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Libyan Assets: ‘Who Knows How Many Billions?’

June 11, 2011

BENGHAZI, Libya — Fancy hotels that dominate the skylines of several African capitals, farms, banks, gas stations, telephone companies and an international airline – the financial tentacles of Moammar Gadhafi’s regime are far-reaching and little known across the continent. They include the first pan-African communications satellite and the continent’s only pan-African radio station. And while a few countries say they have frozen those assets, in line with U.N. sanctions, many suspect that hundreds of millions of dollars are under the radar and could simply vanish in the disarray surrounding the Libyan revolution. “We have billions and billions, who knows how many billions?” the deputy governor of the rebel-held Central Bank in Benghazi, Abdalgader Albagrmi, told The Associated Press. With Libya at war, and despite the international sanctions, the West African nation of Niger announced last month that it had signed an agreement for LAP Green Network to pay $66 million for a 51 percent share in a 10-year license for the state telecommunications and mobile companies. LAP is an acronym for the Libyan African Investment Portfolio which is among companies hit by U.N. sanctions. Just one complex of luxury, high-rise apartment buildings in Cairo swallowed billions of Libyan assets, according to Mahmoud Badi, who used to manage financial and administrative monitoring of the governing General People’s Committee, including foreign investments. “One can estimate the total foreign investments exceed $150 billion or $170 billion, if it’s not even more than that,” said Badi. He emphasized that he was responsible for auditing government expenditure and investments only from 1994 to 1997, but said he has closely followed the ballooning investments by keeping contact with those who followed him in the job. Badi said the many companies created to handle investments, and their name changes, make tracing them more difficult. He reeled off a dizzyingly long list: Libyan Investment Co., Libyan African Investment Co., Libyan Investment Corp., Libyan Oil Investment Co. In the banking sector he said there is the Libyan Investment Bank, the Libyan African Bank, the Arab Bank Corp., Arab Foreign Bank, British-Arab Commercial Bank, Arab Bank for Investment and Foreign Trade, in partnership with the Algerian and Emirates governments, and Sahara Bank jointly owned with the French PARIBAS. “In addition, and this is not a secret, there are a lot of (bank) accounts and under a lot of names of responsible persons. It’s very easy, with the Internet, to move money from account to account, one name to another. Some are in secret accounts in banks that are not willing to show these investments if they are not forced to,” Badi said, adding this may make it impossible to recover some funds. He said he was certain the money frozen by the United States and European nations – in excess of $60 billion – is “in safe hands.” But for the rest – he threw up his hands to display his skepticism. At least three African countries have acted swiftly to take control of assets jointly owned with Libya. Rwanda, Zambia and Uganda took control of their countries biggest telecommunications companies. Rwanda said the Libyans long had failed to meet contractual commitments. Zambia said it was freezing Libyan shares until the civil war is resolved. Libyan companies in Uganda valued at $375 million, including pharmaceutical and cookie factories, employ more than 3,000 people. Some said they were panicking about their future despite government’s assurances that the companies are doing well. Hundreds of hotel workers have been laid off in Gambia since that West African nation froze Libyan assets in two hotels. “Closed until further notice,” says a sign outside the country’s only amusement park at the LAICO Hotel and Dream Park. A travel agent who answered the London telephone number advertised on the Web site of Afriqiyah Airways said the airline no longer is operating. Gadhafi started Afriqiyah boasting it would ease travel on the continent, from which it sometimes is faster to fly to Europe to reach another part of Africa. Also hanging in limbo is the future of the only continentwide radio station, Africa No. 1, which has been broadcasting from Libreville, Gabon, since the 1970s and reaches some 20 million listeners in a score of countries via satellite and shortwave. Its satellite provider cut its signal last month saying it was owed some 300,000 euros. Libya owns 52 percent of the station. Libya’s civil war also casts a cloud over a project to build an oil pipeline from Uganda to Kenya, in which Libya owns 51 percent and the Ugandan and Kenyan governments share 49 percent. “The Libyans are in Kenya in a big way,” said opposition legislator Gitobu Imanyara, whose country is dotted with LibyaOil gas stations. He said questions in parliament about whether the government is freezing Libyan assets have received no clear answers. In South Africa, the government says it still is compiling a list of Libyan assets, which include shares in the prestigious Michelangelo Hotel in Sandton. Legacy Group chairman Bart Dorrestein said they have frozen Libyan dividend payments from the Michelangelo but refused to say what they were worth. “It’s not an oil well. It’s a hotel,” he complained. The giant-size portrait of Gadhafi has been removed from the resplendent lobby of the five-star l’Amitie (friendship) Hotel where heads of state are put up in Bamako, Mali. But otherwise business continues as usual there and at numerous other Libyan government assets including gas stations, oil exploration, the controversial lease of 250,000 acres of prime agricultural land on the Niger delta, and numerous Madrases Moslem schools and mosques. One huge Libyan-funded mosque was built, intentionally it seems, right next door to the U.S. Embassy in Bamako. Mali’s Foreign Ministry said there are no plans to freeze the Libyan assets. “There are no doubt some cash accounts here too,” the ministry said in a statement. “It is possible that the Libyan government could attempt to sell properties that it owns here. This would be difficult to trace.” In Central African Republic, Gadhafi sent troops to support a government confronting coup attempts and an insurgency in 2001. In return, Libya won a 99-year agreement to explore all its mineral deposits, including diamonds and gold. Those exploration rights ran roughshod over agreements previously made with France, the nation that was at the forefront of imposing a U.N.-regulated no-fly zone over Libya. It’s unclear how Libya pursued its agreement in that country. Badi said most investments appear to be sound, moneymaking ventures. Not in that category is RASCOM, Africa’s communications satellite conceived to end the continent’s dependence on expensive European-owned satellites and to bring affordable Internet and telephone services to remote areas. Gadhafi put up $300 million and two African development banks $200 million for the project. RASCOM now offers broadband services and plans on transmitting radio and television broadcasts in addition to Internet services for long-distance medical and educational needs. In a sign of how little is known of other investments, the rebel Central Bank’s Albagrmi said they found out about Libyan investments in three luxury hotels in Cairo and Sharm-el-Sheikh resort from Egyptian “friends of the revolution.” He said the rebel administration would be contacting the Egyptian government to try to ensure no money from the hotels reaches the pockets of Gadhafi and his clique. — Associated Press writers Donna Bryson in Johannesburg, Martin Vogl in Bamako, Mali, Tom Odula in Nairobi, Kenya, Godfrey Olukya in Kampala, Uganda and Abdoulie John in Banjul, Gambia, contributed to this report.

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Under Pressure, OPEC Hammers Out Deal to Raise Oil Supply

June 8, 2011

VIENNA (Ramin Mostafavi and Alex Lawler) – OPEC producers on Wednesday hammered out a deal to raise oil supplies for the first time in four years to support the fragile world economy. Under pressure from consumer countries to contain fuel inflation, Saudi Arabia hopes to convince the Organization of Petroleum Exporting Countries to lift production by as much as 1.5 million barrels a day, Gulf delegates said. They said that one option could be an initial one million bpd increase with a promise of another 500,000 bpd to come in three months time. Iran offered to host an emergency meeting within three months to review policy, an Iranian source told Reuters. Initial opposition to an increase from Iran shifted to a proposal for a modest 700,000-one million bpd increase during a closed session of ministers, the Iranian source said. Iran’s acting oil minister Mohammad Aliabadi struck a conciliatory note at the start of the meeting. “Iran is a member of OPEC and will go with the decision of the majority,” Aliabadi told reporters. As OPEC’s biggest producer and the only one with any significant spare capacity, Saudi usually gets its way. But long-time price hawks Iran and Venezuela plus Ecuador, Iraq and Angola all want to keep oil prices above $100 a barrel. Brent crude traded near $116 a barrel. BASELINE? Also at issue is the baseline for any increase. As the meeting started it was not clear whether an increase would come on top of current output or from OPEC’s out-of-date production target, which is much lower. Delegates said Saudi would prefer to use April OPEC output of 26.33 million bpd as the baseline rather than the old official target of 24.84 million set in December 2008. If Riyadh gets its way, OPEC would be committing to a real increase rather than a cosmetic deal that leaves Saudi to pump more unilaterally outside the official agreement. An increment of, say, 1 million bpd on top of April output would lift OPEC’s official target for 11 members by 2.51 million bpd to 27.35 million. Iraq, not bound by a quota, is pumping an additional 2.7 million. Venezuela is holding to a tough line. “We do not agree with production being increased now, we must continue to consolidate balance in the market and we have to defend fair prices,” Venezuelan President Hugo Chavez said on Tuesday in Ecuador. Apparently backing Gulf Arab producers are Nigeria and Algeria who sit on a committee that on Tuesday recommended a one-million-bpd increment. SAUDI PUMPING MORE REGARDLESS Regardless of the policy decision, Riyadh will pump more. A Gulf official said Saudi was already raising output by at least 500,000 bpd in June to 9.5-9.7 million bpd. Saudi output was last as high in the middle of 2008 after oil prices set a record $147 a barrel, shortly before recession sent prices crashing. Forecasts suggest more oil is required to stop oil prices rising again. OPEC’s Vienna secretariat sees demand in the second half of the year 1.7 million bpd higher than current cartel output. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Ellen Brown: Japan Shows How to Defuse Debt Time-Bomb

May 27, 2011

[T]hreatening to default should not be a partisan issue. In view of all the hazards it entails, one wonders why any responsible person would even flirt with the idea. — Alan S. Blinder , Princeton professor of economics, former vice chairman of the Federal Reserve A game of Russian roulette is being played with the national debt ceiling. Fire the wrong chamber of the gun, and the result could be the second Great Depression. The first Great Depression led to totalitarian dictatorships, war to consolidate power, and concentrations of capital in the hands of a financial elite. The trigger was a default on the global reserve currency, in that case the pound sterling. The U.S. dollar is now the global reserve currency. The concern is that default could create the same sort of global panic today. Dark visions are evoked of the president declaring a national emergency, FEMA plans locking into place, camps being readied for protesters, and the secret government taking over . . . . This may all just be political theater, but do we really want to get close enough to the economic precipice to find out? The conservative ideologues toying with the debt ceiling are doing it to force cuts in the budget, a budget that was already approved by Congress. Congress is being held hostage by a radical minority pushing a risky agenda, one that is based on an economic model that is obsolete. High-stakes Gambling On May 16, the Wall Street Journal published an opinion piece titled ” The Armaggedon Lobby ,” which claimed that a “technical default” on the federal debt was just “political melodrama” and not really a big deal: [B]ond markets can figure out the difference between a genuine default when a country can’t pay its bills and a technical default of a few days if it serves the purpose of fixing America’s fiscal mess. Not so, said Saudi Prince Alwaleed bin Talal in a May 20 interview on CNBC. “That’s gambling. This is the United States. You’re leading the whole world. You cannot play games with that.” It is not just that the government could be brought to a standstill, with a third of its bills now being paid by borrowing or that interest rates would shoot up, forcing thousands of homeowners into foreclosure. Failure to pay on the national debt could trigger a default on the global reserve currency. As one commentator described what could go wrong: [T]he consequences of a US default could spark yet another global financial crisis. The US could lose its triple-A rating, which could cause a sell-off in Treasury notes by institutional and foreign investors. This sell-off could lead to higher interest rates, and banks’ balance sheets might be decimated by the decline in their bond portfolios. Thus, global banking and financial market liquidity could dry up. Lending between institutions and people or businesses could possibly cease altogether or become cost prohibitive. A Rerun of 1931? The sort of chaos that could ensue was seen when Great Britain reneged on its deal to redeem pound sterling banknotes in gold in 1931. The result was the worst global depression in history. When the pound went off the gold standard, markets panicked. People rushed to exchange their paper money for gold, in any currencies in which that was still possible. The gold wound up hidden under mattresses and in safety deposit boxes, unspent and the banks from which it was pulled, having no reserves to back their loans, quit lending or closed their doors. Credit froze; business ground to a halt. As other countries ran short of gold, they too were forced to take their currencies off the gold standard. The last holdouts suffered the most, including the United States, which kept its gold window open until 1933. The 19th century had been plagued by bank runs, caused by banks having too little gold to back their outstanding loans. The Federal Reserve was instituted in 1913 ostensibly to prevent those runs, but its levee did not hold back the run of the 1930s. In 1933, the country suffered a massive banking collapse, forcing President Roosevelt to declare a banking holiday and take the U.S. dollar, too, off the gold standard. Freed from the Bankers’ “Cross of Gold” The transition off the gold standard was a painful one but according to Beardsley Ruml, Chairman of the Federal Reserve Bank of New York, the country was the better for it. In a paper read before the American Bar Association in 1946, he said that going off the gold standard had finally allowed the country to be economically sovereign: Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity. Freed from the strictures of gold, Roosevelt was able to jump-start the economy with deficit spending. As Marshall Auerback details , the next four years constituted the biggest cyclical boom in U.S. economic history. Real GDP grew at a 12% rate and nominal GDP grew at a 14% rate. Then in 1937, Roosevelt listened to the deficit hawks of his day and slashed the deficit. The result was a surge in unemployment, and the economy slipped back into depression. What lifted the country out of the doldrums was again deficit spending, liberally engaged in to fund World War II. In wartime, few people worry about the national debt. The debt grew to 120% of GDP — twice what it is today — and wound up sustaining another very productive period in U.S. history, one that set the country up to lead the world in manufacturing for the next half century. On Inflation and Taxes Ruml said federal taxes were no longer needed to fund the budget, which could be financed by issuing bonds. The principal purpose of taxes, he said, was “the maintenance of a dollar which has stable purchasing power over the years. Sometimes this purpose is stated as ‘the avoidance of inflation.’” The government could spend as needed to meet its budget, drawing on credit issued by its own central bank. It could do this until price inflation indicated a weakened purchasing power of the currency. Then, and only then, would the money supply need to be contracted with taxes. “The dollars the government spends become purchasing power in the hands of the people who have received them,” Ruml said. “The dollars the government takes by taxes cannot be spent by the people,” so the money supply can be contracted with taxes as needed. When the economy is in a recession, however — as it is now — the government needs to spend in order to get purchasing power into the hands of the people. Businesses cannot hire more workers until they have more customers demanding their products, and the customers won’t come until they have money to spend. The money (“demand”) must come first. Adding money will not drive up prices until the economy is at full employment. Before that, increasing “demand” will drive up “supply” by setting the engines of production in motion. When supply and demand rise together, prices remain stable. We now know that a government can go quite far into debt without a dangerous level of price inflation occurring — much farther than the U.S. has gone today. Besides World War II, when U.S. debt was 120% of GDP, there is the remarkable example of Japan. Japan has retained its status as the world’s third largest economy, although it has a debt to GDP ratio of 226% — and it is still fighting deflation. Critics of the deflationary theory point to commodity prices, which are soaring today. But if those prices were due to the economy being awash with “too much money chasing too few goods,” real estate prices would be soaring too. Instead, the real estate market has collapsed. What has actually happened is that the housing bubble has transmuted into the commodity bubble, as “hot money” has fled from one to the other. The overall money supply is still in decline . The deficit hawks have been predicting for years that the federal debt would sink the dollar and the economy, and it hasn’t happened yet. In fact the federal debt has not been paid off since 1835, and no disaster has resulted. The debt has not only been carried on the government’s books but has continued to grow, and the economy has grown and flourished along with it. This is not an economic anomaly. The economy has flourished because of the national debt. Nothing backs the currency today but “the full faith and credit of the United States.” Money is no longer a metal; it is an inflow and outflow, credits and debits . The liabilities of the government are the assets of the private economy. The national debt is what backs the money supply. Dealing with the Rising Cost of Debt Service There is a potential time bomb in a growing federal debt, but it is one that can be defused. The debt has risen from $10 trillion to $14 trillion just since the banking crisis of 2008, not from “entitlements” but due to the Wall Street collapse and bailout. Just the interest on this growing debt could cripple the tax base if interest rates were at normal levels, so they have had to be pushed almost to zero. The result has been to create a dollar carry trade . This has facilitated speculation in commodities, a major cause of today’s commodity bubbles. There is, however, a solution to this problem, and it was discovered by Japan. The government can spend, not by issuing bonds at interest to the public, but simply by creating an overdraft at the central bank, as Beardsley Ruml recommended. The Bank of Japan now holds an amount of public debt equal to the country’s GDP! As noted by the Center for Economic and Policy Research: Interest on [Japanese] debt held by the central bank is refunded back to the treasury, leaving no net cost to the government on this debt. . . . Japan continues to experience deflation, in spite of the fact that its central bank holds an amount of debt that is roughly equal to its GDP. This would be equivalent to the Fed holding $15 trillion in debt. Like the Bank of Japan, the Federal Reserve now returns the interest it receives to the government. With a rising interest tab on the federal debt no longer a problem, private interest rates could be allowed to rise to normal levels. Today the Fed is not permitted to buy bonds directly from the Treasury but must go through middleman bond dealers. But that problem too could be fixed. In a supporting statement in 1947, Federal Reserve Chairman Marriner Eccles discussed a bill to eliminate the unnecessary cost of these middlemen. He said the Federal Reserve had been allowed to purchase securities directly from the government from its inception in 1914 until the Banking Act of 1935. Then: A provision was inserted in that act requiring all purchases of government securities by Federal Reserve banks to be made in the open market, which means purchased chiefly from dealers in Government bonds. Those who inserted this proviso were motivated by the mistaken theory that it would help to prevent deficit financing. . . . Nothing constructive would be accomplished by the proviso that the Reserve System must purchase Government securities exclusively in the open market. About all such a ban means is that in making such purchases a commission has to be paid to Government bond dealers. The interest cost and the bond dealers’ cut could both be eliminated by allowing the Treasury to borrow directly from its own central bank, interest free. Nothing to Fear But Fear Itself We have been frightened into believing that government debt is a bad thing, but nearly all money today originates as debt. As Marriner Eccles observed in the 1930s, “That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.” The public debt is the people’s money, and today the people are coming up short. Shrinking the public debt means shrinking more than just the services the government is expected to provide. It means shrinking the money supply itself, along with the ability to provide the jobs, wages and purchasing power necessary for a thriving economy. Originally posted on Asia Times .

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Arab Democracies Will Receive Billions In Support, G8 Leaders Say

May 27, 2011

DEAUVILLE, France — Rich countries and international lenders are aiming to provide $40 billion in funding for Arab nations trying to establish free democracies, officials said at a Group of Eight summit Friday. The officials didn’t provide a breakdown of where the money would come from or when, or what it would be for. But the overall message from President Barack Obama and the other G-8 leaders meeting in this Normandy resort appeared to be warning autocratic regimes in the Arab world that they will be shut out of rich-country aid and investment, while new democracies are encouraged to open their economies. Tunisia’s finance minister said French President Nicolas Sarkozy floated the $40 billion figure at talks Friday, in which the prime ministers of Tunisia and Egypt joined the G-8 leaders and appealed for help after uprisings earlier this year that overthrew longtime autocrats but also scared away tourists and investors. A French official says $40 billion is the overall goal, but that breakdowns by country and timetables are still under discussion. The official was not authorized to be publicly named according to his office policy. A group statement from the G-8 leaders said that $20 billion from international development banks could go to Egypt and Tunisia over the next three years. Beyond the institutional funding, the French official said the aim was for another $20 billion from bilateral support from G8 members as well as from rich Persian Gulf states and others. “We are really very satisfied by the very strong, very clear, very precise declarations that have come from all the G-8 nations and financial institutions – bilateral agencies and development banks,” Tunisian Finance Minister Jaloul Ayed told reporters in Deauville. He said foreign ministers and finance ministers from the countries involved were expected to meet between now and early July to flesh out details of the aid package. Tunisia’s government said it was asking the G-8 for $25 billion over the next five years, and Egypt says it will need between $10 to $12 billion for the fiscal year that begins in July to cover its mounting expenses. “This isn’t the end, additional funding will likely come from other sources after the G-8, and I think they’ll be satisfied with at least the ball starting to roll,” Jenilee Guebert of the G-8 Research Group at the Munk School of Global Affairs in Toronto. U.S. and European officials had said that they would not announce an aid figure at this summit, thinking it was too early to do so. “They said their main problem was the economy. They need some support,” European Commission President Jose Manuel Barroso told reporters Friday after meeting the Egyptian and Tunisian leaders. “I think they are ready. Let’s do everything to support the Arab Spring. I think they can succeed.” Uncertainty lingers, however, about the fragile governments in Egypt and Tunisia as they prepare for elections later this year – and debate over how to handle Libya’s war. The G-8 leaders are also worried that fighting in Libya and violence against protesters in Syria could derail the pro-democracy movement that has swept around the Arab world since Tunisian protesters rose up against an autocratic regime and forced out their longtime president. In their final statement, the G-8 leaders said Libyan leader Moammar Gadhafi “must go” and are pressing Syria’s regime to “stop using force and intimidation” against its people. The G8 leaders say Gadhafi and his government have failed to fulfill their responsibility to protect Libya’s people “and have lost all legitimacy. He has no future in a free, democratic Libya.” The main product of the G-8 summit was a partnership program aimed at supporting the countries’ fragile political leadership and fighting corruption and stabilizing the economies. The G-8 leaders laid out a plan for refocusing the European Bank for Reconstruction and Development – created to help eastern European economies after the collapse of communism – to help Arab democracies. The EBRD was set up 20 years ago, when the sudden collapse of the Soviet Union convinced European leaders of the urgency to provide support to a region emerging from decades of political and economic dictatorship. The idea was to set up a “transition bank” to help lead the way on banking systems reform, price liberalization, privatization and establishing legal property rights in a region just shaking off the effects of almost 50 years of planned economies. The G-8 leaders also met with African leaders Friday, calling for concerted efforts to settle conflicts on the continent. ___ Julie Pace and Sylvie Corbet in Deauville contributed to this report. (This version corrects short headline.)

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Michelle Chen: In Asia, Raising the Wage Floor Toward Global Labor Justice

May 23, 2011

Garment factories have been fleeing from the American industrial landscape for decades now, and their destination is no mystery: faraway communities where the impoverished will work longer, for less, under worse conditions. The workers left behind can do little but watch in distress as the global labor system continues to spiral downward. But awaiting those factories today are labor advocates in Asia who are determined to draw the line on the race to the bottom by pushing up the floor. A group of workers’ advocates came together in 2009 to launch the Asia Floor Wage Alliance , an unprecedented effort to do what free-trade agreements have done for global capital: establish an economic baseline that transcends national boundaries. But while multinationals have prowled the planet to exploit the cheapest workforces they can find, advocates call for a common living wage standard to ensure that workers from Shenzhen to Sri Lanka aren’t working themselves deeper into poverty. The Great Recession offers an opportunity to begin reconfiguring the profit structure. The Wage Floor campaign presents itself as “an effort to formulate a different way to think about developing a global industry and rebuilding the global economy, by raising wages at the bottom and reducing inequality.” This month, the Asia Floor Wage Alliance (AFW) has stepped up pressure on the garment industry, including household names like Gap and Adidas, by issuing guidelines on the living wage in the countries it campaigns in. The projected monthly living wage figures for 2011 are: Bangladesh: 12248 BDT Cambodia: 692903 Riel India: 7967 Rupees Indonesia: 2132202 Rupiah Sri Lanka: 19077 Rupees China: 1842 RMB (Convert to U.S. dollars here .) In Asia as in America , low-wage workers, especially women , suffer a vast discrepancy between the legal minimum wage and what it actually takes to support a household. According to the AFW Alliance, “Currently, the gap between the minimum wage and Asia Floor Wage is almost 1:2, in the best case scenario.” The issue is especially acute for China, where rising inflation and U.S. pressure over Beijing’s currency policy could impact purchasing power and labor costs both in China and all the markets that its factories feed. In the long run, across the region, there is the tumult of soaring food prices, climate change, migration into dense urban areas and a drive for higher living standards. The very least governments and employers could do is work with civil society to align workers’ base incomes with economic security and, by extension, social stability . Of course, the AFW initiative will meet resistance from the industry. Executives may grumble that higher wages will translate into job losses or higher prices for Americans. True, rising labor costs may have unpredictable ripple effects on workers and consumers in developed and developing economies. But volatility is already endemic in global trade. A coordinated movement to establish a firm wage floor, in consultation with workers, unions and employers , lays the foundation for a more rational the production chain, in which fair wages and fair prices are in harmony, and the bosses on top finally get squeezed to pay their fair share. Continue reading at In These Times.

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Companies On Obama’s Jobs Council Have Doubled Investments Overseas

May 23, 2011

Seven publicly traded U.S. corporations represented on President Barack Obama’s advisory council for jobs and competitiveness — including General Electric Co. (GE) and Intel Corp. (INTC) — have devoted a growing pool of their non-U.S. earnings to investments in other countries.

