The move shored up confidence, at least for the moment. U.S. and many global markets quickly rebounded from huge losses in response to the three-quarter percentage-point cut in the target for the federal-funds rate, to 3.5%.

But in a sign that risks to the U.S. and global economy remain strong, the Fed hinted another rate cut next week is likely. The central bank's moves may be too late to stop the U.S. from entering recession, as many economists now forecast, but it may make one milder and shorter.

By acting so explicitly in response to market developments -- just a week before a scheduled meeting to decide on rates -- the Fed is running a risk. Investors may view the steps as panicky, undermining the goal of the rate cuts. And investors may come to judge the Fed's success narrowly, by how the stock market, rather than the economy as a whole, performs.

Still, Fed officials agreed on the emergency move during a videoconference call convened hastily Monday evening by Mr. Bernanke. It came after Mr. Bernanke spent Monday in the office, despite the national holiday, watching the fallout as Asian and European markets plummeted and consulting with aides. Futures markets Monday were predicting a 4% plunge Tuesday in U.S. stocks.

"The Bush administration turned out to be very different from the reincarnation of the Ford administration that I had imagined. Now, the political operation was far more dominant," Greenspan, 81, wrote.... In the 531-page tome, which ranges from Greenspan's childhood in New York to his 18 years at the Fed, he recounts his relationships with the six presidents he served.

Richard Nixon and Bill Clinton were the most intelligent, he wrote, while he found Ford the most normal and likeable. Ronald Reagan was the most devoted to free markets, though his grasp of economics "wasn't very deep or sophisticated." George H.W. Bush, the current president's father, was very cordial, though Greenspan's relationship with him was complicated by differing views on monetary policy, he wrote. Bush blamed high interest rates, in part, for his 1992 election loss to Clinton.

Greenspan saved his harshest analysis for the current president. Soon after Bush took office in 2001, the president set about implementing a campaign promise to cut taxes, a policy Greenspan said he believed at the time wasn't well conceived. "Little value was placed on rigorous economic policy debate or the weighing of long-term consequences," he wrote. In 2001 testimony before Congress, Greenspan was widely interpreted to have endorsed Bush's proposed tax cuts. In the book, he characterized his testimony as politically careless and said his words were misinterpreted. Greenspan also expressed disappointment in Bush's reluctance to antagonize then-House Speaker Dennis Hastert and other congressional Republicans by vetoing spending bills. "There is a remedy for legislative excess," wrote Greenspan, "it's called a presidential veto."

Right now, Mattel is facing a crisis of monumental proportions for both its brand and its bottom line. The costs of the recalls still have to be calculated and will probably extend out for many years, particularly from lawsuits that will linger on. Of more immediate concern is the coming Christmas holiday and convincing consumers that its products are safe.

Mattel isn't alone in the recall category, as rivals Hasbro (NYSE: HAS) and RC2 (Nasdaq: RCRC) have also initiated recalls. And many other companies outside the retail world are being negatively affected from China's tainted goods. Yet the size of Mattel's recalls and the fact that they continue to crop up every few weeks are a concern.

Problems with Chinese-made goods first appeared with the recall of Thomas the Tank Engine products made by RC2. Parents were initially outraged, and probably promised to swear off any tainted brand indefinitely. But as the list of recalled products grew, even to include well-known products such as Barbie and Disney's "Cars" line of toys, alternatives are shrinking. Mattel and its Fisher-Price division are considered particularly vulnerable, after recalling millions of toys because of lead paint concerns or pieces of toys that might be hazardous to children. Hasbro (NYSE: HAS), too, had to recall its popular Easy-Bake Ovens because of injury concerns.

Disney licenses its characters to some 2,000 companies, and it says it will test the 65,000 toys already on the shelves at a cost of several million dollars. In future, when the cost will run the company several million dollars annually, Disney intends to pass along those fees to toymakers in contract negotiations.

With the critical holiday period coming up fast, companies are working hard to reassure parents that its toys are safe to buy. Viacom's Nickelodeon announced in July it was adopting similar independent testing procedures in the wake of the Thomas & Friends recall. And retailers like Wal-Mart are also hiring independent laboratories to check the toys they sell.

