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Wednesday, October 12, 2011

Keiser Report: Ground Zero of financial terrorism

Chinese officials blast Senate currency bill

WASHINGTON (CNNMoney) -- In a rare showing of bipartisanship, the Senate passed a bill on Tuesday targeting China's undervalued currency -- and angering Chinese officials who have warned of a "trade war."

"China resolutely opposes the currency exchange bill passed by the U.S. Senate," said Chinese foreign ministry spokesman Liu Weimin. "This bill seriously violates World Trade Organization rules, harms bilateral economic and trade cooperation, and does not solve the economic and employment problems in the United States."

China's Ministry of Foreign Affairs spokesperson Ma Zhaoxu slammed the bill as "doing good to nobody, and it will bring nothing but harm!"

"The passing of the act, under the pretext of so-called 'currency imbalance,' is a protectionist measure in nature, which severely violates the WTO rules," said Zhaoxu. "Not only will it fail to solve the economic and employment problems in the U.S., but it will severely obstruct China-U.S. economic relations and trade."

The Senate voted 63-35 to slap new duties on imports from nations whose currency is undervalued -- a provision aimed squarely at China's yuan, which has long been accused of hampering the U.S. economy. Lawmakers say the bill is intended to help U.S. businesses hurt by ongoing global trade imbalances and lost business to Asian nations.

But the Republican-controlled House won't take up the bill, Speaker John Boehner has said, making Senate passage more of a political exercise than an attempt at legislating. Boehner has called the bill "dangerous."
China isn't the only currency 'manipulator'

On Monday, before the act was passed, a Chinese official warned of a "trade war"

"Should the proposed legislation be made into law, the result would be a trade war and that would be a lose-lose situation for both sides," said Vice Foreign Minister Cui Tiankai. "It would be detrimental to the development of economic ties and might have an adverse impact on bilateral relations."

President Obama has yet to fully embrace the measure, warning last week he didn't want to pass "symbolic" laws that could be slapped down by the World Trade Organization.

For years, U.S. officials have been pressuring China to allow its currency -- which is also known as the renminbi -- to appreciate more rapidly. Between 2008 and 2010, China had pegged its currency to the dollar, keeping its value artificially low.

While China had allowed its currency to appreciate a little in the last year, bipartisan supporters of the Senate bill say China has not done enough. They claim the renminbi is undervalued by 25%-30% against the dollar, which means Chinese exports to the U.S. become 25%-30% cheaper, while U.S. goods exported to China are more expensive.

Besides hiking tariffs on Chinese goods, the bill also takes aim at the administration, which already has some ability to point out nations that purposefully manipulate their currency but has avoided doing so.

The bill would:

-- Force the administration to officially red-flag nations whose currencies are undervalued for long periods with the term "fundamentally misaligned currency."

-- Make it tougher for the Commerce Department to ignore calls to investigate accusations of undervalued currencies.

-- Force the administration to give Congress a list of nations with "misaligned" currencies.

And if a nation is accused of having an undervalued currency and makes no effort to rebalance the currency for three months or more, that's when the tariffs kick in.

The bill would also:

-- Prevent the federal government from buying goods and services from that nation.

-- Prevent the U.S. trade promotion agency, the Overseas Private Investment Corp., from investing in that nation.

Most big business groups, from the U.S. Chamber of Commerce to the Club for Growth, oppose the bill. Union groups support it.

The Obama administration has taken the stance that the best course of action is diplomacy and not knee-jerk penalties, pointing out China's moves to allow the yuan to appreciate slightly.

Despite the bill's overall grim prospects, Democrats frustrated with political stalemate on so many other issues wanted to push forward on the currency bill to have something more to show for the past year of gridlock.
Can China save Europe?

And while the bill targeting China currency picked up Republicans, it lost a few votes on the other side of the aisle.

Sen. Joseph Lieberman, a Connecticut Independent who caucuses with Democrats, said Tuesday that China's currency policy concerns him but he feared the bill would "aggravate the current global and American economic problems."

