Sunday, August 3, 2008

The Real State of the US Economy

The Real State of the US Economyx
Henry Paulson Has Lost Control Over US Finance

By William F. Engdahl

Global Research

When Henry Paulson agreed to leave his job as chairman of the powerful Wall Street investment bank, Goldman Sachs to go to Washington as Treasury Secretary in 2006 he demanded extraordinary powers as de facto economic czar. He got it. Paulson is also head of the President’s Working Group on Financial Markets -- the secretary of the treasury and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The Working Group is the financial world's equivalent of the Pentagon war room. Paulson, not Fed chairman Bernanke, is the person running the Administration’s crisis management. And his recent actions indicate he has lost control as the snowballing problems from the semi-government mortgage companies Freddie Mac and Fannie Mae to the collapse of the multi-trillion dollar market in Asset Backed Securities (ABS) to the real economy are compounding into the worst crisis since the 1930’s Great Depression.

‘The US banking system is sound…’

In an eerie echo of President Herbert Hoover in 1930, during a Presidential campaign against Roosevelt, following the stock market crash and collapse of numerous smaller banks, Paulson recently appeared on national TV to declare "our banking system is a safe and sound one." He added that the list of "troubled" banks "is a very manageable situation." In fact what he did not say was that the US bank deposit insurance fund, the Federal Deposit Insurance Corporation (FDIC) has a list of problem banks that numbers 90. Not included on that list are banks such as Citigroup, until recently the largest bank in the world.

The statement is hardly reassuring. The California savings bank, IndyMac Bank which was declared insolvent a month ago was not on the FDIC list a week before it collapsed. The reality is the crisis created by "securitizing" millions of home mortgages into new financial instruments and selling the packages to pension funds and investors is unfolding like a snowball rolling down the Swiss Alps.

Indication of the lack of control is the statement just weeks ago by Paulson that "financial institutions must be allowed to fail." That was two weeks before Paulson went to Congress to ask for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac." As I noted in my recent piece, Financial Tsunami: The Next Big Wave is Breaking: Fannie Mae Freddie Mac and US Mortgage Debt , those two private companies insured some $6 trillion worth of home mortgages, half the entire US mortgage debt. Paulson defended the request by calling Freddie Mac and Fannie Mae "the only functioning part of the home loan market."

That comes back to the statement about a "sound banking system". Can we have a sound banking system where the only functioning part is literally insolvent—its debts greater than its assets?

It is well known on Wall Street that some of the largest financial institutions have huge undeclared problems with Asset Backed Securities they have valued far above their worth to make their books look better than they are. The names Citigroup, Lehman Bros., Morgan Stanley, even Paulson’s old firm, Goldman Sachs and of course the inventor of sub-prime mortgage securitization, Merrill Lynch, all hold a huge percentage of what are called Level Three assets, these being assets where no one is willing to buy but the bank declares their worth based on "fantasy." In short the value of those core financial institutions of the US financial system is massively overvalued compared with their value were they forced to sell into the open market today. In a sobering aside, readers should not expect any serious economic remedies for the crisis from a President Barack Obama. Obama’s National Campaign Finance Chairman is Chicago real estate billionaire, Penny Pritzker, who is heir to among other things the Hyatt Hotels. It was Pritzker together with Merrill Lynch ten years ago who first developed the model for securitizing "sub-prime" real estate, the trigger for the current Financial Tsunami crisis.

Already Citigroup has been forced to go to Dubai hat in hand and ask for billions in cash. After it announced it would not need more capital. Now Citigroup just announced plans to sell some $500 billion more assets to raise funds. Is Citigroup really solvent is the question sober investors are asking. Similarly Merrill Lynch raised $6.6 billion from Kuwait Mizuho, stated it was fine and weeks later had to raise still more capital. Morgan Stanley sold a 10% share of the company to China International Corp.

The real economy contracting rapidly

Behind the reassuring statements from Paulson and others that the "worst is over" the reality of the credit collapse since August 2007 is a deepening economic contraction which I have said several times in this space will surpass the Great Depression of the 1929-1938 period. A goof friend who is an unemployed homebuilder in a prosperous part of Arizona just sent me the following list of US department retail store closures. It is worth noting that over 70% of the US GDP is consumer spending and that the entire Federal Reserve strategy of Alan Greenspan after the March 2000 collapse of the stock market bubble, was to bring US interest rates to their lowest levels since the 1930’s in order to stimulate consumer spending on credit, i.e. debt, to avoid "recession." Note the scale of the following store closings across America in recent weeks:

Ann Taylor closing 117 stores nationwide.

Eddie Bauer to close more stores after closing 27 stores in the first quarter.

Cache, a women’s retailer is closing 20 to 23 stores this year.

Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide

Talbots, J. Jill closing stores. Talbots will close all 78 of its kids and men's stores plus another 22 underperforming stores. The 22 stores will be a mix of Talbots women's and J. Jill.

Gap Inc. closing 85 stores

Foot Locker to close 140 stores

Wickes Furniture is going out of business and closing all of its stores. The 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.

Levitz - the furniture retailer, announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910.

Zales, Piercing Pagoda plans to close 82 stores by July 31 followed by closing another 23 underperforming stores.

Disney Store owner has the right to close 98 stores.

Home Depot store closings 15 of them amid a slumping US economy and housing market. The move will affect 1,300 employees. It is the first time the world's largest home improvement store chain has ever closed a flagship store.


Macy's - 9 stores closed

Movie Gallery – video rental company plans to close 400 of 3,500 Movie Gallery

and Hollywood Video stores in addition to the 520 locations the video rental

chain closed last fall as part of bankruptcy.

Pacific Sunwear - 153 Demo stores closing

Pep Boys - 33 stores of auto parts supplier closing

Sprint Nextel - 125 retail locations to close with 4,000 employees following 5,000 layoffs last year.

J. C. Penney, Lowe's and Office Depot are all scaling back

Ethan Allen Interiors: plans to close 12 of 300 stores to cut costs.

Wilsons the Leather Experts – closing 158 stores

Bombay Company: to close all 384 U.S.-based Bombay Company stores.

KB Toys closing 356 stores around the United States as part of its bankruptcy reorganization.

Dillard's Inc. will close another six stores this year.

For anyone familiar with American shopping malls and retailing, this represents a staggering part of the daily economic life of the nation, from furniture stores to clothing to video rentals to leather. The process has only begun and neither major party Presidential candidate has dared to mention this on the ground economic reality, because they evidently have no solutions to offer that would not jeopardize their campaign finances. Obama is tied to not only Pritzker but also to Omaha billionaire, Warren Buffett and George Soros. McCain depends on the traditional money contributions of the Republican Party which demand permanent tax reform for highest income earners and a pro-bank laissez faire treatment of millions of homeowners facing home foreclosure and asset seizure by banks.

Banks across the country have severely cut back on loans, fearful of bad debts. That has aggravated the consumer collapse documented above. Hundreds of thousands of real estate brokers, small and large bankers, furniture workers and salespeople, and construction workers are unable to find work. Jobs are being cut wholesale and those working are often on reduced hours. Car sales in June plunged by 28% for Ford, 18% for General Motors and even 21% for Toyota which will mean more layoffs in coming weeks. This will be the next wave of unemployment.

The economic reality is not reflected in official US Commerce Department or Labor Department statistics. There the data is constantly being "revised" to hide the grim reality in an election year.