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State Legalizes Gold, Silver Coins As Currency

May 23, 2011

SALT LAKE CITY — Utah legislators want to see the dollar regain its former glory, back to the days when one could literally bank on it being “as good as gold.” To make that point, they’ve turned it around, and made gold as good as cash. Utah became the first state in the country this month to legalize gold and silver coins as currency. The law also will exempt the sale of the coins from state capital gains taxes. Craig Franco hopes to cash in on it with his Utah Gold and Silver Depository, and he thinks others will soon follow. The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings. He plans to open for business June 1, likely the first of its kind in the country. “Because we’re dealing with something so forward thinking, I expect a wait-and-see attitude,” Franco said. “Once the depository is executed and transactions can occur, then I think people will move into the marketplace.” The idea was spawned by Republican state Rep. Brad Galvez, who sponsored the bill largely to serve as a protest against Federal Reserve monetary policy. Galvez says Americans are losing faith in the dollar. If you’re mad about government debt, ditch the cash. Spend your gold and silver, he says. His idea isn’t to return to the gold standard, when the dollar was backed by gold instead of government goodwill. Instead, he just wanted to create options for consumers. “We’re too far down the road to go back to the gold standard,” Galvez said. “This will move us toward an alternative currency.” Earlier this month, Minnesota took a step closer to joining Utah in making gold and silver legal tender. A Republican lawmaker there introduced a bill that sets up a special committee to explore the option. North Carolina, Idaho and at least nine other states also have similar bills drafted. At the moment, Franco’s idea would generally be the only practical use of the law in Utah, given the legislation doesn’t require merchants to accept the coins, either at face value – $50 for a 1-ounce gold coin – or market value, currently almost $1,500 per ounce. And no one expects people will be walking around town with pockets full of gold and silver. Matt Zeman, market strategist for Kingsview Financial in Chicago, expects more people will start investing in gold as America’s growing debt and bankruptcies in other countries continue to decrease the value of government-backed money. “You’ve seen gold replacing these currencies as safety instruments,” Zeman said. “If I don’t feel good about the dollar or other currencies, I’m putting my money in precious metals.” Some supporters, including the law’s sponsor, seek to push Congress toward removing the tax burdens that discourage use of the coins, such as a federal capital gains tax. “Making gold and silver coins legal tender sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing,” said Ralph Danker, project director for economics at the Washington, D.C.-based American Principles in Action, which helped shape Utah’s law. “The dollar should be backed by gold and silver, so we have hard money.” The U.S. and many other countries largely abandoned gold-backed money during World War II because they needed to print more cash to pay for the war. Later, during the Great Depression, President Franklin D. Roosevelt took steps that essentially prohibited gold and silver as legal currency to prevent hoarding. In 1971, President Nixon formally abandoned the gold standard. Fifteen years later, the U.S. Mint began producing the gold and silver American Eagle coins, primarily aimed at investment portfolios and allowing people to trade them at market value but with capital gains taxes on profits. Utah is now allowing the coins to be used as legal tender while levying no taxes. Opponents of the law warn such a policy shift nationwide could increase the prospect of inflation and could destabilize international markets by removing the government’s flexibility to quickly adjust currency prices. “We’d be going backward in financial development,” said Carlos Sanchez, director of Commodities Management for The CPM Group in New York. “What backs currency is confidence in a government’s ability to pay debt, its government system and its economy.” Larry Hilton, a Utah attorney who helped draft the law, disagrees and says the gold standard would restore faith in American money at a time when spiraling debt is weakening confidence. “We view this as a dollar-friendly measure,” Hilton said. “It will strengthen the dollar by refocusing policy matters in Washington on what led to the phrase, `the dollar is as good as gold.’” .

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Janet Tavakoli: Wall Street’s Advice to the IMF: Control Your Alleged Rapists!

May 22, 2011

We are outraged at your lack of empathy for your victims! We’re not talking about the targets of your sexual advances, of course. We mean us. You’re supposed to be bailing out trading partners, bankers in weak foreign countries bankrupted by bailouts. Remember, you pigs are supposed to be financially raping the citizens of the PIIGS (Portugal, Italy, Ireland, Greece and Spain). We’ll get back to that shortly, but first we have to address some housekeeping. Jeopardizing Our Health Condoms aren’t foolproof, and the HIV virus doesn’t care how much you paid for a hooker in Thailand. It has come to our attention that you have allegedly been customers of our New York based suppliers of prostitutes , and we’re furious. We need you to stick to the job. Moreover, if you had just listened to our advice to Joran van der Sloot , you wouldn’t be caught allegedly doing anything in the wrong place at the wrong time. Targets Can Shoot Back As for the handling of your internal matters, it was a nice touch to call newly resigned IMF head and alleged sex offender Dominique Strauss-Kahn’s 2008 affair with a subordinate a “serious breach of judgment” and impose no real consequences. It was a great move to reportedly decline investigations and consequences for other managers involved in suspect activities. It’s well known that a permissive atmosphere enables harassment (and more) and dismays the targets who perceive they will get no support. This is exactly the kind of thing we do all the time, but you have to save all this good stuff for your next high profile job in finance or politics. Until now, your internal targets felt so intimidated you were able to sweep all this under the rug. You can’t count on that anymore with all the new publicity you’ve brought on yourselves. Targets have caught on that they have nothing to lose and at least can gain back the self-esteem you’ve tried to destroy. Targets’ careers are already embattled, so it is in their interest to take action, and they’re not going to apologize for standing up for themselves. Moreover, it’s a snap to see through the flaws in the IMF’s new “policy.” You say that when it comes to intimate relationships, you will investigate if there is evidence of harassment. Obviously, the complainer will have to produce the evidence. But how has letting you handle things worked out so far for targets? Targets will never buy that nonsense now. They’ll tell you to stuff it and act independently. Targets have a right to treat this as a matter of personal safety. When it comes to the topic of their personal safety, you have nothing to add. The IMF Can’t Even Negotiate “Consensual Sex” Even when sexual relations between your bosses and subordinates apparently begin as consensual, the IMF inspires targets to rebel. According to the New York Times : “One woman is said to have slept with her supervisor, who then gave her poor performance reviews to pressure her into continuing with the relationship.” We must point out that if you want someone to continue a sexual relationship, tell them their performance was great. In the battle of the sexes, he declared thermonuclear warfare! Remember Who You’re Supposed to Be Screwing This may sound as if we’ve developed a conscience, but don’t worry, we haven’t. The truth is that we need you do as we say and not as we do for a change. We need you to keep bailing out weak countries like Ireland. Many of Ireland’s bankers fled the country, and the people of Ireland are drowning in their debt. We love the way the IMF forced a loan on the Irish to pay off the government debt that was forced on them to pay off the bankers’ debts. To get the bailout loan, the Irish government had to slash spending, lay off tens of thousands of public workers, lower wages, increase taxes, and cut health care budgets. The bankers got away with financial murder, and the citizens are paying for it, just the way we like it. Instead of letting banks fail or restructuring banks, we need you to do the same thing to Greece and possibly other countries, too. The Greeks are already protesting: “We’re not Ireland!” Your recent scandals may encourage them to get even more insistent and come up with an alternative of their own. We do lots of business with these foreign banks and governments. So stop spending so much energy trying to screw each other and spend it screwing the citizens of countries with governments that need bailouts because they bailed out bankers. Clean up your act, so that we don’t have to clean up ours!

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Obama Heading To Europe

May 22, 2011

WASHINGTON — Weaving together strands of pomp, policy and summitry, President Barack Obama’s weeklong European tour is all about tending to old friends in the Western alliance and securing their help with daunting challenges, from the political upheaval in the Mideast and North Africa to the protracted war in Afghanistan. Obama’s eighth trip to Europe as president, with a quick-moving itinerary that dips into four countries in six days, unfolds against the backdrop of the NATO-led bombing campaign in Libya and stubborn economic weakness on both sides of the Atlantic. A priority for the president and his allies will be to more clearly define the West’s role in promoting stability and democracy in the Arab world without being overly meddlesome and within tight financial limitations. Obama, who departs late Sunday, will visit Ireland, England, France and Poland. Each is weathering an economic downturn that has forced European nations to adopt strict austerity measures. The U.S. has pushed its national debt to the limit, and Obama and congressional Republicans are in contentious talks about how steeply to cut spending. But never mind all that, at least for a moment. A highlight of Obama’s opening stop in Ireland will be a feel-good pilgrimage to the hamlet of Moneygall, where America’s first black president will explore his Irish – yes, Irish – roots, and most likely raise a pint. It turns out that Falmouth Kearney, who immigrated to the United States in 1850 at the age of 19, is the great great great grandfather of Obama on his white, Kansas-born mother’s side. Obama, whose father was born in Kenya, will connect in Moneygall with distant relatives from the Irish branch of his family tree. Michael Collins, the Irish ambassador to the United States, says the president’s visit will be “a golden moment” for a country that’s been on the economic ropes after its boom time. The visit is sure to play well at home for Obama – make that O’bama – as he heads into re-election season after being pushed to great lengths simply to prove he was born on U.S. soil. After his day in Ireland, Obama spends two in England, where he and first lady Michelle Obama will be treated to all the pomp and pageantry that the monarchy can muster for the president’s first European state visit. The Obamas even get a Buckingham Palace sleepover. Though the United States and Britain remain the closest of allies, the relationship has been strained by recent events, including last year’s oil spill in the Gulf of Mexico triggered by the explosion of an oil rig owned by British-based BP. Britain’s unilateral announcement of a timetable for withdrawal of its 10,000 troops from Afghanistan also rankled the United States. Heather Conley, director of the Europe program at the private Center for Strategic and International Studies, said Obama’s stop in Britain could help “put the `special’ back into the U.S.-U.K. special relationship.” Obama on Wednesday will become the first American president to speak to members of Parliament from the historic Palace of Westminster. European leaders are eager to see how president frames the U.S.-European partnership at a time when Obama has prodded Western allies to shoulder greater responsibility in areas such as Afghanistan and Libya. A NATO-led mission is working to protect civilians and assist the rebel fighters trying to oust Libyan leader Moammar Gadhafi. Former Liberal Democrat leader Menzies Campbell, a member of the House of Commons foreign affairs committee, said British politicians would be listening keenly to what Obama had to say about Afghanistan when he addresses both houses of Parliament on Wednesday. “The death of Osama bin Laden can only encourage those with the ear of the president to proceed more quickly with the draw-down of American forces in Afghanistan,” Campbell said. “MPs and peers alike will be listening closely to what he says about America’s intentions for Afghanistan.” In private, Obama and British Prime Minister David Cameron will plunge into the details of a host of international challenges on which the U.S. and Britain have worked together: Afghanistan, Libya, counterterrorism, the global economy and more. Both leaders then scoot to a French summit of the Group of Eight industrialized nations, where the president hopes to build on momentum from his speech days ago about how best to promote stability and democracy in the Middle East. Obama has called on the World Bank and International Monetary Fund to present the G-8 with an ambitious plan to help Egypt and Tunisia, in particular, recover from the disruptions caused by their democratic revolutions and prepare for elections later this year. The U.S. and its allies don’t want those elections to occur against a backdrop of economic chaos that could increase support for extremists. But there’s no expectation of a big aid measure emerging from the G-8. Rather, the countries in the region will present their plans for democratization and stabilizing their economies, and the G-8 will consider ways to help. Although not on the official agenda, the G-8 leaders are sure to be talking about future leadership of the IMF now that former chief Dominique Strauss-Kahn has resigned after being arrested on attempted rape charges in New York. European leaders are anxious to put another European in that position while emerging economies would like to see a process that is open to someone from the developing world. U.S. officials have said they favor an open process, without being more specific. Obama’s visit to Europe comes a little more than a month before the U.S. is scheduled to start its gradual troop withdrawal in Afghanistan. The president has said the initial drawdown will be significant, but it’s unclear how many specific answers he’ll have for European leaders. Britain and France, in particular, are looking for details on the U.S. withdrawal timetable for signs of how NATO will move from combat missions to a training role by the end of 2014. The Afghan mission is deeply unpopular in many European countries, and political pressure has led some leaders to set timetables for their withdrawal. The British are planning to draw down 400 of their nearly 10,000 troops this year, with all British troops out by the end of 2014. France, which has 4,000 troops in Afghanistan, has said it is considering speeding up its withdrawal now that al-Qaida leader Osama bin Laden is dead. During his two-day stay in Deauville, France, Obama will take time for one-on-one meetings on the side of the G-8 with several world leaders, including Russian President Dmitry Medvedev and Japanese Prime Minister Naoto Kan. The U.S.-Russia relationship, though much improved since the Bush administration, remains complex. Medvedev has spoken out strongly in recent weeks against U.S. plans to plant missile interceptors in Romania as part of a U.S. shield over Europe, saying that could threaten Russia. He’s warned that Washington’s failure to cooperate with Russia on the missile shield could lead to a new arms race, and also threatened to pull out of the New START nuclear treaty with the U.S. if Russia feels at risk. Obama’s meeting with Kan would be his first with the Japanese prime minister since the March tsunami and earthquake that triggered a nuclear crisis in Japan. The U.S. has sent military and humanitarian assistance to Japan, as well as nuclear experts, to help the country recover from the disaster. Obama’s visit to Poland is emblematic of a growing front in the administration’s engagement in Europe, as the U.S. expands its economic and security relationship with Central European nations. Robert Kupiecki, Poland’s ambassador to the United States, says Central Europe’s experiences in moving toward democracy offer many lessons that are “directly applicable” in the Middle East and North Africa, and that Poles and others in the region are anxious to help the democratic movement spread. Lech Walesa, the former Polish president who founded the Solidarity freedom movement, has visited Tunisia, and Walesa will meet with Obama in Poland to talk about the experience. Obama can point to Poland, with its stable government and growing economy, as a benefactor of democracy’s virtues.

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Antonio Borges: The Emerging Bright Spot in Europe

May 18, 2011

With all the anxiety generated by the troubles of Portugal, Greece and Ireland, it is easy to forget that a different part of Europe was in the spotlight two years ago, facing equally dire predictions of bank runs, fiscal ruin and devaluation. Today, many economies in emerging Europe are quietly staging a strong comeback. Most impressive is the turnaround in the three Baltic countries, which suffered record deep recessions in the wake of the 2008/09 financial crisis. Take Lithuania, which grew an eye-catching 14.7 percent in the first quarter of 2011. But many other countries in the region are seeing strong growth as well. True, it will take a while before most crisis-hit countries will be able to reclaim the economic output that was lost as a result of the crisis. But things are definitely going in the right direction. Most encouragingly, the growth pattern is very different from that in the years leading up to the crisis. During the boom years, emerging Europe grew rapidly, but growth in many countries was unbalanced — real estate, construction and banking boomed while manufacturing languished. Capital inflows were large, but they boosted demand rather than supply, and led to a surge in imports, extremely high current account deficits — 25 percent of GDP in Latvia and almost 30 percent of GDP in Bulgaria — and overheating. Today, growth is driven by exports and manufacturing. Take Estonia, where exports of goods in the fourth quarter of 2010 were 52 percent higher than a year earlier. The old growth engines are spluttering, but others have kicked into gear. And it is not just exports anymore — the recovery is broadening to include investment and even consumption. In 2011, domestic demand is set to become the main growth engine in emerging Europe. What has caused the shift? The answer is both markets and policies. Markets at work. During the boom years, real estate, construction and finance were very profitable — much more so than manufacturing. But profits were artificially inflated by asset price bubbles and the under-pricing of risk. Now that profits have evaporated, investors are moving into other sectors. The adjustment is underpinned by improving competitiveness — the wage explosion of 2007-08 has given way to a decline in labor costs across the region. Policies have delivered. Painful but determined fiscal adjustment put public finances back on track, which has led to a sharp reduction in risk. For instance, Latvia’s credit default swap spread (which measures the cost of insuring debt against default) is 200 basis points today — down from 1100 basis points in 2009. Given this good news, what more can policymakers do to sustain the recovery — and prevent a new boom-bust cycle? Raising the long-term growth trend is key. Good structural policies can raise growth potential. A big push to remove bottlenecks in energy, transportation and communication would boost productivity. Here, funding from the European Union could be used to overcome the current lack of domestic resources. Efforts to upgrade the skills of the labor force would enable industry to climb the quality ladder. Good macroeconomic policies can prevent boom-bust cycles. When the next boom takes off, policies should be much tighter. This will reduce the risk of overheating that pulls resources away from manufacturing and other traded goods into sectors where there is little competition, such as real estate and banking. When revenues are growing strongly, they should not be used to increase spending and public wages, as was done during the boom years. Instead, savings that can stimulate the economy during a downturn should be built up. This means that large, even very large, surpluses may be needed during boom years. Emerging Europe still has a lot of scope for catching up with advanced Europe. But catching-up is not a law of nature — without the right policies, countries can get stuck, as we have seen all too clearly with Greece, Ireland and Portugal. From iMFdirect blog

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Georges Ugeux: Dominique Strauss Kahn Arraigned: The European and Global Impact

May 16, 2011

The recent events surrounding Dominique Strauss Kahn are a tragedy and will have a major impact at many levels. From my perspective, I see several levels of consequences: For the International Monetary Fund: the loss of the leadership of Dominique Strauss Kahn is heavy. His deputy, John Lipsky, is an American economist, who had indicated his desire to leave the Fund. He does not carry the weight of DSK, who is a politician and a leader of international dimension. Dominique could speak to the heads of states and governments in a strong and credible manner. Whether it was in discussions with Europe, the United States or China, his positions were important and meaningful. Replacing him won’t be easy: it seems doubtful that his successor could necessarily maintain the European (and French) monopoly of this function. For developing countries that rely on assistance from the IMF to get out of hard times and need assistance to get their economies back in shape, sometimes painfully, the impact is devastating. Several countries are the beneficiary of this assistance around the world: the IMF is irreplaceable in this area. It is to help these countries that the IMF has been created. For Europe, the risk is significant. The internal debate that divides the advocates of debt restructuring of the countries in difficulty, to begin with Greece and those who prefer to increase the assistance to Greece (including Greeks and the European Central Bank) they had a referee: the IMF and its Director General. The manner in which the IMF intervenes in similar problems is tough and its method to lend only if the milestones of the needed reforms are implemented is essential. Will this voice be as powerful without DSK? The IMF has a high quality staff but it requires leadership and vision as well. France did not need this kind of scandal to tarnish its image. She loses a key global leader and one of the best candidates for its presidential elections. He represented a chance to finally have a President who can lead the reforms that the country needs with real international experience. This departs from what has sometimes been a hexagonal foreign policy of the French Republic. The most urgent problem is obviously the situation of Greece and other countries in difficulty in the Eurozone. The fragility of the Eurozone did not need such a disturbing event. Investors were already worried, and confidence is fragile. Anything could set fire to the powder and provoke a crisis of global amplitude. Finally, allow me a personal reflection. It is always with great sadness that I see a man falling down. I have known DSK for many years and often admired him for his courageous action in the world of international finance where few leaders had his stature and his authority. His leadership will be missed.

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The Worst Of Consumer Inflation May Be Over

May 14, 2011

WASHINGTON — After weeks of pain at the gas pump and the grocery store, the worst appears to be over. Oil prices have fallen, with gas soon to follow. Demand for farm commodities, like the corn used in everything from cereal to soda, has dropped. And businesses remain slow to pass along higher costs because customers aren’t getting raises and might walk away. Inflation may be approaching its peak. “I think the bulk of the big price increases are over,” said Gus Faucher, an economist at Moody’s Analytics. Lower prices – or at least a break in their steady rise – will come as a big relief. Consumer prices rose 3.2 percent for the year ending in April, the most since October 2008. Higher food and gas prices drove the gains. Excluding those two categories, prices rose 0.2 percent in April. They rose 1.3 percent over the past year, below what the Federal Reserve considers healthy. Economists study this figure, known as core inflation, because food and energy prices are volatile. Some inflation can be healthy for the economy because it encourages people to spend and invest rather than sitting on their cash. More spending drives corporate growth, which makes businesses more likely to hire people. Inflation was a much bigger concern in March. Oil prices were rising steadily because of the unrest in the Middle East. Some feared gas could reach $5 a gallon, leaving Americans much less money to spend on cars, appliances and vacations. That kind of drop in spending would squeeze corporate profits, delay hiring – maybe even tip the economy back into recession. But last week, oil prices sank by the most in two and half years. Americans drive less when gas prices get high enough, and concerns about slowing energy demand sent oil prices tumbling – from $114 at the start of May to about $97 on Friday. Now the nationwide average for gas has leveled off. On Friday it was just under $4 a gallon, where it’s been for the past week. Many analysts say it could drop to $3.50 as soon as next month. The prices of milk, bread and chicken won’t fall as fast – it could take six months or longer, analysts say – but they could decline by the end of the year. That’s because the price of corn and other grains have fallen. Overseas ranchers are using less corn for feed, and U.S. farmers have planted more. Food prices had risen in March at the fastest rate in three years. Changes in grain and corn prices take longer to filter down to grocery stores than changes in oil prices do to the gas pump. That’s because grains and other commodities represent a smaller fraction of food costs in the U.S than in other countries. By contrast, oil prices are the biggest factor in the cost of gas. There was evidence in Friday’s government report on consumer prices that food inflation will slow by year’s end. Gas prices rose 3.3 percent in April, a steep rise but the smallest since November. Food costs rose 0.4 percent, half as fast as in March. Gas accounted for about half of overall inflation in April. So a decline in the price of oil should hold down the increase in consumer prices for May. Slower inflation would leave Americans with more money to spend to stimulate the economy, including keeping more of a cut in Social Security taxes that took effect in January. Economists expect the increased spending to raise overall economic growth to an annual rate of 3 percent in the second half of this year. In the first three months of this year, it was 1.8 percent. The oil price drop should bring prices down for a range of products, including chemicals, plastics, even roofing materials. Higher diesel fuels had contributed, for example, to a sharp increase in commodity costs for Procter & Gamble. In response, the company raised prices for Gillette razors, Duracell batteries and Bounty paper towels. Falling corn prices should also help. Corn is widely used as an animal feed, so when it became more expensive, meat and dairy prices went up, too. Corn is also used in sweeteners for soft drinks and snacks, so those could become less expensive. Prices of corn, wheat and other grains jumped last summer after bad weather damaged harvests in countries from Russia to Australia to Brazil. Demand for corn from producers of ethanol, a corn-based fuel, also rose. The price of a bushel of corn reached a record high of $7.76 on April 11. But supply worries have since eased. An Agriculture Department report this week predicted that U.S. corn supplies will rise later this year, based on the drop in demand overseas and the larger crop expected next year. They had earlier been forecast to fall. Demand from fast-growing developing countries such as China and India may also slow as their central banks raise interest rates to try to slow inflation. That should also slow their growth and, in turn, may cool their demand for commodities. It takes about six months for changes in commodity prices to affect consumers. Consumer food prices didn’t start to increase until January, well after commodity costs began rising last summer. Analysts also say many companies were slow to pass along those increases for fear of spooking price-sensitive shoppers. Wage growth has been weak. Average hourly pay rose an anemic 1.9 percent in the last 12 months, less than the rate of inflation. Some companies probably won’t lower prices much, if at all. Airlines, for example, lost money because of the steady rise in the price of oil. If you bought a plane ticket three months ahead of time, your flight was much more expensive for the airline when you flew than when you bought. “They will resist any pressures to reduce fares or fuel surcharges,” says independent airline analyst Robert Mann. The average price of a round-trip ticket during the first three months of this year was $341 before taxes. That was up 10 percent from the same period last year. Airlines paid 27 percent more for fuel from January through March than they did a year earlier. But there will be relief in the prices of other things. The cost of new and used cars rose in April, but some of those increases were related to temporary parts shortages caused by the earthquake and nuclear disaster in Japan. Inflation will remain a risk. Commodity prices are volatile and subject to global turmoil. As recently as last winter, economists were worried that inflation was too low. In October, the core price index had risen only 0.6 percent in a year, and the Fed expressed concern about the risk of falling prices. ___ AP Business Writers Sarah Skidmore in Portland, Ore., and Scott Mayerowitz in New York contributed to this report.

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Joan Williams: Air Traffic Controllers: The Canary in the Coal Mine?

