BOJ Leaves Rates Unchanged

Japan's Central Bank Cuts Growth Forecast, Leaves Interest Rates Unchanged.

The Bank of Japan slashed its annual economic growth forecast by 0.3 percentage points and held interest rates steady Wednesday as uncertainty in the global economy continued to cloud Japan's outlook.

"The environment overseas has changed, and uncertainty over the global economy persists," Gov. Toshihiko Fukui told a news conference. "Downside risks to Japan are also increasing."

The central bank lowered its growth forecast for the fiscal year through March to 1.8 percent from 2.1 percent in April, noting "uncertainties regarding overseas economies and global financial markets" stemming from the U.S. subprime loan crisis.

Still, the bank kept its growth outlook for fiscal 2008 at 2.1 percent, saying Japan's economy was "likely to continue its sustained expansion" into next year, according to a report it released.

The forecast revision came after the BOJ's policy board voted 8-1 to keep a benchmark interest rate unchanged at 0.5 percent at a one-day meeting Wednesday. The board last hiked rates in February.

The decision was widely expected after bank officials had warned of downside risks to the U.S. economy and volatility in global markets.

The BOJ said in its report, however, that Japan's exports were likely to be buoyed by strength in other economies despite a possible protracted slowdown in the U.S. due to the correction in the housing market. The central bank also expected strong corporate performance to lead to a gradual rise in wages, as well as stronger private demand.

The report said Japan's financial sector remained little affected by the U.S. subprime mortgage crisis, but Fukui warned of lingering risks.

"If risk factors materialize, the global economy could worsen more than initially expected, and a negative impact on the Japanese economy will be unavoidable," Fukui said.

The decision to keep interest rates unchanged came amid lingering signs of deflation in Japan. The nationwide core consumer price index fell 0.1 percent in September for the eighth monthly decline.

In another sign of trouble ahead for Japan's economy, the government said Wednesday housing starts fell 44 percent in September from a year earlier to 63,018 units, down for the third straight month and considerably worse than analysts' expectations.

The data suggests that a new building standards law in Japan, which was enacted in June and has made obtaining building permits more difficult, is continuing to hurt the housing sector. Analysts have said that could weigh on economic growth.

On Tuesday, the government said the country's unemployment rate rose to 4.0 percent from 3.8 percent in August, the highest rate since March.

US on Top in Economic Competitiveness

World Economic Forum Says US Back on Top in Economic Competitiveness Ranking.

The United States has regained its status as the world's most competitive economy thanks to strong innovation and excellent universities, according to a survey released Wednesday by the World Economic Forum.

The U.S. rebounded from sixth place last year to knock Switzerland from the top spot in the "global competitiveness index." The Swiss were second this year, followed by Denmark, Sweden, Germany and Finland.

The study by the Geneva-based World Economic Forum said the U.S. was boosted by its close cooperation between universities and business on research and development, its high intellectual property protection, and its efficient use of employees and investment.

But increasing public indebtedness in the U.S. threatens to hamper the country's growth, the study said.

"This danger has most recently been demonstrated by the fallout and contagion caused by the country's subprime mortgage crisis and the ensuing global credit crunch," said Xavier Sala-i-Martin, a professor of economics at Columbia University and one of the authors of the survey.

Sala-i-Martin said the weaknesses "present a risk to the country's overall competitiveness potential and to the global economy as a whole."

The aim of the survey is to examine the factors that can affect a country's business environment and development. Included are judicial independence, government favoritism and corruption.

Switzerland was credited with an excellent capacity for innovation, a sophisticated business culture, outstanding scientific research institutions, and strong intellectual property protection.

Denmark and Sweden were ranked third and fourth respectively, followed by Germany and Finland.

The Nordic countries -- traditionally strong in the survey -- were praised for their budget surpluses and very low levels of public indebtedness.

Germany's good performance is largely due to its high-quality infrastructure and the efficiency of its goods and financial markets, according to the survey. The same positive elements also boosted Britain, which came in ninth.

More than 11,000 business leaders in 131 countries took part in the survey, which ranked Singapore seventh, followed by Japan. The Netherlands came in 10th.

China and India, two emerging economies, were in the middle of the 131-nation list. China improved to 34th, from 54th last year. Its competitiveness was based mainly on its large market and a stable economy with low inflation and high savings.

India's 48th place ranking was mainly attributed to the high availability of scientists and engineers and good quality of scientific research institutions in an economy with a large market size.

At the bottom of the list were countries primarily in sub-Saharan Africa, such as Mozambique, Zimbabwe, Burundi and Chad.

As part of the weak points in the U.S., the survey listed insufficient judicial independence and high security costs for businesses. It also said the business community was particularly concerned about government favoritism in dealings with companies.

But the greatest flaw was economic instability, according to the survey. "The United States has built up large macroeconomic imbalances over recent years, with repeated fiscal deficits leading to rising levels of public indebtedness," it said.

High budget and trade deficits were also cited among the key factors which made the U.S. fall to sixth in last year's poll. The U.S. was top-ranked in 2005.

Some 'Vampires' Prefer Energy Over Blood

Another Kind of 'Vampire' Invades Homes This Halloween: Energy-Sucking 'Standby Mode'.

A force as insidious as Dracula is quietly sucking a nickel of every dollar's worth of the electricity that seeps from your home's outlets.

Insert the little fangs of your cell phone charger in the outlet and leave it there, phone attached: That's vampire electronics.

Allow your computer to hide in the cloak of darkness known as "standby mode" rather than shutting it off: That's vampire electronics.

The latest estimates show 5 percent of electricity used in the United States goes to standby power, a phenomenon energy efficiency experts find all the more terrifying as energy prices rise and the planet warms. That amounts to about $4 billion a year.

The percentage could rise to 20 percent by 2010, according to the U.S. Department of Energy.

In California, lawmakers passed a proposal last year -- dubbed the Vampire Slayers Act -- to add vampire electronics labels to consumer products, detailing how much energy a charger, computer, DVD player, PlayStation, microwave or coffee maker uses when on, off or in standby mode.

"It's something people don't know about," said Dave Walton, home ideas director for Direct Energy, a utility and energy services company that has one of its four main offices in Dublin, Ohio.

The issue is particularly pressing in Ohio, the nation's No. 1 emitter of toxic air emissions -- mostly from electricity production at the state's coal-fired power plants. Walton said skyrocketing energy costs mean everyone should worry about the vampires in the house.

The International Energy Agency has estimated standby energy use by vampire electronics at 200 to 400 terawatt-hours a year. The entire country of Italy consumes about 300 terawatt-hours of electricity each year, according to the agency.

Picture any appliance that displays a clock while otherwise idle, such as a microwave oven, coffee maker or DVD player. They constantly consume little bits of energy.

"About 40 percent of the electricity being used to power your home electronics is consumed while they are in that standby mode," Walton said. "If you just focus on that piece, you will be making a big step."

Ditto for things that charge, such as cell phones, PDAs, toothbrushes or portable tools, some of which trickle a charge even after the device that's charging is at capacity.

Some chargers halt the flow of current when it's not needed, which should happen automatically with chargers for lithium-ion batteries. If you're uncertain, Walton advises unplugging chargers when not in use.

He recommends hooking up your home computer system, including accessories like a printer or scanner, to a single power strip that can be easily switched off each night. He advises shutting off the other vampires too, though the inconvenience of resetting the clocks, channels and timers on those devices each morning will discourage most people.

The government-backed Energy Star program, coordinated jointly by the U.S. Department of Energy and U.S. Environmental Protection Agency, identifies appliances that consume less energy.

If one in 10 American homes used only appliances endorsed through the program, the Energy Department estimates, it would reduce U.S. carbon emissions by the same amount as planting 1.7 million acres of trees.

Singapore MAS: Growth to Ease

Singapore Central Bank Says Growth to Ease, Inflation to Pick Up in 2008.

Singapore's central bank expects economic growth to slow next year as global demand wanes and market sentiment cools with inflationary pressures also on the rise.

The city-state's trade-dependent economy remains vulnerable to external shocks, but faster price growth may compel the Monetary Authority of Singapore to stand by a tight monetary policy into 2008.

"The outlook for next year is more uncertain, as it hinges on the severity of the weakness in the U.S. housing sector," the central bank said in its semiannual macroeconomic review Tuesday.

The central bank expects economic growth to ease to a range of 4-6 percent in 2008 following an expansion near the upper end of a 7-8 percent band this year.

"This forecast has incorporated the possibility of further (temporary) bouts of volatility in the global financial markets as well as higher oil prices," the review said.