My good friend, economist John Williams of California, has meticulously tracked such "data revisions" for more than 25 years and found the manipulation of reality so alarming that he founded an independent subscriber service titled "Shadow Government Statistics" ( ), where he makes best estimate calculations of the reality not the official mythology.

By Williams’ calculations the US economy first entered recession, defined as two consecutive quarters of negative GDP growth, at the end of 2006. Ever since, the recession has deepened, dramatically so in the past 12 months. Little known is the fact that the Labor Department also publishes six different unemployment statistics from U1, U2 through to U6 being the most comprehensive. The reported "official unemployment" is the very narrowly defined U3 which stands at 5.5%. However, as Williams notes, U6 is the real measure and that officially shows 9.7% unemployed. His calculations put the figure at 13.7% actually unemployed and seeking work.

A personal account

The unemployed homebuilder from Arizona I mentioned above recently sent me the following personal note on the situation:

"Here is how it looks to people like me: Real estate dealings fuelled the economy in most areas of the country for the past decade or more. We’ve been in a market downturn for three years. We have seen the cost of doing business increase for builders, along with a big drop in buyers as everyone tightens their belts, or can’t sell existing homes. Many employers have gone under ending thousands of jobs. If they have a job people are worried about losing it. Driving long distances to work is not possible with gasoline costs double that of 2006. There has been a 40% drop in most peoples’ home equity worth. Many people are "underwater" on their homes, meaning they owe more than the market price is worth today. So many under-employed don’t show up in government unemployed statistics. Self employed like me never get counted."

The Arizona homebuilder continued, "Today nobody is building. Unsold home inventories are triple that of 2003. Banks no longer give easy credit for home buyers. Many realtors I know have gone two years without selling a home. Empty storefronts are becoming common. In many areas unemployment among construction trades people is 50% or more. Tens of thousands of illegal Mexicans who did most of the manual labor have returned to Mexico to find work. What now? Well, I do handyman projects of all sorts, big or small and make about 70-90% of what it takes to survive with a family of a wife and three young children. My savings make up the rest. That can’t go on for too much longer. We went from affluent and comfortable to nervous and broke with diminished opportunities in just three years. We used to be the middle class."

To be continued…

F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (Pluto Press) and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation ( He is at work on a new book, from which this has been adapted, Power of Money: The Rise and Decline of the American Century. He may be reached through his website,

Automakers Race Time as Their Cash Runs Low

Automakers Race Time as Their Cash Runs Low

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The downturn in the American auto industry is rapidly becoming a full-blown fight for survival among Detroit’s big automakers.

With the combination of high gas prices and a weak economy crippling vehicle sales, the resources of General Motors and the Ford Motor Company are being stretched to the limit.

Both companies have undergone major revampings in recent years, yet they continue to post huge losses. And even as they burn through their cash reserves and slash more costs to stay afloat, the future looks tenuous.

In the latest sign of the deepening troubles, G.M. reported a stunning second-quarter loss of $15.5 billion on Friday because of a continuing fall in United States sales and charges for job cuts, plant closings and the falling value of trucks and sport utility vehicles.

That followed a loss of $8.7 billion reported last week by Ford. Overall sales fell by 13 percent in July.

Chrysler, the smallest of the three Detroit auto companies, is privately owned by Cerberus Capital Management and does not report financial results.

The losses stem from a freefall in sales and a shift by consumers away from bigger vehicles that were once G.M.’s and Ford’s most profitable products.

G.M. and Ford had expected economic conditions to improve in the second half of this year, but now are forecasting an even more dismal sales environment.

Neither company appears in immediate danger of failure. But analysts say Detroit is in a race against time.

“Things are pretty bad, and the river is getting deeper, faster and wider,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. “The question is, can they get to other side before the cash runs out?”

American automakers have decided — critics would say, belatedly — to shift production from trucks and sport utility vehicles to smaller, more gas-efficient cars, including hybrids. But it takes time to switch equipment for production. And it is unclear whether the automakers have sufficient cash to remain solvent until their new vehicle lines are ready for customers.

The overall United States auto industry is headed for its worst year in more than a decade. Sales so far this year have fallen 10 percent from 2007, including a 13 percent decline in the month of July.

The market has been tough for nearly every automaker including Toyota, whose sales fell 11.9 percent in July. But the Detroit companies have been hit the hardest.

Sales at G.M. dropped 26.1 percent in July, 14.7 percent at Ford, and 28.8 percent at Chrysler. And the three companies’ combined United States market share hit an all-time low of about 43 percent during the month.

G.M. ended the quarter with $21 billion in cash reserves, which would be considered a healthy financial cushion in normal times.

But the automaker is burning through more than $1 billion in cash each month, a worrisome indicator that has prompted some investors to speculate about the potential for G.M. to go bankrupt. One indication of a loss of faith is that the company’s bonds were trading on Friday at 48 cents on the dollar.

Trying to fight such doubts on Wall Street and elsewhere, Rick Wagoner, G.M.’s chairman, last month outlined a broad program of cost cuts, asset sales and debt offerings intended to increase the company’s liquidity by $15 billion.

The moves temporarily calmed fears on Wall Street about a possible bankruptcy filing, and injected a renewed sense of urgency among G.M. executives.

Compounding Detroit’s problems is the rush by consumers to buy small cars and the collapse in sales of pickups and sport utility vehicles that historically provided the bulk of the profits at G.M., Ford and Chrysler.

Ford last week announced that it would radically shift much of its North American production from trucks to cars, and bring six of its European models to the United States market.

G.M. had already laid plans to make more cars and car-based crossover vehicles, while downsizing its truck production.

But the question facing Detroit is how it can continue to finance its operations and product programs until the market rebounds and its new models hit the showrooms.

“This is almost like evolution, and the survival of the fittest,” said Jesse Toprak, chief industry analyst for the automobile research Web site “They are on the right path to make fuel-efficient cars, but it’s going to take time.”

G.M., Ford and Chrysler have already gone through wrenching revampings and eliminated more than 100,000 manufacturing jobs in the United States since 2006.

The three companies are also in the process of cutting about 10,000 salaried workers from their payrolls this year.

But even as they shrink their employment and close unneeded factories, the automakers still need enormous capital budgets to develop new products. G.M. and Ford have also invested heavily to build their businesses in global markets like China, Brazil and India.

And while they have successfully expanded their international operations, Detroit is paying a heavy price for relying on trucks and S.U.V.’s in the United States.

Sales of truck-based products have fallen 23 percent this year at G.M. and 19 percent at Ford. Both companies have drastically cut production of those vehicles, and temporarily laid off thousands of workers to reduce inventories.

However, the companies have been forced to take big financial charges to account for the declining value of used S.U.V.’s coming off leases. Chrysler is dropping leases entirely and G.M. and Ford will be scaling back their lease programs. Analysts said the pullback on leases, which helped fuel the growth of the market previously, could further hurt sales going forward.

G.M.’s quarterly loss reported Friday, the third-worst in its 100-year history, encapsulated the range of troubles it faces.

The company’s revenues in North America declined by a third, and it lost $4.4 billion on operations. Because of the decline in profitable truck sales, G.M.’s revenue-per-unit sold dropped almost $4,000 from the first quarter of this year.

The company also took write-downs of $9.1 billion. Included in the charges were $3.3 billion to buy out 19,000 of its hourly workers and $2.8 billion related to the bankruptcy of Delphi, its former parts-making division.

