The 12-nation currency fell to $1.1911 in late trading in New York, down from $1.1909 the night before in New York. Earlier in the day, the euro fell as low as $1.1860, its lowest price since Jan. 4, 2006, when it traded as low as $1.1799.

The U.S. Commerce Department said retail sales, excluding autos, rose 2.2 percent in January, the best showing in that category since late 1999. With autos included, retail sales rose by 2.3 percent, the best showing in 20 months. Overall retail sales had risen by a tiny 0.4 percent in December.

The strong retail performance helped lend support to those in the market who believe that the Federal Reserve will raise interest rates further. Traders were waiting for Chairman Ben Bernanke's appearance before Congress on Wednesday for clues to the direction of U.S. monetary policy.

The British pound fell to $1.7351 late Tuesday from $1.7428 in late Monday trading in New York.

The dollar bought 117.43 yen, down from 117.66 yen on Monday as traders bought back the Japanese currency amid expectations of an imminent change in policy by Japan's central bank.

The Bank of Japan has pledged to start tightening money supply and then raise interest rates when deflation finally stops.

The dollar rose slightly to 1.3078 Swiss francs late Tuesday from 1.3065 in late Monday trading in New York.

The dollar fell slightly to 1.1527 Canadian dollars late Tuesday from 1.1542.

An Energy Department report tomorrow will probably show crude oil supplies rose by 1 million barrels and gasoline by 1.6 million barrels last week, according to a Bloomberg survey. U.S. refineries are consuming less crude as they begin maintenance to prepare for summer gasoline demand. January temperatures were the warmest on record this year, according to the government.

"Right now demand is not up to par" with supply levels, said Tom Bentz, an oil broker with BNP Paribas Commodity Futures Inc. in New York. "We're continuing to see builds in inventories."

Crude oil for March delivery fell $1.67, or 2.7 percent, to $59.57 a barrel on the New York Mercantile Exchange. That's the lowest price since Dec. 27. Futures have dropped 13 percent from a high of $68.35 reached on Jan. 30. Oil is 26 percent higher than a year ago.

Gasoline for March delivery plunged 4.63 cents, or 3.2 percent, to $1.3849 a gallon on the Nymex, the lowest price since Feb. 28, 2005. Prices are 8.4 percent higher than a year ago. Gasoline has fallen for seven straight sessions.

Blizzard

A blizzard that struck much of the U.S. Northeast this week and dumped a record amount of snow in New York City has not affected prices of crude oil, gasoline, heating oil and natural gas as investors and traders bet that excess supplies built up over the mild winter would meet the temporary demand for heating fuels.

The International Energy Agency last week said that global oil production capacity is growing faster than demand. Capacity held by members of the Organization of Petroleum Exporting Countries may increase by 1 million barrels a day this year, while non-OPEC output may climb 1.2 million barrels, the IEA said on Feb. 10.

"The main concern had been that supply wouldn't keep up with demand, but indications are that it will," said Veronica Smart, an analyst with the U.K.-based Energy Information Centre. "High oil prices have facilitated investment" to increase output, she said.

Warmth in U.S.

Most of the northern U.S. was warmer than normal from mid- December through early January, lowering demand for heating fuel. That allowed supplies to build, raising the nation's crude stockpiles 11 percent higher than their five-year seasonal average the week ended Feb. 3. Heating-oil supplies were 18 percent higher.

Stockpiles of distillate fuel, a category that includes heating oil and diesel, probably declined by 1 million barrels last week, according to the median forecast of 13 analysts in the Bloomberg survey. Still, heating demand will remain subdued in the coming week, at 97 percent of normal in the Northeast, Weather Derivatives said.

Hedge funds and other large investors are selling their bets that oil will rise, known as long positions, based on the realization that winter demand for heating oil was less than anticipated, said James Cordier, president of Liberty Trading group in Tampa, Florida.

"We had the mildest January in history, and when you have massive long positions during that time you're going to have disappointed investors," he said. "We definitely had to have a price correction."

Bets on a Decline

Data from the U.S. Commodity Futures Trading Commission show that hedge funds and large speculators last week reversed bets on the New York Mercantile Exchange and now are waging crude prices will slide. Shorts, or bets prices will fall, outnumbered longs by 539 contracts the week ended Feb. 7, compared with net-longs, or bets prices would rise, of 19,970 contracts the previous week.

Heating oil for March delivery fell 2.86 cents, or 1.8 percent, to $1.61 a gallon on the Nymex. That's the lowest price since Nov. 29.

The Energy Department will publish its weekly report on supply tomorrow at 10:30 a.m. Washington time.

