Next US President Faces Uncertain Economy

Presidential Candidates Propose Rival Economic Recovery Plans, One May Make Next Budget.

Hillary Rodham Clinton, Barack Obama and John McCain have diagnosed the swooning U.S. economy and have come up with rival plans to revive it. If the downturn lasts as long as some economists predict, one of the three will get a chance to try to sell his or her proposal to Congress as president.

Or if the economy hits bottom before Inauguration Day and then turns up, the victor may be handed a rare gift: the chance to begin a presidency presiding over the early stages of a rebound. Take your pick. Who knows where the economy will be in nine and a half months?

As economic clouds darkened last week, all three candidates delivered major speeches on the economy while the Bush administration prepared a plan to give the Federal Reserve new regulatory powers over the financial system.

Democrats Clinton and Obama outlined competing $30 billion stimulus packages to help homeowners facing foreclosure and other victims of the financial crisis. This would be on top of the $168 billion stimulus package of rebates and temporary tax cuts passed by Congress last month and signed by President Bush. Both Clinton and Obama also called for broader financial regulation.

Republican John McCain advocated voluntary action by lenders, more transparency in the lending process and the convening of a national conference of accountants and mortgage lenders to review how real estate is valued. He opposed large, taxpayer-financed bailouts but backed cuts in corporate tax rates and making permanent expiring Bush tax cuts.

The two Democrats are calling for a more activist role for the U.S. government to protect individuals. McCain is echoing standard GOP dogma of protecting markets and opposing bailouts. All three praised recent intervention by the Fed and the Treasury Department to calm the financial storm, including sharp Fed interest rate cuts and a $29 billion rescue plan for investment giant Bear Stearns.

Since all three are members of the U.S. Senate, they can influence congressional action now. But political reality being what it is, their time for impact -- at least for one of them -- probably lies in the future, not the present.

And there already is a welter of antirecessionary proposals pending in Congress -- including major bills by Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., to let the government step in and back up to $400 billion in troubled loans. Both Clinton and Obama have endorsed this legislation.

Economic statistics last week painted a bleak picture, reflecting continuing housing, credit and financial woes. The Commerce Department reported the gross domestic product increased at an anemic 0.6 percent annual rate from October through December, and that consumer spending slowed to a crawl last month, edging up just 0.1 percent for the poorest showing in 17 months.

Consumers -- whose spending traditionally accounts for about two-thirds of the overall economy -- have been reeling under the credit crisis, job cuts and soaring energy costs. Many -- if not most -- economists say the country already is in a recession.

"It's clear the economy is in a slowdown," said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. He said the slowdown "has been sharper than I had expected" and that "the recovery in growth I had expected in the second half of this year may be delayed."

Polls show an interesting disconnect, however. A recent survey by the Pew Research Center showed that only 11 percent of those questioned said the U.S. economy was in "good or excellent" shape. But when asked about their own finances, 47 percent said they were "good to excellent."

An AP-Ipsos poll in February produced similar results -- with only 14 percent saying their personal finances were in poor shape but 61 percent agreeing the U.S. was in a recession. "People don't see doom and gloom in their own world yet. They see higher prices. There is overwhelming concern about prices and all the megaproblems the economy faces," said Pew president Andrew Kohut. And since polls show "most people think we're already in a recession -- or a depression -- that could become a self-fulfilling prophecy."

Kohut said it isn't surprising that the three presidential candidates have turned their attention to the economy, which has surpassed the war in Iraq as the public's No. 1 concern. "People read stories about Bear Stearns being bailed out. They're well aware that things aren't right on the national scene. It's hard to imagine the candidates not recognizing the intense concern that the public is now expressing about the economy."

Clinton, Obama and McCain all described a darker economy than the generally bright picture painted by Bush, who said last week the economy would "come out stronger than ever before" with the help of stimulus tax-rebate checks that will start arriving in mailboxes in May.

Bush portrayed the current slowdown as just a rough patch. Not all economists think it's a given that the downturn will extend into the next presidential term, despite many forecasts that it could be long and deep.

David Wyss, chief economist at Standard & Poors, said the present downturn "looks a lot like the recession of 1990-91." If so, he said, it should end sometime in the October-December quarter of this year," when the Fed rate cuts will probably take effect and when the financial markets will have calmed down."

In which case, the presidential candidates' antirecessionary plans "are really sort of irrelevant," Wyss said. "They're not going to be able to get them through when they are needed. And by next year, it's going to be too late."

EU Inflation Hits New Record 3.5%

Euro Area Inflation Hits Annual High of 3.5 Pct in March, Well Above Target As Economy Lags.

Yearly inflation in the 15 nations that use the euro hit a record high of 3.5 percent in March driven by rising fuel and food prices, the European Union's statistical agency said Monday.

Inflation was up from 3.3 percent in February, running far above the European Central Bank's guideline of just under 2 percent as worries over banks' reluctance to lend has held it back from the usual move of cooling inflation by hiking borrowing costs.

The preliminary March estimate would be the fastest pace of price increases since Eurostat started keeping records 12 years ago for the countries that launched the common currency in 1999.

High prices for transport fuel, heating oil, bread, dairy products and vegetables have pushed up inflation in recent months and are blamed for holding back household spending on other items -- eating into one of the main drivers of economic growth in the region.

The European Commission said the 3.5 percent inflation estimate was more than it had expected. "Obviously oil is running at more than $100 a barrel so these figures shouldn't be all that surprising even though they are higher that what we expected," said EU spokeswoman Amelia Torres.

Eurostat's figure is expected to be confirmed April 16, explaining what is pushing up the average cost of consumer goods. The European Commission last month slashed its forecast for the euro area to grow by 1.8 percent this year, saying the global economy looked "unusually uncertain" as the U.S. economy slows and borrowers see tighter credit conditions in the wake of the recent banking crisis.

Business confidence weakened in March with the EU executive's economic sentiment indicator sliding below a long-term average to 99.6 percent from 100.2 in February. Financial services confidence hit an all-time low as managers were far more downbeat than they were a month ago, expecting demand to worsen substantially.

The services and construction sectors were more pessimistic than they were last month but industry, retailers and consumers saw no change in their feelings about the economy. Another survey of industry managers picked up in March after sliding for three months in a row. The European Commission said this pointed to "sustained industrial production growth in the first quarter of this year."

The business climate indicator rose to 0.80 from 0.71 in February as managers saw positive trends in recent production and order books although they saw lower demand and export orders ahead.

Global Warming Pact Discussions Open

Talks on Complex Global Warming Pact Open in Thailand, Face Deep Divisions.

Negotiators began their first talks Monday on forging a devilishly complex global warming pact to succeed the Kyoto Protocol -- and faced wide divisions between rich and developing countries over how to slash greenhouse gases.

The weeklong gathering of representatives from 163 countries launched a 21-month process aimed at concluding a new climate change agreement by December 2009 to rein in gases such as carbon dioxide blamed for the rise in world temperatures.

Organizers of the U.N.-led talks -- mapped out at a massive conference in Bali in December -- urged delegates to work quickly to ensure action before the worst effects of global warming such as extreme weather become unavoidable.

"With the 2009 deadline, we have just one and half years in which to complete negotiations on what will probably be the most complex international agreement that history has ever seen," said Yvo de Boer, U.N. climate change executive secretary. "And I'm confident that it can be done."

Many scientists and the United Nations agree that the world needs to stabilize emissions of greenhouse gases in the next 10-15 years and slash them by 50 percent by 2050 to prevent rising temperatures from triggering devastating changes in the environment.

News of accelerating effects of global warming, such as the recent collapse of a massive chunk of Antarctic ice and worsening cyclones and flooding, has put even more pressure on the U.N. talks to provide decisive action.

The 1997 Kyoto Protocol requires 37 industrialized nations to reduce greenhouse gas emissions by an average of 5 percent below 1990 levels between 2008 and 2012. The next pact is aimed at providing for further cuts starting in 2013.

The talks in Bangkok this week are to focus narrowly on setting up an agenda for the next two years of negotiations, but the deep differences among countries over the path forward suggested even those discussions would be complicated.

Developing countries, led by rapidly growing China, demand that the bulk of the considerable costs and actions be assumed by rich nations that expanded their economies in decades past by polluting the environment. They also want aid and technology to increase energy efficiency.

Wealthy nations, meanwhile, such as the United States and Japan, say a global pact will only be fair if it calls for up-and-coming polluters in the developing world to take on emissions reduction commitments as well.

On Monday, many delegates argued the first order of business should be to lay out the steps rich nations should take. John Ashe, delegate for Antigua and Barbados, urged the conference to push forward on setting "required deep and ambitious quantified emissions reduction commitments" for developed nations. "We cannot and should not be distracted," he said.

The European Union also strongly supports having wealthy nations take the lead on reducing emissions, backing the inclusion of a reference in the Bali agreement that industrialized countries slash by 25 percent to 40 percent below 1990 levels by 2020.

The U.S., one of the world's top polluters, has in the past resisted the mandatory national reduction targets of the kind agreed to in Kyoto. Washington also demands that top emitters like China and India share more in the costs of combatting warming.

"The primary concern is the so-called leakage issue," U.S. negotiator Harlan Watson said. "If you take commitments and you have energy-intensive industries, they might want to move to other countries which don't have commitments."

Japan, an energy-efficient country where many feel they have done more than others to reduce emissions, has pushed a so-called sectoral approach, under which industries such as cement or steel makers would face similar efficiency targets across borders. Many in the U.S. and other countries also support this approach as a way of ensuring reduction targets do not burden home industries facing competitors in developing nations.

The proposal, however, has triggered wide concerns that it could be used to transfer burdens to industries in developing countries while allowing rich nations to avoid setting national, economy-wide targets.

