Lesson 1: What's Up in the Bond Market?

Bonds have been in the news a lot in the last few weeks. Yields on the ten-year United States Treasury note jumped to their highest level in five years, before easing. Bonds are debt owed by a government or a company. The holder of a bond is paid interest until the date when the bond matures. Then the amount of the bond, its face value, is paid back. Investors can buy a new bond and keep it until it matures. Or they can buy and sell existing bonds. The return on a bond is called the yield. Yields and prices of existing bonds can change as investors trade them. Yields fall when investors seek the security of bonds and are willing to pay higher prices. Yields increase as prices fall. This month, yields on the ten-year Treasury note rose above five percent for the first time in close to a year. Higher yields raise the cost for individuals and businesses to borrow money at interest rates that are tied to the ten-year note. Rising yields can also hurt stock prices. When yields rise, investors often sell stocks in order to buy bonds. If investors can get high yields holding low-risk bonds, or simply keeping money in the bank, they will do it. Yet holding bonds can also have risks as values for new and existing bonds change in the market. Bond prices can also drop on signs of inflation. But inflation does not seem to be a threat with the current softness in the American housing market. New housing starts fell more than two percent in May. Most experts believe the United States central bank will keep interest rates unchanged when policy makers meet next week. But many investors are concerned about pressure for higher interest rates in Europe and Asia. Another influence on the bond market is the willingness of foreign countries to buy United States government debt. In Asia there have been signs that some countries that hold a lot of low-yield debt want greater returns on their investments. China, for example, recently announced it will invest three billion dollars in the Blackstone Group, the private-equity company in New York. For much of the last year, bond yields have been inverted. Short-term debt returned higher rates than long-term debt. In the past, an inverted yield curve was thought to signal a possible recession. Now things are back to what is considered "normal" with long-term debt paying higher yields.

Lesson 2: World Trade Talks Break Down as the Group of 4 Fail to Reach Agreement

Talks meant to end disagreement over international trade failed to produce results in Potsdam, Germany last week. The European Union and the United States sought to find common ground with Brazil and India on several trade issues. The group has become known as the G-Four in World Trade Organization negotiations. But neither side could agree and talks ended last Friday, two days earlier than expected. Brazil and India have been seeking big cuts in aid provided to farmers in industrial countries. The two nations have played the part of spokesmen for many of the least developed nations in the one- hundred-fifty-member W.T.O. During the talks, the United States offered to limit farm aid, or subsidies, to seventeen billion dollars a year. That is down from twenty-two billion dollars offered in October of two thousand five. But Brazil wants the United States to promise a bigger reduction in farm aid to below fifteen billion dollars. Currently, American farmers receive a total of about eleven billion dollars a year in subsidies. Indian Trade Minister Kamal Nath blamed the United States' position on farm aid for the failure of the talks. But India wants to protect twenty percent of its farm product import taxes from all or most cuts. United States Agriculture Secretary Mike Johanns said that would leave almost all of India's import taxes in place. An official at the talks said the EU offered to cut import taxes on its most protected farm products by seventy percent. That is ten percentage points higher than its proposal from October, two thousand five. Products considered especially important would only receive subsidy cuts of twenty-three percent. The Doha round of W.T.O. negotiations started in November of two thousand one. A main goal was for rich countries to reduce their farm subsidies on important crops like cotton, sugar and corn. In return, developing countries would reduce or end barriers to trade in goods and services from industrial countries. Now, negotiations of the Doha Round will have to continue in Geneva, Switzerland. United States Trade Representative Susan Schwab said nations want to reach agreement on the Doha development plan. But she admitted that negotiations only among the G-Four nations may not be enough.

Lesson 3: The Value of Teaching About Money

Personal finance is an increasingly complex world. There are more ways to invest money, more ways to save it -- and more ways to lose it. Yet many people are more strangers to this world than they might like to admit. In the United States, there are growing calls to do more to help young people learn skills in financial literacy. Some efforts begin in high school. But more and more information is available on the Internet, not only for young people but also for adults. The goal is to teach about budgeting, saving, investing and using money. The United States Financial Literacy and Education Commission was established in two thousand three. This government group supervises financial education efforts through nineteen federal agencies. Information on financial literacy and education can be found at its Web site. The address is MyMoney.gov. It includes links to agencies that deal with banking, buying a home, investing and other areas. The National Council on Economic Education has found that seventeen states now require high school students to take a class in economics. This number has grown from thirteen in nineteen ninety-eight. As of three years ago, half of all states required students to take a class in personal finance. Yet that number has fallen, from twenty-five to twenty-two. The National Council on Economic Education sells textbooks for grades four through twelve. It also offers free materials for teachers. The information is available at ncee.net. Teachers say parents also need to play a larger part in educating their children about money. A recent study found that seventy percent of college students said they received financial advice mainly from their parents. Investment companies also offer information. Charles Schwab, for example, has a Web site to help parents teach their kids about money and investing. The address is SchwabMoneyWise.com. One of the first tastes of financial independence that many young people get is through summer jobs. Junior Achievement is an organization that teaches young people about finance and business. It says almost three-fourths of young people questioned said they planned to have a summer job.

Lesson 4: Junior Achievement Teaches Business Skills to Young People

Junior Achievement is an international movement to educate young people about business and economics. The purpose is to help them prepare to succeed in a world economy. The organization is the largest of its kind. JA Worldwide says it reaches about seven and one-half million students each year in nearly one hundred countries. Programs begin in elementary school and continue through middle and high school. The education is based on the ideas of market-based economics and entrepreneurship. Junior Achievement began in nineteen nineteen in Springfield, Massachusetts. Two business leaders, Horace Moses and Theodore Vail, joined with Senator Murray Crane of Massachusetts to start it. For more than fifty years, Junior Achievement programs met after school. They began as a group of business clubs. The organization started with a small number of children ages ten to twelve. But in nineteen seventy-five, Junior Achievement began to offer classes during school hours. Many more young people joined the organization once it began to teach business skills as part of the school day. Volunteers from the community teach about businesses, how they are organized, and how products are made and sold. They also teach about the American and world economies, the money system, industry and trade. The Junior Achievement Company Program teaches young people how entrepreneurship works. They learn about business by operating their own companies. The students develop a product and sell shares in their company. They use the money to buy the materials they need to make their product, which then they sell. Finally, they return the profits to the people who bought shares in the company. Junior Achievement says more than two hundred fifty thousand volunteers support its programs around the world. In the United States alone, there are more than twenty-one thousand places that hold Junior Achievement events. Junior Achievement Incorporated and Junior Achievement International combined their operations in two thousand four. They formed Junior Achievement Worldwide. Its headquarters are in Colorado Springs, Colorado.

Lesson 5: Trying to Renew Trust in 'Made in China' Label

China has recently been faced with serious issues of product safety. Some In May, the Costa Rican Health Ministry ordered the removal of this Chinese toothpaste and other kinds made in China. cases have brought attention internationally to the increased use of imported ingredients to make food and medicine. In Panama, medicine made with a poisonous chemical killed or sickened more than one hundred people. A Chinese company had identified the additive as glycerin, a safe sweetener and thickener. But it was really diethylene glycol, a low-cost substitute commonly used in automobile antifreeze. Some countries have banned Chinese-made toothpaste containing diethylene glycol. China has now told companies to discontinue this use, even though it says the toothpaste is safe. Another industrial chemical, melamine, was found in wheat flour used to make pet food in North America. Thousands of dogs and cats died or became sick. The United States has restricted some imports of Chinese seafood because they contained banned substances. And questions have been raised about other products, including children's toys covered in lead paint. The European Union is China's biggest trading partner. Meglena Kuneva, its commissioner for consumer protection, was in Beijing this week. Chinese officials promised her they would provide the European Union with detailed reports on enforcement efforts against unsafe goods. China agreed in January of last year to do this every three months. She said China has not done so. Li Changjiang is director of the State Administration of Quality Supervision, Inspection and Quarantine. She said China will work to guarantee the quality of its products. China recently closed three companies linked to the Panama deaths and the pet food scare. And it executed the former head of its food and drug administration. He was found guilty of corruption for approving unsafe drugs. ek, China said a conference of the State Council approved a proposed special measure on the supervision of food safety. The Xinhua news agency said it calls for stronger controls over producers, greater responsibilities for government and more serious punishment for illegal activities. But Chinese officials have accused some foreign media of overstating problems with goods made in China. They say food imports from the United States also fail inspection sometimes. Next week, American and Chinese food safety officials plan to hold five days of meetings in Beijing to discuss cooperation.

Lesson 6: Murdoch's News Corp to Buy Dow Jones

One of the top stories in business news this week was -- business news. Dow Jones agreed to be bought by News Corporation. This means the publisher of the Wall Street Journal will be owned by the media company controlled by Rupert Murdoch. The two companies announced Wednesday that they have signed a merger agreement. The deal is valued at just over five and a half billion dollars. For the past century, the controlling shareholder in Dow Jones and Company has been the Bancroft family. The announcement said family members with about thirty-seven percent of Dow Jones' voting stock have agreed to support the deal. That would represent a majority of the sixty-four percent share owned by the family. The deal ends four months of negotiations that deeply divided the Bancrofts. Reports say family members agreed to the deal after a promise of at least thirty million dollars to pay their lawyers and financial advisors. Rupert Murdoch's offer to buy Dow Jones became public in May. His offer of sixty dollars a share was sixty-seven percent above the market price at the time of the offer. The deal is seen as a major prize for the Australian-born Murdoch, who became an American citizen in nineteen eighty-five. He has built a media business currently valued at seventy billion dollars. His company owns more than one hundred newspapers in Australia, Britain and the United States. It also owns Fox television, including Fox News Channel, "American Idol" and "The Simpsons." A new Fox Business Channel is set for launch in October. Other holdings include the Twentieth Century Fox movie company and the social-networking site MySpace. Shareholders in News Corporation and Dow Jones are expected to vote on the deal later this year. Government approval is also needed. Financial news is an increasingly competitive industry. Rupert Murdoch is expected to invest heavily in Dow Jones and the Wall Street Journal. Media observers are debating what effects his ownership might have on one of the world's most respected newspapers. Some say News Corporation might try to limit reporting on its own activities. Others note Rupert Murdoch's conservative politics and wonder what influence that might have. A five-member committee has been named to protect the newsgathering independence of the Journal and other Dow Jones publications.

Lesson 7: Will Credit Risk Weigh Down Debt Markets?

