U.N. report: U.S. behind in phone, Internet tech

United States slips six places, leapfrogged by Japan, Germany, New Zealand

GENEVA - The United States is falling behind other advanced economies in its use of and access to telephone and Internet technology, according to a U.N. report published Monday.

The U.S. slipped six places to 17th on the U.N. telecommunications agency's ICT Development Index. It was leapfrogged by countries such as Japan (12), Germany (13) and New Zealand (16).

By 2007, more than 8 in 10 Americans had cell phones accounts compared with just under half the population in 2002, the International Telecommunication Union said in its report.

Climate Clock is Ticking

For most people, news of the ice melt was little more than a distant curiosity. But for climate scientists it was the scariest thing they had seen yet, and what's more it had caught them completely by surprise.

In the summer of 2007, a large portion of Arctic Sea ice - about 40 per cent - simply vanished. That wasn't supposed to happen. At least not yet. As recent as 2004, scientists had predicted it would take another 50 to 100 years for that much ice to melt. Yet here it was happening today.

It raised the question: Had global warming suddenly pressed the gas pedal to the floor? If so, the world was in for quite a climate ride - dramatic, jarring changes in climate much sooner than expected. Climate scientists were deeply worried.

"It really caught the scientific community by surprise," Professor James Ford, a McGill University geographer and Arctic expert recalled. "The Arctic system is close to crossing the threshold beyond which we will get dramatic changes in climate."

The sudden mass melting brought an earlier ice event into new perspective. In 2005, scientists at the Canadian Ice Service, the nation's leading ice specialists, were examining satellite images when they noticed that the Ayles Ice Shelf, which is about as big as the island of Montreal, had suddenly broken free from the top of Ellesmere Island and floated away.

Vincent Warwick, an Arctic expert at Université Laval, said at the time: "This is a dramatic and disturbing event. It shows that we are losing remarkable features of the Canadian North that have been in place for many thousands of years. We are crossing climate thresholds, and these may signal the onset of accelerated change ahead."

The ice melt of 2007 seemed to confirm Warwick's fears. Reports since then claim the Arctic ice could be gone by 2013.

We have already crossed some critical climate thresholds. The world not only has to drastically cut back its greenhouse gas emissions but also begin to take steps to deal with the inevitable changes that global warming will cause. The much-feared tipping points - which would cause massive icecap and ice shield melting, and plunge the world headlong into severe weather systems, causing broad devastation and rising seas - seem increasingly probable.

This is why, scientists say, the United Nations climate talks that began this week in Bonn, Germany, and will culminate in Copenhagen, Denmark, in December, are so important. They are a last chance for the world to come to its senses and negotiate an agreement to drastically cut greenhouse gas emissions.

Scientists have been warning about these tipping points for decades, but few politicians have listened. Most industrialized countries led by the United States, Canada, Australia and Europe have continued to pump increased amounts of GHGs into the atmosphere despite promises to reduce emissions below 1990 levels.

Developing countries like China and India have taken no steps to curtail their emissions. With a new coal-fired power plant coming on stream every week, China is now the world's biggest GHG producer.

The atmosphere now contains 387 parts per million of carbon dioxide. This is more than the Earth has seen in the last 650,000 years. Pre-industrial levels were about 270 ppm, which remained pretty well constant over the 100,000 years mankind has walked the Earth. Scientists say that because of a delayed reaction, we have yet to experienced the full effect of what we already have put into the atmosphere. That effect will unravel in the decades to come. Meanwhile, we're adding about 30 billion tonnes of CO2 into the atmosphere annually or about 2 ppm. Last year alone, global GHGs increased three per cent.

Many scientists believe that we have delayed so long that this is our last chance to act. They say that even if we make cuts over the next two decades of 80 per cent in GHG emissions, our children and grandchildren will still have to cope with rising sea levels, creeping desertification and violent storm surges, not to mention the geopolitical pressure that will be placed on governments trying to deal with human migration away from devastated areas of the globe.

Over the last 20 years, the International Panel on Climate Change has been accumulating and assessing climate change evidence from thousands of scientists around the world from an array of disciplines including chemistry, physics, meteorology, biology, geology and oceanography. The data these scientists have produced has given the IPCC absolute certainty that the climate is warming and it is caused by mankind's use of fossil fuels.

"I frankly think that this Copenhagen is the last chance for us to deal with this problem," Andrew Weaver, a climate expert, IPCC contributor and author of Keeping Our Cool: Canada in a Warming World with the University of British Colombia. "I'm serious. They're vital."

"If we don't do anything now, we're going to push the world past what is known as a 2-degree-Celsius threshold, which means that we are committing it to 12 metres of sea level rise, the desertification of southern Europe and many, many other things. So, frankly, now is the time."

As representatives of the world's nations meet in Bonn, they are basing their negotiations primarily on the conclusions of the IPCC and its thousands of contributing scientists. Negotiators, however, will have to contend with the fact that many of the dire predictions of the latest IPCC report, which was delivered in 2007 are likely outdated and perhaps too optimistic. As more data is gathered and scientists sharpen their techniques, they realize that climate changes are suddenly happening faster than predicted.

"Some people are saying we have already crossed this threshold (into unstoppable, jarring changes)," Ford, who is also an IPCC contributor, said. "Others are saying ... we haven't crossed it yet, but it's pretty close. The climate is definitely changing faster than we thought, especially the Arctic. Globally as well. This really caught the scientific community by surprise. In 2002, what was involved was this idea of gradual climate change: We may see dramatic changes but towards the end of the century, not today.

"That is now changing; we are now thinking these changes are occurring quite rapidly today. Quite a few people are speculating that we are going to see even more dramatic changes quite soon."

For this reason, he said, the talks this year are "very important."

"If we fail and there is no agreement, it's going to really constrain our ability globally to address this problem."

Canadian scientists who have contributed to the IPCC reports on climate change over the last 20 years say the Canadian government in particular has been dangerously lax in addressing climate change and must show world leadership in reducing GHGs.

Dr. John Stone, a chemist at Carleton University and a leader of an IPCC working group, said Canada simply has no policy on climate change.

"They promise regulations. We still have not seen those."

He added: "I think this issue is regarded as a bit of a nuisance, in fact a big nuisance (to the Conservative government). They wish it would go away but it's not going to go away. There is a lack of action and engagement."

The IPCC was awarded the Nobel Peace Prize last year. One of the IPCC founders is Canadian meteorologist Jim Bruce, who for years was a director of the weather service at Environment Canada. He was in Oslo when the prize was awarded. Yet, Stone noted, the federal government never invited the IPCC scientists to Ottawa for a celebration. It fell to the opposition parties to hold a reception.

"I mean what did that tell you?" he asked. "It even seems mean-spirited. Even (former U.S. president) George Bush invited the IPCC to the White House."

Stone also noted that no IPCC scientist has been asked to brief the government on climate change.

"When I was a civil servant I was forever briefing all the people," he said.

"Hypothetically, if we don't get an agreement in Copenhagen but we do in another year's time, the atmosphere, the climate will notice but not very much. But if we don't get that agreement for 10 years or so, the impacts will be really much larger. ... Time is running out."

Jim Bruce said in an interview the world has to make large emission reductions within the next 15 years.

"I'm thinking that that's to be realistic. It takes a while once you adapt some targets. It takes a while to put in place the programs and policies to implement those targets. And we have to recognize that large emissions are going to be coming from China, India, Southeast Asia and for them to begin to reduce emissions is going to be very difficult when their priority is to provide for the economy for their people."

He added "the only cheerful thing is we have this depression which may slow down the emissions for a year or two, but I think we will be back on the bandwagon driving them up very rapidly immediately afterwards if we don't come to some agreement in Copenhagen."

