The Unravelling Continues As More People Suffer
By Donald Hunt and Simon Davies
SOTT.net
World stock indexes fell sharply again the week ending 23rd February, down 6-7% on average.
Gold bumped up against the $1000 barrier on Friday as it became clear that all countries are prepared to go deeply in debt to stimulate their economies and to bail out their banks.
In the background of the economic news there have been some significant moves on the world chessboard. The United States is moving closer to Russia and Iran while escalating the war in Pakistan and Afghanistan. Russia will now formally allow the United States to resupply their forces in Afghanistan through Russian controlled territory. US diplomatic overtures to Iran continue although the UK Financial Times and other mainstream sources continued to bang the Zionist inspired nuclear weapons drum.
China and the United States are as close as can be economically and neither side seem to need to deny it. China has the productive capacity and the money and the United States has the borrowers, the consumers, and the international police force. The United States, with Secretary of State Hillary Clinton's visit to China, has stopped the hypocritical ritual of "denouncing" Chinese human rights violations. It look like the world powers are joining forces to institute the next step of the plan. Meanwhile a new overtly fascist government has been formed in Israel by the right-wing schemer, Netanyahu; an event that does not bode well for humanity.
Africa
The South African economy shrank by 1.4% in the fourth quarter of 2008. It's currency, the rand, fell last week. South Africa has been hit hard by falling commodity prices. Platinum, for example, South Africa's biggest export, is worth less than half what it was a year ago. This has led to the announcement of job cuts and dividend suspensions at the largest platinum producer, Anglo American, Plc.
Asia
U.S. Secretary of State Hillary Clinton was in China this past weekend urging China to keep buying U.S. Treasury bonds.
No doubt the Asian countries learned their lessons from the 1997/98 crisis which was engineered and was designed to pry open their financial markets to Anglo-American firms. The western bankers' agent, the IMF, forced the east Asian countries to "reform" their economies and financial systems, changing what had been a nationalistic, state-led capitalism, to the so-called "Washington consensus" of privatized, free-market capitalism. The accumulation of foreign exchange reserves since then has resulted from their experiences during that crisis and has therefore prevented money from being re-injected into their economies and particularly into their social infrastructure. No doubt these hard earned funds will in due course be wasted in a meaningless defense of their currencies against forces which are far stronger than they seem to anticipate.
Eastern Europe
The Baltic nations of Latvia, Lithuania and Estonia are also banding together to defend their currencies' euro peg. This is causing a lot of economic pain but is needed if they wish to adopt the Euro. It is another sign of the fragility of the whole concept of the Euro in a time of worldwide economic collapse and also the price paid by ordinary people when monetary sovereignty is sacrificed for the benefit of corporate and banking interests. In order to 'balance budgets' and maintain their currency pegs to the Euro all three nations, with Latvia in the lead, will have to take the standard IMF 'medicine' which always pushes austerity onto the middle and working classes, slashes social spending and results in social unrest, the classic "IMF riot."
Problems in Central and Eastern Europe continued to threaten the financial stability of Western Europe last week. The euro fell to its lowest level in three months against the dollar last week on concerns about Central and Eastern Europe. It is estimated that Western European banks have loan exposures to Central and Eastern Europe of between €1.4 trillion and €1.6 trillion. The trouble is that this magnitude of loan exposure is the tip of the iceberg. A secret EU analysis that up to €16 trillion of EU bank assets may be 'impaired' (i.e., they may be less than their face value); chief among these are the 'family' of structured securities including Mortgage Backed Securities (MBS), Collateralised Debt Obligations (CDO) and Synthetic Collateralised Debt Obligations and the derivatives whose value is determined on their market price. How many of these are based on Eastern European risk is anybody's guess.
What we are seeing is akin to musical chairs; everybody knows that there are very few or possible no chairs but as long as the music can be kept going then nobody has to acknowledge this. Nouriel Roubini has suggested that a region-wide rescue will be required.
