Dollar resumes its slide against the euro
By Peter Garnham
Copyright The Financial Times Limited 2006
Published: November 30 2006 11:52 | Last updated: November 30 2006 11:52
The dollar resumed its slide against the euro and slumped to a 14-year low against the pound on Thursday amid continuing fears over the state of the US economy.
The dollar received some respite in the previous session from an upward revision to US growth.
On Wednesday, the dollar rallied after official data showed that US gross domestic product grew at an annual rate of 2.2 per cent in third quarter against an estimated 1.6 per cent and consensus forecasts of a 1.8 per cent rise.
However the dollar fell 0.5 per cent to $1.9549 against sterling, dropped 0.4 per cent to $1.3193 against the euro and eased 0.1 per cent to Y116.24 on Thursday.
“The fact that the real GDP data has failed to underpin the dollar serves to underline the fact that dollar sentiment remains dire,” said Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ. “Market participants are likely to continue pushing it lower through the month of December when the dollar tends to perform poorly against both the euro and the pound.”
Indeed, the pound was in the vanguard of the assault on the dollar, rising to its highest level since its ejection from the European Exchange Rate Mechanism in September 1992.
Sterling was given a boost as figures from the Nationwide Building Society revealed UK houses prices rose at annual rate of 9.6 per cent in November, their fastest pace since February 2005.
Traders said the figures increased the likelihood of further rate rises from the Bank of England, while the market continued to price in a rate cut as the most-likely next move from the Federal Reserve.
Meanwhile, the euro rose 0.2 per to Y153.49 against the yen, notching up a fresh record high for a fifth consecutive day.
The single currency was supported by a series of strong economic data as eurozone inflation rebounded in November and the EU commission raised its growth forecasts.
Thursday, November 30, 2006
An international way forward in Iraq
An international way forward in Iraq
By Jacob Weisberg
Copyright The Financial Times Limited 2006
Published: November 30 2006 02:00 | Last updated: November 30 2006 02:00
As the US begins to acknowledge the magnitude of its defeat in Iraq, the conflict looks more than ever like a speeded-up, scaled-down re-enactment of Vietnam. A tragedy that took a dozen years to unfold in south-east Asia has played out in less than four in Mesopotamia. Once again an intervention that sprang largely from idealistic, anti-totalitarian motives has gone awry because of an administration's deceptions, incomprehension and incompetence. Once again the domino theory at the heart of the case has been disproved - and once again America finds itself looking for a way out that will not compound the catastrophe.
As in the final stages of the Vietnam war, the US faces the question: if it has lost, why is it still there? One answer is that President George W. Bush is a stubborn man. Even this week, Mr Bush was insisting it would not withdraw "until the mission is complete" - an apparent synonym for "when hell freezes over". A better answer is that the US is now in Iraq to prevent genocide. Without a military force separating Sunni and Shia, the present savagery could turn Cambodian, with remaining secular democrats as the first victims. A power vacuum could provide a new operational base for al-Qaeda and severe sectarian violence could spiral into all-out civil war and regional conflict. As awful as it is now, Iraq could get much worse.
But if the mission in Iraq has devolved into preventing a bigger bloodbath, the US is the worst imaginable occupier. The presence of specifically American troops is itself instigating a great deal of the current violence. US forces, unlike most European ones, are not trained, skilled or experienced at peacekeeping. Iraq does need a foreign army. It just does not need an American army. This mismatch suggests a final disaster mitigation strategy: replace departing US troops with a more effective referee.
The obvious objection to this proposal is: who on earth wants to send troops to Iraq now? The remnants of Mr Bush's coalition of the willing - Brits, Aussies, Fijians - are as eager to get home as Americans are. The United Nations ended its Iraqi operations following the horrific bombing of its Baghdad headquarters in 2003 and is not waiting for a return invitation. Asking for additional help in Iraq now is likely to provoke not just rejection, but hoots of scorn and derision.
Mr Bush deserves all that and more; but not having completely sapped the power of the US yet, he retains a few cards. Other countries should care about preventing the slaughter of innocents in Iraq, just as they should have in Rwanda and should yet in Darfur. Even if most nations will not make such a sacrifice on humanitarian grounds, they have a variety of self-interested reasons to help prevent total collapse in Iraq, including terrorism, refugees and oil. Because relations with the US are still important to nearly every country, America retains some actual leverage.
Where might more troops come from? The most willing providers would probably be "new" Europeans such as the Poles, who remain eager to demonstrate their co-operative capabilities and earn cash. Muslim troops might come from neighbouring Jordan and Turkey, which have obvious stakes in preventing the refugee crisis that would attend violent partition. Western European nations would be reluctant, but possibly willing to contribute when faced with the consequences of inaction. For France and Germany, the bargain would involve Mr Bush admitting, at least implicitly, that his previous unilateralism was bad and wrong. We could call this a coalition of the grudging.
Given the obstacles to action by the Security Council and the limitations on blue-helmeted peacekeepers, putting such a collation together under UN auspices is a non-starter - though the UN could eventually play an expanding role as the conflict settled down. For the more intensely military phase, the only real choice is Nato. A Nato-led deployment in Iraq could follow its model in Afghanistan, where a 32,000 person Nato-plus-11 force is controlling an insurgency, sustaining a weak but viable government and preventing multi-party civil war.
There are, of course, enormous obstacles to raising such a force. But a mission to save Iraq from doom would fit Nato's growing scope and evolving post-cold war doctrine, a subject under discussion this week in Riga. This new mandate includes peacekeeping projects, counter-terrorism and dealing with instability spawned by failing states. With the US now essentially incapacitated by its mistakes, an effective military consortium of the world's democracies - which is what Nato is evolving toward - is more necessary than ever.
Where is the indefatigable Richard Holbrooke when you need him? Mustering such a force and negotiating its rules of engagement would be a heroic diplomatic undertaking, as it was in Bosnia. A Nato agreement to step in would have to piggyback on a Dayton-like grand compromise in which the leading Iraqi parties agreed to stop beheading each other in exchange for international aid and security guarantees. It is a long shot, to be sure, but even the original foreign policy realist Brent Scowcroft has argued for a plan of this sort. Having failed to internationalise the Iraq problem on our way in, it may not be too late to internationalise it on our way out.
The writer is editor of Slate.com
By Jacob Weisberg
Copyright The Financial Times Limited 2006
Published: November 30 2006 02:00 | Last updated: November 30 2006 02:00
As the US begins to acknowledge the magnitude of its defeat in Iraq, the conflict looks more than ever like a speeded-up, scaled-down re-enactment of Vietnam. A tragedy that took a dozen years to unfold in south-east Asia has played out in less than four in Mesopotamia. Once again an intervention that sprang largely from idealistic, anti-totalitarian motives has gone awry because of an administration's deceptions, incomprehension and incompetence. Once again the domino theory at the heart of the case has been disproved - and once again America finds itself looking for a way out that will not compound the catastrophe.
As in the final stages of the Vietnam war, the US faces the question: if it has lost, why is it still there? One answer is that President George W. Bush is a stubborn man. Even this week, Mr Bush was insisting it would not withdraw "until the mission is complete" - an apparent synonym for "when hell freezes over". A better answer is that the US is now in Iraq to prevent genocide. Without a military force separating Sunni and Shia, the present savagery could turn Cambodian, with remaining secular democrats as the first victims. A power vacuum could provide a new operational base for al-Qaeda and severe sectarian violence could spiral into all-out civil war and regional conflict. As awful as it is now, Iraq could get much worse.
But if the mission in Iraq has devolved into preventing a bigger bloodbath, the US is the worst imaginable occupier. The presence of specifically American troops is itself instigating a great deal of the current violence. US forces, unlike most European ones, are not trained, skilled or experienced at peacekeeping. Iraq does need a foreign army. It just does not need an American army. This mismatch suggests a final disaster mitigation strategy: replace departing US troops with a more effective referee.
The obvious objection to this proposal is: who on earth wants to send troops to Iraq now? The remnants of Mr Bush's coalition of the willing - Brits, Aussies, Fijians - are as eager to get home as Americans are. The United Nations ended its Iraqi operations following the horrific bombing of its Baghdad headquarters in 2003 and is not waiting for a return invitation. Asking for additional help in Iraq now is likely to provoke not just rejection, but hoots of scorn and derision.
Mr Bush deserves all that and more; but not having completely sapped the power of the US yet, he retains a few cards. Other countries should care about preventing the slaughter of innocents in Iraq, just as they should have in Rwanda and should yet in Darfur. Even if most nations will not make such a sacrifice on humanitarian grounds, they have a variety of self-interested reasons to help prevent total collapse in Iraq, including terrorism, refugees and oil. Because relations with the US are still important to nearly every country, America retains some actual leverage.
Where might more troops come from? The most willing providers would probably be "new" Europeans such as the Poles, who remain eager to demonstrate their co-operative capabilities and earn cash. Muslim troops might come from neighbouring Jordan and Turkey, which have obvious stakes in preventing the refugee crisis that would attend violent partition. Western European nations would be reluctant, but possibly willing to contribute when faced with the consequences of inaction. For France and Germany, the bargain would involve Mr Bush admitting, at least implicitly, that his previous unilateralism was bad and wrong. We could call this a coalition of the grudging.
Given the obstacles to action by the Security Council and the limitations on blue-helmeted peacekeepers, putting such a collation together under UN auspices is a non-starter - though the UN could eventually play an expanding role as the conflict settled down. For the more intensely military phase, the only real choice is Nato. A Nato-led deployment in Iraq could follow its model in Afghanistan, where a 32,000 person Nato-plus-11 force is controlling an insurgency, sustaining a weak but viable government and preventing multi-party civil war.
There are, of course, enormous obstacles to raising such a force. But a mission to save Iraq from doom would fit Nato's growing scope and evolving post-cold war doctrine, a subject under discussion this week in Riga. This new mandate includes peacekeeping projects, counter-terrorism and dealing with instability spawned by failing states. With the US now essentially incapacitated by its mistakes, an effective military consortium of the world's democracies - which is what Nato is evolving toward - is more necessary than ever.
Where is the indefatigable Richard Holbrooke when you need him? Mustering such a force and negotiating its rules of engagement would be a heroic diplomatic undertaking, as it was in Bosnia. A Nato agreement to step in would have to piggyback on a Dayton-like grand compromise in which the leading Iraqi parties agreed to stop beheading each other in exchange for international aid and security guarantees. It is a long shot, to be sure, but even the original foreign policy realist Brent Scowcroft has argued for a plan of this sort. Having failed to internationalise the Iraq problem on our way in, it may not be too late to internationalise it on our way out.
The writer is editor of Slate.com
Obama is going to go for it
Obama is going to go for it
BY LYNN SWEET
Copyrigt by The Chicago Sun-Times
November 30, 2006
Bottom line: I think Sen. Barack Obama, who is seriously considering a run for president, is going to jump into the 2008 race. I predict the freshman Illinois Democrat will announce near the end of this year or the beginning of 2007, sometime after he returns from a holiday break in his native Hawaii. Here's what's on Obama's to-do list:
• • Build a national political organization, probably based in Chicago.
Obama's inner circle will grow and diversify. He will need to develop a cohesive and efficient staff. Chief potential rival Sen. Hillary Rodham Clinton (D-N.Y.) has a deep bench of battle-tested loyalists. Clinton, a veteran of her husband's 1992 and 1996 presidential contests has vast experience running national campaigns.
The core Obama players -- all experienced in national political strategy -- are Chicago media consultant David Axelrod and, in Washington, David Plouffe, an Axelrod partner; communications chief Robert Gibbs; chief of staff Pete Rouse, and Hopefund political director Alyssa Mastromonaco.
Obama's team has talked to potential staffers but has made no offers, Axelrod told me. They have plenty of time to put together a good campaign, even though others have a head start.
• • Raise money, money, money.
Obama will need to raise tens of millions of dollars in the first quarter of 2007. Even though he will have ambitious plans to cull small donors via the Internet, to get that type of money means cultivating the nation's top Democratic money people. He will need to lock up the Democratic fund-raising elite, some of whom are now conflicted because of longtime ties to Clinton. The Bill and Hillary money networks are legendary.
Obama already has tapped into these networks for money channeled to other candidates. Now he will be asking for himself. One way it's done is by high-level networking. On Monday, Obama will be in New York -- Clinton territory -- to keynote an event for a charity called KIDS -- Kids in Distressed Situations.
Obama gets thousands of invitations to speak, so the engagements he accepts and the calls he takes are telling. KIDS president Janice Weinman Shorenstein told me she talked to Obama to headline this event. She is a mid-level Democratic donor whose important circle of family and friends includes some of the nation's biggest Democrat contributors.
• • Maintain an Obama-Clinton relationship.
I saw the movie "Bobby" last week and hearing snippets of Bobby Kennedy's speeches gave me an insight into why Obama clicks with so many people: Like Kennedy, he offers hope for a better future. An Obama candidacy may suck the oxygen from the second-tier Democratic field.
Obama's calculations don't depend on whether or not Clinton or anyone else is in the race. But Clinton's primary calculus is affected by Obama. Obama's entry expands her field of play and cuts into her claim for minority votes.
For example, without Obama in the March 2008 Illinois primary, Illinois Democrats would treat Clinton like the native daughter she is and elect her delegates. With Obama in, she would have to devote precious time and resources to Illinois. Obama and Clinton get along. They respect each other. They both will be working the same Democratic money belts in New York, Los Angeles and Chicago. The big difference between them is Iraq; Obama campaigned in 2004 against the war while Clinton voted for it.
• • Solidify and maximize the black vote.
Obama will have a running start winning black voters who are a core Democratic primary constituency.
• • Develop signature legislative initiatives.
Once the Democrats control Congress come January, there's a chance to pass legislation. Watch for Obama to focus on alternative energy measures, health care and ethics reform legislation that stalled earlier this year.
• • Decide whether to be a player in revamping the Democratic primary calendar.
This is a Democratic insider debate which may have ramifications on who is the eventual nominee. The Democratic National Committee has a commission, due to report in December, studying whether to rejigger the primary calendar.
At present, voters in Iowa and New Hampshire -- where Obama debuts on Dec. 10 -- have great influence in determining the nominee. Other states, Michigan for one, want to get in the fray. Adding states to the early primary calendar would help candidates with the best name recognition and resources.
"We are aware of the possibilities," Axelrod said.
• • Finish this sentence. "I want to be president because . . ."
BY LYNN SWEET
Copyrigt by The Chicago Sun-Times
November 30, 2006
Bottom line: I think Sen. Barack Obama, who is seriously considering a run for president, is going to jump into the 2008 race. I predict the freshman Illinois Democrat will announce near the end of this year or the beginning of 2007, sometime after he returns from a holiday break in his native Hawaii. Here's what's on Obama's to-do list:
• • Build a national political organization, probably based in Chicago.
Obama's inner circle will grow and diversify. He will need to develop a cohesive and efficient staff. Chief potential rival Sen. Hillary Rodham Clinton (D-N.Y.) has a deep bench of battle-tested loyalists. Clinton, a veteran of her husband's 1992 and 1996 presidential contests has vast experience running national campaigns.
The core Obama players -- all experienced in national political strategy -- are Chicago media consultant David Axelrod and, in Washington, David Plouffe, an Axelrod partner; communications chief Robert Gibbs; chief of staff Pete Rouse, and Hopefund political director Alyssa Mastromonaco.
Obama's team has talked to potential staffers but has made no offers, Axelrod told me. They have plenty of time to put together a good campaign, even though others have a head start.
• • Raise money, money, money.
Obama will need to raise tens of millions of dollars in the first quarter of 2007. Even though he will have ambitious plans to cull small donors via the Internet, to get that type of money means cultivating the nation's top Democratic money people. He will need to lock up the Democratic fund-raising elite, some of whom are now conflicted because of longtime ties to Clinton. The Bill and Hillary money networks are legendary.
Obama already has tapped into these networks for money channeled to other candidates. Now he will be asking for himself. One way it's done is by high-level networking. On Monday, Obama will be in New York -- Clinton territory -- to keynote an event for a charity called KIDS -- Kids in Distressed Situations.
Obama gets thousands of invitations to speak, so the engagements he accepts and the calls he takes are telling. KIDS president Janice Weinman Shorenstein told me she talked to Obama to headline this event. She is a mid-level Democratic donor whose important circle of family and friends includes some of the nation's biggest Democrat contributors.
• • Maintain an Obama-Clinton relationship.
I saw the movie "Bobby" last week and hearing snippets of Bobby Kennedy's speeches gave me an insight into why Obama clicks with so many people: Like Kennedy, he offers hope for a better future. An Obama candidacy may suck the oxygen from the second-tier Democratic field.
Obama's calculations don't depend on whether or not Clinton or anyone else is in the race. But Clinton's primary calculus is affected by Obama. Obama's entry expands her field of play and cuts into her claim for minority votes.
For example, without Obama in the March 2008 Illinois primary, Illinois Democrats would treat Clinton like the native daughter she is and elect her delegates. With Obama in, she would have to devote precious time and resources to Illinois. Obama and Clinton get along. They respect each other. They both will be working the same Democratic money belts in New York, Los Angeles and Chicago. The big difference between them is Iraq; Obama campaigned in 2004 against the war while Clinton voted for it.
• • Solidify and maximize the black vote.
Obama will have a running start winning black voters who are a core Democratic primary constituency.
• • Develop signature legislative initiatives.
Once the Democrats control Congress come January, there's a chance to pass legislation. Watch for Obama to focus on alternative energy measures, health care and ethics reform legislation that stalled earlier this year.
• • Decide whether to be a player in revamping the Democratic primary calendar.
This is a Democratic insider debate which may have ramifications on who is the eventual nominee. The Democratic National Committee has a commission, due to report in December, studying whether to rejigger the primary calendar.
At present, voters in Iowa and New Hampshire -- where Obama debuts on Dec. 10 -- have great influence in determining the nominee. Other states, Michigan for one, want to get in the fray. Adding states to the early primary calendar would help candidates with the best name recognition and resources.
"We are aware of the possibilities," Axelrod said.
• • Finish this sentence. "I want to be president because . . ."
Study finds HIV/AIDS treatment goals for developing world unmet
Study finds HIV/AIDS treatment goals for developing world unmet
By Elisabeth Rosenthal
Copyright by The International Herald Tribune
Published: November 29, 2006
ROME: International agencies and national governments are failing to meet their goals to provide HIV/AIDS treatment to the developing world, according to a report by the International Treatment Preparedness Coalition.
"The rhetoric from public health officials is good, but the follow-through is abysmal," Gregg Gonsalves, who coordinated the report, said Tuesday. "We are woefully behind in our targets."
Earlier this year, the United Nations and the Group of 8 nations set universal access to AIDS medicines as a goal for 2010, planning to have 9.8 million people in treatment by then.
