Friday, June 19, 2009

Hu calls on Chinese, Slovakian business people to step up co-op

Chinese President Hu Jintao speaks at a breakfast meeting for business people from China and Slovakia in Bratislava, capital of Slovakia, June 19, 2009. Slovakian President Ivan Gasparovic and Hu Jintao attended the breakfast meeting on Friday. (Xinhua/Lan Hongguang)

Chinese President Hu Jintao speaks at a breakfast meeting for business people from China and Slovakia in Bratislava, capital of Slovakia, June 19, 2009. Slovakian President Ivan Gasparovic and Hu Jintao attended the breakfast meeting on Friday. (Xinhua/Lan Hongguang)

BRATISLAVA, June 19 (Xinhua) -- Visiting Chinese President Hu Jintao on Friday called on business people from China and Slovakia to join hands in promoting bilateral economic and trade cooperation.

At a breakfast meeting for business people from both countries, Hu put forward a five-point proposal for strengthening bilateral economic and trade cooperation.

Chinese President Hu Jintao (L) speaks at a breakfast meeting for business people from China and Slovakia in Bratislava, capital of Slovakia, June 19, 2009. Slovakian President Ivan Gasparovic and Hu Jintao attended the breakfast meeting on Friday. (Xinhua/Lan Hongguang)

First, both sides should further promote bilateral economic and trade cooperation with an eye to the future.

Second, they should strengthen communication and further improve governmental services so as to provide better facilities for bilateral business cooperation.

Third, they should explore their own advantages to push forward bilateral cooperation in some key areas.

Visiting Chinese President Hu Jintao (L) meets with Slovakian President Ivan Gasparovic for talks in Bratislava, capital of Slovakia June 18, 2009.(Xinhua Photo)

The Chinese government encourages Chinese enterprises to take part in Slovakia's infrastructural construction covering energy, highways, railways and telecommunications, Hu said.

He said the Chinese government also encourages both sides to conduct substantial cooperation in research and development, labor, project engineering and new energy.

Chinese President Hu Jintao (L) meets with Slovak Prime Minister Robert Fico in Bratislava, capital of Slovakia, June 19, 2009.(Xinhua/Lan Hongguang)

Chinese President Hu Jintao (L) meets with Slovak Prime Minister Robert Fico in Bratislava, capital of Slovakia, June 19, 2009.(Xinhua/Lan Hongguang)

Fourth, both sides should give priority to enterprises to realize reciprocity and win-win results.

Fifth, they should further realize a sound growth of substantial cooperation with pragmatic coordination and oppose protectionism.

President Ivan Gasparovic said Slovakia will strengthen bilateral economic cooperation of mutual benefit and jointly fight the global financial crisis.

He said he hoped the two countries will strengthen cooperation in such fields as energy, agriculture, medicine, machinery, technologies, environmental protection and tourism, and make Slovakia a bridge linking China and the European Union, and an important destination for Chinese investment.

Gasparovic said he was convinced that the success of the two economies and bilateral traditional friendship would further promote the growth of bilateral reciprocal cooperation.

Chinese President Hu Jintao (2nd L) meets with Speaker of the Slovak National Council Pavol Paska (3rd R) in Bratislava, Slovakia, June 19, 2009.(Xinhua/Rao Aimin)

Chinese President Hu Jintao (2nd L) meets with Speaker of the Slovak National Council Pavol Paska (3rd R) in Bratislava, Slovakia, June 19, 2009.(Xinhua/Rao Aimin)

Hu is currently on a three-nation trip. He arrived in Bratislava on Thursday from Moscow after concluding a state visit to Russia.

Before that, he attended a summit of the Shanghai Cooperation Organization and a meeting of BRIC countries, namely Brazil, Russia, India and China, in central Russia's Yekaterinburg.

The Chinese president will also visit Croatia.

U.S. Fortifies Hawaii to Meet Threat From Korea

WASHINGTON -- The U.S. is moving ground-to-air missile defenses to Hawaii as tensions escalate between Washington and Pyongyang over North Korea's recent moves to restart its nuclear-weapon program and resume test-firing long-range missiles.

In anticipation of a North Korean missile test, the U.S. is positioning off Hawaii a floating radar, like this one shown in a 2005 Boeing photo.
Associated Press

In anticipation of a North Korean missile test, the U.S. is positioning off Hawaii a floating radar, like this one shown in a 2005 Boeing photo.

Defense Secretary Robert Gates said on Thursday that the U.S. is concerned that Pyongyang might soon fire a missile toward Hawaii. Some senior U.S. officials expect a North Korean test by midsummer, even though most don't believe the missile would be capable of crossing the Pacific and reaching Hawaii.

Mr. Gates told reporters that the U.S. is positioning a sophisticated floating radar array in the ocean around Hawaii to track an incoming missile. The U.S. is also deploying missile-defense weapons to Hawaii that would theoretically be capable of shooting down a North Korean missile, should such an order be given, he said.

"We do have some concerns if they were to launch a the direction of Hawaii," Mr. Gates said. "We are in a good position, should it become necessary, to protect American territory."

In another sign of America's mounting concern about North Korea, a senior defense official said the U.S. is tracking a North Korean vessel, the Kang Nam, suspected of carrying weapons banned by a recent United Nations resolution.

The U.S. moves come as strains intensify between the U.S. and North Korea. Earlier this year, Pyongyang test-fired a missile that flew over Japan before crashing into the Pacific Ocean. On May 25, Pyongyang detonated a nuclear device at a test site near its border with China, drawing rare rebukes from Moscow and Beijing.

