Joblessness and housing add risks to U.S. recovery: IMF

A view of a home for sale in Los Angeles February 24, 2010.

Credit: Reuters/Mario Anzuoni

By David Lawder

WASHINGTON | Thu Jul 8, 2010 6:53pm EDT
 

WASHINGTON (Reuters) - High unemployment and a moribund housing market have increased risks to the U.S. economic recovery, while the public debt looms large and needs to be cut, the International Monetary Fund said on Thursday.

In a statement after annual consultations with U.S. authorities, the IMF raised its U.S. growth forecasts slightly to 3.3 percent for 2010 and 2.9 percent for 2011, but said unemployment would remain above 9 percent for both years.

The lofty jobless rate, coupled with a large backlog of home foreclosures and high levels of negative home equity, posed risks of a "double dip" in the housing market, it said. But the IMF said it did not think a renewed recession was likely.

"The outlook has improved in tandem with recovery, but remaining household and financial balance sheet weaknesses -- along with elevated unemployment -- are likely to continue to restrain private spending," the Fund said.

The IMF also said commercial real estate continued to deteriorate, posing risks for smaller banks. Further tipping the balance of risks to the downside, it said Europe's sovereign debt crisis could worsen financial market conditions and hurt trade.

David Robinson, the IMF's Western Hemisphere deputy director, conceded in a news briefing that recent data had come in on the weak side since the report was completed on June 21. If the weakness continued, the Fund may have to revise its forecasts downward, he said.

In a separate report on the world economy, the IMF raised its 2010 global growth forecast to 4.6 percent from the 4.2 percent it had projected in April.

DEBT BURDEN

Apart from dealing with economic risks, the IMF said the key challenge for the United States was to develop a credible strategy to put its budget on a sustainable path without jeopardizing the recovery.

The fund said U.S. federal debt as a percentage of gross domestic product would rise from 64 percent in 2010 to 80.4 percent by 2015, 96.3 percent by 2020 and 135 percent by 2030. These debt forecasts are higher than those of the Obama administration and the Congressional Budget Office, which projects debt-to-GDP at 77.4 percent in fiscal 2015, and 90 percent by 2020.

A U.S. Treasury official said the IMF's forecasts for future growth and interest rates were "overly pessimistic". The Fund, for example, predicted U.S. growth at 2.8 percent in 2012, compared to the Blue Chip consensus of private forecasters at 3.4 percent growth for that year.

But the IMF welcomed commitments by the Obama administration to stabilize this at just over 70 percent of GDP by 2015 but called for a downward path after that, a step that would require both spending cuts and increased revenues.

The IMF said the biggest contribution the United States could make to global growth and stability would be to increase its domestic savings -- particularly by reducing deficits.

"The U.S. is no longer going to be the global consumer of last resort and therefore other countries, especially those with current account surpluses, will need to take up the slack," Robinson said.

"With our assessment that the dollar is now somewhat overvalued from a medium-term perspective, I emphasize medium-term, this will also need to be accompanied by greater exchange rate flexibility and appreciation elsewhere," he added.

Robinson said he believed the dollar's value would decline moderately over the next five years based on economic fundamentals. The dollar's rise in recent months was "not helpful" in sustaining global recovery but was not a "deal breaker" either, he said.

The Fund said the Federal Reserve's pledge to keep interest rates exceptionally low was appropriate to fight deflation and the drag on the economy from reduced government spending, but said the U.S. central bank must clearly communicate its plans for exiting its supportive policies.

The IMF also said that while the United States has made considerable progress in restoring financial stability, more capital will be needed in the banking system to support additional lending -- particularly if securitization markets remain impaired.

It said U.S. financial reform legislation would reduce systemic risks in the financial system, but noted that Congress missed an opportunity to consolidate bank regulators, maintaining a burden on agencies to cooperate and avoid gaps in supervision.

(Additional reporting by Emily Kaiser, Tim Ahmann and Lesley Wroughton; Editing by Andrea Ricci)

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Krugman Says U.S. Economy Is Facing a ‘Long Siege’

Washington -- Nobel Prize-winning economist Paul Krugman said the U.S. should have a “kitchen-sink strategy” that uses all fiscal and monetary policies possible to prevent the economy from sliding back into a recession.

“We are looking at what could be a very long siege here,” Krugman said in an interview today in Princeton, New Jersey, with Carol Massar of Bloomberg Television’s “Street Smart.” “We really are at a stage where we should have a kitchen-sink strategy. We should be throwing everything we can get at this.”