The troubles demonstrated both the global reach of the crisis and its impact on a widening circle of markets and companies. The first jolt came from French bank BNP Paribas, which said early in the day that it was freezing three investment funds once worth a combined $2.17 billion because of losses related to U.S. housing loans. That prompted the U.S. and European central banks to inject cash into money markets to keep interest rates down.

The unease accelerated in the U.S. with news that several hedge funds were in the red and selling off assets. Apartment and condominium builder Tarragon Corp. raised doubts about its ability to remain in business amid weak demand and an inability to raise new financing. After markets closed, mortgage-lender Countrywide Financial Corp. said "unprecedented disruptions" in credit markets could affect its financial condition.

The stock market, which on Wednesday had risen sharply on hopes credit problems were being contained, swooned as hedge funds, many of which borrowed increasing amounts of money in recent years to boost returns amid placid markets, scrambled to sell holdings and cut their borrowings. The Dow Jones Industrial Average ended down 387.18 points, or 2.8%, at 13270.68.

After the close of trading, Renaissance Technologies Corp., a hedge-fund company with one of the best records in recent years, told investors that a key fund has lost 8.7% so far in August and is down 7.4% in 2007. Another big fund company, Highbridge Capital Management, told investors its Highbridge Statistical Opportunities Fund was down 18% as of 8th of the month, and was down 16% for the year. The $1.8 billion publicly traded Highbridge Statistical Market Neutral Fund was down 5.2% for the month as of Wednesday.

Meanwhile, Countrywide, of Calabasas, Calif., said in a Securities and Exchange Commission filing that it was shoring up its finances and had "adequate funding liquidity." (SEC filing3) But the company, the nation's largest home-mortgage lender in terms of volume, warned that "the situation is rapidly evolving and the impact on the company is unknown." Reduced demand from investors is prompting Countrywide to retain more of its loans rather than selling them.

The statement could send shivers through financial markets today. It came just a week after Bear Stearns Cos., the Wall Street trading giant, had to reassure investors that it had ample cash on hand amid concern that it faced funding problems because of deteriorating credit-market conditions and the implosion of two of its hedge funds.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels. It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds. Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added. He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so. "China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings. "China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo". She said foreign control over 44pc of the US national debt had left America acutely vulnerable. Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session. "The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

The contents of the panel's findings were not made public. People who are familiar with the panel's report said that it reviewed extensive documents and testimony before concluding that Mr. Wolfowitz breached his obligations in arranging for Ms. Riza's reassignment from the bank to the State Department.

The report, as transmitted to Mr. Wolfowitz, did not recommend a punishment for Mr. Wolfowitz. Bank officials, speaking anonymously because the proceedings are supposed to be confidential, said that the special committee was still working today on what to recommend. It was not clear whether the committee, consisting of 7 of the bank's 24 board members, would remove Mr. Wolfowitz from his post or, more likely, express a loss of confidence in his leadership in a manner that might persuade him to resign. Bank officials say that a majority of the bank board has concluded that he should go.

In another sign of Mr. Wolfowitz's difficulties, his top communications aide, Kevin Kellems, resigned today, saying that "the current environment surrounding the leadership" at the bank made it "very difficult to be effective in helping to advance the mission of the institution." Mr. Kellems said in a written statement that he had "tremendous respect and admiration" for the bank's staff. He made no mention of Mr. Wolfowitz, with whom he had a close association when the bank president was deputy secretary of defense. European officials at the bank said that if Mr. Wolfowitz resigns, either now or some time in the future, Europeans may be willing to let the United States continue to exercise its customary prerogative of choosing the next bank president.

Paul D. Wolfowitz's struggle to remain as president of the World Bank was dealt a crippling setback on Sunday when its most powerful oversight committee delivered an unusually public rebuke of his leadership, expressing "great concern" about the institution's future and the need to preserve its credibility and staff morale.

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The extraordinary exchange between Mr. Wolfowitz and the oversight committee, which consists of 47 of the world's finance ministers and leaders of other international organizations, deepened the uncertainty over Mr. Wolfowitz. His future had earlier been thrown into doubt by the disclosure that he played a direct role in granting a pay raise and promotion to a female companion when she was transferred in 2005.

Bank and finance officials said they could not recall any time in the history of the bank when there was such an open and rancorous rift between its president and the people who are supposed to run the institution in cooperation with him. The events of the day, in which top officials took time out from discussing issues like poverty and development strategies, set up a clear impasse between Mr. Wolfowitz and the leadership of the bank, as represented by what seemed to be most of the world’s finance ministers and most of the members of a separate 24-member executive board that governs its day-to-day affairs.

