Economics

Why cash is doomed

http://money.uk.msn.com/creditcards/articles/article.aspx?cp-documentid=7690809

Why cash is doomed

It sounds like an old television advert for a two-in-one shampoo and conditioner: "Take a pocketful of notes and coins to the shops? Not me – I just wave and go." But that could very well be the future of shopping if the new wave of cashless payment systems takes off.

And it’s a logical step. Figures from MasterCard show debit and credit card transactions are increasingly becoming our preferred method of payment. Eight out of 10 people surveyed said debit cards were more convenient than cash, while two out of three said they feel more secure using their debit cards.

If that’s the case, notes and coins could very well be redundant in the not-too-distant future as the new cashless payment systems take hold. We’ve already got Oyster cards on the London tube network and now some retailers in London accept so-called "contactless" payments for purchases under £10. To pay for goods, you simply touch your card on a reader and the sum is debited from your card.

There’s no doubt that cash, debit and even traditional credit cards are being given a run for their money by a new generation of cards that could replace all three, in one fell swoop. But which one is right for you? We take a look at the options available.

The best card for people who don’t want bulging pockets
Barclaycard’s touch-and-pay One Pulse card is a three-in-one "wave and go" electronic card.

And it really could revolutionise what’s in your wallet. That’s because this innovative card can be waved at a reader in shops to make purchases under £10, used on London Underground’s Oyster payment system to pay for travel and used as a regular credit card the rest of the time.

It’s already been rolled out in London at over 1,000 shops, restaurants and cafes including Eat, Krispy Kreme, Coffee Republic, Threshers, YO! Sushi and Books Etc.

And it’s simple to use. When you fancy a coffee, want to grab a snack, or spot a paperback you want to read you just take out your One Pulse card, wave it over the reader at the cashpoint and the price is deducted from the balance on your card. Then you can just wave it at the reader at the station, hop on the tube and head home.

The attraction for us, with our wallets bulging with a heap of credit cards, numerous debit cards and a raft of loyalty/points cards from retailers, is easy to see. And the attraction for retailers is obvious too. Especially for busy sandwich chains who currently struggle with queues during the lunchtime rush.

So maybe this really is the way forward.

Pre-paid wave and go cards
Pros
: it means no more scrabbling around for coins.
Cons: you could get fed up with having to keep topping the card up.

The best card for impatient shoppers
Barclaycard was the first to get in on the act, but where there’s one others always follow. So MasterCard has launched the PayPass system in London ahead of its UK rollout.

A household name already, MasterCard should have an advantage over One Pulse because it is already used in 19 countries, including the US, and is carried by 16 million people worldwide.

With the new PayPass cardholders pay for their goods by touching the card on a reader and the money is then deducted from their bank account or added to their credit card bill.

There is no need to enter a pin or sign your name. Banks such as HSBC and retailers including McDonald’s and Coffee Republic have already signed up to use the MasterCard system. It’s estimated that five million PayPass credit cards will have been issued by the end of the year, and will be accepted by 100,000 retailers.

Wave and go credit/debit cards
Pros
: it’s quick, easy and there’s no need to top your balance up before you shop.
Cons: few shops accept the card so far, but MasterCard says 100,000 retailers will be PayPass ready by the end of the year.

The best card for budget shoppers and those with a bad credit record
Anyone who’s ever had a credit card burning a hole in their back pocket will like the new range of pre-paid debit cards that are now available.

Because no matter how much you want that new bag/pair of shoes/Wii games console, if you haven’t got the cash on the card, you can’t have it.

These cards have to be pre-loaded with cash which you can then spend wherever and on whatever you want. They are accepted anywhere Visa or MasterCard are welcome, and they work at the till just like any other credit or debit card. Only this time there’s no need to worry about having to pay for it later.

That’s because they aren’t linked to a current account like a debit card and you don’t buy now, pay later like you do with a credit card. The main attraction therefore is that there’s no need for a credit check before you’re accepted. So even if your credit rating is zero you can still get your hands on a card. You don’t even need a bank account to have one.

