At Federal Hall, which is located on Wall Street and just across the New York Stock Exchange, Obama urged the financial industry to support his new financial rules and avoid a return to the practices of excessive risk taking. Obama also called for global coordination in financial oversight and protecting economic recovery.

Lehman, the fourth largest U.S. investment bank, filed for bankruptcy on Monday, Sept. 15, 2008, which triggered a financial crisis that spread around the world and resulted in more than 1.6 trillion U.S. dollars in losses and write downs by financial institutions.

The history of upturns from economic slumps in America since the 1930s is straightforward: Consumers shoulder most of the burden. Often a big boost also comes from business investment, including home construction.

That lesson is part of what’s weighing on Wall Street, with stock indexes Monday posting their worst day since early July. Investors are wondering whether US consumers will have the oomph to lift the economy, and corporate profits, in the year ahead.

The Dow Jones Industrial Average fell 2 percent Monday to close at 9,135.34. The fresh doubts about the vigor of a consumer-led recovery also tempered commodity prices. Oil dropped below $67 a barrel as traders focused more on weak demand than on tropical storms that threatened oil production sites.

If history lays a big burden on consumers, it also may offer some comfort to edgy Wall Street traders: Consumer spending tends to rise once the worst of a downturn has passed. That was true in the 1930s, even with a tide of home-loan defaults and with the stock market way down from its 1929 peak. It was true in the early 1980s despite high unemployment.

But the track record also shows that if consumers get off to a weak start, the economic recovery itself can be tepid. The latest example: For five straight quarters starting in 2002, consumer spending rose at annual rates below 2 percent. With business investment also slow, that period became a so-called “jobless recovery.”

Another sobering history lesson is that there aren’t many examples of exports or government stimulus (aside from war spending) lifting the economy. Perhaps President Obama’s record $787 stimulus will be an exception. Typically, trade and government are forces at the margins, modestly tugging the gross domestic product up or down.

Maybe this time will be different on the trade front, if strong demand from China and other developing nations boosts demand for US exports. But many economists expect to see a trend already visible in recent months: both exports and imports recovering together.

“The United States is likely to lead rather than lag the global recovery, and we therefore expect imports to move up earlier and more sharply than exports,” Nigel Gault, an economist at IHS Global Insight in Lexington, Mass., wrote last month.

Consumer spending in the US should rise next year, but by a tepid 1.7 percent, predict economists at Northern Trust Co. in Chicago. In a recent analysis, the company’s Paul Kasriel and Asha Bangalore argue that home construction will stop its contraction by the end of this year. Yet they don’t expect much momentum to come from business investment or home construction next year.

“There is concern being voiced that after the fiscal stimulus wears off, the economy will lapse back into a recession,” the two economists say. “Anything is possible, but that does not necessarily make it highly probable. In the post-World War II era, once the U.S. economy has gained forward motion, it has maintained that forward motion until the Federal Reserve has intervened to halt it.”

Source: SC Monitor

By Mark Trumbull

CHRIS CASEY, Greeley Tribune

He was forced out of Somalia at age 4, fleeing the war-torn country with his parents and many siblings. They lived in refugee camps in Kenya for the rest of his childhood. Jama got to know Nairobi, Kenya, but thieves and havoc lurked in other African cities he ventured into.

So the thought of starting over — this time in a continent halfway around the globe — didn’t much bother him. He spent 18 months filing papers and awaiting approvals for refugee status. When Jama’s plane landed in Los Angeles three years ago, he felt pure joy. “I was so happy to be free,” he says.

So, after all that, opening his own store in January, in the teeth of the great global recession, was no big deal.

Jama already spoke three languages when he came to the United States. Now he’s learning the language of good, old-fashioned American entrepreneurism.

“With business, sometimes it’s bad, and sometimes it can be good,” he says.

Business has been steady enough at Doof, his African food and clothing store in downtown Greeley, that Jama continues to add products to the shelves.

The store is located in a downstairs room of the Trinity Building. Conveniently, a Somali resource center, called Somaid, is located across the hall.

Jama, 21, named the shop after his grandfather, who went by the nickname “Doof” (pronounced DOHf).

“The meaning is like the person who goes around the world,” says Jama, whose parents raised 16 children, many of whom are now in the United States. “He traveled a lot. In Africa, the people in that time were like nomadic people. When they traveled, they walked long distances — state to state.”

