U.S. Economic/Financial News
Trade Deficit Hits New Record in December 2002
The U.S. trade deficit in goods and services hit a record in December 2002 of $44.24 billion, up from $40 billion in November. For the year 2002 as a whole, the trade deficit jumped to a record $435.22 billion, the U.S. Department of Commerce reported this month.
The physical goods trade deficit, for merchandise alone, reached an unprecedented $48.37 billion in December 2002, up from $44.27 billion in November. For the year 2002 as a whole, the U.S. physical goods trade deficit leapt to $484.35 billion. This corroborates Lyndon LaRouche's assessment that the U.S. has been reduced to an imperial society, living off the loot extracted from the world's nations.
During 2002, the U.S. export level of physical goods actually fell to $682.59 billion, from $718.76 billion in 2001. The U.S. export of capital goods (primarily computer accessories, telecommunications equipment, and semiconductors) fell by $31.1 billion, accounting for most of the overall decline in exports. The U.S. import level of physical goods rose slightly, from $1.145 trillion in 2001, to $1.167 trillion in 2002. The United States' combined import of consumer goods, and autos and parts, rose by $37.5 billion over 2001 levels.
U.S. Physical Goods Trade Deficit |
|
($ billions) |
1997 |
|
191.27
|
1998 |
|
196.65
|
1999 |
|
246.93
|
2000 |
|
452.42
|
2001 |
|
427.17
|
2002 |
|
484.35
|
Wall Street Journal: Fannie and Freddie Pose Systemic Risk
The Feb. 19 Wall Street Journal lead editorial warned of the dangerous situation that prevails at the two giant institutions that dominate the U.S. secondary housing market, Fannie Mae and Freddie Mac. Though the Journal's own agenda for Fannie and Freddie calls for their privatization, its assessment of the two institutions' precarious financial situation is accurate. EIR has shown that Fannie Mae and Freddie Mac, along with some small secondary housing market institutions, have $5 trillion in obligations, on top of the $6 trillion in home mortgages, which brings the total exposure of U.S. housing financial paper to $11 trillion.
The editorial draws upon a report, presented Feb. 4 by the Office of Federal Housing Enterprise Oversight, OFHEO, which supervises Fannie and Freddie. The WSJ warns:
"Fan and Fred's debt is everywhereheld by U.S. banks, big and small, by foreign banks, by institutional investors like pension funds, and by individuals. Trouble at Fan and Fred could provoke a financial contagion that would spread rather quickly. Moreover, Fan and Fred are among the largest users of derivatives contracts that are concentrated among a handful of counterparties who are, of course, both vulnerable to systemic risk and purveyors of it.
"Perhaps the scariest part of OFHEO's report, however, is its assumption that, in the case of a crisis caused by Fan and Fred, the government would have to act to prevent contagious illiquidity from causing an economic meltdown. The only question for OFHEO seemed to be when the Federal Reserve would have to act, not whether it would....
"Both [Fannie and Freddie] enjoy a AAA rating despite the fact they are running with leverage of somewhere between 29-to-1 and 31-to-1far higher than the 12.5-to-1 required by regulators for banks.... If Fran and Fred were completely private financial institutions ... they would have to almost double their capital to more than $99 billion from $52 billion now....
"The broader point is that here are two companies at the center of America's financial system running with higher leverage, big derivatives positions, and inadequate disclosure, and exposing the economy to systemic risk."
Debt Crisis in U.S. Power Sector Reaches Critical Mass
The debt crisis in the U.S. gas and power sector has become more acute during the past year, with U.S. gas and power companies having an outstanding debt of $477.6 billion, the Financial Times wrote Feb. 18. Of this debt, nine energy-trading companies owe $116.7 billion, including companies such as Dynergy and El Paso, both of Texas, and North Carolina-based Duke Energy. The problem for these nine companies is that, whereas their collective stock valuation was $103 billion in December 2001, just before the collapse of Enron, it is now down to $28 billion. Most of these companies' credit ratings have been reduced to "junk" status, but they still owe money to the banks and to their bond-holders.