“I do not see any panic here,” Ray Young, G.M.’s chief financial officer, said in an interview Friday. “I do see more of a resolve. We need to take these actions and focus on what we can control.”

Frederick A. Henderson, G.M.’s president, said the company was accelerating plans to bring more fuel-efficient vehicles to market. The key, he said, was to increase G.M.’s sales and revenues as quickly as possible.

“The most important thing we need to do is rebuild our revenue base,” Mr. Henderson said. “We understand the market is decidedly weaker, but it is what it is.”

Arnold Schwarzenegger lays off 10,000 California workers to ease budget crisis

Arnold Schwarzenegger lays off 10,000 California workers to ease budget crisis

• Order could reduce pay of 200,000 to federal minimum wage
• Move marks effort to reduce $15bn state budget deficit

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Arnold Schwarzenegger, the governor of California, delivered on his threat to lay off thousands of state employees on Thursday when he signed an executive order in an attempt to solve the state's budget crisis.

The move, dismissed by critics as a gesture to force legislators to reach a compromise on how to resolve the state's $15bn budget deficit, left more than 10,000 part-time and temporary employees without work yesterday. The order also reduced the pay of up to 200,000 state employees to the federal minimum wage of $6.55 an hour, below California's minimum.

"I have a responsibility to make sure that our state has enough money to pay its bills," the Republican governor said as he signed the order at a press conference in the state capital, Sacramento. "It is a terrible situation to be in. I don't think any governor wants to be in this situation ... But this is really the only way out at this point."

Critics, including the state controller John Chiang, a Democrat, disagree. Chiang, the state official who issues pay cheques, has said he will pay employees normally, arguing that Schwarzenegger does not have the legal authority to summarily reduce employees' pay.

Referring to the employees as "the innocent victims of a political struggle", Chiang declared: "The state of California, the elected leadership, cannot put the important public servants of California in harm's way. We put people first, we make sure we protect their interests, and that's why I have to tell the governor, with all due respect, I am not going to comply with this order."

Unions also declared their intention to challenge the order in court.

California, the nation's largest state and one of the world's largest economies, regularly fails to agree a budget by the annual July 1 deadline. Officials from the governor's office claimed the lay-offs could save the state up to $100m a month, while the pay cuts would save up to $1.2bn a month if applied to all 200,000 eligible workers.

Mounting job losses point to more economic troubles

Mounting job losses point to more economic troubles

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Employers shed jobs in July for the seventh consecutive month and the national unemployment rate rose to 5.7 percent, the Labor Department reported Friday. The losses weren't of the size that signals recession, but analysts think that continued sluggish economic growth lies ahead.

The nation's employers trimmed 51,000 jobs from nonfarm payrolls during the month of July and more than 463,000 jobs cumulatively this year, according to the Bureau of Labor Statistics. The jobless rate bumped up two-tenths of a percentage point during the month, from 5.5 percent, leaving more Americans without jobs.

"Though the decline wasn't huge, it was very broadly based, with only health-care and mining showing anything that could be described as strength. Hours worked per week declined, which is a bad sign for future hiring," Nigel Gault, chief U.S. economist for forecaster Global Insight, observed in a note to investors.

As of the latest reading by the Labor Department, 8.8 million Americans were unemployed, a number that's grown by 1.6 million over the past 12 months, and the unemployment rate has risen a full percentage point over that period.

A deeper dig into Friday's numbers paints an even more troubling view of the national employment picture. The number of people working part time for economic reasons rose by 308,000 to 5.7 million. It's risen by 1.4 million over the past 12 months. This measure includes people who said they'd like to work full time but that their hours had been cut back or they were unable to find full-time jobs.

Also, the number of marginally attached workers — those who want to work but aren't counted as unemployed because they didn't look for work in the prior four weeks — has risen by 1.6 million over the past 12 months.

Many economists expect a protracted period of sluggish economic growth below the potential of the U.S. economy, but not recession.

"If we look at the job losses we had during the time people are calling a mild recession — which was 2001 — we were losing about 180,000 jobs a month at that time. So clearly this is a different degree," Commerce Secretary Carlos Gutierrez said in an interview with McClatchy. He added, "We don't like to see job losses. Obviously 51,000 is disappointing."

The stimulus package passed by Congress and signed by President Bush earlier this year, which included tax rebates for more than 100 million Americans, has pushed the economy forward despite strong headwinds, Gutierrez said. The Commerce Department reported Thursday that the U.S. economy grew 1.9 percent from April through June, double the rate of the previous three months.

The commerce chief said the stimulus package bought time for the economy, but some economists think that it simply delayed a further weakening rooted in the housing crisis and the banks' credit crunch.

"What we're seeing is a mild recession interrupted here by a rebate program," said David Wyss, chief economist for the rating agency Standard & Poor's in New York. "Once they (consumers) finish spending these checks, we'll head down again."

Thursday's growth data suggested that business spending is likely to pick up later this year, and Wyss thinks that might help make growth during the July through September period stronger than in the second quarter.

But by the fourth quarter, he thinks, growth could turn negative, as it did in the last three months of 2007.

Congress already is debating a second stimulus plan. House Financial Services Committee Chairman Rep. Barney Frank, D-Mass., issued a statement Friday calling for one, noting sarcastically that it's "a sign of how troubled our economy is that some analysts are greeting the seventh straight month of job losses and an increase in the unemployment rate to 5.7 percent as relatively good news."

Federal and state spending can help spark growth, he said.

"This stimulus should include increases in the federal share of Medicaid, significantly increase funding for home energy assistance and food stamps, and other measures which will provide badly needed stimulus for our economy and help state and local governments and individuals improve the quality of their lives," Frank said. He also called for aid to state and local governments to improve infrastructure, such as bridges.

The Bush administration hasn't signed on to any call for a second stimulus plan, saying that the effects of the first one are still playing out.

The wild card in all economic forecasts is oil prices. Their rise slowed the U.S. and global economies and sparked inflation. Their recent partial retreat has eased pressure on the Federal Reserve and foreign central banks to raise interest rates to curb inflation. The Fed is widely expected to stand pat when it meets Tuesday to weigh rates.

"The Fed is stuck on hold, trapped between a weak economy on one side and high headline inflation on the other," said Gault, of Global Insight.

If oil prices slide back to the $100 a barrel range, it would certainly ease inflation pressures and probably would boost consumer confidence. That's no small matter, because consumption drives about 70 percent of U.S. economic activity.

"What could rescue us is oil prices getting back down under $100," said Wyss, who thought that unlikely but not impossible.


The Labor Department report

Rising oil prices power enormous Exxon profits

Rising oil prices power enormous Exxon profits

Highest quarterly amount in U.S.

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Exxon Mobil Corp. broke its own record for the highest quarterly profit for a U.S. company on Thursday, joining other major oil companies in posting stronger earnings on the back of sky-high oil prices.

The average price of a barrel of oil was slightly less than $125 US during the quarter, nearly double last year, which also increased earnings at Royal Dutch Shell, Eni and Repsol, three of Europe's largest oil companies.

Exxon's second-quarter net income rose 14 per cent to $11.68 billion US, or $2.22 a share, in the quarter. Excluding one-time items, Exxon earned $2.27 a share, more than a quarter below analysts' expectations.

The enormous profits drew criticism from politicians because of the high gasoline prices being paid by consumers.

