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Hazel Henderson on the set of Globo TV's Top financial show, Brasil

Update: May, 2008

Advance estimates of US GDP-growth in the first quarter of 2008 are at 0.6%.  Yet this number gives little comfort after the massive stimulation from the Fed -- now leading to new worries about inflation as March's CPI rose 4.2% from a year ago.  Useful checks on government statistics: GDP, CPI, Unemployment and M-3 are available at www.shadowstats.com compiled by economist John Williams who tracks data revisions that overstate the performance of the US economy. The meltdown in the subprime mortgage market reverberates worldwide, forcing central banks to inject billions of liquidity. The "stagflation" scenario now looms with US inflation rates of 4.1% for 2007.  The Wall Street Journal reported on February 27th that inflation is being under-reported -- a point we have been making for some years.  The $170 billion of tax-rebate $600 checks are now in the mail to individuals.  Their stimulus effects are uncertain.

The 20,000 jobs lost in April were all in the private sector -- mostly manufacturing -- adding to the March job losses of 80,000 on top of February's 63,000. The unemployment rate of 5.0% excludes those "discouraged" while including increases in part-time jobs held by those needing full-time work.  More volatility in the DOW and NASDAQ pushed these indexes higher -- mostly reflecting the Fed's easing which pushed fixed-income investors back into stocks.  All these bouncing numbers continue to spook markets and brought forecasts of recession. While Wall Street is still pressuring the Fed for more interest rate cuts after its huge cuts in January and the 1/4% on April 30th, chairman Bernanke's job is now harder -- trying to steer between recession and inflation. Interest rates, now at 2%, are actually negative when corrected for inflation.  The middle class is hurting because manufacturing also lost 223,000 jobs in 2007. A CNN/Opinion Research Poll March 14th-16th, 2008 found 74% of Americans believed the economy is already in recession. The reason why Main Street feels gloomy was evident from the Census Bureau's report August 29, 2007 that the median household income in 2006 was $1000 less than in 2000. In 2006, 36.5 million Americans were living in poverty, 5 million more than six years ago. The New York Times editorialized "in the last 4 years the spoils of the nation's economic growth have flowed almost exclusively to the wealthy" (August 29, 2007).  The Consumer Confidence Index fell in April after dropping to 75 in February, from 87.3 in January, the lowest level in 16 years.  One sector that will likely benefit is the growing barter economy says Bob Meyer, publisher of Barter News.   Think e-Bay, Craigslist, Freecycle and Prosper.com where people-to-people bank loans are growing.

However, stronger growth in Europe, Asia, and Latin America indicates that the world's economy is no longer so reliant on the USA. While capital spending in the US sagged, these investments outside the US (primarily in China and India) soared. Many international observers noted that we are seeing the end of the USA's single superpower status and the rise of a new multi-polar world.  This would, on balance, be good news for the USA, which would no longer need to be the world's only policeman.  All the presidential candidates now talk of the need to return to multi-lateral diplomacy to address global problems:  from climate change to health and human security which no country can solve alone.  The credit crisis rippling out from over-leveraged Wall Street came to a head on March 16th with the Federal Reserve's unprecedented actions in brokering the agreement for JP Morgan-Chase to acquire failing Bear Stearns, as well as opening its Discount Window to allow other investment banks to borrow at concessionary rates.  This expansion of Fed activism has brought calls to regulate these private banks to protect taxpayers -- even from Treasury Secretary Henry Paulson. Stock indexes reached new levels of volatility, mergers, acquisitions, private equity and hedge funds changed the shape of global financial markets now dealing with liquidity problems after the meltdown of US subprime mortgage securitization. A revealing look at these issues is A Demon of Our Own Design (2007) by former hedge fund manager Richard Bookstaber who shows how financial engineering of ever-more exotic swaps, derivatives, options, etc are themselves adding to market instabilities worldwide. Much of the volatility on Wall St. is due to the failure of these exotic "quant" models and the need for hedge fund managers to sell assets to cover margin calls from their bankers. Yet another challenge to Wall Street's conventional wisdom is the best-seller, The Black Swan, by veteran options trader and mathematician Nassim Nicholas Taleb, who critiques risk assessment models used by investors and banks.  I made similar critiques of such models as Value At Risk (VAR) used so widely that unanticipated events could lead to system-wide crises.