Liquidity is the ease with which an investment can be sold and turned into money. For example, when a stock is traded easily, the market for it is said to be liquid. Liquidity can also suggest the ease with which money can be raised in debt markets. And this is where concerns are being raised. Offering credit always carries some risk that the loan will not be repaid. Now experts are saying that investors are as concerned about debt risk as they have been since two thousand one. One way to measure investors' concern is by their willingness to buy new debt investments. Recently, banks, led by J. P. Morgan, postponed the sale of twelve billion dollars in bonds for the carmaker Chrysler. The bond offering was part of a deal by private equity company Cerburus Capital Management to buy Chrysler from German carmaker Daimler. Reports say the deal is not in danger. But it could mean an increase in borrowing costs. American markets are not the only ones in which banks are having trouble selling bonds. American private equity company Kohlberg Kravis Roberts hoped to raise over ten billion dollars in bonds. This was part of a deal to buy Alliance Boots, a European company that sells medicines. But a group of banks had to postpone the sale because of a lack of buyers. Conditions for big deals by private equity companies appear to be cooling. Private equity companies depend on liquid debt markets to lend them money. And investors are less willing to put money into debt securities. Part of this is the flight from risk involving investments based on subprime home loans. These loans carry lower than average credit quality but also pay higher interest rates. Credit rating agencies are now recognizing that investments based on subprime home loans are riskier than investors have thought. Too many high-risk loans were blamed for the failure of the nation's second largest subprime lender. New Century sought bankruptcy protection from its creditors in April. Investor flight from risk means that debt market liquidity could dry up as interest rates rise. But it is too early to tell. The Federal Open Market Committee of the Federal Reserve did not change the federal funds rate when it met on Tuesday. The important interest rate remains at five and one fourth percent.

Lesson 8: Economics Not Such a Dismal Science for US High School Students

How much do American high school students know about economics? A new report shows that seventy-nine percent of twelfth-graders have at least a basic level of understanding. The results come from testing eleven thousand five hundred students last year in public and private schools. In fact, students did better in economics than in history or science. Only forty-seven percent of those tested reached the basic level in history. And fifty-four percent performed at or above the basic level in science. This is the first time the federal government has measured economic understanding among high school students. The study was done as part of the National Assessment of Educational Progress, called the Nation's Report Card. Only one-third of the fifty states require it, but most students these days study some economics in high school. In nineteen eighty-two, forty-nine percent of high school graduates had taken an economics class. By two thousand five it was sixty-six percent. The study rated understanding at three levels: basic, proficient and advanced. Forty-two percent of students reached the proficient level. Three percent tested at the highest achievement level. Students received a score with a point value between zero and three hundred. The report says male students scored an average of four points higher than female students. And students from schools in large cities did not do as well as those from other places. Students answered questions in three major areas: market economy and national and international economy. Seventy-two percent could describe the risks and possible rewards of leaving a job for more education. Fifty-two percent knew what happens to money deposited in banks. But only eleven percent understood how changes in the unemployment rate affect pay, spending and production. The next economics testing will take place in two thousand twelve. So what does happen to most of the money deposited in checking accounts at a commercial bank? A) It is used to pay the bank's expenses. B) It is loaned to other bank customers. C) It is kept in the bank's vault until depositors withdraw the funds. Or, D) It is paid to owners of the bank as return on their investment. The correct answer: B) It is loaned to other bank customers.

Lesson 9: Recalls Add to Pressure on Toy Industry

Parents know about supply and demand. What they supply is not always what children demand. Toymakers have the same problem. These days, they not only face greater competition -- kids have more entertainment choices than ever. But parents could also become more choosey. Last week, the worlds largest toy company announced the largest recall in its history. Mattel is recalling more than eighteen million toys that contain small, powerful magnets. These can cause serious injury if swallowed. One death has already been reported. The toys were made over the past five years based on Mattel designs that the company says have now been improved. Mattel combined its announcement with a separate recall of more than four hundred thousand toy cars. Mattel said the manufacturer, Lee Der Industrial in China, used lead-based paint without permission. Chinese media said the company owner hanged himself. The vehicles are based on the "Sarge" character in the movie "Cars." Mattel is based in California but makes about sixty-five percent of its products in China. The company promises greater testing. On August first, Mattel recalled almost one million toys from its Fisher-Price division because of lead paint. That recall cost the company thirty million dollars. Other companies have also recalled children's products. Last week Toys "R" Us recalled baby bibs made in China. Independent tests showed that the vinyl bibs contained high levels of lead. The seller of a simple test for lead in products has seen its sales jump. The kit from Homax can be found in stores including home improvement centers. Homax's Donald Hamm says the company is receiving five or six calls each day from businesses wanting to sell the LeadCheck kit. The company has now set up a Web site to sell directly to the public, at leadtesttoys.com. China has formed a cabinet-level committee to improve the quality and safety of its exports. This follows a number of recalls around the world. But China has also criticized the quality of some American imports. And it has accused the United States and the European Union of trade protectionism. The American toy industry is worth an estimated twenty-two billion dollars. Eighty percent of the toys are made in China. But now several companies that still make toys in the United States are reporting increased sales.

Lesson 10: How Bad Loans in US Have a Far Reach

A listener in China named Turbo wonders why problems with subprime home loans in America can influence world markets. Subprime mortgages are loans to people who may not have enough money to repay them. These and other risky housing loans are often grouped with other mortgages and sold as debt investments. Investors all over the world have bought bonds and other securities based on subprime mortgages as a way to earn higher returns. Sometimes, the investors are banks that want to spread their risk by investing in several different countries. What happened in late July to a German bank, however, is an example of spreading risk with bad results. IKB Deutsche Industriebank had put money into American debt securities, including some based on subprime loans. Some of those loans started to fail. The bank was in danger of not being able to pay its short-term debts. Other German banks, led by the governmentowned KfW Group, agreed to provide almost five billion dollars to aid IKB. In early August, the French bank BNP Paribas had to temporarily bar investors from withdrawing money from three investment funds. Their value dropped by twenty percent in less than two weeks. The bank blamed difficulties in valuing its holdings in the subprime market. Worries over subprime loans have hurt even some of the biggest lenders in the United States. On August sixteenth, the nation's biggest housing lender, Countrywide Financial, had to turn to banks to finance its short-term debt. Normally the company would raise the money in financial markets. Many took this as a sign that investors were becoming unwilling to provide short-term loans to companies. Especially companies involved with subprime loans. A shrinking debt market, a credit crunch, can affect stock markets. Not only have subprime losses hurt financial stocks. Many companies depend on credit. Private equity groups often use borrowed money to finance buyouts of publicly traded companies. Hedge funds also use borrowed money for their investment activities. In an effort to calm financial markets, the Federal Reserve two weeks ago cut the rate it charges banks to borrow money. Many investors hope the central bank will cut its main short-term interest rate when policymakers meet on September eighteenth.

Lesson 11: Starting a Business Means Getting Organized

Businesses are structured in different ways to meet different needs. The simplest form of business is called an individual proprietorship. The proprietor owns all of the property of the business and is responsible for everything. This means that the proprietor gets to keep all of the profits of the business, but also must pay any debts. The law recognizes no difference between the owner and the business. Another kind of business is the partnership. Two or more people go into business together. An agreement is usually needed to decide how much of the partnership each person controls. There are limited liability partnerships. These have full partners and limited partners. Limited partners may not share as much in the profits, but they also do not have as many responsibilities. Doctors, lawyers and accountants often form partnerships to share the profits and risks of doing business. A husband and wife can form a business partnership. Partnerships can end at any time. But partnerships and individual proprietorships exist only as long as the owners are alive. The most complex kind of business organization is the corporation. Corporations are designed to have an unlimited lifetime. Corporations can sell stock as a way to raise money. Stock represents shares of ownership in a company. Investors who buy stock can trade their shares or keep them as long as the company is in business. A company might use some of its earnings to pay dividends as a reward to shareholders. Or it might reinvest the money into the business. If shares lose value, investors can lose all of the money they paid for their stock. But shareholders are not responsible for the debts of the corporation. A corporation is recognized as an entity -- its own legal being, separate from its owners. A board of directors controls corporate policies. The directors appoint top company officers. The directors might or might not hold shares in the corporation. Corporations can have a few major shareholders. Or ownership can be spread among the general public. But not all corporations are traditional businesses that sell stock. There are nonprofit groups that are also organized as corporations.

Lesson 12: Homeowners Struggle With Rising Loan Rates, Falling House Prices

In the last few years, many Americans have bought houses with ARMs: adjustable-rate mortgages. These loans usually begin with lower interest rates for the first two or three years than fixed-rate mortgages. Then the rate changes as major interest rates rise or fall. Holders could be surprised by their new, larger monthly payments as their loans reset to a higher rate. Some people may not even know they have adjustable-rate mortgages. Some lenders and brokers who found loans for people are accused of misleading borrowers. Yet borrowers often did not even have to show proof of earnings. Now, many people who took out adjustable-rate mortgages may not be able to make their payments. And not only holders of risky subprime loans; even buyers with better credit histories could lose their homes. Next week, the Federal Reserve in Washington is expected to cut its target rate for short-term loans between banks. But long-term rates are the ones that affect things like housing loans, and these have been rising. Investors have been demanding higher returns in exchange for the risk of keeping money in longer-term securities. Federal Reserve records show that homebuyers currently hold eight hundred fifty billion dollars in subprime adjustable-rate mortgages. The nonprofit Center for Responsible Lending points to numbers from UBS Investment Research. These show that two hundred twelve billion dollars in subprime ARMs will reset to a higher rate this year. Over one hundred seventy billion dollars in loans will reset next year. The Center for Responsible Lending says subprime borrowers are the ones having the most trouble right now. One in five of them who received their loans in the last two years could lose their home. Some homeowners hope to refinance their loans to avoid higher payments. But this is a bad time in the housing market. Falling home prices could make it difficult to refinance. This is true especially for buyers who were permitted to use little or no money of their own to buy their house. Two weeks ago, President Bush announced some steps to help families avoid losing their homes while faced with rising payments. But last Friday there was more bad news: the economy lost four thousand jobs last month. It was the first time employers have cut jobs in four years.

