Third Global Economic Depression- 2008

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* Pointing to the overall confidence reading of 29.5 in
April, T.J. Marta, a fixed-income strategist at RBC Capital Markets, said:
"What confidence? There is no confidence. It's like 1929."

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Reuters - Friday, April 11 11:27 pm

G-7 finance ministers and central bankers sit at the start of a G-7 Ministerial Meeting at the U.S. Treasury during the World. Bank/IMF 2008 Spring Meetings in Washington April 11, 2008. REUTERS/Joshua Roberts

G7 cuts growth

view By Louise Egan and Gernot Heller Reuters - 2 hours 13 minutes agoWASHINGTON (Reuters) -

Finance chiefs from rich nations offered a gloomier assessment of
the global economy on Friday and vowed to act swiftly on wide-ranging reforms aimed at moving beyond a credit crisis that threatens world growth.
The finance ministers and central bankers also expressed concern about sharp fluctuations in currency markets since the Group of Seven last met in Tokyo in
February, suggesting unease with how far markets have pushed down the U.S. dollar.
With fresh signs of economic distress in the United States, where a report showed consumer confidence hit its lowest level since 1982, the G7 officials said risks to
the economic outlook were tilted to the downside. They pointed to the weak U.S. housing market, stressed financial markets and rising inflation as hurdles that still
must be overcome.
"There may be more bumps in the road," U.S. Treasury Secretary Henry Paulson said after the officials concluded a meeting. "As we work through this period, our
highest priority is limiting its impact on the real economy."
The G7 -- the United States, Canada, Britain, France, Germany, Italy and Japan -- stopped short of declaring that the U.S. economy was heading for a recession
and steered clear of recommending the use of public funds to bail out troubled markets, an idea widely discussed before the meeting.
"We remain positive about the long-term resilience of our economies, but near-term global economic prospects have weakened," the G7 said in a communique. "The
turmoil in global financial markets remains challenging and more protracted than we had anticipated."
WHAT NOW?
The main focus of the meetings was a special study commissioned by the G7 that offered a detailed assessment of the banking and regulatory failures that contributed
to an eight-month-long and ongoing bout of market turmoil. The report offered dozens of recommendations on how to shore up banking oversight and regulatory
cooperation to prevent a recurrence.
The G7 said it strongly endorsed the report from the Financial Stability Forum, which comprises central bankers and global regulators. The report calls for tougher
capital requirements for banks to ensure they can withstand periods of financial market stress, and urges closer international cooperation between central banks and
regulators.
Defaulting U.S. subprime mortgage loans sparked a tightening of credit that has mushroomed into an international crisis. Central banks have flooded markets with
cash to try to spark lending, and the U.S. Federal Reserve and other central banks have cut interest rates to try to keep economies afloat.
Banks have already written down roughly $225 billion in assets tied to souring mortgages and other loans in 2007 and the first quarter of 2008, according to German
Finance Minister Peer Steinbrueck, who dismissed as far-fetched estimates that losses could eventually reach $1 trillion.
"Numbers like that can cause a lot of fear, he said.
G7 members, notably the United States and Canada, want to push bankers to match the vigour that global central banks have shown in battling the liquidity squeeze
by urging these private-sector players to quickly put losses behind them and raise new capital. A select group of bankers has been invited to a dinner on Friday night at the U.S. Treasury Department.
LIKE POETRY
In a nod to European leaders who had voiced dismay over volatile foreign exchange markets that pushed the euro to new highs against the U.S. dollar, the G7 also
strengthened its call for calm in currency markets.
"Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and
financial stability," the communique stated. "We continue to monitor exchange markets closely, and cooperate as appropriate."
That marked the first shift in four years from the G7's boilerplate language on currencies, and provided a verbal caution to markets that world finance leaders were
keeping a close watch on currency moves.
"This change in the language ... shows a concern we have not seen for some years," Italian Economy Minister Tommaso Padoa-Schioppa said.
When asked about the thinking behind the changes in the statement, European Central Bank President Jean-Claude Trichet replied, "It's like a poem, it speaks for
itself."
(Reporting by G7 reporting team; writing by Emily Kaiser and Glenn Somerville; editing by Tim Ahmann)

