U.S. Economic/Financial News
PIMCO Issues 'Red Alert' on U.S. Current Account Deficit
PIMCO, the world's largest bond-management firm, has published a lengthy analysis headlined "Red Alert," on the dangers of the growing U.S. current account deficit, and on the policies of the Bush Administration and the Federal Reserve Bank. But for all their complaining, the policies are precisely those that Wall Street put that poor idiot George Bush into office to carry out. So, as Lyndon LaRouche asks: What are they complaining about?
The theme of the PIMCO analysis is the Fed's reflationary policiesparticularly those since the 1998 Asia crisis and LTCM, compounded by Fed governor "Bubbles" Bernanke's policy, instituted in the fall of 2002, of pumping money directly into commercial banks to boost the securities marketswhich have created the potential for "complete chaos in the bond market," by fostering a reliance on foreign capital. PIMCO says that the huge foreign dollar holdings and investments in the U.S. economy, with the $3.5 trillion accumulated current account deficit, have created a huge vulnerability for U.S. financial markets. With this dependence on foreign capital inflows, foreign investors (particularly in Japan and China) have been financing the U.S. wars in Afghanistan and Iraq, but this also means that foreigners have huge claims on the U.S. economy, which, PIMCO says, threatens U.S. economic independence and makes the U.S. extremely vulnerable to what they call "geopolitical risks."
PIMCO's only solutionother than recommending a 30-40% devaluation of the U.S. dollaris to maintain U.S. military superiority, which the report repeatedly emphasizes, so that the rest of the world will not challenge the United States. Lyndon LaRouche's comments on this follow below.
LaRouche: Only Alternative to U.S. Bubble is New Monetary System
When briefed on the PIMCO "Red Alert" (see above), and particularly its claim that U.S. military superiority is needed to keep the rest of the world financing the U.S. current account deficit, Lyndon LaRouche pointed out that the reason Asian and other foreign investors don't pull the plug on the U.S. bubble, is not because they fear U.S. military power, but because pulling the plug would wipe out their own holdings as well. Their only alternative is to go with LaRouche's policies for a reorganization of the world monetary system. But foreign investors are caught in a bind: Unless they go with LaRouche's alternative, they can't oppose the hyperinflationary policies being implemented by the Bush Administration and the Fed.
It's their own cupidity, not fear of the U.S. military, that causes foreign investors to keep playing the game, and thus permit the U.S. to continue to live off the rest of the world.
Fed Gets Ready for Massive New Liquidity Pumping
New York Post financial columnist John Crudele, reported Dec. 9 that top Federal Reserve officials are privately telling people that they plan to add massive amounts of liquidity to the banking system this coming year. With interest rates so low, Crudele says, the only way they can do this is by monetizing the national debtbuying back government securities that they sold years ago, tossing them in the trash, and selling massive amounts of new debt to cover the massive budget deficit. This will admittedly create more problems for the dollar's value, scare away foreign investors, and jack up interest rates, Crudele says.
Robert Reich Warns of 'Run on Dollar'
"The U.S. dollar is taking a nose dive"and it could get much worse, former Clinton Labor Secretary Robert Reich cautions, in an article titled, "The Incredible Shrinking Dollar," posted on the website TomPaine.com Dec. 11. This, even as the Bush Administration appears "quite content to let it plummet."
A falling dollar, is making global investors, who could sell their dollar assets, nervous. "If major global investors start pulling out of dollars," as Reich puts it, then, "you ain't seen nothing yet; there could be a run on the dollar, like the runs on old-time banks." Reich notes that Warren Buffett has said he's investing in euros, rather than dollars.
Driving the dollar's fall, Reich says, are both the massive, burgeoning Federal debt, and "huge," growing trade gap.
Just to keep the dollar at its current level, foreigners would have to buy $1.5 billion worth of dollar assets, every day, in order to finance the U.S. current account deficit. But, "they're not going to do that anymore," he warns.
Regarding a solution, Reich unfortunately fails to support LaRouche's call for a New Bretton Woods monetary system; and instead urges "fiscal responsibility."
Machine-Tool Consumption Plunges, Again
Machine-tool consumption by U.S. manufacturers during January-October 2003 has fallen by 13.4% from last year's depression level, proof of the urgent need for LaRouche's FDR-style infrastructure-pivotted recovery policy. U.S. industry consumed only $157.58 million worth of machine tools in October, down 26.6% from the level in September, and down 8.7% from October 2002, according to a joint report by the American Machine Tool Distributors' Association and the Association of Manufacturing Technology. Moreover, during January-October, U.S. machine-tool consumption has dropped by 13.4% compared to the same 10-month period in 2002when it had already plunged by 63% from the level in 1997.
For example, bankrupt Ingersoll Machine Tools, the 112-year-old Illinois firm recently taken over by an Italian company, says U.S. manufacturers are buying few metal-working machinessome of which are not built by Ingersoll, but assembled from foreign-made parts. Instead, Ingersoll is depending on parts-making work outsourced by agricultural-equipment manufacturer Caterpillar and others.
More Manufacturers Shutting Down Plants
Compiled from various news reports Dec. 9, here is just a small sampling of the physical economic collapse, which the government statisticians are calling a "recovery:"
* Senco Products Inc., maker of air-powered nailers, staplers, and fasteners, said it is closing one of its two plants in Cincinnati, eliminating about 83 jobsand outsourcing more production to Asia. The shutdown will start in February.
* Tyco Plastics announced the closure of its plant in Fairmont, Minn., effective Feb. 6, as part of Tyco International's plan to shut 219 facilities worldwide. Earlier this year, Greenlee Textron shut down its Fairmont plant.
* Johnston Industries will close its plant in DeWitt, Iowa, that makes insulator pads for mattresses, on Dec. 15.
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