Wednesday, March 31, 2010

NASA Prepares 'Global Hawk' for Takeoff



NASA is gearing up Global Hawk, a remote-controlled airplane, for its first scientific flights in coming weeks. With its capacity for long-distance, high-altitude flights that can last over a day, Global Hawk presents a new chapter in Earth science for NASA.

"It's a very exciting time," said Chris Naftel, project manager for Global Hawk. "This is the very first time that Global Hawk will be used for science."

Northrop Grumman originally manufactured the two Global Hawks now being retrofitted by NASA several years ago. These remote-controlled airplanes can fly for about 30 hours at altitudes up to 65,000 feet and were designed initially as surveillance aircraft.

The maiden voyage over the Pacific Ocean will be followed by several other jaunts into the Arctic regions to learn more about Earth's atmosphere. One day, Global Hawks might provide real-time data from the heart of hurricanes and other major storms that are far too dangerous to risk sending in manned aircraft.

Loading the payload

Over the last couple of weeks, engineers, scientists, and aviation technicians at the Dryden Flight Research Center at Edwards Air Base in California have been mounting equipment-from high-definition cameras to ozone sensors-onto a Global Hawk.

The craft measures 44 feet (13 meters) in length with a wingspan of 116 feet (35 meters). NASA expects to operate the Global Hawk with payloads up to 2,000 pounds (907 kilograms).

The long wings carry the plane's fuel, and the bulbous nose is one of the craft's payload bays, which house the science instruments.

After a full test run with a dozen scientific instruments later this week or early next week, the first science flight will commence by mid-April, Naftel said.

The science run will be the first of four or five as part of the Global Hawk Pacific campaign, or GloPac for short. The robotic aircraft's instruments will sample the chemical composition of air in Earth's lower atmospheric layers as well as observe clouds and the sea below.

The primary purpose of the GloPac mission will be to check the accuracy of NASA's Aura satellite, which measures ozone, air quality, and climate data. The Global Hawk will fly underneath the orbiting satellite and collect data simultaneously to see if its data matches that of the satellite.

The sky is the limit

Another major goal of the early runs will be to figure out just what else is possible with the Global Hawk. "We want to know, 'how do you use this platform for research?'" Naftel said.

The ideas may come from beyond NASA: Dryden will soon have live feeds from the Global Hawk, including high-definition ocean snapshots that "should be really fascinating for the public to see," Naftel added.

Tuesday, March 30, 2010

Scientists in Europe trying the Big Bang today



The world's largest atom smasher has started a new era of science on Tuesday.

Problems delayed scientists seeking to collide the first beams of protons to learn more about the makeup of the universe and its smallest particles.

Dubbed the world's largest scientific experiment, the $10 billion Large Hadron Collider holds the promise of revealing details about theoretical particles and microforces, scientists say.

Tuesday's initial attempts were unsuccessful, however, because problems developed with the beams, said scientists working on the massive machine. That meant that the protons had to be "dumped" from the collider and new beams had to be injected.

"It's a very complicated machine and we have ups and downs," said Michael Barnett of Lawrence Berkeley National Laboratory. "Right now we have a down."

Two beams of protons began 10 days ago to speed at high energy in opposite directions around the 27-kilometer (17-mile) tunnel under the Swiss-French border at Geneva.

The beams were pushed to 3.5 trillion electron volts in recent days, the highest energy achieved by any physics accelerator -- some three times greater than the previous record.

The European Organization for Nuclear Research, or CERN, is now trying to use the powerful superconducting magnets to force the two beams to cross, creating collisions and showers of particles. They could have been successful immediately, but such huge machines can be so tricky to run that it could take days.

When collisions become routine, the beams will be packed with hundreds of billions of protons, but the particles are so tiny that few will collide at each crossing.

Steve Myers, CERN's director for accelerators and technology, describes the challenge of lining up the beams as being akin to "firing needles across the Atlantic and getting them to collide half way."

He said the problems Tuesday started with a power supply that tripped and had to be reset. The second time, the system designed to protect the machine shut it down. That was likely to have been a misreading by the system rather than any basic problem, said Barnett.

The collisions will come over the objections of some people who fear they could eventually imperil the Earth by creating micro black holes -- subatomic versions of collapsed stars whose gravity is so strong they can suck in planets and other stars.

CERN and many scientists dismiss any threat to Earth or people on it, saying that any such holes would be so weak that they would vanish almost instantly without causing any damage.

The Large Hadron Collider was launched with great fanfare on Sept. 10, 2008, but it was sidetracked nine days later when a badly soldered electrical splice overheated, causing extensive damage to the massive magnets and other parts of the collider some 300 feet (100 meters) below the ground.