Lesson 13: US Central Bank Moves to Ease Credit, Protect Economy

A listener from Indonesia named Efendy asks why the Federal Reserve is so important and how it works. This week offered a good example. The Federal Reserve System is the United States central bank. Its Federal Open Market Committee, led by Fed chairman Ben Bernanke, makes monetary policy. It makes decisions that affect the cost of money and credit in the economy. On Tuesday the committee lowered its target for the federal funds rate to four and three-quarters percent. This rate is what banks pay other banks to borrow money overnight. It was the first cut in four years. Major banks including Bank of America, Wachovia and Wells Fargo soon followed with cuts in their prime rate. This is what banks charge their best customers. Financial markets expected a rate cut from the Fed. But the size -- fifty basis points, or half a percentage point -- was double what many people expected. And it persuaded many that the Fed is more concerned about the possibility of a recession than about inflation. Such concerns rose earlier this month on news that in August the economy lost jobs for the first time in four years. That added to worries about the housing finance crisis. The committee said economic growth was moderate during the first half of the year. But it said the reduced availability of credit could intensify the current housing problems and restrain economic growth. The policy makers also said that some inflation risks remain and will be watched carefully. The Fed's action will help some homeowners and other borrowers. What is not clear, though, is how much it will do for many homeowners facing sharply higher payments. Their payments on adjustable-rate mortgages will still go up, though not as high as they would have. By the end of next year, an estimated two million or more holders of subprime loans will have their rates reset higher. These loans were made to people with weak credit histories. The Fed also cut its discount rate for direct loans to banks by half a point, to five and one-quarter percent, to increase their lending ability. The traditional opinion of borrowing from the so-called discount window was that it represented a sign of weakness. Stock markets rose sharply after the Fed cut interest rates. But not everyone was so pleased. Some experts warn that cutting rates could raise inflation. They also say it helps those who made unwise borrowing decisions.

Lesson 14: GM Deal on Health Costs Signals Change for US Auto Industry

Labor relations in the American auto industry took a new turn this week with a deal that many are calling historic. General Motors and the United Auto Workers agreed on a proposed new contract after a strike that lasted two days. Seventy-three thousand union workers walked off the job. Job security was the top issue for union members. The U.A.W. is seeking to protect jobs in the United States and limit the number of temporary workers used by General Motors. For G.M., the main issue was to find a way to cut its costs for health care for retired workers. The nation's largest automaker estimates its long-term responsibilities at more than fifty billion dollars. Under the agreement, G.M. would create a trust called a volunteer employee benefit association. This VEBA would pay health care costs for retirees. G.M. is expected to invest about thirty-five billion dollars to start the fund. The fund would be independently administered and the union would supervise it. United Auto Workers President Ron Gettelfinger said the fund should secure benefits for retirees for the next eighty years. G.M. has seen its share of the North American market shrink while its labor costs have remained far above its biggest competitor, Toyota. The deal would give G.M. the right to lower pay for some new employees. The agreement is likely to provide an example for coming talks with the two other major American automakers, Ford and Chrysler. The new contract still needs final approval by the union. Until then the full details are not being released. The union expects its members to begin voting this weekend. The trust would also need approval by the courts and the Securities and Exchange Commission. The process is expected to take two years. After that, G.M. would no longer have to pay for health benefits for its retirees. Chief Executive Rick Wagoner said the agreement will help his company become more competitive. This, he says, will permit G.M. to keep a strong manufacturing presence in the United States and make future investments. This was the first nationwide strike against G.M. since nineteen seventy. The existing contract ended at midnight on September fourteenth. Union members continued working until their leaders called the strike Monday morning. The strike ended early Wednesday after negotiators reached the agreement.

Lesson 15: 'Agflation' Raises Grain Prices, but Not Corn Ethanol

Right now, many people around the world are feeling the pain of "agflation." Agricultural inflation has been hitting the price of grains and other products. Food prices have risen under pressure from energy costs and growing world demand for food, as well as local problems like the weather. In the United States, grain prices are reaching historic highs. And supplies have dropped to lows not seen since the nineteen seventies. For one of America's leading crops, the growing use of corn to make fuel has driven up the price. The government has strongly supported ethanol production. In two thousand five, Congress set a national goal of using twenty-eight billion liters of ethanol a year by two thousand twelve. President Bush and Congress have since expanded that goal. As a result, farmers are planting more corn. But more hectares of maize for ethanol mean fewer hectares for crops like soybeans. Meat producers now have to pay more for soybeans because there is less available for animal feed. This is how corn-based ethanol affects the price of meat products. Rising grain prices could signal a change for agricultural commodities around the world. For years, developing countries have opposed government support for farmers in wealthy nations. They make the case that farm subsidies drive down prices for agricultural products, hurting poor farmers. Subsidies have been one of the major disputes limiting progress in the Doha development round of world trade talks. Now, there is worry that the increasing demand for food could drive prices too high, hurting the buying power of the world's poor. Many developing countries have a growing middle class. More people than ever have money to buy high-value agricultural products like meat and milk. In China, for example, Premier Wen Jiabao has called for increased milk production. More milking cows means the need for more feed. Yet prices are not rising for all agriculture-based products. In the United States, while the price of corn remains high, it has not affected ethanol prices. In fact, in recent months, those prices have dropped about thirty percent. Production has expanded faster than demand, so now there is a big oversupply of ethanol.

Lesson 16: Making Sense of a Weak Dollar

Weak or strong. Which is better? If the question is about the American dollar, the answer depends on whom you ask. The dollar has been weakening against several major currencies. One euro is currently worth about one dollar forty cents. A British pound is worth over two dollars. Many widely traded products are bought and sold in dollars. These commodities include oil, soybeans and metals like copper. A weak dollar can mean a better deal for foreign buyers. But for oil producers and countries that tie the value of their own money to the dollar, weakness reduces their purchasing power. A weak dollar, though, may help reduce the American trade deficit because it makes American exports less costly. But in the United States it can raise the cost of imports. An exception is imports from China. The Chinese government sets the value of the yuan on foreign exchanges. This year the yuan has increased less than four percent against the weakening dollar. This has kept the prices of Chinese imports low. In other cases, however, a weak dollar hurts American businesses that deal in imported goods. They may have to raise prices or sacrifice profits. Many companies do not want to raise their prices for fear that they may lose market share. The Federal Reserve has said that inflation remains under control. But the Fed says it is prepared to take action if inflationary pressures increase. Last month the central bank cut short-term interest rates by half a point. It did so to help keep problems in the housing and credit markets from harming the wider economy and causing a recession. But some economic worries appeared to ease after the latest jobs report last Friday. The Labor Department said employment increased by one hundred ten thousand jobs in September. Also, new numbers for August showed a gain of close to ninety thousand jobs. The department had earlier reported that the economy lost four thousand jobs in August, the first report of job losses in four years. Still, critics warn of dangers from a weaker dollar and lower interest rates, which reduce the returns on dollar-based investments. A New York Times commentary, for example, said dollar weakness is rooted in the borrow-and-spend behavior of the government and the public. It said foreign lenders will be less and less likely to want to invest in dollars, and that will only make things a lot worse.

Lesson 17: 2007 Nobel in Economics: Designing Better Markets

Many things perform effectively but not efficiently. To be efficient means to produce a desired effect with as little waste as possible. How can markets be designed to make them more efficient? This is a question that the three winners of this year's Nobel Prize in economics have tried to answer. They established mechanism design theory. It began with work by Leonid Hurwicz of the University of Minnesota in nineteen sixty. Eric Maskin of the Institute for Advanced Study in Princeton, New Jersey, and Roger Myerson of the University of Chicago further developed it. The three Americans will share the award worth about one and a half million dollars. The Royal Swedish Academy of Sciences announced the winners this week. In everyday life, there are many things that get in the way of efficient markets. There may not be true competition. Buyers and sellers may keep some information private from each other. Also, the production and use of goods may result in outcomes like pollution or social costs. Mechanism design theory permits economists to identify situations where markets work well and where they do not. For example, it shows why an auction is generally the most efficient way to sell many kinds of goods. In fact, experts say the theory explains why a version called a double auction is often the best way to trade. In a double auction, buyers and sellers both make price bids. The Swedish academy says the theory also explains why there is often no good market solution to providing some goods, like uncrowded roads. Mechanism design theory is part of the wider economic idea of game theory and it has many uses -- including in political science. Roger Myerson even built a mathematical model for elections. He found a voting system that he says would have helped Florida avoid its problems in the two thousand presidential election. The Nobel Prize award ceremonies will take place on December tenth. The official name of the economics award is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The Swedish central bank created the prize in nineteen sixty-eight. Leo Hurwicz was born in Russia in nineteen seventeen. He developed new ways to understand markets. He began his work after World War Two. At ninety years old, he is the oldest person ever to win a Nobel Prize.

Lesson 18: Microsoft, the EU and Facebook

This week, Microsoft agreed to end its fight against European Union competition officials. The world's largest software company withdrew its remaining appeals at a European court. Microsoft has faced record European Union fines and may still owe more. But it says it wants to put its energies into meeting its legal duties and strengthening its relationship with the European Commission. In two thousand four, the commission ordered Microsoft to share information with competitors. This information would help them develop software for server computers to "interoperate," or work easily, with Windows. Windows is the Microsoft operating system found on more than ninety percent of personal computers. The company argued that it needed to protect trade secrets. But now, Microsoft has agreed to share secret information with developers for a one-time payment of ten thousand euros. That is about fourteen thousand dollars at current exchange rates. Microsoft also wanted to charge competitors almost six percent of the sales from products that use its information. But in the end it agreed to charge less than half a percent for worldwide use. The European Union began to investigate Microsoft in nineteen ninety-eight after Sun Microsystems accused the company of being anti-competitive. Microsoft, based in Redmond, Washington, fought back. But last month, it lost a big ruling. The second-highest court in the European Union agreed that Microsoft abused its market position. In a separate case, Microsoft decided last week not to appeal a thirty-four million dollar fine by the Fair Trade Commission in South Korea. But Microsoft could at least claim a victory in one of its efforts to expand its Internet business. This week it won the right to invest in Facebook and to expand an advertising partnership with the social networking site. Facebook chose Microsoft over Google, the leading Internet search company. Microsoft will invest two hundred forty million dollars to buy a one and one-half percent interest. Microsoft values Facebook at fifteen billion dollars. Facebook reportedly expects about one hundred fifty million dollars in revenue this year. The company will be four years old in February and says the site has almost fifty million active users. And that's the VOA Special English Economics Report, written by Mario Ritter. Our reports are online with transcripts at voaspecialenglish.com. I'm Jim Tedder.

