US senators be in agreement economy bill

There have been a series of meetings to try to find a compromise position

The American people want us to work together - they don't want to see us dividing along partisan lines on the most serious crisis confronting our country

Senators in Washington say they have reached agreement on a huge economic stimulus package designed to revitalise the US economy.
Senior Democrats say they will back a plan worth $780bn (£534bn), instead of the $900bn sought by the president, in order to gain vital Republican support.
President Barack Obama denounced delays to the legislation, which mixes big spending plans and tax cuts.
The Senate is now due to hold a vote in the coming days.
President Obama has spoken of "an urgent and growing crisis" and said further Senate delays would be "inexcusable and irresponsible" and lead to "a catastrophe".
His comments came as the latest unemployment figures showed that the US had had its single worst month for job losses for 35 years.
Almost 600,000 people lost their jobs in January alone - figures Mr Obama described as devastating.

Rough water
President Obama is desperate to pass the package, the BBC's Adam Brookes in Washington says.

This is the president's first big legislative initiative since he took office, and it has hit some very rough water, our correspondent says.
The new $780bn plan is composed of 42% tax cuts and 58% new government spending, Democratic Senator John Kerry said, according to Reuters news agency.
Other details of the slimmed-down package are sketchy, but one Democrat told Reuters that the homebuyer tax credit and car tax credit were still in the bill.
The Democrats need to persuade two Republicans to vote in favour of the bill for it to gain the necessary 60 Senate votes.
Although Democrats hold a 58-41 majority, 60 votes are required to ensure the Republicans cannot block the bill with a filibuster.
Senate Finance Committee Chairman Max Baucus said that at least three or four Republicans would vote for the bill.
"The American people want us to work together," said Senator Susan Collins, a Republican who will vote in favour.
"They don't want to see us dividing along partisan lines on the most serious crisis confronting our country."
However, the Senate minority leader, Republican Senator Mitch McConnell, said that "most of us are deeply sceptical that this will work".
And his Republican colleague, John McCain, defeated by Mr Obama in last year's presidential election said: "You can call it a lot of things but bipartisan isn't one of them."
'Echo chamber'
Mr Obama described as "devastating" the news that nearly 600,000 Americans lost their jobs in January.
"The situation could not be more serious. These numbers demand action," he said.

'Echo chamber'
Mr Obama described as "devastating" the news that nearly 600,000 Americans lost their jobs in January.
"The situation could not be more serious. These numbers demand action," he said.

Mr Obama's remarks came as he unveiled a new board of economic advisers, chaired by Paul Volcker, former chairman of the Federal Reserve.
"I created this board to enlist voices that come from beyond the echo chamber of Washington DC," said Mr Obama, "and to ensure that no stone is unturned as we work to put people back to work and to get our economy moving."
Republicans and some centrist Democrats are keen to reduce the number of spending commitments in the bill, and without their support the bill may not have enough votes to pass in the Senate.
The House of Representatives approved its version of the package last week, worth $825bn, without any Republican support.
If the Senate gives its approval to the bill, the two different versions will then have to be reconciled in a joint House-Senate committee before facing a final vote.
President Obama has said he wants the passage of the bill to be completed by 16 February.

Are you in the US? Are you in favour of the stimulus bill? Is President Obama right to urge swift action on the measures? You can send us your comments

The Obama administration is about to face its first significant financial test.

Treasury Secretary Tim Geithner is preparing to announce his comprehensive financial stability plan.

The long-awaited Obama administration plan to shore up the banking system is due Monday. Here's what the government should be doing.

