Greenspan Says Yuan Revaluation Would Benefit Markets (Update1) Listen
http://quote.bloomberg.com/apps/news?pid=10000087&sid=aH4tW9XKyiY8&refer=top_world_news

Feb. 27 (Bloomberg) -- Federal Reserve Chairman Alan Greenspan said China's economic expansion will probably pressure the nation to allow its currency to rise in value, boosting international markets while providing little benefit to U.S. jobs.
Revaluation of the Chinese yuan is a ``fairly reasonable expectation'' and an increase in productivity in the world's most populous nation ``will drive the exchange rate upward,'' Greenspan said in response to an audience question after a speech in California.
The yuan's value has been fixed at 8.277 to the dollar since 1995. The dollar, and by extension the yuan, fell about 15 percent against the euro and 8 percent against the yen in the past year.
U.S. manufacturers have complained that a favorable exchange rate and weak lending standards by state-run banks are giving Chinese producers an unfair competitive advantage. A decision by China to loosen the peg to the dollar probably wouldn't help the U.S. labor market, Greenspan said.
``I don't think the strict issue of revaluing the currency would make any difference in'' regard to U.S. employment, he said, because producers would simply relocate to the next low- cost market. It would be ``good for the international system to get the yuan in balance.''
The U.S. has lost 2.3 million jobs in three years, and manufacturing employment has declined each month since July 2000. The weak labor market has contributed to a sag in popularity for President George W. Bush, who is seeking re-election in November.
``We are not quite sure at this stage what the extent if any of the undervaluation of the renminbi is,'' Greenspan said, a reference to another name for the yuan. ``There is no doubt there is upward pressure on the currency.''
Currency Basket
Japan's Finance Ministry yesterday said China may favor linking the yuan's value to a basket of currencies, including the U.S. dollar, the euro and the yen, rather than allowing it to fluctuate more freely against the dollar.
The Chinese government sees a basket system, or tying the yuan to several other currencies to produce a single unit of value, as a way to reduce volatility if it decides to remove the yuan's peg to the dollar, Hiroshi Watanabe, head of the ministry's international department, said.
Watanabe recently met with his counterparts from China and South Korea, but declined to say what was discussed. ``We had a meeting, but we agreed not to disclose the content,'' he said.
The Nihon Keizai newspaper reported today that Japan has called on China to value the yuan against a basket of currencies, citing Japan's Finance Ministry. No one was available at the ministry to comment on the report.
A U.S. Treasury-led group is in Beijing this week, advising China on how it can modernize its economic infrastructure as part of a transition to a floating currency.
``Our policy remains toward the yuan remains the same,'' said Bai Li, a central bank official, told Bloomberg in a telephone interview yesterday.
The Chinese economy grew 9.1 percent last year, its fastest pace in six years. Urban disposable incomes in the world's sixth- largest economy last year topped $1,000 per person for the first time.
Letting the currency appreciate may also help China slow inflation and curb growth in money supply. The government has been selling its currency and buying dollars to keep the rate at 8.3, increasing the supply of money in the economy.

To contact the reporter on this story: Craig Torres in Washington
at ctorres3@bloomberg.net

To contact the editor of this story: Kevin Miller at kmiller@bloomberg.net.
Last Updated: February 28, 2004 02:05 EST
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>> BAD TRIP COMING...?

