In this issue:

Über-Banker Rohatyn Proposes 'Big MAC' for U.S. Economy

U.S. Budget Deficit Surges to Nearly $300 Billion

Economic Writer Calls for Gov't Intervention on Jobs

Calif. Officials Attack Dereg; Predict New Energy Crisis

It's the Infrastructure, Stupid: Bird Knocks Out LAX

Parking Fines Rival Property Taxes as Cities' Tax Revenue Source

Corporate Taxes Plunge as Property Taxes Soar

Hospital Bills Nationwide Spin Out of Control

Safire: Hedge Funds Pose a 'Real Financial Risk'

DuPont To Cut 3,500 Jobs Worldwide


From Volume 3, Issue Number 16 of Electronic Intelligence Weekly, Published Apr. 20, 2004

U.S. Economic/Financial News

Über-Banker Rohatyn Proposes 'Big MAC' for U.S. Economy

In an editorial in London's Financial Times April 15, headlined "America: like New York in the 1970s, but worse," top synarchist banker Felix Rohatyn called for drastic budget cuts to overcome an escalating economic/financial crisis. He described the scenario: "Indebtedness spinning out of control, fuelled by an unchecked increase in the deficit. An accounting system that indiscriminately mixes expenses with capital assets, ignores contingent liabilities and makes Enron look conservative. A social structure sharply divided between 'haves' and 'have nots.' An administration locked into denial on the assumption that 'the markets will always be there for us.' A political system paralyzed as public finances careen towards catastrophe. That was New York City in the early 1970s; it could be America tomorrow."

Then, Rohatyn continued, "America's out-of-control federal budget deficit, rapidly growing domestic and foreign debt, and off-the-books social security and Medicare liabilities look eerily similar to the fiscal situation that faced New York nearly 30 years ago." So far, foreign central banks are financing US deficits, but: "This may not last forever and either the willingness of the foreign central banks to carry U.S. Debt—or their capacity to do so—could be impaired. Some time before that moment is reached, the markets would begin to react: the dollar could fall further precipitously, interest rates would shoot up, and we would have to deal with a national crisis, which could develop into a global crisis."

Rohatyn then presents his solution: "To pre-empt a financial crisis, bipartisanship, fairness and transparency will have to return to national politics. There will have to be agreement on a multi-annual plan to cut the budget deficit to a manageable level; to reform entitlement programs; to increase national savings, reducing dependence on foreign capital; and to improve energy conservation to reduce U.S. reliance on foreign natural resources. There is little reason for optimism that such a process will take place. We have supported Mr. Bush in his efforts to make the U.S. safer from terrorism but it must also be made safer economically and financially. I do not believe this is happening."

U.S. Budget Deficit Surges to Nearly $300 Billion

The official U.S. budget deficit has surged to just under $300 billion, halfway through fiscal 2004, up 18% from the cumulative budget gap for the first six months of fiscal 2003, Reuters reported April 14. The Treasury Department said the U.S. Federal government posted a $72.70 billion budget shortfall in March, a sharp rise from the $58.89 billion deficit seen in March 2003.

Economic Writer Calls for Gov't Intervention on Jobs

The U.S. needs direct government intervention, FDR-style, to create badly needed jobs, insists New York Times economic columnist Louis Uchitelle, adding that, unlike fellow Massachusetts Democrats Rep. Barney Frank and Sen. Ted Kennedy, presumptive Democratic Presidential nominee John Kerry does not embrace this view—but he should.

"Never mind that private employers added 277,000 jobs in March," says Uchitelle. That was "somewhat of a mirage. Most of the 277,000 jobs were cancelled out by a decline in total hours worked and total weekly pay." Uchitelle goes on to quote Frank that the situation "cries out" for government job creation, but that "people have so attacked government that now when there is a need for it to help create jobs, they cannot recognize a positive role for government."

The call for government involvement in job creation is "often dismissed as heresy," says Uchitelle, and Kerry himself "is a centrist, in the Clinton mode [who] counts on the private sector to generate full employment, with government playing a peripheral role, mainly in tax incentives...." Uchitelle goes on to indict Bush for failing to produce the jobs he promised, and says Kerry's insistence that jobs will come if Bush's most egregious tax cuts are cancelled, is also suspect: "The public wonders. Years of layoffs, wage stagnation, outsourcing, and now off-shore contracting have made people skeptical. Mr. Frank plays to that skepticism. So do a few others, the most important being Sen. Edward M. Kennedy, a Democratic leader who in recent speeches appears to be trying to push his party back toward New Deal proposals."

Calif. Officials Attack Dereg; Predict New Energy Crisis

Following his move recently to haul the rabidly pro-dereg Federal Energy Regulatory Commission (FERC) back into court to reclaim the billions of dollars stolen from California by energy pirates in the 2000-2001 crisis, State Attorney General Bill Lockyear released a report by his energy task force on April 13, which concludes that the state is still vulnerable to manipulation. "The incentives to game the market and create disruption appear, for the most, to remain in place," the report, released April 14, states. Lockyear is well known for his remark during the state energy crisis that he hoped one day to see Enron chief Ken Lay in a jail cell, next to a guy named "Spike."