"More broadly, the slower rate of (gross domestic product) growth in 2008 reflects in part the moderation in growth in the asset market-related sectors in Singapore, as investors turn more cautious."

Singapore's economy has grown faster than expected so far in 2007, partly as a result of industries boosted by a healthy asset market. Gross domestic product expanded 6.4 percent in the third quarter from the second, and 9.4 percent percent on year.

The central bank's forecast for a more moderate growth in 2008 is paired with its concerns about faster price growth.

Singapore raised the goods and services tax to 7 percent from 5 percent on July 1, creating a one-time price spike.

But rising wages and rental costs, combined with higher global commodity expenses due to surging oil prices, are expected to create a more lasting price pressure.

"These sources of inflationary pressures are likely to persist (into 2008)," the central bank said.

Inflation averaged 2.7 percent in the third quarter, which was higher than the 0.8 percent rate in the first half, the central bank said.

Wages rose 6.9 percent in the first half of 2007, up from the 3.3 percent average in 2005-2006, as the labor market tightened.

Merrill Needs to Be Nursed Back to Vigor

Next Merrill Lynch CEO Will Need to Gain Investor Trust Even As Brokerage Faces More Losses.

No matter who is running Merrill Lynch & Co., it's going to need a regimen of restraint and recuperation after getting badly bruised by the global credit market shakeout.

The world's largest brokerage took a $7.9 billion writedown for subprime mortgages and asset-backed bonds whose values went sour. Many on Wall Street believe there's more where that came from -- maybe another $4 billion -- and Merrill's leadership will need to reduce risk and rebuild morale among its ranks.

Stan O'Neal -- who led Merrill Lynch to its biggest loss since being founded 93-years ago -- is reported to be in the midst of finishing the terms for his departure. Once that's completed, it is widely expected the 11-member board will reach out to BlackRock Inc. Chief Executive Laurence Fink for the job.

A person familiar with the matter who was not authorized to speak publicly said Fink had yet to be approached by Merrill's board -- and BlackRock's own directors have yet to call a meeting. Merrill declined to comment.

Fink -- or whoever is named to lead Merrill Lynch -- will have to immediately roll up his or her sleeves.

"It's a very bad situation to walk into because all the shoes have yet to drop," said David Easthope, a senior analyst with financial services consultant Celent. "They don't know the full losses yet, and they still have to go out and win support for their agenda and vision."

There are reports that Merrill Lynch could write down another $4 billion in value of asset-backed securities and other complex financial instruments in the fourth quarter. It could lead to the second-straight loss after Merrill went into the red by $2.4 billion during the third quarter.

The new CEO would have to make sense out of Merrill's investment portfolio, and immediately begin to scale back risk while avoiding any kind of fire sale of securities stuck on its books that few investors appear to want now. That could become tricky as a some of its investments -- collateralized debt obligations -- combine slices of different kinds of debt into a single security.

It will not be easy to sift through the CDOs, considering the value of these securities have dropped significantly since the summer's credit turmoil. The drop in the fixed-income markets led Merrill Lynch to at first estimate its writedown at $4.5 billion on Oct. 5 -- some 76 percent lower than what the brokerage finally reported.

Michael Mayo, a Deutsche Bank analyst who lambasted Merrill Lynch's management during a conference call about the earnings miss, said the new chief executive would face three tasks after taking over: "Get the numbers right, gain credibility and trust with investors, and fix (the) lack of risk controls while not hurting the 7/8ths of the company that is performing well."

One reason Fink is well suited for the job is his experience in the fixed-income market after starting off as a bond trader at First Boston. He later went on to launch BlackRock, turning it into one of the world's biggest investment managers with a near-sterling track record on Wall Street.

The company -- 45-percent owned by Merrill -- launched in 1988 with $1 billion in assets that has grown to its current $1.3 trillion.

There are some who question if Fink would even want the job because his position is secure at BlackRock, where he is respected by employees and investors. At Merrill Lynch, any potential CEO would face investors and staff who have been battered by the third-quarter loss.

Fink earned more than $24 million in 2006, and holds at least $391 million in BlackRock shares at current prices. That compares with the roughly $48 million salary for O'Neal, who also has $160 million in stock and retirement benefits, according to James Reda, founder of compensation consultancy James F. Reda & Associates.

What makes Fink an ideal contender is that he's a known name on Wall Street, and counts people like Morgan Stanley CEO John Mack as friends. He also has enjoyed good relations with O'Neal. They had dinner together just last Thursday.

Fink has friends on the inside, too, including Merrill co-President Greg Fleming, also considered a contender. There have been reports that both men might share power to lead the firm.

Wall Street Awaits Fed's Rate Decision

After Mixed Earnings Reports, Wall Street Awaits Federal Reserve's Decision on Interest Rates.

This week, the Fed speaks, and the market will listen. After sifting through mixed corporate profit reports and uneven readings on the economy, Wall Street will find out the answer to the long-debated question of whether the Federal Reserve will cut interest rates again.

The market anticipates one more rate cut. Beyond that, it's a tough call.

The Fed, which meets Tuesday and Wednesday, is in a bind. The credit markets remain squeezed, but energy and food costs are soaring and the dollar is tumbling. The balance between controlled inflation and fluid markets is one the central bank is always trying to preserve, but it's been a while since the tight rope has looked this precarious.

Most investors expect the Fed will decide tight credit is the bigger risk to the economy and lower rates -- a good bet, given how many times U.S. policy makers have said they will help maintain liquidity in the financial markets.

The question, though, is how long the Fed will maintain that stance. Crude oil prices have soared about 50 percent so far this year, and the dollar has sunk more than 8 percent versus the euro to record lows.

The market is pricing in not only a quarter-point rate cut after this week's central bank meeting, but another one after its Dec. 11 meeting. If the statement that accompanies next week's decision indicates the Fed is loathe to make borrowing even cheaper because of inflationary risks, stocks could be in for a bumpy ride.

A market rumor Wednesday of an emergency Fed decision before its scheduled meeting led investors to bounce back from steep losses that day. The move exemplified how jittery the stock market has been since the Dow and the S&P hit record highs on Oct. 9.

The stock market is not as temperamental now as it was in late July and early August, but Wall Street is worried about how much more the housing market will deteriorate and whether it will drag down the rest of the economy. Investors are also fretting whether banks and other financial firms are making the right bets to make up for their credit-related losses in the third quarter.

Uncertainty breeds volatility, and the Dow Jones industrial saw several triple-digit swings last week. The Dow ended the week up 2.11 percent, the Standard & Poor's 500 index advanced 2.31 percent, and the Nasdaq composite index rose 2.90 percent.

Besides the Fed decision, investors this week will also have a heavy dose of economic data to digest. The reports are expected, on the whole, to suggest slow growth and tame inflation.

The Commerce Department on Wednesday releases a reading on third-quarter gross domestic product. The Institute for Supply Management on Thursday reports on October manufacturing, while the Labor Department reports on September personal income, spending and inflation.

And on Friday, the Labor Department releases its October report on the job market -- an especially important piece of data, as it signals whether the average American is getting a regular paycheck. If people are losing jobs, they are apt to scale back spending, and may miss home loan and bill payments.

Economists surveyed by Thomson Financial expect, on average, payrolls to have risen by a net 85,000 in October, down from September's net increase of 110,000. They anticipate the unemployment rate to hold steady at 4.7 percent.

And while the majority of U.S. companies have already released their third-quarter results, there are still some big names on deck. Companies releasing quarterly results this week include Kellogg Co., RadioShack Corp., Colgate-Palmolive, Procter & Gamble Co., Eastman Kodak Co. and ExxonMobil Corp.

Weekend's Business Holiday: When Nature Calls in Bohol, Philippines

The famous kissing scene between Burt Lancaster and Deborah Kerr in the 1953 movie 'From Here to Eternity', on the sandy beach amid crashing surf, has immortalised itself in popular culture. During Valentine, couples can relieve that scene in the great outdoors - captivating, rippling terrain, luxuriant greenery, teeming wildlife, exotic marine life and turquoise waterways - and make their getaway a memorable and passionate one.

Let you be guided to the tropical sanctuary of Bohol to find solitude, serenity, and a diverse beauty of endless splendid paradise of the East.

Nestled in the heart of the Central Visayas, and located approximately 800 km south of Manila and 80 km northeast of Cebu, the province of Bohol is the tenth largest island in the Philippines. It is only a brief 75-minute flight from Manila, yet its pristine beaches, lush scenery and leisurely pace set it worlds apart from the throngs of humanity and relentless drone of traffic that characterize the Philippine capital.