However, there is one big drawback with these cards. Some of them can be very expensive to use. For instance, a Cashplus gold pre-paid MasterCard has an annual fee of £9.95, a monthly fee of £4.95 and there can even be a usage fee, so you have to pay an additional £1 every time you make a purchase.

You’ll have to pay £9.95 if you want an additional or replacement card, then you have to pay a £10 fee to get any cash back that’s still on your card when you cancel it. So it might be a way to get a card if you can’t get a regular credit or debit card, but at £70 a year, just to have the card (never mind use it), it’s certainly not cheap.

Pre-paid Visa and Mastercards
Pros
: it’s great for anyone who wants to keep tabs on their spending
Cons: it can be expensive, especially when you pay a £1 fee every single time you use it.

The best card for kids (and people who are hard to buy for)
Kids may not be able to get their hands on a credit card until they’re 18, and for good reason, but they can still shop "just like mum and dad" with a Visa or MasterCard gift card.

These cards can be used anywhere a Visa or MasterCard is accepted, on the high street, online and over the phone. But as with other pre-paid cards they can only be used to pay for goods up to the balance on the card.

This also makes them ideal for gifts, in place of traditional gift cards or vouchers. And there are many different versions of them.

For example, you can get one specifically for a particular shopping centre – and then use them at any of the shops and restaurants there. You can get a card especially to use abroad and you can even get one for business use. Some can be topped-up too.

They do come with fees attached, so choosing the right one is crucial if you don’t want to see the balance eroded by usage charges – especially when it comes to using one abroad.

However, if you don’t mind paying a little for convenience, flexibility or peace of mind then these cards could be a good option for you.

As Sandra Quinn from UK payment association Apacs said, the security risks with these cards are "minimal". Password protected, they can only be used once they have been activated by the recipient, and then are Pin protected.

If you lose your card, tell the issuer and a replacement will be provided and the remaining balance transferred.

Visa and MasterCard giftcards
Pros
: a great alternative for people who can’t have a credit or debit card
Cons: they can be an expensive way to get your hands on your own money

As for any fans of cash out there, I’m afraid its days appear to be numbered. But if you think plastic is far from fantastic then don’t worry, we may be not far off seeing that hit the buffers either.

A new generation of phones is being developed that will link to your credit or debit account as part of a joint initiative with phone operators, banks and credit card companies. Japanese shoppers are already using a pay-by-mobile system that is currently being tried out in the United States, Sweden and France. And if that goes to plan it could be in the UK within a year.

If, as experts predict, this one-swipe payment technology eventually renders both cash and cards obsolete, pretty soon all you might need to leave home with is your mobile phone. Now there’s a thought.

And if carrying anything at all bothers you – there is another way. Millions of shoppers in the US have been paying for goods using nothing more than their fingerprints for the last five years, with the system trialled in England in 2006.

Gold hits $1000

http://www.reuters.com/article/hotStocksNews/idUST17031920080303?sp=true

Gold ends higher on oil; nears $1,000

Mon Mar 3, 2008 3:52pm EST

By Frank Tang and Daniel Magnowski

NEW YORK/LONDON (Reuters) – Gold edged closer to $1,000 on Monday, setting a record high for the fourth straight day as the dollar tumbled and as crude oil held near an all-time high.

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Silver jumped above $20 an ounce for the first time since November 1980, while platinum and palladium held near highs.

Spot gold jumped as high as $989.30 an ounce and was at $981.20/982.00 at New York’s last quote at 2:15 p.m. EST, up from $973.30/973.75 in New York late on Friday.

Gold has gained around 18 percent in 2008 as investors shift some of their money into the precious metal on expectations of more interest rate cuts in the United States, volatile stock markets and fears of rising energy costs.

