U.S. Economic/Financial News
Robert Rubin Warns of Further Dollar Decline
Speaking at a meeting of bankers scheduled in tandem with the G-7 finance ministers' meeting in London, former U.S. Treasury Secretary Robert Rubin warned that the U.S. was facing a "critical juncture," with further decline in the dollar because of the U.S.'s huge trade and budget deficits. Rubin was speaking at the "Advancing Enterprise 2005" conference on Feb. 4, where Federal Reserve Chairman Alan Greenspan had also spoken.
"The U.S. imbalances can have bond market effects and raise complex questions about our currency," Rubin told the conference, which included many central bankers. "There is a fairly good chance the dollar could decline." Rubin called on President Bush to reduce the budget deficit, cautioning, it "will not be fixed by tinkering around the edges." "The U.S. is at a critical juncture," he said.
U.S. Senators Score USDA/Bush Policy on Cattle Imports
Incoming Agriculture Secretary Mike Johanns faced rough questioning Feb. 3, during hearings on the topic of BSE (Bovine Spongiform Encephalopathy), or "Mad Cow disease," and its impact on trade.
At issue, was the Dec. 29, 2004 ruling by the U.S. Department of Agriculture on trading with "minimal risk" BSE nations, which stated that Canada is so designated, so that on March 7, the ban on Canadian imports will be lifted. At that point the U.S. will allow the import of: 1) live cattle (under 30 months old, figuring that they are too young to have eaten contaminated feed, or to have built up much prion); and 2) Canadian beef (processed, called "boxed beef"), from animals of any age.
The commodities cartel companiesTysons, Excel/Cargill et al. have been demanding that the border be re-opened, to serve their cross-border, free-trade beef operations, in cattle feed, meat processing, and slaughtering by-products. The global meat processors have, in any case, been repositioning out of the USA, into Canada, where they pay less for cattle and labor, as part of their sweeping relocation to even cheaper operations in Brazil, now the world's leading meat exporter.
Johanns toed the line 100% for the cartel interests, saying, for example, "The marketplace should determine cross border patterns." (He said, "risk management" analysis shows that BSE risk is very low.)
When Johanns' chief economist referred to the expected impact on U.S. farming as, "moderately" a problem, Sen. Mark Dayton (D-Minn) attacked: "Your economics is out of Mad Magazine." Dayton pointed out that a Canadian cow sells for less than a third of a U.S. cow. Tysons and Excel (Cargill) are both building multi-thousand head abattoirs in Canada right now. U.S. meatpacking facilities, won't be in a position to buy the over-30-month-old (OTM) cattle that the USDA will not allow to enter the U.S. from Canada, but these same animals will be going to slaughter inside Canada, dirt cheap to Tysons and Excel, then the beef will be sent to the U.S.
Dayton yelled, "You called that a 'moderate' impact?" You're in suits. You have a guaranteed salary, and you sit here and say that. It's ignorant and offensive to cattlemen and to the American people."
Dayton said of the U.S. policy in conclusion, "It's crazy, wrong, and destructive." You are "one-sidedly rewarding Canadian operations at the expense of Americans." Trade policies should be made in the interest of all concerned. "Why are you doing this for them [Tysons, Cargill]?"
The Minority Leader of the Committee, Tom Harkin (D-Iowa), has called for a delay of the March 7 border re-opening, pending review of many issuesone of which is the matter of reliability of taint-free cattle feed. At the same time, a new bill was filed Feb. 3, cosponsored by Sens. Craig Thomas (R-Wy), Conrad Burns (R-Mt) and John Thune (R-SD), designed to change the USDA March 7 re-opening terms.
Bush Proposals Will Shut Down Amtrak, Economy
In a letter sent Feb. 4 to President George W. Bush, the two Senators from New Jersey blasted the Bush proposal to eliminate all Federal funding for Amtrak's operating expenses for 2006, warning of disastrous effects on the economy. "Without an adequate Federal funding commitment for the next fiscal year, Amtrak will again be brought to the brink of bankruptcy as it was in 2002," they wrote. "This will have disastrous effects for New Jersey commuters, who rely heavily on Amtrak."