Weekend's Special: Universal Studios Hollywood, Riding Inside Movies

Universal Studios Hollywood is located in the heart of Los Angeles and is billed as the largest working studio and theme park in the world. From studio tours to thrill rides and water activities, Universal Studios Hollywood is sure to make the list of your must see attractions in Southern California. Easy freeway access and accessibility via the subway from Hollywood, visitors can easily spend an entire day here. Adjacent to Universal is City Walk where you can dine and shop to your hearts content where restaurants and shops remain open after the theme park is closed.

Although you can see some beautiful weather year round in Southern California, summers can be hot and the park crowded. If you can arrange it, winter and fall are the Best times to visit Universal Studios Hollywood. The park is set up on 2 levels with a large escalator to get to each level. Plan on arriving early and riding the main thrill type rides first because the lines can get very long for these attractions. Although the Tour can get crowded, the line moves very quickly so it’s ok to save this until later in the day.

Even though Universal Hollywood has many dining choices, I found them to be crowded with long lines. Try to avoid the peak dining times by eating early or late.

I had a good time however, after visiting with 2-10 year old girls, I wasn’t impressed with Universal Studio’s Hollywood’s activities for children. Unless you want to spend most of your day watching your kids play in the Blast Zone or catching a show at Animal Planet Live, there are basically no activities for younger children. Most rides at Universal are too intense for younger children (and some 10 year old girls).

Universal Studio Tour

A must see at Universal Studios-Hollywood, the Studio Tour takes guest through real movies sets both old and new! I must admit, they have come a long way since I first took this tour back in the 70’s.

The tour is more organized and the old tour buses have been replace with comfortable trams that accommodate a lot of people so no matter how long the line looks, it moves very quickly.

Although a little outdated and few children understand the concept, you will spend a few minutes on Amity Island where you WILL meet up with Jaws. The tram continues though Jurassic Park, Back to the Future and Psycho sets. You will experience flash floods, a King Kong encounter as well the airplane crash set from ‘War of the Worlds’. There is something for everyone on this tour. Some places can be a little intense for children but I do recommend this for all ages.

Revenge of the Mummy – The Ride

OK, I’m not really one for action movies but I did watch and enjoy The Mummy! I was looking forward to riding this attraction because I did read a little about it before I arrived. Billed as Universal’s answer to ‘Rockin Rollercoaster’ which I LOVE, I couldn’t wait! The queue is huge and you are basically eves dropping on the making of the new Mummy Movie when an archeologist accidentally digs up ancient artifact which upsets ‘mummy’ (you know you are in trouble now). It’s at this point the queue leads you right towards the Mummy and aboard the 16 seat coaster, yes I said COASTER! What follows is a very dark, fast ride full of surprises and if you are not great with BUGS, be prepared! I highly recommend this attraction and although it’s billed as a “family” ride, I personally think it’s too intense for younger children even if they do meet the 48’ required height.

Shrek 4-D

This is an attraction I had to ride alone since my 10 years old wrote off 3-D experiences a long time ago. I do like the 3-D attractions (other than the creep, crawly things running across my feet) and decided to give it a try if only to understand what 4-D meant. Other than the jabs at Disney (yes, I laughed), this was a great show! All the great characters from the original Movie including donkey (my favorite) are here and as far as the 4-D, I am not giving it away so you will just have to experience this ride for yourself.

Jurassic Park…The Ride

I’ve seen this ride compared to ‘Splash Mountain’ but there is really only one stimulatory. The ride begins as a peaceful water ride in a land filled with plant eating dinosaurs, but don’t get too comfortable! It quickly turns into a fast moving ride for your life while being chased by the T-Rex who just broke loose. There is only one was out and it happens to be straight down! This ride can get very wet so, bring your ponchos and something to keep your valuables dry.

Terminator 2: 3D

Yet another 3-D experience that is based on the movie Terminator 2. I don’t recall a lot of the plot because I was too busy dodging things fling out of the screen at me. It is definitely an action show and again, may be too intense for smaller children.

WaterWorld

This was one of those attractions I’ve seen but never took the time to experience. It just so happened we were leaving the park and saw the show was getting ready to start. Everyone (almost) voted to see it. It’s a very large stadium full of sets from the movie ‘Water World’. Never having the desire to see the movie, I was not prepared for what was to come. This is a high action performance with real actors and I was not disappointed. At times there is so much going on that it’s difficult to keep up but it is a show worth seeing. When they say ‘you will get wet if you sit here’, believe them and a lot of the time, it’s not by accident!

Nickelodeon Blast Zone

If your plans do not include getting WET, stay at least 100 feet away from this area! Since this is a relatively new area, I wasn’t prepared and it ended up costing me about $75.00 for suits, towels and water shoes! Don’t get me wrong, this is a great area for kids (and Adults) to cool off on a hot day but come prepared! Pack suits, towel and water shoes (shoes are required) for the kids (and maybe yourself because they WILL attempt to get you wet). The major activity here seems to be targeting children and adults with a barrage of water from many different devices. At first I was a bit shocked when I saw the unsuspecting Mom trying to show her child the many activities only to get totally soaked by the mischievous kid behind the water canon but, after a few minutes of watching this I admit I did chuckle (I know, not nice). After awhile, I actually found myself assisting the kids by pointing out new targets (yes, I was also a target!).

Van Helsing: Fortress Dracula

This attraction is basically a walk through carnival type attraction much like the old wax museums (reminded me of the horror part of the Hollywood Wax Museum in Hollywood). Although it took a lot of convincing to get 2 girls to try this, one ended up turning around and running out about 15 seconds into the walk and the other, although she made it through practically ran the entire way with her eyes closed. This attraction includes some of the actual sets and costumes from the movie so if you are familiar with Van Helsing, you may enjoy this. Personally I wasn’t impressed and thought it was a little out of place in a high tech park like Universal. I never once noticed a line and employee’s actively try to get people into the attraction. For this reason, I doubt this attraction will last long. The character meet with Van Helsing was enjoyable for both the girls and Mom! ;).

Animal Planet Live

Most children are familiar with Animal Planet from TV! Live onstage interaction with Animals, a short movie advertising Animal Planet along with a small amount of audience participation make up this show. This attraction seems more like an advertisement for show and although entertaining, is something mostly smaller children will enjoy. It is shaded making it a nice break on a hot day.

Tour History

From its humble beginnings in the silent film era to its present position as the premiere behind-the-scenes Hollywood experience, the World Famous Universal Studio Tour has given over 100 million guests from around the world the rare opportunity to take a sneak peak into the inner workings of a Hollywood movie studio. In just under an hour, guests travel through a 415-acre movie lot that encompasses virtually every location and time period in the world (Ancient Rome, The Wild West, modern day New York). The one-of-a-kind guided tour includes face-to-face encounters with Hollywood icons (Jaws, King Kong), exclusive behind-the-scenes commentary from Hollywood’s greatest filmmakers (Ron Howard, Steven Spielberg, Stephen Sommers) and visits to some of the most famous sets in movie history (Psycho House, Whoville). Over 8,000 films and countless television shows have been shot on the Universal lot, making Universal Studios the most filmed location in the world and the Universal Studios Tour one of the most unique entertainment offerings in the world!

The Tour was officially founded in 1964, but it’s roots go all the way back to earliest days of film.

The Tour in the Silent Film Era

In 1914 Universal Studios founder Carl Laemmle laid down a whopping $3,500 to purchase the Taylor Estate in Lankershim Township (the present site of Universal Studios Hollywood) and moved his burgeoning film studio from New York City to Southern California. Uncle Carl (a nickname he received because he had so many relatives on the pay roll) was the consummate showman and wanted Gala Opening, 1915to find a unique way to generate publicity about the move so in 1915 he held a grand opening ceremony where he invited the public to visit, “The World’s Only Movie City!” Thousands of people attended the gala opening including such luminaries as Thomas Edison, Buffalo Bill Cody and Valentino. In a bizarre foreshadowing of things to come, the entertainment for Uncle Carl’s grand opening included a western stunt show, the demolition of a bridge and a simulated flash flood; three attractions that would later become fixtures of the early Universal Studio Tour.

After the gala opening, Mr. Laemmle continued to let the general public visit his “Movie City.” For an admission price of 25 cents (which also included a boxed lunch) guests sat in outdoor bleachers and were encouraged to cheer for the heroes and boo the villains! The advent of sound meant the end of the early Universal Studio tour (as the noise the visitors made now disrupted filming) and Universal closed its gates to the general public. Three decades would pass before the studio gates would open again.

The Modern Studio Tour

Ironically, the modern Universal Studio Tour was initially reborn as a way to sell more lunches in the Studio Commissary. The late 50’s and early 60’s were a difficult time for Hollywood studios. The arrival of television had weakened movie attendance and more and more productions were going on location to save costs. The grand old movie back lots were quickly becoming a thing of the past. In the mid 1950’s, Universal began letting bus companies drive on to the property (the same bus companies that offered guided tours of the homes of Hollywood stars) as a way to increase revenues. The studio charged the bus companies a small fee and also benefited from the extra lunches they could sell to the tourists in the Studio Commissary. The bus drivers were given a hand-typed script to read that highlighted the studio facilities as well as hyped upcoming Universal releases like Bonzo Goes to College and Monster on the Campus.

When MCA purchased Universal in the late 1950’s, they began to look for a way to revive the old Studio Tour as part of a new image for Universal City Studios. In 1963 legendary movie mogul Lew Wasserman, then president of MCA/Universal, asked Vice President Al Dorskind to look into the feasibility of creating a permanent tour.