"People are bullish because the macro-economic backdrop, especially in the United States, is still deteriorating. There are a lot of incentives in the market for people to actually go long on gold at the moment," said Michael Widmer, metals analyst at Lehman Brothers.

"As long as the dollar remains under pressure, I would expect that gold prices would continue to rise."

The dollar fell to a record low against a basket of currencies on Monday, as concerns about the health of the U.S. economy intensified.

David Rinehimer, director at Citi Futures Perspective in New York, said that widespread investor demand and the weakened dollar — which had a strong inverse relationship to bullion, had boosted commodities and gold.

"The price action of gold has limited any real aggressive selling and prompted hedgers to cover short positions," Rinehimer said.

Record high crude oil prices increased gold’s appeal as a hedge against inflation. U.S. crude futures had reached an all-time peak of $103.95 a barrel. However, crude oil settled at $102.45 a barrel, sharply off its session peak.

Thomas Winmill, portfolio manger who oversees $290 million of assets of Midas Fund MIDSX.O in New York, said that a negative real interest rate environment was prompting investors to keep allocating funds to hard assets such as gold.

In other bullion markets, U.S. gold futures also rallied to a record high of $992 an ounce. The active gold contract for April delivery settled up $9.20 at $984.20 an ounce.

"It clearly needs further weakness in the dollar to do that (reach $1,000), but it doesn’t look inconceivable," said Stephen Briggs, economist at SG Corporate and Investment Banking.

"Gold is heavily overdue a correction. It has for a while, but it just doesn’t do it," Briggs said.

In other metals, silver rose as high as $20.60 an ounce, up from $19.80/19.85 an ounce late in New York on Friday, and was last quoted at $20.29/20.34.

Spot platinum rose to a high of $2,230/2,237 an ounce from $2,163/2,170 late in New York on Friday. It hit a record of $2,230 an ounce on February 22 as problems with power supply disrupted mining in main producer South Africa.

A South African minister said on Friday the country’s mining industry would get priority under measures aimed at cutting electricity use to solve a power crisis.

Palladium rose to $576/580 an ounce, its highest in more than six years, from its previous finish of $563/568 late in New York.

(Additional reporting by Atul Prakash in London and Lewa Pardomuan in Singapore; Editing by Marguerita Choy)

© Reuters 2007.

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Many believe US is already in recession

Many believe US is already in recession

By JEANNINE AVERSA, AP Economics Writer

Empty homes and for-sale signs clutter neighborhoods. You’ve lost your job or know someone who has. Your paycheck and nest egg are taking a hit. Could the country be in recession?

Sixty-one percent of the public believes the economy is now suffering through its first recession since 2001, according to an Associated Press-Ipsos poll.

The fallout from a depressed housing market and a credit crunch nearly caused the economy to stall in the final three months of last year. Some experts, like the majority of people questioned in the poll, say the economy actually may be shrinking now. The worry is that consumers and businesses will hunker down further and pull back spending, sending the economy into a tailspin.

"Absolutely, we’re in a recession," said Hilda Sanchez, 44, of Waterford, Calif.

Squeezed by high energy and food bills, "we can’t afford the things that we normally buy," she said. "We are cutting corners in our spending. For our groceries, we are buying a lot of generic and we are eating out less."

For many, the meltdown in the housing and mortgage markets has proved especially disturbing. Record numbers of people were forced from their homes, unable to afford the monthly loan payments. People watched their single biggest asset fall in value, a reason to tighten the belt.

"Obviously the housing market is creating deep concern. And one of the real problems could be that if people, as a result of their value of their homes going down, kind of pull in their horns," President Bush said in a television interview aired Sunday.

Credit has become harder to get, thwarting would-be home buyers, adding to the glut of unsold homes and aggravating the housing industry’s woes.

"For-sale signs are everywhere. In my area, 35 to 40 homes are standing there and aren’t even complete. There aren’t any buyers," said Jim Sims, 60, of Greer, S.C.

