American Idol judge Kara DioGuardi is back in pop music's most powerful court. Now in her second year of crushing dreams and minting stars, the former Grammy-nominated songwriter, and VP at Warner Bros., has hereby become our favorite obsession.
Watch video of Kara's sexy Maxim photo shoot here.
BEIJING (AP) -- China is set to overtake Japan as the world's second-largest economy in a resurgence that is changing everything from the global balance of military and financial power to how cars are designed.
By some measures it has already moved to second place after the U.S. in total economic output -- a milestone that would underline a pre-eminence not seen since the 18th century, when the Middle Kingdom last served as Asia's military, technological and cultural power.
China is already the biggest exporter, auto buyer and steel producer, and its worldwide influence is growing. The fortunes of companies from Detroit automakers to Brazilian iron miners depend on spending by China's consumers and corporations. And rising wealth brings political presence: Chinese pressure helped to win developing countries a bigger voice in the World Bank and International Monetary Fund.
"Japan was the powerhouse driving the rest of Asia," said Rob Subbaraman, chief Asia economist for Nomura Securities. "Now the tide is turning and China is becoming a powerful influence on the rest of Asia, including Japan."
China's rise has produced glaring contradictions. The wealth gap between an elite who profited most from three decades of reform and its poor majority is so extreme that China has dozens of billionaires while average income for the rest of its 1.3 billion people is among the world's lowest. Beijing has launched two manned space missions and is talking about exporting high-speed trains to California and Europe while families in remote areas live in cave houses cut into hillsides.
Japan's people still are among the world's richest, with a per capita income of $37,800 last year, compared with China's $3,600. So are Americans at $42,240, their economy still by far the biggest. But Japan is trapped in a two-decade-old economic slump, the U.S. is wrestling with a financial crisis, and China's sheer economic size and the lure of its vast consumer market adds to its clout abroad.
Its explosive growth has driven conflicting shifts in Asia and beyond, triggering a scramble for commercial opportunity but fueling unease that the wealth is helping to finance a military buildup to press the communist government's claims in the region.
"I think everyone in the region is trying to benefit from Chinese economic dynamism but at the same time is trying to make sure China does not become a regional hegemon," said Greg Sheridan, foreign editor of The Australian newspaper.
Exactly when China passes Japan formally will be unclear until after this year ends. It depends on shifting exchange rates and data reported in different forms by the two governments.
Chinese GDP in 2009 was $4.98 trillion and Japan's was $5.07 trillion. In 2010, Chinese GDP was $1.335 trillion for the April-June quarter -- a period for which Tokyo has yet to report. China is growing at 10 percent a year, while Japan's expansion this year is forecast at no more than 3 percent.
"On that basis, the crossover probably happened last quarter," said Julian Jessop, chief international economist for Capital Economics in London, in an e-mail.
Beijing appears to take it for granted that it already has overtaken Japan.
"China already is the world's second-biggest economic body," said a deputy central bank governor, Yi Gang, in a policy discussion posted July 30 on the foreign exchange agency's website.
Australia has been one of the biggest beneficiaries as China's voracious appetite for iron ore, coal and other commodities drove a mining boom that kept its economy growing through the global crisis.
That booming trade prompted Australia to reconsider its stance toward China, previously seen as a communist aggressor. In 2008, then-Prime Minister Kevin Rudd, a Mandarin-speaker who was a diplomat in Beijing, called for closer political, economic and academic engagement with the Chinese government.
But Rudd also displayed Australia's independence from Beijing by talking about human rights, Tibet and China's Muslim minorities -- issues Chinese leaders want other countries to keep quiet about. And Australia affirmed its longtime security alliance with Washington -- a counterweight to China's growing might. Rudd's successor, Julia Gillard, has given no sign of a major change of direction.
In the long historical view, China's 21st century rise is a return to the status it held for most of the past 2,000 years as "Zhong Hua," or the Central Brightness, East Asia's economic and military giant and a beacon of technology and elite culture to societies from Vietnam to Korea to Japan.
China's was the biggest economy, with its workshops and textile mills accounting for up to one-third of global manufacturing. But it went into steep decline in the 19th century as its rulers resisted mimicking Japan's embrace of Western technology. By the 1930s, China produced just a few percent of global factory output.
After a civil war, communist takeover and political upheaval, free-enterprise reforms pioneered by leader Deng Xiaoping opened the door for hundreds of millions of Chinese to work their way out of poverty.
Since those reforms began in 1979, China has grown into the world's low-cost factory, its biggest exporter and producer of half its steel. It wants to evolve beyond cheap manufacturing and is trying to build up technology industries but has had little success so far.
Last year, the World Bank ranked China 124th among economies in per capita income, behind Latin America and some African nations, while Japan was No. 32. The United States was 17th.
Yet already, China's consumers are so avidly courted by global companies that products from autos to home appliances destined for sale worldwide are designed with their tastes in mind. This year, French luxury goods maker Hermes Group unveiled a brand, Shang Xia, to be designed specifically for Chinese customers.
Unlike Japan, which renounced aggressive force after its World War II defeat, Beijing sees itself as Asia's rightful military leader. It has openly possessed nuclear weapons since the 1960s and is spending heavily to build up the Communist Party's military arm, the 2.5 million-soldier People's Liberation Army.
Beijing's military outlays are the world's second-highest and have tripled since 2000 to an estimated $100 billion last year, though well behind Washington's $617 billion, according to the Stockholm International Peace Research Institute.
China's demand for oil, iron ore and other raw materials is pumping money into developing economies as far-flung as Angola and Kazakhstan that supply them. Chinese companies are making inroads into Africa in search of resources and markets.
"Now, Africa has an alternative development model," said Derek Scissors, a Heritage Foundation scholar in Washington. Instead of Western investment with environmental or other strings attached, Scissors said, "they now see the Chinese as an alternative: `We don't want to deal with you. We'll get some Chinese state-owned company to put $1.5 billion into this mining project.' "
Chinese pressure helped to trigger the biggest changes in decades in the U.S.- and European-dominated World Bank and IMF, which agreed to give China, Turkey, Mexico and other developing countries a bigger say in picking leaders and deciding policy.
The boom has helped communist leaders pay to cultivate "soft power" -- educational and media activity to win hearts and minds abroad.
Of course, even after slipping to third place, Japan is still rich and comfortable -- the Switzerland of Asia.
The society that created hybrid cars and the Walkman has 99 percent literacy and the world's longest life expectancy at 83 years. Tokyo is the capital of fine dining, with more Michelin-starred restaurants than Paris.
Toyota has overtaken General Motors as the biggest global automaker at a time when China companies have yet to establish their own brand names.
Now, with Japan in the rear view mirror, can China catch up with the United States?
Yes, say many analysts.
China could match the U.S. in total output as early as 2020, said a World Bank forecast in June. But still, it said per capita income would be one-fourth the U.S. level, comparable to Malaysia or Latin America.
Achieving even that will require China's unelected, secretive leaders to radically change their state-dominated economy.
They need to promote technology and education, fight rampant corruption that is stoking public anger and resist temptation to favor government-owned companies at the expense of a dynamic private sector that creates jobs and wealth.