President Barack Obama and South Korean President Lee Myung-bak met earlier this week at the White House and agreed to launch a new effort to persuade North Korea to give up its nuclear arsenal. In a joint statement, the Obama administration also agreed to maintain the longstanding U.S. vow to defend South Korea from a North Korean attack.

Japan's Yomiuri newspaper reported Thursday that North Korea would launch a long-range Taepodong-2 missile at Hawaii from the Dongchang-ni site on the country's northwestern coast on or close to July 4. In his comments to reporters, Mr. Gates didn't directly address the Japanese report or say whether the U.S. had evidence that North Korea was preparing for a launch.

Some U.S. officials have said satellite imagery shows activity at a North Korea testing facility that has been used in the past to launch long-range missiles. On a trip to Manila earlier this month, Mr. Gates said the U.S. had "seen some signs" that North Korea was preparing to launch a long-range missile. But he cautioned, that "at this point, its not clear what they're going to do."

[North Korea]
Getty Images

North Korean soldiers raise their fists in the air as they hold a rally to denounce the United Nations Security Council's resolution on sanctions at the Kim Il Sung square in Pyongyang on June 15, 2009.

The stakes would be high for both North Korea and the U.S. in the event of a missile launch.

North Korea would be attempting to demonstrate that it was capable of striking the U.S., but many U.S. defense officials are highly skeptical that North Korea has a missile capable of reaching Hawaii, which is more than 4,500 miles away from North Korea.

North Korean long-range missiles have failed three previous tests in the past 11 years. In the most notable North Korean misfire, a Taepodong-2 missile that Pyongyang launched on July 4, 2006, imploded less than 35 seconds after taking off.

The Obama administration, meanwhile, would have to choose whether to attempt to shoot down the missile, a technically complicated procedure with no guarantee of success. An American failure would embarrass Washington, embolden Pyongyang and potentially encourage Asian allies like Japan to take stronger measures of their own against North Korea.

Maj. Gen. Robert G.F. Lee, who as Hawaii's adjutant general directs the state's Army and Air National Guard, said the military "certainly has enough assets to protect the state of Hawaii."

Last week, the U.N. Security Council unanimously adopted a resolution expanding sanctions and inspections against North Korea in response to the nuclear test. The resolution bars North Korea from exporting a wide range of weaponry, and "calls upon" all U.N. states to search North Korean vessels, with their consent, for nuclear-related material and other contraband.

The senior defense official said the U.S. would seek to have the North Korean ship suspected of carrying banned arms searched before it reaches its final destination, believed to be Singapore. The ship left North Korea on Wednesday. The official said U.S. or allied personnel wouldn't board the ship by force and would search the ship only with the permission of its crew.

North Korea has said it would view any efforts at interdiction as an act of war, and some U.S. officials worry North Korean vessels would use force to prevent U.S., Japanese or South Korean personnel from searching their ships, potentially sparking an armed confrontation.

More broadly, the Obama administration has recently begun re-evaluating the entire premise of American diplomatic outreach to North Korea. Successive U.S. administrations dating back to the Clinton White House have struck deals with North Korea that traded financial assistance, food and power generators for North Korean promises to shut down its nuclear program. Each time, North Korea eventually backed out of the deals.

Pyongyang's refusal to honor its agreements has persuaded the Obama administration that North Korea was unlikely to ever voluntarily give up its nuclear weapons. That has led the administration to reject the idea of offering North Korea additional aid in exchange for new North Korean vows to abide by agreements it has repeatedly abrogated.

Many Obama administration officials are also skeptical of reopening the so-called six-party talks with North Korea, which also involve China, Japan, Russia and South Korea.

Instead, the administration is trying to persuade China to take a stronger line with North Korea, a putative ally that is deeply dependent on China. U.S. officials hope China will help search and potentially board suspicious North Korean vessels, but China has been noncommittal.

Asked if China had finally accepted U.S. assessments of the threat posed by North Korea, Mr. Gates demurred. "I think that remains to be seen," he said.

—Stu Woo contributed to this article.












































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Decline in world economy moderating: IMF's Lipsky

BODRUM, Turkey, June 19, 2009 (Reuters) — The International Monetary Fund is likely to revise its 2010 growth forecast for the world economy up with signs the rate of decline in global output has moderated, a senior IMF official said on Friday.

Addressing a Turkish business conference in this southern Turkish resort, IMF First Deputy Managing Director John Lipsky, however, warned it was far too early to declare victory, with financial conditions far from normal and the world economy still in recession.

"While the latest data point to a slowing of the global contraction, there is still great uncertainty regarding the timing and pace of economic recovery," he said in prepared remarks to the Turkish Industrialists' and Businessmen's Association.

However, Lipsky said signs are emerging that the rate of output decline has moderated, financial conditions have improved, confidence is recovering gradually and indicators of future production and demand have firmed.

Given this backdrop, "I expect that in the coming weeks we will revise our growth projections modestly upward, mainly with regard to 2010," he said.

Turning to the economy of his hosts, Lipsky said Turkey may be on the verge of recovery but its rising fiscal deficit could hamper the rebound in growth.

He said consumer confidence in Turkey has rebounded strongly and manufacturing and employment have picked up, but Turkey's fiscal gap was a concern.

"The rising fiscal deficit and weakening loan quality could -- if not addressed forcefully -- cloud the growth outlook, including by curtailing banks' ability to extend credit," he said.