But given current trends, the world will fall five million people short of that goal, said the coalition, an international advocacy group.
The shortfall is particularly egregious when it comes to women and children, the coalition's researchers found.
Programs to use drugs to prevent the transmission of HIV, the virus that causes AIDS, from mother to child at birth are reaching only 9 percent of HIV-positive women in Africa, even though the drugs are cheap and readily available, the report noted.
"Nothing has changed for women," said Anurita Bains, an assistant to Stephen Lewis, the UN special envoy for HIV/ AIDS in Africa, at a news conference to release the study. On children, she added: "What we find in the report is that children continue to be neglected."
Researchers looked closely at six representative nations with high rates of HIV: the Dominican Republic, Kenya, Nigeria, South Africa, Russia and India. Progress in treating HIV/AIDS was disappointing in all of them.
In India only 5,595 children have been diagnosed with HIV, even though experts believe that 200,000 are infected. In Nigeria, fewer than 100,000 people were getting the anti-retroviral drugs that combat AIDS, though the government had planned to have more than twice as many in treatment by the middle of this year.
Chris Collins, a coalition member, said the number of people receiving drugs was "dwarfed by the number of people in need."
And Bains said the main fund that supports AIDS treatment programs in poor countries, the Global Fund for AIDS, Tuberculosis and Malaria, was already $1 billion short for next year.
By Elisabeth Rosenthal
Copyright by The International Herald Tribune
Published: November 29, 2006
ROME: International agencies and national governments are failing to meet their goals to provide HIV/AIDS treatment to the developing world, according to a report by the International Treatment Preparedness Coalition.
"The rhetoric from public health officials is good, but the follow-through is abysmal," Gregg Gonsalves, who coordinated the report, said Tuesday. "We are woefully behind in our targets."
Earlier this year, the United Nations and the Group of 8 nations set universal access to AIDS medicines as a goal for 2010, planning to have 9.8 million people in treatment by then.
But given current trends, the world will fall five million people short of that goal, said the coalition, an international advocacy group.
The shortfall is particularly egregious when it comes to women and children, the coalition's researchers found.
Programs to use drugs to prevent the transmission of HIV, the virus that causes AIDS, from mother to child at birth are reaching only 9 percent of HIV-positive women in Africa, even though the drugs are cheap and readily available, the report noted.
"Nothing has changed for women," said Anurita Bains, an assistant to Stephen Lewis, the UN special envoy for HIV/ AIDS in Africa, at a news conference to release the study. On children, she added: "What we find in the report is that children continue to be neglected."
Researchers looked closely at six representative nations with high rates of HIV: the Dominican Republic, Kenya, Nigeria, South Africa, Russia and India. Progress in treating HIV/AIDS was disappointing in all of them.
In India only 5,595 children have been diagnosed with HIV, even though experts believe that 200,000 are infected. In Nigeria, fewer than 100,000 people were getting the anti-retroviral drugs that combat AIDS, though the government had planned to have more than twice as many in treatment by the middle of this year.
Chris Collins, a coalition member, said the number of people receiving drugs was "dwarfed by the number of people in need."
And Bains said the main fund that supports AIDS treatment programs in poor countries, the Global Fund for AIDS, Tuberculosis and Malaria, was already $1 billion short for next year.
Wednesday, November 29, 2006
Gingrich calls Iraq war a 'failure'
Gingrich calls Iraq war a 'failure'
© Copyright 2006 Globe Newspaper Company.
November 29, 2006
In N.H., says Bush must admit that to regain trust
By James W. Pindell, Globe Correspondent | November 29, 2006
BEDFORD, N.H. -- Former House speaker Newt Gingrich told a New Hampshire audience yesterday that unless the Bush administration admits that the war in Iraq is a "failure," it will never develop a strategy to leave the country successfully.
Article Tools
Gingrich, who has been laying the groundwork for a presidential run, said the Bush administration needs to plan a "third stage" in Iraq, following the military takeover stage and the recent democracy-building stage. But he says a third stage can come about only if officials admit they must change course.
"If the military, White House, and State Department continue to avoid the word 'failure,' how can you bring about a third stage?" Gingrich said.
Gingrich was in New Hampshire for three campaign-style events Monday night and yesterday. While the former speaker has expressed interest in a presidential run, he said yesterday that he is more interested in injecting ideas in to the 2008 campaign than in putting his name on the ballot. He said he will not seriously entertain a presidential campaign until September.
Gingrich, who served on a key Pentagon board that advised Defense Secretary Donald H. Rumsfeld in the runup to the Iraq war, was eager to distance himself from the Bush administration's handling of the war.
He said a show of contrition by the White House would help the president regain the trust of the American people and avoid a quick pullout, which would be disastrous.
The first goal in Iraq, Gingrich said, should be to rebuild the national military, even if it requires spending tantamount to the Marshall Plan effort in the aftermath of World War II, in which the United States spent up to 3 percent of its gross domestic product.
"We have to show we are serious about winning and that we will defeat any person, Sunni or Shi'ite, that hopes to disrupt progress," he said. "But we can only do that if we have Iraqi troops on the ground."
Speaking at various campaign-style events, Gingrich reiterated his belief that the Republican Party's loss of Congress earlier this month was attributable to a failure to follow conservative principles, particularly concerning spending.
On Monday night, Gingrich was the keynote speaker at a First Amendment dinner sponsored by the Union Leader of Manchester, the state's largest and historically conservative newspaper.
Yesterday morning he appeared at the classic New Hampshire primary stop "Politics and Eggs," where he fiercely defended the first-in-the-nation status of the Granite State's presidential primary on the grounds that its small size and engaged electorate make it a forum for a discussion of ideas.
The former speaker also met privately with David Carney , a New Hampshire-based consultant who was the White House political director during the George H. W. Bush presidency. He wrapped up his visit by addressing 100 Republican legislators and activists at a lunch meeting that was part pep rally and part lecture on how to build a strong party.
The lecture was well-received by Republican leaders.
"He was exactly the right person we needed to hear from," said State Representative George Katsakiores , a Derry Republican.
© Copyright 2006 Globe Newspaper Company.
November 29, 2006
In N.H., says Bush must admit that to regain trust
By James W. Pindell, Globe Correspondent | November 29, 2006
BEDFORD, N.H. -- Former House speaker Newt Gingrich told a New Hampshire audience yesterday that unless the Bush administration admits that the war in Iraq is a "failure," it will never develop a strategy to leave the country successfully.
Article Tools
Gingrich, who has been laying the groundwork for a presidential run, said the Bush administration needs to plan a "third stage" in Iraq, following the military takeover stage and the recent democracy-building stage. But he says a third stage can come about only if officials admit they must change course.
"If the military, White House, and State Department continue to avoid the word 'failure,' how can you bring about a third stage?" Gingrich said.
Gingrich was in New Hampshire for three campaign-style events Monday night and yesterday. While the former speaker has expressed interest in a presidential run, he said yesterday that he is more interested in injecting ideas in to the 2008 campaign than in putting his name on the ballot. He said he will not seriously entertain a presidential campaign until September.
Gingrich, who served on a key Pentagon board that advised Defense Secretary Donald H. Rumsfeld in the runup to the Iraq war, was eager to distance himself from the Bush administration's handling of the war.
He said a show of contrition by the White House would help the president regain the trust of the American people and avoid a quick pullout, which would be disastrous.
The first goal in Iraq, Gingrich said, should be to rebuild the national military, even if it requires spending tantamount to the Marshall Plan effort in the aftermath of World War II, in which the United States spent up to 3 percent of its gross domestic product.
"We have to show we are serious about winning and that we will defeat any person, Sunni or Shi'ite, that hopes to disrupt progress," he said. "But we can only do that if we have Iraqi troops on the ground."
Speaking at various campaign-style events, Gingrich reiterated his belief that the Republican Party's loss of Congress earlier this month was attributable to a failure to follow conservative principles, particularly concerning spending.
On Monday night, Gingrich was the keynote speaker at a First Amendment dinner sponsored by the Union Leader of Manchester, the state's largest and historically conservative newspaper.
Yesterday morning he appeared at the classic New Hampshire primary stop "Politics and Eggs," where he fiercely defended the first-in-the-nation status of the Granite State's presidential primary on the grounds that its small size and engaged electorate make it a forum for a discussion of ideas.
The former speaker also met privately with David Carney , a New Hampshire-based consultant who was the White House political director during the George H. W. Bush presidency. He wrapped up his visit by addressing 100 Republican legislators and activists at a lunch meeting that was part pep rally and part lecture on how to build a strong party.
The lecture was well-received by Republican leaders.
"He was exactly the right person we needed to hear from," said State Representative George Katsakiores , a Derry Republican.
Tear up the Bush doctrine and revisit America's real values
Tear up the Bush doctrine and revisit America's real values
By Martin Wolf
Copyright The Financial Times Limited 2006
Published: November 29 2006 02:00 | Last updated: November 29 2006 02:00
US voters have now repudiated those who sought to impose democracy by force abroad. In spite of the gerrymandering of districts, the advantages of incumbency and renewed recourse to the politics of fear, common sense prevailed. George W. Bush is still president. But he is damaged political goods. That is good, because change is desperately needed.
The signal feature of this administration has not been merely its incompetence, but its rejection of the principles on which US foreign policy was built after the second world war. The administration's strategy has been based, instead, upon four ideas: the primacy of force; the preservation of a unipolar order; the unbridled exercise of US power; and the right to initiate preventive war in the absence of immediate threats.
The response to the terrorist outrage of September 11 2001 reinforced the hold of all these principles. The notion of an indefinite and unlimited "war on terror" became the fulcrum of US foreign policy. It led to the idea of an "axis of evil" connecting Saddam Hussein's Iraq to theocratic Iran and Kim Jong-il's North Korea. It brought about the justified invasion of Afghanistan, but also the diversion into Iraq. Not least, the idea of the war on terror led to the indefinite imprisonment of alleged enemy combatants without judicial oversight, toleration of torture, "extraordinary rendition" of suspects, the extra-territorial prison at Guantánamo Bay and, by indirect means, the abuses at Abu Ghraib.
All this has been bad enough. It is made worse by what John Ikenberry of Princeton University and Charles Kupchan of Georgetown aptly describe as the "sloppy intelligence, faulty judgment and ideological zealotry" that marked implementation, above all in Iraq.* Yet the poor implementation is not an accident. A belief in the primacy of the military naturally led to the transfer of responsibility to the department of defence; a belief in the efficacy of force created the conviction that victory meant peace and a swift transition to democracy; and disdain for allies guaranteed the absence of co-operation in postwar occupation.
The US must now start again. It must design a foreign policy for the current age. In doing so, it should discard almost everything the Bush administration has proclaimed.
First, the aims of foreign policy go far beyond the misnamed "war on terror". The Islamist terrorists with which the world should, indeed, be concerned do not even pose the same existential threat as the cold war's competition among superpowers. Equally important are maintenance of a prosperous world economy, management of the rise of new great powers, economic development, not least in the Islamic world, and management of the global commons.
Second, military power is far less effective than its supporters suppose. The threat of force cannot change the policies of other great powers, except to make them more suspicious of US intentions. It must make potential enemies still more determined to obtain nuclear weapons. As Iraq has shown, vast power cannot even impose stability on a country of 21m.
Third, the legitimacy of America as a global power rests on the ability of the US to command the respect of other countries and peoples. Gerhard Schröder could not have won an election in 2002 on an anti-American platform if the German people's confidence in the US had not been undermined. Yet more important, the war against jihadi terrorists is a war of ideas. It will be won not by fear, but by making the west's values more attractive to hundreds of millions of Muslims than those of its fanatical opponents. The willingness of this administration to treat the rule of law as an optional extra has made it far more difficult to defeat the terrorist ideology in the long run.
Fourth, multilateral institutions matter. They turn what would otherwise be clashes of prestige and power into acceptance of shared rules of good behaviour. Above all, only the willing co-operation of at least the world's leading powers can address many of the global challenges. Shared institutions make such co-operation more credible and more sustained.
Fifth, solid alliances matter. The coalition of the willing has proved a slender reed. Even the UK is unlikely to let itself be dragged into a venture similar to Iraq again, in which it is fully committed but has no influence on how policy is executed. Yet the US has proved unable to achieve what it seeks unaided. Fixed alliances are indeed constraints, but they are also means of securing commitments.
The foreign policy of Mr Bush, arguably the worst president since the US became a world power, has come to a dead end. The big question is what happens now. For disastrous though it has been, alternatives could be as bad. A "realism" entirely indifferent to western values would be one blunder. Still worse would be a retreat from the war in Iraq into isolationism and from openness into protectionism.
I, however, am an optimist. Winston Churchill famously said that "the United States invariably does the right thing, after having exhausted every other alternative". The world will not accept an American master. But it will still welcome American leadership, provided that leadership takes due account of the interests of others and rests on the values that the US has itself spread to the world.
Three decades ago, when the Vietnam war had just been lost, President Richard Nixon had been forced to resign and the world economy was in inflationary turmoil, the future of the west seemed dark. Yet over the next one and a half decades China chose the market and the Soviet empire collapsed. The victories over communism were not secured through force of arms, but through the attractions of the west's prosperity, freedom and democracy.
Foreign policy is inescapably difficult. But one point is, I would suggest, incontrovertible. The US needs to renew its faith in the values of freedom, the rule of law and global co-operation on which it built an astonishingly successful international order after 1945. The right way ahead cannot go through 19th century views on sovereignty and the balance of power. It should go via the power of US example rather than its military power and via its ability to give a lead rather than unilateral dictation. The great US policymakers of the 20th century understood that well. Their successors should show the same wisdom in the 21st.
*Liberal Realism: The Foundations of a Democratic Foreign Policy, The National Interest, Fall 2004, www.aspenberlin.org/interesting_ articles.php?iGedminId=72
By Martin Wolf
Copyright The Financial Times Limited 2006
Published: November 29 2006 02:00 | Last updated: November 29 2006 02:00
US voters have now repudiated those who sought to impose democracy by force abroad. In spite of the gerrymandering of districts, the advantages of incumbency and renewed recourse to the politics of fear, common sense prevailed. George W. Bush is still president. But he is damaged political goods. That is good, because change is desperately needed.
The signal feature of this administration has not been merely its incompetence, but its rejection of the principles on which US foreign policy was built after the second world war. The administration's strategy has been based, instead, upon four ideas: the primacy of force; the preservation of a unipolar order; the unbridled exercise of US power; and the right to initiate preventive war in the absence of immediate threats.
The response to the terrorist outrage of September 11 2001 reinforced the hold of all these principles. The notion of an indefinite and unlimited "war on terror" became the fulcrum of US foreign policy. It led to the idea of an "axis of evil" connecting Saddam Hussein's Iraq to theocratic Iran and Kim Jong-il's North Korea. It brought about the justified invasion of Afghanistan, but also the diversion into Iraq. Not least, the idea of the war on terror led to the indefinite imprisonment of alleged enemy combatants without judicial oversight, toleration of torture, "extraordinary rendition" of suspects, the extra-territorial prison at Guantánamo Bay and, by indirect means, the abuses at Abu Ghraib.
All this has been bad enough. It is made worse by what John Ikenberry of Princeton University and Charles Kupchan of Georgetown aptly describe as the "sloppy intelligence, faulty judgment and ideological zealotry" that marked implementation, above all in Iraq.* Yet the poor implementation is not an accident. A belief in the primacy of the military naturally led to the transfer of responsibility to the department of defence; a belief in the efficacy of force created the conviction that victory meant peace and a swift transition to democracy; and disdain for allies guaranteed the absence of co-operation in postwar occupation.
The US must now start again. It must design a foreign policy for the current age. In doing so, it should discard almost everything the Bush administration has proclaimed.
First, the aims of foreign policy go far beyond the misnamed "war on terror". The Islamist terrorists with which the world should, indeed, be concerned do not even pose the same existential threat as the cold war's competition among superpowers. Equally important are maintenance of a prosperous world economy, management of the rise of new great powers, economic development, not least in the Islamic world, and management of the global commons.
Second, military power is far less effective than its supporters suppose. The threat of force cannot change the policies of other great powers, except to make them more suspicious of US intentions. It must make potential enemies still more determined to obtain nuclear weapons. As Iraq has shown, vast power cannot even impose stability on a country of 21m.
Third, the legitimacy of America as a global power rests on the ability of the US to command the respect of other countries and peoples. Gerhard Schröder could not have won an election in 2002 on an anti-American platform if the German people's confidence in the US had not been undermined. Yet more important, the war against jihadi terrorists is a war of ideas. It will be won not by fear, but by making the west's values more attractive to hundreds of millions of Muslims than those of its fanatical opponents. The willingness of this administration to treat the rule of law as an optional extra has made it far more difficult to defeat the terrorist ideology in the long run.
Fourth, multilateral institutions matter. They turn what would otherwise be clashes of prestige and power into acceptance of shared rules of good behaviour. Above all, only the willing co-operation of at least the world's leading powers can address many of the global challenges. Shared institutions make such co-operation more credible and more sustained.
Fifth, solid alliances matter. The coalition of the willing has proved a slender reed. Even the UK is unlikely to let itself be dragged into a venture similar to Iraq again, in which it is fully committed but has no influence on how policy is executed. Yet the US has proved unable to achieve what it seeks unaided. Fixed alliances are indeed constraints, but they are also means of securing commitments.
The foreign policy of Mr Bush, arguably the worst president since the US became a world power, has come to a dead end. The big question is what happens now. For disastrous though it has been, alternatives could be as bad. A "realism" entirely indifferent to western values would be one blunder. Still worse would be a retreat from the war in Iraq into isolationism and from openness into protectionism.
I, however, am an optimist. Winston Churchill famously said that "the United States invariably does the right thing, after having exhausted every other alternative". The world will not accept an American master. But it will still welcome American leadership, provided that leadership takes due account of the interests of others and rests on the values that the US has itself spread to the world.
Three decades ago, when the Vietnam war had just been lost, President Richard Nixon had been forced to resign and the world economy was in inflationary turmoil, the future of the west seemed dark. Yet over the next one and a half decades China chose the market and the Soviet empire collapsed. The victories over communism were not secured through force of arms, but through the attractions of the west's prosperity, freedom and democracy.
Foreign policy is inescapably difficult. But one point is, I would suggest, incontrovertible. The US needs to renew its faith in the values of freedom, the rule of law and global co-operation on which it built an astonishingly successful international order after 1945. The right way ahead cannot go through 19th century views on sovereignty and the balance of power. It should go via the power of US example rather than its military power and via its ability to give a lead rather than unilateral dictation. The great US policymakers of the 20th century understood that well. Their successors should show the same wisdom in the 21st.