It cost $40 million to repair and improve the machine so that it could be used again at the end of November. Since then the collider has performed almost flawlessly, giving scientists valuable data in the four-week run before Christmas. It soon eclipsed the next largest accelerator -- the Tevatron at Fermilab near Chicago.

The extra energy in Geneva is expected to reveal even more about the unanswered questions of particle physics, such as the existence of antimatter and the search for the Higgs boson, a hypothetical particle that scientists theorize gives mass to other particles and thus to other objects and creatures in the universe.

Scientists hope also to approach on a tiny scale what happened in the first split seconds after the Big Bang, which they theorize was the creation of the universe some 14 billion years ago.

Rolf-Dieter Heuer, the director-general of CERN, has said it is likely to take months before any scientific discoveries are made, partly because computers will have to sort through massive amounts of data produced by the collisions.

Heuer said researchers hope by the end of this year to make discoveries into the dark matter that scientists believe comprises 26 percent of the universe. The better understood visible matter makes up only 4 percent of the universe.

Dark matter has been theorized by scientists to account for missing mass and bent light in faraway galaxies. Scientists believe it makes galaxies spin faster.

A separate entity called "dark energy," making up the remaining 70 percent of the universe, is believed linked to the vacuum that is evenly distributed in space and time. It is believed to accelerate the expansion of the universe.

Other possible candidates for discovery are hidden dimensions of space and time.

Physicists have used smaller colliders for decades to study the atom. They once thought protons and neutrons were the smallest components of the atom's nucleus, but the colliders showed that they are made of quarks and gluons and that there are other forces and particles.

Big Bang experiment successful



It's being called a new beginning for our understanding of the universe and particle physics. After lengthy delays the multi-billion dollar scientific experiment to smash protons moving at near light-speed has been successful. (Read: What the Big Bang experiment part 2 is)

The experiment has taken place inside the world's largest and most powerful particle accelerator near Geneva belonging to the European Organisation for Nuclear Research (CERN). Inside the accelerator, two beams of particles travel at close to the speed of light with very high energies before colliding with one another.

Big Bang Experiment: Possible Outcomes:
  • Researchers to sift through sub-atomic debris of proton collisions
  • Could lead to discovery of the Higgs boson (God particle)
  • New discoveries about the laws of physics expected
  • Scientists hope to make discoveries into mysterious dark matter
  • Scientists: Dark matter makes galaxies spin faster
Hunt For 'God Particle':
  • The hypothetical Higgs boson also called as the 'God particle'
  • Believed to have existed when the universe was born
  • Discovery would help explain origin of mass in universe
  • Scientists: Higgs is particle(s) that might give others mass
  • Evidence to prove Higgs exists still inconclusive
Goal:
  • To mimic conditions moments after the Big Bang
  • To examine nature of matter and the origin of stars, planets
  • Ultimate aim to find Higgs boson, the so-called 'God particle'
How:
  • By colliding protons moving at 99.999999% of the speed of light into each other
  • Proton beams are collided in a particle accelerator called Large Hadron Collider
Large Hadron Collider:
  • World's biggest, most powerful particle accelerator
  • Consists of a 27-km ring of superconducting magnets
  • Operates at Swiss-French border at a depth of 100 metres
The experiment was delayed because of a problem detected in the huge underground particle accelerator.

The $10 billion Large Hadron Collider directed the beams into each other Tuesday as part of its ambitious bid to reveal details about theoretical particles and microforces.

The collisions herald a new era for researchers working on the machine in a 17-mile (27-kilometer) tunnel below the Swiss-French border at Geneva.

"That's it! They've had a collision," said Oliver Buchmueller from Imperial College in London as people closely watched monitors.

In a control room, scientists erupted with applause when the first successful collisions were confirmed. Their colleagues from around the world were tuning in by remote links to witness the new record, which surpasses the 2.36 TeV CERN recorded last year.

Dubbed the world's largest scientific experiment, scientists hope the machine can approach on a tiny scale what happened in the first split seconds after the Big Bang, which they theorize was the creation of the universe some 14 billion years ago.

The extra energy in Geneva is expected to reveal even more about the unanswered questions of particle physics, such as the existence of antimatter and the search for the Higgs boson, a hypothetical particle that scientists theorize gives mass to other particles and thus to other objects and creatures in the universe.

Tuesday's initial attempts at collisions were unsuccessful because problems developed with the beams, said scientists working on the massive machine. That meant that the protons had to be "dumped" from the collider and new beams had to be injected.

The atmosphere at CERN was tense considering the collider's launch with great fanfare on September 10, 2008. Nine days later, the project was sidetracked when a badly soldered electrical splice overheated, causing extensive damage to the massive magnets and other parts of the collider some 300 feet (100 meters) below the ground.