Sen. Jon Corzine (D) pledged to stop the Administration's ongoing attempt to shut down the nation's passenger railroad. "The Bush Administration has been intent on crippling Amtrak since the President was sworn to his first term four years ago," he charged. "What the administration fails to understand is how important Amtrak is to New Jersey and the Northeast corridor, from Washington, D.C. to Boston. Amtrak doesn't just move people from city to city. It helps move our economy. We have stopped this ill-guided attempt to shut down Amtrak beforeand we will again."
Former NYSE Head Richard Grasso Scandalized Again
The week of Feb. 3 saw the release of the Webb report, which explored the circumstances under which former New York Stock Exchange head Richard Grasso was massively overpaid. New York Post financial columnist John Crudele, in his Feb. 3 column, noted that the report contained a number of legal issues that the NYSE might wish to consider in regards to Grasso.
The report shows that Grasso was paid the large compensation for increased trading volume and how well the NYSE regulated itself. On this point Crudele goes through some of the trading scandals that occurred on Grasso's watch, such as the late '90s' illegal trades being made by members of the NYSE. When questioned on the trades, the brokers said that the practice was condoned by Grasso.
None of the scandals, however, reach the level of seriousness of the issue raised by the famous "Grasso Abrazo," the embrace of banker Grasso with the financial chief of Colombia's drug-trafficking FARC, in the jungle in June 1999.
Federal Pension Corp. Takes Over All U.S. Airways Pensions
On Feb. 3, the Pension Benefit Guaranty Corporation made official its assumption of the remaining pensions of bankrupt U.S. Airways' employees: 51,000 flight attendants, machinists, and other employees. The PBGC had assumed payments of the airline's pilots' pensions in March 2003.
The plans were only 40% funded on a termination basis, with assets of $1.7 billion to cover $4.2 billion in liabilities. The PBGC will cover $2.3 billion of this $2.5 billion shortfall. The PBGC's action was no surprise, since the bankruptcy judge made a finding on Jan. 6 that without dumping its pensions, U.S. Airways could not emerge from bankruptcy. This appears to be a clear precedent for also bankrupt United Airlines, which has asked the court for the same relief.
On Jan. 31, U.S. Airways announced a $578 million loss in 2004, up from a $174 million loss in 2003, despite cost cuts which reached 14% in the 4th Quarter of 2004. On Jan. 27, bankrupt United Airlines announced a net loss of $1.6 billion for 2004, down from a loss of $2.8 billion in 2003, although United's 4th Quarter loss was almost four times greater than the previous year.
The PBGC's takeover of all U.S. Airways' pensions will cost $3 billionthe second-largest claim, after Bethlehem Steel's $3.7 billion, in the PBGC's 30-year history. PBGC head Bradley Belt used the occasion to urge Congress to promptly pass the Bush Administration's dead-on-arrival plan for distressed companies to ante up a 58% increase in premiums, plus risk premiums, to the PBGC.
Giant Mergers Create New Global Cartels
Three major mergers were announced at the end of January, two of which create the largest corporations in their field.
* Procter & Gamble announced Jan. 28, that it would buy Gillette for $57 billion, pushing P&G past Anglo-Dutch Unilever as the world's largest consumer-products company. The largest shareholder in Gillette is Warren Buffett's Berkshire Hathaway.
* SBC Communications, the Baby Bell formerly known as Southwestern Bell, announced Jan. 31 that it is acquiring its former parent, AT&T, for $16 billion. In 1984, the U.S. Department of Justice broke up AT&T, creating seven "Baby Bells" out of its regional Bell Operating Companies. Today, there are four left: SBC, which ate Ameritech and Pacific Telesis; Verizon, the former Bell Atlantic which took over Nynex (and GTE); Qwest, which includes the former US West; and Bell South.
* Citigroup announced Jan. 31 that it has agreed to sell its Travelers Life & Annuity unit to Metropolitan Life for $12 billion. Seven years ago, Travelers bought Citicorp with the idea that the synergy between a giant insurance company and a giant bank would generate huge profits. Or, so it was claimed. What the merger really was, was a broadside against the 1934 Glass-Steagall Act and the last regulatory barriers to banking consolidation. All of the press commentary suggests that the banking side of Citigroup has been so successful that it no longer needs the insurance side. EIR suspects that the opposite is true: that the fondi interests behind Sandy Weill's Travelers, having accomplished their goal, are now pulling their insurance assets out of what has become one of the largest toxic waste dumps in the world. When Citi blows, they plan to be far away.