory employment, three had a "relative shift in manufacturing payroll patterns, rather than an increase in payrolls": Canada, Mexico, Spain, Taiwan, and the Philippines together gained 300,000 jobs.

China's factory job losses, from 1995-2002, the report emphasizes, were double that of 17 countries combined (excluding Mexico and Brazil). China's manufacturing employment dropped by 15 million, or 15%, to 38 million in 2002; while the remaining 17 countries saw manufacturing payrolls fall by 7 million, or 7%. For example, Brazil's factory payrolls dropped by 20%, while Japan's slid 15%.

EIR's preliminary analysis suggests that the empirical study aims to obfuscate the decimation of the U.S. manufacturing sector, in part by touting faked productivity gains. It lies, in claiming that, "Global industrial production jumped more than 30%" from 1995-2002. The report defends U.S. companies' outsourcing of jobs to China, Mexico, and elsewhere. "Merely lowering operating costs [by exporting U.S. jobs overseas] is not enough," the report says, arguing for manufacturers globally to buy into the doomed "new economy."

Moreover, "Mega Group" financier Roger Hertog, vice chairman of Alliance Capital Management, is part-owner with Michael Steinhardt and Conrad Black of the New York Sun; and one-third owner with Martin Peretz and Steinhardt, of the New Republic, long a bastion of Straussian political propaganda.

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