Despite these early hiccups, the first tour opened on June 17th 1964* with tickets being sold out of a temporary trailer on Lankershim Blvd. The Universal Studio Tour at that time consisted of two trams and a handful of eager young tour guides; including John Ford III (grandson of famous western director John Ford) and Dan Milland (son of Academy Award winning actor Ray Milland). The early tour was 90 minutes and included a stop off at the studio commissary for lunch and a make-up show (presented by Mike Westmore of the famous Westmore family of make-up artists) held in the commissary basement. 38,184 guests rode the Universal Studio Tour in its first year.

Today the Studio Tour continues to evolve. In the Summer of 2000 Universal brought the tram into the 21st Century with the debut of The New Studio Tour. This exciting update of Universal’s time-honored attraction transformed the tram into a “Movie Theater on Wheels” with the inclusion of LCD video monitors, a state-of-the-art audio system, on-board video cameras and DVD players containing over 200 pieces of custom produced media. For the first time ever, guests are able to see examples of how the Universal lot has been used for motion picture and television production and learn about filmmaking from the world’s greatest filmmakers.

Weekend's Featured: US Proposes Overhaul of Financial Regulations

Bush Administration Proposes Most Sweeping Overhaul of Financial Regulation Since Depression.

The Bush administration is trying to confront the credit crisis that has rattled nerves from Wall Street to Main Street by proposing wholesale changes in how Washington oversees the financial system.

A plan set for release Monday would give new powers to the Federal Reserve so that the central bank serves as the system's overarching protector of stability. The proposal would abolish agencies such as the Office of Thrift Supervision and the Commodity Futures Trading Commission, shifting their responsibilities to other federal institutions.

When Treasury Secretary Henry Paulson outlines the ideas in a speech, the changes will represent the most sweeping overhaul of financial regulation since the Great Depression of the 1930s. Under the current hodgepodge, institutions that take deposits and are federally insured face multiple regulatory bodies. By contrast, hedge funds, private equity firms and investment banks endure substantially less regulation.

The credit crisis that has rocked Wall Street and made credit hard to get on Main Street has highlighted that discrepancy in regulation. Many financial institutions have declared billions of dollars in losses stemming from soaring mortgage defaults caused by prolonged housing troubles.

In an unprecedented move designed to get credit flowing again, the Fed is allowing investment banks to borrow directly from the Fed, something only commercial banks had the power to do before. That decision came as part of a rescue effort for Bear Stearns Cos., the nation's fifth largest investment bank. It nearly failed earlier this month before the Fed rushed in with a $30 billion line of credit to facilitate the sale of Bear Stearns to JP Morgan Chase & Co.

The Fed's moves have put public money potentially at risk and increased calls for greater regulation of investment banks and other institutions. The Paulson plan is expected to generate intense debate in Congress, which would have to approve the changes.

Some top Democrats, including Rep. Barney Frank, the chairman of the House Financial Services Committee, are pushing competing ideas that would streamline oversight but also impose new controls beyond those in Paulson's plan.

Sen. Charles Schumer, a leading voice in the debate, said he did not think Paulson had gone far enough in dealing with some of the new complex types of investments heavily featured in the current financial crisis. "Very complex financial instruments have evolved in recent years," said Schumer, D-N.Y. "The Treasury Department should address these issues as well."

David Nason, Treasury's assistant secretary for domestic finance, said the administration's primary goal is to get through the current credit crisis with officials understanding that the debate over an overhaul plan this far-reaching could last for years. "These are very complex issues that require a serious amount of debate," he said in an AP interview Saturday. "It is going to take time to play out."

Business groups on Saturday generally voiced support for Paulson's approach and said there would be significant debate over the details. "The current crisis just shows in a very stark way that ... you need a regulatory structure that is simple, nimble and modern and ours does not meet that test," said David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.

Tim Ryan, president of the Securities Industry and Financial Markets Association, a big lobbying group for Wall Street, said there was "universal agreement that it is time to modernize and revitalize the current system."

The Paulson plan would:
- designate the Fed as the primary regulator for market stability, greatly expanding its ability to examine any financial institution deemed to pose a risk to the stability of the system.
- shift the functions of the Office of Thrift Supervision to the Office of the Comptroller of the Currency, although ultimately the plan envisions just one banking regulator.
- merge the Securities and Exchange Commission with the Commodity Futures Trading Commission.
- create a national regulator for insurance companies, which now are largely regulated by the states.
- establish a commission to address the abuses exposed in the current tidal wave of mortgage defaults.

IMF Gives Larger Developing Countries More Roles

IMF Gives Larger Developing Countries Greater Role in Its Operations.

The International Monetary Fund's directors approved a major change in its voting mechanism Friday, giving some larger developing countries more of a say in how the 185-nation lending organization operates.

The board stopped short of major reforms that critics had demanded. Dominique Strauss-Kahn, who took over as head of the IMF last September with a vow to make it more relevant, said the change will help restore the 68-year-old organization's credibility. "Today's agreement is a major step forward," Strauss-Kahn said at a news conference. "But it is only a first step. The beginning of moving is better than staying where you are."

China, South Korea, India and Brazil, countries with booming economies who for more than a year have been demanding a bigger role in IMF decisions, are among the largest gainers under the new formula. Iran, Russia and Saudi Arabia opposed the voting share change.

Britain, France and Canada backed the changes even though the plan will cost them some voting power in the short term. Strauss-Kahn said these nations recognized they may be better off with the new formula over the long run.

The United States, the leading contributor to the IMF and its biggest shareholder, agreed to forgo an increase in its stake to which it was entitled, the IMF said. The changes must be approved by the IMF's governors before April 28 and will be discussed when they meet April 12 in Washington.

Strauss-Kahn, a former French finance minister, predicted the proposal would have more than enough support to pass, as countries that abstained in Friday's voting register their votes for or against. "We can expect that finally the result will be higher than the result of today," he said.

The IMF is a global financial watchdog with a mandate to monitor the health of the world economy and provide technical and financial help to its members. In the past it has lent billions of dollars to nations as they faced financial crises, but in recent years its lending, and the income it made from the loans, have been steadily declining.

Some critics have started questioning its relevance as a player in global markets. One of those critics, the development group Oxfam International, said the voting changes were "little better than the status quo for some countries and a setback for the majority.

"Clearly this cannot be the end of a process for an institution desperately seeking credibility," said Liz Stuart, Oxfam's senior policy adviser. "Mr. Strauss-Kahn should quickly put options on the table for genuine reform."

The new structure backed by IMF members would for the first time consider purchasing-power parity in determining voting share, rather than gross domestic product as determined by market currency exchange rates.

The result is that developing countries on the whole will gain somewhat more voice, moving from 39.4 percent in quota share to 42.1 percent when Friday's changes are taken into account together with share increases approved in 2006, the IMF said.

Fed Offers Another $100 Billion in Loans

Fed Offers $100 Billion More to Commercial Banks to Fight Credit Crisis.

The Federal Reserve announced Friday it will auction an additional $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis. The central bank said it would make $50 billion available at each of two auctions, on April 7 and April 21.

Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through the innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.

All the moves have been designed to cope with a serious financial crisis that has roiled U.S. and global markets and caused the near-collapse of Bear Stearns Cos., the nation's fifth largest investment bank.

The Fed has been holding auctions every two weeks since December to provide short-term loans to commercial banks. It started with auctions of $20 billion, then pushed the level to $30 billion, and in early March raised the auction amount to $50 billion as the credit shortage grew more severe. In announcing the move to $50 billion last month, the Fed said it would continue the auctions for at least the next six months, unless credit conditions show they are no longer needed.

The auctions are just one of a series of unorthodox steps the Fed has taken to battle the current crisis. The biggest of those moves was an announcement that it was allowing investment banks to borrow directly from the Fed. Previously, only commercial banks, which face tighter regulations, had that privilege.

The Fed also said it would make available $30 billion in financing to support the sale of troubled Bear Stearns to JP Morgan Chase & Co., hoping to prevent a bankruptcy that could have rocked Wall Street.

Private economists said the auctions were having a positive impact but that troubles still exist in many sectors of the credit markets because of multibillion-dollar losses many financial institutions have suffered as the result of soaring defaults on mortgage loans.

"The Fed has worked some positive magic," said Mark Zandi, chief economist at Moody's Economy.com. "At least the panic has subsided as the risk of another major failure has receded given that financial institutions now have access to a lot of cash through the various lending facilities the Fed has established."

The Fed's auctions have drawn criticism from some that the central bank, and ultimately U.S. taxpayers, could be financing a bailout for big Wall Street firms that had engaged in risky lending practices. Fed Chairman Ben Bernanke will face questions about the Fed's recent moves when he testifies on Wednesday before the congressional Joint Economic Committee.

Japan Inflation Jumps, Unemployment Rises

Japan Core Inflation Up, Jobless Rate Worsens in February; Economy Minister Voices Concerns.

Japan's inflation rate climbed at its fastest rate in a decade in February and the jobless rate worsened to 3.9 percent under data released Friday, raising concerns about the health of the world's second-largest economy.

The core consumer price index, which excludes volatile fresh food prices, rose 1.0 percent in February from a year ago -- the fastest reading since March 1998, the Ministry of Internal Affairs and Communications said.

Japan has long struggled with deflation, or falling prices, but Friday's data, which also marked the fifth straight month of gains, show that higher prices for imported oil and commodities are adding pressure on living costs.

Separate data released by the ministry said household spending was flat in February from a year earlier, an indication that the economy was getting less support from domestic demand, while exports that have long driven the nation's growth are also losing steam. The result fell short of the 2.5 percent rise expected in surveys by Dow Jones Newswires and Nikkei.