Sun-Kissed Beaches

Pristine beaches and breathtaking sunsets are a staple of Bohol. Miles of white sand and clear blue waters are just waiting to be enjoyed by keen photographers in the never-ending pursuit for the postcard-perfect tropical image. Some of the unspoled beaches (Alona, Dumaluan and Momo) can be found on Panglao Island, which is joined to the mainland by a short bridge. Countless colourful outrigger boats dot the flawless ocean landscape and make interesting subjects in their own right. And the evening sunsets are often brilliant, casting strokes of ginger, crimson and violet across the night sky.

Natural Landscapes

Next to the white sand beaches, Bohol's signature attraction is its 1,268 dome-shaped grass-covered limestone hills. Sprinkled across six local communities, and ranging in height from 40 to 120 meters, they are affectionately known as the Chocolate Hills because they dry up and turn brown during Bohol's dry summers, resembling rows upon rows of Hershey's Chocolate Kisses. This unique geological landmark is a National Geographical Monument, and from the lookout point more than 200 steps above ground, the hills make for a one-of-a-kind panorama.

Another wonderful way to spend a few hours is aboard one of the many native, covered rafts that cruise up and down the palm-fringed banks of the Loboc River. This idyllic ride takes around two hours, and includes a delicious lunch of local delicacies with the added attraction of a Filipino trio who perform lively renditions of old rock and roll favourites.

Exotic Jungle and Marine Wildlife

Not far from the capital city of Tagbilaran is Corella Town, home to a unique nature refuge providing sanctuary to the Tarsier, the world's smallest - and oldest - known mammal. Believed to have existed for more than 45 million years, this tiny nocturnal primate measures a mere four to five inches, with a tail longer than its body. Tarsier conservation experts are present to explain the characteristics and behavior of this small creature, as well as provide information about the protection efforts of the shelter. The Tarsier is a rare find, particularly in its natural habitat, and certainly an attraction for nature and animal tourists.

Sea lovers will also enjoy scouting for playful Spinner dolphins and majestic Toothed and Baleen whales while on an outrigger boat ride southeast of Tagbilaran. Led by crews of former whale hunters - who are now employed as whale spotters - the adventure also includes swimming and snorkeling in the crystal clear waters.

Age-Old Architecture and Significant Historical

Bohol is a destination steeped in a centuries-old history that would be of particular interest to architecture lovers and history buffs alike. Located in the town of Baclayon, the Church of Our Lady of the Immaculate Conception, a magnificent structure and relic of the Philippines' Spanish history, is one of the country's oldest Catholic churches. Erected in 1727 by the first Spanish missionaries to settle in the region, the cathedral is constructed from coral culled from the sea and cut into rectangular blocks. Legend suggests that the 200 Filipino labourers who raised the church used the whites of a million eggs to cement these bricks together.

Weekend's Featured: Reflections on 9/11

We now understand that the crashing twin towers, a scene seemingly choreographed to perfection and to the collective horror of Americans, was not the beginning of a new era. But it is etched in Americans' memories as such, much like in the 60's, on the day John F. Kennedy was assassinated, or when Marthin Luther King's life was cut short, remembering where they were, what they were doing, just before the phone rang and we were told by our friends to hurry up, turn on the news.

The images of Ground Zero in the making touched our televisions screens and played at least a dozen times over before we turned away, still frantic voices heard somewhere in the distance, jumbled over the neighbor's radio. We had looked in morbid fascination, disbelieving, wanting to fool ourselves into thinking we were at the cinema watching just another Hollywood flick, yet fully understanding during those horrible moments it was real, perhaps too real, with whisperings that nothing would be the same again, and innocence was lost.

After the debris was settled, it was the historians and talking heads who told us that 9/11 was not the very beginning, just another chapter in a long story that opened with the homecoming of jihadists from the jagged mountains of Afghanistan. We had beat the Russians, they lost their empire, dismantled their nukes, and the Washington Establishment said that this was the End of History, liberal democracy was the 'end state' of mankind, and the whole world was now heading in that direction. With communism firmly in the dustbin, Francis Fukayama could easily persuade us all that Marx had it backwards.

Anyway, this is what we believed. We forgot, unfortunately, there was still another 'them'.

The radical Islamists had a Big Idea: They had an ideology and even a holy scripture for claiming their righteousness. Now, instead of Karl Marx it was the Prophet Muhammad, replacing Das Kapital with the Koran, central planning with shariah.

But the Americans were ready. The neoconservatives - Wolfowitz, Perle and Company - and a willing accomplice named Bush, had an entirely different Big Idea as well. They had bought into Fukayama's argument that the End of History was coming, but contrary to Fukayama, they believed that they could shape history, bringing democracy to the world even faster.

The radicals of the Islamic world already had their own Fukayama, a man named Sayyeb Qutb. His seminal work, Milestones, written in a prison cell in Egypt before he was hung at the gallows in 1966, called the faithful to arms in order to restore the law of Allah. To this day, the jihadist faithful are fond of quoting Qutb, and it is he - not Osama bin Laden - who is considered the Godfather of the international jihadist movement.

Where this will all end, we are not quite sure. Iraq is still in flames, and the violence is unlikely to die down anytime soon, surge or no surge. The neoconservatives are now joining Marx in the proverbial dustbin. The Europeans, after having cleansed themselves of clericalism and ideology and two world wars on their soil, have watched the drama of the war on terror with great dismay. Soon, the coalition of the willing few shall become a coalition of one. In the US, the Democrats are blaming the Republicans, the Republicans are blaming the Iraqis. When the US Congress finally does cut the financial cord, American troops start withdrawing and Iraq further unravels, then it will be the Republicans' chances to blame the Democrats for running and an opportunity for the Democrats to point their fingers at the Iraqis.

For Indonesia, public opinion polls on post-9/11 issues are clear on several counts. Indonesians - like most of the world - simply don't like Bush and his foreign policy, and they want American troops to leave Iraq. Still, they like Americans, and admire many aspects of their culture.

Here is the good news. It is also clear from polls that most Indonesians do not like radical Islamists. Shortly after 9/11, they found it hard to believe the disaster was somehow not part of some conspiracy hatched by the CIA. When suicide bombers started causing havoc on their home soil, slowly but surely the average Indonesian came to understand that radical Islamists were not the product of somebody's imagination, but rather a real threat. The fact more Indonesians died than foreigners in the Bali and Jakarta bombings turned the tide. Ask the average Indonesian now, and he will tell you, Osama is a bad man. Amen.

While America's challenge is to come to terms with imminent withdrawal and what happens thereafter in the Middle East, Indonesia's challenge will be how it will deal with radical Islamism.

Most Indonesians have been born and raised in a secular culture. Opinion polls show that the overwhelming majority of Indonesians would not vote for an Islamist presidential candidate. Neither do they want shariah embedded into national law.

Can we say with confidence that secularism is here to stay? More than likely, yes. More and more Indonesians are turning to religion in their homes, but that does not mean they want imams in control of their lives. We should not confuse piety with a desire for an Islamic caliphate.

Still, Indonesia's secular leaders must proceed with caution. If Indonesia is to stay a liberal democracy, then the government must deliver a better life for its citizens. It is worth noting that the only countries where radicals have gained a foothold - such as Afghanistan, Iran, and Somalia, for example - were failed states. Good governance and a strong economy are the strongest possible antidotes to radicalism. If nothing else, this is a lesson that Indonesia's leaders should firmly keep in mind in today's post 9/11 world.

UN Expert Decries Turning Food Into Fuel

UN Expert Calls Using Food Crops for Fuel `crime Against Humanity,' Demands 5-Year Moratorium.

A U.N. expert on Friday called the growing practice of converting food crops into biofuel "a crime against humanity," saying it is creating food shortages and price jumps that cause millions of poor people to go hungry.

Jean Ziegler, who has been the United Nations' independent expert on the right to food since the position was established in 2000, called for a five-year moratorium on biofuel production to halt what he called a growing "catastrophe" for the poor.

Scientific research is progressing very quickly, he said, "and in five years it will be possible to make biofuel and biodiesel from agricultural waste" rather than wheat, corn, sugar cane and other food crops.

Using biofuel instead of gasoline in cars is generally considered to cut carbon dioxide emissions, which contribute to global warming, although some scientists say greenhouse gases released during the production of biofuel could offset those gains.

The use of crops for biofuel has being pursued especially in Brazil and the United States.

Last March, President Bush and Brazilian President Luiz Inacio Lula da Silva signed an agreement committing their countries to boosting ethanol production. They said increasing use of alternative fuels would lead to more jobs, a cleaner environment and greater independence from the whims of the oil market.