It cost $40 million to repair and improve the machine. Since its restart in November 2009, the collider has performed almost flawlessly and given scientists valuable data. It quickly eclipsed the next largest accelerator -- the Tevatron at Fermilab near Chicago.

Two beams of protons began 10 days ago to speed at high energy in opposite directions around the tunnel, the coldest place in the universe, at a couple of degrees above absolute zero. CERN used powerful superconducting magnets to force the two beams to cross, creating collisions and showers of particles.

"Experiments are collecting their first physics data -- historic moment here!" a scientist tweeted on CERN's official Twitter account.

"Nature does it all the time with cosmic rays (and with higher energy) but this is the first time this is done in Laboratory!" said another tweet.

When collisions become routine, the beams will be packed with hundreds of billions of protons, but the particles are so tiny that few will collide at each crossing.

The experiments will come over the objections of some people who fear they could eventually imperil Earth by creating micro black holes -- subatomic versions of collapsed stars whose gravity is so strong they can suck in planets and other stars.

CERN and many scientists dismiss any threat to Earth or people on it, saying that any such holes would be so weak that they would vanish almost instantly without causing any damage.

Bivek Sharma, a professor at the University of California at San Diego, said the images of the first crashed proton beams were beautiful.

"It's taken us 25 years to build," he said. "This is what it's for. Finally the baby is delivered. Now it has to grow." (With AP inputs)

What the Big Bang experiment part 2 is



It's being called a new beginning for our understanding of the universe and particle physics. After lengthy delays, the multi-billion dollar scientific experiment to smash protons moving at near light-speed has been successful.

The experiment has taken place inside the world's largest and most powerful particle accelerator near Geneva belonging to the the European Organisation for Nuclear Research. Inside the accelerator, two beams of particles travel at close to the speed of light with very high energies before colliding with one another.

  • Physicists will use the Large Hadron Collider to recreate the conditions just after the Big Bang, by colliding the two beams head-on at very high energy.
  • Analysis of data could lead to the discovery of the Higgs Boson, also called the 'God particle,' which is believed to have existed when the universe was born
  • Scientists hope to make discoveries into mysterious dark matter that they believe comprises a quarter of the whole universe. The better understood visible universe makes up only five per cent of the universe.
  • Scientists says dark matter has been theorised by scientists to account for missing mass and bent light in faraway galaxies. Some say that it makes galaxies spin faster.

Monday, March 29, 2010

Playgrounds of the Ultra-Rich




Stressful times typically call for big vacations, but the tough economic climate has forced some families to find enjoyment closer to home this year. The same isn't true for the world's billionaires. Although some have seen their net worth shrink, many continue to visit their personal getaways to escape from their high-profile lives.
The location of these luxury destinations is a matter of personal taste.
In Depth: Billionaire Playgrounds 2010
Oprah
Antigua
Talk about luxury. Oprah has both a 60-acre Maui getaway and a 42-acre estate in Montecito, Calif., that she calls "Promised Land." Yet when she wants crystal-clear Caribbean water and perfect palm trees, she returns to her playground on Antigua, where Eric Clapton and Giorgio Armani are among her famous neighbors. Much like George Clooney's villa on Lake Como, Oprah's vacation home is featured in many of the boat tours that run along the beautiful coastline.


Bill Gates
West Greenland
Since officially retiring from Microsoft in June 2008, Bill Gates has often traveled for work dedicated to the nonprofit Bill & Melinda Gates Foundation. When he needs a break from the African heat — where the foundation does most of its work — he's been known to hop in a helicopter to Apussuit Adventure Camp, a remote skiing resort 15 miles outside Maniitsoq, West Greenland. This resort has no ski lifts and, more importantly, no other people.


Ty Warner
Ty Warner Penthouse at the Four Seasons New York
Ty Warner earned his fortune as the founder and sole owner of Ty Inc., manufacturer of Beanie Babies. With this money, he purchased several of the world's favorite resort playgrounds, including San Ysidro Ranch in Montecito and Las Ventanas al Paraiso Resort in San Jose del Cabo, Mexico. He also owns the Four Seasons New York, where a 4,300-square-foot namesake penthouse suite offers a 25-foot ceiling, a 360-degree view of Manhattan and virtually every amenity known to hoteliers


Paul Allen
Octopus
Annual operating costs for a mega-yacht are said to run 10 percent of the ship's initial cost. For Paul Allen's 416-foot yacht Octopus, that's $20 million. At least the Microsoft cofounder gets his money's worth. This floating five-star hotel features a pool, a basketball court, a movie theater, two helicopters, a 10-person submarine, a jet-ski dock and a 60-person crew.