Iran and Russia will meet on Feb. 20 to discuss a proposal for breaking a deadlock over the Iranian nuclear program. The International Atomic Energy Agency may formalize Iran's referral to the United Nations Security Council on March 6, which could result in economic sanctions on the world's fourth-largest oil producer.

'Fear Factor'

"Iran seems to have moved away from the front page and people realize this is not going to come to a head" soon, Bentz said. "That fear factor has been taken out of the market."

Brent crude for April fell $1.10, or 1.8 percent, to $59.52 a barrel on London's ICE Futures exchange.

"Certainly, bearish sentiment has entered the market," EIC's Smart said. Still, "refiners are coming into critical maintenance, and that may affect supplies in coming weeks. The risk is that they may have problems after going on for so long after the hurricane season. For some, there may be a delay coming back."

I've worked professionally with people in and out of recovery; politicians, doctors, celebrities, rock stars, pro athletes and royalty, some in the Middle East, many from the Betty Ford Center. Addicts will do anything to get the next fix or drink, oblivious of the destruction around them. They create living hells, losing health, family, kids, careers, wealth, and most of all, their freedom.

Nations are no different! This is not news. Two decades ago psychologist Anne Wilson Schaef wrote "When Society Becomes an Addict." Her opening line: "Our society is deteriorating at an alarming rate." The symptoms: Greed, arrogance, ethical deterioration, obsessiveness, rationalism, self-centeredness, tunnel vision. We're out of touch, living with an illusion of control.

Flash forward. New addictions: credit cards, obesity, massive deficits, iPods, plasma HDTV's, McMansions, SUVs, outsourcing to India, buying plastic from China. Go deeper: We have a near-religious addiction to rationality, logic, data, numbers, stock quotes, productivity, interest rates, GDP, etc. Our brains gorge on an endless diet of numbers from cable's talking heads, online breaking news, print reports.



Information is our new mind-numbing drug, worse than cocaine and heroin. Often distracted, in a stupor, narrowly focused on immediate gratification, we lose perspective, integrity, even our identity; we're addicts in a myopic bubble, in denial of the real world.



Paradoxically, America's addiction to rationality and numbers is a major part of our brain's denial mechanism, blinding us to unpredictable risks and irrational dangers that do not fit neatly into our conventional wisdom. Please notice how we've programmed denial into the thinking behind our economic and market forecasting systems:

* First: Economic modeling. Economists use elaborate computer models to simulate how America works. Past performance is projected using complex mathematical formulas. But they cannot predict wars, pandemics, another 9/11. By screening out these high-cost, unpredictable variables, economists build denial into their forecasts, coating over increasing dangers, then feeding us forecasts that are invariably misleading and wrong.

* Second: Market forecasting. Our addiction to rationality and numbers is even more dangerous in market-timing and trading systems. Institutions and individuals use esoteric theories: Elliot Wave, Gann, Fibonacci, Candlesticks, Astro-Harmonics and other systems. They hypnotize "numbers addicts" like drugs, creating a false sense of control, even rationalizing losses. One commodity trader showed me how his models predicted his day-trading, "but I don't have a clue about next week."

We are a nation of addicts, in denial, and our mastery over the economy and markets is an illusion, creating a false sense of security. Wall Street, Washington and Corporate America are all addicted to computer models that minimize or eliminate unpredictable threatening variables: Global wars, pandemics, terrorist attacks on American soil, the very things that could do the most damage to the economy and markets are not included. Meanwhile, Main Street is focused narrowly on getting the next "fix."

Denial blinds us to many dangers. Like the coming Iranian Petro-Euro Bourse threatening the American dollar's position as the world's reserve currency, a threat potentially more catastrophic than a nuclear arsenal. We deny it.

And recently, we learned of an even bigger threat: about World War III. Seriously, a war is being provoked by loose cannons in America as well as abroad. Irrational, absurd and unwanted, fanatics on both sides are prophesizing an all-out war in the next couple years.

For years America has heard religious fundamentalists predict the "End of Days," Armageddon, an Apocalypse, The Rapture, Tribulation, a final battle prophesized for the Holy Land. Prominent evangelists believe it's coming soon. Many are so convinced their rhetoric may be a self-fulfilling prophecy.

Until recently this was outside market and economic thinking. That is, until Iranian President Ahmadinejad addressed the United Nations in October. His prophecies mirror those of America's evangelists. Ahmadinejad not only hopes for but is trying to provoke both the free world and Islam into war.

Iran's "End-of-Days:" Ahmadinejad passionately believes that in the next couple years the world will witness the "second coming" of the Mahdi, a messianic "hidden 12th imam" of Shiite Islam, prophesized to appear at the "End of Days." Ahmadinejad even embraces his "divine mission" to "pave the way" for the second coming.

