GlobalTrade2007

Global Crisis seen less as disarray, more as change in leadership? Changes to come here...Asia rebound story here. Cartoon sums things up...some great ideas...it gets worse in 2011!

GLOBAL TRADE: Davos is lovely in January...How much of global trade directed by GDP IN U.S.A.? In 2011, is it shrinking?
News
Default as an option
Decline Is a Choice
Related...NYTIMES on global trade here.
Washington POST here.
And some thoughts from the New London DAY...how about gas prices? And house prices? Interest rates?

BACK A WHILE AGO, IN 2007:
Clothing & Footware;
Electronics;
Alcohol & Tobacco;
Household Goods;
Recreation.

PLEASE NOTE THAT THE "ROLL OVER COUNTRIES..." SUGGESTION DOES NOT WORK ON THIS PAGE. THIS LINK TO THE ORIGINAL E-NYTIMES STORY HAS ALL THE GRAPHIC FEATURES FOR INTERACTIVE READING ENGAGED. FOR YOUR ABILITY TO DRAW COMPARISONS AND APPLY VALUES, WE HAVE INCLUDED THE TOTALS FOR UNITED STATES SPENDING FROM THE GRAPHIC.

From the IMF (2008 actual) of gross domestic product per person. Not the same things as spending data below.

RECREATION
Spending by United States: $881 billion

ELECTRONICS
Spending by United States: $162 billion

ALCOHOL & TOBACCO
Spending by United States: $205.6 billion

CLOTHING & FOOTWARE
Spending by United States: $429.8 billion

HOUSEHOLD GOODS
Spending by United States: $456.9 billion

Sticker shock: 'Made in China' ranks only 2.7% of U.S. spending
Most personal consumption goes for services, groceries and gasoline that are produced in America, a federal study finds.
By Alana Semuels, Los Angeles Times
August 13, 2011

Convinced that everything you buy these days has a Made-in- China label?

Then you aren't paying attention. Things made in the U.S.A. still dominate the American marketplace, according to a new study by economists at the San Francisco Federal Reserve.

Goods and services from China accounted for only 2.7% of U.S. personal consumption spending in 2010, according to the report titled "The U.S. Content of 'Made in China.' " About 88.5% of U.S. spending last year was on American-made products and services.

How can this be, considering that many of the toys, electronics, housewares, shoes and other goods we use daily come from the Middle Kingdom?

One word: services. Services, which account for about two-thirds of spending, are mainly produced locally. Your dry cleaner, accountant, mechanic and manicurist most likely are right in your neighborhood.

Then there's groceries and gasoline. Most of the food Americans eat is produced domestically. And although the U.S. imports about half of its petroleum, China is not a major supplier. About 90% of all gasoline sold in the U.S. is refined in the United States.

"Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed," economist Galina Hale and researcher Bart Hobijn wrote in the report. "The vast majority of goods and services sold in the United States is produced here."

Foreign-made products are most prevalent among so-called durable goods, which are big-ticket items such as cars, furniture and appliances. About one-third of all durable goods Americans purchased last year were made abroad; 12% came from China.

But even merchandise made in China can contribute to the U.S. economy. Consider a pair of Chinese-made sneakers that retails in the U.S. for $70. Most of what a consumer pays goes to cover trucking costs, rent for the store where the shoes are sold, profits for shareholders of the U.S. retailer, as well as the cost of marketing the brand. Included in these costs are the salaries, wages and benefits paid to the U.S. workers who staff these operations.

"On average, of every dollar spent on an item labeled 'Made in China,' 55 cents goes for services produced in the United States," the report said.

Weston connection (younger brother of)...
Pressing All the Buttons for a Panic Attack
NYTIMES
By JULIE CRESWELL
August 6, 2011

BRADLEY ALFORD, a money manager in Atlanta, just hit the panic button.

No, really. Mr. Alford just hit the key on his computer that initiates the Wall Street equivalent of the nuclear option: Sell everything.

He was acting on orders from two wealthy clients who became so alarmed by the troubled outlook that they simply wanted out. Over the last 10 days or so, they asked him to sell all of their stocks and invest in a mutual fund he oversees that is somewhat insulated against a potential market collapse.

“I have never, ever done it before,” says Mr. Alford, who is the chairman of Alpha Capital Management and has been managing money for 22 years. “This was unprecedented.”

The pros on Wall Street are forever telling us to keep socking our money away in that 401(k) plan and to keep believing, whatever the market’s daily ups or downs. But after a week like the one we just had, the worst since the dark days of 2008, even the smart-money crowd seems to have second thoughts about the old steady-as-she-goes approach.

As the Dow Jones industrial average plunged 513 points last Thursday, then gyrated wildly on Friday, all of Wall Street seemed to be asking the same question: What the heck is going on? Evidence that the American economy is bad and growing worse has been piling up for a while now. And it’s not as if we didn’t know Europe had a debt problem. Why, then, all these crazy swings?

One possible answer comes from, all of places, the fields of psychology and neuroscience. In recent years, an area of study called neurofinance has tried to use brain science to explain how our primal circuits can, and often do, override our reason when it comes to investing.

It’s a heretical thought on Wall Street, where most people insist that logic prevails. The economic theory of rational expectations has enshrined the principle that people make judicious economic choices and learn from their mistakes. As a result, our collective expectations about the financial future — from the price of T-bills next week to the earnings of Google next quarter — are, on average, accurate.

Or so the theory goes. In practice, we do stupid things all the time. Some of us gamble away money, doubling down when logic tells us to quit. Others let their winnings ride when any rational person would cash out.

But many experts say the 2008 financial collapse recalibrated investor psychology. After living through the collapse of Lehman Brothers and the panic that followed, some investors are apt to sell first and ask questions later. Wall Street’s notion of worst-case scenarios has darkened considerably.

The result: the markets go wild. After a little good news on jobs on Friday — new figures showed the jobless rate slipped a notch in July — the Dow bolted higher. But by noon it had plunged more than 400 points from its morning high. It closed at 11,444.61, down 5.75 percent for the week and 1.15 percent for the year. Like most major markets, the American stock market has now officially entered a “correction,” one of those mini-bear markets that sometimes prove fleeting and, sometimes, are a harbinger of worse to come.

FINANCIAL markets rarely move in straight lines, and whatever the pundits say, it’s not always easy to pinpoint what made them move this way or that on a given day. But in New York, London, Tokyo and beyond, a broad shift appears to be occurring. All those graphs and charts are, basically, a representation of our collective financial neurocircuitry getting a bit panicky.

Some large investors, including wealthy individuals who lost big during the 2008 collapse, have more or less been stashing money under the mattress. They have been selling investments aggressively and seeking safety in cash. Over the last three weeks or so, hedge fund managers have been betting that stocks will fall further.

Dick Del Bello, senior partner of Conifer Securities, a company that provides administrative support to hedge funds, says funds have started to place more wagers against the markets, if only to protect themselves. But as a whole, he says, they are still betting that stocks will go up, rather than down.

“Hedge funds decided to add to their short positions and play more defensively,” he says.

And yet it seems clear that Wall Street is finally realizing what many ordinary Americans have been feeling for a while: these hard times are turning harder. Sure, major American corporations are making fistfuls of money. But smaller businesses aren’t. The American consumer confronts a toxic mix of weak home prices and high unemployment. Confidence is fragile.

Granted, people have been trying to explain the financial markets for more than a century. In 1900, the French mathematician Louis Bachelier argued that markets were essentially random. In other words, no one can forecast the markets accurately.

John Maynard Keynes, in his famous 1936 work, “The General Theory of Employment, Interest and Money,” likened the stock market to a beauty contest that ran in the newspapers of his day. Readers were asked to pick which would be voted the prettiest face. The key to selecting the winner, Keynes argued, wasn’t choosing the face you think is the most beautiful, but rather anticipating the face that others will pick.

Such theories aside, the uncertainties in the financial world now seem to have overloaded our collective financial brains, at least judging by the markets.

Denise Shull, the founder of Trader Psyches, which consults funds and investors on neuroscience strategies, says many investors are using the 2008 panic as their new reference point. After so many people lost so much money, many investors no longer hesitate to sell at the first sign of trouble, he says.

“How your brain deals with uncertainty — when it recognizes it is in an uncertain situation — is that it tries to pull it from a bigger context,” Ms. Shull says. “The context of 2008 and not wanting to see it happen again would absolutely influence these people to hit the sell button. Then it becomes self-fulfilling for the market.”

IT has actually been relatively easy to make money on Wall Street over the last year or so. Buoyed by hopes that the Federal Reserve would be able to reignite growth through quantitative easing, its controversial bond-buying program, the American stock market shot up last August and kept on rising fairly steadily through this May.

That run gave investors, the pros and individuals alike, a false sense of security, says Roy Niederhoffer, who runs a money management firm called R.G. Niederhoffer Capital Management.

Mr. Niederhoffer has a degree in computational neuroscience from Harvard and is a big believer in the idea that neuroscience can help people invest. He says he was surprised at how complacent investors have been, given Europe’s problems, the slack American economy and, until a deal last week, the debt-ceiling showdown in Washington.

One measure of that complacency is the Chicago Board Options Exchange’s VIX index, which uses the price of stock options to measure investors’ expectations about future volatility. After spiking following the earthquake in Japan this year, the VIX drifted lower through June and remained relatively subdued until early July. It has since shot up, although it remains far below the record levels hit during the financial crisis.

Richard Sylla, a finance professor at the Stern School of Business at New York University who has written about market sell-offs, said the plunge last week had all the hallmarks of a classic panic attack. The debt-ceiling debate, concern over the American economy, Europe — the bad news just kept coming, and investors finally snapped.

“When you pile all of those things together, investors become queasy,” he says.

Mr. Niederhoffer agrees. “I think, without question, there’s been a tremendous shift in psychology, but it took a while,” he says. Even when the market began to wobble last month, many investors refused to throw in the towel.

Mr. Niederhoffer has actually had a tough time because investors have been so complacent. He tends to zig when other investors zag, known as a contrarian strategy. Last week, two of his hedge funds were up 8.6 percent and 13.5 percent.

Now he smells opportunity. “We see what’s happening as a return of the psychology of the markets in 2007 and 2008,” he said. “This feels like it’s got legs.”

If he’s right, investors had better fasten their seat belts.

Mad Debt
A threat to liberty.
National Review
August 6, 2011 10:00 A.M.
On Thursday, in honor of Barack Obama’s 50th birthday, the Dow dropped ten points for every year he has walked among us. It was the ninth largest drop in history. We should be relieved he wasn’t turning eighty.

The markets are apparently concerned that the entire global economy may be “stalling.” You don’t say? Observant fellows, these market chappies.

And yet, in a certain sense, these are still the good times. At the end of the week, U.S. Treasury yields plunged to Eisenhower-era rates. America, explained Ethan Harris of Bank of America Merrill Lynch, “still gets the safe haven money.” That’s to say, as crazy as Washington is, Europe is perceived to be crazier. In confirmation of the point, over in Italy, which is (believe it or not) a G7 economy, police raided Moody’s and Standard & Poor’s over allegations that all the meanie things that the rating agencies have been saying about the Italian economy were having an impact on Italian stock prices. Apparently that’s a crime in Italy. They’re not yet shooting the messenger. But they are dragging him through the streets in chains pour encourager les autres. Good luck with that.

But I wonder if “the safe haven money” is quite as safe as its investors assume. Under the “historic” “resolution” of the debt crisis (and don’t those very words “debt crisis” already feel so last week?), America will be cutting federal spending by $900 billion over ten years. “Cutting federal spending by $900 billion over ten years” is Washington-speak for increasing federal spending by $7 trillion over ten years. And, as they’d originally planned to increase it by eight trillion, that counts as a cut. If they’d planned to increase it by $20 trillion and then settled for merely $15 trillion, they could have saved five trillion. See how easy this is?

As part of this historic “cut,” we’ve now raised the “debt ceiling” — or, more accurately, lowered the debt abyss. Do you ever discuss the debt with your neighbor? Do you think he has any serious intention to repay the 15 trillion racked up in his and your name? Does your congressman? Does your senator? Look into their eyes. You can see the answer. And, if none of these parties seem inclined to pay down the debt now, what are the chances they’ll feel like doing so by 2020 when, under these historic “cuts,” it’s up to 23-25 trillion?

Like America’s political class, I have also been thinking about America circa 2020. Indeed, I’ve written a book on the subject. My prognosis is not as rosy as the Boehner-Obama deal, as attentive readers might just be able to deduce from the subtle clues in the title: After America: Get Ready For Armageddon. Oh, don’t worry, I’m not one of these “declinists.” I’m way beyond that, and in the express lane to total societal collapse. The fecklessness of Washington is an existential threat not only to the solvency of the republic but to the entire global order. If Ireland goes under, it’s lights out on Galway Bay. When America goes under, it drags the rest of the developed world down with it. When I go around the country saying stuff like this, a lot of folks agree. Somewhere or other, they’ve a vague memory of having seen a newspaper story accompanied by a Congressional Budget Office graph with the line disappearing off the top of the page and running up the wall and into the rafters circa mid-century. So they usually say, “Well, fortunately I won’t live to see it.” And I always reply that, unless you’re a centenarian with priority boarding for the ObamaCare death panel, you will live to see it. Forget about mid-century. We’ve got until mid-decade to turn this thing around.