Treasury Secretary Tim Geithner is expected to lay out the government's strategy for reviving the banking system in a speech Monday.
Since taking office last month, top Obama administration officials have promised to present a comprehensive plan to address the problems in the financial system, which has been struggling with losses on bad loans and souring mortgage-related securities.
Fixing the problems at the banks won't be simple or cheap. Economists say it will likely take more than the $350 billion remaining under the Troubled Asset Relief Program to fund the next round of federal programs.
One senior administration official told CNN the package being put together by Geithner and other top economic advisers to the President would "be an overhaul of the whole program."
Whatever shape the plan takes, it's crucial that officials reassure investors worried about the health of financial institutions and their capacity to extend credit to consumers and businesses.
Bank stocks have fallen sharply again this year, deepening a plunge that started in late 2007. Some fear that a plan the market deems insubstantial or ill-advised could lead to another leg down.
"We have to repair the banking system," said George Kaufman, an economics professor at Loyola University Chicago. "You have to do that first before you can address any other problems."
A number of options have been under discussion in Washington, notably a government-funded bad bank that would remove toxic assets from bank balance sheets as well as a taxpayer-funded insurance plan to cover losses on troubled bank investments.
Skepticism growing about bad bank idea
The bad bank idea has gotten the lion's share of the attention, with officials including Federal Deposit Insurance Corp. chief Sheila Bair speaking out in favor of a variation of the plan. Proponents say the nation's banks won't be able to lend aggressively and support economic growth until troubled assets like illiquid trading securities are removed from their balance sheets.
Recently, though, there has been some talk of a shift toward a program that focuses more on the asset guarantee approach.
Sen. Charles Schumer, D-N.Y., said earlier this week that the upfront cost of a bad bank approach -- projected by some observers to run into the trillions of dollars -- was among the factors leading legislators and administration officials to turn increasing attention to the guarantee concept. The government has already guaranteed some troubled assets held by Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500).
Whatever their merits, the bad bank and guarantee approaches share a common Achilles heel: They would commit hundreds of billions of additional taxpayer dollars at a time when Americans are wondering if aiding well-paid bank employees is the best use for their money.
Many taxpayers are up in arms about the gobs of money being made by employees of failing financial firms, despite President Obama's proposed new rules to cap compensation at banks requiring federal assistance.
Meanwhile, U.S. workers are losing their jobs at a sobering clip, and states and municipalities are cutting back on services as tax receipts plunge.
"The bad bank idea is just ridiculous," said Len Blum, a managing director at New York investment bank Westwood Capital. "The problem with these sorts of approaches is that for the government to help the institutions, it has to overpay -- which is bad for taxpayers and adds to this lack of transparency."
Having the government provide financing for private-sector purchases of troubled assets is another idea that may come into play.
This approach, in which private investors could commit funds and then borrow from the Fed or other government bodies to expand their buying power, could accomplish two important objectives. It could draw new capital into the markets, and help establish market prices for securities that have traded only infrequently and at deeply distressed prices in recent months.
One question mark hanging over this concept is how willing the banks will be to sell toxic assets at the market prices.
If the newly established market prices are below the prices at which the banks have marked the assets on their balance sheets, the banks could face more writedowns -- which could force the government to pour in even more capital.
Shouldn't some banks be allowed to fail?
Whatever the government does, there is a rising call to get taxpayers more than they got in return for the first round of TARP funding under former Treasury Secretary Henry Paulson.
"There has been a reticence on the part of the government to give out capital with appropriate restrictions," said Blum. "The problem with that approach is that it is bad for taxpayers and adds to the lack of transparency."
Estimates by the Congressional Budget Office and the Congressional Oversight Panel put the federal overpayments in the first half of TARP -- which focused on buying preferred stock from both troubled and healthy institutions -- in the range of $64 billion to $78 billion.
With questions about how taxpayer funds are being used growing, some observers say the best answer is to stop trying to prop up troubled institutions and instead resolve failing banks through the existing FDIC process - essentially letting banks fail and finding new buyers for them after the FDIC has taken them over.
The advantage to this approach, said Garett Jones, an economics professor at George Mason University in Fairfax, Va., is that it would help to spread the losses in the financial system to shareholders and bank creditors, instead of leaving the whole tab with taxpayers.
He said the government should force debt-for-equity swaps at institutions needing assistance. Existing shareholders would be wiped out and current creditors would give up some of their debt claims in exchange for ownership of the restructured firm.
In addition to being fairer, Jones said, swapping debt for equity would reduce the amount of debt weighing on the economy. That's a crucial concern at a time when the amount of domestic nonfinancial debt outstanding more than doubles gross domestic product, according to Ned Davis Research data - a ratio that's well above its long-run average.
"Why should taxpayers be bailing out firms when debtholders have plenty of skin in the game?" Jones said. "In the current bailout, what you're really doing is converting the debt of these problem banks to government debt -- and that's not what you need to do."