Middle East
After a massive building spree, Dubai is having trouble paying its debts as foreigners flee the country simply dumping luxury cars at the airport.
Brazil's unemployment rate rose to the highest levels in seven years. President Lula has accused companies of overreacting by laying off too many people before it is necessary.
United States and Canada
We had to chuckle this week as both sides of Congress danced around the concept of 'nationalization' of major US banks as if such an admission would open the gates of hell and the US would be consumed in the fire of communism as a result. It is pretty obvious that if Congress wishes to go about saving the US banking system in its current form, itself a highly dubious proposition, it will have to take sizeable and probably controlling stakes in the banks in the form of ordinary/common shares. It seems bound to happen yet to see the ideological squirming you'd be forgiven for thinking that it's not a forgone conclusion. In fact it makes us wonder if the ideological squirming is just for show so that Congress can uphold the 'free market' mantra while not allowing the free market to exact its inevitable price upon the system of greed to which they owe their very existence.
In a sign that Asian investors understand just how dire the predicament of the US is, the rescue of Freddie Mac and Fannie Mae, the US government linked mortgage lenders, looks unlikely to succeed without explicit US government guarantees of their mortgage backed securities as Asian investors simply won't buy them otherwise.
In case anyone doubted that 'self-regulation' really means NO-regulation or, even worse, criminal collusion, it emerged that:-
In the United States, as in Brazil, corporations are taking advantage of public fear of layoffs and economic collapse to use their increased power over workers. Many companies and public institutions that are not experiencing drops in business are cutting jobs, pay and benefits just to get ahead of the curve and improve the bottom line. It is a self-fulfilling prophecy, since it is now job losses that are driving downturn in general and in corporate profits.
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1. Iran is reported to have one tonne of low enriched uranium hexafluoride, the fuel needed for a nuclear reactor. However, in a typical twisting of facts this is being promoted as "enough material to build a bomb" when it is impossible to build a bomb from such material. If the one tonne of low enriched uranium hexafluoride were further enriched it would produce about 20 kilos of weapons grade uranium. Iran does not have the facilities to achieve such further enrichment but these details are of course careful glossed over in the unending lies that spew from the mainstream media.
SOTT.net
World stock indexes fell sharply again the week ending 23rd February, down 6-7% on average.
Gold bumped up against the $1000 barrier on Friday as it became clear that all countries are prepared to go deeply in debt to stimulate their economies and to bail out their banks.
In the background of the economic news there have been some significant moves on the world chessboard. The United States is moving closer to Russia and Iran while escalating the war in Pakistan and Afghanistan. Russia will now formally allow the United States to resupply their forces in Afghanistan through Russian controlled territory. US diplomatic overtures to Iran continue although the UK Financial Times and other mainstream sources continued to bang the Zionist inspired nuclear weapons drum.
China and the United States are as close as can be economically and neither side seem to need to deny it. China has the productive capacity and the money and the United States has the borrowers, the consumers, and the international police force. The United States, with Secretary of State Hillary Clinton's visit to China, has stopped the hypocritical ritual of "denouncing" Chinese human rights violations. It look like the world powers are joining forces to institute the next step of the plan. Meanwhile a new overtly fascist government has been formed in Israel by the right-wing schemer, Netanyahu; an event that does not bode well for humanity.
Africa
The South African economy shrank by 1.4% in the fourth quarter of 2008. It's currency, the rand, fell last week. South Africa has been hit hard by falling commodity prices. Platinum, for example, South Africa's biggest export, is worth less than half what it was a year ago. This has led to the announcement of job cuts and dividend suspensions at the largest platinum producer, Anglo American, Plc.
Asia
U.S. Secretary of State Hillary Clinton was in China this past weekend urging China to keep buying U.S. Treasury bonds.
Clinton Urges China to Keep Buying U.S. Treasury SecuritiesAsian nations also announced broader agreement on a currency pool to defend their currencies.
