MBN: THE MONTE BUBBLES NETWORK

U.S. AND CHINA TO HOLD FIRST MEETING OF THE STRATEGIC  ECONOMIC
DIALOGUE IN BEIJING NEXT MONTH

This Department of Treasury press release may be viewed at:
http://www.treas.gov/press/releases/hp180.htm

   Washington, DC –

   Treasury Secretary Henry M. Paulson will lead a delegation to
Beijing next month for the inaugural meeting of the U.S. – China Strategic
   Economic Dialogue. Secretary Paulson will be joined by Commerce
   Secretary Carlos Gutierrez, Labor Secretary Elaine Chao, Health and
   Human Services Secretary Mike Leavitt, Energy Secretary Sam Bodman,
   U.S. Trade Representative Susan Schwab, EPA Administrator Stephen
   Johnson, and other Administration officials.

   In addition, Federal Reserve Chairman Ben S. Bernanke will join the
   Strategic Economic Dialogue discussions.

   The dialogue was launched by Presidents Bush and Hu in September as
an overearching forum for discussing ways the U.S. and China can work
   together to ensure that citizens in both countries benefit fairly
from the growing bilateral economic relationship. While in Beijing, the
   U.S. delegation will hold a number of meetings with Vice Premier Wu
Yi and other Chinese counterparts to discuss a range of issues
including assuring continued global growth, China's economic development and
   further integration into the world trading system, stable energy
   markets, and cooperation on the environment. The U.S. delegation
will also meet with Chinese President Hu and Premier Wen while there.

   The talks will take place December 14-15 in Beijing.

 TREASURY TARGETS DRUG CARTEL ASSETS IN  COLOMBIA AND OFFSHORE HAVENS


   The U.S. Department of the Treasury's Office of Foreign Assets
Control
   (OFAC) today added five Colombian individuals and twenty-two
entities
   to its list of Specially Designated Narcotics Traffickers (SDNTs)
for
   their ties to the North Valle drug cartel.

   "Today's action levies financial sanctions against another group of
   previously-concealed entities and individuals operating on behalf of
   the North Valle cartel," said Adam Szubin, Director of the Office of
   Foreign Assets Control.  "OFAC will continue to dismantle the
cartel's
   financial empire and expose its willing collaborators."

   The five Colombian individuals act as front persons for the North
   Valle drug cartel leader Raul Grajales Lemos (Raul Grajales), and
one
   of the individuals is also associated with North Valle leader Carlos
   Alberto "Beto" Renteria (Beto Renteria).  Today's action is the
sixth
   designation against the financial network of Raul Grajales and Beto
   Renteria.

   One of the individuals named today, Abdala Saieh Jassir has served
as
   a front person for Raul Grajales and Beto Renteria since 1988. He is
   the father of SDNT Moises Abdal Saieh Muvdi, who was designated by
   OFAC on June 13, 2006, and is currently in Colombian custody on
money
   laundering charges.  Abdala Saieh Jassir has also operated as the
   manager of Confecciones Lord S.A., an SDNT entity that supplies
goods
   to Casa Estrella, a designated Colombian department store chain
owned
   by Raul Grajales and Beto Renteria. The remaining four individuals
   designated today, Gloria Elena Fajardo Hernandez, Piedad Rocio
Sanchez
   Candelo, Sandra Milena Prieto Santiago and Hector Leon, have played
   key roles in managing companies controlled by Raul Grajales.

   Twenty-two companies controlled by Raul Grajales and/or Beto
Renteria
   have also been designated today as SDNTs.  Five of these companies
are
   run by SDNTs Moises Abdal Saieh Muvdi, Carlos Ernesto Saieh Jamis
and
   Abdala Saieh Jassir, who have worked for or on behalf of Beto
Renteria
   and Raul Grajales for well over a decade.  These five entities form
a
   part of the international financial network of Raul Grajales and
Beto
   Renteria, and are located in Barbados, the British Virgin Islands,
the
   Cayman Islands and Panama.  The remaining seventeen companies are
   controlled by Raul Grajales and encompass a wide range of services
   including agricultural, consulting, telecommunications, car rental,
   retail, accessory manufacturing, publishing, construction,
   agricultural products, agricultural research and education and the
   exportation of products.

   This action is part of an ongoing interagency effort to expose,
   isolate, and disrupt Colombia's drug cartels by means of economic
   sanctions pursuant to Executive Order 12978.  This effort involves
the
   Departments of the Treasury, Justice, State and Homeland Security.
   Today's action freezes any assets of the designees found in the
United
   States and prohibits all financial and commercial transactions by
any
   U.S. person with the designees.

   The assets of a total of 1327 business and individuals have been
   designated pursuant E.O. 12978, in the United States, Aruba,
Barbados,
   Colombia, Costa Rica, Ecuador, Panama, Peru, Spain, Vanuatu,
   Venezuela, the Bahamas, the British Virgin Islands, and the Cayman
   Islands. The 526 SDNT businesses include agricultural, aviation,
   consulting, construction, distribution, financial, investment,
   manufacturing, mining, offshore, pharmaceutical, publishing, real
   estate, retail, service and telecommunication firms. The SDNT list
   includes 21 kingpins from the Cali, North Valle and North Coast drug
   cartels in Colombia.

REMARKS PREPARED FOR DELIVERY BY TREASURY SECRETARY  HENRY M. PAULSON
BEFORE THE CONFEDERATION OF BRITISH INDUSTRY ANNUAL  CONFERENCE



   London–

   Thank you, Gordon. I greatly appreciate the opportunity to spend
time
   with you discussing issues which are vital to the international
   economy. In my previous job I spent much time in London, which is
one
   of the world's great financial centers. I'm grateful to Sir John
   Sunderland, Richard Lambert, and the CBI for your warm welcome.

   The United States and Great Britain have enjoyed a close bond for
many
   years. This relationship is built on a foundation of shared
principles
   and values rooted in individual, political, and economic freedom.
   Among these are strong support for free markets and confidence in
the
   power of trade and commerce to improve lives.

   Today we've had a good discussion about the issues we will face in
the
   months and years ahead. We have discussed income distribution in our
   two countries and around the world. We have discussed strategies for
   maintaining and improving the strength of the global economy, and
the
   economic condition of its people. And we agree that keeping the
global
   economy strong depends to a large extent on our ability to promote
   competitive capital markets around the world and our success in
   reaching a comprehensive agreement in the Doha trade negotiations.

   We are fortunate to face our long-term challenges from a position of
   strength. As a participant in financial markets for more than 30
   years, I say with confidence that over the last couple of years, the
   world economy has been stronger than I have ever seen it.

   Growth in world GDP is expected to be 5.1 percent this year,
stronger
   than the average of the last 25 years. Furthermore, gains in GDP are
   not being eaten away by price spikes. Inflation for 2006 will be
under
   4 percent, compared with nearly 14 percent in the previous
   two-and-a-half decades. And perhaps most importantly, economic
growth
   is broad-based. In fact, the IMF projects that GDP will decline in
   only four out of 181 countries this year.

   Stable, non-inflationary, broad-based growth is the best way to
   improve living standards around the world. Now how do we keep this
   strong global economy moving forward?

   Our modern economy is more interconnected than ever before. This is
   the result of decades of efforts to strengthen multilateral
   institutions and lower barriers to trade and capital flows. The
rapid
   pace of technological change also brings us closer.

   Our interconnected economy is aided by capital markets, which put
   money behind job-creating ideas in every sector. This generates a
   positive spillover effect, with strong financial markets spurring
   growth in everything from technology to manufacturing to services.
   Every healthy, balanced economy in the world has strong and
   competitive capital markets.

