Stock Market Crash Expected In 2008 To Be Worse Than 1929

[Soldier4Christ]

Stock Market Crash Expected In 2008 To Be Worse Than 1929

Is this how the world escalates into a one world government?

A stock market crash worse than 1929 would bring nations to their knees. Governments would collapse, wars could possibly escalate. In order to survive instead of trying to help one another many would turn to crime. Brother against brother.

According to financial experts and life-long students of the Great Depression the financial market is looking eerily like the situation that led up to the Great Depression. Are these so-called experts correct or is this just another scare mongering tactic like global warming that is being devised in order to push the agenda of a one world government onto us? After all many of the members of the North Atlantic Banking system also support the global warming agenda.

[Soldier4Christ]

Crisis may make 1929 look a 'walk in the park'

 As central banks continue to splash their cash over the system, so far to little effect, Ambrose Evans-Pritchard argues things are rapidly spiralling out of their control

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.

As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.

"Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.

"It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.

Lenders are hoarding the cash, shunning peers as if all were sub-prime lepers. Spreads on three-month Euribor and Libor - the interbank rates used to price contracts and Club Med mortgages - are stuck at 80 basis points even after the latest blitz. The monetary screw has tightened by default.

York professor Peter Spencer, chief economist for the ITEM Club, says the global authorities have just weeks to get this right, or trigger disaster.

"The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard," he says.

"They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don't think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park," he adds.

The Bank of England knows the risk. Markets director Paul Tucker says the crisis has moved beyond the collapse of mortgage securities, and is now eating into the bedrock of banking capital. "We must try to avoid the vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other," he says.

New York's Federal Reserve chief Tim Geithner echoed the words, warning of an "adverse self-reinforcing dynamic", banker-speak for a downward spiral. The Fed has broken decades of practice by inviting all US depositary banks to its lending window, bringing dodgy mortgage securities as collateral.

Quietly, insiders are perusing an obscure paper by Fed staffers David Small and Jim Clouse. It explores what can be done under the Federal Reserve Act when all else fails.

Section 13 (3) allows the Fed to take emergency action when banks become "unwilling or very reluctant to provide credit". A vote by five governors can - in "exigent circumstances" - authorise the bank to lend money to anybody, and take upon itself the credit risk. This clause has not been evoked since the Slump.

Yet still the central banks shrink from seriously grasping the rate-cut nettle. Understandably so. They are caught between the Scylla of the debt crunch and the Charybdis of inflation. It is not yet certain which is the more powerful force.

America's headline CPI screamed to 4.3 per cent in November. This may be a rogue figure, the tail effects of an oil, commodity, and food price spike. If so, the Fed missed its chance months ago to prepare the markets for such a case. It is now stymied.

This has eerie echoes of Japan in late-1990, when inflation rose to 4 per cent on a mini price-surge across Asia. As the Bank of Japan fretted about an inflation scare, the country's financial system tipped into the abyss.

In theory, Japan had ample ammo to fight a bust. Interest rates were 6 per cent in February 1990. In reality, the country was engulfed by the tsunami of debt deflation quicker than the bank dared to cut rates. In the end, rates fell to zero. Still it was not enough.

When a credit system implodes, it can feed on itself with lightning speed. Current rates in America (4.25 per cent), Britain (5.5 per cent), and the eurozone (4 per cent) have scope to fall a long way, but this may prove less of a panacea than often assumed. The risk is a Japanese denouement across the Anglo-Saxon world and half Europe.

Bernard Connolly, global strategist at Banque AIG, said the Fed and allies had scripted a Greek tragedy by under-pricing credit long ago and seem paralysed as post-bubble chickens now come home to roost. "The central banks are trying to dissociate financial problems from the real economy. They are pushing the world nearer and nearer to the edge of depression. We hope they will eventually be dragged kicking and screaming to do enough, but time is running out," he said.

Glance at the more or less healthy stock markets in New York, London, and Frankfurt, and you might never know that this debate is raging. Hopes that Middle Eastern and Asian wealth funds will plug every hole lifts spirits.

Glance at the debt markets and you hear a different tale. Not a single junk bond has been issued in Europe since August. Every attempt failed.

Europe's corporate bond issuance fell 66pc in the third quarter to $396bn (BIS data). Emerging market bonds plummeted 75pc.

"The kind of upheaval observed in the international money markets over the past few months has never been witnessed in history," says Thomas Jordan, a Swiss central bank governor.