Secretary of State Hillary Clinton urged China to continue buying U.S. Treasury bonds to help finance President Barack Obama's stimulus plan, saying "we are truly going to rise or fall together."
"Our economies are so intertwined," Clinton said in an interview today in Beijing with Shanghai-based Dragon Television. "It would not be in China's interest" if the U.S. were unable to finance deficit spending to stimulate its stalled economy.
The U.S. is the single largest buyer of the exports that drive growth in China, the world's third-largest economy. China in turn invests surplus earnings from shipments of goods such as toys, clothing and steel primarily in Treasury securities, making it the world's largest holder of U.S. government debt at the end of last year with $696.2 billion.
China's leaders understand that "the United States has to take some very drastic measures with the stimulus package, which means we have to incur debt," Clinton said. The Chinese are "making a very smart decision by continuing to invest in Treasury bonds," which she called a "safe investment," because a speedy U.S. recovery will fuel China's growth as well.
China boosted purchases of U.S. debt by 46 percent last year to a record. The Chinese government said last week it plans to keep buying Treasuries, adding that future purchases will depend on the preservation of their value and the safety of the investment. China's currency reserves of $1.95 trillion are about 29 percent of the world total.
'No Viable Alternative'
JPMorgan Chase & Co. predicted in a Feb. 6 report that China will keep buying Treasuries "not only for the near-term stability of the global financial system, but also because there is no viable and liquid alternative market in which to invest China's massive and still growing reserves."
Chinese attempts to diversify from [US] Treasuries into more risk-oriented assets have not fared well. It has lost at least half of the $10.5 billion it invested in New York-based Blackstone, Morgan Stanley and TPG Inc. since mid-2007.
The fund is aimed at ensuring central banks have enough to shield their currencies from speculative attacks such as those that depleted the reserves of Indonesia, Thailand and South Korea during financial crisis a decade ago. Many Asian currencies have tumbled in the past year, threatening regional stability, as the global downturn spreads through their export- dependent economies...South Korea's finance minister stated they will act to prop up its banks and currency, if necessary.
Large reversals "of capital flows, which have affected the financial markets, could undermine growth prospects," they said. "This can be a significant downside risk to regional growth, which has already been dragged down by the global economic downturn."
A decade ago, Indonesia, Thailand and South Korea spent much of their foreign reserves attempting to prop up their exchange rates. The three nations were forced to turn to the International Monetary Fund for more than $100 billion of loans. In return, the governments had to cut spending, raise interest rates and sell state-owned companies.
In the years since, Japan, China and South Korea together with the Asean economies have amassed more than $3.6 trillion of foreign-exchange reserves, about half of the global total.
No doubt the Asian countries learned their lessons from the 1997/98 crisis which was engineered and was designed to pry open their financial markets to Anglo-American firms. The western bankers' agent, the IMF, forced the east Asian countries to "reform" their economies and financial systems, changing what had been a nationalistic, state-led capitalism, to the so-called "Washington consensus" of privatized, free-market capitalism. The accumulation of foreign exchange reserves since then has resulted from their experiences during that crisis and has therefore prevented money from being re-injected into their economies and particularly into their social infrastructure. No doubt these hard earned funds will in due course be wasted in a meaningless defense of their currencies against forces which are far stronger than they seem to anticipate.
Eastern Europe
The Baltic nations of Latvia, Lithuania and Estonia are also banding together to defend their currencies' euro peg. This is causing a lot of economic pain but is needed if they wish to adopt the Euro. It is another sign of the fragility of the whole concept of the Euro in a time of worldwide economic collapse and also the price paid by ordinary people when monetary sovereignty is sacrificed for the benefit of corporate and banking interests. In order to 'balance budgets' and maintain their currency pegs to the Euro all three nations, with Latvia in the lead, will have to take the standard IMF 'medicine' which always pushes austerity onto the middle and working classes, slashes social spending and results in social unrest, the classic "IMF riot."
