Though the subprime mess and rising oil prices slammed the U.S. economy during much of 2007, other emerging markets -- especially China and India -- seem to be on a roll. China's growth rate of more than 11% is likely to continue, and India, too, should be able to sustain a high rate of GDP growth, even if it slows from last year's 9%. Latin America, meanwhile, is cautiously optimistic but could see a moderate decline in 2008.

U.S. Economy and Financial Markets: Uncertainty Reigns

How best to describe the outlook for the U.S. economy and financial markets in 2008? Uncertain at best.

High oil prices and fallout from the subprime mortgage debacle continue to threaten the economy and financial markets, according to several Wharton faculty members. Although none think a recession is guaranteed, all agree that even if a recession is averted, economic growth will be agonizingly slow. "There are a lot of unknown unknowns out there," says management professor Marshall W. Meyer.

Perhaps surprisingly, none felt the U.S. presidential campaign will have much effect on the markets. As finance professor Jeremy Siegel put it, none of the candidates save John Edwards has a strongly anti-business platform, and the former North Carolina senator appears less and less likely to become the Democratic nominee. None of the others "are significantly anti-market. The market could live with Hillary or Obama, and of course it could live with any of the Republicans," he notes.

Siegel is more optimistic than many experts, thinking that the U.S. economy will slow during the first half of the year but will avert a recession and start to rebound in the second half. The chief threat, he says, is high oil and food prices, rather than the housing slowdown. "We've adapted pretty well to $3 [per gallon] gasoline, but $4 would be quite difficult," Siegel says.

"Forecasters are split about 50-50 on whether there's going to be a recession or not," he adds. "I think there's some predominance among professionals that there isn't [going to be a recession]. I'm in that optimistic group."

Siegel expects gross domestic product to grow at an annualized rate of 1% to 2% during the first half of the year, and perhaps 3% in the second half. "I'm predicting that we could rise to 3% in the second half of the year because I think that by the middle of this year, housing will hit bottom," he notes, adding that the economy could fall into recession if rising oil and gasoline prices dampen consumer spending.

As for the credit crisis, "Once this subprime crisis is sorted out, it will not be as bad as the market fears," Siegel says, predicting that the number of foreclosures and the losses in mortgage-backed securities will be smaller than many forecasters expect. "There is tremendous fear in the market today about what those losses are," he suggests. He thinks the market has overestimated the number of securities that will default on payments promised to investors.

Siegel did note that the financial markets were jarred by a recent report that unemployment in the U.S. had risen in December to a two-year high of 5%, but he doesn't think the situation will get worse, adding that the number of people with jobs had continued to rise. "The unemployment rate seems very anomalous to me. It's not likely to stay that way next month.... You've got to do some smoothing on that [statistic]. My feeling is it will go down to 4.9% or 4.8% once we get the January data."

Siegel adds he is "fairly optimistic" about the stock market, predicting a 10% to 12% return for broad market gauges like the Russell 3000 and Standard & Poor's 500.

India: Shipshape at Home, Even If Global Tides Ebb

The Indian economy is likely to face pressures in 2008, and its 9% growth rate of recent years will feel the pain of a U.S. slowdown, according to economists and investment managers who spoke to Knowledge@Wharton. Led by rapid growth in Asia, India's fortunes are certainly getting increasingly "decoupled" from the U.S. economy, but the country faces other challenges. Inflationary pressures loom, but opinion is divided on whether that could force interest rates to rise. The increasing cost of capital is already beginning to sap retail and corporate borrowing appetites around the country.

"India has a 50% chance of suffering a painful downturn in 2008-09, a 30% chance of a mild downturn and only a 20% chance of continuing with rapid 9% growth," says Swaminathan S. Anklesaria Aiyar, a well-known Indian economist and columnist. Aiyar says he limits the chance of a painful downturn to 50% because, like many other advocates of the so-called "decoupling" theory, he sees a U.S. slump impacting India to a lesser extent now than it might have in earlier years.

Aiyar cites the International Monetary Fund's World Economic Outlook (October 2007), which has marked down its global growth projection for 2008 by almost half a percentage point to 4.8%, while that for the U.S. is down a full percentage point to 1.9%. It is less harsh on prospects this year in Asia, where it says "growth may moderate somewhat;" in 2007, China and India posted 11% and 9% rates, respectively.

But "it could be extremely painful" if India were to slow from 9% to 7% this year, says Aiyar. He recalls how a similar two-percentage point drop in India's growth rate in the years following the 1994-1997 Asian financial crisis flattened industrial growth. "Exports collapsed, any number of plants set up with a view to exporting in effect went bust, and the banks lending to them went bust." However, he sees Indian companies much more resilient to a downturn these days, with lower borrowing costs and healthier debt-equity ratios.

Ruchir Sharma, the New York City-based head of global emerging markets at Morgan Stanley Investment Management, says he doesn't buy the theory that India's growth rate could dip by two percentage points. He is "bullish on India" this year because he sees "quite a large opportunity" in investing there relative to his capital pool. Sharma oversees equity investments totaling some $35 billion in emerging economies, of which India accounts for a little less than $5 billion.

In terms of absolute allocations, India shares second place along with Russia and Brazil in Morgan Stanley's emerging market investments, after China, says Sharma. On the question of increasing allocations to India this year, he says his fund is already "overweight" on India with more than a tenth of total funds invested there.

Indian finance minister P. Chidambaram has also fueled optimism by hinting at income tax cuts when he unveils his annual budget in February. Chidambaram is encouraged, says Aiyar, by the dramatic growth in direct tax collections. They jumped 40% in 2006, and are expected to be 42% higher in 2007, or by Rs. 90,000 crore ($24 billion).

Interestingly, the higher tax collections are driven not just by better compliance and improved tax administration, says Aiyar. He is convinced that many businesses are bringing onto their books a lot of "black" money -- or funds that are not accounted for -- with the lure of initial public offerings. "The IPO price is a certain multiple of the book profits," he says.

In Argentina, the prediction is for "6% growth in 2008, below the 7.5% recorded in 2007, and for 5.5% growth in Chile. He expects growth of 5.5% in Uruguay, 3.5% in Paraguay, 7.3% in Peru, 4% in Bolivia, 3% in Ecuador, 4.3% in Brazil and 5.8% in Colombia. In Venezuela, he projects growth of 7% as a result of large salary increases and high governmental spending. He also forecasts that Mexico and Central America will suffer a drop in their growth rate to 4%, "as a result of a slowdown in external demand related to the behavior of the American economy, as well as to declining domestic demand and restrictive monetary policy."

IMF: Economy Will Slow In 2008, But No Recession
By Christopher S. Rugaber, AP Business Writer
Manufacturing.Net - January 29, 2008

WASHINGTON (AP) — The world economy will slow significantly in 2008 but the United States will avoid recession, the International Monetary Fund forecast Tuesday.
Slower U.S. growth and credit market turmoil stemming from U.S. housing market woes also will hinder the global economy, the IMF said.

''The five-year long global expansion has begun to moderate in response to the spreading effects of financial disruptions,'' Simon Johnson, director of the research department at the IMF, said during a press briefing.

U.S. economic growth will slow to 1.5 percent in 2008, Johnson said, down from an estimated growth rate of 2.2 percent in 2007. The 2008 projection is lower than the IMF's October 2007 prediction of 1.9 percent.

The IMF now sees world economic growth slowing to 4.1 percent this year, down from 4.9 percent in 2007.

The reduction is the second cut in a row in the IMF's estimate of global economic growth for this year. Last July, the IMF estimated the world economy would grow 5.2 percent in 2008, and in October the estimate was reduced to 4.4 percent.

The estimates were included in an update of the IMF's World Economic Outlook, which is issued twice a year. The next update will be issued in April.

Chrysler Extends Buyout Offer
By Dee-Ann Durbin, AP Auto Writer
January 29, 2008

DETROIT (AP) — Chrysler LLC is offering buyouts of up to $100,000 (euro67,773) to hourly workers at 11 of its U.S. facilities as part of its goal to cut up to 21,000 manufacturing jobs, or nearly half its U.S. hourly work force, a company spokeswoman said Monday.

Earlier this month, Chrysler made offers to workers at four assembly sites in Toledo, Ohio; St. Louis North and South in Fenton, Missouri; Belvidere, Illinois; and Jefferson North in Detroit.

On Monday, the offers were extended to seven additional sites in Michigan, including assembly plants in Warren and Sterling Heights; the Detroit Axle, Mount Elliott Tool and Die, and Mack Avenue Engine plants in Detroit; an engine plant in Trenton and a vehicle test center in Sterling Heights. Chrysler also gave the offer to 110 employees at the company's Auburn Hills headquarters who are in an hourly bargaining unit but are paid salaries.

A truck plant in Warren is down this week but is expected to get the same buyout offers when it resumes operations.

Chrysler spokeswoman Michelle Tinson said the company has eight other U.S. facilities that are still awaiting buyout offers. The company is working with the United Auto Workers union to determine when those will be introduced.

Chrysler has approximately 45,000 UAW-represented hourly workers.

Chrysler is in the midst of a restructuring after a majority stake in the automaker was sold last summer to private equity firm Cerberus Capital Management LP. The auto company announced in November it planned to cut up to 12,000 jobs, including 8,000 to 10,000 hourly and 2,000 salaried jobs.

The cuts came in addition to 13,000 layoffs Chrysler announced last February, including 11,000 hourly and 2,000 salaried workers. Around 6,400 hourly workers had left the company under than program as of June, Tinson said, but additional retirement packages could be rolled out under that program, which was scheduled to run through 2009.

Employees have until Feb. 18 to decide whether to take the latest offers. Some workers could leave by April, but the dates they will leave the company will vary by worker and by plant.

Under Chrysler's current offer, employees who are on temporary or indefinite layoff or have at least one year of service can get up to $100,000 (euro67,773) and six months of health benefits if they agree to cut ties with the company. Retirement-eligible employees can get a $70,000 (euro47,441) lump-sum payment as an incentive to retire with a regular pension. A separate program gives workers close to retirement their full benefits if they retire early, but they get no lump-sum payment.

Ford Motor Co. and General Motors Corp. are offering similar buyouts and early retirement packages to cut costs and reduce production capacity to match sagging U.S. demand.

On Thursday, Ford announced it will offer buyouts to all of its 54,000 UAW-represented employees. Ford is offering workers up to $140,000 (euro94,883) to sever ties with the company, or incentives of $50,000 (euro33,887) for nonskilled workers and $70,000 (euro47,441) for skilled workers of retirement age. Ford said workers will begin leaving the company in April.

GM has offered early retirement packages and buyouts to 5,200 UAW hourly workers at service and parts operations but has yet to make similar offers to workers in assembly and parts plants. GM is close to agreeing with the UAW on the second round of buyouts and hopes to announce details next month, GM spokesman Dan Flores said. Once the second round is announced, the buyouts are expected to cover 46,000 workers. In the first round, GM is offering workers $140,000 (euro94,883) to sever ties with the company and a $35,000 (euro23,721) lump-sum bonus for retirement-eligible workers.