Jama saved enough money to rent the space and buy the inventory, plus the city’s business licensing fees, by working for two years at a Tyson meatpacking plant in Emporia, Kan. By the time he left, he was earning close to $14 an hour as a trainer.

The Doof shop may be small, but it’s jammed full with an assortment of goods that Greeley’s growing African community is eager to buy. In one corner, a black dress hangs above a rack of women’s shoes, which are next to bottles of sesame oil, and African seeds and spices.

A noon-hour visit to Doof on a recent weekday illustrates the myriad avenues of opportunity Somali refugees are finding in Greeley. Besides his shop, Jama is taking classes at Aims Community College. He’d like to become a pharmacist. His sisters, with whom he shares a Greeley apartment, work at the JBS USA plant.

So does Abdijrahman Farah, 24, who stops in to transfer money to relatives in Somalia. Farah has been working at JBS for a year.

Cabdirisaq Ahmed Dahir, 21, strolls in wearing a tie and business shirt. He works at the nearby Wells Fargo branch as a personal banker. Like Jama and Farah, he’s originally Mogadishu.

Dahir grabs a Styrofoam cup and makes himself a cup of tea. He frequently drops in Doof when on break from work.

“This is an awesome place. I give it five stars for service,” Dahir says. “This guy (Jama) has very nice prices on a lot of the stuff, and he’s very devoted to the community. He gives back.”

Besides all his other responsibilities — not to mention the fact he’s looking for another job that offers health insurance — Jama volunteers at Somaid. He gives English lessons to Somalis and helps them navigate the application process for green cards and passports.

While the Greeley-area Somali community, which numbers close to 1,000 with most working at JBS, is busy integrating into American life, the people also keep close connections to Africa. Jama’s store features a popular computerized money transfer service, as well as international phone cards.

Jama says he buys most of his goods from suppliers in the United Arab Emirates. Popular items are the specialty teas, spices and foods from Africa. Many customers like the “black seed” which comes in a small blue-labeled bottle.

“It’s like medicine,” Jama says. “If you have (a scrape) you rub it in and you feel better.”

Also popular are cologne and perfume that come from Africa. One popular brand of perfume is bottled in a small, Aladdin-looking bottle and sells for $20. When enough customers request a product that he doesn’t stock, Jama begins ordering the item.

All the while, Jama, who refuses to work in another meatpacking plant, keeps traveling up the businessman’s learning curve. He keeps smiling and chatting with customers.

One lesson he’s already learned: Keep the shop open from morning to evening.

“Every day this is open,” he says of Doof.

The social-networking website Facebook has launched in Swahili, targeting more than 110m speakers of the language.

A group of Swahili scholars launched the new version with the permission of the California-based internet firm.

Facebook use has spread over the past five years in East and Central Africa, where most Swahili-speakers live.

Analysts say a Hausa version could be launched next in West Africa and Zulu for southern Africa. Facebook already exists in Afrikaans.

Symon Wanda, one of the project’s initiators, said they wanted to launch a Swahili version to safeguard the future of the language.

“The youth, the future generation, if you look at the biggest percentage of users on Facebook, they are the youth,” he told the BBC’s Network Africa programme.

“They can easily navigate through when it’s maybe a language they understand, which makes it easier to use the Swahili than to use the English.”

The BBC’s Ruth Nesoba, in Nairobi, says the Swahili site has already been on trial for some time and word has spread quickly.

Facebook’s Simon Wanda says they have been monitoring the take-up and says more than 60% of Facebook users in East Africa are already using the Swahili version.

The bulk of Swahili-speakers live in Kenya, Tanzania, Uganda, eastern Democratic Republic of Congo, parts of the Horn of Africa, Malawi, Mozambique and the Indian Ocean islands.

Facebook already exists in some 50 language versions.

Source: BBC

“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”

Obama on May 4 proposed outlawing or restricting about $190 billion in tax breaks for offshore companies over the next decade. Such business groups as the National Foreign Trade Council, the U.S. Chamber of Commerce and the Business Roundtable have denounced the proposed overhaul.

U.S. tax rules let companies defer paying corporate rates as high as 35 percent on most types of foreign profits as long as that money remains invested overseas. Obama says he wants to end such incentives to keep foreign profits tax-deferred so that companies would invest them in the U.S.

Microsoft reported an overall effective tax rate of 26 percent for 2008 in its last annual report. “Our effective tax rates are less than the statutory tax rate due to foreign earnings taxed at lower rates,” the report said.