"The sub-prime mortgage crisis hit a vital nerve of the international financial system," he says.

The market for asset-backed commercial paper - where Europe's lenders from IKB to the German Doctors and Dentists borrowed through Irish-based "conduits" to play US housing debt - has shrunk for 18 weeks in a row. It has shed $404bn or 36pc. As lenders refuse to roll over credit, banks must take these wrecks back on their books. There lies the rub.

Professor Spencer says capital ratios have fallen far below the 8 per cent minimum under Basel rules. "If they can't raise capital, they will have to shrink balance sheets," he said.

Tim Congdon, a banking historian at the London School of Economics, said the rot had seeped through the foundations of British lending.

Average equity capital has fallen to 3.2 per cent (nearer 2.5 per cent sans "goodwill"), compared with 5 per cent seven years ago. "How on earth did the Financial Services Authority let this happen?" he asks.

Worse, changes pushed through by Gordon Brown in 1998 have caused the de facto cash and liquid assets ratio to collapse from post-war levels above 30 per cent to near zero. "Brown hadn't got a clue what he was doing," he says.

The risk for Britain - as property buckles - is a twin banking and fiscal squeeze. The UK budget deficit is already 3 per cent of GDP at the peak of the economic cycle, shockingly out of line with its peers. America looks frugal by comparison.

Maastricht rules may force the Government to raise taxes or slash spending into a recession. This way lies crucifixion. The UK current account deficit was 5.7 per cent of GDP in the second quarter, the highest in half a century. Gordon Brown has disarmed us on every front.

cont'd

[Soldier4Christ]

In Europe, the ECB has its own distinct headache. Inflation is 3.1 per cent, the highest since monetary union. This is already enough to set off a political storm in Germany. A Dresdner poll found that 71 per cent of German women want the Deutschmark restored.

With Brünhilde fuming about Brot prices, the ECB has to watch its step. Frankfurt cannot easily cut rates to cushion the blow as housing bubbles pop across southern Europe. It must resort to tricks instead. Hence the half trillion gush last week at rates of 70bp below Euribor, a camouflaged move to help Spain.

The ECB's little secret is that it must never allow a Northern Rock failure in the eurozone because this would expose the reality that there is no EU treasury and no EU lender of last resort behind the system. Would German taxpayers foot the bill for a Spanish bail-out in the way that Kentish men and maids must foot the bill for Newcastle's Rock? Nobody knows. This is where eurozone solidarity stretches to snapping point. It is why the ECB has showered the system with liquidity from day one of this crisis.

Citigroup, Merrill Lynch, UBS, HSBC and others have stepped forward to reveal their losses. At some point, enough of the dirty linen will be on the line to let markets discern the shape of the debacle. We are not there yet.

Goldman Sachs caused shock last month when it predicted that total crunch losses would reach $500bn, leading to a $2 trillion contraction in lending as bank multiples kick into reverse. This already seems humdrum.

"Our counterparties are telling us that losses may reach $700bn," says Rob McAdie, head of credit at Barclays Capital. Where will it end? The big banks face a further $200bn of defaults in commercial property. On it goes.

The International Monetary Fund still predicts blistering global growth of 5 per cent next year. If so, markets should roar back to life in January, as though the crunch were but a nightmare. There again, the credit soufflé may be hard to raise a second time.

[Soldier4Christ]

Housebuilders dig in for deep freeze in residential property

The slide in house prices is gathering pace, a survey suggests today, amid signs that housebuilders are digging in for a prolonged residential property freeze. Tulloch Homes, a medium-sized Scottish housebuilder, pulled plans yesterday for a £200 million flotation, and Taylor Wimpey is understood to have ordered a halt to any new land acquisitions.

Estate agents across the UK have ended the year bemoaning falling prices, buyers in retreat and the declining chance of a speedy sale. The latest survey by Hometrack, the housing data company, suggests that values have fallen by 0.3 per cent since November, the third consecutive monthly fall and the largest in almost two years.

Despite the calming of a once-overheated property market, new buyers are refusing to be enticed out. Their number was down 7.9 per cent this month, after a fall of 9.1 per cent in November and one of 6.4 per cent in October. At the end of a downbeat quarter, owners are tending to keep their homes off the market, with agents reporting 2.5 per cent fewer properties for sale. Agents, who six months ago were able to sell a home in less than six weeks, now say that properties are lingering on the market for an average of 8.3 weeks, the worst figure since the survey began in 2001.