Lipsky and other IMF officials have met Turkish Treasury officials over the past two days, prompting market gains on hopes the country was close to an IMF loan accord. But an IMF official told Reuters on Thursday a deal had not been reached, reining in market optimism.

The IMF is scheduled to present updated forecasts for the world economy on July 7 in Washington. In its previous forecast in April, the Fund projected the world economy would contract 1.3 percent this year in the deepest recession since World War Two and then rebound to grow at 1.9 percent next year.


Lipsky said the recovery next year will be sluggish, with activity in the world's advanced economies likely to revive only gradually, weighed down by financial deleveraging, restrained credit growth and weak household income growth.

Meanwhile, emerging markets will be unable to return to trend growth while advanced economies are still underperforming.

"As a result, output gaps and unemployment rates in most economies should continue rising through 2010," Lipsky warned.

He emphasized that policies need to focus on a sustained recovery, starting with reviving the financial sector.

So far, progress overall in nursing banks back to health had been slow and uneven, while little had been done to resolve the problem of toxic assets on banks' balance sheets.

"In order to lay the ground for a revival of bank credit growth, the near-term focus of policies should continue to be on restructuring weakened financial institutions by cleansing banks' balance sheets of impaired assets, assessing bank viability, and ensuring bank recapitalization where needed," he said.

In addition, fiscal policy in advanced economies and in many emerging market countries should remain expansionary at least through 2010, and additional stimulus may become necessary, Lipsky said. Meanwhile, monetary policy should remain supportive until a sustained recovery takes hold, he added.

But Lipsky also said widening fiscal deficits in many industrial countries were a growing concern, especially with government costs expected to rise due to population aging and more people needing healthcare.

Still, even as policies are focused on ending the recession, authorities should start planning exit strategies, especially the extraordinary government intervention in the financial sector, he said.

Central banks will need to devise plans to exit from unconventional measures and forestall concerns that inflation pressures could be allowed to rise, Lipsky added.

Sony CEO says restructuring steps on track

TOKYO, June 19, 2009 (Reuters) — Sony Corp Chief Executive Howard Stringer said the loss-making Japanese electronics conglomerate's turnaround efforts, which include job cuts, plant closures and a management reshuffle, are advancing well.

Sony's TV sets are displayed at an electronic shop in Tokyo

Sony last month forecast a second straight year of losses as the global recession batters demand for electronics. To get back to growth, it is implementing far-reaching restructuring such as reducing its workforce by about 16,000 people and closing eight of its 57 manufacturing sites.

"We are seeing steady progress and are working to reduce costs throughout the Sony group by more than 300 billion yen ($3 billion)," Stringer told the company's annual shareholders' meeting on Friday.

He said the company was determined to fight back in the market for networked electronics, where it lags behind Apple Inc's iPod and faces stiff challenges from Microsoft Corp's Xbox 360.

Sony has set up a new business group focusing on network-oriented products and services, such as PlayStation video game operations and Vaio personal computers.

"In the 20th century, this company created great champion products ... In the 21st century, other companies took our hardware like the Walkman and added network capability and turned it into the iPod," Stringer said.

"We are not going to be beaten again in the network age."

Sony used to rule the portable music player market with its Walkman and the video game industry with PlayStation consoles. But 30 years after the launch of the Walkman and 15 years since the debut of the PlayStation, the iPod and the Xbox 360 are eroding Sony's market share.

In a bid to boost its products' appeal in the network age, in which gadgets are becoming interconnected and music and video content is delivered online, Sony said last year it aimed to make 90 percent of its electronic product categories network-enabled and wireless-capable by March 2011.

The company, which competes with Samsung Electronics Co Ltd in LCD TVs and Canon Inc in digital cameras, has also set up a business group to focus on TVs, cameras and camcorders.

Sony shares closed up 2 percent at 2,525 yen following Stringer's comments, outperforming a 0.9 percent rise in the benchmark Nikkei average.

Welsh-born Stringer took the helm at Sony in 2005 vowing to deliver growth and get its various divisions to work closely together to compete with new rivals.

His efforts have been hampered by a stronger yen and sluggish demand for its electronics products, which include Bravia LCD TVs and Cyber-shot digital cameras.

In response to a shareholder who asked whether Sony would be able to adapt to a changing world despite its size and avoid the fate of General Motors, Stringer pointed to the firm's ongoing restructuring as proof of its willingness to change.

"Be assured, all of you: Unlike GM, we have a solid balance sheet, and we are not burdened by a significant debt," Stringer said.

"One of the reasons we made these transformational changes is so that we can respond more swiftly to all that's happening around this, not just the economy, but in the competitive world."

(Additional reporting by Nathan Layne; Editing by Hugh Lawson)

Bailed-out banks' CEOs used jets for personal use: report

June 19, 2009 (Reuters) — Chief executives of some banks that received federal money, including Bank of America Corp, Morgan Stanley and Regions Financial Corp, used company jets for their personal use, the Wall Street Journal reported on its website.

Pedestrians walk past a Bank of America branch in New York May 8, 2009. REUTERS/Lucas Jackson

Flight records showed many occasions when banks receiving federal money flew their planes to destinations near resorts or executives' vacation homes in Europe, Mexico, the Caribbean, south Florida and Aspen, according to the paper.

"We are implementing a new policy in 2009, under which personal use of aircraft will not be permitted," a Bank of America spokesman told the paper, but declined to comment on specific trips.

In some cases, it was clear that bank executives were traveling for personal reasons; for other flights, many of which were over weekends or holidays, the passengers and purpose couldn't be established, the paper added.