At a time when European countries such as Germany are calling for austerity measures to rein in budget deficits, Krugman is calling for more stimulus to prevent a repeat in the U.S. of Japan’s decade of economic malaise in the 1990s.

“The most effective things you can do, in terms of actual bang for the buck, is actually having the federal government go out and hire people,” he said. “We are deep in the hole here, and you need to be unconventional to get out of it.”

He said too many policy makers and commentators are overly concerned that the ballooning U.S. deficit would set off a crisis of confidence similar to Europe’s sovereign debt crisis. Krugman said he’s concerned U.S. policy makers would be unable to agree to short-term stimulus for the economy along with long- term measures to curtail the deficit.

“I worry about the politics,” he said. “I worry about our ability to get a consensus to do the pretty straight-forward things we need to do to balance our budget in the long run.”

Long-Term Deficits

The projected U.S. budget gap in 10 years can be brought under control with a “combination of modest tax increases and reasonable spending cuts,” particularly on health care, Krugman said, adding it’s “extremely unlikely” the U.S. would ever default on its debt.

“I’m not aware of any example of a country that got into fiscal difficulty because it began a stimulus program and couldn’t take away the stimulus program,” he said. “If you’re serious about fiscal responsibility, you should not be saying, ‘let’s skimp on aid to the economy in the middle of a financial crisis.’”

Krugman forecast the economy will grow at about a 1 percent pace or slightly faster within six months, and that job growth would be less than the rate of growth of the population. He said in six months, the U.S. would be facing a “labor market that’s getting worse not better.”

Job Gains

The U.S. Labor Department reported last week that employment fell by 125,000 workers in June, the first jobs decline this year, because of layoffs of temporary census workers. Private companies added 83,000 people, a smaller-than- forecast gain that capped a month of data indicating weakness in industries from housing to manufacturing.

Other reports last month showed a plunge in home sales, a slump in consumer confidence, cooler manufacturing and less growth in the first quarter.

The lack of jobs will curtail consumer spending, which accounts for about 70 percent of the world’s largest economy, and restrain sales at retailers including Barnes & Noble Inc. The rebound from the worst recession since the 1930s faces risks from the European debt crisis and slower growth in China at the same time that fiscal stimulus measures fade.

“We are, I think, sliding into a situation where we’re likely to see several bad years ahead,” Krugman said. “Given what I see in the political process, the odds are against us avoiding a really prolonged bad period.”

By Bob Willis and Carol Massar
Bloomberg

Americans Adopt Chinese Web Habits

Paul DenlingerBio |

Paul Denlinger is an internet consultant specializing in the China market who is based in Hong Kong and Beijing.  

When it comes to revenue on the U.S. Internet, it has traditionally come from three sources:

• Display (banner) advertising;
• Search advertising, made popular through Google Adwords;
• E-commerce, with Amazon.com being the most outstanding success story;

The collapse of display advertising revenue for leading companies such as Yahoo!, which at their peak relied on large banner buys and campaigns from new Internet startups accounting for 1/3 - 1/2 of total income, was the single greatest cause of the popping of the Internet bubble in early 2000.
Lately though, something different has happened. These are:

• The rise of social game publishers, led by Zynga;
• The rise of group-buying, lead by Groupon;

In contrast to the U.S., online games have been popular in China since 2002 when Shanda Online Entertainment popularized the South Korean fantasy game title "Legend" in China. Almost single-handedly, that title made Shanda the single most successful IPO in 2004. Later, Shanda used its IPO cash to buy other studios and titles, becoming the single largest gaming network in the world.

A large reason for the success of online games in China was because consoles such as Nintendo's Wii, Sony's Playstation and Microsoft's xBox were never popular in China. A combination of high console prices, fear of game piracy on the part of publishers and government policy opened up an opportunity for online gaming.

In the U.S., Zynga has grown just as fast as Shanda, seemingly coming out of nowhere. Like Shanda, it is becoming a network too, leveraging the popularity of Farmville among many social game players. One could argue that Zynga is like Shanda, except it is starting from the U.S. market.


Groupon has leveraged the popularity of group buying, an activity which has long been popular in China since at least 2004. In China, group buying is called tuangou, and was an early popular use of the Internet for organizing. In China, the authorities have been wary of uses of the Internet which allow people to organize, but organizing for commercial purposes, such as group buying, are considered harmless, and thus are not obstructed. So effective was the tuangou movement that some retailers first sought to reject volume tuangou purchases of white goods and autos, but all eventually caved in, with some eventually setting up group purchasing departments to specially serve tuangou buyers. Now, they are a natural part of the Chinese retail landscape.