   The United States and the UK have had well-developed, highly
efficient
   markets for many years. And both serve as an example to the rest of
   the world. U.S. financial sector deregulation in the 1980s led to an
   explosion of new services and financial instruments, making the
United
   States the world's leader and innovator in financial services,
   including mergers and acquisitions advice, securitization skills,
   derivatives, high-yield debt financing, and hedge funds.

   Similarly, the UK experienced the benefits of deregulation 20 years
   ago with the Big Bang. Today, London attracts vastly more foreign
   investment than it did prior to deregulation, and it offers
investors
   a wide variety of financial instruments. And your markets place a
   strong emphasis on innovation, competition, and the use of
technology
   to increase efficiency.

   As friendly competitors, New York and London push each other to be
   more innovative, more efficient, and more responsive to changes in
the
   marketplace. Investors are the clear winners in this competition, as
   they have more choices about how to earn positive returns on their
   capital.

   These innovations, combined with technological developments, make it
   is easier than ever before to make investments across the globe.
   British investors aren't limited to London, just as Americans aren't
   tied to New York. And our two markets capture investment capital
from
   every part of the world.

   As the world's largest investor and largest recipient of
international
   investment, the United States has a key stake in promoting an open
and
   stable investment regime. President Bush continues to work with
   Congress to maintain an economic and political environment that is
   welcoming to investment, both foreign and domestic. We understand
that
   markets which are open to investment and capital flows are enriched
by
   them.

   Today we see emerging markets in Asia, Latin America, and parts of
   Europe that are opening themselves up to capital flows. More
countries
   are recognizing that competition in all markets lowers costs, and a
   lower cost of capital means more growth, more jobs, and higher
living
   standards.

   A great deal of innovation is taking place in the international
   capital markets, which are in many ways laboratories of capitalism.
A
   number of securities exchanges and markets in the U.S. and Europe
are
   aggressively embracing technology and developing innovative business
   models that increase efficiencies. These markets are also developing
   their own standards and protocols for regulating commercial
activity.
   A number of these approaches are excellent, and in the U.S., we will
   be open-minded about how ideas implemented by others might prove
   beneficial to us. Policymakers and regulators alike are constantly
   examining the dynamic marketplace and reviewing our policies to
ensure
   we maintain both the integrity and the competitiveness of our
   financial markets.

   In two weeks, I will travel to Beijing for the first session of our
   recently initiated Strategic Economic Dialogue with China. We will
   encourage China to accelerate the development of their financial
   markets infrastructure in order to support sustainable economic
growth
   – growth that will bring benefits to many nations.

   We should applaud successes in markets around the world, because in
   today's interdependent world, exports and employment opportunities
in
   our two nations are affected by how well our major trading partners
   are doing. When any major economy does well, its growth benefits the
   overall global economy. When a major economy falters, it is a drag
on
   global growth. The Asian Financial Crisis of 1997 may have reduced
   growth by as much as 1 percentage point in the United States and
   Europe. The Russian default in 1998 led to a sudden widening in
credit
   spreads and a financial shock which contributed to the failure of
the
   hedge fund, Long Term Capital Management, in the United States.

   There are no islands of economic stability in today's world.
   Globalization and interdependence are here to stay. No nation can
turn
   back the clock, so the imperative is to find ways for all nations to
   benefit together.

   Economic integration makes economies more efficient, more
productive,
   and more competitive. Integration gives businesses greater access to
   markets around the world, and increases their ability to achieve
   economies of scale. Global markets give consumers more choices. And
   global competition helps reduce the prices of goods and services – a
   real benefit to those with lower incomes, whether in the United
States
   or abroad.

   Today, the nations of the world have a tremendous opportunity to
   create freer markets in many sectors, through the Doha Round of
trade
   negotiations.

   Nothing would be more beneficial to global economic growth than a
   successful Doha agreement.

   It is difficult to overstate the importance of these discussions.
   Global trade agreements are only on the table every 12 years or so.
   Representatives from many nations have already invested years of
   effort toward reaching accord on a variety of issues. The United
   States Trade Representative, Susan Schwab, regularly meets with her
   counterparts in bilateral negotiations around the world, and these
   discussions are fruitful. Now, we must build on that progress with
the
   goal of getting a final deal done.

   The United States has a strong track record of negotiating
successful
   bilateral trade pacts. We also strongly support the WTO, and the
   multilateral framework for trade agreements. A successful Doha Round
   is crucial to the success of the WTO.

   Why is trade so important? Simply put, free trading nations have
   access to an enormous flow of goods and services. In 1980,
   international trade flows totaled 41 percent of world GDP. By 2005,
   this ratio increased to 57 percent. And this year, the number is
   expected to be 60 percent.

   Nations that are open to trade have vastly stronger economies than
   countries that close themselves off. By keeping our markets open and
   convincing others to do the same, we can generate growth that will
   benefit all parties, narrowing the gap between rich and poor in our
   own countries and among the nations of the world.

   When foreign markets grow and foreign economies prosper, our
   businesses have more outlets for their goods and services. And by
   expanding their business into other markets, our domestic companies
   can become more efficient. With more outlets for selling abroad and
   greater efficiencies, U.S. and UK companies have more opportunities
to
   succeed. Success translates into more jobs and higher incomes for
   American and British workers, as well as for foreign workers
employed
   by our companies.

   Despite the known benefits of trade, the protectionist sentiment
that
   is rising in our two nations and elsewhere around the world is
   predicated on a false perception that trade harms our economies. The
   lesson of the last 25 years is that those nations which have opened
   themselves up to greater integration with the global economy have
   prospered, while others have been left behind. Nonetheless, at a
time
   when global prosperity is at or near an all-time high, protectionist
   sentiment appears to be increasing.

   It is true that openness to competition can result in job losses in
   some areas. We have a responsibility to help people acquire the
   education, skills, and training they need to compete in a globally
   integrated economy.

   But we must not, in the name of a few jobs today, eliminate many
more
   jobs and higher incomes in the future.

   Protectionist policies do not work and the collateral damage from
   these policies is high. Jobs saved in the short term are offset by
   more job losses and a lower standard of living in years to come.

   We should confront protectionist rhetoric with facts. It is a fact
   that trade improves wages and creates jobs. One study suggests that
if
   post-Uruguay Round trade barriers were removed, global wages would
   rise by $1.9 trillion – including increases of $512 billion in
Europe
   and $537 billion in the U.S. Other studies indicate that U.S.
   employees of multinational firms earn wages and benefits that are 18
   percent higher than employees of purely domestic firms. Another
report
   shows that nearly 42 percent of U.S. workers are employed by a
company
   that engages in global trade. This implies that more than 56 million
   American workers today work in jobs that depend on trade.

   These are the benefits that isolationists believe we can do without.

   We cannot allow protectionist elements to stifle our growth, limit
our
   opportunities, and dictate the terms of our engagement with the
world.
   Giving in to protectionist sentiment would send a terrible signal.
We
   would be telling developing nations that while we have benefited
from
   increased trade, we aren't going to allow them the same opportunity
to
   develop. We would effectively be relegating countless people to the
   status of a perpetual underclass, with little income and few
   opportunities for advancement. That is not only bad policy, it is
   morally wrong.

   I can assure you that this month's elections have not altered the
U.S.
   commitment to achieving a successful outcome to the Doha Round. The
   Round continues to be our top trade priority. We won't wait to raise
   this at the next heads of state summit. Ambassador Schwab is
traveling
   extensively, and ready to meet anytime, anywhere. She and other
senior
   U.S. officials are continuing to have quiet conversations with
various
   trading partners to explore some "what ifs" and test new ideas.

   We need to be clear on what constitutes a Doha "success." It can
only
   be an outcome that generates meaningful new trade flows in
   agriculture, manufacturing, and services.