Nanette Dahlin, 52, of St. Louis Park, Minn., called the situation "very scary." She said friends in Madison, Minn., put their home up for sale recently and reduced the asking price more than $100,000 in just a week. "They are in bad shape," Dahlin said.

For all of 2007, the economy grew by just 2.2 percent. That was the weakest performance since 2002, when the country was struggling to recover from the last recession. The housing collapse was the biggest culprit in 2007. Builders lowered spending on housing projects by 16.9 percent on an annualized basis, the most in 25 years.

The job market is faltering — a point driven home by a report showing that employers cut jobs in January for the first time in more than four years.

"The way things are, people are afraid of losing their jobs," Sanchez said.

Employment concerns are contributing to darker feelings about the economy and people’s own financial well-being. Consumer confidence, as measured by the RBC Cash Index, dropped to a mark of 48.5 in early February. It was the worst reading since the index began in 2002.

A cooling job market along with high energy and food prices are taking a toll on paychecks. Workers’ average weekly earnings, adjusted for inflation, fell 0.9 percent last year. In 2006, earnings grew by a solid 2.1 percent.

Wall Street is unsettled and as a result, people’s nest eggs are not what they once were.

In fact, that was the top economic worry in the AP-Ipsos poll. Fifty-nine percent said they were worried "a lot" or "some" about seeing the value of stocks and retirement investments drop.

"I really dread opening my (financial) statements," Sims said.

By one rough rule of thumb, a recession occurs when there are two consecutive quarters — six straight months — when the economy shrinks. That did not happen in the last recession, though. The economy contracted in the first quarter of 2001, turned positive in the second quarter, shrank in the third quarter and turned up again in the final quarter of that year.

The National Bureau of Economic Research, the recognized arbiters for dating recessions, uses a more complicated formula. It takes into account such things as employment and income growth. By that measure, the last recession was in 2001, starting in March and ending in November.

Bush, citing some experts, said the U.S. was not in a recession, although he acknowledged "that the signs are troubling enough" to justify the $168 billion economic rescue plan that passed Congress this past week. The measure he intends to sign on Wednesday includes tax rebates for people and tax breaks for businesses.

To bolster the economy, the Federal Reserve embarked on a rate-cutting campaign in September, with two big reductions last month. In just eight days in January, the Fed slashed rates by 1.25 percentage points. The hope it that the lower rates will induce people to buy more and revive the economy.

So if the poll figure of 61 percent is right — that the country is now in recession — then those relief efforts will help ease the effect of a downturn.

"People are both depressed and anxious about the state of affairs. The anxiety is going to persist because we are in an uncertain season economically and politically," said Terry Connelly, dean of Golden Gate University’s Ageno School of Business.

Bush Establishes Financial Propaganda Council

Bush Establishes Financial Propaganda Council

01-22-2008
www.roguegovernment.com
Lee Rogers

The amount of insanity coming out of the United States government has reached a new level today. George W. Bush has issued a new executive order establishing a group called the President’s Advisory Council on Financial Literacy. The insanity of this executive order is unparalleled. The so called purpose of this Council is to keep this nation economically competitive and encourage the financial literacy of the American people. The government working in conjunction with the Federal Reserve has done everything in their power since the implementation of the Federal Reserve to ensure that the American people know nothing about how our monetary system really works. It is interesting that in light of major financial problems and an increased awareness of the Federal Reserve amongst the American people that we see the formation of such a Council. This group is not going to educate the American people about how the financial system actually works. If they did, they would be forced to admit that the Federal Reserve creates money out of thin air that has no value. The establishment is not going to do that. Instead, this group will be used to spread propaganda about the economy, mislead the American people as to what is really creating all of the financial problems and provide phony solutions to these problems. This group may even go as far as saying that we need to replace the U.S. Dollar with a regional currency. The bottom line is that the government has continuously lied about everything, so why should we listen to what this newly formed Council is going to tell us? Not only that, but the government and the Federal Reserve are the ones that really need an educational lesson on monetary policy because they are the ones who have been destroying the economy through this fiat currency. Endless foreign wars and expanding the money supply was what destroyed Rome, and they are doing the exact same thing which if continued will result in our doom.

