In this issue:

Unemployment Surges in February; Administration Still Sees 'Jobless Recovery'

$1 Trillion Evaporates from U.S. Pension Funds, 2000-2002

Outsourcing Is Not Free Trade; It's Just Exporting Jobs

Bombardier To Lay Off 10% More of Aerospace Workforce

U.S. Banks Post 'Record Profit' in 2002

Dividends Eating Up Corporate Profits

Commercial Banks' Derivatives Soar 24% to $56 Trillion

Buffett Alarmed About Potential Derivatives 'Mega-Catastrophe'

Airline Industry Continues To Nosedive

Auto Sales Slam on Brakes in February

Greenspan Denies Existence of National Housing Bubble

Silicon Valley Home Foreclosures Skyrocket


From Volume 2, Issue Number 10 of Electronic Intelligence Weekly, Published Mar. 10, 2003

U.S. Economic/Financial News

Unemployment Surges in February; Administration Still Sees 'Jobless Recovery'

The Department of Labor's Bureau of Labor Statistics (BLS) reported on March 7 that the official level of U.S. unemployment rose to 8.450 million in February 2003, from 8.302 million in January, a jump of 138,000 unemployed workers. The official unemployment rate was reported to be 5.8% in February, an increase of 0.1% from the rate in January.

EIR has determined that real unemployment is twice what the BLS has told the public.

Most crucial, is that during February, there were 53,000 manufacturing jobs eliminated; moreover, 58,000 manufacturing production workers were lost. This is the 31st consecutive month in which manufacturing jobs have been axed. Since July 2000, some 2.157 million manufacturing jobs have been eliminated, of which 1.703 million were production manufacturing workers. In percentages, this represents the elimination of 11.6% of the U.S. manufacturing workforce and 13.4% of its manufacturing production workforce, which process is destroying the economy.

Further, during February, 41,000 transportation and public utilities' jobs were lost. Since its peak employment of two years ago, this sector has lost over half a million jobs.

Meanwhile, new unemployment claims rose by 12,000 to 430,000 (seaonally adjusted), for the week ended March 1; the four-week average increased to 408,750, the highest level since the end of December 2002. Continuing claims for jobless benefits, increased by 180,000, to 3.516 million, in the week ended Feb. 22, the most since Nov. 16.

The Bush Administration and Wall Street have attempted to portray what is happening as a "jobless recovery."

$1 Trillion Evaporates from U.S. Pension Funds, 2000-2002

U.S. retirement plans for public employees, corporate pensions and endowments lost $1 trillion in the 2000-2002 period, according to a survey by Greenwich Associates. The three-year loss—equal to China's entire GDP last year—was "probably the most destructive in the whole history of the U.S. fund business," Greenwich consultant Dev Clifford said. Assets at 1,729 pensions and endowments surveyed dropped to $5.1 trillion at the end of 2002 from $6.1 trillion in 2000, or 17%, Greenwich said. Greenwich estimated the $1 trillion loss after finding the 380 corporate pensions, 199 public plans, and 125 endowments from which it collected results in each of the last three years lost $730 billion. The 704 funds ended last year with $3.01 trillion dollars. Using the 704 funds' data as a base, Greenwich estimated that all 1,729 retirement and endowment funds lost $1 trillion.

Outsourcing Is Not Free Trade; It's Just Exporting Jobs

Outsourcing is not free trade; it is exporting American jobs, and U.S. productive capacity, turning the world's formerly leading producer-nation into a "Third World" country, warned syndicated columnist Paul Craig Roberts in the Washington Times March 7. When goods and services are outsourced, Roberts asks, where is the economy? "A country devoid of high-productivity jobs is a poor country," he writes, warning that the United States could be "on the outsourced path to becoming a Third World country."

The United States should think about this before it gratuitously attacks Iraq, admonishes Roberts.

Outsourcing will result in accelerating the dollar collapse, he advised: "How long will foreigners accept an annual outpouring of $500 billion before they force a devaluation of the dollar?"

The United States is not a Third World economy, but an underworld economy, commented Lyndon LaRouche, when briefed on the Roberts column.

Bombardier To Lay Off 10% More of Aerospace Workforce

Citing collapsing orders for new airplanes, the Canadian transportation giant Bombardier announced it will lay off another 3,000 aerospace workers in 2003. Since September 2001, it has laid off 5,800 workers. The layoffs will be from their plants in Northern Ireland, Toronto, and Montreal. Its Kansas plant will not be affected, as machinists there made contract concessions, whereas those in the other locations are still resisting. Michel Lauzon, president of the International Association of Machinists and Aerospace Workers Local 712, called the layoffs "a savage announcement," adding that the union felt "betrayed."

U.S. Banks Post 'Record Profit' in 2002

U.S. banks posted a "record profit of $90 billion in 2002, easily topping 2001's record $74 billion, according to the FDIC. Yet, ten banks and one thrift failed during the year, the highest total since 1994, and 336 banks were absorbed in mergers. Loan charge-offs at banks and thrifts rose 21% overall, including a 40% increase in credit-card charge-offs, a 22% increase in non-credit-card consumer-loan charge-offs, and a 14% increase in charge-offs on commercial and industrial loans.

With this release of the Quarterly Banking Profile (QBP), the FDIC began combining the figures for commercial banks and FDIC-insured thrifts, which together posted a profit of $105 billion, topping the $100 billion mark for the first time. There were 7,887 banks and 1,467 thrifts, of which 6.3% were unprofitable and 136 officially considered "problem institutions."