The CPI's rise of 4.1% in 2007 has the Fed on alert despite Wall Street's pressures for even more interest rate cuts. The core rate (excluding food and energy) is now suspect, prompting a scathing editorial in The Economist calling this use of the core index "highly misleading" since most people eat and drive! (June 23, 2007, p16) We have made this same point for many years. Meanwhile, behind all the happy headline numbers, average wages for non-supervisory workers remained stagnant, house prices flattened, and many deeper structural problems in the USA went unaddressed. President Bush's plan left out millions of poorer families who would likely spend their $600 rebate checks. Democrats managed to shift these rebates to include some 30 million of these poorer citizens and to propose fiscal stimulus by funding "green" jobs and adding solar panels and insulation to buildings to employ construction workers. These efforts to keep the $170 billion stimulus in the USA for infrastructure and green jobs was defeated, so it is likely that most of the stimulus will end up being spent on goods made in China.

The growing gap between rich and less affluent citizens is worrying Republicans - but their concerns offered the familiar remedy: more economic growth. The Democrats are trying to tackle some of the issues by: raising the minimum wage, making the tax code fairer, cutting corporate subsides, confronting the health care mess, reducing the costs of college and other reforms. The 800 lb elephant is still the tragic mistake in Iraq costing billions per month and increasing the deficit. Averages of current polls found some 70% disapproved of the way President Bush is handling Iraq, while similar numbers are frustrated by the deadlocks in Congress.  Economist Joseph Stiglitz now estimates the Iraq occupation will total $3 trillion in his The Three Trillion Dollar War (2008).

The 20,000 jobs lost in April and the 80,000 jobs lost in March, 2008 saw unemployment rise to 5.0%, but still not counting the millions of discouraged and under-employed workers. The trade deficit shows $62.3 billion of red ink for February 2008, while the current account deficit decreased to $172.9 billion in the 4th quarter of 2007, leading to a full-year figure of $738.6 billion, down from $811.5 billion in 2006.  The lower dollar increased exports but also raised the cost of our still-increasing imports. Good news is the accelerating shift to renewable energy with leadership at municipal and state levels, with over 600 cities now adopting "green" energy goals. Venture capital continues to cascade into green technology and energy companies, with no less than 14 new stock indexes to track their progress as I cover in my recently published book, Ethical Markets from Chelsea Green Publishing (winner of the Best Business Book 2007 AXIOM Award) and in the new TV special, Growing the Green Economy, airing on PBS stations in 2007, reaching 49.5% of all US TV households.

President Bush's FY 2009 budget of $3.1 trillion promised to eliminate the budget deficit by 2012 while making his tax cuts permanent and boosting defense spending to $515 billion, with another $400 for Iraq and $1.1 billion for Afghanistan and $70 billion for emergencies. Cuts in Social Security, Medicare, Medicaid of $208 billion are proposed, along with termination of another 151 social programs totaling $18 billion. The assumptions are unlikely: that no change in the Alternative Minimum Tax will catch about 25 million taxpayers and yield revenues of about $500 billion.  Other assumptions:  that not making the 2001 and 2005 tax cuts permanent amounts to new taxes! Democrats were quick to point out that by this definition, many reductions in tax rebates and incentives for such programs as renewable energy were also 'new taxes.'

