From Volume 4, Issue Number 50 of EIR Online, Published Dec. 13, 2005

U.S. Economic/Financial News

Auto Devastation Spreads Throughout Midwest

With Ford and GM reportedly threatening 20 plant shutdowns and 50,000 layoffs of production workers between them, the Chicago Federal Reserve Board has released a report showing that the auto and auto-supply industries have lost 90,000 jobs in the last five years alone, in the states of Michigan, Indiana, and Ohio, the Chicago Tribune reported Dec. 8. Two-thirds of these job losses were in the auto-supply sector. And the Center for Automotive Research in Michigan estimates nearly ten other jobs lost for every one of these, in subcontracting small businesses, service, and retail sectors, etc.

That region, says the Federal Reserve report's analyst, Thomas Klier, is home to 61% of all the auto-supply plants located in the Midwest—70% of Delphi's workforce is in those three states, for example—so, another round of mass layoffs by the Big Three and their suppliers, will be "lights out" for the region.

In another region, the mayor of Lockport, N.Y., in an interview with EIR, said that the two Delphi plants there, and their "100 or more" small business suppliers in the immediate area, account for 10-15% of the income-tax base, and 20-25% of the infrastructure (sewer, water, transit) tax base of the city and county. That area, too, will be hit by a "devastating economic blow" if the plants were to be closed in Delphi's bankruptcy. And the mayor of Warren, Ohio, in testimony submitted to the e-hearings of the House Education and Workforce Committee on Dec. 7, painted the same picture for towns and cities like Warren and throughout the Mahoning River Valley.

Commodities Prices Soar as Hedge-Fund Speculation Grows

Some 450 hedge funds now speculate in commodities-related securities, up from 200 hedge funds doing these trades a year ago, according to the Energy Hedge Funds Center in Texas. Here is what the year's percentage increase in commodities prices looks like, as of the first week in December:

* Gold: Up 15%. On Dec. 7, it hit $517.80 an ounce on the New York Stock Exchange (Comex), a 24-year high.

* Copper: Up 39%. Now at a record $4,500 a metric ton.

* Crude oil: Up 38% this year, on the New York Mercantile Exchange. At $60 per barrel Dec. 8 on NYMEX (January delivery). (Reached a record $70.85 a barrel Aug. 30, after Hurricane Katrina).

* Natural Gas. Futures (January deliver) soared Dec. 8 by $1.20 to $14.90 per 1,000 cubic feet, a new intraday high for a month's delivery (next month).

Hedge Funds Play Key Role in Airlines Consolidation

Speaking at a Washington conference Dec. 8, US Airways CEO Doug Parker said that the majority of the $870 million raised to finance the merger of US Airways and America West came from hedge funds. A very small portion came from private equity investors. In an expected future wave of airline mergers, private capital will be a crucial component, he added. "The business is so leveraged, that they are willing to take on a high risk, to get a high rate of return."

Farm Machinery Sales Drop; John Deere Slows Assembly Lines

U.S. tractor sales were down 4% in October from the same time 2004; sales of combines were similarly down 44%, according to the U.S. Association of Equipment Manufacturers Dec. 6. John Deere laid off its workers from August through October at its Ottumwa, Iowa assembly plant, which makes balers and other equipment. Obvious factors involved in declining farm-machinery sales are soaring farm input costs, for gas and propane, and for fertilizer; and also the low farm-commodity prices, enforced by commodity cartels, which rig a "global" price to impose upon producers.

Layoffs by Major Firms Near 1 Million for Fifth Year

Planned job cuts by major U.S. companies jumped 22% in November to 99,279, according to outplacement firm Challenger, Gray & Christmas Dec. 7. So far this year, large corporations have announced 964,232 layoffs, up 3.6% from 2004. The decimated auto industry accounts for more than 10% of the job cuts in 2005.

Delinquencies on Subprime Mortgages Forecast To Rise

Mortgage delinquencies among homeowners with high-rate ("subprime") mortgage loans will rise by 10% to 15% in 2006, as a result of higher interest rates, a new report from Fitch Ratings predicts. About 19% of home loans nationwide are subprime. About 10.3% of subprime loans, and 4.3% of all loans were delinquent in the second quarter of 2005. Bigger problems will come in 2007, when the built-in interest-rate increases ("resets") in the subprime loans start to come into effect in large number.

In a related development, the index of pending home sales, which measures the number of signed contracts for purchase of existing homes, fell 3.2% in the month of October, and was down by 3.3% from a year earlier. The drop is partly a sign of a pullout from the housing market by investor owners.

Bill Would Impose Moratorium on Free-Trade Agreements

Congressman Dale Kildee (D-Mich) on Nov. 28 introduced a bill, H.R. 4407, which calls for a "moratorium on all free-trade agreements negotiated by the U.S." for two years as a way to "reverse domestic trade policy that has [devastated] U.S. workers, small businesses, farmers, the environment and the economy." He argues that NAFTA, CAFTA, and all the FTAs—all of which he opposed—have resulted in the loss of millions of jobs, and threaten "entire industries that were once the bedrocks of this country." Kildee referenced the bill in his e-hearing testimony submitted to the House Education and Workforce committee on the auto crisis. The bill would prohibit the U.S. from entering into any bilateral or regional trade agreement for two years.

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