Success is far from guaranteed, warn the World Bank and others.
They say China, Mexico and other developing countries easily can stall at middle-income levels if they fail to develop an educated, creative work force and legal systems to support innovation or if they allow entrenched companies to stifle competition.
"Are they going to pass the U.S. in total GDP? Yes, very likely," said Scissors. "Are they going to move into upper-middle-income status? That's a much tougher thing."
MUMBAI, India (AP) -- ICICI Bank, India's largest private sector bank, said quarterly profit rose 17 percent as it cut costs and eliminated bad loans amid revived credit demand in India's growing economy.
Net profit in the quarter ended June 30 was 10.3 billion rupees ($221 million), roughly in line with expectations, up from 8.78 billion rupees ($189 million) in the year ago period, the company said Saturday.
Total income slipped 18.8 percent from the year-ago quarter, to 74.9 billion rupees.
ICICI has been slow to benefit from India's growing demand for credit because it has been restructuring its loan book, trimming higher risk retail loans in favor of lower-risk corporate loans.
"Growth has still not come in terms of loan growth," said Angel Broking analyst Vaibhav Agrawal. "They are still lagging behind the sector's average growth rate. It will take a quarter or two before they start pushing the accelerator on the growth front."
As of March, ICICI had shrunk retail loans to 43 percent of the total, from 49 percent a year earlier, while increasing home loans and trimming riskier personal and credit card loans. During that period, the bank boosted commercial credit to 18 percent from 12 percent, Agrawal said.
That shift positions the bank to take advantage of demand for credit at Indian companies, which has continued to grow even as retail credit demand eases, he said.
The bank reduced its net non-performing assets to 1.62 percent of the total, down from 2.19 percent a year ago.
The provisions it set aside for bad loans decreased 40 percent, to 7.9 billion rupees.
ICICI grew its loan book slightly, to 1.84 trillion rupees from 1.81 trillion rupees a year ago.
Chief Executive Chanda Kochhar told reporters she expects credit demand at the bank to grow 15 percent in the year ending March 2011.
Booming industrial activity and demand for telecom financing boosted non-food credit growth to 22.3 percent in July, up from 17.1 percent in March, India's central bank said last week.
ICICI's operating expenses fell 2 percent, to 1.5 billion rupees from the year-ago quarter, while fee income grew 7 percent, to 14.2 billion rupees ($304 million).
The bank continued to improve the quality of its deposits, increasing low-cost deposit accounts to 42.1 percent of the total from 30.4 percent a year ago.
RHINEBECK, N.Y. – Chelsea Clinton was poised to marry her longtime boyfriend at an exclusive estate along New York's Hudson River after weeks of secrecy and buildup that had celebrity watchers flocking to the small village for the Saturday evening nuptials.
The crowd began forming midmorning after weeks of intrigue and secrecy about a ceremony with a VIP guest list said to include such luminaries as Oprah Winfrey and Steven Spielberg. Actors Ted Danson and Mary Steenburgen were spotted walking hand-in-hand through the village.
The 30-year-old daughter of Bill Clinton and Hillary Rodham Clinton was expected to wed her boyfriend, investment banker Marc Mezvinsky, at a ceremony with 400 to 500 guests. Details of the wedding were kept fanatically close to the vest, with shopkeepers, innkeepers, vendors and restaurateurs sworn to secrecy.
Officials restricted airspace over the estate, and the area will remain a no-fly zone until 3:30 a.m. Sunday. Roads were also blocked off, and inconvenienced neighbors were soothed with a complimentary bottle of wine.
In the early afternoon, Danson and Steenburgen strolled through Rhinebeck toward one of the hotels being used for the wedding. Both said they were excited about the upcoming ceremony.
"I knew her since she was a baby so this is a big moment," said Steenburgen, who wed Danson in 1995. "She's a lovely, lovely girl."
Reporters, who had been searching for celebrities in vain for most of the day, quickly zeroed in on the couple, prompting Danson to ask, "Are we the only celebrities in town?"
Donna Vena drove 50 miles to Rhinebeck from her home of Mount Kisco, N.Y., in the hopes of spotting a celebrity.
"Why not?" she asked Saturday morning, a camera slung over her shoulder. "Big story. Maybe see Oprah."
Nearby, two young women passed out slices of pizza with "I do" written in pepperoni.
Hundreds of people gathered outside the hotel where many of the guests are staying were rewarded Friday night when the Clintons exited a van arm-in-arm outside the Beekman Arms Hotel.
Shortly before 11 p.m., the former first lady, wearing a long green dress, waved to the cheering crowd waiting behind metal barricades and quickly went into the hotel. She left with the former president about a half-hour later.
Earlier Friday, Bill Clinton made an appearance around lunchtime Friday, popping out of a car and walking a few blocks, greeting people on his way to a restaurant. Looking fit and relaxed in blue jeans and a black knit shirt, he gave easy answers to questions shouted by well-wishers and reporters.
The former president's half brother, Roger Clinton, was spotted early Saturday afternoon with his son Tyler, picking up food at the same restaurant. When asked by reporters if he was excited, Roger Clinton said, "Yes, very excited" as they slipped into a waiting SUV.
The wedding is set to take place at Astor Courts, a secluded estate along the Hudson River built as a Beaux Arts style playground for John Jacob Astor IV more than a century ago. The estate features the sort of commanding view that once inspired Hudson River School painters, as well as 50 acres of buffer space to shield the party from prying eyes.
Chelsea Clinton and Mezvinsky were friends as teenagers in Washington, and both attended Stanford University. They now live in New York, where Mezvinsky works at G3 Capital, a Manhattan hedge fund. Mezvinsky worked previously at Goldman Sachs as an investment banker.
Clinton completed her master's degree in public health earlier this year at the Mailman School of Public Health at Columbia University.
Mezvinsky is a son of former U.S. Reps. Marjorie Margolies-Mezvinsky of Pennsylvania and Ed Mezvinsky of Iowa, longtime friends of the Clintons. His parents are divorced.
TOKYO (AP) -- Toyota is recalling 412,000 passenger cars, mostly the Avalon model, in the U.S., and another 16,420 vehicles in Japan for steering problems, the automaker said Thursday.
The 373,000 Avalons being recalled in the U.S. range from the 2000 model year through to 2004 and have improper casting of the steering lock bar -- a component for the steering system -- causing cracks to develop on the surface.
In some cases, the crack can cause the lock bar to break, potentially leading to a crash if the steering wheel locks, the world's No. 1 automaker by car sales said. No injuries have been reported from the accidents that may be caused by the defect, it said.
Recalled in Japan for a similar problem are 6,750 vehicles, called Pronard, built from February 2000 through January 2004, Toyota and the Japanese transport ministry said. There have been three reported problems linked to the defect but no accidents in Japan, the ministry said.
Also being recalled in the U.S. are 39,000 Lexus luxury model LX 470s for the 2003-2007 model years because of a steering shaft problem, which is different from the Avalon steering problem, according to Toyota.
That problem affects 9,670 vehicles in Japan, two Land Cruiser models, the ministry said. One problem has been reported but no accidents are suspected of being linked to the defect, it said.
