U.S. Economic/Financial News
Crumbling of U.S. Economy Leads to Run from the Dollar
The internal collapse of the U.S. economy, combined with its dependence upon a subsidy of foreign capital, has caused a flow of money out of the dollar and into the euro, which is increasingly being seen as, if not exactly a safe haven, at least a less risky one.
As a result, the dollar has fallen sharply against the euro. Today, a dollar will buy just euro 0.92, compared to a peak of euro 1.21 in October 2000, and euro 1.15 as recently as March 2002. This week, the dollar reached a four-year low against the euro
Eurozone investors who put their money in the U.S. stock market during the 1999-2000 period, lost money both on the decline of the market and on the decline in the value of the dollar. Much of these funds have been moved back to European markets, where at least the currency loss is eliminated.
More ominous is the prospect of an abandonment of the dollar as the world reserve currency. The role of the dollar as the currency of the world oil trade is coming under increasing concern, as the U.S. economy deteriorates, and U.S. foreign policy shifts toward a "Clash of Civilizations" with a large chunk of the oil-producing world.
Indonesia's state oil company, Pertamina, "dropped a bombshell recently" with its announcement that "it is considering dropping the U.S. dollar for the euro in its oil and gas trades," Bloomberg reported April 17. Such a move, Bloomberg warned, "could have major implications for the world's biggest economy. Other Asian countries may not be far behind in any move in Indonesia to dump the dollar. The reasons for this are economic and political, and they could trigger a realignment that undermines U.S. bond and stock markets over time." (For more on Indonesia's move, see ASIA DIGEST.)
Against this slide into economic catastrophe, the Bush Administration's one-note "economic policy" of tax cuts is ludicrous, and dangerous. Combine the Bush "plan" with the Fed's promise to bail out the system no matter what the cost, and you have the certainty of continuing cuts in the infrastructure and services safety net which are essential to the welfare of the population and the productive capability of the economy.
Leading Economic Indicators Fall
The Conference Board's Index of Leading Economic Indicators fell by 0.2% in March 110.6, blamed on fears of higher oil prices, the war in Iraq, and potential terrorist attacks, Associated Press reported April 21. The bigger threat, warns the Conference Board, comes from consumers' lower expectations, raising "the specter of a fall-off in consumption growth."
Top Corporate Pension Plans Face Huge Deficits
The top 100 U.S. corporate pensions plans face a $157-billion deficit in 2003, down from a $183-billion surplus in 2000. The causes for this include money lost on investments in the stock-market collapse, combined with falling interest rates; increasing liabilities; and the fact that a number of "boom" years, based on fraudulently misrepresenting the return on their pension investments, now have to be compensated for. Overall, the 100 biggest U.S. corporate defined benefit pension plans, lost $340 billion in funding over the past two years$172 billion in 2002, and $168 billion in 2001according to a recent survey by Milliman USA.
General Motors, the largest U.S. pension plan, lost $13 billion in 2002, after losing $12 billion in 2001. Of the 100 companies surveyed, 87 had a deficit in 2002more than four times the number (20) in 2000.
The deficits have forced companies to increase their contributions to the pension plans, up to $33.6 billion in 2002more than triple the $9.2-billion level in 2001.
Officials Beginning To Admit: It's Still the Economy
With eight months before the official start of the Presidential campaign, Administration officials admit that "deeper fundamentals" of the economy are the problem, not just uncertainty over the war, and they have to get cracking, sources told the Washington Times April 21. At a recent White House briefing for 80 business leaders, President Bush's political guru Karl Rove was pressed on why the President did not make a speech to Congress on the outcome of the Iraq war, and use the occasion "to pivot over to the second big issue: ... growing the economy." The Washington Times sources said Rove "ducked" the question.
Bush's Vulnerability in 2004 Is 'The Economy' Again
In a commentary the Financial Times of London April 21 called "The staying power of an odd recession," Clinton's former Labor Secretary, Robert Reich, points to the economy as President Bush's vulnerability in 2004, just as it was his father's in 1992. The White House is nervous, as the current "recession is far from being over," Reich points out. Almost a half a million jobs were lost in the last two months alone. Consumers are deep in debt; they were "already in a hole when the recession started, but the hole is now so deep that many cannot climb out." He describes how the housing bubble could blow, when interest rates rise, "because America as a whole is deep in debt," and the Federal deficit is gigantic, even as the U.S. imports far more than it exports.
