Thursday, January 21, 2010

Russia diversifies into Canadian dollars

Russia’s central bank announced on Wednesday that it had started buying Canadian dollars and securities in a bid to diversify its foreign exchange reserves.

Analysts said the move could be a sign of increased diversification of emerging market central bank assets away from the dollar and into investments denominated in other commodity-linked currencies, such as the Australian dollar.

Adam Cole at RBC Capital Markets said if taken in isolation, Russia’s announcement that it was buying Canadian dollars was not significant, but if it was part of a broader trend, then it was an important step.

“If it is a barometer for the activity of other central banks, then its is structurally positive for the currencies of countries like Canada and Australia that have a commodity bias in their economies,” he said.

Although not officially confirmed, traders said that other emerging market central banks, including some in Asia which hold large foreign exchange reserves, have also been active in the foreign exchange market in recent weeks buying both Canadian dollars and Australian dollars.

Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said that it would invest in Canadian dollar-denominated deposits and bonds.

“The Canadian financial market is not very deep, so we can invest in deposits in significant volumes, while the bond market is limited,” he said.

Although the central bank did not specify how much of its reserves it was allocating to assets denominated in the Canadian dollar, analysts estimated that the central bank could put up to $9bn, or 2 per cent, of its foreign exchange reserves into the currency.

Russia’s foreign exchange reserves, the world’s third largest, stood at $439bn at the end of December. These stockpiles have grown by 14 per cent since the start of the rally on global asset markets in March as rising commodity prices have boosted mineral-rich Russia’s coffers.

Ahead of Wednesday’s announcement, Russia’s foreign exchange reserves were evenly split between dollar and euros.

Alarmed at the plummeting value of the dollars in its holdings, Russia has been at the vanguard of countries calling for the US authorities to stem the fall of its currency. Last year, along with China, Russia urged the creation of a new supra-national currency to replace the dollar as the world’s reserve currency.

The dollar has fallen more than 12 per cent on a trade-weighted basis since March. Commodity-linked currencies have rallied strongly, however, with the Canadian dollar up 24 per cent against the US dollar over that period and the Australian dollar 40 per cent higher.

This has prompted Russia to diversify its holdings. Indeed, in addition to its plans to buy Canadian dollars, Sergei Ignatiev, chairman of the Russia’s central bank, said last month that its was “discussing the possibility” of buying Australian dollars.

But some analysts warned that emerging market central banks might be in danger of buying commodity-linked currencies at the top of the market.

“In the long run it makes perfect sense for emerging market countries to diversify into commodity linked currencies,” said Simon Derrick at Bank of New York Mellon.

“But in the short-term, I would urge caution given that many commodity-linked currencies currently stand at extremely high levels on a historical basis.”

Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

Wednesday, January 20, 2010

Forecast: Debt to dwarf GDP

Former budget office chiefs say 'something has to give'

A blue-ribbon panel that includes three former heads of the Congressional Budget Office is telling President Obama and the Democrat-controlled Congress that the federal deficit must be cut now or the national debt within about two generations will be 600 percent of the gross domestic product.

"The debt level of the United States is unsustainable, something has to give," said Rudolph Penner, former head of the CBO and co-chairman of a report issued last week by the National Research Council and the National Academy of Public Administration.

The report concludes federal deficit spending is so out of control that unless Obama and Democrat leaders on the Hill make changes now, debt in 2080 will be six times what the nation produces.

The alarm is being sounded just as the Obama administration is preparing to push his nationalized health care plan through Congress. It comes from a bipartisan group of top economic policy experts, including three former heads of the CBO, who warned existing entitlement programs including Medicare, Medicaid and Social Security already are creating a fiscal crisis for the nation without the addition of government-funded universal health care.

WND MONEY

Forecast: Debt to dwarf GDP

Former budget office chiefs say 'something has to give'

Posted: January 18, 2010
10:14 pm Eastern

By Jerome R. Corsi
© 2010 WorldNetDaily

President Obama

The report concludes federal deficit spending is so out of control that unless Obama and Democrat leaders on the Hill make changes now, debt in 2080 will be six times what the nation produces.