Note:Highlights ENB

IMF to sell more than 400 tons of gold to close budget gap
By Harry DunphyWASHINGTON, Tuesday (AP) -

The International Monetary Fund's executive board has approved a broad financial overhaul plan that envisages the eventual sale of 403.3 tons (365 metric tons) of its substantial gold supplies. The sale cannot occur without approval by the U.S. Congress and legislative action in many of the 184 other member nations of the Washington-based lending institution.
IMF Managing Director Dominique Strauss-Kahn welcomed the board's decision to propose a new income and expenditure framework for the fund designed to
close a projected $400 million (euro255 million) budget deficit over the next four years. It is "a landmark agreement that will put the institution on a solid financial
footing and modernize the IMF's structure and operations," he said in a statement. The budget proposal includes sharp spending cuts of $100 million (euro63.7
million) over the next three years that will include up to 100 staff dismissals. "We have made difficult but necessary choices to close the projected income shortfall and
put the fund's finances on a sustainable basis, but in the end it will make the fund more focused, efficient and cost-effective in serving our members," said Strauss-
Kahn, a former French finance minister. The IMF said the board agreed to revamp the fund's income model from one that primarily relies on lending to one that
generates money from various sources. During the 1990s the IMF lent billions to countries in Asia and Latin America that were facing financial crises and financed its
operations on interest from those loans. In recent years, IMF lending has dried up as many of those countries have built up reserves to prevent them from having to
borrow again from the IMF, which often puts severe restrictions and conditions on its loans. The declining interest payments led to the IMF's budget gap. Actual sale
of the gold cannot start because the U.S. member on the IMF board cannot vote for it until Congress approves. Congress has made approval conditional on a broad
range of operational changes that Strauss-Khan has pledged to carry out to preserve the relevancy of the 64-year-old organization, whose mission is to promote
global financial stability.
Under the plan, the IMF would sell the 403 tons, or nearly 13 million ounces, of gold for about $11 billion (euro7 billion) over several years. The IMF would keep
$4.4 billion (euro2.8 billion) on its books, and the remaining $6.6 billion (euro4.2 billion) would go into an investment account.
The IMF, which has sold gold before, said it would coordinate the sales with central banks in an effort to prevent market disruptions.
"Gold sales would be conducted in a transparent manner with strong safeguards to ensure that they do not add to official sales and avoid any risk of market
disruption," the IMF said in a statement.
The Bush administration said in February it could support selling a limited amount of IMF gold as away to ensure the agency's long-term financial stability, but U.S.
Treasury officials realized this would be a hard sell. In 1999 Congress rejected a previous proposal to sell IMF gold, and the current majority leader of the Senate,
Democrat Harry Reid, comes from the gold-mining state of Nevada.
Strauss-Khan, who took over last November as head of the IMF, said the financial overhaul was another major step in the organization's reform process. It followed
a decision last month to increase slightly the voting power of rapidly developing countries such as China, India and Brazil, who are playing a growing role in the world
economy. Since its founding, the United States, the largest shareholder, and European nations have dominated IMF decision-making.
Besides using the gold sales to produce an income stream, the fund's narrow investment authority will be broadened.

