the Business, Economic and Geopolitical Page of

Dr. Russell F. Henke -- Business Consultant

As president of HENKE ASSOCIATES based in the San Francisco Bay Area,
Dr. Henke pursues an active independent business/management private practice
for a number of selected high technology client companies.

We are still hearted by the results of the November 7, 2006 US election, in which the American electorate finally responded, repudiating the ruling party in control of the Executive and Legislative branches of the US government for the previous six years. While it will take many years to recover from the damage of the last eight years, we hoped in vain that further damage between 3007 and 2009 could at least be minimized. However, since the November 2006 election, the report of the Iraq Study Group, the ongoing carnage in IRAQ, etc., the president has ignored the message of Americans' disapproval. The "surge" of more US troops into the IRAQ quagmire without Iraqi political progress, the threats against IRAN, etc., are perfect examples). So too is the alleged "financial markets regulatory reform" announced recently by Henry Paulson, which has no teeth and won't be implemented for years anyway.

On March 01, 2008, The Chicago Tribune reported that the Chicago purchasing managers index, a closely followed measure of manufacturing activity, dropped in February to its lowest reading since the recession year of 2001. Instead of dropping from January's lackluster reading of 51.5 to 49.5 in February, as economists had predicted, the index unexpectedly plunged seven full points, to 44.5, its lowest level since December 2001. Economist Ryan Sweet of Moody's Economy.com noted that "a below-50 level in orders and uncertainty about the economic outlook have led manufacturers to hit the brakes." He added that this "report underscores the fact that with consumers turning wary and the impact from the collapse of the housing sector still spreading, the manufacturing sector is clearly struggling."

As we sink deeper into W’s second recession, here is another economic tidbit. Capping a unremitting rise in the last seven years, oil prices hit a record high during the day on March 3, 2008, according to a report March 4, 2008 in the New York Times. March 3rd’s highest trading price, $103.95 a barrel on the New York Mercantile Exchange, broke the record set in April 1980 during the so-called second oil shock. That price, $39.50 a barrel, equals $103.76 today, when adjusted for inflation. Oil prices hit even higher records later in the first week of March 2008, and traded above $108 a barrel on March 10, 2008. The trend is expected to continue, especially after FED Chairman Ben Bernanke signaled in late February 2008 that he was ready to cut interest rates still further to try to bolster sagging US economic growth, despite relentlessly rising consumer prices.

Sales of cars and trucks in the United States fell 10% in February 2008. Americans were paying an average of $3.165 for a gallon of regular gas as of March 3, 2008, 69.8 cents more than a year ago, according to the AAA. In CA it’s more like $3.60 now. Analysts say that a US average for regular of $4 a gallon is possible within months. By the way, lest we forget, oil was about $20 a barrel when W took office in 2001.

More bad news was released by the US Labor Department on Friday March 7, 2008. Employers slashed jobs by 63,000 in February 2008, the most in five years. The Labor Department’s report also showed that hundreds of thousands of people — discouraged by their job prospects — left the civilian labor force. Job losses were widespread, with hefty cuts coming from construction, manufacturing, retailing, financial services and a variety of professional and business services. February manufacturing payrolls alone fell by 52,000, the most in five years. Those losses swamped job gains elsewhere in non-value added sectors like leisure and hospitality and the government. The same Labor Report also showed that the job losses suffered in December 2007 and January 2008 were far worse than the government first reported: payrolls for December and January were revised down by 46,000.

January & February 2008 were the first monthly back-to-back job losses since May and June 2003, when the US job market was still struggling to recover from the blows of W’s first recession in 2001. The March 7, 2008 jobs report was much weaker than economists were expecting. They were forecasting employers to boost payrolls by around 25,000. February 2008 was also the third straight monthly drop for private-sector jobs, falling 101,000 in February alone.

The dismal US jobs report released March 7, 2008 also showed that total overall employment is actually lower than it was three months ago. Every time such a slump has occurred since the early 1970s, a recession has followed — or already been under way. Also, private-sector payroll employment has now declined by an average of 47,000 a month — a decline that has been followed by a recession every time it has happened in the last 50 years.

And if the most recent so-called ‘good times’ have really ended, they were never that good to begin with! Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account! The median US household earned $48,201 in 2006, down from $49,244 in 1999, according to the US Census Bureau.

Over the last year, the number of officially unemployed in the US has risen by 500,000, while the number of people outside the labor force — neither working nor looking for a job — has risen by 1.3 million! Employment has risen by 100,000 over the last year, but even that comes with a caveat: there are also 600,000 more people who are working part time because they could not find full-time work, according to the US Labor Department.

But, hey, those rebate checks are a-coming! The Treasury Department will begin sending out rebate checks — of up to $1,200 for couples, plus $300 per child — in May 2008, as part of the much-heralded ‘stimulus package.’ In fact, the IRS is spending $42 million of your taxes merely to send us all letters to tell us the checks are coming, for crying out loud. These rebates will fix everything, right?

The Fed has already cut its benchmark short-term interest rate five times since September 2007, and more cuts were made in mid-March 2008. These cuts will probably not work any better that the previous ones. The Fed’s problem is that its main weapons against a downturn — lower interest rates and easier money — are ill-suited to a crisis that stems from collapsing confidence about credit quality. And meanwhile, good luck if you are trying to live off your personal savings – your interest rates are far lower now and inflation is rampant – a deadly one-two punch.

And another miscalculation: home prices are now falling in almost every part of the country, a phenomenon that Fed officials until recently thought was all but impossible, and some analysts now predict that average home prices across the US will ultimately fall 20% from their peak in early 2006.

Closing quote from Nobel Prize-winning economist Joseph Stiglitz at a congressional hearing on February 28, 2008: “Because the Bush administration actually cut taxes as we went into the current Iraq war, when we were already running huge deficits, this war has, effectively, been entirely financed by deficits. The national debt has increased by some $2.5 trillion since the beginning of the Iraq war, and of this, almost $1 trillion is due directly to the Iraq war itself ... By 2017, we estimate that the national debt will have increased, just because of the war, by some $2 trillion.” Of course, developments prior to November 7, 2006 certainly did nothing but worsen the situation.

Let's just consider Items (1) and (2) above. Worsening inflation in the US continues to steal US consumers' purchasing power and mocks the stagnant multi-year flatness of US workers' compensation. The Fed was once so worried about inflation in the US, that for the 16th time in two years it raised interest rates, this time to 5% on May 10, 2006. Yet average Americans must react to their own paychecks and benefits, weighed against highly-volatile costs, like housing (higher mortgage rates), health care (Item (13) above) and gasoline (Item (9) above). For all but the wealthiest Americans, the latter volatile costs have outpaced paychecks since 2001.

Then inflation news got worse a few days later. On May 16, 2006 the government reported that wholesale prices jumped 0.9% in April 2006, the most in seven months. Then the Labor Department reported on May 17, 2006 that the consumer price index swelled 0.6% in April, topping all forecasts. More importantly, the "core CPI" without food and energy also gained 0.3%.

Although the "recovery" from the administration's 2001 recession took nearly six years, the average wage in the US nevertheless lost ground to inflation since 2001. So despite then-recent administration claims, we realize the ongoing truth, that people's wages are not keeping up with inflation. No wonder the president's polls (see Item (7) above) were then at their lowest level of his tenure (31% approval = to his Daddy's lowest number, with some other fresh polls now at 29%). Some 69% of the people polled now say the nation is off track. Op-Ed columnist Thomas L. Friedman made this comment in the May 17, 2006 New York Times, "Those polls can't possibly be accurate. I mean, really, ask yourself: How could there still be 29% percent of the people who approve of this presidency?"

Well, at least the government is acting to get that ballooning federal deficit under control! (Item (1) again!). What's that you say? Congress agreed on May 12, 2006 to a five-year, $70 billion tax package that would extend deep cuts to US tax rates on dividends and capital gains, effectively locking in all the president's first-term tax cuts through the end of the decade? And Bush said he signed it enthusiastically once it reached his desk on May 17, 2006?

"We have a train wreck waiting to happen," said C. Clint Stretch, director of tax policy at the accounting giant Deloitte & Touche. "You cannot grow your way out of these (federal) deficits," said Senate Budget Committee Chairman Judd Gregg (R- NH). (By Q4 2007, the train wreck happened).

Oh well, everyone benefits from tax cuts, what the heck! What's that you say? Most Americans do not benefit? Most of the cuts go to a tiny minority of wealthy Americans? Yep, the Center on Budget and Policy Priorities says the average middle- income household will get a $20 cut, while those making more than $1 million a year will get nearly $42,000.

As Molly Ivins of the Creator's Syndicate said on May 18, 2007 before her tragic death, "The $70 billion tax cut is part of a continuing right-wing fantasy going back to the Laffer Curve (circa 1981). Of course, clinging to demonstrably false economic precepts is understandable when you (stand to) benefit from them, but at some point reality does intervene."

Oh by the way, the latest tax cut bill also commits an estimated $53 billion through the middle of the 21st century to help those same high earners shift their existing savings into tax shelters. This foreshadows big federal deficits far into the future. Had the Republican's estate tax reduction bill passed on June 8, 2006 the situation would have worsened still.

Let's turn to enervating Item (3) above. Alas, the pace of adding new US jobs continued lukewarm at best. (California's economy posted a net loss of 2,600 payroll jobs in April 2006. Even after the recession of 2001 ended, with the millions of jobs lost in the US in 2001, 2002, and 2003, it took till part-way into 2005 before a single net new job was added in the US, the slowest post-recession jobs' recovery by far since WW II. Over the Jube2005-May 2006 year, the monthly job additions were still tepid, compared to the eight-year period of 1993-2000, when 230,000 jobs were added on average every month for 96 months! That's like an NBA star averaging a "triple-double" every year for 8 straight years! By the way, May 2006 came in at a lackluster 75,000 jobs, and March and April numbers were reduced from those previously reported. The last four months including May 2006 saw a steep slope downward (see graph).

Outsourcing of US jobs continues unabated (Item (4) above). While outsourcing to Asia still tops the list (India, China, Philippines, Singapore and Malaysia), lately Eastern European countries such as Bulgaria, Romania, Slovakia and the Czech Republic are getting into the act, shifting work from both the US and Western Europe. A low-cost, highly educated workforce, combined with solid infrastructure, economic and political stability, geographic proximity and fewer security concerns are just some of the factors helping Eastern Europe. For example, Bulgaria's educational system ranks fifth in the world and 11th in mathematics, with one of the highest numbers of information technology-certified professionals per capita. General Motors, Capital One, Ford Motor Co. and Lockheed Martin, have already outsourced information technology work to Bulgaria. In early 2006, Hewlett-Packard announced plans to open a global delivery service center in the Bulgarian capital to provide remote infrastructure management assistance to HP clientele in Europe, the Middle East and Africa. Expected to be fully operational next year, the center will employ about 1,000 Bulgarians, primarily multilingual engineers and programmers. Outsourced jobs in Bulgaria provide average base salaries of about $373 per month, well above the Bulgarian average monthly salary of $190.

Another sure sign of worsening US economic trouble is the recent surge in gold prices and other precious metals. The price of gold rose to a fresh 25-year high on May 10, 2006 as investors sought a safe haven amid a weakening US dollar (item (8) above) and worries over the administration's most-recent sword-rattling confrontation this time with Iran. Historically, gold is considered a truly desperate refuge against serious currency weakness, inflation and financial instability. Gold is trading now at levels not seen since the Reagan era. Many investors are now turning to gold; they don't think US inflation is under control, because the US economy is now much more leveraged (i.e. debt-ridden) than it has been in the past (items (1) and (17) above).

During the week of May 15-19, China slightly loosened the tether that binds the Chinese yuan to the US dollar. A stronger yuan implies a weaker dollar, as does the general strengthening so far in 2006 of the euro and the yen (see Item (8) above). But unless the falling US dollar is paired with reductions in the US federal budget deficit, more harm than good is done due to rising interest rates. That's because the foreign investors who finance the administration's "borrow as you go" budget (see Item (1) above) are likely to demand higher returns to invest in a depreciating US dollar. To keep interest rates in check as the US dollar falls, the administration tries to use smoke & mirrors to persuade investors not to believe what they see: a US dollar that is declining even as the US does nothing to curb its federal borrowing.

Meanwhile, the US housing market continues to slow. On May 16, 2006, the Commerce Department said US housing starts nationwide dropped 7% to 1.85 million in April, down for the third straight month, as rising mortgage rates showed signs of tempering demand. In the San Francisco Bay Area, home sales tumbled to their lowest level in five years in April as a chill continued to creep through the region's housing market. The Nasdaq Composite closed at its weakest level of the year on May 16, 2006. Then Wall Street skidded even lower on May 17, when the Dow Jones industrial average suffered its biggest one-day loss in three years, and the Nasdaq composite index turned negative for 2006. The Dow and Nasdaq lost another 77 and 15 points, respectively, on May 18. Then on May 22, the Nasdaq fell 21 points to 2,173, its weakest close in 6 and a half months. On June 5, the Dow fell 200 points and the Nasdaq fell over 49 points. For the week of June 5 - 9, the Dow Jones industrial average shed more than 355 points (3.16%) and is off 6.5% from its level of just three weeks ago. During the same week of June 5 - 9, the S&P 500 sank 2.79% and the Nasdaq plunged 3.8%.

The tech-heavy Nasdaq has really never recovered since 2001, despite claims of the "robust US economy" by administration spokesmen. It's still more than 22% below its level of January 21, 2001, just to choose a date (Item (10) above). The Nasdaq also remains 57% below its high water mark historically.

Of course, anyone who drives in the US has experienced the outrageous rise in gasoline prices in the US, exacerbated by the needless US conflicts with Iran and Iraq (items (6) and (9) above). Worse, Californians now pay 48 cents more for each gallon of regular than other Americans do, with the state's average reaching $3.37 on May 10, 2006. But the price of gasoline is way up across the US.

The latest New York Times/CBS News poll in mid-May showed that 63% of respondents had cut back on their driving because of the gas price increase, and 56% had cut back on other household spending. No wonder the University of Michigan's consumer-sentiment index for May 2006 plummeted 8.4 points to 79!

Meanwhile, big oil continues its grotesque march to record profits as it has for the last five years. Exxon recently reported first-quarter 2006 net income of $8.4 billion on sales of $89 billion. Chevron reported Q106 net income of $4 billion on sales of $54 billion. Oil execs always point out that the companies' profit margins are "only" in the 9% range, only "slightly higher" than the US corporate average. Of course they never mention to the public, except when touting their stock to their shareholders, that oil companies sport a return on capital employed more than double the average return on capital employed for all US industrial companies. In 2005, Exxon's ROCE was 31%. Collectively, the five largest oil companies (Exxon, Chevron, ConocoPhillips, Shell and BP) enjoyed an average ROCE of nearly 27% percent in 2005. Why not use some of this largess to build more refineries?

Crude oil -- gasoline's main ingredient -- has traded for more than $60 per barrel for most of 2006, reaching as high as $75.17 in April. Yet oil company profits have soared by a far greater percentage. Perversely, rising gas prices may also be shoring up crude prices. Although the cost of crude usually helps determine gasoline prices, and not the other way around, the two sometimes support each other, with each barrel of oil becoming more valuable as gas prices rise.

No wonder the administration wants to keep the vice president's 2001 energy policy conference an ongoing secret!

And talk about "unintended consequences." Due to the higher prices for fossil fuels, the US nuclear power industry now believes it has its best chance in years to come back to life and overcome skeptics to build new nuclear plants. Apparently the US nuclear industry already has as many as 20 nuclear plants planned across the country, worth upwards of $60 billion. Of course, the industry has a spotty past record at best of opening nuclear plants on time and on budget. And one other small consideration -- what to do with the nation's pesky radioactive waste -- a question that has dogged the US nuclear industry for decades.

Since the "peak" of the world's oil supply has probably already occurred, "big oil" also ought to be plowing most of its profits into developing and perfecting renewable energy sources, rather than focusing on exploiting the dwindling world oil supply. And the US government should insist on it, along with promoting conservation. In recent days, US Senate Democrats introduced new energy legislation to cut US oil consumption significantly by 2020 by boosting sales of alternative fuels, providing incentives for purchases of hybrid vehicles and researching next-generation energy technologies. It would create a national renewable portfolio standard for electric power requiring 10% of all electricity to come from renewable sources by 2020.

This "Clean Energy Development for a Growing Economy (EDGE) Act" is drafted around five core principles: * Transforming American's vehicles and infrastructure * Protecting American consumers and businesses * Leveling the playing field for clean energy technologies * Real government leadership for clean and secure energy * Diversifying American energy sources, investing in the future

Senator Maria Cantwell (D-WA), the lead sponsor of the bill stated, "It's time that we simply stop talking about energy independence and start running with a plan that also makes America more secure and more economically competitive." Senator Pete Domenic (R-NM), Chair of the Senate Energy Committee, criticized the plan for its "absence of any effort to increase American energy supply."