*Liberal Realism: The Foundations of a Democratic Foreign Policy, The National Interest, Fall 2004, www.aspenberlin.org/interesting_ articles.php?iGedminId=72
Dollar weakness unabated after Bernanke speech
Dollar weakness unabated after Bernanke speech
By Peter Garnham
Copyright The Financial Times Limited 2006
Published: November 29 2006 12:09 | Last updated: November 29 2006 15:43
The dollar fell to a fresh 20-month low against the euro on Wednesday after comments from Ben Bernanke, chairman of the US Federal Reserve, failed to rally support for the US currency.
Speaking in New York, Mr Bernanke struck a hawkish tone, saying that US inflation remained “uncomfortably high”.
However, the markets sent the dollar down to $1.3218 against the euro, its weakest level since March 2005.
Adrian Schmidt, senior forex strategist at Royal Bank of Scotland, said the markets had effectively ignored warnings from Fed officials and continued to price in US interest rate cuts in 2007.
“Yield spreads spreads have actually moved against the dollar in the last couple of days, in spite of the dollar’s weakness,” he said. “As long as this is the case, there can be no expectation of a dollar recovery.”
However, the dollar reversed its losses later in the session after an unexpectedly large upward revision to US growth.
Official data showed that US gross domestic product grew at an annual rate of 2.2 per cent in third quarter, more than the 1.6 per cent first estimated.
The news sent the
the dollar 0.4 per cent higher against the euro to $1.3140 and 0.2 per cent against the yen to Y116.25.
Meanwhile the euro posted a fresh all-time high of Y153.45 against the yen amid an increasing perception that european policymakers seemed unconcerned about the potential for the single currency’s strength to dent exports.
However, the yen was boosted later in the session after Japanese industrial productions data came in well above expectations, heightening expectations that the Bank of Japan might raise interest rates as early as December.
The yen duly pared back its losses against the euro to stand up 0.2 per cent on the session at Y152.95.
Elsewhere, sterling hit a two-year peak against the dollar and came within touching distance of its strongest level for 14 years on Wednesday, as traders continued to put pressure on the beleaguered US currency.
The pound traded as high as $1.9545 against the dollar in early trade. A break higher than $1.9548 would send the pound to its highest level against the greenback since its ejection from the European Exchange Rate Mechanism in September 1992.
Traders said that the current volatility on the foreign exchange markets had seen fundamental factors take a back seat as short-term investors made a series of assaults on key technical levels in sterling/dollar.
However, sterling later pulled back to $1.9490 against the greenback, down 0.2 per cent on the session.
By Peter Garnham
Copyright The Financial Times Limited 2006
Published: November 29 2006 12:09 | Last updated: November 29 2006 15:43
The dollar fell to a fresh 20-month low against the euro on Wednesday after comments from Ben Bernanke, chairman of the US Federal Reserve, failed to rally support for the US currency.
Speaking in New York, Mr Bernanke struck a hawkish tone, saying that US inflation remained “uncomfortably high”.
However, the markets sent the dollar down to $1.3218 against the euro, its weakest level since March 2005.
Adrian Schmidt, senior forex strategist at Royal Bank of Scotland, said the markets had effectively ignored warnings from Fed officials and continued to price in US interest rate cuts in 2007.
“Yield spreads spreads have actually moved against the dollar in the last couple of days, in spite of the dollar’s weakness,” he said. “As long as this is the case, there can be no expectation of a dollar recovery.”
However, the dollar reversed its losses later in the session after an unexpectedly large upward revision to US growth.
Official data showed that US gross domestic product grew at an annual rate of 2.2 per cent in third quarter, more than the 1.6 per cent first estimated.
The news sent the
the dollar 0.4 per cent higher against the euro to $1.3140 and 0.2 per cent against the yen to Y116.25.
Meanwhile the euro posted a fresh all-time high of Y153.45 against the yen amid an increasing perception that european policymakers seemed unconcerned about the potential for the single currency’s strength to dent exports.
However, the yen was boosted later in the session after Japanese industrial productions data came in well above expectations, heightening expectations that the Bank of Japan might raise interest rates as early as December.
The yen duly pared back its losses against the euro to stand up 0.2 per cent on the session at Y152.95.
Elsewhere, sterling hit a two-year peak against the dollar and came within touching distance of its strongest level for 14 years on Wednesday, as traders continued to put pressure on the beleaguered US currency.
The pound traded as high as $1.9545 against the dollar in early trade. A break higher than $1.9548 would send the pound to its highest level against the greenback since its ejection from the European Exchange Rate Mechanism in September 1992.
Traders said that the current volatility on the foreign exchange markets had seen fundamental factors take a back seat as short-term investors made a series of assaults on key technical levels in sterling/dollar.
However, sterling later pulled back to $1.9490 against the greenback, down 0.2 per cent on the session.
Civil words over a civil war in Iraq
Civil words over a civil war in Iraq
By Clarence Page
Copyright © 2006, Chicago Tribune
Published November 29, 2006
WASHINGTON -- NBC is the first major TV network to call the war in Iraq a "civil war" instead of an insurgency. With that, a new front has opened over what words best describe the war that Americans are most worried about.
A growing number of correspondents in Iraq have been describing the country as torn apart by "civil war" or at least rapidly spiraling into it. But the White House has rejected the term and most major broadcast news media have gone along with that, even if it has meant employing such hedge words as "approaching civil war" or "near civil war."
NBC's Matt Lauer announced on the "Today" show Monday that his network, "after careful consideration," had decided that the situation in Iraq, "with armed militarized factions fighting for their own political agendas, can now be characterized as civil war."
With that, in my view, NBC showed a keen grasp of the obvious. A civil war is a fight between factions or regions within the same culture, society or nationality for political power or control of an area. Iraq appears to have fit that description for much of the past two years.
Retired Gen. Barry McCaffery, an NBC military consultant, agrees. He told Lauer he had been using the expression "civil war" for quite some time, although with the qualifier "low grade."
Rival networks CBS, ABC, CNN and Fox News announced no similar change in network policy that day, although some of their reporters have called the conflict a civil war. As CNN's Michael Ware said Monday, "If this isn't a civil war, I don't know what is."
Among newspapers, the Los Angeles Times was one of the first to call it a civil war, according to a survey by Editor & Publisher, a leading newspaper trade journal. The Christian Science Monitor also has referred to it as a "deepening civil war," the survey found. Most other media put Iraq on the verge of civil war, but not quite there yet, using terms like "sectarian strife" (Washington Post), "sectarian conflict," (Reuters) or "sectarian violence" (Associated Press).
All of which raises the question of how "deep" the "strife" in a sectarian conflict must be before we can call it a war. Or, as CNN's Ware implies, if it is not a civil war, what is it?
President Bush continued to dodge the term Tuesday, following Iraq's deadliest week of sectarian fighting since the American occupation began in March 2003. Iraq's sectarian violence is not from civil war, Bush said, but "fomented in my opinion because of the attacks by Al Qaeda causing people to seek reprisal." Yet, our president did not explain why, after centuries of feuds, Iraq's Sunnis, Shiites and Kurds would need Osama bin Laden to goad them into fighting each other now.
Words matter. They shape our perceptions and perceptions shape our politics and, ultimately, government policy. The Bush administration respects the power of words. It has, at various times, urged the media to use "homicide bombers" to describe suicide bombers, the "death tax" to describe the estate tax and "detainees" to describe prisoners who may be locked up without formal charges. It has used "Clear Skies initiative" to describe relaxation of air pollution curbs and "No Child Left Behind" to describe school reforms that leave some children behind.
Against that record, we should not expect much candor from this White House about the civil war that quite plainly appears to have broken out in Iraq on Bush's watch. In the recent elections, Americans put the Democrats in charge, obviously discontented with the way the war has been handled. If America's noble mission to bring democracy to the Middle East appears to be caught between the factions of another country's civil war, calls for a rapid departure can only increase.
Yet, reality matters too. The nature of the insurgency has grown to the point where factions are seizing control of large chunks of real estate. A mounting civil war forces Iraqis to take sides or run for whatever cover they can find. It also reminds all parties of America's inevitable departure. Americans have no intention of staying longer than necessary. We have even less intention of getting in the way of disputes that only Iraqis and their regional neighbors must ultimately work out.
----------
Clarence Page is a member of the Tribune's editorial board. E-mail: cptime@aol.com
By Clarence Page
Copyright © 2006, Chicago Tribune
Published November 29, 2006
WASHINGTON -- NBC is the first major TV network to call the war in Iraq a "civil war" instead of an insurgency. With that, a new front has opened over what words best describe the war that Americans are most worried about.
A growing number of correspondents in Iraq have been describing the country as torn apart by "civil war" or at least rapidly spiraling into it. But the White House has rejected the term and most major broadcast news media have gone along with that, even if it has meant employing such hedge words as "approaching civil war" or "near civil war."
NBC's Matt Lauer announced on the "Today" show Monday that his network, "after careful consideration," had decided that the situation in Iraq, "with armed militarized factions fighting for their own political agendas, can now be characterized as civil war."
With that, in my view, NBC showed a keen grasp of the obvious. A civil war is a fight between factions or regions within the same culture, society or nationality for political power or control of an area. Iraq appears to have fit that description for much of the past two years.
Retired Gen. Barry McCaffery, an NBC military consultant, agrees. He told Lauer he had been using the expression "civil war" for quite some time, although with the qualifier "low grade."
Rival networks CBS, ABC, CNN and Fox News announced no similar change in network policy that day, although some of their reporters have called the conflict a civil war. As CNN's Michael Ware said Monday, "If this isn't a civil war, I don't know what is."
Among newspapers, the Los Angeles Times was one of the first to call it a civil war, according to a survey by Editor & Publisher, a leading newspaper trade journal. The Christian Science Monitor also has referred to it as a "deepening civil war," the survey found. Most other media put Iraq on the verge of civil war, but not quite there yet, using terms like "sectarian strife" (Washington Post), "sectarian conflict," (Reuters) or "sectarian violence" (Associated Press).
All of which raises the question of how "deep" the "strife" in a sectarian conflict must be before we can call it a war. Or, as CNN's Ware implies, if it is not a civil war, what is it?
President Bush continued to dodge the term Tuesday, following Iraq's deadliest week of sectarian fighting since the American occupation began in March 2003. Iraq's sectarian violence is not from civil war, Bush said, but "fomented in my opinion because of the attacks by Al Qaeda causing people to seek reprisal." Yet, our president did not explain why, after centuries of feuds, Iraq's Sunnis, Shiites and Kurds would need Osama bin Laden to goad them into fighting each other now.
Words matter. They shape our perceptions and perceptions shape our politics and, ultimately, government policy. The Bush administration respects the power of words. It has, at various times, urged the media to use "homicide bombers" to describe suicide bombers, the "death tax" to describe the estate tax and "detainees" to describe prisoners who may be locked up without formal charges. It has used "Clear Skies initiative" to describe relaxation of air pollution curbs and "No Child Left Behind" to describe school reforms that leave some children behind.
Against that record, we should not expect much candor from this White House about the civil war that quite plainly appears to have broken out in Iraq on Bush's watch. In the recent elections, Americans put the Democrats in charge, obviously discontented with the way the war has been handled. If America's noble mission to bring democracy to the Middle East appears to be caught between the factions of another country's civil war, calls for a rapid departure can only increase.
Yet, reality matters too. The nature of the insurgency has grown to the point where factions are seizing control of large chunks of real estate. A mounting civil war forces Iraqis to take sides or run for whatever cover they can find. It also reminds all parties of America's inevitable departure. Americans have no intention of staying longer than necessary. We have even less intention of getting in the way of disputes that only Iraqis and their regional neighbors must ultimately work out.
----------
Clarence Page is a member of the Tribune's editorial board. E-mail: cptime@aol.com
Housing market stays slow; some say it's back to normal
Housing market stays slow; some say it's back to normal
By Mary Umberger
Copyright © 2006, Chicago Tribune
Published November 29, 2006
With the housing boom becoming an ever-more-distant memory, Chicago home sales took another hit in October, and real estate experts are saying wait until spring. Or until next fall. Or maybe longer.
The Illinois Association of Realtors said Tuesday that October's combined single-family and condo sales in the Chicago area were 15.4 percent below last year's sales. Prices, however, still clung to positive territory, inching upward by less than 1 percent from the year before. The median price paid for a single-family home in October was $242,000.
Statewide, home sales fared slightly better, dropping by 9.7 percent in October, the Realtors said. The median price declined, year over year, by 3.5 percent, to $198,777.
Chicago-area condo prices fell about 5 percent, although prices still were up by about 3 percent, according to separate data prepared by the association for the Tribune.
Area real estate agents said the numbers reflect a return to a "normal" market, though they conceded that the boom went on for so long that most home sellers have forgotten that buying traditionally slows to a crawl in autumn, when kids have returned to school and buyers are concentrating on the holidays.
"Everything has been so hyperexaggerated" over time, said North Side agent Pamela Ball. "I don't think the market is bad, it's just normal for fall in a normal year."
Pat Callan, a Realty Executives broker in Wheaton, said sellers who have reduced their prices are improving the logjam of properties for sale in DuPage County, where sales of all types of homes declined by nearly 28 percent in October.
"It's stratified, to some extent, as far as what moves," Callan said. "The higher-end properties aren't moving, but the lower and middle are starting to move."
Callan said he expects an uptick in activity in February, when the traditional "spring" market begins, but others are less optimistic.
Paul Kasriel, chief economist for Northern Trust in Chicago, said he doesn't expect significant improvement soon.
"I don't think we're going to bottom out on this thing till the latter part of next year," he said, commenting on a separate report from the National Association of Realtors that showed that nationwide sales stayed flat, while prices sank.
The NAR on Tuesday reported that existing sales of all types of homes rose one-half of 1 percent in October, to a seasonally adjusted annual rate of 6.24 million units, though they were 11.5 percent below the 7.05 million unit level in October 2005.
Callan said many consumers have accepted the changed marketplace and are reducing their asking prices.
"It's not across the board," Callan said. "But with sellers adjusting their expectations, buyers are coming back into the market."
But Ball said anything that is selling tends to be distinctive.
"It's the property that's well done and well priced, and people are waiting for it," she said. "But if you've got a condo on Sheridan Road, for example, and your box is like 400 other boxes, well, it's slow."
Robert Zoretich, president of the Illinois Association of Realtors, also said the market is normalizing. But he said that more sellers are going to have to rethink their price expectations in order for the market to pick up.
"There are still people out there waiting to see prices come down," he said. "But buyers are not listening. They're really not. If people need to sell right away, they need to adjust their prices."
----------
mumberger@tribune.com
By Mary Umberger
Copyright © 2006, Chicago Tribune
Published November 29, 2006
With the housing boom becoming an ever-more-distant memory, Chicago home sales took another hit in October, and real estate experts are saying wait until spring. Or until next fall. Or maybe longer.
The Illinois Association of Realtors said Tuesday that October's combined single-family and condo sales in the Chicago area were 15.4 percent below last year's sales. Prices, however, still clung to positive territory, inching upward by less than 1 percent from the year before. The median price paid for a single-family home in October was $242,000.
Statewide, home sales fared slightly better, dropping by 9.7 percent in October, the Realtors said. The median price declined, year over year, by 3.5 percent, to $198,777.
Chicago-area condo prices fell about 5 percent, although prices still were up by about 3 percent, according to separate data prepared by the association for the Tribune.
Area real estate agents said the numbers reflect a return to a "normal" market, though they conceded that the boom went on for so long that most home sellers have forgotten that buying traditionally slows to a crawl in autumn, when kids have returned to school and buyers are concentrating on the holidays.
"Everything has been so hyperexaggerated" over time, said North Side agent Pamela Ball. "I don't think the market is bad, it's just normal for fall in a normal year."
Pat Callan, a Realty Executives broker in Wheaton, said sellers who have reduced their prices are improving the logjam of properties for sale in DuPage County, where sales of all types of homes declined by nearly 28 percent in October.
"It's stratified, to some extent, as far as what moves," Callan said. "The higher-end properties aren't moving, but the lower and middle are starting to move."
Callan said he expects an uptick in activity in February, when the traditional "spring" market begins, but others are less optimistic.
Paul Kasriel, chief economist for Northern Trust in Chicago, said he doesn't expect significant improvement soon.
"I don't think we're going to bottom out on this thing till the latter part of next year," he said, commenting on a separate report from the National Association of Realtors that showed that nationwide sales stayed flat, while prices sank.
The NAR on Tuesday reported that existing sales of all types of homes rose one-half of 1 percent in October, to a seasonally adjusted annual rate of 6.24 million units, though they were 11.5 percent below the 7.05 million unit level in October 2005.
Callan said many consumers have accepted the changed marketplace and are reducing their asking prices.
"It's not across the board," Callan said. "But with sellers adjusting their expectations, buyers are coming back into the market."
But Ball said anything that is selling tends to be distinctive.
"It's the property that's well done and well priced, and people are waiting for it," she said. "But if you've got a condo on Sheridan Road, for example, and your box is like 400 other boxes, well, it's slow."
Robert Zoretich, president of the Illinois Association of Realtors, also said the market is normalizing. But he said that more sellers are going to have to rethink their price expectations in order for the market to pick up.
"There are still people out there waiting to see prices come down," he said. "But buyers are not listening. They're really not. If people need to sell right away, they need to adjust their prices."
----------
mumberger@tribune.com
Economy's weakness shows - Fed chairman unfazed, still targeting inflation
Economy's weakness shows - Fed chairman unfazed, still targeting inflation
By William Neikirk
Copyright © 2006, Chicago Tribune
Published November 29, 2006
WASHINGTON -- New signs appeared Tuesday that the economy is stuck in a slowdown, but Federal Reserve Chairman Ben Bernanke made it clear he's more worried about inflation and is not prepared to cut interest rates anytime soon.
The head of the nation's central bank said in a speech in New York that the core inflation rate, which excludes food and energy costs, "remains uncomfortably high" and could trigger an interest rate increase if not brought under control.
Over the next year, he said, the economy likely will pick up strength and grow at a modest but sustainable rate without further interest rate reductions.
His remarks dashed widespread assumptions on Wall Street that the weakening economy could cause the Fed to reduce interest rates over the next several months.
Bernanke made his remarks on a day that three economic indicators--consumer confidence, home prices and durable goods orders--appeared to signal a tapering of economic growth as the holiday shopping season begins to gather steam.
The next few days will provide a clearer picture of how consumers are spending in an economically crucial time of year, analysts said, as more figures come in from retailers across the country.
So far, based on anecdotal evidence, retail sales appear to be more sluggish than expected.
Before Bernanke spoke, the National Association of Manufacturers' chief economist, David Huether, citing an 8.3 percent decline in durable goods orders in October, said, "It's time for the Federal Reserve to consider easing monetary policy sooner rather than later."
