U.S. Economy

QueEx · Nov 13, 2006

Re: U.S. economist wins Nobel for work on inflation, jobs

<center>Global Market Brief:
A Look Ahead -- The Next Big One</center>

STRATFOR
November 09, 2006 2306 GMT

The U.S. economy is decelerating and will bottom out in the first half of 2007. The dreaded word "recession" might not be appropriate to use, because the United States might not actually meet the technical definition of two consecutive quarters of negative growth.

But a slowdown is clear. The yield curve has been inverted for months (which indicates money is being used irrationally); productivity gains have now fallen below gross domestic product (GDP) growth while labor costs are rising (which indicates the labor market is overheated); and the housing sector -- red hot for nearly a decade -- has finally lost steam.

However, there is no looming disaster about to befall the U.S. economy, or a structural imbalance that will imminently tear the system apart. The trade deficit is not a concern, and the budget deficit is not the monster it once appeared to be turning into. And no matter what one might think of a Republican, Democrat or split Congress, it is a rarity when the legislature's decisions affect the economy on a time frame of less than a year. Every aspect of this slowdown appears to be part and parcel of a normal economic cycle. The fundamentals of the American economy -- cultural, political and financial -- remain sound.

For now.

From time to time Stratfor takes the long view, peering ahead to spotlight the development trends that are as critical as they are unavoidable. Now is one of those times.

Money, Money Everywhere

Ultimately, long-term economic trends filter out much of what happens in the day-to-day life of policymakers. Those policymakers can shape the underlying strengths and weaknesses of an economy -- and that is indeed important, as they determine the relative speed of growth that an economy can achieve -- but they have very little control over the macroenvironment that dictates the range of possibilities in which policymakers play.

The macroenvironment of the past 15 years has been remarkably conducive to strong growth in the United States. Do not confuse this with specifics of the U.S. system of mass education, reward for risk, functional bankruptcy laws, a mobile population, enthusiasm for technology, relatively uncorrupt culture or any of the other factors that help spark growth. What is being discussed is the overarching environment in which the United States and the rest of the economies in the world swim.

The single most notable characteristic of that environment has been cheap -- extraordinarily cheap -- credit. Stratfor and others have made much of the idea that the Asian economies function on a system of cheap credit to stimulate their economies. In most Asian states -- with China and Japan atop the list -- the state actively intervenes in the financial system to ensure that anyone who needs cash can get access to loans at well-below-market rates, regardless of the soundness of the borrower's business plan.

In such systems the concern is not for profitability, but instead for market share and mass employment. Consequently, firms that would have been shut down in the United States because they cannot make money (to be more accurate, they bring in plenty of revenues, they just cannot break even) are habitually allowed to continue operating. We will not deal with the consequences of this system here (interested readers can follow these links for Stratfor's take on the situations in China and Japan) but these states do not operate in a vacuum. Their financial choices affect the rest of the planet because their artificially cheap credit does not halt at their borders.

Japan's cheap credit policies have flooded the system with more than $1 trillion in yen as Japanese firms tap that credit for international operations. China's system -- not even touching private or state-firm capital flight -- has resulted in $1 trillion in U.S. Treasury bond purchases. By an extraordinarily conservative measure that does not even take into account Taiwan, South Korea or any of the other Asian states that have modifications on the theme, Asia has added $2 trillion in cheap cash to the system.

And that is the small end of this picture. The real source of cash is not in Asia, but right here in the United States.

Baby Boom Bomb

From a financial viewpoint, people fall into three categories. First are the young workers who are buying homes and raising children. Aside from those lucky enough to have an income that allows it all to be done with cold hard cash, these people have to borrow. They need to get a mortgage, maybe even a second one when it is time to think about college for the kids. Living from paycheck to paycheck -- or credit card statement to credit card statement -- is a way of life. Young workers consume credit, and lots of it.

Second are the mature workers. The mortgage is paid off and their house moves from their debt sheet to their asset list. The kids are moved out and through college. Such workers' debts are paid off and they are preparing for retirement. Money that once went to the children or the mortgage or to interest payments on credit cards now goes into a variety of savings and investments. These mature workers generate the credit the young workers consume.

Finally, there are the retirees who live off of their savings and who want no surprises. They move the vast majority of their investments from the adrenaline-provoking roller coasters that are the stock and private bond markets, and into the sedate world of government Treasury bills. With every year their nest egg shrinks a little bit.

And so the system flows: People turn from ravenous credit consumers to seasoned credit suppliers and eventually withdraw from the system altogether. The system works well so long as the demographic forces remain in balance, so long as there are enough mature workers to support the young workers and so long as the retirees do not pull too much money out of the system.

It is this demographic balance that is shifting.

In the United States the baby boomers are the mature worker generation. They are the largest population cohort that the United States has ever produced (as measured by their percentage of the total population). Beginning in the early 1990s their kids started leaving college, and as of 2006 nearly all of their kids have moved on to their own lives. Some of the older baby boomers are already starting to take early retirement, but the bulk of them will not leave the work force until after 2012. It is the baby boomers who have supplied the bulk of the working capital for the United States for the past 15 years. Their investments -- well out of proportion to what any generation before them has ever been able to provide -- caused the low interest rate environment of the 1990s and 2000s, and single-handedly funded the most expensive and revolutionary transformation the U.S. economy has ever experienced: the computer revolution.

When the baby boomers retire en masse, that surge of capital will simply go away, being poured into government bonds. Replacing them in their role as the country's financiers will be Generation X, the children of today's newest crop of retirees, the war babies. And unlike the baby boomers, there are very few members of Generation X. In fact, they are the smallest population cohort that the country has ever produced (again, as measured by their percentage of the total population). Collectively Generation X cannot hope to hold a candle to the amount of money the baby boomers have proven able to sock away these past 15 years.

Consuming this reduced pool of credit will be another large population cohort, the baby boomers' kids: Generation Y. Often called the echo boomers, Generation Y is nearly as large a population cohort as their parents. And they are about to need loads of credit for their own kids, cars and homes.

Replace the baby boomers with the numerically smaller Xers and add in the demands of the numerically larger Yers, and the United States faces an inversion of the credit environment. Instead of a large generation supplying credit to a small generation, soon a small generation will be supplying credit to a large one.

Getting By With Less

A reduced supply of capital and credit has two implications. First and most obvious, the cost of financing the purchase of anything -- whether a group of aircraft carriers or a staple gun -- will go up. Fewer people and governments will be able to afford the payments that go along with higher interest costs, leading to reduced consumption and slower growth across all sectors and economies. All in all this is horrible news for anyone who is not one of the Generation Xers, who will be able to demand top dollar for their scarce investment dollars.

Second, a smaller pool of anything -- credit, in this instance -- results in a smaller margin for error. Economists have a fancy bit of jargon they use to describe this: volatility. Supply crunches are rare occurrences in well- or over-supplied markets. Lower availability means not only lower growth, but that the swings between booms and busts will be far more rapid and disruptive.

And that is the good news.

Japan had something similar to the U.S. baby boomer bulge, but instead of peaking now, it peaked in 2000. Instead of capitalizing on that population bulge as the United States did with the computer revolution, Japan squandered the opportunity on chronic deficit spending and now faces a national debt that is the largest in human history (and still getting bigger). Japan faces a 20-year dearth of credit as its post-World War II baby bust takes over the reins of capital formation. And after a brief respite from Japan's 1970s baby boom, the country faces a credit collapse.

Such "population chimneys" -- a term that describes how a population bell hollows out over time because of reductions in the birth rate -- are not limited to the developed countries. Russia's post-Cold War trauma has given it a demographic picture that is worse than even Japan's, and though 60 years of China's one-child policy has indeed slowed population growth to a crawl, it has done so at the expense of unbalancing the country's demographics. On average, every four Chinese grandparents now have but one grandchild. The only major economy in the world that has a "traditional" population bell curve is India, a country that has never been an exporter of capital.

A Bit of Good News

Unlike Japan, Germany or China, the United States has a generation waiting in the wings to take the baton from Generation X. There are a lot of Generation Yers, and when they mature into providers of credit in their own right, the spot that today's baby boomers are just now beginning to step out of, much of this demographic/financial imbroglio will rectify itself. That, however, is some time off; it will not happen until today's college students not only have kids, but have put those kids through college themselves. Until then, the forecast is for more and more expensive credit in the United States and internationally -- for upward of the next 40 years.

CHINA: The Beijing No. 1 Intermediate People's Court on Nov. 6 identified IBM as one of three companies that Zou Jianhua introduced to Chairman Zhang Enzhao of the China Construction Bank Corp. Zou -- who is said to have promoted the use of IBM equipment at the bank -- has been indicted for paying approximately $340,000 in bribes to Zhang, who was sentenced to jail Nov. 2. The court assumes IBM paid $225,000 to Zhang. This is latest in a long series of such cases that have embarrassed China's banking industry. Chinese banks are in the midst of trying to raise foreign capital to modernize operations in preparation for China's December World Trade Organization deadline to open its financial market to foreign competitors. However, these scandals do not seem to have shaken investor enthusiasm for Chinese banks, if the recent successful $9.2 billion initial public offering of China's Construction Bank is any indication.

VIETNAM: The World Trade Organization (WTO) on Nov. 7 formally invited Vietnam to become a member. The invitation comes after more than a decade of entry talks. During that time, Vietnam has gradually reduced tariff levels and agreed to open its banking sector. The country has already successfully completed bilateral trade agreements with the European Union, Japan and Australia. As a WTO member, Vietnam will likely enjoy increased foreign investment and will benefit from the removal of quotas on its textile exports to the United States and Europe. However, Vietnam will be forced to stop giving subsidies and tax breaks to domestic companies and must continue to open its markets to foreign competition. Vietnam's legislative National Assembly must still ratify the conditions of membership, 30 days after which Vietnam will officially become a member.

ARGENTINA/VENEZUELA: Argentina and Venezuela's ministers of finance and economy announced Nov. 8 that they will sell $1 billion in an joint bond issue. The plans were first announced by the two countries in July. The move is unprecedented; joint sovereign bonds have never been issued by any country. The decision to issue a joint bond appears to be politically motivated; Argentina has a close financial relationship with Venezuela, from which it has borrowed more than $3.2 billion in the past year. Both countries have relatively easy access to local capital markets, where the bonds will be issued. However, Argentina remains unable to issue debt in international markets without risking the seizure of funds by holdout investors who did not agree to Argentina's previous debt restructuring and who hold $20 billion in untendered debt.

GULF OF MEXICO: Norwegian oil company Statoil has expanded its drilling in the U.S. sector of the Gulf of Mexico with the acquisition of deepwater stakes from Anadarko Petroleum Corp., representatives from both companies said Nov. 6. Statoil is the world's second-largest subsea operator and has extensive expertise in deepwater extraction.

INDIA: Local police in the Indian capital of New Delhi had to use tear gas and water cannons this week to disperse violent demonstrators who were protesting a government sealing drive against illegally constructed businesses. Protesters blocked traffic, and commercial truckers in the city, who operate more than 80,000 commercial trucks in Delhi every day, have joined in the demonstration to pressure the government to aid the traders in stalling the sealing drive. The truckers have lost a great deal of business from the traders, who have closed their shops in protest. With the truckers on strike, businesses throughout New Delhi have been roped into the conflict. The protesters are also looking to India's well-organized medical and legal associations to join in the demonstrations. The government will most likely be forced to stall the sealing drive once again to bring daily life in the capital back to normal, but in the meantime the protests serve as an example of the difficulties of enforcing controversial legislation in India.

GERMANY: Germany's five "wise men" of independent government-sponsored economics late Nov. 8 issued a damning evaluation of the government's economic plan and inability to overcome political impasses to achieve structural reforms, saying that economic policy was following a "slow-moving zigzag course without a recognizable strategy" and was all the more "disappointing" because "the year 2006 offered not only good political conditions" for decisive reforms "but also the most supportive cyclical environment in years."

`

muckraker10021 · Mar 7, 2007

Take the story headline below
-U.S. economy leaving record numbers in severe poverty-
put it in quotes (“U.S. economy leaving record numbers in severe poverty”)
and paste it into the search engine Google or Yahoo or Ask or Altavista or AllTheWeb.

Look at the results on page one. You will see that this story appeared everywhere EXCEPT the so called mainstream media. CBS, ABC, NBC, CNN, Wash. Post. NY Times, LA Times, <s>FOX</s> Fake, etc.

The story originates from McClatchy Newspapers which is the Second-largest newspaper publisher in the United States. The story with 18 pages of graphs, charts and statistics was included in the Goldman Sachs research that I receive.

Why did the mainstream media white-out of the substance of this story???? No 60 minutes report, No Dateline report, No 20/20 report. If you’ve been watching the excellent four part series NEWS WARS on FRONTLINE you know that McClatchy Newspapers was the ONLY national media that reported before the invasion of Iraq that the Bush camarilla’s “weapons of mass destruction” mantra was BULLSHIT.

The second article is about the people who are presented to us incessantly in the so-called mainstream media; The 1/10th of 1 %.
How much do you have to earn as of 2006 to be in the 1/10th of 1 %?
The answer is $133,000. or more Monthly.
Let’s put that $133,000.+ a month in income into perspective.
51.7% of ALL American earn less than $31,000. per year.
66% of ALL Americans pay more in Social Security & Medicare than they pay in income taxes.
Remember Social Security & Medicare taxes STOP on all earned income above $97,000.
Corporate income taxes as a percentage of TOTAL income taxes collected has fallen from 23% in 1971 to the lowest it has ever been which was 6% in 2005. If bush corporate income tax cuts continue it will fall to 4% by 2008. The US tax burden has been shifted onto the American working class. The American working classes wages have been stagnant for the past seven years. It will get worse. The American auto industry is effectively gone! The American steel industry is gone. The American trucking industry will be next. Bush has proposed to allow Mexican truckers who make 7 to 8 bucks an hour with NO health care benefits or 401k type programs to be allowed to drive their trucks as far north as the Canadian border. This will kill American truckers who currently can easily make $80,000.-$120,000 per year. They will be wiped out. This war on the backbone of America, the middle class can only be halted by an awakened populace and a Democratic congress that hasn’t already sold their souls to the corporate fascist. Oh by the way, Americas highways are being sold off to foreign corporations. My former employer Goldman Sachs is the prime facilitator and financial advisor for these highway sales. You can read all about it here.
READ – The Highwaymen

 
<hr noshade color="#0000ff" size="6"></hr>

U.S. Economy Leaving Record Numbers in Severe Poverty



Feb. 22, 2007

McClatchy Newspapers

By Tony Pugh

WASHINGTON - The percentage of poor Americans who are living in severe poverty has reached a 32-year high, millions of working Americans are falling closer to the poverty line and the gulf between the nation's "haves" and "have-nots" continues to widen.

A McClatchy Newspapers analysis of 2005 census figures, the latest available, found that nearly 16 million Americans are living in deep or severe poverty. A family of four with two children and an annual income of less than $9,903 - half the federal poverty line - was considered severely poor in 2005. So were individuals who made less than $5,080 a year.

The McClatchy analysis found that the number of severely poor Americans grew by 26 percent from 2000 to 2005. That's 56 percent faster than the overall poverty population grew in the same period. McClatchy's review also found statistically significant increases in the percentage of the population in severe poverty in 65 of 215 large U.S. counties, and similar increases in 28 states. The review also suggested that the rise in severely poor residents isn't confined to large urban counties but extends to suburban and rural areas.

The plight of the severely poor is a distressing sidebar to an unusual economic expansion. Worker productivity has increased dramatically since the brief recession of 2001, but wages and job growth have lagged behind. At the same time, the share of national income going to corporate profits has dwarfed the amount going to wages and salaries. That helps explain why the median household income of working-age families, adjusted for inflation, has fallen for five straight years.

These and other factors have helped push 43 percent of the nation's 37 million poor people into deep poverty - the highest rate since at least 1975.

The share of poor Americans in deep poverty has climbed slowly but steadily over the last three decades. But since 2000, the number of severely poor has grown "more than any other segment of the population," according to a recent study in the American Journal of Preventive Medicine.

"That was the exact opposite of what we anticipated when we began," said Dr. Steven Woolf of Virginia Commonwealth University, who co-authored the study. "We're not seeing as much moderate poverty as a proportion of the population. What we're seeing is a dramatic growth of severe poverty."

The growth spurt, which leveled off in 2005, in part reflects how hard it is for low-skilled workers to earn their way out of poverty in an unstable job market that favors skilled and educated workers. It also suggests that social programs aren't as effective as they once were at catching those who fall into economic despair.

