House Democrats Contemplate Abolishing 401(k) Tax Breaks
October 16, 2008 Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive. House Education and Labor Committee Chairman George Miller D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute. Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal. At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months. Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation. The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated. “I want to stop the federal subsidy of 401(k)s,” Ghilarducci said in an interview. “401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break.” Under the current 401(k) system, investors are charged relatively high retail fees, Ghilarducci said. “I want to spend our nation’s dollar for retirement security better. Everybody would now be covered” if the plan were adopted, Ghilarducci said. She has been in contact with Miller and McDermott about her plan, and they are interested in pursuing it, she said. “This [plan] certainly is intriguing,” said Mike DeCesare, press secretary for McDermott. “That is part of the discussion,” he said. While Miller stopped short of calling for Ghilarducci’s plan at the hearing last week, he was clearly against continuing tax breaks as they currently exist.
“The savings rate isn’t going up for the investment of $80 billion,” he said. “We have to start to think about ... whether or not we want to continue to invest that $80 billion for a policy that’s not generating what we now say it should.” “From where I sit that’s just crazy,” said John Belluardo, president of Stewardship Financial Services Inc. in Tarrytown, New York. “A lot of people contribute to their 401(k)s because of the match of the employer,” he said. Belluardo’s firm does not manage assets directly. Higher-income employers provide matching funds to employee plans so that they can qualify for tax benefits for their own defined-contribution plans, he said. “If the tax deferral goes away, the employers have no reason to do the matches, which primarily help people in the lower income brackets,” Belluardo said. “This is a battle between liberalism and conservatism,” said Christopher Van Slyke, a partner in the La Jolla, California, advisory firm Trovena, which manages $400 million. “People are afraid because their accounts are seeing some volatility, so Democrats will seize on the opportunity to attack a program where investors control their own destiny,” he said. Automatic Enrollment Boosting 401(k) Participation" The Profit Sharing/401(k) Council of America in Chicago, which represents employers that sponsor defined-contribution plans, is “staunchly committed to keeping the employee benefit system in America voluntary,” said Ed Ferrigno, vice president in the Washington office. “Some of the tenor [of the hearing last week] that the entire system should be based on the activities of the markets in the last 90 days is not the way to judge the system,” he said. No legislative proposals have been introduced and Congress is out of session until next year. However, most political observers believe that Democrats are poised to gain seats in both the House and the Senate, so comments made by the mostly Democratic members who attended the hearing could be a harbinger of things to come.
In addition to tax breaks for 401(k)s, the issue of allowing investment advisors to provide advice for 401(k) plans was also addressed at the hearing. Rep. Robert Andrews, D-New Jersey, was critical of Department of Labor proposals made in August that would allow advisors to give individual advice if the advice was generated using a computer model. Andrews characterized the proposals as “loopholes” and said that investment advice should not be given by advisors who have a direct interest in the sale of financial products. "Pension Protection Act Boosting 401(k) Participation, Survey Concludes" The Pension Protection Act of 2006 contains provisions making it easier for investment advisors to give Market Mess Exposes Gaps in 401(k) Savers’ Knowledge" http://www.workforce.com/section/00/article/25/82/49.php“In retrospect that doesn’t seem like such a good idea to me,” Andrews said. “This is an issue I think we have to revisit. I frankly think that the compromise we struck in 2006 is not terribly workable or wise,” he said. On Thursday, October 9, the Department of Labor hastily scheduled a public hearing on the issue in Washington for Tuesday, October 21. The agency does not frequently hold public hearings on its proposals.
http://www.workforce.com/section/00/article/25/83/58.php
WSJ: South America Offers a Lesson in Pension Reform August 13, 2002
The Wall Street Journal's Pamela Druckerman reports on the Chilean and Argentinean pension systems and their potential models for United States' reform. The lessons are that well-regulated funds in a healthy economy can function well. In an unhealthy economy like Argentina's, both pay-as-you-go and funded systems would suffer. Excerpts follow:
"In 1984, just a few years after Chile privatized its lumbering state-pension system, Cristian Jara eagerly opened an account and began making monthly contributions. Now 41-years old and head of sales at a medical supplies company, Mr. Jara is convinced his account's sometimes rocky growth, alongside that of Chile's economy, will provide a comfortable nest egg when he retires."
"Across the Andes in Argentina, Perla Crivolitti, an executive secretary who is also 41, is convinced she will never see any of the money she has been socking away in a private retirement account since Argentina began allowing the funds in 1994. Her last financial statement showed her account was valued at about $2,200, down from $15,000 before Argentina spun into government debt default and currency devaluation in December.