So, it is doubly ironic that Groupon's success in the U.S. has set off a flurry of Chinese startups who copy the Groupon model in China. It makes one wonder...

As gaming and group buying become more popular in the U.S., some trends to watch are:

• Will social gaming eat into the popularity of console game titles and their publishers' revenue?
• Will more game publishers move into social game publishing, seeking to duplicate Zynga's success?
• How popular will social gaming become on the Android and Apple iPhone mobile platforms?
• As social games take off, will display advertising revenues fall, maybe even to China levels? (In China, online game revenues have always been higher than display advertising revenue.)
• If social gaming becomes popular, will in-game advertising ever take off? (In-game advertising has been a promise for years, but has never taken off.)
• Will U.S. retailers embrace group buying groups the way Chinese retailers have embraced tuangou?
• Will e-commerce in China overtake U.S. e-commerce in five years, as PwC has predicted, and will China become the largest IPO market this year?

Tags: America, android, Apple, China, Gaming, Google, Groupon, Internet, Microsoft, Nintendo, PlayStation, shanda, Sony, U.S., Web, Wii, xBox, Zynga

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Tips for Seniors to Prevent Falls

This Week’s Question: I had an aging aunt who fell and broke her hip. She was never the same after that. Now that I’m old, myself, I’m worried about falling. What should I do about this?
 
Well, first of all, you can’t go around worrying about falling or you won’t be relaxed; that can lead to a fall. So, you should concentrate on employing techniques to avoid falls and then don’t let the fear take over you mind.

But a respect for the dangers of falling is justified by the statistics.

Among older adults, falls are the leading cause of injury deaths and the most common cause of nonfatal injuries and hospital admissions for trauma. Of all fall-related fractures, hip breaks cause the greatest number of deaths and lead to the most severe health problems and reduced quality of life.

As we age, the power of our senses, reflexes and coordination diminishes. Maladies and the medicines we take for them can contribute to balance problems. Then there's osteoporosis—a disease that makes bones more likely to snap.

There are many steps you can take to prevent a fall and the possibility of breaking a bone.  I’m dedicating the remainder of this column to the best tips I collected from a variety of experts:

* Get your bones tested. Your doctor can prescribe medications that will make your bones harder to break.

* Regular exercise makes you stronger and keeps your joints, tendons, and ligaments flexible. Weight-bearing exercise such as walking may slow bone loss from osteoporosis.

* Alcohol impacts your reflexes and balance. Elaboration is unnecessary.

* Get up slowly from lying and sitting to avoid feeling light-headed.

* Avoid temperature extremes in your home; they can make you dizzy.

* Wear rubber-soled, low-heeled shoes.

* Always hold the handrails on stairways.

* Don't stand on a chair to get to something. Buy a “reach stick,” a grabbing tool you can find at many hardware stores.

* Clear floors where you walk.

* Never carry any package that will obstruct your view of the next step.

* Mount grab bars near toilets, tubs and showers.

* Place non-skid mats, strips, or carpet on all surfaces that may get wet, especially bathtubs and shower stalls.

* Let the soap suds go down the drain before you move around in the shower. If you are prone to falling, use a shower chair and a handheld shower attachment.

* Put night lights and light switches close to your bed.

* Use bright bulbs in your home.

* Keep your telephone near your bed. During the day, keep a portable phone with you so you won’t have to walk to answer it.

* Tack down all carpets and area rugs.

* Close cabinet doors and drawers so you won't run into them.

* When it rains or snows, consider using a cane.

* Use a shoulder bag, fanny pack, or backpack to leave hands free.

* Check curb heights before stepping down.

* When entering rooms, look for differences in floor levels.

* Insure that every room in your home has a light switch near the entrance.

* Practice balancing. Hold onto something such as a countertop and stand on one leg at a time for a minute. Gradually increase the time. Try balancing with your eyes closed. Stand on your toes, then rock back to balance on your heels. Hold each position for a count of 10.

* Be especially careful around pets.

• 10 Things You Didn't Know About You 
• Do Men Get Osteoporosis?
• Can You Have Bones Like Wolverine's?

By Fred Cicetti, The Healthy Geezer,

The Healthy Geezer column publishes each Monday on LiveScience.
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Insurance Need to improve fraud detection standards

By DALJIT DHESI
daljit@thestar.com.my

Insurers must adopt international best practices and share data, information

KUALA LUMPUR: Insurance fraud will continue to be a threat unless fraud-detection standards are improved and the public are made more aware of this menace.

