In this issue:

U.S. Budget Deficit Projected To Reach $600 Billion

Pension Insurer May Need Federal Bailout

Machine-Tool Consumption Continues Slide to Depression Levels

Aerospace, Auto Sectors Announce Job Cuts, Plant Closures

Fed Governor Bernanke Warns Against China Currency Float

Dems Join Bush Administration in Bashing China For 'Currency Manipulation'

Bush's Education Plan Is Flunking Out

States Turn to Bonds To Fund Their Pension Plans

Health-Insurance Costs Have Soared This Year

Krugman: Has U.S. Economy Dashed Over the Cliff?

Ancient Manhattan Water Main Ruptures, Flooding Streets


From Volume 2, Issue Number 42 of Electronic Intelligence Weekly, Published Oct. 21, 2003

U.S. Economic/Financial News

U.S. Budget Deficit Projected To Reach $600 Billion

The U.S. budget deficit will reach $600 billion next year, according to latest estimates by U.S. investment bank Merrill Lynch. In early October, Bloomberg News did another survey among economists at the 22 so-called U.S. government securities primary dealers—that is, the largest U.S., European, and Japanese banks—concerning expectations on next year's U.S. budget deficit. The average estimate for the 2004 deficit rose to $524 billion, 11% more than the $471 billion average of the July survey. Merrill Lynch raised its estimate from $470 billion to $600 billion, in particular, due to higher costs of the Iraq war. The most dramatic change was made by British HSBC bank, which now expects a 2004 U.S. budget deficit of $630 billion, compared to its $400 billion estimate made three months ago.

Pension Insurer May Need Federal Bailout

The Pension Benefit Guaranty Corp. (PBGC), which bails out failed corporate pension plans, is now nearly bankrupt itself, according to the head of the agency. PBGC director Steven Kandarian noted in testimony to the Senate Special Committee on Aging on Oct. 14, that his agency had expected to run a $5.7 billion deficit this year as more and more corporations—in particular in the steel and airline industries—are going bankrupt. But the agency had to rescue many more pension plans than expected. Therefore, the deficit of PBGC has reached $8.8 billion.

This deficit "is the largest in its history and is still growing," said Kandarian. If present trends continue, he warned, the agency—which insures retirement plans for 34 million workers and retirees—might ultimately need its own bail-out by taxpayers. Kandarian blamed the deficit on record-high pension underfunding by U.S. corporations, which he estimates to be above $350 billion. He called on Congress to introduce new legislation that would force corporations to improve their pension funding. "In the worst case," he said, "Congress could call upon U.S. taxpayers to pick up the cost of underfunded pension plans through a Federal bail-out of PBGC." In such a bail-out, "all taxpayers would shoulder the burden of paying benefits to the 20% of private-sector workers who currently enjoy the security of a defined benefit plan."

Machine-Tool Consumption Continues Slide to Depression Levels

U.S. machine-tool consumption for January-August fell by 16.1%, for the same period last year, when it had already plunged by 63% from the level in 1997, the Commerce Dept reported Oct. 10. U.S. industry consumed only $150.99 million worth of machine tools in August, up 16.6% from the level in July of $129.55 million—but the latter was the second-lowest monthly total since January 2003, according to a joint report by the American Machine Tool Distributors' Association and the Association of Manufacturing Technology.

Related, goods exports by U.S. manufacturers have remained essentially constant since January, even as the dollar has continued to decline.

Aerospace, Auto Sectors Announce Job Cuts, Plant Closures

* Montreal-based Bombardier, a maker of business jets, said it will eliminate 1,150 jobs in the U.S., as it consolidates plants in Arizona and Kansas, due to a 29% fall in deliveries. About 800 workers at its Tucson plant will lose jobs over the next 15-18 months, as some operations are transferred to Witchita and Quebec, while about 350 jobs in Witchita will be cut.

* Auto-parts maker Lear announced the closure of one factory in Traverse City, Mich. that makes electrical switches, resulting in the loss of 306 jobs.

* Delphi, the world's largest automotive-parts supplier, said it plans to slash its hourly U.S. workforce by 5,000 jobs, chiefly by not replacing workers who retire, in order to bolster profits as it posted a $353-million loss in the third quarter. The company, spun off from General Motors, also said it would cut 3,000 international jobs.

Fed Governor Bernanke Warns Against China Currency Float

Federal Reserve Governor Ben "Bubbles" Bernanke warned of dangers to both China and U.S. exporters, if China immediately floats its currency, in opposition to the Bush Administration's push for China to quickly scrap its fixed-exchange-rate system, Dow Jones reported Oct. 14. "I do think that a purely floating-exchange-rate would provide dangers in the current financial system in China," Bernanke cautioned. "One risk ... is that there would be such significant capital outflows as Chinese citizens tried to make investments abroad that the yuan might actually depreciate, which would worsen the competitive situation" for U.S. exporters. Such withdrawals also "would lead to a banking crisis" in China, he warned. Bernanke was speaking at a hearing of the Senate Banking Committee.