Richard Donnell, the director of research at Hometrack, said: “The second half of the year has seen a major reversal in confidence on the back of higher interest rates and concerns over the outlook for the financial markets.”

Prices are still up 3 per cent compared with a year ago, but that rate of growth represents little more than half the 5.7 per cent reported at the start of the year. Prices are reported to be falling in 30 per cent of postcodes, a significant turnaround since March, when they were rising in 80 per cent of postal areas.

The worst performing areas this year have included South Yorkshire, Nottinghamshire and North Lincolnshire. Oxfordshire recorded the largest fall in values over the past three months, down 1.5 per cent. The strongest growth this year was seen in Central London, where values are up by 9.4 per cent in a year. But prices in Greater London and the South East, which had risen steadily for the first three quarters of the year, fell by 0.4 per cent in a month.

Tulloch abandoned its plans to float on the Alternative Investment Market, blaming the “challenging” housing market and the credit crunch. David Sutherland, the chairman and chief executive, who appointed Close Brothers to advise on the float this year, said: “Now is not the right time for a UK housebuilder to be going ahead with an AIM flotation.”

The Inverness-based Tulloch, which made operating profits of £13.2 million last year, said that it might consider selling a stake to a private equity buyer instead of a flotation.

Taylor Woodrow, one of Britain’s biggest housebuilders, apparently took the decision to freeze all land purchases in mid-October and has completed only on deals agreed before then.

Last week Capital Economics - among the most bearish commentators – said that it expected the present slowdown to persist throughout next year, with a fall of 5 per cent followed by another 8 per cent slide in 2009.

[Rhys]

The stock market didn't set off the Great Depression, it was already underway in most of the rest of the world before 1929. Western writer Louis Lamour noted employment drying up in the US by 1927. It simply escaped the notice of most wealthier Americans, who continued insisting the economy was sound, some even after 1929.

Much like today!

[Soldier4Christ]

The Great Depression in the U.S. is considered to have started at the stock market crash of October 29, 1929. Prior to that time there were indeed financial difficulties in the U.S. but it was considered a recession not a depression. I understand that this can be argued and that many will place a fine line in the difference between a recession and a depression. I also agree that the government waits and extended period of time before declaring either one, supposedly out of fear that people will panic and thereby cause it to escalate. The U.S. has experienced many recessions throughout it's history but only one that led into the full blown depression of the Great Depression.

[Soldier4Christ]

Dollar's fall felt around globe
Weakening U.S. currency harms overseas markets

The sharp decline of the U.S. dollar since 2000 is affecting a broad swath of the world's population, with its drop on global markets being blamed at least in part for misfortunes as diverse as labor strikes in the Middle East, lost jobs in Europe and the end of an era of globe-trotting rich Americans.

It marks a shift for Americans in the global economy. In times of strength, a mightier dollar allowed Americans to feed their insatiable appetite for foreign goods at cheap prices while providing Yankees abroad with virtually unrivaled economic clout. But now, as the United States struggles to fend off a recession, observers say the less lofty dollar is having both a tangible and intangible diminishing effect.

"The dollar was the dominant force in world economics for 100 years -- we had no competition," said C. Fred Bergsten, an American economist and director of the Washington-based Peterson Institute for International Economics. "There was no other economy close to the size of the United States. But all that is now changing."

The dollar is down more than 40 percent against the euro over the past seven years, taking a particularly sharp drop last month. Despite a bit of a rebound in recent weeks, the dollar is still off nearly 12 percent since Jan. 11, when it hit its peak for 2007.

For now, that drop is allowing the U.S. economy to reap rewards. American products have become exceedingly competitive, boosting exports ranging from Caterpillar tractors to Boeing jumbo jets that are now relative blue-light specials in the global marketplace. Using the same logic of chasing cheaper local production costs that has driven many U.S. factories to China, a few iconic European companies, including Airbus, are set to shift some manufacturing lines to the United States.

But for untold millions worldwide, the weak dollar has emerged as a troubling dark spot. Take Ngengi Mungai, a Nairobi coffee exporter trapped between the weaker dollar and the rapidly appreciating Kenyan shilling -- which gained as much as 12 percent against the dollar this year amid an export-driven economic surge across much of Africa. His coffee sales overseas, as with the bulk of global commodities, are priced in weaker dollars. But he must then convert them into stronger shillings to cover his local costs for local labor, materials, even the clothes on his back. It has cut sharply into his annual income.

