The Q4 2008 earnings season kicked off this week with Alcoa being the first DOW component to report a wider-than-expected loss in its closing bell announcement yesterday. Alcoa’s poor showing yesterday was followed by a broad decline in financial stocks as news the Obama administration may restrict financial firm’s access to government funds. Citigroup fell 18% along with this news as they announced a brokerage merger with Morgan Stanley that could see the light this week. In other developments President Elect Obama urges outgoing President Bush to ask congress for the remaining $350Bn TARP funds. Bernanke to speak on crisis policy reponse at the London School of Economics at 13:00GMT.

Former fed governor Frederic Mishkin wrote in an article in the FT that the U.S should and would benefit from setting an inflation target because it would make it easier to drain liquidity later. Mishkin’s comments have the financial and economic world buzzing as they weigh the fundamentals of such a move. This would make the government’s policy makers more credible in their actions by putting a cap on how long they are willing to let current monetary policy define the U.S economy and exacerbate the already generous budget deficit – this would in essence put a timetable on the U.S’ path to recovery. This and the recent rise in the “non-Fed enhanced” commercial paper market should be supportive of the dollar in the near to medium term as we target 1.2850.

The Euro continues to dwindle in the depths of poor industrial numbers as Germany remains soft in its manufacturing sector, largely brought on by the slump in the Auto-sector. Greece, Ireland and now Spain have all been warned by the S&P that their credit rating is at risk – this only highlights the risk and the declining attractiveness of EUR-denominated assets.

The dollar posted yet again broad gains against most currencies bar the Yen as both safe-haven currencies of the day rise on continued risk aversion. The Yen gained 0.17% against the dollar, while the greenback managed +0.8% against the Euro, +0.5% against the Swiss-Franc and +1.38% against the Sterling. Today’s EURGBP chart shows a 3-month look at a cross that culminated at 0.9809 on the 30 of December (highest ever) and is now well into its counter-trend. Initial Elliot wave analysis would suggest that the counter trend could well be over and is ripe for the picking. However further pressure on the pair could be true if European industrial worries and further deep recession fears persist – Sterling being concerted could put it at an advantage.

President-elect will meet Monday with leaders of both parties. On the docket: $300 billion in tax cuts, renewable energy and road and school construction.

By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: January 5, 2009: 8:31 AM ET

NEW YORK (CNNMoney.com) -- President-elect Barack Obama was set Monday to begin the push for a massive package of tax cuts and spending proposals aimed at reviving an economy mired in recession.

Obama will meet with top legislators from both parties including House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., as well as Senate Minority Leader Mitch McConnell, R-Ky., and House Minority Leader John Boehner, R-Ohio.

The plan will include about $300 billion in tax cuts for individuals and businesses, an aide to the transition told CNN. Obama has not publicly put a price tag on his overall stimulus plan, though his advisers have said they expect it to fall between $675 billion and $775 billion, 40% of which would be in tax cuts.

Obama offered his most detailed sketch yet of his proposal, which he called the American Recovery and Reinvestment Plan, in his weekly radio and video address on Saturday. He said he would propose to:

• provide tax breaks to workers;
• double renewable energy production and make public buildings more energy efficient;
• rebuild crumbling roads, bridges and schools;
• computerize the health care system;
• and modernize classrooms, labs and libraries.

"Economists from across the political spectrum agree that if we don't act swiftly and boldly, we could see a much deeper economic downturn," Obama said. "That's why we need an American Recovery and Reinvestment Plan that not only creates jobs in the short-term but spurs economic growth and competitiveness in the long-term."

The main goal of his plan: to create 3 million new jobs. Most would come from the private sector, he said.

As Obama prepares to take office on Jan. 20, the country faces a series of severe economic and political challenges.

Nearly 2 million jobs were lost in the first 11 months of 2008 - the final government reading on the employment picture will be released on Friday - and the economy has stagnated. Investors suffered the worst year in stocks since the Great Depression, and foreclosures are rising while housing values are declining at record paces.

Virtually every state is facing a budget shortfall, forcing many to make plans to cut back on critical services and raise taxes.

To that end, Obama's advisers and lawmakers have said they expect his legislation to provide increased aid to states to pay for Medicaid, as well as a boost to unemployment benefits.