GDP revisions reported by the Commerce Department's Bureau of Economic Analysis and job creation revisions by the Bureau of Labor Statistics are now regularly expected. Such large revisions are unsettling to financial markets. The CPI rose in 2007 at an annualized rate of 4.1% - above the Fed's comfort level. We have urged the Fed to use this broader CPI, since the "core" CPI was introduced by the Fed after the OPEC oil price increases thought to be temporary. Today's oil prices seem likely to persist. Yet, since GDP is not a good indicator of overall progress -- it should be de-emphasized or broadened to include more measures of sustainability and quality of life, as outlined in my invited commentary on Marketplace (National Public Radio, July 28, 2006). The European Commission's conference Beyond GDP in the Parliament November 19-20, 2007, was attended by 700 experts and parliamentarians.  EU President Barosso and the President of the Parliament both endorsed the goal to integrate social environmental statistics.  A survey in ten countries by GlobeScan found large majorities in all favoring this broadening of GDP ( www.EthicalMarkets.com and www.beyond.gdp.eu).  I am honored to be serving as a member of the Advisory Board. The U.S. Senate held hearings in the Commerce Committee on "Re-thinking GDP as a Measure of National Strength" on March 12th -- with input from me on our Indicators, submitted for the record.  France's President Sarkozy has invited economist Joseph Stiglitz to advise his new Commission on the Measurement of Economic Performance and Social Progress.  The "BEYOND GDP" issue is now promoted in many countries by the SIMPOL network which fosters simultaneous policy adoption by politicians of such proposals for global sustainability (www.simpol.org.uk). Even The Economist editorialized in "Grossly Distorted Picture" (March 13, 2008) that GDP growth was not the best measure of national progress (see my editorials at www.HazelHenderson.com). China's President Hu Jintao called for continued effort on it "Green GDP" in spite of resistance by local officials to push traditional GDP-growth (China Daily, July 17, 2007).

The dollar continued its decline, giving headaches to overseas investors dealing with increased currency risk. Brazil's Central Bank announced in 2007 that it intends to diversify its $109 billion away from US dollars following similar decisions by many other countries. Iran's central bank also announced that it would sell more of its oil in euros. Global financial markets now exert greater influence over Fed Chairman Ben Bernanke's interest rate decisions, which are usually based on domestic U.S. conditions. His cuts in the discount and the Fed funds rates caused markets to rebound temporarily - at the expense of more declines in the dollar. U.S. interest rates may now be tied as much to global interest rates as to U.S. inflation fears. Thus the Fed is on a tightrope: more rate cuts to please Wall Street will further weaken the dollar; rate increases to fight inflation may trigger recession.  Many economists, including Bernanke, used to claim that continuing low interest rates were due to a global "glut of savings," new financial instruments and globalization. We saw this more as a global bubble in the world's money supply and excess credit due to increasing use of leverage and exotic derivatives in the financial markets and were proved correct. We should also remember that the Fed has several other ways to combat inflation -- ways less harmful to consumers than raising interest rates, which raises costs of house and car loans and many other costs throughout the economy. The Fed has the power to increase margin requirements on stock prices, to raise banks' reserve requirements -- both can cool speculation -- as well as foster competition from small banks and credit unions (see Stephen Zarlenga's commentary from the American Monetary Institute for more ideas at www.ethicalmarkets.com in the "Key Issues" section).

All the revisions mentioned earlier call into question such headline numbers, which tend to downplay continuing U.S. deficits and household debt and the faltering housing sector. Business Week (June 18, 2007) accused the US Bureau of Economic Analysis (BEA) of downplaying the real costs of off-shoring US production, due to the Bureau of Labor Statistics (BLS) failing to distinguish how much of corporations' "domestic production" is actually produced by their outside-the-US suppliers' plants. Business Week claims that this may have created about $66 billion of overstated "phantom" GDP gains since 2003. A more upbeat report from Business Week, "Unmasking the Economy" pointed out a statistical anomaly we have emphasized since the inception of the Calvert-Henderson Indicators in 2000. Our national accounts (GDP) still book education and training expenditures as "costs" on the consumption side of the ledger instead of vital investments in our nation's "human" capital. We are happy that Business Week now agrees with us that "Tuition ... is not like an ice cream cone, " as author Michael Mandel puts it (Business Week, Feb 13, 2006). However -- important as this revision is and however much it would lower the deficit and increase personal savings rates -- we shouldn't start breaking out the champagne without a sober reassessment of many other government statistics. (See The New Politics of Productivity Measures below.)

David M. Walker, former US Comptroller of the Currency summed up the issues in his editorial "Spending is Out of Control" (Business Week, Nov 14, 2005). Walker announced his departure from GAO in February -- so as to head up a $1 billion foundation set up by former Republican Commerce Secretary Peter Peterson. Walker called for a "new set of key national environmental and social indicators such as life expectancy, infant mortality,... to help strategic planning, enhance performance and accountability reporting." We say "AMEN!" Walker points out correctly that according to the OECD's key social, environmental and economic indicators, the USA ranks 16th out of 28 countries.