Economy Minister Hiroko Ota voiced concerns that recent sharp rises in consumer prices could have a negative impact on consumption growth. "With economic growth pausing and workers' wages not increasing, I cannot say that recent rises in consumer prices are good," Ota told a news conference. "I'm concerned about how such price rises -- mostly stemming from rises in gasoline and food prices -- will affect consumers."

Separately, Japan's unemployment rate stood at a worse-than-expected 3.9 percent in February, the Ministry of Public Management said. The results reflected slowing domestic and overseas growth, which has made business less willing to hire workers. Japan's unemployment rate was 3.8 percent in January.

The ministry said the total number of jobless was down by 40,000 on year, marking the 27th consecutive month of decline. The jobless rate registered to 4.0 percent in September and October before dropping to 3.8 percent in November and staying flat for three months.

The core CPI for the Tokyo metropolitan area for March rose a preliminary 0.6 percent on year, the data showed. The number is considered a leading indicator for nationwide consumer prices.

US Becomes Business Bargain on Weak Dollar

US Now a Steal for Businesses Compared With Other Large Industrial Nations.

Thanks to the weakened dollar, the U.S. has leapfrogged France, Britain and other European countries as a cheaper place to do business.

A new study released Thursday by the auditing and consulting firm KPMG shows that the U.S. moved up on the list of most cost-efficient places around the world. Researchers compared 136 cities in 10 of the biggest industrial nations in North America, Europe and Asia, but did not include fast-growing China.

Mark MacDonald, the global director of KPMG Competitive Alternatives, said the survey authors found the U.S. to be more cost competitive than they'd ever seen because of the plunging dollar.

The euro and the yen are stretching further now than they did two years ago, driving down overseas' companies costs for everything from labor and transportation to the energy used to power factories.

In 2006, the U.S. ranked seventh for affordability. This year, with the dollar at record lows against the euro, only Mexico and Canada were cheaper. The U.S. is now cheaper than Britain, the Netherlands, Italy, France and Australia. "It makes the U.S. a relatively more attractive place to do business," MacDonald said.

The dollar has also hit 12-year lows against the yen this month. "Currency change was a central theme in this year's study," study co-author Glenn Mair said on a conference call. Mair, director of MMK Consulting Inc., said the double-digit gains in the value of the Canadian dollar, Australian dollar, British pound and other currencies when compared to the dollar had shifted the competitiveness equation.

Mexico, which is new to the study, was cheapest overall. It was added to incorporate a major trading country that is a party to the North American Free Trade Agreement. The study is done every two years, and the 2008 survey was the seventh KPMG has done.

Among the larger cities, the cheapest cities in which to operate were Puebla, Guadalajara and Monterrey, all in Mexico. In the U.S., the cheapest places were Atlanta, Tampa, Fla., and the Dallas-Fort Worth area.

The San Francisco Bay Area -- which includes Silicon Valley and San Jose -- was the most expensive in the nation, edging out New York for that dubious distinction. London, Frankfurt and Manchester, England, were all more expensive than San Francisco. Paris was slightly less expensive than New York.

The study measured competitiveness using labor costs, taxes, real estate and utilities, as well as non-monetary factors. It studied 17 industries in Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, Britain and all 50 states in the U.S. Those were all compared against a benchmark developed by taking the average cost of doing business in U.S. locations.

US GDP Slows to 0.6%, Probably Worse Now

Economy Nearly Sputtered Out at End of 2007, Probably Faring Worse Now.

The economy nearly sputtered out in the final quarter of last year and is probably faring even worse now amid the continuing housing, credit and financial crises.

The Commerce Department reported Thursday that gross domestic product increased at a feeble 0.6 percent annual rate in the October-to-December quarter. The reading -- unchanged from a previous estimate a month ago -- provided stark evidence of just how much the economy has weakened. In the prior quarter, the economy clocked in at a sizzling 4.9 percent growth rate.

The gross domestic product (GDP) measures the value of all goods and services produced in the United States and is the best barometer of the country's economic health.

Many economists say they believe growth in the current January-to-March quarter will be even weaker than the 0.6 percent figure of the previous quarter. A growing number also say the economy may actually be shrinking now. Under one rough rule, the economy needs to contract for six straight months to be considered in a recession. The government will release its estimate for first-quarter GDP in late April.

The newly released fourth-quarter GDP figure matched analysts' expectations. Thursday's report underscored the damage to the economy from the collapse in the housing market, which has dragged down housing prices, pushed home foreclosures up to record highs and has led to a glut of unsold homes. Against that backdrop, builders slashed spending on housing projects by a whopping 25.2 percent on an annualized basis in the fourth quarter, the biggest cut in 26 years.

To limit the damage from the crises, the Federal Reserve has taken a number of extraordinary actions. It has slashed a key interest rate over the last two months by the most in a quarter century. And to relieve turmoil on Wall Street, which intensified after the crash of the country's fifth-largest investment firm, Bear Stearns, the Fed has resorted to its greatest expansion of lending authority since the 1930s. Big securities firms will temporarily be allowed to go to the Fed directly for loans -- a privilege that had been afforded only to commercial banks.

Consumers, whose spending is indispensable to the economy's vitality, boosted buying at a 2.3 percent pace in the fourth quarter. That was better than the 1.9 percent growth rate previously estimated but still marked a slowing from the third quarter's 2.8 percent pace.

Businesses -- nervous about customers' waning appetite to buy given all the problems in the economy -- cut back sharply on their inventories of unsold goods. That shaved 1.79 percentage points off fourth-quarter GDP, the most in more than two years.

Spending by businesses on equipment and software, meanwhile, rose at a pace of 3.1 percent in the final quarter of last year. That was slightly less than previously estimated and marked a slowdown from the prior quarter's 6.2 percent growth rate. Businesses profits also took a hit in the final quarter. A measure linked to the GDP report showed that after-tax profits fell 3.3 percent at the end of last year, after being flat in the prior quarter.

Australian Financial System Still Strong

Australia's Financial System Under Strain but Still Performing Strongly, Central Bank Says.

Australia's financial system is under the most strain it has had to face since the early 1990s, but compared to other countries is it performing strongly, the country's central bank said in a report Thursday.

Banks remain profitable and exposure to the U.S. housing sector downturn is minor, the Financial Stability Review said. "In Australia, the financial system has coped better with the recent strains than have the financial systems of many other countries," the report from the Reserve Bank of Australia said.

Major Australian banks are standing tall in the storm that has washed over the world's financial markets, maintaining strong credit ratings and retaining an ability to raise funds domestically and overseas, it said.

"Despite the strains in global financial markets, the underlying resilience of the Australian financial system, together with the relatively favorable outlook for the domestic economy, means that the system is much better positioned than the financial systems of many other countries to cope with the current difficulties."

Prime Minister Kevin Rudd, in a speech Thursday, suggested global regulation of financial systems, and said the RBA and Treasury officials are already in talks with their counterparts about managing the ongoing global credit crisis.

"As financial markets become more global and assets are traded more quickly between nations, so too must regulation and supervision become more global. The current crisis has highlighted the importance of disclosure and transparency," Rudd said.

The RBA report suggests the bank remains cautious about global and domestic market conditions and will remain sidelined for now, keeping its official interest rate target at 7.25 percent.

The RBA has raised rates four times since the onset of the global markets crisis in August 2007, setting it apart from other central banks and highlighting its confidence in the resilience of the Australian economy as world growth slows.

The financial report said a strong Australian job market provided solid support to households trying to meet debt obligations, and that business profits also remain solid and default rates are low.

But there are pockets of stress in the economy. "Notwithstanding this positive picture, the recent sharp increase in risk aversion and higher funding costs have created difficulties for some firms, particularly those with highly leveraged balance sheets, and those that have relied heavily on short-term funding," the report said.

ECB Trichet Calls for Banking Transparency

ECB's Trichet Calls for "Change of Culture" in Banking System.

European Central Bank President Jean-Claude Trichet called Wednesday for a "significant change of culture" in the financial system, calling for more transparency as banks learn the lessons of the subprime crisis.

Trichet called for banks to be more open and start thinking more in the long-term because this was the only way of "avoiding contagion, herd behavior and ... the propagation of turbulences in times of difficulty."

Major banks have run up billions in losses after many highly rated investments were shown to be based on risky assets -- U.S. housing loans to people with poor credit. It is still unclear how far this will affect the real economy as banks shy away from new risk, tighten conditions and raise prices for loans to businesses and home buyers.

Trichet warned that large euro banks are likely to face lower revenue as banks retrench from risk-taking -- but said the crisis has hit after several years of strong profits left banks able to cope with a downturn. He repeated a call for banks to "promptly and fully disclose on- and off-balance sheet risk exposures."

Fears that banks are still concealing major losses lead to a bank run on Bear Stearns that saw the bank's fire sale to JP Morgan. "I would call for a further significant change of culture at the national, European and global level," he told the European Parliament's economy committee. "I would sum up this cultural change with two words: transparency and anti-cyclicity."

More openness was essential to make sure all market players have a clear picture of what is happening while regulators need to look at financial rules that tend to amplify booms and busts, he said. He also said financial supervisors should tell banks how to value complex investments that may run up huge losses in the wake of the subprime crisis.

Guidance from auditors and supervisors "is warranted" to improve structured product valuations for illiquid assets, he said. Regulators also need to make sure that banks have enough capital and liquidity to deal with sudden shocks.

Trichet said the role of the euro-zone's central bank was to preserve confidence by "firmly anchoring medium- to long-term inflation expectations for the euro area while at the same time ensuring the smooth functioning of the short-term money market.

His words were a defense of the ECB's refusal to cut interest rates -- in line with the U.S. Federal Reserve and the Bank of England -- as the financial system froze as banks became fearful to lend money and take on new risks in the wake of last year's subprime crisis.