Many economists have called for stimulus spending to approach or even exceed $1 trillion if the government expects to successfully beat back one of the deepest downturns in more than two generations.

Some Democrats and Republicans have already raised red flags about the proposed plan's potential scope and the prospect of a rushed attempt to pass the legislation, which could be the most expensive spending bill in U.S. history.

The congressional timeline for the stimulus plan is not clear. Some Democrats had earlier said they wanted to have it ready for Obama to sign shortly after he is sworn in. It appears, however, that such a fast-track is not realistic.

"The urgency of this, everyone knows about," Reid said on NBC's "Meet the Press" on Sunday. "But I'm not going to have some false deadline [on it], whether it's February 1 or whatever it is. I want to make sure that all senators have some input in what goes on here and that we do it as quickly as we can."

A sharp debate is likely over several crucial questions. Will the proposed measures in fact boost the economy? What's the right balance between seeding short-term stimulus versus funding long-term projects? Will money intended to yield long-term dividends for the economy as a whole end up merely serving politically motivated agendas or pet projects?

Obama attempted to assuage some of those concerns on Saturday when he called for "vigorous oversight and strict accountability for achieving results." He stressed that his plan is not an attempt to "throw money" at the economy's problems.

"I am optimistic that if we come together to seek solutions that advance not the interests of any party, or the agenda of any one group, but the aspirations of all Americans, then we will meet the challenges of our time just as previous generations have met the challenges of theirs," Obama said.

Most major currency pairs were confined to narrow ranges and volume was lighter than usual with most Asian and European markets closed. Trading resumed in the United States after markets were shut on Thursday for the Christmas holiday. The Dollar rose against the Yen on Friday after data showed sharp declines in Japan's industrial output and inflation fueled speculation the Bank of Japan would pump large amounts of cash into the economy. However, the Dollar fell against the Euro as trading thinned out ahead of the year end. The Euro also advanced against the Yen. The single euro zone currency was supported by expectations that the European Central Bank will lower interest rates further from the current 2.5%, but at a slower pace.

On Friday, UsdJpy was 0.42% higher at 90.80. EurUsd was 0.18% lower at 1.4025 after trading as high as 1.4119. EurJpy rose 0.64% to 127.43. EurGbp also rose to a fresh high at 0.9618 or +1.18%. UsdChf was 0.35% lower at 1.0701. GbpUsd dropped 0.85% to 1.4618.

Last week, EurUsd rose 0.8% to 1.4025. EurJpy rose 2.5% to 127.43. UsdJpy was 1.62% higher at 90.80. UsdChf dropped 3.04% to 1.0701 and GbpUsd went 2.08% lower at 1.4618.

Government data on Friday showed Japan's industrial production dived a record 8.1% while annual core consumer inflation slowed sharply, to 1% in November, underscoring fears the world's second-largest economy could sink back into deflation next year. Bank of Japan policy board member Hidetoshi Kamezaki said on Thursday that the bank should consider ways to influence longer-term interest rates and corporate debt products if more easing steps are needed. The Bank of Japan 2 weeks ago lowered interest rates close to zero, mirroring steps by the US Federal Reserve, and moved to pump funds into the market to ease a corporate credit crunch.

The dollar regains it’s winning ways this morning as last week’s encouraging White house intervention regarding Chrysler and GM stimulates markets. We have however seen volumes and activity slowly wind down as the world prepares to celebrate Christmas and the Christian New Year. While this “breather” is very much noticeable for the equities and Currency markets – recent developments in the U.S have allowed the green back to somewhat “bounce back” from the retracement of the past two weeks. The stabilization that the $17.4Bn Auto rescue plan brought to the markets has eliminated a short-term event risk going into 2009 – where more challenges await the global economy. The EURUSD traded a tight 1.3950 – 1.4040 range in early Asian trading before hitting larger volumes at European Open. These more subdued moves come after a week of record price action as the dollar slid against all currency pairs – dropping a massive 16.6% since the 5th of December. The USDJPY reacted most to the announcement of the Auto bailout in the U.S, turning on itself, rising from its 15 year low of 87.15 back to and testing the 90.00 levels this afternoon. Since Friday the Yen has given back to the dollar on renewed risk appetite – up a tentative 1.5%. The Yen’s stellar advance in the past 3 months has seen a decline as the BoJ cut rates near 0% last week and further bad economic news hits the news wires – Trade deficit at record lows -26.7% annualized and further stimulus packages in the works. While we anticipate very thin volumes during the Christmas break the Dollar seems to be set to remain strong as renewed risk appetite and repatriation continues. While we haven’t mentioned it as of late, the “cash is king” maxim is still very much alive.