Baltic Currency-Peg Defense Cuts Reserves Amid Regional SlumpWestern Europe
Latvia, Estonia and Lithuania, facing a prolonged recession, say they will protect their currency pegs whatever the cost. That strategy may be as crippling as the alternative, economists say.
The three-nation Baltic region is in its deepest crisis since breaking from the Soviet Union in 1991. Latvia, which spent $1.26 billion in 11 weeks defending the Lats last year, was forced to turn to an International Monetary Fund-led group for a $9.6 billion bailout. Its economy may contract 12 percent this year, while Estonian gross domestic product may shrink by as much as 9 percent and Lithuania's GDP by 4.9 percent.
Latvian Premier Ivars Godmanis resigned on Feb. 20 and Lithuania's two-month-old cabinet is struggling to win over a skeptical electorate after the two nations suffered the largest street riots since independence last month.
Keeping the peg "will likely mean a number of years of very low economic growth," said Lars Christensen, chief economist at Danske Bank AS in Copenhagen. "Wages and prices will have to fall to reestablish competitiveness."
Central bankers and government officials in the three countries, across the Baltic Sea from Sweden and Finland, say they will stick to their course toward adoption of the euro. The exchange rates of the Lithuanian Litas and the Estonian Kroon were pegged to the euro in 2004, just after the nations joined the European Union. The Latvian Lats was linked a year later...
Retaining Euro Peg
Latvia, the only of the three countries to have gotten a bailout, got a bad deal from the IMF, said New York University's Nouriel Roubini. The terms retained the euro peg as long as the government reduced wages, raised taxes and slashed spending.
"The IMF made a mistake with the Latvia program of allowing them to keep the peg," Roubini said in an interview on Feb. 4. "It doesn't make any sense because the currency is overvalued."
That view is shared by Paul Krugman, a Nobel prize-winning economist who in a Dec. 15 commentary in the New York Times warned that Latvia may become "the new Argentina." That country had a currency board and saw its peso plunge even after receiving an IMF loan.
The Latvian government fell on Feb. 20 after members of Godmanis's party said they lost confidence in his leadership, which was shaken after riots broke out on Jan. 13 in the capital Riga. Police arrested 106 people. Two days later in Lithuania, another 86 arrests were made after violence erupted in the capital, Vilnius.
Declining Polls
Two months after the government assumed power and introduced austerity measures, support for the Prime Minister Andrius Kubilius's Homeland Union fell to 11.6 percent in January from 21 percent the previous month, a survey by Vilmorus for Lietuvos Rytas showed. The margin of error was 1.9 percent.
"Although the implementation of these tough measures could lead to a significant erosion in popular support, we think that their political cost will still be much smaller than the cost of a currency devaluation," said Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul.
Devaluation also may push corporations and mortgages into default: About 80 percent of total loans in Latvia and 84 percent in Estonia are in euros.
Latvia's "banks and legal system are at this point not prepared for such a shock," said Christoph Rosenberg, head of the IMF's mission to the Baltic state, in a Jan. 6 opinion on the RGE Monitor, defending the agreement. "It's questionable whether devaluation would quickly boost exports, given the global environment and the structure of its exports."
Estonia is now considering wage cuts of 10 percent for state employees, excluding police and teachers. Latvia and Lithuania have already cut state public wages by 15 percent and 12 percent respectively.
"Essentially, it'll be a political decision that the pain of holding these regimes is just too heavy a cross to bear," said Timothy Ash, head of emerging-market economics at Royal Bank of Scotland Plc in London. "Their positions are just becoming more unsustainable because everyone around them is just letting their currencies adjust."
Problems in Central and Eastern Europe continued to threaten the financial stability of Western Europe last week. The euro fell to its lowest level in three months against the dollar last week on concerns about Central and Eastern Europe. It is estimated that Western European banks have loan exposures to Central and Eastern Europe of between €1.4 trillion and €1.6 trillion. The trouble is that this magnitude of loan exposure is the tip of the iceberg. A secret EU analysis that up to €16 trillion of EU bank assets may be 'impaired' (i.e., they may be less than their face value); chief among these are the 'family' of structured securities including Mortgage Backed Securities (MBS), Collateralised Debt Obligations (CDO) and Synthetic Collateralised Debt Obligations and the derivatives whose value is determined on their market price. How many of these are based on Eastern European risk is anybody's guess.