Well, at least corporate fraud is starting to taper off, especially in high-tech (Item (11) above). What's that you say? Boeing just agreed on May 15, 2006 to pay $615 million to end a probe into alleged defense contracting scandals. A former high- level manager at Cisco Systems Inc. in San Jose CA, accused of insider trading for allegedly tipping off his two brothers to pending acquisitions, reached a settlement with SEC regulators on May 16, 2006. Hundreds of thousands of dollars in fines were levied. The Cisco manager apparently learned of five impending acquisitions and shared the information with his younger brothers before it was publicly released. The younger brothers bought shares in the targeted companies and sold them after Cisco announced the deals, reaping $400,000 in illegal profits. On May 18, Abbott Laboratories was accused of vastly inflating prices of its drugs as part of a fraudulent billing scheme alleged to have cost government health programs more than $175 million over 10 years. The lawsuit is the latest in a series of whistleblower claims against drug manufacturers. Settlements in other cases have totaled more than $3.1 billion in recent years.

Former Enron chiefs Kenneth Lay and Jeffrey Skilling were convicted on May 25 of conspiracy to commit securities and wire fraud. The verdict put the blame for the 2001 demise of the high-profile energy trader, once the nation's seventh-largest company, squarely on its top two executives. It came in the sixth day of deliberations following a federal criminal trial that finally got underway after 4 years lasted nearly four months. Enron founder Ken Lay and former Chief Executive Jeff Skilling defrauded investors by concealing Enron's shaky finances while selling millions in company stock. The Enron defense attorney Daniel Petrocelli gave a worrisome quote at trial, "If Skilling and Lay weren't just using common, legal business practices, we might as well put every CEO in jail." Oh brother! Occurring early in the current administration's first term, Enron's bankruptcy was the biggest in US history at the time. It raised the curtain on a "pageant" of corporate greed led by the likes of Tyco's Dennis Kozlowski, and WorldCom's Bernard Ebbers, just to name two more notorious cases.

Meanwhile, some 17 public companies nationwide (many high tech) have been identified by the Securities & Exchange Commission as at risk for having backdated stock options, according to a report released May 19, 2006 by the Center for Financial Research and Analysis. Regulators are investigating whether companies broke securities and tax laws by backdating stock-option grants to coincide with the lowest possible price, thereby illegally maximizing the amount of money executives can make in exercising options. Another 3 companies were added to the list on May 22. If federal prosecutors find that executives illegally backdated grants so that the "strike" prices on their options were artificially low, those executives -- or board members who approved the practice -- could be charged with criminal fraud, an attorney said. "This has become the issue du jour for the SEC and federal prosecutors," said the securities lawyer, who spoke on condition of anonymity. The list of 17 has grown SIGNIFICANTLY since May 2006.

Finally, three makers of computer memory chips just agreed on May 12, 2006 to pay $161 million to settle a class action lawsuit accusing them of conspiring to hike prices. Apparently, all three semiconductor companies have pleaded guilty to felony price-fixing charges in federal court as part of an antitrust case that has netted more than $731 million in fines.

Many have said that current fines are too low to truly stem corruption -- fines are often seen simply as the "cost of doing (dirty) business".

Hmmm … guess corporate fraud continues after all …

Well, at least Congress is getting a handle on the president's authorization of warrantless domestic wiretapping, which sidestepped the lawful albeit secret court set up by the 1978 Foreign Intelligence Surveillance Act (FISA) you know, the story that leaked to the public in December 2005 (Item (15) above). What's that you say? There's more? On May 11, 2006, USA Today disclosed the apparent existence of an even more massive domestic intelligence-gathering program? Approved by the president, the effort seemingly began in secret soon after the 9/11 terrorist attacks. Since then, the National Security Agency is said to have been collecting call records on tens of millions of personal and business telephone calls made in the United States. Apparently, Qwest, the nation's fourth-largest phone company, was the only one of four telephone companies that rebuffed US government requests for the company's calling records, because of "a disinclination on the part of the authorities to use any legal process." The three other big phone AT&T, BellSouth and may have secretly complied with the National Security Agency to build a vast database of calling records, without warrants, to increase NSA surveillance capabilities. A few days later, Verizon Communications Inc. and BellSouth Corp. began denying key points of the USA Today story. The denials leave open the possibility that the NSA directed its requests to long-distance companies, or that call data was collected by other means. The NSA program is so classified that the American people may never know the truth. We also learned recently that a little-known US government spy agency that analyzes imagery taken from the skies has been spending significantly more time watching US soil (The National Geospatial-Intelligence Agency).

Worse, Americans who raise legitimate questions about secret and/or warrantless invasions of privacy find their patriotism impugned. Hey, FISA is neither quaint nor irrelevant; it's the law! And anyhow, under FISA, the government can eavesdrop for 72 hours before seeking a warrant (which is almost always granted). So why do it illegally?

Rather than properly accept blame itself for the illegal surveillance, the administration is seeking to prosecute the journalists who reported it! Attorney General Alberto R. Gonzales raised the possibility on May 21, 2006 that New York Times reporters could be prosecuted for publishing the existence of the warrantless surveillance in December 2005.

Meanwhile, the Department of Homeland Security is late on releasing to Congress reports on 118 security plans for mass transit, rail, aviation, ports and borders. One late report assesses the impact on travelers' privacy and civil liberties from the Transportation Security Administration's proposed Secure Flight program, which would pre-screen passengers by computer. That report was due March 13, 2004. Another late report focuses on threats from international air cargo; it was due June 15, 2005. Congress also wanted an update on the criteria to be used to consolidate names on the terrorist watch list; that report was due in June 2005.

We need to recall the words of Benjamin Franklin, "Those who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." This line is frequently quoted these days by Richard Ben-Veniste, a member of the 9/11 Commission. You remember the 9/11 Commission: the distinguished bipartisan panel that the administration stonewalled for months until the 9/11 families intervened? The 9/11 Commission finally issued its full report in July 2004; its report became a best-seller. Among its 41 recommendations to the administration was to set up a civil liberties board as a watchdog to oversee privacy and civil rights compliance within the executive branch. And then 17 months later in December 2005, the 9/11 Commission issued a public report card on the government's response to the entire 41 recommendations. The average grade assigned to the government -- was a "D".

June 12, 2006 Nasdaq Update (Item (10) above):

On June 12 the tech-heavy Nasdaq lost 44 more points and closed down another 2% at 2091. The Nasdaq has now (in just one month) lost more than 10% of its recent "local" high on May 08, 2006. Market-savvy analysts call a drop of 10% percent or more a full-fledged "correction", not just a momentary aberration. The Nasdaq is now 24% below where it stood on January 22, 2001, a level to which it has never come close since.

Update July 6, 2006:

Over the last several months, more information has become available that reinforces the geopolitical and economic commentary in the foregoing:

June 29, 2006

Good work if you can get it: Former Goldman Sachs CEO Henry Paulson filed to sell about $500 million worth of Goldman Sachs stock shortly after the US Senate voted to confirm his appointment as Bush's Treasury Secretary number three. Moreover, a generous government rule also makes Paulson exempt from paying taxes on any capital gains on the stock sale, eliminating a tax liability of up to about $200 million for Paulson.

In an ongoing crusade to control incessant inflation in the US, the Fed put in place its 17th consecutive quarter-point rate hike since June 2004, lifting the overnight interest rate to 5.25%.

June 30, 2006

In Q2 2006, the S&P 500 and the Nasdaq fell 1.9% and 7.2%, respectively. The Dow barely broke even. The Nasdaq is also down for 2006 six-months-year-to-date. The National Association of Purchasing Managers' Chicago group said its index of regional business activity slowed to 56.5% in June from 61.5% in May. Moreover, the prices-paid component of the index leapt to 89% from 76.9%, indicating sharply higher costs for manufacturers. Consumer spending slowed sharply in May as the continuing rise in gasoline prices left Americans with less to spend on other items. A barrel of light crude stood at a remarkably expensive $73.93 to end the quarter. Durable goods orders dropped 0.3% in May after a sharp 4.7% drop the month before, according to the Commerce Department, the first back-to-back declines in two years.

The Republican-dominated US Supreme Court today struck down the military tribunals set up the Bush administration to try the detainees being held in Guantanamo Bay. More than a narrow ruling, the decision is a reaffirmation that the law is what the US Constitution, the statute books and the Geneva Conventions say it is - not what the president wants it to be.

Federal prosecutors want Enron founder Kenneth Lay and former Chief Executive Jeffrey Skilling to fork over nearly $183 million in light of their convictions for perpetuating one of the biggest corporate frauds in US history. In a court filing, prosecutors asked US District Judge Sim Lake to order the newly-convicted felons to turn over that amount "in proceeds of the fraud conspiracy," which includes bonuses, Skilling's gains from stock sales, and Lay's use of loans from Enron to pay down much of his $100 million in personal debt in 2001. Lay, 64, and Skilling, 52, were convicted of defrauding investors and employees by repeatedly lying about Enron's financial strength in the months before the company plummeted into bankruptcy protection in December 2001.

Meanwhile, Richard Scrushy was handed felony convictions today in a state bribery scheme linked to his days as chief executive of HealthSouth Corporation. Acquitted last year of directing the HealthSouth fraud, Scrushy remains a defendant in major civil cases involving allegations of a $2.7 billion accounting scam at the rehabilitation chain he once ran.

A bevy of studies was released today that reveal the state of retirement across America as bleak in the best case and depressing in the worst case. For examples: more than 43% of Americans are not saving at all, and only a third of Americans are saving enough to maintain their standards of living in retirement; 28% of current workers and 12% of retirees are not confident about having enough money in retirement even to pay for their medical expenses; a vast majority of US employers are planning to curtail their retiree medical plans for current and future retirees in the next five years; regardless of their ages, genders, household incomes and education, 38% of surveyed Americans say they expect their retirement to be "financially difficult."

Things are not as bleak for most CEO's, such as Pfizer CEO Hank McKinnell for example. Since taking over Pfizer in 2001, he has been paid $79 million in salary and also paid pension benefits worth an estimated $83 million. Yet the drug giant's stock has fallen by more than 40%. "Corporate compensation in America is now offending a lot of people needlessly and it ought to be fixed," Berkshire Hathaway Vice Chairman Charles Munger said recently. "CEOs and boards should be a lot more sensitive to the current [economic] environment, and not have the wretched excesses of executive compensation hitting the headlines at the same time they are laying off 50,000 people."

As if the overwhelming oil oligarchy is not enough: Water is "the first and last great commodity," said Phil Flynn, a senior analyst at Alaron Trading in Chicago. Water still doesn't have a publicly-traded market -- nothing similar to the oil futures which help dictate market prices. But with the US population headed for the 300 million mark later this year, and the world figure above 6.5 billion, "people theorize that the next great competition over supplies will be for fresh water," said Flynn, adding that the supply of drinkable water is becoming tighter and tighter. At some point, "it's going to be the oil market of the future," he said.

General Motors' largest shareholder is pressing the troubled American auto giant to speed up its turnaround effort by forming an alliance with two foreign car companies, Nissan and Renault, which would pay $3 billion for a 20% stake in GM. On its own, GM is in the midst of closing all or part of a dozen plants and cutting 30,000 jobs as part of its restructuring effort.

July 3, 2006

The US Commerce Department said spending on construction projects fell 0.4% in May, marking the biggest decline since September 2004. The drop was unexpected; economists had forecast a 0.2% gain in construction spending. April outlays were also revised lower to a 0.2% drop from the 0.1% decrease previously estimated. Also, the Institute for Supply Management's June survey showed that the index fell to 53.8% in June from 54.4% in May.

July 5, 2006

Enron founder Ken Lay passed away today, while vacationing in Aspen. He was 64. Facing decades in prison, Lay had displayed no signs of ill health throughout his four-month fraud trial. Just before Enron became a scandal-tainted punchline, the company was the single largest contributor to President Bush, who nicknamed Lay "Kenny Boy." But White House press secretary Tony Snow said today that he hadn't discussed Lay's death with the president. "The president has described Ken Lay as an acquaintance", said Snow. Some legal experts said that Lay's death may render the government's criminal victory null. Regardless, his estate apparently remains the subject of civil lawsuits by the Securities and Exchange Commission and former investors and Enron employees, which could still proceed. Unless, of course, someone issues a posthumous pardon for Lay.

Dow Closes Down 76, Nasdaq Closes Down 37 -- Concerns over North Korea's nuclear ambitions and a new record for oil prices ($75.19 per barrel) sent stocks lower today and added to Wall Street's ongoing worries about the economy and interest rates. North Korea defied "stern warnings" from the US to launch seven missiles on July 4, including a long-range Taepodong-2. Since January 2001, this US administration has consistently refused to conduct 1:1 talks with North Korea. Gasoline futures also jumped 6 cents on July 5 to settle at $2.28 a gallon. With refiners fetching the equivalent of $95 a barrel or more for gasoline, "A refiner doesn't have to be disciplined in the buying of crude," explained Tom Kloza, an oil analyst at Oil Price Information Service in Wall, NJ.

July 7, 2006

US employers increased payrolls by a tepid 121,000 in June, providing ongoing evidence that companies are reluctant to bulk up their work forces in the face of high energy prices and slowing economic growth. The count of new US jobs added in June fell well short of economists' forecasts for an increase of around 175,000 new positions. "When you only have 121,000 jobs being added, that sounds pretty puny," said Ken Mayland, economist at ClearView Economics. "On the face of it, this is somewhat disappointing; the job picture is consistent with other barometers that suggest economic growth is slowing," he said.

July 13

Stocks plunged for a second straight session today as Wall Street battled a storm of negative factors - soaring oil prices, interest rate jitters and the slowing US economy. The Dow Jones industrial average dropped almost 167 points, bringing its two-day loss to 288. The Nasdaq Composite finished the day at a nine-month low.

Escalating violence in the Middle East carried oil to near $77 a barrel, a new record high. US gasoline prices are also setting new records. Bogged down in Iraq and having neglected the Middle East peace process for five and a half years, the current US administration appears powerless to help ameliorate the situation there. The same may be said of increasing belligerence by Iran and North Korea.

July 14

Surging oil prices pulled stocks sharply lower for a third straight session today, with bland corporate earnings and weak consumer data further dampening the economic outlook. The Dow Jones industrial average shed 396 points in the past three days. The Dow tumbled 107, or 1% today, to 10,739. The blue-chip index fell more than 121 points July 12 and lost almost 167 points July 13, and after today is just 21 points from turning negative for the entire year-to-date 2006.

The Nasdaq composite index declined another 17 points today to 2,037, down 4.35% for the week, and now stands at a 14-month low.

Crude oil futures reached an intraday record of $78.40 a barrel today as Israel intensified its attacks on Lebanon, further raising concerns about potential supply disruptions throughout the Middle East. Crude eventually settled at $77.03 a barrel, up 33 cents, another record close.

Retail sales fell in June, as did consumer confidence for July. Moreover, investors are increasingly concerned that the recent spate of corporate Q2 profit warnings is still another indication that the US economy is headed for a downturn.

July 21

Posting a loss for the third straight week, the tech-laden Nasdaq dropped 19 points to 2,020 today after plunging over 41 points on July 20. The 2,020 level was the lowest finish for the Nasdaq since May 17, 2005, when it closed at 2,004.

Dell Computer Corporation stock tumbled $2.19 today, or 10%, to $19.91 after it said aggressive price cuts in the personal computer market would cause the company to miss forecasts. Dell has approximately 26,000 employees in the US these days; over the last three years, Dell has created nearly 40,000 offshore jobs.

The Dow Jones industrials ended the week up only 129 points, despite a one-day surge of 212 points on July 19 solely due to investor optimism that long string of Fed interest rate hikes may soon be nearing an end. Federal Reserve Chairman Ben Bernanke predicted that the US economic slowdown would help ease inflation pressures in coming months. Oh, great! Some observers felt the market was hearing everything positive Bernanke said on the 19th and ignoring his many caveats.

On July 20, Ford reported a second-quarter loss of $123 million, or 7 cents a share, down from a year-ago profit of $946 million, or 51 cents a share. In June, Ford's worldwide sales dropped 6.9% even as passenger car sales rose from a year ago. The truck side, which is key to profit, fell 14%, with the F-series pickups, the best-selling vehicle in the US, off nearly 10%. The month was even more difficult for Ford rival General Motors, which reported a 26% decline in June in US sales alone.

In the first actual charges to come out of the widening stock-options scandal, criminal and civil actions were filed July 20 against two former executives of San Jose CA Brocade Communications Systems for securities fraud. The two were charged with concealing millions of dollars in expenses, overstating the company's income and falsifying records of stock options grants. A third Brocade executive faces civil charges. The SEC and US Justice Department are now investigating at least 80 companies for backdating options and failing to properly account for them. The count was only 17 companies being investigated as recently as May 19, 2006.