A spokesman for Morgan Stanley declined to comment to the paper on individual flights, but said its policy was to allow CEO John Mack personal use of corporate jets, with the cost "fully disclosed" in annual proxy filings.

A Regions spokesman also declined to comment to the paper on the trip or the cost estimate, but said all travel on company jets "either for personal or business was within our policy."

The banks could not be immediately reached for comment by Reuters.

(Reporting by Chakradhar Adusumilli in Bangalore, Editing by Ian Geoghegan)

Air France to compensate crash victims' families

PARIS, June 19, 2009 (Reuters) — Air France will compensate the families of the victims of a June 1 crash in which 228 people died, the company's chief executive said on Friday.

Flight AF 447 from Rio de Janeiro to Paris crashed into the Atlantic after flying into stormy weather. The causes of the crash are not known. Brazilian and French ships are still searching the ocean for debris and bodies.

"For now we are going to concentrate on the first advance that will be paid for each victim, approximately 17,500 euros ($24,420)," Air France CEO Pierre-Henri Gourgeon said on RTL radio.

"The lawyers of our insurers in every country are talking to the victims' families to try and organize this advance payment," he said.

Gourgeon presented the payments as a compassionate gesture from the airline, not an admission of liability.

Passengers from 32 nationalities died in the crash of the Airbus 330. Among them were 61 French people and 58 Brazilians.

Asked how the probe into the causes of the disaster was going, Gourgeon echoed words of caution from French investigators who said this week they were getting closer to understanding what happened but had no certainties yet.

The investigators said it was not possible at this stage to know whether unreliable speed readings from the aircraft's sensors had contributed to the crash.

The aircraft's flight data recorders or "black boxes" have not been found. Gourgeon said he had not lost hope that they would be located.

China's Money Tide Not Rolling Out Yet

BEIJING -- Chinese policy makers will soon need to start thinking about how to rein in their extraordinary stimulus measures, some economists say, as evidence mounts that it is succeeding in keeping growth going amid the global slowdown.

Governments around the world have been pushing cash through their economies, and China is no exception. In recent weeks, that global flood of money has started to raise investor worries about future inflation and official debt, forcing the U.S. and others to explain how they will unwind enormous injections of liquidity.

Unilever Indonesia Rides to First Place

JAKARTA, Indonesia -- PT Unilever Indonesia, the publicly traded local arm of the Anglo-Dutch consumer-goods giant, knows how to make money in Indonesia through good times and bad. And thanks to its ability to satisfy consumers' needs in this nation of 240 million people even as economic growth slows, it took top honors as the most-admired company in Indonesia in the Asia 200 survey of subscribers of The Wall Street Journal Asia and other businesspeople.

Unilever regained the top spot in the list of most-admired Indonesian companies, edging out PT Astra International, a diversified group that distributes Toyota Motor Corp. vehicles. In the prior survey, Astra International had ranked most-admired overall, with the consumer-goods company close behind in second place. Readers in the current survey gave third place to processed-food maker PT Indofood Sukses Makmur.

In the prior survey, Unilever was praised for innovation during a booming economy, coming up with products like shampoo for color-treated hair -- a new trend among Indonesia's middle classes.

Now, Unilever, which says it has 40% of the Indonesian market for consumer goods like toiletries, cosmetics, shampoos and detergents, is looking for ways to battle the duller economic picture. Unlike many Asian nations that rely heavily on exports, Indonesia's economy is somewhat shielded by the fact that about two-thirds of its gross domestic product comes from local demand. The International Monetary Fund expects the economy to grow by between 3% and 4% in 2009 as interest rates fall, one of the healthiest clips in the region, although down from a 6.1% expansion last year.

Still, consumer confidence has taken a hit, especially in areas that depend on commodity exports like palm oil and coal, which, despite a recent pick-up in prices, are still well down from last year's highs. Of Indonesia-based respondents to the Asia 200 survey, about 12% said they would spend significantly less this year, and 54% said they would spend somewhat less. About a quarter said they wouldn't change their spending, while 8% said they would spend more.

Unilever is looking for ways to meet that spending challenge by offering value for money, said Eka Sugiarto, head of marketing for the company's skin-cleansing-products division. For instance, the company has reformulated its popular Molto fabric conditioner to need only one rinse, rather than the usual three, allowing Indonesia's poorer households to save on water costs, Ms. Sugiarto says. Unilever is also positioning itself to benefit from the switch away from premium skin-care products. A recent marketing campaign has promoted Unilever's Ponds face cream, cheaper than rivals' offerings, as still high-quality. "This is the time when people will be re-evaluating their choices," Ms. Sugiarto said.

Unilever is also looking ahead to building markets for products that aren't yet popular with most Indonesian consumers, about a third of whom live on less than $2 per day. The company recently launched small sachets of deodorant, considered a premium product in Indonesia. The sachets, which last a week or two, cost 1,500 rupiah, or about 15 U.S. cents, much cheaper than a full roll-on or spray. Unilever also finds it easier to transport these sachets over the nation, a string of 17,000 islands that stretches across the equator over the equivalent distance of that between London and Saudi Arabia. Unilever products can be found in modern shopping malls in Jakarta but also, more commonly, in the small road-side wooden shacks where a majority of Indonesians still do their shopping across the island nation.

Last year, the company paid $40 million to take over the popular Buavita fruit-juice brand from a local company, its first move into juices. Unilever has been building its food business in Indonesia, which also includes Lipton tea, after acquiring a soy-sauce maker earlier this decade. The company's success comes down to effective market research combined with a great distribution network and a wide range of products for different economic segments, said Sarah-Jane Wagg, president of UBS Securities Indonesia. "It's a world-class company operating in Indonesia," she said.