The report attacks the regulations followed by FERC which allowed power pirates to rape the state, although they "are supposed to protect consumers and deter misconduct." Instead, it says, FERC "sheltered wrongdoers." The rules, which worked when the state regulated electricity prices and production, have led FERC to rule that California is entitled to $3 billion in refunds (of which, it has collected $85 million!). Lockyear argues the amount should be $9 billion.

The argument that there is no longer a shortage of power does not hold water. Upon assuming office, beast-man Gov. Arnold Schwarzenegger announced that the State Power Authority, established under Gov. Gray Davis to make sure that the state has enough energy, would be eliminated, since the crisis was over. State Treasurer Phil Angelides has warned that California is at risk for another energy crisis, and the proposal should be defeated. Below-average hydropower supplies are looming, as reservoir levels and snow packs are again at alarmingly low levels because of drought in the Western States. Diminished hydropower supplies kicked off the 2000 crisis.

It's the Infrastructure, Stupid: Bird Knocks Out LAX

A two-second power outage at the Los Angeles International Airport's control tower and administrative building, which officials believe was caused by a bird standing on a power line, knocked out some of the airport's radar and communications equipment for hours, according to the Los Angeles Times April 13. Some of the equipment did not come back on line after the power blip, forcing some 70 incoming planes to have to circle over the airport for as much as 90 minutes. Outgoing flights suffered only minor delays. Even though it took three hours to get all the equipment back up and running, the FAA said it was generally pleased that it was not necessary to shut down the entire airport. Except for the brief outage, controllers at LAX were able to land some planes, but problems communicating with the regional air traffic-control center in San Diego forced them to land planes at half their normal rate.

Parking Fines Rival Property Taxes as Cities' Tax Revenue Source

Parking fines and fees now rival property taxes as major sources of revenue for U.S. cities, according to the National League of Cities, which says 47% of the nation's cities raised parking fines and fees last year, USA Today reported April 14. New York's Independent Budget Office says that every $1 spent on writing tickets and collecting fines brings in $5 in revenue. "When there are budget constraints, you have to look at all possible sources of revenue," said Chicago's director of revenue, Bea Reyna-Hickey. Chicago expects to collect about $170 million this year, a 52% increase over the past two years on roughly the same number of tickets. NYC, which doubled its parking fines in 2002, expects to collect $540 million, up from $414 million in 2003 and $380 million in 2002.

Corporate Taxes Plunge as Property Taxes Soar

Accompanying a USA Today editorial April 12 is a chart that shows how much corporate taxes have fallen as a percentage of total U.S. tax revenues over the past 49 years: 32% in 1955, dropping to 17% by 1970; to 6% in 1985 Reagan years; rebounded to 10-12% during the 1990s Clinton years; now at 7.5%.

A separate article states that property taxes now constitute 32% of all state/local revenues, the largest source. Property tax revenues have risen at 5.7% annual rate since 2000, to $297 billion in 2003, while other tax revenues fell.

Hospital Bills Nationwide Spin Out of Control

Daily hospital-room charges now exceed $5,000 in some New Jersey hospitals, according to USA Today April 13. An appendectomy in California, including about two days in the hospital, costs an average of $18,000. Nationally, the median charge for a hospital stay following a heart attack is $21,665, and the cost of treating arterial sclerosis is $17,934. The California Public Employees Retirement System (CalPERS) is considering dropping 45 of the state's most expensive hospitals from its network, saving it $72 million annually.

Safire: Hedge Funds Pose a 'Real Financial Risk'

Right-wing New York Times columnist William Safire blamed the derivatives mania and hedge-fund "bubble" on the 1971 dumping of the Bretton Woods fixed-exchange-rate system. Safire, who confessed to helping to end that system in 1971, issued a warning in the Times April 12 about the dangers of pension and mutual funds buying hedge funds, the "unregulated collections of capital." "Watch the hedgehogs," he cautioned, citing SEC chairman Bill Donaldson's testimony to the Senate Banking Committee, that "hedge funds are being purchased by intermediaries on behalf of millions of ... retirees, pensioners and others ... through their pension plans or funds of hedge funds." For example, the Massachusetts state pension board voted to invest a hefty $1.6 billion in hedge funds.

"I feel a certain responsibility for again banging my spoon against this hedge-fund highchair," he says, "because I wrote the 1971 Nixon speech suspending the convertibility of the dollar into gold. That necessary [sic] flotation, in which Fed Chairman Arthur Burns acquiesced, had an unintended consequence: It launched the frantic derivative dealing that inflated today's hedge-fund bubble."

Hedge funds, he warned, face a "potential market crisis." "America is running a real financial risk."

DuPont To Cut 3,500 Jobs Worldwide

Chemical giant DuPont said it will cut 3,500 jobs internationally by the end of this year, with about 70% of those job cuts in the United States and Canada, Reuters reported April 12. The move comes as part of a previously announced plan to slash costs by $900 million, amid surging natural-gas prices. The second-largest U.S. chemicals manufacturer, said about 3,000 jobs will be eliminated by layoffs, and about 500 additional by attrition. About 450 contract workers will also be cut.

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