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| Subject: | U.S. Economy: Looming Bust after Loony Boom? - an UPDATE to...Awakening Mainstream America (TiM GW Bulletin 2000/12-1, Dec. 1, 2000) |
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| Date: | Fri, 01 Dec 2000 22:38:05 -0800 |
| From: | TiM Publisher <[EMAIL PROTECTED]> |
| Reply-To: | TiM Publisher <[EMAIL PROTECTED]> |
| To: | TiM GW Bulletins <[EMAIL PROTECTED]> |
FROM PHOENIX, ARIZONA
Here is an UPDATES to the “Awakening Mainstream America” TiM Bulletin - 4. U.S. Economy: Looming Bust after Loony Boom?, and a Quick Update to the "Transfer Agreement" story.
To read the latest update and all of the above stories, just click (or double-click, depending on your computer) on the following Web address, and you'll be able to see it in full color, along with accompanying images:
http://www.truthinmedia.org/Bulletins2000/tim2000-12-1.html
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4. U.S. Economy: Looming Bust after Loony Boom?
PHOENIX, Dec. 1 - Amid the media feeding frenzy that focuses on Ryder trucks and not-so-supreme beings in black robes, it is easy to lose sight of some stories that will have a much more profound impact on the lives of average Americans. Our economy is grinding to a halt, and a scant few people either realize it or seem to care. Except, of course, for those who are already up to their necks in alligators in bankruptcy courts.
More than one million Americans who have filed for bankruptcy this year probably could not care less if either Al Gore or George Bush became president, or if Fidel Castro were appointed governor of that banana republic that lies just north of Cuba. For, their spending binge, which the vice president hailed as a sign of the “strong economy,” is now followed by a sobering financial hangover.
Since the start of the year, personal bankruptcy filings have increased by 10%, measured by a moving 12-week average, the Wall Street Journal reported today (Dec. 1). All in all, some 1.26 million Americans will have declared themselves insolvent this year. The consumer debt research firm, SMR Research of New Jersey, projects that bankruptcies will rise as much as 15% next year, surpassing the all-time high of 1.4 million cases set in 1998.
So much for Gore’s “strong economy!”
But a rising tide of financial defaults did not stop other fools from reaching for fools’ gold. National TV networks feasted on scenes of anxious shoppers lining up on Friday, Nov. 24 (“the biggest shopping day of the year,” we are told) in the wee hours of the morning for the privilege of SPENDING money at department stores! Another one of those “only in America” images that make people in other countries shake their heads in disbelief.
But the day of reckoning comes eventually. For most such compulsive shoppers, it begins with the arrival of their credit card bill. “Bankruptcy takes a heavy human toll, and many of those who seek protection from their debts see it as a humiliating admission of failure,” the Journal writes.
“But the economic costs can also be substantial,” the Journal adds. “Creditor losses from debts erased by bankruptcy run into the tens of billions of dollars each year. The filings, meanwhile, may be the harbinger of a significant slowdown in consumer spending that could make a ‘soft landing’ for the U.S. economy nearly impossible.”
"We've just finished one of the plateau periods for bankruptcies, which hit a peak in 1998 and then fell a bit," says SMR President Stuart Feldstein. "But now that we've caught our breath, they're about to go way up again. We're on the verge of another flood."
The Journal explains:
- “The consumer-spending binge of the early 1990s was built on a fragile foundation of massive household borrowing, so for spending to keep pace going forward, borrowing would have to continue to increase as well. But the current increase in the number of bankruptcies means that many households are having a hard time repaying existing debts, suggesting they'll be far less eager to amass new ones. And with Americans already spending every dollar they earn, a reluctance to borrow more money means the pace of consumer spending can only slow, serving as a significant drag on the broader economy.”
About 10% of households making less than $50,000 were more than 60 days late on at least one loan payment, a recent survey showed, compared with less than 4% of the families earning more than that amount. Furthermore, it's becoming harder for low-income Americans to work the extra hours or get second jobs - to earn the money to repay their debts.
And so, the growth in consumer spending - the bulwark of the supposedly strong economy and the biggest component of the gross domestic product growth - is starting to ebb. On Thursday (Nov. 30), a new government report on personal income suggested that consumer spending will advance at an annual rate of just 3% this quarter, far lower than the 4.5% pace recorded a quarter earlier. The slower pace could easily translate into a relatively weak holiday season for the nation's retailers, the long lines in pre-dawn hours on Friday, Nov. 24 notwithstanding.
Nor are the increased bankruptcies and slower consumer spending the only signs of a loony boom turning into a looming bust of the U.S. economy.