"Basically," Mungai said, "it's bad."

It has left many wondering whether the dollar has lost its bling for good. Even rapper Jay-Z dissed the dollar in his recent video, "Blue Magic." In scenes celebrating the excess of wealth in Manhattan's shimmering glass canyons, the cameras cut repeatedly not to images of $100 bills -- but of crisp, 500 euro notes.

Though still the primary choice for global reserves and commodities, some countries have begun to diversify their dollar holdings, while a nascent push is afoot to re-price some commodities in currencies other than the dollar. In May, Kuwait dropped its currency peg to the dollar and other oil-rich Gulf states have threatened to follow. Perhaps most telling: In recent months, the euro surpassed the dollar as the currency with the largest global circulation.

In very real terms, it has forced Americans to rethink their lust for foreign goods. Sales of luxury, British-made Jaguars and Land Rovers, for instance, are declining in the United States because of the weak dollar, while fewer North American tourists -- a 10 percent drop in the third quarter of 2007 compared with the same period last year -- treated themselves to trips to England.

The chink in the dollar's armor has dealt a blow to American pride -- at least to the kind of pride that comes with buying power.

Nowhere is that more visible than with Americans overseas. "It's changed our lifestyle," said Lauren Amlani, 48, who moved to Paris from California with her husband and young son in March 2006. "A meal with pizza and drinks for the three of us comes to over $75. That's ridiculous!"

Amlani's husband, Aslam, a project manager at Disneyland Paris, is paid in dollars. To compensate for the plunge of the dollar against the euro, the Amlanis are buying clothes and electronics in the United States and hauling them back to Paris.

With the exception of November, when the dollar dropped sharply after bearish remarks by Chinese officials, the fall has been gradual. It is unclear what will happen in the future. The dollar has fallen because of a combination of fears over the U.S. economy, including the subprime mortgage crisis that may worsen.

Although considered unlikely, analysts say a more rapid decline could prove disastrous. A global run on the dollar would force the Federal Reserve to hike interest rates to prop up the U.S. currency just as lower interest rates may be needed to stimulate the domestic economy.

Already, however, the impact of the weaker dollar is growing. Rolls-Royce has proposed moving some operations from Liverpool to its factory in Mount Vernon, Ohio. Airbus has said it will shift more of its production to the United States, home turf of rival Boeing, to offset the cost of the stronger euro. As the dollar has weakened over the past seven years, Airbus has opened assembly lines and other operations in Wichita and Mobile, Ala.; as well as in Moscow and Beijing.

"Every time the euro increases by 10 cents towards the dollar we lose $1 billion in our operations," said an Airbus official at the company's headquarters in Toulouse, France. "Aircraft are sold in U.S. dollars, but most of our production costs are paid in euros."

Losses in Europe have been blunted, however, because fewer euros now buy more raw materials that continue to be priced in dollars. In addition, the British pound has depreciated recently over investor fears that England's real estate market may be vulnerable to the same factors that caused the subprime mortgage crisis in the United States.

Many nations that have pegged their currencies to the dollar have become boxed in by the Fed's moves to lower interest rates. While that may be wise for policymakers in the United States, where the fear is slipping into recession, it is exactly the wrong medicine for red-hot economies such as those in the Persian Gulf that are in far greater risk of overheating from a massive, oil-fueled economic expansion.

The dramatic surge in oil revenue along with the weakening dollar has sparked a rise in inflation in the Gulf states -- hurting most those who have the least. In recent months, it has wiped out much of the gains from years of hard labor for the thousands of South Asian workers who moved to Dubai for a piece of its multibillion-dollar construction boom. With employers slow to raise salaries as low as $109 a month, workers' savings have diminished in buying power as costs have jumped for vegetables, cooking gas and other essentials. This has triggered wage strikes and a rock-throwing protest this fall that set back construction of the 150-story Burj Dubai, planned to be the world's tallest building.

"We don't have a single penny," said Ram Chandra, a 33-year-old mason who moved to the United Arab Emirates from India five years ago to seek his fortune in a sand-blown and crowded construction camp on the fringes of the desert. Back home in India, where the dollar has fallen 14 percent against the rupee in the past 18 months, the remittances he has sent to his family have steadily lost value.

The declining dollar's role in fueling inflation has become a pi¿ata for barbs across the Muslim world, where furious residents and leaders, including Iran's President Mahmoud Ahmadinejad, have sought to turn the weaker greenback into a new rallying point for anti-Americanism. "They get our oil and give us a worthless piece of paper," Ahmadinejad told reporters after the OPEC summit in the Saudi capital of Riyadh last month.