He said Canada is paralyzed by the worry that fighting climate change will hurt the economy. "But European countries have shown that if you take action you create new businesses in the green economy," he said.

Weaver said that when it comes to climate change, Canadians have an international reputation as "laggards and obstructionists."

"We have had so far policies of inaction, obstructionism and in some sense denial that the problem actually exists. ... I think most Canadians don't recognize how serious the issue of global warming is."

So how serious is it?

The international consensus is that we have delayed action for so long that it is "virtually certain" that future generations will have to contend with mean temperature rises of about 1.5 to 2C. That may not sound like much, but in fact it is enormous. Here are some of the repercussions scientists have concluded with 90-per-cent certainty will occur - in some cases they're already happening:

At least 30 per cent of species will be at risk of extinction due to floods, drought, wildfire, insect infestations and acidification of the oceans.

Ocean currents will slow, threatening marine life.

Tropical and semi-tropical areas will experience more frequent and deadly heat waves.

Arid and semi-arid regions like the Mediterranean basin, the Middle East, North Africa and coastal Australia will become drier and desertification will set in.

The melting of mountain glaciers and snowpack will accelerate.

Most of Canada will continue to become warmer with increased violent storms and rain in the east. Areas of the southern Prairies will become more arid. The Arctic will experience melting permafrost and melting ice sheets.

Ocean levels will continue to rise for centuries to come to the point where countries such as the Netherlands, Bangladesh and other low-lying regions will likely be inundated.

Crop production will gradually increase for northerly climates, while it will decrease in tropical and semi-arid areas, where most of the Earth's 6 billion people live.

What are not clearly understood are the impacts of feedbacks that will drive global warming faster and farther. Permafrost melting, for instance, will release vast amounts of methane, a powerful GHG, while the warming of the ocean will reduce its capacity to absorb GHGs.

This is the general picture that scientists have laid out with a high degree of certainty. The question now is: Are we ready to reduce emissions fast enough to limit the damage?

"The reason for concern for the 2C warming is it's a round number," Weaver said.

"It's close to a couple of key thresholds. No. 1 is it's close to the threshold beyond which we are committed to the demise of the Greenland ice sheet, which commits (us to a) sea level rise of seven metres. So that's in the cards. It's also at the same level that you commit us to losing the west Antarctic ice sheet. That's another five metres. So you are committing the world to 12 metres of sea level rise. It won't happen overnight. It takes centuries.

"With 12 metres, you've got 130 million people in the Netherlands and China, including the cities of Shanghai and Jiangyin, under water. What do you say? You say, 'Well, in Canada we have a slightly longer growing season so you can just quietly go and die there in China. And you know it's not our problem.' So to me the big issue is the political instability that is clearly going to arise."

The IPCC reports that individuals can have a significant impact on mitigating the impacts of climate change. Most of us can considerably reduce our use of fossil fuels by properly insulating our homes and changing our lifestyles - simple stuff such as walking, bicycling and taking public transit. On a broader scale, promoting alternative energy sources like wind, tidal, geothermal, solar and biofuels can greatly reduce GHG emissions.

"Awareness of the issue is quite broad," Stone said. "There is a question about the extent to which people understand it, that they understand that they are part of the problem and they can be part of the solution. I think that we still have a lot of work to do there. If we don't get a globally rigid regime in place within the next 10 years, then I think things could be bad."

If you are NOT in the U.S., it is absolutely INSANE to be converting your dollars into U.S. dollars in order to buy U.S. based assets.

The trend is clear,

If you're in the U.S. right now, you MUST be seeking ways to protect your money, because the U.S. dollar is losing a breath taking amount of value in a short period of time.

For many months, I have been concerned that it was a matter of time that the U.S. dollar would decline, possibly in a serious way. It appears that this slide has come in earnest. The Canadian dollar has risen more this past week against the U.S. dollar than it has in over 50 YEARS. Other resource-based currencies such as Australia are seeing similar trends.

Oil is now over $65, which is largely a U.S. dollar story. When the U.S. dollar declines, oil prices appear to go up .. but that's because it takes more U.S. dollars to buy that same barrel of oil.

It's not really the value of oil going up – it's the value of the money you're pricing it in going down.

Gold, a key barometer of inflation, is now threatening to break through $1,000 for the 2nd time this year (and if it does, it likely will remain above that threshold). I believe gold is going to move up to the $1,200-1,300 range before the end of the year.

Now all of this could be psychology that is temporary, and we're going to see a reversal .. but I don't think this is the case. Several long-term trends and resistance points have been broken this past couple of weeks, and I believe we're seeing the next move in the leg of the U.S. dollar decline, and the revival of the commodities sector.

In part, what is also driving these changes is that the approximately $12 TRILLION dollars that the U.S. government has thrown at the problem is now starting to take effect. You cannot introduce trillions of dollars into the system without creating significant inflation, and now that some of the unusual and one-time pressures on prices are clearing out, I think the door's opening for inflation to take off in the U.S.

So what do you do as an investor?

Well if you are in the U.S., GET OUT OF THE U.S. DOLLAR. Frankly, there's almost no good argument to stay in U.S. dollars right now, given all of the massive risks and trends. This means trying to move some capital out of U.S. dollars. You can do that by simply purchasing assets denominated in non-U.S. dollars. For example, you could invest in real estate in another country (Canada is your best bet), or perhaps buy equities traded on a foreign exchange.

Consider Canadian oil trusts, since oil prices are headed much higher.

If you are NOT in the U.S., it is absolutely INSANE to be converting your dollars into U.S. dollars in order to buy U.S. based assets.

Any Canadian going into the U.S. right to buy real estate is NUTS.

The currency risk is huge (you could see the U.S. dollar drop 25% in a matter of a couple of weeks, which WIPES OUT your returns on the real estate), plus the U.S. housing market is NOT finished going down.

Most markets will not see real recoveries until at least into 2010. The next wave of foreclosures is just starting to hit now, so we're going to see another decline wave before the end of the year.

Don't believe what real estate agents are trying to preach - the bottom has NOT come in most markets, and will not until next year. Just because there are some more sales occurring doesn't mean prices will go up.

Most markets have a MASSIVE inventory they have to clear out before prices will stabilize.

The fundamentals don't lie. It is all about reading the market, and understanding the cycle. It's also about understanding the currency risk.

2010 is going to be one of the GENERATIONAL investment opportunities in the U.S., in many markets this means we'll see opportunities that we won't EVER get to invest in again this generation.