But the Fed chief appeared unconcerned about such worries over economic growth.
Other than the housing and automobile markets, Bernanke said, the economy appears strong and likely will look healthy going into next year.
The core inflation rate was 2.7 percent in October. The Fed has indicated it is comfortable when the overall increase in prices is 2 percent or lower.
Bernanke said a tight labor market could be pushing up wages and prices. He added that the economy has less spare capacity to produce goods, and that also could be contributing to the inflation rate.
"Given the current level of inflation, a failure of inflation to moderate as expected would be especially troublesome," he said.
The stock market took his statements in stride, closing slightly higher, but the bond market rallied on the statements about inflation.
According to Chicago economist Diane Swonk of Mesirow Financial, one reason that Bernanke emphasized inflation is that he is a relatively new chairman, and he and other members of the central bank want to establish their credibility in controlling inflation.
Laurence Kotlikoff, an economics professor at Boston University, said Bernanke appeared to be "jawboning" companies, employees and financial markets to keep wages, prices and inflation expectations in line, or else the central bank might be forced to raise interest rates.
Rate cuts were forecast
Carl Tannenbaum, an economist at LaSalle Bank in Chicago, said financial markets expected interest rates to be cut once, possibly twice, in 2007. Now, with Bernanke's statement, there's a good chance interest rates will remain steady throughout next year and possibly could be increased, he said.
The economy slowed to a 1.6 percent annual growth rate in the third quarter, according to the first reading of the gross domestic product, the value of the nation's output of goods and services.
Many analysts expect that a revision of that number, due Wednesday, will show only a small increase in growth from the original estimate.
Bernanke said he expected economic growth will be similarly slow in the fourth quarter, but added, "Over the next year or so, the economy appears likely to expand at a moderate rate, close to or modestly below the economy's long-term sustainable pace." That appeared to indicate he expects an annual growth rate of 3 percent to 3.5 percent.
Swonk said the slowdown under way should not be severe and could lead to a slight rise in the nation's unemployment rate, now at 4.4 percent. She said the housing correction "probably will be done by the end of the year."
Home prices off sharply
According to the National Association of Realtors, the median price of a home fell to $221,000 in October, down 3.5 percent from a year ago. This was the largest one-year price decline on record.
At the same time, existing-home sales rose 0.5 percent, a sign that the bottom has not dropped out of the market.
Nonetheless, cutbacks in new-home construction and layoffs in the auto industry have contributed to concerns among consumers about the health of the economy.
In New York, the Conference Board, a business group, said its index measuring consumer confidence fell to 102.9 in November from 105.1 in October, below what many economists had expected.
But Tannenbaum said he isn't ready to give up on consumers, whose spending accounts for about two-thirds of economic activity, despite these negative reports.
"I am guardedly optimistic that consumers are in pretty good shape," he said, citing lower oil prices and a relatively good job market.
He predicted the economy would rebound and grow at a 3 percent annual rate in the fourth quarter, then rise by an estimated 2.5 percent to 3 percent in 2007.
----------
wneikirk@tribune.com
MEDIAN HOME PRICES
-3.5%
From October 2005 to October 2006, the biggest year-over-year decline on record.
DURABLE GOODS
-8.3%
Drop in orders from September-October, the biggest decline in more than six years.
CONSUMER CONFIDENCE
102.9
Index reading in November, down from 105.1 in October and the lowest figure since August.
Source: AP
Chicago Tribune
By William Neikirk
Copyright © 2006, Chicago Tribune
Published November 29, 2006
WASHINGTON -- New signs appeared Tuesday that the economy is stuck in a slowdown, but Federal Reserve Chairman Ben Bernanke made it clear he's more worried about inflation and is not prepared to cut interest rates anytime soon.
The head of the nation's central bank said in a speech in New York that the core inflation rate, which excludes food and energy costs, "remains uncomfortably high" and could trigger an interest rate increase if not brought under control.
Over the next year, he said, the economy likely will pick up strength and grow at a modest but sustainable rate without further interest rate reductions.
His remarks dashed widespread assumptions on Wall Street that the weakening economy could cause the Fed to reduce interest rates over the next several months.
Bernanke made his remarks on a day that three economic indicators--consumer confidence, home prices and durable goods orders--appeared to signal a tapering of economic growth as the holiday shopping season begins to gather steam.
The next few days will provide a clearer picture of how consumers are spending in an economically crucial time of year, analysts said, as more figures come in from retailers across the country.
So far, based on anecdotal evidence, retail sales appear to be more sluggish than expected.
Before Bernanke spoke, the National Association of Manufacturers' chief economist, David Huether, citing an 8.3 percent decline in durable goods orders in October, said, "It's time for the Federal Reserve to consider easing monetary policy sooner rather than later."
But the Fed chief appeared unconcerned about such worries over economic growth.
Other than the housing and automobile markets, Bernanke said, the economy appears strong and likely will look healthy going into next year.
The core inflation rate was 2.7 percent in October. The Fed has indicated it is comfortable when the overall increase in prices is 2 percent or lower.
Bernanke said a tight labor market could be pushing up wages and prices. He added that the economy has less spare capacity to produce goods, and that also could be contributing to the inflation rate.
"Given the current level of inflation, a failure of inflation to moderate as expected would be especially troublesome," he said.
The stock market took his statements in stride, closing slightly higher, but the bond market rallied on the statements about inflation.
According to Chicago economist Diane Swonk of Mesirow Financial, one reason that Bernanke emphasized inflation is that he is a relatively new chairman, and he and other members of the central bank want to establish their credibility in controlling inflation.
Laurence Kotlikoff, an economics professor at Boston University, said Bernanke appeared to be "jawboning" companies, employees and financial markets to keep wages, prices and inflation expectations in line, or else the central bank might be forced to raise interest rates.
Rate cuts were forecast
Carl Tannenbaum, an economist at LaSalle Bank in Chicago, said financial markets expected interest rates to be cut once, possibly twice, in 2007. Now, with Bernanke's statement, there's a good chance interest rates will remain steady throughout next year and possibly could be increased, he said.
The economy slowed to a 1.6 percent annual growth rate in the third quarter, according to the first reading of the gross domestic product, the value of the nation's output of goods and services.
Many analysts expect that a revision of that number, due Wednesday, will show only a small increase in growth from the original estimate.
Bernanke said he expected economic growth will be similarly slow in the fourth quarter, but added, "Over the next year or so, the economy appears likely to expand at a moderate rate, close to or modestly below the economy's long-term sustainable pace." That appeared to indicate he expects an annual growth rate of 3 percent to 3.5 percent.
Swonk said the slowdown under way should not be severe and could lead to a slight rise in the nation's unemployment rate, now at 4.4 percent. She said the housing correction "probably will be done by the end of the year."
Home prices off sharply
According to the National Association of Realtors, the median price of a home fell to $221,000 in October, down 3.5 percent from a year ago. This was the largest one-year price decline on record.
At the same time, existing-home sales rose 0.5 percent, a sign that the bottom has not dropped out of the market.
Nonetheless, cutbacks in new-home construction and layoffs in the auto industry have contributed to concerns among consumers about the health of the economy.
In New York, the Conference Board, a business group, said its index measuring consumer confidence fell to 102.9 in November from 105.1 in October, below what many economists had expected.
But Tannenbaum said he isn't ready to give up on consumers, whose spending accounts for about two-thirds of economic activity, despite these negative reports.
"I am guardedly optimistic that consumers are in pretty good shape," he said, citing lower oil prices and a relatively good job market.
He predicted the economy would rebound and grow at a 3 percent annual rate in the fourth quarter, then rise by an estimated 2.5 percent to 3 percent in 2007.
----------
wneikirk@tribune.com
MEDIAN HOME PRICES
-3.5%
From October 2005 to October 2006, the biggest year-over-year decline on record.
DURABLE GOODS
-8.3%
Drop in orders from September-October, the biggest decline in more than six years.
CONSUMER CONFIDENCE
102.9
Index reading in November, down from 105.1 in October and the lowest figure since August.
Source: AP
Chicago Tribune
Chicago Sun Times Editorial - Congress must keep moving on immigration legislation
Chicago Sun Times Editorial - Congress must keep moving on immigration legislation
Copyright by The Chicago Sun Times
November 29, 2006
At long last, immigration reform? It might not come as soon as the millions of immigrants in the United States, and their families and friends, would like. Meeting last week with the Sun-Times editorial board, Rep. Rahm Emanuel, an architect of the Democrats' surge to power, predicted the House would vote on a bill within a year. Boosting the minimum wage and expanding the State Children's Health Insurance Program to cover all children are higher up on the agenda.
But with the shift of power in Congress, the metaphorical wall blocking immigration reform only a short time ago is falling down, brick by brick. President Bush, who was unable to gain enough support from his party for his guest worker program, now can look forward to seeing one of his pet projects pushed through. New House Speaker Nancy Pelosi and new Senate Majority Leader Harry Reid are on board to support a legislative package that will provide a path to legality and citizenship for illegal immigrants while tightening border security -- a bill similar to the Kennedy-McCain compromise.
How tough the security measures will be remains to be seen. There's little chance they will include the 700-mile fence along the Mexican border authorized -- but not funded -- by Congress in September. Its costs are estimated at $4 billion to $8 billion. The immigration bill passed by the Senate last May did call for a 370-mile fence, in addition to the incremental hiring of 14,000 more Border Patrol agents by 2011. That fence, however, was a concession to the Republicans then controlling Congress. While concessions still will have to be made to conservatives in both parties before immigration reforms are passed, lawmakers who pledged to cut back on federal spending won't approve the expenditure of billions on a measure as questionable as a fence.
That Americans may have to wait many months before immigration legislation comes to a vote is surprising, considering how close Congress came earlier in the year to reaching an agreement -- and considering the heated emotions that have made illegal immigration such a hot-button issue. Chicago was one of many cities where immigrants and their allies held massive public demonstrations to demand reforms. Legal status isn't something that should be doled out without being earned, but studies, including one by the Chicago Council on Global Relations, show our economic growth is tied to our ability to integrate the rapidly rising number of Mexicans in our midst. It's a timely concern, in practical as well as humanitarian terms.
This represents the view of Sun-Times News Group newspapers in metropolitan Chicago.
Copyright by The Chicago Sun Times
November 29, 2006
At long last, immigration reform? It might not come as soon as the millions of immigrants in the United States, and their families and friends, would like. Meeting last week with the Sun-Times editorial board, Rep. Rahm Emanuel, an architect of the Democrats' surge to power, predicted the House would vote on a bill within a year. Boosting the minimum wage and expanding the State Children's Health Insurance Program to cover all children are higher up on the agenda.
But with the shift of power in Congress, the metaphorical wall blocking immigration reform only a short time ago is falling down, brick by brick. President Bush, who was unable to gain enough support from his party for his guest worker program, now can look forward to seeing one of his pet projects pushed through. New House Speaker Nancy Pelosi and new Senate Majority Leader Harry Reid are on board to support a legislative package that will provide a path to legality and citizenship for illegal immigrants while tightening border security -- a bill similar to the Kennedy-McCain compromise.
How tough the security measures will be remains to be seen. There's little chance they will include the 700-mile fence along the Mexican border authorized -- but not funded -- by Congress in September. Its costs are estimated at $4 billion to $8 billion. The immigration bill passed by the Senate last May did call for a 370-mile fence, in addition to the incremental hiring of 14,000 more Border Patrol agents by 2011. That fence, however, was a concession to the Republicans then controlling Congress. While concessions still will have to be made to conservatives in both parties before immigration reforms are passed, lawmakers who pledged to cut back on federal spending won't approve the expenditure of billions on a measure as questionable as a fence.
That Americans may have to wait many months before immigration legislation comes to a vote is surprising, considering how close Congress came earlier in the year to reaching an agreement -- and considering the heated emotions that have made illegal immigration such a hot-button issue. Chicago was one of many cities where immigrants and their allies held massive public demonstrations to demand reforms. Legal status isn't something that should be doled out without being earned, but studies, including one by the Chicago Council on Global Relations, show our economic growth is tied to our ability to integrate the rapidly rising number of Mexicans in our midst. It's a timely concern, in practical as well as humanitarian terms.
This represents the view of Sun-Times News Group newspapers in metropolitan Chicago.
New York Times Editorial - Global warming goes to court
New York Times Editorial - Global warming goes to court
Copyright by The New York Times
Published: November 28, 2006
The Bush administration has been on a six-year campaign to expand its powers, often beyond what the Constitution allows. So it is odd to hear it claim that it lacks the power to slow global warming by limiting the emission of harmful gases. But that is just what it will argue to the Supreme Court on Wednesday, in what may be the most important U.S. environmental case in many years.
A group of states is suing the Environmental Protection Agency for failing to properly do its job. These states, backed by environmental groups and scientists, say that the Clean Air Act requires the EPA to impose limits on greenhouse gases emitted by new cars. These gases are a major contributor to the "greenhouse effect" that is dangerously heating up the planet.
The Bush administration insists that the EPA does not have the power to limit these gases. It argues that they are not "air pollutants" under the Clean Air Act. Alternatively, it contends that the court should dismiss the case because the states do not have "standing," since they cannot show that they will be specifically harmed by the agency's failure to regulate greenhouse gases.
A plain reading of the Clean Air Act shows that the states are right. The act says that the EPA "shall" set standards for "any air pollutant" that in its judgment causes or contributes to air pollution that "may reasonably be anticipated to endanger public health or welfare." The word "welfare," the law says, includes "climate" and "weather." The EPA makes an array of specious arguments about why the act does not mean what it expressly says. But it has no right to refuse to do what Congress said it "shall" do.
Beneath the statutory and standing questions, this is a case about how seriously the government takes global warming. The EPA's decision was based in part on its poorly reasoned conclusion that there was too much "scientific uncertainty" about global warming to worry about it. The government's claim that the states lack standing also scoffs at global warming, by failing to acknowledge that the states have a strong interest in protecting their land and citizens.
In a friend-of-the-court brief, climate scientists from the NASA Goddard Institute for Space Studies, Stanford University, and other respected institutions warn that "the scientific evidence of the risks, long time lags and irreversibility of climate change argue persuasively for prompt regulatory action." The Supreme Court can strike an important blow in defense of the planet simply by ruling that the EPA must start following the law.
Copyright by The New York Times
Published: November 28, 2006
The Bush administration has been on a six-year campaign to expand its powers, often beyond what the Constitution allows. So it is odd to hear it claim that it lacks the power to slow global warming by limiting the emission of harmful gases. But that is just what it will argue to the Supreme Court on Wednesday, in what may be the most important U.S. environmental case in many years.
A group of states is suing the Environmental Protection Agency for failing to properly do its job. These states, backed by environmental groups and scientists, say that the Clean Air Act requires the EPA to impose limits on greenhouse gases emitted by new cars. These gases are a major contributor to the "greenhouse effect" that is dangerously heating up the planet.
The Bush administration insists that the EPA does not have the power to limit these gases. It argues that they are not "air pollutants" under the Clean Air Act. Alternatively, it contends that the court should dismiss the case because the states do not have "standing," since they cannot show that they will be specifically harmed by the agency's failure to regulate greenhouse gases.
A plain reading of the Clean Air Act shows that the states are right. The act says that the EPA "shall" set standards for "any air pollutant" that in its judgment causes or contributes to air pollution that "may reasonably be anticipated to endanger public health or welfare." The word "welfare," the law says, includes "climate" and "weather." The EPA makes an array of specious arguments about why the act does not mean what it expressly says. But it has no right to refuse to do what Congress said it "shall" do.
Beneath the statutory and standing questions, this is a case about how seriously the government takes global warming. The EPA's decision was based in part on its poorly reasoned conclusion that there was too much "scientific uncertainty" about global warming to worry about it. The government's claim that the states lack standing also scoffs at global warming, by failing to acknowledge that the states have a strong interest in protecting their land and citizens.
In a friend-of-the-court brief, climate scientists from the NASA Goddard Institute for Space Studies, Stanford University, and other respected institutions warn that "the scientific evidence of the risks, long time lags and irreversibility of climate change argue persuasively for prompt regulatory action." The Supreme Court can strike an important blow in defense of the planet simply by ruling that the EPA must start following the law.
As euro pushes higher, finance ministers hold steady
As euro pushes higher, finance ministers hold steady
By Carter Dougherty
Copyright by The International Herald Tribune
Published: November 28, 2006
FRANKFURT: European finance ministers struck a relaxed tone about the renewed strength of the euro Tuesday as it traded above $1.32 for the first time in a year and a half, signaling a tolerance, at least for now, of gains that do not appear to threaten the European economic recovery.
While Jean-Claude Juncker of Luxembourg, chairman of the Eurogroup of finance ministers of countries that use the currency, criticized "excessive volatility and disorderly movements" as being detrimental to business, he brushed off the euro's recent rise as "not a cause for concern."
"Should the upward trend of the euro to the dollar and the yen continue, it would be cause for serious concern at some point," Juncker said during a meeting of the ministers in Brussels. "But we have not reached that point yet."
The position struck by Juncker and other finance ministers - which echoes a formulation that policy makers around the world have used since a meeting of Group of 7 finance ministers in 2004 - appeared to isolate France, which has been a lone voice in the past week blaming the euro for punishing the bottom line of some companies, notably Airbus.
Finance Minister Thierry Breton of France urged "collective vigilance" at the meeting in Brussels, which came only days after the euro burst through the $1.30 level and showed signs of going higher. But he was drowned out by other ministers who waved off any notion of a threat by the euro to the European economy.
"It's nothing special at all," Finance Minister Karl-Heinz Grasser of Austria said, Reuters reported. "It reflects the strength of the European economy."
France - though not necessarily French industry - has often been at the forefront of European worries about the exchange rate, and the country is facing a presidential election next year in which economic issues are bound to take center stage. President Jacques Chirac and Prime Minister Dominique de Villepin have weighed in with comments similar to Breton's.
In theory, a stronger euro costs European exporters sales because their goods become more expensive abroad. But in reality this calculation is offset by a range of factors including profit margins, productivity and complex systems companies use to hedge against currency swings.
Nout Wellink, the head of the Dutch central bank and a member of the European Central Bank's rate-setting body, said he was "not concerned" by the euro's rise, and offered pointed words for Breton.
"The European economy is on a very strong growth trend," Wellink said, Reuters reported. "The French comments on foreign exchange are a Pavlovian reaction."
The International Monetary Fund offered similarly soothing words Tuesday, forecasting healthy European growth for 2007 and 2008 as it played down worries about exchange rates.
"In our view the euro is within the range of uncertainty of being fairly valued," said Michael Deppler, the IMF's European director, Reuters reported.