Richard Branson
Necker Island

This 74-acre private getaway near St. Thomas is owned by the Virgin billionaire. Surrounded by turquoise waters, the island is home to 101 flamingos and houses both a watersports crew that teaches guests how to kitesurf, snorkel and kayak and a personal chef. Most visitors to this exclusive paradise rent out the entire island, which can accommodate parties of up to 28 guests, and famous patrons have included Jay-Z, Mariah Carey and Oprah.

Bears Are Dead Wrong: S&P Will Reach 1,300 by Year's End, Altucher Says


As the market continues its climb of 70 percent-plus off the lows, and the gap widens between the housing and stock markets, the bears are convinced of a downturn -- any day now. But our guest James Altucher, managing partner of Formula Capital, disagrees.
"The bears have been consistently wrong throughout this whole rally," Altucher tells Aaron in the accompanying clip. "If you followed the bears' advice at the bottom you'd be dead broke right now." For full disclosure, Altucher did not call the market crash in 2008. "Better to be consistently bullish than consistently bearish."
Altucher points to the common arguments the bears make -- and why they're wrong:
Lots of homes are in foreclosure or under water: That's true but there are bright spots in housing data including the Case-Shiller reports, Altucher notes. That housing index has been up the past six months, suggesting prices are stabilizing, he adds.
All the growth we're seeing is just inventory rebuild. Businesses cleared their inventory in anticipation of the 2010 Great Depression that never happened. Now businesses are scrambling to restock, spurring growth in the economy that's likely to last for one to two years at least. "People are going to be surprised how fast and furious this inventory rebuild is going to happen," Altucher says.
Unemployment is 9.7%.Yes but other jobs data show a rise in part-time hours, hourly pay, hours per week, and number of temporary workers. And these are all precursors to gains in fulltime jobs, Altucher explains.
"Before this is fully over we're going to see new all-time highs again. And I do think that we're going to see 1,300 by the end of the year on the S&P," Altucher says.

Sunday, March 21, 2010

Town uses geothermal energy to stay warm


KLAMATH FALLS, Ore. – When snow falls on this downtown of brick buildings and glass storefronts in southern Oregon, it piles up everywhere but the sidewalks. It's the first sign that this timber and ranching town is like few others.

A combination of hot rocks and water like those that created Yellowstone's geysers have been tapped by the city to keep the sidewalks toasty since the early 1990s. They also heat downtown buildings, kettles at a brewhouse, and greenhouses and keep the lights on at a college campus.

Geothermal wells in this town of 20,000 mark one of the nation's most ambitious uses of a green energy resource with a tiny carbon footprint, and could serve as a model for a still-fledgling industry that is gaining steam with $338 million in stimulus funds and more than 100 projects nationwide.

"We didn't know it was green. It just made sense," said City Manager Jeff Ball.

Geothermal energy is unknown in much of the country but accounts for 0.5 percent of the nation's energy production.

It can be seen on a snowy day in a handful of Western towns like Klamath Falls. That's because hot rock is closer to the surface here, and comes with the water needed to bring the energy to the surface. Northern California is home to the world's largest geothermal power complex. The Geysers, 75 miles north of San Francisco, produces enough electricity for 750,000 homes.

With more than 600 geothermal wells heating houses, schools and a hospital as well as turning the turbine on a small power plant, Klamath Falls shows what everyday life could be if stimulus grants and venture capitalists turn geothermal energy from a Western curiosity to a game-changing energy resource.

Until now, geothermal energy has been limited by having to find the three essentials ingredients occurring together in one place naturally: hot rock relatively close to the surface, water, and cracks in the rock that serve as a reservoir.

Those limitations go away if engineers can tame a technology known as EGS, for Enhanced Geothermal Systems.

A 2007 Massachusetts Institute of Technology report estimates that EGS, with support, could be producing 100 gigawatts of electricity — equivalent to 1,000 coal-fired or nuclear power plants — by 2050, and has the potential to generate a large fraction of the nation's energy needs for centuries to come.

"If we are going to try to achieve a transformational change in this country, geothermal should be part of that recipe," said Jefferson Tester, chairman of the committee that produced the report and professor of sustainable energy at Cornell University. "It's not treated that way. It's typically forgotten."

One form of EGS involves drilling thousands of feet down to reach hot rock, pumping water down to fracture the rock to create reservoirs, then sending down water that will come back up another well as hot water or steam that can spin a turbine to generate electricity.

The system can be dropped in practically anywhere that hot rocks are close enough to the surface to make drilling economical.

The major problem with EGS is the potential to create earthquakes.

Pumping water into the ground to open numerous tiny fractures in the rock for a reservoir makes the earth move — what scientists call induced seismicity. Earthquakes stopped an EGS project in the middle of Basel, Switzerland, last year, and an international protocol has been developed for monitoring and mitigating earthquake problems.