Some countries with strict controls over their currencies have managed to share in the U.S. windfall from the dollar's drop. Vietnam, for instance, where the tightly controlled currency has stayed relatively constant against the dollar, is enjoying an influx of investors fleeing nearby Thailand -- where the baht's sharp rise against the dollar has made doing business there far less attractive.

In China, where the currency still trades on a narrow, government-controlled band linked to the dollar, authorities have resisted global pressure to allow its currency to appreciate faster. The Chinese currency has gained about 11 percent against the dollar since 2005. But by keeping the currency relatively weak, Chinese companies have managed to ride the weak-dollar export boom -- making their products even cheaper in countries where the greenback has sharply dropped.

But now, some in China are turning their noses up at the dollar. Lin Jing, a sales manager at Shanghai Shuangyuan Import & Export Co., which exports garlic oil, said the company has begun to demand euros from its overseas customers instead of dollars. "The use of euros enables us to shy away from losses caused by the conversion between the [Chinese currency] and the weakened dollar," he said.

[Shammu]

Is this how the world escalates into a one world government?

No, but I think it will help with the one world currency. But yes it can also, help lead in the NWO.

[Rhys]

The Great Depression in the U.S. is considered to have started at the stock market crash of October 29, 1929. Prior to that time there were indeed financial difficulties in the U.S. but it was considered a recession not a depression. I understand that this can be argued and that many will place a fine line in the difference between a recession and a depression. I also agree that the government waits and extended period of time before declaring either one, supposedly out of fear that people will panic and thereby cause it to escalate. The U.S. has experienced many recessions throughout it's history but only one that led into the full blown depression of the Great Depression.

"Prior to that time there were indeed financial difficulties in the U.S. but it was considered a recession not a depression."

Not true:

From: http://economics.about.com/cs/businesscycles/a/depressions_2.htm: Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression.

Actually they were referred to as "Panics" in the 1800's. It is largely a matter of semantics. The modern definition is that a recession is "the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out" A depression is "any economic downturn where real GDP declines by more than 10 percent."

There have been a number of depressions in US history - 1819, 1836-37, 1857, 1873, 1893-5, and 1921, but none since the Great Depression of the 1930's.

Employment is a lagging indicator, not a leading one, so unemployment won't start to rise until we are well into a recession. Businesses hesitate to lay off trained employees if they have any hope things may soon turn around, so they wait until it is obvious that things are still declining. Untrained laborers go sooner as they are more easily replaced. Louis Lamour was working at day labor and unskilled jobs in the 1920's, and they were drying up by 1927 - therefore the economy was already in decline by then.

Today there are fewer jobs for unskilled labor, so employment holds up better and longer. Most of the unskilled jobs are held by immigrants, so it is interesting to see some are starting to leave, partly because of a crackdown on illegals, but also because jobs are getting hard to find: "The toughening environment has been coupled with a turndown in the U.S. economy, which has tipped the balance toward self deportation for many illegal immigrants left struggling to find work." From: http://www.reuters.com/article/domesticNews/idUSN2126758320071224

Whether we go into a depression or just a recession is hard to predict. Usually the bigger the bubble the more disastrous it is when it pops, and the housing bubble was a big one. (The median income is about $25,000 (http://www.ssa.gov/OACT/COLA/central.html) so half of the people can afford less than $625 in monthly payments - far less than what they would have to pay at the inflated housing prices today.) Japan has never yet recovered from the bursting of the housing bubble on which its former "booming" economy was based. Our government has also removed most of the legal safeguards and restraints on the financial system enacted after the Great Depression that prevented it happening again. Nixon debased the currency. Much of our economy is a house of cards. We have largely stopped producing much of value and become a nation of gamblers and speculators. Maybe it won't catch up to us this time, but if the government manages to patch things together they will only be worse a few years from now unless we make fundamental changes in our way of life.

[Soldier4Christ]

New-home sales plunge by 9% 
Lowest level in more than 12 years

Sales of new homes plunged last month to their lowest level in more than 12 years, a grim testament to the problems plaguing the housing sector.

The Commerce Department reported Friday that new-home sales tumbled by 9 percent in November from October to a seasonally adjusted annual rate of 647,000. That was the worst showing since April 1995, when the pace of sales was 621,000.