Otherwise, by 2020 just the interest payments on the debt will be larger than the U.S. military budget. That’s not paying down the debt, but merely staying current on the servicing — like when you get your MasterCard statement and you can’t afford to pay off any of what you borrowed but you can just about cover the monthly interest charge. Except in this case the interest charge for U.S. taxpayers will be greater than the military budgets of China, Britain, France, Russia, Japan, Germany, Saudi Arabia, India, Italy, South Korea, Brazil, Canada, Australia, Spain, Turkey, and Israel combined.

When interest payments consume about 20 percent of federal revenues, that means a fifth of your taxes are entirely wasted. Pious celebrities often simper that they’d be willing to pay more in taxes for better government services. But a fifth of what you pay won’t be going to government services at all, unless by “government services” you mean the People’s Liberation Army of China, which will be entirely funded by U.S. taxpayers by about 2015. When the Visigoths laid siege to Rome in 408, the imperial Senate hastily bought off the barbarian king Alaric with 5,000 pounds of gold and 30,000 pounds of silver. But they didn’t budget for Roman taxpayers picking up the tab for the entire Visigoth military as a permanent feature of life.

And even those numbers pre-suppose interest rates will remain at their present historic low. Last week, the firm of Macroeconomic Advisors, one of the Obama administration’s favorite economic analysts, predicted that interest rates on ten-year U.S. Treasury notes would be just shy of nine percent by 2021. If that number is right, there are two possibilities: The Chinese will be able to quintuple the size of their armed forces and stick us with the tab. Or we’ll be living in a Mad Max theme park. I’d bet on the latter myself.

Did you know there’s a U.S. Bureau of the Public Debt? Hey, why not? There’s a bureaucracy for everything else. I’m sure somewhere or other there’s a CBO graph showing that by 2050 all federal revenues will be going either to the Chinese Politburo or to the lavish pension plans of retired officials of the Bureau of the Public Debt. At any rate, the BPD is headquartered in Parkersburg, West Virginia, and it’s easy to find because it’s the only building in the state other than the Klan lodge not named after Robert C. Byrd. The Bureau uses as its motto the words of Alexander Hamilton: “The United States debt, foreign and domestic, was the price of liberty.”

But in the early 21st century foreign and domestic debt is a threat to liberty. As the Brokest Nation in History drowns in its profligacy, its commissars will grow ever more rapacious and desperate. If you think Obama’s dreary attempt to blame America’s woes on corporate-jet owners is unbecoming to the chief of state, wait till he’s reduced to complaining about two-car families. By the way, if you’re reading this out on the runway at O’Hare, what’s the difference between a corporate jet landing and Obama flying in? With Air Force One, even when they switch the engines off, all you can hear is the whining.

No author writes a dystopian apocalyptic doomsday book because he wants it to happen: Apart from anything else, the collapse of the banking system makes it hard to cash the royalty check. You write a doomsday book in hopes you can stop it happening. But time is running short. If you think we’ve got until 2050 or 2025, you’re part of the problem.

Entitlement Overstretch
NATIONAL REVIEW ONLINE
Jim Lacey
June 15, 2011 4:00 A.M.

This great country has reached such a point of fiscal insanity that we may need a monumental crisis to save it.

In the late 1980s, Prof. Paul Kennedy of Yale achieved academic celebrity with his bestseller, The Rise and Fall of the Great Powers. In it, he wrote that the United States was likely to collapse because of a phenomenon he called “imperial overstretch.” As Kennedy saw it, the approximately 6 percent of GDP the United States spent on maintaining its military and meeting other global commitments was too great a burden. It was only a matter of time until our ambitious agenda would push us into decline and eventual collapse. This thesis, as it applied to the United States, was simple, beautiful, and spectacularly wrong.

Kennedy’s overstretch theory was not, however, without merit. Hindsight makes clear that much of what Kennedy wrote provides a valid description of the Soviet Union’s collapse. Furthermore, while Kennedy misjudged America’s ability to sustain its military commitments, if he had looked deeper into our national balance sheet, he would have seen the true danger: entitlement overstretch. What the historian failed to see — because there was no historical precedent for him to analyze — was the dangers brought on by the rise of the entitlement state. The 6 percent of GDP spent on national security that so concerned Kennedy is dwarfed by projected entitlement expenditures that are far beyond America’s ability to pay.

There is a basic law of economics: What can’t happen won’t happen. As it is impossible for a $14 trillion economy to pay $60 trillion or more of unfunded liabilities, it won’t happen. Even after raising taxes to crippling levels and sucking every other revenue source dry, the United States will still face tens of trillions of dollars of expected payments it cannot meet. That being the case, only one question remains: What form will the nation’s default take?

The first option is a default in expectations. Unfunded liabilities are not yet debt, as the money has not been spent. The government is therefore free to change its implicit contract with the citizenry. In other words, it can renege on its promises with regard to Social Security, Medicare, and Medicaid. This requires a huge amount of political courage and a willingness to pay a severe price at the ballot box. As neither side of the political divide has shown any inclination toward taking the draconian measures that restoring fiscal sanity requires, there is little reason for optimism along this path.

The second option is the historical favorite of countries that find themselves in a fiscal crisis: debasing the currency. Because the dollar is the key global reserve currency and is viewed by many — irrationally, of late — as a secure store of value, the United States is able to issue all its debts denominated in dollars. Therefore, by pressing a few computer keys, the Federal Reserve can create $60 trillion in an instant. Of course, the Fed would be much cleverer about it and spread its money creation over a number of years or even decades. No matter how the debasement is done, though, the results are easy to foresee. Inflation on a scale that could see us envying Weimar Germany’s fiscal propriety would wreck the U.S. economy as the nation’s wealth and savings were destroyed. Unfortunately, this option always seems the most appealing to policymakers, as it is easy and apparently painless. Well, it is painless — right up until the cataclysm, the onset of which no doubt will be as sudden as the crisis of 2008. We must all hope that our elected officials are wise enough not to go down this road. Of course, betting on the wisdom of politicians is more often than not a fool’s wager.

The final option is to keep going as we are, making cosmetic changes of the type we have seen recently. This head-in-the-sand option will work just fine, until the calamity can no longer be postponed. In this scenario, the government runs up taxes until the economy falters while continuing to issue debt until it can no longer afford even the interest payments. This, for worse or worse, is the road we are heading down. Make no mistake about it: The final outcome will be crushing. Entitlement overstretch will cause the collapse of the national economy and end America’s global dominance.

But only for a time.

Modern nations do not just disappear. After a default, the United States will still have a productive population, a sound economic base, and, most important, a clean balance sheet. If we are lucky, our chastened politicians, given all these advantages and a clean slate, will then undertake only those commitments the economy can afford. If so, there is reason for optimism that, after the harrowing experience of default, the United States will roar back stronger than before. Conversely, if politicians prove incapable of mending their ways, then the country will join the list of serial defaulters and begin an inevitable and ugly decline.

It is a sad state of affairs when one has to pin the long-term hopes of this great nation on a crisis so monumental that one has to count on the “day after” to return reason to the nation’s fiscal policy. But at a time when proposals to cut a mere 1 percent from the budget can bring vested interests to the barricades, there appears little hope that policy sanity can be restored in any conditions short of a fiscal implosion.

Rumor has it that Professor Kennedy is now updating his seminal work for a new edition. One must hope that, this time around, he puts his finger on the true crisis undermining America.

Bernanke says debt limit battle risks crisis
YAHOO
By Pedro Nicolaci da Costa
14 June 2011

WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke warned on Tuesday that a failure to lift the government's $14.3 trillion debt ceiling risks a potentially disastrous loss of confidence in America's creditworthiness.

Bernanke said in the absence of a quick resolution to the battle over the debt limit, the United States could lose its prized AAA credit rating, while the U.S. dollar's special status as a reserve currency might be damaged.

"Even a short suspension of payments on principal or interest on the Treasury's debt obligations could cause severe disruptions in financial markets and the payments system," Bernanke said in remarks prepared for delivery at an event sponsored by the Committee for a Responsible Federal Budget.

Inaction could also "create fundamental doubts about the creditworthiness of the United States, and damage the special role of the dollar and Treasury securities in global markets in the long term," Bernanke added.

Vice President Joe Biden and top lawmakers, set to resume budget negotiations on Tuesday, must work around a stark divide on taxes and healthcare as they look for trillions of dollars in savings that would give Congress the political cover to raise the debt ceiling before the government runs out of money.

The Treasury Department has warned the government will begin defaulting on its obligations -- whether debt payments or other bills coming due -- if Congress does not increase the limit by August 2.

"We could actually have a reprise of a financial crisis, if we play this too close to the line. So we're going be working hard over the next month," President Barack Obama warned on Tuesday.

Bernanke also repeated his calls for a long-term budget plan. He said that while a considerable portion of recent deficits was due to fallout from the recession, which led to lower revenues and higher stimulus spending, large "structural" budget issues remain.

Developing a plan now for how to reduce that debt load over time could bolster economic activity today by keeping borrowing costs down and boosting confidence, Bernanke argued.

"Maintaining the status quo is not an option," Bernanke said.

He urged the Congress and the administration to work together to come up with ways to bring down the debt.

"I hope, though, that such a plan can be achieved in the near term without resorting to brinkmanship," he said.

A look at economic developments around the globe
YAHOO
27 September 2010

A look at economic developments and activity in major stock markets around the world Monday:

___

TOKYO — Japan's export growth slowed for the sixth consecutive month in August as a strong yen and cooling global demand rattled an already fragile recovery.

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BRUSSELS — France clashed with Germany and the European Central bank, rejecting any proposal that would punish European Union nations with near-automatic sanctions if they fail to keep their debt and budget deficits within limits.

Instead, French Finance Minister Christine Lagarde said governments still should have the overriding say in any such decision.

She dismissed the idea that a member nation could be reprimanded by unelected experts alone and penalized for budget excesses.

Earlier, EU Monetary Affairs Commissioner Olli Rehn said he will propose on Wednesday for member states to be punished early for spending their way into trouble.

___

BEIJING — China stepped up customs inspections of goods shipped to and from Japan, slowing trade, logistics companies said. Relations between the two countries are growing tenser because of a spat over the detention of a Chinese fishing boat captain near disputed islands.

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LONDON — European stocks slipped amid uncertainty about the outlook of the global economic recovery, with near-record gold prices suggesting sentiment remains tense as investors seek safe assets.

Britain's FTSE 100 benchmark index closed down 0.5 percent, Germany's DAX fell 0.3 percent and France's CAC-40 dropped 0.4 percent.

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TOKYO — Japan's Nikkei 225 stock average climbed 1.4 percent to 9,603.14 with exporters advancing as investors bet the central bank will try to weaken the yen with further monetary easing when it meets next week. The yen hit fresh 15-year highs against the U.S. dollar this month, and led the government to intervene in currency markets to weaken the yen for the first time in six years.

Elsewhere in Asia, South Korea's Kospi added 0.8 percent, Hong Kong Hang's Seng advanced 1 percent, China's Shanghai Composite Index rose 1.4 percent and Australia's S&P/ASX 200 jumped 1.6 percent. Markets in India, Taiwan and Singapore also climbed while Malaysia and Vietnam dropped.

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WASHINGTON — The Obama administration is proposing that banks report all electronic money transfers in and out of the country, expanding its anti-terrorism requirements for financial institutions.

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BUCHAREST, Romania — The Romanian government was in an uproar over austerity protests as the interior minister resigned, the opposition demanded the prime minister go as well and top police officials held emergency talks with the president.

The chaos reflected social fallout from the sharp wage cuts, tax hikes and other austerity measures the government has taken to fight its budget deficit amid a deep recession.

President Traian Basescu's government has been unable to pay wages and pensions without a euro20 billion ($26 billion) bailout loan last year from the International Monetary Fund and other lenders, and the IMF is demanding strong action now to trim Romania's national debt.

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DUBAI, United Arab Emirates — Dubai's government said it soon plans to issue its first sovereign bonds since the start of the emirate's credit crisis last year.

The bond sale will be an important test of investor appetite for Dubai debt. It comes as the city-state looks to fill a budget deficit of $1.6 billion this year while working through a nearly yearlong financial crisis that remains unresolved.

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ATHENS, Greece — Riot police used tear gas to disperse protesting truckers and prevent a highway blockade, as protests against government labor reforms entered a third week.

The reforms were enacted as part of deal for crisis-hit Greece to receive euro110 billion in rescue loans over three years from the International Monetary Fund and other European countries.

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BEIJING — China and Russia signed agreements to boost energy cooperation, while Moscow said it is ready to supply its energy hungry neighbor with all its natural gas needs.

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WELLINGTON, New Zealand — New Zealand's government announced it will place new controls on overseas investors buying large land holdings, reacting to growing public concern that the country is selling too much farm land to foreigners.

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HAVANA — Cuba has raised already-high gasoline prices by about 10 percent amid sweeping changes to the economy, a move that could lead to grumbling among cash-strapped islanders, particularly private taxi drivers who are not allowed to raise their own prices.

Global markets plunge on renewed growth fears
YAHOO
29 June 2010

LONDON (AFP) – Stock markets in Europe and the United States fell hard Tuesday, following earlier losses in Asia, on news of a surprising erosion in US consumer confidence that sparked fears for global recovery.

Exchanges in Europe closed between 3.0 and more than 5.0 percent in negative territory after the Conference Board, a business research group, said US consumer confidence fell sharply in June after three straight monthly gains. US share prices were down more than 2.0 percent in early trading on the pronounced turnaround in consumer sentiment, which analysts had not foreseen.