"South American countries that have taken the private pension plunge offer both encouraging and cautionary tales for the U.S., where the Bush administration's plans to partly privatize the Social Security system have been postponed, but not canceled, by the stock market's deep decline and by Democrat's opposition. In Argentina, many retirement accounts have been devastated, and the pension system has grown increasingly frail amid the broader economic meltdown. In Chile, however, turbulence in financial markets has ruffled pensions but hasn't caused deep damage.
"The Bush team is seeking far less radical change than that undertaken by Chile and Argentina, where private plans are the sole source of income for most retirees, rather than a supplement to the public system. In recent remarks, a spokesman said Mr. Bush wants to allow younger workers to divert just a portion of their earnings to private pension plans instead of to Social Security.
"Still, experts say the U.S. government would face dilemmas similar to those encountered farther south: how to cushion against big declines in financial markets and how to keep paying retirees who are owed state pensions, even after the government loses revenue from younger workers who switched to private plans.
"Both Chile and Argentina sought to protect workers, most of whom had never owned stocks or bonds, by initially limiting the funds to government bonds and then gradually permitting workers to buy corporate debt and a limited amount of stock. This proved effective in Chile: Though returns still varied sharply from year to year, from gains of almost 30% in 1991 to just 3% in 1992, the funds posted average annual returns of 10.5% through June. One of the main classes of Chilean pension funds, which has a blend of stocks and bonds, rose 2.6% through June, even though stocks were mostly flat and economic growth has been weak."
For more information on the Chilean pension system see Jos Piera's "Empowering Workers: The Privatization of Social Security in Chile", and Jacobo Rodrguez's "Chile's Private Pension System at 18: Its Current State and Future Challenges."
For more information on world pension reform see Jos Piera's "Liberating workers: The World Pension Revolution."
http://www.socialsecurity.org/daily/08-13-02.htmlChina cuts interest rates again as growth cools
The People's Bank of China cut its main interest rate again today without any warning or explanation. By Malcolm Moore in Shanghai Last Updated: 5:36PM GMT 29 Oct 2008
It was the third time that the Chinese central bank has cut rates in the past two months. It informed banks that the key one-year lending rate will fall to 6.66pc from 6.93pc, effective from Thursday.
The country's policy makers were the first to act after the collapse of Lehman Brothers helped deepen the worst financial crisis since the 1930s. China slashed its interest rate for the first time in five years, after spending much of the past year battling record levels of inflation.
However, the prospect of a global recession has worried Beijing and China's economic model that is so reliant on the ability of Americans and Europeans to keep buying cheap Chinese imports. Industry analysts believe as many as 3m factory workers in Southern China could lose their jobs by the beginning of next year.
Mark Williams, an economist at Capital Economics, said that with inflation falling, the government would "now focus on ensuring that growth does not fall too much further".
Although many indicators show that China is still growing at around 9pc a year, and that retail sales have hit record peaks, there are growing fears over the slump of the property market and of the Shanghai stock exchange.
The government, which choked off credit to the property market at the end of last year in order to cool it down, have now reversed their position, cutting transaction taxes, mortgage rates and the amount of money required as a down payment.
Zhou Xiaochuan, the governor of the central bank, warned last weekend that China would have to act quickly and preemptively to stave off an economic downturn. "We must not underestimate the impact on our economy," he told the standing committee of the National People's Congress in a special hearing.
"In order to confront the main destabilising and uncertain factors that exist, it is necessary to strengthen our awareness of the dangers, pro-actively cope with the challenges and do a solid job of preparing to face potential difficulties," he added.
Hu Jintao, China's president, has also promised to start a lavish public works investment project in order to maintain employment levels and keep the economy afloat. China has also agreed a reported $25bn (£15.6bn) loan to Russia in exchange for an oil pipeline to be fed to the South. Several other emerging countries, such as the Congo, have turned to China for money because of the tightness of the credit markets.
The central bank moved after the Shanghai Composite stock index fell by almost 3pc to 1719 points. The picture was rosier in Hong Kong, where the Hang Seng closed up 1pc at 12702 points and in Japan, were investors flooded into the Nikkei 225, driving it up 7.74pc to 8211 points on the hope of an interest rate cut from the Bank of Japan on Thursday.
http://www.telegraph.co.uk/finance/economics/3278587/China-cuts-interest-rates-again-as-growth-cools.html
MOSCOW, October 28 (RIA Novosti) - Russian Prime Minister Vladimir Putin proposed on Tuesday that Russia and China gradually switch over to national currency payments in bilateral trade, expected to total $50 billion in 2008.
"We should consider improving the payment system for bilateral trade, including by gradually adopting a broader use of national currencies," Putin told a bilateral economic forum.
He admitted the task would be tough, but said it was necessary amid the current problems with the dollar-based global economy.
Chinese Prime Minister Wen Jiabao described strengthening bilateral relations as "strategic."
"Mutual investment by Russia and China has already exceeded $2 billion, this is a very good index," Jiabao said.