(Story continues below)

"The fundamental problem is that we have these three very large programs – Medicare, Medicaid and Social Security – that … are growing faster than tax revenues and faster than the economy," Penner told WND.

Look into the nation's financial future! Get Jerome Corsi's best-selling "AMERICA FOR SALE: Fighting the New World Order, Surviving a Global Depression, and Preserving USA Sovereignty."

The result is "an unsustainable federal budget deficit" that Penner described as "ever onward and upward."

With the recession and the huge stimulus package added to the beginning of the baby boomers retiring, United States debt is already at 50 percent of gross domestic product, or GDP, and is projected to grow to 80 percent of GDP by 2019, according to Congressional Budget Office estimates of the Obama administration budget plans as they currently stand.

Studying the growth in three major entitlement programs – Medicare, Medicaid, and Social Security – the report, "Choosing the Nation's Fiscal Future," said spending was far outpacing tax revenue such that "any efforts to rein in future deficits must entail either large increases in taxes to support these programs or major restraints on their growth – or some combination of the two."

Unless action is taken immediately, the study warned, the U.S. "faces the risk of a disruptive fiscal crisis."

In an alarming chart, the study projected that federal debt would be more than seven times the nation's GDP in 75 years if no action is taken to constrain or offset the growth of Social Security, Medicare and Medicaid and if tax rates stay near their current level.

The report predicted a frightening fiscal future for the U.S. should the Obama administration and Congress fail to act.

"If remedial action is postponed for even a few years, a large and increasing federal debt will inevitably limit the nation's future wealth by reducing the growth of capital stock and of the economy," the panel advised. "It will also increase the nation's liabilities to investors abroad, who currently hold about one-half of the federal government's debt."

Increasing debt to GDP levels also causes problems with increased interest payments for U.S. taxpayers in the future who will be obligated to pay ever-rising costs just to finance current budget deficits.

"Increasing debt also may contribute to a loss of international and domestic investor confidence in the nation's economy, which would, in turn, lead to even higher interest rates, lower domestic investment, and a falling dollar."

The panel suggested four different solutions, varying the mix of entitlement program spending and tax increases in the policy alternatives:

Low Spending and Revenue. Tax revenues are held near their recent average level of 18 to 19 percent of GDP, and entitlement spending is constrained to 2 to 3 percentage points higher than revenues.

"This path would require sharp reductions in projected growth rates for health and retirement programs, as well as reductions in the proportion of the economy's resources available for all other federal responsibilities."
High Spending and Revenue. Taxes and entitlement spending are increased substantially, with spending eventually reaching one-third of GDP.

"Because this spending level is still less than under a continuation of current policies, it would require an eventual reduction in the rate of growth of health spending. It would, however, accommodate the spending needed to maintain currently scheduled Social Security benefits."
Intermediate Path No. 1. Tax revenues and spending rise gradually to about one-fourth of GDP and spending on the elderly population would be constrained to support only modest expansion of other federal spending.

"The growth rates for Social Security Medicare, and Medicaid would be slower than under current policies. This path reflects the view that the government should make selective new public investments to promote economic growth, preserve the environment, and build for the future."
Intermediate Path No. 2 Tax revenues and spending would eventually rise to a little more than one-fourth of GDP.

"Spending for health and retirement benefits for the elderly population would be slowed but less constrained than in the Intermediate-1 path. This reflects the view that the government's implicit promises for the elderly are a higher priority than other spending."

All four budget alternatives were constructed with a view to keeping U.S. debt on what the panel considered a sustainable ratio of 60 percent U.S. debt to GDP.

The problem with implementing any of the budget alternatives is that the Obama administration and the Democrat-controlled Congress have demonstrated a propensity to increase entitlement programs dramatically, without producing a politically acceptable means of increasing taxes to pay for the programs.

Consistently, the Obama administration has resorted to a form of class warfare, threatening to "tax the rich" to pay for expanded social welfare programs, including the Democrat health plan.