   To succeed, these negotiations need to produce benefits for all
   nations and all sectors. The focus has been on agriculture, which
has
   been a sticking point. Reducing agricultural subsidies and opening
   markets can create growth opportunities for millions of people
across
   the globe, especially in developing countries. Just as vital to the
   economic growth of our nations is trade in manufacturing and
services.
   In particular, opening up financial services markets to foreign
   competition can bring great rewards to every nation.

   The stakes of the Doha trade round are huge. And they transcend the
   purely economic. Closer economic ties between nations help promote
   international peace and prosperity by creating common interests and
   raising the costs of conflict. In fact, the greatest threat today is
   not from conflict between states, but from instability within
states,
   and from those states, like North Korea and Iran, which are not
   prepared to abide by international standards of conduct, including
WMD
   proliferation and terrorism.

   A successful Doha trade pact will reinforce the world's commitment
to
   working in an international framework to advance a common agenda.

   Chancellor Brown and I believe a Doha agreement that benefits
everyone
   is within our reach. We all need to work together to find that
   agreement.

   The global economy is in a period of exceptional growth. People
around
   the world are enjoying higher standards of living. The task before
us
   is to build on this strength as we move deeper into the 21st
century.
   Strong, competitive markets will be a foundation for continued
growth.
   And freer trade among nations is the way to help spread prosperity
to
   every corner of the world.

   The work ahead is not easy. But it is essential. In the United
States,
   President Bush has set as a high priority achieving a successful
Doha
   Round, and I will proactively work to help Susan Schwab and other
   members of the Administration do just that.

   I appreciate having a strong partner in Gordon Brown. Together, the
   United States and Great Britain can lead the world toward a more
   prosperous future.

   Thank you very much.

UNITED STATES AND BELGIUM SIGN INCOME TAX TREATY AND PROTOCOL



   Washington, DC – The Treasury Department today announced that the
   Ambassador to Belgium, Tom C. Korologos, and the Deputy Prime
   Minister- Minister of Finance, Mr. Didier Reynders, signed a new
   Income Tax Treaty and Protocol to replace the existing bilateral
   income tax treaty, concluded in 1970, as amended in 1987, between
the
   two countries. The Treaty and Protocol were signed today in
Brussels.

   The agreement significantly reduces tax-related barriers to trade
and
   investment flows between the United States and Belgium. It also
   modernizes the treaty to take account of changes in the laws and
   policies of both countries since the current treaty was signed.

   The most important aspect of the Treaty and Protocol deals with the
   taxation of cross-border dividend payments. The Treaty and Protocol
   provide for the elimination of the source-country withholding tax on
   dividends arising from certain direct investments and on dividends
   paid to pension funds. The Treaty and Protocol also provide for
   mandatory arbitration of certain cases that cannot be resolved by
the
   competent authorities within a specified period of time. This is
only
   the second time that a U.S. tax treaty has contained such a
provision.
   In addition, the Treaty and Protocol also strengthen the Treaty's
   provisions preventing so-called treaty shopping, which is the
   inappropriate use of a tax treaty by third-country residents. The
   Treaty and Protocol will also serve to improve the exchange of
   information between the two countries, including bank information.

   With respect to the signing, Ambassador Korologos stated "This is a
   win-win treaty.  The signing today is a tribute to the initiative
   of President Bush and Prime Minister Verhofstadt both of whom became
   personally involved.  I congratulate the Finance Minister and the
U.S.
   Treasury who worked out the details in record time.  It is another
   example of the close US-Belgian economic and political ties."

Remarks by Treasury Secretary Henry M. Paulson
on the Competitiveness of U.S. Capital Markets Economic Club of New York
New York, NY

Thank you, Barbara. It's good to be in New York City, the financial capital of the world. What happens in our financial markets is an indicator of the overall state of our economy. And I am pleased to report that our economy is strong.

We are experiencing sustained growth and low unemployment. The economy has added more than 6.8 million new jobs since August 2003. Productivity, an indicator of future growth, has grown at an annual rate of 3 percent since the first quarter of 2001. And, very importantly, this productivity is now translating into higher wages, so more Americans are sharing in our economic success. The U.S. economy is the envy of the world, and we must keep it that way.

Capital markets are the lifeblood of our economy. They connect those who need capital with those who invest or lend capital. They play a vital role in helping entrepreneurs implement new ideas and businesses expand operations, creating new jobs. They give our citizens the confidence to invest, earn higher returns on their savings, and reduce the cost of borrowing for student loans, mortgages, and consumer credit.

Our capital markets are the deepest, most efficient, and most transparent in the world. We are the world's leader and innovator in mergers and acquisitions advice, venture capital, private equity, hedge funds, derivatives, securitization skills, and Exchange Traded Funds. This expertise has made our leading financial institutions, many of them headquartered right here in New York, leaders in Asia, Europe, and Latin America. U.S. commercial and investment banks contribute greatly to economic success all around the globe.

Yet, our markets are not immune to challenges. After years of economic expansion and the excesses and exuberance of the late 1990s, we faced what some called the perfect storm: the technology and telecom bubble burst, the U.S. economy went into recession, terrorists attacked us on September 11, 2001, and a wave of corporate scandals undermined investor confidence.

We weathered the storm. The President, both parties in Congress, and regulators moved quickly to address the business scandals, which helped to restore investor confidence. And the President's economic policies and tax cuts laid a strong foundation for recovery.

In the United States, whenever there is a major problem in our capital markets, we shine a light on it and move quickly to clean it up. The vast majority of corporate leaders are honest people, but those executives who put their personal interest above the interests of their shareholders undermined confidence in our markets. That's not competing, that's cheating. And perpetrators are being punished.

We responded to the corporate scandals with the Sarbanes-Oxley Act of 2002, new listing rules for public companies, and regulatory and legal enforcement actions to alter certain business practices. These changes have been extensive and significant, so it is quite naturally taking time for companies to understand, process, and implement the new rules and requirements. Many of the results have been positive. At the same time, as corporations, financial institutions, and regulators continue to adapt, questions are being raised about the long-term impact of these changes. Our goal is to preserve the integrity of our markets while maintaining their competitiveness.

Recently, Mayor Bloomberg and Senator Schumer emphasized this point in a Wall Street Journal Op-Ed that was right on target. They highlighted a discussion that many in the financial community are having: Does the decline in initial public offerings in U.S. capital markets signal potentially broader challenges to our competitiveness?

An IPO occurs when a private company decides to sell its shares to the public. Our public markets provide the lowest-cost capital. Access to these markets – as it should – brings regulatory, governance, and disclosure responsibilities. Historically, the U.S. markets have represented the gold standard, and a significant number of premier foreign companies have willingly adhered to our standards in order to access our markets.

Yet recently, in the wake of new, heightened regulatory and listing requirements for all public companies in the U.S., we have witnessed changes in IPO activity. Despite our strong economy and stock market, IPO dollar volume in the U.S. is well below the historical trend and below the trend and activity level in a number of foreign markets.

Moreover, existing public companies in the U.S. are deciding to forgo their public status – with its attendant regulatory requirements – and go private. This is occurring in record numbers, at record volumes, and, as a percentage of overall public company M&A activity, is approaching levels we have not seen in almost 20 years. This development is being facilitated by ever-growing private pools of capital.

Given domestic trends, it is not surprising that the U.S. share of the total volume of foreign IPOs has also declined. Determining the causes and potential effects of these trends is more complicated. Are they temporary, harmless phenomena, or more like the coal miners' canary? What is the implication for America's investors and our existing public companies, which remain subject to the new regulatory standards? And what does this mean for America's economic competitiveness?

Let me begin by discussing the importance of regulation. Truly competitive capital markets must inspire investor confidence. They must be fair and they must be perceived to be fair. Of course, fairness does not guarantee success. Laws and regulation cannot prevent investors from losses, nor should they attempt to do so. We should not discourage risk taking, but we should make sure that investors have reliable information on which to base their decisions.