Toyota said it will fix the Avalon steering problem by replacing a part called the steering column bracket. The problem with the LX 470 will be fixed by replacing a component in the steering shaft called a snap ring. Customers affected by the recalls will begin receiving mailings in August instructing them to take their cars to their dealer for the repairs, Toyota said.
The latest recall comes on top of some 8.5 million vehicles that have been recalled around the world by Toyota Motor Corp. since October for a spate of problems, including faulty floor mats, defective gas pedals and braking software glitches.
The recall crisis has damaged Toyota's reputation for quality and customer service.
Toyota executives have repeatedly vowed to put customers first. But it has been criticized as lagging in its response to quality lapses, and was slapped with a record $16.4 million fine in the United States for responding too slowly when the recall crisis erupted.
Earlier this month, Toyota announced a recall of some 270,000 vehicles, mostly Lexus cars, for engine problems, dealing a further blow to its image because Lexus is its top-end luxury brand.
Toyota faces more than 200 lawsuits in the U.S. tied to accidents involving defective automobiles, the lower resale value of Toyota vehicles, and a drop in its stock value.
"Toyota is continuing to work diligently to address safety issues wherever they arise and to strengthen our global quality assurance operations so that Toyota owners can be confident in the safety of their vehicles," said Steve St. Angelo, Toyota chief quality officer for North America.
Owners of Avalon and Lexus cars are being notified next month, being asked to bring in their cars to nearby Toyota and Lexus dealers for a free fix, according to Toyota.
"Our engineers have thoroughly investigated this issue and have identified a robust and durable remedy that will help prevent this condition from affecting drivers in the future," said Mark Templin, group vice president and general manager of Lexus.
AP Auto Writer Dan Strumpf contributed to this report from New York.
NEW YORK (AP) -- Mortgage rates dropped to the lowest level on record for the fifth time in six weeks, making homebuying and refinancing the most attractive in decades for those who can get loans.
The average rate for 30-year fixed loans this week was 4.54 percent, down from 4.56 last week, mortgage company Freddie Mac said Thursday. That's the lowest since Freddie Mac began tracking rates in 1971.
The last time rates were lower was during the 1950s, when most mortgages lasted just 20 or 25 years.
The rate on the 15-year fixed loan dropped to 4 percent, down from 4.03 percent last week and the lowest on record.
Rates have fallen since the spring. Yields on U.S. Treasury bonds have dropped as jittery investors seek safer investments. Mortgage rates tend to track the yields on Treasurys.
Low rates helped spark a little activity in the weak housing market. Applications to purchase homes rose 2 percent last week from the previous week, the Mortgage Bankers Association said Wednesday. Still, the housing market has been struggling and overall applications for loans were down last week as fewer people applied to refinance.
High unemployment, slow job growth and tight credit have made it difficult for many to purchase homes. The housing industry received a boost this spring when the government offered homebuying tax credits, but since those expired in April housing activity has fizzled.
Sales of previously occupied homes fell 5.1 percent in June. New home sales jumped last month, but it was the second-weakest month on record and it came after sales tumbled in May.
Refinance activity has increased over the last month as homeowners seek more affordable monthly payments. But many don't qualify for a loan or don't have the cash to pay for closing costs. And rates have been low for so long that many have already refinanced.
To calculate the national average, Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.
Rates on five-year adjustable-rate mortgages averaged 3.76 percent, down from 3.79 percent a week earlier. Rates on one-year adjustable-rate mortgages fell to an average of 3.64 percent from 3.70 percent.
The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount. The nationwide fee for loans in Freddie Mac's survey averaged 0.7 a point for all loans.
WASHINGTON (AP) -- The U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend and employers hesitant to hire, according to an Associated Press survey of leading economists.
The latest quarterly AP Economy Survey shows economists have turned gloomier in the past three months. They foresee weaker growth and higher unemployment than they did before. As a result, the economists think the Federal Reserve will keep interest rates near zero until at least next spring.
Yet despite their expectation of slower growth, a majority of the 42 economists surveyed believe the recovery remains on track, raising hopes that the economy can avoid falling back into a "double-dip" recession.
The AP survey compiles forecasts of leading private, corporate and academic economists on a range of indicators, including employment, consumer spending and inflation. Among their forecasts:
-- Economic growth the rest of this year and early next year will be weak -- less than 3 percent. For the April-to-June quarter, economists pegged growth at 2.8 percent. That's far below the 3.7 percent pace predicted just three months ago.
-- The unemployment rate will be no lower at the end of the year than it is now -- 9.5 percent. A majority think it will be 2015 or later before the rate falls to a historically normal 5 percent.
-- State budget shortfalls pose a "significant" or "severe" risk to the national economy. The loss of tax revenue has forced state and local governments to cut services and lay off workers.
The weak economy leaves Democrats and Republicans on Capitol Hill vulnerable as they head into the November midterm elections. Democrats, who now control both chambers, have the most to lose. The gloomier outlook is also a liability for President Barack Obama.
The economists have turned more pessimistic since the recovery hit turbulence in May. Europe's debt crisis sent tremors through Wall Street, causing stocks to tumble and raising doubts about the durability of the rebound.
Since then, businesses have been slow to step up hiring. Americans' confidence in the economy has declined, leading shoppers to reduce spending. And the housing market has weakened further with the end of a homebuyer tax credit that had buoyed sales earlier this year.
Consumers aren't leading this rebound, as they usually do, despite ultra-low borrowing costs. Their spending growth will weaken in the second half of this year and strengthen only slightly next year, a majority of economists said. They think shoppers' reluctance to spend more money poses a "significant" or "severe" risk to the recovery.
"It seems like we hit an air pocket in consumer spending," said survey participant Richard DeKaser, president of Woodley Park Research.
Kasey Doshier, a graphic designer in Chicago, said the recession taught her to rein in her spending. The key moment came early last year, when her employer cut her pay 15 percent to avoid layoffs.
"I just lived paycheck to paycheck and had a good time," said Doshier, 32. "It's kind of scary to think that I am a paycheck away from being homeless."
Doshier's pay has been reinstated, but she's still watching her money. Dinner and drinks with friends are gone. Now she goes to free street festivals and the city pool. She explores Chicago neighborhoods by taking her dog on long "adventure walks."
The tight job market, scant pay raises and drooping home values are forcing others, too, to spend less and save more. Americans saved 4.2 percent of their disposable income last year. That was the highest level since 1998. Economists expect roughly the same level of saving this year and next.
That's why growth of less than 3 percent is forecast into 2011. And weak growth helps explain why unemployment is likely to stay high. It takes about 3 percent growth just to create enough jobs to keep pace with the population increase.
Growth would have to equal 5 percent for a full year to drive the unemployment rate down by 1 percentage point. Neither the economists in the AP survey nor the Obama administration expects that to happen.
The Fed's outlook has turned bleaker, too. It's why Chairman Ben Bernanke and his colleagues are weighing new steps to invigorate the economy if the recovery shows signs of backsliding. They are also expected to hold interest rates at record lows longer than economists thought three months ago.
A survey the Fed released Wednesday showed the economy facing a bumpy path back to health. The pace of economic activity remained modest in most of the country.