The United Nations reported on July 18 that an average of more than 100 civilians per day were killed in Iraq during June 2006, registering the highest official monthly tally of violent deaths since the fall of Baghdad in 2003. Meanwhile, the new war among Israel, Lebanon and Hezbollah widened unchecked during the last 10 days. There could hardly have been a better moment for the annual meeting of the Group of 8 to prove its worth. Instead, it showed how pointless these “leaders” are. It did not take Bush's unwanted shoulder massage of Germany's Angela Merkel or his awkwardly open microphone to display the huge gap between the summit meeting and political reality. The entire G8 Meeting was a useless exercise.

July 28

Clear confirmation arrived today of the relentless slowdown in the US economy that I've been commenting on for months. The US Commerce Department officially reported that the nation's gross domestic product grew only 2.5% in the second quarter, less than half than in the first three months of 2006. Q2 growth in consumer spending halved, and Q2 residential investment suffered its steepest decline in six years. Meanwhile, the Commerce Department also reported that the core price index for personal consumer expenditures, which measures the price of consumer goods and services, excluding food and energy, surged at an annual rate of 2.9% in the second quarter, up 38% from the first quarter. Add in food and energy costs, and inflation is even worse. Perversely, the GNP news bolstered today's prices of stocks, as it raised investors' myopic hopes that the Federal Reserve will stop raising interest rates, never mind the declining GNP's enervating impacts on jobs and inflation. Along with the latest GDP report, the government also issued annual revisions today that showed the GNP was less than previously estimated for 2003, 2004 and 2005. The main reason for the downgrade: business investment in computer equipment and software was less than previously reported.

Following on the heels of the reports in the original commentary above regarding the oil industry's 2006 first quarter's results, Exxon Mobil, the world's largest publicly traded oil company, reported a 36% gain in second-quarter earnings this week, bolstered by outrageous oil and gas prices in the United States, China and India. Net income for the quarter rose to $10.36 billion, from $7.64 billion a year earlier. The only time Exxon's quarterly profit was higher was the fourth quarter of last year (after Katrina). Exxon revenue climbed only 12% in Q2 2006, to $99 billion, yet yielded a 36% increase in profits - hmmm … good business if you can get it! The $99 billion in revenue was second only to Exxon's third quarter of last year.

Combined, the top five oil companies, Exxon Mobil Corp., BP PLC, Chevron ConocoPhillips and Royal Dutch Shell PLC, “earned” $34.6 billion in the second quarter, also 36% more than the same period last year. Through the first half of 2006, the five companies have “earned” $62.8 billion, demonstrating the industry's current moneymaking prowess now that energy prices and profit margins appear likely to remain at heights that truly seemed far-fetched as the Clinton years ended.

Since oil prices have climbed even higher in July, peaking at $78.40 per barrel, Q3 2006 probably will be even more prosperous for the oil companies than Q2. Remember all that talk in the Republican-laden Congress in recent times about a windfall profits tax? Ha-Ha. The US Senate held hearings with oil company executives last year without taking any action against the industry. While these executives repeatedly point out that “they don't set the price for crude oil”, they nevertheless continue to accept larger and larger bonuses as their companies reap the benefits of the ballooning profits at the expense of hapless drivers everywhere. One more item for US voters to remember in November.

August 4

Well, Wall Street traders got their wish Friday when the US labor Department issued its payroll report for July. US job growth in July was again way below expectations. Employers added jobs in July at a miserably slow pace for the fourth consecutive month, providing the strongest evidence yet of the country's weakening economy. "I would be absolutely astonished if the Fed raised rates next week," said chief US economist for High Frequency Economics Ian Shepherdson hopefully. "The loss of momentum in the economy is all too evident." But investors nevertheless pushed stocks lower on Friday after all, unwilling to trust that the labor report was enough to keep the Federal Reserve from again raising interest rates.

Of course, stock market players' concerns pale in comparison to the ongoing dispair of millions of US workers lucklessly seeking jobs during the last five and a half years. And those who have jobs have seen their weak earnings growth continuously fall behind increasing inflation.

July's bad news continued. The unemployment rate, which usually moves in tenth-of-a-point increments, when it moves at all, jumped two-tenths in July, to 4.8%, the highest level in five months. Indeed, for the unemployed, finding another job is getting harder. The average number of weeks spent looking for a job grew by more than a week in July, to 17.3 weeks, the largest monthly jump since last August. At the same time, 1.3 million of the unemployed, or more than 18%, were out of work for 27 weeks or longer, an increase of 200,000 since June.

While the US economy deteriorates, while the federal deficit balloons, and while many parts of the world are in flames, the Republican-laden Congress again focuses on, you guessed it, repeal of the estate tax for the richest Americans!

For his part, Dick Cheney is inappropriately butting into Alaskan state politics, urging legislative leaders there to approve a controversial bill to allow three of the top five oil companies to build a new $20 billion natural gas pipeline. Of course, the oil companies are demanding billions in tax breaks, even though these same oil companies are swimming in profits (see the July 28 update above).

Amid all these troubles, George W. Bush left Washington today for another Texas vacation. You know - like the past vacations in Texas when he ignored the briefing that "Osama Bin Laden is determined to strike in the United States" (August 6, 2001), or like when he ignored Cindy Sheehan's protests about IRAQ, or like when he ignored the threat and subsequent devastation of KATRINA - that kind of Texas vacation. He'd better watch out this year; he may just miss the approaching end of the world, as many Christian "end-times believers" think the current Middle East wars are definite signs of the coming Armageddon.

August 11

As many predicted, the Federal Reserve on August 8 suspended its two-year crusade of raising interest rates, a policy shift based on the investment community’s astonishing “hope” that a painful US economic slowdown will eventually subdue inflation. After 17 consecutive increases at every Fed meeting since mid-2004, the central bank voted this week to hold its benchmark interest rate steady at 5.25%. In a rare display of uncertainty, the Fed committee was not unanimous in its decision. One reason is that today, inflation is still far from subdued. Core inflation is running about 2.9% higher than one year ago, the biggest year-over-year jump in 11 years (and core inflation excludes rising food & energy costs!).

Speaking of pain, Laurence H. Meyer, a former Fed governor and now an economic forecaster at Macroeconomic Advisers, predicted that it would take a truly significant economic slowdown to actually reduce inflation. For that to happen, he said, unemployment would have to rise for a sustained period. For example, to reduce inflation by one percentage point, the US unemployment rate would to rise by about two percentage points for a full year. Too bad for those laid off!

Indeed, if the Fed cracks down harder on inflation, it risks throwing the US economy into an actual recession, not just a slowdown, which would leave workers whose wages have hardly kept up with price increases in still worse shape. And with energy prices up sharply, many workers, whose pay increases have lagged far behind productivity gains, already have far less disposable income for other purposes.

And, as the Labor Department also reported on August 8, productivity already slowed to an annual rate of increase of 1.1% in the April-June 2006 quarter. Productivity is the key factor determining living standards. Strong growth in worker productivity, which occurred often during the last five years, should allow businesses to pay their workers more (although businesses seldom did so in the last five years; most of the benefit went to corporate profits) without raising the prices of business products (which they have been doing, especially recently, causing inflation).

Meanwhile, on August 10 Wall Street withstood the news of a terror plot targeting commercial airlines. But European markets tumbled as British authorities said 24 people were arrested in a widespread plan to destroy numerous international flights, and reacting, the US raised its terror alert to the highest levels ever for air travelers. While airline stocks fell on August 10, overall US stock averages nonetheless went up that day! Wall Street also benefited from lower crude prices, which fell on the belief that reduced travel in the coming months might curtail demand for fuels. A barrel of light crude settled at $74 on August 10, down $2.35.

Of course, that was just a day after the oil company BP announced that a corrosion problem was forcing a shutdown of its pipelines serving Alaska’s Prudhoe Bay. Oil prices immediately shot up, with oil temporarily gaining more than $2 a barrel, to nearly $77, and gasoline rising five cents a gallon in some cities. Why BP was so negligent in its inspection protocol is not yet revealed. Not surprisingly, Republicans were quick to use BP’s travails as yet another reason to whip up hysteria to drill more in the US. But of course, everyone but the right wing knows that even all-out drilling everywhere in the US and off our coasts would never dent America’s oil appetite. The US has only 3% of global oil reserves, yet we consume 25% of the world’s oil. Only alternatives to fossil fuel will save us.

But maybe most Americans don’t, in fact, know facts. A large number of Americans remain apathetic or just plain ignorant about geopolitical issues, and these sad-for-democracy conditions do not seem to be getting better. As recent as late July 2006, a Harris Poll reported that 50% of Americans now seem to believe that Iraq had weapons of mass destruction after all when the US preemptively invaded over 1200 days ago, up from 36% who thought so in February 2005. Meanwhile, 64% still believe that Saddam had strong links with Al Qaeda. Part of the reason, of course, is the current administration’s incessant propaganda. In many cases, facts are either labeled “junk” science or simply lied about: stem cells, global warming, tax cuts, income inequality, Iraq, etc. Alas, there was some good news this past week. The defeat of Senator Joe Lieberman at the hands of Connecticut businessman Ned Lamont should send a message that voters are at long last angry and frustrated over the US presence in Iraq. Lamont said he ran against Lieberman because he was offended by Lieberman’s continuously cheerful (and inaccurate) descriptions of what was happening in Iraq and Lieberman’s sanctimonious denunciations of Democrats who have criticized the administration’s handling of the Iraq war.

And other good news: the unlikely duo of Tony Blair and Arnold Schwarzenegger this week agreed to collaborate on cleaner-burning technologies and to explore an emissions-reduction program to attack global warming that would combine mandatory controls on greenhouse gases with market incentives. For his part, Blair claimed he was not really defying his good friend George Bush. The “governator” was more forceful, saying that the Bush administration and Republican Congress have shown no leadership on the issue (gee, there just might be an election coming up in CA). The Blair/Schwarzenegger agreement again dramatizes how badly the current administration in Washington lags both Britain and California with Bush’s lame program of “voluntary pollution reductions”.

And finally some good news regarding Israel, Lebanon and Hezbolla: late in the week, the United Nations Security Council finally produced a formula to end the fighting in Lebanon. Of course, while the diplomats dithered, hundreds of Lebanese and Israelis died, one-third of Lebanon’s population was uprooted, and new layers of anger and fear were sown on both sides of the border. (Remarkably, after Bush initially gave Israel the green light to keep attacking, and later supplied additional smart bombs to the Israeli air force, Bush didn’t even speak on the phone to the Israeli prime minister till August 11, more than a month after hostilities began).

August 18

On August 17, the Congressional Budget Office said that unanticipated tax receipts so far this year will likely allow the 2006 federal deficit to come in at … hold on ... “only $260 billion”. But the deficit will begin to rise again next year and will continue to balloon further unless Bush's string of past tax cuts for the wealthy is allowed to expire on schedule. Otherwise, even the most optimistic assumptions, including no more major disasters and reductions of US forces in Iraq and Afghanistan -- reveal a stream of red ink that would create still another $2.5 trillion of debt (above the current debt of $8 trillion) over the next 10 years and average at least $254 billion a year, according to budget office calculations. (Recall that when Bush first took office in 2001, the US was running yearly fiscal surpluses). Indeed, budget office figures showed that the administration’s spending is increasing by 7.7% this year alone, easily outstripping US economic growth. In fact, even in the best case, the federal budget will likely hang around 20% of the country's gross domestic product through the bitter end of the Bush presidency, up from 18.5% of GDP when Bush first came to office. Some conservative!

Also on August 17, a federal judge ruled the Bush eavesdropping agenda to be both illegal and unconstitutional. She wrote that Bush has violated the 1978 Foreign Intelligence Surveillance Act (FISA) when he told the NSA to spy without a warrant on international phone calls. She offered a cutting condemnation of Bush’s attempt to place himself beyond the reach of Congress, judges or the Constitution. “There are no hereditary kings in America and no powers not created by the Constitution,” wrote Judge Anna Diggs Taylor of the United States District Court in Detroit. She noted that the 1978 FISA law was passed to disallow this type of abuse of power and provided ample flexibility for collecting intelligence. Instead of simply abiding by the 1978 law after this ruling, Bush’s lawyers are now trying to have the suit thrown out on national security grounds. In this case, the administration told Judge Taylor that merely arguing its case would expose secret information. The Judge said this argument was “disingenuous and without merit.” No sooner had her ruling been issued, than Bush’s crowd in Congress began calling for new laws to defeat the Judge’s objections. Republicans pointed out that Judge Taylor was appointed by Jimmy Carter. (Judge Taylor’s decision was a sequel to the Supreme Court’s decision in June 2006 in Hamdan v. Rumsfeld that struck down the administration’s plans to try detainees held in Guantánamo Bay, Cuba, for war crimes). The Republicans’ ridiculous efforts to undermine the August 17 eavesdropping ruling will unquestionably proceed, but for now, one solitary judge has done what the US Congress has studiously avoided doing.

And also on August 17, another federal judge ordered strict new limitations on tobacco after finding that cigarette makers engaged in a decades-old conspiracy to deceive the public about the dangers of smoking. The deception, Judge Gladys Kessler of Federal District Court for the District of Columbia said, resulted in “an immeasurable amount of human suffering.” Judge Kessler ordered the companies to stop labeling cigarettes as “low tar” or “light” or “natural” or with other “deceptive brand descriptors which implicitly or explicitly convey to the smoker and potential smoker that they are less hazardous to health than full-flavor cigarettes.” The judge said she regretted not being able to punish the companies further. Cigarette makers, the judge said, profit from “selling a highly addictive product which causes diseases that lead to a staggering number of deaths per year, an immeasurable amount of human suffering and economic loss and a profound burden our national health care system.”

More bad news for workers. On August 18 Boeing said it must begin shutting down production of its C-17 cargo plane, because the US Congress has not funded new purchases. The decision may ultimately affect 5,500 Boeing employees in Arizona, California, Georgia and Missouri who are directly tied to the C-17 program. But the result will first hit the 25,000 employees of the nearly 700 companies in 42 states that supply parts and systems for the plane, Boeing said. "The C-17 is one of the Defense Department's most successful acquisition programs ever," said Ron Marcotte, vice president and general manager of Boeing Global Mobility Systems. "But we can't continue carrying the program without additional orders from the US Government." Even though the UN Truce in Lebanon is less than a week old, helicopter-borne Israeli commandos landed near the Hezbollah stronghold of Baalbek over the August 19-20 weekend and engaged in a lengthy firefight in what the Lebanese prime minister, Fouad Siniora, called a “flagrant violation” of the cease-fire. The United Nations issued a statement that Secretary General Kofi Annan also considered the raid a violation and was “deeply concerned.” The Israelis said “the aim of the operation was to disrupt terrorist activities against Israel and to prevent arms from being transported to Hezbollah from Iran and Syria.” Moreover, Israel still intends to try to kill the Hezbollah leader, Sheik Hassan Nasrallah, according to an anonymous senior Israeli commander.

And the last news item for August 18: In each poll released since the Brits foiled the alleged Trans-Atlantic terror plot — CBS, Gallup, Newsweek, Pew, Zogby — Bush’s overall approval rating remains mired in the 30’s. Apparently the incessant terror fear mongering doesn’t work anymore, no doubt due to the fact that the administration has squandered billions of dollars and thousands of lives on IRAQ while neglecting critical security enhancements within the US.

Interested readers who missed the August 18, 2006 article, JUDGMENT DAY COMING -- FOR THE NEOCONS, by Patrick J Buchanan, from Creators Syndicate, Inc., click on the hyperlink at the bottom of this page. If that doesn’t work, send an email to russ@henkeassociates.net and we’ll send you a copy in MS WORD.

Mid-September 2006 Update:

Speaking of item (20), “the rise of secretive, unregulated hedge fund investment partnerships” (in the list of enervating factors in geopolitics), the curious recent decline of oil and natural gas prices just before the mid-term November 2006 elections in the US, apparently caught some hedge funds by surprise. They must not have gotten the most recent talking points from the administration! Enormous losses at one of the nation’s largest hedge funds resurrected worries in mid-September 2006 that major bets by these investment partnerships could create widespread financial disruptions. One hedge fund, Amaranth Advisors, based in Greenwich, CT, made an estimated $1 billion on rising energy prices last year. On September 17, 2006 the fund told its investors that it had lost more than $3 billion in the recent downturn in natural gas and that it was “working with its lenders and selling its holdings to protect its investors.” Amaranth’s investors include pension funds, endowments and large financial firms like banks, insurance companies and brokerage firms. The Institutional Fund of Hedge Funds at Morgan Stanley was an investor in Amaranth; as of June 30, it had a stake valued at $124 million. The turnabout in the fortunes of the $9.25 billion fund reflects the peculiarly-timed decline in energy prices recently; natural gas prices fell 12% just last week.

Meanwhile, on September 20, 2006, four government auditors who monitor leases for oil and gas on federal property say the Bush Interior Department suppressed their efforts to recover millions of dollars from companies they said were cheating the government and US citizens. The accusations represent a rare rebellion by government investigators against their own agency, questioning the Bush administration’s willingness to challenge the oil and gas industry. The auditors contend that they were blocked by their Bush-appointed bosses from pursuing millions of dollars in fraudulent underpayments of royalties for oil produced in publicly owned waters in the Gulf of Mexico. “The agency has lost its sense of mission, which is to protect American taxpayers,” said Bobby L. Maxwell, who was formerly in charge of Gulf of Mexico auditing. “These are assets that belong to the American public, and they are supposed to be used for things like education, public infrastructure and roadways.” (The graph shows how precipitously US oil royalty collections have declined in the last five-plus years).