Ziegler called their motives legitimate, but said that "the effect of transforming hundreds and hundreds of thousands of tons of maize, of wheat, of beans, of palm oil, into agricultural fuel is absolutely catastrophic for the hungry people."

The world price of wheat doubled in one year and the price of corn quadrupled, leaving poor countries, especially in Africa, unable to pay for the imported food needed to feed their people, he said. And poor people in those countries are unable to pay the soaring prices for the food that does come in, he added.

"So it's a crime against humanity" to devote agricultural land to biofuel production, Ziegler said a news conference. "What has to be stopped is ... the growing catastrophe of the massacre (by) hunger in the world," he said.

As an example, he said, it takes 510 pounds of corn to produce 13 gallons of ethanol. That much corn could feed a child in Zambia or Mexico for a year, he said.

Ziegler, a sociology professor at the University of Geneva and the University of the Sorbonne in Paris, presented a report Thursday to the U.N. General Assembly's human rights committee saying a five-year moratorium on biofuel production would allow time for new technologies for using agricultural byproducts instead of food itself.

Researchers are looking at crop residues such as corn cobs, rice husks and banana leaves, he said. "The cultivation of Jatropha Curcas, a shrub that produces large oil-bearing seeds, appears to offer a good solution as it can be grown in arid lands that are not normally suitable for food crops," he said.

Europeans Mull Sanctions Against Iran

Europeans, Fearing War in Their Backyard, Mull Own Sanctions Against Iran.

Britain and France are leading a push for new EU sanctions to punish Iran over its nuclear program. But while European nations increasingly fear a war in their backyard, the continent is divided over how to deal with the crisis.

The United States raised the stakes this week with new sanctions targeting the Iranian Revolutionary Guards, which Washington accuses of supporting terrorism by backing Shiite militants in Iraq. The announcement raised the question of whether the European Union would follow suit.

France, long viewed as too busy making money in Iran to punish it over its nuclear program, is now seeking to hurt Tehran economically. Britain also sees tougher sanctions as essential.

But few other European nations clamoring to support stepped-up EU sanctions. The divisions mirror those that split the continent over Iraq, though the fault lines have shifted.

"It's not unthinkable that (Europe) could reach symbolic sanctions, but it will be complicated to get much further. There's just too much division," said Philippe Moreau-Defarges of the French Institute for International Relations. "France is pretty isolated, aside from Britain."

Since the United States first slapped sanctions on Iran in 1979, European companies have continued to rake in profits from business in Iran, from the oil sector to banking deals.

While corporate rivals in Asia or elsewhere could fill a void left by the possible loss of European companies in Iran, EU expertise in the financial or industrial sectors would be missed, analysts said. Iran already faces limited EU sanctions and visa bans.

Concerns have been rising in some European corners that the United States or Israel might attack to prevent Iran from developing atomic bombs. But few EU members agree on what measures to take to make sure war does not break out.

Iran insists its nuclear program is designed strictly to produce electricity and has repeatedly defied U.N. demands that it suspend uranium enrichment -- a possible pathway to atomic weapons.

EU foreign ministers in mid-October failed to agree on new sanctions sought by French Foreign Minister Bernard Kouchner. He sent a letter to European counterparts Oct. 2 urging them to examine new EU sanctions, mainly on Iran's financial sector, to complement efforts toward a third set of U.N. Security Council sanctions.

But Germany and Italy -- Iran's biggest EU trading partner -- want to give diplomacy and current sanctions more time, looking for unity through the United Nations.

"These are countries that are discreet in their international relations and have economic ties to Iran," in industries like metals, chemicals and oil, said Francois Gere, an Iran specialist and head of the French Institute of Strategic Analysis.

After meeting Wednesday with Iranian officials, Italian Premier Romano Prodi praised the efforts of EU and Iranian negotiators and said dialogue was "the only instrument" to reach a solution.

The new dynamic of European ties with the United States is central to the equation.

Sarkozy has sought to rekindle ties with the U.S. that soured during the Iraq war. Britain has been a stalwart U.S. friend. Several EU newcomers from eastern Europe tend to favor tougher sanctions, mostly because of their pro-U.S. affinities, analysts said.

Sarkozy said in August he wanted to avoid "a catastrophic alternative: an Iranian bomb, or the bombing of Iran" if diplomacy fails. The mere suggestion from France of military action against Iran sent shockwaves through diplomatic circles. But Sarkozy's comments appear designed to rally the international community around the idea of a forceful strategy on Iran that stops short of war.

Sarkozy also apparently wants to set the example that France is willing to take a hard line against Iran despite its economic interests there. French lenders hold more outstanding Iranian debt of any in Europe -- some $5.9 billion -- or more than a quarter of all foreign claims there, according to Bank for International Settlements figures provided in September.

French automaker Renault has invested millions in a partnership to develop a local equivalent of its Logan sedan. A Renault spokeswoman said that existing sanctions on Iran have stalled the rollout of the production line that could make up to 300,000 cars per year for the Iranian market.

Some analysts, however, say France's tough stance is just for show.

"Though their rhetoric has been very staunch, in practice what they're going to do is a totally different thing," said Roger Howard, author of "Iran Oil," a book on the Mideast oil and the United States.

French oil company Total SA is close to finalizing a deal to develop the latest phase of Iran's South Pars natural gas field, Howard said. Total has declined to comment about possible sanctions.

"If Sarkozy and Kouchner are that hawkish, they can put pressure on them to pull the deal or distance themselves from it," he said.

US Banking: Fed's Stealth Bailout

Federal Reserve's Liquidity Actions Veiled "Bailout" of Distressed Banks.

There's no need to wait for a government bailout of the distressed banking system. The Federal Reserve has already begun doing so.

While much of the focus among investors has been on what the Fed will do with short-term interest rates, the central bank quietly began tinkering with its own rules in August to infuse billions of dollars of liquidity into a marketplace paralyzed by the intensifying credit crisis.

That change allowed bank holding companies to potentially gain access to depositor-insured funds that previously had been largely walled off from being used by the companies' riskier broker-dealer units.

It's not surprising that Fed officials aren't using the word "bailout" to describe what they've done. Their party line is that Fed's primary mission is to keep the economy afloat during these turbulent times. If its actions happen to help troubled banks and lenders along the way, lucky for them.

It may be hard to see anything fortunate in the current state of the credit markets. Starting in the middle of the summer, it became increasingly clear that the fallout from the collapse in the housing and mortgage markets was spreading into what looked to be a full-blown credit crisis.

Lenders everywhere tightened their borrowing standards, making it more difficult for individuals to obtain home loans or companies to finance stock buybacks and acquisitions. At the same time, investors got nervous about buying risky credit products, and that led many corners of the debt market to largely shut down, including the commercial paper market where companies raise cash to fund their operations on a short-term basis.

Such conditions have wreaked havoc at many commercial banks and investment banking firms. Many were on the hook to fund billions in home loans or private-equity acquisitions, expecting that they would be able bundle the loans into securities they could slice into parts and sell to investors.

One way many of them chose to do that was to create complex structured investment vehicles, or SIVs. While the going was good, such involvement paid off handsomely. Then the credit market seized up and the SIVs are now looking like multibillion dollar albatrosses.

The Fed has tried to ease the liquidity crunch that has ensued. It encouraged banks to borrow directly from its discount window and cut the rate for those loans by one-half of percentage point to 5.75 percent in August.

Then it slashed its federal funds rate in September by a bigger-than-expected half a percentage point to 4.75 percent, the first decline in its key overnight lending bank rate since 2003. Its policy-makers will meet again Oct. 30-31.

Those were classic moves from the playbook of the lender of last resort, as the Fed and other central banks are known to be. But the Fed went even further and is catching some flack for its separate decision to waive a rule intended to prevent banks from making large loans to the broker-dealer units affiliated with their parent companies.

That rule, section 23A of the Federal Reserve Act, had been set up to protect a bank from losses that might occur in a broker affiliate by restricting the amount of "covered transactions" between the two to 20 percent of the bank's capital and surplus. Such limits are intended to protect the capital of the bank and its depositors, even if it means that a company's non-bank units or the parent company is decapitalized or fails, according to Christopher Whalen, managing director at Institutional Risk Analytics.

But in late August, the Fed allowed Bank of America, Citigroup and JPMorgan Chase to extend up to $25 billion, or up to around 30 percent of each bank's regulatory capital, to their broker-dealer affiliates, which are running into trouble now that there is no market for certain credit products.