He praised the success of numerous projects, including additional construction of China's Tianwan nuclear power plant and the opening of a joint pharmaceuticals center in Moscow.
A number of large Russian companies, including state-run oil producer Rosneft and aluminum champion RusAl, are seeking to develop investment projects in China, Jiabao said.
The Chinese premier said bilateral cooperation in the helicopter industry, mechanical engineering, the energy sector, timber production and innovation sector was also showing signs of progress.
"China is a staunch supporter of Russia's accession to the WTO, but is categorically against politicizing the issue," Jiabao said.
The Russian premier invited Chinese investors to join Russian timber projects.
"We welcome both domestic and foreign investment in Russia's timber sector," Putin said. "As one of the largest consumers of our products, China could be a source of such investment."
He also offered Beijing Russia's assistance in developing a large passenger plane on the basis of Russia's experience with its wide-bodied Il-96 aircraft. http://en.rian.ru/russia/20081028/117991229.html
Japan Banking misery engulfs
The Japanese banking sector, once considered a safe port in the global deleveraging typhoon, has begun to crumble in the face of stock market crashes and the destructive unwinding of the yen carry trade.
The extent of the crisis emerged this week when the Nikkei 225 Index of Tokyo shares plunged to its lowest level since 1982, briefly breaking the 7,000-point level in a dip that analysts believe with have dire consequences.
The dip triggered a political panic in Tokyo, prompting the authorities to introduce a series of emergency measures aimed at shoring-up the stock market before the carnage unleashes a domino collapse of the nation’s weaker banks.
The plunge in Tokyo shares has been wildly amplified by the worldwide demise of the yen-carry trade – the gambit of borrowing yen cheaply to finance asset buying across the globe. The trade was a favourite of precisely the kind of hedge funds and speculators now hastily stampeding out of risk for the supposed safety of cash.
Nomura Holdings, the Japanese securities house which snapped-up the Asian and European operations of Lehman Brothers in its bid to become a global investment banking giant, unveiled huge quarterly losses of Y72.9 billion (£480 million). Several of the country’s largest banks, including Mitsubishi Tokyo UFJ (MUFG) and Norinchukin are now scrambling to raise billions of dollars of capital and red flags have been raised over the survivability of Japan’s regional banks.
The flood of red ink on Nomura’s results, which does not even include the $2 billion it forked-out for Lehman Brothers, highlights the catastrophic damage caused to the Japanese financial industry by the steep decline of stock values. Despite a rally in the index, along with a substantial dip in the yen, the landslide autumn sell-off has brutalised the share portfolios of the Japanese banks and now threatens their capital adequacy ratios.
MUFG unveiled what brokers described as “desperate looking” plans to raise Y1 trillion of capital through stock offerings and private placements. Other major names, including Mizuho and Sumitomo Mitsui are expected to follow suit by the end of this week. Norinchukin, the giant agricultural bank with exposure to a variety of “bubbly” investments, will attempt to raise around Y300 billion in a similar scramble to hold capital ratios above water.
Investors in the Tokyo market have been braced for trouble because of the surging yen, weakening exports and Japan’s early descent into recession. What they were not prepared for, however, was significant problems for the banks, which appeared largely recovered from their own financial crisis in 2003, and far better capitalised. Analysts initially believed that the drop in the Nikkei would find a floor at around 8,000 points – a level where the unrealised stock losses only affected the Tier 2 capital of Japan’s megabanks. The sharp fall below that could now impact the more critical Tier 1 capital reserves. http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5032381.ece
Global financial crisis may hit hardest outside U.S.
It's a measure of the global economy's current frailty that the prospect of a financial meltdown in nuclear-armed Pakistan is almost getting lost amid an ever-lengthening list of countries in trouble.
In Europe, Hungary and Ukraine require multibillion-dollar International Monetary Fund rescues while Standard & Poor's lowers neighbor Romania's credit rating to junk status. Argentina's government is trying to close a financial gap by putting private pension funds under government control. And Asian nations with unsustainable finances such as Vietnam and the Philippines are braced for harder times.
Like tremors before an earthquake, these financial ills hint at the tangible economic toll to come in lost jobs, income and factory orders. "What has not even started is the effect on the real economy. … The situation is going to get very, very dire," says Marino Valensise, chief investment officer for Baring Asset Management in London.
If the first wave of the financial crisis hit the United States hardest, the second blow seems set to punish foreign lands. Global pain now is spreading from the United Kingdom, where the economy already is shrinking, through Middle Eastern oil producers pinched by crude's price plunge, to Japan where the government said Tuesday that September's retail sales were lower than a year ago.