Pfizer Cuts 660 Workers At Indiana Plant

January 29, 2008

TERRE HAUTE, Ind. (AP) — Drug maker Pfizer Inc. will lay off 660 workers at its Vigo County plant by midyear and possibly cut the remaining 140 positions later, dealing a setback to the state's life sciences jobs initiative.

Monday's announcement came as little surprise after the New York-based company placed 600 workers on paid leave in October when it decided to stop selling the plant's top product, the inhaled insulin Exubera, because of disappointing sales.

Those idled workers and others — 660 in all — will formally lose their jobs over three months beginning in March, leaving just 140 employees to make two other products, the low-selling antibiotics Unasyn and Cefobid.

''Due to declining demand for those products, the company is looking into the ongoing prospects of that business,'' the company said in a news release. ''Pfizer is still evaluating long-term options for the site.''

The announcement of the layoffs marked a stunning turnaround from March 2006, when Gov. Mitch Daniels hailed Pfizer's decision to hire 450 more workers in Vigo County to produce Exubera as proof of Indiana's progress in ''becoming a premier destination for companies in the life sciences sector.''

Daniels wasn't available for comment Monday on the Pfizer announcement, leaving it to his press secretary, Jane Jankowski, to provide reaction.

''I know Pfizer had great hopes for the product, so it certainly is disappointing news,'' she said.

Jankowski dismissed the notion the Pfizer cuts were a setback for the state's life sciences jobs initiative. She noted several other large job commitments in life sciences: Medco Health Solutions Inc.'s decision to build a 1,300-job automated pharmacy, Arcadia HealthCare's decision to create 400 jobs by 2010, and WellPoint Inc.'s creation of 1,200 pharmacy jobs by 2011, all in the Indianapolis area.

''We have a lot of real good, positive momentum,'' Jankowski said.

Pfizer had invested more than $300 million in the plant just south of Terre Haute since 1999 as it ramped up production of Exubera. However, the drug never met expectations and Pfizer pulled the plug on it last October just months after expanding its sales effort beyond specialists to primary care doctors.

The Indiana Economic Development Corp. offered Pfizer nearly $9 million in tax credits and training grants two years ago for the expansion, but the company never followed through with the necessary paperwork, said the agency's director, Nate Feltman.

''The state is not out anything,'' Feltman said.

Rod Henry, president of the Terre Haute Chamber of Commerce, said Pfizer has been among the largest employers in Vigo County and one of its leading corporate citizens for the past 60 years. The Terre Haute area will be hard pressed to find 600 more jobs of equal quality, he said.

''We'll bounce back. What we've got to see what we can do as a community is basically to make sure to stop the loss of Pfizer,'' Henry said.

Workers learned of their impending layoffs in meetings Monday morning. Frank Foley, the plant's senior manager, said Pfizer will provide transfer opportunities, severance pay, career and retirement counseling and other aid for the displaced workers.

''We're committed to providing whatever assistance our colleagues need,'' Foley said.

Feltman said the state would continue talking to Pfizer about possible new uses for the upgraded plant.

Durable Goods Up 5.2 Percent In December:thumbsup:

By Martin Crutsinger, AP Economics Writer
January 29, 2008

WASHINGTON (AP) — Orders to factories for big-ticket manufactured goods soared in December by the largest amount in five months, welcome news for an economy buffeted by talk of recession.

The 5.2 percent increase in orders was a surprise finish for the manufacturing sector at year's end — a segment of the economy considered to have had a poor year.

The increase in orders, as reported Tuesday by the Commerce Department, was far larger than had been expected. The strength came from a big increase in demand for commercial aircraft, but even excluding the transportation sector, orders posted a solid 2.6 percent gain.

The December orders increase was more than double what had been expected. Analysts were looking for a much weaker performance, given that a key gauge of manufacturing activity had fallen to the weakest reading since April 2003. The Institute for Supply Management manufacturing index dipped to 47.7 for December. Any reading below 50 is considered recession territory for manufacturing.

The unexpectedly big jump in December closed out a lackluster year for manufacturers. Orders for the total year managed to rise by just 0.97 percent following much bigger increases of 6.31 percent in 2006 and 9.45 percent in 2005. It was the poorest showing since orders actually fell by 3.17 percent in 2002, a year when the country was still struggling to emerge from the 2001 recession.

The strength in December was led by an 11.3 percent rise in demand for transportation products. That reflected an 11.3 percent jump in orders for commercial aircraft which offset a 2.3 percent fall in demand for autos and auto parts as automakers continue to struggle with weak demand as gasoline prices have surged.

The increase in demand for commercial aircraft had been expected, given that Boeing reported receiving orders for 277 aircraft in December, up from 177 in November. The widespread strength outside of transportation was a surprise although economists cautioned that it may not last given the weakening overall economy.

Ian Shepherdson, chief U.S. economist for High Frequency Economics, predicted that the orders reports in coming months will likely ''turn rapidly south'' as the slowdown depresses manufacturing activity.

A key category of business investment, non-defense capital goods excluding aircraft, rose by 4.4 percent in December, the first increase in this closely watched category since September, and the biggest increase since last March.

The unexpectedly big jump in December closed out a lackluster year for manufacturers. Orders for the total year managed to rise by just 0.97 percent following much bigger increases of 6.31 percent in 2006 and 9.45 percent in 2005. It was the poorest showing since orders actually fell by 3.17 percent in 2002, a year when the country was still struggling to emerge from the 2001 recession.

The strength in December was led by an 11.3 percent rise in demand for transportation products. That reflected an 11.3 percent jump in orders for commercial aircraft which offset a 2.3 percent fall in demand for autos and auto parts as automakers continued to struggle with weak demand amid soaring gasoline prices.

A key category of business investment, non-defense capital goods excluding aircraft, rose by 4.4 percent in December, the first increase in this closely watched category since September, and the biggest increase since last March.

The report of the strong showing in December came at a time of growing concern that the country could be slipping into a recession as the economy has had to sustain a variety of blows from a steep slump in housing to soaring energy costs and a severe credit squeeze. The problems have, at the same time, roiled global financial markets.

The Federal Reserve was beginning a two-day meeting Tuesday, and the expectation is that the central bank will cut rates by perhaps a half percentage point as further insurance against a recession. Last week, the Fed slashed a key rate by three-quarters of a point, the biggest reduction in more than two decades and its first rate change between meetings since the September 2001 terrorist attacks.

The government will issue its first look Wednesday at the overall economy's performance for the final three months of 2007. Many economists believe that will show the gross domestic product (GDP) was rising at an anemic 1.2 percent annual rate in the October-December quarter, a significant slowdown from the 4.9 percent growth rate of the July-September period.

The report on durable goods showed that the strength was not just confined to the aircraft sector. Strong gains were also reported in demand for fabricated metal products, machinery, computers and communications equipment.

Chinese Chip Maker To Open Plant, R&D Center

January 29, 2008

NEW YORK (AP) — Chinese chip maker Semiconductor Manufacturing International Corp. said Tuesday that it intends to start a new integrated circuit production project in Shenzhen, China.

SMIC said it will register an independent legal entity called the Semiconductor Manufacturing International (Shenzhen) Corp. Ltd., which will build an integrated-circuit technology research and development center. The entity will also set up an 8-inch wafer production line and a 12-inch chip fabricating plant.

SMIC said the 12-inch chip fabricating plant will have an advanced process technology licensed from International Business Machines Corp.

SMIC expects work on the project will begin in the first half of 2008.

-------------------------------------
Looks like the effect of this will not be apparent in USA for several years. -KMG

Nearly 150 Jobs Cut As Maine Shoe Plant Closes

January 29, 2008

PITTSFIELD, Maine (AP) — Nearly 150 people will lose their jobs when a shoe factory in Pittsfield closes.

SAS Shoemakers blames a reduced demand for penny loafers and other styles produced in the central Maine plant for the closing, which is scheduled to be complete by the end of the summer.

The San Antonio-based company says it makes sense to move the Maine production to its expanded facilities in Texas. A spokeswoman says the company's not abandoning the Maine jobs, but it's transferring them to Texas.

SAS plans to lay off groups of workers starting the week of April 14th. Some Maine employees may receive transfer offers.

More of this is yet to come as this type of manufacturing moves to China - KMG

Tesla Gets Air Bag Waiver For Electric Sports Car:yay::thumbsup:
By Ken Thomas, Associated Press Writer
January 29, 2008

WASHINGTON (AP) — Tesla Motors received a waiver from the government on a federal air bag standard Monday, bringing it a step closer toward the production of its all-electric Roadster later this year.

Tesla, based in San Carlos, Calif., has pre-sold all of its 2008 Tesla Roadsters, a fully electric sports car that sells for $98,000. The company expects to begin deliveries in the first quarter of this year but needed the waiver to be able to sell in the United States.

The National Highway Traffic Safety Administration said it would give the company a three-year exemption from the advanced air bag rule, noting that Tesla tried to comply with the requirements and would still have standard air bags on the vehicle.

Based on information provided by the automaker, NHTSA estimates the waiver will cover 3,825 Roadsters, including 625 vehicles this year and 1,600 in each of the following two years.

NHTSA called the Roadster ''one of the most advanced full electric vehicles available'' and said the ''public interest is served by encouraging the development of fuel-efficient and alternative-fueled vehicles.''

The federal agency said Tesla posted operating losses of $43 million from 2003-2006 and that without the waiver, Tesla would ''have to cancel its pending development of an electric-powered sedan, and would ultimately have to terminate its operations.''

Tesla said in a statement last week that it had received all regulatory approvals to import the first production Roadster for sale in the United States and production would begin March 17.

Tesla has based its Roadster on the two-seat Lotus Elise sports car, which also could not comply with the advanced air bag rule and received an exemption from NHTSA in August 2006. The vehicle will be manufactured at a Lotus factory in Hethel, England, under Tesla's supervision.

Tesla also has announced plans to produce at least 10,000 all-electric, five-passenger sedans a year at a plant in Albuquerque, N.M., beginning in the fall of 2009.

Jan. 29, 2008, 2:33PM
EU Leaders Call for More Transparency

© 2008 The Associated Press

LONDON — European leaders called Tuesday for greater transparency in credit rating agencies and a better way to predict global financial downturns.

"We need a better early warning system for the global economy and we need to ensure that its warnings have the force and authority to ensure that they are acted upon," Brown told reporters after a meeting of European leaders at his 10 Downing Street office.

Brown hosted French President Nicolas Sarkozy, German Chancellor Angela Merkel, Italian Premier Romano Prodi and European Commission President Jose Manuel Barroso for talks on the international credit crunch.

In a joint communique read by Brown, the leaders called for improvements in the information carried by credit rating agencies, prompt and full disclosure of banks' write-offs, and called on the EU to ensure transparency in the way that increasingly complex investments were valued.

The group said it hoped the financial market would act to regulate itself, but warned of government intervention should it prove incapable of doing so.

"While preferring market-led solutions ... if market participants prove unable or unwilling to rapidly address these issues we stand ready to consider regulatory alternatives," the statement said.

They noted the need to improve management of their economies' exposure to liquidity crises. The communique called on the Basel Committee of Banking Supervisors to propose new standards to improve its management of liquidity risk.
They also called for reform of the International Monetary Fund, saying the institution should put forward proposals on how to strengthen its international economic oversight.