David Kotok, chairman and chief investment officer at Cumberland Advisors, said brokers set themselves up for a fall by selling complex mortgage-back securities in recent years to the likes of hedge funds that also included a promise to provide liquidity if the hedge fund couldn't sell the investment at predetermined prices.

At the time, such guarantees didn't sound like a big risk because demand for these and almost every other kind of higher-yielding investments seemed insatiable. But once the market turmoil hit, many hedge funds called on the brokers to keep their liquidity commitment.

This leaves the broker in a bind. It could be on the hook to recoup the paper, which now could be worth far less than it was just months ago. It could also have to find another buyer for the paper. If that doesn't happen, it may also have to pay a penalty to the hedge fund.

The Fed's rule change essentially lets the three large banks lend more to their broker-dealer affiliates. The loans must be guaranteed by the parent companies, have to be marked to current market rates every day and are subject to daily margin-maintanence requirements.

Those banks given the waiver declined a request by The Associated Press for additional comment on how those funds were used.

Kotok thinks the Fed's action was a smart way to help get the market functioning without the federal government subsidizing the banks' losses. It also gave the banks an opportunity to expand borrowing and use the Fed's discount window for help when needed.

"They've put a mechanism in place that wasn't there before," Kotok said. "Investors may be more inclined to buy paper knowing that there is a way to exit if they want to."

But the Fed's move has also been met with criticism from those who say it could put the banks' depositor-insured funds at risk should the market really tank. They also argue that it gives a break to the same people who helped get us into this credit mess in the first place.

"This is moral hazard of the first order," said Nouriel Roubini, a professor of economics at New York University's Leonard N. Stern School of Business and chairman of the consulting firm Roubini Global Economics. "The Fed is saying 'We will not punish you for what you have done. We will provide you with access to liquidity.' "

That certainly sounds like a bailout -- even if the Fed won't say so.

Oil Briefly Rises Above $91 a Barrel

Oil Briefly Rises Above $91 a Barrel on Supply Worries, Mideast Tensions.

Crude oil prices rose in Asia Friday -- climbing above $91 a barrel at one point -- on renewed concerns about oil supplies and news that OPEC won't further increase output.

Prices were also lifted on news that Lebanese troops had fired on Israeli warplanes Thursday. A conflict between Israel and Lebanon would not directly affect oil supplies, but traders worry any hostilities in the Middle East would draw in oil producers such as Saudi Arabia and Iran.

Light, sweet crude for December delivery rose 34 cents to $90.80 a barrel in electronic trade on the New York Mercantile Exchange by midmorning in Singapore. It also posted a new trading record of $91.10 during Asian trading.

The Nymex crude contract jumped $3.36 to settle at $90.46 a barrel Thursday in the U.S., closing above $90 a barrel for the first time.

Organization of Petroleum Exporting Countries Secretary General Abdalla el-Badri told The Wall Street Journal Asia on Thursday that the cartel is not in discussions to boost production by 500,000 barrels. The comments counter rumors that Saudi Arabia is pushing for another production increase after pressuring the group into one of similar size that goes into effect Nov. 1.

And while U.S. crude stocks fell to a nine-month low last week, Dow Jones Newswires reported that Oil Movements, a company that tracks oil tanker traffic, said crude shipments from OPEC members will grow more slowly than anticipated through early November.

Energy traders also remain concerned that a threatened incursion by Turkish armed forces into Iraq in search of Kurdish rebels would cut oil supplies out of northern Iraq.

The combination of supply worries and geopolitical concerns has pushed crude oil prices up more than 6 percent since Tuesday.

Prices first jumped sharply Wednesday after the Energy Information Administration reported that oil inventories fell 5.3 million barrels last week when analysts had expected them to grow 300,000 barrels.

That report reversed a three-day downward price trend and put energy traders back in a bullish mood, analysts said.

December Brent crude rose 54 cents to $88.02 a barrel on the ICE futures exchange in London.

Nymex heating oil futures rose 0.71 cent to $2.4155 a gallon while gasoline prices added 0.72 cent to $2.2430 a gallon. November natural gas futures fell 4.3 cents to $7.145 per 1,000 cubic feet.

Buffett Sees Subprime Woes Lingering

Buffett Projects Problems in US Subprime Market Will Affect Consumers for Up to 2 Years.

American billionaire investor Warren Buffett said Thursday that problems in the U.S. subprime mortgage market will likely weigh on consumers for up to two years, but that the U.S. economy will weather the storm.

The subprime problem "is having an impact," Buffett said on his first visit to South Korea. "It will have more of an impact."

Rising default rates among U.S. mortgage holders with poor credit histories have rattled global credit, stock and currency markets since August and raised concerns about a possible recession in the U.S. economy, a major export market for Asian companies.

"In the next 6 months, one year, two years the problems in the mortgage market can cause a lot of problems with consumers and hurt buying power in the United States," he said at a press conference after arriving earlier in the day from China on his private jet.

However, the U.S. economy has often had to face various difficulties and the present was no exception, Buffett said. "Overall the economy will make progress," he said.

Buffett came to Daegu, located about 180 miles southwest of Seoul, to inspect Iscar Korea, a subsidiary of Iscar, the Israeli industrial tool manufacturer that his company, Berkshire Hathaway Inc., purchased last year for $4 billion, its first overseas acquisition.

Buffett also expressed pessimism on the U.S. dollar. "We still are negative on the dollar relative to most major currencies," he said.

The dollar has fallen against the euro, British pound, Japanese yen, Indian rupee and many other Asian and European currencies this year. The euro, for example, has gained 8 percent against the dollar this year.

Buffett spoke highly of South Korean stocks, including steelmaker Posco, saying he first became attracted to them years ago because he saw that they were far too undervalued.

He said he feels that currently South Korean stocks in general are valued at prices that "are no higher and probably somewhat less" than stocks in the United States.

Buffett said that Berkshire Hathaway owns the equivalent of 3.4 million shares in Posco.

In March, Buffett said in his annual letter that Berkshire in 2006 bought 3.49 million shares, or 4 percent, of South Korean steelmaker Posco. Berkshire spent $572 million on the Posco shares, which were worth $1.16 billion at the end of 2006.

That would be worth considerably more now as Posco have more than doubled this year.

US Home Price Downtrend Set To Persist

Until the decline in home prices is halted, the battered housing market won't be able to recover nor will the economy be able to return to sustainable trend-like growth.

It's all about real home prices. And home prices won't recover until housing becomes more affordable - and that will require a prolonged decline in mortgage rates. That's the conclusion that Lakshman Achuthan, managing director at the Economic Cycle Research Institute in New York, draws from the recent behavior of ECRI's U.S. Leading Home Price Index. "We expect this price trend to continue on a downward swing," he said. "This will continue until the Federal Open Market Committee can drive mortgage rates lower and boost housing affordability."

The Key Role Of Home Prices

Home prices are currently playing two important economic indicator roles: -They reflect the health of the residential real estate sector itself. Rising real home prices signal a healthy, thriving real estate market. -An increase in home prices bolsters household wealth since home equity represents the largest portion of household wealth. It still accounts for more than 36% of net worth at the end of June, down from 37% in March. An uptrend in home prices is desirable as it increases the wealth effect and consumers' ability to maintain spending - a key element of economic growth. But nominal home prices have been on an accelerating downtrend in recent months. Nominal existing median home prices were down 2.4% for the month in August and down 0.3% from a year earlier, and new median home prices were down 8.4% month-to-month, and 7.5% year-to-year. September data are due Wednesday and Thursday respectively. ECRI combines new and existing home prices (there are roughly seven times as many existing home sales as new home sales) and deflates the result to get a composite measure of real median home prices. The August reading for that composite measure hit a three-year low and the September reading of ECRI's U.S. leading home price index pointed to continued declines. Moreover, the declines in real home prices occurred in all four regions of the country - Northeast, Midwest, South and West. An upturn in real median home prices is seen as a precondition for a resumption of a sustained overall growth rate. That is still a development that is a hope, not yet a reality. Higher home prices will reflect stronger demand for housing which would signal a turnaround in one of the weakest sectors of the economy. In addition, it would accompany a further increase in household wealth that would supplement income gains and fuel consumer spending.