Suddenly, after six consecutive years of expansion, the world economy appears to rest on quicksand. Signs of economic wobbling are evident in Germany, where automaker Daimler said Monday it is shuttering 14 plants for a month because of evaporating demand. Even China's growth is slowing sharply, from nearly 12% in mid-2007 to 7.9% or less next year, according to Standard Chartered Bank.
The potential consequences of economic turmoil are especially worrisome in Pakistan, where the economy is in a "state of crisis," according to the Economist Intelligence Unit. Soaring food and oil prices coupled with runaway spending have made a mess of the government budget. Inflation is expected to top 15% next year, and the IMF is in talks with Pakistani officials about emergency financing.
"Every day that passes, things get worse. … The economy is in a downspin," said Zubair Iqbal, a retired IMF economist now at the Middle East Institute in Washington, D.C.
Pakistan in recent years attracted ample foreign investment and registered strong economic growth. But its economic heft remains modest. The South Asian nation's global significance is geopolitical: Pakistan is a sometimes-uncertain U.S. ally against Islamic extremists based in the country's tribal regions along the Afghanistan border.
Selig Harrison, an expert on the region at the Center for International Policy, says further economic deterioration would exacerbate ethnic tensions and undermine already fragile support for the country's new civilian government. "From a U.S. point of view, the political fallout from an economic collapse would be very, very dangerous," he said.
Despite Pakistan's daunting economic and security challenges, Iqbal is optimistic that a poverty-driven surge in extremism and instability can be avoided. So far in this crisis, however, it's the pessimists who have been proved right time and again.
IMF has a gloomy outlook
In April, for example, the IMF was criticized as unduly negative for an economic forecast that said the global economy would grow about 3.7% next year. This month, the organization issued a revised forecast that was even gloomier. Now, the IMF says the world economy will expand just 3% next year, its slowest pace since 2002 and right on the edge of what the world body considers a global recession. Other forecasters, such as Morgan Stanley's economists, say that recession already has begun.
A true global recession would be certain to hit commodity producers in the developing world especially hard. In the 1980-82 downdraft, non-fuel commodity prices fell almost 57%, says Vincent Truglia, managing director for research at NewOak Capital in New York. That's bad news for countries from Kenya to Argentina.
Oil producers with large populations — such as Iran, Venezuela and Russia — also face difficulties. In Russia, authorities are burning through financial reserves in a desperate bid to prop up the ruble. S&P last week lowered its outlook on Russian government credit to "negative," reflecting the danger of a downgrade prompted by the rising cost of Moscow's financial bailout. Russia has committed 15% of gross domestic product to recapitalize its financial sector, S&P said. But the ratings agency said it expects corporate defaults to increase as economic growth slows to less than 3% next year. And it expressed concern that the state's increasing hold on the economy might not be temporary.
Some investors remain sanguine. John Connor, portfolio manager for the Third Millennium Russia fund, says Russian consumers are relatively unencumbered by debt, so robust retail spending should keep the economy afloat. "I don't see any long-term problem. … It's a panic."
Countries worldwide share the pain
After the Sept. 15 Lehman Bros. bankruptcy intensified the credit crunch, some foreign officials seemed to delight in the USA's plight. Awash in debt and laid low by a Wall Street culture of heedless risk-taking, the U.S. had gotten what it deserved: "The U.S. will lose its status as the superpower of the global financial system. …Wall Street will never be what it was," German Finance Minister Peer Steinbrueck crowed in September.
Amid today's deepening gloom, that sense of schadenfreude— taking pleasure in others' misfortune — is long gone. Now everyone realizes they are in this global mess together. Reflecting that shared fate, Asian and European leaders gathered Saturday in Beijing to brainstorm ahead of a Nov. 15 international financial summit in Washington, D.C.
Likewise, G-7 finance ministers met in Tokyo as currency markets issued the latest signals of something gone terribly awry in the globe's financial mechanism. As hedge funds and other institutions cash out profitable stakes in developing countries, they are shifting to the relative safety of the U.S. dollar. It closed Wednesday at $1.28 against the euro, up 18% since the end of July. Morgan Stanley now likens the troubled U.S. economy to "the best house in a bad neighborhood."
Still, the soaring yen is the immediate focus of international concern. The Japanese currency is appreciating as investors hasten to unwind so-called carry trades — borrowing one currency at low interest rates to lend in a second country at much higher rates. It's a profitable trade, so long as the first currency doesn't unexpectedly appreciate, which is what is happening to the yen.
The yen Monday reached 93.93 to the dollar, its strongest in 13 years, before settling Wednesday at 97.38. The stronger yen is a critical blow to Japan, hammering its exporters by making their goods more expensive for Americans and Europeans; the past two years, net exports contributed more than half the economy's growth. "We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," the G-7 finance ministers said Monday, hinting at intervention to stem the yen's increasing strength.