Programs like Medicare, Medicaid and Social Security are entitlement programs by nature and have automatic expansion built into them, especially as the baby-boomers retire, Penner noted, in contrast to government-funded health programs in Britain and Canada that operate on fixed budgets and ration health care.

"To restrain these programs, they have to be very significantly restructured. Health programs are especially difficult because they are impacted both by the aging of the population and the inexorable rise in per capita health costs," Penner said.

Penner was also concerned that the political resolve to increase taxes was much less firm than the urge to increase entitlement programs to a level beyond the ability of the federal government to finance the programs with ever-increasing levels of debt spending.

Penner also admitted the tax revenue assumptions of the report were optimistic.

"Our revenue assumptions are extremely optimistic as they stand," he agreed. "We use the CBO baseline, which has us going on current policy and has the deficit ever-increasing. CBO assumes, quite unrealistically, that foreigners are going to provide all the savings we need at a constant interest rate. That's how CBO keeps the economy growing in the face of extraordinarily large deficits."

Higher interest rates needed to attract U.S. savings into Treasury debt financing could deprive the private economy of the capital needed to generate economic growth.

Penner is a fellow at the Urban Institute. He was the director of the Congressional Budget Office from 1983 to 1987. From 1977 to 1983, he was a resident scholar at the American Enterprise Institute.

IMF to Haiti: Freeze Public Wages

Since a devastating earthquake rocked Haiti on Tuesday--killing tens of thousands of people--there's been a lot of well-intentioned chatter and twitter about how to help Haiti. Folks have been donating millions of dollars to Wyclef Jean's Yele Haiti (by texting "YELE" to 501501) or to the Red Cross (by texting "HAITI" to 90999) or to Paul Farmer's extraordinary Partners in Health, among other organizations. I hope these donations continue to pour in, along with more money, food, water, medicine, equipment and doctors and nurses from nations around the world. The Obama administration has pledged at least $100 million in aid and has already sent thousands of soldiers and relief workers. That's a decent start.

But it's also time to stop having a conversation about charity and start having a conversation about justice--about recovery, responsibility and fairness. What the world should be pondering instead is: What is Haiti owed?

Haiti's vulnerability to natural disasters, its food shortages, poverty, deforestation and lack of infrastructure, are not accidental. To say that it is the poorest nation in the Western hemisphere is to miss the point; Haiti was made poor--by France, the United States, Great Britain, other Western powers and by the IMF and the World Bank.

Now, in its attempts to help Haiti, the IMF is pursuing the same kinds of policies that made Haiti a geography of precariousness even before the quake. To great fanfare, the IMF announced a new $100 million loan to Haiti on Thursday. In one crucial way, the loan is a good thing; Haiti is in dire straits and needs a massive cash infusion. But the new loan was made through the IMF's extended credit facility, to which Haiti already has $165 million in debt. Debt relief activists tell me that these loans came with conditions, including raising prices for electricity, refusing pay increases to all public employees except those making minimum wage and keeping inflation low. They say that the new loans would impose these same conditions. In other words, in the face of this latest tragedy, the IMF is still using crisis and debt as leverage to compel neoliberal reforms.

For Haiti, this is history repeated. As historians have documented, the impoverishment of Haiti began in the earliest decades of its independence, when Haiti's slaves and free gens de couleur rallied to liberate the country from the French in 1804. But by 1825, Haiti was living under a new kind of bondage--external debt. In order to keep the French and other Western powers from enforcing an embargo, it agreed to pay 150 million francs in reparations to French slave owners (yes, that's right, freed slaves were forced to compensate their former masters for their liberty). In order to do that, they borrowed millions from French banks and then from the US and Germany. As Alex von Tunzelmann pointed out, "by 1900, it [Haiti] was spending 80 percent of its national budget on repayments."

It took Haiti 122 years, but in 1947 the nation paid off about 60 percent, or 90 million francs, of this debt (it was able to negotiate a reduction in 1838). In 2003, then-President Aristide called on France to pay restitution for this sum--valued in 2003 dollars at over $21 billion. A few months later, he was ousted in a coup d'etat; he claims he left the country under armed pressure from the US.