Regarding item (6), “the ballooning real and psychic costs of current wars, in lives and treasure, including the IRAQ quagmire and resurgence of the Taliban in Afghanistan,” a United Nations report released September 20 said that 5,106 people in Baghdad died violent deaths during July and August 2006 -- a number far higher than previous reports. Meanwhile, the Bush administration insists there is no civil war in IRAQ. HERE'S THE 5-YEAR BACKGROUND TO THE ABOVE UPDATES:

At the beginning of the "new millennium" things looked good:

After the so-called "Y2K Crisis" passed without major incident, Americans realized that the United States economy had just produced 8 years of robust growth. During that 8-year period, some 24 million new U.S. jobs had been created and annual federal budget surpluses had begun to occur. Hi-tech was booming, especially the CAD automation industry and dot-com e-businesses. The tech-heavy NASDAQ index had closed at 5048 on March 10, 2000, up from 4069 just 70 days earlier.

But soon after crossing the Bridge to the 21st Century, things changed:

Beginning in mid-March 2000, the steady deterioration of the NASDAQ sent shock waves through the hi-tech community. Aftershocks continued. During the first seven months of 2001, U.S. companies eliminated nearly 1 million jobs. U.S. GDP performance in Q2 2001 was the worst in 8 years. Even before the terrible events of September 11, 2001, the NASDAQ sank to 1695. The U.S. government finally acknowledged that an official economic recession had begun back in March 2001. Tax cuts and repeated interest rate cuts throughout 2001 proved ineffective in boosting the economy (but soon eliminated the federal budget surpluses!). The underlying pressures on U.S. hi-tech businesses remained intense, exacerbated by an illegal electric power scheme engineered by Enron and similar middlemen.

The NASDAQ was down 21% by the end of the year 2001.

The year 2002 turned out even worse, as the NASDAQ gave up another 32% and job losses continued unabated.

Improved NASDAQ performance during 2003 did not mean significant U.S. employment increases, especially in manufacturing. By mid-2003, nearly 3 million U.S. jobs had been lost since January 2001. A small burst of job additions during the last few months of 2003 was encouraging, but the rate remained well below the 200,000 to 250,000 job additions per month needed over several years to recover former employment levels, let alone keep up with U.S. population growth.

While 2004 overall saw slightly better U.S. job creation on average, the jobs that were and are being created these days pay well below the levels prior to 2001. And many of the jobs now being created are provisional; U.S. temp firms have added hundreds of thousands of short-term positions, making up a significant part of the new jobs added in the last 12 months. Despite the weaker dollar, the negative international trade balance reduced U.S. GDP in 2004, resulting in the largest GDP drag in more than six years.

After several quarters of improvement, productivity in the U.S. nonfarm business sector slowed in the fourth quarter of 2004, according to the Labor Department report in February 2005. In the previous three years, companies themselves had garnered the bulk of the benefits of enhanced productivity in the form of profits, while workers' compensation lagged. (Even engineers were affected. For the first time in more than 30 years, the median income for U.S. IEEE members fell in 2003, according to the findings of the latest IEEE-USA Salary Survey).

Surely 2005 would be better, right?

"With a slowdown of productivity growth (in Q4 2004), incremental new economic growth will require more hiring," claimed Ken Mayland, president of ClearView Economics. Unfortunately we had to wait awhile to see if Mr. Mayland was right, since America's employers added only 146,000 jobs in January 2005 — a lackluster pace that underscored the ongoing slow recovery of the nation's labor market. The 146,000 gain in payrolls in January 2005 fell short of economists' forecasts for a gain of around 200,000 for the month. Manufacturers lost 25,000 more jobs in January, the fifth straight month of decline. U.S. job gains for December 2004 came in at 133,000, adjusted down from an initial estimate of 157,000 just a month earlier. Another weakness in the numbers was the drop in the ratio of jobholders to the total U.S. population, falling to 62.4%. The number of discouraged workers - those who stopped looking for work because they did not think they would find any - reached 515,000 in January 2005, almost 20 percent more than a year prior.

In February 2005, the preliminary tabulation indicated that 262,000 new jobs were added to the economy, the U.S. Labor Department reported on March 4. Were this figure to have held up, it would have been better than any recent month since October 2004. (Alas, it did not hold up; the Labor Department revised it down to 243,000 on April 1, 2005. Moreover, the separate household labor survey was weak, with the unemployment rate rising to 5.4% in February). This increase in the jobless rate "surprised" economists, who were expecting the jobless rate to remain steady at 5.2%. U.S. unemployment rose by 251,000 in February to 7.99 million and the employment ranks declined by 97,000, the department said.

Payroll growth across the country was even more sluggish in March 2005 as employers added a feeble 110,000 jobs, the fewest since July 2004, according to the Labor Department's announcement on April 1, 2005. March's payroll gain was just half of the roughly 220,000 jobs that (yes, those same) economists had forecast just before the report was released.

The longer-term trend is even more disturbing than the monthly snapshots:

In 6 of the last 12 months, job creation has not been strong enough to absorb the natural growth of the work force. In such a weak U.S. labor market, wages are either stagnant or falling. Factory employment, where many of the recent job losses have occurred, remains stagnant. Manufacturers have restored only a small fraction of the jobs they shed from 2001 through 2003, and manufacturing employment edged down by another 8,000 jobs in March. Meanwhile, consider this ironic story from the April 3, 2005 NY Times: "The world's most populous nation, which has powered its stunning economic rise with a cheap and supposedly bottomless pool of migrant labor, is experiencing shortages of about two million workers in the two provinces at the heart of China's export-driven economy."

Recent mergers negatively impact U.S. job growth:

The recently-announced SBC purchase of AT&T is not good news for the 2005 U.S. employment picture. SBC predicted the companies could save $15 billion and offset almost the entire purchase price, largely by eliminating duplicate staff and operations. SBC would be expected to eliminate thousands (perhaps 13,000) of jobs. Indeed, corporate takeovers have returned with a vengeance in the last 15 months. December 2004 alone saw deals totaling $128 billion, some 3X December 2003’s total. December 2004 was the largest M&A month since October 2000. Nationally, the hi-tech computer software & services sector did 1600 M&A deals in 2004, more than any other sector. Total 2004 M&A activity was $770 billion; the pace in 2005 is even stronger.

In addition to the SBC/AT&T deal mentioned above, other recent “biggies” included MetLife/Travelers Life, P&G/Gillette, Symantec/Veritas, and Kmart/Sears&Roebuck, which totaled some $109.5 billion in just 2_ months. As with SBC/AT&T, virtually every one of these deals contains “synergies” (usually defined as thousands of layoffs). M&A activity will also be aided & abetted by the government’s new one-year “tax holiday” – allowing multinationals to repatriate previous foreign profits back to the U.S. at a puny tax rate of 5.25% rather than the normal corporate tax rate of 35%. Instead of insisting on using such funds to create new U.S. jobs, the law says corporations can use the money for buying other companies, paying legal liabilities, and so forth.

Only five years after the dot-com collapse, web site companies are back -- this time also becoming part of the merger mania. According to the March 27, 2005 San Francisco Chronicle, in just the last six months, IAC is buying Ask Jeeves, HP is buying Snapfish, Yahoo is buying Flicker, the New York Times bought About.com, Ask Jeeves bought Bloglines, WebSideStory is buying Atomz, Six Apart bought Danga Interactive, the Washington Post bought Slate, Ebay bought Rent.com, Dow Jones bought Marketwatch, Google bought Keyhole, United Online bought Classmates Online, Knight Ridder invested in Topix.net, and EBAY invested in Craigslist. According to outplacement firm Challenger, Gray & Christmas, announced job cuts exceeded 1 million for a fourth straight year in 2004. Some 3.6 American workers ran out of unemployment insurance benefits in 2004. The average length of unemployment increased 54%.

The San Francisco Bay Area, which boomed so mightily during the dot-com era, crashed all the harder and has been recovering slowly. The Association of Bay Area Governments reckoned on January 28, 2005 that the SF Bay Area had 436,600 high-tech jobs in March 2001. As of November 2004, the total had shrunk by 34%, to 289,600. The Bay Area lost 19,800 jobs in 2004 alone.

Three plus years after the last recession officially ended in November 2001, the rebound in jobs remained slower than in any previous economic recovery since World War II.

Back to the Stock Market:

Regrettably, U.S. stock markets were not off to a good start in 2005. The tech-rich NASDAQ Composite Index closed on January 31 at 2,062, losing 5.2% in the month. That performance came as telecom and technology stocks posted some of the steepest declines in January compared with other sectors. The Dow Jones Industrial Average dropped about 2.7% in January 2005. The S&P 500 slid 2.5% in the month. The Phlx Semiconductor Index lost 6.8%. Crude-oil prices staged a complete turnaround to close 11% higher for the month after OPEC left open the option of a production cut open ahead of its meeting in March 2005. Traders said on January 31 that the successful January 30 elections in IRAQ failed to dispel persistent concern about the threat of future insurgent attacks in the country that could disrupt the country's oil exports. Based on January's stock market performances, historical data suggests the market will struggle to post year-over-year gains in 2005. Excluding 2001, the last 13 post-election years have followed January's direction, according to the Stock Trader's Almanac.

Then recent headlines serve to amplify these points. Try these, all from late February 2005: (1) “Blue-chip stocks tumbled Tuesday, with the Dow Jones Industrial Average posting its worst close in 21 months…”, (2) “Crude futures closed above $51 a barrel Tuesday for the first time in three months…”, (3) “The dollar endured its largest losses in more than four months Tuesday, after the South Korean central bank announced a plan to sell some of its U.S. currency reserves...”, (4) “U.S. consumer confidence fell in February as consumers continued to be concerned about the longer term outlook, the Conference Board said Tuesday…”, (5) “Corporate executives and companies that admit participating in a shelter to avoid taxes on options will be eligible for reduced penalties under an IRS plan announced Tuesday…”, (6) “Nominal incomes fell 2.3% in January, marking the largest decline in 11 years…", (7) “Real disposable incomes fell 2.8% in January 2005, also the largest decline in 11 years. Nominal per capita income fell 2.9% in January…", (8) "Spending on durable goods, including autos, fell 4.7 % in January. With inflation heating up and spending faltering, a hint of stagflation is in the air.”

By the way, the NASDAQ dipped to 2030 on February 22, down some 6.4% in those 53 days. By March 18, 2005, the price of a barrel of oil had increased $15 to $57, just since the start of 2005! By March 22, 2005, the NASDAQ index had dipped below 2000 for the first time in five months, to 1989. On Thursday April 14, the Dow Jones Industrial Average (DJIA) posted its second straight tripledigit decline to end at 10278, a five-month low, and the NASDAQ put in its worst performance since October 2004, closing at 1946, down10.5% so far in 2005.

Beyond the issues of job growth and stock markets:

Depressing as the ongoing sluggish US job growth and deteriorating domestic stock markets are, there are plenty of other factors that make it difficult for companies to compete in today’s business, economic and geopolitical environment.

Take inflation … please! Unfortunately, significant inflation is back. A 0.6% increase in the Consumer Price Index in March 2005 was the largest in five months. The 0.4% jump in the core rate, which excludes food and energy, was twice the forecast from analysts and the biggest monthly increase in nearly four years.

The Labor Department reported on May 18 that the Consumer Price Index rose 0.5% in April 2005 (see graph to the left). Since April 2004, consumer prices have risen 3.5%. While this 0.5% in April was down slightly from the March figure of 0.6%, a separate Labor Department report issued May 18 gave wage earners reason to frown. The department said average weekly earnings for regular workers on private payrolls fell 0.3% in April after being adjusted for inflation. The same has been true for 10 of the last 12 months. Labor Department figures show that the average weekly wage rose at or faster than inflation only in August and September.

"As far as consumers are concerned, wages are failing to keep pace with the price index that matters to them,'' said analyst Jared Bernstein, with the liberal Economic Policy Institute in Washington. "People are suffering a reduction in their purchasing power," said James Paulsen, chief investment strategist with Wells Capital Management in Minneapolis. He said that while investors may disregard the overall inflation rate, consumers can't. Or as Joel Naroff, a private economist and consultant in Pennsylvania, said in his analysis of the consumer price report: "Households who didn't eat, drive or use any utilities in April managed to escape the pain of rising retail prices."

Average hourly earnings of ordinary workers are still 1.0% below their level just a year ago in constant dollars. The labor market still shows slack, with the employment-to-population rate at 62.6%, some two percentage points less than its peak in 2000.

Steve Stanley, economist at RBS Greenwich Capital, said on May 19 that jobless-claims data show a modest slowdown in the pace of layoffs this year. He said, “Claims have been moving in a range of 310,000 to 340,000 this year, down from last year's range of 330,000 to 350,000.” Wow!!! The four-week moving average of new claims rose 5,500 to 329,750. The number of former workers receiving state unemployment checks rose 5,000 to 2.6 million in the week ending May 7, 2005.

It wasn't good news out of the Conference Board, either, on May 19. Its index of leading indicators, which is designed to forecast economic activity six to nine months ahead, fell for a fourth straight month, slipping 0.2% in April. The index of leading indicators fell 0.2% in April after a downwardly revised 0.6% drop in March from 0.4% previously, the private research group said. February index was revised to show a 0.1% decline. "The leading economic indicators show a definite loss of forward momentum," said Ken Goldstein, chief economist for the board. "The decline in the leading index indicates that the economy is losing some steam." “The leading index is consistent with annualized gross domestic product growth falling to less than 2% in the second half of the year,” said Josh Shapiro, chief economist for MFR Inc.

The poor health of the country's manufacturing sector again came into focus on May 19, 2005 after the Federal Reserve Bank of Philadelphia revealed a marked slowdown in factory activity in its region. The Philly Fed index fell to 7.3 in May from 23.5 in April, its lowest reading since June 2003. The fall was much steeper than expected.

Consumer Confidence was ebbing. US consumer sentiment fell for the fifth straight month in mid-May 2005 to its lowest level in two years, according to the May 13 announcement by researchers at the University of Michigan. The consumer sentiment index fell to 85.3 in from 87.7 in April. It's the lowest since the start of the Iraq War in March 2003. The decline in the sentiment index was driven by the expectations index, which dropped to 73.7 in May from 77.0 in the previous month, the lowest since March 2003. The current conditions index fell to 103.3 in May from 104.4 in April, the lowest since December 2003. "The consumer numbers out there were very frightening," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research in Cincinnati. "The consumer is in the driver's seat in this economy, and a lot of big names depend on healthy consumer spending."

Orders to US factories for major manufactured goods declined 2.8% in March 2005, the biggest reversal in over two years and the third straight monthly decline, the Commerce Department said April 27, 2005. The March drop, showing more fragility than had been expected, followed declines of 0.2% in February and 1.2% in January. The weakness in durable goods orders was just the latest evidence that the economy is entering still another ''soft patch'' as both consumers and businesses cut back on their purchases. The 2.8% drop in overall orders was the biggest decline since a 6% plunge in September 2002. It was a far worse performance than “analysts” had forecast; they had been expecting that orders would rise by 0.3% in March. The three consecutive monthly declines in new orders was the longest stretch of weakness since the three straight declines from July through September 2001 (during the ”official US recession” of March through November 2001).

The US economy (GDP) grew only 3.1% during the first three months of 2005, the second straight quarterly decline and the slowest rate in two years, the government also reported on April 27, 2005. (See graph to the right). The slowing growth and rising prices revived talk of stagflation, the troubling economic condition that combines the worst of both worlds. The recent GDP report showed business investment slowing sharply in Q1 2005 from the fourth quarter 2004. Investments in equipment and software were the slowest in two years. An inflation gauge tied to the GDP report and closely monitored by the Fed (Federal Open Market Committee) showed a 2.2% Q1 2005 rise in prices, excluding food and energy. That was up considerably from the 1.7% rate recorded in the fourth quarter of 2004, and marked the highest quarterly reading since the final quarter of 2001.

On May 2, 2005 it was announced that another respected barometer of manufacturing fell sharply. The Institute of Supply Management's index of factory activity dropped to 53.3 in April, from 55.2. It was the fifth monthly drop in a row for that index. Meanwhile, global economic growth appears to be slowing to a lethargic 1% per year.

"Stagflation is rearing its ugly head," said Peter Morici, a business professor at the University of Maryland. "The Fed faces a Hobson's choice: either reigning in inflation or tolerating unacceptable levels of unemployment."