As long as the wells are not close to major earthquake faults, "it is not damaging, but very upsetting to the community that lives literally on top of it," said Ernie Majer, a seismologist at Lawrence Berkeley National Laboratory in California, and lead author on the protocol.

Federal funding for geothermal started during the 1970s Arab oil embargo, waned when oil prices subsided, and essentially stopped when Texas oilman George W. Bush entered the White House, Majer said.

With interest growing in energy with a tiny carbon footprint, the Obama administration revived support for geothermal energy. Besides handing out more than $40 million a year from the Department of Energy, it is funding 123 demonstration projects in 38 states with stimulus funds. Projects include home heat pumps, power plants, drilling, rock fracturing, exploration and underground mapping.

"The goal of the department is to try to validate that a source of energy could be produced at an adequate price," said Jacques Beaudry-Losique, deputy assistant secretary for renewable energy. He expects results in two to three years.

The centerpiece is $25 million to AltaRock Energy, Inc., of Seattle and Sausalito, Calif., to demonstrate EGS can produce electricity economically and without producing earthquakes just outside the Newberry Craters National Monument in central Oregon. Investors, Google among them, put in $60 million.

Earthquake concerns were mounting around AltaRock's EGS work at The Geysers when they shut it down over drilling problems, before getting to the point of trying to fracture rocks, AltaRock CEO Don O'Shei said. They are developing a system to monitor quakes at Newberry.

"If EGS becomes economical, it will really be a game-changer," O'Shei said. "Even though it is relatively high risk in terms of the money to develop that kind of technology under the ground ($6 million to $20 million for a well that could prove worthless), it is very important."

People in Klamath Falls don't have to be convinced.

IFA Nurseries, Inc., wouldn't have come to Klamath Falls if there wasn't geothermal energy. The geothermal heat cut greenhouse heating costs by a third compared to natural gas, said Jacqueline Friedman, nursery manager for IFA Nurseries.

The city is stepping beyond heat to electricity, building a geothermal generator like the one at Oregon Institute of Technology with the help of an $816,000 stimulus grant.

Stepping gingerly from the icy street to the dry sidewalk on his way to a bakery for a cinnamon roll, Klamath County Museum Manager said visitors are often curious about the geothermal energy in town, which also heats the museum.

"I've always said the city should adopt a slogan, `City of Warm Sidewalks,'" he joked. "But I've been told we'll get every hobo in America who will be drifting into town."

$1 Million Doesn't Cut It for Retirement


Conventional wisdom says you need to save $1 million for retirement.

That target may be easy to remember, but it falls short of the true cost of what's required for post-career comfort. Longer life spans, the threat of inflation and the uncertain future of Social Security benefits make this long-touted savings advice inadequate for most, advisers say.

Scottrade recently polled 226 registered investment advisers on the topic and found that 71% don't believe $1 million is enough for the average American family. Most said families need to save double, or more than triple, the amount.

"Younger generations, especially, need to set their retirement goals higher than other generations and start saving as early as possible," says Craig Hogan, Scottrade's director of customer-relationship management and reporting.

The survey solicited opinions about the current investment habits of Americans. Questions were broken down by generations to determine advisers' opinions on average investment goals in today's dollars for various groups.

Generation Y (ages 18 to 26) needs to save at least $2 million, according to 77% of advisers. Forty percent put the figure at $3 million.

Nearly half of advisers (46%) said Generation X (ages 27 to 42) should at least double the $1 million goal. Twenty-two percent suggested more than $3 million.

For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million. Thirty percent suggested $1.5 million to $2 million.

According to Scottrade's analysis, seniors are the only generation that may come close to needing only $1 million. Forty-four percent of advisers said $500,000 to $1.5 million is sufficient for average families in that age bracket.

Bill Smith, president of Ohio-based Great Lakes Retirement Group, is among the advisers who took part in the survey. As he sees it, too many people rely on online retirement calculators. Much of that guidance uses a target based on making do with 70% to 80% of pre-retirement income.

"I've never been a big fan of planning to earn less in retirement than you are making now," he says. "I'd like to see an individual continue making the same amount of retirement as when he was working. Who wants to set themselves up in retirement to make less?"

While most people will spend less when they retire, inflation or the onset of a long-term illness could wipe out savings without proper protection or planning.

That said, there's no secret to meeting a retirement goal: maximize your contribution rate, have a greater tolerance for risk when you're younger and downshift to bonds as you grow older. Successful preparation, however, begins with setting a realistic goal and understanding your true financial picture.

Debt needs to be carefully considered as well as leaving money for the kids.