What we are seeing is akin to musical chairs; everybody knows that there are very few or possible no chairs but as long as the music can be kept going then nobody has to acknowledge this. Nouriel Roubini has suggested that a region-wide rescue will be required.
"The banking problem in Europe is becoming more severe," Roubini said in a Bloomberg Television interview. "You have a series of countries that are really in trouble," Roubini said, citing Latvia, Estonia, Lithuania, Hungary, Belarus and Ukraine.Ireland, which some commentators are comparing with Iceland, saw large protests in Dublin against austerity measures. Like Iceland, much of Ireland's resurgent economy was built on the back of a banking and financial services boom. Now that bubble has turned to bust the Irish economy is looking decidedly vulnerable and hollow. The Irish government have responded in much the same way as the Eastern Europeans with the resulting discontent being peacefully, although understandably angrily, demonstrated on the streets of Dublin:-
German and French officials this week expressed concern about a slide in investor confidence in smaller European economies. The cost of insuring Irish, Greek and Spanish debt against default has climbed to records, and mounting losses in eastern Europe among Austrian banks sent that nation's bond-yield premiums to an unprecedented level.
European lenders are taking steps that could increase state control of banks as the recession deepens. German Chancellor Angela Merkel's cabinet approved draft legislation this week that allows for the takeover of Hypo Real Estate Holding AG, which would be the first German bank nationalization since the 1930s.
The continent's largest financial companies have reported $316 billion in writedowns and credit-related losses since the collapse of the U.S. subprime mortgage market in 2007 spread to other asset classes and continents. The market turmoil has forced European lenders to raise $370 billion in fresh capital and government-led bailouts from London to Zurich to Berlin, according to Bloomberg data.
EU Aid
Roubini said European nations may go further and assist member states that are unable to rescue their own banks. "Even the European Union now is thinking of helping those sovereigns and their banking systems," he said.
"There are significant problems in terms of debt and also banking problems in places like Ireland, for example," Roubini said. "But also a country like Greece has a huge amount of stock of public debt."
Moody's Investors Service Inc. on Feb. 17 said some of Europe's largest banks may be downgraded because of loans to eastern Europe, sending Italy's UniCredit SpA, which has aggressively expanded in the region, to its lowest in 12 years.
'Pressure' on Ratings
Moody's sees "continuous downward rating pressure" in the region as a result of worsening asset quality and western banks' reliance on short-term funding, the ratings company said in a report.
The International Monetary Fund has offered aid worth about $52 billion to Latvia, Hungary, Serbia and Ukraine.
Roubini, who predicted the global credit crisis, also discussed the need for plans to revive growth. The best approach in the euro zone is "fiscal stimulus in the short term but fiscal consolidation over the medium term," he said.
He noted that while the $787 billion U.S. fiscal stimulus package, signed into law this week by President Barack Obama, is necessary, it may not be sufficient and will put the country deeper into debt.
"We're going to add $4 trillion to $5 trillion to the public debt over the next few years," he said. "Down the line, maybe two or four years, there may be a downgrade of even the United States."
Still, he said, the U.S. is taking appropriate steps compared with other economies. He said the European Central Bank and Japan are "behind the curve."
Thousands March in Dublin Against Tax Increases, Spending CutsMarkets
Tens of thousands of people marched in Dublin today in what labor unions say is the first of a series of demonstrations by workers to protest against government spending cuts and tax increases.
The Irish Congress of Trade Unions described the march as the "first step in a rolling campaign of action." The Impact labor union, which represents public workers, estimated the number of protesters at 100,000 in an e-mailed statement.