Not surprisingly, the Fed chose the former on May 3, 2005. It increased its target for overnight interest rates by one-quarter of a percentage point to 3%, the eighth such raise since July 2004 . The May 3rd language of the Fed’s accompanying policy statement left little doubt that more rate increases will follow, although later in the day, the Fed inexplicably revised its statement, adding a phrase that "longer-term inflation expectations remain well-contained.” Huh? "They appear to be just as confused as the rest of us" (on the economy), said Mike Holland of the Holland Balanced Fund. Also, in contrast to the wording used in March, on May 3rd the panel omitted a soothing declaration that higher energy prices had not significantly fed into increases in "core" consumer prices outside of food and energy.

The Labor Department reported May 6, 2005 that US employers added a preliminary total of 274,000 jobs in April 2005, enough to keep up with population growth for the month and keep the country’s unemployment rate level at 5.2%. However, manufacturing again lost jobs (the 9th decline in the last 12 months), while 229,000 (84%) of the April gains came in service industries (e.g. leisure and hospitality 58,000; professional & business services 36,000; retailers 24,000). Furthermore, there remained 7.7 million US inhabitants unemployed in April, with the average duration of 19.6 weeks without work, the highest level in a year. For the 31st month in a row, more than 20% of out-of-work people have been unemployed longer than six months.

Not surprisingly, the stock markets were unimpressed with the April Jobs Report, with the Dow and the NASDAQ closing up only 5 points each and the S&P 500 slipping just over a point on May 6. The chief investment strategist at Oppenheimer (Michael Metz) commented, "They say in this business, 'If the market doesn't respond to good news, be careful.'"

Counting April 2005, the average job growth for the past 12 months was only 181,000 jobs a month, not nearly enough to allow the US economy recover from the lowered standards of living and lost savings that the periods of recession and unemployment have caused since 2001.

American workers (especially younger ones) faced depressing jobs’ prospects. The employment rate for US teenagers in the first 11 months of 2004 - just 36% - was the lowest it has ever been since the US government began tracking teenage employment in 1948. The recent modest surge in jobs in the last 12 months has left out most young Americans. From 2000 through 2004, gains among recently arrived immigrants seem to have accounted for the entire net increase in jobs. Some segments of the population have been almost totally bypassed. In Chicago, only one of every 10 black teenagers found employment in 2004. In Illinois, fewer than one in every three teenage high school dropouts are working. Accordingly, it’s no accident that the standard of living of large segments of the US population is tumbling when corporations retain all the power, including the dogged support of the current administration. As previously mentioned, US workers can't even get a modest increase in the national minimum wage! "The economy is growing and real output is up," said Andrew Sum, a professor at Northeastern. "But the distribution of income, in terms of how much is going to workers - well, the answer is very little has gone to the typical worker. In many cases, young men and women of today are faring less well than their parents' generation did at a similar age. Two-thirds of this generation are not living up to their parents' standard of living." Globalization was supposed to be the ultimate tool for raising the standard of living for all. Instead, US wealth has become even more dangerously concentrated. Bob Herbert of the New York Times recently quoted Louis Brandeis: "We can have democracy in this country, or we can have great wealth concentrated in the hands of a few. But we can't have both."

Preliminary figures for US productivity came at an annual rate of 2.6% in Q1 2005, the Labor Department reported. While 2.6% would be the best showing in nine months, it is still below the larger gains of earlier years. In fact, productivity gains since the third quarter of last year have been decidedly lower than the increases that occurred when the US economy was trying to pull out of the 2001 recession. US employers then were able to boost output without hiring back laid off workers; one can only imagine what the employers will do with the lower productivity gains these days. Hourly wages have improved only 2.7% over the last year, not enough to keep up with the 3.1% annual inflation rate. Also, economists said that the April Jobs Report would keep the Fed on a course of raising interest rates through the rest of 2005.

Ongoing Corporate Fraud:

With only a few exceptions (e.g. Worldcom's CEO Bernard Ebbers temporarily convicted of fraud on March 15), corporate fraud remained fundamentally unpunished. Even when prosecuted, minor fines often replace real accountability. Ten directors of Enron agreed to pay a paltry $13 million to settle a class action lawsuit, yet Enron’s 2001 collapse wiped out $60 billion in shareholder value (that's billion with a "b"). Twelve Worldcom directors recently got a similar easy deal ($24.5 million total). Time Warner Inc. just agreed in mid-March 2005 to pay $300 million to settle a complaint by the S.E.C. that the company's AOL unit overstated revenue for nine quarters. Time Warner had initially settled with the S.E.C. staff in December 2004 on another matter for $210 million. The S.E.C. and the Justice Department could still file additional complaints against individuals involved in AOL's accounting scandals. (Meanwhile, the company plows on –- on May 4, 2005 it was announced that Time Warner Inc. topped Wall Street's expectations with its first-quarter profit).

In the American International Group’s most recent inventory of accounting improprieties, disclosed on May 1, 2005, the company said it would probably reduce its net worth by $2.7 billion, some $1 billion more than it had previously estimated.

New frauds and cover ups seem to appear almost monthly (insurance brokers, drug companies, et al).

Instead of decreasing, the number of restatements of corporate financial reports in 2004 was the highest in five years. The number of shareholder lawsuits also increased in 2004. The quality of corporate earnings "gap" is still at 13.7%, vs. the long-term average of 6.7%. (This "gap" is the difference between GAAP earnings and "operating earnings" which do not include write-offs and other unusual items). Yet the S.E.C. is now under pressure from administration officials, business groups and Wall Street to retrench on the recent regulations meant to help curb corporate abuses.

Bankruptcies continued:

On May 10, 2005 a Chicago Bankruptcy Court judge approved United Airlines’ request to ditch its pension plans and shift responsibility to the government, the latest move by the troubled airline. United thus becomes the biggest pension defaulter in the history of corporate America. The change will definitely cut United employee pensions. Many United employees and retirees view the company's pension-cutting plan as a kind of betrayal. They spent years -- in many cases, decades -- working for the airline. Between these changes in United pensions and the current political fights over Social Security, employees rightly wonder how much retirement income they'll really have. Many workers see the pension change as just the latest painful concession they had been forced to make. The airline's employees already have given up $2.5 billion a year in wage and benefit cuts.

Oh yes… one day after that federal judge allowed United to terminate 120,000 employee and retiree pensions, the bankrupt airline was back in court May 11 seeking cost-cutting changes in its labor contracts. Here’s the headline: “UNITED STILL WANTS MORE FROM UNIONS. Pension handoff not enough: After losing $1.1 billion, airline seeks another $725 million in labor savings.” And so it goes…

With this default, United will unload $6.6 billion of obligations onto the Pension Benefit Guaranty Corporation, the federal agency created in 1974 that insures corporate pensions. The number of pension plans so dumped onto US taxpayers rose to 192 last year, up from 155 in 2003. The number of workers and retirees in such plans now exceeds 1.1 million, including United Airlines' workers and retirees. That's not counting the some 1,200 relatively stable companies that chose to close down their fully funded pension plans last year in an effort to move workers into less costly retirement savings plans, like 401(k)’s.

Alas, American companies often under-fund their pensions. The New York Times reported that only 20% of a total of $450 billion in under-funding is due to actual financial distress at companies. The rest is occurring at businesses that are financially healthy but are simply and evading their responsibility to put the proper resources into their pensions. With the United default alone, the federal pension agency's deficit will rise to $23 billion; as recently as 2001, it had a surplus of $7.7 billion. Sound familiar? Analysts had predicted that if United won its case, there could be a domino effect as other airlines are forced to seek bankruptcy protection to bring their pension costs down to United's levels. Such moves would probably swamp the Pension Benefit Guaranty Corporation.

Meanwhile, Delta Air Lines’ battered stock fell May 11 to its lowest level in at least 25 years following the company's warning about further losses and –- yes -- the possibility of bankruptcy. Continental & Northwest may not be far behind.

The defaulting pensions’ story is just part of a far wider problem. Consider this quote from Marshall Loeb, former editor of Fortune, Money, and The Columbia Journalism Review, from the May 13 CBS MarketWatch: “No matter what curveballs and disappointments life might throw at you, there always have been several unshakeable things in which you could trust: your family, your closest friends, your community -- and, of course, your retirement, supported by your long-promised pension. Indeed, this bond of trust has been the crucial part of the American social contract, which links workers and managers in common cause. Managers trusted that workers would be efficient, industrious and loyal. Workers trusted that the managers would treat them decently and pay them fairly, whether on the job or in retirement. But now that trust is being ominously strained. Increasingly, Americans are being told that they won't always be able to count on their pensions to carry them through their lengthening life, not even if they have worked for decades for one of the world's great companies.”

Of course, the fate of the US Social Security System now hangs in the balance as well.

Rising energy, oil & gas prices:

Utility prices are now much higher due to illegal price manipulations by power market brokers, yet US consumers are now stuck with the bills. Oil and gasoline prices in the US soared to record levels in late 2004 and were then reduced slightly at a maddeningly slow pace, before spurting up again in February-May 2005. Crude oil futures ended the week 2.5% higher on May 6, 2005.

Despite the high prices, gasoline demand in the United States has shown no sign of a slowdown; over just the month of March 2005 demand was more than 2% higher than it was a year ago. For 2004 overall, the price of energy in the US was up 16.6% vs. 2003.

US dependence on foreign oil continues at a historical high. The situation has gotten worse since the first oil crisis of the 1970s. Then, the US relied on overseas sources for about a third of its oil. Today, dependence has grown to over 56% and by 2025, would reach 68%, if nothing changes, according to the US Energy Information Administration (EIA).

The nation's passenger fleet (cars and light trucks) gets virtually the same mileage today as it did some 25 years ago (about 25 miles per gallon), according to the Department of Transportation. Fuel economy standards have not been updated by Congress since 1987. Moreover, pickups and SUV’s are still exempted from the fuel-economy standards that apply to cars, weighing down the overall fleet mileage. Yet the current administration and Congress studiously ignore the surest way to reduce demand and thus oil dependency, which is to mandate standards to improve the fuel efficiency of America's cars and trucks.

At the same time, US gasoline reserves are falling. The US EIA continues to see a tight global oil supply and demand balance through 2006. The strong demand growth coupled with limited spare crude oil production capacity means that high energy prices are here to stay. Global oil demand continues to grow at 2 million barrels per day or more, without a comparable increase in crude oil production capacity (e.g. no new refineries in the US in years). Unless actions are taken, it’s difficult to imagine demand slowing or supply capacity growing significantly. That is why the EIA is not expecting oil to fall below $50 per barrel for a sustained period anytime soon. The price of natural gas has also risen over 11% in the western United States. Meanwhile, oil company profits are at obscene levels. Could it be that oil companies are actually profiting from the rise in raw material (crude oil) costs, at the expense of US consumers?

A letter to President Bush in March 2005 signed by more than 30 military and security officials, including Robert McFarlane (former national security adviser to President Reagan) stated, “We believe that the United States' dependence on imported petroleum poses a risk to our homeland security and economic well-being."

Of course, many in Congress and in the oil industry argue that the US does have a plan to reduce dependence on foreign oil: the new Energy Bill now before the Congress! But such measures aren't nearly enough, critics say. Even the package of energy-saving measures unveiled recently by the bipartisan National Commission on Energy Policy, which goes well beyond the provisions of the current Energy Bill, would cut oil imports by only 1.6 percentage points by 2025. (By the way, the new Energy Bill gives $8.1 billion in new tax breaks to oil companies. Say what?).

Oil Disasters don’t help:

It would appear that March is not a good month for oil disasters. Who can forget that on March 24, 1989, the nation's worst oil spill occurred when the supertanker Exxon Valdez ran aground on a reef in Alaska's Prince William Sound and began leaking 11 million gallons of crude. On March 23, 2005, an explosion shattered a chemical unit at the huge BP oil refinery in Texas City near Galveston, killing at least 15 people and injuring more than 100. Unfortunately, big oil companies have not been using their enormous profits to invest in more refinery capacity. As a result of this deliberate strategy, Mark Baxter, director of the Maguire Energy Institute at the Cox School of Business at Southern Methodist University in Dallas, said of the potential impact that with oil prices so high, supplies so tight and refineries running at very high capacity, the BP explosion would probably bump prices of oil and gasoline higher in the short term. "The magnitude of the impact today is greater than it would have been 10 years ago," Mr. Baxter said, "because we are in such a tight, volatile market."

A Category 4 or 5 hurricane hitting th Gulf Coast, where oil rigs and refineries are numerous, would mean extensive damage and loss of life, and cause oil and gas prices to go through the roof. This was March 2005, folks -- well BEFORE Katrina!

Disadvantageous Globalization:

With the high prices for gasoline and declining consumer confidence, the number of US consumers planning to buy an automobile in the next six months recently fell to 4.2%, the lowest level since 1967! The US auto industry is sorely affected, with shares of General Motors and the Ford Motor Company trading near one-year lows and the companies continuing to lose customers. Sales at GM fell 12.6% in February from the same month a year earlier, according to monthly sales reports released by automakers on March 1, 2005; Ford's sales fell 2.8%. Both companies scaled back the numbers of cars and trucks they planned to make. Overall, auto sales in the United States fell 1.8% in February from the same month a year earlier. Full-size SUV sales fell 21% in February, compared to a year earlier, and that's after a 31% drop in January, according to data from an affiliate of J.D. Power and Associates. On March 16, GM stock fell 14% in one day when it estimated a loss of $1 Billion for the previous six months. On April 1, both General Motors and Ford said that new vehicle sales in March 2005 failed to match year-ago levels, despite hopes for a recovery after a tough winter. Meanwhile, some Asian brands reported record US demand. On April 19, GM announced a $1.1 billion loss for Q1 2005 alone.

Little Relief in sight:

Alas, April 2005 figures provided no relief to GM and Ford. The latest automobile sales stats were bad news for GM and Ford, which both saw their sales slip again. But both Toyota and Nissan posted sales gains, such that overall auto sales in North America were actually up 1.8% in April! GM's sales fell 7.7% from the same month a year earlier, primarily because of a weaker demand for SUV's. Ford sold 5% fewer vehicles in April compared with a year ago.

Meanwhile, Toyota reported that April 2005 was the most successful month in its history. Its sales were up 21.3% on big gains in the number of passenger cars sold. Nissan also had a record month with sales up 27%. Toyota said the surge in sales of its gas-electric hybrid (the Prius) and other fuel-efficient models, were the primary reasons for its excellent April.

Market share fell at both GM and Ford in April. GM lost the most; its market share dropped to 25.1% in April, down 2.6% from April 2004. Toyota's North American share jumped to 14% from 11.7% a year ago.

The Chrysler division of DaimlerChrysler was the only share gainer among the Detroit automakers, eking out a meager 0.4% rise year-over-year. However, Toyota sold more vehicles in the United States than did Chrysler in April, a rare event likely to become more frequent going forward. (DaimlerChrysler's overall sales in the United States were up 4.6% in April).

GM stock enjoyed a temporary surge of more than 18% on May 4, 2005, after billionaire corporate raider Kirk Kerkorian said he intends to more than double his current GM stake. In the auto industry, Kerkorian is best known for a bid to buy Chrysler some 10 years ago. While that attempt failed, he was left with a large chunk of Chrysler shares that he proceeded to unload at a robust profit.

Kerkorian now plans to offer $31 a share for as many as 28 million GM shares. The offer edged GM up $5 to finish near $33 on May 4. (See graph above). GM’s recent troubles were obviously seen as opportunities for others to benefit.

Any joy was short-lived, however, as on Cinco de Mayo, Standard & Poor's Ratings Services declared the billions of dollars of debt owed by General Motors and Ford to be "junk," a hit that will increase their borrowing costs. The companies’ debt was downgraded to “below investment grade” (a.k.a. “junk” status), causing both automakers' stock to fall on Wall Street and leading their respective stock markets lower. Over and above their large health care and post-retirement liabilities, GM paid about $12 billion in interest on debt last year and Ford's cost was around $7.1 billion. GM's consolidated debt as of March 31, 2005 was $292 billion and Ford's totaled $161 billion, Standard & Poor's reported. While the two companies will likely have little difficulty accommodating "near-term cash requirements." the debt downgrading will cause many institutional investors to sell GM and Ford bonds at a lesser value, since some institutions are barred from trading in junk bonds. GM shares fell 6% on May 5, dragging the Dow down 44 points. Ford shares declined 4.5%, helping to drive the S&P 500 down some 3 points.

Moreover, should Kerkorian actually acquire more GM shares, some analysts believe that he might end up demanding that GM sell part or even all of its profitable finance division, which is itself valued greater than GM's total consolidated current market worth. Should this happen, GM would be left without much of its present financial cushion.

The Dow fell 103 points on May 10 amid rumors that some hedge funds may have been whipsawed in the previous week when investor Kerkorian announced an offer for General Motors stock and Standard & Poor's downgraded GM’s bonds to junk status. Massive losses at hedge funds could force them to liquidate holdings, flooding the market. GM stock fell again on May 11; Neil Massa, equity trader at John Hancock Funds in Boston, said fears surrounding the hedge funds were still weighing on the market. (For the week ending May 13, the Dow lost 1.98%, the S&P fell 1.48% and the NASDAQ gained only a meager 0.48%).