About one in three severely poor people are under age 17, and nearly two out of three are female. Female-headed families with children account for a large share of the severely poor.

Nearly two out of three people (10.3 million) in severe poverty are white, but blacks (4.3 million) and Hispanics of any race (3.7 million) make up disproportionate shares. Blacks are nearly three times as likely as non-Hispanic whites to be in deep poverty, while Hispanics are roughly twice as likely.

Washington, D.C., the nation's capital, has a higher concentration of severely poor people - 10.8 percent in 2005 - than any of the 50 states, topping even hurricane-ravaged Mississippi and Louisiana, with 9.3 percent and 8.3 percent, respectively. Nearly six of 10 poor District residents are in extreme poverty.

`'I DON'T ASK FOR NOTHING'

A few miles from the Capitol Building, 60-year-old John Treece pondered his life in deep poverty as he left a local food pantry with two bags of free groceries.

Plagued by arthritis, back problems and myriad ailments from years of manual labor, Treece has been unable to work full time for 15 years. He's tried unsuccessfully to get benefits from the Social Security Administration, which he said disputes his injuries and work history.

In 2006, an extremely poor individual earned less than $5,244 a year, according to federal poverty guidelines. Treece said he earned about that much in 2006 doing odd jobs.

Wearing shoes with holes, a tattered plaid jacket and a battered baseball cap, Treece lives hand-to-mouth in a $450-a-month room in a nondescript boarding house in a high-crime neighborhood. Thanks to food stamps, the food pantry and help from relatives, Treece said he never goes hungry. But toothpaste, soap, toilet paper and other items that require cash are tougher to come by.

"Sometimes it makes you want to do the wrong thing, you know," Treece said, referring to crime. "But I ain't a kid no more. I can't do no time. At this point, I ain't got a lotta years left."

Treece remains positive and humble despite his circumstances.

"I don't ask for nothing," he said. "I just thank the Lord for this day and ask that tomorrow be just as blessed."

Like Treece, many who did physical labor during their peak earning years have watched their job prospects dim as their bodies gave out.

David Jones, the president of the Community Service Society of New York City, an advocacy group for the poor, testified before the House Ways and Means Committee last month that he was shocked to discover how pervasive the problem was.

"You have this whole cohort of, particularly African-Americans of limited skills, men, who can't participate in the workforce because they don't have skills to do anything but heavy labor," he said.

'A PERMANENT UNDERCLASS'

Severe poverty is worst near the Mexican border and in some areas of the South, where 6.5 million severely poor residents are struggling to find work as manufacturing jobs in the textile, apparel and furniture-making industries disappear. The Midwestern Rust Belt and areas of the Northeast also have been hard hit as economic restructuring and foreign competition have forced numerous plant closings.

At the same time, low-skilled immigrants with impoverished family members are increasingly drawn to the South and Midwest to work in the meatpacking, food processing and agricultural industries.

These and other factors such as increased fluctuations in family incomes and illegal immigration have helped push 43 percent of the nation's 37 million poor people into deep poverty - the highest rate in at least 32 years.

"What appears to be taking place is that, over the long term, you have a significant permanent underclass that is not being impacted by anti-poverty policies," said Michael Tanner, the director of Health and Welfare Studies at the Cato Institute, a libertarian think tank.

Arloc Sherman, a senior researcher at the Center on Budget and Policy Priorities, a liberal think tank, disagreed. "It doesn't look like a growing permanent underclass," said Sherman, whose organization has chronicled the growth of deep poverty. "What you see in the data are more and more single moms with children who lose their jobs and who aren't being caught by a safety net anymore."

About 1.1 million such families account for roughly 2.1 million deeply poor children, Sherman said.

After fleeing an abusive marriage in 2002, 42-year-old Marjorie Sant moved with her three children from Arkansas to a seedy boarding house in Raleigh, N.C., where the four shared one bedroom. For most of 2005, they lived off food stamps and the $300 a month in Social Security Disability Income for her son with attention deficit hyperactivity disorder. Teachers offered clothes to Sant's children. Saturdays meant lunch at the Salvation Army.

"To depend on other people to feed and clothe your kids is horrible," Sant said. "I found myself in a hole and didn't know how to get out."

In the summer of 2005, social workers warned that she'd lose her children if her home situation didn't change. Sant then brought her two youngest children to a temporary housing program at the Raleigh Rescue Mission while her oldest son moved to California to live with an adult daughter from a previous marriage.

So for 10 months, Sant learned basic office skills. She now lives in a rented house, works two jobs and earns about $20,400 a year.

Sant is proud of where she is, but she knows that "if something went wrong, I could well be back to where I was."

`'I'M GETTING NOWHERE FAST'

As more poor Americans sink into severe poverty, more individuals and families living within $8,000 above or below the poverty line also have seen their incomes decline. Steven Woolf of Virginia Commonwealth University attributes this to what he calls a "sinkhole effect" on income.

"Just as a sinkhole causes everything above it to collapse downward, families and individuals in the middle and upper classes appear to be migrating to lower-income tiers that bring them closer to the poverty threshold," Woolf wrote in the study.

Before Hurricane Katrina, Rene Winn of Biloxi, Miss., earned $28,000 a year as an administrator for the Boys and Girls Club. But for 11 months in 2006, she couldn't find steady work and wouldn't take a fast-food job. As her opportunities dwindled, Winn's frustration grew.

"Some days I feel like the world is mine and I can create my own destiny," she said. "Other days I feel a desperate feeling. Like I gotta' hurry up. Like my career is at a stop. Like I'm getting nowhere fast. And that's not me because I've always been a positive person."

After relocating to New Jersey for 10 months after the storm, Winn returned to Biloxi in September because of medical and emotional problems with her son. She and her two youngest children moved into her sister's home along with her mother, who has Alzheimer's. With her sister, brother-in-law and their two children, eight people now share a three-bedroom home.

Winn said she recently took a job as a technician at the state health department. The hourly job pays $16,120 a year. That's enough to bring her out of severe poverty and just $122 shy of the $16,242 needed for a single mother with two children to escape poverty altogether under current federal guidelines.

Winn eventually wants to transfer to a higher-paying job, but she's thankful for her current position.

"I'm very independent and used to taking care of my own, so I don't like the fact that I have to depend on the state. I want to be able to do it myself."

The Census Bureau's Survey of Income and Program Participation shows that, in a given month, only 10 percent of severely poor Americans received Temporary Assistance for Needy Families in 2003 - the latest year available - and that only 36 percent received food stamps.

Many could have exhausted their eligibility for welfare or decided that the new program requirements were too onerous. But the low participation rates are troubling because the worst byproducts of poverty, such as higher crime and violence rates and poor health, nutrition and educational outcomes, are worse for those in deep poverty.

Over the last two decades, America has had the highest or near-highest poverty rates for children, individual adults and families among 31 developed countries, according to the Luxembourg Income Study, a 23-year project that compares poverty and income data from 31 industrial nations.

"It's shameful," said Timothy Smeeding, the former director of the study and the current head of the Center for Policy Research at Syracuse University. "We've been the worst performer every year since we've been doing this study."

With the exception of Mexico and Russia, the U.S. devotes the smallest portion of its gross domestic product to federal anti-poverty programs, and those programs are among the least effective at reducing poverty, the study found. Again, only Russia and Mexico do worse jobs.

One in three Americans will experience a full year of extreme poverty at some point in his or her adult life, according to long-term research by Mark Rank, a professor of social welfare at the University of Wisconsin, Madison.

An estimated 58 percent of Americans between the ages of 20 and 75 will spend at least a year in poverty, Rank said. Two of three will use a public assistance program between ages 20 and 65, and 40 percent will do so for five years or more.

These estimates apply only to non-immigrants. If illegal immigrants were factored in, the numbers would be worse, Rank said.

"It would appear that for most Americans the question is no longer if, but rather when, they will experience poverty. In short, poverty has become a routine and unfortunate part of the American life course," Rank wrote in a recent study. "Whether these patterns will continue throughout the first decade of 2000 and beyond is difficult to say ... but there is little reason to think that this trend will reverse itself any time soon."

'SOMETHING REAL AND TROUBLING'

Most researchers and economists say federal poverty estimates are a poor tool to gauge the complexity of poverty. The numbers don't factor in assistance from government anti-poverty programs, such as food stamps, housing subsidies and the Earned Income Tax Credit, all of which increase incomes and help pull people out of poverty.

But federal poverty measures also exclude work-related expenses and necessities such as day care, transportation, housing and health care costs, which eat up large portions of disposable income, particularly for low-income families.

Alternative poverty measures that account for these shortcomings typically inflate or deflate official poverty statistics. But many of those alternative measures show the same kind of long-term trends as the official poverty data.

Robert Rector, a senior researcher with the Heritage Foundation, a conservative think tank, questioned the growth of severe poverty, saying that census data become less accurate farther down the income ladder. He said many poor people, particularly single mothers with boyfriends, underreport their income by not including cash gifts and loans. Rector said he's seen no data that suggest increasing deprivation among the very poor.

Arloc Sherman of the liberal Center on Budget and Policy Priorities argues that the growing number of severely poor is an indisputable fact.

"When we check against more complete government survey data and administrative records from the benefit programs themselves, they confirm that this trend is real," Sherman said. He added that even among the poor, severely poor people have a much tougher time paying their bills. "That's another sign to me that we're seeing something real and troubling," Sherman said.

---

States with the most people in severe poverty:

California - 1.9 million

Texas - 1.6 million

New York - 1.2 million

Florida - 943,670

Illinois - 681,786

Ohio - 657,415

Pennsylvania - 618,229

Michigan - 576,428

Georgia - 562,014

North Carolina - 523,511

Source: U.S. Census Bureau

---

© 2007, McClatchy-Tribune Information Services.

<hr noshade color="#333333" size="6"></hr>

INSIDE THE BILLIONAIRE SERVICE INDUSTRY


Need designer lighting for your jet? Fancy a dressage horse for your daughter? Have staffing issues in your 50,000-square-foot house? A growing army of experts stands ready to bear any burden for the ultrarich 



The Atlantic Monthly | September 2006

BY SHEELAH KOLHATKAR 

http://www.theatlantic.com/doc/prem/200609/billionaire-service

The gap between the rich and the poor has been growing wider for some time, but the really rich have now achieved escape velocity. They have far more money than ever before—and a mind-boggling number of decisions to make about spending it. The “ultrarich"—loosely defined as those with investable assets of more than $30 million—often lead tremendously complicated lives. There are approximately 30,000 such people based in the United States, and nearly 50,000 elsewhere in the world, according to Capgemini and Merrill Lynch’s World Wealth Report of 2005. They are the aristocracy of a new Gilded Age—and providing services to them has turned into a gold rush.

Becoming wealthy in the first place might seem like the hard part, but once a person has money, other real challenges present themselves: What kind of rich person does one want to be? Is a sprawling mansion or a slender townhouse preferable? Should one build a game park or an English garden? And then there is the matter of figuring out who should look after all these things. To hear the caretakers of the ultrarich describe it, the wealthiest among us are like dinghies adrift on the open sea—lost in their money and the endless options that come with it. (You could call it “Overwhelmed Billionaire Syndrome.”) Fortunately, the free market will provide: an army of experts has sprung up to help them navigate their lives.
One of these experts is Natasha Pearl, a former management consultant who was trekking through Nepal five years ago when she realized what she was put on earth to do: help the wealthiest people make their lives easier. She came home and transformed herself into a “lifestyle consultant,” and she hasn’t looked back.

Some of Pearl’s customers have problems that the merely upper-middle class could hardly conceive of. She has helped parents look into buying a $40,000 dressage horse for their daughter to ride while away at college, sorted through museum-quality art collections forgotten in storage, and found an expert to negotiate aircraft leases. One family considered hiring her to find public- relations specialists who could help with crisis management—basically, to keep them out of the news and off the Forbes 400 list. (Getting on the list may be a triumph in some circles, but in others it’s even better to stay off.) And a young hedge-fund manager asked Pearl if she could find someone to identify the best parties in New York, Las Vegas, and Los Angeles each week—and to make sure he was invited. (She turned down this assignment.)

Business for consultants like Pearl isn’t likely to slow down anytime soon. A look at the wealthiest Americans reveals that those at the very pinnacle—the top 0.1 percent—have done so well in recent years that everyone else is eating their (gold) dust. An analysis by David Cay Johnston in The New York Times found that the average annual inflation-adjusted income of this group increased by two and a half times, to $3 million, from 1980 to 2002. The average net worth of those on the Forbes 400 list has mushroomed in the last twenty years, rising from $390 million to $2.8 billion, and the number of U.S. billionaires has increased over that same time from thirteen to 374. By some measures, the fortunes of today’s richest people are as concentrated as those of their predecessors in the Roaring Twenties and the robber-baron era of the late 1800s.

In the meantime, America’s less fortunate have seen their share of the country’s wealth drop—but there’s nothing like shopping to ease the pain! Lubricated with cheap credit and the social acceptability of carrying huge amounts of personal debt, Americans at all income levels pile into the luxury marketplace alongside those who can actually afford to shop there. And so the truly wealthy have had to get more creative about spending money in order to distinguish themselves from the shopgirls waiting on them, who are likely to be carrying the same Hermès handbag (or at least a convincing knockoff). One way to set themselves apart is by pouring resources into experience and “lifestyle.”

All manner of professionals see a future in whispering into billionaires’ ears. (It would be a decidedly “soft” science, but one can imagine “helicopter-fleet management” becoming a university degree.) Like any subculture, this piece of the service sector comes with its own assumptions and its own delusions. Its practitioners are as slick and on-message as a group of Wharton-trained management consultants. Plenty of self-aggrandizing jargon gets thrown around: terms like ultra-high net worth are mixed in with Jack Welch–style business talk; rich people are principals, and even the most minute aspects of their lives require management in order to be optimized. This work requires subtlety, even amateur psychoanalysis; those providing the services are selling trust to people with unlimited resources, coaxing them into articulating their dissatisfactions and then doing something about them (which usually means spending boatloads of money). Sometimes pie charts are involved.

The job isn’t all champagne and roses. “You have to be selective,” says Mark Hancock, a managing director at Tiedemann Trust Company who handles finances for eight ultrarich families. “I’m not just taking any multibillionaire off the street. These people are typically control freaks—extremely focused, sometimes extremely difficult. You don’t become a billionaire by just sitting passively by.”

The wealthier the client is, the more options there are for insourcing advice on how to spend creatively. Pearl touts her company, Aston Pearl, as “The Private Bank for Everything Except Money,” and she comes armed with a Rolodex that would make a village yenta proud: 3,800 names in 267 subcategories, including “designers of lighting for Gulfstream aircraft” and “specialists in seventeenth-century hand colored maps.” Once all those advisers are hired, they need to be managed, transforming the wealthy person into a corporation in miniature.
Her sense that the ultrarich are sometimes almost helpless when confronted with the challenges of everyday life infuses Pearl with compassion; she sees her job as a combination of sales and public service. Around the next corner, for example, an opportunistic decorator might be lurking, hoping to bilk an unsuspecting billionaire on overpriced housewares. (Recall the former Tyco CEO Dennis Kozlow¬ski’s explanation of the wildly extravagant shower curtain found in his apartment after he was indicted: “I understand why a $6,000 shower curtain seems indefensible,” he told The New York Times. “But I didn’t even know about it. I just wasn’t even aware of it.”) “The wealthiest people are very vulnerable to being taken advantage of,” Pearl says, her voice taking on an urgent tone. “New money doesn’t know what things cost, because they’ve never bought a Mercedes Maybach or a $10 million home. And old money also has difficulties, because they’re shielded from these things. They don’t shop, generally. They have people shopping for them.”

Even vacationing is no simple matter. For the ultrarich, time-shares have morphed into “destination clubs.” At the travel firm Tanner & Haley, for example, $1.5 million up front—an “investment” that may be resold at market value when the client leaves—and an annual fee of $75,000 buys a membership to the company’s “Legendary Retreats": thirty-four homes around the world, each worth $7 million to $10 million. “Some people really care about doing it as well as it can possibly be done,” says Rob McGrath, Tanner & Haley’s CEO. “If you end up in a house in Telluride that has a bowling alley in it, a game room, a staff of nine, twenty-seven TVs, and a private chef, and you’re right on the slopes, and you fly in on your Lear 60, that’s pretty damn good.”