The euro has moved upward in recent weeks in response to speculation that the U.S. Federal Reserve will have to cut interest rates next year in response to an economy whose distressed housing sector could spark a recession. With the ECB likely to raise borrowing costs next year as European growth remains strong, the appeal of euro-denominated assets is rising - at the dollar's expense. (Page 18)
The Fed stopped increasing interest rates in September, in a bet that the cooling economy would bring down inflation without triggering a recession, and without forcing the bank to aggressively cut rates. Though he acknowledged the housing sector's weakness, Ben Bernanke, the Fed chairman, suggested Tuesday that nothing had happened that would alter that strategy.
"The deceleration in economic activity currently under way appears to be taking place roughly along the lines envisioned," he said in a speech in New York. That said, Bernanke acknowledged that "substantial risks" surround this outlook. And he said the housing sector would be a drag on growth into next year.
U.S. Treasury Secretary Henry Paulson Jr. reiterated on Tuesday the U.S. position on the dollar. "A strong dollar is clearly in our nation's best interests," he said. "I feel very good today about the strength of the U.S. economy."
Notably absent from the lineup of comments from European politicians on the euro's recent rise was Germany, the world's largest merchandise exporter. But the Bundesbank, in a report issued Tuesday, cautioned that the dollar risked a "sharp" decline as U.S. and European interest rates diverge, and the massive current account deficit remains near a record, Bloomberg News reported.
Thomas Mayer, chief Europe economist at Deutsche Bank in London, said that cost-cutting over the past few years, and a decade-long effort to relocate production around the globe had largely insulated German exporters from the euro's rise.
"Taken together, these developments create a much higher tolerance for currency appreciation in Germany than elsewhere," Mayer said.
By Carter Dougherty
Copyright by The International Herald Tribune
Published: November 28, 2006
FRANKFURT: European finance ministers struck a relaxed tone about the renewed strength of the euro Tuesday as it traded above $1.32 for the first time in a year and a half, signaling a tolerance, at least for now, of gains that do not appear to threaten the European economic recovery.
While Jean-Claude Juncker of Luxembourg, chairman of the Eurogroup of finance ministers of countries that use the currency, criticized "excessive volatility and disorderly movements" as being detrimental to business, he brushed off the euro's recent rise as "not a cause for concern."
"Should the upward trend of the euro to the dollar and the yen continue, it would be cause for serious concern at some point," Juncker said during a meeting of the ministers in Brussels. "But we have not reached that point yet."
The position struck by Juncker and other finance ministers - which echoes a formulation that policy makers around the world have used since a meeting of Group of 7 finance ministers in 2004 - appeared to isolate France, which has been a lone voice in the past week blaming the euro for punishing the bottom line of some companies, notably Airbus.
Finance Minister Thierry Breton of France urged "collective vigilance" at the meeting in Brussels, which came only days after the euro burst through the $1.30 level and showed signs of going higher. But he was drowned out by other ministers who waved off any notion of a threat by the euro to the European economy.
"It's nothing special at all," Finance Minister Karl-Heinz Grasser of Austria said, Reuters reported. "It reflects the strength of the European economy."
France - though not necessarily French industry - has often been at the forefront of European worries about the exchange rate, and the country is facing a presidential election next year in which economic issues are bound to take center stage. President Jacques Chirac and Prime Minister Dominique de Villepin have weighed in with comments similar to Breton's.
In theory, a stronger euro costs European exporters sales because their goods become more expensive abroad. But in reality this calculation is offset by a range of factors including profit margins, productivity and complex systems companies use to hedge against currency swings.
Nout Wellink, the head of the Dutch central bank and a member of the European Central Bank's rate-setting body, said he was "not concerned" by the euro's rise, and offered pointed words for Breton.
"The European economy is on a very strong growth trend," Wellink said, Reuters reported. "The French comments on foreign exchange are a Pavlovian reaction."
The International Monetary Fund offered similarly soothing words Tuesday, forecasting healthy European growth for 2007 and 2008 as it played down worries about exchange rates.
"In our view the euro is within the range of uncertainty of being fairly valued," said Michael Deppler, the IMF's European director, Reuters reported.
The euro has moved upward in recent weeks in response to speculation that the U.S. Federal Reserve will have to cut interest rates next year in response to an economy whose distressed housing sector could spark a recession. With the ECB likely to raise borrowing costs next year as European growth remains strong, the appeal of euro-denominated assets is rising - at the dollar's expense. (Page 18)
The Fed stopped increasing interest rates in September, in a bet that the cooling economy would bring down inflation without triggering a recession, and without forcing the bank to aggressively cut rates. Though he acknowledged the housing sector's weakness, Ben Bernanke, the Fed chairman, suggested Tuesday that nothing had happened that would alter that strategy.
"The deceleration in economic activity currently under way appears to be taking place roughly along the lines envisioned," he said in a speech in New York. That said, Bernanke acknowledged that "substantial risks" surround this outlook. And he said the housing sector would be a drag on growth into next year.
U.S. Treasury Secretary Henry Paulson Jr. reiterated on Tuesday the U.S. position on the dollar. "A strong dollar is clearly in our nation's best interests," he said. "I feel very good today about the strength of the U.S. economy."
Notably absent from the lineup of comments from European politicians on the euro's recent rise was Germany, the world's largest merchandise exporter. But the Bundesbank, in a report issued Tuesday, cautioned that the dollar risked a "sharp" decline as U.S. and European interest rates diverge, and the massive current account deficit remains near a record, Bloomberg News reported.
Thomas Mayer, chief Europe economist at Deutsche Bank in London, said that cost-cutting over the past few years, and a decade-long effort to relocate production around the globe had largely insulated German exporters from the euro's rise.
"Taken together, these developments create a much higher tolerance for currency appreciation in Germany than elsewhere," Mayer said.
Tuesday, November 28, 2006
Dollar weakness could provoke metals rally
Dollar weakness could provoke metals rally
By Chris Flood
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
Precious and base metals enjoyed continued support from the weakness of the dollar yesterday with traders asking if this could fuel a year-end price rally.
"Metals could potentially continue to profit from dollar weakness over the coming weeks," said Peter Fertig, of Dresdner Kleinwort.
Dollar weakness was considered a key factor in pushing gold to $641.75 a troy ounce, a near three-month high, before it eased back to $639.10, up 0.2 per cent on the day.
Silver was 0.4 per cent firmer at $13.41 a troy ounce but platinum fell 3.8 per cent to $1,140 a troy ounce amid profit-taking after rumours of an exchange traded fund launch pushed the price to record levels last week.
Nickel hit a record $34,150 a tonne but pared its gains to end 0.3 per cent higher at $33,550 while zinc eased0.6 per cent at $4,485 a tonne.
Copper hit $7,240 a tonne after a fall of 3,850 tonnes in LME stocks, with sentiment supported by news on Friday that Hindalco, of India, had suspended operations at one of its smelters due to a shortage of copper concentrate feed.
"Hindalco's smelter closure is a sign that the process of concentrate de-stocking may no longer be sustainable [and] further smelter production cuts would be extremely bullish for metals prices," said Barclays Capital.
Copper ended 0.8 per cent lower at $7,095. Some traders think it is too early to call a change in sentiment because speculative long positions have been greatly reduced and dealers are expected to de-risk their books approaching year end.
John Kemp, of Sempra Metals, said that instead of betting on price movements for the three-month contract, funds were increasingly trading along the structure of the price curve. He added that since copper prices peaked in May, the price for the December 2006 contract had fallen about $1,000 a tonne while prices for copper in mid-2011 were up just over $600.
Oil prices struggled for direction in spite of comments from Saudi Arabia signalling that a further cut in output by the Organisation of the Petroleum Exporting Countries was likely. ICE January Brent gained 41 cents to close at $60.44 a barrel. Nymex January West Texas Intermediate added $1.08 to settle at $60.32 a barrel.
On Saturday, Ali al-Naimi, Saudi Arabia's oil minister, played down the importance of crude prices in Opec's thinking but said the cartel would cut output again in December if the cut in supply in November of 1.2m barrels a day failed to balance the market. "The price is irrelevant," said Mr al-Naimi: "What is important is stability in the market and the balance between supply and demand."
By Chris Flood
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
Precious and base metals enjoyed continued support from the weakness of the dollar yesterday with traders asking if this could fuel a year-end price rally.
"Metals could potentially continue to profit from dollar weakness over the coming weeks," said Peter Fertig, of Dresdner Kleinwort.
Dollar weakness was considered a key factor in pushing gold to $641.75 a troy ounce, a near three-month high, before it eased back to $639.10, up 0.2 per cent on the day.
Silver was 0.4 per cent firmer at $13.41 a troy ounce but platinum fell 3.8 per cent to $1,140 a troy ounce amid profit-taking after rumours of an exchange traded fund launch pushed the price to record levels last week.
Nickel hit a record $34,150 a tonne but pared its gains to end 0.3 per cent higher at $33,550 while zinc eased0.6 per cent at $4,485 a tonne.
Copper hit $7,240 a tonne after a fall of 3,850 tonnes in LME stocks, with sentiment supported by news on Friday that Hindalco, of India, had suspended operations at one of its smelters due to a shortage of copper concentrate feed.
"Hindalco's smelter closure is a sign that the process of concentrate de-stocking may no longer be sustainable [and] further smelter production cuts would be extremely bullish for metals prices," said Barclays Capital.
Copper ended 0.8 per cent lower at $7,095. Some traders think it is too early to call a change in sentiment because speculative long positions have been greatly reduced and dealers are expected to de-risk their books approaching year end.
John Kemp, of Sempra Metals, said that instead of betting on price movements for the three-month contract, funds were increasingly trading along the structure of the price curve. He added that since copper prices peaked in May, the price for the December 2006 contract had fallen about $1,000 a tonne while prices for copper in mid-2011 were up just over $600.
Oil prices struggled for direction in spite of comments from Saudi Arabia signalling that a further cut in output by the Organisation of the Petroleum Exporting Countries was likely. ICE January Brent gained 41 cents to close at $60.44 a barrel. Nymex January West Texas Intermediate added $1.08 to settle at $60.32 a barrel.
On Saturday, Ali al-Naimi, Saudi Arabia's oil minister, played down the importance of crude prices in Opec's thinking but said the cartel would cut output again in December if the cut in supply in November of 1.2m barrels a day failed to balance the market. "The price is irrelevant," said Mr al-Naimi: "What is important is stability in the market and the balance between supply and demand."
The dramatic dive of the US dollar last week showed, if nothing else, the power of round numbers By John Authers
THE SHORT VIEW By John Authers
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
The dramatic dive of the US dollar last week showed, if nothing else, the power of round numbers. Charts of the greenback against the euro show an almost vertical line after the psychological barrier of $1.30 to the euro was breached. After that excitement, the euro settled above $1.31, and the dollar hit new lows for the year against various currencies, before appearing to stabilise yesterday.
That relative calm shows that the violence of the dollar's move at the end of last week was exacerbated by thin trading. But the dollar has not bounced back. The move still reflects fundamentals. Most importantly, there is what Ashraf Laidi of CMC Markets calls an "unprecedented contrast" between the monetary policy outlooks of the Federal Reserve and those of central banks in Europe and Japan. The latter are all expected to tighten next; the Fed, at least in the market's opinion, will cut rates. This remains the key to the pressure on the dollar.
This can be overstated. If the Fed Funds futures market at the Chicago Board of Trade is right, the most likely outcome is a "perma-pause" by the Fed. It is calling that the next move in the Fed Funds rate will be down but it puts the chance of a cut of 0.25 percentage points by the end of March at only about 20 per cent. It puts the chances that the Fed is still on hold as late as June at about one in three. Speeches from various Fed governors, including Ben Bernanke today, could have a big effect.
Another important variable is the US consumer. Bearish scenarios calling for a "hard landing" hinge on the belief that US consumers will stop spending in the wake of the housing downturn. Yesterday brought contradictory indicators. Post-Thanksgiving holiday shopping seems to be strong, with the National Retail Federation reporting an 18.9 per cent increase in spending compared with last year. But Wal-Mart - as close a proxy for the behaviour of the US consumer as exists - reported that same store sales would fall by 0.1 per cent year-on-year in November. This is the first such fall that Wal-Mart has suffered since 1996. But it was enough to send US stocks down sharply.
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
The dramatic dive of the US dollar last week showed, if nothing else, the power of round numbers. Charts of the greenback against the euro show an almost vertical line after the psychological barrier of $1.30 to the euro was breached. After that excitement, the euro settled above $1.31, and the dollar hit new lows for the year against various currencies, before appearing to stabilise yesterday.
That relative calm shows that the violence of the dollar's move at the end of last week was exacerbated by thin trading. But the dollar has not bounced back. The move still reflects fundamentals. Most importantly, there is what Ashraf Laidi of CMC Markets calls an "unprecedented contrast" between the monetary policy outlooks of the Federal Reserve and those of central banks in Europe and Japan. The latter are all expected to tighten next; the Fed, at least in the market's opinion, will cut rates. This remains the key to the pressure on the dollar.
This can be overstated. If the Fed Funds futures market at the Chicago Board of Trade is right, the most likely outcome is a "perma-pause" by the Fed. It is calling that the next move in the Fed Funds rate will be down but it puts the chance of a cut of 0.25 percentage points by the end of March at only about 20 per cent. It puts the chances that the Fed is still on hold as late as June at about one in three. Speeches from various Fed governors, including Ben Bernanke today, could have a big effect.
Another important variable is the US consumer. Bearish scenarios calling for a "hard landing" hinge on the belief that US consumers will stop spending in the wake of the housing downturn. Yesterday brought contradictory indicators. Post-Thanksgiving holiday shopping seems to be strong, with the National Retail Federation reporting an 18.9 per cent increase in spending compared with last year. But Wal-Mart - as close a proxy for the behaviour of the US consumer as exists - reported that same store sales would fall by 0.1 per cent year-on-year in November. This is the first such fall that Wal-Mart has suffered since 1996. But it was enough to send US stocks down sharply.
Financial Times Editorial - Dollar dynamics are an economic danger
Financial Times Editorial - Dollar dynamics are an economic danger
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
Movements in the currency market are best described as a random walk: unpredictable, like a drunk staggering home. But whereas most of the time the movements are gentle, swaying like someone who has shared a decent bottle of chianti with a friend, at present they are lurching like a 16-year-old swigging a bottle of tequila. The economies of Europe, Asia and the US would all be at risk from further dollar falls.
The greenback fell close to its all-time low against the euro last Friday, although it has held up against Asian currencies. The level of the dollar affects the sustainability of the world economy's most striking feature: America's current account deficit, now running at about 7 per cent of gross domestic product.
That deficit suggests that the dollar did not fall simply because the US markets were off eating Thanksgiving turkey. The eurozone's economic performance has been improving; the US economy, and the housing market in particular, have got weaker. Interest rates in the US appear close to their peak, whereas they are still rising in the eurozone and just beginning to rise in Japan, so yield-hungry investors have ever less reason to hold dollars.
Such a story suggests dollar weakness as well as euro strength. But against Asian currencies the dollar has not fallen so fast: China still pegs the renminbi to the dollar, while others - like the Bank of Korea - have a record of currency intervention. By buying dollars, however, all they do is increase their stockpile, their dependency on exports to the US and their vulnerability when the dollar eventually falls.
For their own sake, therefore, Asia's central banks need to allow currency appreciation. China should take the lead - its neighbours will follow their biggest competitor - and Japan should resist the temptation to defend the yen.
By doing so, they would also help Europe. If the dollar continues to fall, and Asian banks keep their own currencies down, all the adjustment will be to the euro. That could harm exports and growth in the resurgent eurozone. The only response open to the European Central Bank and to the Bank of England, which is in a similar position, would be to factor the level of the dollar into interest rate decisions as an unwelcome economic distortion.
The US, meanwhile, may be able to cope with a fall in the dollar. Its debts are denominated in its own currency, and while rising import prices could push up inflation, foreign firms tend to price to keep their share of the US market. But if the dollar falls further, the economy will have to rebalance to-wards exports and away from consumption. That is a necessary process. But the worry is whether America's exporters, battered by years of foreign competition, would be able to do so quickly. If they cannot, the US could suffer a recession while it adjusts. That really would have people reaching for the drink.
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
Movements in the currency market are best described as a random walk: unpredictable, like a drunk staggering home. But whereas most of the time the movements are gentle, swaying like someone who has shared a decent bottle of chianti with a friend, at present they are lurching like a 16-year-old swigging a bottle of tequila. The economies of Europe, Asia and the US would all be at risk from further dollar falls.
The greenback fell close to its all-time low against the euro last Friday, although it has held up against Asian currencies. The level of the dollar affects the sustainability of the world economy's most striking feature: America's current account deficit, now running at about 7 per cent of gross domestic product.
That deficit suggests that the dollar did not fall simply because the US markets were off eating Thanksgiving turkey. The eurozone's economic performance has been improving; the US economy, and the housing market in particular, have got weaker. Interest rates in the US appear close to their peak, whereas they are still rising in the eurozone and just beginning to rise in Japan, so yield-hungry investors have ever less reason to hold dollars.
Such a story suggests dollar weakness as well as euro strength. But against Asian currencies the dollar has not fallen so fast: China still pegs the renminbi to the dollar, while others - like the Bank of Korea - have a record of currency intervention. By buying dollars, however, all they do is increase their stockpile, their dependency on exports to the US and their vulnerability when the dollar eventually falls.
For their own sake, therefore, Asia's central banks need to allow currency appreciation. China should take the lead - its neighbours will follow their biggest competitor - and Japan should resist the temptation to defend the yen.
By doing so, they would also help Europe. If the dollar continues to fall, and Asian banks keep their own currencies down, all the adjustment will be to the euro. That could harm exports and growth in the resurgent eurozone. The only response open to the European Central Bank and to the Bank of England, which is in a similar position, would be to factor the level of the dollar into interest rate decisions as an unwelcome economic distortion.
The US, meanwhile, may be able to cope with a fall in the dollar. Its debts are denominated in its own currency, and while rising import prices could push up inflation, foreign firms tend to price to keep their share of the US market. But if the dollar falls further, the economy will have to rebalance to-wards exports and away from consumption. That is a necessary process. But the worry is whether America's exporters, battered by years of foreign competition, would be able to do so quickly. If they cannot, the US could suffer a recession while it adjusts. That really would have people reaching for the drink.
The eurozone fears another 'brutal' shift - Could the dollar's fall - and the euro's rise - pose a danger to the eurozone's economic recovery?
The eurozone fears another 'brutal' shift - Could the dollar's fall - and the euro's rise - pose a danger to the eurozone's economic recovery?
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
The events of the past few days bear an eerie resemblance to late 2004, when the euro also rose significantly against the dollar, peaking on December 31 at above $1.36 and raising fears about growth prospects in the 12-country region.