He said he understood the bill is intended to be a "warning shot across China's bow."

"But China, from its perspective, may see it as a direct hit on its bow and it may be tempted to retaliate economically," said Lieberman, who voted against the bill.


Papua Earthquake Strongest To Hit Region in 2011

Epicentre of Tuesday's earthquake. Image Google
Epicentre of Tuesday's earthquake. Image Google
A 5.9 magnitude earthquake hit Papua in Indonesia late on Tuesday, according to Geoscience Australia.
The quake struck at 10:05 p.m. local time (2:05 p.m. GMT) at an estimated depth of 20.3 km (12.6 miles).
The epicentre was located 209 km (129 miles) west of Jayapura, Papua, Indonesia, and 274 km (170 miles) west of Vanimo, New Guinea, PNG.
It was the strongest earthquake to rattle Papua in 2011. An earthquake measuring 5.7 magnitude on the Richter Scale was recorded on the morning of 15 May.  A 5.5 magnitude earthquake hit on 12 March.

Irish Weather

UK unemployment total reaches 17-year high

UK unemployment rose by 114,000 between June and August to 2.57 million, a 17-year high, according to official figures.
The unemployment total for 16-24 year olds hit a record high of 991,000 in the quarter, a jobless rate of 21.3%.
The number of people out of work and claiming benefits rose 17,500 to 1.6 million in September.
Other figures showed a record cut in the number of part-time workers, down by 175,000, and there was also a record reduction of 74,000 in the number of over-65s in employment.
The Employment Secretary, Chris Grayling, said that what the UK was now seeing was "the impact of the international financial crisis".
He said although the UK was not in the euro, it was "not immune" to the problems currently being experienced in the eurozone and in countries such as Greece.
There have been criticisms of the government's deficit reduction programmes, with some analysts saying it was hampering economic growth.

The shadow work and pensions secretary, Liam Byrne, said the news marked "a day of judgment for the government".
"Today's figures are the clearest proof yet that the government's decision to cut too far and too fast is hurting and just not working.
Unemployment is soaring, and more young people are out of work than ever before."
The Bank of England recently said it would pump another £75bn into the economy through more quantitative easing (QE) to try to improve the business climate.
But Mr Grayling said the "important reason why we are pursuing deficit reduction" was to retain the confidence of commercial markets, and to encourage businesses to set up in the UK.

The TUC's general secretary Brendan Barber said: "These are terrible figures. The government's austerity measures have turned unemployment into a full-blown crisis - with job losses not seen since the darkest days of the recession.
"Worryingly, this is not simply the result of eurozone troubles. This unemployment crisis is state-sponsored and areas like the North East are paying a heavy price, with over one in 10 people out of work."
The data drew a mixed reaction from economists.

Ross Walker, from RBS Financial Markets, said the picture was not altogether gloomy.
"The drop in total employment is bigger than people thought. But it is worth noting that it is almost entirely part-time," he said.
"So in the latest quarter, full-time employment - which to me is always the single most important indicator - was down just 2,000 and it's still up over the past year by about 124,000."
But Alan Clarke, of Scotia Capital, said the figures were a "disaster".
He added: "That (the data) shouldn't come as a surprise because the economy is growing at half the pace it needs to keep unemployment stable. That's not going to change anytime soon, so we should get used to numbers like this."
The chief economist at the Institute of Directors, Graeme Leach, said: "These are grim figures and are likely to get worse before they get better. But abandoning the deficit reduction plan will do the unemployed no favours.
"The hope is that QE2 will lift the money supply and economic activity, but the ongoing eurocrisis is pushing the UK towards a double-dip with increasing speed. All this is before the threat of contagion has actually materialised. We are sailing in stormy seas."

New York Comptroller Sees 10,000 More Securities Jobs Lost by End 2012

New York City's securities industry could lose nearly 10,000 jobs by the end of 2012, New York state's comptroller predicted, a painful blow to the area's economy and government budgets.

In a report set to be released Tuesday, Comptroller Thomas P. DiNapoli also said bonuses are likely to shrink this year, reflecting lower profits on Wall Street.