The sales pace for November was much weaker than economists were expecting. They were predicting sales in the weakest sector of the economy to drop by around 1.8 percent, to a pace of 715,000.

The median sales price of a new home dipped to $239,100 in November. That is 0.4 percent lower than a year ago. The median price is where half sell for more and half for less.

By region, sales fell in all parts of the country, except for the West, where they rose.

New-home sales dropped by 19.3 percent in the Northeast. They plunged by 27.6 percent in the Midwest and they fell by 6.4 percent in the South. However, sales increased by 4 percent in the West.

Over the last 12 months, new-home sales nationwide have tumbled by 34.4 percent, the biggest annual slide since early 1991, and stark evidence of the painful collapse in the once high-flying housing market.

That market has been suffering through a severe slump following five years of record-breaking activity from 2001 through 2005. Sales turned weak as did home prices. The boom-to-bust situation has increased dangers to the economy as a whole and has been especially hard on some homeowners.

Foreclosures have soared to record highs and probably will keep rising. A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Other home buyers were clobbered as low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

With credit now harder to get to finance a home purchase, the problems in housing have grown worse. Unsold homes have piled up. The problems are expected to persist well into next year.

The housing and mortgage meltdowns have raised the odds that the country will fall into a recession. And, it has given Democrats and Republicans politicians- including those who want to be the next president - plenty of opportunities to spread blame around.

To help bolster the economy, the Federal Reserve has sliced a key interest rate three times this year. Its latest rate cut, on Dec. 11, dropped the Fed's key rate to 4.25 percent, a two-year low. Many economists are predicting the Fed will lower rates again when they meet in late January.

The economy's growth is expected to have slowed to a pace of just 1.5 percent or less in the October-to-December. Analysts believe that the housing and credit troubles will force consumers and businesses to tighten the belts, causing the economy to lose considerable speed. The housing slump has been a drag on overall economic activity, lopping more than a full percentage point off growth during the summer alone.

[Soldier4Christ]

Stocks drop after oil hits $100 
Wall Street concerned about economic slowdown

Stocks skidded lower Wednesday after a weaker-than-expected reading on the manufacturing sector and a spike in oil prices to $100 a barrel triggered concerns of a further slowdown in the overall economy.

The major indexes each lost more than 1 percent. The Dow Jones industrials, which dipped below 13,000 at one point, gave up more than 220 points. It was the blue chip index's biggest point decline for the first day of trading in a new year.

The Institute for Supply Management's report that its manufacturing index fell to 47.7 percent for December from 50.8 percent in November raised concerns that the economy could be slowing at a quicker pace than some investors had estimated. The reading below 50 signals economic contraction, whereas readings over 50 indicate expansion.
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Analysts polled by Thomson/IFR had anticipated that manufacturing would expand modestly in December.

Light, sweet crude rose $4.02 to $100 per barrel on the New York Mercantile Exchange, the first time oil has ever traded in triple digits, following violence in the oil-producing nation of Nigeria, concerns about weather-related stoppages of production in Mexico and speculation that inventory figures will show drops in levels of U.S. supplies.

The reading was unwelcome for investors wading into the first trading session of 2008 and indicated the concerns that weighed on stocks in the second half of 2007 will for now persist.

"It certainly is a soft number and the declines in production and new orders are eye-catching," said Alan Levenson, chief economist at T. Rowe Price Associates Inc. "Over all, the ISM has generally been a decent guide for the economy. This is a sharp decline in one month."

The Dow Jones industrial average fell 220.86, 1.67 percent, to 13,043.96.

Broader stock indicators. The Standard & Poor's 500 index dipped 21.20, or 1.44 percent, to 1,447.16, and the Nasdaq composite index dipped 42.65, or 1.61, to 2,609.63.

Bond prices surged after the ISM report. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.89 percent from 4.03 percent late Monday. The dollar was mixed against other major currencies, while gold prices reached a 28-year high.

Gold prices rallied Wednesday to settle at $860 an ounce after a weak U.S. dollar coupled with a record-setting push to $100 oil spurred demand for the precious metal. The spike surpassed gold's recent high of $850, but still fell short of its all-time high of $875 an ounce set in 1980.

Declining issues outnumbered advancers by about 4 to 3 on the New York Stock Exchange, where volume came to 1.42 billion shares.

