From Volume 36, Issue 41 of EIR Online, Published Oct. 23, 2009

U.S. Economic/Financial News

'Steep Losses Pose Crisis for Pensions'

Oct. 11 (EIRNS)—With that headline on the lead article of the Oct. 11 Sunday edition, the Washington Post gave an inkling of what is in store for current and future retirees, if the LaRouche Plan is not implemented now.

According to the Center for Retirement Research at Boston College, state and local government officials had predicted "before the crisis" that their pension funds would have $3.6 trillion in them now. Today, they are at $2.4 trillion.

The Virginia public employees' pension fund, for example, has lost 21% of its portfolio's value. Maryland and the District of Columbia have each lost 20%.

Having been burned time and again, the pension fund managers nonetheless think they are compelled to put their monies into riskier, higher-return investments, in hopes that they can somehow regain what they've already lost.

California's pension fund, for example, lost $634 million from securities lending. And that was as of March 31; the figure may go over a billion by the end of the year. California is also putting $2 billion into buying real estate and troubled mortgage securities. And in August, California gambled $463 billion in shopping centers, of all things, in 17 states and the District of Columbia.

Officials at Ohio's teachers' pension fund said that it would take 41 years for its investment to catch up with the costs of meeting its obligations to its retirees. That was before things got really bad. In its last fiscal year, Ohio's pension fund lost 31%. In its most recent annual report, the fund estimated how long it would take to get the fund back on track: "Infinity."

The Post notes, "Some pension experts say the funding gap has become so great that no investment strategy can close it and that taxpayers will have to cover the massive bill."

Bank Credit Collapse: LaRouche's Triple Curve in Action

Oct. 12 (EIRNS)—New Federal Reserve figures show that the bank credit shrinkage in the U.S. economy—banks cutting down lending despite trillions in government bailouts—continued to intensify through September, with the policy of the Fed directly contributing to the credit crunch. At the same time, the monetary aggregate that the Fed is printing kept zooming up, while productive employment and production continue to contract at an accelerating rate. Taken as a totality, this is precisely what Lyndon LaRouche has repeatedly warned of in his "Triple Curve" representation of the global economic meltdown underway.

This train-wreck-in-progress cannot be handled with any jiggery-pokery; only full bankruptcy reorganization, as specified in the LaRouche Plan, actually addresses the underlying problem.

Federal Reserve figures published weekly through Oct. 9 (reflecting data through Oct. 2) show bank lending falling at an annual rate of -19% through the third quarter. And within that total, commercial and industrial credit from the banks was falling at a -28% annual rate. Commercial and industrial credit has shrunk 6.7% in the third quarter alone, from $1.5 trillion to $1.4 trillion, accelerating a year-long drop.

In the first and second quarters of 2009 combined, U.S. businesses consumed more capital than they raised for the first time since the 1930s. London bank economist Leigh Skene of Lombard Street Research, quoted on this contraction by MarketWatch, called it "the hallmark of depression, and difficult to reverse."

In contrast, the U.S. monetary base has doubled since last October, from just over $1 trillion to over $2.1 trillion. This refers to currency printed by "Helicopter Ben" Bernanke's Federal Reserve, plus "excess bank reserves" deposited at the Fed by banks instead of lending from them. In many cases, the banks have borrowed these reserves from the Fed, at a virtually zero interest rate, and the Fed is paying the banks interest on those deposits for the first time in its history.

The Continued Cost of a Non-Productive Bailout Economy

Oct. 13 (EIRNS)—The Washington D.C. newsletter The Hill today reported on the bills to extend unemployment benefits, now making their way through both Houses of Congress. The coverage begins, not with the legislation, but with a discussion of the cost to the economy of not creating productive work.

In a useful counter to President Obama's drivel about health care creating the deficit, it begins: "The nation's unemployment rate has pushed the budget deficit to a record $1.4 trillion in 2009," and later notes that, "Unemployment compensation rose from $47 billion in fiscal 2008 to $120 billion in 2009, a 156% jump." They quote a Congressional budget aide saying, "High unemployment means more unemployment checks and less tax revenue, costing the government roughly $100 billion annually." The Hill adds that, "Those costs will persist for the next couple of years, if economists are correct in predicting the jobless rate will average more than 9% through 2011." During the last year, only the growth rate of the bailout has exceeded the growth rate in unemployment compensation.

The House has already passed a measure extending benefits for 13 weeks, and The Hill expects the Senate bill to extend benefits to hit the floor this week.

California Budget in the Red Just 10 Weeks After Passage

Oct. 11 (EIRNS)—California's revenue collections are off 5.3% in the first quarter of its new fiscal year, and the geniuses in Gov. Arnold Schwarzenegger's accounting office are wondering if the $1.1 billion drop is part of a growing budget shortfall or an isolated event. The governor's budget spokesman, H.D. Palmer, says they'll know in a month.

As they see it, the major problem has been the drop in estimated quarterly personal income tax statements.

Since February, Schwarzenegger and state lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion, and covered $6 billion more with what Bloomberg News calls "accounting gimmicks" and borrowing. Even with those actions, state budget officials predict an additional $38 billion in deficits in the next three fiscal years combined, including $7.4 billion in the year starting July 1. That, from the officials who couldn't see three months down the road.

Schwarzenegger must present a budget for the coming fiscal year in January.

California, the largest borrower in the municipal market, may offer $4 billion of debt at the end of this month to refinance the bonds used by Schwarzenegger to cover previous budget deficits. The budget enacted in July would allow the sale of as much as $11 billion more in general obligation bonds, through the June 30 end of the fiscal year, if financial markets allow, state Treasurer Bill Lockyer said.

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