The rebuke of Mr. Wolfowitz came in the form of bureaucratic language in a series of sentences in the board's communiqué that asserted "the current situation is of great concern to all of us," an unusually blunt statement for a circumspect institution. "We have to ensure that the bank can effectively carry out its mandate and maintain its credibility and reputation as well as the motivation of its staff," the committee said. "We expect the bank to adhere to a high standard of internal governance." Though the language was indirect, the message it sent was unmistakable, according to officials who have been meeting in Washington the last few days. "Words like 'concerned,' 'credibility' and 'reputation' are pretty unprecedented for a communiqué from a place like the World Bank," said an official involved in the drafting of the statement.

At issue in these statements was a crisis arising from Mr. Wolfowitz's involvement in decisions to transfer his companion, Shaha Ali Riza, to a new job and give her a raise. Officially, Mr. Wolfowitz and the bank are now to wait for a full report by the bank's board on his leadership and charges of favoritism in dealing with Ms. Riza, who was employed at the bank until 2005. But bank officials said that in delaying a finding, the board seemed to be buying time for Mr. Wolfowitz to consider resigning.

US house prices fell 3.5pc to an average $221,000, the third month of declines. Stocks of unsold homes rose to 7.4 months' supply, the highest since 1993. The US consumer confidence index fell sharply to 102.9. The "truckers index" of tonnage shipped by US haulage companies was down 1.8pc in October, a leading indicator of contraction. Merrill Lynch called the fall "borderline recessionary".

The dollar continued its slide against the euro, dropping to $1.3194 after the Federal Reserve chairman, Ben Bernanke, said the housing slump "would be a drag on economic growth into next year". Mr Bernanke said official figures did not pick up the "sharp increase" in cancellations on house deals and might understate the inventory glut. "Any significant effect on consumer spending arising from further weakness in housing would have important implications for the economy," he said.

One of President Bush's be-very-afraid lines this campaign season is that Democrats, if elected, will raise taxes. What he doesn't say is that if you are one of tens of millions of Americans who make between $75,000 and $500,000 a year, your taxes are already scheduled to rise starting next year — because of laws that Mr. Bush championed and other actions he failed to take. The higher taxes stem from the alternative minimum tax, a levy that is supposed to snare multimillionaires who would otherwise get away with using excessive tax shelters to wipe out their tax bills. But these days, the alternative tax is snaring many upper-middle-income filers.

Mr. Bush set the trap in 2001 — and in 2003, 2004 and 2006. In each of those years, he flogged for new tax cuts without requiring corresponding long-term changes in the existing rules for the alternative tax. It was well known that failure to update the alternative tax would create perverse interactions with the new tax cuts, causing filers' tax bills to drop because of the cuts, only to shoot back up again from the alternative levy.

Mr. Bush said he would vanquish the problem through tax reform. Didn't happen. Congress never wrestled with lasting solutions. The truth is, the president and lawmakers are paralyzed. To fix the alternative tax while keeping the Bush tax cuts on the books would result in the loss of some $800 billion in revenue over 10 years, blowing a hole in the federal budget and exposing how utterly unaffordable the tax cuts of the last five years really are.

The taxpayers wrongly afflicted by the alternative tax are not tax dodgers. For the most part, they are couples with children who have broken into the ranks of six-figure earners, and who live in high-tax states like New York and California. They are being penalized, in effect, for claiming everyday deductions — like write-offs for dependents and property taxes — which, under the alternative tax rules, are viewed as excessive shelters.

A major question hanging over both the economy and the political campaign this fall has been just how severely the slump in housing would drag down growth. The Commerce Department’s report, which will be revised twice in coming months as more complete data becomes available, shows that the drag was indeed substantial.

Residential construction plunged by nearly one-fifth in the quarter, the steepest decline in 15 years. That trend alone knocked 1.1 percentage points off the overall figure for economic growth. As recently as the spring of 2005, that sector was a major motor of growth, adding more than one percentage point to the overall figure. With the economy shifting into a lower gear, analysts believe that the Federal Reserve will be unlikely to resume raising interest rates any time soon. The Fed paused in August after a two-year campaign of steady increases in its benchmark overnight lending rate, meant to combat inflation. It has kept the rate steady at 5.25 percent through three policy-setting meetings since then, even though the inflation rate has remained stubbornly high.