In a recent speech, former Treasury Secretary Bob Rubin said this about regulation: "Our society seems to have an increased tendency to want to eliminate or minimize risk, instead of making cost/benefit judgments on risk reduction in order to achieve optimal balances."

When it comes to regulation, balance is key. And striking the right balance requires us to consider the economic implications of our actions. Excessive regulation slows innovation, imposes needless costs on investors, and stifles competitiveness and job creation. At the same time, we should not engage in a regulatory race to the bottom, seeking to eliminate necessary safeguards for investors in a quest to reduce costs. The right regulatory balance should marry high standards of integrity and accountability with a strong foundation for innovation, growth, and competitiveness.

Some observers cite the decline of foreign IPOs in the U.S. market as an indicator of the competitiveness of our capital markets. We should go beyond the numbers and examine some of the possible reasons for this decline. Several factors contribute to the recent trends, including public policies in other countries. But several other contributing factors offer a framework to assess our own capital markets. These include:

• The development of markets outside the U.S., particularly in London and Hong Kong – and the ability of U.S. investors to participate in these offerings;
  
  
• A legal system in the U.S. that exposes market participants to significant litigation risk;
  
  
• A complex and confusing regulatory structure and enforcement environment;
  
  
• And new accounting and governance rules which, while necessary, are being implemented in a way that may be creating unnecessary costs and introducing new risks to our economy.

Each of these warrants deeper discussion.

First, let me say unequivocally, the development of competitive capital markets overseas is a positive. Efficient capital markets lower the cost of capital, creating more growth, more jobs, and higher living standards. And economic growth abroad creates markets for our products and jobs here at home.

In three weeks, I will travel to Beijing for the first session of our recently initiated Strategic Economic Dialogue with China. We will encourage China to open up their financial markets to competition in order to accelerate the development of those markets and support sustainable economic growth – growth that will bring benefits to both our nations.

A number of foreign markets have developed excellent standards and protocols. In some parts of the world, particularly Europe, public companies adhere to the International Financial Reporting Standards – an accounting system that differs from ours.

One important feature of the IFRS accounting system is that it is principles-based, rather than rules-based. By "principles-based," I mean that the system is organized around a relatively small number of ideas or concepts that provide a framework for thinking about specific issues. The advantage of a principles-based system is that it is flexible and sensible in dealing with new or special situations. A rules-based system typically gives more specific guidance than a principles-based system, but it can be too rigid and may lead to a "tick-the-box" approach. I will be talking about the difference between principles-based and rules-based systems in a number of contexts today.

International companies that list in the United States must reconcile their IFRS statements with U.S. Generally Accepted Accounting Principles, or GAAP. We should recognize that the time and cost that go into reconciling and restating IFRS statements may not be a worthwhile expense for a foreign company considering the U.S. market. Because of progress being made in converging accounting standards, the U.S. and EU have developed a "roadmap," with the goal of allowing listings in the U.S. market on the basis of statements prepared using IFRS, and likewise continuing to permit listings in the EU on the basis of statements prepared according to GAAP. These efforts are encouraging.

A number of foreign exchanges have also aggressively embraced technology and developed innovative business models that increase efficiencies and reduce costs to investors in their markets. These competitive forces have spurred responses in our country. In the most recent example, the Chicago Mercantile Exchange and Chicago Board of Trade announced plans to merge and offer investors a broader range of exchange-traded derivatives, with the goal of creating efficiencies in technology and operations.

Ten years ago, premier foreign companies seeking to raise attractively priced equity capital turned almost exclusively to the United States. That's no longer the case, as alternatives have developed around the world. But certain challenges to doing business in the U.S. market also are contributing to the recent trends, and these challenges merit a closer look.

Let's begin with one challenge that will take a concerted effort over the long term to correct – the need for reform of our legal system. My own 32-year experience in the private sector – working in the capital markets with U.S. and foreign companies alike – has convinced me that legal reform is crucial to the long-term competitiveness of our economy.

A sophisticated legal structure – with property rights, contract law, mechanisms to resolve disputes, and a system for compensating injured parties – is necessary to protect investors, businesses, and consumers. But our legal system has gone beyond protection. In 2004, U.S. tort costs reached a record quarter-trillion dollars, which is approximately 2.2 percent of our GDP. This is twice the relative cost in Germany and Japan, and three times the level in the UK. The consulting firm Towers-Perrin found that the tort system is highly inefficient, with only 42 cents of every tort dollar going to compensate injured plaintiffs. The balance goes to administration, attorney's fees, and defense costs. Inefficient tort costs are effectively a tax paid by shareholders, employees, and consumers. Simply put, the broken tort system is an Achilles heel for our economy. This is not a political issue, it is a competitiveness issue and it must be addressed in a bipartisan fashion.

Another issue to consider in assessing the competitiveness of our financial markets is regulation. Over the course of our nation's history, we have added multiple regulators to respond to the issues of the day. Our regulatory system has adapted to the changing market by expanding, but perhaps not always by focusing on the broader objective of regulatory efficiency.

For example, while the business of banking has converged over time, we still have four separate banking regulators. We have a similar dynamic with the securities and commodities markets, and their related self-regulatory structures. Each of these organizations has different statutory responsibilities and a number have different regulatory philosophies. We also have a dual federal-state regulatory system in the banking and securities markets – and the degree of federal preemption over state law in these areas varies greatly. Another large and important part of our financial sector, insurance, is regulated solely at the state level.

A consequence of our regulatory structure is an ever-expanding rulebook in which multiple regulators impose rule upon rule upon rule. Unless we carefully consider the cost/benefit tradeoff implicit in these rules, there is a danger of creating a thicket of regulation that impedes competitiveness.

Our rules-based regulatory system is prescriptive, and leads to a greater focus on compliance with specific rules. We should move toward a structure that gives regulators more flexibility to work with entities on compliance within the spirit of regulatory principles.

Rules by themselves cannot eliminate fraud. Wrongdoers will seek out loopholes or ways to circumvent the rules. For instance, in the recent business scandals, management at some companies remained technically within the rules while offering deceptive financial statements.

Some rules developed in the past have proved to be deficient in today's dynamic marketplace and some that are developed today are likely to be sub-optimal in a few years unless they are rooted in principles which will stand the test of time.

There is a growing awareness in the financial community of the desirability of streamlining the regulatory system. One example is the decision of the New York Stock Exchange and the NASDAQ to consolidate their regulatory operations. This is a positive development, and I encourage them to focus on achieving the right principled result as opposed to just combining the two rule books.

While no nation's regulatory structure is perfect, ours has served us very well for many years. It is second to none. And to ensure that it meets the challenges of the years ahead, we should be open to learning from our own experience and from the experience of others. We should ask ourselves: What changes are needed to make our regulatory structure more efficient and effective in today's world?

At times, our legal system and regulatory structure produce unintended consequences. Consider the area of enforcement. Over the last several years different regulators at the state and federal level have been focused on finding and prosecuting wrongdoing – a worthy, necessary, and successful effort. But when multiple jurisdictions and entities are involved, each with their own objectives and approaches, the enforcement environment can become inefficient and, to the regulated, can appear confusing and threatening.

Given the business scandals, this is understandable. And some violations from years ago are just coming to light. Almost every week we read about another act of corporate wrongdoing, many representing egregious violations of shareholder trust. Let's be clear: Those who commit corporate fraud are guilty of stealing from shareholders, employees, and consumers. That behavior can never be tolerated. Our challenge is to make sure the tools are in place to punish bad actors, while recognizing that the vast majority of business leaders are honest, capable, and focused on the interests of shareholders and employees.

