From Volume 37, Issue 34 of EIR Online, Published Sept 3, 2010

U.S. Economic/Financial News

Brawls at the Fed, as the System Comes Down

Aug. 27 (EIRNS)—A senior Washington intelligence source reported this morning that a serious fight has erupted inside the Federal Reserve over hyperinflation, and that people close to the Fed are going to be leaking details, which means the fight will intensify and become more public. He added that that fight is now erupting inside this week's annual Jackson Hole, Wyoming, economic summit of the Fed, whose host, Thomas Hoenig of the Kansas City Fed, has publicly dissented from Fed chairman Ben Bernanke's decision to keep priming the monetary pump, at each of the last eight meetings of the Federal Open Market Committee (FOMC). And indeed, sources at that Jackson Hole gathering report that it is an extremely interesting one, especially its off-the-record discussions.

Lyndon LaRouche commented, "The break actually happened several weeks ago, and what you're seeing with this Jackson Hole meeting of the Fed, and things like that, are reflections of the fact that anybody on the inside knows, without any statistical mumbo-jumbo, that this system is coming down fast."

Similarly, today's Wall Street Journal reports that the Aug. 10 meeting of the FOMC, whose decision to purchase hundreds of billions of Treasuries was part of the Weimar-hyperinflationary turn in policy that LaRouche had forecast, was the "most contentious" such meeting in Bernanke's four-plus-year tenure as chairman. Although Hoenig was the only dissenter on the final vote, the Journal reports that no fewer than seven of the seventeen committee members expressed serious reservations concerning that insane decision.

Retailers in Massive Store-Closing Mode

Aug. 23 (EIRNS)—Hit by collapsing expendable income of their "middle class" customers, retailers are now faced with massive store closures, exacerbating an already stressed commercial retail market. According to, even WalMart is guarded about future consumer spending, and the appearance of a mythical "recovery." Most indicative, however, is that grocery store chains are among the list of store shutdowns: Atlantic & Pacific Tea Company (aka A&P) one of the nation's oldest grocers, will be closing 25 stores in five states in the third quarter, and Winn Dixie, a major chain in the South, will be closing 30 "older and non-performing" stores in the next month.

The majority of the closings are, however, "fashion" clothing retailers: Saks Fifth Avenue closed 3 stores last month, now two more, in Plano, Texas and Mission Viejo (Orange County), Calif. They will instead be opening several "Off Saks" bargain outlets, they say. Trendy French Connection (actually British) is closing 17 U.S. stores, leaving only 6, after closing all 21 in Japan last year. American Eagle Outfitters is closing all 28, as well as its related online business. Bebe Stores is shuttering "all 48 PH8 stores," which had only been re-branded and re-opened last November; Men's Warehouse will be closing 50-60 newly minted "Tux" stores this year, and the total could reach 100; Abercrombie & Fitch will close "nearly 60 underperforming stores" this year; and Charming Shoppes will close 100-120 Lane Bryant and Fashion Bug stores.

In addition, video renter Blockbuster will close 500-545 stores this year, after closing 345 stores last year. Although this is more of a shift to online program delivery, it still represents several thousands of local jobs.

As Crash Proceeds, U.S. Real Estate Market Collapses Again

Aug. 25 (EIRNS)—After the Obama Administration's "homebuyers credit" buoyed up speculators and suspended the U.S. real estate crash for about eight months, it has fully resumed. Some economists blame the Obama credit for now intensifying the crash it had briefly delayed.

In July, both new and old ("existing") home sales plunged to their lowest levels in the 45-year history of these records, far below even 2009's depression levels. Existing home sales fell 27% to a 3.37 million annual rate; new home sales dropped 12.4% to an annual rate of 260,000, compared to a 600,000/year average for the past 30 years. That difference alone directly represents more than a million construction jobs. Because of large-scale foreclosure sales and short sales, new home sales have shrunk from the long-typical 15% of the housing market, to only 7%. The Mortgage Bankers Association says one-seventh of all mortgages are now delinquent, and more than a million mortgaged homes are being seized for foreclosure sale during 2010.

Coming next: The resumption of major drops in home prices—which have "paused" at about 35% below their pre-crash levels—and the bankruptcy of banks due to the collapse of additional masses of mortgage-backed securities.

Significant numbers of owners of commercial buildings are also now "walking away" from their mortgaged properties, and high-profile foreclosures of big office projects are set to start. The result will be another increase in the pace of local bank failures.

PPPs Turning into Outright Privatizations

Aug. 23 (EIRNS)—The collapse of America's cities is featured on the front page of the Wall Street Journal this morning, indicating that public-private partnerships are becoming more and "private." The Royal Bank of Scotland currently has about 35 privatization deals in the works—worth about $45 billion—they say, a figure that is 10 times the level of $4 billion about two years ago. Major cities across the country are trying to "shed" everything from zoos (Dallas) to airports (New Orleans) and water supplies (Milwaukee). They note that these privateers are picking up key properties at bargain-basement prices, with cities left to suffer collapsing credit ratings.

Unlike the deals of the 1980s, where public buildings were sold off and operated under contract, today's deals are seeing control of privatized services completely in the hands of investors, and no longer subject to any licensing agreements. For example, the Chicago parking meter scam allows Morgan Stanley to run 36,000 meters for 75 years, granting "ownership" to the parking spots on public streets. Although rates are set by the city, revenue—now up 200%—all goes to Morgan Stanley. Pittsburgh is now considering a similar parking deal to fund its pension system. This new "industry" has even adopted a euphemism as a name—"rescue investing"—for the parasitical mass of consultants, lawyers, and bankers that has sprung up to service the vultures.

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