U.S. presidential candidate Barack Obama termed Exxon's earnings "outrageous" and called for an end to the "tyranny of oil."

"We are making very large profits, I know that," Shell chief executive Jeroen van der Veer told reporters on a conference call. "But we are making very large investments," he said, referring to investments in exploration and production.

Shell, the world's second-largest non-government controlled oil company by market value, reported a five-per-cent rise in second-quarter earnings to $7.9 billion, and said that excluding one-time items, it beat analysts' forecasts.

Despite billions of dollars in capital spending in the quarter, oil and gas production were sluggish.

That, along with weak profit margins from refining, restrained the companies' earnings somewhat.

Western oil companies' output has fallen in recent years and oil producing countries now prefer to award their richest fields to their own national oil companies.

"The problem is that all these companies have no place to go to drill and no place to put their money," said Oppenheimer & Co analyst Fadel Gheit. "Access to resources is closing very, very fast."

Still, the companies' oil and gas exploration and production units were the main profit divers because of high oil prices.

Exxon's oil and gas production fell eight per cent from a year earlier, mostly because of the loss of assets taken over by Venezuela and a labour strike in Nigeria.


Exxon Mobil Corp. pulled in $11.68 billion in profits in the second quarter, the highest quarterly income ever recorded by a U.S. company.


- Exxon earned more than $128 million a day, or nearly $1,500 every second during the quarter. The company said that was after it paid $4,100 a second in taxes and $14,700 a second in expenses to run the business.

- Exxon's quarterly earnings were slightly larger than the annual gross domestic product of Afghanistan, which was $11.63 billion in 2007, according to the World Bank.

- With Exxon's quarterly profit, one could potentially buy Gap Inc., Ford or Starbucks, which have market capitalizations of $11.67 billion, $10.76 billion and $10.69 billion, respectively, according to Reuters data.

- $11.68 billion could buy roughly 179,692 new Cadillac Escalades, or 15.57 billion individual Snickers chocolate bars.

ONLINE: Do big oil companies like ExxonMobil

U.S.-China trade has cost 2.3 million U.S. jobs: report

U.S.-China trade has cost 2.3 million U.S. jobs: report

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The U.S. trade deficit with China cost 2.3 million American jobs between 2001 and 2007, the Economic Policy Institute said on Wednesday in a report likely to fuel debate about free trade ahead of November elections.

Even when they found new jobs, workers displaced by job loss to China saw their earnings decrease by an average of $8,146 each year because the new jobs paid less, according to the report, funded in part by labor unions.

"This report is groundbreaking because it shows the extent of damage caused by Chinese cheating," said Scott Paul, executive director of the Alliance for American Manufacturing, which helped fund research for the report by EPI, a left-leaning Washington think tank.

"(We hope) it will help to focus the debate on trade to where it needs to be right now with respect to China," Paul said, noting that free trade is shaping up as a major issue in the November presidential election, especially in closely fought battleground states like Ohio.

U.S. manufacturers, labor unions and many lawmakers have long accused China of manipulating its currency to give Chinese companies an unfair advantage in international trade, and are pressing China to continue to allow the yuan to rise against the U.S. dollar to help level the playing field.

China has said the United States should recognize how much its yuan currency has already risen against the U.S. dollar -- it is about 20 percent higher since China revalued its currency in July 2005.

China has also said the fact that Americans save much less of their incomes than do the Chinese has fueled the trade deficit. Chinese-made goods have been snapped up in recent years by U.S. consumers looking for low prices.


The EPI report showed more than two-thirds of the jobs displaced by China trade deficits were in manufacturing and more than half came from the top half of the U.S. wage distribution. U.S. factory jobs typically pay well and include health insurance coverage and retirement benefits.

The manufacturing sectors hit hardest by the trade deficit with China included computers and electronics, apparel and fabricated metal products. Service sectors like administrative support services and professional, scientific and technical services also saw large job displacement because of the China trade deficit, EPI said.

Contrary to popular belief, jobs lost to China were not necessarily low-skilled, the report showed. Thirty-one percent of the jobs lost were among workers with college degrees.

"A dramatic example is the loss of 200,000 scientists and engineers within the manufacturing sector, a 10.7 percent drop," the nonpartisan AAM said in a statement. AAM represents some U.S. manufacturers and the United Steelworkers of America.

The issue of free trade has dominated campaign debate in parts of the United States, including industrial Rust Belt states like Ohio, Michigan and Pennsylvania -- all of which are politically divided and will be closely contested by the presidential contenders.

Democratic candidate Barack Obama has promoted a message of more trade restrictions -- of "fair trade not free trade" -- while Republican John McCain has embraced free trade as a way for America to win new markets and stay competitive.

Terry Straub, Vice President of Public Affairs and Government for U.S. Steel Corp., said American manufacturing could only compete if Chinese "cheating" were stopped. He said pressure will be on politicians during the campaign to protect U.S. workers.

"Until we address distortions of the free market, such as dumping, subsidies and illegal currency manipulation, we'll continue to see a hollowing out of our high-tech productive capacity, as well as the very good jobs that go with it," Straub said. "As the candidates campaign this fall, we expect to see these very real issues discussed."

Deutsche Bank Writedowns Exceed $11 Billion

Deutsche Bank Writedowns Exceed $11 Billion

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Deutsche Bank AG announced fresh writedowns on Thursday, taking its bill from the global financial crisis beyond $11 billion.

Germany's flagship financier had originally been seen as one of the few to emerge unscathed from the crisis, but as the problems on global markets continue Deutsche Bank is being sucked ever deeper into trouble.

The group's pretax profit collapsed in the second quarter to 642 million euros ($1 billion) — a fraction of the 2.7 billion euros it made a year earlier — as writedowns ate into its bottom line.

Deutsche listed its latest injuries from the global crisis, saying it made 1 billion euros of writedowns in residential mortgage-backed securities and a further 500 million euros linked to monoline insurers which insure against bond defaults.

Commercial real estate investments cost it 300 million.

Its bill from the turmoil, while modest compared to Swiss rival UBS AG, has overtaken that of its Zurich-based competitor Credit Suisse Group AG, which has made about $8 billion of writedowns.

The extra damage in the second quarter, however, had been broadly expected and Deutsche's shares were just 0.4 percent lower at 3:24 a.m. EDT, in line with European rivals.

"We remain cautious for the remainder of 2008," said Chief Executive Josef Ackermann, who also chairs top global banking group the Institute of International Finance.

His remarks contrast with his bullish statements of the past. As late as last November, Ackermann signaled he saw no further writedowns and stood by his goal of making a pretax profit of 8.4 billion euros this year, a target that has since been quietly dropped.

So far this year, the bank has made roughly 400 million euros.

Konrad Becker, an analyst with Merck Finck, said: "the writedowns are the decisive point and show that the crisis lingers ... But the results, if you look at costs and interest income, for example, are better than expected."

Deutsche's wage bill fell by almost one third to almost 2.7 billion euros in the second quarter as bonus payouts fell.


Many investors believe Deutsche is over-reliant on investment banking, which is suffering as the liquidity which oils international financial markets dries up.

Credit Suisse, for example, can fall back on its business managing the money of the world's rich, which accounted for roughly 40 percent of profits even in the investment banking bull years.

Deutsche Bank, by contrast, earned almost two thirds of pretax profit in 2006 from investment banking.

Its investment banking business dipped into the red in the second quarter this year, making a loss of 311 million euros after the writedowns.