He said current record-high inflation in euro-zone nations will go on for longer than expected and a tight labor market may lead to pay hikes that may cause a price spiral. Inflation was based on higher food and energy prices and would be "more protracted" than expected, he said. Further price rises for oil and agricultural products would add to high demand and low supply of goods to build pressure for higher inflation.

He also repeated a warning that new problems could emerge to push up prices. "Wage growth may be stronger than currently expected as well as the pricing power of firms, notably in market segments with low competition," he said.

He said it was imperative that all -- governments and trade unions -- meet their responsibility to the greater economy to restrain the "wage-setting" negotiations that could trigger these second-round effects that would worsen inflation.

Uncertainties over economic growth are "unusually high," he said, insisting the euro economy was basically sound and more investments and higher spending should help feed the economy's expansion.

Rising Food Prices Worldwide Threatening

From Rice in Peru to Miso in Japan, Food Prices Are Rising.

If you're seeing your grocery bill go up, you're not alone. From subsistence farmers eating rice in Ecuador to gourmets feasting on escargot in France, consumers worldwide face rising food prices in what analysts call a perfect storm of conditions. Freak weather is a factor. But so are dramatic changes in the global economy, including higher oil prices, lower food reserves and growing consumer demand in China and India.

The world's poorest nations still harbor the greatest hunger risk. Clashes over bread in Egypt killed at least two people last week, and similar food riots broke out in Burkina Faso, Cameroon earlier this month. But food protests now crop up even in Italy. And while the price of spaghetti has doubled in Haiti, the cost of miso is packing a hit in Japan.

"It's not likely that prices will go back to as low as we're used to," said Abdolreza Abbassian, economist and secretary of the Intergovernmental Group for Grains for the U.N. Food and Agriculture Organization (FAO). "Currently if you're in Haiti, unless the government is subsidizing consumers, consumers have no choice but to cut consumption. It's a very brutal scenario, but that's what it is."

No one knows that better than Eugene Thermilon, 30, a Haitian day laborer who can no longer afford pasta to feed his wife and four children since the price nearly doubled to $0.57 a bag. Their only meal on a recent day was two cans of corn grits. "Their stomachs were not even full," Thermilon said, walking toward his pink concrete house on the precipice of a garbage-filled ravine. By noon the next day, he still had nothing to feed them for dinner.

Their hunger has had a ripple effect. Haitian food vendor Fabiola Duran Estime, 31, has lost so many customers like Thermilon that she had to pull her daughter, Fyva, out of kindergarten because she can't afford the $20 monthly tuition. Fyva was just beginning to read.

In the long term, prices are expected to stabilize. Farmers will grow more grain for both fuel and food and eventually bring prices down. Already this is happening with wheat, with more crops to be planted in the U.S., Canada and Europe in the coming year.

However, consumers still face at least 10 years of more expensive food, according to preliminary FAO projections. Among the driving forces are petroleum prices, which increase the cost of everything from fertilizers to transport to food processing. Rising demand for meat and dairy in rapidly developing countries such as China and India is sending up the cost of grain, used for cattle feed, as is the demand for raw materials to make biofuels.

What's rare is that the spikes are hitting all major foods in most countries at once. Food prices rose 4 percent in the U.S. last year, the highest rise since 1990, and are expected to climb as much again this year, according to the U.S. Department of Agriculture.

As of December, 37 countries faced food crises, and 20 had imposed some sort of food-price controls. For many, it's a disaster. The U.N.'s World Food Program says it's facing a $500 million shortfall in funding this year to feed 89 million needy people.

In Egypt, where bread is up 35 percent and cooking oil 26 percent, the government recently proposed ending food subsidies and replacing them with cash payouts to the needy. But the plan was put on hold after it sparked public uproar. "A revolution of the hungry is in the offing," said Mohammed el-Askalani of Citizens Against the High Cost of Living, a protest group established to lobby against ending the subsidies.

In China, the price hikes are both a burden and a boon. Per capita meat consumption has increased 150 percent since 1980, so Zhou Jian decided six months ago to switch from selling auto parts to pork. The price of pork has jumped 58 percent in the past year, yet every morning housewives and domestics still crowd his Shanghai shop, and more customers order choice cuts.

The 26-year-old now earns $4,200 a month, two to three times what he made selling car parts. And it's not just pork. Beef is becoming a weekly indulgence. "The Chinese middle class is starting to change the traditional thought process of beef as a luxury," said Kevin Timberlake, who manages the U.S.-based Western Cattle Company feedlot in China's Inner Mongolia.

At the same time, increased cost of food staples in China threatens to wreak havoc. Beijing has been selling grain from its reserves to hold down prices, said Jing Ulrich, chairwoman of China equities for JP Morgan. "But this is not really solving the root cause of the problem," Ulrich said. "The cause of the problem is a supply-demand imbalance. Demand is very strong. Supply is constrained. It is as simple as that."

Chinese Premier Wen Jiabao says fighting inflation from shortages of key foods is a top economic priority. Inflation reached 7.1 percent in January, the highest in 11 years, led by an 18.2 percent jump in food prices.

Meanwhile, record oil prices have boosted the cost of fertilizer and freight for bulk commodities -- up 80 percent in 2007 over 2006. The oil spike has also turned up the pressure for countries to switch to biofuels, which the FAO says will drive up the cost of corn, sugar and soybeans "for many more years to come."

In Japan, the ethanol boom is hitting the country in mayonnaise and miso, two important culinary ingredients, as biofuels production pushes up the price of cooking oil and soybeans. A two-pound bottle of mayonnaise his risen about 10 percent in two months to as much as 330 yen (nearly $3), said Daishi Inoue, a cook at a Chinese restaurant. "It's not hurting us much now," he said. "But if prices keep going up, we have no choice but to raise our prices."

Miso Bank, a restaurant in Tokyo's glitzy Ginza district, specializes in food cooked with miso, or soybean paste. "We expect prices to go up in April all at once," said Miso Bank manager Koichi Oritani. "The hikes would affect our menu. So we plan to order miso in bulk and make changes to the menu."

Italians are feeling the pinch in pasta, with consumer groups staging a one-day strike in September against a food deeply intertwined with national identity. Italians eat an estimated 60 pounds of pasta per capita a year.

The protest was merely symbolic because Italians typically stock up on pasta, buying multiple packages at a time. But in the next two months pasta consumption dropped 5 percent, said farm lobbyist Rolando Manfredini. "The situation has gotten even worse," Manfredini said.

In decades past, farm subsidies and support programs allowed major grain exporting countries to hold large surpluses, which could be tapped during food shortages to keep prices down. But new liberal trade policies have made agricultural production much more responsive to market demands -- putting global food reserves at their lowest in a quarter century.

Without reserves, bad weather and poor harvests now have a bigger impact on prices. "The market is extremely nervous. With the slightest news about bad weather, the market reacts," said economist Abbassian.

That means that a drought in Australia and flooding in Argentina, two of the world's largest suppliers of industrial milk and butter, sent the price of butter in France soaring 37 percent from 2006 to 2007.

Forty percent of escargot, the snail dish, is butter. "You can do the calculation yourself," said Romain Chapron, president of Croque Bourgogne, which supplies escargot. "It had a considerable effect. It forced people in our profession to tighten their belts to the maximum."

The same climate crises sparked a 21 percent rise in the cost of milk, which with butter makes another famous French food item -- the croissant. Panavi, a pastry and bread supplier, has raised retail prices of croissants and pain au chocolat by 6 to 15 percent.

Already, there's a lot of suspicion among consumers. "They don't understand why prices have gone up like this," said Nicole Watelet, general secretary at the Federation of French Bakeries and Pastry Enterprises. "They think that someone is profiting from this. But it's not us. We're paying."

Food costs worldwide spiked 23 percent from 2006 to 2007, according to the FAO. Grains went up 42 percent, oils 50 percent and dairy 80 percent.

Economists say that for the short term, government bailouts will have to be part of the answer to keep unrest at a minimum. In recent weeks, rising food prices sparked riots in the West African nations of Burkina Faso, where mobs torched buildings, and Cameroon, where at least four people died.

But attempts to control prices in one country often have dire effects elsewhere. China's restrictions on wheat flour exports resulted in a price spike in Indonesia earlier this year, according to the FAO. Ukraine and Russia imposed export restrictions on wheat, causing tight supplies and higher prices for importing countries. Partly because of the cost of imported wheat, Peru's military has begun eating bread made from potato flour, a native crop.

"We need a response on a large scale, either the regional or international level," said Brian Halweil of the environmental research organization Worldwatch Institute. "All countries are tied enough to the world food markets that this is a global crisis." Poorer countries can speed up the adjustment by investing in agriculture, experts say. If they do, farmers can turn high prices into an engine for growth.

But in countries like Burkina Faso, the crisis is immediate. Days after the riots, Pascaline Ouagadraogo wandered the market in the capital, Ouagadougou, looking to buy meat and vegetables. She said a good meal cost 1,000 francs (about $2.35) not long ago. Now she needs twice that.

"The more prices go up, the less there is to meet their needs," she said of her three children, all in secondary school. "You wonder if it's the government or the businesses that are behind the price hikes." Irene Belem, a 25-year-old with twins, struggles to buy milk, which has gone up 57 percent in recent weeks. "We knew we were poor before," she said, "but now it's worse than poverty."

OECD Says Sovereign Wealth Curbs Not Needed

OECD Head Says Sovereign Wealth Curbs Unneeded, No Political Moves Seen.

The head of the Organization for Economic Cooperation and Development said Tuesday there is no need to restrict investments by government funds so long as they are motivated by profit, not politics.