New Home Sales Indicate Stability, Not Recovery

• The new home sales numbers seem to confirm what the single-family housing starts and permits numbers imply that the market for new single-family homes is flattening.
• Indeed, that it may have hit bottom in January and that the recovery will be a slow one.
• Despite improving numbers, we are not ready to say that the market has hit bottom.
• These numbers are estimates with large standard deviations. Because the margin of errors is big, the footnote in the press release warns, “It takes four months to establish a trend for new homes sold.”
• We still project that this market will start expanding in the second half of this year.
• As opposed to the resale volumes, which increased by 2.9% month-to-months; in April new homes, sales remain sluggish.
• Plunging prices, record-low mortgage rates and an $8000 tax credit for first time buyers did not help much to push up hew housing demand.
• We believe, new home sales is probably a better reflection of the underlying demand than the existing home sales which have been highly boosted by the increasing foreclosure numbers recently.
• Nevertheless, new home inventories kept declining in April which sent the months’ supply in new homes to 2.3 month below a record of 12.4 months reached in January.
• In addition, the home prices kept falling and were 14.9% below last April’s levels. Even though we see builders are becoming more optimistic about the future of the housing industry and there is some stabilization in housing demand, surging foreclosures, rising mortgage rates and high unemployment rates will weigh heavily on new home sales and will prevent a sharp rebound in the housing market in the near future.
• New homes are now sitting on the market for a median 10.9 months before selling, and completed homes still comprise an extraordinarily high share of total homes for sale.
• While sales have stabilized within a fairly narrow range over recent months, there is little to suggest that the sales rate will post a meaningful and sustained increase any time soon.
• Despite the Fed’s efforts, mortgage rates are heading higher, while the ongoing erosion in the labour market and tougher mortgage lending standards will continue to act as drags on sales.
• It is true that the first-time buyer tax credit is stimulating sales, but this will not be sufficient to sustain a meaningful increase in new home sales.
• Even with some normalization of unsold inventory of newly constructed homes, it’s unlikely that the real estate market can support any significant pick-up in homebuilding activity in the foreseeable future.
• That’s because foreclosure activity is still increasing and these properties are flooding the market.
• The report was a bit of a mixed bag, as the weaker than expected gains in new home sales will likely be offset by the improvement in the inventory data.
• This is a bit disappointing, given the hefty increase in homebuilder sentiment in the past couple of months.
• The relatively late Easter might have restrained activity, we suppose, but we cannot be sure. Either way, we still think the combination of very low mortgage rates and falling inventory will entice people back into the market in greater numbers over the next few months.
• Looking ahead, reports from homebuilders indicate that activity picked up in April and then a bit further in May, led by first-time homebuyers attracted by steep price declines at the bottom end of the market.
• The same appears to be true of existing homes, where first-timers are being tempted by deeply discounted properties coming out of foreclosure.
• Therefore, while sales rates may well have bottomed, it seems clear that gains in activity will remain concentrated in lower priced homes.
• However, supply will remain enormous, particularly with increased competition coming from distressed sales of existing homes.
• This suggests that prices will continue to edge lower at the bottom end of the market even as demand for these homes picks up a bit.
• Although new single-family sales were a little below expectations in April, we judge the data to be consistent with a bottoming out in new housing construction activity as also suggested by single-family housing starts and permits and the NAHB’s housing market index.
• Perhaps the most constructive indicator is the decline in the number of homes for sale in April, both in absolute terms and in relation to sales (though the months’ supply remains elevated).
• The latest mortgage delinquency data for the first quarter remind us that there are still very significant problems in the housing market.

Worldwide demand for energy will increase by 44 percent in the next 20 years.

With developing economies, particularly China, India, Brazil, and Russia which is nearly 75 percent of the demand growth, according to a forecast from the U.S. Energy Information Administration (EIA).

The agency predicts that oil will supply about 32 percent of the world’s energy needs by 2030 down from about 36 percent today.
Wind and solar power will account for 11 percent of global energy supplies.
The EIA forecast does not take into account the impact of a possible global agreement on reducing greenhouse gases.

Without such an accord, global emissions of carbon dioxide are expected to rise by a third in the next 20 years, reaching 40 billion metric tons a year.
That level that climate change scientists say would sharply increase temperatures and destabilize the global climate system.

The EIA forecasts that oil prices will begin to rise next year as the global recession eases, hitting $110 a barrel by 2015, nearly double the average 2009 price.

AUSTRALIA INTRODUCES PLAN TO BUILD WORLD'S LARGEST SOLAR PLANT

The Australian government plans to build the world’s largest solar power station.

The 1,000-megawatt plant that would generate three times more electricity than the world's largest solar electric plant, now located in California.

Preliminary plans call for the construction of four individual plants — two solar thermal plants that use mirrors to focus the sun's heat on steam-generating pipes or towers and two plants that use photovoltaic cells.

Over all, the proposed facility would cost about U.S. $1 billion, and would generate electricity equivalent to a large coal-fired power plant.

Calling solar energy “Australia's biggest natural resource,” the prime minister said he hopes the plants will be the first in a network of solar installations across Australia, making the nation a global leader in solar power.

Construction plans will be developed over the next six months and the government hopes to open the new solar power station by 2015.

I Am Money

I Am Money

Most people think they know me.
They don’t.
I am not what most people think I am.
I am not the paper in your wallet, or the coins that jingle in your purse.
I am not quietly sitting in your bank account, hoping to be used to one day.

You cannot see me, feel me or touch me.
I am an idea, and I am energy. I’m neither good nor evil.
I am only what you decide that I am, and I fulfill the role that you create for me.
I don’t care how smart you are, where you live, what you do, or where you come from.

All I care about is your energy.
Your energy decides what thoughts you have, and therefore your thoughts will determine the relationship you have with me.
I have very simple needs, and simple rules.

I am infinite.
I have no limits, except for those you place on me with your mind. There is no limit to the energy in the world, and because I am simply energy, I cannot be restricted or controlled.

I crave abundance.
I am attracted to those who think without restrictions, who like to think big. When you believe there is enough of me to go around, I am naturally magnetized by that thinking.

I despise scarcity.
Because there is no limit to me, I avoid those who think from a win/lose or scarcity perspective. Those who believe I am in short supply, or difficult to receive, will find that very reality, because I choose to avoid those who think small.

I love value.
What magnetizes me most is the creation of value in the universe. I move to places where value is created, because creation is energy. If you wish to attract me into your life, focus on creating value for others, and I will appear.

I avoid entitlement and complacency.
No one ‘deserves’ to have me, and I am always moving to the place I am most respected and where value is created. It has nothing to do with ‘fair’. Those who take me for granted or become complacent with my energy will find me gone.

I only have one job, and that is to serve you.
It is a matter of energy and value creation. My purpose is simply to move to where I am attracted most, and where I can grow.

My one goal is to replicate myself.
Because there is no limit to energy, my purpose is to reproduce and grow, in order to bring more energy to the universe. I am created and replicated through value creation. I am an energy of evolution.
The message for you should be clear. Those who create value for others in the world will find me in their lives.

I am whatever you believe me to be.
So what you believe about me can make you miserable, or what you believe can enable you to perform miracles.

I'm neither positive, nor negative. I am what you decide I am.
If you fear me in any way, I can crush your ability to survive. If you get to know me, I can make your life flourish and your dreams come alive.
I can be your master, or I can be your servant.

I am only what you make me.
So, the relationship we have together will be determined by you

.
Isn't it time we got to know each other better?

Texas Stores Open Up for Beer and Wine

IRVING, Texas -- Grocery and convenience stores here are prepping their stores to stock the newest products available to them -- beer and wine.
Residents here -- which was North Texas' largest dry suburb -- approved the sale of beer and wine in the city in November, following the failure of two previous attempts in 2004 and 2006. The measure passed this time, but with a slim margin -- it passed by 776 votes, less than 1 percent of ballots cast.

This week, three Kroger stores became the first supermarkets to offer beer and wine.
"Many of our customers have wanted the convenience of buying beer and wine in a supermarket in Irving for a number of years," Gary Huddleston, a Kroger director of consumer affairs, told the paper.
As of yesterday, the Texas Alcoholic Beverage Commission issued permits for beer and wine sales to a dozen Irving retailers.
In addition, city staffers already approved applications for more than 80 other retail outlets that must now seek approval from the state agency.

U.S. economy may shrink again next year

“There is a risk of a double dip, a W-shaped recession at the end of next year"

Economis who predicted the financial crisis, said that while the recession in the United States may well be over at the end of the year, another dip was still possible next year.

Economic growth in the U.S. may be negative through Q4, and that we'll see positive growth in Q1
The U.S. recession is going to be U-shaped, lasting roughly 24 months, the current consensus says we are practically at the end of the recession,
It may last another six to nine months before it's over.The end of the global recession is likely to occur at the end of the year.

