In this issue:

Will Fraudulent GDP Growth Promote New Housing Bubble?

Personal Spending Fell in September; Is Mortgage Refi Boom Over?

Michigan Bankruptcies Soar To Twice 2000 Rate

Top Tableware Maker Oneida To Close 100-Year-Old Plant

Baltimore Area Home Prices Drive Out Service Employees

Health-Care Costs Number-One Issue Fueling U.S. Strikes

Southern California Grocery Strike Enters Third Week

Louisiana Food-Stamp Usage Jumped 38% Since July 2000

Beast-Man Backer Buffett Warns of Dollar Collapse

Bank of America No. 2, After FleetBoston Buyout


From Volume 2, Issue Number 44 of Electronic Intelligence Weekly, Published Nov. 4, 2003

U.S. Economic/Financial News

Will Fraudulent GDP Growth Promote New Housing Bubble?

Is the Bush Administration trying to create a new speculative housing bubble, like the one the burst in 1987? According to data released Oct. 30 by the Commerce Department, its fraudulent measure of U.S. gross domestic product jumped by a 7.2% annualized rate in the July-September period, led by a rise in "consumer spending" due to the mortgage-refinancing boom and tax cuts—even as jobs continued to disappear. The pace was the fastest since 1984—when Reagan Administration tax cuts helped inflate a speculative bubble that collapsed in 1987. Spending on housing shot up by nearly 20% (annualized), which means rents and mortgages soared—and possibly reflects an attempt to pump up a new housing bubble, on top of the existing one.

Personal Spending Fell in September; Is Mortgage Refi Boom Over?

The bulk of the economic "growth" touted by the Commerce Department in its third-quarter gross domestic product data, argues New York Times columnist Paul Krugman on Oct. 31, came from consumer spending and housing. Morgan Stanley's Stephen Roach says, the surge in spending was "borrowed" from the future in the form of housing refinancing, cash-out mortgages and tax-rebate checks, which is not likely to be repeated in future quarters.

Indeed, consumer purchases slid 0.3% in September compared to August—the first decline since February, led by a drop in auto sales, the Commerce Department said.

Michigan Bankruptcies Soar To Twice 2000 Rate

Michigan bankruptcies are nearly double the rate in 2000; liquidations represent a whopping 75% of total filings in 2003, the Detroit Free Press reported Oct. 31. During January-September, there have been a total of 46,550 bankruptcy filings by businesses and individuals in the U.S. Bankruptcy Courts for the Eastern and Western Districts of Michigan, as auto-parts companies, steelmakers, and machine-tool firms continue to go belly-up and more laid-off workers seek protection from creditors. Alarmingly, 33,296 businesses were forced to liquidate, i.e., shut down and sell off assets (under Chapter 7 of the bankruptcy code)—a staggering 75% of the total number of filings.

A comparison with the level of bankruptcies in 2000, reflects the decimation of what was once the manufacturing powerhouse state, as part of the nationwide industrial breakdown. Already in 2002, bankruptcy filings had soared by 67% from the level of 33,313 in 2000. This year's filings correspond to an annual rate of 62,068 — nearly double the level three years ago.

"My clients — many of them are auto suppliers — say they're bidding on work that's not really profitable, just to keep their people employed and so they can pay their bills or their banks," cautioned Barbara Rom, a Detroit bankruptcy lawyer for 31 years. "There are a lot of businesses struggling, which translates to cutting jobs and then to people filing bankruptcy," she said.

Top Tableware Maker Oneida To Close 100-Year-Old Plant

The world's leading maker and distributor of flatware and tableware, said it will close its Buffalo China dinnerware factory and decorating facility, eliminating 350 jobs, AP reported Oct. 31. The company was started in 1901 as Buffalo Pottery and was purchased by Oneida in 1983.

In addition, Oneida will shut down its dinnerware factory in Juarez, Mexico; its flatware factory in Toluca, Mexico; and its holloware factories in Shanghai, China, and Vercelli, Italy.

Baltimore Area Home Prices Drive Out Service Employees

The Oct. 26 Baltimore Sun repored—with human-interest stories appended to prove the point—a study showing that the Baltimore Metropolitan area is suffering the "housing boom" consequences that were common in northern and southern California since the 1990s. Service employees, including "first responders," such as police, fire, teachers, etc., are increasingly unable to live in any of the metropolitan area suburbs, because they cannot afford the housing costs. Those costs are being driven up rapidly by real-estate speculation, based on the infusion of masses of Federal (largely defense) spending in the entire area around the nation's capital.

The study, by Economy.com, based in Pennsylvania, reports that since mid-2000, Baltimore-area housing-price increases have left household income growth far behind. Over those three years, per-capita income has been flat, while the median prices of both existing and new homes, have risen by more than 30%.