Here are some of the president-elect's ideas on 5 key economic issues.

By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: November 5, 2008: 2:49 AM ET

NEW YORK (CNNMoney.com) -- After months of debating the issues, Americans went to the polls on Tuesday and elected Democrat Barack Obama to serve as the nation's 44th president.
The change in administrations, of course, comes at a critical moment for the U.S. economy -- and President-elect Obama will play a central role guiding it.
What follows is a sketch of Obama's most important proposals for dealing with the financial crisis, housing, taxes, health care and energy.
Financial crisis
Obama's response to the financial and economic crisis will be guided largely by the parameters set in the massive $700 billion financial rescue package passed by lawmakers and signed into law by President Bush in October.
He voted for that bill, but also then came out with a flurry of his own proposals to ease the growing strains felt on Main Street as a result of the crisis. Obama's are aimed at helping cushion Americans in the short-term against the stunning drop in stocks, the anticipated rise in layoffs and troubles making ends meet.
Among the temporary measures he proposed: exempting seniors from having to make withdrawals from retirement savings; exempting jobless workers from having to pay income taxes on unemployment benefits and calling for an extension of those benefits; and offering a tax credit to businesses for every new hire they make in the United States.
To spur more lending to small businesses, Obama proposed temporarily reducing or suspending the fees the Small Business Administration charges banks to participate in its flagship small business loan-guarantee program.
Housing and mortgages
As the housing market unraveled over the course of the campaign, Obama weighed in with a slew of proposals.
Obama called for the Treasury to require financial institutions receiving help from the financial rescue package passed in October to put a 90-day moratorium on foreclosures for homeowners "acting in good faith."
He has called for a change to the bankruptcy law that would let bankruptcy judges reduce mortgage principals for bankruptcy filers. Proponents say such a change would encourage lenders to modify more loans for troubled borrowers rather than risk the loan being rewritten by a judge. Opponents say the change could cause a rise in interest rates because mortgage investors would price in the risk of new loan terms.
Obama has also called for the creation of a fund to help state and local governments ward off foreclosures. And he wants to boost penalties and law enforcement to fight mortgage fraud.
He supported the government's takeover of mortgage giants Fannie Mae and Freddie Mac in September as a stop-gap measure. But he has called for reform of the agencies so that ultimately their public functions will be completely disentangled from their private ones.
More broadly, Obama has proposed giving a tax credit to homeowners who don't itemize deductions and don't get a tax break for the mortgage interest they pay.
Taxes
Obama has proposed a host of new tax cuts for lower- and middle-income Americans and has said he wants to preserve for them the ones put in place by President Bush in 2001 and 2003.
To help pay for many of the new programs he's proposing as well as the cost of his new proposed tax breaks, Obama has said he would repeal some of the Bush tax cuts for high-income taxpayers - specifically by increasing the top two income tax rates and the capital gains rate to their pre-2001 levels.
To help shore up funding for Social Security, Obama would raise the amount of money high-income tax filers pay into the system, but such a move would not go into effect for 10 years.
Obama wants to lessen the bite of the estate tax. And he supports protecting the middle class from the Alternative Minimum Tax.
He has said he would consider lowering the corporate tax rate if enough corporate tax loopholes are closed.
According to a nonpartisan study, only upper-income taxpayers would see a tax increase on average under Obama's tax proposals.
Health care
The Obama campaign describes his health care reform plan as one that builds on the existing employer-based system.
The plan does not call for changes for those Americans who already get their health insurance through their employer.
To help the uninsured or those who buy costly policies on their own, Obama would require large employers to either offer a plan or pay into a new national health care plans network from which their workers could get an affordable policy.
Obama said he also wants to offer an income-based federal subsidy for people who don't get insurance from an employer or who don't qualify for government plans like Medicaid.
His plan would offer small businesses a tax credit if they provide insurance for their workers, but it doesn't specify the parameters for what defines a small business.
The Obama plan would require that all children have health coverage, but it doesn't specify what the penalty would be for parents if they didn't buy coverage for their kids.
Energy
Obama has said he wants to make long-term investments in clean energy and energy efficiency.
He proposes investing $150 billion in renewable energy over the next 10 years, and requiring that a tenth of the nation's energy come from renewable source by 2013. By 2020, he wants to reduce the nation's demand for electricity by 15%.
To reduce greenhouse gases, Obama favors a cap-and-trade auction to limit companies' carbon emissions. He wants to use the money raised from companies buying carbon permits to help fund research and development in green energy and speed the commercialization of solar, wind and other green technologies.
Obama's stated goal: by 2050, carbon emissions should be down to a level that is 80% below where they were in 1990.
Did you vote for Obama? How do you think the new president will affect your wallet? What do you think Obama needs to do to fix the economy - both in the short run and the long term? What should be first on the new Congress's agenda? E-mail us your thoughts, including your name, photo and contact info; the best answers will be featured in an upcoming CNNMoney.com article.
First Published: November 4, 2008: 11:12 PM ET
How the economy stole the electionYour money: Obama on 20 key issuesPresident-elect Obama's 'to do' list44's top job: Name a Treasury Secretary