One potential threat to Unilever's dominant market position is the emergence of PT Wings Surya, a non-listed consumer-goods maker set up 60 years ago by Indonesia's Katuari family. Wings has been successful recently in building market share for cheaper detergents and other household products. Unilever has responded to the slower economic growth by bringing the price for its detergent, Rinso, back below 500 rupiah, or 50 U.S. cents, a sachet, after prices increased last year in line with higher material costs, Ms. Sugiarto said.

Founded in 1933 during the Dutch colonial era, the unit of Unilever Group is Indonesia's largest consumer-goods company by sales. Despite the slowdown, sales in the first quarter grew 18% compared with the previous year, to 4.48 trillion rupiah ($448 million), while net profit rose 9% to 769 billion rupiah ($76.9 million). One of the challenges last year was keeping prices down despite high costs for materials like palm oil and higher transportation costs. While raw material costs have fallen recently, Unilever is now under pressure to lower prices.

The company's Bango soy sauce, Lifebouy soap and Pepsodent toothpaste brands are a major part of everyday life for Indonesians. In some areas, the company has huge market shares: It claims 80% of the nation's toothpaste sales and 50% of its shampoo sales. Other foreign consumer-goods companies like U.S.-based Procter & Gamble Co., which slimmed down its presence in Indonesia after the 1997-98 Asian financial crisis, have grown here in recent years to benefit from strong consumer spending. Nestlé SA said last weekend it would spend $240 million in 2009 to develop factories in Southeast Asia, including a small investment in Indonesia.

But Unilever is making the largest outlays here, including the opening of a $50 million factory near Jakarta, the capital, in 2008 to produce skin-care products.

In the Asia 200 survey, subscribers and businesspeople ranked Unilever No. 1 in three of the five categories they are polled on, and they ranked it second in a fourth. The first-place rankings came in the categories of "high-quality services and products," "innovation in responding to customer needs" and "management's long-term vision." It took second in "corporate reputation."

Deflation lurks around corner, economists say

WASHINGTON, June 18 (Xinhua) -- While many economists chatter about inflation, others are now turning their heads toward another goblin -- deflation.

While inflation remains a long term concern, the more immediate,short term fear is deflation, economists say. "Of the two, deflation is a bigger concern," said Justin Yifu Lin, World Bank chief economist and vice-president, at a recent news conference.

Lin said current capacity utilization -- the extent to which nations are using their production capacity -- is in many large economies running at a lowly 50 percent to 60 percent, he said.

That is evidence that deflation could emerge in the near term, he said.

"When capacity is underutilized, deflation becomes a risk," Lin told reporters.

While inflation is more commonplace, deflation, when it occurs, can be like quicksand, sucking the economy in deeper and deeper. First, declining demand drive prices down. That impacts profits and leads to layoffs. Then unemployment further saps demand.

"And down you go in a vicious cycle," said Ben Carliner, director of research at the Economic Strategy Institute, a Washington, D.C. think tank.

Many economists say deflation could start to take hold once the economy rebounds.

Brian Fabbri, chief U.S. economist at BNP Paribas -- one of Europe's largest banks -- told reporters at the Reuters Investment Outlook Summit in New York on Tuesday that while the United States may soon emerge from the current recession, it will sink into deflation next year and slog through a period of sluggish growth that could linger for years.

Bill Beach, director of the center for data analysis at the Heritage Foundation, a Washington D.C. think tank, said that in this economy, consumers are wary of spending because of worries about layoffs or pay cuts.

Indeed, the U.S. savings rate has shot up from zero at the start of last year to a current 8 percent of personal income -- an unusual occurrence in a nation that typically spends more than it saves, he said.

"My guess is that (savings rates) will continue to climb as people become worried about the future and want to have more money in the bank," Beach said.

History has shown that deflation can be devastating.

Japan's economy was mired in a deflationary sandpit in the 1990s and took more than a decade to climb its way out, Beach noted.

Worried about the slow economy, the Japanese spent frugally. As a result, companies lowered their prices to entice consumers to buy products. That caused the Japanese to spend even less, putting off purchases for weeks or months in anticipation of further price cuts, he said.

Profits declined and companies could not afford to hire new workers, causing a rise in unemployment and leading to yet further declines in spending, he said.

Governments typically battle deflation by lowering interest rates, but once they reach zero, they can not be lowered any further, leaving policy makers at a loss, experts said.

While governments and central banks use a certain set of tools to curb inflation, Fabbri told Reuters TV that policymakers -- from the Great Depression to Japan's "lost decade" in the 1990s --have had difficulty finding solutions to deal with deflation.

Beach said the United States could see near term deflation in non-essential products purchased by the middle and upper middle class, such as high-end clothing and luxury cars.

While deflation could hurt such industries, it could harshly impact developing nations, as many depend on just a handful of export products to provide employment, grow their economies and rake in foreign currency. Many workers could find themselves unemployed, Beach said.

Iraq's economy, for example, pulls in 80 percent of its foreign currency from oil and 20 percent from rugs, Beach noted.

China's surging growth, however, may offset this, as the country is buying massive amounts of raw materials from developing nations in a bid to spur domestic demand, experts said.

Carliner said serious global deflation would look like the Great Depression -- with entire industries folding and whole nations going bankrupt -- although he does not foresee it getting that bad.