Most economists surveyed said the Fed would being raising short-term rates no sooner than next spring. In the last survey, most had thought it could happen as soon as late this year.
At the same time, state budget shortfalls have emerged as a major threat in the economists' view. State and local governments cut their spending in the first three months of this year at a 3.8 percent pace. That was the biggest cutback since the second quarter of 1981, just before the economy entered a severe recession.
When states and localities tighten spending by trimming services and jobs, the cutbacks ripple through the broader economy, causing individuals to spend less, too. The drop in state and local government spending shaved about half a percentage point off the U.S. gross domestic product in the first three months of this year.
Nearly two-thirds of the economists view the states' budget crises as a significant or severe threat to the rebound.
Despite such risks, 55 percent of the economists described the recovery as "on track" as of the middle of the year. The rest said it was "faltering."
"There's a risk that the loss of momentum will snowball and feed on itself, but I think in the end the recovery will stay on track," predicted another survey participant, James O'Sullivan, global chief economist at MF Global.
AP Business Writer Christopher Leonard in St. Louis contributed to this report.
WASHINGTON (AP) -- New jobless claims fell last week for the third time in four weeks but remain elevated. The decline is a sign that the economy likely added jobs in July, although not enough to lower the nation's high unemployment rate.
First-time claims for unemployment insurance dropped by 11,000 to a seasonally adjusted 457,000, the Labor Department said Thursday.
Claims have fluctuated this month because of temporary seasonal factors. General Motors and other manufacturers skipped their traditional summer shutdowns, which led to fewer layoffs and unemployment claims. But the impact of that distortion has largely faded from the data, a Labor Department analyst said.
The four-week average of claims, which smooths fluctuations, dropped to 452,500, the lowest level since May.
That suggests layoffs may be easing. And the four-week average is slightly below its level in June, which indicates that private employers likely added about the same number of jobs in July as they did last month. The Labor Department will issue its July employment report next week.
"The rate of jobless claims is consistent with some growth in total employment," said Zach Pandl, an economist at Nomura Securities. Pandl forecasts that businesses added about 85,000 jobs in July -- about the same as in June but not enough to reduce the unemployment rate, currently at 9.5 percent.
Many large companies such as Caterpillar Inc., Dupont Co. and Microsoft Corp. have reported strong second-quarter earnings in the past two weeks. While some of those companies have added a few jobs, their growth hasn't translated into widespread hiring.
Requests for unemployment insurance fell steadily last year from their peak of 651,000, reached in March 2009. But they have remained stuck above 450,000 for most of this year. In a healthy economic recovery with rapid hiring, claims usually fall below 400,000.
The economy has grown since last summer, but the pace of growth is slowing. The government is scheduled Friday to release an estimate of gross domestic product, the broadest measure of the economy's output, for the April-June period. Economists forecast it will show growth slowed to a 2.5 percent annual rate, down from 2.7 percent in the first quarter and 5.6 percent in last year's fourth quarter.
Overall, economists expect the recovery to slow in the second half of this year and remain weak well into 2011, according to the latest AP Economy Survey. Despite their expectations, a majority of the 42 economists surveyed expect the economy to avoid falling back into a "double-dip" recession.
The survey respondents also forecast that the unemployment rate will still be 9.5 percent by the end of this year.
The number of people continuing to claim unemployment benefits rose by 81,000 to 4.57 million. That doesn't include an additional 3.67 million of the unemployed that are receiving extended benefits paid for by the federal government.
During the recession, Congress added up to 73 weeks of extra benefits on top of the 26 weeks typically provided by states. Those extended benefits were interrupted last month when Republicans blocked an extension. But Congress has since reinstated the program through November.
Some companies are still cutting jobs. Industrial conglomerate United Technologies said Monday that it will eliminate 1,500 positions this year and next, on top of 900 job cuts it has already made in 2010.
WASHINGTON (AP) -- A Federal Reserve official says the central bank should revive a crisis-era program to buy government debt if the country seems headed toward a bout with deflation.
James Bullard, president of the Federal Reserve Bank of St. Louis, makes the case in comments to reporters and in a paper released Thursday. The weak economy poses the risk that the United States could tip into a Japanese-like bout of deflation, he says. That's a widespread and prolonged drop in prices of goods, values of homes and stocks, and in wages.
Bullard, a voting member on the Fed's main policy-setting committee, thinks the deflation risk is low. Buying government debt would energize the economy and nip deflationary forces. Last year, the Fed bought up to $300 billion worth of Treasury securities.
NEW YORK (AP) -- Stocks fell Thursday as investors took a dim view of the latest report on unemployment and warily waited for the government's reading on second-quarter gross domestic product.
Stocks initially rose on upbeat earnings reports, but momentum quickly faded. The Dow Jones industrial average fell about 70 points in afternoon trading and other major stock indexes also fell.
Southwest Airlines Co., ExxonMobil Corp., Avon Products Inc. and Sony Corp. all topped earnings forecasts, but investors were more focused on economic numbers. The Labor Department said initial claims for unemployment benefits dropped by a modest 11,000 to 457,000 last week. That's slightly better than the 459,000 forecast by economists polled by Thomson Reuters, but not good enough to keep traders buying.
"They saw it was more of the same," said Bryan Jordan, director of financial markets analysis at Nationwide Investments. "This is an unusually stagnant labor market."
Daniel Penrod, senior industry analyst at the California Credit Union League, said investors are concerned because there hasn't been a consistent decline in the number of claims for unemployment benefits.
"The stops and starts are likely to cause more hesitation" in the stock market, Penrod said.
Stock trading has been bumpy the past few months as investors tried to reconcile conflicting views of the economy. Government and private reports have pointed to a slowdown in growth while companies has issued optimistic outlooks. So, while the latest earnings reports looked good, investors are also well aware that the Federal Reserve said Wednesday that the recovery is weakening in some parts of the country.
"A bull market needs a continuing feeding of good news," said Alan Gayle, senior investment strategist at RidgeWorth Investments. Economic reports have been "soft" this week, he said.
Traders were uneasy while they waited for the GDP, the broadest measure of the economy. Economists are forecasting that the GDP slowed in the second quarter to an annual rate of 2.5 percent as the government cut back on economic stimulus programs. That would be down from the first quarter's 2.7 percent.
In afternoon trading, the Dow fell 70.68, or 0.7 percent, to 10,428.71. The Standard & Poor's 500 index fell 9.72, or 0.9 percent, to 1,096.41, while the Nasdaq composite index fell 28.08, or 1.2 percent, to 2,236.48.
Declining stocks outpaced advancers by 2 to 1 on the New York Stock Exchange, where volume came to a low 512.1 million shares. Volume has been unusually low becauase many traders are waiting for the market to settle on a direction before they start buying or selling.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was unchanged at 2.99 percent compared with late Wednesday.
Stock losses accelerated in the late morning, analysts said.
"It doesn't matter what the news is," said Brian Singer, chief investment officer at Singer Partners. "What happens is, any move one direction or another results in a pile-on effect."
Southwest reported income that beat analyst forecasts. The company reported heavy traffic to start the summer travel season. ExxonMobil's earnings rose as a result of higher oil prices. Beauty products seller cited sales in Europe and Latin America for its higher income.