A comparable level of exclusivity is available to the well-heeled patient wanting insulation from the American health-care system. For initiation fees of $1,000 to $15,000 and annual dues of between $2,500 and $50,000 (six levels of membership are available), a company called PinnacleCare assigns “advocates” who will manage a client’s health care—investigating specialists and medical research, securing access to top doctors, and juggling appointments. (The cost of the treatment itself is separate.) Nearly all of the advocates are women, and they exude a motherly efficiency, cooing to their clients and sweet-talking the surgeons. But one suspects that their claws come out when necessary. Having an advocate present during a hospital stay, one client said, is like having an extremely knowledgeable relative on hand for hours a day, exerting relentless pressure to get whatever the patient needs.

The ultrarich often have a “fix me, get me surgery right away” attitude, and will pay handsomely to have it accommodated, says John Hutchins, who cofounded Pinnacle in 2002. (He was the director of international services at Johns Hopkins Hospital from 1994 to 2001, and held a similar post at the Cleveland Clinic before that; both were treatment centers of choice for sheikhs, Latin American moguls, and other well-connected foreigners.) I heard of one family that kept a group of doctors on retainer for years, paying some of them more than $100,000 annually to be available at a moment’s notice. But the arrangement became difficult to maintain: the best doctors resisted being tied to a small group of patients, and some questioned whether the practice was ethical. So the family joined Pinnacle instead.

And of course there are the children to think of. The ultrarich mirror other Americans in their anxious devotion to their progeny, and they have taken to hiring specialized psychologists to address the various issues—aimlessness, a sense of entitlement, and so on—that may afflict them. One financial adviser was reportedly asked to find someone to teach a client’s children about wealth and the responsibilities that come with it. He got quotes from four “wealth counselors”: the cheapest was $1,600 a day, the most expensive, $16,000.
As this story illustrates, finding the market price is one of the trickier aspects of serving the ultrarich. “There’s no transparency about what the fees should be,” Pearl says. “How much do you charge someone to curate their wine collection? You can’t comparison shop for that.” She does offer one rule of thumb: “If you’re not the type of person who’s planning an anniversary party in the south of France for fifty friends, where you’re going to fly them over, we’re probably not going to be able to help you. It’s not that we can’t help you; but you’ll find that our fees are prohibitive for what you want done.”

BECOMING SUPER-JEEVES
There are now entire schools devoted to training professionals to serve the ultrarich. One of the most prominent is the Starkey International Institute for Household Management, in Denver. On the first day of a four-week course on running a household (programs last four or eight weeks), there was much talk about a recent star graduate, a retired Air Force lieutenant colonel who had just landed a $125,000-a-year job as an estate manager near Washington, D.C. His boss, a businessman worth about $1.2 billion, had a grand vision for integrating architecture, landscaping, and a vast modern-art collection on his nearly 200-acre estate. The former lieutenant colonel would be designing a model for running it and two other properties, setting up security for all three, maintaining a private jet, and generally trying to ensure his boss’s perfect quality of life.

An estate manager’s role goes far beyond that of the classic butler or personal assistant—picture Jeeves crossed with the CEO of a Fortune 500 company. It usually involves overseeing multiple residences (a “household manager,” by contrast, is typically in charge of just one). This job has become a hot second career for former members of the military, who may retire as young as forty and are seen as trustworthy and able to take orders without flinching. Along with others who have already had substantial careers or who hold advanced degrees—people who would normally never consider a position as a “domestic”—they are signing up at the institute in droves.

The Starkey International Institute was founded by Mary Louise Starkey in 1990. A hard-nosed fiftysomething entrepreneur with watery hazel eyes and a voice that could cut through lead, Starkey is fond of grand pronouncements like “The age of service is upon us.” When that age arrived, she was more than ready for it.

Perched on a chair in her bright, cluttered office, Starkey told me that her business—which includes several ventures in addition to the school—is “exploding.” The day we spoke, she was a little bleary, having just returned from Vanuatu, a cluster of islands in the South Pacific. An American investor had bought one of the islands and hired Starkey to create a vacation spot worth renting for, say, $250,000 a week. There will be just one villa, offering absolute privacy. Being on the island is “like being the only person on the planet,” Starkey said. The name of the island is a secret, and rentals will be by invitation only, to protect against paparazzi. Two of Starkey’s graduates were already there, preparing to train locals in six-figure pampering.

Starkey’s bread and butter, however, is placing graduates of the institute inside mega-mansions in the United States. The school is housed in a 13,000-square-foot Georgian mansion. Gilt mirrors, potted orchids, and glittering crystal abound. The students attend lectures in the basement and rotate through all the jobs they might either hold or have to supervise, from household manager to assistant chef. They spring like panthers at the sight of a fleck of lint. As a result, the place is brilliantly, terrifyingly clean.

The crop of new students I met consisted of four men and two women, all age forty or so. Two—one man and one woman—were enlisted aides in the armed forces (a position that entails keeping quarters and preparing meals for top-ranking officers); the military was paying their tuition. One man had just retired after thirty years in the Air Force. The remaining two men were strikingly cherubic: one had been an interior designer and a private chef in Texas; the other had managed households for six families in Florida (he was looking to brush up on his skills). The sixth student, a mother of three young children, owns a property-management firm in Chicago. The instructor, meanwhile, had been a White House chef to George H. W. Bush and served on the private staff of Al and Tipper Gore.

On the first morning, Starkey delivered a pep talk clearly aimed at convincing the students that they do not face a future of indentured servitude. “Service is a well-recognized expertise and a highly paid career path,” she declared. Dressed in black, with a turquoise wrap flung over her shoulders, she worked the room with evangelical zeal; after each statement, she narrowed her eyes and stared at the students with blazing intensity, as if the Almighty Himself were speaking through her. It was important to learn “to be on someone else’s agenda,” she said, adding, “It’s much easier serving someone who knows what they want.” She showed slides of alumni: a young man with a passion for cars who had been placed with an auto collector; a grinning woman who had become the head stewardess on one of the biggest yachts in the world. “This is one of my Chinese graduates,” Starkey said, showing a picture of a man in a servant’s jacket reminiscent of the ones worn on The Love Boat. “Isn’t he beautiful? I fall in love with all my students.”

It must be tough love: Starkey has stringent expectations. She admonishes students to begin a placement by studying their employers as if they were laboratory specimens, in order to thoroughly understand their lifestyles and needs. (To illustrate her point, she cited clients in Denver, “Pakistani royalty” who take their main meal each day at 2 a.m. and fly cooked dinners to their grown children in California daily.) Suggested “talking points” in the institute’s textbook include the following: “What are your overall goals and dreams of your lifestyle?” “Could you please use descriptive words and experiences to list three everyday priorities that speak to quality of life for you?” “At the end of your life, what accomplishments will you be most proud of?” Students are urged to make lists of their employers’ tastes and sort them into the ten categories in the textbook’s “Service Matrix.” Under “Culinary Standards” the choices include “prefers clean, fresh style foods,” “comfort food,” “popcorn and chocolate,” “loves all cookies.” There are spaces on the grid for “prefers foreign autos,” “never travels commercially,” “wants all light bulbs changed weekly,” “prefers household manager to know smart-home technology.” It’s all geared toward creating the ultimate luxury product: a remote brain calibrated to an employer’s every whim and desire, one that can anticipate all needs and eliminate most decisions from daily life.

On Day Two, the students were given laminated floor plans for a “fairly large house” (6,000 square feet) under construction near Fort Worth. Working in pairs, they had to determine how many employees would be needed to maintain the house, which will include a library, a music room, and a “Moroccan room”; then they had to “zone” each floor for the cleaning staff. The students huddled and strategized, using Sharpie markers to create intricate diagrams studded with colorful arrows. The Moroccan room wouldn’t know what hit it.
Most of the people who contact Starkey seeking household help are retired CEOs, current business owners, or entrepreneurs who have sold their companies. She also gets calls from resorts and from private hospitals that want to emulate four-star hotels. In 2002 she initiated a process with the Department of Labor to design a national apprenticeship program for household managers. The first apprentice began training in June.

The institute doesn’t advertise, but revenues from tuition and placement fees were up 35 percent last year compared with the year before. About a hundred students go through the school annually. And yet there is more demand for household and estate managers than there are trained candidates to meet it.

“People who have money will tell you the first thing they do is buy their dream car. It’s usually red or black, and it’s usually a convertible,” Starkey told me. “And then they discover that they don’t like standing out and having everyone in the world knowing who they are and what they’re doing. So they get rid of the car and get something more low-profile. Same thing happens with homes. When they realize they have money, they buy a huge acreage and build a 35,000- or 55,000-square-foot home. Then they realize that they have to staff it.”
Most families first try a local solution. But that almost inevitably falls short of what they need—they decide they don’t want someone who’s earning $30,000 a year looking after $40 million worth of stuff. Usually it’s the woman of the house who has to deal with the situation, and she’s driven to despair. (“The weariness of our clients is their common denominator,” Starkey’s assistant, Heili Lehr, told me.) “Then they come to me,” Starkey says.

Starkey conducts a “site visit” to look for “patterns and priorities of what’s important” to the family and develop a service-management plan. She starts by getting the lady and gentleman of the house in one place to talk about it, usually over dinner (they pay). During the meal she peppers them with questions: “What is your vision of service?” “What is your lifestyle and quality of life?” “Outline the family tree.” The next day she inspects the property. She probes every room (“I open the drawers and look inside and underneath”), occasionally finding an “outrageous surprise”—a three-year-old child with a hundred pairs of shoes, perhaps, or a woman with scores of Judith Leiber purses in a closet “bigger than most people’s houses.” She asks more questions: “Do you have an entourage?” “Do you wear Armani or St. John” (or workout clothes)? “Do you eat ice cream late at night?” She also poses questions to herself: “Is she a micromanager?” (it usually is the woman), or “Who’s got the power in the house?” (sometimes it’s the dog). At the end of the visit, Starkey produces a document—it might run to forty-five pages—outlining what she thinks the family needs. If appropriate, she tries to make a match with one of her graduates. The positions she fills are strictly executive; the cleaners and cooks don’t come through her. This is reflected in the tuition for her courses—about $13,000 for eight weeks, including room and board—and in graduates’ salaries, which range from about $60,000 to $150,000 a year (Starkey takes a 25 to 35 percent commission).

The motivation to hire someone at a hefty wage to look after the details of an estate has to do in part with what one financial adviser calls “asymmetric risk”: for some, a bad experience hosting a dinner party is more painful than losing money on the stock market. Starkey believes that as wealthy people become wealthier and more sophisticated in their expectations, demand for her graduates will continue to grow. She predicts that in twenty years there will be a service school in every major U.S. city.

One characteristic Starkey shares with others in the field is relentless positivity in the face of constant, almost pornographic displays of wealth. “I hope you’re writing about how wonderful it all is,” she said to me more than once. And it is wonderful—in the way that unapologetic evidence of the fruits of one’s success can be both awe-inspiring and unseemly, not to say quintessentially American. (In the ultimate aspirational society, we love hard work, but we love flaunting it even more.)

Then, out of the blue during one of our later conversations, Natasha Pearl said something surprising: “If the income inequality persists, we could end up with real armed camps, like in South Africa.” She said she was increasingly aware of the tension between the “haves” and the “have-nots,” and she described a surge in demand among the ultrarich for real estate in out-of-the-way places such as New Zealand and rural Argentina—expensive insurance policies in case things go haywire for some reason at home. “The wise ones are thinking about it now,” Pearl said. Indeed, it might be worth planning ahead; I wonder what the going salary will be for a spot in an oligarch’s private army.


 
<hr noshade color="#ff0000" size="10"></hr>

g-money · Mar 7, 2007

muckraker10021 said:

Take the story headline below
-U.S. economy leaving record numbers in severe poverty-
put it in quotes (“U.S. economy leaving record numbers in severe poverty”)
and paste it into the search engine Google or Yahoo or Ask or Altavista or AllTheWeb.

Look at the results on page one. You will see that this story appeared everywhere EXCEPT the so called mainstream media. CBS, ABC, NBC, CNN, Wash. Post. NY Times, LA Times, <s>FOX</s> Fake, etc.


 
<hr noshade color="#ff0000" size="10"></hr>

I appreciate this information brother, good stuff

BigUnc · Mar 8, 2007

The writings been on the wall for years. The U.S. economy can't sustain this type of spending forever. The people who loaned the U.S. all those trillions are gonna what a bigger return soon. Everything that needs to be said is somewhere in this thread. Believe what you want. I have been in the process of shifting assets out of the U.S. and diversifying globally,regionally, and by sectors. End of the line consumer products are not were you wanna be. Basic commodities-food,water,oil,gas,or anything electricity related should have a healthy chunk of your portfolio. Precious metals like gold ,silver,platinum, palladium, and the mining sector should be increasing also. But be prepared to stop buying and go into a holding pattern soon. I stopped buying Dec 2006

The big boys started shifting their assets since 3Q 2006 in huge chunks.
World Banks have increased their gold reserves substancially since 3Q 2006

Somethings up!!!!!....and it's gonna hit this year

Prepare yourself and your family for a permanent shift of world economic realities.

QueEx · Jun 22, 2007

<center>Housing takes toll on US economy </center>

BBC News
May 21, 2007

The slowdown in the US housing market will hit the country's economy harder than previously thought, according to a group of economic professionals.

The National Association of Business Economists (NABE) has lowered its forecast for economic growth from 2.8% in 2007 to 2.3%.

The downgrade came after official data showed that the economy grew only 1.3% in the first three months of the year.

But the group predicts a rebound in 2008 to gross domestic growth of 3.2%.

The forecast is the average of the predictions from a panel of 48 economists.

The majority of the forecasters put the chances of there being a recession in the next year at above 25%.

Former Federal Reserve chairman Alan Greenspan puts the risk at one in three.

Rising interest rates have slowed the housing market, with particular problems in the sub-prime mortgage market, which lends money to people with poor credit records.

http://news.bbc.co.uk/2/hi/business/6677863.stm

QueEx · Jun 22, 2007

<center>Bernanke sees US rebound ahead </center>

BBC News
Tuesday, 5 June 2007

Ben Bernanke, the head of the US central bank, the Federal Reserve, says that the US economy will rebound, even as housing sales continue to slump.

Mr Bernanke reiterated the Fed's view that the economy will expand "at a moderate pace" though the housing market is a "drag" on economic growth.

The upbeat view echoes May data showing consumers were unexpectedly optimistic.

The comments fuel the view that the Fed is not planning to cut interest rates.

Limited impact

The housing slump in the US has been a serious concern, creating fears that it could have a knock-on effect on other sectors of the economy, say analysts.

But Mr Bernanke, who was speaking via satellite to an international monetary conference in Cape Town, South Africa, said the impact of the slump appeared limited.

"We have not seen major spillovers from housing onto other sectors of the economy," said Mr Bernanke.

Construction of new homes looks set to remain "subdued for a time" and the glut of properties in the market will remain, he added.

'Inflation somewhat elevated'

There has been particular concern over the impact of the sub-prime market - which provides loans to high risk individuals - as the number of default loans has risen.

Mr Bernanke said the Fed would look at further ways to regulate the sub-prime market, following response to calls from Congress to toughen regulation of the sub-prime market.

On another note, Mr Bernanke said the level of inflation remained "somewhat elevated".

US stocks slid in early trade following Mr Bernanke remarks, a day after the Dow Jones industrial average reached a new record.

The Fed next meets to consider interest rates on 27-28 June, and most analysts expect rates to remain at 5.25%, where they have been for more than a year.

http://news.bbc.co.uk/2/hi/business/6723463.stm

blackIpod · Jun 22, 2007

<< Just fainted call 911

>>>>>>>>>>>READ THIS>>>>>>>>>>>>>>>>>>

"The United States public debt, commonly called the national debt, gross federal debt or U.S. government debt, is the amount of money owed by the United States federal government to creditors who hold U.S. Debt Instruments.

As of the end of 2006, the total U.S. public debt was $4.9 trillion.

This does not include the money owed by states, corporations, or individuals, nor does it include the money owed to Social Security beneficiaries in the future.

If intragovernment debt obligations are included, the debt figure rises to $8.7 trillion.

If unfunded future obligations are added (i.e. Medicare and Social Security)
this figure rises dramatically to a total of $59.1 Trillion

In 2005 the public debt was 64.7% of GDP. According to the CIA's World Factbook"
http://en.wikipedia.org/wiki/United_States_public_debt

Medicare and Social Security AKA Welfare = The Death Of this Country.

With Obama and Hillary running. We might as well think about this.
We have Medicare and Social Security now add Universal Health-Care to that Bill

Better start teaching your kids Chinese cause thats who they will be working for.
:lol:

dyhawk said:
interesting read............not sure if i agree with everything................in anycase i don't seea slow down in the economy being the major problem facing the US but bad spending habits and debt

http://www.optimist123.com/optimist/2007/01/bestkept_secret.html

Read ......."Best-kept secret about the national debt."