Other financial weaknesses being exposed
The financial crisis may have begun with subprime mortgage loans in the United States. But it's now exposing financial vulnerabilities that have little to do with mortgages or the United States.
Chief among them: Eastern Europe's financial problems. Hungary, for example, has seen its currency, the forint, sag almost 50% against the dollar since July. Even a sudden 3-percentage-point increase in interest rates this week failed to arrest the decline. To stave off a potential default on Hungary's foreign debt, the IMF on Wednesday announced an extraordinary $25 billion loan package for the country. The rescue also includes funds from the European Union and World Bank.
That follows word of a $16.5 billion IMF credit line for Ukraine and $2 billion for Iceland, the first developed nation to seek such assistance since 1976. IMF funding is aimed at getting those economies back on a sustainable path. But even though the loans likely won't include the onerous requirements IMF aid carried in earlier crises, they will certainly lead to painful belt-tightening in the short term. Example: Iceland on Tuesday boosted its interest rates by 6 percentage points to 18%.
The IMF's resurgent role in backstopping troubled economies may be set to expand. Stephen Jen, Morgan Stanley currency strategist, predicted in a client note on Sunday that "the list of (emerging market) economies receiving assistance from the IMF will eventually grow to more than a dozen."
Hungary's financial malady — a dependence on foreign lenders that no longer are interested in making loans — is mirrored by other countries in the region, including Bulgaria, Romania, Turkey, Latvia, Estonia and Lithuania. Those economies, by themselves, aren't enormous. Every nine days, the U.S. produces goods and services equal to the total annual output of Hungary, Bulgaria and Romania. But the danger is that if these countries defaulted on their debts, major European banks would be caught in the downdraft, further imperiling already shaky credit channels.
Of Eastern Europe's $1.6 trillion in foreign bank debt, $1.5 trillion was borrowed from European banks, according to Morgan Stanley Research. Overall, European and U.K. banks have five times as much exposure to emerging markets as U.S. banks. Loans to these fast-developing countries equal 21% of European gross domestic product vs. just 4% of U.S. output.
Globalization undergoes transformation
The remarkable recent volatility in currency markets is a function of two broad transformations remaking both the global economy and global finance. First, institutions are undergoing a painful "deleveraging," or debt-repayment. That's causing mutual funds, hedge funds and banks to sell assets where they can to make up for losses elsewhere. The net result is to drive down the prices of most assets in most markets.
At the same time, a model of globalization that depended upon the U.S. as the consumer of last resort has broken down. American households have lost an estimated $5 trillion in wealth from the housing market collapse, which will cut annual consumption by more than $400 billion, according to the Center for Economic and Policy Research.
That means foreign factories can expect to sell significantly fewer toys, clothes and electronics to U.S. consumers.
Over time, countries such as China or South Korea could reorient their economies to rely more upon domestic consumption. But that transformation, once expected to occur over several years, now needs to happen immediately to replace vanishing export orders.
"The export model that's so dominant in the emerging markets is at risk. That's the vulnerability in the international system. …We're seeing an end to that model of globalization," says David Smick, a global financial strategist based in Washington, http://www.usatoday.com/money/economy/2008-10-29-global-financial-crisis_N.htm
Glimspe of metals, they have seem to found the bottom and are raiseing again
In Canada,Mints struggle to meet metals demand.
Safe-haven investors are on a shopping spree for precious metals, snapping up gold and silver as an antidote to topsy-turvy markets -- if they can find any, that is.
Demand for physical gold and silver is gobbling up product at nearly every mint around the globe and in Canada has the Royal Canadian Mint allocating its supply among its distributors, who in turn are limiting the number of coins they sell to dealers, who sell to consumers.
"Virtually every mint in the world is sold out of product and as fast as we can produce it, all of us, there is more demand," said David Madge, director of bullion services at the Royal Canadian Mint.
The situation is causing major headaches for bullion dealers like Donald Carlson.
"It's a nightmare trying to keep enough stock in," said Carlson, general manager of Calgary's Albern Coins & Foreign Exchange Ltd.
In the United States, sales of the one ounce gold bullion American Eagle coins are being allocated to authorized dealers, while sales of American Buffalo gold coins were suspended in late September. In the latter case, demand depleted inventories, said Carla Coolman, spokeswoman for the U.S. Mint.
"We are working very hard to resume sales as soon as we can," Coolman said from Washington, D.C.
It's a little different in Canada, where the voracious appetite for physical metal in both coins and bars has seen the Royal Canadian Mint double its output for gold twice in the last eight weeks, and they're still having trouble keeping up, Madge said. "We have never produced more than what we are producing right now. We just can't keep up with all the demand," he said.
It's the same story for silver. Madge said it's going to be a record year at the mint for making silver Maple Leaf coins.
In 2007, the Royal Canadian Mint produced a record 3.5 million one ounce silver Maple Leaf coins. Officials estimated production could easily double that this year, given the abnormal demand.