US President Barack Obama nonetheless insisted that US economy was "strengthening" despite weak data but acknowledged there was still "great concern" about the recovery.

"The economy is strengthening, we are into recovery," he said following publication of the Conference Board figures.

"We can't let up," he said of efforts to sustain anemic economic growth after a meeting with his economic team and Federal Reserve Chairman Ben Bernanke.

"There is a great concern about the eight million jobs that we lost in the course of this last two years," he said.

At Naroff Economic Advisors, economist Joel Naroff called the consumer report "truly distressing ... right in line with the depression that seems to be seeping into the psyches of consumers."

"This report confirms my oft-stated fears that growth during the last three quarters of this year will be quite disappointing."

Deepening the gloom was a report that China's Conference Board economic index rose by only 0.3 percent in April instead of by 1.7 percent as originally estimated.

Other data suggested the outlook for Japan's economy was weak after unemployment jumped unexpectedly in May, factory output declined and household consumption fell. In London the FTSE 100 index lost 3.10 percent to close at 4,914.22 points while in Paris the CAC 40 gave up 4.01 percent to finish at 3,432.99. The Frankfurt DAX fell 3.33 percent to 5,952.03. Elsewhere Madrid lost 5.45 percent, Milan 4.44 percent and Amsterdam 3.46 percent.

"The market is very nervous and this revision (to the Chinese data) was deeply unsettling as China has become a key link in world growth," said Victoria Stive of Meerschaert Gestion Privee.

In addition, analysts said, European investors remained anxious about the extent of sovereign debt problems in Europe and the financial health of the banking sector. On Wall Street the Dow Jones Industrial Average was down 2.25 percent at mid-day at 9,910.51 points and the tech-heavy Nasdaq had shed 2.88 percent to reach 2,156.61.

Lynn Franco, head of the Conference Board's consumer research center said "increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence."

"Until the pace of job growth picks up, consumer confidence is not likely to pick up," Franco said.

The grim news from the United States also helped drive down the euro, with traders seeking the safety of the dollar at the expense of the single currency.

The euro in late trade was at 1.2185 dollars against 1.2276 on Monday.

Stocks earlier fell in Asia, with Tokyo sliding 1.27 percent, as weak Japanese data illustrated the fragile recovery in the world's second biggest economy.

China's stock market tumbled 4.27 percent.

Trade deficit rises, demand for exports slips
YAHOO
By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON – The U.S. trade deficit rose to the highest level in 16 months as exports fell for the second time in three months, a potentially worrisome sign that Europe's debt troubles are beginning to crimp American manufacturers.

The Commerce Department said Thursday the trade deficit widened to $40.3 billion in April, up by 0.6 percent from March. U.S. exports dropped 0.6 percent while imports declined by 0.4 percent.

U.S. manufacturing has been a standout performer as the U.S. recovers from the worst recession in decades. But the concern is that Europe's debt crisis will slow growth in that part of the world and dampen demand in a key U.S. export market.

For April, exports slipped to $148.8 billion with demand for U.S. farm products falling by $647 million and weakness spread across a number of manufactured goods from electric generators to industrial machinery and aircraft engines.

Imports edged down to $189.1 billion with demand for oil basically unchanged from March while total consumer goods imports dipped by $741 million with the biggest decline coming in pharmaceutical products.

Many economists are worried that Europe could fall into a double-dip recession. That will dampen demand for U.S. exports in a region that accounts for about 15 percent of U.S. exports.

American sales are also threatened by the fact that the euro, the common currency of 16 European nations, has fallen in value against the dollar as investors, worried about possible defaults in countries such as Greece, have fled to the safety of dollar-denominated investments.

Earlier this week, the dollar reached a four-year year high against the euro. A stronger dollar and a weaker euro hurts America's trade balance with Europe by making U.S. products more expensive in European markets and European products cheaper for U.S. consumers.

Even before the debt problems hit Europe, economists were forecasting that America's trade deficit would widen this year as a rebounding U.S. economy boosts demand for foreign goods from the lows hit last year when the country was struggling to emerge from the worst recession in decades.

Through April, the trade deficit is running at an annual rate of $466.6 billion, up 25 percent from last year's deficit of $374.9 billion. That was the smallest trade deficit since 2001, another year when the United States was in a recession.

For April, the deficit with China jumped 14.3 percent to $19.3 billion, the highest level since November. The big increase reflected 9.4 percent drop in U.S. exports to China reflecting big declines in sales of soybeans, motor vehicles and parts and raw cotton. Imports of Chinese products to the United States rose 6.6 percent led by higher sales of computers, household appliances and cell phones.

As usual, the U.S. deficit with China was the largest for any single country, a distinction that has attracted attention in Congress, where Chinese critics contend that Beijing is engaging in unfair trade practices which are costing U.S. manufacturing jobs.

Earlier Thursday, China reported its overall exports surged 48.5 percent in May while its imports rose 48.3 percent, producing a monthly trade surplus of $19.5 billion. Its exports to the United States rose 24.8 percent and its May trade surplus with the United States was $16.7 billion.

Some lawmakers are pushing legislation that would impose stiff trade sanctions on China unless it allows its currency, the yuan, to start rising in value against the dollar. However, Treasury Secretary Timothy Geithner and Secretary of State Hillary Rodham Clinton made no headway on the currency issue during high-level talks in Beijing late last month.

The deficit with the European Union dropped 18.9 percent to $5.7 billion as U.S. exports fell by 9.4 percent while U.S. imports from the EU were down 11.8 percent.

Ireland going for international bailout
YAHOO
By SHAWN POGATCHNIK and GABRIELE STEINHAUSER, Associated Press
21 November 2010

DUBLIN – After weeks of denying it needed a bailout, Ireland Sunday became the second European country to ask for a multibillion euro emergency loan to help stabilize its debt-ridden banks. Other eurozone countries and the European Central Bank had pushed Dublin to accept help after anxiety over Ireland's massive bank-bailout bill threatened to spill over to the currency area's other shaky economies, including Portugal and Spain.

The request for help from the EU and the International Monetary Fund is a humiliating turnaround for the Irish government, which only days ago had denied that such a package was being negotiated or was even necessary. It also dashes the hopes of other members of the 16-country currency union that the mere existence of a euro750 billion ($1025.55 billion) financial backstop set up in May would suffice to quell concern over several nations' massive debt levels.

Ireland's Finance Minister Brian Lenihan refused to give a precise figure on the fund, saying only that it would reach tens of billions of euros. He denied the figure would top 100 billion euros, as some had speculated.

"I will be recommending to the government that we should apply for this program," a somber Lenihan told Irish state broadcaster RTE. The Irish cabinet is expected to sign off on the request later Sunday.

Experts from the EU, the ECB and the IMF in recent days have been digging through the books of Ireland's biggest banks to find out whether the government would have to pump in more than the euro50 billion it has already budgeted for the bailout. Ireland is running a deficit of 19 billion euros ($26 billion), which Lenihan said could not be financed at current market rates. Lenihan said the money would help Ireland pay its bills and provide a contingency fund to back up the banks, which have been hemorrhaging cash since the country's real estate boom crashed in 2008.

The interest rate on Ireland's 10-year bonds surged to above 8 percent in recent weeks, after the government again had to revise up the final cost of the bank bailout and economists raised doubts that the Irish economy could grow fast enough to pay off the debt.

"Clearly we want to borrow for much less than that," Lenihan said Sunday.

Although the government has insisted that it has enough cash on hand until the middle of 2011, analysts are concerned that the discovery of further holes in the banks' balance sheet could suddenly drive up costs.
Market jitters had also begun to spread, raising borrowing costs for Ireland and Spain and weighing on the value of the euro.

After the Irish cabinet has approved the loan application, Irish, EU and IMF officials will negotiate the details of the bailout. The first portion of the loan might come from the European Commission, the EU's executive; after that the IMF and a facility funded by eurozone nations would raise money in the international debt markets. The European Commission declined to comment on Ireland's request Sunday. The European Financial Stability Facility wasn't immediately available for comment.

The Irish rescue is the latest act in Europe's yearlong drama to prevent mounting debts and deficits from overwhelming the weakest members of the 16-nation eurozone. Greece was saved from bankruptcy in May, and analysts say Portugal, which some argue has done less than the Irish to bring debt and deficits back under control, could be next. Ireland is moving aggressively to slash 15 billion euro ($20.5 billion) from its annual deficits, an unprecedented austerity push which — it had been hoped — would save Dublin from seeking a bailout.

The office of Prime Minister Brian Cowen said the 15-member Cabinet would put the finishing touches on the austerity plan Sunday. It has been in the works since September, runs to 160 pages and is expected to be publicly unveiled Tuesday. The government says the still-confidential plan has been endorsed by dozens of experts from the IMF, the European Commission and the European Central Bank, who have been poring over the accounts of the government, treasury and banks since Thursday.

Both Cowen and Lenihan stressed that Ireland's 12.5 percent rate of tax on business profits — its most powerful lure for attracting and keeping 600 U.S. companies based here — would not be touched no matter what happened. France, Germany and other eurozone members have repeatedly criticized the rate as unfair and say it should be raised now given the depth of Ireland's red ink.

The 2011 budget faces a difficult passage through parliament when it is unveiled Dec. 7. Cowen has an undependable three-vote majority. It is expected to be reduced to two following Thursday's by-election to fill a seat that had been left empty for 17 months. Analysts expect Cowen's Fianna Fail party to lose that by-election as well as three others tentatively scheduled for the spring. That would leave him without a majority and force an early election.

Cowen and his long-dominant party are languishing at record lows in opinion polls. The latest survey published in the Sunday Business Post newspaper said Fianna Fail has just 17 percent support, whereas the two main opposition parties, Fine Gael and Labour, command 33 percent and 27 percent respectively.

Those two parties are widely expected to form a center-left government after Cowen loses his majority — either by failing to pass the 2011 budget next month or, more likely, after losing all four by-election races.

Reflecting the national mood, the Sunday Independent newspaper displayed the photos of Ireland's 15 Cabinet ministers on its front page, expressed hope that the IMF would order the Irish political class to take huge cuts in positions, pay and benefits — and called for Fianna Fail's destruction at the next election.

"Slaughter them after Christmas," the Sunday Independent's lead editorial urged.

2010: The year of bankrupt gov'ts
NYPOST
By RALPH PETERS
Last Updated: 5:10 AM, December 23, 2009
Posted: 1:35 AM, December 23, 2009

Yes, Virginia, there is a Santa Claus. But he only comes for kids -- not for governments that have bragged, borrowed and spent their way into bankruptcy. Two Thousand Ten is going to belong to the Grinch.

For spendthrift governments around the world, the new year's going to bring massive defaults. The new globalization may be the globalization of a second wave of financial crises.

The world economy is not convalescing. It's just been pumped full of unaffordable medicines. Borrowing madly, countries as diverse as Greece and Dubai have been buying time, not fiscal health.

Built on financial quicksand, Dubai (an Arab Las-Vegas-without-the-fun) is in collapse (predicted by this column years ago). Quasi-governmental corporations backed by the ruling family are at least $80 billion in the hole. The recent transfusion of 10 billion bucks from Abu Dhabi merely applied a Band-Aid to a hemorrhage. Dubai can't pay.

Eighty billion in bad debts may not sound high in President Obama's Washington, but Dubai's just a city pretending to be a country. It produces nothing. There's no inherent wealth. It Madoff-ed the world with extravagant brochures and nutty projects.

Speculators went nuts, proclaiming Dubai the city of the future, where wealth could only beget more wealth. The frenzy produced the craziest real-estate bubble in the world, as gullible investors mistook a couple of shopping malls for a civilization.

Dubai's approach to development mirrored that of much of the Arab world, expecting money to do all of the work. But Dubai's ambitions weren't backed by oil wealth, only vast development schemes that never should have fooled a single investor. But investors wanted to be fooled.

Speculation hasn't been the only villain generating financial ruin around the world. Another villain has been exploding entitlements. Several European states (plus my favorite foreign country, California) have been downed by a self-inflicted one-two punch.

In Ireland and Spain, housing bubbles created the illusion of roaring economies -- and pandering governments inflated already generous social programs. In Italy and Greece, state giveaways, bubble economies and rabid corruption created national debts in excess of GDP.

Even in this age of globalization and complex financial instruments, one law of the financial jungle remains brutally true: The bills come due eventually.

Dubai's bankrupt, but frightened investors pretend otherwise. Greece is bankrupt, and the other Euro-currency states don't know what to do: The strict fiscal-policy rules for the Euro-zone are crumbling.

Will EU governments -- each with its own problems -- cobble together a rescue package? Greece's socialist government certainly isn't going to embrace painful austerity measures -- and the population, conditioned to an entitlement mentality, would tear Athens apart.

And after Greece, what about Spain? With 20 percent unemployment and an economy strangled by disincentives to job creation, Spain counts on being considered too big to fail.

The Baltic states' economies are tubercular. Central Europe's headed for the post-modern equivalent of debtors' prison. And even Britain (and the global bankers' fortress, the City of London) is still in deep treacle.

Then there's California (and New York).

Taken in isolation, any of these problems could be managed. But these "local" crises refuse to be isolated. Toss in suspect statistics from other troubled states and hollow economies from Argentina to Russia, and 2010 looks unpredictable, to put it gently.

Perhaps the world's financial wizards will head off this looming debacle, too -- but don't count on it. Chain reactions could devastate European banks and budgets .

The good news? Venezuela's also in serious economic trouble. The bad news? Venezuela's also in serious economic trouble.