Asia Shares Fall As Global Economic Fears Return
2008-01-29
International Herald Tribune


By Louise Heavens

Shares in Asia fell 3 percent on Monday as concerns over the health of the global economy returned to haunt stock markets, sending investors to seek the relative safety of government bonds.

European stock markets also fell in early trading on U.S. recession fears, with the FTSEurofirst 300 index of top European shares down 1.4 percent. U.S. stock futures pointed to a lower opening for Wall Street.

"The sell-off is hitting all sectors, regardless of each company's earnings and outlook," said Kim Joong-hyun of Goodmorning Shinhan Securities in Seoul. "Although last week's U.S. interest rate cut has calmed down panic selling, a recovery from the economic woes and the financial sector's debt problems should take a long time."

The yen rose against other currencies as investors shunned riskier bets and unwound currency carry trades, while oil dropped by more than $1 to below $90 a barrel in tandem with weaker global stock markets.

"The whole market is focused on the U.S. economy, to see how bad it can get," said Tony Nunan, an energy futures trader at Mitsubishi in Japan.

Investors resumed selling after the roller coaster ride in the markets last week, when global equity markets fell because of growing despair over the U.S. economy early in the week and then rose because of a $150 billion stimulus plan.

The Nikkei ended down 4 percent as poor earnings results increased fears that the slowing U.S. economy was hitting Japanese companies. Nippon Steel surprised investors by reporting a small drop in profit for the nine months ended in December because of higher costs, sending its shares down 8 percent.

Japan's economy might be already in recession, partly because of weaker exports and sluggish consumption, Goldman Sachs said in a research report seen Monday

Can India and China save the world's economy?
27 Jan, 2008, 0955 hrs IST, AGENCIES

SHANGHAI: With fears mounting of a global economic slowdown, some analysts predict developing giants China and India, with their booming growth, will help lessen the impact.

Stock market turmoil this week triggered by fears of a US recession in the wake of a massive mortgage crisis has ignited debate over whether Asia's two rising economic stars are strong enough to power the world economy.

This directly challenges the 20th-century economic adage that when the US economy sneezes the rest of the world catches a cold.

"What is occurring is the rise of other economies to balance out those of the US -- and that has to be a good thing," said Chris Devonshire, a business consultant specialising on China and India trade.

"The US has problems but these will be offset against markets elsewhere. The new world order is working," he told reporters.

China saw scorching expansion of 11.4 per cent last year, closely followed by India's 9.4 per cent, and the prospects for both economies remain strong.

"We expect China and India to support regional growth in the event of a significant slowdown in the US," said ING Barings Asia economist Prakash Sakpal.

Such a shakeup is significant because jobs and livelihoods are at stake, but also because, as financier George Soros wrote in the Financial Times, it could signal a major shift in economic power.

"The current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world."

But Zhang Ming, an economist at the Chinese Academy of Social Sciences, dismisses the notion that the Chinese and Indian economies are independent of US consumption.

"If you want to look at who is going to be the motor of global growth then you have to look at who provides the biggest market for the world's production of goods," said Zhang.




"In the short run America is still strongest. China still has a long way to go."

China, whose 3.4-trillion-dollar economy is about one-third derived from exports, could easily face economic difficulties if it were to lose the 2.5 growth percentage points garnered from trade, said Stephen Green, a Standard Chartered economist.

However, Indian exports represent only about 17 percent of its 1.1 trillion dollar gross domestic product, allowing it greater resiliency in the face of a US recession, analysts said.

"Our economy is geared to domestic demand. We are insulated so that even if there is a US recession it will not have such a direct impact on the Indian economy," said Federation of Chambers of Commerce and Industry economic adviser Anjun Roy.

But given that India's share of world trade in 2006 stood at 1.5 percent, it is not in a position to boost the world economy, Roy said, citing official statistics.

According to data published by the World Trade Organisation, China's merchandise exports last year totalled 8.0 percent of the world total, while imports stood at 6.4 percent. No cumulative figure was provided.

However, Stephen Roach, a leading economist as head of investment bank Morgan Stanley in Asia, said this week that the idea China and India could power the world economy on their own could "turn out to be a fantasy."

Roach, who is forecasting a US recession, also argued in a recent note that when the US consumer is in trouble this has great consequences for the world economy.

He calculated that the American consumer spent a combined 9.5 trillion dollars last year while Chinese only laid out one trillion dollars and Indians 650 billion dollars.

"It is almost mathematically impossible for China and India to offset a pullback in American consumption," he said.

The objective of this thread is to post news in global economy mostly production, manufacturing activities that taken together present a global picture of Business and Economy.

Some will be good, others bad. The key is to present a sampling of Business activities around the world that provides a trend.

Because U.S. has the biggest economy, the thread will have more items on U.S., but I would like to see posts about other countries that has a global impact.

Thank you.

100 Nepalese Factory Workers Vanish In Alabama

Manufacturing News - January 30, 2008

HUNTSVILLE, Ala. (AP) — About 100 people who came from Nepal to work at a north Alabama factory seemingly vanished from a pair of apartment buildings, along with a lot of furniture and appliances, and can't be located, officials said Tuesday.

Immigration agents are trying to determine what happened to the Nepalese workers, among hundreds brought to the United States to work at a DVD factory operated by Cinram Inc., said Lauren Bethune, a spokeswoman for the Alabama Department of Homeland Security.

''We do not in any way consider it a security threat, but we do think it is important,'' she said.

A Huntsville television station, WAAY-TV, first reported on the missing workers.

Cinram's human resources director, Peter Hassler, did not immediately return a telephone call seeking comment.

Mary and Tim Snopl told the TV station they rented apartments in two buildings last fall to about 240 workers from Nepal. They were recruited to come to the United States by a company that provides staffing for Cinram.

But Mary Snopl said scores of the workers are now missing, along with hundreds of thousands of dollars worth of furniture, televisions and kitchenware.

''I don't know if they're living in Huntsville or somewhere else, I just know they aren't living with us and they aren't working at Cinram,'' she said.

Reports last fall said Cinram had hired about 1,350 foreign workers to package DVDs at its plant in Huntsville. Cinram — which describes itself as the world's largest maker of prerecorded multimedia products — said it turned to foreign workers because the area job market couldn't fill its needs.

Bethune said about 100 immigrants were believed to be missing. Agents are trying to determine exactly what type of visas they used to enter the United States.

''It's possible that they had work visas, they expired, and they went home,'' she said.

The workers can earn $8 an hour working 12-hour shifts packing DVDs in boxes. Besides Nepal, Cinram has used foreign workers from Bolivia, the Dominican Republic, Jamaica and Ukraine.

Société Générale

No Défense
Jan 31st 2008
From The Economist print edition

The humiliated French bank has plenty more explaining to do before putting its rogue-trader scandal behind it
http://www.economist.com/images/20080202/0508FN1.jpg

AN OLD line of Hank Paulson's has been dusted off since news broke of a €4.9 billion ($7.2 billion) trading loss at Société Générale, France's second-largest bank. “We will never eliminate people doing bad things,” the former head of Goldman Sachs, now America's treasury secretary, once said. “In a town of 20,000 people, there's a jail.” The question now being asked of SocGen is: shouldn't there also be a police force?

In fact, SocGen has plenty of internal cops at its high-security headquarters in the La Défense enclave of Paris. The bank's annual report for 2006 devotes 26 reassuring pages to its risk-management practices; more than 2,000 staff worked in the function that year, and lots more bodies were added in 2007. Yet none of them stopped Jérôme Kerviel, the trader accused of taking enormous unauthorised bets, from building an unhedged €50 billion exposure to European futures markets (Mr Kerviel reportedly alleges that his supervisors were aware of his activities).

On January 28th Mr Kerviel was placed under formal investigation for abuse of trust, breaching computer security and falsifying documents. Two days later Daniel Bouton, SocGen's chairman and co-chief executive, survived a board meeting to consider his handling of the affair. He was lucky. Holes have not only appeared in the bank's accounts; its initial version of events is also looking threadbare.

MORE (http://www.economist.com/displaystory.cfm?story_id=10608901&fsrc=nwl)

Private payrolls add 130,000 jobs this month

By Susan A. Baird
PBN Web Editor

ROSELAND, N.J. – Hiring at U.S. companies accelerated this month from December’s four-month low, according to preliminary data released today by ADP Employer Services.

Nonfarm private payrolls grew in January to 116.1 million, adding a seasonally adjusted 130,000 jobs compared with December levels. The increase was three and a half times the previous month’s revised 37,000-job gain, though it still fell nearly 25 percent short of November’s revised 173,000-job gain.

http://www.pbn.com/static/story_images/story/1201713542.jpg

Looking at the above graph, one can see that the jobs are on a down ward trend but not to the point of last recession. That will take another two years...in the lap of the next President. Hopefully something will prevent that - KMG

The Carnegie Endowment for International Peace has just published an important study on

India’s Trade Policy Choices: Managing Diverse Challenges

The study

"seeks to contribute to the knowledge base upon which the Indian government and public and the country’s international trading partners can evaluate the difficult policy choices the country faces in the realm of trade. The study uses a global trade model and a national model of the Indian economy to explore the effects of a range of possible trade choices on the economy, its sectors, its workforce, and its households."

The most significant conclusions emerging from the study are the following:

1. The country’s current commitments on trade policy through institutions such as the World Trade Organization (WTO) are modest and leave broad policy discretion over tariffs and other trade measures in the hands of national policy makers. As India pursues a new multilateral trade agreement and numerous bilateral and regional trade pacts, it is moving into uncharted territory, where the decisions it makes will constrain its existing policy space and have a significant impact on the evolution of its economy.

2. Given the relatively high levels of protection in the Indian economy, it might be expected that greater opening to trade would yield large gains. However the most striking overall result of the simulations in this study is that the gains for the Indian economy from both multilateral and bilateral trade agreements are surprisingly modest. Other studies have also shown limited gains from Indian trade opening.

3. Multilateral liberalization through the WTO’s Doha Round would produce larger gains for India than free trade agreements with any of its major trading partners, including the EU, the United States, and China. Nonetheless, a Doha agreement would represent only a small gain for the Indian economy. In the simulation presented, the gain in real income for India from Doha is $1.2 billion. Other models—using dynamic modeling frameworks in which gains in investment, productivity, and overall growth are assumed to accompany trade policy changes—have shown the Indian economy gaining from $1.6 to $2.8 billion by 2020, still very modest changes.

4. Even the highest gains projected using dynamic frameworks in global models represent only about a one-quarter of one percent (0.27 percent) gain for the Indian economy. World Bank study showed gains of $2.2 billion from an ambitious Doha outcome if additional investment is also realized, but actual losses for the Indian economy from a Doha agreement when only the direct effects of Doha changes are taken into account.

5. The simulations of the effects of world agricultural price changes on the Indian economy and households suggest that the government’s concern over potential negative effects of a Doha agreement on poverty and rural development is well founded. The results presented demonstrate that the impact of world price changes on poverty and income distribution depends on the specific patterns of production and consumption in a country. Agricultural price decreases would worsen income distribution and could significantly increase rural poverty.