The National Urban League's "State of Black America 2006" uses an Equality Index which measures equality gaps between blacks and whites in five areas: economic (income, unemployment, home and business ownership, median net worth, and poverty rates); education; health and quality of life; social justice; and civic engagement. The Equality Index remained unchanged from 2005 in spite of the rebounding of the U.S. economy. The economic status of African Americans is 56% that of White Americans and their median net worth averages $6,166 -- one tenth that of whites. Blacks own 50% of their homes versus over 70% for whites. The one bright spot is the growth of black-owned businesses. The full report and summary are available at www.nul.org. The mis-management of relief efforts to devastated Gulf Coast communities has been a focus of worldwide media attention. Katrina's cost will top $200 billion, which will push up the U.S. deficit -- requiring foreign investors to come up with some $80 billion per month into next year. The U.S. foreign debt now stands at some $2.5 trillion.

According to the 2007 Annual Globalization Index jointly calculated by Foreign Policy and accounting firm A.T. Kearney, the USA -- ranked seventh after Singapore, Hong Kong, The Netherlands, Ireland, Denmark and Switzerland --is still weak on its indicator of Political Engagement (international treaty - participation). The report is on line at www.foreignpolicy.com. Increasing global interlinkages continue to accelerate change globally, regionally, locally and in our personal lives. As mentioned, China is now devising its own changes to GDP accounting to subtract pollution and resource depletion (The Economist, "Greening of China," Oct 22, 2005, p43). This "Green GDP" will deduct a likely 3% of environmental costs of the current GNP-growth economic model according to a Task Force Interim Report (2007). The British government report on the impacts of climate change released October 30th caused worldwide reaction. The report by Sir Nicholas Stern, the former chief economist of the World Bank, states that stabilizing CO2 emissions at 550 parts per million could cost one percent of global GDP growth and would prevent a likely global depression and economic losses of from 5-20% of global GDP (Financial Times, Oct 20, 2006).

The rapid changes unleashed by globalization affect not only the U.S. economy and domestic conditions but also those of all countries. They range from global climate change, poverty, epidemics, terrorist attacks, trade policy and outsourcing to oil prices, deficits, developing country debt-relief and the sustainability of the global economy. Deep divisions in the U.S. public remain. A flashpoint, second only to Iraq, is the failing U.S. healthcare system, as employers dropped another 4.9 million Americans from health insurance plans. Many U.S. companies claim they can no longer compete globally, while some are calling for a single-payer national insurance system in coalitions with labor unions. The number of uninsured children increased between 2004 and 2005 from 7.9 million to 8.3 million even as President Bush vetoed the SCHIP bill. The new Massachusetts plan, echoed by both Democratic Senators Hillary Clinton and Barrack Obama requires every person to buy health insurance. This may simply feed our vast dysfunctional medical-industrial complex, already costing twice what other advanced countries pay -- with little better outcomes for patients.

Estimations of the impacts of all these concurrent changes and crises vary widely, as do the many forecasts and policy proposals to address them. Underlying these differences are competing paradigms: the fading but-still dominant Newtonian, Cartesian world view that the planet is like a giant machine in a clockwork-like universe, versus the emerging paradigm based on quantum physics, biology and ecology that all is interconnected and that policies require an interdisciplinary systems approach. Even the scientists of the Nobel Prize Committee are debating whether the prize in economics is legitimate; questioning that economics is even a science. The G8 Summit's pledges to cancel the debt of 18 heavily indebted countries and double aid to Africa by 2010 are welcome. But, the civic movements worldwide demanding that leaders work to "Make Poverty History" say these G8 promises have fallen short.

Global power shifts continue: in the proposals to expand the United Nations Security Council; the new 27-member European Union with 10 more countries in Eastern Europe; the rise of China, the world's manufacturing giant as a major importer and locomotive of the global economy; the rise of democratic populism in Latin America, led by Brazil, toward integration and new approaches to sustainable development. The World Trade Organization's collapse at its Singapore meeting in July, failed to meet the Group of 20 developing nations' demands that the U.S. and Europe cut their agricultural subsidies and open their markets. The International Monetary Fund (IMF) is also in crisis as most countries in Latin America and Asia have repaid their IMF loans - saving billions in interest payments, the source of the IMF's income. The continuing tragedies of HIV/AIDS and poverty still haunt the future of many African countries. Many commentators now question whether the WTO, IMF, and G8 are still relevant. G8 member countries are losing economic power to the countries of the G20. However, a broad consensus still exists for addressing the promises all UN member countries made in 2000 in the Millennium Development Goals to reduce poverty, expand education, access to health and other human goals.