Luckily, demographics will prevent such gloom and doom scenarios.

Beach said developing nations in Asia and Africa are seeing surging population growth, which means that more people are buying food. That keeps demand up and creates jobs producing, transporting and selling rice and other such products. Nations in regions such as Asia and Africa, where population is on the rise, grow even in the worst of economic times, Beach said.

Still, that will not prevent some degree of economic pain in such countries, as prices lower and demand lags in the United States, said Barry Bosworth, former presidential advisor and senior fellow at the Brookings Institution.

He predicts that the current U.S. recession will be long lasting and that emerging economies could feel the sting.

Indeed, Carliner said, "U.S. consumers are tapped out -- they have too much debt and they're not spending anymore."

That makes deflation not only a threat in the United States but also globally, he said.

"Deflation is the immediate threat the world over," he said.

That is why G-20 nations are trying to coordinate stimulus spending -- to boost demand and prices so the world can get back on track to solid economic growth again, he said.

Some economists also believe Japan is once again experiencing deflation, which could affect its developing world trading partners.

Meanwhile, Carliner said a key question is whether the global economy will rebalance -- it can no longer rely on U.S. and European consumers to keep borrowing more money to buy more consumer goods from export nations, he said.

by Matthew Rusling

U.S. Senate OKs war funding bill

WASHINGTON, June 18 (Xinhua) -- The U.S. Senate approved a 106-billion-U.S.-dollar bill Thursday for funding the wars in Iraq and Afghanistan through this September.

After earlier passage by the House, the legislation now goes to President Barack Obama for his signature.

The approved funding include 80 billion dollars to support war efforts in Iraq and Afghanistan.

Meanwhile, the measure, passed by the Senate on a 91-5 vote, contains several items unrelated to war funding.

They include 5 billion dollars to help the International Monetary Fund boost its lending capacity.

There are also 7.7 billion dollars for pandemic A/H1N1 flu preparation and 10.4 billion dollars for aid to Iraq, Afghanistan, Pakistan and other countries.

The bill was once bogged down after a earlier Senate version of the legislation banned public release of photos showing abuse of detainees by the U.S. military in Iraq and Afghanistan.

Obama broke the deadlock last week by offering to "continue to take every legal and administrative remedy available to me to ensure the photos are not released."

The final version of the bill does not include the 80 million dollars which Obama seeks for closing the military prison at U.S. naval base in Guantanamo Bay, Cuba.

It also prohibits current Guantanamo detainees from being transferred to U.S. soil, except they are to be prosecuted and only after the Congress receives a plan detailing risks involved.

Billionaire Stanford, chairman of the troubled Stanford Financial Group, surrenders

DALLAS: Texas billionaire R. Allen Stanford, chairman of the troubled Stanford Financial Group, surrendered to FBI agents in Virginia on Thursday afternoon, his attorney said.

Law enforcement officials said Stanford is in custody after surrendering in Stafford, Virginia.

Authorities plan to unseal an indictment charging Stanford on Friday, the officials said, speaking on condition of anonymity because they were not authorized to discuss the case.

Stanford is to appear in federal court in Richmond, Virginia, on Friday morning, they added.

A grand jury in Houston has been investigating Stanford Financial Group.

The Securities and Exchange Commission filed civil charges earlier this year accusing Stanford and his top executives of conducting an US$8 billion fraud by advising clients to buy certificates of deposit from the Antigua-based Stanford International Bank.

Dick DeGuerin, Stanford's attorney in Houston, told The Associated Press that Stanford "surrendered this afternoon to some FBI agents who were hiding out in black SUVs outside the residence where he was staying in Virginia."

"He walked out and asked if they had a warrant," DeGuerin said.

He said Stanford told them to arrest him if they had a warrant and said if they didn't he would go back to Houston Friday to turn himself in.

FBI spokesman Richard Kolko declined to comment.

Laura Pendergest-Holt, chief investment officer of Stanford's parent company, faces criminal charges of obstructing the SEC's investigation by lying about her knowledge of the firm's activities and omitting key details.

Jeff Tillotson, her attorney, told the AP that they "fully expect a superceding indictment in our case."

He has said she was "set up" by Stanford.












China’s Got a New Currency….. and It Sure AIN’T the Dollar

Let’s talk about China.

China is the US’s largest creditor. All told, the People’s Republic has $700+ billion in US Treasuries. However, if you account for other dollar denominated investments, China is believed to have 70% of its $1.7 trillion in foreign reserves sitting in green backs.

That’s an unbelievable amount of money invested in the US dollar. Needless to say, the Chinese are not too happy about our Central Bank’s decision to print TRILLIONS of dollars propping up the US financial system.

Indeed, the initial rumblings of what will eventually turn into outright conflict (either economic or war) have already begun. China’s Premier Wen Jiabao recently commented, "We have lent a huge amount of money to the US…Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried."

Other, former Chinese officials have been less polite in their public statements. Yu Yongding, a former Chinese central bank adviser, recently referred to the US Federal Reserve “as the world’s biggest junk investor… ridden with rubbish assets,” and to Chairman Ben Bernanke as “helicopter Ben.”

The situation has gotten intense enough that Secretary of the State Hillary Clinton flew to Asia to plead with China and other US creditor nations to continue buying US Treasuries. “By continuing to support American Treasury instruments the Chinese are recognizing our interconnection. We are truly going to rise or fall together," Clinton said at the US embassy there.

In simple terms, China owns a TON of dollar denominated assets. And the Fed is doing everything it can to devalue the dollar. Thus China has a few options:

1) Openly sell the dollar, thereby destroying the value of its reserves and inviting open war with the US.