Ireland's government this month announced it will introduce a pension levy for public workers and cut spending to plug a deepening hole in public finances and stave off a downgrade of the nation's debt rating. Unions say lower-paid workers are taking the brunt of the cutbacks.
"The government recognizes that the measures which it is taking are difficult and, in some cases, painful," the office of Prime Minister Brian Cowen said in a statement today. "It is also convinced, however, that they are both necessary and fair."
Ireland's economy may shrink by 10 percent between 2008 and 2010, Cowen has said, while European Commission forecasts that the country's budget deficit will reach 11 percent of gross domestic product this year, almost three times the EU limit.
The markets this week (to Feb 23rd)
Previous week's close | This week's close | Change | % change | |
---|---|---|---|---|
Gold (USD) | 942.70 | 994.90 | 52.20 | 5.54% |
Gold (EUR) | 732.59 | 775.57 | 42.98 | 5.87% |
Oil (USD) | 37.95 | 39.80 | 1.85 | 4.87% |
Oil (EUR) | 29.49 | 31.03 | 1.53 | 5.20% |
Gold:Oil | 24.84 | 25.00 | 0.16 | 0.63% |
USD / EUR | 0.7771 / 1.2868 | 0.7796 / 1.2828 | 0.0025 / 0.0040 | 0.32% / 0.31% |
USD / GBP | 0.7008 / 1.4270 | 0.6929 / 1.4432 | 0.0079 / 0.0162 | 1.13% / 1.14% |
USD / JPY | 90.750/ 0.0110 | 93.345/ 0.0107 | 2.595 / 0.0003 | 2.86% / 2.73% |
DOW | 7,850 | 7,366 | 485 | 6.17% |
FTSE | 4,190 | 3,889 | 301 | 7.17% |
DAX | 4,413 | 4,015 | 399 | 9.03% |
NIKKEI | 7,779 | 7,416 | 363 | 4.67% |
BOVESPA | 41,674 | 38,715 | 2,959 | 7.10% |
HANG SENG | 13,555 | 12,699 | 856 | 6.31% |
US Fed Funds | 0.25% | 0.15% | 0.10 | n/a |
$ 3month | 0.29% | 0.27% | 0.02 | n/a |
$ 10 year | 2.89% | 2.79% | 0.10 | n/a |
Middle East
After a massive building spree, Dubai is having trouble paying its debts as foreigners flee the country simply dumping luxury cars at the airport.
U.A.E. Central Bank Steps In to Support Dubai Debt, SpendingLatin America
The United Arab Emirates' central bank stepped in to support Dubai after concern increased the emirate will struggle to repay its debt as global financial turmoil pushed up credit costs and burst a real-estate bubble.
The central bank bought half of an unsecured, $20 billion, 5-year notes issue at an annual interest rate of 4 percent, Dubai's Department of Finance said in an e-mailed statement yesterday.
Home to the world's tallest building, most expensive hotel suite and largest manmade islands, Dubai borrowed $80 billion to turn itself into a regional financial and tourism hub. Moody's Investors Service said in October that Dubai may need help from Abu Dhabi to pay for its debt. The emirate may have to refinance $15 billion this year in maturing loans and bonds, Moody's said...
Brazil's unemployment rate rose to the highest levels in seven years. President Lula has accused companies of overreacting by laying off too many people before it is necessary.
United States and Canada
We had to chuckle this week as both sides of Congress danced around the concept of 'nationalization' of major US banks as if such an admission would open the gates of hell and the US would be consumed in the fire of communism as a result. It is pretty obvious that if Congress wishes to go about saving the US banking system in its current form, itself a highly dubious proposition, it will have to take sizeable and probably controlling stakes in the banks in the form of ordinary/common shares. It seems bound to happen yet to see the ideological squirming you'd be forgiven for thinking that it's not a forgone conclusion. In fact it makes us wonder if the ideological squirming is just for show so that Congress can uphold the 'free market' mantra while not allowing the free market to exact its inevitable price upon the system of greed to which they owe their very existence.