Lesson 19: Finance: Merrill Lynch CEO O'Neal Is Out After Huge Loss

This week, directors of investment bank Merrill Lynch forced out its chief executive officer, Stan O'Neal. He retired less than a week after Merrill reported its first quarterly loss in six years, and the biggest in its ninety-three-year history. Merrill is the world's largest brokerage company. It lost over two billion dollars in the period from July through September. That was because of more than eight billion dollars in write-downs. A write-down represents a reduction in the value of investments or other assets. The results were mostly related to subprime mortgages -- housing loans to people with risky credit histories. Merrill has had the largest losses so far of any American bank with investments tied to subprime loans. Many of these investments are complex securities called collateralized debt obligations. Merrill had almost eight billion dollars in write-downs on C.D.O.s and subprime mortgages. That was even more than the four and one-half billion dollars expected. Its other divisions, however, remained profitable. Stan O'Neal worked for Merrill Lynch for twenty-one years. He held the top job since two thousand two. Board members were angry at the losses and at reports that he proposed a merger deal with Wachovia Bank without their approval. He chose most of the members of that board. Critics say he failed to listen to warnings about the risk of subprime debt. Yet his decisions to make riskier investments than chief executives before him helped produce record profits for the company. He also pushed to reduce costs, including thousands of job cuts -- a culture change for a company that was known as "Mother Merrill." He leaves with about one hundred sixty million dollars worth of stock and retirement pay. Stan O'Neal was the first African-American to lead a major Wall Street investment bank. He rose out of poverty. As a boy he picked cotton on a family farm in Alabama. Later he was a factory worker at General Motors. Some market watchers think Merrill Lynch may have to write down an additional four billion dollars in the fourth quarter of the year. But the company was not alone in reporting big third-quarter losses. In Europe the investment bank UBS said it lost about seven hundred million dollars. It wrote down more than three billion dollars of investments linked to subprime loans. And UBS warned that it could end the year with more losses.

Lesson 20: Citigroup's Prince Resigns as CEO

Last week, we told you about big losses at the investment bank Merrill Lynch. But the losses may be even bigger at the nation's biggest bank, Citigroup. Citigroup estimated this week that it would take losses of eight billion to eleven billion dollars on investments in risky housing loans. Many people who bought houses with subprime mortgages are now unable to pay them back. The estimated write-downs are for the bank's current period, October through December. Citigroup says they represent five to seven billion dollars after taxes. The bank reported six and a half billion dollars in credit-related losses for the third quarter of the year. Charles Prince, Citigroup's chief executive officer, resigned under pressure on Sunday. He led the New York-based bank since two thousand three. He took over for Sanford Weill who built Citi into one of the world's largest financial groups. Win Bischoff, chairman of Citi Europe and a British and German citizen, will serve as chief executive for now. Former United States treasury secretary Robert Rubin was named chairman of the board. He will help lead the search for a permanent replacement for the C.E.O. Charles Prince was the second head of a major bank to be forced out in recent days. Last week, Stan O'Neal resigned at Merrill Lynch after his company reported a loss for the third quarter of over two billion dollars. Merrill Lynch had to write-down eight billion dollars in mortgage-related losses. Citigroup announced that it has fifty-five billion dollars worth of investments directly related to subprime mortgages. Forty-three billion dollars of that is in complex investments called collateralized debt obligations. A big problem for banks is putting a value on the mortgage-related securities that they hold. Investors are no longer interested in trading these securities. This has frozen the market for them. So banks like Citigroup depend on mathematical models to place a value on these complex investments. Credit rating agencies reacted to this week's bad news. Moody's Investors Service lowered Citigroup's credit rating one level to its third highest rating. Moody's said the expected write-downs would result in a sizeable quarterly loss for Citigroup. And that's the VOA Special English Economics Report, written by Mario Ritter. To learn more about the problems with subprime mortgages, go to voaspecialenglish.com. I'm Steve Ember.

Lesson 21: Petroleum: A Short History of Black Gold

With oil around one hundred dollars a barrel, this may be a good time for a short history of petroleum. Petroleum has been important since ancient times. The Greek historian Herodotus told of its use in the form of pitch for building and road making in the ancient city of Babylon in present-day Iraq. In Latin, the name means "rock oil." Petroleum is a fossil fuel. The liquid comes from the remains of plants and animals that died millions of years ago. These remains were buried deep below levels of rock over time and under great pressure. This geological process created complex molecules of hydrogen and carbon. Oil can also contain other elements. Crude oil, or unprocessed petroleum, is called sour when it contains a lot of sulfur, an impurity. Sour crude requires more refining than sweet crude, which is low in sulfur and, as a result, often more valuable. The modern history of oil started in the middle of the eighteen hundreds. At that time, a method was found to make kerosene fuel from petroleum. This kind of fuel became popular for heating and lighting. Edwin Drake drilled the first oil well in the United States in eighteen fifty-nine near Titusville, Pennsylvania. In the early eighteen sixties, John D. Rockefeller entered the oil business. Rockefeller and his partners understood the power of controlling all levels of production. By eighteen seventy, Rockefeller and his partners formed the Standard Oil Company. Standard Oil and other companies that it owned performed every level of production -- from drilling to refining to transporting and selling. But in its efforts to grow, Standard Oil was strongly criticized for crushing smaller competitors. Finally, in nineteen eleven, the United States Supreme Court ruled that Standard Oil was misusing its powerful market position. The ruling divided Standard Oil into thirty-four independent companies. Today, ExxonMobil, ConocoPhillips and Chevron are some of the companies whose roots go back to the breakup of Standard Oil. They are among the largest publicly traded companies in the world.

Lesson 22: The Worldwide Spread of Oil

When we think of oil, the part of the world that comes to mind first may be the Middle East. But petroleum development takes place worldwide. Nigeria, for example, is the largest oil producer in Africa and the eleventh largest producer in the world. Russia is the world's second largest exporter of oil and the top exporter of natural gas. But the country that produces and exports more oil than any other is Saudi Arabia. The Saudis hold one-fourth of the world's proven oil reserves. Last year, Saudi Arabia and other Persian Gulf countries produced about twenty-eight percent of the world's oil supply. The United States Energy Department says they also held fifty-five percent of known reserves. The other Gulf producers are Bahrain, Iran, Iraq, Kuwait, Qatar and the United Arab Emirates. Iran has ten percent of the world's proven oil reserves. Iraq is also estimated to have a large supply of oil, and unexplored areas may hold much more. In nineteen sixty Iran, Iraq, Kuwait, Saudi Arabia and Venezuela formed the Organization of the Petroleum Exporting Countries. Today OPEC has twelve members. The newest is Angola which joined this year. High oil prices have brought new attention to OPEC. Its members produce about forty percent of the world's oil. But two of the world's top three oil exporters, Russia and Norway, are not OPEC members. Its influence may have reached a high point during the oil crisis connected to the nineteen seventy-three Arab-Israeli war. Arab oil producers boycotted the United States, western Europe and Japan because of their support for Israel. Since then, new discoveries and increased production in areas including countries of the former Soviet Union have provided more oil. National oil companies are estimated to control about eighty percent of the world's oil supply. In recent years, rising oil prices have led more governments to act, either directly or indirectly, to take control of their oil industries. President Hugo Chavez has moved to nationalize oil operations in Venezuela. And in Russia, a series of actions resulted in state-owned Rosneft gaining control of reserves held by Yukos. Yukos was Russia's largest private company, until the government said it owed billions of dollars in taxes and jailed its founder, Russia's richest man.

Lesson 23: Sovereign Wealth Funds: When Governments Become Players

Last month, America's biggest bank, Citigroup, agreed to sell five percent of its shares to the government of Abu Dhabi. The deal, worth seven and a half billion dollars, was another example of growing investments by sovereign wealth funds. These are owned by governments. They are separate from the holdings of central banks. Sovereign wealth funds are estimated to hold more than two trillion dollars. The largest is the Abu Dhabi Investment Authority, established in nineteen seventy-six. The emirate does not say how much its fund is worth. Estimates are between five hundred billion and nine hundred billion dollars. Most sovereign wealth funds are tied to money from oil exports. Oil prices reached a record high near one hundred dollars a barrel in November. Oil is traded in dollars. And dollars have been flowing into Gulf economies like Abu Dhabi. But there is a limit to how much money can be pumped into an economy without causing inflation to jump. Brad Setser is a fellow for geoeconomics at the Council on Foreign Relations in New York. He notes that one problem facing these oil exporters is that their currency values are linked to the dollar, and the dollar has fallen. Oil exporters can use sovereign wealth funds to build up reserves of money to protect against a drop in oil prices. But a severe drop seems unlikely. So instead they are making foreign investments that they hope will pay good returns. Sovereign funds are known for highly conservative investments. But now some appear willing to take more risk. Not all funds involve oil money. A good example is the China Investment Corporation. This newly formed company is financed by selling government bonds and buying foreign exchange from the Chinese central bank. Much of the money in the China Investment Corporation is meant to provide capital for state-owned Chinese banks. The fund will also support the international expansion of state-owned Chinese companies. The fund is expected to reach a value of about two hundred billion dollars. Back to Abu Dhabi: Ministers from the Organization of the Petroleum Exporting Countries met there on Wednesday. They decided to leave OPEC production unchanged for now, but agreed to meet again February first. They also welcomed their thirteenth member, Ecuador, which rejoined OPEC in November.

Lesson 24: Helping Subprime Borrowers: Too Little? Too Much?

Imagine that you want to buy a house but are not sure you could meet the monthly payments. Your credit history is considered subprime -- not good enough for the lowest interest rates available. But a broker who finds lenders for homebuyers offers you a deal. A loan with payments low enough to fit your budget. After two or three years, however, your payments will go up, possibly thirty percent or more. Do you accept? In the United States, an estimated two million subprime adjustable-rate mortgages are expected to reset higher in the next two years. These loans make up about seven percent of all mortgages. But now many of the owners are in danger of losing their homes because of rising payments. Last week, President Bush announced a plan to help some people with subprime loan troubles. Treasury Secretary Henry Paulson brought together a new private alliance called HOPE NOW. He and other government officials met with lenders, loan servicers, investors and others to work out terms of the plan. The goal is to help families keep their homes -- and help avoid further injury to the already weak housing market. Lenders generally do not want to be in the business of selling houses reclaimed through foreclosure. The White House says as many as one million two hundred thousand homeowners could receive assistance under the plan. They could be helped in one of three ways, depending on their situation. One way is by refinancing an existing loan into a new private mortgage. Another is by moving their mortgage into a loan secured by the Federal Housing Administration. And the third way is by freezing their current interest rate for five years. The plan is only for loans that were started between January of two thousand five and July of this year and that have not reset already. Borrowers must be living in the home and facing a payment increase of ten percent or more. Democrats in Congress say the plan does not do enough to protect homeowners. Yet some critics say it does too much, helping people who borrowed more than they should have. Not only that, subprime loans were sold to investors worldwide as mortgage-related securities. Some investors could go to court to try to stop the loans from being renegotiated. But with the current troubles in the housing and credit markets, they may have to settle for whatever they can get.