Today, we have an opportunity to make the enforcement environment more constructive. In such an environment, public companies would be able to work with regulators to resolve ambiguities and make the right decisions. Such regulatory guidance should be easy, quick, and relatively costless to obtain. The combination of enforcement and guidance is likely to be more effective and more efficient than relying on enforcement alone, particularly in an environment in which there is a greater degree of trust between the regulators and the regulated.

In a sign of increasing openness to considering new approaches, the Justice Department has been seeking input from outside groups and is currently considering revisions to the "Thompson Memorandum," which deals with criminal prosecution of companies. If it appears that changes are warranted, in the public interest, and consistent with the need to safeguard the integrity of our economic system, I am confident the Justice Department will revise its policy.

When discussing the competitiveness of our markets, we should acknowledge that Sarbanes-Oxley and the related public company listing rules brought necessary reforms to our corporate governance and capital markets. These reforms are rooted in the basic principles that underpin a robust corporate governance system – accountability, transparency, and the need to identify and manage conflicts of interest.

These changes were necessary to rein in abuses. But significant changes always cause stress, and early implementation of new rules may produce uneven results. We must recognize the benefits of the new rules, and remain open-minded about how they affect the system, both positively and negatively. At this time, I do not believe we need new legislation to amend Sarbanes-Oxley. Instead, we need to implement the law in ways that better balance the benefits of the legislation with the very significant costs that it imposes, especially on small businesses.

By far the single biggest challenge with Sarbanes-Oxley is section 404, which requires management to assess the effectiveness of a company's internal controls and requires an auditor's attestation of that assessment. Companies should invest in strong internal controls and shareholders welcome this development because it is in their best interest. However, section 404 should be implemented in a more efficient and cost effective manner. It seems clear that a significant portion of the time, energy, and expense associated with implementing section 404 might have been better focused on direct business matters that create jobs and reward shareholders.

Businesses around the world are eager to see how we address this issue. The Chairman of the SEC, Chris Cox, recognizes the severity of this problem and is providing strong leadership to address it. He understands that it will take an aggressive forward-leaning approach to change the implementation of Section 404 and make it more efficient.

Mark Olson, the Chairman of the Public Company Accounting Oversight Board, shares Chris Cox's viewpoint. Collectively, they have responsibility for providing guidance on implementing Section 404. The SEC will soon seek comments on a new and much improved auditing standard aimed at ensuring that the internal control audit is top down, risk based, and focused on what truly matters to the integrity of a company's financial statements. This new guidance for both companies and their auditors should encourage common sense reliance on past work, and on the work of others. Moreover, the SEC and the PCAOB are going to provide tailored guidance for small companies that recognizes their specific characteristics and needs.

Overall, I believe our corporations are better governed today. Directors are more independent, more aware of real and perceived conflicts, more diligent about their fiduciary responsibilities, and they spend much more time engaged in compliance processes. But good corporate governance is a means to an end, not an end in itself. We do not need a process-oriented mentality to corporate governance. We need better managed, more competitive corporations that earn investor confidence through sound leadership, thoughtful governance, and outstanding performance. One important indicator of the effectiveness of corporate governance changes will be the ability of companies to attract experienced, competent board members who can add real value – and who are able to spend more time at board meetings overseeing the business and developing strategies, and less time on regulatory compliance.

We should remember that we cannot legislate or rule-make our way to ethical behavior, whether it be in the business world or any other endeavor. Proper corporate governance processes increase the likelihood that well-intentioned people will do the right thing. But they do not guarantee such an outcome – and they certainly do not guarantee that unethical people will do the right thing. In my judgment, we must rise above a rules-based mindset that asks, "Is this legal?" and adopt a more principles-based approach that asks, "Is this right?"

Several weeks ago, Warren Buffett offered a warning to his leadership team at Berkshire Hathaway when he wrote, "The five most dangerous words in business may be `Everybody else is doing it.'" As usual, Warren Buffett was right. The ability to avoid these pitfalls takes moral leadership, starting right at the top.

The corporate scandals were, for the most part, accounting scandals, so it is not surprising that so much of the recent reform has focused on the accounting industry. Our accounting system is the lifeblood of our capital markets. And it has historically represented a very high standard. But it was abused in the corporate scandals by manipulation and smoothing of earnings.

Capital markets rely on trust, which is based on financial information presumed to be accurate and to reflect economic reality. The ultimate responsibility for accurate and transparent financial statements must rest with management. The role of the external auditor is to examine a company's financial statements in order to express an opinion that conveys reasonable, but not absolute, assurance as to the truth and fairness of the statements. Auditors do this by evaluating management's adherence to Generally Accepted Accounting Principles.

The Sarbanes-Oxley reforms were intended to increase the quality of corporate audits. They have had a significant effect on the accounting industry, fundamentally altering the interactions between auditors and corporate management and boards in a number of ways, some of which are not constructive. Also, we have been left with only four major accounting firms, each of which is exposed to potentially large legal liabilities.

This may not be healthy. The big four firms dominate the industry in terms of revenues and professional staff. The remaining accounting firms face significant barriers to competing with the big four, at a time when auditors are in real demand. The current situation forces us to ask questions about the industry's sustainability and effectiveness:

• Given the importance of accounting to our financial system, is there enough competition?
  
  
• Will our reformed accounting system produce the high-quality audits and attract the talented auditors we need?
  
  
• Do auditors seek detailed rules in order to focus on technical compliance rather than using professional judgment that could be second-guessed by the PCAOB or private litigants?

A common theme in my remarks today is the desirability, where practical, of moving toward a principles-based system. Nowhere is this issue more relevant than in the accounting system. Added complexity and more rules are not the answer for a system that needs to provide accurate and timely information to investors in a world where best of class companies are continually readjusting their business models to remain competitive.

Last year, approximately 1,200 publicly listed companies in the United States restated their financials. As of September 30 of this year, the number is more than 1,000. Some of these companies were involved in the business scandals. Many others were well-intentioned companies struggling to cope with a redefinition of rules in a complex system. These restatements draw time and attention away from other value-enhancing activities – and they represent an added cost to shareholders. Businesses and auditors are searching for something that doesn't exist in today's constantly changing world – a rules-based safe haven that still provides investors with an accurate portrayal of a company's financial performance.

Auditors should be able to focus on one fundamental objective – ensuring the integrity and economic substance of management's financial statements. To get there, we must recognize that accounting is not a science. It is a profession, requiring judgments that cannot be prescribed in a one-size-fits-all manner that undermines the usefulness of financial statements to investors.

In assessing the condition and competitiveness of our capital markets we have also initiated a broad review of recent changes, including the growth of derivatives and private pools of capital and their implications for the stability of the system. Credit derivatives have altered the financial landscape in many positive ways, most notably by dispersing the concentration of risk. They also pose potential risks themselves.

Hedge funds are among the largest users of derivatives. Over the past five years, the number of hedge funds has nearly doubled, while their assets under management have more than tripled. These investment managers engage in a wide variety of strategies, generate substantial transaction volumes, and introduce significant leverage into the system. They have also made our capital markets more efficient, facilitating the dispersion of risk. And hedge funds have developed an impressive global presence. Given their explosive growth, the instruments they trade, and the evolution of our financial marketplace, we must continually assess their actions and impact on the market.

The SEC, which has broad anti-fraud and civil liability authority over hedge funds, is well-positioned to focus on investor protection. Another group of regulators aims to minimize the potential for systemic risk by working with the regulated financial institutions that extend credit to and transact business with hedge funds. And the President's Working Group on Financial Markets – comprised of the Treasury Secretary and the Chairmen of the Federal Reserve Board, the SEC, and the CFTC – continues to review and monitor markets, assess issues related to the performance of derivatives, and study the activities of hedge funds in three broad areas: investor protection, operational risk, and potential for systemic risk. We have begun a series of educational meetings with a broad array of participants in the hedge fund community to gain insight as we move forward with our deliberations.