Then there are the great unknowns, a Russian economy that may be far more fragile than anyone wants to admit, as well as China, opaque and insatiable.

One of the reasons China's desperate to keep expanding its trade is that its banking sector is flimsier than chopsticks -- plagued by uncollectible sweetheart loans made to favored firms and institutions. Perhaps Beijing will dominate the 21st century. But it's also possible that China's economy will turn out to be the biggest Ponzi scheme in history.

The best scenario we could see in the global economy in 2010? Rescue-package fire brigades rushing to deal with these crises individually. What's the worst? A chain reaction that leads to a rash of national defaults, followed by a world banking and liquidity crisis, Part II.

What of our own country, with its soaring debt, congressional irresponsibility and an administration whose No. 1 priority is expanding unaffordable entitlement programs? Draw your own conclusions.

Asia helps feeble West in global recovery: OECD
YAHOO
By Brian Love
November 19, 2009

PARIS (Reuters) – Asia is leading the global economy out of the deepest downturn in decades but the recovery will be marred by high unemployment and huge government debt across the industrialized countries, the OECD said on Thursday.

Central banks and governments in major Western economies should prepare for a gradual upwards shift in ultra-low interest rates and for fiscal consolidation once recovery is stronger, but they will only need to move in late 2010 at the earliest given that inflation is so low, it said in its Economic Outlook.

The Paris-based Organization for Economic Co-operation and Development raised its global growth forecast for next year to 3.4 percent from the 2.3 percent it was predicting as recently as June, after an estimated contraction of 1.7 percent in 2009.

"We are looking at a scenario where disaster has been avoided but we're still looking at a scenario which involves slow growth and high unemployment," the OECD's chief economist, Jorgen Elmeskov, told Reuters television in an interview.

In the twice-yearly report, the OECD lowered its estimates of the scale of this year's recession and substantially raised most of its forecasts for growth in 2010, when it said the economy would remain dependent on government life-support.

U.S. growth, measured by gross domestic product, should rise 2.5 percent in 2010 after a contraction of 2.5 percent in 2009, and rise a further 2.8 percent in 2011, the OECD said.

Euro zone GDP should rise 0.9 percent in 2010 and 1.7 percent in 2011 after a downturn of 4.0 percent in 2009, it said.

Japan could expect GDP growth of 1.8 percent in 2010 and 2.0 percent in 2011 after a drop of 5.3 percent in 2009, it said.

(For a graphic showing growth, inflation, unemployment and trade growth for the U.S., Japan, and euro zone, click here: http://r.reuters.com/baf52g)

In June, the OECD was predicting growth of less than 1 percent in 2010 in all three regions and for the 30 OECD member countries as a whole. It now sees GDP growth of 1.9 percent in 2010 and 2.5 percent in 2011, after a contraction of 3.5 percent in 2009.

"The upturn in the major non-OECD economies, especially in Asia and particularly China, is now a well-established source of strength for the more feeble OECD recovery," said the OECD, whose only two Asian members are Japan and South Korea.

The OECD's global growth forecast includes emerging giants China, Brazil, India and Russia with the mostly industrialized economies of its own 30-country membership and in all covers some 80 percent of world output.

The OECD said it expected world trade to grow 6.0 percent in 2010 and 7.7 percent in 2011 after a plunge of 12.5 percent this year, and economist Elmeskov said the OECD might if anything be underestimating the demand from fast growers such as China.

FEEBLE AND INDEBTED WEST

Compared to a GDP forecast of 1.9 percent next year for the mostly industrialized countries of its own membership, the OECD forecast growth of more than 10 percent in China this year due in large part to massive stimulus that it believes maintained GDP growth at more than 8 percent in 2009, when output was shrinking across the West.

India, which likewise weathered the crisis with growth of an estimated 6.1 percent in 2009, could expect 7.3 percent growth next year and a bit more in 2011, while Brazil, another fast developer, was headed for growth of 4.8 percent in 2010.

Government spending to stimulate the Chinese economy had not driven China's public finances into the parlous state that most governments in the developed economies will have to tackle when the recovery is more sure-footed, the OECD said.

Gross government debt in the OECD countries could on average exceed GDP in 2011, the Paris-based Organization said.

"Stopping the rot is clearly necessary and will call for fiscal consolidation that is substantial in most cases and drastic in some," the OECD report said.

"That said, and countries facing acute problems aside, consolidation should not proceed at a pace that undermines the recovery."

On the jobs front, the OECD forecast further increases in the OECD-wide unemployment rate, to 9.0 percent in 2010 and 8.8 percent in 2011 from 8.2 percent in 2009.

It predicted the U.S. jobless rate at 9.9 percent next year and dropping to 9.1 percent in 2011 after 9.2 this year, while it saw the rate in the euro zone hitting 10.6 in 2010 and moving up again in 2011 to 10.8 percent, after 9.4 percent in 2009.

China sees rocky export rebound, shrinking surplus
YAHOO
Sat Oct 31, 2009 1:17 am ET

BEIJING/SHANGHAI (Reuters) – China's exports face a "hard and tortuous" path to recovery as uncertainties dog the global economy's gradual return to health, with this year's trade surplus set to shrink from last year's record, the Commerce Ministry said.

Commerce Minister Chen Deming told a conference on Saturday that China's trade surplus was expected to fall to $180 billion to $190 billion this year from last year's record $295.5 billion.

The surplus was $136.4 billion in the first nine months of the year.

With China's economic recovery relying heavily on government spending to boost domestic demand, imports have seen greater improvement than exports in recent months.

Exports in September were 15.2 percent below their level a year earlier, beating forecasts of a 21 percent fall, although the government expects a double-digit fall for all of 2009.

In a statement released late on Friday on the ministry's website (www.mofcom.gov.cn), it said the full-year fall in exports compared with the previous year should be less than 20 percent.

"In 2010, the world economy will hopefully see a gradual recovery, and the environment for Chinese trade will gradually improve," it said.

"But as there is not yet sufficient strength in the global economic recovery, many problems and contradictions have yet to be basically resolved. The recovery will be hard and tortuous, and it will be hard to see an obvious recovery in international demand in the short term."

Net exports shaved 3.6 percentage points off headline GDP growth of 8.9 percent in the third quarter as Chinese manufacturers continued to reel from a slump in global trade.

Protectionism in these straightened times was a particular worry, as was increasing competition, the ministry said.

"At present some nations are conducting probes into Chinese goods, which is causing yet further obstruction for a recovery in Chinese exports," it said.

A U.S. trade panel on Friday approved the eighth government investigation this year into charges of unfair Chinese pricing practices in a case in which U.S. companies want a nearly 100 percent duty or more on $382 million of imported steel pipes.

Still, there were signs for optimism, the ministry added.

The government was continuing to provide help to exporters in the form of export tax rebates, and numerous new markets awaited Chinese firms.

"There is a bright future for developing trade with newly emerging markets," it said.

CHINA IMPACT TO COME - DOLLAR DOWNFALL

World Bank says don't take dollar's place for granted
YAHOO
September 27, 2009

WASHINGTON (Reuters) – World Bank President Robert Zoellick said the United States should not take the dollar's status as the world's key reserve currency for granted because other options are emerging. In excerpts released on Sunday from a speech that he is to deliver on Monday, Zoellick said global economic forces were shifting and it was time now to prepare for the fact that growth will come from multiple sources.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," he said. "Looking forward, there will increasingly be other options."

Zoellick said that a meeting of Group of 20 rich and developing countries in Pittsburgh on Thursday and Friday had made "a good start" toward increased global cooperation but they will have accept global monitoring of their activities.

"Peer review will need to be peer pressure," he said.

Zoellick said that the G20, as the new chief forum for international economic cooperation, also must not forget the 160 countries left outside its structure and should try to open opportunity for them.

"We need a system of international political economy that reflects a new multi-polarity of growth," Zoellick said. It needs to integrate rising economic powers as 'responsible stakeholders' while recognizing that these countries are still home to hundreds of millions of poor and face staggering challenges of development.".

Asia Rebounding Rapidly, Bank Reports
NYTIMES
By KEITH BRADSHER
September 22, 2009

HONG KONG — Asian economies slumped steeply when exports plunged during the winter, but most of the region is now rebounding quickly, the Asian Development Bank said in a report released on Tuesday.

The multilateral institution, based in Manila, declared that economic growth in China would be 8.2 percent this year, 1.2 percentage points higher than the bank’s forecast in March, and 8.9 percent next year.

The bank raised its 2009 growth forecast for India to 6 percent, from 5 percent predicted in March, and for developing Asian countries as a group to 3.9 percent, from 3.4 percent.

“Developing Asia is proving to be more resilient to the global downturn than was initially thought,” the bank said in a statement accompanying its semiyearly assessment.

A common factor among countries doing better than expected is that they have been able to offset weak exports by stimulating domestic demand more than anyone expected. Chinese banks have lent heavily, while the Indian government has gone on a spending spree.

Commercial banks across most of the region also came into the global financial crisis with mostly strong balance sheets, having become much more cautious after the Asian financial crisis in 1997 and 1998.

Taiwan, whose export-dependent economy has limited scope for increasing domestic demand, and Kazakhstan, whose banks lent too much as oil prices soared over the last several years, were among countries that had their growth forecasts downgraded in the report.

The speed of the recovery in Asia has renewed a debate over “decoupling” — the idea that growth in the region is becoming less closely correlated with that of the West. Some commercial banks have promoted the concept to suggest that Asian economies, and their stock markets, have become more stable and worthy of investment.

But Ajay Kapur, chief of global strategy and economics at Mirae Asset Securities, one of South Korea’s biggest financial services companies, said Asian economies might now be showing even wider swings in economic output in response to changes in the West.

“Economies tied to global trade fell harder in the crisis and are bouncing back with more vigor,” he said. “This is the opposite of decoupling.”

Jong-wha Lee, the chief economist of the Asian Development Bank, said the region had shown during the Asian financial crisis in 1997 and 1998 that it was too vulnerable to financial instability because of international investment flows.

During the current downturn, he added, the region may have shown that it was too vulnerable to instability in the level of global trade.

At a news conference on Tuesday in Hong Kong to release the report, Mr. Lee called for a series of measures like encouraging more long-term foreign investments and strengthening demand for Asia to limit the region’s reliance on exports.

But he was cautious when asked whether Asian governments should slow their heavy intervention in currency markets, which has held down the value of the Chinese renminbi in particular and has made Chinese and other Asian goods seem very inexpensive when exported to the West.

Currency appreciation is a taboo subject in much of Asia, as exporters are wary of anything that might dent their sales, profits and levels of employment. Mr. Lee encouraged China to allow more “flexibility” in its currency, which closely tracks the dollar and has plunged with the dollar this summer against the euro and many other countries, but he stopped short of saying that flexibility should lead to appreciation.

China has experimented with letting the renminbi fluctuate from day to day, but has halted any broad rise against the dollar for the last 14 months.

Premier: China to Curb Industry Overcapacity
NYTIMES
By THE ASSOCIATED PRESS
Filed at 7:53 a.m. ET
August 26, 2009

BEIJING (AP) -- China's Cabinet said Wednesday it will try to curb overcapacity and excessive investment in industries including steel and cement -- a possible side effect of its massive stimulus plan.

Regulators also will ''enhance management'' of areas including flat glass, chemicals, wind power and polysilicon production, the official Xinhua News Agency said, citing a decision announced after a Cabinet meeting led by Premier Wen Jiabao, the country's top economic official.

It said measures would include strict enforcement of environmental standards and market access.

Economists and business groups have warned that China's stimulus and efforts to boost flagging exports were creating a glut of excess capacity in a range of industries.

China's 4 trillion yuan ($586 billion) stimulus is based on higher spending on construction of highways and other public works, which has encouraged steel and cement companies to expand production. Beijing has encouraged banks to step up lending, which has fueled a sharp rise in investment in factories and other assets.

Regulators also will target areas including flat glass, chemicals, wind power and polysilicon production, Xinhua said.

U.S. Imports Rose as Trade Deficit Widened in June
NYTIMES
By JACK HEALY
August 13, 2009

The gap between what the United States imports and what it exports widened in June, the government reported on Wednesday.

But economists saw some good news in the larger deficit, which had narrowed in recent months as the volume of trade between the United States and the rest of the world dwindled. The value of imports rose in June for the first time in nearly a year, and American exports increased from a month earlier, though not as much as imports.

The $3.5 billion increase in imports primarily reflected rising costs of crude oil, fuel oils and other petroleum-based goods, but businesses and consumers in the United States were also buying more food and beverages from abroad, and demand for foreign-made cars rose.

“Growth in the rest of the world is picking up, and that’s critical to emerge from the worst recession since the Great Depression,” said Joseph Brusuelas, director at Moody’s Economy.com.

In July, the number of overseas manufacturers sending shipments to the United States increased by 7 percent, according to the private firm Panjiva, which tracks shipping. Still, the number of shipments from overseas was down 10 percent from last July.

Over all, the trade deficit widened to $27 billion in June, from $26 billion in May, according to the Commerce Department. The United States imported a total of $152.8 billion in goods and services, and sent $125.8 billion to the rest of the world.

Economists had expected the trade gap to widen to $28.5 billion for the month.

The figures suggested the worst was over for the global economy, economists said, and that demand for American-made goods was picking up. The United States sent more capital goods like civilian aircraft, semiconductors and industrial machines to other countries, and also exported more industrial supplies.