May 14, 2011

This post was originally published in the Harvard Business Review blog, The Conversation. Air traffic controllers sleeping in their towers are emblematic of a much larger problem: how employers hurt American competitiveness through scheduling practices that create a bleed of back-end costs. “They fall asleep because of the shifts they work,” said a controller in a letter to the San Francisco Chronicle . A typical shift pattern starts at 6 a.m. on Monday, 10 a.m. on Tuesday, 1:30 p.m. on Wednesday, 8 a.m. and then again at 10 p.m. on Thursday. “That’s right, two shifts in 24 hours. Which means that at 5 a.m., most controllers are exhausted,” concluded the letter writer. The air traffic control issue reflects a larger problem in the American economy, as documented in studies by Susan Lampert, Julia Henly and Anna Haley-Lock. Many private employers have shifted from the stable schedules of yesteryear to “just-in-time” schedules that change, with very little notice, from day to day and week to week. Airline catering workers are sent home if a flight is canceled, but are expected to work overtime on busy weeks. Nurses’ aides arrive to find that their shifts have been canceled because the patient census is lower than expected. Restaurant staff often are sent home if the ratio of labor costs to sales staff exceeds 29% by 3 p.m., or if that ratio seems unlikely to drop below 21% by the end of the business day, according to one study . Sounds scientific. It’s not. Just-in-time schedules take into account neither basic human realities, like the need to sleep, nor demographic realities . Such schedules don’t fit with Americans’ family caregiving responsibilities. Workers in other industrialized countries have paid family leave and mandatory vacations, as well, often, as limits on overtime and subsidized child care — family supports not mandated here. As a result, one in four American families handles child care by tag teaming (where mom works one shift, dad works a different shift, and each cares for the children while the other is at work). This makes mandatory overtime a problem. In the U.S., grandparents often tag team with their children to care for grandchildren: about half the managers in one study reported having at least one employee caring for family members other than their own children. In some inner cities, grandparents are the primary guardians of 30% to 50% of children under 18, according to a study in The Gerontologist by R. Pruchno. The relatives hourly workers rely on often have just-in-time schedules themselves. This leaves employers competing with their employees’ relatives’ employers. In addition, when just-in-time schedules give only part-time hours to a large pool of workers (which is common), employers are left competing for workers’ attention with their employees’ other employers. Americans’ heavy reliance on tag teaming and other forms of family care combines with just-in-time scheduling to drive up labor costs through sky-high turnover and absenteeism. In addition, key aspects of just-in-time scheduling are illegal in other countries. In Canada, for example, employers are required to pay for at least eight hours of work if an employee reports for a scheduled shift. Cancelled shifts and erratic schedules produce a pattern of serial quitting that costs American employers dearly. Annual attrition over 80% is commonplace in just-in-time jobs, with attrition rates as high as 500%. Given that replacing a single hourly worker costs between 30% and 75% of annual salary, this is just bad management. It’s bad management, too, when 80% of employees are on probation due to tardiness and absenteeism, as was the case in one flagship department store studied, according to a 2006 study by Julia Henly, J.R. Shaefer and Elaine Waxman. The solution is schedule effectiveness, a concept pioneered by workforce consultant Lisa Disselkamp. Scheduling needs to come out of the 19th century — a paper and pencil world where the assumption was that any employee worth having was always available for work. Ninety-four percent of store managers try to hire for “open availability” — the ability to work anytime — according to one study. It’s unrealistic to design 21st century schedules around the assumption that anyone worth hiring has someone else taking care of their children. Sorely needed is a more scientific scheduling process that uses “cloud” technology, which now offers on-line scheduling for as little as $1.25 per employee per month. Scheduling effectiveness starts with a survey to identify common scheduling constraints, and to build them into the basic schedule. The next step is to analyze past schedules to find hidden scheduling stability: one study found that 80% of the hours worked in retail stores were stable, month after month. (Employers were unaware of this.) The third step is to lengthen the period within which supervisors can “stay within hours,” so that if labor demand is lower than expected, supervisors can achieve the required ratio by the end of the week by not replacing someone who calls in sick rather than by sending home people who have already reported for work. The final step is to determine the optimum advance notice of employee schedules. This needs to be done empirically: by testing out various notice periods, and comparing the costs associated with more notice with the savings achieved by lengthening the notice period. Effective schedules are key to American competitiveness. The best way to solve the airport slumber-party problem may not be to schedule two controllers on overnight shifts, which is one of the proposed solutions. A cheaper alternative is to redesign schedules so controllers can get enough sleep. The larger goal is to identify scheduling equilibrium: the point at which one cannot drive front-end labor costs (a tight fit between labor supply and labor demand) any lower without driving up back-end labor costs (turnover, absenteeism, etc.). Effective scheduling can keep us safer in the air and in hospitals, allow for better service in retail stores, hotels and restaurants, and enhance the overall competitiveness of American business. Joan Williams reports further on these issues in her new report , Improving Work-Life Fit in Hourly Jobs: An Underutilized Cost-Cutting Strategy in a Globalized World.

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Dinkar Jain: To India and China, With Love: America to Send Back Her Job-Creating Graduates

May 12, 2011

These lines, etched in bronze, embellish the Statue of Liberty and also articulate the sentiment of this great American emblem: “Give me your tired, your poor, Your huddled masses yearning to breathe free, … Send these, the homeless, tempest-tost to me, I lift my lamp beside the golden door!” Emma Lazarus’s sonnet might need to be rewritten. Today, she might write: “Give me your ambitious, brainy young. I will shine the lamp of my colleges, universities and libraries on them. Your masses yearning to learn shall learn, And shall walk back through this golden door straight into your arms.” There are many reasons why graduates of American universities are leaving, especially if they came from overseas. One obvious one is that these graduates find better economic opportunities overseas today than they used to a decade ago. But the fact remains that they also find the American policies on highly skilled immigration irksome. Highly irksome. Never before has a country invited the best brains from around the world, given them an education using her own money and then, pandering to the irrational sentiments of the angry and easily misguided, asked these brains to depart and invest their blossoming talents for the progress and betterment of interests and nations alien to herself. The story of reverse brain drain in the top bracket of human talent plays out something like this: International students come to America to study. They pay tuition, but also benefit greatly from American taxpayer money, grants and endowments. Many colleges will tell you that tuition doesn’t even fully cover the cost of the education they are providing to their students. International students who pay tuition variously benefit from vast amounts of research grants, corporate-sponsored programs and endowment-financed facilities and buildings. Many international students also get large amounts of financial aid and scholarships. Many, if not most, international students who come to the U.S. to obtain advanced degrees, such as PhDs, usually do so on scholarships or tuition waivers in lieu of teaching or research. But after paying for them, American immigration laws make it tough for them to stay. Limits on H1B visas, the tedium & delays of processing green cards and labor certifications for citizens of India and China, and other restrictions on timing and requirements of practical training clauses in student visas greatly restrict economic presence of these graduates in the United States on completion of their degrees. Because it is tough for them to stay, the economic benefits of this labor pool accrue to other countries. Offices are opened abroad. Companies are started and funded abroad. American companies want to hire these international students who turn into managers, scientists and engineers. These companies would have opened offices here, but since they can’t hire them here, they go overseas. From Microsoft on an announcement of opening a new center in 2007: “The Microsoft Canada Development Centre… [in] Vancouver, Canada… will be home to software developers from around the world… [and] allows the company to recruit and retain highly skilled people affected by immigration issues in the U.S. … [It] would create a tremendous opportunity for Canada…. while providing strong economic benefits to British Columbia and Canada.” Many entrepreneurs from among these managers, scientists and engineers educated at American universities are starting companies outside America. Visas aren’t available for them to start companies here with local capital. Venture capitalists (with American pension money, American endowment money and the money of wealthy Americans) wanting to fund these entrepreneurs educated at American universities are funding companies outside America. Further, taxes and employment from all this economic activity related to these new companies are benefiting nations outside America. Examples of upcoming companies that have benefited from this reverse migration of people and capital include SnapDeal, PubMatic, Makemytrip.com, A Thinking Ape, Praetorian Group, Campfire Labs and the like. This is in addition to the right-sourcing of jobs and talent by behemoths like Microsoft, Google, Amazon, eBay, Intel and the like. You get the picture. America’s universities educate the world’s best minds, many times at a subsidized price. Then America sends these minds abroad to raise money from American VC funds to start companies abroad and employ foreigners. This is not about comprehensive immigration reform. This is about a common sense and easy economic survival technique. The issues here are not related to comprehensive immigration reform, which deals with highly-sensitive issues pertaining to 10-12 million people. Highly-skilled immigration reform only has to do with a few thousand graduates of reputed American schools every year — it is something so removed from the issues of illegal immigration that conflating these two distinctive issues is like masking legitimate legislation in reams and reams of pork barrel measures. Comprehensive immigration reform is impractical given the politics in Washington, DC. Highly-skilled immigration reform is basic common sense. These two have nothing to do with each other with the exception of political posturing needs. Academics, business leaders and politicians on both sides of the aisle generally agree with this but can’t act: “…engineering and technology companies started in the U.S. from 1995 to 2005….25.3% of these [have] at least one key foreign-born founder. Nationwide, these immigrant-founded companies produced $52 billion in sales and employed 450,000 workers in 2005.” – Vivek Wadhwa ‘s “America’s New Immigrant Entrepreneurs” (Duke University, UC Berkeley 2007) “Microsoft has found that for every H-1B hire we make, we add on average four additional employees to support them in various capacities.” – Bill Gates (Congressional testimony , 2008) “It makes no sense to educate the world’s future inventors and entrepreneurs and then force them to leave when they are able to contribute to our economy.” – Charles E. Schumer (D) & Lindsey Graham (R) ( Washington Post , 2010) Until America gets anywhere on this issue, the world will keep taking back its educated, upgraded and highly-skilled people educated and trained in America. Perhaps, like American universities do from alumni, America could also ask these countries and their American-educated citizens for endowment contributions? The solicitation letter will go something like this: “To India & China, with Love: America needs your help now, more than ever before, as we shooed away our job creating graduates.”

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Joshua Freed: Leaving $2.3 Trillion on the Table: The House GOP’s Budget Walks Away from Clean Energy’s Economic Jackpot

May 11, 2011

The United States is engaged in a fierce global economic competition to capture a share of the $2.3 trillion clean energy market. For the countries that seize this moment, clean energy will translate into new economic growth and businesses and a large share of the 20.4 million new jobs the sector is anticipated to create by 2030. Winning this race, however, requires significant public-private partnerships and investment in clean energy deployment and innovation. The 2012 House Republican budget proposal does the opposite. It eviscerates the very investments the United States needs to succeed. As a center-left organization that has aggressively called for putting everything, including entitlements and revenue, on the table to tackle the debt, we believe that the country needs to make tough choices. But we can and must address the deficit in a serious way while also strengthening long-term U.S. economic growth. That requires smart investments in innovation, education and infrastructure. Instead of rising to the twin challenges of reducing the debt and increasing American competitiveness in the global clean energy race, the House Republican budget raises a white flag. That’s because it eliminates the smart public investments the private sector needs to make up for market failures that are starving it of capital; slashes the basic government research that is the foundation of clean energy innovation; and gives up on the next generation of entrepreneurs by ending science, math and engineering education programs. We are already seeing the consequences of starving American clean energy entrepreneurs and innovators of investment. The United States now ranks ninth in terms of clean energy investment as a percentage of GDP. Over a five-year period from 2005-2010, the U.S. does not even crack the top ten of the nations with the fastest growing clean energy industries. Whether it’s number of IPOs, top 10 largest IPOs or number of international patent applications, the U.S. is already falling behind. The reality is that energy is a capital-intensive endeavor. Power plants are large and expensive and new technologies take a long time to develop and require significant upfront capital to deploy. This has been the case with new industries and new technologies for the last hundred years. It makes it extremely difficult for the private sector, on its own, to sufficiently invest in all of the needed clean energy research and development. American industries, as a whole, spend 2.6% of their revenue on research and development. In energy, that is only 0.23% for both clean and conventional research. The House Republican budget says it wants to “promot[e] policy rooted in innovation and the entrepreneurial strength of American business.” But the entrepreneurs and innovators the budget claims to support, and even some Republicans outside of Congress, view the House Republican proposal with alarm. As Joseph Laia, the CEO of Miasole, a manufacturer of thin-film solar panels, explained, “Labor is not the issue, it isn’t over regulation…I get no help from the federal government. There’s really not a compelling way to get capital investment in the U.S. to grow my business.” Former House Speaker Newt Gingrich also advocates continued government investment in clean energy innovation. He describes the House Republican cuts as akin to trying to save money by eliminating oil changes for your car. It might save money in the short-term, but it will cost a lot more when it results in a destroyed engine. If the CEO of an American company faced similar circumstances to what the U.S. faces today, the solution would be simple. He or she would go to his board and shareholders with a plan to both cut unnecessary spending and invest in new product development and promising markets. If that CEO instead went to the board with a plan that cut everything, eliminating any hope for growth and recovery, he or she would be fired. Clean energy innovation is that market seeking new products. The House Republican budget cuts where it should be investing. American businesses can win a large share of the $2.3 trillion clean energy market. We have the best minds, the best innovators and the best companies in the world. But we will not win it if Congress adopts a budget that cuts off investment in new technologies and the skilled new workers companies need. For the last 100 years, public investment in private sector innovation led to the American century. The last thing we can afford is an end to that now.

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Health Care For All Nears Reality In One State

May 11, 2011

MONTPELIER, Vt. — Accustomed to being the first to dip its toe into hot-button issues, Vermont is preparing to provide public health care to all residents regardless of income, moving toward a government-run system that will take it as close to Canada philosophically as it is geographically. Gov. Peter Shumlin is expected to sign legislation this month marking the first step on the path to phasing out most private insurance. The effort puts Vermont well in front of last year’s federal health care overhaul. The ultimate goal, Shumlin said recently, is a Canadian-style system “where health care is a right and not a privilege.” But it’s not clear yet how Vermont – the first state to ban slavery in its constitution and to give marriage-like rights to same-sex couples – will achieve universal health care. The legislation places responsibility for the details of the new system, including how to pay for it, in the hands of a powerful new state board. Vermont’s turn toward universal care comes as more than two dozen states have gone in the opposite direction, suing to overturn the federal law. The U.S. House last week voted to strip federal funding from key parts of it, though that move is expected to die in the Senate. While the federal law requires people to have health insurance and offers subsidies to help low- and moderate-income people buy it, Vermont would go further. It would change the way doctors and hospitals are paid and streamline the processing of insurance claims. The federal law was modeled in part on Massachusetts’ groundbreaking 2006 system that required all residents to have health insurance; unlike the Vermont plan, the Massachusetts program does not provide health care to all but does offer subsidized insurance to those can’t otherwise afford it. The Vermont bill sets up a five-member board which, in consultation with the executive branch and Legislature, is to answer the big unanswered questions in this year’s bill. Those include how the system will be paid for – some have suggested a payroll tax on employers and workers; what benefits will be covered; what copays and deductibles it would include; and other details. “Vermont is leading the way in having an authentic discussion about what a universal health care system would look like in the state,” said Katie Robbins of Healthcare NOW. The Philadelphia-based group supports single-payer health care, under which everyone gets coverage from the same government-run system, similar to what military personnel have now. Despite the growing opposition to the federal law, Vermont, where liberal Democrats control the governor’s office and both houses of the Legislature, is undaunted in moving in the direction of Canada, which pays for its health care system through taxes. And supporters say the state has built-in advantages. Vermont, with a small population of about 620,000, is often ranked as one of the healthiest states. It is well below the national average for infant mortality, childhood obesity, AIDS diagnoses and a range of other indicators of poor health, according to figures kept by the Kaiser Family Foundation. The Census Bureau reported that, in 2007, Vermont ranked sixth in the country in physicians per capita, with 374 per 100,000, versus a national average of 271 per 100,000. And about 90 percent of Vermonters have some form of health insurance already. But some of those with insurance say it falls far short of what they need. Heather Loughlin, 42, was working as a vice president at the Sugarbush ski resort when she was diagnosed 2 1/2 years ago with multiple sclerosis. Before long, she found herself no longer able to work and buying insurance with a subsidy from the state under a current program, but with a private insurer. A thick stack of coverage denial letters later, Loughlin said, she was back living with her parents in Ludlow, who were going into debt in their retirement to help her meet her medical costs. “It doesn’t matter if you’re paying $300 or $400 a month for insurance,” Loughlin said. “It’s a mirage.” She called the repeated coverage denial letters “mind-boggling and enraging. They just try to wear you down.” Advocates for changing the system brought hundreds of people with stories like that to hearings and rallies at the Statehouse last year and again this spring. James Haslam of the Vermont Workers Center, which spearheaded a campaign under the banner “Health Care Is A Human Right,” said the legislation wouldn’t have passed without the grass-roots support. “If other people want this in their states, they have to start organizing their neighbors,” he said. The bill indicates that the state would “maximize the receipt of federal funds” to help pay for the new health care system. But Vermont’s prospects of receiving federal money are uncertain amid efforts by Republicans in Congress to chip away at the federal overhaul. “The big hole in Vermont’s plan has always been its failure to specify a funding source,” said Shawn Shouldice of the National Federation of Independent Business, which opposes the legislation. “The only clearly defined funding element was the federal grant money … and now that could vanish, as well.” William Hsiao, a Harvard health care economist and consultant to the drafters of Vermont’s legislation, has called for a payroll tax shared by employers and workers. But lawmakers put off a decision on that, some saying they wanted a way to tax non-wage income to support the program as well. There are also doubts the bill really will move Vermont toward a genuine single-payer system. It leaves room for people to buy supplemental insurance, and among the big questions is whether workers at IBM and some of the major employers in the state, whose self-insurance systems are regulated under federal law, will be allowed to be absorbed into Vermont’s system. In a move crucial to the project’s success, backers say, the board will design and administer new cost-control measures, including “global budgeting” for hospitals and other health care providers. Instead of the traditional “fee-for-service” system in which doctors are paid by the patient visit or procedure performed, the new system will be designed to pay for providing necessary health care to a given population. A senior health researcher at the conservative Heritage Foundation in Washington warned, though, that Vermont may want to be careful in playing with the financial incentives that can influence how health care systems develop over time. In some other countries, Ed Haislmaier of Heritage said, the sort of “global budgeting” Vermont envisions ends up with less acutely ill patients with longer hospital stays. “Hospitals turn into nursing homes,” he said. The bill calls for maintaining and expanding the state’s Blueprint for Health program, which is designed to streamline and provide better preventive care to people with chronic conditions like heart disease and diabetes. Rep. Mark Larson, chairman of the Health Care Committee in the Vermont House and a key architect of the legislation, acknowledged that the bill is really a planning document and that its supporters have much left to prove. After the House gave the bill final approval 94-49 Thursday, he said, “I think today’s vote reflects people saying, ‘OK, you’ve made your case. Now show me.’”

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Otaviano Canuto: South-South Trade Is the Answer

May 11, 2011

Istanbul is now at the center of the development action. In this splendorous city — where West and East converge — leaders from all over the globe have gotten together this week to assess the development results and challenges of the world’s poorest countries. One of the goals of the 4th United Nations Conference on Least Developed Countries is to reduce the number of these nations from the current 48 to 24 over the next decade. And one of the things we can do to ensure this is to increase trade and South-South trade in particular. Some skeptics point out that the over-dependence of low-income countries on commodities and natural resources has limited their economic prospects. Or that it was precisely through trade and financial integration that the 2008 financial crisis was transmitted to many emerging markets, while poorer and less integrated economies remained isolated from the worst of the crisis. But the reality is that in the recovery from the crisis, trade is becoming a powerful engine for economic opportunity. And not in the traditional way. South-South trade is becoming increasingly important. World Bank data shows that while demand in developed countries remains stagnant, trade among developing nations is growing. Between 1996 and 2006, South-South trade tripled and nearly half of imports to low- and middle-income countries now come from other countries like them. China is leading much of the recovery. While the OECD , a group of the wealthy nations, still accounts for most imports, its share has dropped from 69 percent to 59 percent in only eight years. China’s share, on the other hand, has increased from eight to 14 percent. The least developed countries can benefit from the South-South trend because countries like China, India, Brazil and other leading emerging economies are becoming new markets for their products. Beyond volume, poor countries often face significant non-price barriers to breaking into markets in high income countries — like meeting technical standards — so the barriers to entry to developing countries may be lower. And even if traditional barriers tend to be higher in the South than in the North, lowering these would provide an incredible boost to the exports of the least developed countries. In addition, South-South trade can promote diversification, which is key to offset the over-reliance on natural resource exports that many of the poorest countries face. But no matter what they do — whether they continue exporting to high income countries or diversify their exports by finding new markets in the South — the least developed countries need to reduce their trade costs. How? By improving trade logistics — the capacity to efficiently move goods and connect manufacturers and consumers with international markets–and trade facilitation, which goes from better infrastructure (like in ports and transportation corridors) to faster border agencies. It might sound daunting but it is possible. Development agencies like the World Bank are increasing their work on Aid for Trade and trade facilitation. High income countries have a lot to do too. In addition to keeping their markets open to the exports of poor countries, they should help pay for the infrastructure and other trade facilitation improvements in the South. If everyone recognizes that trade increases are at the core of the economic recovery from the global crisis, the benefits will also be global. This blog was originally posted on the World Bank Institute Growth and Crisis website .

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Dominique Desruelle: BRICs and Mortar — Building Growth in Low-Income Countries

May 9, 2011

The so-called BRIC nations–Brazil, Russia, India and China–could be a game changer for how low-income countries build their economic futures. The growing economic and financial reach of the BRICs has seen them become a new source of growth for low-income countries (LICs). LIC-BRIC ties–particularly trade, investment and development financing–have surged over the past decade. And the relationship could take on even more prominence after the global financial crisis, with stronger growth in the BRICs and their demand for LIC exports helping to buffer against sluggish demand in most advanced economies. The potential benefits from LIC-BRIC ties are enormous. But, so too are challenges and risks that must be managed if the LIC-BRIC relationship to support durable and balanced growth in LICs. Unlocking the new sources of growth and investment financing–particularly given the massive investment needs of LICs –raises a raft of other issues, including: how to finance investment without taking on too much debt; how to attract investment without sacrificing too much fiscal revenue through costly tax incentives ; and how to avoid resource dependency in the long run. Most of these challenges and risks are not new, but they deserve renewed attention. In that spirit, the IMF recently sponsored a panel discussion to explore these issues, drawing on perspectives from LIC and BRIC policymakers, and development experts. Strengthened ties have certainly boosted exports, helping to stimulate growth in LICs and contribute to their resilience during the global economic crisis. But, over the longer haul, what will matter is whether BRICs will be a positive force in making LICs more dynamic and productive through structural change–where economies shift from, say, agriculture to labor-intensive manufactures having a larger role. So, the extent to which BRICs could be the building blocks for lasting growth in LICs may still be an open question. But, we took away from the panel discussion six essential factors that will help LICs lay the groundwork to benefit from this important relationship. Current LIC-BRIC ties may pose a risk to LICs becoming too reliant on raw materials–a commodity trap–but LICs can also learn from successful BRICs. –On one hand, India and China’s competitiveness in manufacturing and their large demand for natural resources may push up the relative price of commodities undermining incentives for LICs to shift into manufacturing. –At the same time, Brazil and Russia (as well as advanced economies, such as Australia and Canada) have benefited from natural resources as a lynchpin for growth. Boosting manufacturing is central to stimulating growth. Here too there are mixed views as to whether or not BRIC development financing has helped transfer technology and improved labor skills particularly in manufacturing. Greater provision of trade preferences (including beyond commodities) could help ensure that the relationship is mutually beneficial and de-bunk the notion that BRICs are simply “looting” the LICs for their natural resources. Concessional financing can provide a good jump start, but commercial financing will be vital to sustained growth. BRIC development financing is complementary to traditional donor support, but can also have important knock-on effects. China’s experience points to two possible advantages: commercially-oriented development financing is less constrained by the size of the flows, and provides incentives for competition, efficiency and permanent interest in ensuring that the project remains viable. LICs can learn from the BRICs in how they balance these various challenges. Countries need a coherent strategy for scaling up infrastructure and development that maximizes their growth potential. China, for instance, has had tremendous success in coherent investment planning, constantly reassessing infrastructure gaps and reorienting resources. Multilateral institutions and donors can play an important role in complementing the LIC-BRIC relationship , through: analysis and policy advice to support macroeconomic stability and debt sustainability; and capacity building and facilitating improvements in the investment environment to boost LICs’ absorptive capacity. Greater transparency of BRIC financing, particularly development financing, is needed. Perhaps the biggest gap is the lack of official data on development financing by China. It would be helpful for China to publish this data. While it’s difficult to do justice to the richness of the panel discussions, we hope it can foster an ongoing dialogue about how LICs can–particularly in building their relationships with BRICs–increase the volume and quality of investment, and associated financing, in a sustainable way. From iMFdirect blog

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Dave Johnson: China Tells U.S. to Mind Our Own Business — And We Should