In conclusion, competitive capital markets will pave the way for continued economic growth that benefits all Americans. The issues I've outlined are crucial to ensuring that our capital markets remain the best in the world. And certain principles should guide us going forward.

First, it is necessary to take a global view. We don't operate in isolation, so it is very important to consider how changes we make affect the ability of our companies to compete globally and how these changes affect our interaction with markets and regulators around the world.

Second, our regulatory structure should be more agile and responsive to changes in today's marketplace.

Third, to stand the test of time, rules should be embedded in sound principles.

Fourth, regulators should take a risk-based approach to regulation, weighing the cost to shareholders against the benefits.

Fifth, our enforcement regime should punish and deter wrongdoing and encourage good behavior without hindering responsible risk-taking and innovation.

And, lastly, the best way our business leaders can protect the integrity and competitiveness of our markets is to exert moral leadership, where the threshold question is, "Is this right?" not "Do the rules allow us to do this?"

Our capital markets remain strong and competitive, but they face some significant challenges that do not lend themselves to easy answers or quick fixes. The Treasury Department plans to host a Conference on Capital Markets and Economic Competitiveness early next year. We will invite participants with a wide range of perspectives, particularly the investor perspective. The Conference will cover the three primary areas I have discussed today – our regulatory structure, our accounting system, and our legal system – all of which impact our capital markets and are critical to the overall economic competitiveness of our nation. Our objective will be to stimulate bipartisan discussion and to lay the groundwork for a long-term strategic examination of these issues.

In all that lies ahead, we must remember that the competitiveness of our capital markets depends to a large extent on our nation's overall economic competitiveness. We are fortunate that because our economy is so strong, we approach our challenges from a position of strength. And we should use this position of strength to tackle long-term challenges that will affect our economic competitiveness. We must:

• reform our entitlement programs;
  
  
• advance energy security;
  
  
• maintain and strengthen trade and investment policies that benefit American workers;
  
  
• focus on economic and educational policies that will add jobs, improve productivity, and result in tangible income growth for all Americans;
  
  
• and, of course, strengthen and maintain the competitiveness of our capital markets.

I came to Washington determined to accomplish as much as possible over the next two years. These challenges won't be easy, but I'm very grateful for the opportunity to work with the President and the other members of his economic team to help America keep its competitive edge in the 21st century.

Thank you very much.

U.S. International Reserve Position

U.S. INTERNATIONAL RESERVE POSITION



http://www.treas.gov/press/releases/20061191049529781.htm

REMARKS OF U.S. TREASURER ANNA ESCOBEDO CABRAL BEFORE THE KANSAS CITY
HISPANIC CHAMBER OF COMMERCE

This Department of Treasury press release may be viewed at:
http://www.treas.gov/press/releases/hp160.htm

   Kansas City, Mo.- Thank you, Miguel, for those kind words, and thank
   you all for your warm welcome. It's great to be in Kansas City,
   Missouri, this afternoon. This is a popular state to be in– 
President
   Bush is also visiting the "Show Me State" today.

   I want to thank you for inviting me to be a part of the 29th Gala
   Awards Dinner and Business Summit. I'm especially excited to be here
   today because there is so much good news to share on our economy –
   such as increased jobs, higher wages, decreasing gas prices. And the
   Hispanic community really has something to celebrate today. But
before
   I get into more detail on that, I want to recognize first the
   important work of the Kansas City Hispanic Chamber of Commerce and
all
   of you here today who help promote Hispanic businesses. On behalf of
   Secretary Paulson and President Bush, I applaud you for all your
hard
   work to keep our economy growing.

   I'm truly excited for this opportunity to share with you the
wonderful
   work this Administration is focused on to help our economy remain
   prosperous. Now, I'm privileged to work for two men – President Bush
   and Secretary Paulson – who really understand the importance of
   looking beyond two or three years and recognizing the fact that the
   decisions we make today will impact us and other generations in the
   future. 

   I know the theme of this year's summit is, "Building Relationships,
   Creating Opportunities." That's exactly the goal of the President's
   economic policy – to create more opportunities for people to grow
and
   continue to take advantage of our strong economy.

   That is why the President and Secretary Paulson are committed to
   advancing pro-growth economic policies that ensure continued
   prosperity both for our country and for our partners throughout the
   world.  The fact is, the U.S. economy is strong. We've seen a 3.7
   percent growth in the Gross Domestic Product over the past three
   years.

   Over the first half of this year, our economy grew at a 4.1 percent
   annual rate – faster than any major industrialized country.

   Today, the Department of Labor announced that 92,000 more jobs were
   created in September and the unemployment rate dropped to 4.4
percent.
   Over the last three years – since the President passed the Jobs &
   Growth Act in August 2003 – more than 6.8 million jobs have been
   created. That's more than all the other major industrialized
countries
   combined.

   And more important to the people in this room, today Hispanic
   unemployment hit an all-time low at 4.7 percent, breaking a record
set
   just this summer.  This has been quite a year!

   We've seen growth and productivity despite the many challenges our
   country has faced in recent years – from terrorism to a recession to
   the burst of the stock market bubble and the devastation wrought by
   Hurricane Katrina which reminded us of the ever powerful force of
   Mother Nature. We're also seeing gas prices fall which helps take
   economic strains off many Americans.

   A key reason we've been so successful is because the President has
   been committed to advancing policies that would help us get through
   these challenges. One important way he has done this is by lowering
   taxes for all Americans. The President made the decision to put more
   money in the pockets of American workers, families and businesses by
   lowering taxes and giving Americans the opportunity to save that
extra
   money, invest it, or even use it to start a small business.

   Some people doubted that lowering taxes would actually bring our
   economy wealth. They worried that it would take money away from the
   federal government. But we're seeing just the opposite. In fact,
we're
   seeing record tax receipts. The IRS recently found that Americans of
   every income have benefited from a drop in income taxes since the
   President enacted the tax cuts in 2000.

   See, the President believes that when we allow people to keep more
of
   their own money to invest, buy a home, or save for a rainy day, we
   actually strengthen our economy. That is why it's important that we
   work to make tax cuts permanent so that Americans can continue to
   benefit. At the same time, lower taxes means that small businesses
can
   have the opportunity to grow, expand, and create more jobs. More
jobs
   mean more people prosper.

   The President has worked with Congress to double the child credit,
   reduce the marriage penalty, cut taxes on capital gains and
dividends,
   and create new incentives for businesses – particularly small
   businesses – to invest and expand.

   It is also important that we exercise fiscal restraint. The
President
   signed the Deficit Reduction Act into law last February, which will
   save our nation almost $40 billion over the next five years.

   Additionally, we have to continue to work on opening markets around
   the world.  This will expand opportunities for Americans as well as
   our partners overseas.  Because at the end of the day, we recognize
   that we're all interdependent, and when one country prospers we all
   benefit.

   If you think about it, 95% of our customers live outside the United
   States so we really need to look beyond our borders to promote
growth
   for everyone. That is why we must welcome competition just as
eagerly
   as we welcome growth. It's also why expanding free trade and
lowering
   barriers to the sale of U.S. goods and services is so important.
   But even in this atmosphere of economic vitality, we face an
important
   challenge. And that is in the area of education.

   One of the reasons I enjoy my work as Treasurer so much is that I
have
   the opportunity to promote the importance of education. This is a
   topic that is extremely important – especially in the Latino
   community. Simply put, our country has so many great opportunities
to
   offer, but we must teach young people and others in our communities
   how to take advantage of them. After all, Hispanics represent over
14
   percent of the U.S. population with a purchasing power of nearly
$700
   billion – that's 8.5% of total U.S. purchasing power.