The OECD, a 30-nation group of the richest economies, has found no evidence that sovereign wealth funds have acted to further political agendas, Secretary-General Angel Gurria told reporters.

The rapid growth of such funds run by China and other governments in Asia and the Middle East has stirred concern they might be used to promote official policy and prompted calls for possible investment restrictions.

"There should not be any regulation or code applied that unduly restricts the freedom of investment, because we would be doing ourselves a disservice," Gurria said at a news conference after weekend meetings with Chinese leaders. "Our hosts agree."

China's $200 billion investment fund, created last year, attracted attention in December when it put $5 billion into Morgan Stanley. Wall Street welcomed the infusion of fresh capital after the U.S. subprime mortgage crisis shook many firms.

American lawmakers, though, have sought assurances such funds would not be used to further political goals. European officials say investments by sovereign funds might be restricted if they fail to disclose more information about their strategy and intentions. The OECD includes the United States, most European countries, Japan, South Korea and Australia. China is not a member.

Beijing's fund has tried to allay foreign concern by saying it will buy only minority stakes in companies and avoid sensitive industries such as oil or telecommunications. The fund says it will invest most of its money in China.

Other governments with sovereign wealth funds include Abu Dhabi -- which has the world's largest fund, with $875 billion in assets -- Singapore, South Korea, Russia and Australia. The value of cross-border deals by sovereign wealth funds jumped 65 percent last year to $48.5 billion compared to 2006, according to the financial information firm Dealogic Inc.

Gurria, a former Mexican finance minister, was in Beijing for talks on closer ties between the OECD and China. "We would like it to participate more," Gurria said. "We want to become a more relevant, more global, more pertinent institution, and without these countries, we feel that we do not cover enough ground to be relevant, to be important."

An OECD report in September forecast that China, now the world's fourth-largest economy, will become No. 1 as early as 2015, surpassing Germany, Japan and the United States, the current leader.

Chinese Banks Gain Strong Profits in 2007

Chinese Banks Report Hefty Profit Gains for 2007 Despite Mortgage Lending Crisis.

Major Chinese lenders Industrial & Commercial Bank of China and Bank of China posted record profits in 2007, as gains in interest income and fee-based businesses offset losses from the global mortgage-lending crisis.

Chinese financial institutions sectorwide are reporting strong profit growth in contrast to the malaise afflicting western lenders ensnared in credit woes tied to the U.S. housing market. Bank of China, the country's most international bank, reported that its net profit rose 31 percent to 56.3 billion yuan ($8 billion) in 2007, despite its nearly $5 billion in investments in mortgage-backed securities.

That result, up from 43.8 billion yuan in 2006, beat analysts' forecasts. Bank of China has reported the highest exposure among Asian banks to the U.S. mortgage crisis. It posted an impairment allowance of $1.3 billion for its $4.99 billion in investments in so-called subprime securities.

Fellow state-owned lender ICBC said its net profit rose 65 percent in 2007. Net profit for 2007 was 81.5 billion yuan ($11.6 billion), up from 49.3 billion yuan in 2006, the Beijing-based bank said in a statement.

At $1.23 billion, ICBC reported a much lower exposure to current credit problems compared with many U.S. and European lenders. It said its business was "not significantly affected" by that fallout. "The operational risk management of the bank continued to stand at a prudent level compared to domestic and overseas peers," the bank said.

Chinese banks have seen their profits soar in recent years, helped by rising interest rates and a diversification into wealth-management, consumer credit and other fee-based businesses. Meanwhile, BOC Hong Kong (Holdings) Ltd., the Hong Kong arm of Bank of China, reported a 10 percent rise in net profit for 2007, as higher net interest income offset losses from its U.S. subprime mortgage-related exposure.

Net profit for the 12 months that ended Dec. 31, 2007 was Hong Kong $15.5 billion ($2 billion), up from HK$14 billion in 2006. The lender, which is 66 percent-owned by Bank of China, said its full-year net interest income from core lending activities rose 22 percent to HK$19.40 billion ($2.5 billion) from HK$15.84 billion.

China Struggling Over Fuel Shortages

Energy-Scarce China Facing Renewed Fuel Shortages; Problems Spread to Major Cities.

China's leaders are facing renewed pressure over shortfalls in diesel and gasoline, with lines growing at filling stations in major cities Monday as the gap widens between international crude oil values and centrally controlled fuel prices.

The shortages, first reported in southern and inland China, appeared to be spreading to the wealthier areas in the north and east as filling stations struggled to get shipments from refiners. Four stations contacted Monday in Shanghai said their daily diesel shipments had not yet arrived.

"You could try your luck later in the day. Now, we have no diesel available at all," said a staffer at a filling station in the city's eastern Pudong district. "I can't promise you anything, though, for once it comes, it will soon run out," said the station attendant, who would not give his name because he was not authorized to speak to the media.

Staff at another filling station said they were on duty round the clock, waiting for diesel shipments. In Beijing, which until now appeared to be relatively sheltered from such problems, staff at 20 filling stations said that due to the shortages they were not selling diesel or were rationing how much customers could buy.

Shanghai authorities were downplaying the shortages and urging drivers to remain calm and not hoard fuel. The city, China's commercial center and a key trade transport hub, has enough diesel to last more than 10 days, the municipal Economic Commission said in a statement seen Monday on its Web site.

"Prices are set by the government, so consumers should not panic over fears of surging prices or try to stockpile fuel," it said. It appealed to city residents to "show understanding regarding the temporary shortages and to please preserve traffic order around filling stations" -- alluding to troubles with frustrated drivers unable to fill their tanks.

Shortages in the second half of last year briefly affected Shanghai and other major cities. But those shortfalls soon disappeared after the government ordered oil companies to ensure supplies, and then raised fuel prices by about 10 percent.

Now, with inflation at its highest level in a dozen years, China's economic planners are resisting pressure from refiners for price hikes. The consumer price index saw an 8.7 percent jump in February over a year earlier, prompting Premier Wen Jiabao to vow more stringent controls to help rein in inflation.

China supplied its own energy needs for decades from domestic oil fields but became a net importer in the 1990s as its economy boomed. Imports, which now supply nearly half of demand, rose 12.3 percent last year to 1.1 billion barrels.

With crude oil prices at over $100 a barrel, independent refiners have cut back or stopped production. Major state-owned suppliers Sinopec and PetroChina, ordered to ensure supplies to major cities and key sectors such as farming and public transport, were limiting sales to independent gas stations in some regions, state media reports said.

The earlier shortages prompted authorities to order PetroChina's parent company, China National Petroleum Corp., and Sinopec, the country's biggest refiner, to import thousands of gallons of diesel and to expand refining capacity.

China Becoming New Land of Opportunity

For a New Generation, Land of Opportunity May Lie in China, Not the US.

When Marvin Ho co-founded a Chinese language school in Taiwan in 1957, his only students were a handful of Western missionaries. Five decades later, it's a different story. Ho's classrooms are packed with scores of people clamoring to learn what they believe is the next global language: Mandarin Chinese.

China, having traded socialism for capitalism, is emerging as an economic power, perhaps the only one that could rival U.S. dominance in the 21st century. For a new generation of students, business people and even artists, the land of opportunity now lies to the East, not the West. Drawn to its promise, many are seeking ways to navigate the often rough-and-tumble Wild West atmosphere of working in China. The clearest barometer of this trend is a booming appetite for learning Chinese.

Worldwide, about 40 million people are learning Mandarin, China's official spoken language and its most common dialect. Nearly 100,000 foreigners went to China to study Mandarin in 2006, more than twice the number five years earlier. "In my generation, the U.S. was the first choice," said Ho, whose Taipei Language Institute now boasts 2,400 students at 16 branches, nine of them in mainland China itself. This generation "thinks their future is in China. Why bother going to the U.S.? My friends encourage their children to go to China."

The rise of the Middle Kingdom has clear parallels with America in the last century, when it became a magnet for people from around the world, said James McGregor, author of the best-selling book, "One Billion Customers: Lessons from the Front Lines of Doing Business in China."

"This is a continental-sized economy being built from scratch," he said. "Everyone used to go to America because it was the global happening place. Now this is the global happening place." McGregor, a former journalist who runs a business consulting firm in Beijing, advises those who want to head to China to bring an open mind, a sense of adventure and an appreciation for the absurd.

The other key to making it? Solid language skills. "If you're going to be an entrepreneur, you need to sink into the culture," he said. "Any 20-year-old American thinking of doing business in China one day and not thinking of learning Mandarin is not thinking."

America has been infected by China fever. At U.S. colleges, the number of students studying Mandarin jumped 51 percent between 2002 and 2006 to 51,600, according to a Modern Language Association survey. The increase is significant, although many more students -- 800,000 -- still study Spanish.

Last year, more than 3,000 high school students took an Advanced Placement exam for Chinese language offered for the first time. And some 500 U.S. high schools, junior high schools and elementary schools offered Mandarin, nearly double the number in 2004, says Shuhan Wang, executive director of Chinese Language Initiatives for the Asia Society. Illinois, Ohio, Minnesota, Wisconsin, Utah and Indiana are the states pursuing Mandarin instruction most aggressively, a sign of how seriously China's economic and political rise is being taken, she said.

It's a message that 26-year-old musician Skot Suyama from Seattle has taken to heart. Suyama, whose clean-cut boyish looks hint at his mixed heritage -- half Swedish, half Japanese -- has spent the last several years in Hong Kong and Taiwan, creating a mix of hip-hop, pop and grunge music. His skills are in demand, because there are fewer people in the region trained in creating and producing music than in the U.S.