May 7, 2011

China’s Vice Finance Minister lectured US administration officials about our debt and told us to mind our own business when it comes to China’s currency manipulation. It is about time the United States started minding our own business by taking steps to protect our business and bring manufacturing and jobs back home. Leading up to next week’s US-China Strategic And Economic Dialogue , China’s Vice Finance Minister Zhu Guangyao butted into our business and told the US we should reduce our debt. He also told us to keep out of their business and not bother them about their currency manipulation. In the story ” China Paying ‘Close Attention’ to U.S. Debate on Increasing Debt Ceiling ,” Bloomberg News reports, “We are paying close attention to the domestic discussion in the U.S. on debt and deficits,” Zhu told reporters in Beijing today. “We hope the U.S. can take effective measures toward fiscal reorganization just as President Obama suggested.” [. . .] Zhu also said that currency policy is the “sovereign right” of every country. China says currency manipulation is their “sovereign right.” They say we should mind our own business. But they insist that “free trade” means America does not have a right to mind our own business and protect our own workers, companies and jobs. It’s Time To Mind Our Own Business It is time to finally mind our business and take action. For decades the United States has refused to mind our business by pursuing “free trade” policies that allow other countries to engage in all kinds of trade schemes, while we just sit back and let them. Our leaders have not protected American workers, companies and jobs, instead sending them out of the country. We are told that the resulting “low prices” at Wal-Mart justify letting manufacturing move out of the country. It is time for us to mind our business, and engage in our own sovereign duty to protect American companies, workers and jobs from the trade manipulations and schemes others engage in. It is time to hold countries like China and Germany accountable for the damage done to our businesses by their mercantilist trade policies. Trade barriers, currency manipulation, even outright extortion – demanding that our companies transfer proprietary technologies and processes if they want to do business selling into other countries — has cost us factory after factory, job after job and company after company. As an example of how this has worked, in 2008 George Bush made the following argument for a trade treaty with Columbia, In other words, the current situation is one-sided. Our markets are open to Colombia products, but barriers exist to make it harder to sell American products in Colombia. I think it makes sense to remedy this situation. President Bush wasn’t saying he was going to do something about the one-sided arrangement and hold Colombia accountable, he was saying that since we just let Colombia do this to us, therefore we need to reward them with a free-trade treaty that gus American jobs even more! But why not just mind our business and stop it? All we really have to do is tell Colombia we are going to do what they do, until they stop doing that, start paying workers a decent wage and protecting their safety and rights. Why China Really Cares The fearmeisters say China is concerned that we might not meet our debt obligations. This is not at all what China is concerned about. China holds $1.15 trillion in Treasuries, accumulated as they sell goods to us, and don’t let us sell goods to them . What they are concerned about is that our currency might drop, which will help bring factories and jobs back to America. From the Bloomberg story, “Reduced U.S. fiscal spending may lead to a higher possibility of the U.S. dollar appreciation, therefore it helps China to maintain the value of the U.S. debt it holds,” said Li Jun, a Shanghai-based strategist at Central China Securities Holdings. Their concern about our debt is really just about keeping their currency low, which gives goods made in China a huge price advantage in world markets. Let Trade Be Trade It is time to mind our business and mind our businesses. It is time to take action on mercantilism and currency manipulation. It is time to stop China and others from flooding our markets with goods made without the wage, safety and environmental protections that democracy provides. Let trade be trade. Trade is supposed to be about trading . It is not supposed to just be a scheme to drive wages and living standards down by packing up factories and moving them across borders. It is not supposed to be “take a pay cut and a cut in benefits or we’ll move your job.” It is not supposed to be “well, we have something called globalization now so everyone should expect to be poorer and poorer every year.” Trade is supposed to be we buy what they make and they use the money we pay them to buy things we make. And then we use the money they paid us to buy things made there. And then they use the money we paid them to buy things made here. It is supposed to go on like that, and everyone does better and better. Better and better, not poorer and poorer. It really is time to mind our own business and tell countries that can’t sell to us until they meet our conditions. Which is just what they do to us. This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. 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Tina Wells: The Coming of the Global Mobile

May 7, 2011

Millennials have grown up in this world of instanity, where information, photos, and prices (when they’re shopping) are just one click away. They are also just a security checkpoint and a passport stamp away from almost anywhere in the world, where they can witness firsthand how cultures all over the globe listen (and create) their music and tuck their jeans into their sneakers. How are today’s marketers supposed to keep up with that? How do you keep product available for online distribution when you’re not sure what the next big thing will be — when a hot new item could explode overnight? How do you know how much product to keep in local retail stores when more and more Millennials are shopping online? These supply and demand issues are just the logistical tip of the iceberg in a mountain of marketing issues for making your brand appeal to today’s Global Mobiles. There are things that every product or service can do to make itself more appealing on a global level. First, you have to create a brand with global values. For example, we know that Warholism (the idea that anyone can be famous) is a major trend in the United States, but is it also taking hold abroad? Is reality TV as big in other countries as it currently is here? These are questions you have to ask. What are examples of global values? Things like love, happiness, style, and convenience all play on a global landscape. Second, you must have a recognizable logo. Think about the companies that consistently make it onto Interbrand’s list of the top 10 global brands: Coca-Cola, IBM, Google, Microsoft, and McDonald’s, to name a few. All have recognizable symbols. Think about what your logo signifies to people all over the world. While product names are another element, this area is less restricted since it’s the brand identity that matters most. I love the oft-cited marketing case study of the Chevy Nova, which supposedly sold poorly in Spanish-speaking countries because “no va” literally translates to “no go”. The truth, however, is that the Nova actually performed quite well in some Spanish-speaking countries, such as Argentina, Mexico, and Venezuela. While it’s great marketing fodder, it’s simply not a true story. The truth is that more attention needs to be paid to overall branding approaches, since (as I’ve said several times before) brands that focus on creating loyal groups of consumers and on providing product value can pretty much get through any crisis, complete with customer forgiveness. Third, you should not even think about creating a global brand if your customers cannot instantly connect with you. This connection should happen through a company web site and social networking sites like Facebook, Twitter, Foursquare, Clikthrough, and whatever other online experience is hot at that time. If you want to be global, you must be instant; there is no getting around this. However, an important distinction is that being instant doesn’t mean that you can’t be exclusive. Just look at a brand like Louis Vuitton. It’s extremely exclusive; it’s even been known to allow only a few people into its stores at a time! The company sells its products at select retail locations, and it produces only limited quantities. Yet the brand is everywhere — Twitter, Facebook, and, of course, the company web site. Louis Vuitton spokespeople are athletes, models, activists — people from every walk of life. This company understands the art of the global connection. The fourth point for global brands to keep in mind is that traditional retail locations may not offer you the best solution. Pop-up stores are becoming increasingly popular these days, which might be an effect of the recession, since many malls and shops have tons of empty, available spaces. However, these stores aren’t limited just to malls. Magazines are taking advantage of the trend as well, and publications like Teen Vogue and Self are providing brands with opportunities to interact with their consumers in new and exciting ways. Trade shows and live events also allow consumers to interact with the items that they love. Remember, it’s about the connection, not just the visit to a traditional store. Finally, you have to look for trends globally, not just what’s happening in New York or California. The key to successful brands like Coca-Cola and hip retailer Urban Outfitters is that they are able to track trends globally while applying that information locally. A brand like Abercrombie & Fitch, for example, which is losing some of its U.S. popularity, has found a loyal fan base abroad, where the all American look plays well. Similarly, this country has imported many of its favorite reality shows from abroad; American Idol , Dancing with the Stars , and Big Brother were all launched in England before they were hits in the United States. We even see some universal, cross- cultural values in these shows. Whether you’re American or British, you still love dancing, singing, and family. These have global appeal. Now that we know what matters, it’s important to explore how this new breed of Millennials — or global mobiles, as I like to call them — will buy and consume products. It’s equally important to know which brands are on their radar. That is a topic for a future post!

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Income Inequality Is Soaring Globally — Even In Sweden

May 3, 2011

Widening income inequality has been a thorn in America’s side for some time now. Turns out, other countries in the developed world aren’t exempt from it, either. Yes, even Sweden. In a new report , the Paris-based Organisation for Economic Co-operation and Development (OECD) finds that since the mid-1980s income inequality has increased in 77 percent, or 17 of the 22 surveyed countries. Across all OECD countries, the report found, the average income of the richest tenth of the population is now nine times that of the poorest tenth. Globalization, technological innovation and relaxed regulatory environments have all contributed to the growing gap between rich and poor, the OECD found. The report pays special attention, though, to the changing formation of families, pointing to research showing the income inequality has risen in the U.S. as a result of growing numbers of single-headed households. Globally, household income has increased overall by 1.7 percent annually, the OECD found. But not all income levels have benefited equally. The world’s bottom decile of earners saw their income grow annually by only 1.4 percent in the last 30 years or so, while the top decile grew at an annual rate of 2.0 percent. Countries at both extremes of the inequality spectrum are moving closer to the center. Mexico and Chile, which together have the two highest levels of inequality, have seen the gap between rich and poor narrow in recent years. But surprisingly, it’s in the historically egalitarian countries of Denmark, Germany and Sweden that the divide between the rich and poor has widened most in the past decade. This isn’t just an issue of poor versus rich, however. The middle-class has largely been left behind too: “The highest 10% of earners have been leaving the middle earners behind more rapidly than the lowest earners have been drifting away from the middle,” the report’s authors write. Capital income, or income derived from wealth not work, has been a particularly notable source of rising inequality, the report notes, widening more than wage inequality in two-thirds of surveyed countries. Still, capital income remains a relatively low percentage of overall income at 7 percent. On Monday, though, Paul Krugman noted that 400 people alone accounted for 10 percent of all U.S. capital gains income in 2007. With the exception of France, Japan and Spain, wages of the rich have grown more than those of poor since the mid-1980s, the report finds. That has something to do, according to the OECD, with the declining number of average hours worked by low-wage workers, even in comparison to also declining hours worked by the high-wage workforce. Only in Greece and the United States, the report finds, have the average number of hours worked risen for the bottom quintile while declining for the top. (See below chart): The below graph shows where inequality has risen, where it has fallen, and by how much since the mid-1980s: Read the paper: GROWING INCOME INEQUALITY IN OECD COUNTRIES: WHAT DRIVES IT AND HOW CAN POLICY TACKLE IT?

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William S. Becker: The Oil War at Home

April 30, 2011

Whom should we blame for high gasoline prices? The president? Oil companies? Price gougers? Protestors in the Arab Spring? People who drive Hummers? The answer to that question is one of the first serious issues of the 2011 presidential campaign. (Sorry, Trump. Sorry, Birthers.) It’s an issue that could — and perhaps should — become an oil war at home, politically speaking. The issue is heating up because gas prices affect us all, whether we’re buying fuel, food or consumer goods. Rising gas prices threaten our recovery from the recession and our ability to put Americans back to work. To anticipate how the price of oil might unfold as a campaign issue, we can look to California in 2006. One of the initiatives on California’s ballot that year was Proposition 87 to establish a new tax on petroleum extracted from the state’s oil fields. The tax would have raised $400 million annually to fund alternative energy programs, with the goal of cutting the state’s oil consumption 25 percent over 10 years. Proposition 87 contained a clear prohibition against oil companies passing the cost of the tax to consumers by raising fuel prices. The tax would have to come out of profits. In July 2006, polls indicated that 51 percent of California’s voters supported the initiative. Then in August, opponents launched an aggressive campaign of television ads supported in part by more than $30 million from Chevron. The ads claimed Proposition 87 would result in higher gasoline prices — despite the prohibition in the initiative. One of the ads featured the president of the California Chamber of Commerce warning that Proposition 87 “would impose a $4 billion tax on oil produced in California, a tax that would lawfully be passed on to the rest of us.” By October 2006, voter support for Proposition 87 had dropped from 51 percent to 41 percent. The measure was defeated in the November election. Fast forward to Washington in 2011. Republicans are warning again that a “tax increase” (actually subsidy reform) for oil companies will push gasoline prices higher. Some are blaming President Obama for expensive gasoline. To his credit on the issue of oil subsidies, the president stirred the pot with an April 26 letter to leaders in the House and Senate, urging them to “take immediate action to eliminate unwarranted tax breaks for the oil and gas industry and to use those dollars to invest in clean energy to reduce our dependence on foreign oil”. Obama included the same proposal in his last two budget submissions to Congress. A day later, 29 Democrats in the House wrote to Speaker John Boehner, asking for an up-or-down vote on oil subsidy reform. Boehner said no. His spokesman explained: “The Speaker wants to increase the supply of American energy to lower gas prices and create millions of American jobs. Raising taxes will increase gas prices and make it harder to create jobs.” In that response, Boehner’s spokesman managed to squeeze three big untruths into two short sentences. They came straight out of the dog-eared playbook the oil industry and its supporters continue using to frighten voters about jobs, taxes and energy prices. The president has proposed repealing tax breaks for oil companies, not increasing taxes for consumers. Repealing the subsidies will result in higher gasoline prices only if oil companies want to shake down consumers. Four billion dollars a year is chump change in the oil industry. It would shave very little off its profits. In the first three months of this year alone, Exxon-Mobil earned nearly $11 billion. Chevron netted more than $6 billion. When Rep. Diane DeGette asked the Energy Information Administration several years ago whether subsidy cuts would cause an increase in gasoline prices, EIA told her that oil revenues were so large that eliminating the industry’s taxpayer subsidies need not make a difference in the price at the pump. The third misstatement in Boehner’s response was that subsidy reform would discourage oil companies from drilling. So long as there’s money to be made, oil companies will drill. Again, $4 billion a year will not make a dent in their profits. In regard to the blame game, Politico reports this week that: Americans are paying more than $4 a gallon for gas, ExxonMobil announced a 69 percent boost in earnings, and President Barack Obama is struggling with the fact that he can’t do much about any of it… Political experts of all stripes say (high gas prices are not) good news for Obama. Politico cites a new Washington Post /ABC poll in which 60 percent of Independents said they “are concerned enough about gas prices to say that they definitely will not back Obama for reelection.” But if President Obama can’t do much more about gasoline prices, why should he be blamed for them? The administration has deployed the few countermeasures in its arsenal to reduce our dependence on oil and the price we pay for it. Among other things, it has instituted aggressive new efficiency standards for vehicles. The president doesn’t benefit from spikes in the price of oil. On the contrary. We can be certain he will do all he can to keep the recovery on track. If it’s not “the most powerful leader in the world”, then what really affects oil prices? As former Labor Secretary Robert Reich explains: It’s a global oil market. Even if 3 million additional barrels a day could be extruded from lands and seabeds of the United States (the most optimistic figure, after all exploration is done), that sum is tiny compared to 86 million barrels now produced around the world. In other words, even under the best circumstances, the price to American consumers would hardly budge. The Atlantic offers more detail : Fuel taxes make up 12 percent of the retail price of gasoline. Gas taxes averaged 48.1 cents per gallon as of last January. The federal portion is 18.4 cents per gallon; state taxes averaged 28.6 cents. The federal tax supports the Highway Trust Fund, which is used to build and maintain the interstate highway system, with smaller portions going to mass transit. It’s unlikely these revenues can be reduced without further damaging the nation’s deteriorating transportation infrastructure. The American Society of Civil Engineers estimates we are spending $110 billion too little each year to maintain the transportation system even at current levels. Meantime, the Congressional Budget Office predicts the Highway Trust Fund will run a $7 billion deficit this year and will continue to have deficits through 2020. The biggest factor by far is the price of crude oil . It accounts for 68 percent of what we pay at the pump. It also affects our trade and budget deficits. The Congressional Research Service estimates that when petroleum costs $100 a barrel — a price we’ve already exceeded — our oil imports increase the U.S. trade deficit by $100 billion. Every $10 increase in the price of oil costs our military (in other words, taxpayers) $1.2 billion a day. The balance of gasoline prices — 20 percent — goes for refining, distributing and marketing the fuel. The biggest factor in price volatility is supply and demand. Also in the mix are increases in U.S. oil consumption during the summer, speculation in oil markets, what’s happening in the Middle East and other countries from which we import petroleum, and the strength of the dollar. The least of the factors — so small that it’s overwhelmed by the others — is domestic oil production. Gasoline pricing is complex, but the politics are simple. Secretary Reich puts it this way: This gusher (of oil profits) is an embarrassment for an industry seeking to keep its $4 billion annual tax subsidy from the U.S. government, at a time when we’re cutting social programs to reduce the budget deficit. It’s especially embarrassing when Americans are paying through their noses at the pump. If that doesn’t dissuade Republicans and oil-state Democrats from going to war on this issue, then we should ask some questions: o How can the members of Congress who condemn federal budget deficits support subsidies the oil industry doesn’t need? o How do oil subsidies, some of which have been in place for generations, square with conservative mantras that the federal government shouldn’t be picking winners or engaging in corporate welfare? o How can Congress justify oil subsidies when they’ve been warned repeatedly by experienced senior military experts that, “Dependence on oil undermines America’s national security on multiple fronts”? Without question, there are issues on which the interests of the oil industry and the public coincide. The obligation of our political leaders is to detect where those interests diverge and, when a choice must be made, to choose on the side of the American people. If gasoline prices become a huge issue in the 2011 elections, we will see who favors the blame game over solutions and who represents the welfare of oil companies over the welfare of the American people. I can see the first bumper sticker now: John Boehner. R-Ohio or R-Oil?

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10 Countries Where Unemployment Has Soared

April 30, 2011

Since the financial crisis first pulled the world into the Great Recession, unemployment has become a global problem. A new report released by the Paris-based Organisation for Economic Co-operation and Development entitled “Society at a Glance 2011 – OECD Social Indicators” includes data on the rising levels of global unemployment between 2007-2009, the years where the recession peaked. Many countries on the list have seen high unemployment rates for years, most notably Spain, whose unemployment rate recently hit a Eurozone record at 21.3 percent, with 4.9 million Spaniards now jobless. Other countries have trended in the opposite direction, however. Germany, for one, has watched its unemployment rate fall to 7.1 percent from 7.8 percent at the time of the report’s publication. The United States has also seen some recent improvement, albeit notably less steep than Germany’s drop. Despite these improvements, the OECD’s report finds that unemployment rates overall have increased across the globe, with the fews exceptions including Israel, Poland and South Africa. Below are the nations whose unemployment rates have risen most since the Great Recession:

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Dave Johnson: Royal Wedding of Austerity and Trade Deficits Is Killing Our Economy

April 29, 2011

Sometimes you can just see glimmers of something through the DC brain fog, other times it becomes so clear that you can’t ignore it. The current DC brain-fog motto is, “if it doesn’t work, do it more.” Today’s GDP-growth report shows that austerity isn’t working, so the geniuses in DC want to do it more. And they say, “government just gets in the way of business” so we send our businesses out on their own to compete with governments, and the resulting trade deficits eat our jobs. Cutbacks Cut Growth How long ago was it that DC was all about cutting taxes for the rich even more? And how many minutes after that was DC all about cutting budgets — “austerity” — because of the resulting budget deficits? So instead of the jobs that will fix the deficits the government gives us cutbacks — cutbacks in taxes on the rich, cutbacks in construction projects, cutbacks in teachers and police and other government functions, cutbacks in the things We, the People do for each other. We watch as England, Greece, Ireland and other countries try cutbacks — austerity — to get out of slow growth and their growth gets slower as a result. The U.S. tries it, too, and our growth gets slower, too. The first quarter growth figures are out: 1.8% for the first three months of the year : Total output grew at an annual pace of 1.8 percent from January through March, the Commerce Department said Thursday, after having expanded at an annual rate of 3.1 percent in the fourth quarter of 2010. But the DC fog machine blames the weather, not austerity. Higher commodity prices and winter blizzards that shuttered businesses and delayed construction were among the main causes of the slowdown. Our growth slows because of austerity. So they blame the weather and insist on more austerity. Because austerity “gets government out of the way” of the wealthy few and their accumulation of the rest . Trade Deficit As the economy recovered a bit and people started to buy a few more things , the things came from elsewhere, and the money and jobs just left the economy . Without government policies to deal with it, our trade deficit will continue to get even worse, costing us even more jobs and growth and draining even more money out of the country. Germany runs a trade surplus, so German unemployment is at its lowest level in 19 years. Headline: German Unemployment Declines to 19-Year Low as Export Boom Drives Demand : German companies are hiring as they increase production to meet booming export orders, fueling domestic demand. … German factory orders and industrial production rose more than economists predicted in February. … More than a third of Germany’s medium-sized companies plan to take on staff in the second quarter… Germany also pays workers more than we do, gives them lots and lots of vacation time, health care, pensions, rights on the job — all the things that our leaders say hurt our businesses. Our leadership is making every effort to return to the old economy that caused the crisis. This is because those who benefited from that economy are still in control of the system, still using their great wealth to get what they want , damn the consequences for the rest of us. (Hint, the first link is to a post titled, Nine Pictures Of The Extreme Income/Wealth Gap , and the second is a post titled, Corporate Propaganda Response To Town Hall Medicare Anger .) Contractionary Policies Cause Contraction Conservatives say so many silly things that are proven wrong by the simplest fact-checking — cutting taxes increases revenue, taxes take money out of the economy, tax cuts grow the economy — and the silly thing they say that is hitting us now: cutting back causes expansion. Huh? Here is what really happens in the real world. Following are a few charts showing the effect of the “stimulus” and what has happened since the stimulus ran out. First, manufacturing. See the plunge through 2008? That’s the collapse. See the sharp change to an upward direction through 2009? That’s the stimulus. See the leveling off since? That’s the end of the stimulus. Now look at the following chart of job growth. See the downward slope, when we were losing more and more jobs every month? That’s the collapse. See the upward slope, when we were losing fewer jobs every month, up to where we were actually gaining a bit? That’s the stimulus. See the leveling off, standing still through 2010, going into 2011. That’s the end of the stimulus. You can see in front of your face what works and what doesn’t. We should be doing what works, not what doesn’t. Why did I even have to write that sentence? Solutions As I wrote the other day , we have to invest in rebuilding our infrastructure if we want to continue to be competitive in the world, so right there are millions of jobs that need doing. And the payoff from doing that pays for doing that. We need to retrofit our economy to be energy efficient , so right there are millions of jobs that need doing. And the payoff from doing that pays for doing that. We need more teachers, more police, more firefighters, more judges, more scientists, more social workers, more park rangers, more noise abatement and met and safety and environmental and other kinds of inspectors and so many other things that We, the People do for each other — so right there are millions of jobs that need doing. And the payoff from doing that pays for doing that. So right there are millions of jobs that need doing. And the payoff from doing that pays for doing that. But wait, there’s more: National Manufacturing Strategy The idea of a manufacturing strategy or industrial policy is hardly a radical concept. Alexander Hamilton constructed America’s first industrial policy in 1791. Setbacks during the War of 1812 due to a lack of domestic capacity to build naval vessels and military equipment cemented the determination of the federal government to grow manufacturing, a policy that continued until the end of World War II. To solve the trade deficit and create millions of good-paying jobs (like in Germany) we need a national manufacturing strategy — a government-sanctioned plan to ensure that U.S. manufacturers remain competitive in the global marketplace. Click this link for a few examples of countries that have national manufacturing strategies. Following is the Alliance for American Manufacturing’s plan : Expand American Production, Hiring, and Capital Expenditures Establish a manufacturing investment facility to leverage private capital for domestic manufacturing Expand and make permanent clean energy manufacturing tax credits and industrial energy efficiency grants to allow America to lead on green job creation Link federal loan guarantees for new energy infrastructure projects, including nuclear, wind, solar, other renewable energy sources, as well as the smart grid, with expanding domestic supply chains Adopt immediate, up-front expensing rules for plant and equipment to spur capital expenditures Enforce our trade-legal Buy America and other domestic procurement requirements to prevent leakage of tax dollars overseas Invest in America’s Infrastructure Create a National Infrastructure Bank to finance high-value, long-term infrastructure projects, such as roads, bridges, high-speed rail, and other needs Enact a robust, multi-year surface transportation infrastructure program of at least $500 billion financed exclusively by fuel taxes Enhance Our Workforce Refocus on technical and vocational education, providing a seamless program that bridges high school and post-secondary education to produce the next generation of highly skilled manufacturing workers Reward companies that are investing in effective skills and training programs for their workers Make Trade Work for America Keep America’s trade laws strong and strictly enforced to provide a level playing field for our workers and businesses Penalize and deter mercantilist nations such as China that manipulate their exchange rates and implement non-tariff barriers to gain an unfair trade advantage As the Administration works to double exports, expand the goal to include balancing our trade account so that gains in exports are not overwhelmed by increased imports Rebuild America’s Innovation Base Make permanent the research and development tax credit and enhance it to incentivize commercialization and production in America Focus federal investments in new technology and workforce training on promoting regional clusters of innovation, learning and production And finally, It Never Hurts To Quote The Boss Press release WASHINGTON’S FIXATION WITH AUSTERITY IS HURTING THE ECONOMY Campaign for America’s Future Urges Lawmakers to Put Job Creation First Washington, DC – Campaign for America’s Future’s co-director Robert Borosage commented on today’s economic indicators. Borosage said: “The first quarter growth figures — 1.8% for the first three months of the year — are an ominous reminder of the reality that Washington has forgotten. “This economy is in trouble. For most Americans, the recession has not ended. Growth is painfully slow. Unemployment remains high. Home values are dropping; gas prices are rising; wages are not keeping up. “Despite this — and despite the warnings of economists — Washington, driven by the new House Republican majority, has turned prematurely to austerity. Contractionary policies cause contraction. They will impede any recovery, and slow an economy that is barely moving. “Washington offers no answer because it is fixated on the wrong question. The question is how do we get the economy going and put people back to work — not simply how do we balance our books? Every deficit reduction plan — from the President’s to the House Republican’s to the Congressional Budget Office projections — assumes faster growth than we saw in the first quarter. “The most powerful deficit reduction measure is to put people to work, turning them into consumers and taxpayers. If growth and unemployment stay at this level, deficits will rise, not fall. The White House and the Congress should turn to measures to put people to work, to stave off debilitating layoffs of teachers and police at the state and local level, instead of ignoring the reality that Americans are struggling with every day.” Sobotka, from The Wire : This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Jeffrey Rubin: Is Peak Coal Coming?