Some people that say it's going to be a doomsday and and possibility of a “perfect storm” in 2010.

The combination of rising oil prices, rising public debt and increases in real interest rates, rising concerns about inflation and the expiration of a number of tax cuts in the United States.

I’m an optimist and still think that well pull out of this even thou there is a tremendous amount of fear out there.

National Bank of Canada profit rises 46 per cent

National Bank of Canada, (NA-T51.051.553.13%) the country's sixth-largest bank, said second-quarter net income jumped 46 per cent as the company's trading arm booked big profits and charges related to asset-backed commercial paper shrank.

Profit for the Montreal-based lender rose to $241-million, or $1.41 a share, from $165-million, or $1, a year earlier.

The bank managed the profit increase by keeping loan losses under control in its main business of lending, enabling it to hold the line on earnings in that segment, while generating a big boost from trading activities.

“The bank has managed to do well thanks to the relatively good performance of the Quebec economy,” chief executive officer Louis Vachon said in the statement announcing the bank's earnings.

The biggest driver was a jump of 50 per cent in earnings for National's financial markets business to $123-million, resulting from a surge in bond and fixed-income trading revenue.
The bank also booked only $20-million in charges relating mainly to ABCP, while a year ago the total was $64-million.

Lending to personal and business clients generated a $118-million profit, a 2-per-cent increase, with the bank managing to keep loan losses under control even as the economy stagnated. National said provisions for credit losses climbed just $4-million to $49-million.

Federal CPP changes push off early retirement

Hello Freedom ... 70

Ottawa threw a monkey wrench into Baby Boomers' plans for early retirement this week when the finance department announced a surprise revamp to the Canada Pension Plan.
Reductions to early-retirement benefits will be phased in from 2012 to 2016, pending approval by Parliament and the provinces, and do not apply in Quebec. But it's clear the department hopes Baby Boomers will stay in harness a few years longer before applying for CPP benefits.

The normal age to start getting CPP is 65, as with Old Age Security. But it's possible to get early CPP as soon as age 60.
That's with a reduction of benefits by 30% (6% less for each year before 65).

Financial advisors often tell clients to take CPP at 60 because the system is "actuarially generous" to those who take it early. The revised plan is neutral, ending a slight subsidy of early recipients from those who defer benefits. Finance says 25% of Canadians take CPP at 60 and 60% take it before 65. Few delay till 70.

Finance is simultaneously dangling the carrot of larger benefits for those who delay receiving CPP beyond 65. Previously, the reward for waiting till 70 was 30% higher payments. Under the revised plan, that 30% will be sweetened to 42%, phased in starting in 2011 (a year earlier than the early-retirement schedule).

There is another offsetting benefit. Finance has increased the number of low-income years that can be excluded from the final pension calculation to eight from seven. This and other related changes, benefit "virtually all retirees and should be viewed as an overall increase in CPP benefits," said Tom Walker, a retired actuary in Burlington
.
Walker, also a certified financial planner, says the changes reflect a necessary adjustment as CPP approaches maturity. "Unfortunately those who will turn 60 from 2012 to 2016 will lose a portion of the current early-retirement subsidy. Those who turn 60 after 2016 will lose the entire early retirement subsidy."

Thus, someone who is 53 today wishing to take CPP in 2016 at age 60 will see benefits reduced by 36% instead of the previous 30%. The actual mechanism is to reduce benefits by 0.6% (up from 0.5%) for every month the pension is taken before 65. For those opting for post-65 benefits, the enhancement will be hiked to 0.7%. for each month from 0.5%.
Contribution rates stay at 9.9% but changes may be in the wings. Finance said federal and provincial policymakers will make recommendations for changes by year-end.

Once in effect, many who counted on a certain level of income from CPP may choose to keep working an extra year or two. With stock market losses in 2008, it's tempting to declare this the last nail in the coffin for early retirement.
But "it's more like a thumb tack," quipped Mercer actuary Malcolm Hamilton, "To change people's behaviour will require something more dramatic than this. A real sea change would be if the federal government announced it was changing the pension plan covering its own employees and removed its very expensive incentives to retire before 60."

Traditionally, financial advisors are cautious making long-term client projections that include government pensions. "Despite their assurances about the CPP's long-term sustainability, I can't see how the math works when the number of recipients is rising and the number of contributors is falling," says Markhambased advisor Robert Smith, "It would be political suicide to announce major revisions, so I think people should expect many more of these gradual changes and plan accordingly."

Gail Bebee, author of No- Hype Investing, suggests those who turn 60 before the revisions kick in should "take the money at the earliest opportunity and run." But Ian Markham, director of pension innovation at Watson Wyatt Canada, says CPP is "extremely well run and young people should count on it being there" for them when their time comes.

Europe's most powerful computer unveiled in Germany

The fastest computer in Europe and the third worldwide with the capacity of 50,000 desktop computers was launched Tuesday in Germany.The computer "Jugene" is capable of performing 1,000,000,000,000,000 operations per second. It ranks behind the "Roadrunner" and "Jaguar" computers in the United States, said Kosta Schinarakis from the Juelich research centre, where the computer is located.The computer will be used for a wide variety of operations, including research on fuel cells for electric cars, weather forecasting and the origins of the universe, Schinarakis said.

Canada’s Dollar Rises to Strongest Since October as Oil Gains

Canada’s dollar rose above 90 cents per U.S. dollar, the highest level in almost eight months, as crude oil and global stocks gained on optimism economic growth will revive.
“It’s the Canadian dollar in conjunction with other cyclical, risk-side currencies,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The Canadian dollar is also performing better because of better prices in correlated commodities, in particular crude.”
The currency, known as the loonie, will reach parity with its U.S. counterpart by year-end, TD Securities Inc. forecast.
The loonie touched C$1.1099 per U.S. dollar, or 90.08 U.S. cents per Canadian dollar, the strongest since Oct. 8. It traded up 0.4 percent at C$1.1118 at 12:45 p.m. in Toronto, from C$1.1164 yesterday.
“Ninety cents is a big psychological level,” said Shane Enright, a currency strategist at CIBC World Markets Inc. in Toronto. “There’s a lot of support down there.” A break below a support level indicates a currency may move to the next level.
Crude oil for July delivery rose for a third day in New York, climbing 1.8 percent to $63.55 a barrel. The MSCI World Index of stocks in 23 developed countries gained for a fourth day, advancing 0.5 percent.
‘Positive Backdrop’
“Risk aversion levels remain depressed, providing a positive backdrop for the Canadian dollar,” George Davis, chief technical analyst for fixed-income and currency strategy at RBC Capital, wrote in a note today. “We would not be surprised to see an attempt to break below the C$1.11 threshold at some point this week.”
The currency will reach parity with its U.S. counterpart by year-end on the resilience of Canada’s economy and the weakness in the greenback, TD Securities said today.
“This forecast change reflects the general U.S. dollar- negative view that has characterized our broader forecasts for some time,” wrote analysts including Shaun Osborne, chief currency strategist in Toronto at the firm, a unit of Canada’s second-largest bank. “It also reflects the view that the Canadian situation is relatively attractive from a fundamental point of view.”
Canada’s dollar, the South African rand and the pound were the top performers today against the greenback among the most- traded currencies tracked by Bloomberg. Australia’s dollar earlier reached the highest this year. Brazil’s real strengthened beyond 2 per dollar for the first time in almost eight months.
‘Good News’
“The market is still continuing to focus on good news,” National Bank’s Spitz said. “That’s really the dominant factor in how currencies are moving these days. I’m not convinced that it’s sustainable.”
The 14-day relative strength indicator for the U.S. dollar against the Canadian dollar stood at 27.3. Readings below 30 and above 70 indicate a reversal may occur.
A report yesterday showing a surge in U.S. consumer confidence “pushed risk thirst back with a vengeance,” Sacha Tihanyi, a currency strategist in Toronto at Scotia Capital, a unit of Canada’s third-largest bank, wrote in a note to clients today. The Canadian dollar may have “overshot,” Tihanyi wrote.
Canada’s currency gained 17 percent since reaching a four- year low on March 9 as investors stepped out of havens into higher-yielding assets such as stocks amid signs the global economic slump is moderating

Exxon Mobil Says Transition From Oil Is a Century Away

Exxon Mobil Corp., the world’s largest refiner, said the transition away from oil-derived fuels is probably 100 years away.