With only rudimentary Chinese, he penned the lyrics for "Duibuqi, Xiexie" (Sorry, Thank you) a few years ago, which became a big hit for Hong Kong pop singer Eason Chan in mainland China and elsewhere. However, Suyama has held off diving headlong into the Chinese music scene in part because laws protecting music copyright and guaranteeing royalties are simply not enforced. "Musically, everything in China is wide open. 'Duibuqi' was huge, but I didn't get any royalties from it (in mainland China). Only in Taiwan, Singapore, and Hong Kong," he said.

For now, he is focusing on improving his Chinese. He and his Vietnamese girlfriend, Tran Ngoc Binh, spend three hours a day in a class of nine students at the Taipei Language Institute. Their classmates are from Australia, Belgium, France and Austria.

As their teacher goes over the grammar lesson for the day, they painstakingly repeat her phrases, careful to enunciate the rising and falling tones that make Mandarin so difficult. Suyama believes the payoff will be worth the pain. "If I could go to the mainland now, I could make money," he said. "Right now in China, there's people who don't know the price of a song. You could find someone to pay you $50,000 to write a song. If you've made a name for yourself, you can make it big there."

It's something that entrepreneur Joseph Green, 36, saw coming a decade ago, when he first moved to Taiwan to study Mandarin after getting an MBA in 1997. A native of Houston whose heavy southern drawl disappears when he speaks rapid-fire Mandarin, Green said he feels lucky that he concentrated on Chinese when "China wasn't even on the map." Now, his friends and family congratulate him on being farsighted.

Green, who has worked in China and Taiwan, launched an Internet Web site (http://www.chinglish.com) with a Dutch friend a couple years ago that seeks to make English-Chinese communication easier.

Chinese "won't supersede English but it's so big that it stands a chance of being integrated into the mainstream in the way that English is," predicts Green, who is now pursing advanced Mandarin at the elite National Taiwan University. "Even the normal person in Texas is saying, 'Holy cow. This is it. I've got to learn Chinese.'"

Nowhere has interest in Chinese been stronger than among other Asians, as China's rapid ascension reshapes the priorities of its neighbors. Recent Gallup surveys in 13 Asian countries showed some 40 percent expect China to replace the U.S. as the leading superpower within the next 50 years.

Four of the top five nations that sent students to China for language study were Asian -- South Korea, Japan, Indonesia and Vietnam respectively. The United States, which ranked third, was the only Western country in that group. In neighboring Taiwan, where the number of Mandarin students has doubled to around 11,000 over the past decade, about 60 percent of the students are Asian. Most come from Japan and Korea, though growing numbers are from Southeast Asia. The rest are split between America and Europe.

"Twenty or thirty years ago, if Asians wanted to study abroad, they would go to the U.S or Europe," said Chung-Tien Chou, director of National Taiwan Normal University's Mandarin Training Center, the largest language school in Taiwan. "Now that has changed. More young people in Asia don't only look to the Western countries anymore but they look to Asian countries as options."

China has encouraged Mandarin study through its Confucius Institutes, designed to promote Chinese culture and language. Patterned after Germany's Goethe-Institut or France's Alliance Francaise, more than 100 Confucius Institutes are operating, some two dozen in the United States.

Demand for Mandarin, mostly from business-focused clients, has meant boom times for language schools like Ho's Taipei Language Institute. Clients include corporate customers, such as Mitsubishi Motors Corp., Dutch bank and insurance company ING, and HSBC Holdings PLC, Europe's largest bank.

"Mainland China has become so strong so everything has changed," said Kentaro Kawauchi, 27, a student at Ho's school. His employer, Japanese trading company Marubeni Corp., is paying for him and more than a dozen other colleagues to learn Mandarin full-time. "My company needs me to learn Chinese."

But the language alone only goes so far without an understanding of Chinese culture and its distinct business style -- which is why Adam Sobieski has gone out of his way to be culturally sensitive. The 30-year-old self-described "farm boy from Minnesota" arrived in the northeastern city of Dalian in 2004 to set up an office for an American grain trading company. He tried to talk and even dress like local businessmen. He took business calls on weekends, discovering there is little separation between personal and business life in China.

He also began drinking baijiu, a highly alcoholic spirit distilled from grain, as part of the near-obligatory bonding ritual that business deals required -- until it started affecting his health. "When I first started, I thought I had to do it. I thought I would offend them otherwise," he said. "But the most important thing is your health. People die over there because they're drinking during business lunches. That's a big cultural difference that's very hard to adapt to."

Ultimately, Sobieski said he found the key to business success was his ability to develop relationships. "In China, the rule of law is very weak. It's the rule of man," he said. "If you can use language skills to develop relationships, or 'guanxi,' it's going to help you in the long run. Once you have a problem, you can't rely on the law. You have to find your friends, people who have connections who can help you."

Sobieski, whose mastery of Chinese won him first place at an annual language competition last December, said his ability to speak the language set the right tone for doing business, conveyed respect and humanized the relationship. "Most foreigners who go there are pretty clueless as to what the reality is in China," he said. "If they don't have language ability, they don't have the tools to find out what the truth is."

Weekend's Special: El Nino and La Nina, the Dancing Ocean and Atmosphere

The Christ Child and Little Girl

By now most people have heard of El Niño, if only to know the name refers to some kinds of abnormal weather. The definition of "abnormal" varies widely with geography, though. For people who live in Indonesia, Australia, or southeastern Africa, El Niño can mean severe droughts and deadly forest fires. Ecuadorians, Peruvians, or Californians, on the other hand, associate it with lashing rainstorms that can trigger devastating floods and mudslides. Severe El Niño events have resulted in a few thousand deaths worldwide, left thousands of people homeless, and caused billions of dollars in damage. Yet residents on the northeastern seaboard of the United States can credit El Niño with milder-than-normal winters (and lower heating bills) and relatively benign hurricane seasons.

Originally, the name El Niño (Spanish for "the Christ child") was coined in the late 1800s by fishermen along the coast of Peru to refer to a seasonal invasion of warm southward ocean current that displaced the north-flowing cold current in which they normally fished; typically this would happen around Christmas. Usually, trade winds blow west across the Pacific, causing warmer ocean waters to "pile up" in the west: near Indonesia, the sea's surface is actually about a foot and a half higher than it is near Ecuador. However, on a cyclical basis, the trade winds die down, disrupting this normal pattern. The warmer waters stay east, raising the water temperature, rather than migrating west. This changes atmospheric circulation and weather patterns around the globe -- what we call El Niño.

Today, the term no longer refers to the local seasonal current shift but to part of a phenomenon known as El Niño-Southern Oscillation (ENSO), a continual but irregular cycle of shifts in ocean and atmospheric conditions that affect the globe. El Niño has come to refer to the more pronounced weather effects associated with anomalously warm sea surface temperatures interacting with the air above it in the eastern and central Pacific Ocean.

Its counterpart--effects associated with colder-than-usual sea surface temperatures in the region--was labeled "La Niña" (or "little girl") as recently as 1985. La Niña is characterized by unusually cold ocean temperatures in the eastern equatorial Pacific, as compared to El Niño, which is characterized by unusually warm ocean temperatures in the Equatorial Pacific. La Niña tends to bring nearly opposite effects of El Niño to the United States — wetter than normal conditions across the Pacific Northwest and dryer and warmer than normal conditions across much of the southern tier. The impacts of El Niño and La Niña at these latitudes are most clearly seen in wintertime. In the continental U.S., during El Niño years, temperatures in the winter are warmer than normal in the North Central States, and cooler than normal in the Southeast and the Southwest. During a La Niña year, winter temperatures are warmer than normal in the Southeast and cooler than normal in the Northwest.

The shift from El Niño conditions to La Niña and back again takes about four years. Understanding this irregular oscillation and its consequences for global climate has become possible only in recent decades as scientists began to unravel the intricate relationship between ocean and atmosphere. Although meteorologists have long been forecasting daily weather based on atmospheric measurements taken around the world, they had relatively little information about conditions in many parts of the world's oceans until the advent of arrays of fixed unmanned midocean buoys in the Pacific Ocean and orbiting satellites.

But technological advances were not the only key. As the following article recounts, atmospheric and oceanographic researchers, after years of independent inquiry into the basic workings of air and sea, at last joined forces. An elegant synthesis of these two fields of research now enables climatologists and oceanographers to construct theoretical models to simulate and predict the broad climate changes associated with ENSO. For example, scientists can now warn vulnerable populations of an impending El Niño event several months in advance, providing precious time in which to take steps to mitigate its worst effects. Invaluable as this prediction of El Niño is, it is just the first step toward the much longer-term goal of providing the climatic counterpart to the daily weather prediction that we have come to take for granted.

The Impact and Cycles

El Nino and La Nina can have profound effects on global weather and ocean conditions. Under normal conditions, trade winds on the equatorial Pacific normally blow from east to west (Peru towards Asia). This causes the warm waters of the equatorial Pacific to migrate toward Asia, and cool water to upwell off Peru. Generally, high pressure builds over the cool Pacific waters off Peru producing stable atmospheric conditions while low pressure and tropical precipitation develops off Asia.

Under El Nino conditions, the trade winds reverse direction, blowing from west to east (Asia towards Peru). The warm waters off Asia start migrating across the tropical Pacific towards Peru, and the waters cool off Asia. Typically the cycle starts in early summer and the warmest waters reach Peru right around Christmas. Drought sets in over Asia as high pressure builds over the cooler ocean waters, and flooding occurs over the east Pacific as low pressure moves in. Precipitation follows the warmer waters across the Pacific.