April 28, 2011

The price of oil isn’t the only hydrocarbon going through the roof. Check out thermal coal prices to see how dependent economic growth has become on burning increasing amounts of fossil fuels. Prices of Newcastle coal, the Asian coal price benchmark, are poised to rise by as much as 30 percent this year, approaching the peak levels seen in 2008. It is no surprise the countries driving global coal demand through the roof are the same countries pushing global crude demand. Find the fastest growing economies, and you will find where demand for oil and coal are the strongest. China’s coal consumption is expected to rise by another 10 percent this year, propelled by strong economic growth, the soaring prices of diesel fuel and the fact water levels at most of the country’s hydroelectric sites are well below normal due to the severe drought this winter. Demand in India, where power blackouts are still the norm and where 40 percent of the country’s 1.2 billion people still haven’t been hooked up to a grid, is expected to grow by more than 20 percent this year. It is good news for coal prices but the only problem is whether production can keep pace. Sound familiar? China’s coal industry already accounts for more than 40 percent of world production with less than 15 percent of the planet’s coal reserves. This is a rate of resource extraction that U.S. coal companies can only dream about. Even so, domestic mine production in China lags runaway demand growth, forcing the world’s largest coal burner to turn to more foreign suppliers such as Australia. Last year, the Chinese economy burnt a staggering 3.2 billion metric tonnes of the stuff. This is already a huge challenge to China’s railway system that is clogged with hauling billions of tonnes of coal from increasingly distant mines in the remote western regions of the country to the industrial heartland in the east. But the Chinese economy faces an even more daunting challenge to its coal consumption than transportation logistics. Domestic coal production is rapidly approaching what even the Chinese government acknowledges to be a national production peak. At the current extraction rate, China could hit that production peak as early as 2015. Once there, most estimates show a sharp drop off in the country’s coal production beginning around 2020. This is why Beijing is considering capping domestic coal production, fearing the country is depleting its remaining coal reserves far too quickly to sustain future economic growth. This policy shift has sent Chinese coal companies scouring the world looking for new coal reserves. They have already spent $21 billion on overseas coal acquisitions. As the largest coal producing country starts thinking about conserving its remaining coal reserves, you wonder just how far off we are from a world of peak coal?

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Jay Mandle: The Politics of the Budget Deficit

April 25, 2011

The federal budget showed a surplus of $185.2 billion in 2000. By 2010 it was in deficit by $1.3 trillion. What happened? Only after that question is answered is it reasonable to discuss what we should do. The numbers are clear: between 2000 and 2010 tax revenues declined from 21.5 percent of the economy’s Gross Domestic Product (GDP) to 16.3 percent. During these same years, federal government expenditures increased from 19.6 percent to 25.4 percent. The budget surplus disappeared because revenues declined by 5.2 percent of GDP and expenditures increased by 5.8 percent. 1 It does not take much investigation to explain the contrasting trends in revenues and expenditures. The two tax cuts passed during the Bush Administration, combined with the two recessions that occurred during that administration, starved the government for funds. At the same time, defense expenditures increased dramatically — from 3.7 percent of GDP to 5.6 — while health care rose from 5.0 to 7.3 percent in 2009 (the most recent available data). This means that increased health care and military spending together were responsible for about three-quarters of the growth in government expenditures as a percentage of GDP that occurred during the last decade. Economic downturns and tax cuts, combined with increased military expenditures and escalating health care costs, were clearly the villains. Logic therefore would suggest that these are the areas that need to be corrected. The economy’s vulnerability to crises should be reduced, the Bush tax cuts rescinded, defense expenditures curbed, and the health care sector made more efficient. But as obvious as these corrective steps might seem, the dominance of wealthy special interests in our political system makes it unlikely that any of them will be implemented. Despite the financial debacle of 2007, Wall Street continues to ride high and the economy remains vulnerable to a financial meltdown. Reducing health care costs will require taking on powerful special interests in a way that the Obama Administration has shown no stomach to do. Increasing taxes on the wealthy at a time of mounting income inequality is so obviously a matter of justice that it would seem not to require much of an argument. Yet spokespersons for the elite like Arthur C. Brooks of the American Enterprise Institute recently argued in The Washington Post that increasing taxation on the rich will damage not only the economy but the meritocratic ideals upon which the country rests. 2 Then there is the question of defense spending. The fact is that the importance of the military in the American economy far exceeds that anywhere else in the world. Most Americans are unaware of that imbalance or its implications. But the fact is that defense spending in the United States as a share of GDP is at least twice as high as in any comparably developed country. In contrast to the roughly 5 percent in the United States, France stands out as the big spender in the European Community at 2.4 percent. The United Kingdom’s level is 1.7 percent. 3 This commitment to the military is particularly anomalous because the United States is a relatively low tax country. Defense spending here therefore claims a significantly larger share of the overall budget. One estimate has it that United States spends 19.3 percent of budget appropriations on the military, in contrast to 6.3 percent in the United Kingdom and 5.4 percent in France. 4 The consequence is that desirable social and labor market policies are crowded out for lack of funds much more so in this country than in Europe. The people who most need social support are the same people who pay the cost of our military expenditures. Given the configuration of power in our political system and in particular the dominant role of wealth, it is all too likely that in addressing the budget deficit, legislators will inflict a grave injustice on large numbers of people. Middle and low income households were not responsible for the budget deficit. But the programs from which they benefit that are most likely to be on the chopping block. The deficit emerged because rich people succeeded in achieving major tax reductions, Wall Street decimated the economy, the costs of health care remained exorbitant, and the growth of defense spending remained unchecked. Yet as things stand, none of these will be the object of political redress. It is at times like these — when real and important choices have to be made – that the fundamental dysfunction of a political system based on wealth is most obvious. 1. Statistics from this and the next paragraph are from the Bureau of Economic Analysis, U.S. Economic Accounts, http://www.bea.gov , Table 3.2, 1.1.10, and 3.12 2. Arthur C. Brooks, the Washington Post , April 24, 2010, p. B-1 3. The World Bank, “Military Expenditures as % GDP,” http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS 4. “How Countries Spend Their Money,” % of Total Budget Allocated to Military, http://www.visualeconomics.com

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Carlo Cottarelli: Tax Matters for Developing Countries

April 22, 2011

You hear a lot these days–not least from me–about the fiscal problems of advanced economies. But let’s not forget the fiscal problems that low-income countries face, though they are of a different kind. For all too many low-income countries, government tax revenues are far from enough to meet the needs of their people. Some have made good progress, and this helped them weather the crisis better than many advanced economies–but there is an underlying, quiet crisis of inadequately resourced governments. Nor is it just the level of revenue that matters; tax design and implementation are also critical to the efficiency of economic activity, to fairness, and to the legitimacy of the state. Sharing experiences Supporting low-income countries’ efforts to strengthen their ability to raise revenue is an important part of the IMF’s role in helping them maintain stable and growing economies. How best to do this was the topic of two recent IMF conferences: one, in Nairobi , focused on sub-Saharan Africa ; the other, with a global focus , in Washington, DC, earlier this week. In both cases, I was impressed by just how candid and frank participants–government officials as well as civil society, donors, business and academics–were about what has and hasn’t worked for them. At both events, participants made very clear their view that the IMF’s technical support has, and is, helping their countries become better governed states that are responsive to the needs of the people. But they also made very clear that ultimately the solutions to these problems must be home-grown. We want to hear your ideas too, on both our recent paper on this topic and the G-20′s request for major international and regional organizations (including the IMF) to advise them on what they could do to help. Please visit our comments page to weigh in. More than “show me the money” There was, of course, a lot of technical stuff at both events . I now know much more about the details on which revenue mobilization ultimately depends, such as taxpayer segmentation, compliance management, production sharing agreements, transfer pricing, and small business taxation, among other critical issues. But it is the broader issues that left the most powerful impressions. Four in particular stand out: (i) Strong Commitment Many low-income countries have shown strong commitment to strengthen their revenue systems, through both administrative reforms and improved tax policies. There is a lot still to do. In sheer revenue terms, an additional 4 percentage points of GDP or so was suggested needed in some low-income countries if they are meet the Millennium Development Goals . But there have also been notable successes: Tanzania, for instance, achieved a 5 percentage point increase in its revenue to GDP ratio in the decade after 2000. Such good results exemplify the need for a commitment to the reform process over the medium- to long-term; sustainable changes require continued effort, and, particularly, continued political support. (ii) Equity, fairness and good governance Strengthening revenue systems is about much more than increasing revenue. Effects on growth and efficiency clearly matter–the poor are not likely to be best served by tax systems that treat investment harshly, for instance. But equity and fairness matter a great deal too, maybe even more. They matter in themselves: after all, a main reason that low-income countries need more revenue is to finance poverty-reducing measures. And equity and fairness also matter for the legitimacy and effectiveness of the tax system: taxes that are seen as unfair will be poorly complied with. And poor compliance leads itself to actual and perceived unfairness, as only some pay their fair share. Then there are links between taxation and building modern, accountable and responsive governments overall. One reason we have long seen combating corruption in tax administrations as so critical, for instance, has been its potential value in spearheading wider improvements in public governance. Ensuring that elites are seen to pay a decent amount of tax is important in this context, too. (iii) Avoiding exemptions and preferences Exemptions and preferential treatments in tax systems are a pervasive source of revenue loss in many developing countries–as they are too, of course, in many advanced economies. Discussions at the two recent conferences made clear again that many low-income countries fully understand the misallocation of resources and inequities these create. They feel, though, largely powerless to do much about them because of both strong domestic interests and a perceived need to compete with neighboring countries for foreign investment. Increased transparency has an important role here, particularly in the form of analyzing the revenue losses associated with tax expenditures. So, perhaps, does stronger regional tax cooperation, so countries can avoid “beggar thy neighbor” tax policies. (iv) Political will But addressing inappropriate tax policies, and improving revenue administration and enforcement, is ultimately an act of political will. The trouble is–and this is my final impression–that we still know very little about this ‘political will.’ We know it is needed in order to drive through tough policy changes. And that it matters to build and support firm, even-handed enforcement. But there are many hard questions, to which we don’t yet have the answers, about where political will comes from and how to create it. Our best hope of finding the answers is by continuing the kind of dialogue we have had in Nairobi and Washington. From iMFdirect blog

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Former World Bank Chief: Gordon Brown Should Be Next Head Of IMF

April 20, 2011

WASHINGTON — A former head of the World Bank waded into a public row between Britain’s last and current prime ministers over who should be the next managing director of the International Monetary Fund. One day after British Prime Minister David Cameron offered a scathing denunciation of Gordon Brown’s qualifications to oversee the world’s economic and financial affairs as head of the IMF, James Wolfensohn told The Huffington Post that the conservative leader was still “a little bitter” over the nasty campaign his Tory Party narrowly won last election. If “internal politics” are extracted from the debate, he said, “there is no one better than Gordon Brown” to head the global fund. Brown spent a decade working as former Labor leader Tony Blair’s chancellor of the exchequer — the British equivalent of the U.S. Treasury Secretary — before becoming PM himself in June 2007. Brown was evicted from 10 Downing Street by Cameron after a hard-fought, three-way race that included Liberal Democrat Nick Clegg. The 2010 election came on the heels of the global financial crisis, which left the British — much like their American cousins — mired in a deep national debt. Cameron strongly hinted that he would block any attempt to nominate Brown to the IMF post in a BBC interview on Tuesday. “It does seem to me that, if you have someone who didn’t think we had a debt problem in the UK when we self-evidently do have a debt problem, then they might not be the most appropriate person to work out whether other countries around the world have debt and deficit problems,” Cameron said in the radio discussion. “Above all what matters is: is the person running the IMF someone who understands the dangers of excessive debt, excessive deficit?” he went on. “And it really must be someone who gets that rather than someone who says that they don’t see a problem.” Wolfensohn worked closely and often collaborated with Brown, then Britain’s chancellor, during most of his two terms as head of the World Bank, which spanned from 1995 to 2005. As head of the institution charged with promoting economic growth in less-developed countries, Wolfensohn said his personal dealings with Brown revealed he was “extraordinarily professional and very capable and knows the business extremely well.” “I don’t know why he said it,” Wolfensohn said of Cameron’s remarks. “[Brown] is extremely well-informed, always well-prepared and has vast experience.” The IMF is responsible for ensuring the stability of the international monetary system — a network of exchange rates and international payments that makes it possible for countries to transact business with one other. Brown chaired its key International Monetary and Financial Committee until 2007, and he has made no secret that he would like return as the IMF director. At the moment, though, there is no vacancy to be filled. The current head of the IMF, Dominique Strauss-Kahn, has more than a year left to his five-year term. But the speculation , which is as high as his place in French opinion polls, is that he may step down in the next few months to challenge President Nicholas Sarkozy in France’s election next year. Whether the current IMF chief serves out his time in office or resigns in the near future, the horse race to replace him is well underway. But Brown has more than digs from Cameron to contend with if he hopes to be nominated by the British government and voted in by a majority of the IMF’s board of directors . Voicing the concerns of many, financial blogger Felix Salmon said Brown “comes with way too much baggage: he’ll never be able to admit that enormous chunks of what he did as Chancellor turned out, in hindsight, to be disastrous.” The head of the IMF “has to deliver tough news about debt and deficits to heads of state around the world — and Brown simply has no credibility on that front,” Salmon wrote. “His diplomatic skills leave something to be desired as well.” Salmon endorsed Cameron’s suggestion that the IMF consider a candidate from outside Europe, where the recent economic meltdown hasn’t exactly been a ringing endorsement for fiscal know-how. The PM said prospects from rising economic powerhouses India, China or South Asia ought to be in the mix. ”It may well be the time for the IMF to start thinking about that shift in focus,” Cameron told the BBC. A European has served as managing director of the IMF since it was founded at the end of World War II, just as an American has headed up the World Bank since that time. But that arrangement is, as Wolfensohn noted, “not a rule, it’s been tradition.” It dates back to a time when most of the world’s economic output came from Western nations. The idea of expanding the pool of potential IMF directors beyond the countries in power in 1944, when the concept for the two Bretton Woods institutions was developed in the woods of New Hampshire, has been discussed before . Still, Wolfensohn said he is certain Brown is the man to carry out needed reforms. “If it were on the basis of competence, it would surprise me if others come out against him,” he said of a Brown candidacy. “If it’s on the basis of politics, then I couldn’t tell you” how it will come out.

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Naveen Jain: Our Sputnik Moment: US Entrepreneurs Needed for the "Space Race"

April 20, 2011

Fifty years ago, Russian cosmonaut Yuri Gagarin became the first man in space. It was an event that spurred on America to catch up and exceed Russia’s achievement, as President John F. Kennedy outlined in 1962: “…this country of the United States was not built by those who waited and rested and wished to look behind them. This country was conquered by those who moved forward — and so will space.” Moving forward to 2011, it looks like we’re in a similar “catch-up” position. Russia is greatly expanding its space program and is considering investing $7 billion to build a base on the Moon as part of a plan to send a mission to Mars. China’s Lunar Exploration Program has announced its intention to mine the Moon for the substance Helium-3, and the Russian government has made similar statements about its wish to harvest it. While Kennedy exhorted Americans to throw their support behind the government’s efforts to reach the Moon, President Obama has made it clear that this job now belongs to private enterprise. In his 2011 State of the Union speech, he referred to this generation’s “Sputnik moment” — that is, the realization that a foreign superpower could usurp our economic leadership position. The president has indicated that the private sector should take over the job of Moon exploration, so now’s the time to use private enterprise know-how to tap into resources beyond those of the Earth. There have been some steps in the right direction. NASA has committed $30 million to buy information that is gleaned from future missions to the Moon; the money has been contracted to six teams who are also competing for the Google Lunar X PRIZE, managed by the X PRIZE Foundation . That’s a good beginning, but government and private enterprise need additional mechanisms to find funding, and make government expenditures for data worth the investment. As Obama has logically said, NASA’s mission should focus on exploring deep space, and private companies should take on the task of building ships to carry cargo and passengers to the International Space Station, and to the Moon. Rocket companies can get in on this market, as can mining companies. The time may be right to think about going to the Moon as a business rather than a hobby. That’s the goal of Moon Express , a new company of which I am a cofounder. We’re working on building vehicles that can deliver payloads to the Moon and search the lunar surface for precious materials. Why does this discussion of space exploration matter now, especially at a time when so many problems demand our attention here on this planet? Are we trying to go back to the Moon just because we can or is there a benefit to the world in lunar exploration? The answer is the latter. Moon exploration promises to yield new energy sources that could finally break our hold on fossil fuel, and our overdependence on sometimes hostile nations that control its supply. But this time around, we don’t need to rely on government funding to fuel Moon exploration — we can encourage private entrepreneurs to take on this role. The value in Moon exploration comes in part from the presence of valuable resources such as Helium-3, a source of energy that is rare on Earth but is abundant on the Moon. It can “generate vast amounts of electrical power without creating the troublesome radioactive byproducts produced in conventional nuclear reactors,” a Popular Mechanics article explains. In addition, platinum is present on the Moon, and could be mined for use in energy applications, where it is a key catalyst for fuel-cell vehicles. If China and Russia succeed in their goals to obtain Helium-3 and other rare resources for the development of energy, the U.S. could end up relying on these countries for its own energy needs. That’s a tricky thing from a political standpoint: What happens if our relations with these countries turn sour? What happens if Russia and China decide to severely restrict the sale of Helium-3 to other countries, which will drive prices sky-high? We’ll be in the same boat that we’re in now, where we are beholden to oil-rich countries that are often in turmoil. However, if we allow private enterprise to explore and take advantage of the Moon’s resources, we may set ourselves on the road to energy independence. To re-launch our space program, we need private enterprise to step into the void. Government funding only needs to take us to the point where the technology has been developed to get us to the Moon — and we already have that. It’s a model that’s been used successfully in the past: the military first developed the Internet, and private enterprise then seized on its commercial potential; the same thing occurred with GPS technology. Naturally, there are barriers to entrepreneurs leading the charge to the Moon. For one thing, ownership is always a point of discussion — but the fact is that “everyone” and “no one” owns the Moon. Much like when mining resources from international waters (as in fishing), entrepreneurs would need to respect the rights of other business and government players. There is legal precedent for explorers finding and keeping resources that they have uncovered via private investment. There’s also the question of whether we can transport resources from the Moon in a cost-effective manner. Perhaps the cost of rocket launches — by far the greatest expense for a Moon mission — will come down as more entrepreneurs move into this market, or new technology will make them cheaper. It’s even possible to create rocket fuel from resources on the Moon, which would slash return costs and even lower launch costs from Earth. On the other hand, mining and transporting these resources back to the Earth could depress prices as supplies grow, making such ventures less appealing to entrepreneurs. As with all private market endeavors, many will want to take a wait-and-see approach to the Moon’s market potential. But therein lies the opportunity for early movers who apply entrepreneurship to the opening of whole new markets, and in the case of the Moon, a whole new world.

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Angela Haines: Immigrant Entrepreneurs Challenge the Barriers

April 19, 2011

Maria Lores-Browne, a Colombian immigrant, began dreaming about her own business during her years working as a laborer on construction sites, doing everything from pouring concrete to laying flooring. She asked herself, “How can I do this when I’m 45 or 55 years old?” So she went to school to learn how to operate heavy machinery though she was repeatedly advised “they don’t take girls.” After taking the requisite courses, she qualified to join the Operating Engineers Union, but “they were always reluctant,” she says, “to send out woman to operate equipment so they only assigned me to jobs as a watchman for construction sites.” Maria persisted because “I love running big equipment; I love the feel of the paint, the fittings, the tires, the same way many women love diamond rings.” Last fall she started Berma Construction Company. The harsh New York winter provided her with her first customer. JFK Airport hired her company to plow snow. Like Maria, who now seeks funds to purchase equipment, the biggest problems most immigrants face is access to capital. What’s particularly hard for them, says Catalina Castano, Director of the Brooklyn Small Business Development Center is that “they are unfamiliar with credit rules. Many have no credit histories, though lenders insist on credit scores. And unlike native born entrepreneurs, they frequently can’t turn to their networks for a ‘friends and family’ first round; they often can’t find a co-signer on a micro loan.” Adds Elisa Balabram, who heads a government-funded Business Center in Brooklyn, “other countries have more informal rules for doing business, so immigrants have to learn about requirements; their language problems can add to their difficulties understanding financial rules and regulations.” The Vinci Tablet Dan’s new Galaxy tablet provides an interactive learning platform with an Android operating system; it features a sturdy red silicon handle, a non toxic tempered glass screen and has no wi fi components to minimize radiation; it will be available in July. These days Dan works mainly with psychologist, educators, and artists as she develops software for her tot tablet, combining her talents in advanced technology with the creative world, a step which presumably her early teachers would have considered a more appropriate arena for women! For more on women entrepreneurs, visit www.wstartup.com

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Video: OPEC’s El Badri Says Oil Price Has $15 to $20 Premium

April 18, 2011

April 18 (Bloomberg) — Organization of Petroleum Exporting Countries Secretary General Abdalla El Badri speaks to reporters in Kuwait about oil prices and Libyan production.

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WATCH: Donald Trump’s Big Idea To Lower Gas Prices

April 17, 2011

WASHINGTON — With gas prices rising above $3.50 a gallon in all but one state , Americans are getting hit hard at the pump. But billionaire and presidential aspirant Donald Trump thinks he has the solution: Simply tell OPEC to cut prices. Trump blamed gas costs on the Organization of Petroleum Exporting Countries (OPEC), a conglomerate of developing nations responsible for 40 percent of global oil supplies . He said on CNN’s “State of the Union” Sunday that lowering the price of gas is as easy as telling OPEC’s members to do so — something he believes President Obama is incapable of. When host Candy Crowley argued that the United States can’t control OPEC, Trump disagreed, saying our country only needs “brain power.” “Candy, it’s the messenger,” said Trump. “You know, I can send two executives into a room. They can say the same thing. One guy comes home with the bacon and the other one doesn’t. And I’ve seen it a thousand times. It’s the messenger.” “We don’t have the right messenger. Obama is not the right messenger,” he continued. “We are not a respected nation anymore. The world is laughing at us. … Let me tell you, it’ll go down if you say it properly.” Trump also criticized Obama’s handling of the conflict in Libya, saying the United States should just go in there and take the country’s oil. “Either I’d go in and take the oil or I don’t go in at all,” he said. “We can’t be the policeman for the world.” He added that he would leave Libya “plenty” of oil so that “they can live very happily” as well. WATCH: Other Republican presidential aspirants have more directly blamed the Obama administration for rising gas prices. Mississippi Gov. Haley Barbour, for example, has suggested the White House deliberately drives up prices. “This administration’s policies have been designed to drive up the cost of energy in the name of reducing pollution, in the name of making very expensive alternative fuels more economically competitive,” said Barbour in a speech to the U.S. Chamber of Commerce in Washington, DC last month. On NBC’s “Meet the Press” on Sunday, Treasury Secretary Tim Geithner cited tensions in the Middle East and North Africa along with the nuclear situation in Japan for impacting gas costs. He said that high gas prices have a ” measurable impact on the economy ” by slowing the recovery process “moderately.”

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Gemma Godfrey: Libya — Oil, Water, Gold Are the Real Issues

April 15, 2011

The oil price has skyrocketed over the past few months. The finger has been pointed at the troubles in Libya and claims of supply disruptions have dominated the press. However, are these claims grounded in fact or are we watching yet another sentiment driven bubble? What are the issues we should be aware of and how should we best invest in the face of such turmoil? Expectations are often more damaging than reality Libya’s contribution to global oil production is in stark contrast to the column inches it has been awarded in the press. As quoted by the National Journal, the country produces around 2% of the world’s oil. OPEC (Organization of the Petroleum Exporting Countries) has claimed that they have managed to “accommodate most of the shortfall” and instead attribute the rise in the oil price to fears of a shortage rather than any genuine supply issues . Oil reached a 2.5 year high last Friday . This is against a flattish demand side dynamic. Paris-based International Energy Agency and the U.S. government’s Energy Information Administration left fuel demand growth for this year unchanged and OPEC only raised their forecast by a relatively small amount ( to 87.9m b/d from 87.8m b/d ) . EU Sanction: A further boost for the oil bulls On Tuesday, the EU extended sanctions against Libya to include energy companies, freezing assets in an attempt to force leader Muammar Gaddafi to relinquish power. Phrased another way, by the German Foreign Minister, this is a ” de facto embargo on oil and gas ” . Approximately 85% of exports are for delivery to Europe and importers will now have the task of finding potentially more distant and/or expensive alternative sources. The pent-up downside risk Nevertheless, many are not paying attention to the downside risk to the oil price as we move forward. Libya has Africa’s largest proven oil reserves but 75% of the country’s petrol needs are met with imports because of limited refinery capacity . Any improvement on this front, if a regime change is eventually secured, could therefore significantly reduce imports and boost global supplies. Is water the next oil? In addition to oil reserves, one asset belonging to the Libyan government which is rarely mentioned is an ability to bring water to the desert. With the largest and most expensive irrigation project in history, the $33bn GMMR (Great Man-Made River) project, Libya is able to provide 70% of the population with water for drinking and irrigation . The United Nations estimates that by 2050 more than two billion people in 48 countries will lack sufficient water , making this an enviable asset indeed . How can the US pay for the Libya intervention? It is interesting to note, with all the claims being made that the intervention is oil motivated that, Libya has another form of ‘liquidity’. According to the International Monetary Fund (IMF), the country’s central bank has nearly 144 tonnes of gold in its vaults … How to best invest: Retain context The tide is starting to turn, Goldman Sachs has called the top for commodities in the near-term and oil fell by 4.5% on Monday and Tuesday alone (Source Bloomberg) . With this amount of volatility, short term noise can sometimes overwhelm. For a long term investor, looking for steady and stable returns, an ability to cut through the sentiment (whilst acknowledging it’s importance in driving returns in the shorter term) is valuable. Often many factors are at play and it will ‘pay dividends’ to be well-informed as they become wider known and priced in by the markets. Knowledge may be king but preparation will come up trumps .

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Nathan Newman: Is Google Cruising Towards a Legal Meltdown?