Petroleum-based fuels including gasoline and diesel, as well as hydrocarbons such as coal and natural gas, will remain the dominant sources of energy for factories, offices, homes and cars for decades because there are no viable alternatives, Chief Executive Officer Rex Tillerson told reporters today after Exxon Mobil’s annual shareholders meeting in Dallas.

In the U.S., which burns a quarter of global oil supplies, consumers probably face higher fuel prices if lawmakers impose greenhouse-gas rules that inflate fuel-production costs, Tillerson said. A plan introduced by Democrats this month would allocate a limited number of emission credits to refiners and electricity producers, with the aim of curbing greenhouse gases.

“The oil-gas-refining side of the business received a very, very small amount of the allocations, which means that sector will bear more of the costs more immediately,” Tillerson said. “If we’re going to place a price on carbon, let’s do that in the most efficient way. A carbon tax is more efficient than a tax that’s applied by way of a cap-and-trade mechanism.”

Tillerson, 57, said lawmakers are hurrying to restrict greenhouse gases when many scientific questions surrounding the global warming issue remain unresolved.

“The point of conflict that I find more often than not are the projections that some make regarding how serious the problem may become and at what pace of acceleration it may occur,” Tillerson told investors at the shareholders meeting. “All of those models have deficiencies in the way they’re constructed and the assumptions that go into the models and the limitations of the data.”

Tillerson, a University of Texas-trained engineer, said climate change is a “serious risk-management issue” for Exxon Mobil. The company will continue to fund scientific research into climate science and the impact of greenhouse gases on the atmosphere, he said.

“We’re going to be very forthright in not accepting something that is not completely scientifically proven,” Tillerson said. “We’re not skeptics. We’re just approaching this the way we would approach any scientific challenge, and it’s a serious challenge.”

GLOBAL INFLATION: The Next Major Obstacle to Economic Growth

One thing we find truly amazing about the markets is that they're much more than just investments. Markets provide a way of peeking into the future, if you understand what they're trying to tell you.

Gold started moving up in a major bull market in 2001 and it's been rising strongly and consistently ever since.

Gold always leads inflation, so it was telling us that inflation was eventually going to head higher. That didn't happen for quite a while, but now it's another story
.
China is quietly making massive purchases of gold bullion and trying to reduce their intake of U.S. dollars. China's gold holdings have almost doubled since 2003.

Obama's latest budget calls for another $5 trillion in deficit spending before the end of his term. With the Chinese buying fewer US Treasuries, the national debt will have to be financed through the printing press.

The only way to stop hyperinflation is to drive interest rates through the roof. But, doing so would bankrupt a vast majority of homeowners and the U.S. government itself.

Because the world economy is in flux. Investors made a knee-jerk move into the U.S. dollar, thinking it was safe.
When they realize the dollar is not really "as good as gold," soon $950 an ounce may sound as ridiculous as penny candy.
Shrewd investors see a buying opportunity
.
Those with gold holdings are doubling down while the price is still low.
There’s a lot of talk about inflation in official circles and that wasn't the case before. But over the past couple of months, comments or inflation warnings were made by the Fed, the European Central Bank and the Bank of England.

Government officials are speaking out, and so is the press. The International Monetary Fund was the most direct, warning that global inflation has re-emerged as a major threat to the world economy.

Inflation has been creeping back and its gaining momentum. In the past six months, for example, we've seen some huge double digit annualized jumps in U.S. wholesale prices, along with soaring money supply.

But what's happening in other countries is even more interesting and it's intensifying the global inflation concerns, which Gold saw coming way back when.

Recession: The Mother of Invention

With soaring oil and food prices, falling home values, and the credit crunch beginning to take their toll on the economy, it’s a terrible time to try to expand businesses or innovate, right?
Not necessarily.

By some accounts, the worst of economic times—the Great Depression—was actually a rich period of management invention in North America.

Caroline Bird’s 1966 book The Invisible Scar. This highly detailed description of how the Depression affected American life includes a fascinating chapter on the changes that took place in companies during the 1930s, when professional management became firmly established and functions such as marketing, public relations, and advertising came into their own.

A number of enterprises outperformed competitors and actually grew during that tumultuous era by excelling in understanding and satisfying customers’ changing needs.
The Standard Oil companies built a lasting advantage by aggressively expanding their networks of service stations.
Du Pont increased its dominance by introducing nylon and other new products for consumer markets.
Sears prospered -- while Montgomery Ward languished -- by coming out with innovations like low-cost refrigerators and mail-order automobile insurance and by doubling the number of its stores. And at a time when
Wall Street was despised, Merrill Lynch recognized that there was an opportunity for honest brokers.
A similar customer focus allowed entrepreneurial ventures such as Carvel and Good Humour (ice-cream retailing), Clairol (hair coloring), A.C. Nielsen (retail sales data), and Chock Full O’ Nuts (coffee shops) to beat the era’s long odds.

What lessons can managers glean from the 1930s?
The main one, of course, is that the current wave of market upheavals and shifts are providing opportunities for innovations and growth.
If you’re game for a challenge, perhaps this is the best time to…

Test your assumptions about customer needs—by rethinking what data you are crunching or how you are segmenting customers.
This can be especially challenging for a company that does not directly serve end users. But there are a variety of quantitative methods and qualitative techniques (such as spending a day in the life of a customer or creative brainstorming) that can help you.

Manage product/service innovations for global markets—by figuring out how to design low-cost or good enough offerings for customers in emerging markets and redesign them for customers in mature economies. Emerging giants from developing countries that have become global forces are models. But a growing number of Western multinationals are rethinking their strategies in order to follow suit.

Capitalize on the promise of strategic partnering—by mastering the intangibles crucial to making alliances work. Following some simple rules for getting to know your partner and clarifying the working relationship can help.

Reskill your organization—by using the down market to acquire talent important to your future and the down time to develop the talent pool you already have. Create a formal program for anticipating and fulfilling such needs.

These are areas that are underappreciated or undermanaged at many companies.
Perhaps it will take a good recession to bring them to the fore.
What else would you put on the list?