GM’s troubles of course affect a giant supply chain. To chose just one, struggling auto parts supplier Delphi Corporation on May 13 posted a first-quarter loss of $409 million, reflecting weaker-than-expected production volumes from US automakers, particularly General Motors, its top customer. Delphi's revenue fell about 7% to $6.9 billion in the latest quarter. Delphi stock is trading near its lowest point since spinning off from GM in 1999 (see graph below). Delphi now projects that GM's North American operations will turn out about 4.5 million units this year. This, in turn, would mean a reduction of a billion dollars in Delphi's revenue forecast for 2005.

The upcoming Annual GM Shareholders Meeting in Delaware on June 7, 2005 should provide CEO Rick Wagoner an important chance to articulate GM’s comeback strategy.

Outsourcing US jobs offshore to low cost labor countries continues without restraint. Chancellor Gerhard Schröder, in comments published March 27, 2005, called on German companies to stop moving jobs and factories outside of the country in search of cheaper labor and lower taxes and to invest in Germany to provide badly needed employment there. No such call has come from the U.S. administration regarding offshoring of US jobs.

Moreover, Singapore has displaced the United States as the top economy in information technology competitiveness, according to the World Economic Forum's latest annual Global Information Technology Report released March 15, 2005. The US drops from first to fifth in the rankings, which measures the propensity for countries to exploit the opportunities offered by information and communications technology (ICT).

IBM recently sold its PC business to Lenovo, creating a powerful new competitor in the PC space with operations based in China. Of course since China now owns some $200 billion of U.S. debt, it'll be hard for the U.S. to negotiate firmly a fairer trade balance, or for that matter, stay firm re Taiwan. Meanwhile, IBM employees challenged off-shoring and other issues at the IBM Annual Meeting on April 26, 2005 in Charleston, S.C. "IBM employees continue to be extremely concerned about job security. Off-shoring and the training of replacements is ongoing, employees are finding that the job performance evaluation system is being used as a club to force workers out of the company. PC Division employees now find themselves working for a Chinese corporation, and there are rumblings of further job cuts following IBM's recent first quarter announcement. Clearly the IBM that many employees and U.S. citizens remember no longer exists.” said Lee Conrad, national coordinator for the Alliance@IBM. The Alliance offered the following resolution: #8 Offshoring. This resolution requests that the IBM board of directors establish an independent committee to investigate, evaluate and report on the risk to the damage to the company's brand name and reputation resulting from its on-going outsourcing initiatives.

Wrong direction events accelerating:

Where to begin? Dozens of world and national news bulletins in the May 15, 2005 - June 7, 2005 period reinforced virtually every aspect of the dirty dozen factors listed as the premise of this opinion page.

Examples include these latest headlines: • Death Toll at 825 Since New Iraq Government • Civilian Toll in Iraq: 12,000 to 100,000 • U.S. 'Thumbs Its Nose' at Rights, Amnesty International Says • White House Downplays Report of Missing Arms in Iraq • Syria Test-Fires 3 Scud Missiles • Bush S.E.C. Pick Is Seen as Friend to Corporations • Hiding the Data on Drug Trials Continues • A.I.G. Profit Is Reduced by $4 Billion in Restatements • Venture capitalist arrested on charges of stealing nearly $9 million • Worker health benefits shrink • ISM: US factory activity falls in May for 6th month in row • Crude Oil Closes at $55.03 on June 3, 2005, only a few dollars off its record high • Bush administration "doctors" global warming report

But the key headlines for today’s update focuses on the chronic US job situation, a topic given considerable coverage above:

June 2, 2005 -- US corporations announced 82,283 job cuts in May, a 42% increase from April, outplacement firm Challenger Gray & Christmas said. Many of the planned layoffs were in manufacturing, especially computers, where job cuts surged to 17,886 in May as companies reacted to weak demand.

June 3, 2005 -- Wall Street finished a disheartening week sharply lower today after the Labor Department reported the slowest job growth in nearly two years, exacerbating concerns about the health of the US economy -- Dow Sheds 93, Nasdaq Loses 26.

June 7, 2005 – GM to cut 25,000 jobs in the United States.

The June 3rd Labor Department’s report said that US payrolls increased by only 78,000, the lowest since August 2003. Surprised economists were expecting much stronger job growth in May, forecasting an average gain of 186,000. Also on June 3, 2005, the government revised down its original payroll growth figure for March 2005 by 24,000, to 122,000.

Factory employment fell by 7,000 in May, following a loss of 9,000 in April. May’s reduction was the 10th factory employment decline in the past 12 months. Since August 2004, factory employment has decreased by 67,000. Nearly half of the employment gains in May 2005 -- 36,000 -- were related to the housing market – itself raising concerns of an over-inflated “bubble” in recent months.

People are looking at the 78,000 (jobs in May 2005) and going 'gee wiz' we're back to a weak economy," said Lincoln Anderson, chief investment officer at LP Financial Services.

General Motors plans to eliminate 25,000 manufacturing jobs in the United States by 2008 and close plants as part of a strategy to revive North American business at the world's largest automaker, its chairman said on June 7, 2005 at GM's 97th annual shareholder meeting in Delaware.

Aside from companies like GM, the lack of profitability is not the reason relatively few new jobs are being created. US corporations' before-tax profits rose a record 23.6% to $1.307 trillion annualized in the first quarter of 2005. The increase brought the year-over-year growth up to 35.9%, the fastest profit growth since the third quarter of 1987. Economists at Bear Stearns noted that corporate profits as a share of GDP have risen to the highest level in over 37 years.

The US Trade Deficit:

Today, overall US imports are exceeding exports at record levels, bloating the country’s trade deficit. November 2004 provided a then-record high trade deficit of $60.3 billion; the bill for imported oil jumped 17.7% in the month! The year 2004 saw a record trade deficit of $618 billion, a 70% increase since 2001. Then America's appetite for foreign imports broke all previous monthly records in January 2005, reaching $159.1 billion (see the graph below) and contributing to a monthly trade deficit that was then the second highest on record (second to ... November 2004). The January $58.3 billion trade deficit defied "predictions" that a weakened dollar would narrow the United States' trade gap.

While most other industrialized countries enjoy a trade surplus with China, the United States had a deficit of $15.3 billion in the month of January 2005 alone, the largest with a single country on record. Galvanized into broad action, the US administration, at long last reacting to the flood of Chinese clothing imports since January 2005, announced on May 13, 2005 that it would seek to impose new quotas on Chinese cotton shirts, trousers and underwear. Wow! Pressure had been building on the administration to slow Chinese imports long before the global textile quota system ended on January 1, 2005. But since then, China's booming textile and apparel industry, unhampered by quotas, has grown ominously. Chinese exports of cotton trousers to the US have grown by 1,500% and by 1,350% for cotton knit shirts, according to trade figures. At the same time, the US textile industry has lost 16,000 jobs and 18 factories have closed, per US government reports.

Unfortunately the new clothing quotas won’t take effect for quite awhile, since the administration must first “notify” China of its decision and then “hold discussions” about the size of the limits. China has already warned the US (and Europe) that it will resist any attempt to limit Chinese textile and apparel exports.

Of course, textile issues are just the tip of the trade deficit iceberg with China. Lawmakers in the US Congress say that China fails to follow the WTO rules. No kidding? Several new bills are being debated that would impose penalties on China for currency manipulation, violating intellectual property rights and following other forbidden practices like giving its producers overly lenient loans and export tax rebates. We’ll see how long it takes for Congressional or administration action to occur on these fronts.

The trade deficit may be the single most important issue in assessing the extent to which US lives beyond its means. Accordingly, it should cause US citizens and leaders to finally comprehend the dangers of huge deficit spending. “But the White House is showing virtually no sign of action, as if doing nothing might make the problem smaller", according to The New York Times. For having done such a good job managing the country's trade deficit, while the US manufacturing sector lost 2.8 million jobs over the last three years, the US Trade Representative Robert Zoellick was recently promoted to deputy Secretary of State under Condi Rice, who herself did such a great job as National Security Adviser for the last four years. For the first two months of 2005, the US trade deficit was running at an annual rate of $717.2 billion, about $100 billion above the record imbalance set in 2004.

The annualized Q1 2005 trade deficit subtracted some 1.5 percentage points from Q1 2005 GDP, the largest drag on US growth in two years. While exports increased 7%, imports swelled 15% over the quarter.

On May 11, 2005, the Commerce Department reported that the US trade deficit narrowed slightly without warning in March 2005. Exports rose as predicted some 1.5% to $102 billion in March, but instead of increasing, imports fell 2.5% unexpectedly to $157 billion. Robert Brusca, chief economist at Fact and Opinion Economics, was concerned with this unusual reduction in imports. "Import slowdowns are a good and reliable barometer of economic weakness," Brusca said on May 11. This was the largest decline in imports since December 2001. The decline in March 2005 imports was widespread, with sharp drops in imports of consumer goods and autos. Even with the reduction of imports in March, Chinese textile imports for the first three months of this year are up 54% compared with the period last year. The reduction in March imports could have been even worse (imports of goods alone fell over 3.1% in March to $131 billion) were it not for the – you guessed it -- strong imports of crude oil. The US imported 326 million barrels of crude oil in March 2005, or 10.5 million barrels per day, up from 296.9 million in February 2005. The nation’s petroleum deficit widened 4% to $17 billion in March, the second largest US petroleum deficit on record.

On May 12, 2005 the Dow closed down 111 points, marking the seventh triple-digit decline for the blue chip gauge over the past month. The NASDAQ and the S&P 500 also dropped. Decliners outnumbered advancers 24 to 9 on the NYSE and 19 to 11 on the NASDAQ. Wal-Mart, THE LARGEST CORPORATION IN THE WORLD, was a big loser, off 2%, after the company reported that both revenues and adjusted earnings came up short of expectations. Paul Nolte, director of investments at Hinsdale Associates, said that the Wal-Mart announcement put a negative spin on the May 11 trade numbers as it confirms that higher oil prices and interest rates are having an impact on the economy. “In general, the numbers are pointing down and pointing to a slower economy," Nolte said. The Labor Department also reported, on May 13, that prices of imports into the US rose a greater than expected 0.8% in April. Excluding the 3.1% increase in imported oil prices, import prices increased 0.4% -- the largest gain since November 2004.

The Federal Budget Deficit:

From a huge surplus only 3 years ago, US federal deficits have now ballooned to unprecedented levels. And the latest federal budget submitted in February 2005 does little to reduce the deficit in fiscal 2006. Today, the national debt is near $8 trillion! Over the last four years, federal revenue as a percentage of GDP has plunged to levels not seen since the 50’s. To paraphrase a slogan from past elections, It’s the REVENUE, stupid!”

The ranks of US citizens living in poverty are steadily increasing. Consumers, who have been the remaining driving force of growth for the last four years, are pushing themselves to the limit. Estimates are that the personal savings rate in 2004 dropped to 0.8%, the lowest level since 1933! Health Care costs increase by double digits yearly, yet more & more Americans have no health insurance. Meanwhile, the average pay for CEO's of the S&P 500 has tripled since 1993. The top 1% of US households now own nearly 40% of the household wealth.

The value of the US dollar has fallen to record lows. In November 2004, gold rose above $450 an ounce for the first time in more than 16 years, driven by investors looking for an alternative to the American currency. As mentioned earlier, to this point, the dollar's depreciation has not narrowed the nation's trade gap.

The “Twin Deficits”:

If the decline in the dollar gets too severe, it could drive US bond yields up like it did in the early 80's under President Reagan. For anyone who chooses to remember, this could mean a return to 15% to 20% mortgage rates and a similar recession, when the "twin deficits" in trade and the federal budget severely damaged US economic competitiveness. Worse, the country is now being led into deeper and deeper dependency on debts owed to rival nations, who could “pull the plug” at any time.

The Government

Critical legislation in the U.S. Congress is frequently delayed, then rushed into law at the last minute without time for proper vetting of the actual contents (e.g. rushed spending bills, delayed 9/11 reform, etc.). This process gives the majority the chance to add in sneaky clauses, such as the ability for congressional staffers to review income tax returns, and the anti-abortion clause stuck in to restrict states rights. Senate Republicans pushed through a bill in early March 2005 to make declaring bankruptcy harder for middle class and poor people who have suffered job losses or huge medical bills. Meanwhile, it appears that Americans heading off to war are sometimes facing distracting and demoralizing demands from financial companies trying to collect on obligations that, by law, they cannot enforce. The problem is that too many lenders, debt collectors, landlords, lawyers and judges say they are unaware of the federal statute or do not fully understand it. The law, the Servicemembers Civil Relief Act, protects all active-duty military families from foreclosures, evictions and other financial consequences of military service. Then of course just came the Senate's OK to drill in the Alaskan Wilderness, and the cutting of the budget for the National Science Foundation by $105 million.

In mid-March 2005 the Republican majority in the House and the Senate passed budget blueprints for 2006 that slash domestic spending by upwards of $150 billion over the next five years. Yet they still managed to increase the projected deficit by more than $125 billion over the same period (and by more than $1 trillion through 2015). So much for talk of deficit reduction. The president's new budget would cut funding for Medicaid, food stamps, education, transportation, health care for veterans, law enforcement, medical research and safety inspections for food and drugs. And, of course, it contains big new tax cuts for the wealthy.Of course there are many laws already on the books from recent tax cuts. In 2005 alone, almost half of the tax savings from existing dividend and capital gains rate cuts will go to investors who make more than $1 million a year, the top 0.2% of the income ladder. Nearly three-quarters of the tax benefits will go to those making more than $200,000, about the top 3%. The cost to everyone else in the form of forgone revenue will be $23 Billion.

War trauma abides in both Afghanistan and IRAQ. The Afghanistan poppy crop has returned with a vengeance. April and May 2004 were the worst months for U.S. military deaths in IRAQ since the ill-advised war began in March 2003, exceeded only by the death rates in recent Fallujah/Mosul/Baghdad offensives. The Iraqi insurgency is stronger than ever. The January 30, 2005 Iraqi elections provided no respite, as U.S. and Iraqi casualties continue. U.S. soldiers' terms in IRAQ and Aghanistan are being extended and troop count is again being increased. In January 2005, the U.S. Marine Corps missed its monthly recruiting goal for the first time in over 10 years! And here's a typical headline: "KABUL, Afghanistan, April 9 (AP) - The death toll from the fiery crash of a United States helicopter in Afghanistan rose to 18 after searchers found the remains of two more American soldiers in the wreckage, the military said."

Detainees in IRAQ have been tortured by U.S. forces, and some 26 deaths of prisoners in U.S. custody in IRAQ and Afghanistan may be criminal homicides. Yet only low level “order-takers” are being prosecuted. This is the just the opposite of Nuremburg, where order-givers from generals on up were punished. Meanwhile, the chief architect of subverting the Geneva Convention, Alberto Gonzales, was just confirmed Attorney General. It would seem that the previous era of scandal, followed by investigation and punishment, has been turned on its head.

While Saddam Hussein was found well over a year ago in IRAQ, WMD have never been. Now the search for WMD has been officially abandoned by the U.S. Instead of Iraqi oil revenues covering postwar expenses as we were promised (by Paul Wolfowicz among others), U.S. taxpayers are forking over $1 billion a week! Wolfowicz's expert financial prediction apparently earned him the nomination in March 2005 to head the World Bank. Wolfowicz's unilateral hawkishness may be matched however, by John Bolton, who has just been named U.S. ambassador to the United Nations.

Meanwhile, the cost of the main military health care plan, Tricare, has doubled since 2001 and will soon reach $50 billion a year, more than a tenth of the Pentagon's budget. Over the next decade, a new plan for military retirees, Tricare for Life, will cost at least $100 billion, according to confidential budget documents, rivaling the costs of the biggest weapons systems the Pentagon is building. Tricare for Life is one of a long list of assurances, like prescription drug benefits for the elderly, that Washington is making to American citizens at a rate of more than $1 trillion a month. The government's unpaid-for promises grew by more than $13 trillion last year, a sum larger than the nation's 2004 economic output, and they now surpass $43 trillion, said David A. Walker, comptroller general of the United States. Last year "was arguably the worst year in our fiscal history," said Mr. Walker, who runs the Government Accountability Office, the budget watchdog of Congress. "It seems clear that the nation's current fiscal path is unsustainable." Today, the political turmoil in IRAQ is worse than ever, as casualties on both sides mount, yet no near-term U.S. exit strategy is evident. Iraqis don't want the U.S. occupiers there: "BAGHDAD, Iraq, April 9, 2005 - Tens of thousands of Iraqis marked the second anniversary of the fall of Saddam Hussein by marching here in the capital on Saturday to demand the withdrawal of American forces." Bin Laden remains at large, and Al Qaeda terrorist attack warnings are frequent domestic occurrences, with actual terrorist attacks a grim reality elsewhere. U.S deaths in IRAQ stood at 2135 at the beginning of December 2005. In testimony before the Senate Intelligence Committee in mid-February 2005, the new CIA Director Porter Goss said, “Islamic extremists are exploiting the Iraqi conflict to recruit new anti-U.S. jihadists. It may only be a matter of time before Al Qaeda or another group attempts to use chemical, biological, radiological and nuclear weapons.” Hello? On Sunday March 16, 2003 (i.e. before the U.S. invasion of IRAQ), the Washington Post reported that “specialists inside and outside the government question whether a U.S.-led invasion of IRAQ would deliver a significant blow against international terrorism. Experts warn that war and occupation could also have the opposite effect by emboldening radical Islamic groups and adding to their grievances.” That was March 2003 folks!