   In many ways, education opens doors and shows us how to take these
   opportunities for granted. I know it did for me. See, I came from
very
   humble beginnings. Three generations before me worked in the fields
   picking fruits and vegetables to put on people's tables.

   In fact, I was the first in my family to graduate high school and
the
   first to go to college. A high school teacher took a special
interest
   in me when he heard that I was going to graduate high school early
to
   work and help support my family. Before I knew it, I was off to
   college and a whole new world of opportunity opened up for me.

   As Treasurer, I travel to cities throughout the country, and when I
   do, I often ask to meet with school students at every level. And
what
   I've noticed is that when I ask elementary school students how many
of
   them want to go to college, they all raise their hands. Every single
   one of them. They all have dreams, and they all believe that they
can
   achieve those dreams.

   Now when I ask high school students the same question, I'm surprised
   if half the hands go up. Somewhere along the line, we're losing too
   many of our young people. We can't afford this because these are our
   future leaders. As parents and community members we need to promote
   the importance of education for our young people. We need to set
high
   standards for them and encourage them to work hard to achieve their
   dreams.
   And I think a key way to do that is to lead by example. That means
we
   must constantly challenge ourselves to learn more.

   As the global economy broadens, American workers need to be able to
   fill the jobs of the 21st century. One hundred years ago, 98 percent
   of our country's income was in crops. Today, it's only 2 percent,
but
   we out-produce in that 2 percent what we did with 98 percent. The
   majority of our jobs are in technology and services which require
   higher and higher levels of education. In fact, the average person
   will change careers more than seven times throughout their lifetime.
   Now more than ever education is critical.

   One of the ways we're working at Treasury to teach Americans about
how
   they can improve quality of life for themselves and their
communities
   is through financial education. When we talk about financial
education
   in today's terms, what we're really talking about is improving
quality
   of life.  But achieving our common goals will require us to work
   together. The business community can play an instrumental role in
this
   important task.  And this sort of education in which we're all
engaged
   is really about helping to create new opportunities for people –
   opportunities like paying for a child's college education,
purchasing
   a home, starting a business or planning for a secure retirement.  

   Now this is where I call on your help as trusted business leaders in
   your communities. You all are the best messengers to helping us get
   the word out about the many useful tools and resources that are
   available to help people make smart choices about how they mange
their
   money. We need your help and your leadership to spread this message
   throughout our communities – communities that are contributing
   significantly to our economy, and that unfortunately have been
   traditionally underserved.

   A significant number of government leaders in Washington and
corporate
   leaders are acutely aware that minority markets in the U.S.
represent
   an important area of growth for the American economy.  They also
have
   a sincere interest in optimizing opportunities in these
communities. 
   More and more, the financial services community is looking to
minority
   markets as areas for demonstrable growth – and that includes the
   Hispanic market.  One of the ways we're working at Treasury to
improve
   financial education throughout the country is through the Financial
   Literacy and Education Commission. 

   The fact is people between the ages of 20 and 29 are now filing for
   bankruptcy because they don't have the understanding and resources
   they need to protect and build their wealth. Similarly, the
babyboomer
   generation is about to retire. Only 42 percent of Americans have
   actually calculated what they will need to live comfortably in
   retirement and reach their retirement goals.

   The Financial Literacy and Education Commission for the first time
   brought together experts from across the federal government to one
   table to share ideas and find out what we were all doing. Now the
   right hand is talking to the left.

   We've partnered with the public and the private sectors to
strengthen
   this message and to help bring together resources to better serve
our
   citizens. Earlier this year, the Financial Literacy and Education
   Commission released The National Strategy for Financial Literacy. 
The
   Commission was also tasked with developing a federal financial
   education web site and toll-free hotline, which were launched in
   English and Spanish in October of 2004 – MyMoney.gov and
   1-888-MyMoney.  I urge you to visit and spread the word about
   MyMoney.gov.  The Strategy that I just mentioned can be downloaded
   from the web site as well.

   The Strategy looks at a variety of important topics, such as
   homeownership, credit management, retirement savings, and "banking
the
   unbanked" – all topics of concern as we've seen for the Hispanic
   community.  It also describes the challenges and some possible
   solutions.  The solutions may come from the Federal government, but
   often nonprofit organizations, businesses and other private sector
   players provide important resources for those who want to learn more
   about personal finance issues. It also lists examples of financial
   education programs that community leaders, entrepreneurs, and
   volunteers can all look to as they design programs of their own to
   enhance financial literacy. It's a wonderful resource that I hope
you
   all will take a look at.

   But this is just one step. We need leaders like you who are
committed
   to delivering this important message, giving back to your
communities,
   and improving quality of life. I've shared some very positive
economic
   news with you today.  But the reality is that statistics don't
always
   do justice to the valuable contributions of business leaders like
you.
   All of you in this room have the potential of bringing about
positive
   change and improving people's lives.

   It has been a true pleasure for me to share with you just a few of
the
   efforts we're involved in at Treasury and to highlight the
President's
   priorities to keep our economy and businesses going strong.  With
your
   help and contributions, I'm confident we will continue to open doors
   of opportunity for those who seek them. If we are successful, the
   American economy will remain the envy of the world.
   Thank you.

DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE JAMES CLOUSE NOVEMBER
2006 QUARTERLY REFUNDING STATEMENT

This Department of Treasury press release may be viewed at:
http://www.treas.gov/press/releases/hp149.htm

   We are offering $32.0 billion of Treasury securities to refund
   approximately $57.6 billion of privately held securities maturing or
   called on November 15, implying a pay down of approximately $25.6
   billion. The securities are:

     * A new 3-year note in the amount of $19.0 billion, maturing
       November 15, 2009;

     * A new 10-year note in the amount of $13.0 billion, maturing
       November 15, 2016;

   These securities will be auctioned on a yield basis at 1:00 PM EST
on
   Wednesday, November 8, and Thursday, November 9, respectively. 
These
   auctions will settle on Wednesday, November 15.  The balance of our
   financing requirements will be met with weekly bills, monthly 2-year
   and 5-year notes, the December 10-year note reopening, and the
January
   10-year and 20-year TIPS.  Treasury also is likely to issue cash
   management bills in November and early December.

   Treasury Securities Lender of Last Resort Facility

   On May 3, 2006, Treasury published in the Federal Register a white
   paper outlining the concept of a Securities Lender of Last Resort
   Facility. The comment period on that white paper closed on August
11,
   2006. These comments can be viewed publicly at:
  
http://www.treas.gov/offices/domestic-finance/debt-management/slf-comments.pdf.

   The Treasury has concluded that additional analysis of the
securities
   lending facility is required to address concerns expressed in some
of
   the comment letters.  Treasury will continue to study the securities
   lending facility and will report on its progress over time as
   appropriate.

   Please send comments and suggestions on these subjects or others
   relating to Treasury debt management to
debt.management@do.treas.gov. 

   The next Quarterly Refunding announcement will take place on
   Wednesday, January 31, 2007. 

U.S. INTERNATIONAL RESERVE POSITION



http://www.treas.gov/press/releases/200610311361123393.htm

TREASURY ACTS AGAINST NARCO LEADER’S FRONT COMPANIES, COHORTS

   The U.S. Department of the Treasury's Office of Foreign Assets
Control
   (OFAC) today designated seven individuals and ten entities
associated
   with North Valle drug cartel leader Carlos Alberto Renteria Mantilla
   (Beto Renteria).  Today's designation is the fifth designation
   targeting Beto Renteria's financial network.

   "Beto Renteria is one of Colombia's most powerful and sophisticated
   narcotics traffickers, investing his illicit proceeds across
   businesses in Colombia and offshore locations," said Adam Szubin,
   Director of the Office of Foreign Assets Control.  "Today we have
   again taken aim at Beto Renteria's organization, exposing his web of
   front companies and targeting their assets."