Barry Bosworth, an economist in Washington at the Brookings Institution research center, said many software companies such as Microsoft have exploited tax and trade rules in the U.S. and other countries to achieve a low overall tax rate.

Ireland Subsidiary

Typically, he said, a company like Microsoft develops a product like Windows in the United States and deducts those costs against U.S. income. It then transfers the technology to a subsidiary in Ireland, where corporate tax rates are lower, without charging licensing fees. The company then assigns its foreign sales to the Irish subsidiary so it doesn’t have to claim the income in the United States.

“What Microsoft wants to do is deduct the cost at a high tax rate and report the profits at a low tax rate,” Bosworth said. “Relative to where they are now, the administration’s proposals are less favorable, so there will be some rebalancing on their part.”

Ballmer is one of 10 U.S. software company executives pushing back against the tax proposals in meetings today with White House officials including Jason Furman, deputy director of the National Economic Council, and the heads of congressional committees such as House Ways and Means Committee Chairman Charles Rangel, a New York Democrat.

Expense Deductions

Among other things, Obama proposed limiting expense deductions such as those for employee compensation when companies defer U.S. tax on foreign profits.

In a roundtable discussion today, Ballmer, Symantec Corp. Chairman John Thompson and the heads of smaller companies such as privately held Bentley Systems, an Exton, Pennsylvania-based maker of engineering software, said such policies would hurt domestic investment, reduce shareholder value and increase the cost of employing U.S. workers.

Ballmer said that, while the Obama proposals would preserve expense deductions related to research and experimentation costs, the overall deduction limits for companies that defer tax on foreign profits would raise the cost of employing U.S. workers. Fiduciary responsibility to shareholders would require Microsoft to cut costs, he said, meaning many jobs would be moved out of the country.

Worldwide Employees

Microsoft employed 95,029 people worldwide as of April 21, of whom 56,552 were based in the United States, according to the company’s Web site. The company announced it was firing up to 5,000 people in January while hiring some new workers; the company has shed about 1,000 jobs since then, spokesman Lou Gellos said.

Ballmer estimated that higher taxes under the proposal would reduce profits for companies that comprise the Dow Jones Industrial Average by between 10 and 15 percentage points.

“It’s just a question of how much will the Dow come down,” Ballmer said. “It’s not about companies anyway; we’re talking about shareholders.”

In addition to limiting current deductions for companies that defer U.S. tax on their foreign profits, Obama proposed altering a set of rules known as “check the box” that allow companies to shelter foreign profits in offshore subsidiaries that can be disregarded for U.S. tax purposes.

Duck Liabilities

While the rules were designed in 1997 to protect U.S. companies from paying excessive tax to other governments, Obama administration officials say it has evolved into a way to duck U.S. liabilities. Altering the rule, which Obama dubbed a “loophole,” would generate $86.5 billion in new revenue by 2019, the administration says.

The third international tax proposal would change rules governing how companies can claim tax credits for levies paid to foreign governments. Officials say some companies abuse the rule to accelerate tax credits before they could otherwise be claimed.

Obama has said his proposals would protect or create jobs in the United States.

Thompson of Symantec, the Cupertino, California-based maker of Norton anti-virus software and similar tools, said software companies are frustrated by being called tax cheats and compared with companies that moved their headquarters to low-tax countries such as Bermuda.

‘Counterintuitive’

Thompson called the Obama proposals “counterintuitive” to the administration’s other stated goals of fostering an innovation-oriented economy.

“It is a little bit ironic that most of our most significant trading partners and partners globally have taken the tack that they’ll reduce corporate tax rates to stimulate economic growth and not raise corporate tax rates,” Thompson said.

The roundtable was organized for Bloomberg News by the Business Software Alliance, a Washington trade group coordinating the executives’ meetings with policymakers.

To contact the reporter on this story: Ryan J. Donmoyer at e-mail rdonmoyer@bloomberg.net

Source: Bloomberg

NEW YORK (Fortune) — Regulators shelved a controversial plan that aimed to cleanse banks’ balance sheets of toxic assets.

The Federal Deposit Insurance Corp. said Wednesday it has postponed the initial sale of bank assets under its Legacy Loans Program, or LLP. The FDIC said it wasn’t canceling the program but would put it under study for revival in a different form.

The plan, which was to offer low-cost federal financing to private investors in troubled bank assets, had been expected to begin with a trial sale this month.

The loan program was unveiled in March as part of the Obama administration’s effort to restore investor confidence in the financial system. At the time, officials said removing bad assets from banks was the key to restarting the financial markets and putting the economy on track to recover.