Very important Signs: Economic increase Looks Even Weaker

The dramatic downturn gripping the global economy has breathed new life into old questions about how best to run our economic systems.
Politicians, business leaders and policymakers searched for solutions at this year's World Economic Forum in Davos.
Meanwhile, different debates were taking place at the "alternative" World Social Forum in Belem, Brazil.
There, an eclectic mix of some 100,000 campaigners, thinkers, and working people came to starkly different conclusions about the causes of the downturn, and how best to address it.
We asked four participants from around the globe to give us their opinions. Click on the links below to read their arguments.

New World Order

In recent weeks, the world has been politely standing by and watching how things play out with the fiscal stimulus and latest bank-bailout plans in Washington. Yes, there's been some grumbling overseas about "buy American" provisions in the stimulus bill, but for the most part, officials elsewhere don't want to step on the toes of a new President to whom they are favorably disposed. They also don't want to endanger legislation that they hope will help jump-start the global economy.

Just wait a couple of months, though. Politicians from Beijing to Berlin to Brasília see the current crisis as the product of a messed-up global financial infrastructure dominated by the U.S., and they will soon be pushing for big changes--whether Americans like them or not.
All this will begin to gel on April 2, when the newish international organization known as the G-20--the leaders of 19 of the world's biggest national economies, plus the European Union--meets in London. An unofficial meeting has already taken place, at the World Economic Forum in Davos, Switzerland, where G-20 officials (with the conspicuous exception of those from the U.S.) made speeches, conversed in the halls and gave a sense of the direction in which the world outside the U.S. wants to head. (Read TIME's special report on Davos 2009.)
The global discussion of the financial crisis is strikingly different from the one in the U.S. Here there's still something of a debate over whether the mess is the result of too much government interference in the housing market or too little government regulation of financial markets. In the rest of the world, that's no debate: inadequate and inconsistent financial regulation is uniformly blamed. What's more, a consensus seems to have emerged among the world's finance ministers and central-bank bosses that the chief underlying cause of the crisis was an unbalanced and out-of-control system of global capital flows in which some big-spender countries (namely the U.S.) ran up huge debts while big savers (China and India, for example) hoarded surpluses.
On the regulatory front, the path to a new global approach is pretty clear. Last spring the leaders of the G-7, a club of wealthy nations, agreed to create a "college of supervisors" to more closely coordinate regulation of multinational banks. The Group of Thirty, an influential organization of current and former central bankers and financial regulators, recommended in January that "systematically significant" financial institutions (those that are too big to fail) be identified in advance and subjected to higher capital requirements and tougher regulation. (See who's to blame for the financial crisis.)
Yet regulators around the world were already jointly setting bank-capital standards before the current crisis hit. A lot of good that did us. So there is also much talk about the need for a new architecture--"a new Bretton Woods" was a phrase that echoed around Davos--to rein in global financial flows.

Bretton Woods is the mountain resort in New Hampshire where in 1944 the Allied nations met--with the U.S. calling almost all the shots--to plan a postwar financial system. The Bretton Woods creations included the International Monetary Fund (IMF), the World Bank and a quarter-century of fixed exchange rates built around a U.S. dollar that was linked to gold. The fixed exchange rates and gold standard unraveled in the 1970s, and ever since we've had a system in which the IMF occasionally steps in to help countries in currency crises (usually imposing harsh terms in the process) but exercises no real control over the global financial system.