Greenspan view scary, but Dems in denial
Robert Robb
Republic columnist
Feb. 29, 2004 12:00 AM
Federal Reserve Chairman Alan Greenspan's views about Social Security and Medicare weren't a surprise.
What was a surprise was that he made them the central point of his testimony to the House Budget Committee on Wednesday.
Fed-watchers say Greenspan and other Fed officials didn't anticipate the stir the chairman's remarks created. But Greenspan is a cautious and skilled player in this game. The bet here is that he meant to put the issue of what he described as an overcommitment to senior benefits on the public policy agenda.
What's the rush? After all, Social Security taxes are projected to pay for retirement benefits until 2018. Medicare's hospitalization fund doesn't hit a deficit until 2013. The disability fund does run into a problem quicker, in 2008, but it's relatively small potatoes.
The reason for alarm is that everyone agrees that benefits for those currently retired or nearing retirement shouldn't be changed. The nearing retirement mark, is, of course, elastic, but by consensus would include those 55 or older, and some would go as young as 50.
That means that existing benefits are, by political consensus, pretty much locked in for a decade or a decade and a half. Which in turn means that actions to alleviate deficits that emerge in 2013 or 2018 have to be put in place right now.
The reactions of the two leading Democratic candidates for president were instructive, and revealing of the deep state of denial the Democrats are in.
John Kerry said the answer was to repeal President Bush's tax cuts for the rich, which Kerry defines as anyone making more than $200,000 a year.
But there is nothing about increasing taxes today that makes a dollar available to pay Medicare and Social benefits in the future. The only effect of raising taxes today is to reduce what the federal government currently borrows.
That arguably would increase the federal government's debt capacity in the future. But that is only relevant if Kerry proposes to borrow money to pay for Medicare and Social Security benefits once payroll taxes are insufficient.
These deficits begin small, and debt financing could cover them in the short run. But they grow exponentially, as the ratio of workers to retirees continues to deteriorate.
According to Greenspan, the cost of Social Security and Medicare will expand from 7 percent of GDP today to 12 percent in 2030. That represents a 25 percent increase in federal spending.
Simply put, the combination of debt and tax increases necessary to pay programmed future retiree benefits is economically unsustainable.
John Edwards reprised his populist economic themes, saying that it was an "outrage" for Greenspan "to suggest that we should extend George Bush's tax cuts on unearned wealth while cutting benefits that working people earn."
Edwards' view that investment income is "unearned" betrays a demagogic ignorance about, or hostility toward, the role of capital formation in economic progress. But let's play out his demagogic game.
Right now, low- and middle-income "working people" are being taxed to pay retirement and health care benefits for "wealthy" seniors. What's fair about that?
The same thing that Edwards proposes to do about it: Nothing.
What needs to be done is well known. Medicare needs to be changed from a system in which the federal government pays the medical bills of seniors, to a system in which the government provides subsidies based upon income for seniors to purchase private health insurance.
Social Security needs to be changed into a system of private retirement accounts, with some sort of debt instruments being used to finance the transition.
President Bush is theoretically in favor of movement in that direction on both scores. But he flinched from fighting for Medicare reform during the prescription-drug negotiations, and he's not moved beyond conceptual support for private retirement accounts.
Bush's reticence is understandable. The specifics of Medicare and Social Security reform involve hard and politically difficult choices.
But without specific engagement, Democrats are free to continue to deny reality.
And, as Greenspan's testimony underscored, time for a smooth rather than a wrenching transition is running out.

Reach Robb at robert.robb@arizonarepublic.com or (602) 444-8472.
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from the February 27, 2004 edition - http://www.csmonitor.com/2004/0227/p01s01-usec.html