“That’s what gives me a little bit more optimism here,” Mr. Brusuelas said. “That’s what we do — Boeing, semiconductors and telecom equipment. The only thing missing was computer accessories.”

Exports of computer accessories dropped $32 million for the month.

Last July, the trade deficit exploded to $65 billion as crude oil prices soared to $145 a barrel. But the gap between imports and exports shrank as the global financial crisis rattled economies around the world, sending oil prices to nearly $30 a barrel and reducing consumer and business demand in the United States.

Exports have picked up for two months since touching bottom in April, and economists said the figures on Wednesday would probably presage growth during the third quarter, as businesses restart production and restock their depleted inventories. The economy shrank at an annual pace of 1 percent in the second quarter, and most economists expect it to be flat or grow slowly in the third quarter.

In June, the United States trade deficit with China grew to $18.4 billion while the deficit with oil-producing OPEC countries grew to $5.9 billion.

“Exports should continue to grow in the months ahead because global economic activity is turning positive,” Abiel Reinhart, an economist at JPMorgan Chase, wrote in a research note. “Nonpetroleum imports should also start to recover soon because of rising domestic demand.”

World Bank Sees Economy Shrinking 3 Percent This Year
NYTIMES
By NELSON D. SCHWARTZ
June 12, 2009

PARIS — Underscoring the risk that hopes for a quick turnaround may be premature, the World Bank said Thursday that it expected the global economy to shrink nearly 3 percent in 2009, far deeper than the 1.7 percent contraction it predicted slightly more than two months ago.

Although the bank said that it expected growth in developed countries to resume next year, emerging-market countries could feel the effects of what it terms “aftershocks” for several years, as the full impact of the worst downturn since World War II becomes apparent.

“It’s quite clear that even if the developed world starts on a path of recovery, for many developing countries, it will take longer,” the World Bank’s president, Robert B. Zoellick, said Thursday. “Financial markets seem to have broken the fall but there are clear fragilities and risks remain.”

“Some of these fragile developing economies don’t have any cushion,” he added.

The gloomy outlook is likely to top the agenda this weekend as finance ministers gather for a G-8 meeting in Lecce, Italy, and assess progress since the broader G-20 summit with President Obama and other world leaders in London in early April.

Despite a recent burst of optimism that the American economy has turned the corner, with the pace of job losses showing signs of easing, economies elsewhere remain deeply troubled.

Since the World Bank’s last estimate for 2009, released on March, 31, Europe has continued to weaken. Meanwhile, unemployment in the United States is still on the rise, and house prices are also still falling.

New figures released this week showed German exports in April declined 28.7 percent from a year ago, the steepest drop since the government began keeping records in 1950. Meanwhile, industrial production fell 1.9 percent in April from the previous month, well below the 0.3 percentage point increase economists had been expecting.

Last week, the European Central Bank predicted the economy would contract 4.1 percent to 5.1 percent in 2009, sharper than the 3.2 percent contraction the European Central Bank predicted in March.

By contrast, the United States economy is expected to contract 2.8 percent this year, according to I.M.F. estimates, and many private economists say growth could resume in the second half of the year.

“We are seeing more signs of improvement in the U.S. than across the euro area,” said Jonathan Coppel, a senior economist at the Organization for Economic Cooperation and Development. But both economies are still in recession, he pointed out, “and we’re not out of the woods yet in either region.”

Current Account Trade Deficit Drops to $101.5B
NYTIMES
By THE ASSOCIATED PRESS
Filed at 8:34 a.m. ET
June 17, 2009

WASHINGTON (AP) -- The deficit in the broadest measure of trade has plunged sharply in the first three months of the year as the country's deep recession depressed imports of oil and other goods.

The Commerce Department said Wednesday the current account trade deficit dropped to $101.5 billion in the first quarter, a 34.5 percent decline from the deficit in the fourth quarter. It was the lowest current account deficit since the final three months of 2001 when the country was mired in the last recession.

The current account is the broadest measure of trade because it covers not only goods and services but also iinvestment flows between countries.

Metrics: Guccis or Gadgets?
NYTIMES
By HANNAH FAIRFIELD
September 7, 2008

When you have some extra cash padding your wallet, do you reach for the latest jeans or the sleekest new music player?

Much of that decision, it seems, depends on where you live. If you live in Greece, Italy or Egypt, you'll probably choose textiles over technology. Greeks spend almost 13 times more money on clothing as they do on electronics.

"Italians and other Europeans love fashion; the greatest designs in the world come from those regions," said Todd D. Slater, a retail analyst for Lazard Capital Markets in New York.

If you live in Australia or Taiwan, you might be more tempted by a new laptop computer or flat-screen television. Australians spend only 1.4 times more cash on clothes than they do on consumer electronics.

"Some areas in the Pacific Basin are technologically savvy, and clothing is very casual," Mr. Slater said. "In Australia, what else do you need besides a bathing suit and a pair of Uggs?"

Editorial: Trade and Hard Times
NYTIMES
May 26, 2009

Foreign trade has been a potent force for good over more than half a century. It propelled Japan’s emergence from the ashes of World War II and helped it become an industrial powerhouse. It is the cornerstone of development strategies from China to Brazil. It is what links countries all over the world in a network of production that underpins global prosperity.

Today, trade is collapsing, one more casualty of the global financial crisis. That is especially bad news for countries that are dependent on trade for economic growth, including many developing nations that had nothing to do with the financial mess.

Exports from the United States declined 30 percent and imports 34 percent in the first quarter of the year from the previous three months. Imports into countries that use the euro from outside the area were down 21 percent compared with the first quarter of last year. At this rate, the World Trade Organization’s dire projection in March that global trade would decline 9 percent this year will soon start to look outright boastful.

The drop in trade is spreading economic weakness across the world, as one country’s drop in imports translates into a fall in exports, and production, in another.

Japan, whose economy depends heavily on sales to the United States, saw exports plunge 45.5 percent in March compared with March of 2008. In the first quarter, its economy contracted 15.2 percent at an annual rate, the worst performance since 1955. Exports from China and Brazil both fell 20 percent in the first quarter, compared with the year before. Mexico — linked tightly to the United States market through Nafta — saw exports collapse almost 29 percent while the Mexican economy contracted 21.5 percent at an annual rate, more than three times the rate of decline in the United States.

The main forces clobbering trade seem to be the fall in demand and investment that started in the United States and Europe, and the seizing up of trade finance, which funds up to 90 percent of the world’s merchandise trade, worth some $16 trillion.

The impact has been magnified by the far-flung nature of multinational companies’ production networks — where a factory in one country makes parts that are used by a plant in another country. As demand for their products has declined, the pain has moved across countries up the chain of production. The thawing of credit markets has helped resuscitate trade finance some. Governments of the 20 biggest economies agreed to nudge it along, ensuring $250 billion of trade finance would be available over the next two years. They should keep those pledges, and they may have to do more.

Protectionism also remains a serious danger. With voters insisting that politicians protect their own, many countries have already imposed new restrictions on imports. So far they have been relatively modest. But as unemployment continues to rise, the temptation — and the pressure — will grow. Earlier this year, the Global Monitoring Report by the World Bank and the International Monetary Fund noted that “a pattern is beginning to emerge of increases in import licensing, import tariffs and surcharges, and trade remedies to support industries facing difficulties early on in the crisis.”

Of particular concern are attempts by governments — including in the United Kingdom, the Netherlands and Switzerland — to ensure that banks bailed out by taxpayers favor domestic borrowers. While the Obama administration has not imposed similar requirements, there is pressure from Congress and the public to make American banks that receive TARP money lend primarily, if not exclusively, to American borrowers. That would be a mistake. One of the sure ways to prolong the global recession is to create even more barriers to global trade.

Continental Divide: Economy Shows Cracks in European Union
NYTIMES
By STEVEN ERLANGER
June 9, 2009

BERLIN — The European Union is an extraordinary experiment in shared sovereignty, creating a zone of peace that now stretches from Britain to the Balkans. The union of 27 countries is the world’s most formidable economic bloc, incorporating 491 million people in an integrated market that produces nearly a third more than the United States.

But the global economic crisis has made it clear that Europe remains less than the sum of its parts.

The crisis has presented the European Union with its greatest challenge, but even many committed Europeanists believe that the alliance is failing the test. European leaders, their focus on domestic politics, disagree sharply about what to do to combat the slump. They have feuded over how much to stimulate the economy. They argue about whether the European Central Bank should worry more about the deep recession or future inflation. And they have rushed to protect jobs in their home markets at the expense of those in others.

The latest European parliamentary elections on Sunday drove home the point. Only 43 percent of Europeans voted — a record low turnout, despite the financial crisis and compulsory voting in some countries. Far-right parties, opposed to the European Union and to immigrants from poor member countries, recorded gains, as did the Greens. Those who did vote weighed in largely on national issues.

With American leadership undercut by divisive foreign wars and its economic model of market freedom and light regulation under great challenge, Europe matters. The “European model” of significant government involvement in the economy, close supervision of finance, industry and labor, and generous state-run pensions and health-care, is being praised in some circles as a freshly viable alternative to Anglo-American-style capitalism.

But although the subprime mortgage crisis began in the United States, Europe is arguably suffering more. The International Monetary Fund estimates that European banks hold more bad assets than American ones and have written down much less. Budget deficits are rising and unemployment, especially among the young, is already at its highest in 10 years.

With the response hobbled by a fractious European Union, many economists now expect the downturn to last longer here than across the Atlantic.

“We are in a moment of a very severe crisis,” said Joschka Fischer, a Green Party politician and former German foreign minister. “We have a traumatic lack of leadership; we are caught right in the middle by the flood.”

The central tension in the union has always been between national priorities and collective interests. Ceding national rights and powers — over currency, trade, customs duties — has never been simple, even in good times. In bad times, like now, national politics trump the common interest. Leaders move to protect their own industries, workers and voters at the expense of those elsewhere. Workers still seethe at the sacrifices they feel they make on behalf of integration.

At the Goodyear Dunlop tire factory in Amiens, in northern France, Thierry Fagot, 36, is losing the job he has held for 13 years. He sees competition within the European Union as part of the reason.

“I feel like I was fooled. I mean, we created Europe to protect us, and for a long time it worked,” he said, explaining that Europe provided a market for the factory’s tires and safety rules. “Now, with the competition of Eastern countries, I feel like Europe created this situation where we’re losing our jobs to another E.U. country. How can this be for the greater good?”

The European Union is not about to collapse amid such antagonisms. But some of the continent’s most devoted advocates are scaling down their ambitions. Few speak any longer of a Europe that is a significant political or military counterweight to the United States.

Mr. Fischer, the Green Party politician, is a committed European who bemoans “the post-’89 generation’s” impassiveness to the ideals of a European destiny, and the retreat, under the pressure of the crisis, to nationalist goals and rhetoric.

“Crises are always moments of truth because they relentlessly expose both the strengths and weaknesses of all the players involved,” said Mr. Fischer, criticizing in particular the narrow, national vision of the German government.

He said the European Central Bank, which sets a major borrowing rate for the 16 nations that use the euro as a common currency, has done well. But the European Commission, the union’s main executive body, “played a zero role in the present crisis, and this was a transnational crisis, so the role of the commission should have been just the opposite.”

Instead, European leaders are concentrating on passing the long-delayed Lisbon Treaty, to create a European president and foreign minister and simplify decision-making. But the treaty has little to say about economic matters.

The strains are evident in the way countries have worked to bail out their own banks and rescue national factories of global automobile companies, when a broader European policy would be more logical. But they are also visible in the inability to agree on a policy toward Afghanistan or on a joint energy policy to reduce European dependence on Russian natural gas.

Germany and France together are the traditional motor of the European Union, but relations between them are cold, with both the French president, Nicolas Sarkozy, and the German chancellor, Angela Merkel, putting national interests first, whether the issue is social benefits or saving jobs in the faltering car industry.

Divisions are also evident between northern Europe and southern Europe, with more fiscally responsible countries like Germany only reluctantly promising to help floundering economies like those of Spain and Greece. Solidarity, meant to be the great principle of the European Union, is fraying as well on East-West lines, with the countries that use the euro reluctant to jeopardize the stability of the currency by rescuing European Union members outside the so-called eurozone, like Bulgaria and Romania.

Few want to consider what happens to Ukraine, a nonmember, where many European banks, especially German and Austrian ones, are heavily invested.

And the promise of a Europe “without borders” has been undermined by a reaction in hard times against immigrants from around the region who are seen as competing for jobs.

Before the European parliamentary elections, Mr. Sarkozy and Ms. Merkel issued a joint letter. “We want,” they wrote, “a strong Europe that protects us, we reject a bureaucratic Europe that mechanically applies nitpicking rules.”

But they disagree sharply on the role of public spending and the European Central Bank. Mr. Sarkozy favors more stimulus and giving the central bank the flexibility to buy bonds or public sector loans to help revive lending. Ms. Merkel, in contrast, has attacked rising budget deficits and publicly criticized the central bank for reducing interest rates too much and risking future inflation.

They agree, however, on protecting jobs in their home markets. While Mr. Sarkozy has been criticized for providing billions to protect French car companies, Ms. Merkel, with a national election in September, has just done an expensive deal for Opel, the European branch of General Motors, almost entirely based on saving German jobs.

Since the French rejected a European constitution he helped to draft in 2005, said former President Valéry Giscard d’Estaing of France, national leaders have dominated those who favor a stronger union.

“It’s retrograde,” he said in an interview. “In a short-term crisis, you may have national intervention to protect people, but it’s not a policy, it’s just a reaction,” he said, putting the single market at risk. “The trend must be to see the European market as a whole.”