Health-Care Costs Number-One Issue Fueling U.S. Strikes

The number-one issue fueling strikes nationally is skyrocketting health-care costs, according to the Kaiser Family Foundation, the Commonwealth Fund, and several recent press accounts. Currently, there are about 30 labor disputes from coast to coast, involving 98,000 U.S. workers—all fueled by the rising costs of health care. For the third year in a row, most health-care plans are expected to have double-digit increases in premiums in 2004. Premiums on average will rise about 22% is 2004 but, in some cases, are predicted to rise as much as 35%. Health insurers are raising deductibles as well as co-payments, meaning workers will have higher out-of-pocket spending for heath care.

In addition, employers are shifting much of the raising costs of health-care plans to employees, or are cutting their health benefits and/or pay. In addition to strikes in California, where employers want to pass on increases in health-insurance premiums to workers, grocery workers are striking in West Virginia, Kentucky, Ohio, and Missouri. Similar strikes are expected in Arizona and Washington, D.C.

Southern California Grocery Strike Enters Third Week

The grocery-workers strike in California has entered its third week, and may soon spread to central part of state. The United Food and Commercial Workers Union (UCFW) strike against three major grocery chains—Vons, Albertson's, and Ralph's—is continuing, with no progress reported as of Oct. 29. The issue, from the beginning, has been the attempt by management to renegotiate the employer contribution to health care benefits of employees. Spokesmen for the grocery chains have taken a hard line, saying that the level of benefits demanded by the union is impossible in "today's competitive environment."

The Los Angeles Times reports Oct. 29, that the underlying concern of management is the entrance of Wal-Mart's cut-rate grocery operations in the region. Wal-Mart, which pays the lowest wages in the business, and offers virtually no benefits to employees (using "part-time" employment to avoid minimum payments), has announced plans to saturate southern California with stores in 2004.

The UCFW has escalated, announcing they may walk off the job in central California (Sacramento, Fresno, etc.) this week. The Teamsters are honoring the picket lines, and the stores have reported a significant drop in business, despite offering huge discounts.

The strike against the Metropolitan Transit Authority continues, and there is a report that L.A. County workers may begin a work stoppage in the next days. In these sectors, health benefits and pension cuts are the major issues.

Louisiana Food-Stamp Usage Jumped 38% Since July 2000

Because unemployment has risen in Louisiana, while more full-time workers and elderly are struggling to make ends meet, some 646,446 state residents each month rely on food stamps as of September 2003, a level that has increased steadily from 465,733 recipients in July 2000, the Louisiana Department of Social Services reported in October. Children up to age 17, represent more than half of food stamp recipients; non-white residents comprise 76% of recipients. Only 9% of food-stamp households receive welfare checks. In addition, an estimated 200,000 more people are eligible to receive benefits—many are senior citizens, according to the state Department of Social Services. Alarmingly, Louisiana now ranks in the top 10 food stamp expenditure states, even though it ranked 22nd in population (as of December 2000).

Beast-Man Backer Buffett Warns of Dollar Collapse

Warren Buffett, allegedly, the second-richest man in America, and economic adviser to California Gov.-elect Arnold "Beast-man" Schwarzenegger, warns of a collapse of the dollar, due to the soaring trade deficit. Mega-speculator Buffett says that since Spring 2002, his Berkshire Hathaway firm "has made significant investments in—and today holds—several [foreign] currencies," a shift from having "lived 72 years without purchasing a foreign currency."

"To hold other currencies, is to believe that the dollar will decline," he explains, as quoted in a Forbes press release previewing an article to appear in its Nov. 10 issue.

The U.S. trade deficit "has greatly worsened," Buffett is quoted as writing, "to the point that our country's 'net worth,' so to speak, is now being transferred abroad at an alarming rate." "A perpetuation of this transfer will lead to major trouble," the press release quotes Buffett as warning.

Bank of America No. 2, After FleetBoston Buyout

Bank of America, the Charlotte, N.C.-based bank, formerly known as NationsBank, has agreed to buy Boston-based FleetBoston for $47 billion in stock, vaulting BofA to second place behind Citigroup. As of mid-2003, Citigroup had $1.2 trillion in assets, followed by J.P. Morgan Chase with $803 billion, Bank of America with $769 billion, Wells Fargo with $370 billion, and Wachovia with $364 billion. FleetBoston, the union of Rhode Island's Fleet Financial with the Bank of Boston, had $197 billion in assets, giving the combined BofA/FB some $966 billion in assets.

FleetBoston has been in play for months, reportedly due to problems in its Third World portfolio. This is the second time around for the Bank of Boston, which was taken over by Fleet, circa 1999. Fleet had previously gobbled up Shawmut.

It is also worth noting that three of the top 12 U.S. banks are subsidiaries of foreign banks. Number seven is Taunus Corp., with $298 billion in assets; Taunus, a subsidiary of Deutsche Bank (which owns Banque Worms), is the remnant of Bankers Trust. Number 10, ABN AMRO North America ($149 billion), is owned by Holland's ABN AMRO, which also owns Banque de Neuflize Schlumberger Mallet Demachy and has a securities partnership with Rothschild. The 12th-largest bank in the U.S. is HSBC North America ($121 billion), the U.S. subsidiary of Dope, Inc.'s Hongkong and Shanghai Bank.

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