After the emerging-market currency collapses of the late 1990s, in which IMF aid wasn't much help, the lesson that emerging economies such as China and India took was that they needed to build up gigantic reserves of U.S. dollars to protect their currencies. To build those reserves, they ran big trade surpluses, which were in turn enabled mainly by record trade deficits in the U.S., which were in turn enabled by massive borrowing from around the world. It was an extremely unbalanced financial ballet, and it has now come crashing to the ground.

latest........On deck: foreign trade, federal budget, retail sales, business inventories, consumer sentiment, and some timely talk from key Fed officials

Last week’s smaller-than-expected 3.8% drop in real gross domestic product in the fourth quarter was hardly good news for economic growth in the first half of 2009. The reason is the split between very weak demand and an unexpected rise in business inventories. The upswing in inventories contributed 1.3 percentage points to economic growth, while economists had anticipated a subtraction.

The problem is that overall spending last quarter dropped at a 5.1% annual rate, led by declines of 3.5% in consumer spending and 19.1% in capital spending by businesses. That’s 80% of U.S. demand right there. That sudden dropoff in demand, in addition to a huge 19.8% plunge in exports, caught businesses by surprise. Companies had been trimming their inventories for four consecutive quarters, but last quarter they couldn't cut fast enough to prevent an unwanted buildup, and ratio of inventories to sales has spiked sharply higher across all business sectors. That portends a steep liquidation in the first quarter, which will likely extend into the second quarter.
The resulting cutbacks in output and employment will weigh heavily on GDP growth, especially in the first quarter. Economists are now shifting their views of the pattern of GDP declines this year, and most now expect the first quarter contraction to be even sharper than last quarter.
This week’s data will help to determine just how weak current-quarter growth will be. The Bureau of Economic Analysis, which assembles the GDP numbers, did not have December data on business inventories and foreign trade when it issued its initial estimate of fourth-quarter GDP. The week offers reports on both, which could result in a significant revision to last quarter’s top-line number. Plus, the impact of those two reports on the mix of fourth-quarter GDP could have implications for growth this quarter. In addition, the government will issue data on January retail sales, which will offer guidance on how much drag consumers are exerting on overall demand this quarter.
Also of key market interest this week, two top Federal Reserve officials will be speaking on Tuesday. Bill Dudley, in his first public appearance since taking over as President of the New York Fed from current Treasury Secretary Tim Geithner, will speak on Treasury Inflation Protected Securities (TIPS) at a conference in New York. His remarks will most likely include the subject of inflation. In addition, Fed Chairman Ben Bernanke will be testifying before Congress on the Federal Reserve’s program to stem the financial crisis.

World Leaders Wary of U.S. Economic actions

This was supposed to be the year the United States came in from the cold at the annual gathering of world leaders here. But instead of receiving a warm embrace, American policies were rebuked again and again in rhetoric that recalled the anger of the Bush years — mainly aimed at what the world views as the new threat of protectionism by the United States.

Certainly, there is a deep reservoir of good will for President Obama and the change in direction he represents. But despite the pledges to encourage international trade and economic cooperation that accompanied the closing sessions of the gathering, the World Economic Forum, on Sunday, there were clear signs that deep divisions between the United States and the rest of the world remained.
“There is such a level of concern, despair and anxiety that as welcome as the new president is, no one is inclined to cut the U.S. much slack,” said Richard Haass, president of the Council on Foreign Relations.
Or as Niall Ferguson, the Harvard historian, put it, “If G.M. got a new C.E.O., does that mean people would suddenly want to buy their cars?”