The Labor Department said that first-time claims for unemployment benefits soared by 19,000 to 358,000 last week, their sixth consecutive increase and a two-year high, the Wall Street Journal also reported today (Dec. 1). The four-week moving average of claims, which flattens out short-term volatility, jumped 12,000 to 343,000. Both measures had been declining for most of the past few years, before beginning to climb several months ago.
Two other reports, which usually attract little attention, illustrate the worsening condition of the manufacturing sector that continues to shed jobs.
Most of the indexes in the Chicago Purchasing Managers' report are now at or near historic lows. The National Association of Purchasing Management-New York said that optimism about the economic future fell in the region despite strong levels of tourism and retail sales.
As if to spruce up the dry statistics with some real life factory sob stories, DaimlerChrysler Corp. said today that it planned to idle more North American factories after posting a 5% decrease in total U.S. vehicle sales during November. The company plans to temporarily shut down two of its 12 North American facilities during the week of Dec. 4. Last week, Chrysler idled three factories in order to reduce overflowing inventories at dealerships. The closings left 13,600 auto workers without jobs that week.
Meanwhile, Delphi Automotive Systems Corp., an auto parts supplier, said it will place more than 1,700 hourly employees - or 3.1% of its 54,000 hourly U.S. work force - at its Michigan, New York and Ohio facilities on temporary layoff, citing reduced volumes.
Bad news from the automotive sector trails an even worse news about the computer PC sales declines that rocked the market yesterday (Nov. 30). This knocked billions of dollars out of the market capitalization of PC vendors, such as Gateway, IBM, Dell, HP, and Compaq. The drop pushed the technology-heavy NASDAQ index down by 4% to under 2,600 points. That’s nearly 50% down from the NASDAQ peak reached in March of this year.
All these business woes meant that the U.S. economy grew at just a 2.4% annual rate in the third quarter - less than half the second quarter's pace. Any sign of slowing makes money-lenders leery of borrowers' future earnings, and therefore its ability to repay. As a result, the recent plethora of bad economic news also has had the bankers twitching nervously, and tightening the credit even to their good corporate clients, the Wall Street Journal also reported today (Dec. 1), in a front page story.
A Federal Reserve survey shows that 44% of U.S.-based banks have tightened standards for commercial and industrial loans in the past three months, in part, because regulators are pushing them to curtail risky lending. Many of the largest and the most profitable U.S. corporations have seen their borrowing costs go up (such as Xerox or Levi Strauss, for example).
Why the sudden credit crunch? Because of the “once burned twice shy”-syndrome. When the Southeast Asian crisis hit three years ago, the flight of capital from that part of the world landed mostly on the U.S. and Western European financial shore. So the last three years have created a cashflow-driven appearance of prosperity in western markets, thus our term - “loony boom.”
During that time, flush with more cash than wisdom, bankers gave money to lots of companies that, in retrospect, shouldn't have been funded nearly so richly. Some financing deals done in 1997 and 1998, which the Journal terms “frothy,” have turned around to bite investors. They typically involved over-leveraged "roll up" companies on acquisition sprees, and Dot.Com and telecom companies with no earnings.
In June of this year, total borrowing by non-financial U.S. companies stood at $4.6 trillion, up 61% from five years before, Moody's says. So far in the fourth quarter, Moody's has been lowering the credit ratings of 3.9 corporate borrowers for every one it raises, the worst ratio since the fourth quarter of 1990.
Also, 3.3% of syndicated loans were considered troubled as of the end of March this year, up from 1.3% two years earlier, according to bank regulators' latest Shared National Credit survey. Now, more debt is going bad. The junk-bond default rate is above 5%, the highest in nearly a decade, the Journal says.
The Journal points out that the corporate Chapter 11 bankruptcy filings this year include firms such as AmeriServe Food Distribution Inc., whose $1.5 billion in debt was more than nine times its annual cash flow. Rattling investors further is the fact that some of the year's biggest Chapter 11 filers have been companies that had investment-grade credit ratings, such as grocer Pathmark Stores Inc. and Laidlaw Inc., a transportation company.
Finally, the Commerce Department also reported today (Dec. 1) that the nation’s personal incomes declined to $8,405 trillion in October from $8,421 trillion in September. We could have probably picked up a few more depressing economic stories in the morning papers, but chose to stop here. Frankly, the preceding compendium was more than enough of a bad news digest even for a hardened analyst.