Kelvin waves often signal the start of an El Nino cycle. Eastward propagating Kelvin waves are driven by the Madden-Julian Oscillation (MJO), a cyclical weather pattern with duration of 30-60 days per cycle. The MJO is characterized by a weak low pressure center that develops in the east Indian Ocean and tracks eastward along the equator, against the normal flow of tropical systems. It can propagate into the North Pacific as far east as the dateline. The MJO has been implicated in the development of the wet winter weather pattern known as the 'Pineapple Express', a conditions which can inundate the Western US and Hawaii with rain. The MJO reaches it's peak during the transition from winter-to-summer and summer-to-winter. The southern quadrant of a strong northern hemisphere MJO pulse that pushes into the the North Pacific produces easterly wind, which in-turn pushes warm surface water of the West Pacific eastward. If it is strong enough it can potentially producing something known as a Kelvin Wave. Kelvin waves are not waves in the classical sense, but more like a pool of warmer-than-normal water that travels east under the oceans surface at a depth averaging about 150 meters. A Kelvin wave can be evidenced at the surface by a slight rise in sea surface height (8 cm) and slight temperature increase that covers hundreds of square miles of ocean surface. Once a Kelvin wave hits the South American coast (normally near Ecuador), the warm water it carries erupts upward, creating a large warm water pool at the surface. That warm water also starts to migrate south along the coast of Peru and north up towards Central American and Mexico, often reaching well into Northern California. A Kelvin wave is tracked primarily using an array of 70 buoys anchored along the entire width of equatorial Pacific, from Papua New Guinea to just off the Ecuador coast. Temperature sensors located a various depths along the buoys anchor-line record subsurface water temperature. The sensors relayed their data real-time via satellite to a central processing facility. At the processing facility the real-time temperature measurements are compared to historical and seasonally adjusted average water temperatures for each buoy location. A variety of reports are generated daily and posted on the Internet. Some reports highlight deviations from the 'normal' expected temperatures. Such deviations are called 'anomalies' and can register as either warmer than normal (El Nino) or cooler than normal (La Nina).

But there are other signals monitored that indicate a change in the El Nino/Southern Oscillation (ENSO) cycle. Wind speed and direction along the equator can be monitored by the buoy array and by the QuikSCAT satellite. Deviations in the normal pattern are easily highlighted. A persistent slackening or even change toward easterly winds in the West Pacific is a telltale sign of a developing El Nino. Conversely, strong westerly winds in the East Pacific are signs of a developing La Nina.

Early signs of a developing El Nino pattern can appear as early as late fall a year before a mature El Nino pattern sets in. But just because these signals appear, it does not always mean an El Nino will follow. The period from March to April during the year El Nino is forecast can make or break the forecast. It is not fully understood what physical processes take place during the seasonal transition, also known as the "Spring Barrier". But during this time, early signals of El Nino can disappear, to be replaced by a neutral to slightly La Nina like pattern. But if the signs persist through the Spring Barrier, the odds of a full scale El Nino developing go up significantly.

From a surf perspective during El Nino conditions, the north Pacific subtropical jetstream is enhanced, and a strong semi-permanent low develops just east of the dateline and south of the Aleutians. This situation enhances the potential for development of large winter storms and surf, but can also produce locally stormy conditions along the US west coast. During pronounced episodes, the jetstream can drive storm energy straight from Siberia clear across the Pacific and directly into the US, often taking a track right into the drier regions of Central and Southern California. This can bring significant rainand snowfall to dry regions of the southwest US in winter.

Conversely, La Nina has the opposite effect. Colder than normal water starts to develop in the eastern equatorial Pacific in the mid summer as the trades start raging from east to west (Peru to Asia). Strong high pressure builds over the eastern equatorial Pacific while low pressure follows the warm waters towards Asia. By Christmastime the North Pacific jetstream is displaced well north, driving up towards the Aleutians into Alaska and northern Canada, and high pressure dominates the NE Pacific pattern.

For the Atlantic Ocean, El Nino and La Nina have equally dramatic effects, but in the opposite way as experienced over the Atlantic. During El Nino, the strong jetstream winds and storms blowing into the western US also blow across the equatorial Atlantic, shearing the tops of developing hurricanes, reducing water temperatures off the eastern US and the amount of energy and moisture available to feed tropical storms that emerge off the African coast. Conversely, during La Nina, a consistent flow off Africa at all levels of the atmosphere creates conditions ripe for tropical storm development.

Weekend's Featured: Market Turmoil Raises Fear of Deeper Recession

Financial Turmoil Raises Worries of Deeper Recession - Worst Since World War II.

It's been almost an article of faith: Any recession this year will be mild and brief. But now the stunning meltdown of a top Wall Street investment bank and stubbornly persistent financial market turbulence has called that into question, raising fears that severe problems in housing and the nation's bedrock financial system could cripple the economy and wallop many millions of Americans.

No less an authority than former Federal Reserve Chairman Alan Greenspan wrote this week that "the current financial crisis in the U.S. is likely to be judged as the most wrenching" since the end of World War II. Other noted economists are also sounding alarms. Harvard professor Martin Feldstein, the former head of the National Bureau of Economic Research, said recently he believes the country is now in a recession and it could be a severe one.

While it will be many months before the bureau's cycle dating committee, the unofficial arbiter of when recessions begin and end, makes its own ruling, a growing number of private economists already have a downturn figured into their forecasts. They are generally calling for a mild recession that will end this summer when the economic stimulus checks going to 130 million households start getting spent.

But the severe credit crisis that erupted last August -- and claimed its biggest victim this past weekend with the forced sale of Bear Stearns Co. -- is raising doubts about those mild forecasts. "Bear Stearns was a clear wake-up call. It resonates with everybody and highlights the severity of the stresses in the financial system," said Mark Zandi, chief economist at Moody's Economy.com.

What got people's attention was how quickly Bear Stearns, the nation's fifth largest investment bank, could go from a stock market value of about $3.5 billion when the market closed on March 14 to being sold at the bargain-basement price of about $236 million two days later.

The Federal Reserve rushed in to take unprecedented actions. It provided a $30 billion line of credit to facilitate the sale and is employing Depression-era provisions that for the first time are providing direct Fed loans to investment banks. Most analysts said the Fed was justified and that its efforts highlighted the severity of the dangers facing the financial system.

The turmoil produced wild swings on Wall Street this week with the Dow Jones industrial average surging on Tuesday after the Fed aggressively cut a key interest rate only to plunge on Wednesday on renewed worries about the economy and then to stage a 262-point gain on Thursday. Markets were closed Friday. More turbulence is expected in coming weeks because there remains a great deal of uncertainty about how many more victims the credit crisis will claim.

The problems began last year with rising defaults on mortgages as a housing slump intensified, but they have now spread to other parts of the credit markets with institutions growing fearful about making other types of loans. It is the ability to get credit that makes the financial system and the economy it supports function. When banks stop lending to other institutions that, like Bear Stearns, depend on credit to conduct their day-to-day operations, the results can be catastrophic.

"We can't afford to stagger from one day to the next without knowing what large financial institution might be the next to go down the tubes because of a lack of liquidity. That is way too dangerous a game," said Lyle Gramley, a former Fed board member who is now an economist with the Stanford Financial Group. "It is possible that we could be entering the worst recession of the post World War II period. The threat is certainly there."

Because of Bear Stearns, many analysts are raising the odds that a 2008 recession could be worse than expected. "The potential freezing up of the financial system could have pretty negative ramifications on bank lending which would have negative ramifications on consumer and business spending," said Nariman Behravesh, chief economist at Global Insight, a Lexington, Mass., forecasting firm. He said he had upped the chances of a worse-than-expected recession to 40 percent, up from 25 percent odds before Bear Stearns.

David Wyss, chief economist at Standard & Poor's in New York, said he now has a worst-case-scenario in which the country could endure a double-dip recession in which the economy would briefly recover this summer, helped by the $168 billion in tax relief, only to quickly slip back into a downturn. Under this scenario, the economy's total output, as measured by the gross domestic product, would drop by 2.2 percentage points, making it the third worst recession in the post World War II period.

The worst recession in recent decades, in terms of lost output, occurred in the 1973-75 period of oil shocks, when GDP fell by 3.1 percent, followed by the 1981-82 recession, when GDP dropped by 2.9 percent. By contrast, in the last two recessions output fell by 1.3 percent in the 1990-91 downturn, and a tiny 0.3 percent in the 2001 recession, making that slump the mildest in the post-war period in terms of lost output. The 2001 downturn lasted just eight months.

Wyss' baseline forecast calls for the 2008 downturn to trim GDP by just 0.5 percent and last for nine months, from last November until August. Under that forecast, unemployment, which hit a low in this expansion of 4.4 percent and now stands at 4.8 percent, will rise to around 6 percent, meaning 1.5 million people will lose their jobs. Under the worst-case forecast, unemployment jumps to 7.5 percent, meaning 3 million people would be tossed out of work.

"There would be bigger drops in the stock market and in home prices than we are now anticipating and more people out of work," Wyss said. "There would be a lot of pain all the way around."

While they are developing worst-case-scenarios, Wyss and other economists said they still believe the balance has not tipped from their more benign main forecasts. One thing that gives them hope is the expectation that Congress and the Bush administration, having acted so quickly to pass the first stimulus package, will move quickly, especially in an election year, to pass a second package if needed.

Also, analysts said the Bear Stearns crisis, which has already prompted the Fed to move more aggressively, will also probably trigger a bigger response on the part of Congress and the administration in offering help to homeowners to keep them from losing their homes because of mortgage defaults.

"Historically, when policymakers have acted in a concerted and aggressive way, that signals that we are nearing the end of the crisis," said Zandi. "If that occurs this time and the financial markets stabilize in the next few months, then the economy will suffer but it won't a prolonged and severe recession."