In this issue:

OFHEO: U.S. Housing Prices Soared in 2003

Fed's Bernanke Worries System Near Systemic Breakdown

London Economist Highlights U.S. 'Phoney Recovery'

Dem Senators Offer Measures To Stop Outsourcing of Jobs

ISM Survey Lies That U.S. Manufacturing Is Expanding


From Volume 3, Issue Number 10 of Electronic Intelligence Weekly, Published Mar. 9, 2004

U.S. Economic/Financial News

OFHEO: U.S. Housing Prices Soared in 2003

Supporting Lyndon LaRouche's assertion of a bubble in U.S. housing prices, the Office of Federal Housing Enterprise Oversight (OFHEO) reported March 1 that house prices "increased dramatically" during October-December 2003. This recent jump in house prices was widespread geographically; and represents an acceleration of the decades-long period of rapid increases in the prices of homes.

Average U.S. house prices shot up by 7.97% over the year from the fourth quarter of 2002 through the fourth quarter of 2003, according to OFHEO's house price index. Over the most recent quarter, house prices surged by 3.67%, or an astonishing annualized rate of 14.67%; this appreciation is more than two percentage points higher than the increase in the previous quarter.

The index reflects price changes in sales or refinancings of single-family homes whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac.

This rapid increase in housing prices, was not confined to a few states. "This acceleration in price appreciation is widespread," said OFHEO. In all but two states, the rates of the rise in house prices, increased in the fourth quarter of 2003. The biggest price increases in the quarter, occurred in Virginia, New York, and the District of Columbia. Even states that had been lagging behind the average national rate, experienced a "substantial acceleration" in housing price growth.

Metropolitan areas in California and Florida, continue to dominate those with the highest house-price appreciation.

Historically low mortgage interest rates, held down by the Federal Reserve, were cited by OFHEO as contributing to the accelerating growth in housing prices.

Moreover, this represents an acceleration of "a prolonged period of rapid house-price gains," noted OFHEO's chief economist. The year 2003 marks the fourth consecutive year in which house prices have risen more than 7.5%, on average, across the nation. Over the past five years, prices have surged 41.81%; since 1980, when former Fed Chairman Paul Volcker launched the "controlled disintegration" of the U.S. economy, they have soared, by a whopping 206.93%—i.e., more than tripled.

Fed's Bernanke Worries System Near Systemic Breakdown

Speaking at Washington and Lee University in Virginia March 2, on the subject, "Money, Gold, and the Great Depression," Federal Reserve Board member Ben Bernanke, confirmed what Lyndon LaRouche has said: the average citizen is told that everything is fine, but those with even a modicum of knowledge about the world financial system know that it is hopelessly bankrupt, and on the verge of systemic breakdown.

Though he did not explicitly compare today's crisis to that of 1929-33, by making that latter crisis the subject of his so-called "objective" talk, Bernanke revealed what really is on his mind.

Bernanke focusses on, what for him is the main topic: that during the last crisis, the Fed did not generate enough liquidity to save the banking system. Bernanke laments, "The Federal Reserve had the power at least to ameliorate the problems of the banks. For example, the Fed could have been more aggressive in lending cash to banks [taking their loans and investments as collateral], or it could have simply put more cash in circulation. Either action would have made it easier for banks to obtain the cash necessary to pay off depositors, which might have stopped bank runs before they resulted in bank closings and failures. Indeed, a central element of the Federal Reserve's original mission had been to provide just this type of assistance to the banking system as lender of last resort. The Fed's failure to fulfill its mission was, again, largely the result of the economic theories held by the Federal Reserve leadership."

Bernanke is involved in a brawl inside the ranks of the central bankers about what do about the system's insolvency, in which he is arguing that, if need be, as he has said, money should be dropped out of airplanes. Such desperate moves threaten to generate a Weimar-style hyperinflation

London Economist Highlights U.S. 'Phoney Recovery'

"America is experiencing the biggest credit bubble in history," warned Kurt Richebaecher, former chief economist at Dresdener Bank, in a special feature on the U.S. economy, in the Feb. 28 London Economist. The Economist piece, headlined, "The American economy—A phoney recovery," comes just two weeks after the same publication pointed to "The coming storm," on global financial markets because top banks are now even more exposed to high-risk speculation than before the LTCM collapse in 1998. Richebaecher, who joined Lyndon LaRouche at a Berlin seminar in Nov. 2001 on the "New Bretton Woods," is presented by the Economist as "an independent economist who publishes a monthly newsletter."