2) Quietly shift away from the dollar without openly attracting attention or threatening the US publicly.

The Chinese government, particularly its Premier, has been floating option #1 in the media, discussing the potential for dropping the dollar standard along with Russia and Brazil.

However, this boils down to nothing more than grandstanding. The Chinese are not idiots. And they know that dropping the dollar standard would destroy a HUGE portion of their foreign reserves, since everyone and their mother would follow suit.

Indeed, abandoning the dollar for another currency (say the yen or euro) would serve no benefit from an economic standpoint. It would crush China’s Treasury denominated reserves as the dollar plunged. It would also be akin to trading one problematic investment for another: no major world currency is backed by gold or any asset of real value.

No, to my way of thinking, the Chinese are merely posturing with these statements, trying to draw attention away from the fact that they’re already begun pursuing option #2 (diversifying away from the dollar in private). Indeed, China has already begun moving into a new currency, one that is neither fiat nor flawed. And they did it in their usual manner: under the radar with great focus and determination.

That new currency is natural resources.

Throughout 2009, China has been buying up natural resources, commodities, and other real assets at a break-taking pace: copper imports hit a record 329,000 tons in February, only to be eclipsed by a new record of 375,000 tons in March.

The copper story is just the latest and most obvious display of China’s new currency binge. The Chinese have been buying up mines, metal ore (57 million tons of iron in April alone), and other resources for years now. The headlines were right under the world’s collective nose, but no one was thinking “diversification away from the dollar.” Instead they were thinking, “purchases needed to fuel economic growth.”

Truly, it wasn’t until the world noticed that China was still buying commodities in record amounts even after its economy took a hit that the media began to connect the dots.

Here’s a few dots to consider…

Feb.10, 2009: China buys Oz Minerals, the world’s second largest zinc miner for $1.7 billion

Feb. 12, 2009: China buys $20 billion worth of Rio Tinto, one of the three largest iron ore producers, giving it the potential to raise its stake to 19%.

Feb. 24. 2009: China buys 16% of Fortescue Metals an Australian iron ore company.

April 1, 2009 China buys $46 million worth of Terramin Australia’s lead and zinc supplies in Algeria.

April 15, 2009: China buy 51% of Ontario’s Liberty Mines: a nickel producer.

One should also consider that these are merely the transactions that are publicly displayed. The Chinese government has proved adept at buying assets below the radar via foreign holding companies and other complicated business structures. Informal accounts posit that China has in fact scooped up even more natural resources and mines via these methods today.

The reasoning here is simple. Unlike paper currencies, natural resources and commodities cannot be reproduced ad infinitum by central banks. Thus they are inflation proof. In addition, natural resources actually offer a direct benefit to China’s economy whereas an investment in a foreign currency (the dollar or otherwise) is merely a means of parking cash for a return.

Finally, and most notably, natural resources allow the Chinese to diversify away from the dollar without damaging their current dollar holdings: or their relationship with the US: if word got out that the Chinese were dumping Treasuries, the Treasury market would implode, destroying the value of China’s current investment.

Make no mistake, the Chinese have already begun diversifying away from the dollar. They just haven’t advertised the fact openly. Chinese students openly laughed at our Treasury Secretary Tim Geithner when he gave a talk there promising that “Chinese assets were safe” in the dollar. If Chinese STUDENTS can figure the Fed’s moves out, what do you think the Chinese GOVERNMENT is doing?

I think we both know the answer to that.

Best Regards,

Graham Summers










U.S., Europe Try Good-Cop, Bad-Cop Approach

European states are taking a considerably more aggressive line toward Tehran's clerical leaders than the Obama administration as Iran's postelection crisis deepens, fueling the ire of U.S. Republicans and some democracy activists.

The approach suggests an unusual reversal among the Americans and Europeans from recent history, with Washington emerging as a relatively passive voice and the European Union assuming the role of Tehran's chief scold. But the dynamic also is being welcomed by many European officials involved in Iran diplomacy as an effective approach against Tehran.

The pressure being applied by European states with substantial diplomatic and economic ties to Iran will be more difficult for Supreme Leader Ayatollah Ali Khamenei to shrug off in coming months, said these officials.

Meanwhile, a measured position by President Barack Obama could rob Tehran's leaders of a foil to use against the growing reformist movement, though the government this week nevertheless accused the U.S. of helping to foment unrest.

"The Europeans have been out very vociferously defending the rights of Iranians and protesting the irregularities. To me, that makes better sense," said Suzanne Maloney, a Brookings Institution Iran analyst and former State Department official. "They have the presence on the ground, they have the relationships with the Iranians, they can potentially make a difference."

Since charges of electoral fraud emerged last week, some EU states have openly challenged the results, while Mr. Obama has chosen his words carefully.

French President Nicolas Sarkozy this week called the election a "fraud." German Chancellor Angela Merkel condemned a "wave of arrests" by the government and cited "signs of irregularities." After a meeting on Monday, EU foreign ministers called on Tehran to "address and investigate" allegations of vote fraud.

Iran shot back Thursday with ire usually reserved for the U.S. "Foreign support for these trouble-makers and anarchists under the cover of supporting democracy and the voice of the Iranian people raises questions and cannot be justified," said a statement from Iran's Embassy in Brussels.

At a Brussels summit Thursday, EU diplomats said they saw it as their turn to take a stand while the U.S. handles the delicate negotiations with Tehran that they expect in coming months over the nuclear issue. "This time around, we know that it's Obama's problem to deal with," said a French diplomat. "That frees us up to be a bit more critical than usual."