Deputy Home Minister Datuk Lee Chee Leong said insurers must continue to improve their standards in fraud detection by adopting international best practices and share data and information relating to fraud activities among insurers.

“The regulators and law enforcers have to continuously assess the effectiveness of the law as to whether they are adequate and can at least discourage people from committing insurance fraud.

“Strong cooperation has to be extended to other jurisdictions, too, especially Asean, as organised crime operates in multiple countries and locations. With concerted effort by all parties, I am confident that this activity can be successfully minimised,” he said in his speech at the International Insurance Fraud Conference 2010 yesterday.

Datuk Lee Chee Leong ... 

‘Insurance fraud pushes up the cost of everything one buys.’

 

Lee urged all agencies, from the private and government sectors, including the public, to play their roles effectively in combating insurance fraud.

He said the relevant associations and the Malaysian Insurance Institute (MII) could take the lead by educating society on the consequences of promoting insurance fraud and how they could help to combat it.

Lee said some authorities estimated the cost of insurance fraud ran as high as 10% of the total claims cost. An estimate done in the Unites States by the Coalition Against Insurance Fraud showed that the cost of insurance fraud was about US$80bil a year and this trend would keep escalating.

Insurance fraud, he said, pushed up the cost of everything one bought and used as every company that produced goods or services paid for insurance as a cost of doing business.

Phillip K.F. Fong, who is Crawford Group director for global markets-Asia Pacific and managing director for Malaysia, said based on global figures, it was estimated that about 3% to 5% of total gross premiums worldwide had an element of fraud.

He said during difficult times, as in the case of an economic downturn, the tendency for insurance fraud would be on the rise, for example, in property, household and motor-related claims.

Fong said insurers needed to upgrade their skills and improve their fraud-detection capabilities.

Phillip K.F. Fong ... ‘The insurance industry needs to be vigilant at all times.’

 

“Loss adjusters like us are the eyes and ears for insurers. If we detect glaring cases, we will notify them immediately. We also need forensic scientists and those with strong expertise to handle fraud cases as fraudsters are becoming more innovative. The insurance industry needs to be vigilant at all times,” he told StarBiz.

Fong categorised fraudsters into three different types – opportunistic, repeat and organised ones. He said to have an effective fraud strategy, three golden rules should be upheld – detection (identification of high risk/suspicious claims), investigation (management and customer-focused investigation of claims once labelled “high risk”) and articulation (production of accurate management information).

Apart from making people more conscious of fradulent claims, insurers must not be publicity-shy as those who fear adverse publicity are invariably the subject of a greater proportion of dishonest claims. MII CEO Khadijah Abdullah said a more structured way of capturing information on insurance fraud was needed via cooperation from Bank Negara, insurers and other relevant parties.

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Insurance fraud in M'sia estimated at RM1.74bil last year

KUALA LUMPUR: Insurance fraud, estimated at RM1.74 billion in Malaysia last year, is clearly a "big business" and more alarming is, the public apathy surrounding it.

"This apathy at times, unfortunately, even finds its way into our criminal justice system," Deputy Minister of Home Affairs, Datuk Lee Chee Leong said on Monday.

Research on the public perception of insurance fraud concluded that on average, 30 per cent of the public respondents believed, it is acceptable to pad an insurance claim, he added.

"(Hence), there seems to be a great willingness among normally law abiding people to tolerate low levels of insurance fraud.

"However, the burden of combating such crime should not merely rest with the public sector alone, but also the private sector, particularly, the insurers themselves," Lee said in his opening remarks at the International Insurance Fraud Conference 2010, here, on Monday.

He also said that the Association of Malaysian Loss Adjusters (AMLA) and the Malaysian Insurance Institute (MII) should perhaps take the lead to educate society on the consequences of promoting insurance fraud and how they can help combat the issue.

According to the National Insurance Crime Bureau of the Unites States, fraud inflates the cost of each consumer's insurance premiums by US$200 to US$300 annually.

"Insurance fraud pushes up the cost of everything you buy and use because every company that produces goods or services, pays for insurance as a cost of doing business.

"Going forward, the insurers must also continue to improve their standards of fraud detection by adopting the international best practices and share data and information relating to fraud activities among themselves," Lee said.

Meanwhile, the MII's Chief Executive Officer, Khadijah Abdullah suggested that there should be a unified statutory body to oversee fraud in the industry and compile appropriate data.
"Currently, associations and Bank Negara Malaysia, have their own supervision over the issue but there is no single body that can help compile the information," she said. - BERNAMA