Baby boomers face retirement squeeze
The number of Fortune 100 companies supplying fixed-rate pensions has dropped to 50 percent.
By Gail Russell Chaddock | Staff writer of The Christian Science Monitor
WASHINGTON - A number of factors - including a sobered stock market, deficit pressures, and corporate cutbacks - may be putting the retirement security of baby boomers at greater threat than at any time in a quarter century.
This week's provocative call by Federal Reserve chairman Alan Greenspan to scale back future Social Security benefits to help cover a growing federal budget deficit, is just part of the concern.
Evidence is mounting that the other two pillars of retirement security - private-sector pensions and personal savings - are no longer adequate to ensure that most Americans will have enough to live on when then retire.
From United Airlines to General Motors Corp., large companies are struggling to meet their obligations to retirees. The federal plan that guarantees these pensions is $11.2 billion in the red.
And even as the stock market recovers, experts say that 401(k)s and other personal savings aren't nearly big enough.
"Tens of millions of Americans are seriously underprepared to meet their financial needs in retirement," says Benjamin Stein, of the National Retirement Planning Coalition. As many as 40 percent of Americans have saved almost nothing for retirement, he told a congressional panel Wednesday.
At the problem's root is a long-term shift that politicians are reluctant to face: With Americans living longer, the senior population is growing faster than the number of young workers to cover their needs. Benefit levels are getting harder to sustain.
It's a calculus that is as challenging for corporate pension plans as it is for Medicare and Social Security programs.
The defined retirement benefit, the pension that was once a standard perk in a big firm, is a rapidly disappearing option for many Americans. The number of Fortune 100 companies offering a fixed-benefit pension has dropped from 68 percent in 1998 to 50 percent in 2002, according to Watson Wyatt Worldwide. And federal data show a steady fall in private-sector workers who have pensions: from 38 percent in 1980 to 21 percent in 1998.
That decline, in part, reflects the trials of old-line manufacturing industries, airlines, and automakers. Some experts say it also, ironically, stems from a 1978 law intended to keep pensions from going belly up, but which added costs and regulation.
But if the decline of pensions is important, this week's talk of changes to Social Security is generating the biggest buzz. Greenspan's comments set off a flurry of election-year positioning.
Both the White House and leading Democratic candidates quickly distanced themselves from Mr. Greenspan's proposal. Democrats attacked President Bush for wanting to make his tax cuts permanent at a time of growing concern about senior entitlements such as Social Security and Medicare.
"It is defaulting on our promise to our future retirees to cut their benefits to make up for the higher deficits caused by massive tax cuts for the wealthy," says Reps. Charles Rangel (D) of New York, the ranking Democrat on the House Ways and Means Committee.
Even those who criticize Greenspan's comments concede that serious adjustments will be needed both on Capitol Hill and in individual saving and spending patterns to prepare for the spike in baby boomer retirements in the next four years.
"He's right that social security does need to be reformed, but his prescription for cutting benefits for future retirees is inadvisable," says John Rother, policy director for the senior lobby AARP.
"Half of American workers do not have a pension, and most have not saved anything significant for retirement," he adds.
Given the decline of traditional pensions, this is of particular concern. Only 15 percent of working age Americans have an individual retirement account (IRA), and only 22 percent contribute to a 401(k) plan, according to the Employee Benefit Research Institute. Barely 1 in 3 working Americans has saved more than $100,000 for retirement.
Overall, it means that American retirees will have $45 billion less in retirement income in 2030 than they will need to cover basic expenses, according to the EBRI.
For any politician up for reelection in 2004, the prospect of large numbers of angry retirees - who vote at higher levels than other age groups - is unsettling. Social Security reform is an issue rarely engaged during the political cycle.
In 2000, Republican nominee George Bush touched what analysts call the "third rail" of politics when he proposing changes in Social Security. With the stock market still seen as strong, and forecasts for a huge federal surplus, the notion of privatizing a portion Social Security appealed to many voters, especially those who viewed themselves as part of a new "investor class." With IRAs and pensions, some two thirds of voters are directly or indirectly invested in the stock market.
But with the sharp reversals in the stock market after the election and, especially, more recent fears of outsourcing and a jobless recovery, the average American's stock ownership is shrinking.
"We've seen the group of self-identifiers in the investor class drop from 52 percent a year ago to 32 percent, around October and November," says pollster John Zogby of Zogby International.
Curiously, this group stuck through the worst days of the bear market in his poll, but more recent publicity about good, white-collar jobs being shipped overseas has hit this voting group hard. Twenty-one percent say they are afraid of losing their job in the next 12 months, says Mr. Zogby.
"There are still pockets of acceptability for the idea of Social Security reform, but what Greenspan said - that your entitlement is not going to be what you planned - is deadly stuff in politics, especially as the baby boomers get older," he adds.
No one expects Congress or the White House to move on this issue in an election year, but today's discussion could set markers for debate beyond 2004.
"There are going to be a lot of people looking at a bad retirement if they get away with cutting Social Security," says Dean Baker, codirector of the Center for Economic and Policy Research.