Then of course there are the structural adjustment policies imposed by the IMF and World Bank in the 1990s. In 1995, for example, the IMF forced Haiti to cut its rice tariff from 35 percent to 3 percent, leading to a massive increase in rice-dumping, the vast majority of which came from the United States. As a 2008 Jubilee USA report notes, although the country had once been a net exporter of rice, "by 2005, three out of every four plates of rice eaten in Haiti came from the US." During this period, USAID invested heavily in Haiti, but this "charity" came not in the form of grants to develop Haiti's agricultural infrastructure, but in direct food aid, furthering Haiti's dependence on foreign assistance while also funneling money back to US agribusiness.

A 2008 report from the Center for International Policy points out that in 2003, Haiti spent $57.4 million to service its debt, while total foreign assistance for education, health care and other services was a mere $39.21 million. In other words, under a system of putative benevolence, Haiti paid back more than it received. As Paul Farmer noted in our pages after hurricanes whipped the country in 2008, Haiti is "a veritable graveyard of development projects."

So what can activists do in addition to donating to a charity? One long-term objective is to get the IMF to forgive all $265 million of Haiti's debt (that's the $165 million outstanding, plus the $100 million issued this week). In the short term, Haiti's IMF loans could be restructured to come from the IMF's rapid credit facility, which doesn't impose conditions like keeping wages and inflation down.

Indeed, debt relief is essential to Haiti's future. It recently had about $1.2 billion in debt canceled, but it still owes about $891 million, all of which was lent to the country from 2004 onward. $429 million of that debt is held by the Inter-American Development Bank (IDB), to whom Haiti is scheduled to make $10 million in payments next year. Obviously, that's money better spent on saving Haitian lives and rebuilding the country in the months ahead; the cancellation of the entire sum would free up precious capital. The US controls about 30 percent of the bank's shares; Latin American and Caribbean countries hold just over 50 percent. Notably, the IDB's loans come from its fund for special operations (i.e. the IDB's donor nations and funds from loans that have been paid back), not from IDB's bonds. Hence, the total amount could be forgiven without impacting the IDB's triple-A credit rating.

Finally, although the Obama administration temporarily halted deportations to Haiti, it hasn't granted Haitians temporary protected status (TPS), which would save them from being deported back to the scene of a disaster for as long as 18 months, allow them to work in the US and, crucially, send money back to relatives in Haiti. In the past, TPS has been given to countries like Honduras and Nicaragua in 1998 after Hurrican Mitch, but it has never been extended to Haitians, even after the 2008 storms, presumably because immigrations officials fear a mass exodus from Haiti.

But decency, as well as fairness, should trump those fears now. As Sunita Patel, an attorney with CCR, told me, "We have granted TPS to El Salavador, Honduras, Nicaragua, Somalia and Sudan following natural disasters. To apply different rules here would fly in the face of the administration's efforts to build good will abroad."

(UPDATE: It has just been announced that the Obama administration has granted Temporary Protected Status to Haiti. This is a great relief to Haitians in the US and a victory for those who pressured the administration to do so.)

UK's inflation rate jumps massively 1-19-10

Click this link ...... http://eclipptv.com/viewVideo.php?video_id=9570

Stranger and Stranger

The fallout from the IPCC Himalayan glacier situation gets stranger and stranger. Now an IPCC lead author has stepped forward claiming that the error has been known by the IPCC all along. From Agence France-Presse:

A top scientist said Monday he had warned in 2006 that a prediction of catastrophic loss of Himalayan glaciers, published months later by the UN's Nobel-winning climate panel, was badly wrong.
The Intergovernmental Panel on Climate Change (IPCC) report said in 2007 it was "very likely" that the glaciers, which supply water to more than a billion people across Asia, would vanish by 2035 if global warming trends continued.
"This number is not just a little bit wrong, but far out of any order of magnitude," said Georg Kaser, an expert in tropical glaciology at the University of Innsbruck in Austria.
"It is so wrong that it is not even worth discussing," he told AFP in an interview.