The majority view at the Fed is that the economy is already on a slowing trend that will bring inflation to heel, and the new report supports that view. A closely watched measure of inflation in today’s report, the G.D.P. price index, rose at a 1.8 percent annual rate in the third quarter, seasonally adjusted, compared with 3.3 percent in each of the first and second quarters. Falling fuel prices helped bring the rate down.

With midterm Congressional elections less than two weeks away, the new figures offer something for both Republicans and Democrats to cheer. The weak growth rate suggests that the economy is not as robust as it once was, bolstering Democrats’ criticism of the administration’s economic policies. But the report also finds consumer spending gaining strength, rising by 3.1 percent in the third quarter, compared with 2.6 percent in the second.

Amid the broader prosperity of the past decade, Americans grew far more willing to shell out for $4 cups of coffee and $400 handbags. Retailers such as Starbucks Corp., Whole Foods Market Inc. and Williams-Sonoma Inc. -- operator of Pottery Barn and its own kitchen stores -- expanded by appealing to the aspirations of middle-class shoppers.

Now, many of those retailers are feeling pinched. In recent weeks, Starbucks, Whole Foods and Williams-Sonoma -- along with others such as boat maker Brunswick Corp. and specialty-sandwich chain Panera Bread Co. -- have reported disappointing sales that sent their share prices lower. Restaurants catering to middle-income consumers are seeing a sales slump too. Growing evidence suggests the chief culprit is gasoline prices in the $3-a-gallon range -- up 71 cents from six months ago, according to federal data. Buyers "are spending a lot of money on gas," says Brunswick Chief Executive Dustan McCoy. "The sort of people who boat don't drive around in compact cars. They drive around in big cars or fast cars."

But Wendy Liebmann, president of consulting firm WSL Strategic Retail in New York, finds evidence in a recent survey of 1,500 consumers of a broader shift in consumer behavior after almost a decade in which most were "trading up" for high-end items. Many are now cutting back, she says, with low-income households becoming more likely to stick to dollar stores and supercenters and middle-income families visiting more mass merchants and grocery stores than specialty outlets.

Especially surprising, Ms. Liebmann says, is evidence that households earning as much as $75,000 a year are changing their habits. Survey responses among this group were more similar to those of low-income households than those of wealthy families, she says. The types of spending most likely to be chopped: fashion accessories, clothing, home décor, electronics and entertainment.

So many superrich Americans evade taxes using offshore accounts that law enforcement cannot control the growing misconduct, according to a Senate report that provides the most detailed look ever at high-level tax schemes. Among the billionaires cited in the report are the owner of the New York Jets football team, Robert Wood Johnson IV; the producer of the "Mighty Morphin Power Rangers" children’s show, Haim Saban; and two Texas businessmen, Charles and Sam Wyly, who the Center for Public Integrity found in 2000 were the ninth-largest contributors to President Bush. Mr. Johnson and Mr. Saban, who are portrayed as victims in the report, are scheduled to testify today before the Senate Permanent Investigations subcommittee. They are expected to say that professional advisers assured them their deals to avoid taxes were more likely lawful than not. The Wyly brothers told the committee that they would invoke their Fifth Amendment right against self-incrimination and thus were not called to testify. The report characterizes them as active participants in tax schemes.

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Both Mr. Johnson, the football team owner and scion of the Johnson & Johnson health care fortune, and Mr. Saban, the television mogul, are portrayed in the report as victims. The two men, through representatives, said yesterday that they relied on professional advisers who told them the transactions were lawful, and that they were now settling with the Internal Revenue Service. Mr. Johnson, known as Woody, told Senate investigators two weeks ago that to buy the Jets in 1999 he had to sell assets, incurring the 20 percent tax on long-term capital gains in effect at the time. He said that a way to defer the tax was proposed by Larry B. Scheinfeld, who had been his accountant at KPMG until he joined Quellos, where he worked closely with Chuck Wilk, a tax lawyer.

The technique involved a complex set of circular transactions using what the Senate report characterized as sham corporations in the Isle of Man with shell corporations given names like Jackstones. Their ownership was kept secret.