April 14, 2011

Remember when the big financial companies were masters of the universe, making money hand-over-fist, and widely respected for their “innovation”?  And then it all came crashing down in a financial crisis that exposed the fact that their profits were built on illegal or near-illegal shady dealings that were unsustainable — and when those subprime antics were removed undermined their whole business structure? Enter Google, whose string of legal scandals could be taking it down a similar road. This is company who’s former CEO, Eric Schmidt, described Google’s approach this way:  ”There is what I call the creepy line. The Google policy on a lot of things is to get right up to the creepy line and not cross it.”  The problem is that Google keeps crossing the line, both on the creepy and legal scale. The latest example is a Department of Justice report that Google lied about having the proper government security certification when it applied for a multi-million dollar government contract to sell its Google Apps for a Government product to run email and online collaboration services for the Interior Department. During an investigation, the DOJ found that the product lacked what’s known as Federal Information Security Management Act (FISMA) certification, “notwithstanding Google’s representations to the public at large, its counsel, the GAO (Government Accountability Office) and this court.”  Such misrepresentation in a government contract opens opens the company to significant legal liability, including potentially violation of the federal False Claims Act. Google then tried to claim that its false representation was okay since a different if similar product had been certified by a different agency, the General Services Administration, as FISMA-compatible. At a Senate hearing on government waste , a GSA official asked about Google’s defense responded that, “when a product changes, you have to re-certify it.” Senator Tom Carper, overseeing the hearing from his position as chair of the committee that largely oversees government contracting, tweeted the following after the hearing: Mounting Legal Issues: The FISMA investigation follows just one week after Google agreed to a settlement with the Federal Trade Commission over charges that the company used deceptive tactics and violated its own privacy promises to consumers when it launched its social network, Google Buzz, in 2010. From the  FTC’s own release on its action : The proposed settlement bars the company from future privacy misrepresentations, requires it to implement a comprehensive privacy program, and calls for regular, independent privacy audits for the next 20 years. This is the first time an FTC settlement order has required a company to implement a comprehensive privacy program to protect the privacy of consumers’ information. On top of lying to the Interior Department in applying for a contract and “privacy misrepresentations” to customers in the Buzz launch, you have the accumulated accusations of antitrust violations and Congressional calls for followup investigations against the company.  These complaints range from manipulating search results to shut out competitors, violating customer privacy for anti-competitive purposes, and exclusive deals to undermine competition.  The Federal Trade Commission and Department of Justice are already jockeying over who will lead the antitrust investigation of Google, even as Congressional leaders push for investigations, individual U.S. states are launching their own investigations, and Europe already has an antitrust inquiry moving forward. Global Wi-Spy Privacy Investigations : And then there’s the Wi-Spy scandal , where Google snooped on millions of individuals’ private emails and other personal information all over the world with Google Street View cars accessing information through private wi-fi routers.  Not only did Google track, street-by-street, each wi-fi SSID name and MAC addresses for routers, they were scooping up full emails, instant messages and other data. Other countries have already investigated Google and a number have convicted and sanctioned the company for its privacy violations. France last month found Google guilty of significant privacy violations through its wi-fi spying and fined the company for its actions. The United Kingdom  concluded that Google’s actions was a “significant breach” of the U.K. data protection law and required Google to sign a binding commitment to prevent future breaches and agree to an audit of its data protection practices. Authorities in Spain, Canada, New Zealand and other countries have made similar findings, leading each to conclude that Google’s conduct violated consumer privacy rights. In May 2010, German prosecutors based in Hamburg opened a criminal investigation into Defendant’s conduct. This January in South Korea, police seized hard drives from Google and found Google’s Street View project  had “harvested and stored hundreds of thousands of e-mails, instant messages and other personal data,” including consumer passwords and consumer data, from 600,000 South Koreans, When police anywhere are displaying your hard drives to the media like bricks of cocaine (see linked picture from South Korea), your legal problems are spinning a bit out of control. Coverup and Stonewalling: Adding to the anger at Google’s actions have been a pattern of shading the truth and stonewalling when pressed for answers. When Google first launched Street View in May 2007, it promised that “Street View only features imagery taken on public property.” But people rapidly  began complaining that Street View images were showing intrusive images. Google never mentioned plans to monitor any kind of electronic communications, and then when authorities discovered in 2010 that Google was collecting more than pictures, Google stonewalled investigators with minimal information. Then Google claimed that it only collected “fragments” of such data.  And when authorities began finding complete emails and other personal data in Google’s data collected from homes, Google then argued that a single engineer was to blame for the global privacy breach against millions of people on six continents. And then it turned out Google had filed for a patent years ago to — guess what? — use accessing personal information on home wi-fi routers as a tool to strengthen its geolocation mapping systems. So the Wi-Spy concept was hardly the brainchild of a single engineer at Google. U.S. Investigations Gaining Speed: While U.S. authorities have been slower to fully investigate Google than other countries, those investigations seem to be gaining speed.  Richard Blumenthal helped pull together the beginnings of a multi-state investigation of the Wi-Spy scandal last year when he was Connecticut Attorney General and now as a U.S. Senator, he has called for investigations into Google over the issue, saying, “clearly there was some illegality, whether intentional or inadvertent” in the company’s use of Street View  car to collect personal data over wi-fi networks.  Members of the House have also been pushing for FCC investigations over the issue as well. When Google was caught in February collecting social security information from children participating in its national “Google Doodle” art contest, it just helped fuel further outrage.  Reps. Ed Markey, D-MA, and Joe Barton, R-TX, co-chairmen of the House Bi-Partisan Privacy Caucus, said they would pursue hearing s on the issue, calling Google’s actions “unacceptable.” Congressman John Barrow, who has been active on the Google issue, just yesterday put out a release and detailed letter about Google’s recent “deceptive and intrusive practices,” using the examples of Buzz, Wi-Spy, and Doodle for Google,that requests that the House Energy and Commerce Committee launch an investigative hearings into Google’s consumer privacy standards. And with an antitrust action likely to pull together the various strands of Google misconduct into a more comprehensive investigation, the legal problems for Google may only be beginning. How Bad it Could It Get? Now, all of this could end up with a series of minor sanctions against Google, a la the recent Buzz settlement, with a few constraints on Google’s actions but no fundamental shift in its business life. But if the financial meltdown taught us anything, it’s that straight-line projection from the past is a poor guide to the future. Google’s whole business model is utterly dependent on trust — on people and businesses trusting Google with their data and with the company being trusted as a fair arbiter of search results.  If that cracks, whole sections of its business might fall apart. In Germany, the backlash against Google’s Street View project has been so strong that 240,000 Germans demanded the company obscure their homes from its database.  Partly in response to government  requirements that Google warn residents of future visits by the Google Street View cars, Google this week announced it was ending new  Street View photography in Germany .  The German Interior Minister is talking about extending similar protections to other data collected online. The endpoint of such an approach is in the Lower Saxony state government in Germany, which is moving to make it  illegal to pass along IP addresses of web visitors to a third party without their permission: “The Lower Saxony authorities recently  ordered German web marketer Matthias Reincke to remove Google’s AdSense and an Amazon widget that features books from the US online retailer.”  This means that even software like Google Analytics, which generates detailed statistics about visitors, violates German law. When AdSense and other web tracking are in the crosshairs, Google’s whole business model is in jeopardy Regulation Can Save Google from Itself: The alternative is reasonable regulation to protect consumer privacy and rein in Google’s continual legal overreaching. To return to the analogy to the financial sector, decent financial regulation would have protected consumers, but it also would have protected the financial firms from their own worst sub-prime excesses. InfoWorld’s Ted Samson chalks up Google’s continual rule skirting and lawbreaking to a “startup culture”  where the company still has “insufficient internal checks and balances to prevent the powerhouse that is Google from inadvertently doing damage to its customers, its partners, and itself as it wields its might.” The good news for consumers and ultimately Google is that there is an emerging consensus to push forward legislation and regulatory policies that will restrain Google’s worst tendencies without preventing it from deploying the technological prowess it has demonstrated in legal ways. The privacy legislation introduced this week by Senators John Kerry and John McCain could be one step in that direction (especially if it’s beefed up with additional privacy protections).  Combined with an antitrust investigation that restrains some of Google’s worst anti-competitive operations, we could see a pathway to enacting a regulatory model that encourages Google to act as the public institution it’s become, not the wild-child startup it was ten years ago. Crossposted from Tech-Progress.org

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Robert E. Scott: Putting U.S.-China Trade in its Proper Perspective

April 11, 2011

An April 7 column in the New York Times Economix blog highlighted the rapid growth of U.S. exports to China, which look impressive in isolation. But this is a biased and one-sided view — exports have been overwhelmed by the growth of U.S. imports from China and the bilateral trade deficit, as shown in the graph below. When trying to assess the costs and benefits of the U.S./China trade relationship, counting only exports is like judging a baseball game by only counting runs scored by the home team. It might make you feel good, but tells you nothing about who is winning or losing the game. Properly measured, U.S. imports from China were $364 billion in 2010, vs. domestic exports of only $85.8 billion (excluding transshipments of goods from other countries), for a trade deficit of $278.3. Even when goods made in other countries are included with U.S. exports, the deficit in 2010 was $273.1 billion, substantially more than estimates reported by the Times (“$180 to $250 billion”). A sizable share of U.S. exports to China is raw materials used to produce goods that are re-exported back to the United States. Four of the top six industries producing exports are waste and scrap products, semiconductors, resins and synthetic rubber and fibers, and basic chemicals. Sectors such as cash grains (the top export commodity) and waste and scrap support very few U.S. jobs. Such trade may be good for U.S. multinational companies (MNCs), but provides few benefits for the domestic economy. Overall, the large and growing trade deficit with China has displaced millions of U.S. jobs , most in the manufacturing sector which has lost 5.5 million jobs since 2000. The Economix report relies on data published by the U.S. China Business Council, a trade association representing MNCs doing business in China. These firms have profited enormously by outsourcing production to China. China has subsidized these firms through massive currency manipulation, which reduces the costs of their exports by 25 to 40%, and by pouring tens of billions of dollars into subsides of products like steel , glass and paper products . U.S. MNCs should not be allowed to dictate U.S. trade policy. The U.S. needs to get tough and demand that China and other currency manipulators revalue their currencies and end other unfair trade practices. Nibbling around the edges with a WTO case for one sector and import surge protection for another will not get the job done. The U.S. should start by threatening to impose large tariffs on all U.S. imports from currency manipulators.

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Will the ECB Rate Hike Signal Further Deterioration in Euro-zone Periphery Countries?

April 7, 2011

Will the ECB Rate Hike Signal Further Deterioration in Euro-zone Periphery Countries?

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Jane White: Did the American Dream Emigrate to Europe?

April 6, 2011

Mickey D’s recent announcement that it’s hiring 40,000 workers bodes ill for the future of job growth in America. According to the National Employment Law Project , while 40% of the jobs lost in the recession were in high-wage industries only 14% of new jobs created were, with 49% of new jobs paying less than $15 an hour. In other words, Mickey D’s job growth is very likely driven by laid-off factory workers who need to grab McMuffins on the way to their new lousy jobs at Wal-Mart that they were forced to take when their unemployment benefits ran out. When globalization is discussed it’s usually focused on the outsourcing of factory and service jobs to low-wage emerging markets such as China and India. But the bigger news that’s rarely covered is that high-wage Europe is not only overtaking the U.S. as the global leader but as a leader whose corporate chieftains actually pay its rank and file decently, provide them generous benefits and tend not to “divorce them,” i.e., lay them off when economic times are challenging. Americans can smugly dismiss the European Union’s role as merely the bailer-outer of dysfunctional countries, i.e., Portugal, Ireland and Greece. But the more significant news isn’t just that the New York Stock Exchange has been bought by NYSE Euronext and Deutsche Borse, but that as of 2007 the value of the European stock market surpassed that of the U.S., according to the excellent book Europe’s Promise: Why the European Way in the Best Hope in an Insecure Age , by Steven Hill. Not surprisingly, the rising value is reflective of the fact that the European Union is now the world’s wealthiest trading bloc, accounting for nearly a third of the world’s economy — almost as large as the U.S. and China combined, says Hill. From 2000 to 2005, Europe added jobs faster than the U.S., posting higher productivity gains and enjoyed a $3 billion trade surplus. Oh, and these Europeans pay high sales and income taxes. Take that, Rep. Paul Ryan! Not only did Germany overtake the U.S. as the world’s largest exporter in 2005, as pointed out in a 2006 Newsweek article entitled “Europe is a House Divided,” but it did so by selling high-quality/cost goods produced by generously compensated workers — its average hourly wage is $48, compared to $32 in the U.S. A little-discussed feature of the European Union is that it’s a partnership between large employers and their workers, not just between countries. Since 1994 when the EU issued a directive on works councils, defined as “composed of both employer and employees convened to discuss matters of common interest,” every multinational company with at least 1,000 workers within the EU and 150 workers in each of two or member states must negotiate agreements with works councils if employees petition the employer to create one, Susan Ladka writes in a June 2005 HRMagazine article entitled ” Working Together .” Works councils not only enjoy veto power over job losses but have the right to meet with management to discuss mergers and the introduction of new technologies, says Hill in Europe’s Promise . In fact, works councils existed long before the EU did. According to a 2001 article in The Economist , ” Europe: You’re Fired ,” Germany had them after the Weimar Republic and after 1945 required any company with more than 500 employees to have a “supervisory board, in which workers hold one third of the seats. A few decades later, other countries in Europe followed suit, including Austria, France, Belgium, the Netherlands, and Sweden. While the UK resisted the notion at first, because, as The Economist put it, the British approach is “sack ‘em now and argue afterwards” — it ultimately passed local works council legislation a few years ago to meet a 2005 EU deadline, Ladka writes. Incredibly, as far as I can tell, no discussion or debate about creating works councils has ever taken the place within “sack-’em-now” American workplaces, much less on Capitol Hill. So our counterparts in Europe are enjoying American-style prosperity while continuing to receive European style benefits, including health care, a free or cheap college education, pensions, and generous unemployment benefits. Our biggest French fan, Alexis de Tocqueville, once said that , “The greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.” Ironically enough, she need to rip some pages from the European playbook to figure out how to restore the American dream.

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Obama Rejects Tax Increase On Big Business

April 6, 2011

WASHINGTON — As Congress grinds closer to shutting down the federal government and the White House floats proposals to cut social services for working families, big business is gearing up to try to win yet another budget battle: overhauling the corporate tax code. However the current budget tussling between President Obama and congressional Republicans ends, corporate titans and their lobbyists appear poised for a big victory at the expense of the American middle class. President Obama said he hopes to eliminate many corporate tax loopholes during his State of the Union address, but he also pledged to cut the overall corporate tax rate — a joint policy the White House has billed as “revenue neutral,” meaning it will neither increase or decrease overall corporate tax receipts. The administration has not yet outlined which loopholes it wants to close or how far it wants to push down the tax rate. Buoyed by the prospect of a business-friendly tax overhaul, however, the Business Roundtable and other high-powered corporate lobbyists are using tax reform negotiations to push for more offshore tax breaks and official federal forgiveness for tax avoidance schemes. They got a big boost on Tuesday when House Budget Committee Chairman Paul Ryan (R-Wis.) pledged to actively reduce corporate taxes in his fiscal 2012 budget proposal, which would also do away with or fundamentally change key social services, including Medicare. Ryan’s sweeping budget plan generated fierce opposition from congressional Democrats. But it may spark renewed enthusiasm for using the December released bipartisan deficit commission report as a starting point for long-term budget negotiations. The corporate tax reform proposed by the commission would permanently push popular offshore tax shelters beyond the reach of Uncle Sam — very bad news for legislators, economists and average citizens hoping to see big companies play a bigger role in helping to narrow the budget gap. A bipartisan group of senators is already engaged in talks based off the report, and, in the wake of Ryan’s budget proposal, Third Way , a centrist Democratic think tank with close ties to Wall Street, is pressing lawmakers to hammer out a compromise largely based on the commission’s recommendations. The push for lower corporate tax rates comes during a flush time for corporate America. Overall corporate taxes as a share of GDP are hovering around one percent, the lowest share of GDP since World War II. “At a time when cuts to access to college, cuts to scientific research are on the table, it makes no sense to take corporate taxes off the table,” said Chuck Marr, Director of Federal Tax Policy for the Center on Budget and Policy Priorities, a left-leaning think tank focused on economic issues. “The country is just starting this process of deficit reduction, and there are going to be some wrenching choices.” A senior Treasury official defended Obama’s push for a revenue-neutral corporate tax overhaul in a recent meeting with reporters, contending that the main threat to today’s economy isn’t low corporate tax rates, but the possibility that higher tax rates will force companies to decamp abroad. The Treasury official requested anonymity in order to speak candidly about rationales for the department’s economic policy proposals. Both Obama and congressional Republicans have repeatedly emphasized that the official tax rate for big corporations of 35 percent is high relative to other nations, but the actual tax bills companies pay are much lower, thanks to the use of special exemptions, tax havens and other sweeteners sprinkled throughout the tax code. According to a 2007 study by George W. Bush’s Treasury Department, the average American company actually pays a tax rate of just 13.4 percent — lower, for example, than France, Portugal, Spain, Japan, Canada, and Switzerland, and less than half the average rate paid in the United Kingdom and Australia. This, despite the fact that, according to the study, the U.S. had one of the highest official rates in the industrialized world. Tax experts say that no meaningful corporate tax overhaul, revenue neutral or otherwise, can allow companies to continue stashing money in offshore tax havens– a creative accounting tactic that allows big firms to avoid paying $50 billion in taxes every year, according to the U.S. Treasury. Gauging the specific amount of taxes lost to offshore accounts is difficult, however, and reform advocates say the number could be even bigger. “Anybody who tells you that they do know is probably full of it,” said Jack Blum, a Washington attorney who chairs Tax Justice USA, a tax code reform group. “The problem is that people don’t report what they don’t pay in tax, so it’s very, very hard to tell how much money we’re losing. For a long time administrations went out of their way to make certain that no data was collected.” For years, progressive lawmakers and tax policy advocates have targeted tax havens as hotbeds of federal budget abuse. Companies can register profitable enterprises at an address in the Cayman Islands– even if it actually does business on Wall Street — and voila: so long as companies leave their profits in the Caribbean, their taxes can be “deferred” indefinitely. “It’s the number one issue, more important than anything I can think of,” said Bob McIntyre, a long-time tax reform advocate who works as Director of Citizens for Tax Justice, a non-partisan research organization dedicated to progressive taxation. According to a 2008 report by the Government Accountability Office, 83 of the 100 largest U.S. companies operate subsidiaries in nations that the government watchdog considers tax havens. All types of firms indulge, from telecommunications giants to retailers to banks. Wall Street is particularly aggressive; at the time the GAO report was issued, just six American banks were operating more than 900 such sub-companies. The few lawmakers with the audacity to propose a crackdown on offshore havens say that it would be politically impossible to secure without bestowing other tax benefits on companies. Last year, Sen. Ron Wyden (D-Ore.) and then-Sen. Judd Gregg (R-N.H.) pushed legislation to overhaul the entire tax code for both individuals and corporations. The effort would have ended deferred tax shenanigans, but in order to bring any Republicans on board, the bill had to be revenue neutral, according to Jennifer Hoelzer, a Wyden aide closely involved with the talks. “When you start talking about raising revenue, that just enters in more controversy than you need at the moment,” she said. Although the Wyden-Gregg legislation went nowhere last year, it included some provisions that could be used to build political support for another tax reform push. Under that plan, average voters would get a tax break, giving them a stake in a debate that is otherwise simply a battle between muscular corporations and other firms unable to more fully exploit tax perks. “When we do something big like tax reform . . . people need something to show for it at the end of the debate,” Hoelzer said. “For us, when we did both corporate and individual reform at the same time, the average tax filer gets a tax break at the end of it. You want to give people a reason to root for something.” A major concern for those hoping to require corporations to help narrow the deficit is a plan being floated by the Business Roundtable, a lobbying group representing CEOs of the largest American companies. The Business Roundtable plan would make all international revenue from U.S. firms, including money stashed in Caribbean tax shelters, becomes permanently nontaxable. The Business Roundtable declined to comment for this story, but its website claims that moving to a permanently untaxed foreign income system– known as a “territorial” plan among tax experts — is vital to making American business competitive with firms in other countries. Many economists beg to differ. “Those offshore affiliated corporations have no economic reality,” said University of Texas Economist Calvin Johnson. “Cayman Islands is a suburb of Greenwich, Connecticut and ought to be treated that way. It has no independent life or meaning.” The Obama administration is already backpedaling in the face of this lobbying push. In a Tuesday hearing before a Senate subcommittee, Treasury Secretary Timothy Geithner said that the administration would consider granting a one-time tax holiday for corporations who stash money in tax havens, if it were part of a “comprehensive” tax reform project. Geithner did not specify what else should be included in such a comprehensive overhaul, but reiterated that the administration is committed to a “revenue-neutral” plan. A bipartisan group of six senators is currently attempting to cut a deal on narrowing the deficit. The group includes Sens. Richard Durbin (D-Ill.), Kent Conrad (D-N.D.), Mark Warner (D-Va.), Tom Coburn (R-Okla.), Saxby Chambliss (R-Ga.) and Mike Crapo (R-Id.). A spokesperson for Chambliss said the group has no proposal yet and is still working out legislative language. None of the other senators would comment. But a source close to the talks, who requested anonymity because negotiations are ongoing, said that corporate tax reforms would be based on recommendations from Obama’s Fiscal Responsibility Commission . The Commission called for eliminating four categories of corporate tax breaks, while exempting offshore tax havens by adopting the “territorial” tax policy now being pushed by the Business Roundtable.

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David Nordfors: The "Innovation for Jobs" Chasm

April 4, 2011

“Innovation for jobs” is hamstrung by silos in governments and media, say Sven Otto Littorin , Swedish Minister for Employment 2006-2010, and David Nordfors , co-founder of the Stanford University Center for Innovation and Communication, suggesting principles for a Competitive Democracy. Sweden handled the latest financial crisis better than most nations. Its growth rate is among the OECD’s highest, the budget deficit should become a surplus in 2011, and unemployment is declining to 5%. What does the Swedish example show us, and what lies ahead? Sweden combined fiscal prudence with labor activism. The economy would have fared even better had labor and innovation policies meshed. Politicians have started to discuss innovation as a job creator. This is logical. Innovation is the main driver of economic growth. But are countries organized to do anything about it? We think not. All mature economies have ageing populations. Labor markets are growing too slowly to cope with future challenges. Governments face the same dilemma as households: cut spending or raise income. How should governments help people create wealth for each other? For laymen, this is a relatively easy question. For experts, it is complex and delicate. The simple solution: everyone, of any age or health, can create value for others. We ‘only’ need an economy that permits it. The complex solution: today, many people able and willing to create value cannot enter the labor market because the economy is not organized to include them. The resources and the system are mismatched. Resources must be identified; systems, business models and policies must be designed to use them. Old best practices and policies may be enablers or obstacles. Each mechanism for creating or distributing value involves an ecology of stakeholders who resist change. So it is as vital to unleash human resources excluded from the economy as it is to innovate — the process of turning ideas into new value in the market. Introducing new value will always be challenged by powerful stakeholders. Countries are struggling to implement major, politically difficult reforms to increase their labor pools. After the 2006 election, the Swedish government introduced a system of earned tax credits. The unemployment-insurance and social-security systems were reformed to get people back to work. In the late 1990s, major pension reform helped to increase the number of older people in the labor market. These reforms were controversial. Reforms are rarely introduced in good economic times, as it is hard to find public support for their perceived negative social consequences. In bad economic times, governments must solve other, short-term problems. Most countries that introduce reforms have experienced the same public reactions: demonstrations, labor-market conflicts, poor opinion polls and final election defeat. Sweden’s lesson is two-fold: reforms work, and work even better if introduced early in the election cycle. But reforms to increase labor supply are not enough. Economic theory shows that long-term growth is determined largely by technological improvements and innovation. The core questions: can innovation-driven productivity growth be diverted into job growth? What policies can make this happen? What are the long-term effects on growth and prosperity, and on government finances? We believe that a main reason for the lack of sufficient benefits from innovation lies in failing institutions and how we organize innovation policies. It’s a structural issue. Politics is governed vertically; departments and ministries are often separate and in most countries budgeting is the only horizontal governmental process. Yet even the budget process is vertical, as ministries depend on the Ministry of Finance for funds. In many countries innovation policies are lost between these vertical ministries. In some cases, innovation policies are seen as a part of the Ministry of Education but are lost in the academic maze. In other countries, innovation strategies belong in the Ministry for Industry, which often faces more important short-term issues. In both cases, theories on how and why innovations evolve have become more important than their effect on growth and their political impact. Labor-market policies, in turn, deal with increasing labor supply in good times and handling hordes of unemployed in bad times. Nowhere have innovation policies become integral to fighting unemployment and exclusion from the labor market. Unfortunately, journalism has the same vertical structure as politics. Journalists covering labor markets rarely cover innovation, and vice-versa. Verticals in politics and journalism reinforce each other, making it harder to bridge innovation and labor markets for the common good. Without horizontal political debate and enlightened journalism to create bridges, innovation has become too academic and theoretical. Building models to understand technological growth has come to overshadow its importance for economic growth. Innovation policies must be integral to job creation. Today, little collective knowledge exists on how to do so, what policy reforms can do or how decision-making is affected in our respective countries. Combining innovation and labor policies is a complex issue, an open-ended challenge, with no clear definitions or solutions. Finding the right questions is as difficult as finding suitable answers. Therefore, any decision-making system that postulates solutions to these unfamiliar problems, tailored by and for existing silos, executing these solutions linearly top-down, will most probably be ramming square pegs in through one ear and out through the other. Policy makers must interface specialized knowledge with broader perspectives, mix disciplines and bridge cultures. The challenge is similar to modern innovative product design, continously defining, researching, ideating, prototyping, choosing, implementing, and learning. By iterating this process in multidisciplinary teams, working across the borders of innovation and labor policy, problems can be framed, the right questions can be asked, more ideas can be created, and the best answers can be chosen. The steps aren’t linear; they can occur simultaneously and can be repeated. We conclude by suggesting some principles for developing the necessary collaborations that can fuse innovation and labor policies, and make a democracy competitive in the global innovation economy. A mindset: Innovation is a process which needs investment — in research and development as well as in individuals. Job creation creates return on investment by letting more people creating more value. For innovation policists: We need to continuously develop reliable, quantifiable ways to agree on the success of innovative entrepreneurship in terms of sustainable improvement in job creation, inclusion and job satisfaction. For labor policists: We need to continuously develop reliable, quantifiable ways to agree on the success of job creation in terms of improvement in economic growth and fiscal balance. For politicians and economists: We need to continuously develop reliable, quantifiable ways to agree on the success of combined innovation and job creation in terms of sustainable improvement of the things that matter to people: family life, harmonious communities, physical and mental health, life long learning, creativity, aesthetics, and happiness (there are indexes for that, too). For journalists, writers and communicators: We need to continuously develop new common, relevant, simple language for discussing the connection between innovation, labor and quality of life, in such a way that it facilitates constructive interaction across silos, and enables democratic and business leadership to compete for mandate from citizens, shareholders and customers, maintaining checks and balances, and improving value creation for the constituents. For all: Try to leverage on “us and them”, rather than getting locked in “us or them”. Creativity and innovation works best, and yields the highest returns, with as few borders as possible. Protectionism and barriers to the free flow of ideas and people should be dismantled. The combination of innovation and job creation is by its nature the opposite of a zero sum game. A competitive creative player will always benefit from interaction with others, even if some encounters result in a loss. A set of competitive creative players can all win, if a zero-sum game is avoided. Sven Otto Littorin David Nordfors Visiting Scholar, Center for Innovation and Communication, Stanford University Minister for Employment of Sweden 2006-2010 President, European Council of Ministers (EPSCO) 2009 Founding Executive Director, Center for Innovation and Communication, Stanford University

