In this issue:

Mayors, Local Officials: Rebuild Physical Economy

Army Corps of Engineers Closes Two Locks on Mississippi

National Academy of Science Pushes Quack Solutions

Kerry Adviser Warns of Financial 'Day of Reckoning'

Former Clinton Aide Warns of 'Doomsday for Dollar'

Federal Budget Puts Super-Squeeze on U.S. Economy

Detroit Hospitals Face Emergency Room Crisis

From Volume 3, Issue Number 41 of EIR Online, Published Oct. 12, 2004

U.S. Economic/Financial News

Mayors, Local Officials: Rebuild Physical Economy

On the eve of the Vice Presidential debate in Cleveland on Oct. 4, leaders from three national organizations, the National Association of Counties, the National League of Cities, and the U.S. Conference of Mayors—Republicans and Democrats—held a joint press conference, calling upon both Bush and Kerry to talk about what they called the real issues: the economy and jobs, infrastructure improvement, and education.

Insisted Akron Mayor Don Plusquellic, president of the U.S. Conference of Mayors: "What's relevant is, how are we going to address the job loss? How are we going to rebuild our economic base, especially in the urban centers? How are we going to address reinvestment in our infrastructure? Those are the issues that are on the agenda, and should be the ones we are pushing during the debates—to force the candidates to talk about them in real terms, not just made-up phrases about how they are thinking about a program."

Added Steve Burkeholder, Republican Mayor of Lakewood, Colo., "During the past 15 months, we've heard much about the Federal investment in rebuilding the infrastructure overseas, yet we haven't heard an honest discussion about what the candidates are prepared to do to rebuild our own aging infrastructure."

Army Corps of Engineers Closes Two Locks on Mississippi

The Army Corps of Engineers closed two locks on the Mississippi River system, in Illinois and Indiana, for repairs. After its lower miter gates failed, on Oct. 3, the Corps shut down the 600-foot, auxiliary lock at Melvin Price Locks and Dam near Alton, Ill. Officials warn that initial inspections indicate the repairs may be extensive and require several months to complete, involving damaged machinery and metal structure. The main, 1,200-foot-long chamber will remain in full operation.

Two days later, the Army Corps closed the Ouachita-Black River's lock in Jonesville, La., to make repairs and install new infrastructure, a shutdown estimated to last 21 days. Former Jonesville Mayor Billy Edwards said, "It is better to get it repaired now, than to have a serious problem in the future." Last month, repairs were made to a part of the lock, in a closure that lasted 16 days.

National Academy of Science Pushes Quack Solutions

The National Academy of Sciences opposes modernizing aged Upper Mississippi locks and dams, and charges that "trend analysis" shows there is no need for improvements; instead, the NAS recommends using "nonstructural" means to aid waterway traffic. On Oct. 7, the National Research Council, part of the National Academies of Sciences, issued its evaluation that there was insufficient proof of need, in the Army Corps' proposal to replace 600-foot, old lock chambers on the 39 Upper Mississippi and Illinois waterways, with 1,200 modern structures. "Trend analysis" was the methodology used by the anti-scientific, so-called science outfit. They said that U.S. grain exports aren't growing much. The Upper Mississippi's chief commodities hauled are grains, and inputs for farming, so don't bother modernizing the waterway. "There are no overwhelming regional or global trends that clearly portend a marked departure from a 20-year trend of steady U.S. grain export levels," the NRC panel claimed.

This justification for doing nothing is timed nicely with the fact that, as of Oct. 1, FY 2005 is now underway, and Congress did not enact the request of the Army Corps for authorization of $1.5 billion for the lock replacement project.

What did the Academy propose instead? What they called "non-structural" aids to traffic through the existing waterway. They propose that the Corps issue lock pass-through "permits" (for preferred times of passing through the locks), and then have bargemen vie for them, perhaps by lottery. So the winner could speedily clear the locks, while the losers waited in congestion, and at bad hours, for passage, etc.

Kerry Adviser Warns of Financial 'Day of Reckoning'

Joseph Stiglitz, President Clinton's chief economic adviser from 1995 to 1997, and now a Kerry adviser, warned of a financial "day of reckoning, citing government debt and liabilities for promised future benefits paid to retiring Baby Boomers (Medicare, Social Security, government pensions), USA Today reported Oct. 4. "Economists agree this cannot go on. We can borrow and borrow, but eventually there will be a day of reckoning. It may be a charismatic politician, like Ross Perot, who takes on the issue, or it may be a financial crisis," Stiglitz mused.