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from the February 27, 2004 edition - http://www.csmonitor.com/2004/0227/p06s01-wome.html
Israeli bank raid breaks new turf
Israel raided three banks in the West Bank city of Ramallah this week and seized at least $6.7 million.
By Ilene R. Prusher and Ben Lynfield
JERUSALEM AND RAMALLAH - Israel sees it as an audacious and definitive blow to the financial base of terrorism. But Palestinians view the army's unprecedented raid on Ramallah banks as a targeting of their economy as a whole.
The fallout from the raids, which ended at 2 a.m. Thursday, was being gauged by the Palestinian financial sector. Bankers were hoping the army's seizure of 30 million shekels ($6.7 million) in assets would not touch off a run of withdrawals from customers fearing for the safety of their money.
"Now no institution is safe," said Omar Abdel-Razeq, senior research fellow at the Palestine Economic Policy Research Institute. Its offices near the raided Cairo Amman Bank were converted into a military post during the raids. Israeli troops also raided the Palestine International Bank and the Arab Bank, forcing employees to operate computer systems and hand over money from the vaults, employees said.
The soldiers seized assets Israel said were being used to sponsor attacks by Hamas, the Islamic Jihad, the Lebanese Hizbullah organization, and other groups. "The benefits of this will hopefully be understood over the long term. This is a blow to them because the terrorists who use these banks accounts will be more careful. You create obstacles for these terrorists," said army spokesman Capt. Jacob Dallal. "It took a lot of intelligence to identify the accounts of people who are terrorists" or who support terrorism, he said.
But the US State Department criticized the raids, saying Israeli actions "risk destabilizing the Palestinian banking system."
"We would prefer to see Israeli coordination with the Palestinian financial authorities to stem the flow of funds to terrorist groups," department spokesman Richard Boucher said. Israel says the seized money is to be spent on charity for the well-being of the Palestinian population.
Palestinian Authority leaders dispute that the funds seized were used for terrorism. "Israel will use any excuse to destroy the Palestinian economy," says Local Government Minister Jamal Shobaki. "The economy is the pillar of stability and this harms the very stability of Palestinian society." He termed the raids "armed robbery."
Mr. Abdel-Razeq predicts that the effects of the seizures "could be drastic. It all comes down to public confidence now. The stability of the banking system is very important to Palestinian investors both outside the country and locally. This will certainly add to the difficulties of the investment environment," he said.
Eighteen Palestinians were injured by gunfire in clashes that erupted as troops entered Ramallah Wednesday morning. But the operation actually began before dawn, when the Arab Bank's director of information technology, Ahmed Abu Ghosh, was arrested at his home, according to Ahmed-Samah Abu Rajai Aweidah, a vice president. Soldiers later forced him to come to the bank and give them access to the computer system, Aweidah said.
Twenty-five soldiers with guns took over the Arab Bank's al-Bireh branch, an employee recalled. Its regional headquarters was also taken over by troops. At 10:20 a.m., Mr. Aweidah said, "I was sitting with a customer. I saw an Israeli soldier pointing an M-16 in my face and asking me to put my hands up. We and the customers were held up at gunpoint. Some of the soldiers spoke fluent Arabic, and they ordered us to go into the corridor. Once they made sure all of the offices were empty, they split us into two groups, males on one side and females on the other."
"At 12:30, they let the women go out. They checked the IDs of all the men and let all the male employees leave by 2:30. As senior management, we agreed with the soldiers that we would stay. By threat of force their hackers went through the system. They forced us to print out the balances for the accounts. They forced us to open the safe. They had dynamite ready to blow it open if we didn't. Our teller went in and counted the money and gave it to the soldiers. The soldiers gave us a receipt and took the money out of the bank."
Captain Dallal responded: "Obviously we needed the assistance of some bank employees to locate the whereabouts of the accounts. That's true. There was no abuse of the people."
Zeev Schiff, military-affairs analyst for Ha'aretz newspaper, said: "Maybe people will be hurt by this and we have to compensate them. But we have to be tougher on the families of suicide bombers and take money from them as well."