In a sign that Asian investors understand just how dire the predicament of the US is, the rescue of Freddie Mac and Fannie Mae, the US government linked mortgage lenders, looks unlikely to succeed without explicit US government guarantees of their mortgage backed securities as Asian investors simply won't buy them otherwise.
In case anyone doubted that 'self-regulation' really means NO-regulation or, even worse, criminal collusion, it emerged that:-
Two employees of Allen Stanford's financial business, which U.S. regulators have accused of massive fraud, held advisory roles at a watchdog group overseeing U.S. broker-dealers aimed at preventing abuses.It seems that the self-regulatory body FINRA is heavily implicated as being a fraud as regards regulation as well as permitting fraud among the organizations that it purports to regulate. Harry Markopolos who repeatedly sounded the alarm on Bernard Madoff to the SEC has said that he doesn't think the SEC was corrupt but that FINRA definitely was. Whether he'd be able to say the same about the SEC (US Securities and Exchange Commission) in future seems doubtful as Mary Schapiro, the newly confirmed chairman of the SEC, used to be the chief executive of FINRA.
Lena Stinson, director of global compliance at Stanford Financial Group, served on the membership committee of the Financial Industry Regulatory Authority, or FINRA, which describes itself as the largest independent regulator of U.S. securities firms.
Frederick Fram, the chief operating officer of Stanford Group Holdings, served on the FINRA continuing education content committee, "where he participates in creating material for the Regulatory Element continuing education program," according to a biography on Stanford's website.
In the United States, as in Brazil, corporations are taking advantage of public fear of layoffs and economic collapse to use their increased power over workers. Many companies and public institutions that are not experiencing drops in business are cutting jobs, pay and benefits just to get ahead of the curve and improve the bottom line. It is a self-fulfilling prophecy, since it is now job losses that are driving downturn in general and in corporate profits.
Using the Crash to Hit Workers
Whatever the truth is about where this economy is heading, one thing is clear: employers are taking every opportunity to slash employment and, if they are unionized, to hammer unions for pay cuts, even when there is no justification for these actions.
Take Safeway Inc., a large national supermarket chain. The company, which had $44 billion in sales in 2007, and which, based upon third quarter figures for 2008 was well on the way to show record sales for 2008, appears to be using the economic downturn as a justification for laying off employees and making remaining employees work harder.
I can only give anecdotal information on this, but the Genuardi's Family Market store (a Safeway subsidiary) where I live, in Upper Dublin, PA, an upper middle-class suburb north of Philadelphia, according to its employees, has been laying off cashiers, and slashing its night work force - the people who restock the shelves and unload the delivery trucks when the store is closed. The management is doing this not because sales have slumped. They haven't. People may not be buying new cars, but they are still buying food, and in fact, if they are cutting back on eating out, as restaurant chains are reporting, they are probably actually buying more groceries, not less. Management is making these cuts simply because they can get away with it.
The layoffs, in the face of continued heavy business, means that cashiers are working harder. It means that the night staff, cut by half, is working twice as hard. But with jobs getting scarce, what is their option? If they don't like the speed-up, where are they going to go in the current environment? Meanwhile, if service gets worse, customers will accept the decline because they'll blame it on the economy, not noticing that there is really no justification for employee cutbacks at the supermarket.
Temple University, which is a major public higher education institution in Philadelphia, is reportedly telling all departments to make substantial cuts in their budgets . This will inevitably lead to layoffs of faculty and support staff critical to the education mission. And yet, what is the justification for such draconian measures? The governor initially announced plans to cut the state's contribution to the university's annual budget for next year by a few million dollars, but the new Economic Recovery Act stimulus package includes huge grants to the states, including Pennsylvania, more than compensating for those cuts. Furthermore, state-funded universities across the country, including Temple, are reporting increased applications and enrollments, as students whose parents cannot afford to send them to private colleges, send them instead to public institutions, and as workers who lose their jobs decide that the economic downturn is a good time to go to college and get an education. That means more tuition revenues coming in. Moreover, student aid, including Pell Grants for lower-income students, have been substantially increased in the stimulus package, meaning more money for public colleges. Money might be marginally tighter at places like Temple (while, as with most public institutions, the university's endowment is not a significant contributor to the operating budget, small as it is it is certainly significantly reduced because of the market collapse), but it's certainly not down by enough to put universities in crisis. It may not even be down at all.