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Edward D. Kleinbard: The Global Tax Avoidance Dance

March 31, 2011

America’s most successful multinationals make great products and offer superior services. But they have another, less enviable quality in common — they have become world leaders in tax avoidance. General Electric’s global effective tax rate for 2010 was 7.4% . Pfizer’s was 11.9% ; Cisco came in at 17.5% . The nominal U.S. corporate tax rate is 35%. Each company has its own tax story, but all — like other multinationals — have for years relied heavily on low-taxed foreign income to drive down their worldwide tax obligations, including those of their U.S. businesses. American multinationals claim they are taxed on their worldwide income, but in reality the “active” income they earn through foreign subsidiaries is not taxed in this country until the cash is repatriated. In addition, financial accounting practices (the lens through which we view these firms because their tax returns are not public) permit a company not to book any U.S. tax liability on foreign earnings if the firm states that the income is “indefinitely invested” abroad. General Electric has $94 billion in indefinitely reinvested earnings. The total for corporate America is more than $1 trillion. 
 If the story was simply that U.S. firms have successfully expanded into international markets and are paying taxes abroad at lower rates, one could argue that there is no U.S. tax mischief afoot. But these are not the facts. Tax collectors in the U.S. and in high-tax foreign countries are the direct victims of the tax avoidance, but we all suffer from the resulting budget deficits and distorted investment decisions that firms make as a result of their ability to generate what I call “stateless income” — income derived from selling goods and services in a high-tax country but that, through internal tax legerdemain, surfaces in a low-taxed affiliate. What’s going on is a highly choreographed six-step dance. Step 1: U.S. firms rely on aggressive “transfer pricing” to sell, at bargain prices, high-profit U.S. assets or business opportunities to their low-taxed foreign subsidiaries in countries like Ireland. It cannot be simply the luck of the Irish that explains the extraordinary profitability of the Irish subsidiaries of U.S. firms relative to their European sister companies. Step 2: U.S. multinationals move income from higher-tax foreign countries, where their customers actually are located, to lower-taxed ones not only through transfer pricing but also through “earnings stripping.” For example, a corporation funds its German subsidiary with loans secured in Ireland, so the interest is deductible in Germany. Step 3: Not satisfied with low corporate tax rates in Ireland (12.5%) or in other countries, U.S. firms set up exotic internal funding structures — with such names as “Double Irish Dutch Sandwich” — to shift income from these countries to zero-tax havens like Bermuda. Step 4: Firms arbitrage what remains of their U.S. tax base by parking their global external-debt financing here, which creates interest deductions to shield their U.S. income. They then overstuff their low-taxed foreign subsidiaries with equity capital. Step 5: Having put their stateless-income generating machines in motion, U.S. firms let their ultra-low-taxed foreign income accumulate abroad. Microsoft, for example, has accumulated $29.5 billion in offshore indefinitely reinvested earnings. Its financial statements suggest that its effective foreign tax rate from selling its products and services to customers located primarily in populous and relatively high-tax countries is in the neighborhood of 4%. Step 6: With more than $1 trillion in low-taxed earnings offshore, the firms complain to Congress that U.S. tax law impedes their ability to reinvest their foreign earnings back home because they have not yet paid U.S. taxes on them. They demand a special tax holiday from Congress so they can complete the circle and repatriate all those earnings at nominal cost. All this tax engineering has yielded tax burdens that bear no relationship to tax rates in the United States or in the populous foreign countries where the firms actually have personnel, real investment and customers. It’s true that the U.S. corporate tax rate, at 35%, is too high relative to its economic peers, about 28% on average. ( Click here for data on the 31 member states of the OECD; the 28% figure is an unweighted average of the larger OECD members. Click here for the “BRICs” and other non-OECD countries.) But the solution is not to reward U.S. multinationals for concocting and implementing worldwide tax-minimization schemes. The only feasible solution is to lower the U.S. rate to a level comparable with global norms and to pay for the reduction in part by introducing worldwide tax consolidation for U.S. firms, just as they today consolidate their worldwide operations for financial accounting purposes. Edward D. Kleinbard, a professor of law at the University of Southern California Gould School of Law, is former chief of staff of the U.S. Congress’ Joint Committee on Taxation. The facts and arguments in this piece are abstracted from two recent papers authored by Prof. Kleinbard: Stateless Income and The Lessons of Stateless Income . 




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Gilbert B. Kaplan: Apply the Obama Doctrine to the Trade Problems With China

March 29, 2011

We have one trade problem in this country that so far surpasses every other one that it is almost not worth talking about any of the others. The problem is Chinese subsidy practices, and our resulting $260 billion sustained trade deficit with China. The problem has recently taken on a new, more dangerous bent. First, China has made it increasingly clear they are not going to do anything about their undervalued currency . One aspect of the currency problem has been much talked about — how it makes Chinese exports to the United States very cheap and our exports to China uncompetitive. But it is now clear that the Chinese undervaluation has an even more nefarious and dangerous and long-term effect. It is a big driver forcing U.S. companies to leave the United States and relocate to China . This is because of the simple reason that a relatively “overvalued” dollar goes much further in China building plants and buying inputs and paying workers, than it does in the United States. This is not just a question of very low wages in China, it is about the additional accelerant of low cost renminbi making already low wages and cheap inputs even cheaper. So U. S. companies cannot afford to stay in the U. S. And once they leave it is very unlikely they will ever come back. The other development is a Chinese government pronouncement late last year that they are pumping subsidies of $1.5 trillion into seven strategic industries . The money will be going to the same emerging industries that President Obama and substantially every governor in the United States touts as the “industries of the future” that will rescue the United States from its high unemployment and anemic growth. The industries include information technology, environmental protection, new forms of energy (read wind and solar), biology, and new materials. On average that’s $214 billion per industry, and this leaves even the best U.S. companies with a choice. They can stay in the United States and scrap for the few million dollars the local communities and states and Federal government might provide. Or they can pull up stakes, go to China, and get their share of the $1.5 trillion being passed out over there. The Chinese, by the way, have no problem giving their money to U.S. companies, if the U.S. companies will put their plants up in China and turn over their technology. Unfortunately, even for the most patriotic CEO’s and Boards of Directors, this is an offer that is almost impossible to refuse. President Obama has not done nearly enough about this. There is no unfair trade strike force to fight back against Chinese subsidies. There’s no application of the countervailing duty (anti-subsidy) law to Chinese currency undervaluation. There’s no new trade legislation being proposed to modernize our laws, despite the fact that our last major trade law reforms occurred in 1994, 17 years ago. Why is this? I suspect that one reason is that President Obama does not want the United States alone to bear the brunt, economically or in terms of foreign policy, of standing up to China. All the Treasury bonds held by China, all the U. S. companies already substantially invested there, the Chinese spot on the U. N. Security Council, all militate against this much needed aggressive posture on trade. But I urge the president to take a lesson from himself, and apply the reasoning of Monday night’s speech on Libya to the international trade arena . The President should work on building an international consensus to deal with Chinese subsidies. He should direct his trade officials to meet intensively with other countries to kick-off this initiative. I think he would find allies for this effort in the European Union, and in Mexico, Turkey, Argentina, Canada, Brazil, and Japan, among other countries. I have talked to trade negotiators and industries in all these countries and they share our concerns. None of them want to see their industries moving to China, particularly the emerging industries of the future. Conveniently, Secretary of the Treasury Tim Geithner is going to Nanjing, China this week to meet with the G-20 leadership to discuss global economic issues. He should take the opportunity to meet off-line with like minded G-20 leaders and should focus on two issues. First, he should suggest that these countries join with the United States to begin an anti-subsidy case at the WTO (World Trade Organization) regarding the Chinese undervalued currency. In my view this international case is not the ideal approach; it would be better to proceed alone under our own laws. But it may be one the Administration is more comfortable with, consistent with the new Obama Doctrine of coalition building. Secondly Mr. Geithner should call on key members of the G-20 to begin a strategic dialogue with China, on their subsidy practices for emerging industries, which would demand a change in direction. Subsidies are as unfair and distortive as tariffs, a trade barrier the U.S. led the world in fighting back years ago when it started the GATT and the WTO. It is now time for us to exercise the same leadership on this most significant unfair trade practice of today.

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Marshall Auerback: We Aren’t Greece — But We Could Be Japan if Flawed Logic Persists

March 28, 2011

Influential journalists are making persuasive cases that austerity is the wrong approach in fragile economies. That’s good news. But discussions still get muddled in ways that can have perverse effects. Take the case of Japan. Last week Bill Mitchell wrote an excellent blog post discussing Martin Wolf’s article on Japan’s fiscal position following the earthquake. Wolf suggested that the “national insolvency” threat allegedly posed by the earthquake was vastly overstated. He argued that the sums involved were too small to matter. Mitchell agreed, but went further, challenging Wolf’s implicit suggestion that the Japanese government faced a solvency risk of any kind : The reality is that the Japanese government has no solvency risk at all in relation to its net spending position and the debt issuance that matches it (nearly). It is grossly misleading to leave the impression that it is just because the reconstruction sums are small that there is no insolvency risk. As Mitchell put it, Wolf’s assessment was so close to comprehension, and yet so far. I had a similar sensation reading Paul Krugman’s latest challenge to the prevailing fiscal austerity mania now gripping most of today’s leading policy makers in the global economy. Krugman rightly exposes the central flaw inherent in the deficit reduction hysteria: Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks. The article moves along swimmingly until Professor Krugman invokes the dreaded example of Greece: But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts. No, no, no! There is no debt crisis in sovereign nations such as the U.S., Japan, the U.K., or Canada. Barring a decision by Congress to give up the dollar and adopt, say, the Mexican peso, we can never end up like Greece. Nor will Japan, which does not need to “dip into its rainy day fund,” as Carmen and Vince Reinhart wrongly suggested last week. To clarify, the nations of the European Monetary Union have given up their monetary sovereignty by giving up their national currencies and adopting a supranational one, the euro. By divorcing fiscal and monetary authorities, they have relinquished their public sector’s capacity to provide high levels of employment and output. Non-sovereign countries are limited in their ability to spend by taxation and bond revenues, and this applies perfectly well to Greece, Portugal, and even countries like Germany, which continues to champion the cause of fiscal austerity under the respectable sounding guise of “sound finances.” This distinction is key, but it gets lost in our economic debates. Happily, Dean Baker gets it , but for the most part our inability (whether through misunderstanding or ideology) to distinguish between issuers and users of currency continues to provoke perverse policy responses, notably in the countries that remain sovereign in regard to their monetary/fiscal operations, such as the U.S. As my friend Warren Mosler always likes to say, “Because we believe we can be the next Greece, we continue to work to turn ourselves into the next Japan.” The only public debt problems that have emerged in the current crisis have been in non-sovereign countries. Even then, with appropriate “fiscal support,” those crises were managed largely through the expedient of the ECB’s ongoing purchases of PIIGS’ debt in the secondary bond markets — which amounts to a fiscal act within a flawed monetary system. But blurring the distinction between sovereign and non-sovereign nations is the starting gate for this muddled discussion that persists when we invoke Greece as an example of what we could become. Those of us who make the key distinction between a non-sovereign country like Greece and a sovereign one like the U.S. accept that the prevailing concern about Portugal, Ireland, Italy, Greece and Spain (PIIGS) and even other Euro nations is justified. But using PIIGS countries as analogues to the U.S. is a result of the failure of deficit critics to understand the differences between the monetary arrangements of sovereign and non-sovereign nations. Greece is a user of the euro. It is not an issuer. In that respect, it is more like California or even New York City, which are users of the U.S. federal government’s dollar. The hysteria, which Paul Krugman rightly decries, comes from a flawed understanding of how the monetary system works. It also partly explains why even in sovereign monetary/fiscal systems, conservatives continue to impose arbitrary constraints on our government’s ability to provide policies that generate full employment. Which is precisely what we need right now. Sovereign governments have been led to believe that they need to issue bonds and collect taxes to finance government spending and that good policies should be judged by their ability to enforce fiscal austerity. The guardians of the status quo know that the fear of rising public debt can be politically manipulated and demonized, and they do this to put a brake on government spending. But there is no operational necessity to issue debt in a fiat monetary system. In fact, in the case of sovereign nations, it is a logical impossibility for households and nonbank firms to finance the budget deficit by paying taxes and buying government bonds. The private sector cannot create money (and bank-created money is not a net financial asset for the private sector, as the private deposit holders cancel out the private borrowers). The domestic private sector has to first earn the money by net selling goods and services (to the federal government) and net selling assets (to the central bank) before it is in a position to pay taxes or buy government bonds. Mainstream economics has guided policymakers into imposing artificial constraints on fiscal policy and government finances, such as issuing bonds when running deficits, debt ceilings, forbidding the central bank from directly buying treasury debt, allowing the markets to set interest rates on government bonds, etc. This is a huge conceptual flaw that is currently paralyzing the Governor of the Bank of Japan, even as his country reels from its greatest disaster since World War II. It is also destroying the U.K. economy, as both Krugman and John Cassidy have recently highlighted. All these constraints, sadly, are self-imposed and voluntary. As my colleague Randy Wray has put it , it is as if someone would tie his/her feet together and then complain about the inability to walk. It may seem petty to criticize otherwise strong critiques of the current thrust of self-styled deficit hawks. But we have to be on guard against conceptual confusion that can hamper our ability to act decisively to do what it is certainly in our power to do: namely to stop choking our economy and put Americans back to work. Cross-posted from New Deal 2.0 .

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World Shares Recover All Of Post-Japan Losses

March 24, 2011

LONDON – Global stocks inched higher on Thursday and are now higher than when Japan’s earthquake and tsunami struck, buoyed by confidence that the world economic recovery remains on track. The euro also recovered early losses to trade a touch higher despite negative signs from banking and politics in Portugal and Spain, the two countries now at the center of Europe’s continuing debt crisis. The single European currency was set for its largest weekly slide since early January, after the Portuguese parliament rejected a series of austerity measures and prime minister Jose Socrates stepped down, although equity markets rallied after gains in the heavyweight mining sector offset losses elsewhere. “Sentiment is still relatively good. The cycle is good. We are still mildly optimistic on the overall picture,” said Joost de Graff, senior portfolio manager at Kempen Capital Manageent in the Netherlands. Surveys on Thursday showed economic recovery continued in March, shrugging off Japan’s disaster, although Middle East tensions are sending prices rocketing and the impact of public sector cutbacks in Europe is a risk. The MSCI All-Country index .MIW0000PUS was last up 0.1 percent. In Asia, Tokyo’s Nikkei .N225 fell 0.2 percent. It remains 8 percent below its close when the earthquake hit on March 11. EU BAILOUT Much of the anxiety over the euro zone’s debt problems had been soothed by the prospect of a longer-term reinforcement of the EU bailout fund. But this has now been delayed until June, while Portugal faces what are viewed as unsustainable borrowing costs ahead of multi-billion euro bond repayments in April and June. The premium investors demand to hold Portuguese debt rather than benchmark German Bunds hit euro-lifetime highs, while the premium to hold other peripheral debt also rose, reflecting the growing preference among bondholders to own higher-rated paper. “If — and this is a big if — there is a bailout for Portugal, the question would be how it would be negotiated with a government in essentially a caretaker mode,” said David Forrester, currency strategist at Barclays Capital in Singapore. The euro was last up 0.1 percent against the dollar at $1.4101, having fallen earlier to a low of $1.4049, while against the yen it was flat at 114.11 yen. The yen itself was steady against the dollar at 80.95 yen, although market players are still wary Japan may intervene to sell the currency if the dollar breaches 80 yen. Euro zone government bonds were flat, with Bunds having pared some of their earlier gains to trade at 3.229 percent, while Portuguese 10-year yields rose 11 basis points to 7.931 percent, leaving the premium to Bunds at a euro-lifetime high of 470 basis points. European Union leaders begin a two-day summit on Thursday but the political turmoil in Portugal and looming elections in other countries are expected to delay any tough decisions to address the region’s debt problem. An official euro zone source estimated in January that if Portugal asked for international aid, it might need between 60 billion to 80 billion euros (up to $113 billion). European shares edged higher as gains in the mining sector offset some of the weakness in banking stocks, which came under pressure from persistent concern about the euro zone’s finance and after Moody’s downgraded 30 Spanish banks. .EU The FTSEurofirst 300 .FTEU3 was up 0.2 percent at 1,113.49 points, while S&P 500 futures rose 0.1 percent, pointing to a modestly higher start on Wall Street later. .EU .N Brent crude was off 0.2 percent at $115.35, down for a second successive trading day. Spot gold traded around $1,43999 an ounce, in sight of its record $1,444.40 set earlier in the month. (Additional reporting by Kirsten Donovan and Harpreet Bhal in London and Alejandro Barbajosa and Alex Richardson in Singapore) (Reporting by Amanda Cooper; editing by Patrick Graham) Copyright 2011 Thomson Reuters. Click for Restrictions .

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U.S.’s Growing Nuclear Waste Problem

March 23, 2011

— The nuclear crisis in Japan has laid bare an ever-growing problem for the United States – the enormous amounts of still-hot radioactive waste accumulating at commercial nuclear reactors in more than 30 states. The U.S. has 71,862 tons of the waste, according to state-by-state numbers obtained by The Associated Press. But the nation has no place to permanently store the material, which stays dangerous for tens of thousands of years. Plans to store nuclear waste at Nevada’s Yucca Mountain have been abandoned, but even if a facility had been built there, America already has more waste than it could have handled. Three-quarters of the waste sits in water-filled cooling pools like those at the Fukushima Dai-ichi nuclear complex in Japan, outside the thick concrete-and-steel barriers meant to guard against a radioactive release from a nuclear reactor. Spent fuel at Dai-ichi overheated, possibly melting fuel-rod casings and spewing radiation into the air, after Japan’s tsunami knocked out power to cooling systems at the plant. The rest of the spent fuel from commercial U.S. reactors has been put into dry cask storage, but regulators only envision those as a solution for about a century and the waste would eventually have to be deposited into a Yucca-like facility. The U.S. nuclear industry says the waste is being stored safely at power-plant sites, though it has long pushed for a long-term storage facility. Meanwhile, the industry’s collective pile of waste is growing by about 2,200 tons a year; experts say some of the pools in the United States contain four times the amount of spent fuel that they were designed to handle. The AP analyzed a state-by-state summary of spent fuel data based on information that nuclear power plants voluntarily report every year to the Nuclear Energy Institute, an industry and lobbying group. The NEI would not make available the amount of spent fuel at individual power plants. While the U.S. Department of Energy previously reported figures on overall spent fuel storage, it no longer has updated information available. A spokesman for the U.S. Nuclear Regulatory Commission, which oversees nuclear power plant safety, said the capacities of fuel pools are public record, but exact inventories of spent fuel are tracked in a government database kept confidential for security reasons. The U.S. has 104 operating nuclear reactors, situated on 65 sites in 31 states. There are another 15 permanently shut reactors that also house spent fuel. Four states have spent fuel even though they don’t have operating commercial plants. Reactors in Colorado, Oregon and Maine are permanently shut; spent fuel from all three is stored in dry casks. Idaho never had a commercial reactor, but waste from the 1979 Three Mile Island accident in Pennsylvania is being stored at a federal facility there. Illinois has 9,301 tons of spent nuclear fuel at its power plants, the most of any state in the country, according to industry figures. It is followed by Pennsylvania with 6,446 tons; 4,290 in South Carolina and roughly 3,780 tons each for New York and North Carolina. Spent nuclear fuel is about 95 percent uranium. About 1 percent are other heavy elements such as curium, americium and plutonium-239, best known as fuel for nuclear weapons. Each has an extremely long half-life – some take hundreds of thousands of years to lose all of their radioactive potency. The rest, about 4 percent, is a cocktail of byproducts of fission that break down over much shorter time periods, such as cesium-137 and strontium-90, which break down completely in about 300 years. How dangerous these elements are depends on how easily can find their way into the body. Plutonium and uranium are heavy, and don’t spread through the air well, but there is a concern that plutonium could leach into water supplies over thousands of years. Cesium-137 is easily transported by air. It is cesium-137 that can still be detected in a New Jersey-sized patch of land around the Chernobyl reactor that exploded in the Ukraine in 1986. Typically, waste must sit in pools at least five years before being moved to a cask or permanent storage, but much of the material in the pools of U.S. plants has been stored there far longer than that. Safety advocates have long urged the NRC to force utility operators to reduce the amount of spent fuel in their pools. The more tightly packed they are, the more quickly they can overheat and spew radiation into the environment in case of an accident, a natural disaster or a terrorist attack. Industry leaders say new technology has made fuel pools safer, and regulators have taken some steps since the 9/11 terror attacks to reduce fuel pool risks. Kevin Crowley, who directs the nuclear and radiation studies board at the National Academy of Sciences, says lessons will be learned from the crisis in Japan. And NRC Chairman Gregory Jaczko says his agency will review how spent fuel is stored in the U.S. A 2004 report by the academy suggested that fresh spent fuel, which is radioactively hotter, be spread among older, cooler assemblies in the spent fuel pool. “You’re buying yourself time, basically,” says Crowley. “The cooler ones can act as a thermal buffer.” First Energy, which runs two nuclear power stations in Ohio and one in Pennsylvania, was able to reconfigure the spent fuel rods in its pools to make more room. Still, the company is now running out of space, says spokesman Todd Schneider. Ohio has 1,136 tons of spent fuel in pools and 37 tons in dry casks. The casks in the U.S. are kept outdoors, generally on concrete pads, but industry officials insist they are safe. Unlike the pools, the casks don’t need electricity; they are cooled by air circulation. One cask model, selling for $1.5 million, places spent fuel inside a stainless steel canister, which is placed inside an “overpack” – an outside shell composed of a layer of carbon steel, 27 inches of concrete and another layer of carbon steel. When in place, the system stands 20 feet tall and weighs 150,000 pounds, said Joy Russell, a spokeswoman for manufacturer Holtec International of Florida. Russell said engineers have designed the system to withstand a crash from an F-16 fighter jet and survive the resulting jet fuel fire. Plant operators in some states have moved aggressively to dry cask storage. Virginia has 1,533 tons of nuclear waste in dry storage and 1,105 tons in spent fuel pools. Maryland has 844 tons in dry storage and 588 tons in spent fuel pools. Utilities in Texas, though, have not. There are 2,178 tons kept in spent fuel pools at reactor sites there, and zero in dry casks. In New York, 3,345 tons are in spent fuel pools while only 454 tons are in dry storage. No cask is totally invulnerable, but the academy report found that radioactive releases from casks would be relatively low. “If you attacked a fuel cask and managed to put a hole in it, anything that came out, the consequences would be very local,” Crowley said. Casks can be licensed for 20 years, with renewals, said Carrie Phillips, a spokeswoman for the Atlanta-based Southern Co., which has a dozen such casks at its two-reactor Joseph M. Farley plant near Columbia, Ala. She said officials have “every expectation” the casks could last “in excess of 100 years by design.” But not the needed tens of thousands of years. For long-term storage, the government had looked to Yucca Mountain. It was designed to hold 77,160 tons – 69,444 tons designated for commercial waste and 7,716 for military waste. That means the current inventory already exceeds Yucca’s original planned capacity. A 1982 law gave the federal government responsibility for the long-term storage of nuclear waste and promised to start accepting waste in 1998. After 20 years of study, Congress passed a law in 2002 to build a nuclear waste repository deep in Yucca Mountain. The federal government spent $9 billion developing the project, but the Obama administration has cut funding and recalled the license application to build it. Nevadans have fiercely opposed Yucca Mountain, though a collection of state governments and others are taking legal action to reverse the decision. Despite his Yucca Mountain decision, President Barack Obama wants to expand nuclear power. He created a commission last year to come up with a long-term nuclear waste plan. Initial findings are expected this summer, with a final plan expected in January. “They are 13 years late,” says Terry Pickens, Director of Nuclear Policy at Xcel Energy, the Minneapolis-based utility that operates three reactors in Minnesota. Xcel is building steel-and-concrete cask containers to hold old waste on site, and suing the government periodically to pay for them. “We would like them to get done with what they said they would get done.” Some countries – such as France, Japan, Russia and the United Kingdom – reprocess their spent fuel into new nuclear fuel to help reduce the amount of waste. The remaining waste is solidified into a glass. It needs to be stored in a long-term waste repository, but reprocessing reduces the volume of waste by three-quarters. Because reprocessing isolates plutonium, which can be used to make a nuclear weapon, Presidents Gerald Ford and Jimmy Carter put a stop to it in the U.S. The ban was later overturned, but the country still does not reprocess. France produces 1,300 tons of nuclear waste per year, and reprocesses 940 tons. Still, fuel is only reprocessed once and then it, too, needs to be stored. France is expecting that engineers will eventually succeed in building a new type of nuclear reactor called a fast reactor that will use the waste it can’t reprocess as fuel. “They’ve kicked the can down the road,” says Frank von Hippel, a director of the Program on Science and Global Security at Princeton University. Other countries, such as Germany, store spent fuel in casks. Finland is building a repository it says will store waste safely for 100,000 years. Even though there is no long-term storage in the U.S., utility customers and taxpayers have been paying for it – twice. Customers have paid $24 billion into a fund Congress established in 1982 to pay for such storage. The charge – a penny for every 10 kilowatt-hours – would typically add up to about $11 a year for a household that received all its electricity from nuclear plants. Users pay as taxpayers, too – for dry storage. Utilities that have run out of storage space in pools successfully sued the federal government for breach of contract, because it failed to keep to the 1998 deadline to establish long-term storage. By law, the money for dry casks cannot come from the nuclear waste fund, and must come from the federal budget.