Lesson 25: Volunteer Experts Help Businesses in Developing Economies

Abe Mirza is an American, fifty-nine years old and retired. He was trained as an accountant. In fact, he has three degrees in financial record keeping. And he has over twenty years of experience as a business executive. After four years of retirement, he decided that it was time to give something back. On the Internet, he found an economic development organization, the International Executive Service Corps. This private, nonprofit group links volunteer experts and paid consultants with local business people in developing countries. It was established in the United States in nineteen sixty-four as a Peace Corps for businesspeople. In September, the International Executive Service Corps paid for Abe Mirza to travel to West Africa. He spent more than two months preparing for an intensive, two-week experience as a volunteer in Ghana. He went to Accra, the capital, to meet with bankers and businesspeople. From his early meetings he learned that the bankers wanted the businesspeople to keep better financial records. So he taught major accounting methods to eighty businesspeople. These were leaders of medium-sized businesses, like Home Food Processing and Cannery, a seller of palm oil and spices. Another example was All Pure Nature, a maker of shea butter for skin care and other products. The businesses were large enough to be ready to export their goods. But they had not reached the level of record keeping that would permit them to develop a lending relationship with banks. The owners all had the same need to understand international accounting rules. Accountants in Ghana and other countries are adopting a new system of financial reporting. Abe Mirza had to provide a lot of information. He says it was like learning everything for a four-year college degree in one week. He not only showed the businesspeople how to present financial statements. He also showed them how, and why, banks look at the information. Abe Mirza says he did a lot in his years as a businessman, but nothing compares to the feeling of satisfaction he got from his short time in Ghana.

Lesson 26: World Bank Finds China's Economy 40 Percent Smaller Than Thought

China has one of the world's fastest growing economies. In two thousand seven, the Chinese economy grew by more than eleven percent for most of the year. But recently the World Bank announced that the Chinese economy was smaller than had been thought. The World Bank released its International Comparison Program report on December seventeenth. It said that the size of the world economy had been overestimated. And it found that the total value of goods and services produced by China had been overestimated by forty percent. The World Bank used new tools to compare the economies and buying power of people in one hundred forty-six countries. This year's report marked the first time that China took part in the World Bank's International Comparison Program. The World Bank says China is the second largest economy after the United States by its new measurements. But the revaluation has caused experts to reconsider economic progress in China. It also raises questions about the exchange rate of Chinese money. Critics have long argued that China should let the value of its money rise freely against the value of the dollar and other currencies. It may be that Chinese money is not undervalued if the Chinese economy is not as large as once thought. However, some experts point to other economic statistics to argue that China's money is undervalued. China faces other problems as well. Inflation hit an eleven-year high in November. The country's huge trade surplus reached a record two hundred thirty-eight billion dollars in the first eleven months of this year. This has raised tensions with trading partners, such as the United States and the European Union. And China has been criticized for permitting its manufacturers to produce unsafe products. Two thousand seven marks another event for China's economy. It is the first year in which China invested more money in foreign countries than foreign countries invested in China. The Wall Street Journal says Chinese companies and the government invested over twenty-nine billion dollars in foreign companies. Investors from the rest of the world invested less than twenty-two billion dollars in Chinese companies this year.

Lesson 27: World Economic Growth Expected to Slow in '08

World economic growth remained strong in two thousand seven. The International Monetary Fund estimated growth at five and two-tenths percent. But predictions for two thousand eight call for slower growth in the world economy. In October the I.M.F. cut its estimate for global growth this year by almost half a percentage point, to four and eight-tenths percent. There are worries of an economic slowdown or possibly a recession in the United States. The most important issue for two thousand eight may be the American housing market. The market has been hit by a combination of falling home prices and the subprime mortgage crisis involving highinterest loans. Losses on investments tied to these risky home loans have affected not only American banks but banks around the world. Worries over the credit situation have caused banks to limit their lending, even to each other. Central banks have tried to ease credit fears by lowering interest rates or lending billions of dollars, or both. Another major issue for two thousand eight is what effect energy prices will have on economic growth. The price of a barrel of oil doubled in two thousand seven. And on the second day of two thousand eight, the price hit one hundred dollars for the first time. Rising oil prices in recent years have been good for oil producing countries, though, including those with sovereign wealth funds. These are state-owned investment funds also held by China, Singapore and some other countries. The growing activity of these government-controlled investment funds makes them something else to watch in two thousand eight. Lately they have been used in some cases to invest in Western companies hurt by the subprime mortgage crisis. Abu Dhabi, in the United Arab Emirates, has what experts believe is the world's biggest sovereign wealth fund. Some estimates put the value at nine hundred billion dollars. But last month came news of plans by Saudi Arabia for what could be an even wealthier fund. The dollar continued its drop against most major currencies in two thousand seven. This has made American exports less costly. Still, the United States is expected to report a trade deficit with China of almost three hundred billion dollars last year. Some experts say the deficit will continue to be a problem so long as China does not let its currency rise more quickly against the dollar.

Lesson 28: McDonald's Targets Starbucks

McDonald's, the fast-food company, is heating up competition with the Starbucks Coffee Company. McDonald's plans to put coffee bars in its fourteen thousand restaurants in the United States. Fewer than a thousand now offer specialty coffee drinks like lattes and cappuccinos. Just like Starbucks, each coffee bar would have its own barista, the person who makes and serves the drinks. Company documents reported by the Wall Street Journal said the plan would add one billion dollars a year in sales. McDonald's has enjoyed several years of strong growth. The company had almost twenty-two billion dollars in sales in two thousand six. Still, the move to compete against Starbucks carries some risk. Some experts say it could slow down service at McDonald's restaurants. And some people who are happy with McDonald's the way it is now may not like the changes. As early as two thousand one the company tested McCafes in the United States to sell specialty coffee at McDonald's restaurants. But the drinks were not available at the drive-through windows that provide two-thirds of its business. McDonald's thinks its new plan has a greater chance of success. Starbucks, on the other hand, has faced slower growth and increasing competition. Its stock has lost about half its value since last January. Starbucks has about ten thousand stores in the United States. Its high-priced coffee drinks have names like Iced Peppermint White Chocolate Mocha and Double Chocolate Chip Frappuccino. Lately Starbucks has added more foods, including breakfast foods, and put drive-through windows in some stores. This week, the company replaced its chief executive officer, bringing back former C.E.O. Howard Schultz. He remains chairman of the board. He joined Starbucks in nineteen eighty-two, when it had just four stores. He is credited with building the Seattle company into an international success story. But a year ago he warned that its fast growth had led to what he called the watering down of the Starbucks experience. Some neighborhoods have a Starbucks on every block or two. Now, Starbucks will speed up its international growth while slowing its expansion in the United States. Millions of people have a taste for Starbucks. But last year, McDonald's Premium coffee got some good press. Testers from Consumer Reports thought it tasted better than Starbucks, and it cost less.

Lesson 29: For High Definition TVs, Blu-ray Gets a Big Supporter

Competition often means waiting for people to make a choice. That was the case with VCRs, video cassette recorders. During the nineteen eighties, people had two choices: VHS and Betamax. The VHS format won the competition. Betamax disappeared from all but professional use. More recently, the VHS, or video home system, format has been disappearing as people choose DVD players. But now the two newest kinds of DVD players are in competition. Blu-ray and HD DVD are both designed for use with high definition televisions. These produce bigger, sharper pictures. They work best when showing movies or TV programs made in true high definition. But high def takes up more memory, so a new kind of DVD, digital video or versatile disc, was needed. Blu-ray and HD DVD are similar in technology. Both use a blue laser to read the information on the disc. But HD DVDs cost less to produce. They can be made with existing equipment, while Blu-ray DVDs cannot. But a Blu-ray disc holds more memory: about fifty gigabytes compared to thirty gigabytes for an HD DVD. Two major Hollywood studios, Paramount Pictures and Universal Pictures, have agreed to release movie only in HD DVD. The Toshiba company is the main supplier of the players. Sony, on the other hand, supports the Blu-ray format, as do the movie makers at Walt Disney, Twentieth Century Fox and MGM. Then earlier this month, Hollywood's biggest seller of DVDs announced its choice in the fight between Blu-ray and HD DVD. Warner Brothers will support only Blu-ray starting in June. The company says having two kinds of high definition DVDs on the market has led to confusion with the buying public. So far, sales of the new high-definition disc players have been slow. An estimated one million players of both kinds have been sold. This week, Toshiba announced that it would cut the price of its HD DVD players by forty to fifty percent. Some of its players are now under two hundred dollars. But many people think Blu-ray has won the competition with HD DVD. Time will tell. For those who cannot make up their minds, there are some players that can play both.

Lesson 30: Deal Reached in Washington to Aid Economy

Last Friday, President Bush called for an economic growth package -- a plan to give a quick shot of energy to the slowing American economy. Now, the administration has an agreement with Democratic and Republican leaders in the House of Representatives. President Bush called the one hundred fifty billion dollar deal, reached Thursday, the right set of policies and the right size. He urged Congress to pass it as soon as possible, saying the economy urgently needs action. He said the plan would lead to higher consumer spending and increased business investment this year. The measures must be approved by the House and the Senate and signed into law by the president. There are three parts to the plan: First, it would give money in the form of tax rebates to middle-class Americans in hopes they will spend it. Individuals could receive up to six hundred dollars. Married couples could get up to twice that. Families with children would get extra money. Money would also go to millions who do not earn enough to pay taxes. Secondly, the plan aims to create jobs through tax breaks for business investment. And thirdly, it seeks to strengthen the housing market. The plan would raise limits on the size of home loans that can be purchased by mortgage financers Fannie Mae and Freddie Mac. This would lower interest rates on those loans. House Speaker Nancy Pelosi said the measures are "timely, targeted and temporary" -- the three goals for an economic stimulus package. She was not totally pleased with the compromise deal but says it will help the economy. If it does not, she added, there will be more to come. Speaker Pelosi said House leaders will bring the bill for a vote at the earliest date. The Senate, though, may try to expand the package. Many economists worry that the world's largest economy will enter or has already entered a recession. On Tuesday, the Federal Reserve moved to help calm financial markets in the United States, and around the world. The Federal Open Market Committee cut the federal funds rate by seventy-five basis points -- a week before it planned to meet. The move brought the rate that banks charge each other to borrow money overnight to three and one-half percent. This was the first time the committee has cut rates between meetings since after the September eleventh terrorist attacks in two thousand one. And it may cut rates further when it meets next week.