But since then, policymakers led by Treasury Secretary Tim Geithner and FDIC chairman Sheila Bair have put the nation’s 19 largest banks through stress tests. The tests came in generally better than observers had expected, and big institutions have been able to raise some $85 billion in investor funds.

Shares of banks ranging from money-center giants Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) to regional banks Fifth Third (FITB, Fortune 500) and KeyCorp (KEY, Fortune 500) have rallied.

Other big banks, including Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), have laid plans to repay money they got last fall under Treasury’s Troubled Asset Relief Program. Regulators are expected to let some banks begin paying back those funds next week.

The banks’ capital-raising success, coming just months after a robust debate in Washington and on Wall Street about whether distressed giant banks would have to be taken over by the government, has reduced banks’ incentive to sell assets into the legacy loans program, regulators said.

“Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system,” Bair said in a statement Wednesday. “As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector.”

But the industry’s success in refilling its coffers isn’t the only thing that doomed the legacy loans plan and the broader Public-Private Investment Program (PPIP).

Critics warned that PPIP amounted to a multibillion-dollar handout to banking industry insiders who had already profited at the expense of the general public during the credit bubble earlier this decade.

In addition, investors and bankers cowered at the thought of submitting to deepening and often capricious government involvement in the private sector.

And then Congress got into the act, making it all much worse.

Bair said two weeks ago at a press briefing that the legacy loan start date was running late because Treasury was reworking the rules to implement a recently enacted amendment by Sens. Barbara Boxer, D-Calif., and John Ensign, R-Nev. The amendment aims to prevent collusion or conflicts of interest in the legacy loan program.

The Boxer-Ensign amendment ultimately may have caused some big players to back away from PPIP – illustrating what Hal Reichwald, a partner at law firm Manatt, Phelps & Phillips in Los Angeles, calls “the toxic combination of policy and politics.”

The next step, Reichwald suggests, is for regulators to embrace the possibilities of reconstituting troubled banks with the aid of private equity investors. He points to the recent FDIC seizure and sale of Florida’s BankUnited — as well as the likely use of so-called good bank/bad bank structures that separate troubled assets from banks.

Along those lines, the FDIC said Wednesday it will test the legacy loans funding structure in a sale next month of receivership assets — the remains of a failed bank.

“The current situation behooves all those who would be players in the distressed asset market to begin to think creatively,” Reichwald said in a recent note to clients, “because notwithstanding the government’s apparent change of heart the opportunities are still there.”

CNNMoney.com senior writer Jennifer Liberto contributed to this report.

Canada has been hit by the global slowdown

Canada’s economy contracted at the fastest rate since 1991 in the first three months of 2009, according to official figures.

The economy shrank by 5.4% on an annualised basis during the quarter after the economy shrank by 3.7% in the last quarter of 2008.

Despite being the worst result for 18 years, it was better than expected.

Canada has been hard hit by the global slowdown, with both its exports and imports falling.

“Lower spending in Canada and the United States, particularly business investment in plant and equipment, led to a sharp decline in Canada’s exports and imports,” said Statistics Canada, which issued the latest economic data.

Analysts had predicted a 6.6% drop in economic output.

“The only good news is that it will probably be the worst quarter in the cycle,” said Don Drummond, chief economist at Toronto-Dominion Bank.

The Bank of Canada has already cut its benchmark interest rate to a historic low of 0.25% in an attempt to stimulate the economy.

Source: BBC

Consumer spending forms the backbone of the US economy

US consumer spending fell for the second month in a row in April, despite an increase in personal income, official data has shown.

Consumer spending dipped 0.1%, compared with a revised fall of 0.3% in March, the Commerce Department said.

Personal income rose 0.5% – its largest monthly increase since May last year – thanks to tax cuts and benefit payments from the government’s stimulus package.

Analysts said the data reflected a more thrifty consumer as savings increased.

The personal savings rate – calculated as savings as a percentage of post-tax income – rose to 5.7% from 4.5% in March. That was the highest rate since February 1995.

The decline in consumer spending seen in March and April came after shoppers splashed out at the beginning of the year, taking advantage of heavy discounting.

Consumer spending accounts for about 70% of economic activity in the US.

‘Skewed’ data

Salaries remained flat in April, and analysts said consumers were reluctant to spend.

“The income data was skewed by the stimulus, where unemployment insurance was accelerated and extended,” said Peter Boockvar, equity strategist at Miller Tabak.

