U.S. Economic/Financial News
The Auto Industry Helped U.S. Get to the Moon and Mars
The auto industry, which is now threatened with extinction, as GM and Ford spiral down into bankruptcy, in the 1960s was key to the U.S. space program. Without the in-depth and broad mobilization of the manufacturing and engineering capabilities of the Midwest industrial heartland, there would have been no U.S. space program. The machine-tool and auto industries, with their highly-skilled workforce, particularly in Michigan and Ohio, created the precision technology needed to go into space. Even before President Kennedy announced the Apollo lunar-landing program in May 1961, the B. F. Goodrich Company in Akron, Ohio, in the heart of the rubber industry that produced the tires for automobiles, had designed the space suits to protect the Mercury program astronauts. Later, the Goodrich Corp. produced the tires, brake assemblies, wheels, and landing gear for each of the Space Shuttle orbiters.
When the Apollo program was announced, Chrysler Corp. bid on, and was awarded, the contract to design and manufacture the first stage of the huge Saturn V rocket that took astronauts to the Moon. That Michoud plant, outside New Orleans, which today produces the external fuel tanks for the Space Shuttle, is the largest manufacturing facility in the country.
Ford Motor Company established a space division in 1976, and until the unit was sold to Loral in 1990, designed and manufactured advanced commercial communication satellites for domestic use and for export.
In the 1960s, most American cars used nearly 200 parts manufactured by TRW Corp., headquartered in Cleveland. TRW went on to build altitude control rocket engines for the Apollo Saturn V rocket, as well as commercial communications satellites. And the two Rovers that are today exploring Mars use precision ball bearings designed by auto-supplier Timken Company in Canton, Ohio.
That this capability is going down the tubes is evidenced by the fact that Timken is relocating most of manufacturing facilities to China. But the remaining, highly flexible engineering and manufacturing, skilled manpower of the industrial heartland can and should be quickly expanded for a vast expansion of U.S. programs to explore space.
Business Fears Openly Supporting Social Security Privatization
Although nearly 100 trade associations on the national and state level have joined the White House-initiated Coalition for the Modernization and Protection of America's Social Security (COMPASS) which is campaigning for private Social Security accounts, individual companies are leery of publicly supporting privatization, reported the Los Angeles Times April 11.
An L.A. Times survey showed that only two of the 20 largest U.S. corporations are willing to publicly support Bush's plan; the rest are staying out of it. The Times says that the trade associations serve as a buffer to protect the individual companies, which are under heavy union pressure, including pressure from union pension funds, which often hold company stock.
Unions Denounce Detroit Mayor's Austerity Budget
Under a savage $2.8 billion budget plan proposed by Detroit Mayor Kwame Kilpatrick, a staggering 754 city workers would be laid off, including an unspecified number of police chiefs and inspectors, 61 firefighters, and 38 emergency medical services personnel. Union workers would face a 10% cut in wages and a reduction in health-care benefits. Kilpatrick also threatened layoffs of police officers who patrol the streets, unless the City Council approves the budget.
Wall Street applauded the harsh cuts. "Those sound like the things the city needs to get back on track," said Standard & Poor's analyst Jim Wiemken.
About 100 members of city unions marched outside the municipal center in protest against the austerity.
Lautenberg Challenges Bush's 'Kill Amtrak' Budget
In response to questioning by Sen. Frank Lautenberg (D-N.J.) at a nomination hearing of the Commerce Committee, on April 12, New York Transportation Commissioner Griffin BoardmanBush's nominee for Federal Railroad Administratorcould not confirm that New York would pay for rail service if Amtrak is not funded by the Federal government. "If New York can't afford rail service without Federal help, how can other states?" challenged Lautenberg.
Were Congress to approve the President's proposal to eliminate Amtrak funding, shifting the costs to the states, Boardman told Lautenberg that New York may not be able to afford the cost of inter-city passenger-rail service in the state.
"The President proposes to bankrupt our passenger rail system," Lautenberg charged. "If President Bush kills Amtrak, 850,000 American workers will be cut off from their jobs and will be forced onto already crowded roads, bridges, and tunnels," he said.
Demand for Steel Declining in U.S.
Demand for steel in the U.S. is beginning to slow, weakening prices and prompting steelmakers to cut back production, the Wall Street Journal reported April 14. Benchmark steel prices in the U.S. have declined for six straight months. International Steel Group, now a part of Mittal Steel, temporarily idled operations in Cleveland; Nucor Corp. has scaled back production; and U.S. Steel Corp. is scheduling temporary shutdowns for repairs. Steel production in the U.S. has dropped by nearly 10% in the past year. The prices for raw materials such as iron ore are rising. The world's three largest iron-ore producers, based in Australia and Brazil, recently boosted contract prices by about 70% for steelmakers. Energy prices have also increased. At the same time, demand for steel is being affected by the poor outlook from their major customersautomakers.
Fed Official Issues Warning on Credit Derivatives
At a conference in Nice, France, on April 12, the risks posed by collateralized debt obligations (CDO) and other complex financial products were emphasized by a senior Federal Reserve official, reported the Financial Times April 13. Michael Gibson, head of the Fed's trading risk analysis, noted that a significant minority of investors rushing into the debt-linked asset market (such as credit-default swaps, leveraged loans, or asset-backed securities) may not fully understand the risks attached to these instruments. After the CDO market's recent rapid expansion, investorsincluding hedge funds, banks, and insurance companiescould face large unexpected losses once overall default rates in the corporate sector increase, he said.
Last year, about $120 billion of CDOs were sold to investors. Just five years ago, CDOs basically didn't exist. Other participants at the same conference stated that in particular hedge funds were rushing into CDOs recently, in order to find some high-yield investments for their swelling pool of capital.