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The financial ups and downs that we see is a direct result of the fractional reserve banking system which uses a monetary unit that has no tangible backing by gold, silver or any other hard asset. During the 19th century, the United States saw great economic expansion because we had a stable monetary system. Gold and silver was primarily used as money during this time. This encouraged savings because the money stored value. Inflation was non-existent throughout the 19th century with the exception of the Civil War when Lincoln issued Greenbacks to fund the war. After the formation of the Federal Reserve in 1913, the bankers sought to destroy the link between the monetary system and gold. They were able to do that after engineering the Great Depression by intentionally putting a squeeze on the money supply. This is why there was a massive deflation during this time period. They used the economic problems that they created in order to justify a seizure of the gold using the excuse that it would help solidify the economy. The gold was melted down and taken to Fort Knox, KY. Ownership of gold in any substantive quantity was made illegal domestically. This ended the gold standard from a domestic standpoint. Internationally, gold was still accepted for the U.S. Dollar until 1971 when Richard Nixon shut the window on gold redemption and ended the post World War II Bretton Woods agreement which had made the U.S. Dollar the worldÂ’s reserve currency. The Federal Reserve had printed too much money and there wasnÂ’t enough gold to be exchanged for the amount of Dollars they created. Since that point in time, the Federal Reserve has literally printed the money out of thin air, created all of the economic booms and busts through the manipulation of interest rates and the money supply. They have devalued the U.S. Dollar by over 95% since 1913 which slowly robbed wealth from the American people through their creation of additional Dollars otherwise known as inflation. It is a simple supply and demand issue, and right now the Federal Reserve has created too many Dollars which is causing massive inflation and currency devaluation. The mortgage meltdown and the fiasco in the global stock markets the past couple of days are a symptom of the irresponsible and downright criminal monetary policies of the Federal Reserve.

Of course, this new group that Bush is setting up will not teach anybody about the true history of money or the criminal nature of the Federal Reserve. Instead, this group will be used to spread propaganda to the American people about the financial markets and provide phony solutions to problems that the establishment intentionally created through their manipulation of the money supply.

LetÂ’s analyze the various sections of the executive order. Below is the stated mission of this new Council straight from the executive order.

By the authority vested in me as President by the Constitution and the laws of the United States of America and to promote and enhance financial literacy among the American people, it is hereby ordered as follows:

Section 1. Policy. To help keep America competitive and assist the American people in understanding and addressing financial matters, it is the policy of the Federal Government to encourage financial literacy among the American people.

Of course, it has never been the policy of the government or the Federal Reserve to educate the American people as to the true nature of our financial system. This mission statement is nothing more than smoke and mirrors.

The PresidentÂ’s Advisory Council on Financial Literacy will be a group under the Department of Treasury as stated in section 2.

Section 3 of the executive order details the membership of the Council. There will be 19 members on the Council appointed among individuals not employed by the government. The Council will be directed by the Treasury Secretary and funded by the Department of Treasury.

Section 4 of the executive order establishes the exact functions of the Council which includes obtaining information and advice concerning financial literacy, improving financial education for children and adults, promote effective access to financial services, especially for those without access to such services, conduct research on the financial knowledge of people and provide reports to the President through the Secretary of the Treasury on these matters. So basically speaking they are going to adopt a strategy to spread propaganda to the American people that will effectively mislead them into making decisions with their money. Since when has the government sought to have an informed and smart population? The Department of Education has done everything in their power to dumb down the American people through standardized tests and other failed strategies. Not only that, but there have been so many lies from the U.S. government and the establishment media, so why should we trust any information coming from this Council? Even more ridiculous is that the Council is going to try to promote access to financial services and in particular access to financial services to those without access to such services. One of the biggest groups of people that this pertains to is of course the expanding population of illegal aliens in the United States. So this Council will likely be spreading propaganda talking about how we need to provide financial services to illegal aliens. This is insane.