It gets more interesting:

Kaser suggested the initial error originated from a misreading of a 1996 Russian study or from findings on a handful of glaciers that were mistakenly extended to apply to the whole region.
In either case, he suggested, the fact that it found its way into the report underpinning global climate negotiations signalled the need for a reform of the way the IPCC collects and reviews data.
"The review community has entirely failed" in this instance, he said.
Kaser was a lead author in Working Group I of the IPCC report, which dealt with the physical science of climate change.
Its conclusions -- that climate change is "unequivocal" and poses a major threat -- remain beyond reproach, he said.
The prediction for the Himalayan glaciers was contained in the separately published Working Group II report, which assessed likely impacts of climate change.
More specifically, the chapter focussed on an assessment of Asia, authored by scientists from the region.
"This is a source of a lot of misunderstandings, misconceptions or failures," Kaser said, noting that some regions lacked a broad spectrum of expertise.
"It is a kind of amateurism from the regional chapter lead authors. They may have been good hydrologists or botanists, but they were without any knowledge in glaciology."
Kaser said some of the scientists from other regional groups took heed of suggestions, and made corrections ahead of final publication in April 2007.
But the Asia group did not. "I pointed it out," he said of the implausible prediction on the glaciers.
"For a reason I do not know, they did not react."
But blame did not rest with the regional scientists alone, Kaser added.
"I went back through the comments afterward, and not a single glaciologist had any interest in looking into Working Group II," he said.

And there is more:

The IPCC's Fifth Assessment, scheduled for release in 2013, will probably be adjusted to avoid such problems, said Kaser.
"All the responsible people are aware of this weakness in the Fourth Assessment. All are aware of the mistakes made," he said.
"If it had not been the focus of so much public opinion, we would have said 'we will do better next time.' It is clear now that Working Group II has to be restructured," he said.

The implications of Kaser's comments are not good for the IPCC, however that they are interpreted.

Given Rajendra Pachauri's vigorous defense of the claims made by the IPCC about Himalayan glacier melt, Dr. Kaser's comment that -- "All the responsible people are aware of this weakness in the Fourth Assessment. All are aware of the mistakes made" -- raises an eyebrow. It must be the case that Dr. Pachauri either knew of the error or he did not. Neither state of affairs is good for the IPCC.

Consider a further implication: If indeed "all the responsible people are aware" of the mistakes in the IPCC, then what in the world explains their complete silence over the past few years while headlines like the following were being announced to the world?

Think about this statement:

"If it had not been the focus of so much public opinion, we would have said 'we will do better next time.'"

Is it really the case that IPCC scientists would have continued to sit on a known error with important policy implications in complete silence until their hand was forced by the focus of public opinion? Really?!

I wonder what other known errors are being sat on?

Al-Qaida seeking tools for nuclear 9/11

Intel agents 'certain' terrorists will try for Pakistan's bombs

Editor's Note: The following report is excerpted from Joseph Farah's G2 Bulletin, the premium online newsletter published by the founder of WND. Subscriptions are $99 a year or, for monthly trials, just $9.95 per month for credit card users, and provide instant access for the complete reports.

LONDON – Agents for Britain's MI6 Secret Intelligence Service say they are "certain" al-Qaida is poised to try and grab some of the 80 nuclear weapons that Pakistan possesses, according to a report from Joseph Farah's G2 Bulletin.

The al-Qaida leadership – Osama bin Laden and Ayman a-Zawahri – are believed to have spent the winter months in Pakistan's Tribal Areas finalizing their plans for an attack.

It will spearhead al-Qaida's global network and its capability to carry out a wide range of terrorist onslaughts.

The MI6 analysis is based on what the agency calls "al-Qaida's zone of terrorism." It includes the Afghan Taliban, the Islamic Movement of Uzbekistan in East Turkistan and al-Shabaab in Somalia. In the Sahara region al-Qaida has reformed Islamic Magreb (AQIM) which has grown out of Algerian resistance movement.