Since January 2008, the securities industry in New York has seen 22,000 jobs evaporate. If Mr. DiNapoli's prediction of 10,000 more jobs losses between August 2011 and year-end 2012 comes true, that would represent a decline of 17%. About 4,100 jobs have been eliminated since April, and deeper cuts are widely seen as inevitable given a recent flurry of corporate expense-trimming announcements.

[More from WSJ.com: On Wall Street, All the Bonuses Are Above Average]

Goldman Sachs Group Inc. (GS - News) said it may cut 1,000 jobs or more, and Credit Suisse Group AG and Barclays PLC have announced layoffs. In addition, Bank of America Corp. (BAC - News) has said it plans to lay off 30,000 workers. It isn't clear how many of the banks' cuts will come in New York or how many will be in the securities operations.

Mr. DiNapoli oversees New York's finances, including tax receipts. A 2008 job-loss forecast for Wall Street turned out to be less severe than Mr. DiNapoli predicted, but Tuesday's report suggests that some of those job cuts might only have been delayed.

Things aren't as bad outside New York City, as firms move more and more back-office work to the suburbs in order to take advantage of cheaper rents. In August, 12% of securities jobs in New York were outside the city, the highest percentage ever, the report said.

Nationwide, between December 2006 and August 2011, the number of people employed in finance and insurance fell 8.1%, according to the Bureau of Labor Statistics. Total national employment fell 4.9%. In the New York metro area, total employment fell 2.6% during the same period, but employment in finance and insurance declined 8.9%.

[More from WSJ.com: Rich Family You've Never Heard Of Could Sell Their Company for $10 Billion]

Financial firms play a major role in New York's economy and its budgets. Mr. DiNapoli's office estimates that one in eight city jobs and one in 13 state jobs rely on securities firms.

"The banks I talk to are talking about significantly reduced compensation, which comes right out of our tax rolls, and layoffs and downsizing," said Kathryn Wilde, president of Partnership for New York City, a group of business executives whose firms have significant operations in the city. "All of the above suggests that there's going to be a real impact on the New York City economy."

Mr. DiNapoli's report also portends more budget pain at New York's City Hall and in Albany, as lower pay and employment levels hit tax collections. New York City's financial plan forecasted $20 billion in securities-industry profits for 2011.

Those profits now are unlikely to reach $18 billion, the state comptroller concluded in Tuesday's report.

[More from WSJ.com: Masons Go Public to Lure Younger Bros]

Pay also is on the decline after rising in the first half of 2011 at most firms, Mr. DiNapoli's report says. But with banks making less money and cutting staff, he doesn't expect that to continue. "Compensation growth will likely slow or even decline in the second half of the year," the report said.

Mr. DiNapoli's report also seems to confirm Wall Street's shift to larger salaries in order to make up for smaller cash bonuses. While overall compensation increased in 2010, bonuses declined.

The report also underscores the delicate position some of the region's politicians find themselves in as anger at the financial industry takes the form of street protests like the Occupy Wall Street encampment. Many protests are backed by powerful constituencies like organized labor, but those politicians are heavily reliant on revenue from Wall Street to balance their budgets and avoid painful cuts and tax increases.

"Wall Street is on the defensive, having been painted as the villain in the overall economic scenario," Ms. Wylde said. "Unless we can figure out how to reposition the industry as a key to the solution for future growth, New York is going to suffer the results, suffer significant losses in both jobs and revenues."

Top Currency Forecasters Say Best Over for Dollar as Fed Embraces Easing

The most accurate foreign-exchange forecasters say the dollar’s best quarterly rally since 2008 has no chance of continuing to year-end as a slow economy spurs the Federal Reserve to flood the world with more U.S. currency.

Led by JPMorgan Chase & Co., the five best strategists as measured by Bloomberg News in the six quarters through September see the currency averaging $1.34 per euro in the final three months of 2011, from $1.3387 on Sept. 30. They estimate it will average 76.6 yen, from 77.06.