IMF slashes world growth forecast

The International Monetary Fund (IMF) has said that the world economy will grow much more slowly in the next two years as a result of the credit crunch.
In its latest economic forecast, the IMF says that world economic growth will slow to 3.7% in 2008 and 2009, 1.25% lower than growth in 2007.
The downturn will be led by the US, which the IMF believes will go into a "mild recession" this year.
Growth in the UK will slow sharply to 1.6% in both 2008 and 2009.
It said that the UK economy would be affected by a weakening housing market, the contraction of the financial sector, and the impact on UK exports of weaker
growth in the US and Europe.
Its UK forecast is substantially below the Treasury forecast of around 2% growth this year and 2.5% next year made at the time of the March Budget.
The greatest risk comes from the still-unfolding events in financial markets (which might lead to) the current credit squeeze mutating into a full-blown credit crunch IMF World Economic Forecast
The IMF admits that the global downturn might be still more severe than it is currently predicting, and says that there is a one in four chance of a "global recession"
when world growth falls below 3%.
The world downturn will be led by problems in the US housing market, but the IMF warns that excessive house price inflation in some European countries, including
Spain, Ireland and the UK, has made them more vulnerable to a slowdown.
House prices have already fallen by around 10% in the US by some measures, and the IMF says that it they may be over-valued by 10% to 20% in the UK.
It is forecasting further falls in US house prices of 14% to 20% this year.
US recession
The IMF forecasts that the US economy will grow by just 0.5% during 2008 and will actually contract in the first half of the year.
Its recovery will be slow, with growth of only 0.6% forecast in 2009.
"The US economy will tip into a mild recession in 2008 as a result of mutually reinforcing housing and financial market cycles, with only a gradual recovery in 2009,
reflecting the time needed to resolve underlying balance sheet strains," the report notes.
It says that, comparing the US economy year-on-year from the four quarter of 2007 to the fourth quarter of 2008. it will be 0.7% smaller, as the recession bites in the
first half of this year.
And it warns that with the scale of the credit losses to the financial sector approaching $1 trillion (£500bn), there is a risk that the crisis could get worse.
"The greatest risk comes from the still-unfolding events in financial markets," it says, warning that the current credit squeeze could "mutate into a full-blown credit crunch".
The IMF says that losses are spreading from sub-prime mortgage assets to other sectors, such as commercial property, consumer credit, and company debt.
The IMF also says that given the potential severity of the problems, "additional initiatives to support the US housing market, including the use of the public balance
sheet, could help reduce uncertainties about the evolution of the US financial system" although it warned that "care would be needed to avoid undue moral hazard".
The US Congress and the Bush administration are currently deadlocked over plans for further aid to the housing sector, with Democrats in both branches of
Congress proposing an expansion of financial support for home owners facing foreclosure.
European impact
The biggest impact of the US slowdown is likely to felt in Europe, which is the biggest trading partner with the US.
"Activity in the other advanced economies will be sluggish in both 2008 and 2009 in the face of trade and financial spillovers," the IMF says.
It is predicting growth in the eurozone of just 1.4% in 2008 and 1.2% in 2009, with Europe's largest economy, Germany, growing by just 1% in 2009, a sharp
revision of its forecast just three months ago.
And it says that in light of the slowdown, the European Central Bank - which has kept interest rates unchanged due to concern about inflation - "can afford some
easing of its policy stance".
And it suggests that in future, central banks should take more account of rising house prices when setting interest rates, in effect "leaning against the wind" to prevent
house prices moving out of "normal valuation ranges".
This is an implicit criticism of the US Federal Reserve which kept interest rates at 1% for several years under former chairman Alan Greenspan.
Worldwide impact
The IMF says that the big emerging market countries like China and India which are growing rapidly will be less affected by the slowdown, although they will be
affected by a slowdown in trade among the rich countries.
The rate of growth of imports into rich countries is expected to slow sharply, leading to a cut in the rate of growth of exports by developing countries.
And it warns that the spillover will more severe in Latin America or in countries linked to the dollar, which has declined sharply on world currency markets.