FROM JOSEPH FARAH'S G2 BULLETIN

Al-Qaida seeking tools for nuclear 9/11

Intel agents 'certain' terrorists will try for Pakistan's bombs

The al-Qaida leadership – Osama bin Laden and Ayman a-Zawahri – are believed to have spent the winter months in Pakistan's Tribal Areas finalizing their plans for an attack.

It will spearhead al-Qaida's global network and its capability to carry out a wide range of terrorist onslaughts.

(Story continues below)

But nothing poses more of a threat than al-Qaida's plan to steal Pakistan’s nuclear weapons.

Keep in touch with the most important breaking news stories about critical developments around the globe with Joseph Farah's G2 Bulletin, the premium, online intelligence news source edited and published by the founder of WND.

MI6 agents in Pakistan say there is mounting evidence "the leadership is thinking of a nuclear 9/11 and are approaching it in increasingly professional ways."

Nuclear experts have told the Secret Intelligence Service that the biggest fear is of "an inside job."

One analyst said, "There are up to 12,000 people in Pakistan with some kind of role which brings them into nuclear facilities, whether as part of a team of scientists or working in security."

Professor Shaun Gregory, director of the Pakistan security research center at Bradford University in England, has tracked a number of attempted security breaches in the past four years at Pakistan's nuclear facilities.

Past attacks have included a suicide bomber striking Kamra where Pakistan Air Force F-16 jet aircraft are stationed with nuclear bombs. Another attack was against a nuclear weapons complex in Punjab where a nuclear warhead assembly plant is based

International Hearings Begin On “Falsified” Swine Flu Pandemic

“Greatest medical scandal of the century” to come under scrutiny

The Parliamentary Assembly of the Council of Europe, a 47 nation body encompassing democratically elected members of parliament, has begun hearings to investigate whether the H1N1 swine flu pandemic was falsified or exaggerated in an attempt to profit from vaccine sales.

A PACE resolution, passed last month, gave context to the hearings which began yesterday in Strasbourg.

“In order to promote their patented drugs and vaccines against flu, pharmaceutical companies influenced scientists and official agencies, responsible for public health standards to alarm governments worldwide and make them squander tight health resources for inefficient vaccine strategies and needlessly expose millions of healthy people to the risk of an unknown amount of side-effects of insufficiently tested vaccines. The “bird-flu”-campaign (2005/06) combined with the “swine-flu”-campaign seem to have caused a great deal of damage not only to some vaccinated patients and to public health-budgets, but to the credibility and accountability of important international health-agencies.”

Heading the hearings will be chairman of the Health Committee of PACE, Dr. Wolfgang Wodarg, a former German lawmaker, a medical doctor and epidemiologist. Wodarg has referred to the swine flu pandemic as “one of the greatest medical scandals of the century.”

Wodarg charges that the WHO altered the definition of a pandemic from an outbreak in several continents at once with an above-average death rate, to one where the spread of the disease is constant.

The Parliamentary inquiry will determine if a “falsified pandemic” was declared by WHO in June 2009 on the advice of medical advisors, many of whom have close financial ties to the very pharmaceutical giants – GlaxoSmithKline, Roche, Novartis, – that produced the H1N1 vaccines.

It will also look into the controversy surrounding the fact that two shots were initially advised when it was later revealed that one dose was entirely suitable.

Pharmaceutical companies are thought to have made a profit of somewhere in the region of $7.5-$10 billion on H1N1 vaccines. The worldwide death toll from H1N1 is thought to be around 13,500, just over a third of the number who die from regular flu every year in the U.S. alone.

PACE has noted that the alleged conspiracy could have exposed “millions of healthy people to the risk of side-effects of insufficiently tested vaccines”.

Many countries have begun offloading huge stockpiles of unused vaccines and canceling outstanding orders. The latest to do so is Greece, where the government had announced that it would make H1N1 vaccination mandatory.

PACE will also hold a debate next week entitled ‘Faked pandemics, a threat to health’, to be attended by representatives of the World Health Organisation (WHO) and the European pharmaceutical industry.

“Unlike the European Parliament, it has no decision-making powers, but, as was demonstrated by its report into extraordinary rendition, it does have the power to make life uncomfortable for the powers that be,” notes the Irish TImes.