McCain and Obama spar in first debate

McCain and Obama spar in first debate

US presidential rivals Republican John McCain and Democrat Barack Obama have attacked each other over foreign policy and the economy, in their first debate.

Mr Obama said a $700bn (£380bn) plan to rescue the US economy was the “final verdict” on years of Republican rule.

He said Mr McCain had been “wrong” on Iraq and tried to link him to President Bush. The Republican senator described his rival as too inexperienced to lead.

Neither landed a knockout blow but polls suggested Mr Obama did better.

An immediate telephone poll by CNN and Opinion Research Corp found 51% said Mr Obama had won, to 38% for Mr McCain.

A poll of uncommitted voters by CBS News found that 39% gave Mr Obama victory, 25% thought John McCain had won, and 36% thought it was a draw.

Both campaigns claimed victory, with Mr McCain’s team saying their candidate had shown a “mastery on national security issues” while Mr Obama’s aides said he had passed the commander-in-chief test “with flying colours”.
All things considered, it’s about a draw
Matthew Yglesias, Think Progress

First presidential debate scorecard
Analysis: McCain wins on points
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Tens of millions of Americans were expected to watch the debate on TV, with only about five weeks to go before the 4 November elections.

Senator McCain said he did not need “any on-the-job training”.

“I’m ready to go at it right now,” he added.

But Senator Obama said Mr McCain had been “wrong” about invading Iraq and that the war had led the US to take its eye off the ball in Afghanistan, where it should have been pursuing al-Qaeda.

Mr McCain argued that as a result of the “surge” – which involved sending some 30,000 extra US troops to Iraq – US military strategy was succeeding.

“We are winning in Iraq and we will come home with victory and with honour,” he said.

The televised debate in Oxford, Mississippi, focused largely on foreign policy but began with discussion of the economic crisis gripping the US.

Speaking about the financial bail-out plan under discussion by the US Congress, Mr Obama said: “We have to move swiftly and we have to move wisely.”
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2 Oct – vice-presidential rivals. Topic: Domestic and foreign policy
7 Oct – presidential contenders. Topic: Any issues raised by members of the audience
15 Oct – presidential contenders. Topic: Domestic and economic policy

Mr McCain said he believed it would be a long time before the situation was resolved.

“This isn’t the beginning of the end of this crisis,” he said. “This is the end of the beginning if we come out with a package that will keep these institutions stable and we’ve got a lot of work to do.”

Mr McCain attacked Mr Obama over his record on finance, saying he had asked for millions of dollars in so-called “earmarks” – money for pet projects – as an Illinois senator.

The Republican also suggested a spending freeze in many areas apart from defence, but Mr Obama likened the proposal to using a hatchet when a scalpel was needed.

Both candidates agreed that the bail-out plan would put massive pressure on the budget of the next president and mean cuts in government spending.

‘Serious threat’

Asked about Iran, Mr McCain stressed that Tehran was a threat to the region and, through its interference in Iraq, to US troops deployed there.

He outlined a proposal for a “league of democracies” to push through painful sanctions against Tehran that were presently being blocked in bodies like the United Nations because of opposition from Russia.

He criticised Mr Obama for his previously stated willingness to hold talks with the leaders of Iran without preconditions.

Mr Obama rejected that criticism, saying he would reserve the right as president “to meet with anybody at a time and place of my choosing if I think it’s going to keep America safe”.

However, he said he agreed with his Republican rival that “we cannot tolerate a nuclear Iran” and the threat that that would pose to Israel, a staunch US ally.

‘Safer today’

Mr McCain accused Mr Obama of “a little bit of naivete” in his initial response to the conflict between Georgia and Russia.

“Russia has now become a nation fuelled by petro-dollars that has basically become a KGB [former secret services name] apparatchik-run government. I looked in [Russian Prime Minister Vladimir] Mr Putin’s eyes and I saw three letters – a K, a G and B,” McCain said.

Speaking about the so-called war on terror, Mr McCain said he believed the nation was safer than it had been the day after the 11 September 2001 terror attacks but there was still a long way to go.