The Globescan Global Stakeholder Panel Survey of 1,000-plus global leaders in business, government, multi-lateral agencies, and civic, non-governmental organizations (NGOs) found 89% agreeing on the importance of achieving the UN Millennium Development Goals and large majorities agreeing that closing the rich-poor gap was more important than increasing economic growth alone. Over 85% agreed that economic models themselves were in need of an overhaul. Globescan's survey of public opinion in 10 countries for the European Commission Beyond GDP conference in November 2007 is at www.EthicalMarkets.com together with their recent survey on Climate Change.

Earth-shaking changes have also stressed the importance of the international community and multi-lateral institutions as Secretary of State Condoleezza Rice has emphasized and demonstrated by the broad participation in the November 2007 Summit in Annapolis, Md. The latest confrontation with Iran is a case in point, as the startling new Intelligence Estimate revealed that in fact, Iran had ceased its program of nuclear weapons development in 2003. While the USA, as the world's military superpower, was the agent or primary actor in many of these global changes, there are now clearly many other forces at work. For example, major shifts in the world's global unregulated currency markets still create potential for new financial crises. Today, the weapon of choice for many countries is currencies, and many countries are following the likes of Norway, Singapore, and China with sovereign investment banks, which use their surpluses to invest in real assets, companies, natural resources, etc rather than in US treasuries. These sovereign wealth funds have bailed out many of Wall Street's reckless investment banks, Citibank and many other firms implicated in the credit crisis.  New research invalidates the traditional "efficient market" model of currency exchange and prices, showing how large market-makers, such as Citibank, enjoy prior information on currency movements in their order flows (The Economist, "What Economists Can Learn from Currency Trades," Economic Focus, Nov 26, 2005, p92).

The U.S. current account deficit was almost 6% of GDP in 2007. Economic theory holds that a decline in the dollar would increase U.S. exports. So far the increase has been minimal, while imports cost more. Business Week (Dec 6, 2004) was the first to question economists' trade model, based on Ricardo's concept of "comparative advantage" - now over 200 years out of date. The failure of the recent Doha Round in Singapore of the WTO illustrates the need to overhaul trade theory. In "Shaking Up Trade Theory" (pp116-120) Business Week, in views similar to our own, dispels many myths in politicians' scape-goating of India and China. China's currency hovering at 7 renminbi to the U.S. dollar is still undervalued. China's central bank has addressed this by pegging its currency to a basket of the world's strong currencies. Over the past three years, based on purchasing power parity (PPP), China has accounted for almost one third of global GDP growth vis-à-vis the USA's 13%. China's dollar reserves now top those of Japan at $1.3 trillion.

Many economists and traders expect the dollar's decline to continue, as U.S. domestic and trade deficits continue to reach historic proportions. The euro has now become an alternative to the dollar as a global reserve currency in spite of the "no" votes on the European Constitution and the usual bickering over its budget (some 35% of world currency reserves and trade are now conducted in euros). What are global investors and currency traders saying about the U.S. dollar and the fundamentals of the U.S. economy? Some $1.5 trillion in currencies change hands every day -- 90% of which is speculation. Hedge funds with over $1 trillion in assets are coming under new scrutiny as more pension funds pile into such highly-leveraged vehicles in hopes of higher returns. Hedge funds, now 8,000 worldwide, account for between one-third and one-half of all trading on the New York and London stock markets (The Economist, July 1, 2006). The sub-prime mortgage crisis and the blow-up of structured investment vehicles (SIV's) have hit hedge funds and banks with huge losses, with more still unaccounted on their balance sheets.

Views on the future prospects for the U.S. economy differ widely depending on competing economic theories and investment diversification strategies, relative interest rates -- and of course, on the different interests of foreign investors versus those in the U.S.