If It Ain't Broke, Don't Fix It

Wind Energy Will Not Reduce US Oil Dependence
One of the false claims made by “wind energy” advocates is that greater use of this potential energy source would reduce dependence on oil, including oil imports.
In fact, adding more wind turbines will have no significant impact on oil consumption.
Unfortunately, many well-meaning people (including some prolific authors of letters to editors and reporters) have accepted the wind advocates’ claims about reductions in oil use.
Facts about oil use in electric generation
1. The only potential use of wind turbines is to produce electricity.
2. Very little oil is used in the US to produce electricity. Only 2.45% of the electricity produced in the US was produced by using oil The US Energy Information Administration (EIA) expects that percentage to drop to 1.68% by 2025
3. Most of the use of oil in the US for electricity generation occurs in a few states, as shown in the attached. For example, in 3 states (Florida, New York and Hawaii) accounted for nearly 58% of all the electricity in the US generated by using oil.
4. Oil accounted for more than 5% of electric generation in only 9 states and the District of Columbia. Those states are Hawaii, Florida, Massachusetts, Delaware, Alaska, New York, Connecticut, Maine and Virginia.
5. Oil accounted for less than 1% of electric generation in 31 states. Twenty-six of those were under ½ of 1%.
Reasons why wind energy will have no significant impact on oil use for electric generation
6. Even in those few states where oil accounts for more than 1% of electricity generation, adding wind turbines would have very little, if any, impact on oil consumption. The facts supporting this are complex and many of those who have believed the false claims might be forgiven for their errors. However, the complexity does not excuse officials from DOE, NREL or the wind industry who should know better. But, in any case, here is why wind energy is highly unlikely to reduce oil use in electric generation:
a. About 17% of the oil used in electric generation in was “distillate” oil4 used in combustion turbine and internal combustion electric generating units.5 The cost of this oil is high and such units are used almost exclusively in times when electricity demand is at its highest level (e.g., during hot weekday afternoons in August). Little if any wind generated electricity would be available during those times.
b. The remaining 83% of the oil used in electric generation was “residual oil” (#4 & #5) that is used in older, oil-fired steam-electric generating units (oil is burned to heat water and create steam to drive a turbine).
c. These older oil-fired steam-electric units are quite unlikely to be the units that are backed down or ramped up to adjust for the intermittent, highly volatile (output often varies widely minute to minute) and largely unpredictable output from wind turbines –which produce electricity only when the wind is blowing in the right speed range.6
d. Instead, the generating units that are likely to be used to “back up” the intermittent wind turbines will be units that are either:
1) Designed and designated to serve in an Automatic Generation Control (AGC) mode to keep an electric grid in balance (i.e., frequency and voltage),
2) Producing at less than full capacity and capable of ramping up or down on short notice, or
3) Operating in a “spinning reserve” mode.7
Electricity supply and demand must be kept in balance. Electricity production is constantly adjusted to meet electricity demand. The generating units that serve best in backing up intermittent, volatile wind turbines are hydropower units because the output from these units can be increased or decreased almost instantaneously.
The next best alternatives are gas-fired turbine-based generating units (e.g., combined-cycle or larger simple cycle). Oil-fired units are less likely to be used in the required balancing role for wind turbines because (a) the oil-fired combustion turbine and internal combustion units are unlikely to be running except in times of peak demand, and (b) the oil-fired steamelectric units are likely to have slower response times than is necessary to back up wind turbines.
e. The generating units used to “back up” intermittent and volatile wind generation will depend on the generating mix and other conditions in the grid control area that is receiving the electricity from wind turbines.
In the Pacific-Northwest, for example, hydro power would likely serve in the balancing role – with no savings in oil. In New England, with its heavy dependence on natural gas and a significant amount of newer gas-fired generating capacity, a gas-fired unit would likely serve in the balancing role, again with little or no savings in oil use.
7. In summary, there is very little likelihood that any oil use in electric generation would be reduced by adding wind turbines. This would certainly be true in those 31 states with less than 1% ─or less than ½ of 1% of their electric generation from oil.

Global energy demand seen up 44 percent by 2030

Global energy demand is expected to soar 44 percent over the next two decades with most of the demand coming from developing countries such as China and Russia, the U.S. government's top energy forecasting agency said on Wednesday.
The worldwide economic downturn has hit energy consumption, but an expected recovery next year could respark demand and boost prices, the Energy Information Administration said in its new forecast.
U.S. oil prices are forecast to rise from an average $61 barrel this year to $110 in 2015 and $130 in 2030.
Oil prices "begin to rise in 2010-2011 period as the economy rebounds and global demand once again grows more rapidly than non-OPEC liquid supply," EIA acting administrator Howard Gruenspecht told a news conference.
Global oil demand is expected to rise to 107 million barrels per day over the next two decades from nearly 84 million bpd this year. Oil will account for 32 percent of the world's energy supply by 2030 from about 36 percent in 2006.
Almost 75 percent of the rise in global energy demand through 2030 will occur in developing countries, particularly China, India, Russia and Brazil, the agency said.
The Organization of Petroleum Exporting Countries will continue to provide 40 percent of the world's oil supplies during the period.
Renewable energy, like wind and solar power, will be the fastest growing energy source, making up 11 percent of global supplies. Biofuels, including ethanol and biodiesel, are expected to reach 5.9 million bpd by 2030.
The EIA said its long-term forecast does not reflect efforts the United States may take to cut greenhouse gas emissions or an expected international agreement to curb greenhouse gases.
Gruenspecht said the agency will analyze the possible impact of climate change legislation approved last week by the U.S. House of Representatives Energy and Commerce Committee.
But he said the bill may not change energy use initially, citing carbon dioxide emission limits and the allowed transfer of carbon cuts to developing countries.
"One could imagine that one could comply at least with the 2020 part of this proposal calling for a 17 percent reduction (from 2005 levels) just using the offsets and not having a significant change in our consumption or the way we use energy at all," Gruenspecht said.
If global climate change laws and policies don't change, world energy-related carbon dioxide emissions will rise by a third to 40 billion metric tons a year, the agency said.
The EIA's report also found that global natural gas demand will increase by almost 50 percent to 153 trillion cubic feet. The agency said that unconventional natural gas production, particularly from gas shale, will make the United States "virtually self-sufficient in natural gas supply in 2030."

Canada's Economic Action Plan - WHAT HAS BEEN DONE

What has been done
The credit crunch that ushered in the current global recession began in 2007 when the real-estate bubble that had been building in the United States finally burst.
While not even the top private sector economic forecasters foresaw the speed and severity of the eventual global downturn, those first rumblings in the U.S. economy did provide a warning to prudent leaders and policymakers that it was time for early action.
In 2007, Prime Minister Stephen Harper began warning Canadians of the coming challenges in the global economy.
The Prime Minister did more than just warn Canadians. He also acted to ensure that Canada remained ahead of the curve and well positioned to deal with the economic challenges ahead.
Early Tax Cuts for Canadians
On October 30, 2007, the Harper Government introduced $65 billion in permanent tax reductions, specifically designed to bolster Canada's economy for uncertain times.
These tax reductions took effect just at the moment they were most needed, when the U.S. entered recession in early 2008.
In total, since coming to office, the Harper government has delivered or is delivering $220 billion in tax relief for Canadian individuals, families and businesses.
This includes the Harper Government's decision to cut the GST from 7% to 5%.
Cutting the GST helps sustain consumer spending and pumps billions of dollars into Canada's economy. In fact the GST cut will allow Canadians to hold on to more than $75 billion worth of their own money between 2008-2009 and 2013-2014.
This groundbreaking economic stimulus approach has since been imitated elsewhere, including in the United Kingdom which recently cut its own national sales tax (the VAT) in order to stimulate its economy.
The Harper Government also strengthened Canada's business conditions by implementing long-term corporate tax reductions that will leave Canada with the lowest corporate-tax rate among G7 industrialized countries.
Prudently Paying Down Debt
The Harper Government also paid down billions in debt while the economy was strong.
Since 2005-2006 the Harper Government has reduced the federal debt by $37 billion.
By reducing the federal debt, the Government created additional flexibility to respond to the recession with job-creating investments by deliberately running a short-term deficit.
Today, Canada's debt-to-GDP ratio remains the lowest among all G7 nations.
Strengthening Canada's Financial System.
The Harper Government also acted early to strengthen Canada's financial system in advance of the global economic shock.
To strengthen Canada's regulatory environment, the Government moved forward on establishing common securities regulation across provinces.
The Harper Government also acted to fortify Canada's real-estate sector against a U.S.-style shock by lowering the maximum term of a mortgage from 40 to 35 years and requiring a minimum down payment of 5% for government-backed mortgages.
Working closely with the Bank of Canada, the Government also acted to improve access to financing for Canadian consumers, households and businesses. This included supporting a new agreement to restructure non-bank asset-backed commercial paper. It also included the decision to set aside an initial amount of up to $75 billion for the purchase of insured mortgages.