"That gives you a sense of magnitude as to how much we're pumping out right now," Madge said.
But back in Calgary, Carlson said silver, especially, is almost impossible to find.
Earlier this week, Albern Coins was pre-booking silver about 12 weeks out, while gold was running about two to three weeks behind.
"We get it in, we go through it, and start pre-booking for the next shipment," he said.
Back in March, when gold blew through the roof at $1,033.90 per ounce -- its highest ever price -- business was 70 per cent buyers and 30 per cent sellers, Carlson said.
Now it's 99 per cent buyers and one per cent sellers, and people are buying whatever's available.
The reason for the global run on demand is two-fold, with buyers snapping up gold lured either by free-falling prices that make it a bargain, or by the security it offers.
Physical gold is a very liquid asset and historically is sought out during tumultuous economic times, noted John Ing, president of Maison Placement Canada Inc. "Gold itself, to me, will be the antidote to these financial problems," Ing said.
Price volatility is being driven by a strengthening U.S. dollar, which pushes gold prices down. Also, depending on the day, volatility is coming from the selling side as investors liquidate their holdings -- be it physical gold or gold held in an exchange traded fund -- to raise cash.
gteel@theherald.canwest.com
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http://www.canada.com/calgaryherald/news/story.html?id=5fc11134-5617-40d4-8a9a-d10f1e92ca5f
Moscow will pose early test of NATO ambitions
Nicholas Kralev
Tuesday, October 28, 2008
The aftermath of the Russia-Georgia war presents the next U.S. president with an early test of American resolve to continue NATO's eastward expansion, a bipartisan policy that dates back to the Clinton administration. Both Republican candidate John McCain and Democratic candidate Barack Obama back NATO membership for Georgia, as well as for Ukraine - support that strengthened with the Russian invasion of Georgia in August. Georgia's bid to join NATO is expected to be addressed during meetings of NATO foreign and defense ministers later this year.
On the other big issue between Moscow and Washington - nuclear proliferation - both candidates call for continued negotiations to trim each nation's arsenal and for cooperation on efforts to prevent terrorists and rogue states, such as Iran, from obtaining nuclear weapons.
When asked about Russia during the first presidential debate, Mr. Obama said he and Mr. McCain "agree for the most part on these issues."
Russian analysts say they are not able to discern how the two men diverge on what promises to be one of the biggest foreign-policy conundrums of the next four years.
"It is impossible to glean enough information from the candidates' speeches to determine what their respective policies toward Russia would be as president," Fyodor Lukyanov, editor of the journal Russia in Global Affairs, wrote in the Moscow Times earlier this month.
Mr. Lukyanov called the two senators' positions "practically identical and lacking in substance."
However, supporters of Mr. Obama and Mr. McCain point out differences between them.
Obama supporter Madeleine K. Albright, secretary of state in the Clinton administration, said that Mr. Obama's approach is "much more nuanced," while Mr. McCain's is "isolating" and contains "much more Cold War language."
Randy Scheunemann, Mr. McCain's top foreign-policy adviser, said the Republican candidate "has warned about the dangers posed by Russia's domestic and foreign policies for many years."
Unlike Mr. Obama, Mr. McCain "has traveled to Ukraine, Latvia, Estonia, Georgia and many other countries that border Russia many times and he understands the security concerns of their leaders," Mr. Scheunemann said.Russia has taken advantage of surging oil prices to rebuild its economy and its military from a state of collapse after the breakup of the Soviet Union in the early 1990s.
The effort, led by Vladimir Putin, first as president and now as prime minister, has been accompanied by a rollback of democratic reforms and an increasing willingness to publicly challenge the U.S. position as the world's only superpower, analysts say.
With the world focused on the Olympics in Beijing this summer, Georgia launched a drive to regain control of the Russian-backed rebel province of South Ossetia, using weapons it acquired in anticipation of eventual NATO membership.
Russia responded with a full-scale counterattack, followed by a drive deep into Georgian territory. Though Russian troops eventually withdrew from Georgia proper, the five-day war left Russian troops in control of both South Ossetia and another breakaway region, Abkhazia.
When the conflict erupted, Mr. Obama initially urged both sides to show restraint. Mr. McCain criticized Mr. Obama's statement and emphasized his own personal relationship with Georgian President Mikhail Saakashvili. Mr. Obama soon toughened his rhetoric on Russia.
"Obama changed his tone because of the facts on the ground inside Georgia," said Michael McFaul, Mr. Obama's top Russia adviser. "It was not clear to us, when that first statement came out, that Russia was going to carry out a full-scale invasion."
Unlike Mr. McCain, Mr. Obama recognized "at the time that Georgia had also used violence," which showed a better understanding of the situation, Mr. McFaul said.
