BERNANKE SNEEZES

Global investors have been glued to their screens for months for any sign that the U.S. economic malaise is spreading around the world, with a falling dollar undermining Asia's exports and pushing prices for dollar-denominated commodities ever higher.

Last week's testimony by U.S. Federal Reserve Chairman Ben Bernanke, in which he warned some small U.S. banks could fail and signaled more rate cuts might be needed, cemented the view the world's top economy is heading for a recession.

The latest round of weak U.S. economic data added to those fears on Friday, while a record loss at insurer American International Group Inc <AIG.N> fuelled worries that there are more writedowns to come.

Bernanke is due to speak again on Tuesday and analysts assume he will reiterate his willingness to cut rates even in the face of rising inflation.

The Organisation of Petroleum Exporting Countries (OPEC), which produces 40 per cent of the world's oil, appears set to ignore US President George W Bush's 11th-hour demand that the cartel increase oil output at its ministerial meeting.

Mr Bush, whose nation is the world's biggest energy consumer, said it would be a "mistake" by OPEC not to hike production to help bring down record-high oil prices of above $US100 when the organisation meets in Vienna on Wednesday.

But OPEC ministers, as well as an influential committee that advises the 13-member oil-producing club, said they were in favour of keeping output on hold ahead of an expected drop in crude demand during the second quarter.

Some hardline OPEC members have even called for a cut in production.

Fed slashes key interest rates

The US Federal Reserve has slashed key interest rates by 0.75 per cent, bringing the federal funds rate to 2.25 per cent, to fight a mushrooming credit crisis.

The central bank also trimmed its discount rate for direct loans to banks, and now available to some securities firms, by a similar amount, bringing the rate to 2.50 per cent. The vote was 8-2 by the Federal Open Market Committee.

The moves marked the latest effort by the Fed, headed by chairman Ben Bernanke, to revive a sluggish US economy and fight a global credit crunch that threatens to freeze the banking system.

The statement indicated that the Fed is ready to act further if needed to help stabilise a fragile economy.

"Recent information indicates that the outlook for economic activity has weakened further," the statement said.

--------------

Gus: more slosh funds to dilute the mid-strength beer with water... Not a good taste... Better help those with subprime mortgages pay for them, let the banks swallow their inflated pride and regulate the scrooges and con-artists with iron shackles. And ban "innovation" in the money syphoning market — this euphemism for sheer robbery. See toon at top.

New Yorker staff writer Nick Paumgarten posed those distressingly pertinent questions to Michael Novogratz, president of the Fortress Investment Group and the 317th-richest person in America, yesterday at the New Yorker Stories From the Near Future conference.

Much to the relief of everybody who doesn't want to spend their retirement fending off water bandits, Novogratz was optimistic. Our current economic woes, he said, are analogous to the dot-com bubble burst.

The internet's turn-of-the-millennium troubles were solved by the rise of second-generation web services. Globalization 1.0, as Novogratz called it, stalled after an initial purchasing power burst among the developing world's newly-arrived middle classes, but will be saved by globalization 2.0. All will be well.

There's only one catch: We need another wealth-generating economic bubble. And that, said Novogratz, must come -- can only come -- from new energy sources and green technology.

"As the price of oil goes up, there's got to be a green revolution. I think of what will be the next driver of the American economy, and it's green energy. That's a huge growth opportunity. It's not about the pollution. It's about the energy. Gas will go to $10 a gallon," he said.

Meeting of the Minds On Regulatory Revamp

By Neil Irwin
Washington Post Staff Writer
Friday, July 11, 2008; D01

The nation's top economic policymakers took their campaign to rework financial regulation to Capitol Hill yesterday, urging Congress to make major changes in the oversight of Wall Street firms and other financial institutions.

Calls by Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke for legislation intended to prevent a financial crisis like the one of the past year received a warm reception from the House Financial Services Committee. Most questions from lawmakers were about when and how to overhaul the system, not whether to do so.

The hearing marked a transition in the debate that has followed the recent financial problems and the near-collapse of investment bank Bear Stearns in March. Paulson, Bernanke and many others have offered ideas for changing the regulatory system to avoid a repeat of these events. That discussion is moving to Congress and closer to a debate over specific legislation, though Paulson and Bernanke both acknowledged that major changes are unlikely to be enacted this year because the task is sufficiently complicated.

"We have the power to respond if there are crises," Rep. Barney Frank (D-Mass.), the committee's chairman, said at the hearing. "What we are looking for are rules that will make the crises less likely."

"We will begin working on this," he said, "And I hope that early next year we will be able to complete it."

A recurring theme at the hearing was that sweeping change will be a slow and difficult effort, given the sheer complexity. For example, the Treasury Department worked on its proposal for more than a year before releasing it in March.

Frank endorsed one proposal, advocated by Paulson, to give the Fed explicit responsibility and new powers to ensure the stability of the financial system, and asked if it was sufficiently urgent to enact it this summer. "That will clearly take some time to consider and to get the legislation through," Paulson said.

Paulson said there is greater urgency to create a new system to dispose of the assets of a failing financial firm in a way that would not cause broad economic distress. He acknowledged that too will take time.

"I gather what you're saying is, it is better, in this very complex and very important set of issues, that we do it right than that we do it very quickly?" Frank asked. Paulson and Bernanke agreed.

"We both would like additional tools," Paulson said. "We're not saying take forever, but we recognize the fact that the regulatory structure hasn't been changed in a long time and . . . that it's not going to be easy."

-------------------------

Gus: the money market has some necessary "restrictions" but far too many loopholes. These have allowed tricksters to take advantage of other participants, eventually creating the mess the stock market is in now. It's a bit like giving the key of your own home to a stranger you know is going to rob you. No good. And some of these tricksters are also President and their acolytes allowing the printing of illusionary moneys to bridge gaps in their pitful economies.

See how things fan out....

The Bank of England is to pump out 75 billion pounds sterling ($163.43 billion) of newly-printed money after slashing interest rates to a record-low 0.5% in a twin-pronged attack on the global credit crunch.

In an extraordinary bid to free Britain from its first recession in 18 years, the BoE said it would issue the equivalent of $US106 billion or 84 billion euros via so-called "quantitative easing" measures.

The Bank of England plans to buy government bonds from commercial banks in the hope that the institutions will again lend in vast quantities to businesses and individuals after sitting tight since the credit crisis erupted in 2007.

see toon at top.