Canadian Banks Rule

The woes of the global financial system are well known to most investors, particularly the problems impacting United States and European banks. Canadian banks, however, have escaped much of the effects of the world financial crisis, and a recent report from the International Monetary Fund (IMF) proves that this was not by accident. It was instead due to a combination of fiscal prudence, and what Americans would call "excessive regulation." (To learn more, read What Is The International Monetary Fund.)

Mobile Backhaul Equals Big Money Opportunity

Mobile backhaul networks represent a big opportunity, mostly because of the proliferation of 3G and 4G networks and the easy availablity of iPhone-type devices is going to boost mobile data and video uset
Infonetics Research has issued a report that forecasts 4.4 billion mobile subscribers worldwide by 2011, and estimates that their needs will push the demand for wireless backhaul equipment to over $10 billion by that year. Infonetics predicts that the big spending is going to happen on the IP/Ethernet portion of worldwide mobile backhaul equipment with triple-digit growth rates predicted from 2007 to 2011. No surprise: T-Mobile, Swisscom Mobile and Telecom Italia are all building IP/Ethernet based backhaul networks. Ironically, given the amount of money being spent on this sector there isn’t much startup activity in this space.

Smartphone Sales Up 12.7%

Smartphone Sales Up 12.7%, Nokia is Top, Followed by BlackBerry, Says Gartner.
Worldwide mobile phone sales totalled 269.1 million units in the first quarter of 2009, a 8.6 per cent decrease from the first quarter of 2008, according to Gartner, Inc. Smartphone sales surpassed 36.4 million units, a 12.7 per cent increase from the same period last year.
Nokia continued to lead the mobile phone market, but its share dropped to 36.2 per cent from 39.1 per cent in the first quarter of 2008. Samsung retained second place and improved its market share as its sales totalled 51.4 million units. After dropping to the fifth position in the fourth quarter of 2008, Motorola overtook Sony Ericsson to regain fourth place.
Smartphone sales represented 13.5 per cent of all mobile device sales in the first quarter of 2009, compared with 11 per cent in the first quarter of 2008. Gartner analysts said positive performance by Research In Motion (RIM) and Apple (see Table 2) showed that services and applications are now instrumental to smartphones’ success.
Worldwide Smartphone Sales to End Users in 1Q09 (Thousands of Units)

Ericsson says R&D key to winning China 3G orders

Ericsson (ERICb.ST) is planning to spend over 1 billion yuan ($146 million) and make around 1,000 new hires in research and development in China this year to win a bigger share of the country's third-generation telecom market.
Erik Feng, the Swedish telecom gear maker's executive vice president in China, said the company had spent 1 billion yuan on R&D annually in recent years and would invest the same amount this year even as its peers tighten their belts.
"This year we will still spend more than 1 billion yuan on R&D," Feng said. "Our R&D team will expand to around 2,700 from 1,700 by the end of 2008."
Despite Beijing's long-awaited issuance of 3G licenese to telecom operators earlier this year, foreign companies have made slow progress in breaking into the booming market because most orders have gone to domestic players, such as Huawei [HWT.UL] and ZTE (0763.HK).
Ericsson has won around 5 percent of 3G orders by China Mobile's (0941.HK), the worlds' largest wireless carrier, and 30 percent of orders by China Unicom (0762.HK), its smaller competitor.
Feng said he hoped the company would fare better in China Mobile's next round of 3G bidding. "This requires putting more resources into research and development," he told reporters at an industry conference in Beijing.
Beijing has targeted spending of $41 billion in 3G mobile network construction this year and next. Feng said nearly half that, about $18 billion, will be spent this year by all three operators.

China Mobile in Android, TD-SCDMA handset deals

China Mobile will offer HTC smartphones equipped with Google's Android software, the first carrier to do so in the country, HTC said, adding that it will ship a version of its new "Magic" model and customize the device for the world's leading carrier. Separately, China Mobile has tapped ST-Ericsson to deliver high-end and budget handsets based on TD-SCDMA technology, according to the handset maker.