With oil hovering above $100 per barrel, fears over dependence on the Middle East and effects on economic growth and inflation have brought energy policy to the fore. Already, mis-guided federal subsidies to ethanol have helped trigger the worldwide food crisis together with speculators in agricultural commodities and oil.  We have been warning that the buzz about ethanol and other biofuels should include caution about using energy and water to grow corn and soybeans to fuel wasteful cars -- rather than feed hungry people. Already corn, wheat, and rice prices have doubled, hurting livestock raisers. Brazil's use of sugarcane wastes and other biofuels from wastes are more efficient and equitable. Yet the US still has a 54 cents a gallon tariff on importing Brazilian ethanol.  It is now clear that future cars will run on electricity and not liquid fuels and the electricity can come from solar thermal plants using desert lands unfit for agriculture -- without taxing water sources.

While President Bush asked Americans to conserve energy and referred in his State of the Union 2006 address to our "oil-addiction," he has responded only rhetorically to Britain's call for a new climate treaty to curb CO2 buildup, or Europe's new pledge to reduce greenhouse gas emissions by 20% and shift 20% to renewable energy by 2020. Even after the dire warnings on global warming from the February meeting of the International Panel on Climate Change in Paris and the December meeting in Bali, the US position on climate change still lags the G-8 leaders at their June summit in Germany. The Administration's energy plan focused on nuclear and fossil fuels and increasing supply. Yet alternative sources, energy conservation, fuel efficient cars, and new technologies are making strides with costs of wind now compatible with coal. Congress passed the pork-laden energy bill, which favors fossil fuels over alternative technologies and greater efficiency. US subsidies for nuclear power, beyond the Price-Anderson blanket insurance by taxpayers, was questioned by The Economist's (July 7, 2005) closer examination of all the subsidies to the nuclear industry. The ratification of the Kyoto protocol on climate change is bullish for all clean, renewable new technologies and venture capital is now flowing into these new energy options. Carbon trading markets now centered in London represent a $1 trillion global market, whether or not the USA eventually decides to join the Kyoto treaty. California and New England states have been invited to join, by-passing President George W. Bush, who has acknowledged that global warming is real and caused by humans, and that actions must be taken to reduce CO2 emissions. Former Vice-President Nobel Laureate Al Gore's Oscar-winning movie An Inconvenient Truth became the fourth-highest grossing documentary ever.

Foreign and domestic investors in the U.S. economy still have many concerns, now the subprime mortgage lenders' bankruptcies are rippling through credit markets. OPEC accounts for a larger percentage of the U.S. current account deficit than China and Japan combined, but has taken current losses, since it prices its oil in U.S. dollars, leading to speculation that Iran and other OPEC members may redenominate their oil in euros. This would raise U.S. gasoline prices up to $5 a gallon -- closer to the world price -- because the U.S. would have to buy euros to buy OPEC oil. I have warned of this scenario since 2002, as another reason to accelerate energy conservation, efficiency, and alternative energy sources. Largest buyers of U.S. treasuries have been Japan (to keep the yen from appreciating as their economy revives) and China (to recycle its surplus dollar reserves).

US politicians of both parties are beginning to understand the expanding role of China, now the world's second largest economy. Scape-goating China for U.S. manufacturing job losses (2/3 of which are the outsourcing by U.S. companies) and India for its growing call center business (also outsourced by U.S. companies) is giving way to newer views of China's growing imports. U.S. job losses are as much a factor of domestic policies that make investments in job-displacing equipment much cheaper than retaining or hiring workers. The deepening inter-dependencies between China and the USA and how economic globalization has changed the world must be understood by U.S. citizens. The March 2007 tariffs on some paper products from China will make little difference. Giant retailers Wal-Mart, Target, CostCo, and others, which buy huge quantities of goods from China have facilitated their rapid penetration of U.S. markets at below-cost prices that U.S. manufacturers cannot match (see "The China Price" report in Business Week Dec 6, 2004). Meanwhile, China can be expected to continue using its pile of surplus dollars to acquire U.S. companies as well as other assets around the world.