In Calais, France, the Schaeffler Chain Drive System factory, German-owned, makes parts for Opel. A third of the workers were laid off a month ago, including Dany Valcke, 53. He was a foreman, but now, as he says, “time is all I’ve got,” and he doubts he will ever find another factory job.

“Europe is a good thing, it allows our countries to have a stronger voice in the world, and it brought peace,” Mr. Valcke said. “But economically, it’s not so good. Many have lost their jobs to European countries where the work force is cheaper. They are part of Europe, but if you want Europe, you can’t have these two competing systems.”

The European Union “didn’t try hard enough to help its people through the crisis. It probably doesn’t even have the power for this,” he said. Then he asked, a bit plaintively: “Sometimes I wonder what it’s for, if not for this? I find the U.S. government response to the crisis much more appropriate.”

In Romania, on the other side of the union, the workers are suffering, too. But they take some comfort in being part of a larger, richer bloc than their old, Soviet one, and in general blame local leaders for their problems.

Cristina Lincu, 32, went to find work in Spain in 2001. Now she is back home, with her husband and baby son. The crisis hit their small Madrid grocery hard, but it also reduced property prices in Romania, so they came back and bought land for a house. In a way, she gained from the crisis, Ms. Lincu said, but she is concerned about her fellow Romanians in Spain. There, “the vast majority of immigrant workers were doing low-paid or not very dignified jobs, but now even Spaniards want those jobs,” she said.

As for the European Union, she is grateful. “It’s a wonder they admitted us in the first place,” she said, laughing. “We have such a big corruption problem here.”

As for the future, opinions are divided, but few predict that the European experiment is over. The Lisbon Treaty is expected to pass eventually, strengthening the union’s powers. And today’s leaders, however divided, may learn to grapple with economic challenges collectively, even as they learned to avoid the military conflicts of an earlier age.

“It will be tough, we’ll have setbacks, history will beat us up, we’ll have painful years, but I think crisis creates leaders, the right leaders,” Mr. Fischer said. “I’m not pessimistic.”

FOR RENT IN LARCHMONT

GDP, Case/Shiller muddy recovery hopes
YAHOO
By Ryan Vlastelica
November 24, 2009

NEW YORK (Reuters) – U.S. stocks fell on Tuesday, a day after the Dow hit a 13-month high, after data showed an improving economy, but at a slower rate than expected.

Growth domestic product grew a hair less than forecast in the third quarter, at a 2.8 percent annual rate. The expansion could signal an end to the recession, but stock investors need to see hearty advancement to support further gains after a 22 percent rise in the S&P 500 this year.

Standard & Poor's/Case-Shiller housing data was equally disappointing, rising in September, but at a much less robust rate than expected. The Dow Jones U.S. Home Construction index (.DJUSHB) fell 1.7 percent.

"If we want to get this economy going, if we want to get this economy recovering and add jobs, we're going to want to see better numbers than we are seeing," said Richard Sparks, a senior equities analyst with Schaeffer's Investment Research in Cincinnati.

The Dow Jones industrial average (.DJI) dropped 23.96 points, or 0.22 percent, to 10,426.76. The Standard & Poor's 500 Index (.SPX) shed 1.67 points, or 0.10 percent, to 1,105.08. The Nasdaq Composite Index (.IXIC) fell 8.94 points, or 0.41 percent, to 2,167.08.

The Conference Board's U.S. consumer confidence index rose to 49.5 in November, above the analysts' expectation of 47.7.

The market trimmed losses at midmorning after the consumer confidence data.

Hewlett-Packard Co (HPQ.N) shares slid 1.5 percent to $50.24 a day after it reported a quarterly profit that matched its preliminary results. It also said the economy remained challenging, though it saw signs of a recovery.

Earlier Tuesday, both Medtronic Inc (MDT.N) and Dollar Tree Inc (DLTR.O) reported quarterly earnings that estimates.

Medtronic gained 6 percent to $42.70, while Dollar Tree climbed 4.6 percent to $51.34.

No buyers in China - so Treasury Sec'y rents it out instead, waiting for price to rise!
Geithner's Last Laugh
Washington POST
By David M. Smick
Tuesday, June 9, 2009

Tim Geithner can't seem to catch a break. Our Treasury secretary was at Beijing University last week to assure the Chinese that their dollar investments were safe. The audience broke into laughter.

The Chinese should be wary of such hubris. While America's public finances are troubling, to say the least, Beijing and the rest of the world should examine the future for economies, including China's, that have become overwhelmingly dependent on exports. Their future looks as problematic as the future of the debt-ridden United States.

As ugly as the credit markets have been, trade has been worse. Since World War II, global trade has grown twice as fast as gross domestic product. But things have shifted with the downturn. For starters, the exports of the world's three biggest exporters -- Germany, Japan and China -- are 33 percent lower than they were a year ago. With American imports down by roughly the same amount, two-way trade has contracted by $1.5 trillion. There are real questions as to whether this development is more than a temporary pullback and will evolve into a quiet shift toward a new era of deglobalization.

Those in that snickering Chinese audience should consider that, on paper, the United States looks relatively immune to this trade collapse. American exports are 11 percent of GDP, according to the World Bank. Compare this to the exports-to-GDP ratios, for example, of China (42 percent), South Korea (46 percent), Germany (47 percent) and Thailand (73 percent).

Policymakers from these economies need to ask themselves: What happens if the U.S. consumer -- the world's consumer of last resort -- pulls back permanently, as seems distinctly possible?

True, these countries are scrambling to stimulate domestic consumption. This will be tough, though, given their aging demographics almost across the board (as people age, they save more and consume less). In China, with no social security system or much in the way of a safety net of governmental services, families save 50 percent of their income.

In Germany, policymakers have gone out of their way to limit consumption and reduce wage gains as a means of dramatically improving the economy's global competitiveness. Yet with global demand for German capital goods waning, Germany is in trouble with serious industrial overcapacity even as consumption remains modest. The Germans' secret hope? That the U.S. consumer locomotive starts moving again at full speed.

Beijing boasts of its big stimulus package. Yet the government's efforts to stimulate domestic consumption appear to be not much more than a large subsidized lending operation, a stimulus that is unlikely to be sustainable. A lot of the stimulus was supposed to derive from spending by regional and local governments that never materialized. Moreover, transforming China into a consumer economy to compensate for lost exports will take years. Meanwhile, Beijing, too, secretly hopes the U.S. consumer will quickly come to the rescue.

The world may be waiting longer than it expects. The United States may be undergoing a subtle economic shift. World governments should listen carefully to President Obama, a leader with an uncanny ability to make activist, even radical, proposals sound benign. At the Group of 20 summit in London, for instance, Obama said that the United States cannot be the world's consumer. On the surface, this sounds like a statement about the temporary condition of the business cycle.

Actually, Obama was talking about something far more significant -- not outright Smoot-Hawley-style protectionism but a coming policy of small tax, spending and regulatory changes that will encourage this quiet trend toward deglobalization. Like it or not, this shift reflects a growing Washington mind-set that globalization has gone too far. Witness the Buy American provisions on Capitol Hill. Obama is playing not only to his union supporters but also to a segment of the U.S. corporate community whose enthusiasm for the global supply chain and "just-in-time" inventory management is waning.

And the coming rise in shipping costs has the potential to turbocharge this deglobalization process. The U.N. agreement last October on sulfur-burning levels for ships (not to mention California's own restrictions on ship emissions) are expected to send shipping costs skyrocketing. A decade from now, it may be profitable to send by sea only items with relatively high value to weight, such as laptops. Analyst Philip Verleger argues that the net result could well be that a lot of low-wage jobs that moved to China, India and other emerging markets will move back to the West. This is already happening in the furniture industry.

But here's the punch line: A capital-dependent America can't decouple from the world, or we will face the danger of our own hubris. America needs the world's capital as much as the world needs American consumers -- an economic situation tantamount to a policy of mutually assured destruction. True, the global system needs rebalancing. But until that happens, all parties need to limit the public lectures and snickering, and think seriously about how to achieve a permanent worldwide recovery despite serious headwinds.

David M. Smick is a global financial strategist and the author, most recently, of "The World Is Curved: Hidden Dangers to the Global Economy."

Is the great bailout leading to a brighter future or impending doom?
DAY
By Paul Choiniere
Published on 6/8/2009

I don’t know about you, but I am getting increasingly nervous about this “too big to fail” so we have to bail them out approach to the recession that began with the administration of President George W. Bush and has continued with a good double-down by President Barack Obama.

Remember back on October 2008 when Bush’s treasury secretary, Henry Paulson, and Federal Reserve Chairman Ben Bernanke convinced Congress to approve $700 billion to shore up the world financial system? The pair warned that if Congress did not fork up the money then the entire world financial system would collapse, creating a greater depression than the Great Depression.

The pair said they would take the TARP money (Toxic Asset Relief Plan) and purchase from the big banks those so-called “toxic assets,” the brilliant investments based on the promise of big returns that would flow in as mortgage holders somehow repaid the mortgages they could not afford to begin with and should not have received. Unfortunately, those mortgage-backed securities were left with all the value of a losing ticket at a horse track when housing prices collapsed and millions of those mortgage holders defaulted.

So the government was going to buy up all those bad assets and the big banks, freed from their stupid decisions, could start lending again. Accept that’s not what happened. Instead the Treasury injected hundreds of billions into those large financial firms in exchange for preferred stocks. This kept the heartbeat of the banks beating, but it didn’t free up credit, the lack of which continues to choke the economy and particularly the domestic auto industry, which is now getting its own national rescue because, while it is big enough to go bankrupt, it is apparently also too big to truly fail.

The Federal Reserve Bank, meanwhile, has invested $1.5 trillion in trying to rescue the financial system and has commitments totaling $6.2 trillion.

Economists favoring these rescue plans tell us that inaction would have been far worse. But would it? What ever happened to the capitalistic concept of “creative destruction,” the idea that destruction of bad business models provides the fertile soil for new ones? Had we let capitalism work, maybe it would have been quite bad for a while, but led to a needed overhaul of our financial system and industrial priorities.

What I fear is that we have traded a depression for what could be a very, very long recession — if not in strict technical terms, then certainly in terms of a lack of sustained and vigorous growth.

If the government had a grip on where this money was going and could describe the good it is doing, I might feel better. But the numbers have gotten insanely large and no one, it seems, has a handle on it.

And while criticism from Republicans of this state of affairs might be dismissed as partisanship, some Democrats in Congress are raising tough questions about the lack of oversight.

The Committee on Government Oversight and Reform, chaired by Rep. Dennis Kucinich, D-Ohio, reached the following conclusion after investigating oversight of the TARP funds:

“Treasury is not now conducting oversight of TARP monies disbursed through the Capital Purchase Program to prevent their use for perks for company management, loans to foreign governmental authorities, investments in outsourcing jobs held by Americans, investments in foreign company operations overseas, and the repurchase of company common stock, or any other potential example of waste and abuse. In its current form, the Capital Purchase Program of TARP leaves recipient companies free to use federal funds as they would any other source of income, under the presumption that they use sound business judgment.”

By now, no one should be assuming that decisions are based on sound business judgment.

The same report by the committee raised questions about an $8 billion financing deal for Dubai by Citigroup (recipient of at least $45 billion in bailout funds); about a $1 billion investment in India by J.P. Morgan (which got $25 billion from the government rescue); and a $7 billion investment in China — China! — by Bank of America (which got $45 billion from the bailout).

Only the 20 largest recipients of the money are required to file any reports with the program's overseers, the report said, while the other 297 are not.

And check out this YouTube video of Rep. Alan Grayson, D-Fla., asking an Inspector General to explain where all the Federal Reserve money is going: Grayson questions.

CNNMoney.com is trying to follow all the bailout money with something it calls the “bailout tracker.” Check it out here. As of Monday it estimated $2.7 trillion had been invested in the bailout and the government (that’s us) was collectively on the hook for $10.5 trillion.

How much is that kind of money? Well, the U.S. Gross Domestic Product, everything produced by all the people and all the companies, is $14.2 trillion (and falling). The 2009 federal budget is $3.1 trillion.

Maybe all this investment will save us. Or maybe it will kill us. I really don’t know. Certainly it’s hard to feel very confident. At the very least, someone needs to stop keep better track of it all.

Is the great bailout leading to a brighter future or impending doom? Part 2
DAY
By Paul Choiniere
Published on 6/10/2009

Those who visited my blog earlier this week saw an interesting discussion about the size of the bailout and the long-term implications. I referred to CNN’s calculation that between Congress, the Treasury and the Federal Reserve, a bailout investment of $2.7 trillion is on the line and the government is collectively on the hook for up to $10.5 trillion.

The discussion attracted largely conservative Web readers who appreciated that I had raised the question whether the rescue effort was out of control and noted growing concerns that all this money is not being properly tracked. Their concensus -- disaster awaits.

Adding to my angst was a commentary appearing in Wednesday’s Wall Street Journal, written by Arthur B. Laffer, chairman of Laffer Associates, an economic consulting firm. He predicts that the Federal Reserves decision to rapidly increase the monetary base with a fire hose spray of easy money will lead to hyper-inflation and interest rates that could rival or surpass those of the 1970s. (The prime interest rate, now effectively zero, peaked at 21.5 percent during that lost decade.)

On the other hand, I have heard from some of the liberal persuasion — who chose emails, calls and conversations, rather than my blog — to explain that if the economic recovery effort fails it will not be because the government has invested too much, but either too little or in the wrong fashion.