Former Clinton Aide Warns of 'Doomsday for Dollar'

J. Bradford DeLong, who was assistant U.S. Treasury Secretary (under Robert Rubin) during the Clinton Administration, notes that the "unsustainable" U.S. current-account deficit reached 5.7% of (official) gross domestic product in the second quarter of 2004, but the dollar remains overvalued. Could we be headed for what IIE's Fred Bergsten calls "a disaster in the making," asks DeLong, where a stampede of investors sell their dollar-denominated securities, causing the dollar's value to crash and triggering a "major global financial crisis."

DeLong lays out a scenario for dollar crash:

* First, short-term speculators drive a currency's value to unsustainable levels;

* Second, trend-chasers keep buying, pushing the overvaluation to unexplained height and duration;

* Third, highly intelligent economists concoct theories of why this time the overvaluation is possibly sustainable after all (the current stage of the dollar collapse, says DeLong);

* Fourth, market bulls keep buying;

* Fifth, a crash similar to the collapse of a Ponzi scheme.

Japan, China, and other export-oriented East Asian economies are trying to keep the value of the dollar relatively high. DeLong cautions, "But if international currency speculators get the scent of near-inevitable profits from an ongoing dollar decline in their nostrils, all of the Asian central banks together will not be able to keep the dollar high."

DeLong concludes, "There may yet be a soft landing," but "the chances of a fast, hard landing have surpassed 25% and continue to climb."

Federal Budget Puts Super-Squeeze on U.S. Economy

The Federal government's proper role in maintaining and reviving the economy in a crisis, is being blocked by a near-complete deadlock of all budget legislation in a Congress overhung by huge budget deficits and bulldogged by House Majority Leader Tom DeLay.

As the Congress prepared to end its session on Oct. 8, the Defense Budget was the only one of 13 budget authorizations that has been enacted. Most of the others have been passed by the House, with unacceptably low funding levels (and the White House demanding even lower ones), and not passed by the Senate, or deadlocked in conference committees, for that reason. All these vital agencies are operating at FY 2004 or even FY 2003 levels under "continuing resolutions."

Five budget bills particularly could impact the nation's collapsing physical economy and labor force: Energy and Water Development; Transportation and Treasury; Agriculture; Labor, Health and Human Services and Education; and Veterans Administration/HUD. But the six-year $278 billion Transportation Bill passed by the House, for example, would give Federal highway aid a 3% increase, Amtrak a fatal, outright 25% cut; and public transit no increase. Even this is $22 billion too high for the White House, which would veto it. The House-passed Energy and Water budget bill would authorize $4.8 billion for the Army Corps of Engineers, 1% less than the Corps budget of two years earlier. The Corps has been laying off engineers. But again, the House funding level is $700 million too high for the White House.

Even DeLay's and Hastert's House hasn't passed its own proposed VA/HUD budget bill, because it's so low-ball, the House members are afraid to vote on it. In the midst of tremendous, added demands of returning Iraq war wounded on the Veterans' Administration, and pressures almost as strong on HUD from the housing bubble, the House bill proposes a .7% increase for both agencies combined. As a result, three other bills now circulating in the House—HR 3800, 3925, and 3975—all would impose mandatory spending caps or force deep cuts in programs and in compensation for disabled veterans.

Detroit Hospitals Face Emergency Room Crisis

Metro Detroit hospitals would "grind to a halt" from a major accident or epidemic, officials warn, because they are already hit by seriously overcrowded emergency rooms, the Detroit News reported Oct. 4. As the flu season approaches, at hospitals in the metro Detroit area and in many regions across the nation, emergency patients must routinely wait—sometimes for an entire day—to be admitted to the hospital, due to severe shortages of beds. Warned Dr. William Barsan, University of Michigan chairman of emergency medicine, "We're at the tipping point. There's a nationwide problem here that's reaching crisis proportions. A 10% increase in patient volumes would grind us to a halt."

Illustrating the crisis, a patient with a severe leg infection that usually requires hospitalization, had to wait 27 hours before getting a room at the University of Michigan Hospital. A woman waited hours to be admitted for an abdominal hernia. Emergency patients at Beaumont Hospital in Royal Oak, who need in-patient beds, are moved to an upstairs hallway.

Hospital closings have led to a 15% drop in emergency rooms nationwide between 1999 and 2002. In Detroit alone, four hospitals have shut since 1997. Emergency visits have increased by 23% at the same time, amid rising numbers of people who lack health insurance.

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