The Democratic nominee has a "sophisticated strategy for dealing with Russia," with "granularity and strategic thinking" that Mr. McCain's position lacks, Mr. McFaul said.
In his nomination acceptance speech at the Republican National Convention, Mr. McCain said: "We can't turn a blind eye to aggression and international lawlessness that threatens the peace and stability of the world and the security of the American people."
Ariel Cohen, senior research fellow at the Heritage Foundation and a McCain supporter, said Mr. Obama is trying to "appease the Kremlin" by opposing a missile-defense shield in Central Europe.
The Bush administration says the system, with missiles in Poland and radar in the Czech Republic, is intended to counter a nuclear strike from Iran. Russia vehemently opposes the defense and says it is designing new missiles to overwhelm the system.
Mr. Obama is skeptical of the program. His campaign has said he does not want to rely on an "unproven system."
Both candidates have criticized Moscow's authoritarian government, but Mr. McCain has advocated Russia's expulsion from the Group of Eight economic leaders. In July, Mr. Obama said that would be a "mistake," but he has not made a clear pronouncement on the issue recently.
"Russia has now become a nation fueled by petrodollars that is basically a KGB apparatchik-run government," Mr. McCain said at the candidates' first debate. However, he wants to "work with Russia to build confidence in our missile-defense program."
A recent report by the Center for Strategic and International Studies (CSIS), a leading Washington think tank, described both candidates' positions as "evolving."
"Neither presidential candidate has articulated a comprehensive strategic vision for dealing with Russia," the CSIS report said.
While observing the "convergence in the two candidates' position on Russia in the wake of the Russian-Georgian war," the CSIS report said that "subtle, but important differences" remain.
"Given the nature of presidential electoral campaigns, it may be too much to expect either candidate to articulate a clear, comprehensive strategic vision for the Russia policy they will adopt if elected," the report said.
Easthampton Burning?In the typhoon of commentary that’s blown around the world a step behind the financial tsunami that’s wrecking everything, two little words have been curiously absent: “fraud” and “swindle.” But aren’t they really at the core of what has happened? Wall Street took the whole world “for a ride” and now a handful of Wall Street’s erstwhile princelings have shifted ceremoniously into U.S. Government service to “fix” the problem with a “toolbox” containing a notional two trillion dollars. This strange exercise in financial kabuki theater will shut down sometime between the election and inauguration day, when the inaugurate finds himself president of the Economic Smoking Wreckage of the United States. What will happen?I have thought for some time that things could get dangerously out of hand in America, despite our exceptionalist notion that we are immune to the common plot-lines of history. For starters, inauguration night will seem more like Halloween, as those two little words fly in to haunt the new president. So, a large and looming question is: Who will be appointed the next attorney general of the U.S. (to replace the human sash-weight currently occupying the office), and how soon will the federal marshals be scouring the wainscoted hallways of Goldman Sachs, JP Morgan Chase, not to mention a thousand Greenwich, Connecticut, hedge fund boiler rooms, with man-sized nets?A storyline is already emerging to the effect that these birds really didn’t quite know what they were doing in grinding out that multi-trillion dollar basket of alphabet securities sausage (a theme on Sunday’s 60 Minutes broadcast). Nobody will buy that line of BS, though — and certainly not in the courtroom where, for instance, Mr. Hank Paulson will have to answer why his own firm of Goldman Sachs set up a special unit to short its own issues. It will be edifying to see how they answer.In the meantime, however, millions of Joe-the-Plumber types will have gotten their pink slips, slipped helplessly into foreclosure, watched the repo men hot-wire their Ford pickups, and eaten down the kitchen cupboard to a single box of Kellogg’s All-Bran (which had been sitting there for eleven years infested with weevils). They will be watching the official proceedings in the federal courtrooms with jaundiced eyes as they hunch in their tent cities, in the rain, sipping amateur-brand raisin wine bartered for a few snared rock doves. How long before the hardier ones among them venture out to Easthampton with long knives and matches?It will bring little satisfaction though, and the disappointment could lead to a more inchoate outbreak of civil disorder that would be more like a free-for-all of vengeance and grievance. There will be a great outcry for the new government to “do something!” Perhaps that will finally bring the troops home from Iraq — only for them to find that the Homeland has become Iraq....If the financial system completes its self-destruction — and that’s looking more and more like a real possibility — there will be several pretty awful consequences. One is that the United States will be forced to declare bankruptcy by repudiating its own debt. All those who took refuge in U.S. Treasury bonds and bills will be like folks who sought shelter from a tornado in their out-house. That would go hand-in-hand with a massive currency inflation that is likely to follow the current phase of compressive liquidating deflation — in which every possible asset is being sold off for less than its face value. That process is self-limiting due to the finite supply of real salable assets. The trillions of dollars injected into the system while this is happening must eventually