The Fed's Role In Housing

The Federal Reserve has no direct control over mortgage rates, which, in the case of fixed rates, are tied to the 10-year Treasury note's yield. Indeed, in the past years, the Fed has been stymied by the behavior of long-term rates, which remained low even as the central bank embarked on a campaign to raise short-term rates. Now, however, long-term yields have risen back above short-term yields as the market prices in rate cut expectations and concerns about inflation push yields higher on longer-dated maturities. What the Fed can do, in Achuthan's view, is use the communication of its policy intentions to investors as a way to influence the direction of long-term rates. He points to the statement following the Sept. 18 policy meeting - at which the Fed cut the federal funds and the discount rate each by 50 basis points to 4.75% and 5.25% respectively. That statement said that "economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally." If the Fed keeps the housing market front and center in its assessment and continues to play down its inflation concerns, Achuthan believes that financial market participants may feel more comfortable with lower long-term rates - including mortgage rates. Moreover, Achuthan points out that the Fed should be able to lessen its inflation concern given that ECRI's future inflation gauge is showing that "underlying inflation pressures remain in a cyclical downtrend." The FOMC next meets for a two-day meeting that ends Oct. 31. Markets are expecting a 25 basis point rate cut and another cut in the discount rate - which, if that rate is brought in line with the funds rate, could help push lower the London interbank offered rate that forms the base for adjustable rate mortgages. Fed officials have played an even hand as the next meeting approaches, acknowledging the decline in price pressures excluding the volatile food and energy sectors, and the dire state of housing, while at the same time affirming the Fed's focus on inflation. Chairman Ben Bernanke, speaking in New York last week, noted the central bank stands ready to act if the downdraft in housing and related credit market turmoil hurt the economy. But he also stressed that the Fed is ready to reverse September's rate cuts if inflation gets out of control.

Weekend's Featured: G7 Meeting: Finance Leaders Have Full Plate

Finance Chiefs Grapple With Oil Prices, Falling Dollar, Credit Crisis.

Faced with soaring oil prices, a falling dollar and the worst credit crisis in nearly a decade, the masters of global finance have a simple message for jittery markets: Be calm, we are keeping an eye on things.

It probably didn't help, however, that the new assurances came exactly 20 years from the date of the worst market meltdown in U.S. history.

The meeting of finance leaders from the Group of Seven industrial countries coincided with the anniversary of "Black Monday," Oct. 19, 1987, when the Dow Jones industrial average plunged by 22.6 percent, its biggest one-day percentage loss ever.

While Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and their G-7 counterparts did not dwell on those long-ago eventsq during their discussions Friday, the anniversary served as an eerie reminder that the global economy does not always perform as its handlers wish that it would.

It didn't help that while the policymakers were holding their discussions in Treasury's ornate Cash Room, the Dow Jones industrial average was plunging by 366.94 points, or 2.64 percent. It was the third-biggest point drop this year and reflected in part oil prices that momentarily climbed to a new record, above $90 per barrel.

The problems this year came to a boil when credit markets essentially froze on Aug. 9 as fear overwhelmed many investors.

Troubles that began in the market for subprime mortgages have spread to many other kinds of debt. The credit crunch has been similar in intensity to the crisis that hit the global economy in August 1998 after Russia devalued the ruble.

Paulson, speaking to reporters after Friday's meeting, said the G-7 officials are watching market developments closely.

However, in their joint statement of goals, the officials essentially rehashed previous bland assurances about cooperation in such areas as limiting volatility in currency markets. Absent were any examples of where big differences in approach had been resolved.

European finance ministers had hoped the Bush administration would agree to more forceful actions to limit the sharp fall in the value of the dollar, which has hit record lows against the euro. That has helped American manufacturers by making their goods cheaper in European markets but is pinching European companies.

Paulson said he told the other G-7 officials that a strong dollar is in the best interests of the United States, an oft-repeated view that the Europeans complain is not being backed up with any action to halt the dollar's slide.

"I heard my colleague Hank Paulson say a strong dollar is good for the American economy. I hope the market will hear him. That's not the case today," complained French Finance Minister Christine Lagarde.

There also was no meeting of minds on the issue of whether all the credit market turmoil pointed to a need for tighter regulations, especially of hedge funds, the giant pools of cash that are largely unregulated.

The United States wants to keep them that way, declaring that government interference will slow market innovations, while France and Germany have been pressing for increased oversight.

German Finance Minister Peer Steinbrueck said he was pleased to see progress was being made in coming up with proposals for "best practices" for hedge funds although the United States is insisting those practices be voluntary.

Paulson said the G-7 officials, who will continue talks through the weekend as part of the fall meetings of the International Monetary Fund and World Bank, believe the global economy is on the mend.

"The consensus was that markets are better than in August," he told reporters. "It has been slowly improving, but it is going to take awhile."

But in its new forecast, the IMF trimmed its estimate of U.S. growth next year by almost a full percentage point and warned that the prospects for the global economy are "firmly on the downside, centered around the concern that financial market strains could deepen and trigger a more pronounced global slowdown."

If things do get worse, it is entirely possible that the G-7 countries will find the political will to take more forceful actions. But the problem is they may be out of practice because the world economy had been doing relatively well until this year.

"You have oil prices surging to record levels and a global credit crisis and currency volatility," said David Jones, chief economist at DMJ Advisors, a Denver-consulting firm. "It has been a long time since the G-7 has faced this many financial threats."

Weekend's Featured: IMF Vows to Move with Times, Boost Role of Developing Countries

The IMF, under pressure to move with the times, backed reforms Saturday to give low-income countries a stronger voice in its decision-making and defended its response to recent financial market upheaval.

Policymakers from the International Monetary Fund also bowed to insistence from member contries that the Fund shore up its shaky finances, pledging to cut costs and boost efficiency.

The commitment came in a final statement issued after a meeting here of the IMF's steering committee, held as the 63-year-old Fund was being pressed to accord greater representation to currently under-represented non-Western countries.

The committee said reforming the IMF "should enhance the representation of dynamic economies, many of which are emerging-market economies, whose weight and role in the global economy have increased."

Such countries should see their voting share increased, the committee said, adding that "the voice and representation" of poor countries would also be strengthened.

It said all elements for an internal reform package, including an increase in the quotas that determine a member's voting rights, should be in place by the time of its next meeting in April 2008.

The IMF in September took an initial step toward overhauling its management structure by raising the quotas for four rising economies, China, South Korea, Mexico and Turkey.

The Fund is now in the midst of a second round of reforms, which was under discussion here.

While the action taken Saturday was hailed by some IMF officials as a clear advance, outgoing IMF Managing Director Rodrgio Rato cautioned that "we are in an interim moment."

"Today there has not been any final agreement," he said, adding that details of the reform still needed to be thrashed out.

Brazilian Finance Minister Guido Mantega earlier in the day implied that the IMF had in fact been slow to act on reform, attributing the hold-up to "resistance to change on the part of developed countries, which are over-represented in terms of voting power."

The distribution of quotas is determined according to complex mathematical formulas. Moves to adjust the share-out have been the subject of sometimes bitter debate, with certain industrialized nations reluctant to give ground to emerging-market members.

The Fund also came in for criticism from the Group of 24 developing countries for what it said was the Fund's failure to foresee the recent meltdown on financial markets, which erupted following a collapse of the US high-risk -- or subprime -- mortgage market.

The G24 said the IMF should perhaps spend as much time monitoring advanced economies, where the turbulence originated, as it does the economies of less developed countries.

"Allow me to point out the irony of this situation," Mantega of Brazil said.

"Countries that were references of good governance, of standards and codes for the financial systems, these are the very countries that are facing serious problems of financial fragility putting at risk the prosperity of the world economy," he said, referring to major industrialized nations such as the United States.

"The Fund had little to say that was practical about this crisis," he said. "It has been excessively cautious in its recommendations. It justifies this caution by pointing to the unprecedented nature of the problems."

But Rato countered that the Fund last April was "already very clearly stating our worries about the subprime segment in the United States."

And at the Group of Eight summit in Germany in June, he said, he spoke in the name of the Fund and had made it clear the IMF was "worried about the complacency and the quality of some of the deals that were being done at the time in the markets."

The IMF, whose mission is to promote international financial stability, is also struggling with its own finances as many newly cash-rich countries repay debt, leaving it without critical interest payments.

The current situation had sparked calls from several committee members, notably from the Group of Seven industrialized powers, for the Fund to streamline its finances.

The committee said Saturday it "recognized" the need for more predictible and stable sources of Fund income, notably from a reduction in administrative costs and greater management efficiency. It said "a new income model" should be drafted for debate at its April meeting.

Bernanke: Hard For Policy To Address Market Bubbles

Central bankers are limited in identifying and addressing asset price bubbles, and such disruptions are in any case a hard-to-avoid side effect of having a dynamic financial sector, Federal Reserve Chairman Ben Bernanke said Monday.