Investor concern is reflected in Deutsche's share price. It is trading on a price earnings ratio of about 6 — making it cheaper than its Swiss rival, which is priced above 8 times.

IndyMac Bancorp files for Chapter 7 bankruptcy

IndyMac Bancorp files for Chapter 7 bankruptcy

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IndyMac Bancorp Inc. filed for Chapter 7 bankruptcy protection on Thursday and will liquidate its assets.

According to the bankruptcy filing, the holding company has between $50 million and $100 million in assets, between $100 million and $500 million of liabilities and less than 50 creditors.

The liquidation will not include IndyMac Federal Bank, which has been run by the Federal Deposit Insurance Corp. since the federal government seized the bank in July.

Chief executive officer Michael Perry is the lone employee of Pasadena-based IndyMac Bancorp. Perry said in a court filing that the FDIC has sole possession of the company's books and records.

Jobless rate climbs as 51,000 jobs vanish

Jobless rate climbs as 51,000 jobs vanish

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Stores, factories and other businesses large and small showed workers the door last month, sending unemployment to its highest rate in four years and adding to the evidence an economic recovery remains far off.

Employers clamped down on hiring and cut 51,000 jobs in July, the Labor Department said Friday. The economy has shed jobs each month this year — 463,000 in all.

The unemployment rate rose to 5.7 percent, up from 5.5 percent in June.

The jobs report contributed to another day of grim news for the economy. General Motors reported a staggering quarterly loss of more than $15 billion and said its sales fell by more than a quarter from last year.

The Commerce Department said spending on construction projects around the country dropped 0.4 percent in June as cutbacks in home building eclipsed gains in commercial construction.

And manufacturers' business was flat in July. The Institute for Supply Management's reading of activity from the producers of cars, airplanes, appliances and other goods hit 50, down from 50.2 in June. A reading above 50 signals growth.

Job losses in July were the heaviest in industries hard hit by the slow housing market, the clampdown on credit and the shaky financial sector. Manufacturers cut 35,000 jobs, construction companies 22,000 and retailers 17,000.

Temporary help firms, also viewed as a barometer of demand for future hiring, eliminated 29,000 jobs. Those losses swamped job gains elsewhere, including in the government, education and health care.

It's not news to B.B. Hooks, 40, who was laid off in May from her job as a teacher in Washington, D.C. She says she's applied online for hundreds of jobs in the communications and public relations fields, with no luck.

She applies for jobs online to save on gas, but it's harder to talk to potential employers face-to-face, and she has to register at each company's Web site.

"I must have a trillion different passwords for a trillion different Web sites," she said.

More pink slips are expected. Analysts predict a half-million more jobs could disappear over the rest of this year and say unemployment could climb to 6.5 percent by the middle of next year.

With the employment situation deteriorating, there's growing worry that consumers will cut back on spending later this year, further hurting the economy.

"People will absolutely shut off the spending spigots given the soured jobs market," predicted Richard Yamarone, economist at Argus Research. "The economic environment is in crummy shape."

On Wall Street, stocks slumped. The Dow Jones industrials fell 51.70 points to close at 11,326.32.

Capitol Hill Democrats renewed their push for a second stimulus package. The Bush administration and other Republicans have been cool to the idea.

The White House was "displeased" with the jobs report, press secretary Dana Perino said. She said the White House was "working to improve the job outlook for our economy."

With the economy a top concern for voters, the presidential candidates, Republican John McCain and Democrat Barack Obama, seized on the jobs figure and traded swipes at their proposals to turn things around.

"With job losses mounting, prices rising, increased turbulence in our financial system and a growing credit crunch, we need to do more," said Obama.

He called for a $1,000 emergency rebate for Americans to offset soaring energy costs. "We cannot afford four more years of the failed Bush economic policies and that is what Sen. McCain if offering," Obama said.

McCain said Obama's tax plan will send jobs overseas. He supports proposals to help small businesses create jobs. "Americans are hurting and today's job numbers are just the latest reminder of the economic challenges we face," he said.

The increase in the unemployment rate in July came as many young people streamed into the labor market looking for summer jobs. Fewer of them were able to find work. The unemployment rate for teenagers jumped to 20.3 percent, the highest since 1992.

Still, the job losses were not as some fears. Economists were expecting 72,000 jobs lost for July. The government also revised the job-loss figures for May and June to a combined 98,000, down from 124,000.

All told, there were 8.8 million people unemployed in July, up from 7.1 million last year. The jobless rate last July was a full percentage point below where it was this July.

Wages went up modestly last month, but prices have been rising faster. Average hourly earnings rose to $18.06, up about 3 percent from last year. High food and fuel costs mean paychecks aren't stretching as far, though.

"It's easy to see why consumer spending is expected to remain weak through the summer, if not the rest of the year," said Bernard Baumohl, managing director and chief economist at The Economic Outlook Group.

The Federal Reserve is expected to hold interest rates steady next week as it tries to grapple with dueling concerns — a weak economy and inflation.

Bush Must Be Stopped Before Starting War With Iran

Bush Must Be Stopped Before Starting War With Iran


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he Bush administration, in rhetoric that is eerily similar to that used to build the case for a war against Iraq, asserts that the Iranian Quds Force is arming anti-U.S. groups in Iraq and providing them with high-tech roadside bombs and sophisticated rockets.

It dismisses t

The White House has not provided evidence to back up its claims. I suspect it never will. And when Israel's Deputy Prime Minister Shaul Mofaz tells the Israeli newspaper Yedioth Ahronoth an attack on Iran is "unavoidable" if Tehran does not halt its alleged nuclear weapons program, what he is really telling us is we should prepare for war.

An attack on Iran by either the U.S. or Israel and the ensuing regional war will propel us into the Armageddon-type scenario in the Middle East relished by the lunatic fringes of the radical Christian right. And so, we barrel mindlessly toward a Dr. Strangelove self-immolation. No one will be able to say we did not go out with a spectacular show of firepower, gore and death. Our European and Middle Eastern allies, who are numb with consternation over our death spiral, are frantically trying to reach out to Tehran diplomatically.

The instant we attack Iran, oil prices will double, perhaps triple. This price increase will devastate the U.S. economy. The ensuing retaliatory strikes by Iran on Israel, as well as on U.S. military installations in Iraq, will leave hundreds, maybe thousands, dead. The Shiites in the region, from Saudi Arabia to Pakistan, will see an attack on Iran as a war against Shiism. They will turn with rage and violence on us and our allies. Hezbollah will renew attacks on northern Israel, while Hamas increases its attacks in southern Israel. And the localized war in Iraq will become a long, messy and protracted regional war that, by the time it is done, will most likely end the American empire and leave in its wake mounds of corpses and smoldering ruins.

The Israeli leadership, like the Bush White House, is increasingly bellicose and threatening. The Israeli prime minister, after a recent 90-minute meeting with Bush in the White House, said the two leaders were of one mind. "We reached agreement on the need to take care of the Iranian threat," Ehud Olmert said. "I left with a lot less questions marks (than) I had entered with regarding the means, the timetable restrictions and American resoluteness to deal with the problem. George Bush understands the severity of the Iranian threat and the need to vanquish it and intends to act on the matter before the end of his term in the White House."

This time around, unlike the war with Iraq, the Washington bureaucracy, loathed by the Bush White House, did not remain silent and complicit. The NIE on Iran's nuclear program released Dec. 3 distinguished Iran's enrichment of uranium at Natanz and Arak from its formal nuclear weapons program, which it said had halted in 2003 after the U.S. invasion of Iraq.