Debt is not always a bad thing.... crazy Idea....

MADNESS

QueEx · Jun 22, 2007

blackIpod said:
Medicare and Social Security AKA Welfare = The Death Of this Country.

Damn! I didn't know Social Security was WELFARE! New one on me.

QueEx

blackIpod · Jun 22, 2007

Greed is a 2 way street. It's always those who have not earned wealth that will preach of taking it away from those who have earned it.

blackIpod · Jun 22, 2007

It' surly not a savings account.

QueEx · Jul 27, 2007

<center>Economy Growth Is Best in a Year</center>

Jul 27, 11:50 AM (ET)
Associated Press
By JEANNINE AVERSA

WASHINGTON (AP) - The economy snapped out of a lethargic spell and grew at a 3.4 percent pace in the second quarter, the strongest showing in more than a year. A revival in business spending was a main force behind the energized performance.

The new reading on gross domestic product, released by the Commerce Department on Friday, marked a big improvement from the first three months of this year, when economic growth skidded to a near halt at just a 0.6 percent pace, the slowest in more than four years.

At the White House, President Bush said job growth has been strong and the economy is resilient and flexible. "I want the American people to take a good look at this economy of ours," crowed Bush, whose economic stewardship has received weak marks.

Stronger spending by businesses and government powered the rebound in the April-to-June quarter. Individuals, however, tightened their belts as they coped with high gasoline prices and the ill effects of the housing slump. The sour housing market continued to weigh on national economic activity in the spring but not nearly as much as it had in previous quarters.

Inflation - outside a burst in energy and food prices - moderated.

On Wall Street, stocks seesawed in early trading Friday - one day after the Dow Jones industrial average suffered its second biggest drop of the year, plunging by 311.50 points.

Treasury Secretary Henry Paulson called the market turbulence a "wake up call" to investors to re-examine their degree of risk.

"Lenders need to be very aware of the risks. Borrowers need to be aware of risks. I would submit people are more aware of those risks and the need for discipline today than maybe they were a month or two ago," Paulson said in a briefing with reporters.

"So again let's keep eye on the very strong underlying economy, which puts us in a position of strength," he added.

The second quarter's performance was better than the 3.2 percent growth rate economists were expecting. It was the strongest showing since the first quarter of 2006, when the economy expanded at a brisk 4.8 percent annual rate.

Gross domestic product measures the value of all goods and services produced in the United States. It is considered the best barometer of the country's economic fitness.

"I think the confidence level of companies has come back. That's why there was a modest pickup in capital spending," said Ken Mayland, president of ClearView Economics.

Even as the economy picked up speed in the spring, inflation managed to settle down.

An inflation gauge closely watched by the Federal Reserve showed "core" prices - excluding food and energy - rose at a rate of just 1.4 percent in the second quarter. That was down sharply from a 2.4 percent pace in the first quarter and was the smallest increase in four years.

That should help ease some inflation concerns. Fed Chairman Ben Bernanke has said the biggest threat to the economy is if inflation doesn't recede as policymakers anticipate. Out-of-control prices are bad for the economy and the pocketbook. They eat into paychecks, erode purchasing power and reduce the value of investments.

The Fed has kept a key interest rate at 5.25 percent for more than a year. Economists predict that rate will stay where it is through the rest of 2007.

Bush has been trying to counter weak public-approval ratings for his handling of the economy. Only 37 percent approve of his performance, close to a record low, according to a recent AP-Ipsos poll.

Problems in the troubled housing and mortgage markets have rattled investors in recent days. Friday's report showed that the ailing housing market is still crimping economic activity, but not as much as it had.

Investment in home building was cut by 9.3 percent, on an annualized basis, in the second quarter. That wasn't nearly as deep as the 16.3 percent annualized drop in the first quarter. It was the smallest cut in just over a year.

Businesses, meanwhile, regained their appetite to spend and invest in the second quarter.

They boosted their spending on new plants, buildings and other commercial construction at a whopping 22.1 percent rate, the most in 13 years. Investment on equipment and software posted a 2.3 percent growth rate, an improvement from a meager 0.3 percent growth rate in the first quarter.

Businesses also replenished their inventories in the second quarter, adding to overall economic growth. Stronger export growth helped the nation's trade picture and added to the economy's momentum.

Also contributing to the second quarter's rebound: Government spending increased at a 4.2 percent pace. That compared with a 0.5 percent annualized drop in the first quarter.

However, consumers, whose spending largely prevented the economy from stalling out in the first three months of this year, lost energy in the second quarter. They boosted spending at a pace of just 1.3 percent, the smallest since the final quarter of 2005.

High gas prices and fallout from the housing slump are beginning to take their toll on peoples' appetite to spend. Still, a solid jobs climate - the nation's unemployment rate is at a relatively low 4.5 percent - should help cushion some of these negative forces.

The government also issued annual revisions that showed the economy grew at an average annual rate of 3.2 percent from 2003 through 2006, or 0.3 percentage point less than previously estimated. The revisions are based on more complete data.

Last year the economy grew by 2.9 percent - slower than the 3.3 percent increase previously calculated. The new figure marked the weakest annual growth since 2003 and underscored the depth of the housing slump.

http://apnews1.iwon.com//article/20070727/D8QL197G1.html

QueEx · Jul 27, 2007

<center>
Economy Growth Is Best in a Year</center>

Jul 27, 11:50 AM (ET)
Associated Press
By JEANNINE AVERSA

WASHINGTON (AP) - The economy snapped out of a lethargic spell and grew at a 3.4 percent pace in the second quarter, the strongest showing in more than a year. A revival in business spending was a main force behind the energized performance.

The new reading on gross domestic product, released by the Commerce Department on Friday, marked a big improvement from the first three months of this year, when economic growth skidded to a near halt at just a 0.6 percent pace, the slowest in more than four years.

At the White House, President Bush said job growth has been strong and the economy is resilient and flexible. "I want the American people to take a good look at this economy of ours," crowed Bush, whose economic stewardship has received weak marks.

Stronger spending by businesses and government powered the rebound in the April-to-June quarter. Individuals, however, tightened their belts as they coped with high gasoline prices and the ill effects of the housing slump. The sour housing market continued to weigh on national economic activity in the spring but not nearly as much as it had in previous quarters.

Inflation - outside a burst in energy and food prices - moderated.

On Wall Street, stocks seesawed in early trading Friday - one day after the Dow Jones industrial average suffered its second biggest drop of the year, plunging by 311.50 points.

Treasury Secretary Henry Paulson called the market turbulence a "wake up call" to investors to re-examine their degree of risk.

"Lenders need to be very aware of the risks. Borrowers need to be aware of risks. I would submit people are more aware of those risks and the need for discipline today than maybe they were a month or two ago," Paulson said in a briefing with reporters.

"So again let's keep eye on the very strong underlying economy, which puts us in a position of strength," he added.

The second quarter's performance was better than the 3.2 percent growth rate economists were expecting. It was the strongest showing since the first quarter of 2006, when the economy expanded at a brisk 4.8 percent annual rate.

Gross domestic product measures the value of all goods and services produced in the United States. It is considered the best barometer of the country's economic fitness.

"I think the confidence level of companies has come back. That's why there was a modest pickup in capital spending," said Ken Mayland, president of ClearView Economics.

Even as the economy picked up speed in the spring, inflation managed to settle down.

An inflation gauge closely watched by the Federal Reserve showed "core" prices - excluding food and energy - rose at a rate of just 1.4 percent in the second quarter. That was down sharply from a 2.4 percent pace in the first quarter and was the smallest increase in four years.

That should help ease some inflation concerns. Fed Chairman Ben Bernanke has said the biggest threat to the economy is if inflation doesn't recede as policymakers anticipate. Out-of-control prices are bad for the economy and the pocketbook. They eat into paychecks, erode purchasing power and reduce the value of investments.

The Fed has kept a key interest rate at 5.25 percent for more than a year. Economists predict that rate will stay where it is through the rest of 2007.

Bush has been trying to counter weak public-approval ratings for his handling of the economy. Only 37 percent approve of his performance, close to a record low, according to a recent AP-Ipsos poll.

Problems in the troubled housing and mortgage markets have rattled investors in recent days. Friday's report showed that the ailing housing market is still crimping economic activity, but not as much as it had.

Investment in home building was cut by 9.3 percent, on an annualized basis, in the second quarter. That wasn't nearly as deep as the 16.3 percent annualized drop in the first quarter. It was the smallest cut in just over a year.

Businesses, meanwhile, regained their appetite to spend and invest in the second quarter.

They boosted their spending on new plants, buildings and other commercial construction at a whopping 22.1 percent rate, the most in 13 years. Investment on equipment and software posted a 2.3 percent growth rate, an improvement from a meager 0.3 percent growth rate in the first quarter.

Businesses also replenished their inventories in the second quarter, adding to overall economic growth. Stronger export growth helped the nation's trade picture and added to the economy's momentum.

Also contributing to the second quarter's rebound: Government spending increased at a 4.2 percent pace. That compared with a 0.5 percent annualized drop in the first quarter.

However, consumers, whose spending largely prevented the economy from stalling out in the first three months of this year, lost energy in the second quarter. They boosted spending at a pace of just 1.3 percent, the smallest since the final quarter of 2005.

High gas prices and fallout from the housing slump are beginning to take their toll on peoples' appetite to spend. Still, a solid jobs climate - the nation's unemployment rate is at a relatively low 4.5 percent - should help cushion some of these negative forces.

The government also issued annual revisions that showed the economy grew at an average annual rate of 3.2 percent from 2003 through 2006, or 0.3 percentage point less than previously estimated. The revisions are based on more complete data.

Last year the economy grew by 2.9 percent - slower than the 3.3 percent increase previously calculated. The new figure marked the weakest annual growth since 2003 and underscored the depth of the housing slump.

http://apnews1.iwon.com//article/20070727/D8QL197G1.html

QueEx · Aug 1, 2007

<center>As U.S. income stagnates,
Democrats reject free trade</center>

112-20070731-FREETRADE.small.prod_affiliate.91.jpg

By Kevin G. Hall
McClatchy Newspapers
August 1, 2007

WASHINGTON — The Democratic-led Congress won’t give President Bush the special authority he needs to negotiate future free-trade deals. The Senate is moving on retaliatory trade legislation against China. The House of Representatives won’t approve deals with three small neighboring Latin American countries. Global trade talks are near collapse.

Washington's mood on free trade hasn’t been this negative in at least two decades, and a pullback is evident. Whether this becomes a full-blown return to protectionism remains to be seen. But for now Americans, and the politicians they elect to represent them, are in no mood to expand international trade.

“For decades we took for granted that everyone agreed with us economists that free trade is good, protectionism is bad. Somewhere along the way, that stopped being the conventional wisdom,” acknowledged U.S. Trade Representative Susan Schwab, in an interview with McClatchy Newspapers. “And whereas the default vote on a trade bill in Congress used to be a ‘yes’ vote, the default vote on a trade bill now in Congress is a ‘no’ vote.” Why? Because lots of people are no longer convinced that a rising tide of trade lifts all boats — and there's evidence to back them up.

For three decades, the richest 10 percent of Americans have been growing even richer much faster than everyone else. Over the past five years, real wages for all the rest of American workers have been almost flat. Many blame globalization.

During a mid-July congressional hearing, Federal Reserve Chairman Ben Bernanke contended that education levels largely determine income inequality. But he was angrily interrupted by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, who declared, “Mr. Bernanke, that’s simply not true.”

Frank said that the 29 percent of Americans who have bachelor’s and even master's degrees haven't seen real income growth, on average, over the past five years. That's what Democrats in Congress are focused on, he said.

“As long as we have the current situation … you are going to see the kind of gridlock where trade promotion (authority), immigration and other issues don’t go anywhere,” he warned. “And I just urge people … help us diminish inequality or you will have continued economic gridlock."

Frank quoted repeatedly from a new report published by the Financial Services Forum, a think tank run by President Bush’s close friend, former Commerce Secretary Donald Evans. The report was co-written by Matthew Slaughter, a former member of Bush’s Council of Economic Advisers.

The report concluded that “over time, the pressures of global engagement spread economy-wide to alter the earnings of even those not directly exposed to international competition.”

Since 2000, the report said, most American workers have seen meager income growth. Only “a small share of workers at the very high end has enjoyed strong growth in incomes.” This occurred despite strong productivity growth, which in the past raised wages and salaries.

“Real income growth for workers has not been evenly distributed across all workers. That economic reality has an important political” consequence, Slaughter said in an interview.

Small but already negotiated trade deals with Panama, Colombia and Peru are being held up. While those deals wouldn't affect the U.S. economy greatly, given how small those economies are, they're important to those countries and their blockage sends signals worldwide about changing U.S. attitudes.

Meanwhile, Asian nations continue integrating into the fast-growing Chinese economy's sphere of influence.

For now, the only trade-related legislation moving on Capitol Hill tends toward protecting U.S. domestic interests at the expense of opening markets more to competition from overseas.

Last week, the Senate Finance Committee passed, by a 20-1 vote, bipartisan legislation to force the Commerce Department to weigh whether another country is deliberately undervaluing its currency when considering whether to impose unfair trade penalties against foreign goods. The target was China, but that standard could be applied to other Asian nations too.

By the end of September, Congress is expected to pass bills that would expand federal trade-adjustment assistance to a wider array of U.S. workers whose jobs have been lost to overseas competition. These could include engineers, software designers, accountants, call-center agents, even computer-aided architectural designers.

This shift in opinion against a long-dominant presumption that free trade provides broad net benefits to the U.S. economy is rooted not only in the experience of stagnant incomes, but it's also gaining intellectual respectability as economic theory. Alan Blinder, a Princeton economist and a former vice chairman of the Federal Reserve, was a lifelong free-trader, like most economists, until he began looking hard at how globalization is evolving.

Recently he shocked free-trade orthodoxy by warning that modern technology and trade practices will put at risk as many as 40 million American jobs within a decade or two.

Blinder doesn't champion a return to protectionism in the form of tariffs and trade barriers. Instead, he believes that government must do far more to help workers displaced by trade, that the U.S. education system must aim to train people for jobs that can't be performed abroad and that the tax code should give incentives to firms to produce here.

The Financial Services Forum report backs similar solutions as necessary to head off a turn toward outright protectionism, which helped prolong the Great Depression in the 1930s.

Yet with the 2008 presidential election looming and polls showing widespread public anxiety about globalization, neither party’s candidates are trumpeting free trade.

“I think we definitely see evidence of anxiety. We see evidence unfortunately of a politicization of trade and increased partisanship about trade. … It is unfortunate and it does present real challenges,” said Schwab, the U.S. trade representative.

Ironically, all the anguish about trade is occurring when U.S.-made exports are booming. The strong global economy and the dollar's slumping value helped U.S. exports to grow by 6.4 percent from April through June, which is definitely good for U.S. business.

Commerce Secretary Carlos Gutierrez said last Friday that U.S. exports have grown since 2004 at about an 8.3 percent annual rate, thanks in no small part to the Bush administration's free-trade policies. But Democrats are focused more on the lack of income growth among ordinary Americans, and therein lies the rub when Republicans and Democrats seek to set economic policies.

To read the Financial Services Forum report, go to Financial Services Forum , then click on "issues," then on "trade and globalization."

2007 McClatchy Newspapers

http://www.mcclatchydc.com/226/story/18562.html

BigUnc · Aug 3, 2007

The meltdown has begun gentlemen and no one knows where the bottom is. Hearing projections that a major U.S. bank may fail. Problems in the credit markets are affecting foreign banks. Not only are there problems in the subprime market but weakness in the Alt A and Prime with foreclosures up in both. Bloomberg has a nice recap:

U.S. Stocks Drop on Credit Woes; Bear Stearns Leads Banks Lower

By Eric Martin

Women hug outside American Home Mortgage headquarters Aug. 3 (Bloomberg) -- Stocks tumbled on evidence losses in the mortgage market may slow the economy and reduce bank profits, sending the Standard & Poor's 500 Index to its worst three-week retreat since 2003.

Bear Stearns Cos., the manager of two hedge funds that collapsed last month, helped carry financial shares to their biggest decline in five years after S&P cut the company's credit outlook. Energy shares fell to the lowest since May, led by Exxon Mobil Corp. and Chevron Corp., on speculation weaker job growth and falling oil prices will hurt earnings.

The S&P 500 erased its gain for the week, falling 39.14, or 2.7 percent, to 1433.06 in its worst day since Feb. 27. The Dow Jones Industrial Average slumped 281.42, or 2.1 percent, to 13,181.91. The Nasdaq Composite Index sank 64.73, or 2.5 percent, to 2511.25.