"It is very, very difficult to ascertain whether a bubble is in progress early enough in the process to address it effectively using macro and monetary policy," the central banker leader said. Bernanke was speaking at a gathering of the Economic Club of New York, and his comments came in response to questions from Henry Kaufman, of Henry Kaufman & Co., and Bear Stearns Chief Economist David Malpass. The chairman's remarks arrive at a challenging time for the central bank. The Fed responded last month to the recent market trouble and its negative implications for growth with an aggressive half-percentage-point rate cut last month, and for some time, most on Wall Street have expected to see further easing. But a string of recent economic data, from jobs numbers through to retail sales, has shown surprising resilience in the face of the gyrations of the financial sector. For some, the data are calling into question the need for additional rate cuts, and futures markets have largely priced out of the market any additional move lower in what is now a 4.75% fed funds rate. In his formal remarks, the central bank leader had said "the improved functioning of financial markets is a positive development in that it increases the likelihood of achieving moderate growth with price stability." But Bernanke had also warned it remains "uncertain" what impact the market troubles will have on overall economic growth. He added the Fed "will continue to watch the situation closely and will act as needed to support efficient market functioning" along with promoting growth and price stability. Bernanke's post speech remarks were wide ranging, and addressed the limits central bankers have in remedying market problems. "One of the downsides of innovation is that sometimes you make mistakes and have problems," Bernanke said, referring to some of the troubles that have beset financial markets over recent months. On the matter of technological change and the rise of things like subprime mortgage lending, he said "if we want to have innovation and growth and productivity and change and dynamism, we have to let the system work and we have to sometimes have problems."

Important For Flexible Exchange Rates In Large Economies

Referring to the root of the current troubles, namely understanding the pricing and risk profile of many types of securities, Bernanke said "there is no totally satisfactory solution" to the problem. "The best answer" to a better valuation process "is that the firm or vehicle in question needs to be as transparent as possible about what it is and how it values its assets." Bernanke added some of the current stress in markets represents an "information problem, and it will take a while for investors to appropriately value" the assets they hold. The central banker also said it was particularly valuable the insights the Fed has gained into banks' health as a result of the Fed's regulatory activities. The Fed chairman also commented on the dollar's shifting value on U.S. inflation dynamics. Bernanke said, "it is important that we pay attention to (exchange rates) and figure them into our calculations." "One cannot deny that all else equal, when the dollar depreciates there is some inflationary effect," Bernanke said. But, "our experience over the recent decade has been that those effects are relatively small." He also said it's important for large economies to have flexible exchange rates. The Fed chief also said in his post speech remarks that while there does appear to be somewhat of a short-run tradeoff between growth and inflation, "over the longer period, we now understand low inflation is essential for solid economic growth to persist and be sustained." Bernanke added "we at the Federal Reserve will be very focused" on achieving that low inflation goal. Bernanke also said that in the long running debate over the low savings rate in the U.S., it's more important to weigh overall wealth levels, rather than just how much money is saved.

Oil Prices Close at New Record

Oil Prices Above $84 a Barrel on Winter Supply Concerns, Conflict Between Turkey, Kurds.

Oil prices kept rising Monday after closing at a new record in the previous session on worries that supplies are insufficient for coming winter demand and concerns over the conflict between Turkey and Kurds in northern Iraq.

Light, sweet crude for November delivery added 89 cents to US$84.58 a barrel in electronic trading on the New York Mercantile Exchange, midday in Europe, rising to a new high of US$84.63 before receding slightly.

The contract rose 61 cents to settle at a record US$83.69 a barrel on Friday after rising as high as US$84.05, also a record.

Brent crude futures rose US$1.16 to US$81.71 a barrel on the ICE futures exchange in London.

Recent reports have indicated that crude inventories are falling. Last week, the U.S. Energy department reported that U.S. oil supplies declined in the week ended Oct. 5, while the International Energy Agency said that oil inventories held by the world's largest industrialized countries have fallen below a five-year average.

"One of the factors that has provided underlying support to oil prices in recent weeks has been concerns that if we move into the Northern (Hemisphere) winter that oil market conditions are likely to remain tight," said David Moore, commodity strategist at the Commonwealth Bank of Australia in Sydney.

Some analysts think the supply shortfall in last week's U.S. Energy Department inventory report is an anomaly. They doubt demand is as strong as recent forecasts by the department and the IEA suggest. These analysts expect oil prices will soon begin a seasonal decline to US$70 a barrel, or lower.

Prices were also supported by worries that Turkey could take unilateral military action against Kurdish rebels in northern Iraq, following comments by the Turkish prime minister Friday that suggest Turkey will not worry about the diplomatic consequences of such an incursion.

"The main risk to supplies is currently on an escalation of the Turkish army, Kurdish militants conflict, where we believe the risk for disruptions to the Mediterranean supplies would be real," said Olivier Jakob of Petromatrix in Switzerland.

U.S. Secretary of State Condoleezza Rice on Saturday urged Turkey to show restraint in its response to attacks from Kurdish rebels, but Turkish leaders have appeared to be less receptive to Washington's appeals since a committee of U.S. lawmakers passed a resolution last week labeling as genocide the World War I-era killings of Armenians by the Ottomans -- a characterization that Turkey rejects.

Nymex heating oil futures rose 1.92 cents to US$2.2656 a gallon (3.8 liters) while gasoline prices added 1.74 cents to US$2.1025 a gallon. Natural gas futures rose 20.3 cents to US$7.177 per 1,000 cubic feet.

Weekend's Special: Ruins of Machu Picchu, Peru

Machu Picchu is a city located high in the Andes Mountains in modern Peru. It lies 43 miles northwest of Cuzco at the top of a ridge, hiding it from the Urabamba gorge below. The ridge is between a block of highland and the massive Huaynac Picchu, around which the Urubamba River takes a sharp bend. The surrounding area is covered in dense bush, some of it covering Pre-Colombian cultivation terraces.

Machu Picchu (which means "Old Peak") was most likely a royal estate and religious retreat. It was built between 1460 and 1470 AD by Pachacuti Inca Yupanqui, an Incan ruler. The city has an altitude of 8,000 feet, and is high above the Urubamba River canyon cloud forest, so it likely did not have any administrative, military or commercial use. After Pachacuti’s death, Machu Picchu became the property of his allus, or kinship group, which was responsible for it’s maintenance, administration, and any new construction.

Machu Picchu is comprised of approximately 200 buildings, most being residences, although there are temples, storage structures and other public buildings. It has polygonal masonry, characteristic of the late Inca period.

About 1,200 people lived in and around Machu Picchu, most of them women, children, and priests. The buildings are thought to have been planned and built under the supervision of professional Inca architects. Most of the structures are built of granite blocks cut with bronze or stone tools, and smoothed with sand. The blocks fit together perfectly without mortar, although none of the blocks are the same size and have many faces; some have as many as 30 corners. The joints are so tight that even the thinnest of knife blades can't be forced between the stones. Another unique thing about Machu Picchu is the integration of the architecture into the landscape. Existing stone formations were used in the construction of structures, sculptures are carved into the rock, water flows through cisterns and stone channels, and temples hang on steep precipices.

The houses had steep thatched roofs and trapezoidal doors; windows were unusual. Some of the houses were two stories tall; the second story was probably reached by ladder, which likely was made of rope since there weren’t many trees at Machu Picchu’s altitude. The houses, in groups of up to ten gathered around a communal courtyard, or aligned on narrow terraces, were connected by narrow alleys. At the center were large open squares; livestock enclosures and terraces for growing maize stretched around the edge of the city.

The Incas planted crops such as potatoes and maize at Machu Picchu. To get the highest yield possible, they used advanced terracing and irrigation methods to reduce erosion and increase the area available for cultivation. However, it probably did not produce a large enough surplus to export agricultural products to Cuzco, the Incan capital.

One of the most important things found at Machu Picchu is the intihuatana, which is a column of stone rising from a block of stone the size of a grand piano. Intihuatana literally means ‘for tying the sun", although it is usually translated as "hitching post of the sun". As the winter solstice approached, when the sun seemed to disappear more each day, a priest would hold a ceremony to tie the sun to the stone to prevent the sun from disappearing altogether. The other intihuatanas were destroyed by the Spanish conquistadors, but because the Spanish never found Machu Picchu, it remained intact. Mummies have also been found there; most of the mummies were women.

Few people outside the Inca’s closest retainers were actually aware of Machu Picchu’s existence. Before the Spanish conquistadors arrived, the smallpox spread ahead of them. Fifty percent of the population had been killed by the disease by 1527. The government began to fail, part of the empire seceded and it fell into civil war. So by the time Pizarro, the Inca’s conquerer, arrived in Cuzco in 1532, Machu Picchu was already forgotten.