The criticism came from the usual sources, like Prime Minister Vladimir V. Putin of Russia and Premier Wen Jiabao of China, who both criticized a long pattern of excessive consumption, risky borrowing and inadequate regulation in the United States.
But more significant, the brickbats also came from economic and political leaders of European allies like Germany and France.
Whether the issue was the recent bailout for the American auto industry or proposals favoring American steel producers in the stimulus package now being debated on Capitol Hill, foreign officials warned that any move toward protectionism would have serious consequences for Washington and the rest of the world.
“We must not allow market forces to be completely distorted,” Angela Merkel, the German chancellor, warned in a speech on Wednesday. “For instance, I am very wary of seeing subsidies injected into the U.S. auto industry. That could lead to distortion and protectionism.”
By the weekend, as word of the “Buy American” provision in the stimulus package to help the United States steel industry spread through Davos, the tone had become sharper.
“It’s extremely preoccupying that one of the first acts of the new Obama administration could be a measure that is clearly protectionist and a distortion of competition,” said Anne-Marie Idrac, the French trade minister, who tried to draw Pascal Lamy, director general of the World Trade Organization, into the battle.
Mr. Lamy, however, said the organization would only act if there has been a “breach of the rules.” “I am not that big cop,” he added.
For all the global affection for Mr. Obama, Washington sent a relatively low-profile contingent to Davos, with Valerie Jarrett, a White House adviser, serving as the administration’s headliner here.
Ms. Jarrett did not address the issue of protectionism directly in her brief speech on Thursday, preferring to stick with the big picture as well as Mr. Obama’s connection to Chicago, her hometown.
Instead, the task of defending American economic policy fell to attendees like Representative Brian Baird, a Democrat from Washington State, who has served in Congress for the last decade.
“The steel issue is vastly overplayed here,” he said. “Even Adam Smith himself said certain key industries deserved to have protection.”
Noting that his district is home to two steel plants — down from three a few years ago — he added, “Steel is one of those industries.”
He suggested that this was not the time to push free-trade dogma on American taxpayers already worried about surging levels of unemployment.
“If you want to kill the W.T.O., that would be the way to do it,” he said.
Davos has always stood for globalization, and the benefits of free trade are an article of faith here. But even Davos die-hards concede that national economic interests have come to the fore amid the global downturn, and voter support for easing trade barriers is at low ebb.
To be sure, for all the foreign criticism over the help for the Detroit automakers, European countries including France, Britain and Sweden have offered up billions in aid for local auto manufacturers. What’s more, France has long protected the French companies it calls “national champions” from the threat of foreign takeover while providing huge subsidies for its farmers.
But beyond the public sparring, many foreign officials are also concerned about how the United States government will pay for Mr. Obama’s proposed stimulus package, which could ultimately cost $1 trillion.
A binge of new borrowing by Washington could effectively crowd out other borrowers by pushing interest rates higher over the long term, and would be especially painful for developing countries that rely on foreign capital. Or, it could stoke inflation when the global economy eventually begins to recover.
Ernesto Zedillo, the former president of Mexico who helped steer his country through a financial crisis in 1994, said developing countries were already having a hard time finding the capital they needed without competing with increased borrowing by the United States. And his country does not have the option of printing money, he said, because the Mexican peso is not a reserve currency like the dollar.
Even the praise for Mr. Obama from other leaders was balanced by criticism of Mr. Bush and past United States policies. “He seems to be very keen to interact with other nations as equals, rather than talking down,” said Kgalema Motlanthe, the president of South Africa. “It is a breath of fresh air.”
But for all the complaining from abroad, no other economic power — not Europe, not Japan and not China — seems ready to step up and fill the role traditionally played by the United States.
“The irony of the situation,” said Mr. Haass, of the Council on Foreign Relations, “is that everyone is still looking to the U.S. for leadership to fix things or at least make things better.”

How is this a great investment plan?

Diversifying won't totally protect you from losses, but it can boost your returns by limited your risk.