   Today's action targets a financial network of ten front companies
and
   seven individuals that act for or on behalf of Renteria.  The ten
   Colombian businesses identified today are four sugar companies:
   Agropecuaria Lindaraja S.A., Canaduz S.A., Inversiones Brasilar S.A.
   and Tarritos S.A.; the soccer team Cortulua; the accounting firm
   Camacho Vallejo Asesores; the beach-front hotel Tres Casitas; and
two
   medical clinics, Apoyos Diagnosticos S.A. and Clinica San Francisco
   S.A.  All but one of the businesses is located in Colombia; the
other,
   Kutry Management, is located in Panama. OFAC previously identified
   Renteria's business interests in the department store chain Casa
   Estrella and numerous Grupo Grajales companies.

   The seven Colombian individuals designated today are front persons
   working on behalf of Beto Renteria in the named companies, including
   key front persons James Osorio Valencia and Ricardo Sandoval
Salazar.

   OFAC named Beto Renteria as a principal Specially Designated
Narcotics
   Trafficker (SDNT) in March 2005, and the U.S. State Department is
   offering up to $5 million for information leading to Beto Renteria's
   capture. In May 2004, the U.S. Attorney's Office for the District of
   Columbia identified Beto Renteria as one of the leaders of the North
   Valle drug cartel and charged the cartel with violations of the
   Racketeer Influenced and Corrupt Organizations Act (RICO).

   This action is part of an ongoing interagency effort to implement
   Executive Order 12978, signed on October 21, 1995, which applies
   economic sanctions against Colombia's drug cartels.  This effort
   includes the Departments of the Treasury, Justice, State and
Homeland
   Security.  Today's action freezes any assets found in the United
   States and prohibits all financial and commercial transactions by
any
   U.S. person with the designees.

   OFAC has designated a total of 1300 businesses and individuals in
   Aruba, Colombia, Costa Rica, Ecuador, Panama, Peru, Spain, Vanuatu,
   Venezuela, the Bahamas, the British Virgin Islands, the Cayman
Islands
   and the United States pursuant E.O. 12978. The 504 SDNT businesses
   include agricultural, aviation, consulting, construction,
   distribution, financial, investment, manufacturing, mining,
offshore,
   pharmaceutical, real estate and service firms. The SDNT list
includes
   21 kingpins from the Cali, North Valle and North Coast drug cartels
in
   Colombia.
 

 ACTING ASSISTANT SECRETARY OF THE OFFICE OF  ECONOMIC POLICY ROBERT
STEIN STATEMENT FOR THE TREASURY BORROWING  ADVISORY COMMITTEE OF THE BOND
MARKET ASSOCIATION

In the three months since the Committee last met, economic growth
has
   continued to moderate. Following three years of above-trend
increases,
   real GDP growth has averaged 2.1 percent at an annual rate in the
   middle two quarters of 2006. With the moderation, however, economic
   fundamentals remain strong. There is good news on the inflation
front,
   real wages are rising, the unemployment rate is low, and the job
   market continues to be solid.

   According to the advance figures from the Bureau of Economic
Analysis
   (BEA), real GDP grew 1.6 percent at an annual rate in the third
   quarter. This followed a 2.6 percent pace of growth in the second
   quarter and a 5.6 percent pace in the first quarter of 2006. A
decline
   in residential building is a key reason the economy has slowed. In
the
   third quarter, residential building fell more than 17 percent at an
   annual rate, and reduced overall GDP growth by slightly more than a
   percentage point. The third quarter overall figure was also held
down
   by rising imports, which grew nearly 8 percent. Although exports
grew
   6.5 percent, real net exports lowered real GDP growth by an
additional
   0.6 percentage point.

   Despite the slowing in the top-line GDP figure, spending outside of
   residential building remains firm. Slowing in housing – down for
four
   straight quarters – has not spilled over to consumer spending, which
   grew at a 3.1 percent rate in the third quarter. Solid employment
   growth, rising real income, and strong gains in corporate equity
   prices that have occurred in the second half of this year are all
   lending support to consumer spending and should keep spending growth
   strong going forward.

   Business fixed investment has also been offsetting the weakness in
   residential building. In particular, business spending on new
   buildings jumped 14 percent in the third quarter. The outlook for
   continued improvement in business investment is good. Corporate
   balance sheets appear strong as the corporate financing gap –
capital
   investment less internally-generated funds – is low. This suggests
   there are few, if any, financing constraints on the corporate
sector.
   In addition, corporate income continued to be strong. Corporate
   profits remain high as a share of gross domestic income, at just
above
   10 percent in

   the second quarter (latest available), their highest level since
1968.
   These profits represent not only the

   potential for future capacity expansion, but also the potential for
   future hiring, suggesting solid employment growth will continue for
   the next several quarters. That is the historical pattern. From 1994
   through 1997 the profit share rose just under two percentage points
to
   about 9.4 percent of GDI; at this time, the highest level since
1969.
   Job growth was strong in 1998-2000.

   The unemployment rate during the third quarter averaged 4.7 percent,
   little changed this year, but down about 0.3 percentage point from
   last year. Payroll job growth averaged 121,000 a month in the third
   quarter, down from about 145,000 in the first half of 2006. However,
   upcoming official revisions to the payroll job numbers will add
about
   800,000 to the level of payrolls for March 2006, according to an
   announcement by the Bureau of Labor Statistics (BLS). The BLS
   revision, which was unusually large, suggests payroll job growth was
   much better than had been thought through early 2006, adding about
   67,000 a month to payrolls. Including the revisions, since the low
   point for jobs in August 2003, the economy has gained 6.6 million
   jobs, and over the year ending in September, the payroll job gain
was
   2.2 million. Solid job gains will help to keep incomes up, which
will
   continue to support expansion.

   Inflation subsided in the third quarter, aided by large declines in
   crude oil and gasoline prices. Consumer prices were up 2.1 percent
   from year-earlier levels in September, the lowest year-to-year rate
   since early 2004. The September consumer price report was dominated
by
   a large decline in oil and gasoline prices. The price of a barrel of
   West Texas Intermediate crude was about $75 per barrel at the end of
   July, while through mid-October it had fallen to about $58 per
barrel.
   Gasoline prices fell from just above $3.00 in early August to just
   about $2.20 in mid-October. Falling petroleum product prices have
   dragged down the headline inflation figure. If they can be
maintained,
   lower oil prices will help boost the economy going forward. Outside
of
   food and energy prices, consumer price inflation slipped to 2.7
   percent in the third quarter, down from 3.6 percent in the second.

   With a reasonably strong economy and a slowdown in inflation, real
   wages have begun to bounce back. In the past three months, real
   average hourly earnings were up at a 3 percent annual rate. Real
   median weekly income in the third quarter of 2006 was 0.8 percent
   higher than a year earlier, the first year-over-year gain since
   mid-2004.

   Since the Committee last met we have finished fiscal year 2006, and
   our closing figures for the year are much better than had been
   predicted only a few months ago. In July the Administration
projected
   the deficit for FY2006 would come in at just below $300 billion.
   However, the budget deficit in FY2006 was $248 billion, nearly $50
   billion below the July prediction and $71 billion below the FY2005
   actual. The FY2006 deficit is 1.9 percent of GDP, 0.4 percentage
point
   below the 40-year average of 2.3 percent. Receipts growth was strong
   -- up 11.8 percent in FY2006 – with net corporate receipts rising
$75
   billion (or 27 percent).

   In sum, despite recent slowing in GDP growth, the outlook for the
   economy remains good, buoyed by solid job growth, rising real wages,
   and an emerging slowdown in inflation. The ever-present potential
for
   a sharp reversal in oil prices, however, reminds us of the
   considerable uncertainty surrounding any economic prediction.