6. The simulations of changes in the world prices of rice and wheat show potentially significant effects on the country if it binds its agricultural tariffs at levels that would prevent it from offsetting global price shocks. For example, a 50 percent decrease in the world price of rice could have a negative impact on India’s real income as large as the positive impact of the entire Doha agreement as simulated in the study. Even a 25 percent decrease in the price of rice has negative effects on all major components of the Indian economy, including private consumption, investment, exports, and imports. Seventy-eight percent of households would experience real income losses from such a price change, and the distributional impact would be regressive, with the poorest households losing the most.

7. As a result, it would be most advantageous for developing countries such as India to have the flexibility to respond to price shocks based on their own conditions at the time of the shock, rather than having rigid or arbitrary disciplines imposed in advance. India should continue to seek an agreement on “special products” and a “special safeguard mechanism” that gives it sufficient latitude to shield its households from negative price shocks that could increase poverty and worsen income distribution.

8.The three potential bilateral free trade agreements (FTAs)simulated in this study -- with the EU, US and China -- result in smaller gains for the Indian economy than a Doha agreement and losses for Indian households. India’s imports and exports increase slightly more as a result of the India-EU FTA than under the Doha simulation. This result is perhaps surprising at first glance, but less so after considering that tariffs are completely eliminated in the bilateral agreement, whereas they are only reduced under the multilateral simulation. The deeper tariff cuts under the bilateral agreements change the resulting domestic prices more dramatically. Given that this is India’s largest trading relationship, the impact on the country’s imports and exports is understandable. However it is worth recalling that domestic production in India increases significantly less under the bilateral agreement with the EU than under the Doha multilateral agreement. This suggests that the increased bilateral trade flows do not necessarily lead to the most efficient reallocation of resources in the Indian economy. It may also be the case that some of the increased trade is trade diversion (that is, substitution of trade with the bilateral partner of trade that would have been carried out with other trading partners) rather than trade creation. India’s imports and exports increase more modestly under the FTAs with the United States and China, reflecting the fact that these are much smaller trade relationships than that with the EU. (However, a bilateral free trade agreement with the US will produce more gains for India than a similar one with China). This suggests that the Indian government should proceed cautiously with bilateral agreements. It appears that such agreements would unambiguously increase investment in the Indian economy, a welcome development, but by extremely modest amounts. However, there would be a trade-off to achieve these investments, with reductions in household welfare under free trade with the EU and United States, at least in the short term. Given the low incomes of most Indian households and the country’s high poverty rate, inflicting even short-term welfare losses on these households is not to be taken lightly.

9. Creating employment is an important goal of the Indian government, both to absorb unemployed workers, currently estimated at about 40.4 million, and also to generate opportunities for the large numbers of underemployed workers in rural areas and the estimated 7 to 8.5 million annual new entrants into the labor force. All the trade pacts simulated in this study would induce small increases in demand for unskilled labor, with a Doha agreement increasing demand by 0.9 percent (about 4 million jobs based on current employment levels). An India-EU FTA would increase demand by 0.5 percent (about 2.3 million jobs), an India-U.S. FTA by 0.3 percent (1.4 million jobs), and an India-China FTA by 0.2 percent (900,000 jobs). Although these additional positions would be welcome, they represent a very modest contribution to India’s employment needs. Clearly, employment creation will depend much more on Indian domestic demand and labor policy than on export-led growth for the foreseeable future.

10. India has liberalized its trade gradually during the past two decades while maintaining significant policy levers to achieve desired outcomes in terms of growth, poverty reduction, and income distribution. The results presented indicate that continued trade liberalization, particularly through multilateral agreements such as the Doha Round, can contribute to the country’s development and growth in the future. However it should be recognized that the gains are likely to be modest, and the possibility of negative effects is real. Trade agreements must be negotiated with great care if they are to contribute to the country’s development and broadly improve the living standards of its people.

11. Services liberalization could add to India’s potential gains, however, few offers on services of interest to india have been tabled in the Doha Round. In negotiations with the EU, significant services liberalization would be required for India to experience net gains in real income to the overall economy as well as to offset losses to households.

Thus, the results of the study indicate that continued trade liberalization, particularly at the multilateral level, can contribute to India’s growth and development. However it must be recognized that the potential gains are modest and the risks are not insignificant. Balancing the defensive interests of India’s poor households with the quest for improved efficiency and market opportunities will require careful trade negotiations and appropriate complementary measures.

The moral: Both Doha and bilateral pacts require careful negotiation if India is to realize the modest gains on offer and avoid risking large negative effects on housholds of the poor. However, there is a need for a separate study on the benefits of a free trade agreement in services between India and the EU, India and the US and India and China.

The full report can be read at http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=19871&prog=zgp&proj=zted

Inflation is China's next export
By Wei Gu
Reuters
Friday, January 11, 2008

HONG KONG: Politicians in the United States might soon regret what they have been wishing for.

Having long accused Beijing of manipulating its currency to keep Chinese exports inexpensive, thus gaining an unfair trade advantage, Americans might find a troublesome new export from China: inflation.

The manufacturing sector in China can no longer offset rising prices with productivity gains because of the combined gains in the yuan - up 3 percent against the dollar in the past two months - as well as food, energy and other raw material price increases that have pushed domestic inflation to 11-year highs.

Efficiency at listed manufacturing companies in China peaked last year and has already started to deteriorate. On top of that, Beijing is considering letting land and other resource prices rise to market levels, while a more stringent labor law that took affect this week will surely push up labor costs. The question is, will China be able to pass on higher costs to global consumers?

"China's export prices were rising in the last quarter even though U.S. import prices have slowed," said Paul Cavey, the head of China economics at Macquarie Securities. "That does suggest that China does have a bit of pricing power."

What a change from the past five years. During that period China was a deflationary force, helping keep global prices low.

To be sure, Chinese exports to the United States are still slightly cheaper than they were in 2003, according to U.S. government figures. But the trend is clear. Prices have started to climb in the past year, and increases are likely to accelerate in 2008.

Underlining its concern about inflationary pressures, China's cabinet said Wednesday that it would temporarily intervene to curb price increases in necessities like food.

All this should not come as a big surprise. China cannot push the productivity envelope forever. Eventually, the law of diminishing returns will prevail. When inflation hits a country that is a global factory, the rest of the world pays more.

"When China starts to export inflation, it will feed through the rest of the world," Dong Tao, an economist at Credit Suisse, said.

Hong Kong, which gets most of its groceries and electricity from the mainland, is already feeling the heat. From food to furniture, wages to rent, almost everything is rising in the city. To add fuel to the fire, Hong Kong has to follow the Federal Reserve Board in cutting rates because its currency is pegged to the dollar. As a result, Tao expects Hong Kong inflation to average a surprising 5.1 percent in 2008, while most other analysts say it will be closer to 3.3 percent.

Western consumers will see prices jump for electronics, clothing and toys, although these gains will be masked slightly since manufactured goods account for a relatively small part of the consumer price index baskets in the United States and European Union.

Barring any policy mishaps, exported inflation from China should not rock those economies, although it comes at an inopportune time when the United States is battling a slowing economy, oil hovering around $100 a barrel, and a still-unfolding credit crisis.

In the interest of the West, and arguably for the benefit of China, Beijing seems to be heeding the advice from the West to let its yuan appreciate more rapidly. After raising interest rates six times in 2007, China seems to have decided that a faster rise in the yuan is the best monetary policy to fend off inflation.

"Beijing appears to be seriously looking at the right policy tool to deal with the rising inflation threat," Frank Gong, JPMorgan's China economist, said.

If the yuan strengthens by 10 percent in real terms, consumer inflation in China will be reduced by 0.8 percent in the near term and 3.2 percent in the long run, Jiming Ha, the chief economist of China International Capital, said. Ha expects the yuan to appreciate a full 10 percent in 2008, after rising the same amount in the two and a half years after the one-time revaluation.

Western politicians should be pleased. They have been demanding a faster rise in the yuan. But this is also a U.S. election year. Presidential hopefuls are all too aware that U.S. consumers, suffering from a housing meltdown, could be incensed by higher prices on products from China. Do not be surprised if U.S. lawmakers and presidential candidates soon start to rail against the inflation threat coming out of China. But unlike the yuan, inflation is not something that can be easily tamed by any government.

The risk is that Beijing might panic and step on the brakes too hard, and that could hinder global growth at a time when central banks elsewhere are easing monetary policy.

One person's misery could be other person's good fortune....

China Tries to Restore Power; Storms Forecast to Ease

By John Liu and Li Xiaowei


Feb. 4 (Bloomberg) -- China stepped up efforts to restore power supplies and transport links to regions hit by the worst snows in more than 50 years, as forecasters said storms will ease for this week's Lunar New Year holiday.

``Disaster relief work is the top priority of the whole nation,'' China's top legislator Wu Bangguo said during a visit to the Railways Ministry in Beijing yesterday, the official Xinhua News Agency reported.

Snow and freezing rains in southern and eastern China are forecast to give way to clearer weather before the Chinese New Year begins in three days, the China Meteorological Administration said. No rain is expected between Feb. 6 and Feb. 9, which may allow the snow and ice to melt, it added.

More than three weeks of snow in central and southern China brought transport networks to a standstill, killed at least 60 people and caused economic losses of at least 53.8 billion yuan ($7.5 billion). The warmer weather may allow millions of people stranded in the southern cities of Guangzhou, Changsha and others to resume their journey home.

President Hu Jintao called on government officials to do everything possible to restore transportation and power production at a meeting with senior leaders yesterday, according a statement on the Web site of the Cabinet, the State Council.

Airports Running

All airports resumed operating yesterday, the General Administration of Civil Aviation said on its Web site.

Traffic on the Jingzhu Expressway, connecting the southern cities of Guangzhou and Zhuhai with Beijing, has been cleared, China Central Television reported, after a stretch of it was jammed with more than 10,000 vehicles yesterday. Tanks were used to clear some icy highways, Xinhua reported.

Nationwide, more than 17,000 vehicles are still stuck on freeways, the state broadcaster said.

A woman was killed in a stampede at Guangzhou railway station as hundreds of thousands of passengers sought to board a train, Xinhua reported late yesterday, adding it was the second death as a result of overcrowded railway stations. On Jan. 13, a student in Wuhu, Anhui province, died after being pushed off an overcrowded platform, Xinhua said.

About 136,000 rail passengers remained stranded at stations at 11 a.m. yesterday, state television reported. More than 92,000 passengers were waiting for trains in Guangzhou, after a peak of 800,000 people last week, it said.

Police Deaths

Three police officers died during the storms, the Ministry of Public Security said on its Web site, without giving a cause of death. More than 21,000 officers suffered frostbite and cold- related illnesses.

The government's priorities are the transportation of coal for power plants, goods needed for disaster-relief efforts and food, Wu, president of the Standing Committee of the National People's Congress, said yesterday, according to Xinhua. No effort should be spared in resuming power supplies and transport in the snow-ravaged regions, he added.

China's worst-affected areas are Hunan, Jiangxi and Guizhou provinces, which have only half their normal power capacity, the National Development and Reform Commission said in a statement on its Web site yesterday.