Lesson 31: A 'Rogue Trader' Costs French Bank $7 Billion

Last week, France's second largest bank, Societe Generale, announced that a single, middle-level trader had caused the bank to lose over seven billion dollars. It was the largest trading loss by an individual in banking history. Jerome Kerviel reportedly made trades in European stock index derivatives. These complex investments are bets that stock indexes will rise or fall. Mister Kerviel's job was to place bets that indexes would both rise and fall. Doing this limits the risk of losing a lot. But it also limits gains. Mister Kerviel worked in a part of the bank that was supposed to take on little risk. The bank said Mister Kerviel took measures to avoid its risk controls. Reports say Mister Kerviel found a way to hide the fact that he bet only on stock prices rising. He also hid the huge amounts of his bets from bank supervisors. When stock prices dropped, his financial positions, worth an estimated seventy-three billion dollars, had to be closed at a huge loss. French government lawyers brought charges against the thirty-one-year-old trader on Monday. Mister Kerviel was charged with breach of trust and illegal computer activity. However, he was not charged with financial wrongdoing or false signing of documents. Mister Kerviel has denied that he tried to profit from his activities. His lawyer says he is being unfairly charged. The bank said it only discovered Mister Kerviel's activities on January twentieth. But a government lawyer said exchange officials had warned the bank about the trader's deals late last year. The lawyer said Mister Kerviel told him he had started his activities at the end of two thousand five. Many in the French government are pressuring the bank's chairman and chief executive Daniel Bouton to resign. Mister Bouton has offered to resign twice but both times the bank's board did not accept his resignation. Some experts believe efforts by Societe Generale to close out Mister Kerviel's financial positions played a part in driving down European stock prices early last week. In the United States, the Federal Reserve cut the federal funds rate for the second time in eight days. On Wednesday, the central bank cut the important interest rate by half a percentage point to three percent. The Fed said it is now more concerned about the slowing economy than about inflation.

Lesson 32: Bush's $3 Trillion Budget

This week, President Bush sent Congress the final budget of his presidency. The spending plan for two thousand nine would give the federal government its first budget over three trillion dollars. Deficit spending would come close to the record of four hundred thirteen billion dollars in two thousand four. But the administration predicts a balanced budget by two thousand twelve. The budget proposal for next year includes increases for the departments of defense and homeland security. It calls for spending seventy billion dollars on the wars in Iraq and Afghanistan. But the full cost for the year is expected to be higher. The president has been providing money for the wars through emergency spending measures. The administration proposes cuts in the growth of Medicare and Medicaid. Medicare is government health insurance for older people; Medicaid pays for medical care for the poor. The move is unpopular in Congress. But White House Budget Director Jim Nussle says the budget reduces growth in these programs to a level the nation can afford. The president's budget includes a short-term economic growth plan. It also includes an extension of tax cuts, along with assistance for homeowners and more spending for scientific research. Democrats say the budget spends too little on important services -- and too much when it comes to increasing the national debt. Senate Budget Committee Chairman Kent Conrad says total debts were about six trillion dollars at the end of the president's first year. At the end of eight years in office, he says, that number is expected to rise above ten trillion. Conservatives in President Bush's Republican Party also criticize the growth in government spending. He entered office with a budget surplus in January of two thousand one. But his budget director notes that the United States later suffered terrorist attacks and natural disasters that required spending more. The new budget year begins October first. Generally, a lot of changes are made in the last budget of a president who is leaving office. This is true especially when Congress is governed by the opposition party. For the first time, Congress received the president's budget request in electronic form. Lawmakers and members of the public can buy traditional printed copies of the huge document if they wish.

Lesson 33: The Price of Pleasure

Usually we think about material qualities when we think about the pleasure we will get from a product. When something costs a lot, we might think about all the fine work that went into it. But can price alone influence the pleasure we experience? Researchers from the California Institute of Technology and the Stanford Graduate School of Business say yes. Hilke Plassmann, John O'Doherty and Antonio Rangel at Caltech and Baba Shiv at Stanford did a study. They had twenty people taste different wines. Wine was chosen because it comes in many different qualities and prices, and because a lot of people enjoy tasting it. The people were told they were tasting five different Cabernet Sauvignons. The wines were identified only by price: five, ten, thirty-five, forty-five and ninety dollars. But in truth there were only three different wines, and two of them were presented twice, at a high price and a low price. For example, the wine that in fact cost ninety dollars a bottle was presented half the time as a ten dollar wine. There were two important results from the study. First, the individuals, on average, reported greater pleasure from drinking wine that they were told was higher in price. Brain images taken while the people tasted the wine supported this finding. Activity, represented by blood-oxygen levels, increased in an area of the brain thought to process "experienced pleasantness." Experiments have shown that the medial orbitofrontal cortex processes the experience of enjoyment from smells, taste and music. The new findings will add to the limited knowledge of how marketing affects brain activity. The second result has meaning for economists and marketers. The experiment appears to confirm that raising the price can increase how much a product is enjoyed. In other words, when it comes to expectations, it seems you really do get what you pay for. The study is in the Proceedings of the National Academy of Sciences. Finally, we want to update our recent story on the fight over next-generation DVD technology for high definition televisions. This week, the Toshiba company in Japan announced the end of its HD DVD business, crushed by Sony's Blu-ray format.

Lesson 34: Hollywood Looks Overseas for Talent and Profit

This year, something happened at the Academy Awards that had not happened since nineteen sixty-four. All the winners for best acting were from outside the United States. Daniel Day-Lewis and Tilda Swinton are British. He won best actor for "There Will Be Blood"; she won best supporting actress for "Michael Clayton." French actress Marion Cotillard won the Oscar for best actress for "La Vie en Rose." And Spain's Javier Bardem won best supporting actor in "No Country for Old Men." Hollywood is increasingly looking outside America's borders for stars and profit. Jonathan Taplin is a professor at the USC Annenberg School for Communication at the University of Southern California. He says that today, about fifty-four percent of the ticket sales for Hollywood studios now come from outside the United States. For the last three months of two thousand seven, foreign sales totaled about eight hundred eighty million dollars. But there is fierce competition for each movie dollar. Hollywood has lost market share in some places as other countries develop their own film industries. For example, in the mid-eighties, American films had eighty percent of the market in South Korea. Today that share is about forty percent. Hollywood also faces competition from illegally copied movies, a major issue to the Motion Picture Association of America. The trade group estimated more than eighteen billion dollars in worldwide losses from piracy in two thousand five. Hollywood reporter Alan Silverman says piracy has influenced how American movies are released. In the past, Hollywood studios waited months after the American release of a film to release it in foreign markets. Now, many aim to release films at the same time around the world. Foreign markets may also influence how people get their movies. Different nations have different levels of technology. Efforts to settle on the next-generation DVD got a lot of attention recently. Sony's Blu-ray technology for highdefinition televisions won the competition with Toshiba's HD DVD format. Yet DVD sales have dropped in recent years. This may be a sign that people are increasingly getting their movies off the Internet. The Internet is another front in Hollywood's war on piracy. But more than that, it presents complex business questions for an industry now built mostly on DVD and ticket sales.

Lesson 35: Boeing Protests Air Force Contract on Tankers

Must a country buy from its own defense suppliers? This is one of the questions in Washington in a dispute over a deal worth at least thirty-five billion dollars. The contract will supply the Air Force with one hundred seventy-nine tankers. The Air Force says it has a serious need for new planes to refuel aircraft in mid-flight. Boeing has a long history of supplying tankers to the Air Force. But on February twenty-ninth, the Air Force awarded the contract to another American company, Northrop Grumman, teamed with EADS. EADS is the European Aeronautic Defense and Space Company, the parent of Airbus. This week, Boeing protested the decision. The Government Accountability Office will study the appeal and expects to have a report by June nineteenth. Boeing says it found problems in the process used to reach the decision. The Air Force has called the process fair and open. But the decision not to give the contract to the Chicago-based company has angered lawmakers in Congress from states with Boeing factories. These include Washington state and Kansas. Boeing offered a version of its Seven Sixty-seven airplane for the new tankers. Northrop Grumman and EADS based their tanker on the Airbus A-Three-Thirty. That plane is larger and would be able to carry more fuel. There is debate about the possible effect on American jobs because production would be split between Europe and the United States. There is also dispute about what the deal could mean for national security. In any case, Boeing says the Air Force changed requirements in the middle of the competition. Boeing and Airbus each had record numbers of orders last year for commercial airplanes. Demand is strong in Europe and Asia. But this week, EADS reported a loss of six hundred eighty-five million dollars last year, after a profit in two thousand six. Airbus has had delays with its huge, new A-Three-Eighty passenger plane. A weak dollar also played a part in the loss. Boeing has had its own problems with its new Seven Eighty-seven Dreamliner. To build it, the company is using a new system of suppliers around the world. Boeing says the Dreamliner could enter service early next year. Many buyers are waiting, but the new plane has not even had its first flight. The latest progress report is expected by the end of the month.

Lesson 36: The Fall of Bear Stearns

This week, the crisis in credit markets claimed Bear Stearns. The eighty-five year old investment bank in New York agreed on Sunday to sell itself to J.P. Morgan Chase. The price: just two dollars a share, as part of a rescue plan organized by the government. Bear stock had traded at seventy dollars last week, and one hundred seventy last year. The fall of Bear Stearns developed quickly. Banks were no longer willing to lend money to the company. The problems largely involved short-term loans, called repo borrowings, that are secured by assets like securities. The problem was that lenders no longer knew the value of the assets that secured Bear's debt. Bear Stearns invested heavily in securities based on risky home loans. Unable to get new loans, the bank suffered a liquidity crisis. By last Thursday, investors started withdrawing their money. This put more pressure on the bank to sell assets that no one wanted to buy. The next day, Bear informed the Securities and Exchange Commission that it would fail if nothing was done. Officials from the Treasury and the Federal Reserve wanted a deal to save Bear Stearns before markets opened this week in Asia. They worried that if Bear failed, it could lead to even more problems. The central bank agreed to lend J.P. Morgan up to thirty billion dollars to finance the purchase of Bear's less-liquid assets. The loan will be secured with those assets, and the Fed will take responsibility for them. To increase liquidity in the market, the Fed also agreed to lend money to securities dealers, including investment banks. The central bank has not done this since the Great Depression of the nineteen thirties. Last week the Fed offered banks up to two hundred billion dollars in loans. And twice this week it cut its discount rate for direct loans to banks. The Fed also lowered the target rate for overnight loans between banks for the sixth time in six months. It cut the federal funds rate by seventy-five basis points, to two and a quarter percent. Shareholders in Bear Stearns will vote on the takeover by J.P. Morgan. Some are expected to oppose the low-cost deal. Bear employees own about one-third of the stock in their company. There was some good news this week for financial stocks. Three major investment banks reported earnings that were better than expected for the three months ending February twenty-ninth.