The sell-off exacerbated a rout last week that wiped $2.1 trillion in value from global equity markets. Shares declined in Europe, with benchmark indexes dropping in all 18 western European markets except Luxembourg. An index of market volatility in the U.S. rose to a four-year high.

``We're just seeing more and more credit problems,'' said Michael Strauss, who helps manage $40 billion at Commonfund in Wilton, Connecticut. ``It's going to be difficult for the market to trade with any confidence.''

Almost 12 stocks fell for every one that rose on the New York Stock Exchange as all 24 industry groups in the S&P 500 and all 30 members of the Dow fell.

The yield on the benchmark 10-year Treasury note fell 9 basis points, or 0.09 percentage point, to 4.68 percent. The dollar fell the most in almost a month against the euro, trading within a cent of its record low. Some 2.1 billion shares changed hands on the NYSE, 29 percent more than the three-month average.

Stocks opened the day lower after the Labor Department said employers added fewer jobs than economists forecast in July and a private report showed growth in U.S. service industries slowed.

Bear Stearns

Bear Stearns had its credit-rating outlook cut to negative by S&P on concern declining prices for mortgage-backed securities will decrease earnings. The perceived risk of owning the New York-based company's bonds rose to the highest in at least six years.

Stocks fell to their lows of the day after the firm said its return on equity in July may be close to the lowest ever and borrowing costs may slow mergers and acquisitions.

'As Bad as I've Seen It'

``I've been out here for 22 years, and this is as bad as I've seen it in the fixed-income markets,'' Chief Financial Officer Samuel Molinaro said on a conference call with analysts. He compared the crisis to 1998, when hedge fund Long-Term Capital Management collapsed and Russia defaulted on its debt. Bear Stearns fell $7.28, or 6.3 percent, to $108.35, the lowest since 2005.

The S&P 500 Financials Index fell 3.8 percent, its steepest loss since 2002, and contributed the most to the drop in the overall S&P 500. An index of brokerages and money managers in the S&P 500 has fallen 15 percent since reaching a record on May 30.

Countrywide Financial Corp., the largest U.S. mortgage lender, sank $1.77 to $25. CIT Group Inc., the biggest U.S. independent commercial finance company, lost $1.87 to $36.68. Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage bonds, dropped $4.67, or 7.7 percent, to $55.78.

American Home Mortgage Investment Corp., which traded at more than $10 a week ago, sank 76 cents to 70 cents after it became the second-biggest residential lender to fail this year. The last day for most employees will be today, Chief Executive Officer Michael Strauss told the staff in an e-mailed memo obtained by Bloomberg.

Investment bankers cut off credit earlier this week, leaving the lender unable to fund at least $750 million of mortgages.

Mary Feder, a company spokeswoman, didn't return a call seeking comment.

`One of the Biggest Bubbles'

The U.S. subprime-market rout has ``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.

``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of New York-based Beeland Interests Inc., said in an interview from Hong Kong.

Credit-market losses stemming from subprime lending are leading to a tightening of funds available for investment, and helping to drive up the cost of borrowing for consumers and companies.

Union Investment Asset Management Holding AG, Germany's third-largest mutual fund manager, halted redemptions from a fund after clients withdrew $137 million in the past month. The ABS- Invest Fund, sold to institutional investors across Europe, has about 6 percent of its assets in securities related to subprime mortgage loans.

'Big Logjam of Credit'

``You've got a big logjam of credit that can't clear,'' said Brian Barish, who helps oversee about $10 billion at Cambiar Investors in Denver. ``Add a lot of fear and rumor, and it makes for a tough situation.''

Crude oil fell on concern economic growth will slow, reducing demand for gasoline and other fuels. Futures for September delivery lost $1.38, or 1.8 percent, to $75.48 a barrel and dropped 2 percent in the week. Exxon, the biggest oil company, fell $3.10 to $82.08. Chevron dropped $2.87 to $81.02.

Network Appliance Inc. dropped $5.74, or 20 percent, to $22.97. Revenue at the maker of computers that store and distribute data was $684 million to $688 million in the quarter ended July 27, short of the forecast of $745 million to $753 million, the company said today in a statement. Net income was 8 cents to 9 cents a share, instead of 14 cents to 15 cents.

GM, Take-Two

General Motors Corp., the largest U.S. automaker, fell $1.35, or 4 percent, to $32.04. Toyota Motor Corp. reported first-quarter profit that beat analysts' estimates as a weaker yen increased revenue from Corolla compacts and Camry sedans sold outside Japan. Toyota's American depositary receipts advanced 31 cents to $118.90.

Take-Two Interactive Software Inc. tumbled $2.75 to $14.16. The company said it delayed the release of the next ``Grand Theft Auto'' video game until the second quarter of fiscal 2008 and lowered its sales and profit forecast for this year.

Procter & Gamble Co. dropped 42 cents to $62.88. The largest U.S. consumer-goods company said it will spend as much as $30 billion over the next three years to buy back shares.

SanDisk Corp., the world's largest maker of flash memory cards, added 66 cents to $53.43. Samsung Electronics Co., the world's second-largest chipmaker, will shut down some of its production lines for as long as two days because of a power outage, costing the company up to $54 million in lost sales and potentially boosting sales of competitors.

Volatility Surge

The Chicago Board Options Exchange Volatility Index rose to 25.16, the highest since April 2003. Higher readings in the so- called VIX, derived from prices paid for S&P 500 options, indicate more risk in stocks.

In economic reports, the Labor Department said 92,000 jobs were added to payrolls in July compared with a forecast for an increase of 127,000 in a Bloomberg survey of economists. The jobless rate rose to 4.6 percent in July from 4.5 percent in June. Economists in a Bloomberg survey had expected it to remain at 4.5 percent.

The report said homebuilders cut payrolls by 12,000 after a 3,000 increase the previous month as the housing slump continues.

Homebuilders Slump

A gauge of homebuilders in S&P indexes dropped 5.3 percent as a group as all 16 of its members declined. D.R. Horton Inc., the second-largest U.S. builder, slipped 69 cents to $16.46. Pulte Homes, the third biggest, lost $1.40 to $18.59.

After the employment report, JPMorgan pushed back its forecast for when the Federal Reserve will change interest rates. The firm expects an increase in the middle of next year, compared with its prior prediction of around the end of this year.

The Institute for Supply Management said its non- manufacturing index dropped to 55.8 last month, from 60.7 in June. Economists in a survey had expected a reading of 59 for July. The index, which shows service industries still expanding, has averaged 56.8 in the past 12 months.

The Russell 2000 Index, a benchmark for companies with a median market value of $647 million, dropped 3.6 percent to 755.42. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 2.7 percent to 14,432.34. Based on its decline, the value of stocks decreased by $497 billion.

Today's sell-off left the S&P 500 with a 1.8 percent drop for the week and a 1 percent advance for the year. The Dow lost 0.6 percent this week and is up 5.8 percent in 2007.

QueEx · Aug 6, 2007

375-080607pettusat1.slideshow_main.prod_affiliate.91.jpg

Joel Pett / Lexington Herald-Leader (August 6, 2007)

QueEx · Aug 11, 2007

<center>Fed injects $38 billion to ease Wall Street fears</center>

By Kevin G. Hall | McClatchy Newspapers
Posted on Fri, August 10, 2007

WASHINGTON — The largest Federal Reserve System intervention in the banking system since the 9-11 terrorist attacks halted a sure skid Friday on Wall Street. But jitters reigned as central banks across the globe moved to ensure that the world's financial system doesn't freeze up.

The Fed injected new money for the banking system three times, for a total of $38 billion. Adding to the intrigue surrounding the unusual move, the Fed allowed banks that were seeking to borrow this money temporarily to use mortgage-backed securities as collateral.

These securities are a main cause of the current gyrations on Wall Street as wary investors try to shed them but are finding few buyers. By accepting the securities as collateral, the Fed tried to show that it thought they were reliable investment instruments.

"Today's Fed moves were designed to both add liquidity and boost confidence in the area where it is needed most," Mark Vitner, senior economist for Charlotte, N.C.-based Wachovia Economics Group, said Friday in a late-afternoon note to investors.

Friday action's by the Fed followed similar moves by the European Central Bank and the Bank of Japan, which pumped another $91 billion into their systems. The Fed will watch markets in Asia and London closely over the weekend for signs whether more intervention is needed at home Monday.

The Dow ended the day down just over 31 points.

Economists and financial analysts said Friday that the chances the Fed would be forced to drop overall interest rates had grown sharply. One indicator, the Chicago Board of Trade's futures market, puts the odds of a cut in the benchmark federal funds rate at 82 percent. The Fed's Open Market Committee, which sets rates, is scheduled to meet Sept. 18.

When the Fed moved in 2001, it pumped $100 billion in new funds into the banking system. In a statement Friday, the Fed said it "will provide reserves as necessary" and reminded depositors that it remains the lender of last resort if "unusual funding needs" arise.

"The Fed is worried that the financial system is going to freeze up . . . what the Fed is trying to do is calm down markets, to say, `There is plenty of liquidity, we're here to help you, don't panic,' " said Nariman Behravesh, chief economist for Global Insight, an economic-forecasting firm in Waltham, Mass.

As trading began Friday, the Fed announced that it was making $19 billion available, a show of symbolism to tell the markets that the Fed was on the job. The move had little immediate impact, however, and with the Dow down about 200 points the Fed provided another $16 billion to ensure that credit — the lifeblood of the banking system — didn't dry up. At 1:50 p.m., the Fed acted again, adding another $3 billion.

The Fed actions didn't end the volatility, as Friday trading was marked by wild mood swings. But the Dow Jones Industrial Index closed down 31.14 points, far more comforting than the 387 points — a 2.8 percent drop — on Thursday.

By making more money available, the Fed is trying to make sure that banks have enough funds to conduct their overnight lending to one another. This is akin to making sure that a business avoids cash-flow problems.

"You don't want banks or other financial institutions to suddenly experience difficulty . . . and you risk a chain reaction," said a former Fed insider who worked at the Federal Reserve when it took similar steps to reassure the financial system. The former official spoke on condition of anonymity out of concern that his comments could influence the market.

Federal Reserve Chairman Ben Bernanke is trying to fend off a credit crunch, in which the banking system seizes up like an engine without oil. Already, important companies who are now perceived as risky find themselves unable to borrow money. The latest case involved giant mortgage-lender Countrywide Financial. It announced Thursday that it couldn't sell $1 billion in home loans in the secondary market and was being forced to hold on to them.

Countrywide's news came after last week's spectacular bankruptcy of American Home Mortgage, a major home lender previously thought to be healthy. And there was a sell-off by investors on investment house Bear Stearns, which had been rumored to have more exposure to troubled mortgage-backed securities than it had disclosed.

The White House repeated Friday that it's watching developments. President Bush talked up the economy earlier in the week, saying that economic fundamentals remain strong.

If the turmoil continues and threatens to spill over into the broader economy, the Fed may be forced to drop its benchmark lending rate.

The federal funds rate — the benchmark for a wide array of consumer and business lending rates — stands at 5.25 percent. It hasn't changed since June 2006. It hit its lowest point in June 2003, when it was 1 percent.

"I think my feeling right now is it is time to cut rates," said David Wyss, chief economist for the rating agency Standard & Poor's. "The first requirement for the Fed is maintenance of orderly markets. And there is a risk to markets getting disorderly. Once that happens, it's not a matter of bailing people out. Once that happens, the Fed loses control."

Bernanke has faced this dilemma for months. The housing market has been in a slow-motion spiral downward. Trying to reverse that through interest rates is a problem, however, because core inflation — the measure the Fed watches most closely — is running at an annual rate of 1.9 percent, barely within Bernanke's stated 2 percent comfort zone.

A career academic and expert on the Great Depression, Bernanke took the helm of the Fed last year without the stature of the two previous long-serving chairmen, Paul Volcker and Alan Greenspan. While he's been widely praised, this turmoil is the first real test of his mettle.

"I think it is," said Alice Rivlin, a former Fed vice chairman, who sees similarities with a 1998 crisis that followed the collapse of investment giant Long-Term Capital Management. Back then, inflation was on the high end and worries about credit availability were spreading. The Fed stepped in with a series of rate cuts to boost investor and consumer confidence.

Higher interest rates keep inflation in check by reducing economic activity. Lowering the federal funds rate — with its wide influences on other lending rates — would spark economic activity, but that also could turn inflation embers into flames.

Bernanke, an inflation hawk, thinks that cutting rates would undermine the Fed's inflation-fighting credentials and credibility.

That's why the Fed's Open Market Committee met Tuesday and issued a plain vanilla statement that recognized that stock markets were gyrating but said nothing about what the Fed might do about it. The statement didn't even hint that the Fed would stand by to help.

The stocks of big investment banks such as Goldman Sachs, Lehman Brothers and others that lend heavily to hedge funds were hit particularly hard in early trading Friday, recovering later in the day. Rumors spread that many hedge funds — which are lightly regulated and control huge pools of investment — were preventing their investors from withdrawing money. That's the equivalent of putting a lock and chain around the exit doors.

At the heart of the uncertainty that's roiling Wall Street are mortgage-backed securities, which essentially are home loans bundled together and sold to investors. The big investment houses were the prime issuers of these mortgage-backed securities, and hedge funds snapped up a lot of them.

The markets are afraid that defaults are growing on both the sub-prime mortgages given to weaker borrowers and better-quality home loans that often were akin to second mortgages. These growing default rates have led to investors to flee anything related to the housing sector, from the stocks of home builders to investment banks to mortgage lenders. Banks of all stripes are increasingly wary of any lending, no matter the level of risk, until the problems on Wall Street are sorted out.

Although the troubles in the sub-prime lending sector have spooked financial markets for months, the worst may lie ahead. Most housing analysts think that there was a period in late 2005 and 2006 when lending standards weakened sharply and large numbers of adjustable-rate and exotic loans were extended to people who had weak credit histories. These adjustable-rate loans are scheduled to reset with much higher interest rates later this year and next year.

Many borrowers took out these loans expecting to refinance before the more onerous terms took effect. But in some markets homes are worth less now than they were when they were purchased two years ago, and banks are in no mood — and in some cases no shape — to refinance the loans.

"It's because everybody expects these resets to be a problem that everyone is selling off now," Wyss said.

The problem is that mortgage-backed securities generally aren't bought and sold like stock but usually are held until maturity, like bonds. Investors are trying to get rid of their holdings in sub-prime mortgage bonds but aren't finding buyers, even at fire-sale prices.

"They're very difficult to dump, because even when markets are good these things don't sell very well" in secondary markets, Wyss said. "These are very illiquid securities even under the best of times."

McClatchy Newspapers 2007

http://www.mcclatchydc.com/economics/story/18847.html

QueEx · Aug 11, 2007

<center>What's the fuss with Wall Street and the Fed?</center>

By Kevin G. Hall | McClatchy Newspapers
Posted on Fri, August 10, 2007

Here are some key answers about the Federal Reserve System's $38 billion intervention Friday on Wall Street:

Q. What exactly did the Federal Reserve System do?

A. Through complicated repurchase agreements, the Fed effectively pumped $38 billion into credit markets to defend the current interest-rate structure. Its benchmark federal funds rate, which influences consumer and business loans, is set by market forces and had risen to 6 percent Friday morning. That's well above the 5.25 percent target that the Fed's policy-making Open Markets Committee had set Tuesday. The Fed move brought the federal funds rate back to previous levels.

Q. How did its action help banks?

A. In the United States, Europe and Asia, central banks fear that lending might cease because lenders are increasingly afraid to take risks in today's volatile environment. The Fed's action, along with similar moves by the European Central Bank and others, tells banks that money is available if it's needed to ensure that overnight bank lending and other routine transactions can continue.

Q. What does all this have to do with housing?

A. At the root of today's uncertainty are poorly performing home loans, mostly those given to borrowers with weaker credit histories or who have overextended themselves by taking on large amounts of debt. These so-called sub-prime loans are going into delinquency and default at alarming rates, and the worst of the problem is still ahead. The real problem loans are expected late this year and throughout next year. Housing and financial analysts think that lenders dangerously weakened lending standards in late 2005 and 2006, when there was a flurry of exotic home loans and adjustable-rate mortgages. Many of these loans are due to bump up to higher interest rates late this year and next year. And since home prices are falling or stagnant, and banks wary of lending, these loans may prove hard to refinance.

