From Volume 5, Issue Number 3 of EIR Online, Published Jan. 17, 2006

U.S. Economic/Financial News

U.S. Crucial Machine-Tool Consumption Continues Decline

Machine-tool consumption fell 2.5% in November, for the third month in a row. The collapse points to needed conversion of the auto industry to build large-scale infrastructure projects, as Lyndon LaRouche outlined in his international webcast Jan. 11. According to a joint report by the American Machine Tool Distributors' Association and the Association for Manufacturing Technology, released Jan. 8, U.S. machine-tool consumption fell in November to $245.04 million from $251.36 in October, and was down 6.9% from November 2004. For the first 11 months of 2005, total orders were $2.767 trillion, up 8.3% from January-November 2004—yet down some 30% from the level in 1997.

Machine tools, used to shape metal for products such as car engines—better yet, for needed maglev and nuclear projects—reflect man's power of discovery and application of new scientific principles.

Auto Industry Shutdown Accelerates

As reported in the Flint (Mich.) Journal Jan. 13 and the Detroit News and Crain's Detroit Business Jan. 12:

* General Motors has set March 17 as the closing date for its Lansing Craft Center plant, eliminating 430 GM jobs. And GM employees at Powertrain Flint Engine South engine plant are facing temporary layoffs. About 200 workers on the second shift will be laid off Feb. 13, as GM moves to close an SUV assembly plant in Oklahoma City; the Flint South plant is the automaker's sole source for engines used in midsize SUVs.

* Auto parts supplier Visteon announced it is shuttering at least three more plants in North America, putting six others up for sale around the world, and shifting half of its engineering to low-cost countries such as China. As part of a restructuring plan designed to close, fix, or sell 23 plants, Visteon is shutting factories in Mexico, Puerto Rico, and Buffalo, N.Y. This latest plant-closings plan is separate from 23 other plants and offices transferred back to Visteon's former parent, Ford Motor Co. Visteon's hourly workforce has dramatically shrunk, from almost 31,000 in North America four months ago to just 11,000. Some 64% of its blue-collar workers are in low-wage countries and Visteon president Don Stebbins said he wants to see that increase to 75%. The average hourly wage rate has been slashed from $38 to $17.

* General Motors CEO Rick Wagoner says the automaker expects to achieve about $4 billion in "savings" in 2006 on "structural" costs—such as health care and engineering—and material costs.

* Looter Wilbur Ross on Jan. 11 said he is reviewing the assets of all distressed U.S. auto-parts suppliers, for takeover. The need for consolidation in the industry is "even more imperative" in 2006, he asserted at a junk bond conference held in conjunction with the North American International Auto Show in Detroit.

Ypsilanti: Decimated by Auto Shutdown

Ypsilanti, Mich., home to World War II's "Rosie the Riveter," has become a shell of its former self, as the auto industry has disintegrated. Like Flint, Ypsilanti has experienced a 25% depopulation since the 1970s as the auto sector began outsourcing and moving overseas, USA Today reported Jan. 11. Expecting the closure of its Ford-Visteon plant soon, city officials fear they will have to file for bankruptcy and be put into receivership. City leaders have already cut their budget to the bone, including closing three schools to save $5.5 million in this budget year.

A few of the key parameters of collapse are: population is down 25% since the 1970s, from 29,500 to 22,200 today; median household income, at $28,000, is 31% below national average; police force is 27% smaller than in 1997; and 25% of the citizens live under the poverty level (compared to 11% in the surrounding county).

Ypsilanti Mayor Cheryl Farmer said of this shutdown and outsourcing, "It's all sort of loony." During World War II, "Ypsilanti car plants stopped making vehicles and began churning out bombers. Rosie the Riveter, used in promotion for war bonds, was [Rose Will Monroe] who drove rivets into airplane parts at the Ford plant." USA Today quotes Farmer, "In Ypsilanti, we produced one bomber an hour that helped with the war. Protectionism is not necessarily a bad word."

GM, Ford Struggle with Debt as Vulture Kerkorian Circles

As General Motors continues to sell off its car loans to raise cash, bloodsucker Kirk Kerkorian's "advisor," Jerry York, told financial analysts in Detroit Jan. 10 that GM needs to be "in a crisis mode." He proposed that GM cut dividends, in addition to closing plants, laying off workers, and cutting salaries and wages. If GM would cut dividends, York is sure the UAW would make concessions, too. Why, Kerkorian would be prepared to repurchase the 12 million shares that he sold last year, and maybe even buy another 12 million. (Kerkorian is still GM's third-largest stockholder, with 7.8%.) A reporter characterized York's presentation as reading GM management the riot act. GM top management will be meeting with York later this week; Kerkorian has not haven given up on placing one of his own on the board.

Also Jan. 10, GM announced it is cutting prices on 80% of its car models, to try to regain some of the market share it has lost, and Ford will announce its "Way Forward" austerity plan Jan. 23.

Rep. Miller Calls for Hearings on Sago Mine Disaster

On Jan. 9, Rep. George Miller (D-Calif) renewed his call for Congressional hearings into the cause of the fatal explosion in the West Virginia Sago coal mine, and additionally requested that the Department of Labor turn over all documents related to the accident, its safety violations, inspections, and fines.

Since 1999, only 28% of the fines levied for mining violations have been collected, according to USA Today Jan. 10. The former director of the National Mine Health and Safety Academy in Beckley, W.Va. told the New York Times that the Sago mine should have been closed before, and that recently a huge boulder fell into the mine shaft.

Compounding the policies of the Bush Administration to reduce inspections and let companies off scot-free for violations, the workforce in coal mining is reaching a demographic crisis. According to the January issue of Coal News, in 2004, there were 102,472 workers employed in the industry, with a median age of 43.9. About 47% of the workforce were age 45-54, and 8% were 55-64. Over the next 10-15 years, half of the miners will retire. In the late 1990s, there were about 200 mining engineer graduates per year. Last year there were fewer than 90.

Asset Prices, Current Account Deficit Worry N.Y. Fed Prez

Addressing the New York Association of Business Economics on Jan. 11, New York Federal Reserve president Timothy Geithner noted that the rise and fall of asset prices such as stocks, bonds, and homes will have to play a bigger role in defining U.S. monetary policy in future: "Policy, in some circumstances, will need to respond to asset price movements when those movements alter the central bank's assessment of the risks to its outlook." "As financial markets continue to broaden and deepen, the behavior of asset prices will play an important role in the formulation of monetary policy going forward, perhaps a more important role than in the past."

Geithner was blunter concerning the ever-larger U.S. current-account deficit. Responding to a question on this matter, Geithner answered: "Anybody looking at the size of the U.S. current-account imbalance has to be troubled by what it means for the future. It is very hard to have confidence that it is sustainable over a longer period of time," and its possible effect on asset prices "is the core reason why it matters."

Congress To Postpone Social Security Reform Till '07

Speaking at the U.S. Chamber of Commerce Headquarters on Jan. 10, White House Chief of Staff Andy Card acknowledged that while Bush remains committed to privatization of Social Security, the Administration will not try to pass it this year. Said Card, "I think the reality is that Congress is predisposed not to do the heavy lifting that is necessary for Social Security reform in 2006. But they definitely should be prepared to start lifting in 2007, and the President will help lead the way...." This "heavy lifting" will clearly take some heavy steroid use.

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