About 90 percent of state-owned coal mines have been asked to continue production during the weeklong Lunar New Year holiday, Xinhua said yesterday, citing the State Administration of Work Safety. China relies on coal for 78 percent of its power.

Trucks Mobilized

All of the country's railway container trucks have been mobilized to ensure the transportation of coal, Xinhua said, citing the Railways Ministry. Coal shipments were boosted to a record 42,200 trucks a day from Feb. 1, it said.

``We have the faith, courage and ability to overcome the severe natural disaster,'' Chinese Premier Wen Jiabao, who was onboard a train to disaster-hit central Hunan province, was cited as saying at the weekend by Xinhua.

PetroChina Co. and China Petroleum & Chemical Corp., China's two largest oil refiners, were asked to ``prioritize'' oil supplies for power line repairs, the National Development and Reform Commission said.

The price of vegetables in 36 cities rose more than 30 percent between Jan. 25 and Jan. 30 because of the transport problems, and only started to stabilize in the past few days, the commission, the country's top economic planner, said in a separate statement yesterday. Meat prices also gained while grains and vegetable oils were little changed, it added.

Crop damage estimates were raised to 141 million mu (23 million acres) early Feb. 1 from than the 103 million mu on Jan. 30, the Ministry of Agriculture said in a statement yesterday.

Wall Street Embraces Government to Avoid Recession

By Kathleen M. Howley


Feb. 1 (Bloomberg) -- With U.S. mortgage foreclosures set to top 1 million this year and home prices falling at the fastest pace since the Great Depression, Lehman Brothers Holdings Inc. Vice Chairman Thomas Russo says the government must take action to prevent a recession.

``The direction we are heading in isn't a good one,'' Russo said in an interview. ``We need significant fiscal and monetary intervention.''

The worst drop in new home sales on record has turned financial leaders into champions of big government with everyone from Russo to executives at Citigroup Inc. and JPMorgan Chase & Co. supporting public measures to keep the housing market from sinking the economy. It's a change from Wall Street's usual stance that markets work best without government interference.

``Sentiment can change when there's money on the line, even in an industry that up to now has been doctrinally opposed to government having a role in the markets,'' said Thomas Schelling, a Nobel laureate in economics who taught at Harvard University for 30 years.

Wall Street fueled the growth of subprime lending by packaging home loans into securities and marketing them as low- risk investments. As demand rose, lending standards dropped, driving the homeownership rate to an all-time high of 69.2 percent in 2004. The median U.S. home price reached a record $230,200 in July 2006. Last month it was $208,400.

Countrywide's Loss

Now, many of the same people who profited by putting buyers into properties they couldn't afford are advocating federal help to manage the bust.

Their demands were answered this week when the House and the Senate Finance Committee approved economic stimulus plans worth $146 billion to $157 billion. The Senate version includes a tax break for banks and lenders. Losses from investments in subprime mortgages may total as much as $400 billion worldwide, Deutsche Bank AG said in November.

Angelo Mozilo, chief executive officer of Countrywide Financial Corp., supports the government's Hope Now program, a coalition of mortgage companies aimed at preventing foreclosures by freezing adjustable rates or refinancing loans of subprime borrowers.

That type of loan increased Countrywide's net income to almost $2.7 billion in 2006 when it was the biggest U.S. subprime lender. Mozilo earned $48 million that year. Countrywide reported a net loss of $703.5 million in 2007, dragged down by loans to people with bad credit, and the Calabasas, California-based company agreed Jan. 11 to be acquired by Charlotte, North Carolina-based Bank of America Corp. for about $4 billion.

`Amazing Hit'

Hope Now is being pushed by Treasury Secretary Henry Paulson, former chairman of Goldman Sachs Group Inc., and backed by firms such as New York-based Citigroup, led by Chief Executive Officer Vikram Pandit, and JPMorgan, headed by CEO Jamie Dimon.

In addition, the government expanded Federal Housing Administration mortgage funding in August to help subprime borrowers and President George W. Bush has proposed using tax- exempt bonds to refinance mortgages. Those programs won't help homeowners who have seen their property values drop below their loan balances.

The measures aren't enough, Russo said.

``The whole financial system has taken an amazing hit already and the bulk of the mortgage rate resets are still to come,'' Russo, 64, said.

Without additional government action, declining home values will prompt people to snap their wallets shut, choking the 70 percent of the economy that's driven by consumer spending, Russo said in a paper he presented at the World Economic Forum in Davos, Switzerland, last week. Russo said the paper reflected his own views and analysis, not those of New York-based Lehman, the fourth-biggest U.S. securities firm by market value.

Russo's Proposals

About $550 billion of subprime loans will reset before 2009, Russo said. Most of those borrowers will have no option except to walk away from their properties because the drop in home prices and an increase in lending standards will prevent them from refinancing or selling, he said.

Russo, in the paper originally written for the Group of Thirty, a research group led by former Federal Reserve Chairman Paul Volcker, proposes giving government-backed loans to homeowners with adjustable-rate mortgages, whether prime or subprime, in danger of default. He also supports a tax credit for people who buy homes in 2008 that would roughly triple the current tax benefits given to mortgage holders.

In addition, the Federal Reserve needs to cut its benchmark rate to 2 percent, reduce the discount rate to match it, and ``broaden access'' to the discount window where banks get government-subsidized temporary loans, he said. The Fed lowered the benchmark interest rate to 3 percent on Jan. 30, the second cut in nine days.

Quick Action

Those measures surpass the Hope Now program and the stimulus plans that passed this week. A provision in the House measure would temporarily increase in the size of loans that can be bought by Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies.

``To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so,'' Fed Chairman Ben Bernanke said in Jan. 17 testimony to Congress.

In backing government action, Bernanke broke from the creed of Milton Friedman, the free-market champion who said such programs don't work. Bernanke described Friedman in a 2002 speech as the man who inspired his interest in monetary policy when he was a college student.

While top regulators and executives are demanding help, some of their colleagues are shaking their heads in disbelief.

Mark Kiesel of Pacific Investment Management Co., the world's largest bond fund manager, said rescuing borrowers will worsen the economic misery for everyone. Kiesel helps oversee more than $700 billion of fixed-income investments at Pimco.

`Blunt Instrument'

``Keeping the market from correcting itself only prolongs the problem,'' he said. ``It helps a couple hundred thousand people stay in their homes a little longer, but it also may have the unintended consequence of lifting mortgage rates for everyone because if you're going to be changing the rules, investors will need to be compensated for that risk.''

David Henderson, an economist at the Hoover Institution at Stanford University in Stanford, California, agrees.

``Government intervention is a blunt instrument aimed at a particular problem that ends up hitting all of us,'' Henderson said. ``Let the housing problem work itself out.''

The camp that favors government action is growing.

Growing Group

``We look forward to continuing our work with the administration, Congress, state and local officials'' to limit the number of foreclosures, Washington Mutual's Schneider said in a statement last month in support of the Hope Now program. The Seattle-based company, the largest U.S. savings and loan, on Jan. 17 reported a fourth-quarter loss of $1.87 billion after writing down the value of its home mortgage unit.

Alex Pollock, former president of the Federal Home Loan Bank of Chicago, urges the creation of a federal lending agency based on the Home Owners Loan Corp., or HOLC, created by Congress during the Great Depression.

Robert Kuttner, co-founder of the Washington-based Economic Policy Institute, Senate Banking Committee Chairman Christopher Dodd and others have proposed similar ideas.

Many who are calling for action point to the 1930s, the last time the U.S. national median home price fell, as an example of what government should do.

Great Depression

During the worst economic slump of the 20th century, HOLC issued tax-exempt bonds and used the proceeds for below-market- rate mortgages. It refinanced one-fifth of U.S. homes between 1933 and 1936 after negotiating with the original lenders to accept less than the amount owed on the defaulted mortgage.

Former Treasury Secretary Edward Carter Glass opposed President Franklin D. Roosevelt's expansion of government after the 1929 stock market crash. Senator Robert Taft, a critic, said it was socialism. Most Americans supported Roosevelt and his ``New Deal'' plan. He won every state except Maine and Vermont when he ran for re-election in 1936.

In the 1930s, lenders were seizing homes at an average rate of 3,000 a day, adjusted for today's housing stock size. In the fourth quarter of 2007, new foreclosures averaged 2,939 a day, double the pace of a year earlier, according to RealtyTrac Inc., an Irvine, California-based real estate data company.

Statistics like these are managing to change even the most ardent opponents of big government. William McCarthy, a mortgage broker in Parker, Colorado, said he has been against federal intervention his entire life. Now 62 and facing eviction Feb. 11 after his lender foreclosed on his $199,200 mortgage, he said the government has to take action.

Suicides and Bankruptcy

``This has reached the point of being catastrophic,'' said McCarthy, who declared bankruptcy in July when his business failed after 18 years. ``I had a client who called me sobbing because his wife committed suicide rather than face eviction. Something's got to be done to help people.''

McCarthy said he took an interest-only adjustable-rate mortgage in 2005 when he and his wife, Janna, bought a 1,680- square-foot, ranch-style retirement home in Littleton, Colorado. His wife has a heart condition and needs a home without stairs, McCarthy said. They planned to sell their primary residence and refinance the ranch's interest-only loan before it reset, he said.

Risk Taking

They didn't act fast enough. In March 2006, U.S. home sales began the biggest decline in 26 years, according to data compiled by the Chicago-based National Association of Realtors. The house didn't sell. Now, they are losing both properties.

``My wife goes to bed crying every night, and there's nothing I can do,'' McCarthy said. ``The bank won't even return my calls.''

Bailing out borrowers who take risks creates a ``moral hazard'' that leads to riskier behavior as people assume the government will step in to save them, said Kiesel. In March 2006 Kiesel sold his house near Pimco's headquarters in Newport Beach, California, and rented a home in anticipation of the housing slump.

``The housing market will find its own bottom, without a government bailout,'' Kiesel said.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

-------------------------------------
Now, many of the same people who profited by putting buyers into properties they couldn't afford are advocating federal help to manage the bust. - But the Buyers did afford then....it is just that they lost their jobs because we buy everything from China now.

What may yet to come in food supply....

Last Year's Md. Crab Harvest Second-Lowest on Record

By David A. Fahrenthold
Washington Post Staff Writer
Monday, February 4, 2008; 1:08 PM



Last year's harvest of blue crabs from the Chesapeake Bay in Maryland was the second-lowest on record, state officials said today, as environmental damage, drought and past over-fishing drove down harvest of the state's most valuable seafood catch.

About 21.8 million pounds of blue crabs were caught by watermen during the April-to-December season, officials at the Maryland Department of Natural Resources said this morning. That was 6 million pounds less than last year, and just above the all-time-low, 20.2 million pounds in 2000.

"We're concerned about the health of the blue-crab fishery, and about the health of the blue crab itself," said Lynn Fegley, who oversees blue-crab programs at the department. The fishery, in this case, means the watermen and seafood processors that depend upon the crabs.

Natural resources officials said that, in response, Maryland will soon begin seeking input from watermen, scientists and other experts about altering the rules that govern crab harvests.

"We need to figure out a way to rebuild the population of crabs in the bay," said Frank Dawson, an assistant secretary at the department. "And that's really going to take a long-term plan."