*****

The report details a scheme created for Mr. Saban to avoid more than $300 million in taxes from sale of his half interest in the Family Channel and related properties. Mr. Saban told Senate investigators that he never understood the transactions but undertook them after asking two questions of Mr. Wilk and his personal tax lawyer, Matthew Krane. Mr. Saban said he asked whether the deals were legal and whether a major law firm would certify them as proper. The two lawyers, Mr. Saban said, answered "yes to both," so he went ahead.

Behind the market's reversal is a growing concern among investors that inflation may not be as firmly under control as they had hoped. Even as most economic signals continue to point to a growing economy, the prospect that the Federal Reserve might still feel compelled to keep raising interest rates has unnerved many on Wall Street.

"Many investors have taken large positions in stocks and they are getting spooked," said James Glassman, senior United States economist for J. P. Morgan Chase & Company. "These investors are often hedge funds and foreigners, and if the Fed is going to raise rates more than they thought, that makes it less attractive for them to hold onto their big positions." Indeed, the sudden unwinding in the market began on May 11, the day after Fed policy makers raised interest rates another quarter-point, to 5 percent, and left open the prospect that more interest rate increases "might yet be needed to address inflation risks."

*****

Yesterday's government report was seen as the worst omen yet. The Bureau of Labor Statistics announced a jump of 0.6 percent in the Consumer Price Index for April, mostly because of gasoline prices, but also because, as the government calculates it, the cost of owning a house and renting an apartment was up smartly. The latest increase in consumer prices came on top of a 0.4 percent increase in March.

If the dollar were to continue falling, it could have wide ramifications:

It could imperil the economy next year because Fed Chairman Ben Bernanke might have to defend the currency with higher interest rates.

A lower-valued dollar makes imports more expensive, possibly ratcheting up the inflation rate. But it could also stimulate US exports, thus providing more jobs.

This summer, Americans traveling abroad will feel as if everything is expensive. However, foreigners coming to America will feel as if the country is one giant Wal-Mart.

*****

Behind the falling currency is a changing global economy. As the US Federal Reserve appears to be near the end of its round of interest-rate hikes, foreign banks are starting to hike their rates - which puts foreign currencies in higher demand, thus making the dollar less attractive. Thursday, in fact, the president of the European Central Bank indicated that rates could rise in Europe next month. At the same time, the giant US trade imbalance has produced a huge outflow of dollars to other countries, as well as the need to finance the ever-bigger US deficit. The deficit has attracted increasing scrutiny, most recently at a meeting of finance ministers in Washington last month.

In addition, the central banks of some foreign countries, which are key in financing the US deficit by buying US Treasury bills, are now less willing to do so. Instead, they're diversifying their reserve holdings with euros and yen.

But even as more Americans expressed discontent over the price of filling up their gas tanks, Bush suggested there was little his government could do in the short term about the problem. "We're going to have a tough summer because people are beginning to drive now during tight supply," Bush said as he toured a California facility developing hydrogen-powered vehicles. "The American people have got to understand what happens elsewhere in the world affects the price of gasoline you pay here."

Bush spoke after a week of unremitting rises in prices in global crude oil markets and at gasoline (petrol) pumps across the country. Crude topped a record 75 dollars per barrel in New York trading Friday, five dollars up from a week earlier. At the same time, US retail pump prices were topping an average three dollars a gallon (3.8 liters) in many places in the country, up 60 cents -- 33 percent -- from a year ago. The sharp rises on the eve of the US summer, during which millions of people fly or drive on holiday, showed signs of becoming a major political issue for the struggling Bush administration ahead of November mid-term elections.

But even as the president stressed Saturday that the government was making efforts to protect consumers from price-gouging, he said there was little he could do in the short term to alleviate the impact of higher oil prices. "We've got a real problem when it comes to oil. We're addicted, and it's harmful for the economy, and it's harmful for our national security," he said. "I understand the folks here, as well as other places in the country, are paying high gas prices. "The American people have got to understand what happens elsewhere in the world affects the price of gasoline you pay here," he said, referring to skyrocketing oil demand in the booming economies of India and China. Bush also blamed the higher prices on a shortage of refinery capacity in the United States, and also on an ongoing shift in fuel additives and mixes that has caused supply hiccups in certain areas. "When that price of gasoline goes up, it hurts working people. It hurts our small businesses. And it's a serious problem we've got to do something about. The federal government has a responsibility, by the way, to make sure ... there is no price gouging," he added.