(Meanwhile, here at home, U.S. chemical plants, nuclear power plants, ports, and other vulnerable sites remain unprotected. And U.S. borders remain porous. Over one million people were arrested last year in illegally crossing into the U.S. over the country’s southern border; several million more made it safely into the U.S. To help, the Mexican government published an official guide that advises its citizens on the intricacies of sneaking into the United States – this is not a joke!).

Needed supplies and armor plating for U.S. forces in IRAQ are delayed; U.S. soldiers in IRAQ have now openly confronted Secretary Rumsfeld to little avail. Four U.S. Marines were killed in the Humvee (shown in the image to the right) with jury-rigged armor when it was struck by a car bomb in Ramadi, just one of hundreds of similar incidents. More than two and a half years into the IRAQ war, the armoring program is yet to be completed. Meanwhile, expensive unmanned predator aircraft ineffectually crowd the skies over IRAQ. One by one, “coalition” members are withdrawing their already-meager IRAQ support. The administration claims that 120,000 Iraqi troops have been trained, but Senator Joe Biden says the number is more like 4,000. Many nations strongly disagreed with the U.S. decision to preemptively invade IRAQ. As a result, problems continue to this day. For example, the North Atlantic Treaty Organization agreed December 09, 2004 to increase its forces training soldiers in Baghdad, but six member countries have still refused to take part (France, Germany, Belgium, Greece, Spain and Luxembourg). So former national allies are now political foes of the U.S. and NATO and the UN are the weaker for it. Other world hot spots threaten to consume more U.S. soldiers. Nuclear proliferation (Iran, North Korea, etc.) continues to raise its ugly head.

Worldwide admiration of the U.S.A. is at an all time low.

In a January 2005 poll, 56% of Americans felt that the country had gone off on the wrong track. In late March, President Bush's approval rating slipped to a new low in the latest national survey. The USA Today/CNN/Gallup survey released on March 25, 2005 found that only 45% of the 1,001 adults surveyed March 21-23 thought Bush was doing a good job, compared with 52% during three previous surveys in late February and early March. The president's previous low since taking office in January 2001 was 46% in May 2004.

Fifty-nine percent (59%) of those surveyed believed the economy was getting worse, up 9 points from earlier in March. The overall figure was Bush's worst negative figure on the economy in two years. As 2005 nears its end, things are not improving:

For example, Wall Street retrenched August 12 as the US trade deficit again widened. Investors were displeased when the Commerce Department reported that the trade deficit, the imbalance between what America sells abroad and what it imports, is running higher than last year's all-time record. The US trade deficit rose to $58.8 billion in June, an increase of 6.1% from the May deficit of $55.4 billion.

Meanwhile, China's trade surplus with the rest of the world widened to $10.4 billion in July.

Oil and gasoline prices have risen steadily and ruthlessly. Crude oil futures hit new records on Friday August 12, 2005. A barrel of light crude closed at $66.86, up $1.06 on that day alone, on the New York Mercantile Exchange.

More than half the deterioration of the US trade deficit in June 2005 reflected America's surging foreign oil bill, which hit a record high of $19.9 billion, an increase of almost 10% percent from May. Analysts say climbing oil prices will send that figure higher in coming months.

The stock market has been watching oil prices obsessively, sorely afraid that still higher energy costs will significantly lower consumer spending and increase business expenses. "The Fed raising interest rates at the same time oil is going up is like pumping the brakes twice," said Stephen Wood, portfolio strategist at Russell Investment Group. Almost two-thirds of those surveyed for an AP-AOL poll expect fuel costs will cause them financial hardship in coming months, while in April, only half felt that way. On August 12, gas futures were trading up 4 cents at $1.99 on the New York Mercantile Exchange; the average price of a gallon of regular gasoline was more than $2.40 per gallon at week's end, compared with $1.86 a year ago, according to the auto club AAA. In California, gas prices are far higher than the national average. US citizens who are not investors are even more burdened, as fuel bills become a larger and larger part of their weekly budgets.

The recently-signed US Energy Bill missed a critical opportunity to direct auto companies to improve fuel mileage ratings. Many car companies have used most of the technological advances of the last 20 years to make cars heavier and more powerful, rather than more fuel-efficient. Congress even rejected the idea of rating tires for fuel efficiency. For its part, the White House blocked an amendment that would have required the president to find ways to cut oil use by one million barrels a day by 2015 - on the grounds that it might have actually required imposing better fuel economy on carmakers. Except for the temporary summer program of offering selected cars at employee discount prices with rebates to all consumers, we have seen the domestic car companies lose market share steadily for many consecutive quarters.

The US administration and Congress seem to learn nothing from other countries. "During the 1973 Arab oil embargo, Brazil was importing almost 80% of its fuel supply," notes Gal Luft, director of the Institute for the Analysis of Global Security. "Within three decades it cut its dependence by more than half. During that period the Brazilians invested massively in a sugar-based ethanol industry to the degree that about a third of the fuel they use in their vehicles is domestically grown. They also created a fleet that can accommodate this fuel." Half the new cars sold this year in Brazil will run on any combination of gasoline and ethanol. "Bringing hydrocarbons and carbohydrates to live happily together in the same fuel tank," Luft added, "has not only made Brazil close to energy independence, but has also insulated the Brazilian economy from the harming impact of the current spike in oil prices."

As Tom Friedman pointed out in the New York Times on August 5, “The new energy bill includes [some meager] support for corn-based ethanol, but, bowing to the dictates of the US corn and sugar lobbies (which oppose sugar imports), it ignores Brazilian-style sugar-based ethanol, even though it takes much less energy to make and produces more energy than corn-based ethanol. We are ready to import oil from Saudi Arabia but not sugar from Brazil.”

After deliberately blocking efforts in Congress for higher fuel economy standards to be included in the recently signed Energy Bill, the Bush administration waited until weeks later to then "propose" new standards for SUVs and minivans on August 23, 2005. Of course, the new proposal will take another year to get implemented, if it ever does. The so-called new proposal would set different mileage goals for six sizes of vehicles, replacing the current single standard for all light trucks.

Administration officials say the regulations would result in more fuel savings than any previous increase in efficiency standards for larger vehicles. Transportation Secretary Norman Y. Mineta said the rules would save 10 billion gallons of gasoline and "result in less pain at the pump for motorists, without sacrificing safety." But environmentalists say the complex proposal adds up to little real change and continues to reward Detroit for building bigger vehicles.

"The proposal is almost embarrassing in terms of its [miniscule] effect on fuel consumption," said Eric Haxthausen, an economist with Environmental Defense of Washington. He called the 10 billion gallons of fuel savings a "weak yardstick" because it would be spread over as long as 15 years. Last year alone, for instance, US drivers consumed nearly 140 billion gallons of gas, according to federal Energy Information Administration. "We can and should do better," Haxthausen said.

Critics say the new rule would actually encourage companies to make bigger vehicles that are less fuel efficient! For example, the Subaru Outback, which is in the smallest class of vehicles, could be made less than an inch wider and longer and move up into the next size grouping, thereby lowering its fuel economy requirement, said David J. Friedman, research director for the clean vehicles program of the Union of Concerned Scientists. "One of the fundamental problems with the system is automakers can add size, in some cases only a tiny amount, and meet a dramatically lower standard," he said.

The new Bush fuel economy measure comes at a time when US drivers are coping with skyrocketing gas prices and correctly blaming Bush himself for their plight. Combined with IRAQ and Bush's other problems, complaints about fuel prices are ruining Bush's approval ratings even further. A nationwide poll released Monday August 22, 2005 by the American Research Group showed Bush's approval rating at 36% -- a new low that puts him in the unhappy company of his father just before his 1992 loss to Bill Clinton and Jimmy Carter before his loss to Ronald Reagan. Antiwar demonstrators dog Bush at his ranch and at every stop on the road during his extended vacation.

As if political decisions were not enough to damage the US economy, oil and gas stocks opened broadly higher on Monday August 29 as Hurricane Katrina sent oil prices surging to all-time highs above $70 a barrel. It's probably unfair to blame Hurricane Katrina on Bush, unless of course you feel that Global Warming intensifies hurricanes, or, perish the thought, God is now blaming Bush for his reckless disregard of human life in IRAQ.

By September 2nd, it began to appear that Bush is accountable after all! The Bush administration has ignored specific and dire warnings about the New Orleans' levees for half a decade. In recent years, Bush repeatedly sought to slice the Army Corps of Engineers' funding requests to improve the levees holding back Lake Pontchartrain, which Katrina smashed through, flooding New Orleans. In 2005, Bush asked for only $3.9 million, a small fraction of the request the corps made in internal administration deliberations. Under pressure from Congress, Bush reluctantly agreed to spend $5.7 million on the levees, a pittance. Since coming to office, Bush has essentially frozen spending on the entire Corps of Engineers, which is responsible for protecting the country's coastlines, wetlands, waterways and other areas susceptible to natural disaster, at around $4.7 billion.

Michael Brown, the blithering idiot that Bush put in charge of FEMA - a job he trained for by running something called the International Arabian Horse Association(!) - admitted he didn't know until Thursday September 1st (3 days late) that there were 15,000 desperate, dehydrated, hungry, angry, dying victims of Katrina in the New Orleans Convention Center. Was he sacked instantly? No, our tone-deaf president hailed him in Mobile, Ala., on Septmber 2nd: "Brownie, you're doing a heck of a job."

Meanwhile, as of August 24, 2005, at least 1,874 members of the US military had died in IRAQ since the beginning of the ill-advised war in March 2003, according to an Associated Press count. (These figures include US National Guard troops who are desperately needed here at home). Then there are the countless injuries, and the toll of Iraqis as well.

As dear as the human carnage is, the IRAQ war is driving the US federal deficit higher and higher. See the graph below:

Bush's slow response to Katrina will only lower his polls further (and should!).

Frank Rich said it best in the NYT on September 4, 2005: “Most of all, we're going to have to face the reality that with this [slow Katrina response] disaster, the administration has again increased our vulnerability to the terrorists we were supposed to be fighting after 9/11. As Richard Clarke, the former counterterrorism czar, pointed out to The Washington Post last week in talking about the fallout from the war in Iraq, there have been twice as many terrorist attacks outside Iraq in the three years after 9/11 than in the three years before. Now, thanks to Mr. Bush's variously incompetent, diffident and hubristic mismanagement of the attack by Katrina, he has sent the entire world a simple and unambiguous message: whatever the explanation, the United States is unable to fight its current war and protect homeland security at the same time."

Bush now finds himself in a world of low ratings and disgust across the world. Vast numbers of protesters from around the country poured onto the lawns behind the White House on Saturday September 24 to demonstrate their opposition to the war in IRAQ, pointedly directing their anger at both Bush and Cheney. A sea of anti-administration signs and banners flashed back at a long succession of speakers, who sharply rebuked the administration for continuing a war that has cost the lives of nearly 2000 Americans and many more Iraqis. Many of the speakers also charged Bush with squandering resources that could have been used to aid people affected by the two hurricanes (Katrina and then Rita) that slammed into the US Gulf Coast. One sign held high said, "Make levees, not war." Rallies were also held on September 24 in Los Angeles, San Francisco, Seattle and other cities; antiwar sentiment was consistent throughout. Meanwhile, Bush was in Colorado and Texas “monitoring hurricane developments” and looking for more useless photo-ops and other poses of feigned compassion.

The Latest U.S. Employment Picture, circa early November 2005:

Having witnessed deteriorating employment for the past five years, the U.S. job situation sank even further during the last three months. Job growth slowed in October 2005, even excluding the direct impact of two monstrous hurricanes, the U.S. Labor Department said on November 4, 2005. Nonfarm U.S. payrolls rose by only 56,000 in October 2005, well below the already pessimistic estimate of 102,000 that economists had predicted. Worse, previously reported job growth in August and September was revised lower by a cumulative 36,000. These last three months represent a precipitous fall off from the meager growth year-to-date through July, which averaged barely enough to keep up with population growth. See Figure to left. “The job market may have been weaker than previously thought before the hurricanes struck, said Christopher Piros, director of investment strategy for Prudential's Strategic Investment Research Group. “While payrolls have expanded by 48,000 from August to October, the growth came from a 52,000 rise in temporary employment and a 45,000 gain in construction jobs. Meanwhile, the rest of the economy has lost 49,000 jobs," Piros said. "That's not exactly a picture of strength."

Real U.S. consumer spending declined for the second straight month in September. Adjusted for inflation, real spending fell 0.4% in September after dropping 1% in August, the Commerce Department reported. It's the first back-to-back decline in spending in 15 years.

Meanwhile, inflation soared at the fastest rate in 24 years in September, further eroding consumers' purchasing power. Trying to fend off inflation, Fed policy-makers bumped up its key interest rate to its highest level in more than four years on November 1, 2005, making it still more difficult for U.S. employers and employees alike to get credit. More rate increases are expected.

The Latest Economic Environment (circa December 2005)

Today the U.S. GDP is apparently rising and corporate profits in general are up (with energy company profits at obscene levels). However, the American public in general have not benefited, and they know it. According to the latest Gallup poll, 63% of Americans rate the economy as only fair or poor, and by 58% say economic conditions are getting worse, not better.

As a sure sign that the worldwide economy is in trouble, Gold Futures closed at over $530 an ounce on December 9, 2005, lifting prices to their highest level in almost a quarter century. Gold for February 2005 delivery rose to as high as $534.30 an ounce on the New York Mercantile Exchange before closing at $530.20. The front-month contract for futures hasn't closed at levels this high since April 1981, the middle of Reagan’s first recession.

The reasons most Americans are upset is that all the U.S. GDP growth and corporate profits of recent years have failed to “trickle down” to most Americans. Real median household income in the United States, adjusted for inflation, has actually fallen for five years in a row.

One of the primary reasons for this, is that for those same five years, chronic problems have existed in U.S. employment levels.

The Latest U.S. Employment Picture (circa December 2005)

Having witnessed the net deterioration in employment for the past five years, the U.S. job situation sank even further during the last three months, adding an average of only 92,000 a month, despite a preliminary figure of 215,000 jobs added in November 2005. Job growth really slowed in October 2005, even excluding the direct impact of two monstrous hurricanes, the U.S. Labor Department said. Nonfarm U.S. payrolls rose by only 44,000 in October 2005, well below the already-pessimistic estimate of 102,000 that economists had predicted. September had added a miserable 17,000.

These last three months represent a steep fall off from the already-meager job creation year-to-date through August 2005, which averaged barely enough to keep up with population growth. "The job market may have been weaker than previously thought before the hurricanes struck, said Christopher Piros, director of investment strategy for Prudential's Strategic Investment Research Group. "While payrolls have expanded, the growth came mostly from a rise in temporary employment and a gain in construction jobs. Meanwhile, the rest of the economy lost jobs," Piros said. "That's not exactly a picture of strength."

Many economists were even underwhelmed with the job results of November. Merrill Lynch economist David Rosenberg said in an analysis issued December 2, 2005, “While November's rebound was welcome, (monthly) payrolls should be expanding in excess of 300,000 at this stage of the business cycle." Gus Faucher, director of macroeconomics for Moody's Economy.com in Pennsylvania, said he has been "a little surprised we haven't seen more robust job growth at this point." Offsetting some of the gains in payrolls, total hours worked in the economy fell in November. Robert Brusca, chief economist for FAO Economics, said, “The drop in hours worked in November offset much of the gain in employment.” The separate household survey for November showed U.S. employment declined by 52,000, while unemployment rose by 149,000 to 7.58 million. The manufacturing sector grew at a slower pace in November than in October, according to data from the Institute of Supply Management.

Real U.S. consumer spending declined for the second straight month in September. Adjusted for inflation, real spending fell 0.4% in September after dropping 1% in August, the Commerce Department reported. It was the first back-to-back decline in spending in 15 years.

Meanwhile, inflation soared at the fastest rate in 24 years in September, further eroding consumers' purchasing power. Also, wage growth has significantly lagged inflation, which registered 4.3% in October 2005, according to Jared Bernstein, with the liberal Economic Policy Institute. "The news on wages continues to be disappointing," said Peter Morici, a business professor at the University of Maryland. "The wages of ordinary working Americans continue to lag inflation with no relief in sight."

Trying to fend off inflation, Fed policy-makers bumped up its key interest rate to its highest level in more than four years on November 1, 2005, making it still more difficult for U.S. employers and employees alike to get credit. More rate increases are expected on December 13, 2005.

