In this issue:

Fed's Slow-Go Rate-Hike Plan Could Backfire

'Shouldn't Greenspan Quit While He's Ahead?'

Jobs Up. Jobs Down. Whom Do You Believe?

House Budget Bad, Even by 'Smoke and Mirrors' Standards

Indiana Strikers Forced To Take Desperate Measures

Americans Spend Billions on Entertainment


From Volume 3, Issue Number 23 of Electronic Intelligence Weekly, Published June 8, 2004

U.S. Economic/Financial News

Fed's Slow-Go Rate-Hike Plan Could Backfire

The Fed's slow-motion rate-hike plan could backfire if the bond market gets nervous. Desperate to avoid a replay of 1994—"the worst year of losses ever," for bond investors, when hedge funds went belly-up, and Orange County was forced into bankruptcy by a sharp increase the price of interest-rate derivatives—the Fed is making it clear that it will raise interest rates gradually, but that plan could backfire, says James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "If I am a bondholder, I want a massively aggressive, inflation-fighting Fed," says Paulsen. "The last thing I want is a Fed that is timid, touchy-feely, slow, and communicative. The Fed has said that we're going to be slow in our response so we don't scare anybody. but I think that approach is exactly what is going to scare everybody."

When bondholders are afraid, they sell bonds, Morgenson says, and that pushes up interest rates no matter what the Fed says or does.

"It seems as though Mr. Greenspan thinks there is nothing printing money won't solve," said Northern Trust director of economic research Paul Kasriel. "If printing money created real wealth, then Zimbabwe would be one of the richest countries on the face of the earth."

'Shouldn't Greenspan Quit While He's Ahead?'

This title of a column by Daniel Akst in the New York Times May 30, pretty much says it all. EIR could quibble with the "ahead" part, but we otherwise couldn't agree more.

Jobs Up. Jobs Down. Whom Do You Believe?

Two "prestigious" institutions released opposite reports today on the jobs market. Challenger, Gray & Christmas, which monitors job cuts nationally, reported that "job cuts planned by U.S. employers rose for the second straight month in May," with a total of 73,000 jobs to be eliminated, an increase of 1.6% over April, and up 6.9% from last May.

At the same time, the Institute for Supply Management (ISM) announced that its index for national factory activity for May rose slightly, despite expectations of a decline, "as increased demand prompted more factories to hire than at any time in 31 years," according to Bloomberg, June 1.

House Budget Bad, Even by 'Smoke and Mirrors' Standards

While the Bush White House pays lip service to deficit reduction, promising to cut the budget in half in five years, the budget put together by the loyalist leadership in the House "is a document that makes ordinary Washington budgetary 'smoke and mirrors' look good," David Broder wrote in the Washington Post May 30. The bill, strong-armed by Speaker Dennis Hastert and Majority Leader Tom DeLay, "uses real numbers only for the first year, and then plugs in arbitrary figures for the next four years—figures that conveniently show the deficit shrinking." The bill was introduced at 6:20 am on May 19, cleared by the Rules Committee at 7:15, and taken up by the House at 11 am, after a short recess which was deemed to have satisfied the requirement that all legislation lay over a day so that members can examine it.

Indiana Strikers Forced To Take Desperate Measures

In a sign of the mounting economic desperation in the U.S. workforce, striking members of the International Union of Electrical Workers/Communications Workers of America Local 907 are battling hired security guards outside a Visteon Corp. auto parts plant in Bedford, Ind. The union members are trying desperately to keep out "replacement workers," i.e., scabs, being bussed in by the company, an AP wire reported June 2. Visteon Corp. announced in April it would end production of fuel delivery modules, eliminating 600 of the 1,150 jobs at the plant.

Twelve strikers sought hospital treatment for injuries suffered on May 30 in confrontations with the hired guards. Two cars were flipped June 1, as strikers tried to stop four buses carrying replacement workers. State and city police in riot gear were at the plant, pushing protesting workers aside to clear the way for the buses. Bedford is 25 miles south of Bloomington.

Americans Spend Billions on Entertainment

Americans spent $9.5 billion at movie theaters in 2003, out of a worldwide box office gross of $20.4 billion, according to the Motion Picture Association. The average admission price in the U.S. rose from $2.69 in 1980, to $6.03 in 2003, a year in which 1.6 billion tickets were reportedly sold. The number of movie screens in the U.S. rose from 17,590 in 1980 to 35,786 in 2003, even though the number of theaters declined due to the growth of multi-screen theaters. The average indoor theater now has six screens. There were 593 theatrical films produced in 2003, of which 473 were released. The average new-release film earned $20.7 million in theaters in 2003, while the average film released by the Motion Picture Association (the larger studios) pulled in $41.6 million.

Movies continue to pull in the cash even after they leave the theater, thanks to the home rental and purchase market. DVDs are rapidly replacing VCRs; there were 29,000 film and music video titles on the market in 2003, and 33.7 million DVD players were sold to watch them. Americans spent an average of $126.86 on home video rentals and purchases in 2003, up from $95.17 in 1999.

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