Japanese electronics maker Sony also reported strong earnings because of a jump in sales of televisions and PlayStation 3 gaming consoles.
Avon Products rose 52 cents to $30.05. Sony shares trading in the U.S. jumped $2.36, or 8 percent, to $31.92. Southwest shares fell 15 cents to $11.86 after climbing earlier in the day. ExxonMobil dipped 54 cents to $60.37, also erasing earlier gains.
Colgate-Palmolive's earnings beat forecasts, but revenue fell short of expectations. It also said it would take a bigger charge than previously expected because of Venezuela's devaluation of its currency. When currencies in other countries fall, overseas profits for U.S. companies also come in lower when they're translated into dollars.
The consumer products maker's stock fell $6.16, or 7.4 percent, to $77.70.
Strong earnings and company forecasts initially helped stocks in Europe as well, before those indexes also retreated. European investors initially bid up stocks following earnings reports from pharmaceuticals company AstraZeneca PLC, drug and materials company Bayer AG and telecommunications companies BT PLC and France Telecom SA.
Moody's Investors Service said ratings on banks in Europe would not be affected following tests by regulators on the continent to determine whether banks would survive a further economic slowdown. Only seven of 91 banks failed the test, which reassured investors that the financial industry in Europe is stronger than previously thought.
The euro rose to $1.3068, and earlier in the day touched its highest level since early May.
Britain's FTSE 100 fell 0.1 percent, Germany's DAX index fell 0.7 percent, and France's CAC-40 dropped 0.5 percent. Japan's Nikkei stock average fell 0.6 percent.
How much do your kindergarten teacher and classmates affect the rest of your life?
Economists have generally thought that the answer was not much. Great teachers and early childhood programs can have a big short-term effect. But the impact tends to fade. By junior high and high school, children who had excellent early schooling do little better on tests than similar children who did not — which raises the demoralizing question of how much of a difference schools and teachers can make.
There has always been one major caveat, however, to the research on the fade-out effect. It was based mainly on test scores, not on a broader set of measures, like a child’s health or eventual earnings. As Raj Chetty, a Harvard economist, says: “We don’t really care about test scores. We care about adult outcomes.”
Early this year, Mr. Chetty and five other researchers set out to fill this void. They examined the life paths of almost 12,000 children who had been part of a well-known education experiment in Tennessee in the 1980s. The children are now about 30, well started on their adult lives.
On Tuesday, Mr. Chetty presented the findings — not yet peer-reviewed — at an academic conference in Cambridge, Mass. They’re fairly explosive.
Just as in other studies, the Tennessee experiment found that some teachers were able to help students learn vastly more than other teachers. And just as in other studies, the effect largely disappeared by junior high, based on test scores. Yet when Mr. Chetty and his colleagues took another look at the students in adulthood, they discovered that the legacy of kindergarten had re-emerged.
Students who had learned much more in kindergarten were more likely to go to college than students with otherwise similar backgrounds. Students who learned more were also less likely to become single parents. As adults, they were more likely to be saving for retirement. Perhaps most striking, they were earning more.
All else equal, they were making about an extra $100 a year at age 27 for every percentile they had moved up the test-score distribution over the course of kindergarten. A student who went from average to the 60th percentile — a typical jump for a 5-year-old with a good teacher — could expect to make about $1,000 more a year at age 27 than a student who remained at the average. Over time, the effect seems to grow, too.
The economists don’t pretend to know the exact causes. But it’s not hard to come up with plausible guesses. Good early education can impart skills that last a lifetime — patience, discipline, manners, perseverance. The tests that 5-year-olds take may pick up these skills, even if later multiple-choice tests do not.
Now happens to be a particularly good time for a study like this. With the economy still terribly weak, many people are understandably unsure about the value of education. They see that even college graduates have lost their jobs in the recession.
Barely a week seems to go by without a newspaper or television station running a report suggesting that education is overrated. These stories quote liberal groups, like the Economic Policy Institute, that argue that an education can’t protect workers in today’s global economy. Or they quote conservatives, like Charles Murray and Ramesh Ponnuru, who suggest that people who haven’t graduated from college aren’t smart enough to do so.
But the anti-education case usually relies on a combination of anecdotes and selective facts. In truth, the gap between the pay of college graduates and everyone else grew to a record last year, according to the Labor Department, and unemployment has risen far more for the less educated.
This is not simply because smart people — people who would do well no matter what — tend to graduate from college. Education itself can make a difference. A long line of economic research, by Julie Berry Cullen, James Heckman, Philip Oreopoulos and many others, has found as much. The study by Mr. Chetty and his colleagues is the latest piece of evidence.
•
The crucial problem the study had to solve was the old causation-correlation problem. Are children who do well on kindergarten tests destined to do better in life, based on who they are? Or are their teacher and classmates changing them?
The Tennessee experiment, known as Project Star, offered a chance to answer these questions because it randomly assigned students to a kindergarten class. As a result, the classes had fairly similar socioeconomic mixes of students and could be expected to perform similarly on the tests given at the end of kindergarten.
Yet they didn’t. Some classes did far better than others. The differences were too big to be explained by randomness. (Similarly, when the researchers looked at entering and exiting test scores in first, second and third grades, they found that some classes made much more progress than others.)
Class size — which was the impetus of Project Star — evidently played some role. Classes with 13 to 17 students did better than classes with 22 to 25. Peers also seem to matter. In classes with a somewhat higher average socioeconomic status, all the students tended to do a little better.
But neither of these factors came close to explaining the variation in class performance. So another cause seemed to be the explanation: teachers.
Some are highly effective. Some are not. And the differences can affect students for years to come.
When I asked Douglas Staiger, a Dartmouth economist who studies education, what he thought of the new paper, he called it fascinating and potentially important. “The worry has been that education didn’t translate into earnings,” Mr. Staiger said. “But this is telling us that it does and that the fade-out effect is misleading in some sense.”
Mr. Chetty and his colleagues — one of whom, Emmanuel Saez, recently won the prize for the top research economist under the age of 40 — estimate that a standout kindergarten teacher is worth about $320,000 a year. That’s the present value of the additional money that a full class of students can expect to earn over their careers. This estimate doesn’t take into account social gains, like better health and less crime.
Obviously, great kindergarten teachers are not going to start making $320,000 anytime soon. Still, school administrators can do more than they’re doing.
They can pay their best teachers more, as Pittsburgh soon will, and give them the support they deserve. Administrators can fire more of their worst teachers, as Michelle Rhee, the Washington schools chancellor, did last week. Schools can also make sure standardized tests are measuring real student skills and teacher quality, as teachers’ unions have urged.
Given today’s budget pressures, finding the money for any new programs will be difficult. But that’s all the more reason to focus our scarce resources on investments whose benefits won’t simply fade away.
By JOHN CAREY, environmental writer
Where is all the oil? Nearly two weeks after BP finally capped the biggest oil spill in U.S. history, the oil slicks that once spread across thousands of miles of the Gulf of Mexico have largely disappeared. Nor has much oil washed up on the sandy beaches and marshes along the Louisiana coast. And the small cleanup army in the Gulf has only managed to skim up a tiny fraction of the millions of gallons of oil spilled in the 100 days since the Deepwater Horizon rig went up in flames.