U.S. and European officials said that there wasn't any concerted decision between them to develop a good-cop, bad-cop scenario. But they stressed that they discuss Iran every day. "There are regular contacts, we talk all the time," said French spokeswoman Marine de Carne. For the moment, she says, "we are respecting the outcome of the elections."

The real fault line in international diplomacy, said U.S. and European officials, pits on one side Washington and the EU, which have complained about freedom-of-speech restrictions in Iran, and on the other Russia and China, which have refrained from criticizing Iranian authorities in recent days.

To be sure, France has been outspoken on Iran for some time. As far back as 2007, then-President Jacques Chirac caused a stir by warning Iran that if it were ever to use a nuclear weapon against Israel, Tehran would be wiped out within seconds.

Britain, which shared responsibility with the U.S. for the 1953 coup that brought the Shah to power, has mostly taken a similar line to Washington's, judging that any attempt to side with defeated challenger Mir Hossein Mousavi would backfire.

When the U.K., France and Germany began talks with Tehran over its nuclear program, the U.S. administration opposed the effort, which offered Tehran civilian nuclear technology and trade privileges if it would abandon its efforts to produce nuclear fuel. With no alternatives available, Washington became supportive.

Though years of negotiations produced no result, U.S. officials said the cooperation with Europe contributed to a unified stance on the electoral crisis. "We are pretty close together on substance and tone," said a senior U.S. official working on Iran.

As they arrived at the Brussels summit, EU foreign ministers were expected to draft a new policy statement on Iran. But after dishing out their criticism earlier in the week, "everybody's being prudent, and waiting for a recount or some other development," says Delphine Colard, a spokeswoman for the Belgian ministry of foreign affairs.

Japan warns that North Korea may fire missile at U.S. on Independence Day 日本‧《讀賣新聞》推測在7月初‧朝或向夏威夷發射導彈

North Korea may launch a long-range ballistic missile towards Hawaii on American Independence Day, according to Japanese intelligence officials.

The missile, believed to be a Taepodong-2 with a range of up to 4,000 miles, would be launched in early July from the Dongchang-ni site on the north-western coast of the secretive country.

Intelligence analysts do not believe the device would be capable of hitting Hawaii's main islands, which are 4,500 miles from North Korea.

Details of the launch came from the Japan's best-selling newspaper, Yomiuri Shimbun.

Both Japanese intelligence and U.S. reconnaissance satellites have collated information pointing to the launch, according to the report.










North Korea issued this image of a Taepodong-2 missile: It has a range of 4,000 miles

This is North Korea's Taepodong-2 missile which has a range of 4,000 miles. Intelligence analysts do not believe it would be capable of hitting Hawaii which is 4,500 miles away


North Korean leader Kim Jong Il inspecting the command of the 7th Infantry Division of the North Korean Peoples Army

It is understood the communist state is likely to fire the missile between July 4 and 8. A launch on July 4 would coincide with Independence Day in the States.It would also be the 15th anniversary of North Korean president Kim Il-Sung's death.

The Japanese newspaper also noted that North Korea had fired its first Taepodong-2 missile on July 4, 2006.

Officials had initially believed that North Korea might attempt to launch a similar device towards either Japan's Okinawa island, Guam or Hawaii.

But the ministry concluded launches toward Okinawa or Guam were 'extremely unlikely' because the first-stage booster could drop into waters off China, agitating Beijing, or hit western Japanese territory.

If the missile were fired in the direction of Hawaii, the booster could drop in the Sea of Japan.

News of the launch would put 'enormous military pressure on the United States,' the Yomiuri said, citing the ministry report.

A missile fired from North Korea would have to travel 4,500 miles before it reached the U.S. state of Hawaii

A spokesman for the Japanese Defense Ministry declined to comment on the report.

South Korea's Defense Ministry and the National Intelligence Service - the country's main spy agency - said they could not confirm it.

Tension on the divided Korean peninsula has risen markedly since the North, led by Kim Jong-il, conducted two nuclear tests this year in defiance of repeated international warnings

The first rocket, fired in April, was widely seen as a disguised long-range missile test. A second launch came on May 25.

U.S. satellite intelligence has shown that a missile launch pad had been erected at Dongchang-ri on North Korea's north-west coast.

General James Cartwright, vice chairman of the Joint Chiefs of Staff, said it would take at least three to five years for North Korea to pose a real threat to the U.S. west coast.

The UN Security Council last week authorised member states to inspect North Korean sea, air and land cargo, requiring them to seize and destroy goods shipped that violate the sanctions against arms export.

On Saturday, in response to this declaration Pyongyang said it would bolster its nuclear programs and threatened war.

Growing tensions come as arms-watchdog the International Crisis Group (ICG) claimed North Korea has several thousand tonnes of chemical weapons it could mount on missiles.

The report from the non-government organisation said they believed the North's army have about 2,500 to 5,000 tonnes of chemical weapons which include mustard gas, sarin and other deadly nerve agents.

ICG also also warned South Korea may become a target.

'If there is an escalation of conflict and if military hostilities break out, there is a risk that they could be used. In conventional terms, North Korea is weak and they feel they might have to resort to using those,' said Daniel Pinkston, the ICG's representative in Seoul.

The North has been working on chemical weapons for decades and can deliver them through long-range artillery directed on Seoul which is home to about half of South Korea's 49 million people and via missiles that could hit all of the country.

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