The most recent news on the U.S. Trade Deficit

The U.S. trade deficit swelled to $66.1 billion in September 2005, far surpassing the previous record and providing a stark reminder of America's dependence on foreign capital to fund its import bill. Fueling the September trade gap was a 2.4% rise in imports, to $171.3 billion, and a 2.6% drop in exports, to $105.2 billion. The figures were released November 10, 2005 by the U.S. Commerce Department. The U.S. deficit with China also hit a record as that country again shipped a flood of goods to the United States.

As previously reported in these Commentaries, the U.S. trade gap has been widening steadily during the past several years, and the September 2005 figure was substantially greater than most analysts had forecast, easily exceeding the $60.4 billion high set in February 2005. The trade gap now appears on track to top $700 billion for 2005, compared with last year's record of $617.6 billion.

"I once called a previous record the Grand Canyon of all deficits. How wrong I was," said Joel Naroff, an economic forecaster in Holland, Pa., who, likening the September 2005 gap to the deepest part of the ocean, declared, "We are now talking about the Mariana trench."

Economists rightly worry, because each month's gap adds to the overall debt of the United States. The dollars that U.S. consumers and businesses pay for imports are typically invested by foreigners in the bonds of the U.S. Treasury and mortgage-finance companies such as Fannie Mae. If the foreigners holding the now huge figure of hundreds of billions of dollars in securities become alarmed about U.S. indebtedness, a panicky sell-off could ensue, sparking a worldwide financial crisis.

The September 2005 data on the trade deficits are merely fresh evidence of the Bush administration's ongoing, misguided trade policies. Especially disturbing is the U.S. trade deficit with China, which increased another 9% from the August 2005 level, to a record $20.1 billion. "When it comes to meaningful trade policy with China, this administration is missing in action," said Rep. Benjamin Cardin, the ranking minority member of the trade subcommittee of the House Ways and Means Committee. In July 2005, China revalued its currency by 2.1%. This was seen as a very small move by experts who believe China is keeping the yuan undervalued by 15% to 40%. Note: In a blow to American manufacturers and other firms feeling competition from Chinese exports, the U.S. Treasury Department asserted on November 28, 2005 that China is “not a currency manipulator.” So much for tough action by the U.S. administration! "If it walks like a duck and quacks like a duck, it's a duck. The Chinese manipulate their currency and the Administration should not have ducked the issue," NY Senator Chuck Schumer said.

Even Federal Reserve Chairman Alan Greenspan cautioned on November 14, 2005, that foreign investors may sour on bankrolling America's mammoth trade deficit. Moreover, Bush cannot excuse this deficit as "not an important % of the country's GDP" since the current account deficit this year has exceeded 6% of the total U.S. economy as measured by gross domestic product, an all-time high!! In 1986, during a very bad deficit year for Reagan, the trade deficit accounted for only 3.5% of GDP.

The U.S. trade deficit is the direct result of the Bush administration's 5-year record of pushing free-trade agreements and outsourcing that send large numbers of American jobs overseas, where labor costs are lower. Keep in mind that the United States has lost 3 million manufacturing jobs alone, just since 2001.

OCTOBER 2005 EVEN WORSE:

The U.S. trade deficit vaulted to an all-time high in October 2005. The Commerce Department reported December 14, 2005 that the gap between what America sells overseas and what it imports rose by 4.4% to $68.9 billion, surpassing the previous record of $66 billion set in September 2005 (SEE ABOVE). The United States incurred record deficits in October with virtually all of its major trading partners including China, the 25-nation European Union, Canada and Mexico. The increased deficit thwarted analysts, who had expected the October deficit to improve because global oil prices retreated slightly after setting record highs in early September.

Nigel Gault, an economist for forecasting firm Global Insight, said the sharp deterioration in the trade deficit would shave about 1.1% from economic growth in the final three months of the year. He predicted GDP would come in at only about 3%. He also forecast that 2005's trade deficit would reach $730 billion, compared with the record of $617.6 billion last year. He predicted next year's deficit would be an even worse $760 billion.

As stated repeatedly on this web site page, rising deficits are evidence that Bush's trade policies have failed to protect U.S. workers from an onslaught of imports made in China and other low-wage countries. "Month after month, we see new record trade deficits that spell real trouble for the United States," said Senator Byron Dorgan. "Behind these deficits are massive numbers of American jobs lost to foreign countries." The administration is pursuing free trade deals with individual countries and negotiating a new global trade agreement under the auspices of the World Trade Organization. This approach is not working. "We just don't see how current U.S. strategy is going to reverse these very dangerous trends," said Alan Tonelson, a research fellow at the U.S. Business and Industry Council.

The U.S. deficit with China to a new monthly record of $20.5 billion. So far this year, the deficit with China is running at an annual rate of $200 billion, far above last year's record deficit of $162 billion. The United States set deficit records with a number of trading partners, including a $12.1 billion imbalance with the European Union, an $8.1 billion imbalance with Canada, the country's largest trading partner, and a $4.8 billion deficit with Mexico.

The Latest on the National Debt (circa December 2005)

Last month, the national debt reached yet another unhappy milestone, passing the $8 trillion mark for the first time. As of the week ending November 27, 2005, the United States was $8,084,858,891,735.31 in the hole, according to the U.S. Treasury Department. And it'll only get worse. Brian Riedl, chief budget analyst at the conservative Heritage Foundation, said the Bush administration is expected to return to Congress within the next few months to ask lawmakers -- once again -- to raise the nation's debt ceiling so the country can borrow even more.

David Lazarus of the SF Chronicle asks, “So what's the President doing (aside from, perversely, cutting taxes)? According to Treasury Department figures, the Bush administration has been aggressively passing out IOUs to foreign interests. In fact, Bush has borrowed more money -- $1.05 trillion -- from foreign governments and banks since taking office than all other presidents combined. From 1776 to 2000, the nation's first 42 presidents borrowed a combined $1.01 trillion from foreign interests, official statistics show. In just five years, Bush has out-borrowed them all.”

Meanwhile, one fact has gone largely unnoticed: much of Washington's expert economic team has disappeared. The chairmanship of the Council of Economic Advisers will soon be vacant, and two spots on the Federal Reserve Board that were recently filled by academic economists already are vacant. There is no assistant secretary of the Treasury for tax policy, and the director's chair at the Congressional Budget Office, currently occupied by Douglas J. Holtz-Eakin, will soon be empty, too.

Today the White House and Congress need as many as five academic economists of high caliber, and it's not obvious where they will come from. The Republican Party has little bench strength. "Bush's reputation in at least the academic community is about as low as you can imagine," said William A. Niskanen, who was a member of the council during President Ronald Reagan's first term and is now chairman of the Cato Institute, a libertarian research group. "A lot of people would not be willing to give up a good tenured position for a position in the White House."

Speaking of Deficits

Defaulting corporate pension programs have been reported on in these Commentaries in the past. The federal agency (The Pension Benefit Guaranty Corporation) that insures the private pensions of some 44 million US workers said on November 15, 2005 that its deficit was $22.8 billion in fiscal 2005, as big airlines in bankruptcy dumped their pension liabilities. The PBGC disclosed, that as of September 30, 2005, it had only $56.5 billion in assets to cover $79.2 billion in pension liabilities.

During the last five years there has been an explosion in the number of big, ailing companies - especially in labor-heavy US industries like airlines and steel - transferring their pension liabilities to the PBGC. With billions of dollars flying out of the agency's door, concern has been mounting in the US Congress and elsewhere over its financial footing. Indeed, if other liabilities the PBGC assumed after the end of the fiscal year on September 30 had been counted, the 2005 deficit would have been even larger ($25.7 billion). Without a legislative overhaul of the private pension system, the PBGC will run out of money to pay the pension claims of the retirees of companies whose plans it has assumed. That would mean that people retiring from financially troubled companies would have nowhere else to turn for their promised pension payments - raising the possibility of a - you guessed it - a US taxpayer bailout! (Shades of the 80's Savings & Loan bailout, in case anyone remembers).

Traditional US employer-paid pension plans, giving retirees a fixed monthly amount based on salary and years of employment, are now estimated to be underfunded across corporate America by as much as $450 billion, which of course jeopardizes the retirement security of millions of Americans. United Airlines and US Airways used bankruptcy earlier this year, to slash costs by dumping their employee pension liabilities - a combined $9.6 billion - onto the PBGC. Delta Airlines and Northwest Airlines, which both filed for Chapter 11 bankruptcy protection on September 14, 2005, may seek to do the same. The pension plans of Delta and Northwest, the nation's No. 3 and No. 4 airlines, are underfunded by an estimated $16.3 billion. And there is speculation that auto parts maker Delphi, which filed for protection from creditors in October 2005, also could terminate its pension plan and transfer liability to the federal agency.

Indeed, GM itself is in similar danger! (GM announced on November 21, 2005 a plan to reduce an additional 30,000 existing jobs by the end of 2008. Even the much-publicized Saturn plant is not exempt. About 1,500 workers at the plant are set to lose jobs that GM originally assured them were guaranteed. Another 4,000 jobs at Spring Hill, Tennessee, the second-youngest plant in GM's American network, may hinge on whether the auto company gives this factory new models to build. Even if GM does allot new work, the vehicles are likely to be other GM cars. These Saturn workers have learned the harsh reality that building quality cars and cooperating with management are not enough to save their jobs).

These recent PBGC deficits have of course been presided over by the Bush Administration and Republican-dominated U.S. Congress. Democrats are naturally appalled. They say this trend could lead many employers to drop their existing pension plans entirely, or switch from traditional so-called defined-benefit plans to less expensive defined-contribution programs, such as 401(k) plans - in which employers contribute to a retirement fund and workers receive only what their investments have earned. Indeed, many companies are already hard-at-work replacing defined-benefit pension plans with defined-contribution plans. The PBGC only backs defined-benefit plans, which are most prevalent in older US industries such as automobile manufacturing, steel and airlines - now reeling from record fuel costs, historically low fares and cutthroat competition.

The PBGC agency was created in 1974 as a government insurance program for traditional employer-paid pension plans. Companies pay insurance premiums to the agency, and if an employer can no longer support its pension plan, the agency takes over the assets and liabilities and pays promised benefits to retirees up to certain limits. But employees do not receive their full pension benefits when the PBGC takes over a plan. The maximum annual benefit for plans assumed by the agency this year is $45,614 for workers who wait until 65 to retire. And we taxpayers will eventually end up holding the bag if the PBGC goes bust!

Wrong Priorities for the so-called "War on Terrorism"

Further evidence that the Bush Administration is pouring money into the wrong issues, came on Monday December 5, 2005. The Bush Administration received failing and mediocre grades on December 5 from the former 9/11 commission, whose members said in a final report that the Bush administration and the Republican-dominated Congress have balked at enacting numerous reforms that could save American lives and prevent another terrorist attack on U.S. soil. The 10-member bipartisan panel issued a scathing "report card" that included 5 F's, 12 D's and two "incompletes" in categories including airline passenger screening and improving first responders' communication systems. This report card is even worse that Bush's grades at Harvard! The 9/11 group also said there has been little progress in forcing federal agencies to share intelligence and terrorism information and sharply criticized government efforts to secure weapons of mass destruction or establish clear standards for the proper treatment of U.S. detainees. "We believe that the terrorists will strike again," the panel's chairman, Thomas H. Kean, a former Republican governor of New Jersey, told reporters in Washington. "If they do, and these reforms that might have prevented such an attack have not been implemented, what will our excuses be?"

Not surprisingly, one of the primary reasons Bush invaded IRAQ (preserving Iraqi oil for Western Big Oil Company cronies), is also failing. IRAQ is set to pump less crude oil in 2005 than 2004’s disappointing showing – and far less than under – you guessed it – Saddam Hussein! “The general integrity of Iraqi oil infrastructure appears to be heading backwards rather than forwards,” London-based Barclay’s Capital said on December 8, 2005. IRAQ in 2005 will pump half the oil of levels as recent as 1990.

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These most recent problems come as President Bush is confronted with his own sagging job ratings. Bush's job approval is at the lowest level of his presidency. A recent AP poll showed Bush's approval rating dipped to 37%, compared with 39% just a month ago.

Things are not going so well recently, either.

In February 2006, the Bureau of Labor Statistics of the U.S. Department of Labor reported preliminary productivity data -- as measured by output per hour of all U.S. persons -- for the fourth quarter of 2005. In the fourth quarter, productivity declined 0.6 percent in the nonfarm business sector. The fourth-quarter productivity decline was the first since the first quarter of 2001. On March 6, 2006 Bloomberg News announced that orders placed with US factories in January 2006 fell 4.5%, the biggest decrease since July 2000.

As reported by the San Francisco Chronicle, the final tally is in as of February 12, 2006, for item (17) above, the US Trade Deficit for the full year calendar 2005:

Almost everything about running a national trade deficit is bad. Among them: Countries that allow huge trade deficits can become too dependent on their creditors’ good will, leading those debtor nations to federal decisions not in the debtors’ national security interests.

Finally, here’s the latest poll regarding Item (6) above, the ballooning real and psychic costs of war, in lives and treasure. An overwhelming majority of Americans believe that fighting between Sunni and Shiite Muslims in Iraq will lead to civil war, and half say the United States should begin withdrawing its forces from that violence-torn country, according to the latest Washington Post-ABC News poll announced March 07, 2006 by the Washington Post. The survey found that 80% believe that recent sectarian violence makes civil war in Iraq likely, and more than a third say such a conflict is "very likely" to occur. These expectations extend beyond party lines: More than seven in 10 Republicans and eight in 10 Democrats and political independents say they believe such a conflict is coming. In the face of continuing violence, 52% of those surveyed said the United States should begin withdrawing forces. The survey also found growing doubt that the Bush administration has a strategy in Iraq. Two-thirds of those interviewed said they do not think the president has a clear plan for handling the Iraq situation, the highest level of doubt recorded since the question was first asked three years ago. Nearly six in 10 disapprove of Bush’s job performance, the 11th consecutive survey since last April 2005 in which at least half the country has been critical of his leadership. Americans also expressed disappointment with Congress, wherein both houses are of course controlled by Republicans. Only 36% of those Americans surveyed said they approve of the way Congress is doing its job, down seven percentage points in the past five weeks and the lowest marks for the legislative branch since October 1997. A total of 1,000 randomly selected Americans were interviewed March 2 to 5. The margin of sampling error for the overall results is plus or minus three percentage points.

The "Real Costs" of the Iraq War:

And on March 23, 2006 we learn still more regarding Item (6) above, the ballooning real and psychic costs of war, in lives and treasure, this time about the REAL COSTS.

We recall testimony in 2002-2003 that Bush's war in Iraq was never supposed to be particularly expensive, with estimates from the Administration such as $50 billion or $60 billion. When Lawrence Lindsey, the president's chief economic adviser, said the war was likely to cost $100 billion to $200 billion, he was fired. (Note truth tellers seem to be the only ones ever fired). Paul Wolfowitz, the former deputy defense secretary and a fanatical hawk, told Congress that Iraq was "a country that can really finance its own reconstruction, and relatively soon." But as we have already seen above, the president and his hot-for-war associates were as wrong about the money as they were about the weapons of mass destruction.

Now comes a study by Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University, and a colleague, Linda Bilmes of the Kennedy School of Government at Harvard, that estimates the "true costs" of the war at more than $1 trillion, and possibly more than $2 trillion. "Even taking a conservative approach and assuming all U.S. troops return by 2010, we believe the true costs exceed a trillion dollars," the authors say.

The analysis by Professors Stiglitz and Bilmes goes beyond the immediate costs of combat operations to include other direct and indirect costs of the war that, in some cases, the taxpayers will have to shoulder for many years. These costs, the study says, "include disability payments to veterans over the course of their lifetimes, the cost of replacing military equipment and munitions, which are being consumed at a faster-than-normal rate, the cost of medical treatment for returning Iraqi war veterans, particularly the more than 7,000 [service members] with brain, spinal, amputation and other serious injuries, and the cost of transporting returning troops back to their home bases."

The study also notes that Defense Department expenditures that were not directly appropriated for Iraq have grown by more than 5% since the war began. But a portion of that increase has been spent "on support for the war in Iraq, including significantly higher recruitment costs, such as nearly doubling the number of recruiters, paying recruitment bonuses of up to $40,000 for new enlistees and paying special bonuses and other benefits, up to $150,000 for current Special Forces troops that re-enlist." “Another cost to the government," the study says, "is the interest on the money that it has borrowed to finance the war." Among the things taken into account by the study are some of the difficult-to-quantify but very real costs inflicted by the war on the American economy and society, such as the effect of the war on oil prices, and the economic loss that results from the many thousands of Americans wounded and killed in the war.

In an interview, Mr. Stiglitz said that about $560 billion, which is a little more than half of the study's conservative estimate of the cost of the war, would have been enough to "fix" Social Security for the next 75 years. Also, if one were thinking in terms of promoting democracy in the Middle East, he said, the money being spent on the war would have been enough to finance a "mega-mega-mega-Marshall Plan," which would have been "so much more" effective than the invasion of Iraq.

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