Mr Obama pointed to the spread of al-Qaeda to some 60 countries and said that the US had to do more to combat that, including improving its own image as a “beacon of light” on rights.

“One of the things I intend to do as president is restore America’s standing in the world,” Mr Obama said.

Mr McCain sought to distance himself from President George W Bush’s administration, which has very low public approval ratings.

“I have opposed the president on spending, on climate change, on torture of prisoners, on Guantanamo Bay, on the way that the Iraq war was conducted,” he said.

“I have a long record and the American people know me very well… a maverick of the Senate.”

Mr McCain had earlier vowed not to attend the forum in Mississippi until Congress approved the economic bail-out plan, but he reversed his decision after some progress was made towards a deal.

Global economy woes shake markets

Japanese shares felt the force of the economic uncertainty

Fears about a global economic slowdown, heightened by worsening US job figures, have continued to undermine stock markets around the world.

London’s FTSE 100 index lost 2.3% – taking its weekly decline to 7% – its biggest since July 2002.

Markets in Paris and Frankfurt fell by 2.5% as economy concerns spread.

On Wall Street the Dow Jones index clawed back early losses to edge higher despite figures showing the US economy shed 84,000 jobs last month.

But the benchmark US index still had its worst week since May.

Earlier, Japan’s main share index fell nearly 3% while markets in Hong Kong, China, Australia and India all slid 2%.

‘Ugly’ data

The US labor market figures – which showed the unemployment rate rising to 6.1% – were a further jolt to investors who have had to swallow a slew of poor economic data in recent days.

Economists had been expecting 75,000 jobs to be lost while the government also revised upwards.

“This was an ugly number that pretty much confirms that our economy continues to trend downward,” said Jack Ablin, chief investment officer of Harris Private Bank.

“This just knocks the legs out of any hope of seeing much economic improvement right now.”

‘Uncertainty’

Amid the uncertainty, few investors are willing to buy Masayuki Otani, Securities Japan

The FTSE 100 closed down 2.3% at 5,240.70 points. The last time it lost so much value in a week was more than six years ago in the wake of financial scandals such as Enron and WorldCom.

Markets in Paris and Frankfurt continued their recent downward trend, both the Cac-40 index and the Dax-30 dropping about 2.5%.

The Dow Jones index, which lost 3% on Thursday, rose 32.73 points, or 0.3% to 11,220.96, but still ended down 2.8% on the week.

“Given the fact we were down so much yesterday we’re seeing a bit of a reflex rally with investors wanting to take advantages of some of the bargains,” said Bucky Hellwig, senior vice president at Morgan Asset Management.

The Nasdaq index slipped 3.16 points, or 0.1% to 2,255.88, ending the week 4.7% lower.

Earlier Japan’s benchmark Nikkei index fell 361.54 points to 12,196.12 amid a widespread sell-off of shares in Asia.

The Hang Seng index fell more than 3% in Hong Kong while markets also fell sharply in China, Australia and India.

“Amid the uncertainty, few investors are willing to buy,” said Masayuki, Otani, chief market analyst at Securities Japan.

“Several bad things happened at once,” he added, explaining the fall.

Gloom

Worries about inflation have prevented central banks in Europe from cutting interest rates to help forestall a slowdown.

But analysts believe this could change soon with economic forecasts across Europe looking increasingly gloomy.

The European Central Bank cut its 2009 growth forecast from 1.5% to 1.2% on Thursday while the UK economy stalled in the second quarter.

In a separate development, the Russian rouble fell against the dollar a day after Russia’s central bank intervened to support the currency amid concerns about a flight of foreign capital after the conflict with Georgia.

The central bank sold up to $4bn in reserves, the Financial Times reported, after the rouble slipped to its lowest level since February 2007.

US rules out new economic package

Jobs are being lost in the service, business and manufacturing sectors

The United States government says it does not see an immediate need for new measures to stimulate the US economy despite a sharp rise in unemployment.

