U.S. Economic/Financial News
Greenspan Urges Schachtian Cuts in Social Security
On the pretext of addressing the Federal budget deficit, Federal Reserve chairman Alan Greenspan in testimony to Congress Feb. 25 called for reducing Social Security and Medicare benefitswhich the government is required to payfor workers at or near retirement age. Promoting the Mont Pelerin policy of brutal austerity sought by financiers today, such as Economics Minister Hjalmar Schacht pushed through in Nazi Germany, Greenspan said that "we will eventually have no choice but to make significant structural adjustments in the major retirement programs." He told Congress to cut "as much as you can," claiming that the government was "overcommitted" in spending on promised benefits for retirees, or "entitlements."
"[O]ur problem essentially is we have been making commitments without focussing on our capability of meeting them," he told the House Budget Committee. "And I think it is terribly important to make certain that we communicate to the people who are about to retire, what it is they're going to have to live with."
Specifically, "Dracula" Greenspan urged Congress to push up the retirement age (currently 65) for Social Security and Medicare (the government's health-care program for seniors); and to reduce the cost-of-living adjustment, which is linked to official inflation, by using a new faked inflation measure.
Medicare, he added, was the "main fiscal problem." Greenspan complained that advances in medical technology have, by allowing people to live longer, increased the level of spending required for retiree health care.
Worse, Greenspan mooted the elimination of the Federal trust funds, monies supposedly set aside for Social Security and Medicare, but already looted under the sham "unified" budget. "I think that the various trust funds we set up ... don't really create anything with respect to decision-making. And if, frankly, they were all eliminated, I would find nothing would be lost." Government programs "can be extraordinarily difficult to shut down," he raged, "once constituencies for them develop."
Parmalat's U.S. Unit Files for Bankruptcy
Parmalat USA Corp., a subsidiary of the Italian conglomerate Parmalat Finanziaria, on Feb. 24 filed for Chapter 11 bankruptcy protection, listing assets and debts of at least $100 million each. The company said it plans to sell its operations, "due to their deteriorating financial condition and lack of liquidity."
Parmalat USA requested court approval to hire Lazard Freres as a financial adviser and investment banker. Lazard, said Parmalat USA, would help the company with asset sales. "A number of prospective purchasers have signed confidentiality agreements and are in the process of conducting diligence. Certain of those parties have executed non-binding letters of intent," the company stated.
In its filings with the United States Bankruptcy Court for the Southern District of New York, Parmalat USA said its largest unsecured creditor is the Detroit-based bank Comerica Inc.
Parmalat USA said it has reached an agreement with General Electric Capital Corp. for a $35-million debtor-in-possession loan to fund Parmalat USA's operations during bankruptcy; it has filed a separate motion seeking court approval of the deal.
Greenspan: Freddie Mac, Fannie Mae Pose 'Systemic' Threat
Fed chairman Alan Greenspan warned in his testimony to the Senate Banking Committee Feb. 24 that Fannie Mae and Freddie Mac pose a "systemic" threat, because of their massive mortgage debt and critical role in the mortgage-backed-securities market, which concentrates interest-rate risk through derivatives holdings. "The Federal Reserve is concerned about the growth and the scale of [Fannie and Freddie's] mortgage portfolios, which concentrate interest-rate and pre-payment risks at these two institutions," he told the committee. "Unlike many well-capitalized savings and loans and commercial banks, Fannie and Freddie have chosen not to manage that risk by holding greater capital," he noted. "Instead, they have chosen heightened leverage."
Greenspan continued: "[C]oncerns about systemic risk are appropriately focussed on large, highly leveraged financial institutions such as the GSEs [government-sponsored enterprises] that play substantial roles in the functioning of financial markets." Regarding Fannie and Freddie, "we [at the Federal Reserve] see nothing on the immediate horizon that is likely to create a systemic problem," he said. "But, to fend off possible future systemic difficulties, which we assess as likely if GSE expansion continues unabated, preventive actions are required, sooner rather than later."
Greenspan urged Congress to state explicitly that the Federal government would not, in the event of a default, guarantee Fannie/Freddie debt. But he insisted that Congress not constrain the actions required, in the event of a meltdown.
"For example, we are the lender of last resort. In the event of a crisis of a major institution, which we think, were it to liquidate very quickly, could create systemic instability, we will endeavor to find a way to liquidate it graduallyunwind the whole operation.... But that process is necessary in order to prevent a shock to the system and a destabilization."
Will Steel Price Surge Pop 'Recovery' Myth?
U.S. steel prices have jumped at least 30% in less than two months; things have reached the point that suppliers can't predict from week to week what steel prices will be, according to the Wall Street Journal Feb. 23. This is affecting all those who buy and bend steel, from appliance makers, to tool-makers, to commercial construction companies.
Bob McDaniels, president of Oncore Construction LLC, reports that he is stockpiling, in anticipation of price increases. "I bought a tractorful of nails, because I was afraid I would be paying more next month." During the past year, the cost of nails rose to $25 a box, from $12.
The Journal reports that the spot-market price of hot rolled steelan industry benchmarkis running about $500, with surcharges included, up 30-50% from a month ago, according to various steel buyers. Peter Fish, of MEPS Ltd, a British steel-market consulting firm, predicts steel prices will reach an eight-year high during March.
The higher steel prices (and those of commodities), could destroy the last remnants of the Bush-Cheney Administration's recovery myth. Nels Leutwiler, president of Parkview Metal Products, based in Chicago, reports that he has already laid off 80 out of his 500 workers16%. He states that for those metal-forming companies that have survived the depression, "This sudden run-up in steel prices will be the last straw for many of them."