Adm. Fallon, who put his country and his integrity before his career, spoke out against a war with Iran, tried to stop it, and lost his job as the head of Central Command. He has been replaced with Gen. David Petraeus, whose devotion to his career admits no such moral impediments.

The American people must act to stop this madness. We must raise our voices in protest. We must demand that Congress exercise its constitutional authority and block a war on Iran. We cannot allow the Bush neocons to act out their final bloody fantasy and destroy all hopes for peace in the Middle East.

McCain security ousts reporter

McCain security ousts reporter

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Tallahassee Democrat senior writer Stephen Price on Friday was singled out and asked to leave a media area at the Panama City rally of presidential candidate Sen. John McCain.

Price was among at least three other reporters, and the only black reporter, surrounding McCain's campaign bus — Gov. Charlie Crist and his fiancee, Carole Rome, were already aboard — when a member of the Arizona senator's security detail asked the reporter to identify himself. Price had shown his media credentials to enter the area.

Price showed his employee identification as well as his credentials for the Friday event.

"I explained I was with the state press, but the Secret Service man said that didn't matter and that I would have to go," Price said.

When another reporter asked why Price was being removed, she too was led out of the area. Other state reporters remained.

Jonathan Block does advance work for McCain's campaign. He was in Panama City on Friday but was not present when reporter Stephen Price was asked to move from a restricted area.

"Access to the senator is tightly controlled," Block said. "I would first express regret that your reporter was moved, and I can tell you beyond a shadow of a doubt that race had nothing to do with it."

Tallahassee Democrat Executive Editor Bob Gabordi said the incident was unwarranted.

"We're deeply concerned and disturbed that our reporter — of all of those in that area — was asked to move," Gabordi said. "My understanding is that Stephen was the only reporter approached and asked to leave the area, and the only reporter in that area who is black. Another reporter who stood up for Stephen was then asked to leave."

A Panama City police officer approached while Price was speaking to the security member. Panama City police were unavailable for comment Friday night.

Block said the area where Price was standing was restricted to members of the traveling national press corps that accompanies McCain on the campaign trail.

"At the end of the day, your reporter was in the wrong place. I do not know why the other reporters were not moved. The rest of the local press should have been moved as well," Block said.

The campaign advance man said there were many reasons that could have prompted Price being asked to move, depending on how visible his press identification was, whether he had a bag and possibly information about McCain's movement, which could have prompted the security person to move people in one area and not in another.

"It's really like a pressure cooker with security," Block said.

Homeland Security: We can seize laptops for an indefinite period

Homeland Security: We can seize laptops for an indefinite period

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The U.S. Department of Homeland Security has concocted a remarkable new policy: It reserves the right to seize for an indefinite period of time laptops taken across the border.

A pair of DHS policies from last month say that customs agents can routinely--as a matter of course--seize, make copies of, and "analyze the information transported by any individual attempting to enter, re-enter, depart, pass through, or reside in the United States." (See policy No. 1 and No. 2.)

DHS claims the border search of electronic information is useful to detect terrorists, drug smugglers, and people violating "copyright or trademark laws." (Readers: Are you sure your iPod and laptop have absolutely no illicitly downloaded songs? You might be guilty of a felony.)

This is a disturbing new policy, and should convince anyone taking a laptop across a border to use encryption to thwart DHS snoops. Encrypt your laptop, with full disk encryption if possible, and power it down before you go through customs.

Here's a guide to customs-proofing your laptop that we published in March.

It's true that any reasonable person would probably agree that Customs agents should be able to inspect travelers' bags for contraband. But seizing a laptop and copying its hard drive is uniquely invasive--and should only be done if there's a good reason.

Sen. Russell Feingold, a Wisconsin Democrat, called the DHS policies "truly alarming" and told the Washington Post that he plans to introduce a bill that would require reasonable suspicion for border searches.

But unless Congress changes the law, DHS may be able to get away with its new rules. A U.S. federal appeals court has ruled that an in-depth analysis of a laptop's hard drive using the EnCase forensics software "was permissible without probable cause or a warrant under the border search doctrine."

At a Senate hearing in June, Larry Cunningham, a New York prosecutor who is now a law professor, defended laptop searches--but not necessarily seizures--as perfectly permissible. Preventing customs agents from searching laptops "would open a vulnerability in our border by providing criminals and terrorists with a means to smuggle child pornography or other dangerous and illegal computer files into the country," Cunningham said.

The new DHS policies say that customs agents can, "absent individualized suspicion," seize electronic gear: "Documents and electronic media, or copies thereof, may be detained for further review, either on-site at the place of detention or at an off-site location, including a location associated with a demand for assistance from an outside agency or entity."

Outside entity presumably refers to government contractors, the FBI, and National Security Agency, which can also be asked to provide "decryption assistance." Seized information will supposedly be destroyed unless customs claims there's a good reason to keep it.

An electronic device is defined as "any device capable of storing information in digital or analog form" including hard drives, compact discs, DVDs, flash drives, portable music players, cell phones, pagers, beepers, and videotapes.

A Surge on the Homefront?

A Surge on the Homefront?

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ABC News' David Wright reports: Answering a question at the Urban League about his approach to combating crime, John McCain suggested that military strategies currently employed by US troops in Iraq could be applied to high crime neighborhoods here in the US.

McCain at first praised the crime-fighting efforts of Rudolph Giuliani when he was mayor of New York City. Then he down-shifted into an approach that sounded considerably harsher.

McCain called them tactics "somewhat like we use in the military."

"You go into neighborhoods, you clamp down, you provide a secure environment for the people that live there, and you make sure that the known criminals are kept under control," he said. "And you provide them with a stable environment and then they cooperate with law enforcement."

The way he described it, his approach sounded an awful lot like the surge.

Urban League president Marc Morial countered that while New York did experience a drop in crime under Giuliani, there were several major instances of police misconduct.

In response, McCain promised aggressive prosecution of civil rights violations and a Justice Department free from political cronyism.

"U.S. attorneys will be appointed strictly on the basis of qualifications and not political connections," McCain said, a swipe at the Bush Administration Justice Department under Attorney General Alberto Gonzales.

Electric Cars Are the Key to Energy Independence

Electric Cars Are the Key to Energy Independence

By David Morris
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Al Gore's heroic speech challenging us to make our electrical system 100 percent renewable promised it would simultaneously address three major crises: the weak economy, catastrophic climate change and the dire national security problems inherent in our dependence on imported oil.

He got two out of three right. A crash renewable electricity initiative would provide an immediate boost to our economy and could slow climate change, since electricity accounts for about a third of our overall greenhouse gas emissions.

But it would do little to enhance our national security.

Oil generates only 3 percent of our electricity. Therefore a 100 percent renewable electricity system does little to reduce our oil dependency -- unless that electricity is used to substitute for oil in our transportation system.

Al Gore knows this. In other venues he has mentioned electrified vehicles. But he needs to make electrifying our transportation the central element in his 10-year plan, for at least two reasons.

One is that it is an initiative that would prove far more compelling to the vast majority of Americans. Climate change is abstract, and the strategies to resolve it are remote. Our relationship to our vehicles, on the other hand, is both concrete and visceral. We desperately want to get off oil, especially when gasoline prices rise to $4 per gallon.