*****

Dennis Hastert, the Republican head of the House of Representatives, and Senate Republican majority chief Bill Frist said they planned to write Bush a letter calling for an investigation into possibly price manipulation by oil companies.

Chinese President Hu Jintao got almost everything he wanted out of yesterday's visit to the White House. He got the 21-gun salute, the review of the troops and the Colonial fife-and-drum corps. He got the exchange of toasts and a meal of wild-caught Alaskan halibut with mushroom essence, $50 chardonnay and live bluegrass music. And he got an Oval Office photo op with President Bush, who nodded and smiled as if he understood Chinese while Hu spoke.

If only the White House hadn't given press credentials to a Falun Gong activist who five years ago heckled Hu's predecessor, Jiang Zemin, in Malta. Sure enough, 90 seconds into Hu's speech on the South Lawn, the woman started shrieking, "President Hu, your days are numbered!" and "President Bush, stop him from killing!" Bush and Hu looked up, stunned. It took so long to silence her -- a full three minutes -- that Bush aides began to wonder if the Secret Service's strategy was to let her scream herself hoarse. The rattled Chinese president haltingly attempted to continue his speech and television coverage went to split screen.

"You're okay," Bush gently reassured Hu. But he wasn't okay, not really. The protocol-obsessed Chinese leader suffered a day full of indignities -- some intentional, others just careless. The visit began with a slight when the official announcer said the band would play the "national anthem of the Republic of China" -- the official name of Taiwan. It continued when Vice President Cheney donned sunglasses for the ceremony, and again when Hu, attempting to leave the stage via the wrong staircase, was yanked back by his jacket. Hu looked down at his sleeve to see the president of the United States tugging at it as if redirecting an errant child.

Then there were the intentional slights. China wanted a formal state visit such as Jiang got, but the administration refused, calling it instead an "official" visit. Bush acquiesced to the 21-gun salute but insisted on a luncheon instead of a formal dinner, in the East Room instead of the State Dining Room. Even the visiting country's flags were missing from the lampposts near the White House.

But as protocol breaches go, it's hard to top the heckling of a foreign leader at the White House. Explaining the incident -- the first disruption at the executive mansion in recent memory -- White House and Secret Service officials said she was "a legitimate journalist" and that there was nothing suspicious in her background. In other words: Who knew? Hu did. The Chinese had warned the White House to be careful about who was admitted to the ceremony. To no avail: They granted a one-day pass to Wang Wenyi of the Falun Gong publication Epoch Times. A quick Nexis search shows that in 2001, she slipped through a security cordon in Malta protecting Jiang (she had been denied media credentials) and got into an argument with him. The 47-year-old pathologist is expected to be charged today with attempting to harass a foreign official.

The Fed raised its target for the federal-funds rate, charged on overnight loans between banks, to 4.75% from 4.5%. In a statement released after the two-day meeting ended Tuesday, the Fed said: "Some further policy firming may be needed to keep" the risks to both growth and inflation "roughly in balance," identical to language in the statement released after Mr. Greenspan's last meeting, on Jan. 31.

Bond and stock prices declined on the announcement, reflecting investors' increased certainty that more rate increases lie ahead. It was the Fed's 15th consecutive quarter-point rate increase since it began to raise rates from a then-46 year low of 1% in June, 2004.

Mr. Bernanke was sworn in as chairman Feb. 1 and Tuesday was the first meeting of the policy-setting Federal Open Market Committee that he chaired. In his confirmation hearings he pledged "continuity" with Mr. Greenspan's policies, and the similarity of the FOMC's actions and words to those on Jan. 31 may have in part reflected that priority.

"Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace," the statement said in its most notable difference from Jan. 31. The inclusion of the Fed's view of where growth is going may reflect Mr. Bernanke's desire to more clearly demonstrate how the forecast is influencing monetary policy.

The Senate, on a 52-48 vote, sent to President Bush a bill raising the ceiling on the national debt to nearly $9 trillion and preventing a first-ever default on U.S. Treasury notes. When the government reaches the new ceiling, expected sometime next year, the debt will represent $30,000 for every man, woman and child in the United States.