Dems Join Bush Administration in Bashing China For 'Currency Manipulation'

Senate Democrats want the Administration to press the World Trade Organization (WTO) to investigate China's "currency manipulation," which they blame for the losses of millions of U.S. manufacturing jobs. "We are very concerned about the ongoing currency manipulation that we believe is taking place, especially in China," spouted Senate Minority Leader Tom Daschle (S.D.). As a "direct result of this currency manipulation," he claimed, the U.S. has a $109-billion trade deficit with China, and has lost millions of manufacturing jobs.

Daschle and three other Senators have sent a letter to Bush, requesting that the Administration "confront" China with these allegations and begin negotiations, and launch a "301" investigation within the zombie World Trade Organization. Sen. Paul Sarbanes (Md.) added, "It's our strong view" that China is manipulating its currency in order to gain a trade advantage. The group also includes Sens. Chuck Schumer (N.Y.) and Max Baucus (Mont.).

This is a non-issue which reveals that neither the Bush Administration, nor the Democratic Party have any economic program. The only alternative on the table is Democrat Lyndon LaRouche's New Bretton Woods.

Bush's Education Plan Is Flunking Out

The reality of the financial collapse is upsetting the Bush Administration's "signature education plan," the Washington Post wrote, in series of articles between Sept. 21 and Oct. 13. According to the Post, President Bush's "No Child Left Behind" education program "is threatening to backfire on Bush and his party in the 2004 elections." Bush's plan was supposed to improve student performance by annual testing, with serious penalties for failure. "He hoped to enhance his image as a compassionate conservative by making this education program one of the first and highest priorities of his administration. But ... some states report that as many as half or more of schools are failing to make the new grade and lack the money to turn things around promptly."

Some $90 million in budget cuts in St. Louis, for example, nearly caused riots, as parents learned that 16 schools were to be closed. In Birmingham, Ala., 38 out of 129 school districts are bankrupt. First year testing results of Bush's new education program showed 36% failed in Maryland, 45% in Virginia, and, in Presidential brother Jeb Bush's Florida, nine out of 10 schools failed to make the grade.

States Turn to Bonds To Fund Their Pension Plans

The three-year collapse of the financial markets, combined with the collapse in tax revenues, has left many states and municipalities looking for alternate ways to fund their pension liabilities, according to the New York Times Oct. 12. Bond issues have become popular because they're a quick way to raise cash that can immediately be poured into pension payments without putting pressure on cash-strapped budgets. In the first nine months of this year, the state of Illinois, Oregon's school boards, New Jersey's economic-development board and more than a dozen towns and counties, sold $13.3 billion worth of bonds for pension purposes, almost as much as the total for such purposes sold throughout the 1990s, according to Thompson Financial.

However, bonds come with a risk of their own, as the city of New Orleans found out. The city sold bonds in 2000 in order to raise cash for the pension fund of 820 retired firefighters, expecting to make 10.7% annually, by investing the proceeds in the stock market. Instead, the stock market tanked, and the city will have to pay 8.2% interest on the bonds. When the money from the proceeds runs out, the city will have to pay the pensions, about $17 million per year, itself, and still pay $16 million per year in interest costs on the bonds, out of its own budget. While the New York Times claims that recently rising markets will ease the problem, it appears that the only people guaranteed to make money from bond issues are the financial firms that underwrite them.

Health-Insurance Costs Have Soared This Year

Health-insurance costs have soared by 14.7% so far this year, on average nationwide, according to a study by Hewitt Associates, CBS News reported Oct. 14. As average annual health-insurance premium shot up to $6,227, many companies are raising co-payments, deductibles, and the share of premiums paid by employees. Next year, nearly every major metropolitan area will be hit by double-digit increases in health-insurance costs, Hewitt forecasts.

Krugman: Has U.S. Economy Dashed Over the Cliff?

Veteran New York Times Columnist Paul Krugman compares the U.S. economy to the Warner Bros. cartoon character Wile E. Coyote running off the cliff, not yet aware there is no bottom beneath his feet. "Don't Look Down," Krugman headlines his op-ed column on Oct. 14. "I can't help noticing: A third world country with America's recent numbers ... would definitely be on the watch list." The Lehman Brothers model called Damocles gives an "early warning" for countries heading for financial crisis—applied to the U.S. it "would set Damocles' alarm bells ringing." Relatively speaking, he says, the U.S. budget deficit is bigger than Argentina's in 2000, and the trade deficit is bigger than Indonesia's in 1996. Of course, the U.S. prints the dollar, so we can keep borrowing, and, "so far the commander in chief refuses even to admit that we have a problem"—i.e., Wile E. Coyote is suspended in mid air—and the nation is facing a "cash crisis that throws the nation into chaos."

Ancient Manhattan Water Main Ruptures, Flooding Streets

A 108-year-old water main broke Oct. 16 in northern Manhattan, flooding streets, and creating a traffic nightmare as officials were forced to temporarily close the George Washington Bridge—proof of the urgent need for LaRouche's "Super-TVA" policy. The ruptured water main, dated to 1895, flooded businesses and street-level apartments, as well as a city water-pumping station in Washington Heights. Five buildings were evacuated, as the rising water carried some cars down Amsterdam Avenue.

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