Machu Picchu was rediscovered in 1911 by Hiram Bingham, a professor from Yale. Bingham was searching for Vilcabamba, which was the undiscovered last stronghold of the Incan empire. When he stumbled upon Machu Picchu, he thought he had found it, although now most scholars believe that Machu Picchu is not Vilcabamba. Machu Picchu was never completely forgotten, as a few people still lived in the area, where they were "free from undesirable visitors, officials looking for army ‘volunteers’ or collecting taxes", as they told Bingham.

Weekend's Special: The Silk Road in China and Central Asia

Sino-Western cultural communication traces back as early as the ancient times. When sea transportation was still in its early stages, China's beautiful silk and other products were sent to central Asia and Europe mainly through the Hexi Corridor and several other passages in what is now Xinjiang. These ancient routes linking inland China with its western border and farther on to western countries are known today as the Silk Road.

The famous Han Dynasty envoy Zhang Qian took this road on his journey to the west. It is also through this road that Kumarajiva and Marco Polo arrived in China. Although silk was only one item of many others in the abundant material and cultural exchange on the route, it seemed quite something to use the gorgeous and magnificent silk to symbolize the profound friendship existing in history among the peoples of different countries; hence, people all over the world were happy to accept and call it the Silk Road when a modern German historian gave it that name in 1887.

Broad areas of the eastern section of the Silk Road have long been the home of China's Uygur, Han, Hui, Kazak, and other nationalities. Their rich culture, abundant products, and great number of historical sites add charm to this ancient passageway. Today, with modern transportation and communications, the route still plays an important role in facilitating cultural and economic exchange in China's western regions as well as between China and the central Asian countries.

The Nature of the Route

The description of this route to the west as the "Silk Road" is somewhat misleading. Firstly, no single route was taken; crossing Central Asia several different branches developed, passing through different oasis settlements. The routes all started from the ancient capital in Xi'an, headed up the Gansu corridor, and reached Dunhuang on the edge of the Taklimakan Desert.

The northern route then passed through Yumen Guan (Jade Gate Pass) and crossed the neck of the Gobi desert to Hami (Kumul), before following the Tian Shan range around the northern fringes of the Taklimakan. It passed through the major oases of Turfan and Kuqa before arriving at Kashgar, at the foot of the Pamirs. The southern route branched off at Dunhuang, passing through the Yang Guan and skirting the southern edges of the desert, via Miran, Hetian (Khotan) and Shache (Yarkand), finally turning north again to meet the other route at Kashgar.

Numerous other routes were also used to a lesser extent; one branched off from the southern route and headed through the Eastern end of the Taklimakan to the city of Loulan, before joining the Northern route at Korla. Kashgar became the new crossroads of Asia; from here the routes again divided, heading across the Pamirs to Samarkand and to the south of the Caspian Sea, or to the South, over the Karakorum into India; a further route split from the northern route after Kuqa and headed across the Tianshan range to eventually reach the shores of the Caspian Sea, via Tashkent.

Secondly, the Silk Road was not a trade route that existed solely for the purpose of trading in silk; many other commodities were also traded, from gold and ivory to exotic animals and plants. Of all the precious goods crossing this area, silk was perhaps the most remarkable for the people of the West. It is often thought that the Romans had first encountered silk in one of their campaigns against the Parthians in 53 B.C but realized that it could not have been produced by this relatively unsophisticated people. They reputedly learnt from Parthian prisoners that it came from a mysterious tribe in the east, who they came to refer to as the silk people, "Seres".

In practice, it is likely that silk and other goods were beginning to filter into Europe before this time, though only in very small quantities. The Romans obtained samples of this new material, and it quickly became very popular in Rome for its soft texture and attractiveness. The Parthians quickly realised that there was money to be made from trading the material, and sent trade missions towards the east. The Romans also sent their own agents out to explore the route, and to try to obtain silk at a lower price than that set by the Parthians. For this reason, the trade route to the East was seen by the Romans as a route for silk rather than the other goods that were traded. The name "Silk Road" itself does not originate from the Romans, however, but is a nineteenth century term, coined by the German scholar, von Richthofen.

In addition to silk, the route carried many other precious commodities. Caravans heading towards China carried gold and other precious metals, ivory, precious stones, and glass, which was not manufactured in China until the fifth century. In the opposite direction furs, ceramics, jade, bronze objects, lacquer, and iron were carried. Many of these goods were bartered for others along the way, and objects often changed hands several times. There are no records of Roman traders being seen in Xi'an, nor Chinese merchants in Rome, though their goods were appreciated in both places. This would obviously have been in the interests of the Parthians and other middlemen, who took as large a profit from the change of hands as they could.

Restoration and Tourism

Since the intervention of the West last century, interest has been growing in this ancient trade route. Books written by Stein, Hedin, and others have brought the perceived oriental mystery of the route into western common knowledge. Instilled with such romantic ideals as following in the footsteps of Marco Polo, a rapidly increasing number of people have been interested in visiting these desolate places. Since China opened its doors to foreign tourists at the end of the 1970s, it has realized how much foreign currency can be brought to the country by tapping this tourist potential.

This has encouraged the authorities to do their best to protect the remaining sites; restoration of many of the sites is presently underway. The Mogao grottoes were probably the first place to attract this attention; the Dunhuang Research Institute has been studying and preserving the remains of the grottos, as well as what was left of the library. Restoration is presently underway; the outside of the grottoes was faced in a special concrete to prevent further subsidence, and some of the murals are being touched up by a team of specially trained artists and craftsmen.

Archaeological excavations have been started by the Chinese where the foreigners laid off; significant finds have been produced from such sites as the Astana tombs, where the dead from the city of Gaochang were buried. Finds of murals and clothing amongst the grave goods have increased knowledge of life along the old Silk Road; the dryness of the climate has helped preserve the bodies of the dead, as well as their garments.

There is still a lot to see around the Taklimakan, mostly in the form of damaged grottos and ruined cities. While some people are drawn by the archaeology, others are attracted by the minority peoples; there are thirteen different races of people in the region, apart from the Han Chinese, from the Tibetans and Mongolians in the east of the region, to the Tajik, Kazakhs, and Uzbeks in the west. Others are drawn to the mysterious cities such as Kashgar, where the Sunday market maintains much of the old Silk Road spirit with people of many different nationalities selling everything from spice and wool to livestock and silver knives. Many of the present-day travellers are Japanese, visiting the places where their Buddhist religion passed on its way to Japan.

Greenspan: Economic Data Look Good Through Third Quarter

While U.S. economic data look good in the third quarter, the growth rate will continue to slow and the housing market will weaken further, former U.S. Federal Reserve chairman Alan Greenspan said Wednesday.

Greenspan said that the economic growth rate should continue to slow through the rest of the year and into the first quarter of 2008. The "critical issue" now for the U.S., as well as globally, he said, is where home prices are headed, and he expects a "significant decline." Greenspan was speaking before attendees at the World Business Forum, held Wednesday and Thursday at Radio City Music Hall in New York. "The critical question is the price level of homes in the U.S., which are almost certainly going to fall," Greenspan said, as the hefty inventory of unsold homes continues to drive down prices. "What we don't know at this stage is whether in fact the decline in home prices will be a large one or a modest one," he said. Greenspan said that given the current climate, the odds that the U.S. will skirt a recession now look to be better than 50/50. In March he put the odds of a recession over the next six to nine months - at one-third. That could be offset though by stock market prices, he said, if they continue to rise. In his remarks, Greenspan also addressed the credit crisis that roiled markets this summer, noting that credit changes were "an accident waiting to happen" given the low level of credit spreads for such a long period of time. "History always suggests that that does not last," Greenspan said. "If it wasn't subprime, it would have been something else." Greenspan though noted that the U.S. came into the credit crisis amid a "fairly strong" global upside move," adding that talking about the U.S. economy without the global context is "no longer relevant." Turning to China, Greenspan said that growth there has been "quite remarkable," adding that "nobody is fully cognizant or understands why they have done so well for so long. China has moved "very dramatically toward capitalism," he said, and even though it appears to be "overheating," the country continues to progress. Greenspan also said that rising Chinese inflation was "not all that significant" noting that much of that increase was due to rising food prices. But, he added, "at some point, they've got to slow down" and it's conceivable that other areas of eastern Asia could begin to be successful in competing with the country. But as yet, "they're still the dominant force and at least through the Olympics, China "should do very well."