From Volume 7, Issue 43 of EIR Online, Published Oct. 21, 2008

U.S. Economic/Financial News

Fiscal 2009 Budget Deficit Could Hit $1 Trillion

Oct. 18 (EIRNS)—While not as big as the derivatives bubble in absolute terms, the growth of the Federal budget deficit also points in the direction of national bankruptcy if the underlying crisis is not addressed. According to a front-page story in the Oct. 18 Washington Post, the FY 2009 Federal deficit could hit $1 trillion, when the effects of the economic crisis are added to the cost of the efforts to bail out the bubble. Since February, when President Bush signed the economic stimulus package into law, the government has pledged $1.5 trillion for the various bailouts. The Treasury Department has borrowed $500 billion and, since the end of August, the national debt has jumped from $9.6 trillion to $10.3 trillion.

The Bush Administration has routinely run deficits in the range of $200 to $400 billion, since 2001, but managed to get it down to $162 billion in 2007. Then it jumped to $455 billion in 2008, already one of the largest deficits in history. The '09 deficit is currently projected at $550 billion, but when the effects of further economic collapse are added (estimated by some at about $100 billion), plus the cost of the bailout efforts, plus whatever kind of "stimulus" package the next Congress and Administration agree on, the deficit could easily reach $1 trillion.

U.S. Manufacturing Plunges

Oct. 16 (EIRNS)—Although manufacturing in the U.S. has actually been plunging for decades, a report issued today by the Federal Reserve reflects the acceleration of that process. According to the report, industrial production fell in September by the largest amount in almost 34 years. The 2.8% decrease in production at factories, mines, and utilities followed a revised 1% decrease in August, the Federal Reserve said on Oct. 16. For the third quarter, output fell at an annual rate of 6%, the biggest decline since 1991. The September decline in output was the biggest since December 1974.

In a separate report issued by the Philadelphia Federal Reserve on Oct. 16, it was reported that manufacturing in the Philadelphia region shrank in October at the fastest pace in almost two decades. The Federal Reserve Bank of Philadelphia general economic index plunged to minus 37.5 in October, the lowest reading since October 1990, from 3.8 in September. The index averaged 5.1 last year. The Philadelphia Fed's index of new orders slumped to minus 30.5, the lowest level since August 1980, and the shipments index decreased to minus 18.8 from 2.6. The employment index was minus 18 after being little changed in September.

On Oct. 15, the New York Fed reported its Empire index of manufacturing sank in October to the lowest level since records began in 2001.

NYU Prof: Revoke Nobel Prize for Stock Options Modelling

Oct. 13 (EIRNS)—The 1997 Nobel Prize for Economics, which was awarded to the creators of a model for pricing stock options which led into the current derivatives debacle, should be revoked, says New York University Prof. Naseem Taleb.

The 1997 award went to Robert Merton and Myron Scholes, the "brains" behind the Long-Term Capital Management bubble and collapse of 1998. Taleb told National Public Radio that the Merton-Scholes option-pricing formula, also known as the "Black-Scholes" formula, which was supposed to remove the risk from financial markets, "is compatible with all these nonsensical economic theories that should be discredited."

Professor Taleb probably knows whereof he speaks: He himself runs a hedge fund.

'Hidden Homeless'

Oct. 18 (EIRNS)—The U.S. Department of Housing and Urban Development's (HUD) does not recognize hundreds of thousands of the victims of mortgage foreclosures as "homeless," the National Policy and Advocacy Council on Homelessness (NPACH) told Inter Press Service this week. The HUD definition of homelessness "does not include children and families who have lost their homes but are temporarily staying in motels or with other people because other shelter is not available or appropriate," the NPACH reported in a recent document. Despite the homeless disaster, the U.S. government has not counted the numbers since 2005, National Coalition for the Homeless (NCFTH) head Michael Stoops told IPS. Even back then, he said, the government admitted that "44% of the nation's homeless are unsheltered."

Tent cities have sprung up in or near Reno, Los Angeles, Chattanooga, Columbus, St. Petersburg, Seattle, and Portland, Stoops told IPS. They began to grow four years ago, and now 60% of local and state homeless coalitions report steady growth of homelessness since the foreclosures became critical in 2007. Disasters such as hurricanes have added to homelessness.

Jeremy Rosen, head of NPACH, said that some 600,000 children and youth are among the "hidden homeless," members of families who lost homes due to foreclosures or family crisis, but not recognized by HUD since they move around in temporary shelters. "They become the 'hidden homeless', moving around from place to place—sleeping in cars, on couches, sometimes in shelters, sometimes with friends and sometimes with family. Unfortunately, our country chooses to deny this reality and doesn't define many of these people as homeless," Rosen told IPS. "More than 60% of the homeless students identified by public schools are ineligible for HUD Homeless Assistance," the NPACH's report states.

Stoops reported that a "month ago, over 900,000 homes were foreclosed and some of the people concerned will wind up homeless." Laid-off Wall St. bankers could soon be joining their ranks, he noted.

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