Lesson 37: Sales Down for New US Homes, but Up for Existing Ones

This week, the National Association of Realtors reported that sales of existing homes in the United States increased almost three percent in February. It was the first increase since last July. But fueling that increase was a drop in prices. The S&P/Case-Shiller index of twenty major markets showed that home prices fell almost two and a half percent in January. Prices were down almost eleven percent from a year before. And still another report this week showed that sales of new single-family houses fell in February. Sales were down almost two percent from January, to a thirteen-year low. The Commerce Department estimated there was a ten-month supply of newly built houses waiting to be sold. Experts say prices in many markets will have to fall further before more people are willing or able to buy. Prices went up and up in recent years, before the housing bubble burst. Many buyers now struggling to make payments took out loans that were too big. They thought prices would keep rising and they could sell their home for a nice profit. Rising values meant that people could also take out home equity loans and lines of credit. They used their home as a cash machine by borrowing against its value. Now, as those values fall, some people owe more than their home is worth. Many buyers, often with risky credit histories, took out adjustable-rate mortgages, which started out low but later reset to higher rates. About two percent of all home loans are in foreclosure. Of course, that means ninety-eight percent of homes are not being reclaimed by lenders. Still, this is the highest rate since the Mortgage Bankers Association began keeping records in nineteen seventy-nine. The weak housing market is largely responsible for an economic crisis that is leading to new government steps in the financial system. Last week, the Federal Reserve pushed through a deal for J.P. Morgan Chase to buy Bear Stearns for two dollars a share. Bear, the nation's fifth-largest investment bank, was near collapse after big losses on its mortgage-backed securities. To help make the deal, the Fed agreed to take responsibility for up to thirty billion dollars in those securities. But J.P. Morgan faced a rebellion by Bear shareholders, so this week it increased its offer to ten dollars a share. It also agreed to take responsibility for one billion dollars of Bear's hard-to-sell securities.

Lesson 38: The Treasury Proposes a Plan to Change the Way the Financial System is Supervised
This week, the Bush administration proposed major changes to the way the financial system is supervised. Treasury Secretary Henry Paulson announced the plan Monday. He said the changes should not and will not be put in place until the current financial crisis is over. The plan is divided into short-term, intermediate-term and long-term goals. Among the short-term goals is an expansion of the President's Working Group on Financial Markets. The proposal would bring banking supervisors into the group and expand its responsibility to the entire financial industry. Other short-term goals include creating a group to set rules for the home loan industry. Many people blame irresponsible lending to people with risky credit histories for the current subprime mortgage crisis. Intermediate goals include combining or closing some financial supervising agencies that perform similar duties. The proposal would close the Office of Thrift Supervision, which oversees non-bank savings organizations. It would also combine the Commodity Futures Trading Commission and the Securities and Exchange Commission. The C.F.T.C. currently supervises the market for financial contracts known as futures while the S.E.C. regulates securities markets. Another aim would be to take the first steps toward the federal government supervising the insurance industry. This industry has been supervised mainly by the states for about one hundred thirty-five years. In the long term, the plan calls for strengthening the Central Bank to guard against all threats to the financial system. But, the proposal would also create new agencies. It calls for a Prudential Financial Regulator, which would combine all federal bank regulators into a single agency. Also, a Conduct of Business Regulator would be responsible for investor protection. This agency would perform many duties currently done by the Securities and Exchange Commission. Small banks and some state officials strongly oppose the plan. Small banks see the plan as a way to make big financial companies more competitive. Other groups have criticized the plan because it does not provide help for the current mortgage crisis.

Lesson 39: Loan Crisis Throws New Light on Investment Banks

Investment banks have long played a part in the financial system. But the recent crisis over securities based on risky home loans has brought them new attention. Investment banks handle stocks, bonds and other securities. They underwrite new offerings. That means they take the risk of buying the securities and reselling them to the public. They also provide business advice and market research, and deal in existing securities. Investment bankers have structured some newer securities in highly complex ways. Their value could be tied to lists of stocks or prices of goods or, as the world now knows, groups of risky home loans. These mortgage-backed securities were sold to investors worldwide as a way to spread the risk. But as more and more loans went bad, the market collapsed. Before the nineteen thirties, the United States had no separation between traditional banking and investment banking activities. Bank holding companies could own other financial companies that would underwrite new stocks. They would also provide stockbroker services for the public. People often bought shares with money borrowed from the banks. Then, in nineteen twenty-nine, the stock market crashed. Between nineteen thirty and nineteen thirty-three almost ten thousand banks failed. Congress passed a banking act in nineteen thirty-three known as the Glass-Steagall Act. It banned commercial banks from buying and selling securities; their job was to pay interest on savings and lend to borrowers. This ban remained until nineteen ninety-nine. That year the Gramm-Leach-Bliley Act permitted commercial banks to deal in securities and sell insurance. They can again own investment companies that underwrite securities. Many banks now regret that they got involved with high-risk mortgage securities. The collapse last month of the nation's fifth largest investment bank, Bear Stearns, showed the risks. The International Monetary Fund says total losses related to American subprime mortgages could reach almost one trillion dollars. On March seventeenth, the Federal Reserve started offering loans to investment banks, as it does for other banks. The program will continue for at least six months. The central bank used a power described in section thirteen of the Federal Reserve Act. But this power has not been used since the law was updated in nineteen thirty-two.

Lesson 40: The Candidates on the Economy

High food and fuel prices. Housing and credit problems. Job losses. Worries about a recession. No wonder the economy is a top issue for American voters. Senator John McCain says tax cuts are needed for growth. The Republican presidential candidate set out his economic plan in a speech this week in Pennsylvania. He would push Congress to make President Bush's tax cuts permanent. And he would aim to lower the top rate of income tax for businesses, from thirty-five percent to twenty-five percent. In all, Senator McCain proposes about two hundred billion dollars in new tax cuts for businesses and individuals. To help pay for them, he would cut earmarks, those special interest projects added to spending bills. He would also hold federal spending at most agencies to current levels and cut wasteful programs. But many experts say it is unlikely these cuts would equal the cost of the tax cuts. The campaigns of Democrats Barack Obama and Hillary Clinton dismissed the McCain plan as a continuation of George Bush's policies. Both Democrats say they are against tax cuts for the wealthy. They propose moderate tax cuts for the middle class. Right now, falling property values are a big worry for millions of families. Some people who borrowed more for houses than they should have, or took out loans with rising payments, may lose their homes. This week, researchers from the Pew Charitable Trusts predicted that three percent of all homeowners will be in foreclosure in the next few years. This would be the result of high-cost subprime loans made in two thousand five and two thousand six, and the effects on local property values. Problems can be found nationally, though some areas and neighborhoods are more affected than others. Hillary Clinton proposes to stop foreclosures for at least ninety days and freeze interest rates on adjustable-rate mortgages for five years. She also proposes thirty billion dollars in aid to help states prevent foreclosures. Barack Obama's plan calls for ten billion dollars for homeowner aid. Last month, John McCain said "it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers." But he now proposes to let some homeowners replace their subprime mortgages with federally guaranteed loans. His campaign says the plan would help up to four hundred thousand homeowners.

Lesson 41: NAFTA, Free Trade and the Presidential Campaign

The debate over free trade has intensified in this election year in the United States. Democrats Hillary Clinton and Barack Obama have both threatened to withdraw from NAFTA if they could not renegotiate it as president. The North American Free Trade Agreement, they say, has cost high-wage jobs in the United States. Their message is clear to people in states like Pennsylvania that have lost thousands of manufacturing jobs to foreign countries. Republican presidential candidate John McCain has criticized such talk about NAFTA. Senator McCain says the biggest problem is not free trade, but the inability to change with the new world economy. Congress passed the agreement with Canada and Mexico in nineteen ninety-three. President Bill Clinton signed it into law, though this is the first year NAFTA is fully in effect. United States trade officials say trade among the NAFTA nations more than tripled from nineteen ninety-three to last year. They say jobs, manufacturing and wages in the United States increased faster in the last fourteen years than in the fourteen years before NAFTA. Senators Clinton and Obama say Canada and Mexico should agree to add protections for the environment and organized labor. Separate agreements deal with these issues now, but critics say the provisions are weak. President Bush met this week with Mexican President Felipe Calderon and Canadian Prime Minister Stephen Harper in New Orleans. All three said now is not the time to renegotiate NAFTA. The Bush administration wants Congress to approve new trade deals with South Korea, Colombia and Panama. The free trade agreement with South Korea would be the biggest since NAFTA. South Korea would cut import taxes on American goods like beef and cars, but duties on rice would stay in place. Last week South Korea announced plans to fully reopen its beef market to American products. It banned imports at the end of two thousand three over a case of mad cow disease in Washington state. The A.F.L.-C.I.O. labor group in the United States opposes the free trade agreement with Colombia. It says Colombia has a poor record on labor rights. Seventeen labor organizers have been killed in Colombia this year. Earlier this month, the House of Representatives voted to delay action on the agreement. Speaker Nancy Pelosi says economic issues at home are more pressing.

Lesson 42: Behind the Price of Rice

Poor families in some countries spend as much as eighty percent of their money on food. They have watched helplessly as rising prices in recent months have created the worst food crisis in more than thirty years. The United Nations World Food Program says high food prices could push one hundred million people into hunger. Half the world's people depend on rice as a main part of their diet. Yet the price has tripled in the past year. Inflated costs for fuel and fertilizer have played a part. Economist Nathan Childs at the United States Agriculture Department says another reason is the falling value of the dollar. This has hurt the ability of some nations to buy food. But he says the main reason is export limits in some rice-growing nations. This means less rice on the world market. Nathan Childs is an expert on rice markets. He notes that the harvest for the latest growing season was the largest on record. But India, Vietnam and others have restricted exports to keep prices down at home and protect supplies. Thailand's agriculture minister says his country will never restrict rice exports. He told the Reuters news agency Thursday that Thailand has enough supplies to meet demand at home and for export. Thailand is the world's largest rice exporter. Recent signs of an increase in supplies have helped ease record prices for Thai rice. Prices rose last week above one thousand dollars a ton. Vietnam, the second biggest exporter, has banned exports until June. And Vietnamese officials have now warned that non-food traders who buy rice for speculation will be severely punished. Speculators try to predict future price movements. They take greater risks than average investors. Experts say speculation is a necessary part of market activity. But the head of the U.N. Environment Program blames it for the high food prices. "We have enough food on this planet today to feed everyone," Achim Steiner told the Associated Press. Earlier, a member of the United States Commodity Futures Trading Commission rejected the idea that speculators are the main cause. Bart Chilton blamed reduced harvests and grain supplies and the falling value of the dollar. U.N. Secretary General Ban Ki-moon called heads of major international agencies to a meeting this week in the Swiss capital, Bern. He says high food prices could harm world trade, economic growth, social progress and political security.