snap-back as people shed the last fungible article and compete for necessary commodities like food and fuel with dollars that are suddenly plentiful but worthless. At some point, the government may have to summon up a new currency. I don’t think it will be anything like the “Amero” which the paranoid fringe incessantly mutters about as part of their fantasy in which the U.S., Mexico, and Canada all join up to become one country. But any “new dollar” would probably have to be backed by gold.As we discover ourselves to be a much poorer nation, one of my correspondents put it: “the bogus risk-swapping economy must be replaced by a net value-added economy.” That means actually making things, growing things, and rebuilding things, and that can only begin to happen if we do not stupidly sucker ourselves into a war with other nations who are liable to be extremely ticked off at us for destroying the global economy, but also competing with us for a dwindling supply of resources that are not equitably distributed around the world.This means especially oil. I hope you’re enjoying the temporarily cheap prices at the gas pumps, because this is purely a function of the compressive deleveraging that is going on right now, as contracts and positions held in energy markets are being dumped by everybody and his uncle to raise cash to meet margin calls. My guess is that oil and its byproducts will become much more difficult to get in the months ahead — not just more expensive, but literally not available. The current falling price of oil has little to do with the real supply and demand fundamentals. It’s simply a function of the markets being in near-total disarray. We’re running on current inventory, and running it down. In the background, all kinds of peculiar and terrible things are happening. The entire apparatus of allocation and distribution is being thrown out of whack. The smaller tanker operations are going bankrupt. The “less-developed” nations are heading back to the 17th-century level of daily life without electricity. The oil exploration and development projects that were planned for hard-to-get oil netting $100-a-barrel minimum — in places like the deepwater Gulf of Mexico, Siberia, and Central Asia — are being shelved, which means the world has less of a chance to offset coming depletions in old fields.The bottom line of all this is that we in the U.S. could find ourselves in a situation of shortages, hoarding, and rationing. This would pretty much kill off whatever remains of the previous shuck-and-jive economy — hamburger sales, theme park visits, NASCAR weekends — while it makes obvious the failures of our suburban living arrangements (and drives the value of housing there closer to zero). My pet project of restoring the American passenger railroad system might seem pretty minor in the face of all this, but it’s at least a place to start that will accomplish several things: allow people and things to get places without cars and trucks; put many thousands of people to work at many levels doing something of direct, practical value; and be a small step in rebuilding confidence that we are a society capable of accomplishing something.Regards,Jim KunstlerGreg’s Endnote: For an imaginative take on the resulting American life a few years hence, read Jim’s latest novel, World Made By Hand. Jim promises the sequel will be out very soon. You can find out more at www.kunstler.com.
Wednesday, Oct. 29, 2008
By JAY FRIESS
Staff writerThe Maryland State Highway Administration apologized this week for crews who snatched campaign signs off of private property during a Monday morning sweep of Route 6 in Charles County.
SHA spokesman David Buck said that crews from SHA's La Plata outpost inadvertently removed signs from lawns while doing a routine Monday sweep of the road.
"Our guys did inadvertently go off the state right of way," Buck said. In rural areas of the road, Buck said that the right of way varies between 10 and 15 feet from the road bed. The crews swept up signs located within 15 feet of the road bed. "They didn't realize they weren't on the state right of way."
One of the places the right of way shrinks to 10 feet is in front of the Nanjemoy home of Justin and Laurie Wade. Justin, who was home Monday nursing an injured back, caught an SHA crew removing his three political signs, which he said were at least 15 feet from the road.
"I assumed they were moving the signs to work on the culvert," said Justin Wade Monday, referring to an ongoing project in the area. Wade said he approached the crewman removing the signs and noticed that the crew had "a truck full of signs."
"I said, ‘I want [the signs] back,'" Wade said. He said he was directed to talk to the foreman who agreed to return the signs. "They left and then took down my neighbor's signs."
Wade, a supporter of Republican presidential candidate Sen. John McCain, sees a disturbing connection between his political leanings and the actions of a road crew controlled by a Democratic government.
"It is freedom of speech," Wade said, referring to his political signs.
"When we had our Bush signs out four years ago, nobody bothered them," said Laurie Wade, referring to the last presidential election, when former Gov. Robert L. Ehrlich Jr. (R) was in control of state government.
Buck dismissed any ulterior motives by the SHA crews.
"There was no malicious intent," he said.
Buck said the crews often patrol state roads during the election season to ensure that political signs aren't blocking drivers' views or posing a danger to SHA maintenance equipment.
"Clearly, around this time of year, [enforcement] is heightened. This is just standard practice."
Buck said that anyone who has had a sign removed from their yard by SHA can pick up the sign at the local shop on Washington Avenue in La Plata.
jfriess@somdnews.com
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