In section 6 of the executive order it states that the Council will last for two years. It is interesting that many gold bugs and economists have been predicting a financial meltdown and believe that the economy could crash within the next few years. Maybe that’s just a coincidence but it is certainly an interesting one. Perhaps, this group will be in charge of promoting a new regional currency to replace the Dollar which is on the brink of a collapse thanks to the Federal ReserveÂ’s policy of destroying its value.

The bottom line is this Council is going to serve as a means to spread propaganda to the American people on the financial system. They are even going to target children with the propaganda. The establishment needs to counter critically important information being put out about how horrible the central banking system is. Ron Paul has done a tremendous job interjecting these truths about the financial system into the GOP presidential debates and this has undoubtedly scared the establishment. There is little doubt that the people on the Council will be establishment insiders and they will not serve the American peopleÂ’s best interest. People are scared because the housing market is in the toilet, the currency is being devalued, wages are not rising with the price of goods and services, precious metals are at record nominal levels and weÂ’ve seen oil approach $100 a barrel in recent months. This Council is going to try to set aside people’s fears through education and because of this, it should be called the PresidentÂ’s Council on Financial Propaganda instead of the PresidentÂ’s Advisory Council on Financial Literacy. Do not listen to what this Council says or tries to promote. Buy gold and silver and protect yourself from what the Federal Reserve and our government are doing to our economy. Foreign wars and the policy of devaluing our currency are destroying our economy and it is all being done by design by these criminals.

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Fed Cuts Interest Rates

Fed Cuts Interest Rate

Fed Cuts Interest Rate Amid Global Stock Sell-Off and Fears of Recession

Tuesday January 22, 10:37 am ET
By Martin Crutsinger, AP Economics Writer

WASHINGTON (AP) — The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, slashed a key interest rate by three-quarters of a percentage point on Tuesday and indicated further rate cuts were likely.

The surprise reduction in the federal funds rate from 4.25 down to 3.5 percent marked the biggest funds rate cut on records going back to 1990.

Federal Reserve Chairman Ben Bernanke and his colleagues took the action after an emergency video conference on Monday night, a day when global markets had been pounded by rising concerns that weakness in the world’s largest economy was spreading worldwide.

Despite the Fed’s bold move, Wall Street plunged at the opening. The Dow Jones industrial average was down 311.99 points in the first hour of trading.

In a brief statement explaining its move, the Fed said that "appreciable downside risks to growth remain" and officials pledged to "act in a timely manner" to deal with the risks facing the economy. The action was approved on an 8-1 vote.

Analysts said the fact that the Fed did not wait until its meeting next week to cut rates underscored the seriousness of the situation.

"The world’s stock markets are in meltdown so the Fed came in with an inter-meeting move to try to stop the panic," Christopher Rupkey, senior economist at Bank of Tokyo-Mitsubishi.

The Bush administration, which had announced on Friday that President Bush supported a $150 billion economic stimulus package, said Tuesday that it was not ruling out doing more than the $150 billion proposal if necessary.

Many analysts said if the carnage continues in stock markets, the Fed will move to cut rates again at its Jan. 29-30 meeting.

"This move is not an instant fix," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "The economy is still staring recession in the face, but at least the Fed now gets it."

In addition to cutting the funds rate, the Fed said it was reducing its discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a percentage point, pushing this rate down to 4 percent.

Commercial banks responded to the Fed’s action on the funds rate by announcing similar cuts of three-quarter of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25 percent down to 6.50 percent.

The Fed action was the most dramatic signal it can send that it is concerned about a potential recession in the United States.

The Fed action occurred after global financial markets had plunged Monday as investors grew more concerned about the possibility that the United States, the world’s largest economy, could be headed into a recession. Many markets suffered their biggest declines since the September 2001 terrorist attacks.

