From Volume 4, Issue Number 36 of EIR Online, Published Sept. 6, 2005

U.S. Economic/Financial News

Censored Census: U.S. Poverty, Lack of Health Insurance Rise Steeply

The U.S. Census Bureau —using only the "official" Consumer Price Index inflation deflator, and failing to report alternative estimates it has reported in past years —nonetheless reported Aug. 30 that poverty and lack of health insurance in America both rose markedly again in 2004, the alleged "third year of economic recovery." Median real incomes fell from 2003 to 2004, and poverty rose in particular in the Midwest region, and among white males 18-64 years of age, reflecting the accelerating collapse of skilled industrial employment in America.

In answer to questions at the Census press briefing Aug. 30, from both the New York Times and EIR, Census division chief Charles Nelson asserted that poverty had continued rising "in the same way" in 1992-94, in the supposed recovery from the Bush "41" recession. But later, the Coalition on Budget and Policy Priorities, in a conference call analyzing the new reports, showed that Preston's claim was not true.

*Overall "official" poverty rose by 1.2 million Americans, to 37 million; and its official rate, from 12.2% in 2003 to 12.7% in 2004.

*Real median income of Americans fell by 1.2% from 2003 to 2004.

*Real median income of men who worked full-time, year round, dropped sharply, by 2.3%; that of women who worked full-time, by 1%.

*Real median income of households was unchanged, in part because of another fractional increase in the number of people working in the typical household. But the real income of working-age households —i.e., not retired seniors on Social Security, etc. —fell by 1.2%.

*Real median income in the Midwest region has fallen 8% since 2001, according to Charles Nelson answering a question from USA Today.

*The uninsured (health insurance) rate for the nation remained at 15.7%, but the number of uninsured went up 800,000 to 45.8 million. Almost all, 770,000, of this increase was among employed Americans.

*About 22% of the insured population, 55 million out of 245 million people, now have Medicaid as their health insurance.

*Employer-provided health insurance dropped below 60% of the insured for the first time, to 59.4%; that is 4.2% below the share of employer-provided insurance in 2000.

Of the "alternative measures" —the National Academy of Sciences (NAS) poverty measure, for example, includes far more accurately the real rate of increase of health-care costs, and in 2003 was more than 2% above the Census "official" poverty rate —Nelson said that they were not included because "we got these reports out early," that he had no idea what they'd show, and that they'd be released "by the end of the year."

A press release Aug. 30 by Sen. Jack Reed (D-RI), ranking Democrat on the Joint Economic Committee of Congress, summed up Bush's first term: "Income for the typical American household fell by $1,670, 5.4 million more people slipped into poverty, and 6 million more joined the ranks of the uninsured.

"The proportion of Americans living in poverty rose to 12.7% in 2004, up from 11.3% in 2000. Inflation-adjusted median household income was $44,389 in 2004, down from $46,058 in 2000. The number of Americans without health insurance increased to 45.8 million in 2004, up from 39.8 million in 2000."

Blowout of Real Estate Bubbles To Pop U.S. Economy

Global real estate bubbles are a major force propping the U.S. economy, wrote Irwin Stelzer of economic policy studies at the Hudson Institute, in the neo-con Weekly Standard Aug. 30. According to a Hudson Institute work up of Bureau of Labor Statistics data, the housing and related industries and businesses in America "now account for 4.8 million jobs, some 60% more than the once-mighty auto industry. Whereas the auto industry has desperately shed 60,000 jobs in the past four years so as to reduce its future pension and health care costs ... the housing industry has created almost 600,000 jobs in the construction and financial services."

Across the globe, investors have poured money into the commercial real-estate markets of America through mortgage-backed securities, "providing lenders here with still more money to lend to prospective home buyers, many of whom have substandard credit ratings." And, where U.S. housing prices have risen 13% between the third quarters of 2003 and 2004, those of Spain, New Zealand, France, and Britain have risen even more.

