The survey of the National Association of Business Economists called for the economy to expand at a robust 4.5 percent pace in the current quarter -- the fastest since 2003 -- after a disappointing 1.1 percent annualized rate in the fourth quarter.

"The NABE panel sees the economy roaring back in early 2006 following the fourth quarter's tepid 1.1 percent growth," said Stuart Hoffman, NABE president and chief economist at PNC Financial Services Group.

"Our forecasters expect the economy to shake off the effects of last years hurricanes and surging oil price."

The report based on a survey of 53 economists projected the overall pace of growth for 2006 at 3.3 percent.

This should be strong enough to allow the Federal Reserve to lift its base interest rate to 5.0 percent, the economists conclude.

The NABE panel saw a somewhat uneven pace of growth, with a deceleration in the second half of 2006. They called for an average four percent growth pace in the first half and a three percent expansion in the second half.

In a first look at 2007, the NABE panel expected growth to moderate slightly to 3.1 percent, and the unemployment rate to edge higher, averaging 4.9 percent after a projected 4.8 percent average in 2006.

The panel expects "core" consumer price inflation to edge up to 2.4 percent.

"The NABE panel sees high and rising energy costs as the biggest risk to the expansion," the organization said in a statement. Rising interest rates also had a high rank, followed closely by declining home prices.

Despite these risks, the panel sees only a 15 percent chance the expansion will end in 2006 and 25 percent probability that 2007 will see the cyclical peak in economic activity.

The NABE panel expects payroll employment growth of 2.1 million jobs in 2006 and 1.8 million in 2007, which is just enough to keep the unemployment rate steady at current levels.

The NABE consensus revised upward its expectations for oil prices to nearly 59 dollars a barrel at the end of this year, up from 53 dollars expected in November's survey.

\"Either the administration is proposing gutting VA health care over the next five years or it is not serious about its own budget,\" said Rep. Chet Edwards (news, bio, voting record) of Texas, top Democrat on the panel overseeing the VA\'s budget. \"If the proposals aren\'t serious, then that would undermine the administration\'s argument that they intend to reduce the deficit in half over the next several years.\"

In fact, the White House doesn\'t seem serious about the numbers. It says the long-term budget numbers don\'t represent actual administration policies. Similar cuts assumed in earlier budgets have been reversed.

\"Instead, the president\'s subsequent budgets have increased funding for all of these programs,\" said White House budget office spokesman Scott Milburn. \"The country can meet the goal of cutting the deficit in half and still invest in key programs for vulnerable Americans, and claims to the contrary aren\'t supported by the facts of recent budget history.\"

The veterans\' medical care cuts would come even though more and more people are trying to enter the system and as the number of people wounded in
Iraq keeps rising. Even though Iraq war veterans represent only about 2 percent of the Veterans Administration\'s patient caseload, many are returning from battle with grievous injuries requiring costly care.

The White House budget office, however, assumes that the veterans\' medical services budget - up 69 percent since Bush took office and which would rise by 11 percent next year under Bush\'s budget - can absorb cuts for three years in a row after that.

The cuts are outlined in a 673-page computer printout that has not been officially released by the White House budget office. However, it found its way into the hands of the Center of Budget and Policy Priorities, a liberal-leaning Washington think tank.

The administration insists it makes spending policies one year at a time and that the long-term veterans\' budget figures are therefore subject to change.

\"We don\'t make multiyear discretionary funding requests,\" said Veterans Administration spokesman Scott Hogenson, who declined to speculate on whether long-term cuts were realistic. \"We look at our needs and assess our needs on a year-to-year basis.\"

The rapidly growing budget for veterans\' medical services, funded for the current year at $24.5 billion, would leap to $27.7 billion in 2007 under Bush\'s budget. But the medical services budget faces a 3 percent cut in 2008 and would hover below $27 billion for the next four years, even as increasing numbers of veterans from the Iraq war claim their benefits and the costs of providing care to elderly World War II and Korean War veterans continue to rise.

Those cuts would prove traumatic to the already troubled VA medical system, and would force staff cuts, delay investment in new medical equipment and deny care to hundreds of thousands of veterans.

\"The only way you can do what they want to do in terms of actually cutting the budget is to throw a lot of veterans out who are already in the system and/or redefine who is a veteran,\" said Rick Weidman, director of government relations for the Vietnam Veterans of America.

Even with recent funding increases, cost-cutting moves have locked more than a quarter million veterans out of the system. Those excluded have no illnesses or injuries attributable to their military service and earn more than the average wage in their community.

In Bush\'s proposal to cut the deficit in half by the end of his term, he\'s assuming spending on domestic agency operating budgets can be frozen over the next few years.

\"Each year the budget numbers go up,\" said Jeff Schrade, spokesman for Senate Veterans Affairs Committee Chairman Larry Craig, R-Idaho. \"Speculation beyond 2007\'s budget is, at this point, just speculation.\"

But without the cuts, Bush\'s plan to halve the deficit would be far more difficult to achieve. For example, just freezing the budget for veterans\' medical services below $27 billion understates the deficit for 2009 by perhaps $5 billion.