The steel price increase is attributed to China's heavy buying of steel, both for its industrial and infrastructural development, and on top of that, construction for the 2008 Olympics in Beijing. Indeed, in 2003, China consumed one-third of the world's rolled steel. However, though of considerable importance, China's steel import needs, by themselves, cannot explain the sudden jump in steel prices of 30-50% in some categories, during the past two months. Instead, one has to look, as Lyndon LaRouche points out, at deeper processes, of the policy of continuance of monetary emission by Federal Reserve Board chairman Alan Greenspan, and the last several years' runaway inflation of asset prices.
Greenspan: No Worries Over Rising Household Debt
Growing household debt poses no problem, Greenspan babbled Feb. 23, because of the housing bubble and low interest rates. "Overall, the household sector seems to be in good shape," he said, "and much of the apparent increase in the household sector's debt ratios over the past decade reflects factors that do not suggest increasing household financial stress." This is due, he said, to rising home prices and use of mortgage refinancings to prop up spending. Higher credit-card debt levels, he added, "generally do not indicate financial weakness among home-owning households." That bankruptcy filings rose to a record 1.6 million in 2002, he said, was "not a reliable measure" of the economic health of households. EIR has reported that U.S. household debt rose to $9.44 trillion by the end of 2003.
Bankruptcy Filings Soar in 2003 to Record High
There were 1.660 million U.S. bankruptcies filed in 2003, up 5.2% from the previous record annual level in 2002, amid rising household debt and jobs losses, the Administrative Office of the U.S. Courts reported Feb. 25. This total for calendar 2003, was only slightly lower than the historic high for bankruptcies during any 12-month period, recorded in fiscal 2003 (ended Sept. 30), of nearly 1.662 million. Personal bankruptcies rose to 1.625 million, while business filings fell to 35,037, according to the Administrative Office of the U.S. Courts.
Moreover, compared to the 1.25 million bankruptcies filed in 2000when the dot.com bubble burstbankruptcy filings jumped 32% in 2003.
Confidence in Economy Slides as Jobs Continue To Disappear
The Conference Board (a private research firm) said Feb. 24 that its "consumer confidence" index dropped to 87.3 in Februarythe lowest level since October 2003from 96.4 in January. "Optimism has quickly given way to caution," said Lynn Franco, director of research at the Conference Board, adding that "at the core of their disenchantment, is the labor market."
"The lack of jobs has people scared," agreed David Wyss, chief economist at Standard & Poor's in New York.
Mass Layoffs Rise in January; Manufacturing Hardest Hit
There were 2,428 "mass layoff" actions in January, affecting 239,454 workers, the Labor Department's Bureau of Labor Statistics reported Feb. 25. This marked the most such events recorded during the month of January, as well as the third-highest January level of workers affected. Each "mass layoff" action involved at least 50 workers from a single employer, as measured by new filings for unemployment benefits.
Manufacturing suffered 35% of all mass layoff events, and 37% of all initial claims for unemployment filed in January.
Geographically, four states accounted for 45% of both layoff events and number of workers; these were California, New York, Michigan, and Ohio. Michigan reported the largest over-the-year increase in the number of initial unemployment claims.
Detroit, Other Midwest Cities Are Dying as Youth Flee
Detroit, Michigan is facing depopulation, along with job loss; and 33,000 young people abandoned metro-Detroit during 2000-02. On Feb. 27, a public meeting will be held by a new task force, appointed by the Detroit City Council, to address how to keep youth from fleeing the city. The committee's title is, "Young Adults Re-Claiming Detroit," which is in line with what Gov. Jennifer Granholm (D) refers to as creating "cool cities," to attract and hold hip urbanites. These developments are reported in the Feb. 19 Detroit News.
Apart from the insanity of the "hip" viewpoint, the crisis itself is very real. People are fleeing a hopeless situation. The two most often cited reasons are simply, housing and jobs.
Over the two-year period, from the Greater Metropolitan Detroit area, some 33,300 young people between the ages of 25 and 34 left the region.
The population of the City of Detroit is estimated, as of 2002, to be at 925,000, down from 951,000 in 2000, and way down from 1,514,000 in 1970.
The exodus from Detroit exemplifies the process underway throughout the Midwest, including the formerly industrialized cities of Chicago, Cleveland, Pittsburgh, and Toledo.
Detroit itself led the nation in the rate of loss of jobs during the last period studied by the National League of Cities. Last December alone, the state of Michigan led the nation in monthly job losses, with 32,900 gone in 30 days! Second in rank for job loss was Ohio, losing 14,400.
The new City Council task force consists of 15 members, in their 20s and 30s. The results of their small survey of 200 persons, focus on the lack of housing and jobs as the impetus of emigration.
U.S. Prison Labor: Cheaper Than Outsourcing
Perry Johnson, Inc., a Southfield, Mich.-based consulting firm that engages in telemarketing, has "chosen to remain in the U.S.," rather than, as other telemarketing firms are doing, move its operations offshore, the Times of India reported Feb. 26. Initially, the Johnson company had considered moving its operations to India. Instead, it chose to set up operations inside the Snake River Correctional Institution, a razor-wire and cinder-block state penitentiary in Oregon.
The Oregon Department of Corrections is pitching itself as the alternative to moving offshore. Robert Killgore, the director of Inside Oregon Enterprises, the quasi-state agency that recruits for-profit business to prisons, boasted, "I'm really excited about this. We keep the benefits here in the U.S. with companies where it's fruitless to compete on the outside.... This is a niche where the prison industry could really help the U.S. economy."
Oregon is one of 10 states that employs inmates in for-profit call centers. Chris Harry is an inmate at the Snake River Correctional Facility, serving a nearly 11-year prison term, who makes $130 per monthwhich is $40 per week, or less than $2 per hour. He is never late or absent.
Globalization, within an economic breakdown, is driving the United States toward the choice between outsourcing, and captive prison labor.
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