While the bailout figures being tossed around are astronomical (literally, how many stars are there? 10.5 trillion?), they are not so large in the context of the wealth that evaporated. As of the second quarter of 2008, home prices had declined 17 percent from their peak, representing a $3.4 trillion loss of wealth. The 40 percent decline in stock values totals $9-$10 trillion. Given those numbers, the $2.7 trillion put on the table so far is a fraction of the losses. And the $787 billion stimulus plan is a mere pittance.

Columnist Paul Krugman, winner of the 2008 Nobel Prize in economics, is in the camp that the stimulus was too little. And Krugman was among many economists who argued that rather than trying to recapitalize the banks, the government should have nationalized them. If we the people are going to invest all that money and take all that risk, then we should get ownership — and control — in return, went his argument. He made a good case in this February column.

According to the New York Times, the Obama administration seriously considered nationalization, before rejecting the idea.

Given the unprecedented nature of the financial crisis, I suppose it is not surprising to see such disagreement among so-called experts about the best way to deal with it. Clearly, no one can predict with any certainty how this will play out. That makes me uneasy as well.

While I can definitely see a role for the government in a lot of things, and certainly more things than my conservative friends, I do not see the role of banker as one of them. The administration made the right call not to nationalize – I think.

Now we learn 10 large banks are preparing to return $68.3 billion of the federal aid they used to sustain them through the crisis. That's good news, right?

Meltdown 101: Rising energy costs and the economy
DAY
By Chris Kahn
Published on 6/12/2009

Energy prices are starting to soar again.

Oil prices, for starters, have broken free of the fundamentals that usually rule the market, rising despite a glut in surplus crude oil. Benchmark crude climbed to its highest level in eight months Thursday, touching $73.23 a barrel on the New York Mercantile Exchange.

Gas prices at the pump have been surging too, reaching a national average of $2.63 a gallon.

What could spiking prices mean for a country trying to break free of a recession? Is there a risk that expensive oil and gas will make it harder for the economy to recover?

Here are some questions and answers about the economic consequences of high energy prices.

Q: How do rising energy prices affect the economy?

A: Americans buy so much gasoline that a $1 increase in pump prices means a $140 billion annual hit on the economy. That's $140 billion that won't go into savings accounts, college funds, restaurants or toward movie night. And economists believe that more spending is what is needed to help pull the country out of recession.

James Hamilton, an economist at the University of California, San Diego, said that energy costs now add up to more than 6 percent of American consumer spending. At that rate, people start rearranging their budgets.

”The money has got to come from somewhere,” Hamilton said. “People either have to save less or spend less.”

Historically, that means they'll hold off on buying everything from a new car to a new pair of shorts for the summer. Even underwear gets a few extra miles during a recession, economists say.

Gas prices have added roughly 60 cents a gallon since the start of May, and they're again flirting with $3 a gallon in California, Illinois, Michigan and Washington, according to auto club AAA, Wright Express and Oil Price Information Service.

Rising gas prices, along with high unemployment rates around the country, will likely force a lot more belt tightening this summer. This year, though, consumers may have a much milder reaction to expensive gas than they did last year, when oil spiked to more than twice its current price, UCLA economist Edward Leamer said.

”The first time you get slapped in the face, it hurts,” Leamer said. “The third or fourth time, it feels kind of normal. So that's what you're seeing now. You don't see people getting as irate when they see the price of gas go up.”

Q: Which industries are most affected by rising energy prices? And if I work in an unrelated industry, will I feel the effects?

A: Energy-intensive industries like shipping companies, airlines and trucking companies are hit hardest - but yes, it does filter down to nearly everyone. For example, airlines pointed to higher fuel prices last year when they cut flights to smaller hubs and started charging for checked bags, better seats in coach and other items that were once free. When oil prices dropped earlier this year, many of the fees remained.

If energy prices continue to rise this year, consumers may see higher shipping rates, said Michael Lynch, president of Strategic Energy & Economic Research.

Q: Does all this mean it might take longer to emerge from the recession?

A: It's possible. Spending more on gas, heating oil and other petroleum products can leave businesses with less money to hire new workers or give raises. Consumers would have less to spend as well, and the economy would take longer to heal.

Q: If I think prices are going to continue to rise, is there a way I can lock in prices now so I'm not paying more to heat my home in the winter?

A: A lot of utilities around the country allow homeowners to buy their natural gas and heating oil in advance, locking in prices for months or even years at a time.

Paying energy costs in advance is a gamble, however.

Last year, New England heating oil supplier Dead River Co. allowed some customers to buy fuel at the going rate of more than $4 a gallon. Those customers were stuck at that price even when heating oil prices dropped by half by the middle of winter.

Experts say natural gas is almost certain to go up. At $3.933 per 1,000 cubic feet, natural gas costs less than a third of what it cost last year. Locking in now looks like a pretty good bet, if you can do it.

Q: If we're in a recession, why are energy prices spiking - and how long can this go on? Am I going to be paying $3 for a gallon of gas? How about $4?

A: Energy prices can fall when an economy slumps, as manufacturers shutter factories and laid off workers keep their cars off the road. But gas prices usually rise in the summertime as leisure travelers hit the road and refiners switch over to more expensive blends of gasoline for environmental reasons.

Many experts are predicting a gradual drop in gas prices this year. However, many states like California already are seeing prices of $3 a gallon in some places.

Much of what is happening now in energy markets is being blamed on money pouring out of Wall Street as a hedge against a weakening U.S. currency. Commodities like oil and gas attract investors during uncertain times because they're solid, tangible investments; also, a weak dollar makes it cheaper for foreigners to invest in oil and gas. All that increased investor demand pushes up prices.

Almost all experts say the gasoline price hikes can't last, but those same experts say they're shocked that gas soared past $2.50 this summer.

The Energy Department's Energy Information Administration predicted on Tuesday that consumers will be paying a national average of $2.70 a gallon by July, before prices level off.

A look at global economic developments
YAHOO
By The Associated Press
Feb. 25, 2010

A look at economic developments and activity in major stock markets around the world Wednesday:

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LONDON — Economic sentiment in the 16 countries that use the euro worsened in February for the first time in nearly a year, the European Commission said, in a further sign that the recovery from recession has lost momentum.

With sentiment fragile and debt worries mounting across the single currency area, particularly in Greece, the Commission said it was sticking to its November forecast that the eurozone economy would grow by a very modest 0.7 percent this year.

The eurozone's failure to build on its exit from recession last year was evident in the Commission's monthly economic sentiment indicator, which fell 0.1 point to 95.9 in February, partly because consumer confidence deteriorated.

The decline is the first after ten consecutive monthly increases.

Shares dropped in Europe. The FTSE 100 index of leading British shares closed down 1.2 percent, Germany's DAX slid 1.5 percent and the CAC-40 in France was 2 percent lower.

The worst performing main index in Europe was Athens, which ended down 2.8 percent.

___

TOKYO — Asian shares were mostly lower. The Nikkei 225 stock average fell 1 percent, South Korea's Kospi lost 1.6 percent, Hong Kong's Hang Seng fell 0.3 percent and Australia's market dropped 1.2 percent. Shanghai's benchmark defied the downward swing, rising 1.3 percent.

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LONDON — Fears mounted that Britain may not have emerged from recession at the end of 2009 after all, as statistics showed a dramatic fall in business investment in the last three months of the year.

The surprise 5.8 percent decline in business investment led many economists to reconsider their expectations that a 0.1 percent rise in gross domestic product in the fourth quarter would be revised upward in new data due out Friday — with some warning of a downward revision instead.

The rise in GDP in the last quarter of 2009 had officially ended an 18-month downturn, the country's worst recession since World War II.

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BERLIN — The euro is in a difficult situation for the first time since its launch, but the 16-nation currency will come through, German Chancellor Angela Merkel said.

The euro, introduced in 1999, has suffered in recent weeks from worries over the ability of Greece in particular, but also countries such as Spain and Portugal, to rein in their large budget deficits.

In an interview with the daily Frankfurter Allgemeine Zeitung, Merkel said the currency proved itself during the financial crisis and the European Union was spared deeper turbulence, but noted that the crisis has led to an increase in public debt.

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BERLIN — Unemployment in Germany, Europe's biggest economy, edged up only slightly to 8.7 percent in February despite a particularly hard winter.

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PARIS — A strike by French air traffic controllers disrupted flights on the third day of a walkout that looks set to extend into the weekend.

The air traffic controllers are upset at a restructuring plan that would jeopardize their status as public servants.

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BEIJING — China accused Washington of abusing trade relief measures after U.S. regulators increased import duties on Chinese-made steel pipes.

A Look at Economic Developments Around the Globe
NYTIMES
By THE ASSOCIATED PRESS
Filed at 3:03 p.m. ET
June 24, 2009

A look at economic developments and stock market activity around the world Wednesday:

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PARIS -- The deepest global recession in over 60 years is close to bottoming out, but recovery will be weak unless governments do more to remove uncertainty over banks' balance sheets, the Organization for Economic Cooperation and Development said. In its semiannual economic outlook, the OECD said it expects its member countries' economies to shrink by 4.1 percent this year, with only government rescue measures heading off an even worse decline. That is a slight improvement from the OECD's last forecast in March of a 4.3 percent decline this year and is the group's first upward revision to its forecasts in two years.

The OECD now expects the U.S. economy to shrink by 2.8 percent this year after 1.1 percent growth in 2008. Japanese output is likely to contract by 6.8 percent this year and the 16-nation euro zone will likely shrink 4.8 percent. The OECD forecast a return to growth in all three regions next year, with overall growth across its membership expected to average 0.7 percent in 2010.

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TOKYO -- The slump in Japan's exports showed little sign of relenting in May. Exports from the world's second-largest economy plunged 40.9 percent from a year earlier, accelerating from a 39.1 percent fall in April, as consumers overseas bought fewer of the country's cars, electronics and other mainstay exports. Japan's monthly trade surplus reached 299.8 billion yen ($3.1 billion), the biggest in a year, but due to a sharp fall in imports that further underscores weakness in the economy. Exports to the United States, the world's largest economy, fell 45.4 percent in May, marking the 21st straight monthly decline.

Japan's economy shrank at a 14.2 percent annual pace in the first quarter -- better than first thought, but still its worst quarterly contraction ever as trade wilted amid the worst global recession in decades. Economy Minister Kaoru Yosano said last week the slump had hit bottom but warned a recovery will depend on the world economy.

In markets, Japan's benchmark Nikkei 225 stock average rose 40.71 points, or 0.4 percent, to 9,590.32 after falling nearly 3 percent Tuesday. Elsewhere in Asia, Hong Kong's Hang Seng rose 353.78 points, or 2 percent, to 17,892.15, while South Korea's Kospi was up 0.2 percent and Australia's benchmark gained 0.3 percent. Taiwan's index jumped 3 percent and Singapore's market rose 2.4 percent.

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FRANKFURT -- In a bid to further unclog credit markets in the euro zone, the European Central Bank said it will lend a record 442 billion euros ($616.26 billion) to banks for 12 months. The bank's 12-month operation was launched earlier in the day and will begin Thursday. The ECB said that 1,121 institutions subscribed to the offering, its biggest since December 2007.

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BERLIN -- Germany's cabinet approved a budget for 2010 that foresees taking on record debt to help safeguard the country against the global financial crisis. The new budget anticipates 86.1 billion euros ($120.05 billion) in fresh debt, nearly double this year's 47.6 billion euros ($66.37 billion), which is already the largest credit to be taken out by the German government since World War II. Finance Minister Peer Steinbrueck defended the high debt as unprecedented but necessary to manage an economy the government predicts will shrink by 6 percent in the coming year.

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LONDON -- Bank of England Governor Mervyn King said he had concerns about how quickly the British economy may recover from the global financial crisis -- and called for more government action to keep the country's huge budget deficit under control. King said that the ''little evidence'' that the bank had on the effect of its program to boost the money supply -- begun through asset purchases three months ago -- ''seemed positive,'' but warned that a withdrawal of economic stimulus too early may create the risk of a renewed downturn. He added that the international monetary system needed to be reformed to ensure a sustainable recovery and prevent a repeat of the crisis.

Separately, the cost of three-month euro loans between banks slid after the European Central Bank successfully concluded its first-ever 12-month money auction, while the equivalent dollar rate fell to a new low ahead of a key policy statement from the U.S. Federal Reserve. Analysts said the implications on money markets is to put downward pressure on short-term rates but may not do much to boost bank lending -- the real aim of the Bank's extra loans.

In markets, the FTSE 100 index of leading British shares closed up 49.96 points, or 1.2 percent, at 4,279.98 while Germany's DAX rose 128.86 points, or 2.7 percent, to 4,836.01. The CAC-40 in France was 67.94 points, or 2.2 percent, higher at 3,184.76.

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BEIJING -- China defended its curbs on exports of industrial raw materials against unfair-trade complaints by the United States and Europe and announced it has filed its own challenge to a U.S. ban on imports of Chinese poultry. The Ministry of Commerce said the curbs comply with Chinese trade commitments and are meant to protect the environment.

In markets, Chinese shares rebounded to an 11-month high on optimism about the economy after a government official issued a forecast of strong second-quarter growth. The benchmark Shanghai Composite Index jumped 29.6 points, or 1 percent, to close at 2922.3, the highest since July 17. An official of China's statistics agency said economic growth in the April-to-June quarter should be 8 percent compared with the year-earlier period, analysts said.