Q. Why does Wall Street worry about sub-prime loans

A. Years ago, banks held home loans on their balance sheets. Today, they're sold on the secondary mortgage market, where they're pooled together, bundled and sold to investors as so-called mortgage-backed securities. The big investment banks such as Bear Stearns, Lehman Brothers and others are deeply involved in this, and may also have extended credit to some of the buyers of these securities. Generally, better-quality loans are sold to Fannie Mae, the quasi-government agency that does some of this packaging. The riskier loans have been issued by so-called private label issuers, Wall Street firms who sell these bonds to investors here and abroad.

Q. What are federal regulators doing?

A. The Securities and Exchange Commission reportedly is looking at the books of major investment banks to see how they're valuing their mortgage-backed securities. SEC spokesman John Heine would neither confirm or deny it, but news reports said regulators feared that major Wall Street firms might be masking the size of their sub-prime losses.

Q. Who holds these riskier mortgage securities?

A. That's not entirely clear, adding to today's market volatility. It's thought that lightly regulated hedge funds, which control huge pools of investment money, own quite a bit of them. Average Americans increasingly have a stake in hedge funds because public and corporate pension funds plunk portions of their portfolios into them. Foreigners are exposed too. France's largest bank, BNP Paribas, on Thursday froze three investment funds that held mortgage bonds and other exotic U.S. bonds.

Q. Is a U.S. government bailout coming?

A. President Bush said this week that he didn't want to bail out lenders but was willing to help borrowers. The problem is that helping borrowers lets lenders off the hook. Fannie Mae has asked the federal government to allow it to expand its mortgage holdings by 10 percent. This would allow Fannie Mae to help some troubled homeowners refinance into manageable loans. Bush wants revisions to Fannie Mae before homeowners are rescued; Democrats want quicker action.

Q. Does this mean a recession is ahead?

A. Bush and his economic team are talking up the economy and saying that the fundamentals remain strong. Most economists think the housing sector's problems will shave a full percentage point of growth from the economy this year. As long as employment indicators remain strong and consumer confidence robust, there shouldn't be a recession. But if credit problems in the banking sector become a full-blown credit freeze and people can't get loans to buy homes or cars or to start businesses, the economy would be hit hard.

Q. What will happen to my 401(k) plan or my individual retirement account? What should I do?

A. Most financial advisers suggest taking a long view on investing. They think that despite the short-run turmoil and gyrations, stocks are a good investment over a longer period. To be sure, individual stocks and mutual funds are going backward right now, but the stock market is still up 6.2 percent for this year. Many analysts think that a 10 to 15 percent price correction has been in order, suggesting that further dips are ahead. If you're uneasy about how the recent volatility affects your retirement assets, it may be a good time to consult an expert.

McClatchy Newspapers 2007

http://www.mcclatchydc.com/economics/story/18849.html

BoyJupiter · Aug 11, 2007

Re: Inflation Views Could Change Under Bernanke

1933 is calling...

QueEx · Aug 11, 2007

Re: Inflation Views Could Change Under Bernanke

BoyJupiter said:
1933 is calling...

I don't think any of the articles say 1933; what makes you believe so?
By the way, I think the year you're talking about is 1929, isn't it?

QueEx

BigUnc · Aug 11, 2007

First and foremost the Federal Reserve only "purchased" this paper for 3 days. Come Monday morning whomever the Fed bought them from has to find a buyer or liquidate/give up assets to buy them back from the Fed, plus interest of course. Monday should be a very interesting day.

Some economic prognosticators are openly calling for a recession with 1 that i know of openly saying we are in a recession now, if you listen to Cramer from CNBC many more are telliing him in private how bad they think the situation is but aren't willing to go public. Wall street seems to be betting the government is going to step in to stave off a deeper crisis. Read that as a taxpayer bailout for the dumbass lending decisions of Wall Street investors. How the public will react to that possibility if they actually do it I don't know. What i do know is the government won't bail me out if I make fucked up financial decisions so why should these multi-billion dollar companies along with the rich investors get one.

With millions of mortgages resetting this year and next how much money the Fed is willing to pump into the market to prop up the financial sector is unknown. The Fed isn't in the business of holding onto worthless paper. My guess is if shit gets to bad the Fed will allow a market correction regardless of the fallout.

I'm not exactly sure about this but the market did crash in August 1929??? wiping out alot of banks. I seem to remember that the general public didn't start to really feel the impact until 1930 then it went full bore until the mid 30's when it started to ease a little then ended with WWII and full employment or something similar to that. Oddly comparisons are being made between then and now ini regards that both were caused by risky investment in financial instruments that had no real value which relied on exchanging paper IOU's promising huge profits sometime in the distant future in exchange for loaning cash money up front with the caveat that as long as new investors are constantly brought in everything should work fine. Is that a ponzi scheme or a pyamid I forget.

thoughtone · Aug 16, 2007

U.S. savings rate hits lowest level since 1933

This is a old story, but in light of the current housing loan and stock market crises, it is even more relevant. If this is not a reason to roll back Reaganomics, then I don’t know what is.

source: msnbc

Consumers depleting savings to buy cars, other big-ticket items

Updated: 12:10 p.m. ET Jan 30, 2006
WASHINGTON - Americans’ personal savings rate dipped into negative territory in 2005, something that hasn’t happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.

The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.

The savings rate has been negative for an entire year only twice before — in 1932 and 1933 — two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.

With employment growth strong now, analysts said that different factors are at play. Americans feel they can spend more, given that the value of their homes, the biggest asset for most families, has been rising sharply in recent years.

But analysts cautioned that this behavior was risky at a time when 78 million Americans are on the verge of retirement.

“Americans seem to have the feeling that it is wimpish to save,” said David Wyss, chief economist at Standard & Poor’s in New York. “The idea is to put away money for old age and we are just not doing that.”

The Commerce report said that consumer spending for December rose by 0.9 percent, more than double the 0.4 percent increase in incomes last month.

A price gauge that excludes food and energy rose by a tiny 0.1 percent in December, down from a 0.2 percent rise in November. This inflation index linked to consumer spending is closely watched by officials at the Federal Reserve.

The central bank meets on Tuesday, when it is expected it will boost interest rates for a 14th time. However, many economists believe those rate hikes are drawing to a close with perhaps another quarter-point hike at the March 28 meeting as the central bank is starting to see the impact of the previous rate hikes in a slowing economy.

The government reported on Friday that overall economic growth slowed to a 1.1 percent rate in the final three months of the year, the most sluggish pace in three years.

That slowdown was heavily influenced by a big drop for the quarter in spending on new cars, which had surged in the summer as automakers offered attractive sales incentives.

A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases. For the month, the savings rate fell to 0.7 percent, the largest one-month decline since a 3.4 percent drop in August.

The 0.5 percent negative savings rate for 2005 followed a 1.8 percent rate of savings in 2004. The last negative rates occurred in 1932, a drop of 0.9 percent, and a record 1.5 percent decline in 1933. In those years Americans exhausted their savings to try to meet expenses in the wake of the worst economic crisis in U.S. history.

One major reason that consumers felt confident in spending all of their disposable incomes and dipping into savings last year was that a booming housing market made them feel more wealthy. As their home prices surged at double-digit rates, that created what economists call a “wealth effect” that supported greater spending.

The concern, however, is that the housing boom of the past five years is beginning to quiet down with the rise in mortgage rates. Analysts are closing watching to see whether consumer spending, which accounts for two-thirds of total economic activity, falters in 2006 as Americans, already carrying heavy debt loads, don’t feel as wealthy as the price appreciation of their homes would seem to indicate.

For December, the 0.4 percent rise in incomes was in line with Wall Street expectations. It followed a similar 0.4 percent increase in November, with both months lower than the 0.6 percent rise in October.

The 0.9 percent rise in spending with slightly above the expectation for a 0.8 percent increase and was almost double the 0.5 percent increase in November.

© 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

QueEx · Aug 17, 2007

<center>
Odds grow for recession,
but lenders hold the key</center>

70-20070816-MARKETS.small.prod_affiliate.91.jpg

By Kevin G. Hall
McClatchy Newspapers
Posted on Fri, August 17, 2007

WASHINGTON — Wall Street's woes are raising the risk that the U.S. economy could sink into recession late this year or early next year.

Although few economic analysts put the odds of recession at better than 50 percent, most are now upping their probabilities.

"We've lowered our 2008 growth forecast to 1.5 percent, down from 2.3 percent previously and 1.8 percent in 2007. We now expect a consumer recession, for the first time in 17 years," said a revised forecast issued Thursday by Merrill Lynch.

Whether Wall Street’s turmoil brings a sharp slowdown or a full-blown recession depends on three inter-related variables: how quickly banks resume lending to businesses and home buyers; whether the recession in the housing sector bottoms out or deepens; and whether falling home prices and a lack of lending combine to hit the consumer’s ability to spend.

“What we’re going through now is unlike anything we’ve seen before. All financial crises have their unique characteristic — this one is characterized by a seizing-up in the home-mortgage market,” said Lyle Gramley, a former governor of the Federal Reserve System in the 1980s who's now with the Stanford Group, a consulting firm.

He puts the odds of recession at 50 percent.

Gramley was referring to the spate of bankruptcies by companies that issued home loans to risky borrowers — and increasingly companies that gave loans to credit-worthy homeowners.

The nation’s biggest mortgage lender, Countrywide Financials, tried to stave off bankruptcy Thursday by tapping an $11.5 billion line of credit. It was viewed as a last-ditch effort to stay solvent as investors flee anything with the word “mortgage” attached. That's making it hard for even creditworthy people to finance a home purchase.

“The volatility in today’s market is making it extremely difficult to qualify borrowers for mortgage loans. And the news about Countrywide’s woes doesn’t make the picture any brighter,” said Dawn Holly, a mortgage broker in Columbia, Md. She said that lenders have basically stopped underwriting all but the safest of home loans.

The credit crunch isn't confined to homebuyers. Banks, threatened by the risk that their loans are endangered by the spreading crisis, are withholding new loans even from sound businesses.

Gramley’s concerned that there aren’t good measures right now of how much lenders are pulling back. “None of us knows for sure how much credit availability has declined, but to be sure it is substantial,” he said.

If banks don’t extend credit, businesses can’t borrow to grow. Nor can they issue bonds to finance expansion, since investors are fleeing virtually all forms of risk. If businesses don’t grow, they don’t hire. If this trend goes on very long, eventually it will turn today’s strong job numbers — unemployment is only at 4.6 percent — much weaker.

Another way that Wall Street's woes affect Main Street is that falling stock prices mean declining wealth. As Americans lose wealth in their investments and home prices continue to erode, they're likely to reduce spending, which drives the economy.

“Consumer spending depends on wealth, because if wealth contracts or asset prices fall, it undermines the growth of retail sales and other consumption … and that’s two thirds of GDP (gross domestic product),” said Joel Prakken, chairman of Macroeconomic Advisers LLC, an economic forecasting firm in St. Louis, Mo.

There's no question that stock prices are sliding; Thursday marked one of the wildest rides on Wall Street in years. The Dow Jones Industrial Average was down by 343 points at one point before rallying near the close of trading to end down just 15.69 points, or 0.12 percent. Even so, the Dow's down almost 1,200 points since its peak on July 19 at 14,000. Everyone with a 401(k) is probably watching its value decline.

Prakken doesn’t offer a probability for recession, partly because Wall Street's volatility makes any long-term projection difficult. But he expects economic growth to start slipping in October. He cited falling stock prices and the spreading credit crunch for both businesses and homebuyers as signs of a coming slowdown.

“We associate all those with downward revisions of the forecasts,” he said. “It’s just incredibly difficult to make these calls. The volatility is incredible.”

The lack of firm data about how bad lending conditions are leaves most analysts scratching their heads, worried but uncertain whether a recession is coming.

“I think it’s very hard to tell, and I think it’s less than 50 percent likely. But there’s no good data to support one argument or the other,” said Irwin M. Stelzer, director of economic policy studies at the Hudson Institute, a conservative think tank in Washington, D.C.

2007 McClatchy Newspapers

http://www.mcclatchydc.com/227/story/18997.html

QueEx · Sep 28, 2007

Greenspan sees threat of '70s-style inflation

779-20070926-INFLATION.small.prod_affiliate.91.jpg

By Kevin G. Hall and Robert A. Rankin | McClatchy Newspapers
Posted on Thursday, September 27, 2007

WASHINGTON —An important point in Alan Greenspan's much-hyped memoir has gone largely unnoticed: He acknowledges that global economic forces, more than Federal Reserve policy, kept inflation low and manageable for two decades.

By global forces he means free trade, the rise of emerging, cheap-labor economies led by China and India and the benefits from information technology and the Internet.

He warns that these forces — "globalization," in shorthand — are weakening as they mature. He fears that could mean a gradual return to persistent 1970s-style inflation over the next 20 years or so. And he worries that could cripple a U.S. economy that's already facing strains from the graying of the population over the same period.

Not everyone agrees.

"I do think he's overly pessimistic. Which is not to say things he's pointing to aren't real or potentially real," said Alan Blinder, a former Fed vice chairman and Princeton University economist who thinks that U.S. and European policymakers are unlikely to let inflation get out of hand because they learned hard lessons in the '70s.

Inflation measures the rise of prices across the economy over time. It's relatively stable at the moment: Consumer prices rose only 2 percent over the 12 months through August. But oil prices are high — more than $80 a barrel — commodities from corn to gold are flirting with records and Americans are increasingly fearful that free trade is hurting wages and workers at home, and may restrain it.

All those factors threaten to boost inflation.

It roared out of control from the late 1960s through 1981. Prices rose so quickly that they eroded the purchasing power of a dollar. In 1979, $100 on Jan. 1 was worth $87 by Dec. 31.

To avoid that erosion of their wealth, '70s investors moved money out of stocks and bonds into nonproductive assets such as gold and art. The economy shrank four years out of the nine from 1974 to 1982. Living standards fell.

And interest rates soared. To ensure profit on eroding money, lenders charged higher interest and investors demanded higher yields. That made car loans, college tuition and credit card debt more costly to finance.

Mortgage rates rose too, making it harder to finance home purchases and putting downward pressure on home prices. A $200,000 fixed-rate 30-year mortgage with a 6 percent interest rate carries a monthly payment of $1199.10. If inflation pushes the mortgage rate to 10 percent, that mortgage costs $1755.14 per month, almost half again as much.

Greenspan, the leading economic seer of the roaring 1990s, fears that the table's being set for it all to happen again.

The biggest reason is that "having largely bestowed its benefits, globalization will slow its pace," he wrote.

For several decades, the benefits of globalization — primarily abundant foreign-made goods produced for low wages and purchased for low prices &mash; helped hold down U.S. inflation. But that's changing.

China, for example, the biggest source of U.S. imported goods, has a growing inflation problem. Its inflation rate hit an 11-year high of 6.5 percent in August.

Wages in China grew 13.5 percent last year. As Chinese workers demand higher pay to cover rising prices, production costs rise. Eventually, the price of Chinese-made goods purchased by Americans will rise as well.

Just as inexpensive imports helped hold down inflation here the past two decades, inflation here will rise with import prices. How much, how fast? While U.S. inflation rates varied greatly over the years, on average from 1939 through 1989 consumer prices rose by 4.5 percent per year.

"That's probably not a bad first approximation of what we will face," Greenspan warns in his book "The Age of Turbulence." An annual inflation rate of 4.5 percent would reduce the purchasing power of $10,000 to $6,439 in one decade, according to the Tax Policy Center, run by the Urban Institute and the Brookings Institution.

Greenspan says the threat of rising inflation is already here. He told CBS's "60 Minutes" that his successor, Ben S. Bernanke, faces a different economic chessboard from the one he had in the '90s.

"We were dealing with an environment back there where inflation was easing. We could have acted without the fear of stoking inflationary pressures. You can't do that anymore," Greenspan said.

Mainstream economists agree.

"I don't think inflation is an imminent danger, but I do agree with him that he had a very favorable environment . . . and I don't think Bernanke is going to have the same luck," said David Wyss, chief economist for Standard & Poor's, a financial-research firm.

Bernanke's Fed said rising inflation was the biggest threat to the economy as recently as Aug. 7. Then a gathering credit crisis rooted in the housing sector's problems led the Fed to switch priorities and slash interest rates by half a percentage point this month to avoid recession.

Some analysts fear that only poured fuel on the glowing embers of incipient inflation, and may come back to haunt Bernanke, perhaps as soon as next year.

Greenspan, too, thinks that future Fed chairmen will need to raise interest rates to keep a lid on inflation — the Fed's primary mission — but he fears that the emerging populist political environment, as reflected in Democrats' rising opposition to free trade, may not allow it. He fears that the Fed could be forced into accepting higher inflation.