So where did the oil go? "Some of the oil evaporates," explains Edward Bouwer, professor of environmental engineering at Johns Hopkins University. That’s especially true for the more toxic components of oil, which tend to be very volatile, he says. Jeffrey W. Short, a scientist with the environmental group Oceana, told the New York Times that as much as 40 percent of the oil might have evaporated when it reached the surface. High winds from two recent storms may have speeded the evaporation process.
[Photos: Latest from the Gulf oil spill]
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Although there were more than 4,000 boats involved in the skimming operations, those cleanup crews may have only picked up a small percentage of the oil so far. That’s not unusual; in previous oil spills, crews could only scoop up a small amount of oil. "It’s very unusual to get more than 1 or 2 percent," says Cornell University ecologist Richard Howarth, who worked on the Exxon Valdez spill. Skimming operations will continue in the Gulf for several weeks.
Some of the oil has sunk into the sediments on the ocean floor. Researchers say that’s where the spill could do the most damage. But according to a report in Wednesday’s New York Times, "federal scientists [have determined] the oil [is] primarily sitting in the water column and not on the sea floor."
Perhaps the most important cause of the oil’s disappearance, some researchers suspect, is that the oil has been devoured by microbes. The lesson from past spills is that the lion’s share of the cleanup work is done by nature in the form of oil-eating bacteria and fungi. The microbes break down the hydrocarbons in oil to use as fuel to grow and reproduce. A bit of oil in the water is like a feeding frenzy, causing microbial populations to grow exponentially.
Typically, there are enough microbes in the ocean to consume half of any oil spilled in a month or two, says Howarth. Such microbes have been found in every ocean of the world sampled, from the Arctic to Antarctica. But there are reasons to think that the process may occur more quickly in the Gulf than in other oceans.
Microbes grow faster in the warmer water of the Gulf than they do in, say, the cool waters off Alaska, where the Exxon Valdez spill occurred. Moreover, the Gulf is hardly pristine. Even before humans started drilling for oil in the Gulf — and spilling lots of it — oil naturally seeped into the water. As a result, the Gulf evolved a rich collection of petroleum-loving microbes, ready to pounce on any new spill. The microbes are clever and tough, observes Samantha Joye, microbial geochemist at the University of Georgia. Joye has shown that oxygen levels in parts of the Gulf contaminated with oil have dropped. Since microbes need oxygen to eat the petroleum, that’s evidence that the microbes are hard at work.
The controversial dispersant used to break up the oil as it gushed from the deep-sea well may have helped the microbes do their work. Microbes can more easily consume small drops of oil than big ones. And there is evidence the microbes like to munch on the dispersant as well.
It is still far too early to know how much damage the spill has done — and may still be doing — to the environment. Tar balls continue to wash up on beaches. And the risk of a leak remains, until the well is permanently capped sometime in the next few weeks.
Click image to see photos of oil spill aftermath
LONDON – A huge ball of brightly burning gas drifting through a neighboring galaxy may be the heaviest star ever discovered — hundreds of times more massive than the sun, scientists said Wednesday after working out its weight for the first time.
Those behind the find say the star, called R136a1, may once have weighed as much as 320 solar masses. Astrophysicist Paul Crowther said the obese star — twice as heavy as any previously discovered — has already slimmed down considerably over its lifetime.
In fact, it's burning itself off with such intensity that it shines at nearly 10 million times the luminosity of the sun.
"Unlike humans, these stars are born heavy and lose weight as they age," said Crowther, an astrophysicist at the University of Sheffield in northern England. "R136a1 is already middle-aged and has undergone an intense weight loss program."
Crowther said the giant was identified at the center of a star cluster in the Tarantula Nebula, a sprawling cloud of gas and dust in the Large Magellanic Cloud, a galaxy about 165,000 light-years away from our own Milky Way.
The star was the most massive of several giants identified by Crowther and his team in an article in the Monthly Notices of the Royal Astronomical Society.
While other stars can be larger, notably the swollen crimson-colored ones known as red giants, they weigh far less.
Still, the mass of R136a1 and its ilk means they're tens of times bigger than the Earth's sun and they're brighter and hotter, too.
Surface temperatures can surpass 40,000 degrees Celsius (72,000 degrees Fahrenheit), seven times hotter than the sun. They're also several million times brighter, because the greedy giants tear through their energy reserves far faster than their smaller counterparts.
That also means that massive stars live fast and die young, quickly shedding huge amounts of material and burning themselves out in what are thought to be spectacular explosions.
"The biggest live only 3 million years," Crowther said. "In astronomy that's a very short time."
Small lifespans are one of several reasons why these obese stars are so hard to find. Another is that they're extremely rare, forming only in the densest star clusters.
Astronomers also have a limited range in which to look for them. In clusters that are too far away, it isn't always possible to tell if a telescope has picked up on one heavyweight star or two smaller ones in close proximity.
In this case, Crowther's team re-examined previously known stars to see if they could find an accurate measurement of their weight. The team reviewed archival data from the Hubble Space Telescope and gathered new readings from the European Southern Observatory's Very Large Telescope at Paranal in Chile.
Scientists who weren't involved in the find said the results were impressive, although they cautioned it was still possible, although unlikely, that scientists had confused two very close stars for a bigger, single one.
"What they're characterizing as a single massive star could in fact be a binary system too close to be resolved," said Mark Krumholz, an astronomer at the University of California, Santa Cruz.
Both he and Phillip Massey, an astronomer with the Lowell Observatory in Arizona, also cautioned that the star's weight had been inferred using scientific models and that those were subject to change.
But both scientists said the authors had made a strong case, arguing that the solar material being thrown off from feuding stars in a binary system would produce much more powerful X-rays than have been detected.
Crowther acknowledged that R136a1 could have a partner, but he said it was likely to be a much smaller star, meaning that the star's its birth weight was still considerable — perhaps 300 solar masses instead of 320.
WASHINGTON (AP) -- A flurry of strong earnings reports renewed Wall Street's optimism in the economic recovery, even as new data Thursday showed homes sales sinking and claims for unemployment benefits rising.
Sales of previously occupied homes fell 5.1 percent in June to a seasonally adjusted annual rate of 5.37 million, the National Association of Realtors said.
Meanwhile, new claims for unemployment insurance jumped by 37,000 to a seasonally adjusted 464,000, the Labor Department said. Seasonal factors boosted new requests for benefits. Still, first-time claims remain elevated, pointing to a sluggish job market.
Separately, the Conference board, a private research group, said its gauge of future economic activity dropped in June. It was the second decline in three months.
But investors looked past the latest reports to focus on earnings from a broad range of companies that showed businesses aren't seeing a slowdown. Caterpillar Inc., 3M Co., UPS Inc. and AT&T Inc. all topped earnings forecasts and raised their outlooks for future profit.
Stocks soared as analysts noted that job growth could be on the horizon if companies expect to grow.
The Dow Jones industrial average rose more than 190 points in midday trading. Broader indexes rose more than 2 percent. Interest rates surged in the Treasury market as investors felt less need to put their money into the safety of government securities.