Global Financial Stability Report

Financial markets worldwide reflect ongoing deleveraging pressures amidst a deepening economic downturn. In spite of extensive policies, the global financial system remains under intense stress. Moreover, worsening economic conditions are producing new, large writedowns for financial institutions. In response, balance sheets are being cut back through asset sales and the retiring of maturing credits. These actions have increased downward pressure on asset prices and reduced credit availability. Restoring financial sector functionality and confidence are necessary elements of economic recovery. However, more aggressive actions by both policymakers and market participants are needed to ensure that the necessary deleveraging process is less disorderly. A broad three-pronged approach—including liquidity provision, capital injections, and disposal of problem assets—should be implemented fully and quickly so as to encourage balance sheet cleansing. At the same time, international cooperation will be required to ensure the policy coherence and consistency needed to re-establish financial stability.
Risks to financial stability have intensified since October 2008. Macroeconomic risks have risen as global growth has fallen precipitously alongside a sharp slowdown of global trade. Credit risks have also risen as a deterioration of economic and financial conditions have resulted in rising loan losses. At the same time, the flight from risky assets and illiquid market conditions has increased funding costs, even as risk-free rates have declined with monetary easing. Emerging market countries are also feeling the effects of the advanced economies' financial and economic difficulties, and there is the potential that the abrupt pullback from emerging market assets by investors and heightened financing costs will erase some of the economic gains these countries have made in recent years.
With the help of extensive government support, market functioning toward the end of 2008 improved in a number of asset classes. However, the negative interaction between the economy and the financial sector has intensified as the credit crunch bites harder and extends globally, with confidence among financial counterparties remaining strained. Indeed, the recent shock to bank earnings and other bad economic news has put further downward pressure on bank equity prices, and the width of credit default swap spreads points to still-elevated systemic risks (Figures 1.1 and 1.2). Notwithstanding public injections of capital, many banks around the world may have an insufficient capital cushion to weather a deep global economic downturn.
The difficulty of keeping up with the increasing size and breadth of writedowns borne by financial institutions, along with continued high funding pressures, have hampered the ability of policymakers to address the crisis. Credit intermediation and confidence are severely impaired, which will weigh heavily on recovery prospects and the ability of institutions to attract needed capital from private investors. Absent further firm action from policymakers, this situation threatens to worsen, given that banks, both advanced country and emerging market corporations, and to a lesser extent, sovereign entities, face risks that they will not be able to roll over large amounts of existing debt in coming years.
Beyond the banking system, systemic concerns are rising for insurance companies and pension funds. Insurance companies have significant exposure to assets whose quality is deteriorating sharply. Pension funds have also been hit severely on the asset side.
Writedowns Mounting
Until now banks have managed to obtain sufficient capital to offset existing writedowns, but that is mainly due to the massive public sector injections of capital in the fourth quarter (Figure 2). The worsening credit conditions affecting a broader range of markets have raised our estimate of the potential deterioration in U.S.- originated credit assets held by banks and others from $1.4 trillion in the October 2008 GFSR to $2.2 trillion. Much of this deterioration has occurred in the mark-to-market portion of our estimates (mostly securities), especially in corporate and commercial real estate securities, but degradation is also occurring in the loan books of banks, reflecting the weakening outlook for the economy.
Going forward, banks will need even more capital as expected losses continue to mount. On a global basis, estimates are quite difficult to construct, but for European and U.S. banks, (including their exposure to assets domiciled not only in the United States, but also in Europe and emerging markets), our rough estimates for expected writedowns during 2009 and 2010, partly offset by the anticipated revenues over the same period, would result in a net capital shortfall in the order of magnitude of at least half a trillion dollars. This implies that for U.S. and European banks taken together such an amount in new capital is necessary just to prevent their capital position from deteriorating further. Moreover, additional capital injections, together with forceful measures to clean up banks’ balance sheets of troubled assets will be required to raise the level of confidence in the banking system.
Hedge funds and mutual funds have also been hit hard, experiencing losses of assets under management as investors shift to safer asset classes. The combination of asset price declines and redemptions suggest the hedge fund balance sheets shrank by about half in the last quarter of 2008, a particular concern for those markets in which hedge funds provided a significant proportion of market trading liquidity.
Financing Gaps Widening
Despite capital injections and guarantees, funding markets are opening only slowly for banks. Securitized forms of wholesale borrowing are limited: current securitizations are almost all retained on the balance sheet of the originators to use as collateral at central banks, while banks are unable to issue cost-effective unsecured debt unless it is government guaranteed. With the various government guarantee programs, banks have begun to raise substantial amounts of term funding to stabilize their balance sheets.
Central bank liquidity injections and rate cuts are pushing down interbank rates, and further gradual declines in term premiums are anticipated (Figure 3). . However, despite most banks needing longer-term liquidity, much of the liquidity supplied by central banks is being recycled in the overnight market, or ends up back at the central banks, raising rollover risks even further (Figure 4). This pattern reflects continuing worries about potential liquidity shocks and counterparty concerns, as well as uncertainty surrounding the amounts needed to fund future assets.
Looking forward, emerging market countries, particularly corporate borrowers, remain vulnerable to continued deleveraging and credit retrenchment. Syndicated lending to emerging markets dropped sharply in the fourth quarter, as the contagion spread, with emerging Europe suffering a particularly sharp decline. Emerging bond markets virtually shut down for a period of time in the fourth quarter, though there has been some resumption of issuance by higher-quality sovereigns in January (Figure 5). As corporates tap banks for short-term loans, the maturity structure for corporate debt also shortens, further raising rollover risks. Capital markets remain reluctant to lend pending large external rollover needs and corporates face the additional challenge of falling revenues as the global economy slows, raising the risk of corporate defaults.
Credit Provision Impaired
With interbank markets still dysfunctional and liquidity being hoarded by banks, governments need to step in to support financial intermediation in some cases. Where they have done so, intermediation channels have continued to function to some extent. This is evident in bank debt issuance, where nearly all recently-issued bank debt now carries a government guarantee. In the United States, the Fed's commercial paper program has successfully reinvigorated this market and its purchase program of mortgage-backed securities has also encouraged lower rates and larger issuance of the equivalent securities. By contrast, the functioning of those markets that have not received official support have shown little improvement—in the United States, asset-backed securities on autos and credit card receivables have improved only marginally and the commercial real estate sector has deteriorated.
Domestic private sector credit growth is falling across a large number of countries, while public sector credit growth is expanding (Figure 6). So far, this has been mostly driven by banks' tighter credit standards, but will increasingly be related to falling demand for credit. This trend is also evident in cross-border bank lending, which does not bode well for emerging market countries reliant on external funds for their own domestic credit expansions or for trade finance. In fact, trade finance appears to have dropped sharply and at least part of the fall appears to be attributable to banks' reluctance to lend as they attempt to delever their balance sheets. In turn, several banking systems in Western Europe remain highly exposed to a deterioration in asset quality in emerging Europe (Figure 7). While recognizing the benefits of diversification, there is a risk that the crisis may propagate further as shocks are transmitted between mature and emerging market banking systems.
Decisive and Prompt Policies Needed
Turning to policy recommendations in the financial sphere, the October 2008 GFSR highlighted a three-pronged approach to resolving the crisis: the provision of ample liquidity and term-funding support from central banks; bank recapitalization; and measures to address problem assets. The report noted that to be effective financial policies need to be comprehensive and internationally coordinated to limit unintended cross-border effects.
So far, the policy measures to cap potential bank losses and inject capital have not yet stemmed concerns about the health of the financial system. The process thus far still appears piecemeal—providing capital as the direct need arises; supporting some types of assets and specific categories of lending; and providing various guarantees. While these measures have stabilized some financial institutions, they come with the risk that they will distort credit allocation decisions, crowd out markets that do not receive special treatment, disfavor more efficient financial institutions that do not require public support, and potentially increase the ultimate cost to taxpayers. Indeed, there are already concerns about the fiscal implications of the government guarantees and recapitalizations, which are reflected in higher credit default swap spreads and credit ratings uncertainty regarding some sovereign entities.
The speed and size of the impact of the adverse feedback loop between the economy and the financial system has overwhelmed policy responses so far. Decisive and urgent action is now needed to stem the downward spiral of accumulating losses. The costs are likely to be higher than the amounts currently allocated—though much depends on the speed with which confidence is restored. In particular, a comprehensive and coordinated approach needs to be framed in a strategy that incorporates the following elements:
• Move expeditiously toward recapitalization and measures to deal with distressed assets. An assessment of bank's business plans—and deciding which financial institutions will need public monies based on their viability—should be done proactively by supervisors, since history suggests that the longer one waits, the higher the fiscal costs. Banks with heavy distressed asset burdens, but solvent and viable, would be restructured and recapitalized, and those that are not viable could be taken over by the public sector and either restructured and resold, or wound down in an orderly fashion. Generally, increasingly stringent conditions would be applied as banks receive larger amounts of public funds. The restructuring process might involve the use of a publicly-owned "bad bank" to remove distressed assets from the balance sheets of institutions.
• Immediate, short-run policies and actions taken need to be consistent with the long-run vision for the structure of a viable financial system. Without this end-point, the credibility of the policies will come under question. In addition, it will be important to recognize that the adjustment will need to continue for some time and that the viable financial sector of the future will be less leveraged and therefore smaller relative to the rest of the economy. That said, reaching higher bank capital ratios needs to be done in a gradual manner in order to avoid any additional adverse feedback effects and to encourage lending to healthy borrowers. Experiences of previous crises show that credit growth will be slow to return and does not normalize until banks’ balance sheets are cleansed.
• Rules governing the process toward a more stable financial system need to be clear and consistent. To restore confidence, transparency and clarity are essential in both the private sector and public policy actions. Authorities should maintain transparency of policies, the use of public support, and any decisions taken as regards individual financial institutions. This applies in particular to the identification and valuation of assets, especially those of which the banks are to be relieved, to the conditions applied to their recapitalization, and to the level of capital buffers that the authorities consider adequate.
• International cooperation on a common framework for financial policies should receive high priority. The application of substantially different conditions when supporting financial institutions should be avoided in order to prevent unintended consequences that may arise from competitive distortions and regulatory arbitrage. International coordination is also needed to avoid excessive "national bias," whereby domestic institutions are favored or local credit provision is encouraged, to the detriment of other countries. A more consistent insolvency framework for financial institutions would also help.
No one model of restructuring will be appropriate for every country or every bank, but even if the models differ, international coordination remains essential. Where solutions need to be customized this should be done within a common strategy and framework that ensures clarity and a level playing field.
The commitment displayed through the wide-ranging policies and measures in addressing the crisis is welcomed. In the medium term, the initiatives already underway to improve the regulatory and supervisory frameworks will be crucial to build a resilient and innovative financial system.