Get it! We have ideological fanatics on both sides, like two alcoholics itching for a bar fight. Both sides want a global war, provoking enemies and allies alike. Both pray for an irrational first blow triggering the "End of Days," a WW III nuclear conflict between the world's greatest cultures. Both expect fulfillment of ancient prophecies. Both want a war to end all wars, and the end of the world as we know it.

Irrational? Probably. But remember, these high-risk variables are not programmed into America's economic models and market forecasting systems that Washington, Wall Street and Corporate America throw at you every day. Yet in the hands of fanatics these variables can trigger events that can easily overwhelm entire economies and markets.

Wake up America! Oil's only one minor symptom. We are a nation of addicts, in denial of so many threats external to our bubble world. Mentally we are at greater risk than with the irrational exuberance of 2000. Except this time the threat is global, systemic and potentially catastrophic, far outside the box of our mega-rational economic models and market forecasting systems. Soon your denial system may no longer work, reality will implode.

So please, be prepared for market losses far greater than the $8 trillion we lost between 2000 and 2002. Plan conservatively. See previous Paul B. Farrell.

Remember, when any addict "hits bottom," the big thing they lose is their freedom ... the same holds true for an entire nation of addicts.

WASHINGTON — The Senate rejected a new plan Tuesday to compensate asbestos victims, apparently dooming a proposed $140-billion fund that would have handled claims now battled out in court.

Under the legislation, asbestos makers and their insurers would have contributed to a trust fund to pay claims for illnesses in amounts from $25,000 to $1.1 million. But the measure faced attacks on several fronts.

Trial lawyers and their Democratic allies argued that efforts to take claims out of the courts threatened the ability of victims to obtain sufficient restitution.

Fiscal conservatives feared that the approach would set up a federal entitlement program, along the lines of "black lung" compensation, with insufficient limits on payments and a growing bill for taxpayers.

The final vote was 58 to 41, with advocates of the asbestos legislation failing to get the 60 votes needed to beat back a procedural challenge. Proponents of the bill, who initially had 59 votes, said they might try again, but they were sobered by a defeat that included votes of Democrats and Republicans.

"The consequence of the vote tonight is that victims who are in need are not going to receive fair and just compensation," Senate Majority Leader Bill Frist (R-Tenn.) said after the vote. "They deserve it. They need it."

At the end, Frist shifted his vote from yes to no, a parliamentary maneuver that he said would enable him to bring the matter up again if he chose.

By all accounts, the outcome was a stinging defeat for advocates of the plan and raised questions about the approach that had been painstakingly established by a coalition of Republicans and Democrats in the Senate Judiciary Committee.

The vote was over a technical issue — whether the proposed $140-billion fund would exceed budgetary limits. Proponents argued it would not, noting the fund was to be financed by private companies and insurance firms. They also cited a recent analysis by the Congressional Budget Office that the fund would not expand the federal deficit over the long haul.

"It's abundantly clear that this legislation will not be a burden on the United States Treasury," Sen. Dianne Feinstein (D-Calif.) said.

Opponents maintained that the fund was insufficient for long-term asbestos claims and could ultimately saddle taxpayers with new costs or leave claimants in limbo if the money ran out.

"In addition to being unfair to victims, the bill is unfair to the federal taxpayer," said Sen. Harry Reid (D-Nev.), the Senate minority leader, who led the opposition. The bill, he added, "may be well-intentioned, but it is ill-conceived."

Supporters sought to establish a system for asbestos claims that would be similar to the workers' compensation program for workplace injuries. Workers would not have to prove that their symptoms were caused by a particular exposure to asbestos.

Sen. Arlen Specter (R-Pa.), chairman of the Judiciary Committee, had urged senators to keep the bill alive and invited colleagues to address their concerns by amending the measure in the coming days.

"To have it rejected on a technicality is just a terrible waste of so much time and effort," Specter said of the bill that had passed in committee in May.

Afterward, Sen. Richard J. Durbin (D-Ill.), an opponent of the measure, tried to sound a conciliatory tone.

"We have to find a reasonable way to help these victims," he said. "I don't know if we can reach an agreement, but I sure want to try."

If enacted, the 2007 budget would eliminate federal programs that support inner-city Indian health clinics, defibrillators in rural areas, an educational campaign about Alzheimer's disease, traumatic brain-injury centers, and a nationwide registry for Lou Gehrig's disease. It would cut close to $1 billion in health care grants to states and would kill the entire budget of the Christopher and Dana Reeve Paralysis Resource Center.