But it is more than a pocketbook issue for many of us; it is a moral issue. Americans hate being dependent for our mobility, and therefore for our livelihoods, on countries often hostile to our way of life. Electric cars promise to end that dependency.

And as a bonus, with rooftop solar cells, we can become independent not only from OPEC but from remote and often unresponsive utility companies. We can become energy producers as well as energy consumers.

And then there is the plain fact that once significant numbers of electric vehicles are on the roads, word of mouth will be a powerful marketing tool. The reason? As Marc Geller, a longtime advocate of electric vehicles, told me a year ago as we were traveling up Route 1 in Northern California in his all-electric small SUV, "Anyone who drives an electric car falls in love with an electric car." That love affair will be aided and abetted by a population eager to embrace a homegrown fuel and vehicles that offer quicker propulsion, a quiet drive and zero tailpipe emissions.

There is another persuasive reason for Gore to focus on an electrified transportation system: It is simply physically impossible to convert our entire electricity system to renewables in 10 years, but it is possible to convert our entire ground transportation system to renewable electricity within a similar time frame. That would require a national mobilization, to be sure, but it can be done.

Converting our electric system fully to renewables would require us to shut down about 80 percent of our current electricity-generating capacity, much of it low-cost, already paid off and capable of generating electricity for another 25 years or more. Moreover, to reach very high penetration rates of renewable electricity would require that we overcome the principal shortcoming of wind and sunlight: intermittency.

To electrify our transportation system, on the other hand, we could displace rather than shut down the existing system, and we would be replacing a physical stock with a relatively short life expectancy. Given the average seven-year life expectancy of existing vehicles and the high probability that we would offer an incentive for owners of older gasoline-powered vehicles to trade them in, new electric vehicles could constitute the entire fleet within a decade, and that doesn't take into account the potential for conversions of existing vehicles.

Powering 100 percent of our transportation system would require about 30 percent of the electricity generated in 2006. With a massive effort, using a combination of solar and wind power, we could generate about that much electricity by 2020.

The fact that we can even contemplate the rapid electrification of transportation is a testament to 20 years of grassroots activism at the local and state level. The enactment by Congress of a renewable electricity tax incentive in 1992 was important, but the wind energy industry did not take off until states began to mandate renewable electricity. Today more than 25 states boast such mandates. A recent report put together by a task force of California leaders urges the state to double its renewable electricity mandate to 50 percent by 2020.

We have done a great deal, from the bottom up, to increase the supply of renewable electricity. Less well known is how much we have done on the demand side of the equation, that is, the use of electricity in transportation.

A brief historical review might be in order here. The first electric utilities were born largely to serve the transportation sector, which in the late 19th century meant urban streetcars. Until 1920, transportation remained the nation's utilities' single largest customer. And as the birth of the automobile age began, electric vehicles were by far the most popular. In the late 1890s electric vehicles (EVs) outsold gasoline cars 10 to 1. Many of the first car dealerships were exclusively for EVs.

The future of transportation abruptly changed in the 1910s. Mass production of gasoline-powered cars dramatically lowered their price. The introduction of automatic ignition removed the difficult and dangerous task of cranking to start the gasoline engine. Meanwhile the infrastructure for electricity was almost nonexistent outside city boundaries, limiting the utility of electric vehicles.

For the next 70 years, electric transportation all but disappeared.

Then, in 1990, two events occurred to revive the prospects of electrified vehicles. One was a private sector initiative; the other a public sector initiative. One was technology driven; the other politically driven.

In 1990, Sony introduced the lithium ion battery. Its higher energy density quickly made it the battery of choice for electronic equipment. Over the next 10 years, as portable electronic equipment demanded more powerful and longer-lasting batteries, the lithium ion battery industry saw many technological advances. In the last five years, many variations of that battery have begun to vie for supremacy as the foundation for a new generation of electric vehicles.

The public initiative was California's Zero Emission Vehicle (ZEV) Mandate. Enacted in 1990, the mandate required that 2 percent of all new vehicles sold by major car manufacturers in that state be all-electric by 1998, and 10 percent by 2003. By 1994, 12 additional states had adopted its mandate.

If that mandate had remained in place, more than 10 million EVs might be traveling our roads today. But as the marvelous documentary "Who Killed the Electric Car?" reveals in depressing detail, the ZEV mandate was weakened in the 1990s and finally killed in 2003.

Notwithstanding its demise, the mandate did result in several important and positive outcomes. One was the hybrid vehicle, whose development was in part an outgrowth of the vigorous developments in electrical and electronic vehicle systems spurred by the ZEV mandate. Another was the advance in large-format battery technology after many decades of stagnation. The new Nickel Metal Hydride (NiMH) battery replaced the lead acid battery for ZEVs sold in California, and by the late 1990s, a second-generation NiMH promised to last the life of the car, almost halving the capital cost of an electric vehicle. (Tragically, patent disputes have stifled NiMH development.)

Perhaps the most important enduring legacy of the ZEV mandate was the creation of tens of thousands of Californians who experienced the pleasure of driving or being driven in full-size electric vehicles capable of high-speed, long-distance highway driving. "Who Killed the Electric Car?" portrays what seemed to be a futile grassroots effort to stop car companies from taking back their EVs and crushing them.

Yet even as the movie ends, the uprising began to gain traction. GM proved incorrigible. But creative and extensive protests here and abroad persuaded Ford and then Toyota to cease crushing their vehicles and begin offering them for sale. Reportedly, Chris Paine, the director of "Who Killed the Electric Car?" is making a new movie titled "Who Saved the Electric Car?" It promises to be a very uplifting sequel.

At its peak, the ZEV mandate brought some 5,500 electric vehicles onto California roads, ranging from Ford's small Think Car to Toyota's small SUV, the RAV4, to Ford's light pickup truck, the Ranger.

After the protests ended and the dust cleared, more than 800 electric vehicles were saved, most of them RAV4s. Some have now traveled more than 110,000 miles, validating both the durability of the batteries and the vehicles' remarkably low maintenance costs.

The EV movement was aided and abetted by the introduction, in 2004, of the second iteration of the Toyota Prius. The best-selling car sported a mysterious blank button on the dashboard. Via the Internet, Americans were told that in Japan the button was operational. Pushing it allowed the car to travel solely by electricity for a mile or so. Engineers in Texas and California quickly learned how to convert the Prius to drive solely on electricity, and they added sufficient battery capacity to travel 10 and then 20 and then 30 miles before recharging was needed.

Several start-ups began to offer plug-in hybrid electric (PHEV) conversions. Felix Kramer, the Paul Revere of the movement, spent the next two years trying to convince national reporters, members of Congress, Silicon Valley businesses and even EV advocates, many of whom believed a car with a gas engine was a sacrilege, that a plug-in hybrid electric vehicle could become the foundation for a transition to an electrified transportation sector. Kramer convinced a leading car industry reporter based in Michigan to run a story, which quickly translated into dozens of stories in the national media. In the spring of 2006, he spent $15,000 to transport his own converted Prius PHEV to DC and allow several senators and leading policymakers and opinion leaders to literally kick the tires and drive in it.

At the time fewer than a dozen Prius conversions existed in the entire country. But the work of organizations like Plug-In America and Plug-In Partners and Kramer's own CalCars began to seize the popular imagination.

In just the last 12 months, the dam against electrified vehicles seems to have broken. For the first time since 1910, an oil-free transportation system is on the table.