IMF Lowers Japan Growth

Forecast For 2008, Warns Of Risks
TOKYO -(Dow Jones)- The International Monetary Fund Wednesday lowered its growth outlook for Japan's economy for 2008 and said its central bank could cut
interest rates if a sharp global slowdown causes conditions to worsen sharply.
Given the significant role exports play in driving Japan's economy, the biggest risk facing the country is a slowdown in exports caused by a global economic downturn,
the IMF said in its latest World Economic Outlook report.
"In light of the prevailing headwinds to growth, monetary policy should maintain its accommodative stance and could be eased further in the face of a serious
downturn," the IMF said.
The IMF predicted that the world's second-largest economy will expand 1.4% in 2008 in price-adjusted terms, a tad slower than its previous forecast for growth of
1.5% released in January. It also expects 1.5% growth in 2009.
The IMF attributed the downward revision in this year's growth outlook to deteriorating business and consumer sentiment and signs of moderating export growth.
The report highlights the challenges facing the new governor of the Bank of Japan, Masaaki Shirakawa. Shirakawa, who was appointed to the top post earlier
Wednesday, signaled that he would take a flexible approach as he helps Japan navigate through one of the most severe global financial crises in decades.
"Uncertainty over the economy is particularly high at the moment, it's not appropriate to have preconceptions on the future direction of monetary policy," he said at a
press conference earlier Wednesday after the BOJ decided to keep its policy rate steady at 0.50%.
The IMF said Japan's economy can count on support from its neighbors, however. With emerging Asian countries taking almost one half of Japanese exports and the
proportion of shipments to the U.S. and Europe declining, Japan "should remain well supported" as long as Asian economies remain firm, the report said.
Still, amid global uncertainties, a sharper-than-expected slowdown can't be ruled out, and developments in emerging Asian nations are a key factor for Japan's outlook, it said.
Prospects for domestic demand pose another threat to the economy in the near term, the fund said.
High oil and raw materials costs have been pushing up prices of daily necessities, hurting consumer sentiment amid sluggish salary growth.
Capital spending could also weaken if global market turmoil continues and causes a tightening of credit markets, the report said.
On the brighter side, residential investment - which slumped after building standards were tightened last June - is expected to recover and support the economy in the
second half of 2008, the IMF said.
Still, given such risks to the economy, the IMF recommended the central bank keep a flexible stance toward interest rates as price increases haven't built up any
significant momentum.
Consumer prices started rising steadily, if slowly, in Japan late last year.
Inflation has been pushed up by food and oil, but excluding such factors prices were still falling marginally, and slower growth put an end to the acceleration in overall
increases.
The IMF predicted that Japan's consumer prices will rise 0.6% in 2008 and 1.3% in 2009.
-By Akane Vallery Uchida, Dow Jones Newswires; 813-5255-2929; akane.uchida@ dowjones.com
(END) Dow Jones Newswires 04-09-080915ET

Consumer confidence falls to new low

By JEANNINE AVERSA, AP Economics WriterFri Apr 11, 11:57 AM ET

Americans' confidence in the economy fell to a new low, dragged down by worries about mounting job losses, record-high home foreclosures and zooming energy
prices.
According to the RBC Cash Index, confidence dropped to a mark of 29.5 in April, down from 33.1 in March. The new reading was the worst since the index began
in 2002. It marked the fourth month in a row where confidence has fallen to an all-time low.
"Consumers are very pessimistic," said Mark Vitner, economist at Wachovia. "There are not a lot of happy campers out there."
Over the past year, consumer confidence has deteriorated significantly. Worsening problems in housing, harder-to-get credit, financial turmoil on Wall Street and lofty
energy prices have put people in a much more gloomy mind-set. Last April, confidence stood at 85.4. The index is based on results from the international polling firm
Ipsos.
All the economy's problems are taking a toll on President Bush's approval ratings, too. The public's approval rating on his economic stewardship fell to a low of 27
percent, according to a separate Associated Press-Ipsos poll. Bush's overall job-approval rating dipped to 28 percent, also an all-time low, the poll said.
Many economists believe the country has tipped into its first recession since 2001. Federal Reserve Chairman Ben Bernanke for the first time acknowledged last
week that a recession was possible. It was a rare public utterance of the "r" word by a Fed chief.
"Consumer sentiment is tracking at levels we think are consistent with a mild recession at this point," said Brian Bethune, economist at Global Insight.
A measure looking at consumer's feelings about current economic conditions slipped to a 54.6 in April, from 54.7 in March. The new reading was the lowest in six
years of records.
Rising unemployment and job losses are making people more uneasy.
The government reported last week, that employers slashed 80,000 jobs in March, the most in five years and the third straight month where the nation's payrolls were
cut. The unemployment rate jumped from 4.8 percent to 5.1 percent, the highest since the aftermath of the devastating Gulf Coast hurricanes.
Another factor blamed for eroding consumer confidence is high gasoline prices, which are socking people's wallets and pocketbooks. That's squeezing already
strained budgets and leaving people with less money to spend on other things.
"Much of the angst we're seeing from consumers is `Gosh, I'm working harder and harder, and all I'm doing is paying for my basic necessities. I don't have anything
left to have any fun,'" Vitner said.
Gasoline prices, which have set a string of records in recent weeks, climbed to a new record of $3.357 a gallon on Thursday, according to AAA and the Oil Price
Information Service.
Anxiety also has grown as people wonder if there is any relief in sight for the troubled housing market. With the housing collapse, many people have watched their
single-biggest asset — their home — drop in value. That has made them feel less wealthy and less inclined to spend.
Against the backdrop of all these concerns, another measure tracking individuals' sentiments about the economy and their own financial standing over the next six
months fell deeper into negative territory. This gauge dropped to a negative 48.3 in April, down from a negative 41.6 in March. The new reading was the worst on
record.
A measure on consumers feelings about employment conditions fell to 97 in April, from 99.2 in March. The new reading was the lowest since early October 2003.
Another gauge of attitudes about investing, including comfort in making major purchases, declined to 56.4 in April, from 56.7 in March. The new figure was the
lowest on records going back to 2002.
Economists keep close tabs on confidence barometers for clues about consumer spending, a major shaper of overall economic activity.
Cautious shoppers gave most retailers their most dismal March in 13 years, according to sales figures reported by major retailers on Thursday. J.C. Penney Co., Gap
Inc., and Limited Brands Inc. were among the merchants hit by a sharp drop in sales.
The RBC consumer confidence index was based on the responses from 1,005 adults surveyed Monday through Wednesday about their attitudes on personal finance
and the economy. Results of the survey had a margin of sampling error of plus or minus 3 percentage points. The overall confidence index is benchmarked to a
reading of 100 in January 2002, when Ipsos started the survey.
Pointing to the overall confidence reading of 29.5 in April, T.J. Marta, a fixed-income strategist at RBC Capital Markets, said: "What confidence? There is no
confidence. It's like 1929."