In its statement, the Fed said it had decided to cut the federal funds rate "in view of a weakening of the economic outlook and increasing downside risks to growth."

The central bank said that the strains in short-term credit markets have eased a bit, but "broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

The move caught financial markets by surprise. Many had expected the central bank would wait until its meeting next week to make any move in interest rates. The Fed made the move before markets had opened in the United States.

Before Tuesday’s move, the Fed had cut interest rates three times, beginning in September, the month after a severe credit crunch had roiled Wall Street and global financial markets. The Fed cut the funds rate by a half-point in September and then by smaller quarter-point moves in October and December.

"The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risk," the Fed statement said.

The Fed’s action was approved on an 8-1 vote with William Poole, president the Fed’s regional bank, dissenting. The statement said that Poole objected because he did not believe current conditions justified a rate move before the Fed’s meeting next week.

Copyright © 2008 Yahoo! Inc. All rights reserved.

Oil hits $100 per barrel for first time in history

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/02/bcncrude102.xml

Crude oil hits record $100 for first time

By Edmund Conway, Economics Editor

Last Updated: 7:58pm GMT 02/01/2008

Crude oil has hit the $100 milestone for the first time in history, as a host of commodities smashed through record levels.

Analysts warned that inflation and high energy prices would remain a key threat on the economic agenda throughout 2008 as gold and platinum also hit record highs.

The price of a barrel of February crude traded on the New York Mercantile Exchange rose $4.02 to precisely $100, the market confirmed. It is the highest price the fossil fuel has ever reached.

In London, Brent North Sea crude hit a record $97.05 a barrel.

The news caused a shudder of alarm throughout the global economy, where high energy prices are already being blamed for sharp increases in domestic inflation.

It helped send the Dow Jones index in Wall Street 209 points lower to 13,055 in late trading , though the news came only after London’s markets were closed.

US markets were also pushed lower by news of a sudden drop in manufacturing output, and the announcement by the Federal Reserve that it is cutting its economic forecast for the year.

It will also worry the Bank of England. Its Monetary Policy Committee is considering further cuts in interest rates in the coming months, but must keep inflation from rising too far above its 2pc target.

The commodity’s recent resurgence has been fuelled by jitteriness about geo-political stability following the assassination of Benazir Bhutto and the unrest in Kenya.

There are also worries about unrest in Nigeria, one of the world’s biggest oil producers.

Speculation in the oil market by hedge funds and other investors has also lifted the price, experts have concluded.

Analysts said they expected oil prices to rise further still in the coming months and years, due to a combination of higher demand from fast-growing countries such as China and falling supply caused as refineries struggle to produce oil products and satisfy their customers.

Kevin Norrish, analyst at Barclays Capital in London, said: "We find it difficult to contemplate any scenario which doesn’t see annual average prices going steadily higher."

However, Nauman Barakat of Macquarie Futures said: "Prices could be a lot higher because continued strong demand from Brazil, India and China, but on the other hand they could be a lot lower because these kinds of high price levels could cause a global recession."

The next landmark for oil prices is $101.70. This is the level, adjusted for inflation, at which oil peaked in 1980 during the second oil crisis.

Spot gold prices hit $861.20 an ounce, bursting through the previous high of $850 also reached in 1980, while the cost of wheat and soybeans also increased by more than 3pc.

The universal strength of commodities is partly due to the recent weakness of the dollar, since most of them are priced against the US currency.

The dollar dropped again on Wednesday amid suspicion that the Federal Reserve will cut interest rates faster than expected.

With the US facing a possible recession, economists have voiced growing concern about the threat of stagflation – where weak economic growth is twinned with out-of-control inflation.

Gold’s strength owes something to its use as a hedge against inflation.

As news of the milestone spread, causing alarm throughout the world, a White House spokesman was forced to announce that US president George Bush does not intend to tap the country’s Strategic Petroleum Reserve to bring down prices.

The reserve, it was stated, "is used for emergencies."

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