This announcement comes at a particularly fraught time for the bay's blue crabs, which have been mired at historically low population levels for about a decade. In Virginia last month, state regulators proposed a set of regulations aimed at cutting back their state's harvest from the bay.

Part of the reason for last year's poor harvest was a long summer drought, which changed the salinity of water in the Chesapeake and sent crabs fleeing up into tributaries, away from watermen's pots.

But the other causes, officials said today, may have to do with more troubling, long-term trends: a bay that once teemed with these crustaceans may be growing slowly less hospitable to them.

Pollution has created "dead zones," where crabs struggle to breathe. Warm weather has contributed to die-offs in the underwater grasses that crabs use as nurseries. And, for years, scientists have said that watermen were taking too large a portion of the bay's overall population.

Thomas J. Miller, a professor for the University of Maryland Center for Environmental Science, said today that a declining harvest could actually be a good sign -- if it signaled that more crabs are dodging watermen's traps and surviving to reproduce.

Or, he said, it could be a bad sign, if it is an indication that there are simply fewer crabs to catch.

"We really don't know the answer" yet, Miller said in a telephone interview.

By Chris Isidore and David Goldman, CNNMoney.com staff writers
February 5 2008: 1:53 PM EST

NEW YORK (CNNMoney.com) -- New recession alarms shook Wall Street Tuesday as a key survey of service sector executives showed business activity retreating in January for the first time in nearly five years.

The Institute for Supply Management's (ISM) non-manufacturing index came in with a reading of 44.6, a new summary number for the report.

The 44.6 summary number is a new reading that does not have comparable readings from past reports.

The reading for business activity in the service sector plunged to 41.9 in January from 54.4 in December. Economists surveyed by Briefing.com had forecast a reading of 53.

A reading above 50 indicates growth in the sector, and a reading below 50 represents a sector-wide decline. The January reading is the first below 50 since March 2003.

The business activity reading also experienced the largest month-to-month drop in the 10-plus year history of the index.

Tuesday's report was issued roughly an hour earlier than its usual 10 a.m. release time because someone who was familiar with the report had inadvertently made a comment about it on Monday night. ISM chose to be cautious and released the report before markets opened Tuesday, an ISM spokeswoman told CNNMoney.com.

Signs of a recession. Both the 41.9 business activity reading and the 44.6 summary number represent the second lowest growth figures on record, trailing only the October 2001 reading after the Sept. 11 attacks. It's a sign that the service sector - which has carried the economy through a downturn in manufacturing - has followed that troubled sector into decline.

The enormous drop in business activity has intensified some economists' fears.

"We don't have plunges like this unless we're coming into or [are] in a recession," said Sam Bullard, economist at Wachovia. "Until we see two consecutive monthly declines, it's hard to definitively say we're in a recession, but these numbers make you think."

The service sector encompasses the retail, transportation and health care sectors. It also includes sectors that have been hit hard by problems in the economy, including finance, real estate and construction.

"The service sector is a much larger component of the economy [than manufacturing], and this is very much a recession reading," said Keith Hembre, chief economist for First American Funds, who now believes the U.S. economy has fallen into recession.

Some recent unexpected growth. Last Friday the more closely watched ISM Manufacturing reading came in at a 50.7 reading for January, up from 48.4 in December, showing an unexpected return to growth in that sector. This marks only the sixth time in the report's history that the service sector has recorded lower growth than the manufacturing sector, and it's by far the largest margin by which the service sector has trailed manufacturing.

Scary employment signal. The report also set off more alarms about the nation's labor markets, since it has been the service sector that has provided most of the job growth in recent years as factories closed or cut employment.

The ISM report showed 24% of service-sector employers had fewer employees than a month earlier, nearly double the 13% who were trimming staff in the previous reading. Only 6% were adding staff, down sharply from the 16% doing so in December. The report said employment comments on the survey included "Did not replace some positions"; "Reduced headcounts with hiring freezes in place"; and "Layoffs."

Friday the government's January employment report showed employers trimmed 17,000 jobs in the month, the first decline in employment in more than four years. But the service sector continued to add jobs in the government reading, while manufacturing and government employers trimmed their staffs.

MOD HAT: if anyone else has a problem with this or any other thread please address those concerns to the mod in charge (in this case ME) or plazma in a PM. DONT TRY TO DE RAIL A THREAD!!!!!!!!

Sinking Credit
Business Week February 7, 2008, 5:00PM EST
The lending industry lowered standards too far. Now it's raising them abruptly, choking consumers when they need credit the most
by Peter Coy

At the head of Canada's Bay of Fundy, the salt water can fall a breathtaking 50 feet from high tide to low tide. But even the Bay of Fundy has nothing on the U.S. economy, where money has gone from superabundant to scarce in less than a year. The latest bad news: On Feb. 4, the U.S. Federal Reserve reported a sharp constriction of credit in its quarterly survey of banks' senior loan officers.

It appears that many banks are using the liquidity supplied by big Federal Reserve interest rate cuts to heal their balance sheets rather than to make new loans. "Restraint has become widespread, deep, and generic, affecting all types of borrowers and most types of loan categories," writes George Magnus, senior economic adviser at UBS (UBS) Investment Bank in London.

If Americans can't borrow, they can't spend as much. The increasingly dire numbers suggest that a consumer-led recession is likely if not already under way. Stoking such fears, the Institute for Supply Management reported on Feb. 5 a sharp decline in its index of nonmanufacturing activity in January. The report carved 370 points from the Dow Jones industrial average, the biggest one-day loss in nearly a year.

The first story in this week's Special Report zeroes in on the latest lending sector to feel a squeeze: credit cards. To guard profitability, issuers are imposing tighter lending standards, lower limits, and higher late fees. Some are cutting the credit lines of customers who appear to be on the edge.

But such actions could help precipitate the very recession that the card issuers fear most. Citing concerns of a recession, UBS on Feb. 4 slapped sell recommendations on the stocks of three of the biggest credit-card issuers: American Express (AXP), Capital One Financial (COF), and Discover Financial (DFS).

How did we get into this mess? One reason is that when the tide of money was still rolling in, lenders skipped the traditional vetting of borrowers and gave money to anyone with a decent FICO score—and plenty of people with mediocre ones. The second story in our package explores the company behind that score, Fair Isaac Corp. (FIC), and shows how a good idea in the wrong hands can lead to bad outcomes.

---------------------------------------

What no body talks about is that good people with good scores lost their jobs. So, no matter how good your score was, that would not have helped when jobs moved overseas. -KMG

"Global systemic crisis / September 2008 - Phase of collapse of US real economy"

(http://www.europe2020.org/spip.php?article527&lang=en)

The end of the third quarter of 2008 will be marked by a new tipping point in the unfolding of the global systemic crisis. In the United States, this new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the US dollar fall...

I hope this is slightly off centre, but the signs are unmistakable.

Thank you stretched. The website has a lot of good information. Here is one worth noting

Moonbats Active Again in Massive Jobs Disaster (http://globaleconomicanalysis.blogspot.com/2007/09/moonbats-active-again-in-massive-jobs.html)

"Global systemic crisis / September 2008 - Phase of collapse of US real economy"
(http://www.europe2020.org/spip.php?article527&lang=en)...Almost correct (only off by a month) - about three years ago, I posted the correct date for the start of the 6 year window in which the run on the dollar will occur (Oct08 until Oct2014) That run quickly converts into the worst depression that North America and Western Europe have ever experienced. The BRICs will will not even enter into recession, nor will some others, like Australia, N.Z., Vietnam etc. and several African states that have long term (30Year) contracts with China to supply energy, raw materials, and food stocks.

I guess I should add your source to the growing list of publications (The Economist is now at the top) I can sue for plagerism of my thoughts on the global economy. :D

I guess I should add your source to the growing list of publications (The Economist is now at the top) I can sue for plagerism of my thoughts on the global economy.

He he. There are more radical views out there, please tell me your views differ! :)

From "Never Been Wrong Robertson"

Legendary Funds Manager Julian Robertson Predicts Utter Global Collapse Stemming From Bursting of Property Bubble

(http://fourwinds10.com/siterun_data/business/economy/news.php?q=1202785222)

So Billy_T was right all these years? Doh!!

Meanwhile back at the ranch

The Economy: A Mix of Bad News (http://www.businessweek.com/investor/content/feb2008/pi20080226_549123.htm?chan=rss_topStories_ssi_5)

He he. There are more radical views out there, please tell me your views differ! :)...I can not read them all. However, many seem to be built on some paranoia, not upon inspection of trends and facts, as mine were. Thus in general, I suspect there is considerable difference between most of them and my POV. For example I suspect than many of these "more radical" POVs have humanity going to economic hell. My POV does not. Only the current leaders (US and western EU) will suffer badly in the coming depression. China and India (and some others in Asia) will still have "booming economies" - I.e. GDP growth rates at least twice the US average for GWB's 8 years. Brazil and other suppliers of energy, food stocks, and raw materials will not grow as rapidly ("economic colonies" never do as well as their "masters") but will have growth rates about the same as US has had until recently - I.e far from any danger of recessions.

Sandy seems to have disappear (proven wrong too many times I guess) so here is some more BAD news (for Joe American, not for Sandy's rich friends, writing all those novel new mortgage forms. From her POV, those new mortgage types had nothing to do with the current problem.):

"... The average rate for {municipal} bonds whose interest is set at weekly auctions rose to 6.73 percent on March 5, up from 3.80 percent two months ago, according to an index compiled by the Securities Industry and Financial Markets Association. ..."
From:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aVs1vGz8s4Vc&refer=home

Where do you think that cities will get the extra cost? - From Joe American’s taxes on his home, of course. Perhaps Joe will trick them as the new mortgage products and their sales men tricked Joe - I.e. now that Joe has lost his job so company profits could be at all time highs (cheaper imported components via outsourcing etc) Joe will just "walk away" for the mortgage he cannot pay at the new, higher "reset" rate. Effect of that will be that the middle class who can still pay their mortgage will see their real estate tax bill jump up even more.

US and EU are headed for the GWB created depression as even the upper middle class tighten their belts. Henry ford understood long ago that the workers need a piece of the pie to buy the goods the factory owners plan to sell. GWB still thinks otherwise and Joe has been transferring wealth to the already rich via GWB's tax and other policies. First time in more than 100 years that Joe's salary has gone down in purchasing power while that of the richest is soaring to the sky.

Gulf states to depeg from dollar?

Alan Greenspan, former chairman of the U.S. Federal Reserve, said at an economic forum in Saudi Arabia last month that de-pegging from the dollar would significantly help Gulf states battle rising inflation in the short term.

Merrill Lynch predicted Qatar and the United Arab Emirates, suffering from inflation rates of 14 percent and 10 percent, would revalue their currencies relative to the dollar or de-peg. As with Kuwait's decision, a move by Qatar or the UAE would likely anger their U.S. ally.

In a January interview with Kuwait's Aljarida daily, Steve Conlon, an economic officer at the American Embassy, said Washington was unhappy with Kuwait's currency move because it showed no confidence on the strength of the dollar.