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MOSCOW -- Russia's economy will shrink by 7.9 percent this year, plunging millions of Russians into poverty and pushing the unemployment rate to 13 percent, the World Bank said. The contraction in gross domestic product has been bigger than anticipated, and growth is unlikely to pick up even with buoyant oil prices this year, said Zeljko Bogetic, the World Bank's lead economist for Russia. Bogetic also warned that the social effect could be significant. The World Bank estimates up to 7.5 million Russians could fall below the poverty line this year, putting huge pressure on the government to boost social spending and contain mounting discontent as wage arrears grow and layoffs continue.

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BRUSSELS -- The European Commission gave Hungary another two years to curb its budget gap, postponing its deadline until 2011 as it deals with a severe recession. European Union finance ministers have told Hungary repeatedly to reduce its deficit because it has gone over the maximum 3 percent of gross domestic product set by EU budget rules every year since it joined the bloc in 2004. The financial crisis has hit Hungary hard and forced it last year to seek a 20 billion euros ($27.89 billion) bailout from the International Monetary Fund and the EU to plug the gap between government spending and plunging tax revenues.

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ZURICH -- Swiss engineering company Sulzer AG said it is cutting 1,400 jobs -- or about 11 percent of its global work force -- because of the economic downturn. Most of the jobs will go in Europe and the Americas.

Separately, the Swiss franc dipped sharply on unconfirmed talk that the Swiss National Bank had intervened in the currency markets to reduce the value of the currency.

At Tiny Rates, Saving Money Costs Investors
NYTIMES
By STEPHANIE STROM
December 26, 2009

Millions of Americans are paying a high price for a safe place to put their money: extremely low interest rates on savings accounts and certificates of deposit.

The elderly and others on fixed incomes have been especially hard hit. Many have seen returns on savings, C.D.’s and government bonds drop to niggling amounts recently, often costing them money once inflation, fees and taxes are considered.

“Open a Savings Plus Account today and get a great rate,” read an advertisement in the Dec. 16 Newsday for Citibank, which was then offering 1.2 percent for an account. (As low as it was, the offer was good only for accounts of $25,000 and up.)

“They’re advertising it in the papers as if they’re actually proud of that,” said Steven Weisman, a title insurance consultant in New York. “It’s a joke.”

The advertised rate for the Savings Plus account has expired, according to the bank’s Web site; as of Friday, the account paid an interest rate of 0.5 percent. The bank’s highest-yield savings account, the Ultimate, was paying 1.01 percent.

The best deal Mr. Weisman has found is 2 percent on a one-year certificate of deposit offered by ING Direct, an online bank that has become a bit of a darling among the fixed-income crowd.

Interest on one- and two-year Treasury notes was just 0.40 percent and 0.89 percent, as of Monday. Bank of America offers 0.35 percent on a standard money market account with $10,000 to $25,000, and Wells Fargo will pay 0.05 percent on a basic savings account.

Indeed, after fees are subtracted, inflation is accounted for and taxes are paid, many investors in C.D.’s, government bonds and savings and money market accounts are losing money. In fact, Northern Trust waived some $8 million in fees on money market accounts because they would have wiped out all interest, and then some.

“The unemployment situation and the general downturn in the economy had an impact, but what’s going to happen now as C.D.’s mature is that retirees and the elderly are going to take anywhere from a half to three-quarters of a percent cut in their incomes,” said Joe Parks, a retired accountant in Houston on the advisory board of Better Investing, an organization that works to help people become savvier investors. “It’s a real problem.”

Experts say risk-averse investors are effectively financing a second bailout of financial institutions, many of which have also raised fees and interest rates on credit cards.

“What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” said William H. Gross, co-chief investment officer of the Pacific Investment Management Company, or Pimco. “It’s capitalism, I guess, but it’s not to be applauded.”

Mr. Gross said he read his monthly portfolio statement twice because he could not believe that the line “Yield on cash” was 0.01 percent. At that rate, he said, it would take him 6,932 years to double his money.

Many think the Federal Reserve is fueling a stock market bubble by keeping rates so low that investors decide to bet on stocks instead. Mr. Parks of Better Investing moved more money into the stock market early this year, when C.D.’s he held began maturing and he could not nearly recover the income they had generated by rolling them over.

He began investing some of the money in blue chip stocks with a dividend yield of at least 3 percent and even managed to find an oil-and-gas limited partnership that offered 8 percent.

Mr. Parks said, however, that he would not pursue that strategy as more of his C.D.’s matured. “What worked in the first quarter of this year isn’t as relevant, because the market has come up so much,” he said.

No one is advising a venture into higher-risk investments. Katie Nixon, chief investment officer for the northeast region at Northern Trust, said that, in general, “no one should be taking risks with their pillow money.”

“What people are paying for is safety and security,” she said, “and that’s probably just right.”

People who rely on income from such investments for support, however, are being forced to consider new options.

Eileen Lurie, 75, is taking out a reverse mortgage to help offset the decline in returns on her investments tied to interest rates. Reverse mortgages have a checkered reputation, but Ms. Lurie said her bank was going out of its way to explain the product to her.

“These banks don’t want to be held responsible for thousands of seniors standing in bread lines,” she said.

Such mortgages allow people who are 62 and older to convert equity in their homes into cash tax-free and without any impact on Social Security or Medicare payments. The loans are repaid after death.

“If your assets aren’t appreciating and aren’t producing any income, you’re getting eaten up in this interest rate environment,” said Peter Strauss, a lawyer who advises the elderly. “A reverse mortgage is one way of making a very large asset produce income.”

Eve Wilmore, 93, has watched returns on her C.D.’s drop to between 1 percent and 2 percent from about 5 percent a year or so ago. Yet the Social Security Administration recently raised her Medicare Part B premium based on those higher rates she had been earning. “I’m being hit from both sides,” Mrs. Wilmore said. “There’s some way I can apply for a reconsideration, and I’m going to fight it. I have to.”

She said she was reluctant to redeploy her money into higher-risk investments. “I don’t know what my medical bills will be from here on in, and so I want to keep the money where I can get to it easily if I need it,” she said.

Peter Gomori, who taught a course on money and investing for Dorot, a nonprofit that offers services for the elderly, did not advise his students on investment strategies but said that if he had, he would probably have told them to sit tight.

“I know interest rates are very low for Treasury securities and bank products, but that isn’t going to be forever,” he said.

But investment professionals doubt rates will rise any time soon — or to any level close to those before the crash.

“What the futures market is telling me,” Mr. Gross said, “is that in April 2011, these savers that are currently earning nothing will be earning 1.25 percent.”

Page last updated at 16:18 GMT, Friday, 29 January 2010

Davos 2010: Central bankers seethe behind closed doors

By Tim Weber, Business editor, BBC News website, in Davos

The regulators are talking, but are the bankers listening?

Davos has a new blood sport: banker bashing.

Everybody at the World Economic Forum is tearing into them, from President Nicolas Sarkozy to investing legend George Soros.

It may be clean good fun (and a great spectator sport), but all the tough talk has a very serious edge.

Slowly, the outlines of a consensus are emerging for far-reaching reforms of the financial sector. The bankers here are fighting a rearguard action - seemingly without realising that they are making their situation even worse.

My colleague Robert Peston reported the astounding comments from a leading banker, suggesting that he and his colleagues can't possibly have been paid too much.

It's exactly these kind of comments that are goading regulators and politicians to get tough.

Angry central bankers

Central bankers don't do public tantrums.

But the measured tones of the European central bankers here in Davos barely hide how angry they are over what they see as being taken for a ride.

We wanted to see sensible behaviour by banks, but we didn't see it, so we need collective action

A European central banker

Look at the UK's 50% tax on bankers' bonuses, says one. "This was not designed to generate revenue, but to avoid it. But the banks still paid their bonuses. A better tax rate would have been 100%."

The bankers, he implies, clearly didn't get the message.

Backed by the G20, regulators are currently doing some detailed work on a global regulatory framework - looking at various options and the impact they will have. The framework is scheduled to be ready by the end of the year.

Over lunch, one of the top central bankers guiding the process promised us pretty comprehensive reforms. "The new world will look more like the 'new new', not the 'new normal'," he threatens.

He ticked off a list of potential changes, from new accounting rules to new counterparty arrangements to liquidity buffers.

The central banker particularly dwelled on a plan to introduce "capital requirement charges" to punish banks that don't save money for a rainy day.

Why such drastic action?

"The banks had a great year," he says. "The good results were only driven by the 'for free' insurance that the governments sold to them." But did the banks use the windfall to bolster their balance sheets? No, "everybody is putting it into bonuses and dividends".

And, turning slightly red, he says: "We wanted to see sensible behaviour by banks, but we didn't see it, so we need collective action."

Pitfalls

Bankers are quick to point out what could go wrong.

Too much regulation, too high taxes, and banks could not afford to lend any money at all, even if they would want to. It would be a certain way of choking any economic recovery.

The central bankers acknowledge that, and promise that all the new rules and regulations, the "de-risking" and "de-leveraging" of the banking sector would be slowly phased in.

Everyone is getting a chance to vent in private

"This won't be a one-size-fits-all model," says one of them.

Politicians, too, see the benefits of being tough on banks.

A parade of politicians from around the world here in Davos has lavished praise on the principles (if not always the detail) of US President Barack Obama's plan to reform the banks.

The leader of the UK opposition, David Cameron, reiterated his support for a global financial insurance levy, to make sure it was the banks who would finance the next bail-out, not the taxpayer.

And he loves regulation too, promising to turn the Bank of England into the UK's centralised City watchdog, should his party win this year's general election.

The next catastrophe

Andrei Kostin, chief executive of Russia's VTB Bank, quotes Ronald Reagan: "The most terrible words in the English language are: I'm from the government and I'm here to help" - but acknowledged that the crisis proved this adage wrong.

Rather, says Jean-Claude Trichet, president of the European Central Bank, without government intervention the world would have faced a "catastrophe".

The complaints from bankers that poor regulation caused the crisis is like you have a massive fire, the fire brigade comes in and you blame them for flooding the house

John Evans, advisor to the OECD

"In my opinion," he says, "it is currently underestimated that we were very close to a full-fledged depression."

"We need to find a global solution" to fix the "fragile" global financial system, Mr Trichet argues, and warns that merely "local, national solutions" would be a "recipe for [the next] catastrophe".

Some bankers have got the message.

"The relationship between banks, government and society has changed irreversibly," says Peter Sands, chief executive of Standard Chartered bank.

"The bankers," he admits, "have not helped themselves at all. We've been simultaneously tone-deaf and shooting ourselves in the foot."

But he also warns that there is a trade-off between how safe we want to make the banking system, and how efficient and effective it can be to support the real economy.

Still, there's so much blame to go around, it would do more bankers good to accept some of it, says John Evans, who advises the OECD on trade union issues.

"The complaints from bankers that poor regulation caused the crisis is like you have a massive fire, the fire brigade comes in and you blame them for flooding the house."

Animals can get along...in Weston.

ALFRED E. NEUMAN DIDN'T WORK IN THE CORPORATE WORLD...SEE BELOW.

WHAT ME WORRY?
MAD MAGAZINE'S THOUGHT-PROVOKING ANALYSIS OF THE AMERICAN ECONOMY GOES HAND IN HAND!

Weak income curbs consumer spending
YAHOO
By Lucia Mutikani, Reuters
30 September 2011

WASHINGTON (Reuters) - Incomes fell for the first time in nearly two years in August and consumers dug into their savings to keep spending, according to a government report that showed the impact of the weak jobs market.

The Commerce Department said on Friday spending rose 0.2 percent, in line with economists' expectations, after increasing 0.7 percent in July. When adjusted for inflation, however, spending was unchanged after rising 0.4 percent in July.

Consumer spending accounts for about 70 percent of U.S. economic activity. Income slipped 0.1 percent, the first decline since October 2009, with private wages and salaries dropping $12.2 billion after increasing $23.8 billion in July. Economists had expected income to edge up 0.1 percent.

"What you're basically getting is a scene where consumers are losing momentum, they're losing momentum on income and as a result of that they're slowing down on spending," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities in New York.

Employment growth ground to a halt in August, and the jobless rate remains at a lofty 9.1 percent. U.S. stock index futures held losses after the data, while bonds slightly extended gains.

Consumer spending growth slowed sharply to a 0.7 percent annual pace in the second quarter after advancing 2.1 percent in the first three months of the year. Overall economic growth rose at a 1.3 percent rate in the second quarter after expanding only 0.4 percent in the January-March period. Last month, real spending on goods fell 0.2 percent, while services ticked up 0.1 percent.

Disposable income was unchanged for the first time since September, but when adjusted for inflation fell 0.3 percent, the largest drop since October 2009.

With real disposable income weak, savings fell to an annual rate of $519.3 billion, the smallest since December 2009, from $550.5 billion in July. The savings rate dropped to 4.5 percent, also the lowest since December 2009. The report showed a moderation in inflation pressures on a monthly basis. The personal consumption expenditures price (PCE) index rose 0.2 percent after increasing 0.4 percent in July.

Compared to August last year, the index was up 2.9 percent, the largest increase since October 2008, after advancing 2.8 percent in July.

The core PCE index -- excluding food and energy - rose 0.1 percent after gaining 0.2 percent the prior month. The core index, which is closely watched by Federal Reserve officials, increased 1.6 percent in the 12 months through August after rising by the same margin in July.

The Federal Reserve would like to see it close to 2 percent.