"There are two extremes," Smith says. "There are individuals who say, 'We don't care if we have anything left the day we die -- we are OK with that last check bouncing when we are gone.' Then there are the individuals who don't do anything in retirement because all of their decisions are made around, 'I've got to leave it for the kids.' "

Monday, March 15, 2010

What Happens If Greece Really Defaults?


Earlier this week, Greek Prime Minister George Papandreou traveled to the United States to promote a message: We're in this together. The debt crisis that has threatened the Greek economy and the stability of the European Union's monetary policies "very much involves America's interests," Papandreou stated in a speech at the Brookings Institution in Washington.
The prime minister--who was born in St. Paul, Minn.--even connected the current crisis to the Great Depression as well as the Great Recession. "If the European crisis metastasizes, it could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago," he said.
But the path from a Greek crisis to a U.S. crisis is not a direct one. The European Union is hoping it can contain Greece's debt crisis before the problems spread across the continent--threatening the stability of all countries that use the euro, or the euro zone--and then over the Atlantic.
The crisis began shortly after the election last fall of the new socialist government led by Papandreou. State officials revealed that Greece's budget deficit was at 14 percent of GDP--almost twice what the official Greek government statistics had reported. Two months later, Moody's downgraded Greece's debt to A2, raising the possibility of Greece defaulting on its debt.
If Greece defaults, "it risks exacerbating the economic downturns and could even reignite an acute financial crisis" through higher interest rates, Marc Chandler, global head of currency strategy at investment firm Brown Brothers Harriman, wrote in a report.
A Greek default would hit Americans hard in one major area: exports. According to the Economic Report of the President by the White House's Council of Economic Advisers, in order to "fill the gaps left in demand" by the recession, "net exports need to rise." President Obama announced in his State of the Union address a goal of doubling exports over the next five years. That goal might be hard to reach if Greece's debt crisis is not contained. "Under the scenario where things get much worse in Europe, the dollar would get strengthened relative to the euro, and that would create a policy headache for the Obama administration," says Steve Hanke, an economist at Johns Hopkins University. A stronger dollar would make U.S. exports more expensive. In addition, as interest rates in Europe soar and the euro falls in value in response to the credit crunch, Europeans would be unable to buy as many U.S. products.
The likelihood of that scenario depends partially on what the European Union decides to do about Greece. In reaction to this panic in Greece, much of the rest of Europe became frustrated over Greece's ability to hurt the rest of the continent economically but with little accountability owing to the fact that Greece is an independent state. Because Greece uses the euro, its fiscal problems can weaken the currency and lead to higher interest rates for all Europeans. A February poll found that a majority of Germans want Greece out of the euro zone.
Greek officials have received reassuring signs from Europe's leaders that the European Union will bail out the country in some way to assure creditors that it will not default on its debt. Jose Manuel Barroso, president of the European Commission, also announced this week that whatever mechanisms the EU uses to help Greece will be in line with the laws of the EU--assuaging fears that a bailout would violate the Maastricht Treaty, the agreement that created the euro.
But it is not guaranteed that bailing out Greece will save it and, by extension, the euro zone. Hanke worries that even with a bailout, wealthy Greeks and foreign investors will not stop withdrawing their money from Greek banks, from which they have already pulled out billions of euros. In order to get the rest of Europe's support for a bailout, Greece has had to promise to fill in its budget with more tax revenue. But paradoxically, those taxes might cause even more people to flee the Greek financial system, says Hanke. "In effect, with bank runs coupled with capital flights, you would get a collapse in credit in Greece," he says.
Such a collapse would have two major potential effects. First, a credit crunch would spread to other European countries that have vulnerable economies. For example, "if you had a lot of capital flight out of Greece, all of a sudden people in Spain say, 'We're going to be next,' " says Hanke.
Second, the credit crunch would increase the likelihood of Greece defaulting on its debt. In such a scenario, Greece could temporarily leave the euro zone and return to its former currency, the drachma, which would be heavily devalued against the euro.
There are still several signs that Greece can use the market to navigate out of the crisis without a default. Last week, Athens sold 10 billion euros of 10-year sovereign bonds to foreign investors. But an amount of 23 billion euros is needed to meet government obligations through May. And Greece has only begun to implement changes to its budget that will bring it out of a fiscal hole. Earlier this month, the government announced a plan of cuts to wages of government employees, tax hikes on tobacco and alcohol, and other measures expected to raise 4.8 billion euros. But these steps will reduce Greece's budget deficit by only 2 percent of GDP. It now stands at 12.7 percent of GDP, well above the European Union's target of 3 percent. Even the changes so far have not been easy politically. Several of the country's labor unions are striking in protest of the spending cuts and tax increases.
Perhaps, however, Greece can breathe its biggest sigh of relief over the fact that the international investors who recoiled in horror over the country's fiscal problems just a few months ago appear now to be softening their stance. Investors trade credit-default swaps on Greek sovereign debts, which are contracts that function as a kind of insurance on the chance the government will default. According to credit-default-swap prices from financial information company Markit, the annual cost to insure a five-year government bond for Greece hit a high of $425,000 on February 4. That was a 67 percent increase from the previous three months. But as of March 9, the cost had fallen to $289,000, down to the levels of December.