All these issues are part of the continuing "good news -- bad news" changes due to globalization of the financial markets, following obsolete trade theories that even "free trade" ideologue, Jagdish Bhagwati, of Columbia University now thinks might be harming, not helping, the U.S. economy. Adding to U.S. problems, the soaring cost of college students carrying unsupportable loans. A new report from the National Center for Public Policy and Higher Education warns that the share of the U.S. workforce with high school and college degrees could decline over the next 15 years.

The corporate scandals continue unabated, focused now on executive pay, private equity deals, and the hedge fund industry. New worries that hedge funds and banks had lost track of their credit derivatives trades - now ballooned to some $62 trillion, poses a new threat (The Economist, March 15, 2008). In my conversation with John C. Bogle, founder of the Vanguard Group of mutual funds, he stressed the need for institutional investors to assert more oversight since the 100 largest pension and mutual funds now own 56% of all U.S. equities. He added, "strong managers, weak directors and passive investors -- and the looting begins." In 2003, at the urging of reformers like Bogle, independent shareholder activist Robert Monks, author of The New Global Investors (2000), and the Calvert Group, the Securities and Exchange Commission over-rode lobbying by the Investment Company Institute and instituted new rules requiring mutual and investment advisors to disclose how they voted their proxies at the annual meetings of companies whose shares are owned in their portfolios. Robert Monks explores needed reforms in his Corpocracy (2007 forthcoming).

In spite of all the 2007 stock market turbulence, and all the worries about corporate governance, the U.S.'s 100 million investors have recouped most of their losses from the bursting of the dot com bubble in 2000. Between 2002 and 2004, the U.S. economy was boosted by the $400 billion in extra cash from mortgage re-financing. In 2007, this stimulus is drying up as house prices fall and interest rates rise. Uncertainties continue, regarding inflation rates, interest rates, oil prices, and rates of job creation while stock prices gyrate. November's productivity increase of 6.3% produced weaker job growht of 94,000.  Economists now acknowledge that the flip side of corporate productivity is weaker job growth. One thing we can be sure of continuing in 2007 is accelerating global changes.

These changes are being driven by the ever-increasing interactions between all the players in our globalized economy. Pension fund managers from 16 countries, announced that new signatories to their Principles of Responsible Investing have now brought their total assets to $13 trillion (see Key Issues on www.Ethicalmarkets.com for more details). Financial asset managers are now taking climate change seriously, such as those managing over $1 trillion in employees' pension funds. Beginning at a UN-sponsored press conference in December 2003 and others in 2004 and 2005, most pension funds now require companies in their portfolios to disclose whether or not they had instituted climate risk mitigation plans. Britain's institutional investors, which own half of all the shares on the London Stock Exchange, released their Institutional Investors Group Principles on Climate Change in October 2006, pledging to incorporate climate change concerns into their decision making and requiring their asset managers to do the same. (Financial Times, Oct 3, 2006). The Carbon Disclosure Project represents $40 trillion managed by financial firms requiring companies to disclose their emissions and mitigation plans. The giant insurance company Swiss Re went further, announcing that it would become a "greenhouse gas emissions neutral company" -- offsetting all its carbon-emitting activities with environmental restoration programs. As the Kyoto protocol comes into force, many European and U.S. companies are taking similar proactive action, leaving U.S. lawmakers on the sidelines.  Australia's new Prime Minister, Kevin Rudd, will sign Kyoto, leaving the U.S. as the only industrial country outside the Treaty. This issue and similar ones that investors and companies are grappling with are now regularly addressed, for example see www.ceres.org.

I hope the Calvert-Henderson Quality of Life Indicators may whet your appetite to delve deeper and feed your interest in some or all of these aspects of quality of life. These Indicators are featured in the new financial TV series "Ethical Markets," which showcases the most ethical CEOs and companies, the cleanest and greenest technologies, and all the new indices of socially responsible companies. This new series is airing on many PBS stations covering 45 million households in the USA (see www.ethicalmarkets.com). The companion book Ethical Markets: Growing the Green Economy is available at Chelsea Green Books. Watch for the new TV series "Growing the Green Economy" on PBS stations in June and July 2007. We will continue tracking this holistic view of our lives, society, and the economy, so that you can remain empowered with these facts, as citizens, consumers, employers and investors. Below are links to more details about current issues relating to:

Hazel Henderson can be reached at www.hazelhenderson.com