The weak manufacturing reading came as Wall Street remains uneasy over the economy, specifically the state of the housing market and tightness in the credit markets brought on by fears of faltering mortgage debt. In addition, the health of the consumer is again in focus as investor are awaiting the government's December employment report, due Friday.

Investors weren't swayed by the release of the Fed's minutes from its Dec. 11 meeting. Central bankers cut rates amid worries about housing, credit and financial markets — and kept all their options open for their next move, according to the minutes.

"We didn't really learn anything new," said Ryan Larson, senior equity trader with Voyageur Asset Management. "The Fed continues to be stuck between a rock and a hard place in terms of fighting inflation and managing U.S. growth."

The arrival of the new year will be accompanied by a return of more of Wall Street's regular players. The recent weeks surrounding the holidays have seen light trading volume, making it hard to draw any meaningful reading on the market's mood. Moves higher or lower tend to be exaggerated amid light sessions.

[Soldier4Christ]

No sign of retreating for higher food prices
Amount you pay cashier has risen in '07 at more than twice '06 rate

Gloria Ford began noticing a few months back that her grocery costs were spiking, particularly for milk and eggs.

"I've joked, 'Did the chickens go on strike?'" she said last week, fresh from a trip to a Berwyn, Ill., supermarket. Nowadays, she's keeping a sharper eye out for bargains on eggs -- and anything else in the grocery aisles.

That's a good idea because U.S. food prices have risen this year at more than twice the rate of 2006, and at a pace not seen since 1990. The outlook isn't any better. Many economists say this year's estimated price increase of about 5 percent could be part of a trend that threatens to ratchet up food costs for years.

That possibility is rooted partly in the rise of ethanol and partly in strong economic growth in developing nations.

The ethanol industry's voracious appetite for corn ripples through the food chain. Take eggs, for instance. Chickens eat corn, and corn prices have shot up as the ethanol business has blossomed.

Meanwhile, consumers in many developing countries are increasingly finding they have more income to buy more food, and relatively more expensive food, like chicken.

If this year's rise in food prices is indeed part of a long-term trend, lower- and middle-income consumers in particular will feel a pinch in years to come. And U.S. economists might have to rethink the way they view food inflation, which is predicated on the view that food price swings are inherently cyclical and therefore less worrisome than long-term changes.

"The days of cheap food may be over," said Benjamin Senauer, co-director of the University of Minnesota's Food Industry Center.

For decades, food price inflation has usually tracked below the general rate of inflation. And when prices do spike, it's usually because of a short-term issue, like a crop failure.

Indeed, bad weather in Australia is a factor in record wheat prices set this year. Other cyclical issues are at work in the current price rise, particularly soaring energy costs. With oil at almost $100 per barrel, food producers face considerably higher costs to make and transport their goods.

The ethanol expansion isn't a short-term trend, and the industry is using about 25 percent of the U.S. corn crop.

"In the U.S., we've had the biggest corn crop we've had in years -- rail cars are backing up -- but we still have corn at over $4 a bushel," Senauer said. That price rarely topped $3 per bushel over the last decade until this year.

"Corn is at the very core of our food system," Senauer said, in everything from animal feed to soda sweeteners.

Soybean acreage shrinks

As corn prices rise, farmers have an incentive to switch to it from other crops, particularly soybeans. And as soybean acreage has declined this year, soybean prices have hit near-record highs, and soybeans are increasingly being used for biodiesel, another fuel.

"We have never used so much food for fuel," said Michael Swanson, an agricultural economist at Wells Fargo in Minneapolis.

Energy needs will increasingly drive food prices, he said. "There's been a sea change, as much at the ethanol people say it's not true."

The ethanol industry adamantly says it's not driving any food price swings. It maintains that soaring energy costs and rising labor expenses are much bigger issues than corn prices, and it notes that corn or any grain tends to account for only a small component in the overall cost of any food product.

"To blame ethanol for moderately rising food prices is disingenuous at best," said Matt Hartwig, a spokesman for the Renewable Fuels Association, the industry's trade group. "It's a terribly simplistic look at a complex issue."

Adding to that complexity is the growing global demand for food as incomes rise. China and India's rapidly expanding economies get the most attention, but the last five years have been some of the best ever economically in developing nations across the globe, Senauer said.

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[Soldier4Christ]

"When people's incomes start to rise, one of the first things they want to spend more money on is better food," he said. "They diversify their diets, and in most cases than means more animal proteins."

Grains, of course, are critical to animal feed. And global grain stocks are being squeezed by the growing demand for food: This year's high corn and wheat prices occurred despite bumper crops.