Sunday, March 14, 2010

Social Security to start cashing Uncle Sam's IOUs


PARKERSBURG, W.Va. – The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.
It's time to start cashing them in.
For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.
Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.
Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.
Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.
Social Security's shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program's finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there's concern that the looming crisis will lead to reduced benefits.
"This is not just a wake-up call, this is it. We're here," said Mary Johnson, a policy analyst with The Senior Citizens League, an advocacy group. "We are not going to be able to put it off any more."
For more than two decades, regardless of which political party was in power, Congress has been accused of raiding the Social Security trust funds to pay for other programs, masking the size of the budget deficit.
Remember Al Gore's "lockbox," the one he was going to use to protect Social Security? The former vice president talked about it so much during the 2000 presidential campaign that he was parodied on "Saturday Night Live."
Gore lost the election and never got his lockbox. But to illustrate the government's commitment to repaying Social Security, the Treasury Department has been issuing special bonds that earn interest for the retirement program. The bonds are unique because they are actually printed on paper, while other government bonds exist only in electronic form.
They are stored in a three-ring binder, locked in the bottom drawer of a white metal filing cabinet in the Parkersburg offices of Bureau of Public Debt. The agency, which is part of the Treasury Department, opened offices in Parkersburg in the 1950s as part of a plan to locate important government functions away from Washington, D.C., in case of an attack during the Cold War.
One bond is worth a little more than $15.1 billion and another is valued at just under $10.7 billion. In all, the agency has about $2.5 trillion in bonds, all backed by the full faith and credit of the U.S. government. But don't bother trying to steal them; they're nonnegotiable, which means they are worthless on the open market.
More than 52 million people receive old age or disability benefits from Social Security. The average benefit for retirees is a little under $1,200 a month. Disabled workers get an average of $1,100 a month.
Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers' earnings up to $106,800. Retirees can start getting early, reduced benefits at age 62. They get full benefits if they wait until they turn 66. Those born after 1960 will have to wait until they turn 67.
Social Security's financial problems have been looming for years as the nation's 78 million baby boomers approached retirement age. The oldest are already there. As that huge group of people starts collecting benefits — and stops paying payroll taxes — Social Security's trust funds will shrink, running out of money by 2037, according to the latest projection from the trustees who oversee the program.
The recession is making things worse, at least in the short term. Tax receipts are down from the loss of more than 8 million jobs, and applications for early retirement benefits have spiked from older workers who were laid off and forced to retire.
Stephen C. Goss, chief actuary for the Social Security Administration, says the crisis has been years in the making. "If this helps get people to look more seriously at that in the nearer term, that's probably a good thing. But it's only really a punctuation mark on the fact that we have longer-term financial issues that need to be addressed."
In the short term, the nonpartisan Congressional Budget Office projects that Social Security will continue to pay out more in benefits than it collects in taxes for the next three years. It is projected to post small surpluses of $6 billion each in 2014 and 2015, before returning to indefinite deficits in 2016.
For the budget year that ends in September, Social Security is projected to collect $677 million in taxes and spend $706 million on benefits and expenses.
Social Security will also collect about $120 billion in interest on the trust funds, according to the CBO projections, meaning its overall balance sheet will continue to grow. The interest, however, is paid by the government, adding even more to the budget deficit.
While Congress must shore up the program, action is unlikely this year, said Rep. Earl Pomeroy, D-N.D., who just took over last week as chairman of the House subcommittee that oversees Social Security.
"The issues required to address the long-term solvency needs of Social Security can be done in a careful, thoughtful and orderly way and they don't need to be done in the next few months," Pomeroy said.
The national debt — the amount of money the government owes its creditors — is about $12.5 trillion, or nearly $42,000 for every man, woman and child in the country. About $8 trillion has been borrowed in public debt markets, much of it from foreign creditors. The rest came from various government trust funds, including retirement funds for civil servants and the military. About $2.5 trillion is owed to Social Security.
Good luck to the politician who reneges on that debt, said Barbara Kennelly, a former Democratic congresswoman from Connecticut who is now president of the National Committee to Preserve Social Security and Medicare.
"Those bonds are protected by the full faith and credit of the United States of America," Kennelly said. "They're as solid as what we owe China and Japan."