The latest figures show a rate of 6.1% – the highest since December 2003.

A White House spokeswoman said that while the figures were disappointing, the existing economic stimulus plan was having the impact intended.

A call for more action had been made by the Democratic Party presidential candidate, Barack Obama.

A higher-than-expected 84,000 jobs were lost last month, which together with the unemployment rate has added to concern about the US economy and its ability to stave off a recession.

In a further blow, the Labor Department revised upwards job loss figures for each of the past two months.

The Federal Reserve said earlier that economic activity remained “weak”.

A separate report by the Mortgage Bankers Association said that almost one in 10 US homeowners were behind with their mortgage payments or was in foreclosure procedures.

The 9.2% default rate between April and June was up from 8.8% in the previous quarter, and nearly double the rate one year ago.

‘Convincing evidence’

The number of jobs lost last month was significantly higher than the 75,000 forecast by economists.

All sectors of the economy were affected with manufacturing worst hit, shedding 61,000 jobs.

This is more convincing evidence that the economy is still in trouble Gary Thayer, Wachovia Securities

The labor market has worsened noticeably in recent months, reflected by the fact that it is now apparent that more jobs were lost in June and July than was previously thought.

Revised figures show that in June, 100,000 jobs were lost while in July 60,000 jobs disappeared. This was up from the 51,000 figure initially forecast for both months.

“It seems unemployment in the US really is accelerating,” said the BBC’s North America business correspondent, Greg Wood.

“There do not seem to be many sectors of the US economy which are hiring.”

‘Clearly deteriorating’

In the first eight months of 2008, 605,000 jobs have been lost.

Employers have now reduced their payrolls for eight straight months, with the dramatic downturn in the housing market and the credit crunch hurting all sectors of the economy.

“This is more convincing evidence that the economy is still in trouble,” said Gary Thayer, senior economist at Wachovia Securities.

“The economy is clearly deteriorating.”

Political focus

Both candidates in November’s Presidential election are under pressure to come up with concrete proposals to help the growing number of people out of work and families battling against rising living costs.

Although the US economy grew a robust 3.3% in the second quarter, businesses are struggling to cope with the high cost of raw materials and energy, fragile consumer confidence and weaker export markets.

The Federal Reserve, which meets to decide on interest rates next week, has warned that the US is facing the twin threats of weak growth and rising inflation.

The bleak employment picture means the Fed is unlikely to raise rates in the foreseeable future while further cuts seem equally unlikely against a background of rising inflation.

“The jobs number is weak again but we think this probably is not the time to panic,” said Steve Goldman, strategist at Weeden & Co.

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US jobless rate near 5-year high

Jobs are being lost in the service, business and manufacturing sectors

The unemployment rate in the US is at its highest level in nearly five years after a higher-than-expected 84,000 jobs were lost last month.

The jobless rate has risen to 6.1%, the highest since December 2003, adding to concern about the US economy and its ability to stave off a recession.

In a further blow, the Labor Department revised upwards job loss figures for each of the past two months.

The Federal Reserve said earlier that economic activity remained “weak”.

Worse than thought

The number of jobs lost last month was significantly higher than the 75,000 forecast by economists.

All sectors of the economy were affected with manufacturing worst hit, shedding 61,000 jobs.

This is more convincing evidence that the economy is still in trouble Gary Thayer, Wachovia Securities

The labor market has worsened noticeably in recent months, reflected by the fact that it is now apparent that more jobs were lost in June and July than was previously thought.

Revised figures show that in June, 100,000 jobs were lost while in July 60,000 jobs disappeared. This was up from the 51,000 figure initially forecast for both months.

In the first eight months of 2008, 605,000 jobs have been lost.

Employers have now reduced their payrolls for eight straight months, with the dramatic downturn in the housing market and the credit crunch hurting all sectors of the economy.

“This is more convincing evidence that the economy is still in trouble,” said Gary Thayer, senior economist at Wachovia Securities.

“The economy is clearly deteriorating.”

