In this issue:

New Reports Confirm: U.S. in Economic Breakdown

California Budget Crisis Continues To Unravel

State Budget Desperation Is Worst Since Last Depression

Greenspan at BIS Calls for 'Unorthodox Measures'


From Volume 2, Issue Number 27 of Electronic Intelligence Weekly, Published July 8, 2003

U.S. Economic/Financial News

New Reports Confirm: U.S. in Economic Breakdown

* Construction spending fell 1.7% in May, the biggest monthly drop in a year, the Commerce Department reported. Spending on public construction, such as roads, schools, and public buildings, fell to its lowest level since June 2002, amid the blowout of state and local budgets.

* The manufacturing sector continued its contraction, said the Institute for Supply Management; its manufacturing index rose to 49.8 in June, from 49.4 in May. Manufacturing employment, the ISM reported, fell for the 33rd straight month.

* Layoff announcements by U.S. corporations fell in June to "only" 59,715, according to outplacement firm Challenger, Gray & Christmas. During April-June, companies announced 274,737 job cuts.

* Ford Motor Co. reported a 7.7% drop in total U.S. auto sales for June, compared to a year earlier, despite huge cash rebates and interest-free loans. General Motors said U.S. sales rose 1.5% in June.

California Budget Crisis Continues To Unravel

California Governor Gray Davis, whose state faces the worst budget crisis in the U.S., issued orders on the first day of the new fiscal year July 1, to 1) extend a hiring freeze, and 2) eliminate all unfilled government positions—all of which will save $250 million, out of a budget deficit of tens of billions. This trimming action, however, does not mean he will drop his plan for a half-cent sales-tax increase. In particular, Davis intends this new tax to be a dedicated revenue stream to finance new bonds. Davis also still wants to get pay cuts from state workers, which, if not agreed to, will result in a minimum of 13,000 layoffs. Moreover, a recent court order mandates that if the state has no budget, which it does not as of now, state salaries must be reduced to the minimum wage! The California State Employees Association reports that average monthly salary of state workers is $4,200, which would fall 72% to $1,188—some $37.9 million in lost wages—at the minimum wage. CSEA president Perry Kenny said, "People won't be able to pay their bills.... It's a disaster waiting to happen."

State Budget Desperation Is Worst Since Last Depression

A New York Times op-ed June 30 by Bob Herbert, titled, "Oblivious in D.C.," opens with a quote from Oregon Governor Ted Kulongoski: "Of all the challenges we face, none is more troubling than the fact that thousands of Oregonians, many of them children, don't have enough to eat. Oregon has the highest hunger rate in the nation." Herbert juxtaposes the Bush Administration's "indifference to the increasingly harsh struggles of the working classes and the poor," to the "renaissance" the President is promising to citizens of Iraq. Herbert says states across the country "are reaching depths of budget desperation unseen since the Great Depression," and the disconnect in Administration policy "is becoming surreal."

Greenspan at BIS Calls for 'Unorthodox Measures'

Speaking at the annual meeting of the Bank for International Settlements (BIS) in Basel, Switzerland, U.S. Federal Reserve Board chairman Alan Greenspan told his fellow central bankers that "measures once considered unorthodox might become conventional, such as buying financial assets," according to Reuters June 30. Greenspan is already on record, since Nov. 17, 2002, as saying that the U.S. might have to take "unconventional measures," which would include tremendous injections of monetary aggregate, which would go outside the normal means used by the Federal Reserve.

Expressing the ambivalent mood prevailing at the BIS, Matti Louekoski, deputy governor of the Bank of Finland, said, "We only expect very slow recovery," adding, "but of course, we have some uncertainties that are more or less serious."

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