In a $2.8 trillion budget, the amounts involved may seem minuscule, but proponents argue that the health care projects Bush has singled out are the "ultimate homeland security," as Vinay Nadkarni put it. The spokesman for the American Heart Association said he cannot fathom why the administration has recommended eliminating a $1.5 million program that provides defibrillators to rural communities and trains local personnel on how to use the machines to restart hearts that go into cardiac arrest.

"Coronary heart disease is the number one killer in the United States," Nadkarni said. "This is actually something we can arm ourselves with."

To meet his twin goals of taming a rising deficit and increasing spending on national security, Bush proposed $2.2 billion in cuts to discretionary programs elsewhere in the budget. The Department of Health and Human Services would absorb $1.5 billion of that total, in part to direct more money to mandatory programs such as Medicare.

"We had to make hard choices, hard choices about very well-intentioned programs," said HHS Secretary Mike Leavitt.

Sen. Edward M. Kennedy, D-Mass., said the administration chose "tax cuts for the wealthy and giveaways for the drug industry" over services for needier patients.

Some of the proposed cuts are familiar Bush targets that in previous years were rescued by congressional backers. Others are new and could be harder to restore this year. Leavitt said his team slashed programs that were duplicative or underperforming. But in every case, physicians, patient advocates and policy analysts argue, it will cost taxpayers more in the long run.

The 2007 budget would terminate $12 million in state grants for community-based Alzheimer's care and a $1.6 million "Maintain Your Brain" campaign run out of the Centers for Disease Control and Prevention. Today, more than 4.5 million Americans have Alzheimer's, a number expected to rise to 16 million by mid-century, said Stephen McConnell, vice president for public policy at the Alzheimer's Association.

Administration officials say that the benefits are dictated by laws and regulations that date back to 1996, when energy prices were relatively low and Congress wanted to encourage more exploration and drilling in the high-cost, high-risk deep waters of the Gulf of Mexico.

"We need to remember the primary reason that incentives are given," said Johnnie M. Burton, director of the federal Minerals Management Service. "It's not to make more money, necessarily. It's to make more oil, more gas, because production of fuel for our nation is essential to our economy and essential to our people."

But what seemed like modest incentives 10 years ago have ballooned to levels that have alarmed even ardent supporters of the oil and gas industry, partly because of added sweeteners approved during the Clinton administration but also because of ambiguities in the law that energy companies have successfully exploited in court.

Short of imposing new taxes on the industry, there may be little Congress can do to reverse its earlier giveaways. The new projections come at a moment when President Bush and Republican leaders are on the defensive about record-high energy prices, soaring profits at major oil companies and big cuts in domestic spending.

Indeed, Mr. Bush and House Republicans are trying to kill a one-year, $5 billion windfall profits tax for oil companies that the Senate passed last fall.

Moreover, the projected largess could be just the start. Last week, Kerr-McGee Exploration and Development, a major industry player, began a brash but utterly serious court challenge that could, if it succeeds, cost the government another $28 billion in royalties over the next five years.

In what administration officials and industry executives alike view as a major test case, Kerr-McGee told the Interior Department last week that it planned to challenge one of the government's biggest limitations on royalty relief if it could not work out an acceptable deal in its favor. If Kerr-McGee is successful, administration projections indicate that about 80 percent of all oil and gas from federal waters in the Gulf of Mexico would be royalty-free.

"It's one of the greatest train robberies in the history of the world," said Representative George Miller, a California Democrat who has fought royalty concessions on oil and gas for more than a decade. "It's the gift that keeps on giving."

Republican lawmakers are also concerned about how the royalty relief program is working out.

"I don't think there is a single member of Congress who thinks you should get royalty relief at $70 a barrel" for oil, said Representative Richard W. Pombo, Republican of California and chairman of the House Resources Committee.

"It was Congress's intent," Mr. Pombo said in an interview on Friday, "that if oil was at $10 a barrel, there should be royalty relief so companies could have some kind of incentive to invest capital. But at $70 a barrel, don't expect royalty relief."

Tina Kreisher, a spokeswoman for the Interior Department, said Monday that the giveaways might turn out to be less than the basic forecasts indicate because of "certain variables."

The government does not disclose how much individual companies benefit from the incentives, and most companies refuse to disclose either how much they pay in royalties or how much they are allowed to avoid.

But the benefits are almost entirely for gas and oil produced in the Gulf of Mexico.

The biggest producers include Shell, BP, Chevron and Exxon Mobil as well as smaller independent companies like Anadarko and Devon Energy.

Executives at some companies, including Exxon Mobil, said they had already stopped claiming royalty relief because they knew market prices had exceeded the government's price triggers.