Maybe we should all let Al Gore take credit for such awesome business hum, just as the Democratic candidate did when he was spinning the news as “the man who invented the Internet?” He would probably not know the difference between hum and humdrum anymore than he would between booing and booming. He’d likely tuck them all away into the same lockbox. And then lose the key?
Poor Al… Everybody’s on his back, making fun of him.
Even dogs (see the “Good doggie!”-photo at our web site). Gore is
rapidly becoming the Rodney Dangerfield (in getting no respect) of American
politics, but without Rodney’s sense of humor. And that’s the man
who would be president?
Meanwhile, back to business, what can we expect in the future given such a shaky economy?
Well, let’s start with no-brainers. We can expect the Fed to lower interest rates. Which will weaken the U.S. dollar. Which will help the exports. Which will boost financial results of multinational companies with substantial overseas revenue and earnings contributions. Which will all fall on deaf ears on Wall Street, since the stockmarket has long ago stopped caring about business fundamentals of the companies whose shares it trades.
So why should you care? Because the next pink slip may be yours. So you might as well have a Plan B, just in case.
And what’s that? Move overseas?
If you can afford to.
The smart money will leave Wall Street to its conundrums, and invest overseas just as easily as it arrived in the U.S. three years ago. If that happens, we will see an outflow of capital from America. The upshot will be lower U.S. stock prices, especially in overhyped sectors, such as technology, which are already taking a beating.
IBM’s CEO, Lou Gerstner, seems to agree with us. At least actions do, if not his words. One week after giving Wall Street a pep talk about IBM’s bright future (see Annex Newsflash 11-01, Nov. 10, 2000), the Big Blue boss registered to SELL (!) 700,000 IBM shares worth an estimated $70 million. It was Gerstner’s largest stock disposal ever, surpassing even the blockbuster 678,000 shares that the IBM CEO announced he would sell in August 1999 (see “Best Years Are Behind,” Annex Bulletin 99-28, Aug. 10, 1999).
Way (not) to put your money where your mouth is! The IBM CEO must be getting ready for Washington after he is finally booted out of Armonk. Either way, despite his sweet talk, Gerstner is evidently seeing the writing on the wall, both for IBM and for the U.S. market. And is bailing out while the going is good.
The new president, whoever he is, will not have that option. Rolling out the red carpet in Washington at inauguration time may end up symbolizing the red ink flowing in the rest of the country.
So maybe the way to cut the Election 2000 Gordian knot is to have two presidents - so they can each take half the blame. Gore can be president of New York and California, or example, and Bush can run the rest of the country. Except for Florida We have a feeling that both presidents and most Americans would be happy to cede it to Castro by now (see this writer’s August 1996 Washington Times column, “When Cultures Collide...”, about the upcoming U.S. break-up, in which we did call Florida “North Cuba” - you can see it at our web site even labeled as such on our 1995 map of the U.S.).
The real problem, however, would be Wall Street, not Florida. For, both presidents are beholden to it. It’s just that Al’s been working the left side of the street, while Dubya has been hitting the wallets on the right side of the street.
So maybe we should erect a new “Berlin Wall” in the middle of the street, with Al getting the left block, while George claiming the right block? After all, it is a street called Wall, isn’t it?
“But wait a second,” can’t you just hear a lawyer arguing, “what is left and what is right depends on whether you stand at the north or the south end of Wall Street.”
“Generally, it does. But what is left and what is right makes no difference to Gore or Bush. Only what is might. Which both of them are trying to grab with all their might.”
And now, you can now go back to your favorite boob-tube
channel and continue following that Ryder truck and those black robes.
Hopefully into oblivion…
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A Quick Update to the Transfer Agreement Part of "Awakening Mainstream America"
PHOENIX, Dec. 1 - Here's quick update to the "Transfer
Agreement" part of the above story. As we reported, the Israeli journalist,
Barry Chamish, wrote in his 1998 review of Edwin Black’s book, “The Transfer
Agreement” (MacMillan, 1985), that:
- “It has been called, along with Ben Hecht's Perfidy, the most controversial book about Israel ever written. Unlike Perfidy, The Transfer Agreement by Edwin Black (MacMillan, 1985) never had an audience. It was taken off the shelves quickly and surreptitiously and is almost impossible to find."
TiM Ed.: That was true when written, back in 1998. But since that time, as Ken Nebel, a TiM reader from Duluth, MN, points out pithily, "Black's book, 'The Transfer Agreement,' is available now in both hardcover and paperback versions from Amazon.com. The attempt to suppress it has failed, thanks perhaps to Al Gore's great invention" (the Internet).
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