In response to soaring double-digit inflation, Greenspan's predecessor Paul Volcker raised interest rates even higher beginning in 1979, deliberately forcing a recession in 1981-82. Volcker's move was unpopular. At its peak the banks' prime lending rate — the one they charge their best borrowers — stood at 21.5 percent. Few could afford loans. But when the economy emerged from recession in 1982, inflation was effectively crushed.

The 1980 inflation rate of 12.5 percent fell to 3.8 percent in 1982. It's been modest ever since, averaging 3.24 percent from 1982 to 2006.

The era of low stable inflation coincided with the greatest sustained burst of economic expansion in world history. The U.S. economy has shrunk in only 16 months of the 25 years since the 1982 recession ended. That's convinced economists that low inflation provides an essential foundation to permit sustained economic growth. Blinder, the former Fed vice chairman, thinks the lesson won't soon be forgotten.

He argues that globalization is still dynamic and foreign competition will remain a check on U.S. prices.

"I think he (Greenspan) underestimates how much of the China and India phenomenon is still in the future, not in the past," Blinder said. "When it comes to India and services, I think we've barely scratched the surface. I think there's a huge downward pressure on a variety of services prices . . . to come for many years. And services are a much bigger portion of the consumer's basket than goods."

While that trend would keep a lid on many U.S. wages, it also would help contain inflation here.

2007 McClatchy Newspapers

http://www.mcclatchydc.com/226/story/19988.html

QueEx · Nov 27, 2007

Signs Are Pointing South on Wall St.

Credit Woes Foster Bets on Bad Times

By Neil Irwin
Washington Post Staff Writer
Tuesday, November 27, 2007; Page A01

Wall Street is betting on a recession.

Investors in stocks and bonds are paying prices that indicate they believe a snowballing housing crisis and worsening credit crunch will soon tip the U.S. economy into a recession, analysts said. Many economists, including leaders of the Federal Reserve, don't think things will get that bad, but some say the risk of a serious downturn has risen in recent weeks.

Investors were so eager to buy ultra-safe government bonds yesterday that they were willing to accept sharply lower interest rates. The rate on the 10-year Treasury bond fell to 3.84 percent from 4 percent Friday. The low rates indicate investors expect the Federal Reserve to cut interest rates aggressively in the coming year to ease the pain of recession.

Stocks are now down more than 10 percent from their peak in October. The Standard & Poor's 500-stock index fell 2.3 percent yesterday, dropping the market to a level that Wall Street analysts say reflects an expectation that corporate profits will fall.

Taken together, those and other data indicate that financial markets have a decidedly negative prognosis for the economy. "They're saying the odds of a recession are pretty damn high," said Diane Swonk, chief economist at Mesirow Financial.

There are reasons to think things will not get that bad, however. Holiday sales started Friday with a strong 8.3 percent gain over last year, and U.S. consumers have proven resilient in past periods of financial distress. With the dollar weakening, U.S. exporters will be at an advantage; joblessness remains near historic lows, at 4.7 percent; and the stock market, an old joke goes, has predicted nine of the past five recessions.

Moreover, economic growth could slow sharply through the first half of next year, as the Federal Reserve and myriad private firms predict, without technically falling into recession territory. A recession is defined as a significant decline in economic activity, as measured by a variety of indicators, that lasts more than a few months. The nonprofit Conference Board said yesterday that its index of leading economic indicators fell in October, but not by so much as to suggest a recession is about to begin.

Other events yesterday showed how widely worry has spread.

The Federal Reserve Bank of New York said it would make at least $8 billion available so banks do not find themselves short of cash through early January. Former Treasury secretary Lawrence Summers said in a column in yesterday's Financial Times that he now believes the odds favor a recession, a view he did not hold a few weeks ago.

Housing prices are falling sharply in many of the nation's biggest cities, and millions of foreclosures are forecast for the next two years. Oil prices are near $100 per barrel, which could thin out consumers' pocketbooks if the winter is especially cold. And as the value of the dollar drops, imports as varied as French wine and Japanese electronics could become more expensive.

In a view increasingly typical among Wall Street economists, analysts at Merrill Lynch published a research note yesterday with the headline: "We believe we are going to see a recession in '08."

Widespread expectations of a recession could be self-fulfilling because of how financial markets and mainstream America are interconnected. If investors are sufficiently convinced a recession is ahead, they would be reluctant to lend money to businesses that want to expand, making it so.

Just a month ago, financial markets seemed to be healing from the tumult of the summer, when fear of losses in the mortgage sector caused many markets to effectively shut down. But throughout November, the very institutions that were expected to ease the blow to the economy have shown more evidence of trouble.

Investors are worried that major banks are suffering such severe losses from mortgage and other risky securities that they will not be able to lend as much money to consumers and businesses in the months ahead. The same fears apply to Fannie Mae and Freddie Mac, the government-sponsored housing finance companies.

"It looked like the problems in the credit markets were going away or at least calming down a few weeks ago," said David A. Wyss, chief economist of Standard & Poor's. "Now the signs are that they're not."

The credit problems are no abstraction. They make it more expensive for individuals to obtain mortgages and for businesses to expand.

Higher interest rates for risky mortgages, for example, could make it difficult for would-be buyers to afford a home, which could cause prices to drop further. That, in turn, could spur more foreclosures, which could lead financial institutions to further increase rates they charge on mortgages.

"These things feed off of each other," Wyss said.

The same is true for businesses. Continuing expansion of the commercial real estate sector, for example, including office buildings and shopping centers, has been a major cushion from the housing downturn in recent months and has kept construction workers employed.

In February, owners could borrow against such properties at interest rates about one percentage point above the rate for Treasury bonds, based on a Morgan Stanley index for moderately risky commercial mortgage-backed securities. At the end of September, commercial property owners had to pay an additional four percentage points. By yesterday, the premium was seven percentage points.

Higher borrowing costs could make commercial builders less likely to move forward with new construction, analysts said, eliminating a crucial source of growth in jobs and in the gross domestic product.

The potential freeze in bank lending could mirror the savings and loan crisis of the early 1990s, a major cause of the 1990-91 recession.

"In any recession, you get to a tipping point where sentiment unravels and feeds on itself. Psychology takes over," said Mark Zandi, chief economist of Moody's Economy.com.

Staff writer David Cho contributed to this report.

http://www.washingtonpost.com/wp-dyn/content/article/2007/11/26/AR2007112602206.html?hpid=topnews

QueEx · Nov 27, 2007

Related Threads:

Economy Fucked Up, This Is One Reason
http://www.bgol.us/board/showthread.php?t=209010&highlight=economy

Is the economy really bad?
http://www.bgol.us/board/showthread.php?t=209239&highlight=economy

World economy too reliant on China and US
http://www.bgol.us/board/showthread.php?t=18317&highlight=economy

`

BigUnc · Nov 27, 2007

Mixed news today but the trend is negative for next year. Consumers are feeling the pinch and say they're going to start cutting back. Businesses are starting to layoff.

U.S. Economy: Confidence Drops More Than Predicted (Update1)

By Shobhana Chandra and Bob Willis
Last Updated: November 27, 2007 11:09 EST
Nov. 27 (Bloomberg) -- Consumer confidence fell more than forecast in November as Americans struggled with surging fuel costs and falling home prices.

The Conference Board's confidence index decreased to 87.3, the lowest level since the aftermath of Hurricane Katrina in 2005, the New York-based group said today. House values dropped 4.5 percent in the third quarter from a year earlier, the most since records began in 1988, S&P/Case-Shiller reported separately today.

The gloomier mood increases the likelihood that holiday sales, which account for a fifth of retailers' yearly revenue, will be disappointing. Federal Reserve policy makers and private economists have cut growth forecasts as the housing slump enters its third year and jeopardizes consumer spending.

``This is a strong indication that consumers are going to pull back sharply and growth is going to be very weak,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``The message to the Fed should be that they need to keep cutting rates.''

October's confidence reading was revised down to 95.2, from a previously reported 95.6. None of the 67 economists surveyed by Bloomberg News predicted the size of the decline. The median forecast was 91.

Stocks Jump

Treasury securities remained lower and stock prices rose following the reports as investors focused on news that Citigroup Inc. will receive a cash infusion from Abu Dhabi's government. The Dow Jones Industrial Average was up 138 points, or 1.1 percent, at 11:09 a.m. in New York.

Property prices may keep sliding in coming months as slowing sales and rising foreclosures aggravate the glut of unsold homes, economists said.

The housing recession will drive down property values by $1.2 trillion next year and slash tax revenue by more than $6.6 billion, according to a report issued today by the U.S. Conference of Mayors. The 361 largest U.S. cities will experience a combined loss of $166 billion in economic growth, led by $10.4 billion in the New York-Northern New Jersey area, according to the study.

Lower property values make it harder for owners to tap home equity, while gasoline at more than $3 a gallon and higher home- heating bills also sour Americans' mood. A report last week showed the Reuters/University of Michigan sentiment index fell this month to a two-year low.

Job Focused

Compared with other sentiment gauges, the Conference Board's index tends to be more influenced by attitudes about the state of the labor market, economists said.

An average of 330,000 workers filed first-time claims for jobless benefits per week in November, up from 306,000 as recently as July. The increase suggests firings are mounting as businesses try to cut costs.

Fed policy makers are counting on wage gains to help Americans maintain spending, according to the minutes of their Oct. 31 meeting. Still, there was a risk falling home prices could ``further sap consumer confidence.''

The Conference Board's measure of present conditions fell to 115.4 from 118 the prior month. The gauge of expectations for the next six months decreased to 68.7, the lowest since March 2003, from 80.

Today's report showed the share of consumers who said jobs are plentiful retreated to 23.2 percent in November from 24.1 percent the prior month. The proportion of people who said jobs are hard to get also decreased to 21.3 percent from 22.8 percent.

Wage Concerns

The proportion of people who expect their incomes to rise over the next six months dropped to 18.7 percent from 19.9 percent. The share expecting more jobs decreased to 10.8 percent from 13.3 percent.

The number of people planning to buy a home or an automobile within the next six months fell.

Retailers are bracing for a slowdown through the holidays and into 2008. Target Corp., the second-biggest U.S. discounter, last week reported its first profit decline in two years, and said it expects slowing sales growth through the first quarter.

The National Retail Federation this week maintained its forecast that combined sales for November and December will show the smallest increase in five years even after purchases were stronger than forecast after the Thanksgiving holiday. Americans spent less per person even as more went shopping, the group said.

``Elevated energy costs and the anticipation of further increases continues to impact Americans' ability to spend on discretionary projects,'' Robert Niblock, chief executive officer of Lowe's Cos., the second-largest home improvement retailer, said on a conference call last week. ``Access to mortgage financing is a concern we'll continue to watch.''

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net Bob Willis in Washington at bwillis@bloomberg.net

ezlovr · Nov 27, 2007

Being that most working class Americans cycle in and out of poverty I really find it hard to believe that it is the people fault for lack of income. I put the blame totally on the Federal Reserve system as well as the fraus that was committed to allow the 16 amendment to become legal. No taxtion without representation. Even though the Boston tea party did not apply directly to black that still do not change the fact that even stupid white people do have basic understanding of economics. Tax = inflation = working class = poverty. peace

Greed · Dec 4, 2007

http://educationalrap.imeem.com/music/xY4REVq-/rhythm_rhyme_results_demand_supply/?d=1

Greed · Dec 5, 2007

That 'Top One Percent'

November 27, 2007
That 'Top One Percent'
By Thomas Sowell

People who are in the top one percent in income receive far more than one percent of the attention in the media. Even aside from miscellaneous celebrity bimbos, the top one percent attract all sorts of hand-wringing and finger-pointing.

A recent column by Anna Quindlen in Newsweek (or is that Newsweak?) laments that "the share of the nation's income going to the top 1 percent is at its highest level since 1928."

Who are those top one percent? For those who would like to join them, the question is: How can you do that?

The second question is easy to answer. Virtually anyone who owns a home in San Francisco, no matter how modest that person's income may be, can join the top one percent instantly just by selling their house.

But that's only good for one year, you may say. What if they don't have another house to sell next year?

Well, they won't be in the top one percent again next year, will they? But that's not unusual.

Americans in the top one percent, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring "class" -- especially by those who have overdosed on the magic formula of "race, class and gender," which has replaced thought in many intellectual circles.

At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005.

Among the top one-hundredth of one percent, three-quarters of them were no longer there at the end of the decade.

These are not permanent classes but mostly people at current income levels reached by spikes in income that don't last.

These income spikes can occur for all sorts of reasons. In addition to selling homes in inflated housing markets like San Francisco, people can get sudden increases in income from inheritances, or from a gamble that pays off, whether in the stock market, the real estate market, or Las Vegas.

Some people's income in a particular year may be several times what it has ever been before or will ever be again.

Among corporate CEOs, those who cash in stock options that they have accumulated over the years get a big spike in income the year that they cash them in. This lets critics quote inflated incomes of the top-paid CEOs for that year. Some of these incomes are almost as large as those of big-time entertainers -- who are never accused of "greed," by the way.

Just as there may be spikes in income in a given year, so there are troughs in income, which can be just as misleading in the hands of those who are ready to grab a statistic and run with it.

Many people who are genuinely affluent, or even rich, can have business losses or an off year in their profession, so that their income in a given year may be very low, or even negative, without their being poor in any meaningful sense.

This may help explain such things as hundreds of thousands of people with incomes below $20,000 a year living in homes that cost $300,000 and up. Many low-income people also have swimming pools or other luxuries that they could not afford if their incomes were permanently at their current level.

There is no reason for people to give up such luxuries because of a bad year, when they have been making a lot more money in previous years and can expect to be making a lot more money in future years.

Most Americans in the top fifth, the bottom fifth, or any of the fifths in between, do not stay there for a whole decade, much less for life. And most certainly do not remain permanently in the top one percent or the top one-hundredth of one percent.

Most income statistics do not follow given individuals from year to year, the way Internal Revenue statistics do. But those other statistics can create the misleading illusion that they do by comparing income brackets from year to year, even though people are moving in and out of those brackets all the time.

That especially includes the top one percent, who have become the focus of so much angst and so much rhetoric.

Copyright 2007, Creators Syndicate, Inc.

http://www.realclearpolitics.com/articles/2007/11/the_transient_income_classes.html

QueEx · Dec 15, 2007

Re: That 'Top One Percent'

China and the Arabian Peninsula
as Market Stabilizers

Strategic Forecasting, Inc.
Geopolitical Intelligence Report
By George Friedman
December 11, 2007

The single most interesting thing about today's global economy is what has not occurred. In 1979, oil prices soared to slightly more than $100 a barrel in current dollars, and they are approaching that historic high again. Meanwhile, the subprime meltdown continues to play out. Many financial institutions have been hurt, many individual lives have been shattered and many Wall Street operators once considered brilliant have been declared dunderheads. Despite all the predictions that the current situation is just the tip of the iceberg, however, the crisis is progressing in a fairly orderly fashion. Distinguish here between financial institutions, financial markets and the economy. People in the financial world tend to confuse the three. Some financial institutions are being hurt badly. Those experiencing the pain mistakenly think their suffering reflects the condition of the financial markets and economy. But the financial markets are managing, as is the economy.

What we are seeing is the convergence of two massive forces. Oil prices, along with primary commodity prices in general, have soared. Also, one of the periodic financial bubbles -- the subprime mortgage market -- has burst. Either of these alone should have created global havoc. Neither has. The stock market has not plummeted. The Standard & Poor's 500 fell from a high of about 1,565 in mid-October to a low of 1,400 on Oct. 19. Since then, it has rebounded as high as 1,550. Given the media rhetoric and the heads rolling in the financial sector, we would expect to see devastating numbers. And yet, we are not.

Nor are the numbers devastating in the bond markets. By definition, a liquidity crisis occurs when the money supply is too tight and demand is too great. In other words, a liquidity crisis would be reflected in high interest rates. That hasn't happened. In fact, both short-term and, particularly, long-term interest rates have trended downward over the past weeks. It might be said that interest rates are low, but that lenders won't lend. If so, that is sectoral and short-term at most. Low interest rates and no liquidity is an oxymoron.

This is not the result of actions at the Federal Reserve. The Fed can influence short-term rates, but the longer the yield curve, the longer the payoff date on a loan or bond and the less impact the Fed has. Long-term rates reflect the current availability of money and expectations on interest rates in the future.