About one-quarter of all oil and gas produced in the United States comes from federal lands and federal waters in the Gulf of Mexico.

As it happens, oil and gas royalties to the government have climbed much more slowly than market prices over the last five years.

The New York Times reported last month that one major reason for the lag appeared to be a widening gap between the average sales prices that companies are reporting to the government when paying royalties and average spot market prices on the open market.

Industry executives and administration officials contend that the disparity mainly reflects different rules for defining sales prices. Administration officials also contend that the disparity is illusory, because the government's annual statistics are muddled up with big corrections from previous years.

Both House and Senate lawmakers are now investigating the issue, as is the Government Accountability Office, Congress's watchdog arm.

But the much bigger issue for the years ahead is royalty relief for deepwater drilling.

The original law, known as the Deep Water Royalty Relief Act, had bipartisan support and was intended to promote exploration and production in deep waters of the outer continental shelf.

At the time, oil and gas prices were comparatively low and few companies were interested in the high costs and high risks of drilling in water thousands of feet deep.

The law authorized the Interior Department, which leases out tens of millions of acres in the Gulf of Mexico, to forgo its normal 12 percent royalty for much of the oil and gas produced in very deep waters.

Because it take years to explore and then build the huge offshore platforms, most of the oil and gas from the new leases is just beginning to flow.

The Minerals Management Service of the Interior Department, which oversees the leases and collects the royalties, estimates that the amount of royalty-free oil will quadruple by 2011, to 112 million barrels. The volume of royalty-free natural gas is expected to climb by almost half, to about 1.2 trillion cubic feet.

Based on the government's assumptions about future prices — that oil will hover at about $50 a barrel and natural gas will average about $7 per thousand cubic feet — the total value of the free oil and gas over the next five years would be about $65 billion and the forgone royalties would total more than $7 billion.

Administration officials say the issue is out of their hands, adding that they opposed provisions in last year's energy bill that added new royalty relief for deep drilling in shallow waters.

"We did not think we needed any more legislation, because we already have incentives, but we obviously did not prevail," said Ms. Burton, director of the Minerals Management Service.

But the Bush administration did not put up a big fight. It strongly supported the overall energy bill, and merely noted its opposition to additional royalty relief in its official statement on the bill.

By contrast, the White House bluntly promised to veto the Senate's $60 billion tax cut bill because it contained a one-year tax of $5 billion on profits of major oil companies.

The House and Senate have yet to agree on a final tax bill.

The big issue going forward is whether companies should be exempted from paying royalties even when energy prices are at historic highs.

In general, the Interior Department has always insisted that companies would not be entitled to royalty relief if market prices for oil and gas climbed above certain trigger points.

Those trigger points — currently about $35 a barrel for oil and $4 per thousand cubic feet of natural gas — have been exceeded for the last several years and are likely to stay that way for the rest of the decade.

So why is the amount of royalty-free gas and oil expected to double over the next five years?

The biggest reason is that the Clinton administration, apparently worried about the continued lack of interest in new drilling, waived the price triggers for all leases awarded in 1998 and 1999.

At the same time, many oil and gas companies contend that Congress never authorized the Interior Department to set price thresholds for any deepwater leases awarded between 1996 and 2000.

The dispute has been simmering for months, with some industry executives warning the Bush administration that they would sue the government if it tried to demand royalties.

Last week, the fight broke out into the open. The Interior Department announced that 41 oil companies had improperly claimed more than $500 million in royalty relief for 2004.

Most of the companies agreed to pay up in January, but Kerr-McGee said it would fight the issue in court.

The fight is not simply about one company. Interior officials said last week that Kerr-McGee presented itself in December as a "test case" for the entire industry. It also offered a "compromise," but Interior officials rejected it and issued a formal order in January demanding that Kerr-McGee pay its back royalties.

On Feb. 6, according to administration officials, Kerr-McGee formally notified the Minerals Management Service that it would challenge its order in court.

Industry lawyers contend they have a strong case, because Congress never mentioned price thresholds when it authorized royalty relief for all deepwater leases awarded from 1996 through 2000.

"Congress offered those deepwater leases with royalty relief as an incentive," said Jonathan Hunter, a lawyer in New Orleans who represented oil companies in a similar lawsuit two years ago that knocked out another major federal restriction on royalty relief.

"The M.M.S. only has the authority that Congress gives it," Mr. Hunter said. "The legislation said that royalty relief for these leases is automatic."

If that view prevails, the government said it would lose a total of nearly $35 billion in royalties to taxpayers by 2011 — about the same amount that Mr. Bush is proposing to cut from Medicare, Medicaid and child support enforcement programs over the same period.

Copyright 2006The New York Times Company