The House avoided an election-year vote on raising the debt limit by automatically sending the bill to the Senate when it passed a budget last year. The bill passed the Senate just hours before the House was expected to approve another $91 billion to fund the war in Iraq and provide more aid to hurricane victims. The partisan vote also came as the Senate continued debate on a $2.8 trillion budget blueprint for the upcoming fiscal year, beginning Oct. 1, that would produce a $359 billion deficit.

In twin setbacks for GOP leaders, the Senate voted 51-49 to add $3 billion to the budget for heating subsidies for the poor and 73-27 to add $7 billion for education, health and worker safety accounts. The moves broke through President Bush's overall "cap" on agency budgets to be funded later in the year through appropriations bills. Congress has now increased the debt ceiling four times by a total of $3 trillion since Bush took office five years ago.

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Democrats blasted the bill, saying it was needed because of fiscal mismanagement by Bush, who came to office when the government was running record surpluses. "When it comes to deficits, this president owns all the records," said Minority Leader Harry Reid, D-Nev. "The three largest deficits in our nation's history have all occurred under this administration's watch."

As China's manufacturing industries flood the world with cheap goods, the Chinese central bank has invested roughly three-fourths of its growing foreign currency reserves in U.S. Treasury bills and other dollar-denominated assets. The new policy reflects China's fears that too much of its savings is tied up in the dollar, a currency widely expected to drop in value as the U.S. trade and fiscal deficits climb.

China now boasts the world's second-largest cache of foreign exchange -- behind only Japan -- and is on pace to see its reserves climb past $1 trillion later this year. Even a slight diminishing of the dollar as a percentage of those holdings could exert significant pressure on the U.S. currency, many economists assert.

In recent years, the value of the dollar has been buoyed by major purchases of U.S. Treasury bills by Japan, China and oil-exporting countries -- a flow of capital that has kept interests rates relatively low in the United States and allowed Americans to keep spending even as debts mount. Some economists have long warned that if foreigners lose their appetite for American debt, the dollar would fall, interest rates would rise and the housing boom could burst, sending real estate prices lower.

The comments of the Chinese senior economist, made on the condition of anonymity because the government disciplines those who speak to the press without express authorization, confirmed an analysis in Monday's Shanghai Securities News stating that China is inclined to shift some its savings into other currencies such as the euro and the yen, or into major purchases of commodities such as oil for a long-discussed strategic energy reserve.

In a letter to Senate leaders Thursday, Snow said the statutory debt limit imposed by Congress of 8.184 trillion dollars would be reached in mid-February and the government would then lose its borrowing power. "At that time, unless the debt limit is raised or the Treasury Department takes authorized extraordinary actions, we will be unable to continue to finance government operations," said the letter, seen by AFP.

Snow warned that even if the Treasury took "all available prudent and legal actions" to avoid breaching the ceiling, "we anticipate that we can finance government operations no longer than mid-March". "Accordingly, I am writing to request that Congress raise the statutory debt limit as soon as possible."

The Republican-led Congress last voted to increase the debt limit in mid-November 2004, despite opposition from Democrats who demanded the free-spending federal government tighten its belt instead. The US debt limit sparked bitter partisan battles in the mid-1990s between a Republican-dominated Congress and the Democratic administration of president Bill Clinton, leading to shutdowns of the federal government. Once the US government hits the ceiling, it comes under threat of defaulting on its debts and can lose the ability to raise future credit on the capital markets.

Snow underlined that the "full faith and credit of the United States" was a unique selling point on the markets. "A failure to increase the debt limit in a timely manner would threaten this unique and important position," he wrote in his letter.

Only 39 percent approve of his handling of the economy.

Only 39 percent approve of his handling of foreign policy.

Only 37 percent approve of his handling of the war in Iraq.

Only 25 percent approve of his handling of Social Security.

Only the campaign against terrorism gets the approval of more than half those questioned.

The biggest drop off is among Americans aged 30 to 44. In just the past month, his approval rating in that group has fallen 14 points. In the most serious split over the president's Iraq policy, two Republican House members joined with Democrats Thursday urging President Bush to start bringing U.S. troops home from Iraq in October of 2006.

[I]t is another crack in the once iron grip President Bush held over Congress. His Social Security plan is stalled, his energy bill languishing, his nominee for U.N. ambassador uncertain. And he's threatened to veto two measures passed by the Republican-controlled House -- on stem cell research and limitations to the Patriot Act.