Saudi Arabia, the world's largest exporter of oil and a very close ally of the U.S., has discouraged Arab states in the Gulf from following in Kuwait's footsteps. Saudi's finance minister, Ibrahim al-Assaf, said in December that any move to de-peg from the dollar would be an unanimous decision by members of the Gulf Cooperation Council, a loose alliance of six countries -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates -- that pump one-fifth of the world's oil.



However, Saudi Arabia is less vulnerable to the inflationary impact of the falling dollar because it has a strong domestic industrial base and grows some of its own food. It relies less on pricey imports and had a more manageable inflation rate of 6 percent in 2007. Many smaller countries in the Gulf like Kuwait, Qatar and the UAE import almost everything but oil, leaving them more exposed.

Ibrahim al-Ibrahim, an economic adviser to Qatar's emir, told the Gulf Times in January that de-pegging the riyal from the dollar was one option his country was examining to battle inflation. Other countries, like the UAE, have toed the line and said they are sticking with the dollar, but pressure will continue to build if the value of the dollar remains low.



Kuwait's decision to de-peg from the dollar last May led the dinar to appreciate 5.9 percent through the end of 2007, making imports less expensive. However, economists estimate that some 70 percent of Kuwait's inflation is due to government expenditures of huge oil revenues, a situation faced by other Gulf countries as crude prices hover near record levels. The dollar also has considerable weight in the basket of currencies to which the Kuwaiti dinar is now tied.



HSBC speculated in an October report that other countries could follow Kuwait's lead. Dollar weakness, an oil-driven economic boom and rising inflation have deepened expectations the Gulf states will revalue their currencies, said the report. But it added that overhauling a generation-long relationship is difficult because it represents a "complete break with the past and a venture into the unknown."

http://www.businessweek.com/ap/financialnews/D8VF9ARG0.htm

What would be the fallout from this?

Gulf states to depeg from dollar?
http://www.businessweek.com/ap/financialnews/D8VF9ARG0.htm
What would be the fallout from this?Not very much for anyone but them, I think. Yes, it is one more step in turning the world away for using dollar as the global currency. Certainly a bigger step than Brazil and Argentina recently took with the same but smaller effect: Now their mutual trade and settlement of trade inbalance are made in each other's currency, not in dollars as they have been for years. The dollar is not only going down in value, but losing importance as a global currency, mainly in small steps like these.

No one wants to get stuck holding them when the dollar collapses, but Japan will as it needs the US 7th fleet to protect it.

Not very much for anyone but them, I think. Yes, it is one more step in turning the world away for using dollar as the global currency. Certainly a bigger step than Brazil and Argentina recently took with the same but smaller effect: Now their mutual trade and settlement of trade inbalance are made in each others currency, not in dollars as they have been for years. The dollar is not only going down in value, but losing importance as a global currency, mainly in small steps like these.

No one wants to get stuck holding them when the dollar collapses, but Japan will as it needs the US 7th fleet to protect it.

I think they are presently only worried about inflation. Their banking system appears not to be largely vulnerable to US dollar ups and downs, though the subrprime crisis reduced their earnings.

Islamic banks have been largely shielded from the U.S. mortgage crisis, which may even open doors for expansion beyond traditional strongholds in Arab and Asian markets, Bahrain's central bank governor said.

Islamic banks should have shunned collateralized debt obligations linked to subprime, or high risk, mortgages because such complex instruments do not comply with Islamic law, Rasheed al-Maraj told the Reuters Islamic Finance summit on Monday.

Islam bans lending on interest and trading of debt. Scholars vet every stage of a transaction to ensure compliance with sharia, or Islamic law, making it unlikely that risks were lurking in the balance sheets of unsuspecting lenders, he said.
http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=a4d75850-6bd2-4807-924d-e2a8ad826383

Unless you know any different?

He he. There are more radical views out there, please tell me your views differ! :)

From "Never Been Wrong Robertson"



(http://fourwinds10.com/siterun_data/business/economy/news.php?q=1202785222)

Interesting that you linked a faked interview on a website that also has things like this posted:

The gathering of Sananda’s “flock” is determined, also, by your own planet. The most beautiful planet in the Cosmos, has been plundered and raped until the pollution has nearly suffocated her. She has asked for her graduation into 5th Dimension, where no evil shall dwell upon her surface. This was granted to her on the occasion of the Harmonic Convergence August 17, 1987. Creator gave 25 years for her people to “wake up” and help with her restoration, the end date being 2012, but the evil ones have prevented balance from happening. With the speeding up of time due to the Photon Belt, the 25 years have passed, and you are in “overtime”. The process of cleansing has been bombarded with more evil upon her surface, air, and oceans. She is at the point of dying, and to preserve her life, she must rid herself of the negativity.

You might want to do a little research on that "interview". :D

Try to stick to things like FT or The Economist. I really don't want to get my economic news from Tom Cruise.

I think they are presently only worried about inflation. Their banking system appears not to be largely vulnerable to US dollar ups and downs, though the subrprime crisis reduced their earnings.
Yes inflation is their concern. When their currency has a firm tie to the dollar, it will take more of their currency to buy a bushel of wheat, etc. as the purchasing power of the dollars falls. (China has let the Yuan appreciate about 16% in last year, not IMHO because of pressure from US Congress etc, but because inflation is a growing problem in China –especially in politically sensitive parts of the economy like food costs. –Pork is up more than 50% now. The CCP is scared of reactions by the masses when they cannot buy food, but thus far the material living standards are rapidly advancing for the typical Chinese worker – in stark contrast to what is happing to the typical US worker, my “Joe American.”

I am not very knowledgeable about "Islamic bonds" etc. but think that instead of the forbidden "interest" they get a piece of the "action." For example, if Ford want to build a factory in Dubai and for some reason (perhaps related to local tax on it) it is better to borrow the money locally, some part of Ford's profit on the cars made in that factory, perhaps for 20 years, would be sent to the Dubai bank that financed the factory (and of course they get the loan repaid too at the end of the agreed 20 year period or amortized annually.) No interest is paid - just the same amount of money, on average, but the lender is keeping some of the risk – e.g. the cars may not sell etc.

I advocate that the lender keep some of the risk so he is more cautious about the loans he makes. With the new loan types permitted under GWB, such as Liar Loans etc, the lender can (and did) sell away the risk, so only a quick profit was of interest to the lender, not whether or not the loan could be re-paid after the introductory rate period expired. Etc. Now that GWB has screwed Joe American, perhaps the US can adopt something like the Islamic bonds - it really is better for the society than what GWB's administration has allowed to be created.

I advocate that the lender keep some of the risk so he is more cautious about the loans he makes. With the new loan types permitted under GWB, such as Liar Loans etc, the lender can (and did) sell away the risk, so only a quick profit was of interest to the lender, not whether or not the loan could be re-paid after the introductory rate period expired. Etc. Now that GWB has screwed Joe American, perhaps the US can adopt something like the Islamic bonds - it really is better for the society than what GWB's administration has allowed to be created.

London has anticipated you. :p

http://www.azcentral.com/business/articles/0310biz-islamicfinance0311-ON.html

After taking a battering from the global credit crisis, London has a potential ace up its sleeve as it seeks to restore its reputation as a global financial center: its premier position in the Islamic banking industry.

The British government will decide next week if it will issue a sovereign Islamic bond, or sukuk, a new avenue into a market that's estimated by Standard & Poor's to eventually reach $4 trillion.

London has anticipated you. ...Well at least I have anticipated the Economist by years!

Their current issue's cover article on central banks / Wall Street is excellent. Basically it says "Ben did good.” with creative action on Bear Stearns, but...
It is at:

http://www.economist.com/opinion/displaystory.cfm?story_id=10880718

But of course I'd say that - in fact, most of it I did in many posts here, years ago. :D

That issue's article here:

http://www.economist.com/finance/displaystory.cfm?story_id=10881032

is also good. There you will find:

"... Modestly higher inflation or jumpier currencies seem a small price to pay for preventing the collapse of America's financial system. Alas, modest shifts cannot be taken for granted. The darkest scenario—that investors panic at the Fed's loose policy, sending the dollar into free-fall—is becoming worryingly plausible.* A real dollar crash would force the Fed to raise rates, making America's predicament much worse and even sending the global economy into recession. ..."

The Economist dpoes not have the last part, just quoted, quite right. (Probably they do not read my long posts all the way to the end. :shrug:) It should end:
"... sending the US and EU into world's worst-ever depression, reducing China's GDP growth rate to about 3%, and making suppliers of food stock, raw materials, and energy, like Brazil into "economic colonies" of Asia."
But I guess that is too many words for the editor to swallow.

I really must get my plagiarism action against them started soon. ;)
-------------------
*Several years ago, I even specified WHEN the run on the dollar will occur: In the 6 year window Oct 2008 till Oct 2014, with the first three years much more probably than the last three the way things are going now.

Hey Billy!

I just came across this article on my blog feeds.

http://falkvinge.com/2008/03/why-us-is-collapsing.html

What is your opinion of it?

I'm particularly interested in your opinion on the Bretton Woods system, the Nixon shock and the fractional reserve banking system.

Their current issue's cover article on central banks / Wall Street is excellent. Basically it says "Ben did good.” with creative action on Bear Stearns, but...
It is at:

http://www.economist.com/opinion/displaystory.cfm?story_id=10880718



I don't know that I agree with the Economist. They like the avoiding of the near term crisis by the government intervening to preserve th value of the sorts of derivatives that Bear Stearns was involved with.

I am not sure that propping up an unsustainable economy is a good thing. Let's have our shock and get it over with. The Economist would not agree that status quo is unsustainable .

The Thursday/Friday rise in the Dollar made no sense to me. The bigger fall in gold and oil can be attributed to them having risen too far.

Why would a fall in Gold raise the Dollar against other currencies?

A similar rise in the dollar happened after the Fed lowered rates a few months ago. It might be market manipulation. Market manipulation can't last more than a few days. Last time the dollar continued it's downward slide after a brief strange blip upwards.

You would think the Dollar would fall more against the Euro if the ECB does not lower interest rates.

I if it is tweaked a little bit don't know that I agree with the Economist. They like the avoiding of the near term crisis by the government intervening to preserve the value of the sorts of derivatives that Bear Stearns was involved with.

I am not sure that propping up an unsustainable economy is a good thing. Let's have our shock and get it over with. The Economist would not agree that status quo is unsustainable .You are correct, IMHO, including your last sentence - I.e. the Economist and I do foresee the future differently, but they have been coming around to my POV with approximately a two year time lag. - That is why I can so frequently accuse them of plagiarism. I predict that by 2010 they will have articles about the coming depression. - It is just their time lag effect which makes them currently not agree with me on that.

Specifically I said what you do that in the long run the FED's action is just starting the next (and last) "6L cycle" some time ago in post at:

http://www.sciforums.com/showpost.php?p=1502039&postcount=1

The Thursday/Friday rise in the Dollar made no sense to me. The bigger fall in gold and oil can be attributed to them having risen too far. Why would a fall in Gold raise the Dollar against other currencies?Gold and commodities, including oil rose as dollar fell with decreasing conficdence in it. (They are price in dollars.) In the short term, Ben's rather creative intervention (FED never before facilitated a takeover by direct guarantee against losses and a loan. - In the LTC case of a decade or so ago, it was by "arm twisting" that FED got others to bail them out, as I recall.)