Political focus

Both candidates in November’s Presidential election are under pressure to come up with concrete proposals to help the growing number of people out of work and families battling against rising living costs.

Although the US economy grew a robust 3.3% in the second quarter, businesses are struggling to cope with the high cost of raw materials and energy, fragile consumer confidence and weaker export markets.

The Federal Reserve, which meets to decide on interest rates next week, has warned that the US is facing the twin threats of weak growth and rising inflation.

The bleak employment picture means the Fed is unlikely to raise rates in the foreseeable future while further cuts seem equally unlikely against a background of rising inflation.

“The jobs number is weak again but we think this probably is not the time to panic,” said Steve Goldman, strategist at Weeden & Co.

US GDP rebounds with 3.3% growth

Tax rebates have encouraged consumers to spend more

The US economy grew at a revised 3.3% annually in the second quarter of 2008, the Commerce Department said, much higher than its first estimate of 1.9%.

The rebound was linked to strong US exports, helped by the weak dollar, while government tax rebates also boosted consumer spending.

GDP grew at a rate of 0.9% in the first quarter, after a 0.2% contraction in the last three months of 2007.

The Federal Reserve has warned the economy will remain weak this year.

“While we’re not out of the woods yet, maybe we’re beginning to see some sunlight,” said John Wilson, equity strategist at Morgan Keegan.

“At some point, the market will begin to look through the trough and gauge the strength of the coming upturn.”

‘No recession’

The data showed that exports grew at an annualized rate of 13.2%, higher than the government’s initial estimate of 9.2%.

Imports fell at a rate of 7.6% as the US economic slowdown reduced demands for goods made overseas.

The improved trade balance added 3.1 percentage points to second-quarter GDP, the biggest since 1980.

The slowdown in the housing market was evident, as builders cut back and businesses reduced their spending.

Consumer spending, boosted by the government’s $600 tax rebate payments, rose by 1.7%, slightly higher than the previous quarter’s 1.5%.

Some observers said that the figures lent support to the argument that the US was not heading for a recession.

“For a recession the economy is certainly growing very quickly,” said Avery Shenfeld, senior economist at CIBC World Markets.

“A lot of that growth is driven off exports and pessimists might say that can’t continue during slowing growth overseas.

“But I would say this happened precisely during the period of slowing growth overseas … this is still an economy that faces slow times but not a recession.”

16-year low

However recent data on the US housing market suggests a grim outlook for the sector.

US house prices were down a record 15.4% in the April to June quarter compared with a year ago, according to a closely-watched report released earlier this week.

The decline was recorded by the latest S&P/Case-Shiller survey of US national home prices.

The report said the fact that the falls were nationwide was the latest sign the US housing downturn is continuing.

Separate government data said sales of new homes were at an annual rate of 515,000 units in July, up slightly from June, but still near a 16-year low, and half the rate of new home sales one year ago.

McCain and Obama spar over taxes

The economy and oil have been key issues for both candidates

Barack Obama’s senior economic adviser Austan Goolsbee has accused John McCain of proposing huge tax cuts for rich people and large corporations.

Mr Obama’s tax cuts for “ordinary Americans” would be three times larger than Mr McCain’s, he promised.

Mr McCain’s economic adviser, Doug Holtz-Eakin, countered that Mr McCain’s tax cuts would help firms create jobs.

Speaking to the BBC World Service, both advisers clashed on how to end the US dependence on foreign oil.

In a debate between both advisers on the Business Daily program, Mr Goolsbee said: “Barack Obama’s tax cuts for ordinary Americans are three times larger than John McCain’s.””The way that John McCain’s package ends up being three to four trillion dollars more is that they give humungous tax cuts to high income people and large corporations.”

Small firms

In fact John McCain has no plans for cuts in personal income tax. But he does propose to cut the rate of corporation tax from 35% to 25% in an effort to revive the ailing US economy.

Mr Holtz-Eakin told the BBC: “In this economy in the past six months with over 400,000 jobs lost we’ve seen the small businesses – those with less than 50 employees – add 283,000 jobs.”