Against the dollar, the euro is already higher than the point at which Jean-Claude Trichet, European Central Bank president, attempted verbal intervention on the foreign exchange market. On November 8 2004, he described "brutal" currency movements as unwelcome. For the following year, the eurozone economy remained in the doldrums.
A rule of thumb used by economists is that a 10 per cent appreciation of the euro, on a trade-weighted basis, knocks roughly a percentage point off growth in the following year.
But even if the euro's appreciation is sustained, the eurozone economy is significantly stronger, and thus better equipped to withstand a gain in its currency, than in 2004. Growth in gross domestic product this year is on course to be the best since the start of the decade: indeed, the euro appears to be rising largely because of the region's bright growth prospects, which have encouraged speculation that eurozone interest rates will also rise.
True, eurozone growth slowed in the third quarter, in which GDP rose by 0.5 per cent, but that was still ahead of the US and may have represented a correction after an exceptionally strong 0.9 per cent spurt in the previous three months. Business confidence indicators suggest that there has been little let-up in the final months of the year. Germany's Ifo index was last week back at a 15-year high.
"It is hard to believe that you have a serious problem on your hands when German business tells you it has never been better," says Robert Barrie, economist at Credit Suisse. German industry has made large strides in competitiveness, with labour costs firmly under control, and may even gain ground on US rivals despite the currency's strength.
Michael Hüther, director of IdW, the German economic institute in Cologne, argues that the euro at $1.30 will create few difficulties, especially given currency hedging by companies. "German companies can swallow that. There are enough ways to insure against a falling dollar." Problems would be created, however, if the dollar's decline accelerated.
"With fast, jerky fluctuations companies don't have enough time to protect themselves," he says.
Other countries may be more severely affected than Germany. Jacques Cailloux, economist at Royal Bank of Scotland, sees countries such as Italy, Portugal and Spain, which manufacture lower value-added products than Germany, faring worse. France - where politicians' anxiety about the euro's strength and the European Central Bank's apparent indifference was yesterday strongest - "sits somewhere in the middle", Mr Cailloux adds.
But so far the eurozone is still expected to notch up another respectable growth performance in 2007 and the euro's appreciation is still some way from causing a downgrading of forecasts.
Ralph Atkins
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
The events of the past few days bear an eerie resemblance to late 2004, when the euro also rose significantly against the dollar, peaking on December 31 at above $1.36 and raising fears about growth prospects in the 12-country region.
Against the dollar, the euro is already higher than the point at which Jean-Claude Trichet, European Central Bank president, attempted verbal intervention on the foreign exchange market. On November 8 2004, he described "brutal" currency movements as unwelcome. For the following year, the eurozone economy remained in the doldrums.
A rule of thumb used by economists is that a 10 per cent appreciation of the euro, on a trade-weighted basis, knocks roughly a percentage point off growth in the following year.
But even if the euro's appreciation is sustained, the eurozone economy is significantly stronger, and thus better equipped to withstand a gain in its currency, than in 2004. Growth in gross domestic product this year is on course to be the best since the start of the decade: indeed, the euro appears to be rising largely because of the region's bright growth prospects, which have encouraged speculation that eurozone interest rates will also rise.
True, eurozone growth slowed in the third quarter, in which GDP rose by 0.5 per cent, but that was still ahead of the US and may have represented a correction after an exceptionally strong 0.9 per cent spurt in the previous three months. Business confidence indicators suggest that there has been little let-up in the final months of the year. Germany's Ifo index was last week back at a 15-year high.
"It is hard to believe that you have a serious problem on your hands when German business tells you it has never been better," says Robert Barrie, economist at Credit Suisse. German industry has made large strides in competitiveness, with labour costs firmly under control, and may even gain ground on US rivals despite the currency's strength.
Michael Hüther, director of IdW, the German economic institute in Cologne, argues that the euro at $1.30 will create few difficulties, especially given currency hedging by companies. "German companies can swallow that. There are enough ways to insure against a falling dollar." Problems would be created, however, if the dollar's decline accelerated.
"With fast, jerky fluctuations companies don't have enough time to protect themselves," he says.
Other countries may be more severely affected than Germany. Jacques Cailloux, economist at Royal Bank of Scotland, sees countries such as Italy, Portugal and Spain, which manufacture lower value-added products than Germany, faring worse. France - where politicians' anxiety about the euro's strength and the European Central Bank's apparent indifference was yesterday strongest - "sits somewhere in the middle", Mr Cailloux adds.
But so far the eurozone is still expected to notch up another respectable growth performance in 2007 and the euro's appreciation is still some way from causing a downgrading of forecasts.
Ralph Atkins
The buck stops where? How a tattered dollar could quickly lose further allure
The buck stops where? How a tattered dollar could quickly lose further allure
By Peter Garnham and Chris Giles and Christopher Brown-Humes
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
Christmas shopping in New York is usually thought of as an expensive indulgence rather than a bargain hunter's dream. But this year, there are savings to be had if one is spending euros, sterling or yen. With the dollar suddenly sliding against all the main currencies, shoppers in Europe and Asia are being told they can get their iPods, Nintendo Wiis and Armani suits cheaply if they buy them in the US.
Anyone tempted to make the trip a week ago will be even more tempted now - the dollar went on to register its worst week since June, falling 2 per cent against the euro and 1.9 per cent against sterling. Yesterday it hit a 20-month low of $1.3180 against the euro and a two-year low of $1.9465 against sterling, meaning it has fallen 10.8 per cent against the European single currency and 12.4 per cent against the pound this year.
Last week was significant in that the dollar breached an important barrier, according to traders. Since May, it had been relatively stable within a euro trading range of $1.25-$1.30. Its fall outside this range left investors wondering whether that was simply due to a lack of liquidity around the Thanksgiving holiday or the start of a more sustained slide in the US currency.
"The violence of last week's move was exacerbated by thin trading conditions, but it was driven by fundamental factors which aren't going to go away any time soon," says Simon Derrick, currency research chief at Bank of New York. According to Mr Derrick, one factor weighing on the dollar is a growing feeling that after two years of sustained increases, the next move in US interest rates will be downward, as inflation falls in the face of a slowing economy. Falling US interest rates - or the mere expectation of them - tends to lower the demand for dollars, as investors seek higher returns elsewhere.
The Federal Reserve increased US rates by 425 basis points to 5.25 per cent between June 2004 and June 2006. This provided strong support for the greenback at a time when interest rates in Japan were virtually zero and when they were stuck at 2 per cent in Europe until last December. Market expectations, monitored by the Federal Reserve Bank of Cleveland, show that investors think there is a 30 per cent chance of a cut in US rates in March.
Just as it seems interest rates in the US may have peaked, they are being increased by the European Central Bank, the Bank of England and the Bank of Japan. The ECB is expected to raise its main rate from 3.25 per cent to 3.5 per cent at its December 7 meeting. The big question is whether Jean-Claude Trichet, ECB president, will signal further increases in 2007.
"Never since the birth of the euro in 1999 have we seen an environment where the ECB and the BoE are in the midst of an interest rate tightening cycle while the Federal Reserve is approaching an interest rate easing cycle," says Ashraf Laidi, an analyst at CMC Markets. "It is this unprecedented contrast in monetary policies that is behind the accelerating flows emerging against the dollar, even if the UK and eurozone rates are currently below their US counterpart."
BNP Paribas analysts forecast that the dollar will weaken to $1.40 to the euro by the end of the second quarter of 2007, based on a prediction that the Fed will cut rates by 100 basis points in the first half of next year. A $1.40 rate would take the dollar past its record low against the euro of $1.3548, struck in late 2004. At that time the markets' main concern, in the immediate aftermath of George W. Bush's re-election as president, was the massive US trade and current account deficits.
Those worries have not gone away. The US current account deficit this year is expected to reach $869bn (£450bn, €664bn) - 6.6 per cent of gross domestic product - according to International Monetary Fund data. To make up for this massive outflow, there must be a corresponding inflow into dollars, and these can no longer be taken for granted. While the US Treasury bond market was always an attractive home for foreign capital, this month the Treasury said foreign investors sold a net $374m in its notes and bonds in September, the first net sales since 2003.
An even bigger concern is growing talk of global central banks diversifying their foreign exchange reserves away from the US currency. One factor supporting the dollar has been huge purchases by foreign central banks. Since 2001, global currency reserves have soared from $2,000bn to $4,700bn according to the IMF, with two-thirds of the world's stockpiles held by six countries: China, Japan, Taiwan, South Korea, Russia and Singapore.
Anxieties over reserve diversification have been around for at least six months, with central banks in Russia, Switzerland, Italy and the United Arab Emirates announcing plans to cut the proportion of dollars held in their reserves. A shift by central banksaway from dollars would remove akey source of financing for the USdeficit.
Currency markets' attention was focused by reports this month that China, the world's largest holder of foreign exchange reserves, had breached $1,000bn in foreign exchange reserves. Analysts had expected the news to heat up the debate about the renminbi, which many of China's trading partners - particularly the US - believe to be undervalued. Were the renminbi to strengthen, this would drive down the US current account deficit and ease pressure on the dollar.
But Fan Gang, director of China's National Economic Research Institute and a member of China's monetary policy committee, saw things differently. He said the real problem the world faced was an overvalued dollar, not only against the renminbi but against all the leading currencies.
His comments come at a time when speculation is increasing that China, which is thought to hold 70 per cent of its foreign currency stockpile in dollars, is considering a fundamental change in its reserve allocation. These concerns were highlighted on Friday when Wu Xiaoling, deputy governor of the People's Bank of China, said Asian foreign exchange reserves were at risk from the dollar's fall.
Mitul Kotecha, head of foreign exchange research at Calyon, the French bank, says the issue is likely to put increasing pressure on the dollar in coming months. "The Chinese authorities are becoming increasingly nervous about holding too many dollars," he says. "Other central banks will be in a similar position and the dollar will be a growing casualty of such nervousness."
As if there were not enough factors weighing on the dollar, it traditionally performs badly in December against the euro and sterling as European companies repatriate their dollar earnings ahead of year-end. "We have already seen a lot of corporate interest to sell dollars," says Monica Fan at RBC Capital Markets. "I would not rule out the dollar dropping to $1.35 against the euro and $2 against the pound in the short term."
What of the political reaction? Policy-makers have learnt that making strong statements on currencies can cause unwarranted volatility in markets. Hank Paulson, the new US Treasury secretary, has stuck to the tried and tested formula that the level of currencies is set by the market and a strong dollar is in US interests. However, both Jacques Chirac, the French president, and Dominique de Villepin, his prime minister, have recently expressedconcerns about the euro's strength.
Others including IMF officials have long argued that the the US current account deficit is unsustainable and a lower dollar would help to unwind global trade imbalances.
But they worry that any adjustment might happen too quickly. The IMF's most recent World Economic Outlook outlines a scenario where "a much more abrupt and disorderly adjustment could be triggered by a worldwide reduction in appetite for US assets combined with a significantly increased interest rate risk premium". That would put a sharp brake on growth just about everywhere.
By Peter Garnham and Chris Giles and Christopher Brown-Humes
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
Christmas shopping in New York is usually thought of as an expensive indulgence rather than a bargain hunter's dream. But this year, there are savings to be had if one is spending euros, sterling or yen. With the dollar suddenly sliding against all the main currencies, shoppers in Europe and Asia are being told they can get their iPods, Nintendo Wiis and Armani suits cheaply if they buy them in the US.
Anyone tempted to make the trip a week ago will be even more tempted now - the dollar went on to register its worst week since June, falling 2 per cent against the euro and 1.9 per cent against sterling. Yesterday it hit a 20-month low of $1.3180 against the euro and a two-year low of $1.9465 against sterling, meaning it has fallen 10.8 per cent against the European single currency and 12.4 per cent against the pound this year.
Last week was significant in that the dollar breached an important barrier, according to traders. Since May, it had been relatively stable within a euro trading range of $1.25-$1.30. Its fall outside this range left investors wondering whether that was simply due to a lack of liquidity around the Thanksgiving holiday or the start of a more sustained slide in the US currency.
"The violence of last week's move was exacerbated by thin trading conditions, but it was driven by fundamental factors which aren't going to go away any time soon," says Simon Derrick, currency research chief at Bank of New York. According to Mr Derrick, one factor weighing on the dollar is a growing feeling that after two years of sustained increases, the next move in US interest rates will be downward, as inflation falls in the face of a slowing economy. Falling US interest rates - or the mere expectation of them - tends to lower the demand for dollars, as investors seek higher returns elsewhere.
The Federal Reserve increased US rates by 425 basis points to 5.25 per cent between June 2004 and June 2006. This provided strong support for the greenback at a time when interest rates in Japan were virtually zero and when they were stuck at 2 per cent in Europe until last December. Market expectations, monitored by the Federal Reserve Bank of Cleveland, show that investors think there is a 30 per cent chance of a cut in US rates in March.
Just as it seems interest rates in the US may have peaked, they are being increased by the European Central Bank, the Bank of England and the Bank of Japan. The ECB is expected to raise its main rate from 3.25 per cent to 3.5 per cent at its December 7 meeting. The big question is whether Jean-Claude Trichet, ECB president, will signal further increases in 2007.
"Never since the birth of the euro in 1999 have we seen an environment where the ECB and the BoE are in the midst of an interest rate tightening cycle while the Federal Reserve is approaching an interest rate easing cycle," says Ashraf Laidi, an analyst at CMC Markets. "It is this unprecedented contrast in monetary policies that is behind the accelerating flows emerging against the dollar, even if the UK and eurozone rates are currently below their US counterpart."
BNP Paribas analysts forecast that the dollar will weaken to $1.40 to the euro by the end of the second quarter of 2007, based on a prediction that the Fed will cut rates by 100 basis points in the first half of next year. A $1.40 rate would take the dollar past its record low against the euro of $1.3548, struck in late 2004. At that time the markets' main concern, in the immediate aftermath of George W. Bush's re-election as president, was the massive US trade and current account deficits.
Those worries have not gone away. The US current account deficit this year is expected to reach $869bn (£450bn, €664bn) - 6.6 per cent of gross domestic product - according to International Monetary Fund data. To make up for this massive outflow, there must be a corresponding inflow into dollars, and these can no longer be taken for granted. While the US Treasury bond market was always an attractive home for foreign capital, this month the Treasury said foreign investors sold a net $374m in its notes and bonds in September, the first net sales since 2003.
An even bigger concern is growing talk of global central banks diversifying their foreign exchange reserves away from the US currency. One factor supporting the dollar has been huge purchases by foreign central banks. Since 2001, global currency reserves have soared from $2,000bn to $4,700bn according to the IMF, with two-thirds of the world's stockpiles held by six countries: China, Japan, Taiwan, South Korea, Russia and Singapore.
Anxieties over reserve diversification have been around for at least six months, with central banks in Russia, Switzerland, Italy and the United Arab Emirates announcing plans to cut the proportion of dollars held in their reserves. A shift by central banksaway from dollars would remove akey source of financing for the USdeficit.
Currency markets' attention was focused by reports this month that China, the world's largest holder of foreign exchange reserves, had breached $1,000bn in foreign exchange reserves. Analysts had expected the news to heat up the debate about the renminbi, which many of China's trading partners - particularly the US - believe to be undervalued. Were the renminbi to strengthen, this would drive down the US current account deficit and ease pressure on the dollar.
But Fan Gang, director of China's National Economic Research Institute and a member of China's monetary policy committee, saw things differently. He said the real problem the world faced was an overvalued dollar, not only against the renminbi but against all the leading currencies.
His comments come at a time when speculation is increasing that China, which is thought to hold 70 per cent of its foreign currency stockpile in dollars, is considering a fundamental change in its reserve allocation. These concerns were highlighted on Friday when Wu Xiaoling, deputy governor of the People's Bank of China, said Asian foreign exchange reserves were at risk from the dollar's fall.
Mitul Kotecha, head of foreign exchange research at Calyon, the French bank, says the issue is likely to put increasing pressure on the dollar in coming months. "The Chinese authorities are becoming increasingly nervous about holding too many dollars," he says. "Other central banks will be in a similar position and the dollar will be a growing casualty of such nervousness."
As if there were not enough factors weighing on the dollar, it traditionally performs badly in December against the euro and sterling as European companies repatriate their dollar earnings ahead of year-end. "We have already seen a lot of corporate interest to sell dollars," says Monica Fan at RBC Capital Markets. "I would not rule out the dollar dropping to $1.35 against the euro and $2 against the pound in the short term."
What of the political reaction? Policy-makers have learnt that making strong statements on currencies can cause unwarranted volatility in markets. Hank Paulson, the new US Treasury secretary, has stuck to the tried and tested formula that the level of currencies is set by the market and a strong dollar is in US interests. However, both Jacques Chirac, the French president, and Dominique de Villepin, his prime minister, have recently expressedconcerns about the euro's strength.
Others including IMF officials have long argued that the the US current account deficit is unsustainable and a lower dollar would help to unwind global trade imbalances.
But they worry that any adjustment might happen too quickly. The IMF's most recent World Economic Outlook outlines a scenario where "a much more abrupt and disorderly adjustment could be triggered by a worldwide reduction in appetite for US assets combined with a significantly increased interest rate risk premium". That would put a sharp brake on growth just about everywhere.
This article is all my own work. Or is it?
This article is all my own work. Or is it?
By Jan Dalley
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
Booker winner in plagiarism row. In which year did that headline appear? Was it 2002, when Yann Martel was accused of lifting the plot of Life of Pi from a Brazilian book? Or was it 1997, when Graham Swift's Last Orders was judged to have veered too close to William Faulkner's 1930 novel As I Lay Dying?
Or was it last weekend, when a Booker-shortlisted novel by a past winner - Atonement by Ian McEwen - was the latest in line for this deadly charge?
Plagiarism is such an old and venerable art that it is perhaps only in a culture obsessed by "originality" - a concept hardly known to earlier times - that it is a dirty word. Shakespeare would have been amazed by the fuss about Yann Martel: he took a large number of his plots straight from a contemporary source, Holinshed's Chronicles.
By modern standards, many grand figures are among the culpable: Picasso was so notorious that younger artists desperately kept their new work away from him, because he would re-work their ideas in days; George Harrison was successfully sued for plagiarism after he wrote "My Sweet Lord". No less upright a figure than T.S. Eliot grandly declared that "immature poets imitate; mature poets steal"; no less venerable a personage than Martin Luther King was caught out borrowing a sizeable chunk of his doctoral thesis.
More successful writers tend to be accused by the less renowned when the rattle of lucre makes itself heard. When Alex Haley's mega-selling Roots broke all records, it emerged that whole passages were copied from Harold Courlander's The African. And we've only just heard the end of the Da Vinci Code case, when Dan Brown was sued by the writers of an earlier book.