“The consumer doesn’t seem convinced that it’s an ongoing benefit with the income increase,” said independent market strategist TJ Marta.

“After careful consideration, the consumer is retrenching with the decline in spending. That means the government has to stimulate the economy more.”

Source: BBC

The unemployment rate in the eurozone rose to 9.2% from 8.9% in March, the highest rate since September 1999, the Eurostat data agency said.

Unemployment in the wider 27-member European Union (EU) rose to 8.6% in April from 8.4% the previous month.

Eurostat estimates that 20.8m people in the EU were unemployed in April.

This was an increase of 556,000 from March’s figure.

The number of people out of work in the eurozone increased by 396,000 to 14.58m.

EU UNEMPLOYMENT RATES Highest: Spain – 18.1% Latvia – 17.4% Lithuania – 16.8% Lowest: Netherlands – 3.0% Austria – 4.2% Cyprus – 5.4% Source: Eurostat

In April, Spain had the highest unemployment rate of any country in the EU at 18.1%, followed by Latvia (17.4%) and Lithuania (16.85).

However, separate data from the Spanish Labour Ministry for May showed the number of people filing claims for unemployment benefits in Spain fell slightly after 14 months of steady increases.

The decline of 24,741 left the jobless total at 3,620,139.

Rises across Europe

Unemployment increased in 25 out of the 27 EU member states. Romania and Greece were the only countries which saw their unemployment rates fall.

In Germany, Europe’s biggest economy, unemployment rose to 7.7% from 7.6% in March.

Economic activity will remain too weak to actually generate jobs overall until well into 2010 Howard Archer, IHS Global Insight

And in France, the second-biggest, unemployment increased to 8.9% from 8.8% a month earlier.

Even if signs of economic recovery begin to emerge, economists warned that unemployment is a lagging indicator.

“It will be some time before any improvement in economic activity feeds through to help the jobs outlook,” said Howard Archer from IHS Global Insight.

“Furthermore, we suspect that economic activity will remain too weak to actually generate jobs overall until well into 2010.

“Deep and extended economic contraction, depressed business confidence and deteriorating profitability are currently increasingly feeding through to push unemployment up sharply across the eurozone.”

Paul Krugman, who won the 2008 Nobel prize for economics, told the BBC that any recovery would be “so slow it would feel like a recession”.

He is urging the US government to introduce a second stimulus package of $500bn (£300bn) to boost the economy.

And he rebutted claims that such a move would be inflationary, saying it was “not impossible” to reduce the deficit.

Professor Krugman, a leading Keynesian who believes in strong government intervention to restore the economy to growth, has been critical of the Obama administration for not taking decisive action quickly enough.

Too small

He says that the $800bn stimulus package spread over two years was too small to be effective, given the huge size of the US economy, and he hinted that Treasury officials were already discussing plans to give it a further boost.

We have socialised the financial system through the back door Paul Krugman

Speaking to the BBC’s Hardtalk programme, Mr Krugman said that political considerations and an attempt to appeal to moderate Republicans had led President Obama to limit his ambitions.

He rebutted claims that the US could not afford a further stimulus package with the budget deficit approaching $1.75bn.

“Now is the time to act,” he said. “It is worth spending a lot now to avoid being in an entrenched slump.”

He said that the US budget deficit could be brought unto control in the longer term, particularly if the issue of rising healthcare costs was tackled.

He blamed the Reagan administration in the 1980s for raising US government debt from 25% to 60% of GDP.

Saving the banks

Professor Krugman said that he had been surprised by how quickly the banks had been able to recapitalise themselves, but he warned that they were “still wards of the state”.

He had wanted to nationalise the failing banks, but he believed the government’s policy was to do the least possible in order to prevent the collapse of the banking sector, rather than taking positive steps to boost recovery.

“We have socialised the financial system through the back door,” he said. “But we have created a ‘lemon’ socialism so that if firms get into trouble, the taxpayer will rescue them.”

He argued that the situation was fraught with moral hazard, and inherently unstable.

The only answer was much tougher regulation of the whole of the financial sector, not just the commercial banks.

He was still optimistic that the Obama administration would carry out its pledge to so do, but he was reserving judgement on how effective it would prove to be.

Government is back

Professor Krugman said that the basic cause of the crisis was that America had too little regulation and the problems were exacerbated by the lack of a social safety net, “with too little insurance against the accidents of life”.

He said that he believed the US would move closer to the European model of social democracy and that “intense tax phobia is no longer so strong”.