He underlined the importance of not damaging those small businesses: “keep them in a position where they don’t have onerous health care costs and mandates to provide expensive benefits to their employees.”

Barack Obama says he will spend $50bn immediately to jump start the economy and introduce tax credits for working families.

He is also proposing to invest $150bn in clean energy over the next decade, creating 5 million new jobs.

Energy policies

Mr Goolsbee said the US had to make a commitment to wean itself off its dependence on oil.

John McCain believes that we have a dangerous exposure to imported oil Doug Holtz-Eakin, economic adviser to John McCain

“It is the mentality of the past eight years to listen to the oil companies that got us into this mess and we have to have a different energy policy to get out of it.”

Mr Holtz-Eakin denied that John McCain would follow the same energy policy as George W Bush.

“John McCain believes that we have a dangerous exposure to imported oil,” he said.

“It is his primary objective to put the United States in a position where it is no longer strategically exposed by this dependence.

“The first and foremost objective is to change the way Americans drive,” he added.

Foreclosures

Mr Goolsbee warned that more Americans would lose their homes unless there were tighter controls on the mortgage industry.

He said failure to address the fundamental challenges of oversight of the housing market – an issue that Senator Obama identified 18 months ago – could prompt “a second wave of the foreclosure crisis in the United States.”

Mr Holtz-Eakin said that John McCain would not be afraid to speak out in favor of free trade, even at a time when American jobs were being lost.

“Globalization is an opportunity.”

However he added: “Not everyone automatically gains from globalisation, and we do have an obligation to help those workers who do not instantly benefit to get an opportunity for the future.”

Sterling losses gather momentum

The pound has fallen further against the dollar, hitting its lowest level in almost two years amid fears the UK will fall into recession.

Sterling touched its lowest level since October 2006 at $1.8617 but later edged up to trade at $1.8691.

Measured against a basket of trade-weighted currencies, the pound is now at its weakest level since 1996.

The pound dropped sharply on Wednesday after the Bank of England issued a gloomy assessment of the UK economy.

The fall in sterling will hurt holidaymakers who have benefitted from a strong pound when traveling overseas- and make it more expensive for people to buy second homes abroad.

However, it could help exporters whose goods will be cheaper overseas.

The Bank’s governor Mervyn King said economic growth would be flat for the next year or so and that inflation would rise to 5% or above before falling.

But with domestic demand weak, a revival of exports could help the economy and limit job losses.

Rate cuts

Economists had thought inflation would prevent the Bank of England from cutting rates, but the Bank’s suggestion that inflation will begin to ease raised expectations of interest rate cuts and this hit the pound.

We have long argued that sterling has been significantly overvalued in recent years Jonathan Loynes, Capital Economics

Lower interest rates mean investors get lower returns on sterling deposits, which makes the pound less attractive.

Simon Derrick, currency strategist at Bank of New York Mellon, described the pound’s fall this week a “dramatic collapse” that recalled the aftermath of sterling’s ejection from European Exchange Rate Mechanism (ERM) in 1992.

However, he said the currency’s slide should begin to ease.

“Even within the most ferocious sterling downtrends in the past, significant corrections emerged in the middle of the moves,” he said.

But Jonathan Loynes, chief European economist at Capital Economics, thinks the pound could fall as far as $1.65 by the end of 2009.

“We have long argued that sterling has been significantly overvalued in recent years,” he said.

Deteriorating outlooks

Recent official figures have already shown the UK is struggling with high inflation and faltering growth.

Fears about European growth have also helped the dollar bounce back from record lows.

The US economy is still reeling from the credit crisis but analysts say the deteriorating outlook elsewhere in the world has given the dollar a boost.

Falling commodity prices have also supported the US currency. Investors had bought gold and oil to protect against dollar weakness and are now unwinding their positions.

The euro was trading at $1.4816 on Thursday, almost at the six-month low of $1.4815 struck this week. Earlier this year, the euro was trading at $1.60.

The euro has been further undermined by the military conflict in Georgia.