Thursday, March 11, 2010

Greece's crisis could presage America's



WASHINGTON – Greece is a financial basket case, begging for international help. Is America heading down that same road?
Many of the same risky financial practices that now imperil the Greeks were at the center of the all-too-recent U.S. meltdown.
As with Greece, America's national debt has been growing by leaps and bounds over the past decade, to the point where it threatens to swamp overall economic output. And in the U.S., as in Greece, a large portion of that debt is owed to foreign investors.
Not good, if these debt holders begin to wonder if they'll be paid back. A foreign flight from U.S. Treasury securities could sow financial chaos in the United States, as happened when many investors lost faith in Greek bonds.
It's something that could affect all Americans. The U.S. has never defaulted on a debt, and even the hint of such a possibility could send interest rates soaring and choke off a fragile recovery.
How long can the United States remain the world's largest economy as well as the world's largest debtor?
"Not indefinitely," suggests former Federal Reserve Chairman Alan Greenspan. "History tells us that great powers when they've gotten into very significant fiscal problems have ceased to be great powers."
After all, Spain dominated the 16th century world, France the 17th century and Great Britain much of the 18th and 19th before the United States rose to supremacy in the 20th century.
"Unless we do things dramatically different, including strengthening our investments in research and education, the 21st century will belong to China and India," suggests Norman Augustine, the former CEO of Lockheed Martin who chaired a 2009 bipartisan commission studying the nation's top challenges.
The Greek government has taken stiff austerity steps in an effort to get a lifeline from the European Union, sparking strikes and violent demonstrations. Greek unions say a second nationwide strike in a week — planned for Thursday — will shut down government services, close schools and halt public transport and ground flights for 24 hours.
Some of the same risky strategies used by U.S. hedge funds and other professional investors in a failed effort to profit from subprime mortgages in this country — and which led to the 2008 financial near-collapse — are now being employed by those betting that Greece will default on its debt.
Greek Prime Minister George Papandreou, who met with President Barack Obama at the White House on Tuesday, is calling for "decisive and collective action" here and in Europe to crack down on such rampant speculation and unregulated bets. He is also seeking more favorable European interest rates for loans.
Speaking at the White House, Papandreou welcomed support from Obama and some European leaders for such efforts and for the austerity measures taken by his own government. He said it shows the "labor and sacrifices are not wasted. Of course, our struggle is not ended, it continues."
Many economists say it's a stretch to compare the U.S. economy, by far the world's largest, to Greece and other distressed small economies of southern Europe. They say many of Greece's problems are unique to that nation and aggravated by a monetary system that rigidly binds 16 nations to the same currency, the euro.
But others argue it may only be a matter of time before the U.S. faces a similar, and potentially graver, crisis.
"Someday it will happen if we don't get our act together on spending, our debt under control and our economy to grow faster," said Allen Sinai, chief global economist for New York-based Decision Economics Inc., which provides financial advice to corporations and governments.
With signs pointing to a weaker recovery than after other post-World War II recessions, U.S. consumer spending is likely to remain unimpressive and the jobless rate high for some time. Sinai said that suggests there won't be enough growth to push down federal deficits by much. "It's a political keg of dynamite," he said.
Greece's national debt now equals more than 100 percent of its gross domestic product, the broadest measure of economic activity. U.S. debt — now $12.5 trillion — is fast closing in on the same dubious milestone.
Nearly all of Greek's debt is held by foreign governments and investors. In the United States, roughly half is owned by global investors, with China holding the largest stake.
By contrast, Japan's debt is proportionately even bigger — about twice its GDP — but the impact is cushioned by the fact that most is held by Japanese households.
"The more open you are to the rest of the world, the more likely you're going to have a problem if you start running large deficits and large debt loads," said Mark Zandi, founder of Moody's Economy.com, and a frequent adviser to lawmakers of both parties.
Zandi does not see any major fallout from the Greek fiscal crisis in the United States for now, other than a possible temporary hit on potential European export markets.
However, he said, "global investors at some point are going to start demanding a higher interest rate. And that's our moment of truth. If we don't address it by cutting spending and raising taxes, some combination of the two, then we're going to have a problem."
Polls show growing public anger over deficits and government spending. The issue is a potent one for the upcoming midterm elections, and a particular liability for majority-party Democrats.
Calls have sounded from both sides of the political aisle for deficit reduction. And Obama last month set up a bipartisan deficit commission to find ways to get the country's budget deficit, now adding more than $1 trillion a year to the national debt, under control.
But the panel is a weak substitute for what Obama really wanted — a commission created by Congress that could force lawmakers to vote on remedies to reduce the debt.