Still, the housing industry has struggled the past two months since government incentives ended in April, even with low home prices and mortgage rates. High unemployment, tight credit and a rise in foreclosures have kept many people from buying.
"The economy and the housing market are going to remain stagnant for a long time," said Sam Khater, senior economist at real estate data provider CoreLogic. "There's nothing that's going to propel sales anytime soon. It's all about jobs and income growth."
First-time jobless claims jumped after falling the previous week to the lowest level since August 2008. But much of that drop was driven by temporary seasonal factors and not an improving job market.
Two weeks ago, General Motors and other manufacturers reported fewer temporary layoffs than usual this time of year, a Labor Department analyst said. Last week's rise partly reflects the fading of that trend.
Before seasonal adjustments, claims actually fell by 13,113 to 498,022, the department said. The government seasonally adjusts most economic data to filter out the impact of recurring, non-economic factors.
Sal Guatieri, senior economist at BMO Capital Markets, said the report suggests that businesses will add a net total of less than 100,000 new employees in July. That's not enough to quickly reduce the unemployment rate, he said.
"American companies ... are just not hiring to any great extent," he said. Many are still uncertain about the durability of the recovery, he said.
Requests for unemployment insurance have been stuck near 450,000 since the beginning of the year, after falling steadily from a peak of 651,000 in March 2009.
The weekly claims are considered a gauge of layoffs and an indication of employers' willingness to hire.
In a healthy economy with rapid hiring, claims usually fall below 400,000.
The four-week average of claims, which smooths fluctuations, rose by 1,250 to 456,000, the department said.
A total of nearly 4.5 million people continued claiming unemployment aid, the department said. That was a drop of 223,000 from the previous week.
But that doesn't include about 3.9 million people who received extended unemployment benefits the week of July 3, the latest data available. That figure fell by about 375,000 from the previous week because Senate Republicans had blocked an extension of long-term benefits for nearly two months.
The Senate voted Wednesday to continue the benefits through November, and the House is expected to approve a similar measure Thursday. That would clear it for President Barack Obama's signature.
About 2.5 million people lost benefits due to the political impasse, but will now receive back payments because Congress restored the benefits retroactively.
The economy began recovering last summer, but recently the rebound has shown signs of faltering.
The housing market is slumping, consumers are cautious with spending and the impact of last year's $787 billion stimulus package is fading.
Federal Reserve Chairman Ben Bernanke said Wednesday the unemployment rate would gradually decline this year but at a "somewhat slower" pace than the Fed projected in the spring.
The central bank forecasts the jobless rate will be between 9.2 percent and 9.5 percent in the final quarter of 2010.
Bernanke said persistent unemployment is "an important drag on household spending" as it reduces incomes and causes "uncertainty about job prospects."
The unemployment rate fell to 9.5 percent in June from 9.7 percent the previous month.
AP Business Writer Tali Arbel contributed in New York to this report.
NEW YORK (AP) -- Stocks surged Thursday after another strong batch of earnings reports revived optimism about the economic recovery. Encouraging signs of growth in Europe added to the upbeat mood.
Traders largely wrote off a jump in the number of people seeking unemployment benefits for the first time. The increase was likely skewed by seasonal factors. Instead, investors focused on earnings from a broad range of companies that showed businesses aren't seeing a slowdown in the recovery. News of corporate deals also lifted shares.
The Dow Jones industrial average rose more than 200 points in afternoon trading. Broader indexes also rose more than 2 percent. Interest rates surged in the Treasury market as investors felt less need to put their money into the safety of government securities.
Caterpillar Inc., 3M Co., UPS Inc. and AT&T Inc. all topped earnings forecasts and raised their outlooks for future profit. Only Travelers reported a dip in earnings, but that came as bad weather led to more claims payments.
Investors who have been selling stocks on disappointing earnings and revenue figures over the past week got some reassurance from companies' outlooks on Thursday. Caterpillar said its orders are growing and production will pick up in the second half of the year. UPS raised its outlook because of spending by businesses. Caterpillar's stock rose 1.5 percent, while UPS gained 5.8 percent.
Chris Hobart, founder of Hobart Financial Group in Charlotte, N.C. said the outlooks are especially important because if companies expect to grow, that might get them to ramp up hiring.
If improved outlooks lead to jobs growth, "then this can be better than a good quarter or good second half, (it can mean) we've got a good economy," Hobart said.
More earnings are due out later in the day, including from American Express Co., Microsoft Corp. and Amazon.com Inc.
In afternoon trading, the Dow Jones industrial average rose 206.91, or 2 percent, to 10,327.44. The Standard & Poor's 500 index rose 23.60, or 2.2 percent, to 1,093.19, while the Nasdaq composite index rose 51.64, or 2.4 percent, to 2,238.97.
Nearly seven stocks rose for every one that fell on the New York Stock Exchange, where volume came to 491.7 million shares.
European markets rose after a report showed unexpected growth in the 16-nation group that uses the euro. In recent months, investors worldwide have been concerned that rising government debt in Europe would stall a global recovery. A jump in Europe's purchasing managers index reported Thursday was a welcome relief after forecasts of a possible recession on the continent.
The economic reports out of Europe were "a big surprise because everyone expects that to be the Achilles heel of the global economy," said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York.
The market's gains Thursday came a day after investors sold stocks because Federal Reserve Chairman Ben Bernanke warned Congress that the economy remains fragile. Bernanke confirmed investors' fears that the best scenario for the economy is only slow growth and relatively high unemployment. Bernanke was testifying again before Congress on Thursday.
Stock trading has been erratic for weeks as investors were quick to sell at any signs of bad news and just as eager to buy on signs of optimism. The Dow has moved by at least 100 points in just over half the trading days since it hit its 2010 high of high for the year on April 26.
Guy LeBas, chief fixed income strategist of Janney Montgomery Scott in Philadelphia said there are two groups fighting back and forth, which has led to the volatility. One believes the economy is going to fall back into recession, while the other thinks this is just a pause in a strong rebound.
"There's no middle ground," LeBas said. As a result, he said, each group will pounce on news that backs up their claims and send the market sharply higher or lower. "We are absolutely hypersensitive to what we're seeing."
Overseas, Britain's FTSE 100 rose 1.9 percent, Germany's DAX index gained 2.5 percent and France's CAC-40 rose 3.1 percent. In Japan, where trading ends before it begins in the U.S., the Nikkei stock average fell 0.6 percent.
UPS jumped $3.49, or 5.8 percent, to $63.50. AT&T rose 78 cents, or 3.1 percent, to $25.70. Caterpillar rose 98 cents to $67.85.
Shares of 3M rose $2.26, or 2.8 percent, to $84.56. Travelers fell 67 cents to $49.20.
General Motors agreed to buy auto financier Americredit Corp. for $3.5 billion. The deal lets GM expand loans to customers with poor credit and offer more leases, two areas that GM needs to expand to boost car sales.
Americredit shares surged $4.30, or 21.8 percent, to $24.00.