It might be understandable that state and local governments would be considering layoffs, or reduced pay and hours for public employees, given the slump in tax revenues from property taxes, sales taxes and income taxes. It is certainly necessary for the auto industry, which has seen sales plummet, to lay off workers. Luxury stores like Circuit City are going bust. But not all employers are hurting alike. Health care industries are still booming. Public colleges are doing fine. Supermarkets are doing well. Energy companies are okay.
Criticism of the nationwide wave of layoffs by companies and employers that really don't need to beggar their workers or push them out onto the street came from an unusual quarter recently, when Steve Korman, chief executive of a privately held Philadelphia-area company called Korman Communities, blasted corporate executives for laying off workers when they don't really need to. Korman had gotten upset when he saw Pfizer Inc.'s CEO Jeff Kinder say, on a television business program, that he planned to lay off 8000 workers in anticipation of a merger with Wyeth, another drug company. The layoffs were not being made because Pfizer was losing money or in trouble financially, but rather to improve profits. Korman, who owns stock in Pfizer, got angry and spent $16,000 to run ads in the Philadelphia Inquirer and the New York Times, saying:
"I have listened to the executives of many companies say that they are eliminating thousands of jobs to 'improve the bottom line,' I own stock in many of these companies and would prefer that the company make a smaller profit and [that] the stock fall, in the short term, rather than affect the lives of our neighbors and their families as jobs are lost.
"Please join me in reminding all CEOs that we are not just dealing with numbers and profit, but with real people and real families who need to keep their jobs."
Korman sent individual letters saying much the same thing to 16 companies in which he is an investor, including Federal Express, Google, Cisco Systems, Caterpillar, General Electric, ExxonMobil, Kraft, Nokia, Intel, Johnson&Johnson, Apple, EMC, Chevron, DuPont, Coca-Cola, Oracle and Dow.
If this phenomenon is bad enough that it has upset a prominent capitalist like Korman, it is clearly a major problem.
The irony is that as all these companies slash their workforces, and force remaining workers to work harder, and as public institutions like Temple University and other colleges cut their faculties and increase class sizes for remaining teaching staff, they are undermining any stimulus that taxpayers are subsidizing in the massive stimulus bill, and thus making the recession worse, not to mention wasting the huge deficit-spending measure itself.
Nobody would argue with a company's laying off of workers when sales collapse and there is no money coming in, but in many cases this is not what has been happening.
One reason there is a tidal wave of layoffs even at viable businesses and institutions across the country is simply the lack of or weakness of labor unions. With workers at most employers unorganized (unions represent only some 8 percent of private employees), it is easy for managers to engender an attitude of fear and passivity among employees, which makes it easier to pick them off, and to make those on the job work ever harder. Furthermore, without labor contracts, there is little workers can do to resist speedups that can seriously threaten their health, safety and well-being.
Only a new militancy and sense of solidarity among American workers, and a revitalization of the nearly moribund labor movement, can rescue this situation, which will only get worse as the economy continues to sink.
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1. Iran is reported to have one tonne of low enriched uranium hexafluoride, the fuel needed for a nuclear reactor. However, in a typical twisting of facts this is being promoted as "enough material to build a bomb" when it is impossible to build a bomb from such material. If the one tonne of low enriched uranium hexafluoride were further enriched it would produce about 20 kilos of weapons grade uranium. Iran does not have the facilities to achieve such further enrichment but these details are of course careful glossed over in the unending lies that spew from the mainstream media.
Labels: EU pegs, financial crisis, U.S. debt