"The debt problem in the power sector has reached critical mass," reports Karl Miller, senior partner at Miller, McConville, Chisten, Hutchinson & Waffel, a New York-based acquisition company. "The companies simply do not have the cash flow to service the debt. They have collateralized most of their other assets to live through 2002 and early 2003, in essence providing a very short-term fix to a serious, long-term industry problem."
Big U.S. banks, led by JP Morgan Chase and Citigroup, have been forced to start taking big loan loss provisions against their energy loans. A select layer of the biggest European banks, such as ABN Amro, Barclays, Bayerische Landesbank, BNP Paribas, Commerzbank, Credit Suisse, Deutsche Bank, Royal Bank of Scotland, Societe Generale, and West LB, also have significant energy-loan exposures to the American gas and power companies.
Home-Price Inflation Continued in Fourth Quarter 2002
The national median price for an existing single-family home rose from $148,500 in the fourth quarter 2001, to $161,600 in the fourth quarter 2002an 8.8% rate of annualized increase. The National Association of Realtors (NAR) reports that this is the biggest increase for a quarter since 1981. Thirty-nine of the 120 metropolitan areas that the NAR monitors, registered home-price increases in the double-digit range during the fourth quarter 2002. Federal Reserve Board chairman Sir Alan Greenspan has engineered the process of home hyper-inflation: funnelling large amounts of money into the housing sector, one of whose purposes is that individuals might borrow against the artificially appreciated value of their homes, and use a significant portion of that cash for consumer spending.
The biggest home price inflation occurred in the Northeast and the West.
Table 1
|
Median Sales Price of Existing Single-Family Home
For U.S. Metropolitan Areas
|
Region |
Q4 2001 |
Q4 2002 |
% Change |
Northeast |
$150,600
|
$170,000
|
12.9%
|
Midwest |
126,600
|
137,900
|
8.9%
|
South |
140,300
|
151,100
|
7.7%
|
West |
194,400
|
215,400
|
10.8%
|
Twelve major U.S. metropolitan areas saw home-price inflation of at least 17%, between the Q4 2001 and Q4 2002: including Sacramento, Calif., 26.7%; San Diego, Calif., 26.6%; Providence, R.I., 24.6%; Melbourne/Titusville, Fla., 20.9%; Fort Lauderdale, Fla., 20.8%; Orange County, Calif., 20.4%; New York, N.Y./Northern New Jersey, 20.2%; Milwaukee, Wisc., 19.7%; Los Angeles, Calif., 19.0%; Portland, Me., 18.0%; and New Haven/Meriden, Conn., 17.5%.
At the end of the fourth quarter 2002, the median price for an existing single-family home in San Diego was $379,300; in Boston, $383,300; and in San Francisco, $516,400.
New York City 'In Grip of Recession,' Says Times
"New York City is in the grip of a recession," wrote the New York Times Feb. 19. While the rest of the country is "debating whether the economy is recovering or heading into ... the dreaded 'double dip'" downturn, in "New York City there is no question. The economy here is in recession." December's unemployment rate in the city averaged 8.4%in Brooklyn it was 10.2%and now "tens of thousands of people have exhausted their unemployment" benefits. The 20% rise, over last year, of households not on welfare which are receiving food stamps is another marker.
The cause of this recession, reports the Times, is the "dire straits" of the financial industry, "possibly the most important to the city's income." EIR's Jan. 17, 2003 issue documents that the post-1975 "Big MAC" takedown of the City's economy led to this unsustainable dependency on a consumer-bubble economy, and that a depression, rather than a recession, exists.
To show that the plunge in Wall Street's revenues and profits have brought on the city's fiscal crisis, the Times reports "bonus payments" to Wall Street workers dropped to $7.9 billion in 2002, down from $12.6 billion in 2001, and $19.4 billion in 2000or a 60% decline in two years. Taxes on those bonusesthe primary income of brokers, etc., not their nominal salaryand on stock-market profits "used to bring hundreds of millions of dollars into city ... coffers." In conclusion, the Times notes that the stock market has dropped for three straight years, "the only time this has happened since World War II," and that in December, usually a good month for the market, in 2002 the market did its "poorest since 1931."
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