New announcements by businesses large and small have become almost a weekly occurrence. Hymotion, a small company affiliated with Internet giant Google and the MIT spin-off, battery maker A123, has begun to roll out a nationwide network of certified plug-in hybrid converters.

Toyota, which for the first six years of Prius sales used the advertising tag line, "You Never Have to Plug It In," announced in 2007 an abrupt change of mind. In 2010, Toyota will begin leasing plug-in Priuses in Japan. GM, which had originally loudly and sarcastically dismissed the concept of hybrids, announced it will offer a plug-in hybrid with a 40-mile driving range in 2010. Nissan, VW, Renault and other car manufacturers have all announced their intention to introduce electric vehicles in the same time frame.

In July 2008, San Jose announced the beginning of a network of easily accessible and useable EV-charging stations in parking garages around the city. San Francisco followed with its own request for proposals for a similar citywide network.

On the political front, the current energy bill stalled in Congress because of Republican opposition: The bill contains a tax incentive for plug-ins sufficient to make the first cost of such vehicles nearly competitive with conventional vehicles.

The energy bill signed into law just before Christmas in 2007 includes a little-noticed but very powerful incentive for all-electric vehicles. For purposes of meeting the new higher fuel efficiency standards, all-electric vehicles will be awarded an efficiency rating based largely on the amount of gasoline displaced, which translates into an overall fuel efficiency rating for a typical mid-size EV of about 350 miles per gallon.

And on the customer level, gasoline prices of $4 per gallon have generated a palpable hunger for alternatives and changed the comparative economics of EVs and gasoline-powered vehicles. Driving a mile on electricity today costs about 3 cents while traveling a mile on gasoline costs about 15 cents. This can translate into annual fuel savings of more than $1,000.

The advent of EVs may change not only the contours of our transportation system but also the structure of our electricity system. The unique characteristic of the electricity system is that the product must be instantaneously transmitted and no storage capacity is available. This is the reason Enron and others were able to manipulate the system in deregulated California 10 years ago, a manipulation that led to the near bankruptcy of the state and continues to burden the state budget.

The prospect of a large battery capacity contained in tens of millions of electrified vehicles could be, in the words of one utility executive, "a game changer." Utilities, eager to nurture a potentially large new customer, are also vigorously assessing how this new electric capacity can be integrated into the existing distribution and subtransmission parts of the grid system.

Some studies have estimated that utilities could pay an EV owner several thousand dollars a year to tap into the car's batteries when needed for energy used to keep the local grid stable. The vehicle would be available for such tapping a considerable percentage of the time. A typical vehicle sits idle some 23 of 24 hours a day. Millions sit in commuter parking lots for eight hours a day.

A large storage capacity could also ameliorate the intermittency problem of renewable energy, which in turn could allow a much higher proportion of renewable electricity on the grid. One study of the Sacramento, Calif., electricity network concluded that a significant penetration of battery-powered vehicles could boost the potential wind energy contribution to about 50 percent of total electricity generation.

EVs might spur a profound relocalization of our electricity system. I discovered the intimate link between electric vehicles and decentralized electricity in the spring of 2007, when I spent a week in California driving or being driven in a variety of electrified vehicles, from glorified golf carts to PHEVs to the "0 to 60 in less than 4 seconds" Tesla. I was invited by a national travel magazine to investigate the future of the car based on my 2003 report on the subject, "A Better Way." Everyone I met who had an EV or a PHEV also had solar cells on their roofs. And why not? Not only does it make them more energy self-reliant, but the value of the electricity generated by the solar array is far higher when it displaces gasoline than when it displaces conventional electricity.

Indeed, a symbiotic relationship between car and house may be emerging. California has time-of-day tariffs under which electricity consumed at peak hours, say, midday on a hot summer's day, can be several times more expensive than electricity consumed during nighttime odd-peak hours. If EV owners must use electricity at peak times, they can tap into the stored electricity in their vehicles. The EV serves as a source of backup power for the house. More than one EV owner boasted about how his was the only house with lights on when the neighborhood suffered a blackout.

If Congress enacts its electrified vehicle incentive, we should see an immediate surge in conversions and new PHEV and EV sales. In 2010 several EV and PHEV models should be available from major car companies, albeit in small quantities, and these should allow us to gauge the costs of an all-electric transportation system.

If I were Al Gore, I would ask Congress not only to pass the EV incentive but also to phase in a mandate for an all-renewable-fueled transportation fleet, perhaps beginning with 5 percent of all new vehicles by 2012 and moving toward 100 percent by 2020. A call to arms would resonate with the American public. And as both consumers and citizens, Americans could quickly translate their support into a mass movement to finally eliminate our addiction to oil.

David Morris is vice president of the Institute for Local Self-Reliance. His report on the future of transportation, Driving Our Way to Energy Independence, was published in April 2008. He is also the author of Self-Reliant Cities (Sierra Club Books, 1982).

Houston doctors say they may have found a way to destroy HIV Houston doctors say they may have found a way to destroy HIV

Houston doctors say they may have found a way to destroy HIV

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There is real hope that what’s happening in a Houston lab might lead to a cure for HIV.

“We have found an innovative way to kill the virus by finding this small region of HIV that is unchangeable,” Dr. Sudhir Paul of the University of Texas Medical School at Houston said.

Dr. Paul and Dr. Miguel Escobar aren’t talking about just suppressing HIV – they’re talking about destroying it permanently by arming the immune system with a new weapon lab tests have shown to be effective.

Ford Stuart has been HIV positive for 15 years. He’s on a powerful drug cocktail that keeps the disease in check.

“I’m on four different medications. Three of them are brand new, and it’s the first time that I’ve ever been non-detectible,” Stuart said. “I’m down to about – just for the HIV – about nine pills per day, five in the morning and four at night.”

But Stuart knows HIV mutates, and eventually it will learn how to outsmart his medications.

“The virus is truly complex and has many tricks up its sleeve,” Paul said.

But Dr. Paul thinks he’s cracked a code.

“We’ve discovered the weak spot of HIV,” he said.

Paul and his team have zeroed in on a section of a key protein in HIV’s structure that does not mutate.

“The virus needs at least one constant region, and that is the essence of calling it the Achilles heel,” Paul said.

Schwarzenegger signs order to cut Californian workers' pay

Schwarzenegger signs order to cut Californian workers' pay

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California Governor Arnold Schwarzenegger on Thursday signed an executive order temporarily slashing the pay of most full-time employees to the federal minimum wage of 6.55 dollars an hour.

He also ordered his administration to lay off thousands of part-time state workers as part of efforts to deal with a budget crisis. About 10,300 part-time employees will be affected starting on Thursday, the governor's aides said.

Schwarzenegger administration officials said the move will help give the state enough cash to get by until a state budget is signed. The budget was due July 1 but is still being negotiated by the governor and legislative leaders.

If the governor is successful in cutting the employees' income, they will receive their full back pay once a budget were signed.

"It is a terrible situation to be in," Schwarzenegger said after signing an executive order. "I don't think any governor wants to be in this situation."

But State Controller John Chiang said he would not comply with the order because "it is based on faulty legal and factual premises."

The governor said he will take the controller to court if necessary, but he hopes to resolve the state budget impasse with lawmakers within days, making such a battle unnecessary.

Schwarzenegger said a 2003 State Supreme Court decision requires the pay cuts for most of the 200,000 full-time state employees in the absence of a budget.