Spread your money around

Answer: There have always been a lot of misconceptions and erroneous expectations when it comes to the benefits of diversification.Back in the go-go '90s I remember having lunch with a financial planner who sarcastically referred to diversification as "di-worse-ification." His contention was that it made no sense to diversify into different asset classes. Stocks clearly offered the highest returns over long periods, so it was foolhardy for anyone investing for the long-term to put their money in anything but stocks. You were just lowering your potential return. Funny thing is, back then, this "hooray, hooray, stocks all the way" approach wasn't that uncommon.Today, many people are having second thoughts about diversification because they feel that diversifying didn't offer their portfolio the protection they thought it should. For example, all but a handful of Morningstar's 69 fund categories were down in 2008. So even if you spread your money around quite liberally, you still might have eked out only a paltry return or suffered significant losses last year.Looked at from these two vantage points, it's easy to see why you and others would question the value of diversifying. If it holds you back in bull markets and doesn't offer much shelter during bears, what's the point?In fact, there is a real benefit to diversifying. But in order to make reasonable investing choices and set a coherent investment strategy, it's important to understand what its advantages are, as opposed to what we might think they are or wish they were. Otherwise, you may be investing on the basis of false hopes, which is a good recipe for disappointment.What diversification can do for youThe first thing you should know is that it can't guarantee you the highest possible return. In fact, it guarantees you won't earn the highest possible return. By spreading your money around you assure that you will have at least some of your money in lagging investments, which will reduce your portfolio's potential return.By the same token, diversification can't totally immunize you from losses. To do that, you would have to do the opposite of diversifying -- i.e., plow all your money into the most secure investments, such as Treasury bills or short-term bank CDs.What diversification can do for you, though, is give you a shot at higher returns than you will get in the most secure investments while limiting your risk somewhat.Notice I said "somewhat." Fact is, if you want the value of your money to grow more than it will in T-bills and the like, you've got to invest in asset classes that have the potential for higher long-term returns, such as stocks and bonds. But those higher returns come with more risk. In the investment world, that risk can take several forms, but generally the riskier an investment, the more volatile it is, the more its value will jump around from year to year.You can't eliminate that risk. But by investing your money in a mix of secure and more volatile assets, you can reduce the potential downside in a given year. For example, if you'd had all your money in a diversified portfolio of U.S. stocks last year, you'd have lost just under 40%. If, on the other hand, you'd had 60% of your money in stocks, 30% in a broad bond index fund and 10% in cash last year, you would have lost roughly half that amount, or around 20%.(See'>http://www.blogger.com/post-create.g?blogID=7564789355139535583#Note">See editor's note.)That kind of cushion is important for a couple of reasons. For one thing, it makes you less likely to panic in a bad year and sell off riskier investments with higher long-term return potential at what may be the worst possible time. A less volatile portfolio is also less likely to take a devastating hit that may be difficult to recover from. That's an especially important consideration when you're dealing with 401(k)s or other retirement accounts and you're nearing retirement age or are already retired and withdrawing money from such accounts.So the key to getting the benefit of diversification is settling on a mix that's right for you.Ideally, your mix should consist of assets that don't all move in sync with each other or, to put it in investing terms, that aren't too highly correlated with each other.It's okay for gains in some investments to offset losses in others in some years. But on balance your gains should outweigh losses most years. And, while down years are inevitable with growth-oriented investments, whatever assets you're investing in should have a positive long-term return. Diversification isn't a magic formula that can turn recurring sizeable losses in your investments or your portfolio overall into long-term wealth.What diversification can't do for youBut as big an advocate as I am of diversifying among a variety of asset classes, I also feel that the concept has been stretched out of shape over the years, in some cases even beyond recognition.Specifically, I think the benefits of diversifying have been oversold by some advisers who seem intent on making themselves come off like investment wizards capable of creating all-upside-no-downside portfolios. But I'm wary of these supposedly more sophisticated portfolios.So I suggest keeping things simple. Start with a realistic sense of how much risk you can handle and then build a diversified portfolio of stocks, bonds and cash. If you want to get more fancy, you can throw in some foreign stock funds and maybe some REITs or real estate-related mutual funds. But don't go overboard. The more complicated your portfolio is and the more wide-flung your holdings, the more attention and care it will need.Finally, remember that to get the full benefit of diversifying you ought to rebalance periodically to restore your portfolio to its proper proportions.For guidance on how to divvy up your money given your goals and risk tolerance, you can use our asset allocator tool. And if you want to see how different combos of assets might perform, check out the asset allocator tool on T. Rowe Price's site.Of course, you can always take the other route you suggest and just buy CDs. But unless you have so much money that you can accumulate a large enough nest egg despite their low yields, I'm not sure that you can do this and also not worry.Editor's note: An earlier version of this story incorrectly stated that a theoretical portfolio of 60% stocks, 10% broad bond index fund and 10% cash would have lost around 20% last year. The correct example is 60% stocks, 30% broad bond index fund and 10% cash.