IMF says US crisis is 'largest financial shock since Great Depression'

Heather Stewart in Washington guardian.co.uk, Wednesday April 9 2008

America's mortgage crisis has spiralled into "the largest financial shock since the Great Depression" and there is now a one-in-four chance of a full-blown global
recession over the next 12 months, the International Monetary Fund warned today.
The US is already sliding into what the IMF predicts will be a "mild recession" but there is mounting pessimism about the ability of the rest of the world to escape
unscathed, the IMF said in its twice-yearly World Economic Outlook. Britain is particularly vulnerable, it warned, as it slashed its growth targets for both the US and
the UK.
The report made it clear that there will be no early resolution to the global financial crisis.
"The financial shock that erupted in August 2007, as the US sub-prime mortgage market was derailed by the reversal of the housing boom, has spread quickly and
unpredictably to inflict extensive damage on markets and institutions at the heart of the financial system," it said.
After warning earlier this week that the world's financial firms could end up shouldering $1 trillion (£500bn) worth of losses from the credit crunch, the IMF said it
expects the US to achieve GDP growth of just 0.5% this year, and 0.6% in 2009, with the housing crash getting even worse.
Simon Johnson, the IMF's director of research, said later the key risk to the forecasts was the danger of a vicious circle emerging, as house prices continue to fall,
dealing a fresh blow to the banks, and exacerbating the problems in the markets. "Sentiment in financial markets has improved in recent weeks since the Federal
Reserve's strong actions with regard to investment banks. But we have seen how strains in markets can quickly become reinforcing, and the possibility of a negative
spiral or 'financial decelerator' remains a possibility."
President George Bush has already signed off a $150bn tax rebate package to kick-start the economy, and the Federal Reserve has backed an emergency buyout of
investment bank Bear Stearns, but the IMF said this may still not be enough: "Room may need to be found for some additional support for housing and financial
markets."
In the UK, the chancellor has repeatedly insisted that the economy is "better-placed" to weather the storm, because of its flexible labour market and low
unemployment, but the IMF calculated that the British housing market is overvalued by up to 30%, and could be destined for a damaging correction.
Alistair Darling is due to fly to Washington tomorrow to discuss the turmoil with fellow G7 finance ministers.
Mervyn King, governor of the Bank of England, will also be in Washington this weekend to discuss the ramifications of the credit crunch with central bankers from
around the world.
· This article was amended on Friday April 11 2008. We said that the IMF expects the US to achieve GDP growth of 0.6% in 2008, when this is actually their prediction for 2009 growth. This has been corrected.