Deteriorating conditions overseas and lots of international trade mean fears the nation will lose its financial superpower status are overblown.

By Steve Hargreaves, CNNMoney.com staff writer
October 29, 2008: 8:35 AM ET

NEW YORK (CNNMoney.com) -- The United States is suffering the worst financial crisis since the Great Depression. The nation's reliance on the rest the world to support its rampant spending is increasing. Now some people are asking the once-unthinkable question: Is the United States at risk of losing its status as the world's top financial superpower?

To be sure, things seem grim stateside.

Declining home values have decimated the banking sector and sparked a freeze-up in credit. Financial products - invented in the United States - that allowed the housing bubble to grow so large are now infecting foreign markets.

Nearly 1 million Americans have lost their jobs since the start of the year and a deep recession now seems unavoidable.

Plus, the government is borrowing ever more money as it attempts to stem the crisis, adding to a mushrooming national debt. Meanwhile, baby boomers are retiring, drawing huge amounts of money from Medicare and Social Security and threatening to bankrupt the federal government.
With mounting debt and fewer jobs, many American's feel their country's best days are behind it.

"America is no longer an economic superpower - it is following the path of the Romans and the British," one CNNMoney.com reader wrote on our talkback. "This country has no real future and no real leadership."

Many point to the latest credit crisis, which originated in the United States, as proof.
"The U.S. will lose its superpower status in the global financial system," Germany's finance minister was quoted saying last month as the crisis unfolded.

This crisis will certainly leave its mark on America.
"Our credibility has been destroyed," said Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University. "There will be a fundamental change in the role of the U.S."
For starters, it'll be a long time before a U.S. Treasury Secretary can go over to India or China and tell those countries how they should run their banking systems.

Also, more jobs will likely be shed in the U.S., economic growth will slow for several more years, and the amount it costs to borrow money will increase.

But economists including Stiglitz are nearly unanimous: The United States won't lose its position as the world's financial superpower because foreign economies are slowing just as fast as America's, their debt levels are just as high, and the developing world is too reliant on the U.S. market to achieve significant growth on its own.

"The U.S. will still be the world's largest economy," said Stiglitz.
Irene Finel-Honigman, a colleague of Stiglitz's at Columbia, put it more bluntly.
"The U.S. remains and will remain the standard bearer in financial markets," said Honigman, an expert in international finance. "Even in a recession, the U.S. will lead the way out."
It's not just American economists who think the United States will remain the world's financial center for the foreseeable future.

"It's overdone to think the credit crunch itself will mark the end for the U.S. as the world's most powerful capital market," said Lex Hoogduin, chief economist with Dutch investment firm Robeco. "It's popular in political or left-leaning circles, but I don't think they will be proven right."

Everything is relative
Part of the reason America will remain the world's largest economy is not because things aren't bad here, but because they're bad - or worse - everywhere else.

Two main things hit consumers in 2008 - high energy prices and falling home values, and both those things happened more or less worldwide.