"So what happens to an economy with continuing job losses, high consumer debt, and a weakening dollar?" asks Reich. "It does not rebound any time soon. Indeed, there is a significant possibility that it will not do so before the next Presidential election in November 2004."
Defense Department Error Shows Outsourcing Jobs Fails To Cut Costs
Another mess for Donald Rumsfeld's Department of Defense has turned up in the area of economics. A $30-million error just discovered by the DOD's Inspector General is calling into question the Bush Administration's drive to privatize government jobs that are not "inherently governmental," the Washington Post revealed April 21. The Inspector General's audit found that a consultant hired by DOD overestimated the personnel costs of keeping those jobs inside the government. This error made the contractor's bid appear to be $1.9 million cheaper, when, in fact, it was $29.9 million more expensive than what the DOD would pay workers directly.
The contract at issue, to Dallas-based Affiliated Computer Services to process payments to military retirees for the Defense Finance and Accounting Service, replaced 650 government employees in Denver, and is potentially worth $346 million over ten years. The IG report called on DFAS to determine a specific course of action, including to explain why a recompetition should not be held.
The Inspector General's report comes as the Bush Administration is proposing to privatize 850,000 government, on the theory that "competition" in the private sector always makes the work cost less. Several members of Congress and the American Federation of Government Employees labor union are saying the process is unfair to government workers.
New York Housing Market in Trouble
According to a just-released report by Douglas Elliman Manhattan Market Overview, Manhattan's residential real estate market has weakened for a second consecutive quarter. Sales fell 8.4% in the first quarter 2003, while average apartment prices dropped 3.7%. Inventory soared 6.2% compared with the previous quarter, the highest level since the company started tracking it in 2000. Prices on condominiums, that is, normal private apartments opposed to cooperatives, tumbled 12.7% to the lowest level in more than two years. London's Financial Times, reporting on this April 22, notes that "layoffs in the financial services industries may now be starting to bite."
Pharmaceutical Layoffs Could Bankrupt Central Michigan Cities
Pfizer Pharmaceutical's promise of "shareholder" values is expected to bankrupt central Michigan cities, after Pfizer completed its buyout of Pharmacia Corp.one of west-central Michigan's largest employerslast week. Pfizer promptly announced it will begin layoffs in June.
The layoffs will hit Kalamazoo the hardest, where city officials are already exploring filing for bankruptcy protection in anticipation of a minimum direct tax revenue loss of $4.8 million. Combine this with an expected $6.6 million loss from state aid cuts, and it comes to a 14% loss of revenues.
Add to this another $4.5 million in losses to the county, community college, school, and library budgets, estimated by local business analysts, as well as the likely axing of another 1,275 jobs in non-Pfizer jobs such as barbers, accountants, etc., and you can see why officials are considering a bankruptcy filing.
But the Pfizer move will also have huge ripple effects across central Michigan. Battle Creek, the second largest city in the area, is bracing for the worst, too. A regional research institute estimates that the total job loss would erase $40.5 million in personal income of Kalamazoo residents and $154.6 million countywide. Such devastation is all for the purpose of extracting the "savings" for shareholders which Pfizer promised when it bought Pharmacia.
Wall Street Police Blotterfor One Day
The following criminal cases were being reported in a single day, April 23, in the Wall Street Journal, indicating that the corruption of the "New Economy" financial fraud revealed in the Enron case and throughout the once-hot "IT" sector continues.
*ExxonMobilThe investigation into charges of $78 million in bribes to officials of Central Asia's Kazakhstan by ExxonMobil "has turned into the largest investigation" of corporate bribery in the last 25 years.
*Credit Suisse's Frank Quattrone was hit with criminal charges (not just civil) of obstruction of justice, for ordering the destruction of documents under investigation.
*HealthSouth and Ernst&Young, under criminal investigation for false billings to Medicare and Medicaid, are also to be investigated by Congress, bringing all their records into the public eye, probably this summer.
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