Following extensive quotes from Richebaecher concerning the poor performance of the U.S. economy, while at the same time the debt generation is breaking all historic records, the Economist notes that the U.S. has been enjoying a very special kind of "wealth creation": "the Fed is, in, effect printing it. Not only has it held interest rates unusually low, but the excesses of an asset-driven economy are being fuelled by artificially low bond yields (helped by huge purchases from Asian central banks trying to suppress the rise in their currencies) and hence mortgage rates."

What the Federal Reserve is doing "is cushioning the impact of the bursting of one bubble by inflating another—in housing." However, Alan Greenspan's method—to just continue printing money—is no longer supported by certain other top central banks, states the Economist, a mouthpiece of the City of London. "Other central banks seem to be breaking ranks with the Fed. Officials at the European Central Bank, the Bank of England, the Reserve Bank of Australia, and the Bank for International Settlements [the central banks' central bank] have given some support to the view that monetary policy should sometimes lean against a rapid growth in asset prices and build-up of debt, even if consumer-price inflation is low. The Bank of England and the Reserve Bank of Australia both recently raised rates because of such concerns."

In the case of the ECB, the Economist refers to last week's warning by ECB chief economist Otmar Issing, who "suggested that central bankers should avoid contributing to unsustainable collective euphoria and should perhaps signal concerns about asset values. Mr. Greenspan, alas, shows no sign of taking his advice."

Dem Senators Offer Measures To Stop Outsourcing of Jobs

At a press conference on March 3, Democratic Senators Tom Daschle (S.D.), Chris Dodd (Conn.), Tom Harkin (Iowa), and Debbie Stabenow (Mich.) announced the introduction of amendments to a Jobs Act, intended to stop out-sourcing. The amendments include: 1. "prohibiting the shipping of jobs overseas for any contract with the federal government"; 2. "deny all favorable tax treatment to businesses who insist on shipping their jobs overseas"; 3. that, "a corporation that ships its entire plant overseas [will be] taxed like everybody else, not benefitting from the tax deductions that they get today by shipping an entire operation to China, India, or someplace else."

The amendments do not correct the underlying policy shift of the post-industrial society of the past 40 years; but catalyzed by the LaRouche campaign, and the reality of loss of manufacturing jobs, Democrats have begun to respond to the consequences.

ISM Survey Lies That U.S. Manufacturing Is Expanding

On March 1, the Institute for Supply Management (ISM), an association of supply managers, escalated its peddling of the myth that U.S. manufacturing is in a "recovery." ISM wildly claimed that manufacturing activity rose again in February—even as more and more factories shut down permanently, such as Ford's truck plant in Edison, N.J. ISM's faked index of manufacturing activity hit 61.4, indicating purported rising production—and touted as capping the best four-month performance in manufacturing in two decades. (A reading above 50 indicates expansion.)

Adding to this lie, ISM claimed that manufacturing employment shot up in February, showing that factories are supposedly stepping up hiring. ISM's employment index—which has consistently claimed rising payrolls, even as the Bureau of Labor Statistics acknowledges manufacturing employment has fallen for 40 consecutive months—jumped to 56.3 in February, up from 52.9 in January.

Showing the reality of the accelerating breakdown of the manufacturing sector, a recent report on plant shutdowns by Alliance Capital Management found that 21,513 U.S. factories were closed in 2002 and 2003, up sharply from 13,824 shut-downs during 1998-2001.

The first aspect of ISM's deception device: The monthly survey is based not on actual levels of manufacturing production or payrolls, but on the mood of purchasing managers at companies. ISM's index compares the number of purchasing agents who deem conditions to be getting better, with those who say circumstances are the same or deteriorating.

Then ISM's survey method discounts jobs losses, thereby falsely inflating employment levels and showing purported hiring. ISM surveys only purchasing managers at active plants rather those at factories that have been closed; when a plant is shut down, ISM replaces it with another participant.

Even ISM chairman Norbert Ore noted a higher level of this "churn" in survey participants late last year, as new participants were brought in to replace those at plants that were closed permanently. Yet, he declared, on release of the new ISM survey, "Businesses are back."

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