Insider Selling of Stock by Home Builders Hits Record High

Home builders' sell-off of their own stock has hit record-high levels during the past three quarters, the Wall Street Journal reported Aug. 31. Merrill Lynch cites record net insider selling over the past ten months at eight of 12 home-building companies, amid a surge in speculative buying and building.

Heavy Debt Loads Could Sink U.S. Economy

"'Buy Now, Pay Later' Thinking Could Sink Us"; "Several Scenarios Could Spell Doom for U.S. Economy"; "Heavy Debt Loads Raise Odds for Economic Tumult in U.S.": These were but a few of the headlines run over an Associated Press story Aug. 28-29, ranging from Washington State's The Olympian, to Connecticut's Waterbury Republican American, and Wisconsin's Milwaukee Journal Sentinel, etc. The message of the first of a three-part series by AP's business editor is that "The party's over: Debt could bring the American economy down."

The "debt beast" has led American consumers to accumulate nearly $11 trillion in debt, author Eileen Alt Powell writes. Outstanding balances on credit cards have risen to more than $800 billion; that's $7,200 per U.S. household, more than double the indebtedness of a year ago. And that doesn't include an additional $1.3 trillion in debt for cars, appliances, and personal loans. Nor the more than $8.8 trillion in mortgages, up 42% since the 2001 recession.

At the same time, the U.S. is living off money from abroad, as countries such as China finance our deficit of probably more than $700 billion this year.

"What would happen if interest rates suddenly weren't so benign, or if foreign governments, corporations and individuals stopped investing so heavily in America— Some analysts fear such actions could trigger doomsday scenarios in which the bills come due and Americans can't pay, with devastating consequences for the economy.... The entire American financial system could be affected," the AP story worries.

Looming Worldwide Financial Panic Would Dwarf Great Depression

"It would make the Great Depression of the 1930s look like a walk in the park," were a sudden sell-off of dollars to trigger a worldwide financial panic, said Clyde Prestowitz, president of the Economic Strategy Institute in Washington, according to the Australian Aug. 29. Prestowitz cites the example of "some smart MBA at the Central Bank of Chile or someplace" who decides his bank is holding too many dollars and decides to "dump $10 billion." He does. The market thinks the dollar has broken, and panic selling sets in. Prestowitz rejects the notion that markets are self-correcting, saying that markets tend to excess and over-shooting. When markets go down, the weaknesses get concentrated, and only an intervention at the right time can stop things from getting out of control, à la LTCM. "How's the U.S. going to look as a global power when the dollar is at 50% its value?" he asks.

Conn. Officials Form Task Force To Regulate Hedge Funds

Officials in Connecticut are forming a task force to regulate hedge funds, spurred by the collapse of Bayou Group, New Times Live reported Aug. 31. State Attorney General Richard Blumenthal said the move could have major ramifications for the largely unregulated funds. "I think it may be a defining moment in the hedge fund [sector's] development," he asserted. "This instance may be simply one major alarm bell for the broader public." The task force is headed by Blumenthal and the state's banking commissioner.

U.S. Manufacturing Slowed in August

The Institute for Supply Management (ISM) announced Sept. 1 that its factory index fell to 53.6 in August, down from 56.6 in July. According to a median forecast in a Bloomberg survey, economists expected an increase to 57; now "economists" opine that July may have being the peak. Also the ISM's index of new orders fell to 56.4 last month, down from 60.6 in July, the highest figure this year.

The ISM, based in Tempe, Ariz., surveyed more than 400 companies in 20 industries, including clothing, printing, transportation, furniture, and plastics, to compile its indices. The production index, a measure of work being performed, slid to 55.9, from 61.2, the highest since last September. On the other side, the index of prices which companies pay for raw materials and energy, recorded the biggest increase in 15 years last month: It jumped from 48.5 in July to 62.5 last month. Costs to companies may rise in coming months if energy prices continue to climb; crude-oil futures reached a record $70.85 a barrel on Aug. 30, and remained at $69 a barrel on Sept. 1.

The National Association of Purchasing Management-Chicago, meanwhile, announced that its gauge of regional manufacturing fell the most on record: The index declined to 49.2 from 63.5 in July, compared to an expected 61.

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