Lesson 43: Why Oil Continues Its Climb

The price of oil has risen to more than one hundred twenty dollars a barrel. Some experts say the most recent price increase is only the beginning. Experts at the investment bank Goldman Sachs have predicted that oil could reach two hundred dollars a barrel. Unrest in oil producing countries has been partly to blame. Last weekend, a rebel group in Nigeria said it attacked an oil center in Bayelsa state. Nigeria is the eighth biggest oil exporter in the world. Also, Iraq is slowly rebuilding its oil production ability. Iraq's industry minister says the country's oil production is currently at about two million barrels of oil a day. He says that could increase to five million barrels of oil a day in two to three years depending on how much foreign help Iraq receives. The Venezuelan government's efforts to control its oil industry have increased tensions with foreign oil producers. And Russia, the world's second largest exporter, has also sought to increase government control of its energy resources. Nationalization of oil resources often forces out foreign investment that would normally seek to increase supplies. Another cause of high oil prices is the weak American dollar. Oil is traded in dollars, so a less valuable dollar buys less oil. But, experts have noted that the weak dollar alone cannot explain the increase of about eighty-five percent in the price of oil over the last year. The Organization of Petroleum Exporting Countries is the world's largest oil producing group. It says its member nations, not including Iraq, are investing one hundred twenty billion dollars in over one hundred new oil projects. OPEC says it produces about forty-five percent of the world's oil exports. In the past, non-OPEC producers like Russia, Mexico and Norway have increased production to meet demand. But these nations have struggled to keep production at the levels of recent years. Norway's production, for example, has decreased by twenty-five percent since two thousand one. The expanding economies of Asia, especially China and India, have increased pressure on world supplies. Meeting demand appears to be harder than ever before.

Lesson 44: For Fans of Anarchy, Grand Theft Auto IV Is a Big Smash

A lot of marketers would kill for a product like Grand Theft Auto. GTA Four is the newest in the popular series of violent video games. The Rockstar Games division of Take-Two Interactive Software in New York is responsible for Grand Theft Auto. Estimates suggest that Rockstar spent about one hundred million dollars developing the newest version. Take-Two said about six million copies were sold worldwide in the first week, with a value estimated at more than five hundred million dollars. The first-week performance represented, it said, the largest launch in the history of interactive entertainment. Some players reported problems with the game. Rockstar released a software patch to deal with those problems. Grand Theft Auto started as a two-dimensional video game in nineteen ninety-seven. It was moderately successful. But in two thousand one, Rockstar released the third version. This time, players felt like they were inside the game. Three-dimensional graphics made it a hit. Together, the first three titles sold more than seventy million copies. Gamers say they like the realistic action and interesting storylines. Critics of violent video games -- well, you can imagine how they feel. Grand Theft Auto takes place in Liberty City, a fantasy world of criminals, prostitutes and guns. Players can rob, kill, drive wildly and gain points in the process. The game is rated for players seventeen years and older. The success of Take-Two has made the company a target for bigger players in the video game industry. Electronic Arts, the industry leader, has offered to buy Take-Two for two billion dollars. Take-Two has rejected the offer; it says it is worth more than that. The Entertainment Software Association says nine and a half billion dollars worth of video games were sold in the United States last year. Electronic Arts just reported that its sales were up nineteen percent in the last year, to more than three and a half billion dollars. Still, EA says it had a loss of four hundred fifty-four million dollars, compared to a profit of seventysix million the year before.

Lesson 45: Joseph Juran, 1904-2008: A Life of Quality Control

Recently the business world lost a leader in quality control. Joseph Juran died at the age of one hundred and three. He developed ideas that are still important today to improving the quality of products. Joseph Juran was born in Braila, Romania. His family came to the United States in nineteen twelve when he was eight. They settled in Minneapolis, Minnesota. He studied electrical engineering at the University of Minnesota. He was also the school champion at the game of chess. After college, the Western Electric Company put him to work on mathematical methods of quality control. He became interested in the idea he termed "vital few and trivial many." This idea is popularly known as the "eightytwenty rule." It could mean, for example, that eighty percent of manufacturing problems result from twenty percent of the causes. He named it the "Pareto principle," for the Italian economist Vilfredo Pareto. A century ago, Pareto observed that eighty percent of the wealth in Italy went to twenty percent of the population. But Joseph Juran came to recognize that he had misnamed this principle. He knew that unequal distribution had long been observed in other areas, not just wealth. Yet he gave Pareto credit for identifying it as "universal" when, it seemed, he could have taken the credit himself. He could have called it, he said, the Juran principle. In nineteen fifty-one, he published his "Quality Control Handbook." This influential book especially interested the Japanese. He was invited to teach in Japan, and he advised some of its largest companies. The Japanese also had help from another American, William Edwards Deming. The two experts helped Japan become a world leader in quality control. In nineteen sixty-four Joseph Juran published "Managerial Breakthrough." This book formed the basis of several other strategies to reduce manufacturing mistakes and cut waste. Among them are the methods known as Six Sigma and lean management. In nineteen seventy-nine, Joseph Juran established the Juran Institute in Connecticut. It works with organizations that want to improve quality. But the main purpose of the institute, he said, is to improve society. Joseph Juran died on February twenty-eighth in Rye, New York. That was where he lived with Sadie Juran, his wife of eighty-one years.

Lesson 46: Peter Drucker, 1909-2005: The Mind of a Management Thinker

We talked last week about Joseph Juran, an influential American expert in quality control. He died earlier this year at the age of one hundred and three. Today we talk about another management expert -- or guru as people like to call them. Peter Drucker also lived a long life. He was ninety-five years old when he died in two thousand five. Peter Drucker was an expert on the ways of modern organizations. He liked to share his knowledge not by answering questions but by asking them. For example, he said business people must ask themselves not "What do we want to sell?" but "What do people want to buy?" He taught at the Claremont Graduate School of Management in California for more than thirty years. He also advised companies. And he wrote for the Wall Street Journal opinion page for twenty years, until nineteen ninety-five. He commented on many economic and management issues. Peter Drucker was born in Austria. He worked as a reporter in Frankfurt, Germany, in the late nineteen twenties. He also studied international law. He fled Germany as Adolf Hitler came to power in nineteen thirty-three. Peter Drucker spent four years in Britain as an adviser to investment banks. He then came to the United States. He used his knowledge of international law to advise American businesses. He developed this advice into books on business methods and management. In the middle of the nineteen forties, Peter Drucker argued that the desire for profit was central to business efforts. He also warned that rising wages were harming American business. He was later invited to study General Motors. He wrote about his experiences in "The Concept of the Corporation." In the book, he said workers at all levels should take part in decision-making, not just top managers. Peter Drucker was a voice for change and new ways of thinking about social and business relations. He used terms like "knowledge workers" and "management goals." He influenced business training and politics with many of his ideas. Some people said he often only presented information that supported his arguments. But even his critics praised his clear reasoning. Yet as times changed, so did his thinking. In nineteen ninety-three, he warned that businesses create a market for competitors when they think too much about high profits.

Lesson 47: Automakers, Airlines Hit by Sky-High Fuel Prices

There was more evidence this week of the effects of high oil prices on the transportation industry. Automakers reported further drops in sales of trucks and SUVs, sport utility vehicles, in the United States. Big, fuelhungry vehicles brought in big profits -- until Americans faced big costs for fuel. Now they want smaller and more fuel-efficient cars. The head of General Motors, Rick Wagoner, says the prices are changing consumer behavior, maybe permanently. G.M. sales in the United States in May dropped thirty percent from last year. The Ford Motor Company had a nineteen percent drop. Toyota sales in the United States were down eight percent. But another Japanese maker, Honda, reported an eleven percent increase on strong sales of cars. General Motors announced it will close four truck factories in North America and expand car production. It may also sell its Hummer division. Hummers are military-like vehicles. But Rick Wagoner said G.M. will go forward with plans to make the Chevy Volt, a car powered mainly by electricity. He says it will be available no later than the end of two thousand ten. Still, new findings show that Americans are driving less. The Federal Highway Administration says the number of kilometers traveled on public roads has dropped since late two thousand six. Many people may be driving less because of high gasoline prices. But transportation officials worry that less demand for gasoline will mean shortages of money from fuel taxes that support roads. Use of public transportation, though, is up. The American Public Transportation Association says it increased three percent in the first three months of this year over last year. High fuel prices are also affecting air travel. The International Air Transport Association expects the industry to lose at least two billion dollars this year, mainly because of prices for jet fuel. This week, more air carriers in the United States announced plans to cut flights and jobs and remove older, less fuelefficient planes from service. Continental Airlines said record-high fuel prices have produced the worst crisis for the industry since the terrorist attacks of two thousand one. Continental announced Thursday that it will reduce flights in the United States by sixteen percent during the last three months of the year. The airline will cut three thousand jobs, about seven percent of its positions worldwide.

Lesson 48: Talking Up the Dollar

For several years now, the dollar has fallen lower and lower against other major currencies. Lately, though, the dollar has risen, especially against the Japanese yen and the euro. Some traders think the dollar will continue to rise, but that is not clear. The dollar moved up this week after comments by American officials in support of a strong dollar policy. On Monday, before he left for his last trip as president to Europe, George Bush said: "A strong dollar is in our nation's interests. It is in the interests of the global economy." Also Monday, Treasury Secretary Henry Paulson said on CNBC television that he would consider intervention to keep the dollar from sliding further. The United States has not intervened in currency markets since two thousand. That year the administration of president Bill Clinton bought euros to support the European currency. But on Tuesday, President Bush said in Slovenia that the "relative value of economies will end up setting the proper valuation of the dollar." A weaker dollar helps American exporters. But it means Americans have to pay more for imports and for travel to other countries. Some experts say dollar weakness is the main reason why oil prices have risen so high. Oil is priced in dollars on the world market. But Treasury Secretary Paulson dismissed any link. He noted that since two thousand two, the dollar has fallen about twenty-four percent. But the price of oil has gone up well over five hundred percent. Adding to pressure on the dollar, European Central Bank President Jean-Claude Trichet suggested that the E.C.B will raise interest rates next month. European officials are increasingly concerned with inflation. But investors can already get higher rates of return on investments in euros than in dollars. High prices for oil, food and other products have raised inflation concerns worldwide. Federal Reserve Chairman Ben Bernanke said the latest increases in energy prices have added to inflation risks. His comments in recent days have suggested that the central bank could stop cutting rates as it has since September. Its rate for overnight loans between banks is currently at two percent. Some market watchers think the Fed could raise rates as early as this month. Finance ministers from nations in the Group of Eight will discuss the dollar and other issues at their meeting this weekend in Osaka, Japan.