In the U.S. stock market -- and world markets, for that matter -- we have seen nothing like the devastation prophesied. As we have said in the past, the subprime crisis compared with the savings and loan crisis, for example, is by itself small potatoes. Sure, those financial houses that stocked up on the securitized mortgage debt are going to be hurt, but that does not translate into a geopolitical event, or even into a recession. Many people are arguing that we are only seeing the tip of the iceberg, and that defaults in other categories of the mortgage market coupled with declining housing markets will set off a devastating chain reaction.

That may well be the case, though something weird is going on here. Given the broad belief that the subprime crisis is only the beginning of a general financial crisis, and that the economy will go into recession, we would have expected major market declines by now. Markets discount in anticipation of events, not after events have happened. Historically, market declines occur about six months before recessions begin. So far, however, the perceived liquidity crisis has not been reflected in higher long-term interest rates, and the perceived recession has not been reflected in a significant decline in the global equity markets.

When we add in surging oil and commodity prices, we would have expected all hell to break loose in these markets. Certainly, the consequences of high commodity prices during the 1970s helped drive up interest rates as money was transferred to Third World countries that were selling commodities. As a result, the cost of money for modernizing aging industrial plants in the United States surged into double digits, while equity markets were unable to serve capital needs and remained flat.

So what is going on?

Part of the answer might well be this: For the past five years or so, China has been throwing around huge amounts of cash. The Chinese made big, big money selling overseas -- more than even the growing Chinese economy could metabolize. That led to massive dollar reserves in China and the need for the Chinese to invest outside their own financial markets. Given that the United States is China's primary consumer and the only economy large and stable enough to absorb its reserves, the Chinese -- state and nonstate entities alike -- regard the U.S. markets as safe-havens for their investments. That is one of the things that have kept interest rates relatively low and the equity markets moving. This process of Asian money flowing into U.S. markets goes back to the early 1980s.

Another part of the answer might lie in the self-stabilizing feature of oil prices, the rise of which should be devastating to U.S. markets at first glance. The size of the price surge and the stability of demand have created dollar reserves in oil-exporting countries far in excess of anything that can be absorbed locally. The United Arab Emirates, for example, has made so much money, particularly in 2007, that it has to invest in overseas markets.

In some sense, it doesn't matter where the money goes. Money, like oil, is fungible, which means that if all the petrodollars went into Europe then other money would flow into the United States as European interest rates fell and European stocks rose. But there are always short-term factors to consider. The Persian Gulf oil producers and the Chinese have one thing in common -- they are linked to the dollar. As the dollar declines, assets in other countries become more expensive, particularly if you regard the dollar's fall as ultimately reversible. Dollars invested in dollar-denominated vehicles make sense. Therefore, we are seeing two massive inflows of dollars to the United States -- one from China and one from the energy industry. China's dollar reserves are derived from sales to the United States, so it is stuck in the dollar zone. Plus, the Chinese have pegged the yuan to the dollar. The energy industry, also part of the dollar zone, needs to find a home for its money -- and the largest, most liquid dollar-denominated market in the world is the United States.

The United States has created an odd dollar zone drawing in China and the Persian Gulf. (Other energy producers such as Russia, Nigeria and Venezuela have no problem using their dollars internally.) Unhinging China from the dollar is impossible; it sells in dollars to the United States, a linkage that gives it a stable platform, even if it pays relatively more for oil. Additionally, the Arabian Peninsula sells oil in dollars, and trying to convert those contracts to euros would be mind-bogglingly difficult. Existing contracts and new contracts managed in multiple currencies -- both spot and forward managed -- would have to be renegotiated. Any business working in multiple currencies faces a challenge, and the bigger the business, the bigger the challenge. The Arabian Peninsula accordingly will not be able to hedge currencies and manage the contracts just by flipping a switch.

This provides an explanation for the resiliency of U.S. markets. Every time the news on the subprime situation sounds so horrendous that it seems the U.S. markets will crash, the opposite occurs. In fact, markets in the United States rose through the early days, then sold off and now have rallied again. Where is the money coming from?

We would argue that the money is coming from the dollar bloc and its huge free cash flow from China, and at the moment, the Arabian Peninsula in particular. This influx usually happens anonymously through ordinary market actions, though occasionally it becomes apparent through large, single transactions that are quite open. Last week, for example, Dubai invested $7 billion in Citigroup, helping to clean up the company's balance sheet and, not incidentally, letting it be known that dollars being accumulated in the Persian Gulf will be used to stabilize U.S. markets.

This is not an act of charity. Dubai and the rest of the Arabian Peninsula, as well as China, are holding huge dollar reserves, and the last thing they want to do is sell those dollars in sufficient quantity to drive the dollar's price even lower. Nor do they want to see a financial crisis in the U.S. markets. Both the Chinese and the Arabs have far too much to lose to want such an outcome. So, in an infinite number of open market transactions, as well as occasionally public investments, they are moving to support the U.S. markets, albeit for their own reasons.

It is the only explanation for what we are seeing. The markets should be selling off like crazy, given the financial problems. They are not. They keep bouncing back, no matter how hard they are driven down. That money is not coming from the financial institutions and hedge funds that got ripped on mortgages. But it is coming from somewhere. We think that somewhere is the land of $90-per-barrel crude and really cheap toys.

Many people will see this as a tilt in global power. When others must invest in the United States, however, they are not the ones with the power; the United States is. To us, it looks far more like the Chinese and Arabs are trapped in a financial system that leaves them few options but to recycle their dollars into the United States. They wind up holding dollars -- or currencies linked to dollars -- and then can speculate by leaving, or they can play it safe by staying. In our view, these two sources of cash are the reason global markets are stable.

Energy prices might fall (indeed, all commodities are inherently cyclic, and oil is no exception), and the amount of free cash flow in the Arabian Peninsula might drop, but there still will be surplus dollars in China as long as it is an export-based economy. Put another way, the international system is producing aggregate return on capital distributed in peculiar ways. Given the size of the U.S. economy and the dynamics of the dollar, much of that money will flow back into the United States. The United States can have its financial crisis. Global forces appear to be stabilizing it.

The Chinese and the Arabs are not in the U.S. markets because they like the United States. They don't. They are locked in. Regardless of the rumors of major shifts, it is hard to see how shifts could occur. It is the irony of the moment that China and the Arabian Peninsula, neither of them particularly fond of the United States, are trapped into stabilizing the United States. And, so far, they are doing a fine job.

stratfor.com

QueEx · Jan 4, 2008

Re: That 'Top One Percent'

<center>Ahead of the Bell: Unemployment Rate</center>

BusinessWeek
January 4, 2008
WASHINGTON

Government data is forecast to show the nation's unemployment rate rose in December for the first time in four months.

Economic growth has been slowed by turmoil in the housing and credit sectors and rising energy prices.

Wall Street economists surveyed by Thomson/IFR predict the unemployment rate rose to 5 percent in December from 4.7 percent, a level it has remained at since September. Payrolls are expected to have grown by 70,000 in December, compared with growth of 94,000 a month earlier.

The Labor Department is scheduled to release the December data at 8:30 a.m. EST on Friday.

The department on Thursday said new applications for unemployment benefits fell by 21,000 to 336,000 last week. The decline beat Wall Street expectations as economists predicted a drop to 345,000 claims. The government's four-week moving average of new claims, which smooths out week-to-week fluctuations, fell by 750 to 343,750.

Other jobs news was bleak this week. Regional bank National City Corp. said it's cutting an additional 900 mortgage jobs. The Cleveland-based bank already has cut 3,400 jobs companywide.

Wachovia Corp. started cutting 243 mortgage and other banking-related jobs in San Antonio, Texas, in layoffs that will be complete by Sept. 30. Elsewhere, automaker Chrysler LLC said it will eliminate the third shift at its Belvidere, Ill., assembly plant and cut nearly 1,100 employees as part of a planned work force reduction starting Jan. 31.

http://www.businessweek.com/ap/financialnews/D8TV1OJO0.htm

QueEx · Jan 5, 2008

Re: That 'Top One Percent'

<center>Fed Boosts Next Two Special Auctions to $30 Billion
part of a global attempt by central bankers
to restore faith in the money markets.</center>

By Daniel Kruger

Jan. 4 (Bloomberg) -- The Federal Reserve will increase the size of two scheduled auctions of emergency loans by 50 percent to $30 billion as part of a global attempt by central bankers to restore faith in the money markets.

The Fed reiterated that it will continue the loan auctions, designed to increase the amount of cash available in the banking system, ``for as long as necessary,'' in a statement released today. The third and fourth auctions will be conducted on Jan. 14 and 28. The central bank will announce on Feb. 1 whether further auctions will be conducted.

Since the first of the auctions on Dec. 17, companies' cost to borrow in dollars for three months has fallen to the lowest in two years, suggesting central banks are succeeding in spurring bank lending.

``It's a step in the right direction,'' Bill Gross, the founder and chief investment officer of Pacific Investment Management Co., said in a Bloomberg Television interview from Newport Beach, California. ``They're making some progress.''

The Board of Governors of the Federal Reserve System established the temporary Term Auction Facility, dubbed TAF, in December to provide cash after interest-rate cuts failed to break banks' reluctance to lend amid concern about losses related to subprime mortgage securities. The program will make funding from the Fed available beyond the 20 authorized primary dealers that trade with the central bank.

Rate Cuts

Policy makers have cut the Fed's target rate for overnight loans between banks by 100 basis points to 4.25 percent since mid-September, and the discount rate by 150 basis points. A basis point is 0.01 percentage point.

Futures show the probability of the Fed cutting rates another half percent point at the end of the month increased to 68 percent today after the Labor Department said unemployment rose to a more than two-year high of 5 percent and job growth was less than forecast in December. Traders had factored in a zero percent probability a week ago.

The Fed uses the TAF to auction funds to institutions that are eligible to borrow at its discount window. All TAF credit must be fully collateralized, and TAF accepts a broad range of collateral at the same values and margins applicable for the other Fed lending programs.

On Dec. 21 the Fed and European Central Bank loaned a total of $30 billion in 35-day funds at an interest rate of 4.67 percent, 2 basis points more than at the initial auctions four days earlier. The rates were less than the 4.75 percent banks are charged to borrow directly at the Fed's discount window, suggesting the central bank was making progress in alleviating a credit crunch. The Fed auctioned $20 billion in each of those instances.

`It's Working'

The three-month London interbank offered rate, a lending benchmark that fluctuates depending on how willing banks are to lend to each other, fell to 4.62 percent today, the lowest since January 2006, according to the British Bankers' Association. The rate is 37 basis points above the Fed's target, down from a difference of 86 basis points last month, the highest since 1999.

The Fed's decision to increase the auction size ``tells you they think it's working,'' said Andrew Brenner, co-head of structured products and emerging markets in New York at MF Global Ltd. The Fed wants to employ ``surgical strikes against the problem and not just a general overall easing,'' he said.

Results will be announced the day following each auction and the sales will settle three days after that.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

Last Updated: January 4, 2008 16:17 EST

http://www.bloomberg.com/apps/news?pid=20601103&sid=aBPbErlft9cI&refer=news

thoughtone · Jan 5, 2008

I thought conservatives/Libertarians wanted the government out of people’s lives. Oh, ok, only when they need help.

Greed · Jan 7, 2008

America's Pursuit Of Happiness

Investor's Business Daily
America's Pursuit Of Happiness
Wednesday January 2, 6:20 pm ET
Ibd

Public Opinion: Each time you open a newspaper or turn on a TV, you'll hear how unhappy, glum and dissatisfied Americans are. Don't believe it. The U.S. is, to borrow a phrase, the happiest place on Earth.

A long-forgotten 1960s movie title pretty much sums up how Americans feel about their lives: "What's So Bad About Feeling Good?" According to a new Gallup Poll, for most people that's not just a rhetorical question.

"Most Americans say they are generally happy, with a slim majority saying they are 'very happy,'" according to the Gallup Poll released on the final day of 2007. "More than 8 in 10 Americans say they are satisfied with their personal lives at this time, including a solid majority who say they are 'very satisfied.'"

Another extensive survey conducted in 2007 by the Pew Research Center found that 65% of Americans termed themselves "satisfied" with their lives. That compares with the four economic powerhouses of Britain, France, Germany and Italy, which averaged about 53%.

This difference isn't something new. It's been around for a long time. It's a part of what foreign-affairs mavens call "American exceptionalism." The question is, why are Americans so darned happy?

For one thing, Americans are far richer than those in other countries. And yes, this matters. Contrary to popular belief, neither the Europeans nor the Japanese lead better lives than Americans.

A study a few years back by Sweden's Timbro think tank came to these startling conclusions: Virtually every nation in Europe lagged the U.S. in income. Indeed, if it were a state, the EU would rank 47th in per capita GDP -- on par with Mississippi and West Virginia.

Americans' homes have roughly twice the square footage per occupant as those in the EU, Americans own more appliances, and, on average, they spend about 77% more each year than Europeans.

Yet, though the U.S. economy is head-and-shoulders above the others, you'd never know it from our friends in the mainstream media. As repeated surveys show, U.S. media coverage of the economy is overwhelmingly slanted toward the negative side of things.

But a look at the facts shows something quite different.

U.S. household wealth climbed from $38.8 trillion in 2002 to $58.6 trillion in the third quarter of 2007, an unprecedented 51% surge in just five years. That includes the recent meltdown in home prices.

By any historical standard, Americans are unbelievably wealthy.

Moreover, despite the near-collapse in housing, the U.S. economy remains strong. It grew at a 3.1% rate during the first three quarters, and almost certainly kept growing in the final three months.

Economist Irwin Stelzer adds another reason why Americans are happy right now: a million new jobs over the last year, a milestone that is underpinning U.S. economic growth right now.

But can economics really matter that much? You bet. Money may not buy love, but it helps buy happiness. In fact, according to the Pew folks, there's a 72% correlation between per capita GDP growth in a country and its citizens' happiness.

What about social trends? As economist Irwin Stelzer recently noted, "teenage drug use, pregnancies, smoking and drinking are all on the decline; welfare reform is working, bringing down child poverty, and the divorce rate is falling."

Oh, and we're having more babies than at any time since the 1970s -- not something that a gloomy, depressed society does. Our 2.1 babies per adult woman puts us at the top of the developed world's fertility rankings (Europe, by comparison, has a population-shrinking 1.5 rate). A child is the biggest bet on a happy future that two people can make.

Then there's religion. A 2006 Harris Poll found on average that 43% of those in Britain, Germany, Italy, Spain and France believed in a Supreme Being. In the U.S., it's 73%. That suggests a link, in developed nations anyway, between religiosity and happiness.

Face it, Americans are an unusually happy, optimistic people. In a way, it defines us. A big reason is our economy -- huge, innovative, low-tax and less regulated than others.

That's what makes us different. Vive la difference!

http://biz.yahoo.com/ibd/080102/issues01.html

Greed · Jan 7, 2008

How do the right and left differ?

How do the right and left differ?
The conclusion of today's ec 10 lecture:

In today's lecture, I have discussed a number of reasons that right-leaning and left-leaning economists differ in their policy views, even though they share an intellectual framework for analysis. Here is a summary.

* The right sees large deadweight losses associated with taxation and, therefore, is worried about the growth of government as a share in the economy. The left sees smaller elasticities of supply and demand and, therefore, is less worried about the distortionary effect of taxes.

* The right sees externalities as an occasional market failure that calls for government intervention, but sees this as relatively rare exception to the general rule that markets lead to efficient allocations. The left sees externalities as more pervasive.

* The right sees competition as a pervasive feature of the economy and market power as typically limited both in magnitude and duration. The left sees large corporations with substantial degrees of monopoly power that need to be checked by active antitrust policy.

* The right sees people as largely rational, doing the best the can given the constraints they face. The left sees people making systematic errors and believe that it is the government role’s to protect people from their own mistakes.

* The right sees government as a terribly inefficient mechanism for allocating resources, subject to special-interest politics at best and rampant corruption at worst. The left sees government as the main institution that can counterbalance the effects of the all-too-powerful marketplace.

* There is one last issue that divides the right and the left—perhaps the most important one. That concerns the issue of income distribution. Is the market-based distribution of income fair or unfair, and if unfair, what should the government do about it? That is such a big topic that I will devote the entire next lecture to it.

http://gregmankiw.blogspot.com/2007/12/how-do-right-and-left-differ.html

U.S. Economy

Rising Star

Superstar *****

Potential Star

Potential Star

Rising Star

Rising Star

Star

Rising Star

Star

Star

Rising Star

Rising Star

Rising Star

Potential Star

Rising Star

Rising Star

Rising Star

Star

Rising Star

Potential Star

Rising Star

Rising Star

Rising Star

Rising Star

Rising Star

Potential Star

Support BGOL

Star

Star

Rising Star

Rising Star

Rising Star

Rising Star

Star

Star