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SEC Questions Google’s Tax Bill

March 21, 2011

Google Inc. (GOOG) received questions from the U.S. Securities and Exchange Commission in December about earnings in other countries that may have reduced the company’s tax bill, according to regulatory filings released today. SEC officials asked Google for “disclosures to explain in greater detail the impact on your effective income tax rates and obligations of having proportionally higher earnings in countries where you have lower statutory tax rates,” according to a Dec. 2 letter.

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Rising Oil Prices Seen As ‘Primary Threat’ To U.S. Economy As Libyan Violence Mounts

March 21, 2011

NEW YORK — As international military forces strike Libya, oil prices are again rising, reviving concerns that expensive energy could impede economic recovery in the United States. U.S. consumers and businesses got a brief reprieve this month as oil prices eased off two-and-a-half-year highs. But escalating violence in Libya and rising tensions among the Middle East’s oil-producing powers have raised fresh fears of a supply disruption. With investors nervous, benchmark crude prices are again rising, threatening a broader recovery that had barely begun to gather momentum. “A spike in energy prices to $125 or $150 a barrel is the primary threat to the recovery at this point, now that it appears the situation in Japan has settled down somewhat,” said Gus Faucher, director of macroeconomics at Moody’s Analytics. “This could play out over a period of weeks and months.” Those prices continue to roil in the wake of Mideast unrest, including the Western intervention in Libya that began this weekend on behalf of rebels opposing longtime head of state Muammar Gaddafi. In Yemen, meanwhile, scores of demonstrators were killed on Friday, prompting the country’s U.N. ambassador to resign. And tension between two of the region’s major powers, Iran and Saudi Arabia, appears to be mounting in Bahrain. Already, Libya’s crude oil output has fallen to a quarter of its pre-crisis level, as multinational oil producers have been taking workers out of the country. That output, which makes up 2 percent of the world’s oil, could fall to zero, said Shokri Ghanem , chairman of Libya’s National Oil Corporation, during a televised media conference last week. These are among the key developments that have sent oil skyward. Since last Tuesday, when prices hit their recent bottom, the price of Brent crude , an industry benchmark, has climbed nearly 7 percent. Since the beginning of this year, Brent has climbed more than 20 percent. The price fell after an earthquake struck Japan’s northeast coast earlier this month, but it has since rebounded, clearing $116 a barrel on Friday. Oil has hit a level not seen since 2008, when high energy prices helped drag the U.S. economy deeper into recession. And now the price is again on the rise. “If prices come back down after a short while, the impact on the U.S. economy is relatively limited,” said Gregory Daco, a senior economist in the U.S. macroeconomics group at IHS Global Insight, an economic and financial analysis firm. “However, if prices do stay at a higher level for six months to a year, the impact on growth can be relatively important.” High energy prices have forced businesses to delay hiring plans and to consider passing fees onto customers. Rising prices at the pump have sapped spending power from consumers, crippling a major source of U.S. economic growth. Expensive oil even threatens the housing market’s recovery, as the prospect of a costly commute makes moving to the suburbs less attractive. Each $10 rise in the price of a barrel of oil translates into a 25-cent increase in gas prices, which tears more than $25 billion from the U.S. economy yearly, economists say. The economic risk posed to the United States by rising oil prices eclipses the effects of the disaster in Japan, experts say. The 9.0-magnitude earthquake that stuck Japan this month, which could plunge that country into recession , won’t pose a major risk to the U.S. economy, economists say, as companies will find ways to work around supply disruptions. But high energy prices drain resources from consumers and businesses, crippling the nation’s economic foundations. “Oil prices are even more of a concern to the U.S. outlook than what’s going on in Japan right now,” said Scott Anderson, a senior economist at Wells Fargo. “The consumer is still working to recover form the excesses of the financial crisis.” The oil supply disruption that’s already occurred is relatively minor, and the Organization of Petroleum Exporting Countries has pledged to correct any shortage with its oil reserves. But the price of a barrel of oil reflects the perception of a mounting crisis. Even without a significant shortage, that perception is helping to cause real economic damage. As fighting continues in the Middle East, investors fear the damage to the global oil trade could worsen. Experts are keeping a close eye on Saudi Arabia, which has sent to troops to Bahrain to help quell anti-government actions. Tensions between Saudi Arabia and Iran, which each support rival groups in Bahrain, could turn into outright conflict, experts fear. Combined, Saudi Arabia and Iran produce more than 17 percent of the world’s oil. An oil supply disruption in Saudi Arabia could inflict widespread economic strain. “Whats starting to bubble up to the surface here is this major clash between Saudi Arabia and Iran,” said Bernard Baumohl, the chief global economist at the Economic Outlook Group. “That can have much more dire consequences for the global economy.”

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Dave Johnson: What "Free Trade" Has Cost The World

March 21, 2011

If you take a job away from someone who is paid a reasonable wage because they enjoy the protections and prosperity of democratic government, move it across a border, and give it to someone living under a thugocracy, forced to work for pennies with no protections whatsoever, it should be just plain obvious that the worker on our side of the border and the worker on the other side of the border are not going to be better off. And when you do this on a massive scale it just stands to reason that most people on both sides of the border are going to be worse off. But propaganda being what it is we were somehow convinced to try a worldwide experiment in taking good jobs from democracies and turning them into bad jobs in thugocracies. Now, of course, the experiment has run its course and we can see the results. Worker Against Worker Setting worker against worker enabled a few people to get really, really really wealthy and powerful and use that wealth to become even more wealthy and powerful. Our country is in decline, burdened by massive trade deficits because the ones with vested interests in cheap labor won’t let us won’t take on the mercantilists, burdened by budget deficits because those vested interests have bought low taxes and government subsidies, our infrastructure crumbles because multinational business leaders refuse to invest here, with no more need of us as workers, and the resulting hollowed-out middle class can’t consume anymore. Other countries also suffer from similar stresses. Out of this situation a new global elite has emerged, contemptuous of democracy and government and any power but the power of their own money. In country after country, these top few won’t share the proceeds with their own, either, while they keep the world from approaching solutions. In January’s post, Establishment Realizing: When You Close The Factory We Can’t Make A Living , I wrote about how “the establishment,” or as bloggers call it, “The Village” or “Versailles,” are starting to realize that our trade policies just might not be working for us. Of course, they come to this realization only after our trade deficits approach the trillion mark, after we have lost millions of manufacturing jobs, after we have closed tens of thousands of factories, after we have lost the tech manufacturing industry, and after we have abandoned hopes of leading in green manufacturing as well… (We’re still waiting for them to realize that tax cuts do not increase revenue, that spending more on military than all other countries combined might contribute to deficits, that our too-big-to-fail financial sector is capable of causing problems, that the climate really is changing, that allowing corporations to pump money into politics means the end of democracy… but hey, a dollar spent by a vested interest on a politician apparently is a dollar very, very well spent.) In the Washington Post, Steven Pearlstein recently reviewed Dani Rodrik’s “The Globalization Paradox ,” It is dogma among economists and right-thinking members of the political and business elite that globalization is good and more of it is even better. That is why they invariably view anyone who dissents from this orthodoxy as either ignorant of the logic of comparative advantage or selfishly protectionist. But what if it turns out that globalization is more of a boon to the members of the global elite than it is to the average Jose? Right, what if? In “The Globalization Paradox,” Dani Rodrik demonstrates that those questions are more than hypothetical — that they describe the world as it really is rather than as it exists in economic theory or in the imagination of free trade fundamentalists. . . . The starting point of Rodrik’s argument is that open markets succeed only when embedded within social, legal and political institutions that provide them legitimacy by ensuring that the benefits of capitalism are broadly shared. And a unicorn. And a rainbow. The paradox, as Rodrik sees it, is that globalization will work for everyone only if all countries abide by the same set of rules, hammered out and enforced by some form of technocratic global government. The reality is, however, that most countries are unwilling to give up their sovereignty, their distinctive institutions and their freedom to manage their economies in their own best interests. Not China. Not India. Not the members of the European Union, as they are now discovering. Not even the United States. In the real world, argues Rodrik, there is a fundamental incompatibility between hyper-globalization on the one hand, and democracy and national sovereignty on the other. Clyde Prestowitz threw a one-two punch at free trade after Senator John McCain claimed that the iPhone and iPad are Made in America. In Why isn’t the iPhone made in America? at Foreign Policy magazine, Prestowitz wrote, John McCain provided some good laughs and made himself look stupid on a recent ABC news interview by telling Diane Sawyer that the iPhone and iPad are great examples of products that are made in America. They’re not. And given the amount of high technology production in his state, McCain should certainly have known better. The fact that he didn’t does make you wonder about what, if anything, they know in the U.S. Senate. Prestowitz goes on to explain that while the iPhone is manufactured in China, parts, software, design and other components are made all around the world, not necessarily for low wages. He concludes, So if America actually did produce the stuff it says it is good at producing, it wouldn’t have a trade deficit with Asia for which China is the proxy at all. It would have a trade surplus and 20-40,000 more jobs than it has. Prestowitz looks at a smaller picture here of the back-and-forth of trade with the US and China. Design, software and other capital and technology intensive components are not made in China. But the bulk of the jobs are in China. This could work for everyone if people there were paid enough — and allowed by their government — to buy things made here. That would be trade and everyone would be better off. But trade isn’t really the point of “free trade.” Then, in It’s not just the iPhone that America doesn’t make , Prestowitz conitinues, Okay, so yesterday I explained not only that John McCain was wrong to say the iPhone is made in America (as you already knew), but also that most of you were wrong to think it is made in China. I went on to show that the phone is only assembled in China from high-tech parts that are mostly made in Japan, South Korea, and Taiwan. I further explained that production of these parts is not labor intensive, but capital and technology intensive. In other words, these parts are just the kinds of products American economists, Silicon Valley venture capitalists and entrepreneurs, and Washington political leaders always say America is the best in the world at making. … Then I left you with the question of why, if America is so good at making this stuff, it doesn’t. [. . .] it was believed that unilateral free trade (keeping one’s markets open, even in the face of protectionism by one’s trading partners) was a winning proposition. Thus, there was no need to be concerned about things like subsidization of key foreign industries or loss of capability in these fields, and hence no need for trade measures that might upset delicate geopolitical relationships. This economic doctrine has been based upon the assumption of Anglo/American economics that economies of scale either don’t exist in most traded products and industries or are relatively unimportant. That this assumption is dramatically and demonstrably wrong and not accepted by most of the non-Anglo world has not deterred its application to the making of much American and global trade policy. In other words, it doesn’t work. But we already knew that. We can see it all around us. And it is us who have to live with the results. This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Donald Trump 2012? Political Operatives Say Billionaire Exploring Mechanics Of Running Competitive Campaign

March 19, 2011

NEW YORK — Donald Trump boots contestants off his TV show with a famous two-word catch phrase: “You’re fired.” He may want the chance to say the same to President Barack Obama. The real estate tycoon with the comb-over hairdo and in-your-face attitude plans to decide by June whether to join the field of GOP contenders competing in 2012 to make the Democratic incumbent a one-term president. Trump insists he’s serious. He rejects skeptics’ claims that he’s using the publicity to draw viewers to “Celebrity Apprentice,” the NBC reality program he co-produces and hosts. “The ratings on the show are through the roof. I don’t need to boost the ratings,” Trump told The Associated Press in a recent interview. “But the country is doing so badly. I wish there was someone in the Republican field I thought would be incredible because that’s what we need right now.” If he runs, Trump would follow a well-worn path of wealthy businessmen who have sought the White House before. Recent examples include Christian Broadcasting Network founder Pat Robertson in 1988, tech mogul Ross Perot in 1992 and publishing executive Steve Forbes in 1996. Michael Bloomberg, the billionaire New York City mayor, also has hinted at national political ambitions even as he says he won’t enter the race. Trump is prepared to spend as much as $600 million of his personal fortune on the race. “Part of the beauty of me is that I’m very rich,” he told ABC’s “Good Morning America.” He flirted with presidential campaigns in 1988 and 2000, but never did run. So what makes the 2012 race any different? Several political operatives in Washington and elsewhere say privately that Trump has reached out to them repeatedly in recent weeks to learn about the mechanics of running a campaign, asking questions about how much money he would need, what type of an organization he would have to build – and whether he could win. Publically, Trump has taken several steps to suggest he’s not joking. He delivered a well-received speech to the Conservative Political Action Committee conference last month in Washington. He’s done interviews with reporters in Iowa, the first-in-the-nation caucus state, and is planning a trip in June to leadoff primary state New Hampshire for a presidential candidate’s rite of passage – appearing at a political breakfast series called Politics and Eggs. Last week, Michael Cohen, one of his top business advisers who is running a draft-Trump website, met with GOP activists in Iowa. Some people close to Trump also say they think he just might take the plunge this time. “I think he’s looking at it fairly seriously, and he has the money and liquidity to do it. He’d make a very strong candidate,” said Dick Morris, a Democrat-turned-Republican strategist whose father was Trump’s lawyer for many years. “He’s kind of sui generis, in his own category. He’s someone who’s accomplished things and won’t take any crap.” Republican pollster John McLaughlin said the themes Trump is stressing would find a receptive audience among GOP primary voters. “He has a message that’s resonating: American decline, China rising, and that America needs to turn things around,” McLaughlin said. “It’s not a politically correct message and it will appeal to Republicans … and could put him in major contention.” Famously brash, Trump minces few words when talking about his beliefs: _China “has taken all of our jobs.” The Organization of Petroleum Exporting Countries, the Mideast oil cartel, “is ripping us right and left. … You’re going to see $5 a gallon gas pretty soon.” _Japan, recovering from an earthquake and tsunami and trying to avert a nuclear disaster, has “ripped us off for years” as a trading partner. _Obama should be pressed to disclose the original birth certificate. “When you look at what happens today, you look at the misconduct, the fraud and forgeries, you really want to see proof,” Trump told the AP. Obama was born and grew up in Hawaii, and his 2008 campaign issued a certification of live birth – an official document from the state. _The “birther” movement has legitimate concerns, Trump told ABC. “The reason I have a little doubt, just a little, is because he grew up and nobody knew him.” Trump certainly has the strong opinions of a candidate. But would the thrice-married billionaire known for his extravagant hotels and golf courses brave the mundane rituals of retail campaigning and the intense examination his business empire and personal wealth would draw? “People thinking of running have to file a personal financial disclosure within 30 days of registering with the FEC. Does anyone really think that Donald Trump, under penalty of perjury, would file such a document?” campaign finance lawyer Jan Baran asked. A candidacy also could present legal troubles given Trump’s web of business interests. While Trump is not formally connected to Cohen’s draft effort, he allowed Cohen to use a Trump corporate jet for the trip. Trump booster and billionaire pharmaceutical executive Stewart Rahr paid for the trip, which led to a Federal Election Commission complaint from a supporter of Texas Republican Rep. Ron Paul. Trump, 64, insists he’s prepared for the scrutiny. “I always heard if you’re very, very successful, you can’t run for high political office – too many victories, fights and enemies,” Trump told the AP. “And yet that’s what this country needs. We can’t have any more of what we’re having.” Trump’s past could dog him. His divorce from first wife, Ivana, over his affair and subsequent marriage with actress Marla Maples made him a New York tabloid staple in the 1990s. He’s been married since 2005 to Melania Knauss, a former model from Slovenia who is 24 years his junior. His three marriages produced five children, and he has two grandchildren. He is known for finding ways to inject himself into news of the day. Last summer, for example, he offered to buy the building set to be turned into an Islamic center near ground zero in New York City. His politics are all over the map. He mulled an independent White House bid in 2000. He’s made political contributions to many Democrats over the years, including New York Sens. Chuck Schumer and Kirsten Gillibrand and Senate Majority Leader Harry Reid of Nevada. Last year, Trump gave $50,000 to American Crossroads, a GOP-aligned group that spent millions to defeat Democrats nationwide. The biggest question facing Trump may be not whether Republican voters will overlook all that. It may be whether he even wants to ask them to. ___ Online: Trump biography: http://tinyurl.com/nguhxj

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Oil Prices Jump After UN Approves Military Action In Libya

March 18, 2011

SINGAPORE (Reuters) – Brent crude jumped by more than $1 to $116 on Friday on fears of rising geopolitical tension in the oil-rich Middle East and North Africa, after the United Nations approved military action to contain Libyan leader Muammar Gaddafi. Front-month Brent rose $1.10 to $116 by 3:25 a.m. ET, after earlier touching a one-week high of $116.50, while U.S. crude for April rose $1.49 to $102.91. Japan’s strongest earthquake on record a week ago sent fear coursing through global financial markets, raised concerns of reduced demand from the world’s third-largest oil user and triggered a drop in Brent to a three-week low near $107 two days ago. High oil prices and Japan’s disaster may pose a twin blow to the nascent economic recovery. Brent is less than $4 away from a 2-1/2-year high of almost $120 reached on February 24, when an uprising against Gaddafi shut down at least two-thirds of Libya’s oil output. “The initial shock in the markets with regards to the negative impact on growth as well as the short-term effect on Japanese demand is now subsiding and people are turning to the medium- and long-term implications of the earthquake on oil demand and turmoil intensifying in the Middle East,” said Yingxi Yu, a Singapore-based commodities analyst with Barclays Capital. The involvement of foreign forces “could prove to be a further escalation of the situation in Libya. It seems difficult that this will speed up the flow of Libyan oil back into the world market,” Yu added. The U.N. Security Council, meeting in emergency session on Thursday, passed a resolution endorsing a no-fly zone to halt government troops now around 100 km (60 miles) from Benghazi. It also authorized “all necessary measures” — code for military action — to protect civilians against Gaddafi’s forces. French diplomatic sources said military action could follow within hours, and could include France, Britain and possibly the United States and one or more Arab states; but a U.S. military official said no immediate U.S. action was expected. Libya’s pre-crisis oil output of about 1.6 million barrels per day (bpd) is unlikely to reach international markets even if Gaddafi holds on to power, controls and repairs oil infrastructure and resumes shut-in production, analysts said. “To go from condemning Gaddafi to buying his oil in short order would be politically difficult, and while sanctions would be financially painful for consuming countries, it would be an easier option if OPEC fully fills the gap,” JP Morgan oil analysts headed by Lawrence Eagles said in an e-mailed note. Saudi Arabia and other member countries of the Organization of the Petroleum Exporting Countries (OPEC) have increased production this year, partly to offset the loss of Libyan barrels. That has also eroded spare capacity, leaving a thinner cushion to compensate for potential further disruptions. BAHRAIN UNREST Earlier this week, Bahraini forces cracked down on Shi’ite protesters demanding reform by the Sunni monarchy, which drew criticism from key Bahraini and Saudi ally the United States and also from Iran. The involvement of Saudi Arabian troops and other forces from Gulf Cooperation Council (GCC) countries in Bahrain also raised the stakes of confrontation in the island state, which lies less than 100 kilometers from the hub of the Saudi oil industry. “Events over the past week suggest that something profound has changed in the dynamics of the region,” Yu said. “The relation between the U.S. and Saudi Arabia has been the key foundation of the oil market for many decades. Recent events seem to be creating some stress on the relationship.” Saudi Arabia’s King Abdullah will address the nation on Friday to issue a number of decrees, the royal court said in a statement released by the top oil producer’s state news agency late on Thursday. “It’s absolutely crucial for the oil market to watch for potential changes in the Saudi leadership,” Yu from Barclays said. “It’s the only country that holds a meaningful amount of spare capacity and the disruption in Libya has already put some stress on it.” Saudi Arabia has mostly avoided the wide unrest that toppled rulers in Egypt and Tunisia and spread to other Gulf countries, but there are pockets of dissent in the absolute monarchy, which has no elected parliament. Most demonstrations have been in the east of the kingdom, where the world’s largest oil reserves are located and home to a large Shi’ite population. “Day of rage” protests planned for a week ago in Saudi Arabia failed to materialize or fizzled quickly amid a widespread police presence, but social media networks had initially also called for a second day of protests on March 20. (Editing by Clarence Fernandez) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Geithner: U.S. Must Help ‘Nurture’ Emerging Markets

March 9, 2011

WASHINGTON (By Glenn Somerville and Lesley Wroughton) – U.S. Treasury Secretary Timothy Geithner urged lawmakers on Wednesday to approve capital increases for global lending institutions and warned that failure to do so could harm U.S. influence abroad. “We live in a dangerous world, the world isn’t standing still,” he told a House of Representatives Appropriations subcommittee where he sought backing for a $1.24 billion budget increase to $3.36 billion for international programs that Treasury oversees. “Other countries like China are ready to fill any vacuum left by a receding America and we have to take a very careful look when we’re going to cut back things like this to make sure we’re not undermining our core interests,” Geithner said. Geithner cited specific areas in which the United States might lose clout if it failed to be generous. “At the World Bank, failure to finance the capital increase would lead to the loss of U.S. power to veto changes to the World Bank’s government agreement,” he said. “At the Asian Development Bank, if the U.S. does not support this capital increase, we will fall behind countries like China and India.” The Obama administration has been at pains to highlight the need to protect the United States’ ability to project its influence in a world in which conflicts are springing up nearly overnight, as evidenced by unrest in the Middle East and North Africa. Amid uncertainty about the attitude that new regimes may adopt toward the West and with competition for key resources fierce in many regions of the world, U.S. officials want to keep as many channels open as possible for exerting global sway. Secretary of State Hillary Clinton told the Senate Foreign Relations Committee a week ago that it needed to beware the consequences of cutting the U.S. foreign affairs budget. “If anybody thinks that our retreating on these issues is somehow going to be irrelevant to the maintenance of our leadership in a world where we are competing with China, where we are competing with Iran, that is a mistaken notion,” she said. Geithner said increasing U.S. support for global lenders such as the World Bank could lead to more sales abroad of U.S.-made goods. “America needs the (Multilateral Development Banks) to nurture the next group of emerging markets for our exports, to foster peace in countries facing conflict or on the brink of collapse, and to advance our shared values in the world,” he said. In response to questions, Geithner said the administration was working closely with strife-torn countries like Egypt and Tunisia to make sure that assets are protected, and seized if necessary for future return to them. “It is very important as we think about how best to support the political transition underway, (that) we recognize those new governments are going to face enormous economic challenges,” he said. Countries such as Tunisia and Egypt are considered middle-income nations so they would not quality for debt cancellation under existing international debt relief schemes overseen by the World Bank and International Monetary Fund. (Reporting by Glenn Somerville and Lesley Wroughton; Editing by Kenneth Barry) Copyright 2011 Thomson Reuters. Click for Restrictions .

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