The fact that many great artists have taken a light-fingered attitude to the work of others does not necessarily make it right, however. So what does constitute plagiarism? It's easy to confuse a work of art with a legal entity such as a patent, which can be clearly violated. Art just doesn't work like that. Lifting chunks of someone else's words, wholesale, is overstepping the line. But parallels, quoting,homage by imitation, mining a tradition, basing a character on a real person or another fictional character, borrowing old sources from the myth-kitty or new ones bobbing around on the zeitgeist: all these things are not only legitimate but also part of the richness we look for in art.
All works live within a tradition, all are a mixture of originality and influence, of half-forgotten, half-digested impressions and ideas from elsewhere. And in some cases, yes, this legitimate give-and-take is mixed with a magpie mentality towards the glittery bits other people leave lying around. No one ever said writers were nice.
The recent micro-fuss about Ian McEwan is ridiculous. His offence was to draw on a memoir by Lucilla Andrews, a writer of "hospital romances". It was factual material about the grim realities of nursing in the second world war, which he used when researching the grim realities of nursing in the second world war. There is no copyright in historical material - the Da Vinci Code case re-confirmed that - although there may be in the form of words in which it is expressed. Writers continually re-work each other's sentences: how else would history be written? Perhaps McEwan should have done that more thoroughly. I am therefore offering a bottle of champagne to the reader who can best re-phrase this: "she dabbed gentian violet on ringworm, acquaflavin emulsion on a cut, and painted lead lotion on a bruise".
Here is the novelist Julian Barnes, commenting in 1997 on the Swift/Faulkner furore:
"When Brahms wrote his first symphony, he was accused of having used a big theme from Beethoven's Ninth. His reply was that any fool could see that."
By Jan Dalley
Copyright The Financial Times Limited 2006
Published: November 28 2006 02:00 | Last updated: November 28 2006 02:00
Booker winner in plagiarism row. In which year did that headline appear? Was it 2002, when Yann Martel was accused of lifting the plot of Life of Pi from a Brazilian book? Or was it 1997, when Graham Swift's Last Orders was judged to have veered too close to William Faulkner's 1930 novel As I Lay Dying?
Or was it last weekend, when a Booker-shortlisted novel by a past winner - Atonement by Ian McEwen - was the latest in line for this deadly charge?
Plagiarism is such an old and venerable art that it is perhaps only in a culture obsessed by "originality" - a concept hardly known to earlier times - that it is a dirty word. Shakespeare would have been amazed by the fuss about Yann Martel: he took a large number of his plots straight from a contemporary source, Holinshed's Chronicles.
By modern standards, many grand figures are among the culpable: Picasso was so notorious that younger artists desperately kept their new work away from him, because he would re-work their ideas in days; George Harrison was successfully sued for plagiarism after he wrote "My Sweet Lord". No less upright a figure than T.S. Eliot grandly declared that "immature poets imitate; mature poets steal"; no less venerable a personage than Martin Luther King was caught out borrowing a sizeable chunk of his doctoral thesis.
More successful writers tend to be accused by the less renowned when the rattle of lucre makes itself heard. When Alex Haley's mega-selling Roots broke all records, it emerged that whole passages were copied from Harold Courlander's The African. And we've only just heard the end of the Da Vinci Code case, when Dan Brown was sued by the writers of an earlier book.
The fact that many great artists have taken a light-fingered attitude to the work of others does not necessarily make it right, however. So what does constitute plagiarism? It's easy to confuse a work of art with a legal entity such as a patent, which can be clearly violated. Art just doesn't work like that. Lifting chunks of someone else's words, wholesale, is overstepping the line. But parallels, quoting,homage by imitation, mining a tradition, basing a character on a real person or another fictional character, borrowing old sources from the myth-kitty or new ones bobbing around on the zeitgeist: all these things are not only legitimate but also part of the richness we look for in art.
All works live within a tradition, all are a mixture of originality and influence, of half-forgotten, half-digested impressions and ideas from elsewhere. And in some cases, yes, this legitimate give-and-take is mixed with a magpie mentality towards the glittery bits other people leave lying around. No one ever said writers were nice.
The recent micro-fuss about Ian McEwan is ridiculous. His offence was to draw on a memoir by Lucilla Andrews, a writer of "hospital romances". It was factual material about the grim realities of nursing in the second world war, which he used when researching the grim realities of nursing in the second world war. There is no copyright in historical material - the Da Vinci Code case re-confirmed that - although there may be in the form of words in which it is expressed. Writers continually re-work each other's sentences: how else would history be written? Perhaps McEwan should have done that more thoroughly. I am therefore offering a bottle of champagne to the reader who can best re-phrase this: "she dabbed gentian violet on ringworm, acquaflavin emulsion on a cut, and painted lead lotion on a bruise".
Here is the novelist Julian Barnes, commenting in 1997 on the Swift/Faulkner furore:
"When Brahms wrote his first symphony, he was accused of having used a big theme from Beethoven's Ninth. His reply was that any fool could see that."
Monday, November 27, 2006
Relaxed about risk: Wall Street's gains may be a case of irrational equanimity
Relaxed about risk: Wall Street's gains may be a case of irrational equanimity
By John Authers
Copyright The Financial Times Limited 2006
Published: November 27 2006 02:00 | Last updated: November 27 2006 02:00
The US equity markets sailed with equanimity into last week's Thanksgiving break. A strong rally has seen the Dow Jones Industrial Average index gain about 15 per cent since midyear, bringing with it similar rises in the developed and emerging worlds and a rash of acquisitions.
But the data used by market professionals to show the level of anxiety in the market are perplexing. On the face of it, despite great uncertainty over the direction of the US economy, nobody is worried about anything.
The Chicago Board Options Exchange's Vix index, one popular measure of volatility, infers levels of anxiety from what investors are prepared to pay through the options market to hedge against future volatility in share prices. The Vix hit an all-time low last week. Volatility in the foreign exchange and credit markets is similarly at very low levels.
There is also little sign of risk being priced into securities. The extra yields, or "spreads", that investors receive for buying relatively risky paper such as emerging market debt, "junk" corporate bonds or the stocks of smaller companies, are all at or near historically low levels. This is out of kilter with the US Treasury bond market, arguably the most sensitive to the economy. It is signalling a sharp slowdown next year.
Normally, investors require a higher yield on longer-term bonds. This is logical, as there is greater uncertainty further into the future. When long-term yields are lower than short-term yields (known as an inverted yield curve), it implies that the market expects an imminent worsening of conditions and lower interest rates.
The yield curve for US Treasury bonds has been inverted for a while - and the inversion has deepened over the past month as stocks have continued to rally. Ten-year Treasuries last week yielded 18 basis points less than two-year Treasuries - a strong signal that the market expects a recession.
Moreover, the Treasuries market has seen sharp swings in recent months. That reflects uncertainty over the direction of the economy. The Federal Reserve, America's central bank, has been "on hold" since midsummer, leaving the baseline Fed funds rate at 5.25 per cent after two years of tightening.
Economists differ widely on the outlook. One view is that the so-called "Goldilocks" scenario - in which the economy will be not too hot and not too cold - will win out. The economy will slow down, and with it inflation, allowing the Fed to start cutting rates next year, but without subjecting the country to a full-blown recession. Such an outcome would justify the rally in stocks and the low levels of volatility.
But many argue that the Fed will have to raise rates next year, as signs of buoyant growth remain, notably in employment data. Others contend that the Fed will have to cut rapidly in the face of a "hard landing" for the economy, triggered by the sharp falls that are under way in US housing prices. The Treasury bond market seems to be discounting a substantial risk of a hard landing. That makes movements in many other markets harder to explain.
In the credit market, the Dow Jones US CDX indices, which measure the spread investors pay for investment-grade debt in the credit derivatives market, have dropped sharply in recent weeks, to historical lows. A similar trend can be seen in high-yield bonds, where default is always more likely. But the credit derivatives market exists to protect investors against default risk - it makes it much easier to gain exposure to the bonds of a number of different companies, limiting exposure to a default by any single company. When the economy heads for recession, as the Treasury market believes, then default risk should rise. How, then, can the credit market behave as though the default risk is falling?
In the foreign exchange markets there are similar causes for concern, which the 2 per cent fall in the dollar amid quiet Thanksgiving trading at the end of last week exacerbated. For example, some leaders of the Group of Seven industrial nations are grumbling that both the Chinese renmimbi and the Japanese yen are undervalued.
There are easily conceivable events that could cause both currencies to move up sharply. The Bank of Japan could decide to lift base rates significantly from the current level of 0.25 per cent, or the Chinese authorities could decide to diversify their foreign currency reserves, currently held predominantly in dollars - an event that could hit the US unit and raise bond yields. Add to this the deep uncertainty over the next move from the Fed and there should be much uncertainty in the foreign exchange markets.
And yet HSBC reports that the European Central Bank's "global hazard indicator", which measures the implied volatility of currency trading, had fallen to an all-time low before the activity around Thanksgiving. HSBC's own take on the data is simple enough: "It means, in effect, that the markets do not give a fig for cyclical risk."
Chris Watling of Longview Economics, a consultancy, suggests the complacency towards risk is a global phenomenon. Looking at more than 150 global financial assets, he finds an average short-term volatility of about 13 per cent - historically low, and less than half its level of May when world markets suffered a brief but dramatic swoon. Indices from the German Dax 30 to South Korea's Kospi are experiencing their lowest volatility ever.
Various technical explanations might explain low volatility in different markets. For example, there are persistent claims that central banks are intervening to maintain stability in foreign exchange, while a profusion of complex credit instruments makes it easier to manage risk in the credit markets.
The apparent recession indicator in the bond market might also be explained away by technical factors. Demand for long-dated bonds may be high thanks to pension funds' need to match their liabilities as the "baby boom" generation's retirement starts, or thanks to demand for US assets from the Chinese authorities.
But Bankim Chadha and Jens Ny-stedt, foreign exchange strategists at Deutsche Bank, suggest that if low volatility is such a universal phenomenon, there may be a common cause. They also dismiss the suggestion that it has to do with any secular shift, pointing out that volatilities across all asset classes have not displayed any trend, or shift in the average level, over the last 30 years. This is what would be expected with structural change. Therefore, they say that "the recent decline in volatility is cyclical and not driven by structural drivers".
They add that it is hard to argue that geopolitical risks are declining or that general macroeconomic risks have reduced. They suggest that the current low volatility is caused by the stage in the economic cycle and by factors the financial markets have generated for themselves. This in turn implies a much bumpier ride ahead. They say: "Looking at history, higher interest rates affect financial leverage with a lag and once interest rates start to bite (usually with a two-year lag) financial volatilities return to normal." They predict that S&P volatility could double next year, even if there is a "soft landing" in the economy.
Credit and foreign exchange markets, both of which have seen heavy involvement by hedge funds, arouse the most worry. "Bears" fear that equities are being propelled by cash that has been generated only by the unusual conditions in these markets and which could therefore soon be taken away.
In foreign exchange, the concern is that investors are indulging in the "carry trade" - borrowing money in a low-yielding currency, such as the yen, and parking it in a high-yielding currency like the Australian or New Zealand dollar or the Swiss franc. This generates easy money that can then be poured into other markets.
The great risk is a sudden appreciation in the yen - as happened last week, when the dollar moved from Y118 to Y115.7 in three days. Any such sharp volatility could swiftly turn this strategy into a money-loser, although it was not clear by the weekend whether carry trades were unwinding. Analysts diverge on the extent of speculative carry trades but the Bank of Japan has made clear it is worried about the possible impact of a sudden unwinding - and that it expects to raise rates further. That would be likely to boost the yen and damage the carry trade.
From the credit market, the fear is that spreads have been driven to such low levels that speculators have no choice but to dive for the equity market. Alan Ruskin of RBS Greenwich Capital says: "Many traders feel that the easier risk-asset trade is directly in equities, given a belief that valuations are less extended than in the credit market or emerging currencies."
Further, there are worries about the role of credit derivatives. In making it easier to diversify default risks, these make it far less likely that one big default could bring down a few institutions that were the casualty's biggest creditors. They thus do allow banks to take on greater risks elsewhere.
However, they cannot diminish the risk of default across the economy. Yet they are currently priced as though credit default risks are falling, which runs contrary to the signals emanating from the Treasury bond market. Tim Lee, of Pi Economics in Connecticut, and a self-confessed "bear", suggests this is reason to be pessimistic. "Banks can just keep lending and then seeming to lay off the risks through credit default swaps - it seems never-ending."
With such concerns, many find themselves hoping for increased volatility. But that could soon turn into excessive volatility, particularly if the US economy does move into a hard landing or if carry trades unwind in a hurry. According to Mr Chadha and Mr Nys-tedt of Deutsche: "We expect in 2007 that the traders' and clients' concerns about volatilities could surprisingly quickly be replaced with concerns about too high volatility."
By John Authers
Copyright The Financial Times Limited 2006
Published: November 27 2006 02:00 | Last updated: November 27 2006 02:00
The US equity markets sailed with equanimity into last week's Thanksgiving break. A strong rally has seen the Dow Jones Industrial Average index gain about 15 per cent since midyear, bringing with it similar rises in the developed and emerging worlds and a rash of acquisitions.
But the data used by market professionals to show the level of anxiety in the market are perplexing. On the face of it, despite great uncertainty over the direction of the US economy, nobody is worried about anything.
The Chicago Board Options Exchange's Vix index, one popular measure of volatility, infers levels of anxiety from what investors are prepared to pay through the options market to hedge against future volatility in share prices. The Vix hit an all-time low last week. Volatility in the foreign exchange and credit markets is similarly at very low levels.
There is also little sign of risk being priced into securities. The extra yields, or "spreads", that investors receive for buying relatively risky paper such as emerging market debt, "junk" corporate bonds or the stocks of smaller companies, are all at or near historically low levels. This is out of kilter with the US Treasury bond market, arguably the most sensitive to the economy. It is signalling a sharp slowdown next year.
Normally, investors require a higher yield on longer-term bonds. This is logical, as there is greater uncertainty further into the future. When long-term yields are lower than short-term yields (known as an inverted yield curve), it implies that the market expects an imminent worsening of conditions and lower interest rates.
The yield curve for US Treasury bonds has been inverted for a while - and the inversion has deepened over the past month as stocks have continued to rally. Ten-year Treasuries last week yielded 18 basis points less than two-year Treasuries - a strong signal that the market expects a recession.
Moreover, the Treasuries market has seen sharp swings in recent months. That reflects uncertainty over the direction of the economy. The Federal Reserve, America's central bank, has been "on hold" since midsummer, leaving the baseline Fed funds rate at 5.25 per cent after two years of tightening.
Economists differ widely on the outlook. One view is that the so-called "Goldilocks" scenario - in which the economy will be not too hot and not too cold - will win out. The economy will slow down, and with it inflation, allowing the Fed to start cutting rates next year, but without subjecting the country to a full-blown recession. Such an outcome would justify the rally in stocks and the low levels of volatility.
But many argue that the Fed will have to raise rates next year, as signs of buoyant growth remain, notably in employment data. Others contend that the Fed will have to cut rapidly in the face of a "hard landing" for the economy, triggered by the sharp falls that are under way in US housing prices. The Treasury bond market seems to be discounting a substantial risk of a hard landing. That makes movements in many other markets harder to explain.
In the credit market, the Dow Jones US CDX indices, which measure the spread investors pay for investment-grade debt in the credit derivatives market, have dropped sharply in recent weeks, to historical lows. A similar trend can be seen in high-yield bonds, where default is always more likely. But the credit derivatives market exists to protect investors against default risk - it makes it much easier to gain exposure to the bonds of a number of different companies, limiting exposure to a default by any single company. When the economy heads for recession, as the Treasury market believes, then default risk should rise. How, then, can the credit market behave as though the default risk is falling?
In the foreign exchange markets there are similar causes for concern, which the 2 per cent fall in the dollar amid quiet Thanksgiving trading at the end of last week exacerbated. For example, some leaders of the Group of Seven industrial nations are grumbling that both the Chinese renmimbi and the Japanese yen are undervalued.
There are easily conceivable events that could cause both currencies to move up sharply. The Bank of Japan could decide to lift base rates significantly from the current level of 0.25 per cent, or the Chinese authorities could decide to diversify their foreign currency reserves, currently held predominantly in dollars - an event that could hit the US unit and raise bond yields. Add to this the deep uncertainty over the next move from the Fed and there should be much uncertainty in the foreign exchange markets.
And yet HSBC reports that the European Central Bank's "global hazard indicator", which measures the implied volatility of currency trading, had fallen to an all-time low before the activity around Thanksgiving. HSBC's own take on the data is simple enough: "It means, in effect, that the markets do not give a fig for cyclical risk."
Chris Watling of Longview Economics, a consultancy, suggests the complacency towards risk is a global phenomenon. Looking at more than 150 global financial assets, he finds an average short-term volatility of about 13 per cent - historically low, and less than half its level of May when world markets suffered a brief but dramatic swoon. Indices from the German Dax 30 to South Korea's Kospi are experiencing their lowest volatility ever.
Various technical explanations might explain low volatility in different markets. For example, there are persistent claims that central banks are intervening to maintain stability in foreign exchange, while a profusion of complex credit instruments makes it easier to manage risk in the credit markets.
The apparent recession indicator in the bond market might also be explained away by technical factors. Demand for long-dated bonds may be high thanks to pension funds' need to match their liabilities as the "baby boom" generation's retirement starts, or thanks to demand for US assets from the Chinese authorities.
But Bankim Chadha and Jens Ny-stedt, foreign exchange strategists at Deutsche Bank, suggest that if low volatility is such a universal phenomenon, there may be a common cause. They also dismiss the suggestion that it has to do with any secular shift, pointing out that volatilities across all asset classes have not displayed any trend, or shift in the average level, over the last 30 years. This is what would be expected with structural change. Therefore, they say that "the recent decline in volatility is cyclical and not driven by structural drivers".
They add that it is hard to argue that geopolitical risks are declining or that general macroeconomic risks have reduced. They suggest that the current low volatility is caused by the stage in the economic cycle and by factors the financial markets have generated for themselves. This in turn implies a much bumpier ride ahead. They say: "Looking at history, higher interest rates affect financial leverage with a lag and once interest rates start to bite (usually with a two-year lag) financial volatilities return to normal." They predict that S&P volatility could double next year, even if there is a "soft landing" in the economy.
Credit and foreign exchange markets, both of which have seen heavy involvement by hedge funds, arouse the most worry. "Bears" fear that equities are being propelled by cash that has been generated only by the unusual conditions in these markets and which could therefore soon be taken away.