Reports on everything from jobs to housing and incomes show the world’s largest economy may be in jeopardy of slipping back into recession, forcing the Fed to print more money for the third time in three years to inject into the financial system through bond purchases. Forecasters say the strategy would debase the dollar, which is down 22 percent since March 2009 even with last quarter’s gains.

“The Fed could start discussing the expansion of its balance sheet by the end of this year and begin with the asset purchases in early 2012,” John Normand, the London-based global head of foreign-exchange strategy at JPMorgan, said in an interview on Oct. 5. “The bias will be for a modest retracement in the dollar from current levels. Investors are already extraordinarily long of dollars.”
Global Turmoil

Normand, the top forecaster with a 4.37 percent margin of error, sees the 17-nation euro at $1.38 by year-end. The firm’s yen prediction is 75 per dollar.

The U.S. currency fell 0.1 percent to $1.3661 per euro and was little changed at 76.69 yen at 2:40 p.m. New York time.

Turmoil in global financial markets last quarter as Europe’s sovereign-debt crisis deepened and Standard & Poor’s stripped the U.S. of its top AAA credit rating led investors to shun all but the safest assets, such as Treasuries. That helped spark a 7.14 percent gain in the dollar against a basket of nine developed-nation peers as measured by Bloomberg Correlation- Weighted indexes. That beat bonds, stocks and commodities.

While almost three years of near-zero interest rates from the Fed and $2.35 trillion of bond purchases helped pull the economy out of a recession, concern is rising that gross domestic product may soon start to shrink.



Public sector job losses 'worse than forecast'

The current rate of public sector job losses is far greater than official projections and suggests total job cuts in the sector will be 50% higher than forecast, researchers say.

The number of jobs lost since April is five times greater than the Office for Budget Responsibility projected for the entire year, the Chartered Institute of Personnel and Development (CIPD) said.

The body called on the government to halt public sector job cuts.

The Treasury said the cuts were needed.

A spokesman said: "Risks in the global economy make it even more essential to stick to the government's essential deficit reduction plan, which is supported by the International Monetary Fund, the OECD and the CBI.

"This plan is essential for sustainable growth and has helped deliver record low interest rates for families."

A Treasury source told the BBC it was sceptical of the CIPD's projections as it had previously overestimated the UK unemployment peak.More losses

However, the CIPD said the public sector job cuts could be far greater than the OBR's latest projections.

In June 2010, the OBR forecast that the government's spending cuts, designed to reduce its budget deficit, would lead to 610,000 public sector job losses between 2010/11 and 2015/16.

Chief economic adviser John Philpott: Government plans could "add to the public borrowing problem"

However, in November last year it reduced this projection to 410,000.

The CIPD said that, based on the current rate of job cuts, the actual number of jobs lost in the public sector was likely to be 610,000 - "exactly the same as the initial OBR projection".

As a result, it called on the government to "call a halt to public sector job cuts while the economy and labour market remain in the current fragile condition".

A number of economists and opposition politicians have called on the government to rethink its programme of spending cuts given the weak recover.

Figures released last week showed that the UK economy grew by 0.1% between April and June, slightly less than the previous estimate of 0.2%.'Strength sapping'

The body also questioned whether the private sector was capable of compensating for public sector losses, as the government is hoping.

"Especially worrying is that public sector job losses in the second quarter of 2011 far exceeded net private sector job creation, which suggests that the slowdown in economic growth since the autumn of 2010 is gradually sapping the strength of those parts of the economy that were creating jobs in the initial part of the recovery," the CIPD said.

Therefore it would be "sensible to delay all further job cuts to the end of this parliament and, if necessary, into the next".

However, the government said private sector job creation would more than outweigh losses in the private sector.

"Half a million private sector jobs were created last year and the independent OBR has forecast that there will be 900,000 more jobs created in the private sector than lost in the public sector by 2015," the Treasury spokesman said.

The OBR is a government-appointed body formed last year to make an independent assessment of the government's finances and of the economy.