Food inflation has been a hot issue across the world in 2007, with the term "agflation" often used to describe it in the European press. It has been less of an issue in this country, at least partly because Americans spend less of their budget on food than the rest of the world.

In the U.S. last year, 5.8 percent of household consumption expenditures were allocated to food eaten at home, according to the Department of Agriculture. That compares with 8.7 percent in the United Kingdom, 13 percent in France and 27.8 percent in China.

"We have a fairly affordable food basket in this country," said Paul McNamara, a professor in the University of Illinois' Department of Agricultural and Consumer Economics. "If prices rise, say, 5 percent, rather than 3 percent, it's not the kind of thing where we will be making huge changes."

Still, sustained food price increases likely would affect consumer behavior in the long run, he said. And this year's upswing probably is having an immediate effect on consumers with moderate incomes, he added.

That's the case for Gwendolyn E. Williams of Chicago. "It's hard on seniors with a fixed income, very hard," she said after shopping this week at a Berwyn supermarket.

Williams, 74, said higher prices have changed her shopping habits. For instance, she has bought more powdered milk and powdered eggs this year rather than the fresh varieties. Milk prices have, on average, risen 11 percent this year over last year, while egg prices have soared 29 percent.

Food outside core index

There's a twist to the way food prices are viewed on Main Street and Wall Street.

To the average household, food and energy prices are the most closely watched costs, Senauer said. To economists and the Federal Reserve, they are secondary, non-core aspects of the consumer price index.

Food and beverage costs rose 4.7 percent in November compared with the same month last year, but the core CPI index rose only 2.3 percent during the same time. The core index guides U.S. policies on inflation and gets the most attention in financial markets.

That's because, historically, swings in non-core prices have been short term and cyclical. Thus, they will reverse themselves without requiring any inflation policy shift, or so the idea goes. But if increasing food prices or soaring energy costs become long-term trends, that idea would be weakened.

"It doesn't make sense when you are dealing with structural changes," Senauer said.

Avery Shenfeld, an economist at CIBC World Markets in Toronto, agreed.

"The Fed's focus on core CPI ... made sense in a world in which gasoline or food prices went up and came back down," he wrote in a recent research note.

But if food price increases were not considered cyclical, the way Canada and other countries look at food costs makes more sense. Canada and Australia include foods other than fresh produce in their core measure of inflation, Shenfeld wrote. In Europe, inflation policymakers also take food into account more than in the United States, he wrote.

[Soldier4Christ]

It has been less of an issue in this country, at least partly because Americans spend less of their budget on food than the rest of the world.

In the U.S. last year, 5.8 percent of household consumption expenditures were allocated to food eaten at home, according to the Department of Agriculture.

They sure haven't been looking at my budget. Food prepared at home is one third of my monthly budget and we surely don't eat the foods we are supposed to because they are too high priced. I know many, many others are in this same situation in my immediate neighborhood.

[Soldier4Christ]

Delinquencies on Car and Home Equity Loans Hit the Highest Point Since 2001

Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country's last recession in 2001.

The American Bankers Association reported Thursday that the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001, when the economy was suffering through a recession.

Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide.

Late payments on credit cards, meanwhile, dipped during summer.

The delinquency rate on credit cards dropped to 4.18 percent in the third quarter, down from 4.39 percent in the second quarter.

The association's quarterly survey of consumer loans painted a mixed picture of how people are managing their debt. It suggested that some people feel more squeezed than others.

A severe housing slump and weaker home values have clobbered some homeowners -- making it difficult, or even impossible for some to pay their monthly mortgages. Foreclosures surged to record highs and more homeowners fell behind on their payments during the third quarter of last year, the Mortgage Bankers Association reported last month.

A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Others got burned when low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

"Consumer loans directly related to the housing market were hit the hardest," said James Chessen, chief economist at the American Bankers Association. "We anticipate delinquency rates will continue to rise on these types of loans in the fourth quarter of 2007, reflecting continued weakness in the housing sector."

Late payments on home equity lines of credit jumped to 0.84 percent in the third quarter. That was up from 0.77 percent in the second quarter and was the highest since the final quarter of 1997. The delinquency rate on home-equity loans in the third quarter rose to 2.28 percent, a two-year high.

Meanwhile, the delinquency rate on "indirect" auto loans -- which are arranged through dealerships -- jumped in the third quarter to 2.86 percent, a 16-year high.