The upbeat corporate profits, outlooks and acquisitions come against a backdrop of still mixed economic data. The Labor Department said weekly claims for jobless benefits jumped by 37,000 to 464,000. Economists polled by Thomson Reuters expected claims to rise to 445,000 last week.
The big jump comes after a big drop a couple of weeks ago when companies like GM reported fewer temporary layoffs than usual for the time of year. Even with the distorted numbers, high unemployment remains of the biggest obstacles to a strong, sustained recovery.
Bond prices dipped as investors jumped back into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.93 percent from 2.88 percent late Wednesday.
WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress Thursday that the fragile economy still needs government stimulus spending to strengthen the recovery and help reduce unemployment.
Testifying before the House Financial Services Committee, Bernanke did urge lawmakers to come up with a credible plan to reduce the government's record-high budget deficits in the long run. But he said they shouldn't move now to slash spending or boost taxes in the near future.
"I believe we should maintain our stimulus in the short term," Bernanke said as he spoke about the economy's challenges for the second straight day on Capitol Hill.
Bernanke again said the Fed is prepared to take new steps to bolster the recovery if needed.
"We are ready, and we will act" if the economy doesn't continue to improve, Bernanke told the House panel.
But he refrained from repeating comments made earlier in the week, that he didn't anticipate the Fed taking new action in the near term. Those comments to the Senate Banking Committee sent stocks tumbling Wednesday. The market on Thursday recovered those losses after another strong batch of earnings revived optimism on Wall Street.
Bernanke is under growing pressure to keep the recovery going because there's little appetite in Congress to provide a major new stimulus package.
The Fed chief made his comments as the panel's highest-ranking Republican, Rep. Spencer Bachus of Alabama, and other Republican members, complained about the effectiveness of President Barack Obama's $862 billion stimulus package. That has increased government spending and cut taxes at a time when most Republicans and some Democrats are worried about the government's exploding red ink.
"The economic recovery is anemic at best," Bachus said, arguing that the stimulus package hasn't delivered.
Bernanke's remarks also come as tax cuts by President George W. Bush are set to expire at the end of this year.
The economy is slowing as consumers cut back spending under the strains of 9.5 percent unemployment, lackluster wage gains, sagging home values and chipped nest eggs.
Businesses are wary of hiring and expanding because they are uncertain about the strength of their sales and the strength of the rebound. Some private economists fear the recovery could fizzle.
If the recovery were to flash serious signs of backsliding, the Fed could revive programs to buy mortgage securities or government debt. It could cut to zero the interest rate paid to banks on money left at the Fed, although there are some technical difficulties raised by such a move, Bernanke said. The Fed also could create a new program to spark more lending to businesses and consumers in a bid to lure them to ratchet up spending and grow the economy.
Rep. David Scott, D-Ga., complained about a lack of "aggressiveness" on the part of the Fed to tackle high unemployment. And, Rep. Gary Peters, D-Mich., wondered why the Fed wasn't taking new steps to stimulate the economy now.
Despite growing threats to the recovery, Bernanke said the Fed continues to believe the economy will grow modestly this year and avoid sliding back into recession. Some disappointing economic data hasn't been bad enough for Fed policymakers to "radically change our outlook," he said.
The U.S. has weathered recessions before, but none in decades have included this many Americans joining the ranks of the "long-term unemployed" (individuals out of work for more than six months). That number is at its highest level "since the government began keeping the statistic in 1948," according to government statistics. The New York Times reports that the latest figures indicate that 46 percent of the 14.6 million Americans who are unemployed have been out of work for more than six months.
If those statistics weren't enough to illustrate the enormity of the long-term unemployment crisis, check out this chart below from the Department of Labor:
So why aren't people able to return to the workforce? Economists and analysts say there are currently "five job seekers for every job." There simply aren't jobs out there to be filled. Since the current recession began in December 2007, it's estimated that nearly 8 million jobs have been lost. As long as the economy is suffering, employers aren't increasing their staffs and are leaving empty positions vacant.
So how do we get more jobs? Politicians and economists are busy debating the question, but most agree that until employers have incentives to hire, the jobless problem can't be solved quickly.
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Many Democrats say more stimulus is required to provide those incentives. They've pushed for the jobless benefit extension because they think it will stimulate the economy and in turn, stimulate employment. "There is no better stimulus than unemployment benefits, as this money quickly flows from those who need help into local economies," Labor Secretary Hilda Solis wrote in a post this month for AOLNews.
[Slideshow: U.S. unemployment in pictures]
But that suggestion irks many, including most Republicans in Congress and some economists: "Not only will increased unemployment benefits not stimulate the economy, they will at the same time lower the incentives for people to work by reducing the amount people are paid for working and increasing the amount people are paid for not working," economist Arthur B. Laffer wrote for the Wall Street Journal.
But statistics show that many unemployed people, including those not receiving benefits, are simply giving up their job searches. One requirement for receiving unemployment benefits is that an individual actively search for work, yet people are continuing to forgo benefits to drop out of the labor market.
The unemployed who stop looking for work become classified as "discouraged," and the number of discouraged workers continues to grow. And these discouraged workers are an added twist to the nation's unemployment problem: Discouraged workers are no longer considered unemployed, which is part of why the 9.5 percent rate of unemployment understates our current crisis. It's also one of the reasons the unemployment rate dropped in June from 9.7 to 9.5 percent. If you add the 1.2 million "discouraged" workers to the 14.6 million unemployed, you have 15.8 million out-of-work Americans.
So when will it end? Estimates vary, but the Federal Reserve says that unless job growth rates improve, it will take five years for the unemployment rate to return to pre-crisis levels.
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LONDON – Scientists have discovered an ancient whale whose bite ripped huge chunks of flesh out of other whales about 12 million years ago — and they've named it after the author of "Moby Dick."
The prehistoric sperm whale grew to between 13 and 18 meters (up to 60 feet) long, not unusual by today's standards. But unlike modern sperm whales, Leviathan melvillei, named for Herman Melville, sported vicious, tusk-like teeth some 36 centimeters (14 inches) long.
The ancient beast evidently dined on other whales, researchers said in Thursday's issue of the journal Nature. They report finding a skull of the beast in a Peruvian desert.
The researchers named it in tribute to the 19th-century author and his classic tale of the great white whale, which includes frequent digressions on natural history that punctuate the action.
"There is a chapter about fossils," one of the paper's authors, Olivier Lambert of the Natural History Museum in Paris, said. "Melville even mentions some of the fossils that I studied for my PhD thesis."
Anthony Friscia, a paleontologist at the University of California, Los Angeles, who wasn't involved in the discovery, said scattered finds of huge fossilized teeth had long hinted at the ancient whale's existence. But without a skull to fit them in, the creature's shape, size and feeding habits remained a mystery.
"The fact that they have found the entire jaw — well, almost the entire skull — is what's pretty unprecedented," he said.
The ancient beasts "were the killer whales of their time, although on a much grander scale," Friscia said. "They were close to the biggest things around."
Friscia said he thought the choice of a name was fantastic.
"You gotta love any time you get a nod to literature in taxonomy," he said. "It was a big whale, so why not?"
http://news.yahoo.com/s/ap/20100630/ap_on_sc/eu_whale_fossil