Oil is a global market, and the record prices seen in 2008 happened almost everywhere barring countries like Saudi Arabia and Venezuela that had major gasoline subsidies.

And the U.S. wasn't the only country with deflating home prices. Many European countries saw home values plummet. Some reports indicate China's housing bubble is far worse than that in the U.S., and it's about to pop.

Moreover, because many foreign banks were big buyers of U.S. financial products tied to home loans a global recession - not just a U.S. recession - is increasingly likely, wreaking havoc on foreign stock markets.

The Dow has lost nearly 30% over the last two months, but so has London's FTSE, Germany's DAX and Hong's Kong's Hang Seng. Japan's Nikkei is off 40%.

"The U.S. will remain number one by default," said Alan Tonelson, a research fellow at the U.S. Business and Industry Council. "Everyone else has major economic problems of their own."

We all age
The budget deficit and national debt is also a concern for economists, and in the United States it has indeed been growing.

President George Bush ran a deficit of over $400 billion last year, plus some $200 billion more if the wars in Iraq and Afghanistan are figured in.

The national debt - the accumulation of all those years of deficits - is a staggering $10.5 trillion.
This is all only projected to get worse. As the baby boomers retire and draw on Medicare and Social Security, some estimates say the debt could swell to over $50 trillion over the next several decades unless those programs are seriously trimmed.

The danger is that at some point the world will decide the U.S. has too much debt and is no longer credit worthy.

But that hasn't happened yet. Investors are still buying U.S. debt and making it cheaper for the government to borrow money. That's exactly the opposite of what would happen if investors thought the U.S. is on the wane.

And there's good news amid all these daunting debt figures, if only by comparison.
First, the birthrate in the U.S. is fairly high by industrialized standards, meaning there'll be more people to pay that big tab.

In Europe, plenty of people will be retiring over the next few years as well, but there are less workers to replace them when compared to America.

Second, While $10 trillion is no small sum, it's only about 70% of our total yearly economic output, said Jay Bryson, a global economist at Wachovia Corp.

Some European countries have debts that are 100% their yearly economic output, while Japan's debt stands at 150%, said Bryson.

"Is this the death blow for the U.S. as the world's financial center," he asked, referring to all the country's ills. "Probably not."

Mutually assured destruction
With China's unbridled economic growth spurt, there's talk that it could one day overtake the United States. While that could happen several decades from now, China's fate currently is directly tied to the U.S. If we don't buy, they don't grow.

China and other big exporters to the U.S. are laden with dollars - not because its a great investment - but because the U.S. buys so many foreign goods in dollars, argues J.P. Morgan Senior Economist Jim Glassman.

If they tried to switch to another currency, they'd have to sell those dollars and flood the market.

That would kill the value of the dollar and push other currencies up. Exports to the U.S. market would become much more expensive for Americans and because they lack large enough domestic markets it could kill their economy.

"'Whether they like it or not, they are compelled to hold the dollar," said Glassman. "We're enabling their growth and development."

And enabling development overseas, even if that means job losses in the U.S. and manufacturing shifting abroad, is no bad thing, argues Glassman.

"These developing countries have a clear link to us, and we're benefiting from it," said Glassman. "Markets are being created, the pie is growing."

None of this means the U.S. will remain number one forever. Countries rarely keep the top spot for more than a few centuries, and we've already had one.

But for the next five or 10 years, it seems the American Century is in little danger of ending.

NEW YORK - Wall Street plunged in a massive sell-off at Friday’s open, as fears of a punishing global recession stirred panic among investors and sent world financial markets into a tailspin. The Dow Jones industrial average fell nearly 500 points in the first few minutes of trading.
The massive decline was caused by increasingly grim news from overseas. In Japan, shares of Sony sank more than 14 percent after it slashed its earnings forecast for the fiscal year. In Germany, Daimler’s stock dropped 11.4 percent in morning trading after it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance.
Japan’s Nikkei stock average fell a staggering 9.60 percent. In Europe, Germany’s benchmark DAX index was down 10.76 percent, France’s CAC40 dropped 10 percent while Britain’s FTSE 100 sank 8.67 percent after the government said its gross domestic product fell 0.5 percent in the third quarter, putting the country on the brink of recession.