Dividends Eating Up Corporate Profits

In 2001, the last full year for which corporate profits are available from the Commerce Department, U.S. corporations reported $471 billion in after-tax profits, and paid out 87% of that amount, $410 billion, in net dividends. By contrast, in 2000, corporations reported $523 billion in after-tax profits, and paid out $376 billion, or 72%, in dividends. In 1980, the ratio was 38%; in 1990, 63%; and in 1995, 59%. Companies in the finance, insurance, and real estate (FIRE) sector reported $211 billion in after-tax profits and paid out $136 billion—64%—in dividends in 2001, while companies in the manufacturing sector reported $84.1 billion in after-tax profits and paid $83.8 billion—99.6%—in dividends.

Commercial Banks' Derivatives Soar 24% to $56 Trillion

The derivatives bets at U.S. commercial banks totalled $56.3 trillion at the end of 2002, up 24% from $45.5 trillion at the end of 2001, and up 4.8% from $53.7 trillion as of Sept. 30, 2002, according to the latest FDIC Quarterly Banking Profile. This compares to $648 billion in equity capital, $4.2 trillion in loans, and $7.1 trillion in assets, making banks' derivatives holdings 87 times equity, 14 times loans, and 8 times assets by the official (i.e., understated) figures.

Buffett Alarmed About Potential Derivatives 'Mega-Catastrophe'

In his annual letter to Berkshire Hathaway shareholders, advance excerpts of which appeared on the Fortune website March 3, Warren Buffett says that he and partner Charlie Munger "are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system," adding that "The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)."

While adding that derivatives can be useful, and that he himself uses them in some cases, Buffett said that "the macro picture is dangerous and getting more so. Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who, in addition, trade extensively with one another. The troubles of one could quickly infect the others. On top of that, these dealers are owed huge amounts by non-dealer counterparties. Some of these counterparties ... are linked in ways that could cause them to contemporaneously run into a problem because of a single event (such as the implosion of the telecom industry or the precipitous decline in the value of merchant power projects). Linkage, when it suddenly surfaces, can trigger serious systemic problems.

"The derivatives genie is now well out of the bottle.... Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts.

"In our view ... derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

Airline Industry Continues To Nosedive

The latest victims of deregulation, globalization, and economic depression among the nation's vital air carriers are:

*Canadian business and regional jet manufacturer Bombardier will lay off another 3,000 workers, another 10% of its workforce (see above).

*The Transport Workers Union, which had agreed to reopen the 2004 contract of American Airlines ground workers to save American from bankruptcy, refused the airline's demand for $620 million in givebacks as "too high." The TWU was thought to be the most receptive of American's unions.

*United Airlines will furlough an additional 900 flight attendants at the end of March, which the union attributes to fewer passengers because of fears of an Iraq war. The liquidation of Eastern, Pan American, and Midway Airlines in 1991 are attributed to the first Iraq war.

United's bankruptcy made it unable to "hedge" a low price for fuel. Its fuel costs increased 30% from December to January, causing it to lose an additional $1.6 million per day in January. In the Iraq war of 1991, airline fuel prices more than tripled. American and Jet Blue also have poor "hedged" positions on fuel.

European plane maker Airbus said its exposure to bankrupt U.S. Airways was unchanged, despite the news that U.S. Air had not paid $44.5 million due on 23 Airbus planes. Airbus said the financing was shared; its own portion was only 15% and that others were owed the remaining 85%. Many completely unrelated companies bought airplanes and leased them to the carriers to get tax breaks, on the advice of their brilliant accountants. These losses will appear as first-quarter losses.

Auto Sales Slam on Brakes in February

General Motors, the world's largest automaker, said sales in February plunged by 19%, compared to January; as a result, the company will cut second-quarter production by about 10%. Ford's sales slipped by 0.1%; while Chrysler announced a 4.5% drop. Automakers, on average, spent more than $3,200 per vehicle in incentives, such as rebates and no-interest loans—up almost 10% from January.

Consumer spending on durable goods, in January, fell by 5.4%—the largest monthly decline in 13 years.

Greenspan Denies Existence of National Housing Bubble

The loony Federal Reserve chairman, Sir Alan Greenspan, insisted that drawing an analogy between the increase in home prices to stock-market pricing behavior and bubbles in financial markets, "is a rather large stretch." He claimed that home-selling transaction costs discouraged bubble-creation, and that were any bubbles to emerge, (!) they would be "local, not national, in scope," because there is no national housing market in the United States. Although cautioning that the mortgage-refinancing boom will "simmer down," causing a fall in consumer spending, which has been propped up by cash-out refinancing and home-equity loans, he called a sharp decline in home prices "most unlikely."

Greenspan's remarks, delivered to the annual convention of the Independent Community Bankers of America in Florida March 4, follow a similar hysterical denial by New York Federal Reserve Governor Donald Kohn in San Francisco on Feb. 28.

Silicon Valley Home Foreclosures Skyrocket

California's Silicon Valley has been hit by a 70% jump in the number of homes entering the foreclosure process in 2002, from the year before, to 2,729—the highest level since 1997. Actual foreclosures tripled in 2002 to 217 from the level in 2001. The rate of foreclosures is expected to accelerate, due to the collapse of the IT bubble, as unemployed homeowners have already depleted savings and maxed-out credit cards, lowering home values in one of the most expensive housing regions in the nation.

All rights reserved © 2003 EIRNS