In foreign exchange, the concern is that investors are indulging in the "carry trade" - borrowing money in a low-yielding currency, such as the yen, and parking it in a high-yielding currency like the Australian or New Zealand dollar or the Swiss franc. This generates easy money that can then be poured into other markets.
The great risk is a sudden appreciation in the yen - as happened last week, when the dollar moved from Y118 to Y115.7 in three days. Any such sharp volatility could swiftly turn this strategy into a money-loser, although it was not clear by the weekend whether carry trades were unwinding. Analysts diverge on the extent of speculative carry trades but the Bank of Japan has made clear it is worried about the possible impact of a sudden unwinding - and that it expects to raise rates further. That would be likely to boost the yen and damage the carry trade.
From the credit market, the fear is that spreads have been driven to such low levels that speculators have no choice but to dive for the equity market. Alan Ruskin of RBS Greenwich Capital says: "Many traders feel that the easier risk-asset trade is directly in equities, given a belief that valuations are less extended than in the credit market or emerging currencies."
Further, there are worries about the role of credit derivatives. In making it easier to diversify default risks, these make it far less likely that one big default could bring down a few institutions that were the casualty's biggest creditors. They thus do allow banks to take on greater risks elsewhere.
However, they cannot diminish the risk of default across the economy. Yet they are currently priced as though credit default risks are falling, which runs contrary to the signals emanating from the Treasury bond market. Tim Lee, of Pi Economics in Connecticut, and a self-confessed "bear", suggests this is reason to be pessimistic. "Banks can just keep lending and then seeming to lay off the risks through credit default swaps - it seems never-ending."
With such concerns, many find themselves hoping for increased volatility. But that could soon turn into excessive volatility, particularly if the US economy does move into a hard landing or if carry trades unwind in a hurry. According to Mr Chadha and Mr Nys-tedt of Deutsche: "We expect in 2007 that the traders' and clients' concerns about volatilities could surprisingly quickly be replaced with concerns about too high volatility."
Chicago Sun Times Editorial - City should do more to expand affordable housing
Chicago Sun Times Editorial - City should do more to expand affordable housing
Copyright by The Chicago Sun Times
November 27, 2006
A distressing consequence of Chicago's recent real estate boom is that the city has become less affordable for many citizens -- including some teaching in our schools, responding to life-threatening emergencies and working in many other city jobs. Mayor Daley has responded by proposing to expand a city program aimed at developing more affordable housing. But a coalition of neighborhood and housing groups argues that Daley's plan, while encouraging, doesn't go far enough.
The problem is real. One out of three homeowners is spending more than 35 percent of their income on housing. And only 20 percent of Chicago households can afford to pay the current median home price of about $250,000.
More renters are also spending a greater percentage of their income on housing. Meanwhile, the inventory of rental apartments has fallen, and of those left, just 7 percent were affordable to the poorest 20 percent of households in Chicago in 2000, down from 14 percent in 1980.
Chicago already requires developers who receive city subsidies to make 20 percent of their units affordable. If they are building on city-subsidized land, they must set aside 10 percent of their units as affordable. The mayor's expanded proposal would require developments of buildings with 10 or more units to set aside 10 percent as affordable if the building is part of a planned development, if it uses any city land or if it needs a zoning change that increases density or creates a new residential use.
Developers could opt to pay an affordable housing trust fund $100,000 per unit in lieu of building affordable housing. The fund is used to subsidize rent for low-income citizens.
Several aldermen and a group called the Balanced Development Coalition want an even broader expansion of the program. They are pushing a plan to require all developers of buildings of 10 or more units to set aside 15 percent of their units for affordable housing. They also favor lowering the prices of the affordable homes so that more Chicago families can buy them.
Daley and others have argued against such mandatory set-asides for all development, including buildings that receive no public funding. But we believe the requirement can be justified, given the need and the public good of maintaining affordable housing in the city. Who wants a city that only the rich can afford to live in? And other cities have similar programs that have not stopped or slowed development.
Daley's proposal is a good plan, and we'd be satisfied if that was all the City Council approved. But the city would be better served if aldermen adopted in whole or in part an even greater expansion.
Copyright by The Chicago Sun Times
November 27, 2006
A distressing consequence of Chicago's recent real estate boom is that the city has become less affordable for many citizens -- including some teaching in our schools, responding to life-threatening emergencies and working in many other city jobs. Mayor Daley has responded by proposing to expand a city program aimed at developing more affordable housing. But a coalition of neighborhood and housing groups argues that Daley's plan, while encouraging, doesn't go far enough.
The problem is real. One out of three homeowners is spending more than 35 percent of their income on housing. And only 20 percent of Chicago households can afford to pay the current median home price of about $250,000.
More renters are also spending a greater percentage of their income on housing. Meanwhile, the inventory of rental apartments has fallen, and of those left, just 7 percent were affordable to the poorest 20 percent of households in Chicago in 2000, down from 14 percent in 1980.
Chicago already requires developers who receive city subsidies to make 20 percent of their units affordable. If they are building on city-subsidized land, they must set aside 10 percent of their units as affordable. The mayor's expanded proposal would require developments of buildings with 10 or more units to set aside 10 percent as affordable if the building is part of a planned development, if it uses any city land or if it needs a zoning change that increases density or creates a new residential use.
Developers could opt to pay an affordable housing trust fund $100,000 per unit in lieu of building affordable housing. The fund is used to subsidize rent for low-income citizens.
Several aldermen and a group called the Balanced Development Coalition want an even broader expansion of the program. They are pushing a plan to require all developers of buildings of 10 or more units to set aside 15 percent of their units for affordable housing. They also favor lowering the prices of the affordable homes so that more Chicago families can buy them.
Daley and others have argued against such mandatory set-asides for all development, including buildings that receive no public funding. But we believe the requirement can be justified, given the need and the public good of maintaining affordable housing in the city. Who wants a city that only the rich can afford to live in? And other cities have similar programs that have not stopped or slowed development.
Daley's proposal is a good plan, and we'd be satisfied if that was all the City Council approved. But the city would be better served if aldermen adopted in whole or in part an even greater expansion.
New York Times Editorial - What the U.S. Army has learned in Iraq
New York Times Editorial - What the U.S. Army has learned in Iraq
Copyright by The New York Times
Published: November 26, 2006
While U.S. politicians from both political parties spin out their versions of Iraqs that should have been, could have been and just maybe still might be, the U.S. Army has taken on a far more useful project: figuring out why the Bush administration's military plans worked out so badly and drawing lessons for future conflicts.
That effort is a welcome sign that despite six years of ideologically driven dictates from Donald Rumsfeld's Pentagon, army leaders remain usefully focused on the real world, where actual soldiers daily put their lives on the line for their country and where the quality of military planning goes a long way toward determining whether their sacrifices help achieve America's national purposes.
Two hopeful examples are the latest draft of a new army field manual that will be taught to officers at all levels beginning next year and a series of oral history interviews conducted with Iraqi and American officers involved in the disappointing efforts to establish and train Iraqi security forces. Last week, The Los Angeles Times published details of some of the major changes being incorporated into the new field manual, while The Washington Post reported on some of the lessons learned in the Iraqi training programs.
The field manual, the U.S. Army's basic guidebook for war, peacekeeping and counterinsurgency, quietly jettisons the single most disastrous innovation of the Rumsfeld era. That is the misconceived notion that the size and composition of an American intervention force should be based only on what is needed to defeat the organized armed forces of an enemy government, instead of also taking into account the needs of providing security and stability for the civilian population for which the United States will then be responsible.
Almost every post-invasion problem in Iraq can be directly traced to this one catastrophic planning failure, which left too few troops in Iraq to prevent rampant looting, restore basic services and move decisively against the insurgency before it took root and spread.
Modern innovations in warfare make it possible for America's technologically proficient forces to vanquish an opposing army quickly and with relatively few troops. But re-establishing order in a defeated, decapitated society demands a much larger force for a much longer time.
The new field manual will rightly call for stabilization efforts to start as soon as American troops arrive. And it will legally require American field commanders to request sufficient forces to successfully carry out these stability operations. That should short-circuit future debates about whether Pentagon policymakers are providing all the troops that the generals on the spot honestly feel they need.
Correcting deficiencies in American military training is also essential, since the biggest reason the United States has not been able to withdraw significant numbers of its own troops over the past three years has been the lack of adequately prepared and reliable Iraqi security forces.
Iraqi officers interviewed for the oral history complained that their American trainers were often junior officers without combat experience. American officers expressed unhappiness about how their own training teams had been selected and prepared. One major tellingly remarked that "I went there with the wrong attitude and I thought I understood Iraq and the history because I had seen PowerPoint slides, but I really didn't."
These are useful insights. But they can only go so far when a host government lacks the will to rid its security forces of sectarian militia fighters more intent on waging civil war than achieving national stability. That so far has been the biggest obstacle in Iraq.
Transforming American forces to fight 21st-century conflicts was the ubiquitous but largely empty slogan of the Rumsfeld era. Incorporating the hard lessons learned in Iraq into future military planning and training operations would constitute a far more practical variety of transformation.
Copyright by The New York Times
Published: November 26, 2006
While U.S. politicians from both political parties spin out their versions of Iraqs that should have been, could have been and just maybe still might be, the U.S. Army has taken on a far more useful project: figuring out why the Bush administration's military plans worked out so badly and drawing lessons for future conflicts.
That effort is a welcome sign that despite six years of ideologically driven dictates from Donald Rumsfeld's Pentagon, army leaders remain usefully focused on the real world, where actual soldiers daily put their lives on the line for their country and where the quality of military planning goes a long way toward determining whether their sacrifices help achieve America's national purposes.
Two hopeful examples are the latest draft of a new army field manual that will be taught to officers at all levels beginning next year and a series of oral history interviews conducted with Iraqi and American officers involved in the disappointing efforts to establish and train Iraqi security forces. Last week, The Los Angeles Times published details of some of the major changes being incorporated into the new field manual, while The Washington Post reported on some of the lessons learned in the Iraqi training programs.
The field manual, the U.S. Army's basic guidebook for war, peacekeeping and counterinsurgency, quietly jettisons the single most disastrous innovation of the Rumsfeld era. That is the misconceived notion that the size and composition of an American intervention force should be based only on what is needed to defeat the organized armed forces of an enemy government, instead of also taking into account the needs of providing security and stability for the civilian population for which the United States will then be responsible.
Almost every post-invasion problem in Iraq can be directly traced to this one catastrophic planning failure, which left too few troops in Iraq to prevent rampant looting, restore basic services and move decisively against the insurgency before it took root and spread.
Modern innovations in warfare make it possible for America's technologically proficient forces to vanquish an opposing army quickly and with relatively few troops. But re-establishing order in a defeated, decapitated society demands a much larger force for a much longer time.
The new field manual will rightly call for stabilization efforts to start as soon as American troops arrive. And it will legally require American field commanders to request sufficient forces to successfully carry out these stability operations. That should short-circuit future debates about whether Pentagon policymakers are providing all the troops that the generals on the spot honestly feel they need.
Correcting deficiencies in American military training is also essential, since the biggest reason the United States has not been able to withdraw significant numbers of its own troops over the past three years has been the lack of adequately prepared and reliable Iraqi security forces.
Iraqi officers interviewed for the oral history complained that their American trainers were often junior officers without combat experience. American officers expressed unhappiness about how their own training teams had been selected and prepared. One major tellingly remarked that "I went there with the wrong attitude and I thought I understood Iraq and the history because I had seen PowerPoint slides, but I really didn't."
These are useful insights. But they can only go so far when a host government lacks the will to rid its security forces of sectarian militia fighters more intent on waging civil war than achieving national stability. That so far has been the biggest obstacle in Iraq.
Transforming American forces to fight 21st-century conflicts was the ubiquitous but largely empty slogan of the Rumsfeld era. Incorporating the hard lessons learned in Iraq into future military planning and training operations would constitute a far more practical variety of transformation.
Scholars agree Iraq meets definition of 'civil war' - It is put among the worst in 60 years
Scholars agree Iraq meets definition of 'civil war' - It is put among the worst in 60 years
By Edward Wong
Copyright by The New York Times
Published: November 26, 2006
BAGHDAD: Is Iraq in a civil war?
Though the Bush administration continues to insist that it is not, a growing number of U.S. and Iraqi scholars, leaders and policy analysts say the fighting in Iraq in every way meets the standard definition of civil war.
The common scholarly definition has two main criteria. The first says that the warring groups must be from the same country and fighting for control of the political center, control over a separatist state or to force a major change in policy. The second says that at least 1,000 people must have been killed, with at least 100 from each side.
American professors who specialize in the study of civil wars say that most of them agree that the conflict in Iraq is a civil war.
"I think that at this time, and for some time now, the level of violence in Iraq meets the definition of civil war that any reasonable person would have," said James Fearon, a political scientist at Stanford who in September testified to Congress on the Iraq war.
While the term is broad enough to include many kinds of conflicts, one of the sides in a civil war is almost always the sovereign government. Therefore, some scholars say the civil war in Iraq began when the Americans transferred sovereignty to an appointed Iraqi government in June 2004. That officially transformed the anti-American war into one of insurgent groups seeking to regain power for disenfranchised Sunni Arabs against an Iraqi government led by Prime Minister Ayad Allawi and increasingly dominated by Shiites.
Others say the civil war began this year, after the bombing of a revered Shiite shrine in Samarra set off a chain of revenge killings that left hundreds dead over five days and has yet to end. Allawi proclaimed a month after that bombing that Iraq was mired in a civil war. "If this is not civil war, then God knows what civil war is," Allawi said.
Many insurgencies, and ethnic or sectarian wars, are also civil wars. Vietnam and Lebanon are examples.
Scholars say the civil war in Iraq has elements of both an insurgency - one side is struggling to topple what it sees as an illegitimate national government - and a sectarian war - the besieged government is ruled by Shiites and opposed by Sunni Arabs.
In Iraq, sectarian violence and Sunni- Shiite revenge killings have become a hallmark of the fighting, but the cycles of violence are ignited by militia leaders who have political goals. The former Yugoslav president, Slobodan Milosovic, did this during the wars in the Balkans.
The civil strife in Iraq largely takes place in areas with mixed populations of Sunnis and Shiites, including the cities of Baghdad and Mosul, and the Diyala Province. Large swaths of Iraq experience little violence, but these areas are relatively homogenous and have few people.
Governments embroiled in civil wars often do not want to label them as such. In Colombia, officials insisted for years that the rebels were merely bandits.
Some Bush administration officials have argued that there is no obvious political vision on the part of the Sunni- led insurgent groups, so "civil war" does not apply.
But in fact, many scholars say the bloodshed in Iraq already puts the country in the top ranks of nations stricken by civil wars in the last half- century. Fearon and a colleague at Stanford, David Laitin, say the deaths per year in Iraq, with at least 50,000 reportedly killed since March 2003, place this conflict among the worst 20 civil wars of the past 60 years, on par with wars in Burundi and Bosnia.
The president and prime minister of Iraq avoid using the term civil war, but many Iraqis say extremists have thrust the country into one, even as moderates have struggled to pull back from the brink.
"You need to let the world know there's a civil war here in Iraq," said Adel Ibrahim, 44, a sheik in the Subiah tribe, which is mostly Shiite. "It's a crushing civil war. Mortars kill children in our neighborhoods. We're afraid to travel anywhere because we'll be killed in buses. We don't know who is our enemy and who is our friend."
By Edward Wong
Copyright by The New York Times
Published: November 26, 2006
BAGHDAD: Is Iraq in a civil war?
Though the Bush administration continues to insist that it is not, a growing number of U.S. and Iraqi scholars, leaders and policy analysts say the fighting in Iraq in every way meets the standard definition of civil war.
The common scholarly definition has two main criteria. The first says that the warring groups must be from the same country and fighting for control of the political center, control over a separatist state or to force a major change in policy. The second says that at least 1,000 people must have been killed, with at least 100 from each side.
American professors who specialize in the study of civil wars say that most of them agree that the conflict in Iraq is a civil war.
"I think that at this time, and for some time now, the level of violence in Iraq meets the definition of civil war that any reasonable person would have," said James Fearon, a political scientist at Stanford who in September testified to Congress on the Iraq war.
While the term is broad enough to include many kinds of conflicts, one of the sides in a civil war is almost always the sovereign government. Therefore, some scholars say the civil war in Iraq began when the Americans transferred sovereignty to an appointed Iraqi government in June 2004. That officially transformed the anti-American war into one of insurgent groups seeking to regain power for disenfranchised Sunni Arabs against an Iraqi government led by Prime Minister Ayad Allawi and increasingly dominated by Shiites.
Others say the civil war began this year, after the bombing of a revered Shiite shrine in Samarra set off a chain of revenge killings that left hundreds dead over five days and has yet to end. Allawi proclaimed a month after that bombing that Iraq was mired in a civil war. "If this is not civil war, then God knows what civil war is," Allawi said.
Many insurgencies, and ethnic or sectarian wars, are also civil wars. Vietnam and Lebanon are examples.
Scholars say the civil war in Iraq has elements of both an insurgency - one side is struggling to topple what it sees as an illegitimate national government - and a sectarian war - the besieged government is ruled by Shiites and opposed by Sunni Arabs.
In Iraq, sectarian violence and Sunni- Shiite revenge killings have become a hallmark of the fighting, but the cycles of violence are ignited by militia leaders who have political goals. The former Yugoslav president, Slobodan Milosovic, did this during the wars in the Balkans.
The civil strife in Iraq largely takes place in areas with mixed populations of Sunnis and Shiites, including the cities of Baghdad and Mosul, and the Diyala Province. Large swaths of Iraq experience little violence, but these areas are relatively homogenous and have few people.
Governments embroiled in civil wars often do not want to label them as such. In Colombia, officials insisted for years that the rebels were merely bandits.
Some Bush administration officials have argued that there is no obvious political vision on the part of the Sunni- led insurgent groups, so "civil war" does not apply.
But in fact, many scholars say the bloodshed in Iraq already puts the country in the top ranks of nations stricken by civil wars in the last half- century. Fearon and a colleague at Stanford, David Laitin, say the deaths per year in Iraq, with at least 50,000 reportedly killed since March 2003, place this conflict among the worst 20 civil wars of the past 60 years, on par with wars in Burundi and Bosnia.
The president and prime minister of Iraq avoid using the term civil war, but many Iraqis say extremists have thrust the country into one, even as moderates have struggled to pull back from the brink.
"You need to let the world know there's a civil war here in Iraq," said Adel Ibrahim, 44, a sheik in the Subiah tribe, which is mostly Shiite. "It's a crushing civil war. Mortars kill children in our neighborhoods. We're afraid to travel anywhere because we'll be killed in buses. We don't know who is our enemy and who is our friend."
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