The survey, which polled 1,005 adults from May 12-16 and has a margin of error of plus or minus 3.1 percentage points, also has some troubling findings for President Bush. Just 20 percent of those polled say the economy has gotten better over the past 12 months, an 11- point decline since January; 51 percent believe that removing Saddam Hussein from power was not worth the cost and casualties of that war; and only 36 percent support Bush’s plan to allow workers to invest their Social Security contributions in the stock market.

Most don't support blanket approval for judges That Social Security figure, which is virtually unchanged from April, is significant because it suggests that Bush hasn’t moved the country any closer to supporting private accounts despite his months-long campaign for them.

Regarding the contentious debate over Bush’s judicial nominees, just 34 percent say the Senate should generally confirm the president’s judicial picks as long as they are honest and competent, while 56 percent argue that the Senate should make its own decision about the fitness of each nominee to serve.

Overall, according to the NBC/Journal poll, 52 percent believe the nation is headed in the wrong direction, while 35 percent think it’s on the right track.

All of these findings, Hart says, are signs of an angry electorate. "If you are a member of Congress and you got the poll back, you better be looking over your shoulder," he said. "The masses are not happy."

By a 5-to-4 vote, the court overturned state liquor laws in New York and Michigan that gave preferential treatment to in-state wineries. Both states permit in-state wineries to ship directly to consumers, bypassing both retailers and wholesalers.

Michigan prohibited direct shipment by out-of-state wineries while New York nominally permitted it for out-of-state wineries that maintain a New York office, a requirement that no out-of-state winery has met and that the majority on Monday found so financially burdensome for small wineries as to amount to a prohibition.

In his majority opinion, Justice Anthony M. Kennedy said both states were engaging in the kind of protectionism that the Commerce Clause of the Constitution forbids and that the 21st Amendment does not excuse. The 21st Amendment repealed Prohibition and granted the states much leeway in regulating alcohol. But "state regulation of alcohol is limited by the nondiscrimination principle of the Commerce Clause," Justice Kennedy said.

"This is the highest percentage that Gallup has found on this measure since the question was first asked in late May 2003," the pollsters observed. "At that time, 31% said the administration deliberately misled Americans. This sentiment has gradually increased over time, to 39% in July 2003, 43% in January/February 2004, and 47% in October 2004."

Also, according to the latest poll, more than half of Americans, 54%, disapprove of the way President Bush is handling the situation in Iraq, while 43% approve. In early February, Americans were more evenly divided on the way Bush was handling the situation in Iraq, with 50% approving and 48% disapproving. Last week Gallup reported that 53% now believe that the U.S. invasion of Iraq was "not worth it."

This is the first time that salaries have increased more slowly than prices since the 1990-91 recession. Though salary growth has been relatively sluggish since the 2001 downturn, inflation also had stayed relatively subdued until last year, when the consumer price index rose 2.7%. But wages rose only 2.5%.

The effective 0.2-percentage-point erosion in workers' living standards occurred while the economy expanded at a healthy 4%, better than the 3% historical average.

Meanwhile, corporate profits hit record highs as companies got more productivity out of workers while keeping pay increases down....

But higher wages could hurt the economy by stoking inflation further. Employers might pass the costs on to consumers in higher prices, and that in turn might prompt the Federal Reserve to raise interest rates more aggressively, possibly slowing the recovery or even triggering a recession.

With benefits factored in, workers' total compensation did outpace inflation in 2004, even if they didn't see it in their paychecks. But employers also are requiring workers to pay a greater share of their premiums.

"Healthcare has eroded the wage base," said Janemarie Mulvey, chief economist with the Employment Policy Foundation, a business-funded think tank in Washington.

If Social Security reform fails--and obviously I hope this obit becomes obsolete--it will be many years before any sort of big entitlement reform will come up again. The parties will keep playing chicken, and we will soon find ourselves catastrophically buried under our own debt.

Alan Greenspan doesn't turn to his wife, NBC News correspondent Andrea Mitchell, when he needs inspiration for a speech. Instead, GQ reports, the tight-lipped Fed chairman "heads straight to the bathroom, turns on a large fan to create a blast of white noise that blocks out sound, draws a hot bath, strips off his clothes and settles into the water for at least an hour and sometimes two."