The market liked to see Ben really had "What it takes."I.e. “Ben did good.” (short term). - See my recent post with links to the current issue of the Economist. This restored some confidence in the dollar and that "unwound" some of the move into Gold and commodities that has driven them higher in last year or so. It had little to do with the Euro.

Yes, it was "manipulation," but by Ben's FED, not some sinister market groups in secrete. And yes it will not last long in reversing the dollar's*slide down, unless the ECB does cut rates as you suggest. (They may, but as the other Economist article I gave link for describes well, the ECB staff has had a different experience - hyper inflation, which makes them more cautious about monetary stimulation than the FED, which never went thru that.)
*Gold’s pull back may still grow. –It will if one of the central banks decides to sell. The US may be forced to sell if the Treasury cannot roll the maturing notes. Either that or run the dollar printing presses (or raise interest rates – not a very Keysian choice in a recession!)

Hey Billy! ... http://falkvinge.com/2008/03/why-us-is-collapsing.html What is your opinion of it?

I'm particularly interested in your opinion on the Bretton Woods system, the Nixon shock and the fractional reserve banking system.It is too long for me to do more than skim but basically correct, I think. I not sure about the importance of music downloading for free etc and do not do that - that seems more like some agenda than significant "waterloo" of economics or fascism to me.

Yes he is right, Brentton woods did have the major effect of making the dollar the universal currency, but IMHO, it would have follow from the relative industrial might of the US after WWII by some mechanism anyway, even if there never was a Brentton Woods.

On "Nixon shock" that was also inevitable. In fact, it was an echo of the killing of the silver certificates in 1964 - I played a very very minor role in that in that I was in the crowd outside the US treasury on the last day they gave out silver dollars. Next day they repudiated the promise written on the silver certificates. After it all settled down, about a month later, I was in DC and just out of curiosity when in with one and asked for my one dollar in silver - they gave me small wax paper envelope with silver dust in it. They were then ready for me and my kind!

It was a fascinating experience. I made a post about it years ago. Few of about 5000 waiting on the streets of DC all thru the night with 1000s of dollars in cash in their pockets got in that last day. My father had $3000 in silver certificates in his all night long but did not get in. I arrived at sunrise, with only $100 saw the line and quickly understood that they was no point in going to the end of it. Talked my father out of $1000, and when line degenerated in to the chaos I expected, I fell in behind two businessmen who had driven up for Florida in hopes of getting a bag of the rare coins we knew the treasury was holding still. We knew the treasury had to let them out and some were individually worth $5000 to coin collectors - or simply repudiate the pledge printed on the silver certificates.

One of these business men had a son at Catholic university, who with 5 of his fraternity brothers, locked arms to make a "flying wedge" with the two business men protected behind it. I was just behind them and got my $1000 bag + one $100 dollar bag as that wedge plowed thru the crowd/ mob. I managed to not step on anyone they knocked down. Most valuable coin I got was worth only about $100dollars. It was one the Treasury people had missed when they rebagged the coins so no valuable ones would be given out. Eventually, about a year later they were auctioned off. My father and I split the coins that after noon - only 10 were worth more than $10 and we gave them to my children. As I emerged from a back door of the treasury with my two bags of coins, I was offered (by people who did not get in) up to $3000 dollars for the $1000 bag, but I refused. Later wished I had accepted as when my bag of coins was opened and sorted, we understood the Treasury had already gone thru it removing the very valuable coins.

More details at my old post as to how and why line collapsed, role of DC police, the Treasury guards, and an unbelievable, but true, story of how many uniform packages of money that looked like lunch bags, which the business men had brought from Florida were sold, most UNOPENED, back thru the line inside the treasury building from one total stranger to another so that only $100 bills would be counted by the single clerk attending us. - We all expected the window to slam shut any minute and did not want him slowing counting the 1000 one dollar bills in each of these lunch bags. We wanted to get to the window, and trusted we could sell the unopened bag to the next person in the line. The bags disappeared from my view around a corner. I do not know what finally happened to them. But if I had had my lunch in brown lunch bag, wrapped up with blue tape, I could have sold it for $1000 without danger as it too made its way back thru the line!

Wow that is quite something! :eek:

Specifically I said what you do that in the long run the FED's action is just starting the next (and last) "6L cycle" some time ago in post at:

http://www.sciforums.com/showpost.php?p=1502039&postcount=1

6L cycle was clever, looks true too. More liquidity is here like you called. Last time before the crash? Which sector will step up and use leverage to do which stupid thing next?

I hate debt. It leaves no room for error. It is only good if you have a sure thing or are running a Ponzi scheme and have a get out of jail free card.

That being said, a time may come soon when loading up on debt and buying assets may make sense because unexpected double digit inflation may almost be a sure thing.

Gold and commodities, including oil rose as dollar fell with decreasing conficdence in it. (They are price in dollars.) In the short term, Ben's rather creative intervention (FED never before facilitated a takeover by direct guarantee against losses and a loan. - In the LTC case of a decade or so ago, it was by "arm twisting" that FED got others to bail them out, as I recall.)

The market liked to see Ben really had "What it takes."I.e. “Ben did good.” (short term). - See my recent post with links to the current issue of the Economist. This restored some confidence in the dollar and that "unwound" some of the move into Gold and commodities that has driven them higher in last year or so. It had little to do with the Euro.

Yes, it was "manipulation," but by Ben's FED, not some sinister market groups in secrete. And yes it will not last long in reversing the dollar's*slide down, unless the ECB does cut rates as you suggest. (They may, but as the other Economist article I gave link for describes well, the ECB staff has had a different experience - hyper inflation, which makes them more cautious about monetary stimulation than the FED, which never went thru that.)
*Gold’s pull back may still grow. –It will if one of the central banks decides to sell. The US may be forced to sell if the Treasury cannot roll the maturing notes. Either that or run the dollar printing presses (or raise interest rates – not a very Keysian choice in a recession!)

Now I am hearing that the explanation for the little commodities crash was that leveraged commodity owning hedge funds got margin calls and that turned a dip into a plunge. Some say the dip in commodities was caused by profit taking in part to mask losses in credit default swaps. Then again CNBC and MarketWatch feel obligated to come up with an explanation for everything even when they also don't really understand why something happened.

I still have not heard why the Euro should dip after the Fed cuts interest rates while the ECB holds firm. I don't know who was buying dollars. Some may have expected a larger Fed rate cut.

If the US government sold gold last week that would make sense of what I saw, but I thought US government sales of gold would be in the news. maybe the US government could quietly sell Gold. Somebody sold Gold and or Gold futures and somebody bought Gold. If the sellers were American Hedge funds and the buyers were not Americans, then that could make the Dollar rise.

6L cycle was clever, looks true too. More liquidity is here like you called. Last time before the crash? Which sector will step up and use leverage to do which stupid thing next?...That being said, a time may come soon when loading up on debt and buying assets may make sense because unexpected double digit inflation may almost be a sure thing.Thanks - I thought so too, but my "6L cycle" phrase did not catch on.

As far as "the next sector" to "bubble" that is both hard to call and I think probably "non-existent". I.e. the problem as I see it is that it will not be limited to one sector. In dollar terms the whole economy will "bubble" (Except perhaps some regulated monopolies will not get to adequately raise their prices fast enough to compensate for the falling dollar. - Hence, perhaps some electric company will just stop making power at a loss.)

If that is correct, your final observation may be great idea. Load up on fixed rate debt to buy something of real and lasting value. Perhaps that may even be part of why it is so hard to borrow now - too many want to do just that.

Years ago, with sort of that same idea, I thought it would be both fun and profitable to learn how to make silver articles for sale. - That was when silver was less than $4/oz. My idea was buy some silver for $X and sell fabricated articles for at least $3X. I figured some sex related silver "art work" would be easy make* and to sell at only 3 or 4 times it melt-down value. Then with my ~ $3X profit 100% reinvested to buy more silver next stage was a $9X sale etc. I even contacted Handy and Harding, I think it was, to get details on buying silver in bulk, but unfortunately real life got in the way so I not make my millions that way.
--------------
*Grease up the original, pour liquid rubber over it. When rubber mold is dry
peal it off. Then (and this my "special touch") purposely distort the mold before pouring the wax in.- As each distortion would be unique and different from the original "original" - all my products would be originals. Next step is of course to make plaster of Paris female mold over the wax and then melt out the wax to pour the molten silver into the plaster of Paris mold. (This is the so called "lost wax" method is easy cheap way to make copies, but my mod of it with intentional distortions it makes "originals," especially if you do a little finishing work on them by hand and engrave some name on the bottom, like "Picassio" to legally boost their value by confusion.) It is much easier to make these solid items than the typical hollow ones,

After a few years, your "working inventory" of silver is more than 1000 pounds and you have many finished pound or so items that all will recognize has having "intrinsic value" when dollar is mainly good for toilet paper.

If you do this, tell me. - I will then tell you where to send me my free silver "original"

Billy T,
The "6L Cycle":

LIQUIDITY caused the “dot.com bubble.” When it burst Greenspan’s FED, fearful that the world was heading into recession, possibly becoming a depression, pumped out more money. This lead to:
Billy, I think I will critique your "6L Cycle" a little. I am no economist, but I do see some omissions and generalizing to a fault. Liquidity did not cause the dot.com bubble, excess speculation did. Speculators poured money into anything with 'dot.com' attached to the name, with no emphasis on the fundamentals of the 'business'. That caused the bubble, much the same as the more recent speculators bought properties in 'hot' markets hoping to resell at a profit at a later date. All bubbles will eventually burst, catching the later investors in the pyramid scheme.
LOANS to unqualified people, who could not afford the house they bought, but both buyer and lender were confident that rising home prices would bail them out of any trouble, and it did for several years. The buyers refinanced their mortgage at lower rates provided by the FED and often for longer terms with lower monthly payments once they had some unrealized capital gain. This put cash in their pockets, which they quickly spent. This lead to a:
The FED does not (not in the past, anyway) make mortgage loans or refinance loans. They made low-interest, short term loans to regular BANKS, not the non-banks that were mostly responsible for those new financial 'gadgets'. These new players were the Investment 'non-banks', hedge funds, etc. Regular commercial and consumer banks are limited by regulations as to the amount they can leverage, usually to have at least 1/9 of their assets as cash on hand. Those new players in the mortgage market, such as Bear Stearns, had no such regulations. Even CountryWide Financial, the largest mortgage writer, was not a true bank and was not regulated as one. That led to outlandish leverage of their capital, such as the $34 dollars in loans for each dollar of capital they had. Like the dot.com bubble, their pyramid scheme was destined to fail if there was a downturn in property values. But also like the dot.com bubble, the burst also affected financial institutions that were more conservative in their loans.
LINKAGE between increasing home price and the general economic prosperity, but jobs were being exported and “Mac –Jobs” replaced the lost higher-paying factory jobs. Joe American’s real wages went down for a several years and his ability to carry his mortgage decreased. That is his home became a:
Yes, losing factory jobs definately hurt the low and lower-middle income Americans, as well as the economic health of the US. The 'service sector' also includes the