"The decline in new home sales in January makes it clear that there is some real softening in the housing market, said Joel Naroff, chief economist at Naroff Economic Advisors.

The 5 percent decline was bigger than expected, dashing hopes that the milder-than-normal January would help to bolster demand. The warm weather had pushed up the level of construction starts last month by 14.5 percent, the fastest rate in three decades.

But the new report showed that with sales lagging, the increase in building activity left a total of 528,000 new homes still for sale at the end of the month, a nine-year high.

Even with the softening in sales, prices were up in January with the median price climbing to $238,100, up 4 percent from December, but below the all-time high of $243,900 set in October.

For the past few years, home prices have been surging at double-digit rates, gains that analysts said will likely slow now that sales are softening and inventories of unsold-homes are rising.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, predicted "real downward pressure on prices over the next few months."

David Seiders, chief economist at the National Association of Home Builders, said surveys showed that the number of builders who are throwing in various amenities for free in order to move homes has risen to 41 percent.

Seiders predicted that home price gains, which were running around 12 percent last year, will slow to about 6 percent this year.

He said a lot of this year's change will reflect less speculative investor activity and more sales spurred by people desiring to live in the homes. "Hopefully, that is all that is developing here," Seiders said.

Some economists are worried that with the inventory of unsold homes rising, there could be significant downward pressure on home prices, triggering a chain-reaction similar to the bursting of the stock market bubble in 2000, a development that contributed to the 2001 recession.

But new Federal Reserve Chairman Ben Bernanke told Congress earlier this month that for now he was looking for a moderate slowdown in the housing industry, not a crash.

The 5 percent January drop in sales followed a revised 3.8 percent increase in December and was the biggest setback since a 7 percent drop in November.

The biggest decline in sales was a 14.9 percent decrease in sales in the Northeast, which followed an even bigger 23 percent plunge in sales in December. Sales in the Midwest were down 10.8 percent after having risen by 21.2 percent in December.

In the South, sales fell by 10.3 percent in January, following a 1.2 percent gain in December.

Bucking the national trend, sales in the West posted an 11.3 percent increase in January after a 6.3 percent gain in December.

Mortgage rates have been rising gradually with the 30-year mortgage now at 6.26 percent, according to the latest Freddie Mac (FRE) survey. Many analysts believe 30-year mortgages will rise to between 6.5 percent to 7 percent by the end of this year.

They think that increase will be enough to trim sales of both new and existing homes and slow the double-digit gains in prices seen in recent years. The National Association of Realtors reported earlier this month that a record 72 metropolitan areas saw double-digit gains in home prices in the final three months of 2005 compared with price levels at the end of 2004.

The \"carry trade\" - as it is known - is a near limitless cash machine for banks and hedge funds. They can borrow at near zero interest rates in Japan, or 1pc in Switzerland, to re-lend anywhere in the world that offers higher yields, whether Argentine notes or US mortgage securities.

Arguably, it has prolonged asset bubbles everywhere, blunting the efforts of the US and other central banks to restrain over-heating in their own countries.

The Bank of International Settlements last year estimated the turnover in exchange and interest rates derivatives markets at $2,400bn a day.

\"The carry trade has pervaded every single instrument imaginable, credit spreads, bond spreads: everything is poisoned,\" said David Bloom, currency analyst at HSBC.

\"It\'s going to come to an end later this year and it\'s going to be ugly, even if we haven\'t reached the shake-out just yet,\" he said.

\"People have a Panglossian belief in the march of global capitalism but that will change as soon as attention switches back to US financial imbalances,\" he said.

There were early signs of panic this week when the Icelandic krone crashed 8pc in two days, setting off dominoes in high-yielding currencies of New Zealand, Australia, South Africa, Hungary and Brazil.

The debacle was triggered when the rating agency Fitch downgraded Iceland\'s sovereign debt, a move that would not normally rattle markets.

The new skittishness comes against a backdrop of ever more hawkish moves by Japan and Europe.

\"There are several hundred billion dollars of positions in the carry trade that will be unwound as soon as they become unprofitable,\" said Stephen Lewis, an economist at Monument Securities. \"When the Bank of Japan starts tightening we may see some spectacular effects. The world has never been through this before, so there is a high risk of mistakes.\"

Toshihiko Fukui, the Japanese central bank governor, gave a fresh warning yesterday that this day is near, saying the country was pulling out of seven years of deflation. The economy grew at a 5.5pc rate in the fourth quarter of 2005.

In his strongest words yet, he said the bank would act \"immediately\" to curtail its extra injections of liquidity, preparing the way for rate rises above zero in coming months.

\"The moment of truth is approaching,\'\' said Kenichiro Ikezawa of Daiwa SB. In Europe, Sweden raised rates to 2pc this week in the face of an overheated Stockholm property market, while Germany\'s IFO business climate index soared yesterday to its highest level in 14 years.

The European Central Bank will almost certainly raise eurozone rates to 2.5pc in March, with likely moves to 3pc by the end of the year.

Most of the world is now tightening, with no sign of a fresh credit window opening to keep the game going. This is new. Japan has had the tap on continuously as the trade exploded over the past five years, while America itself became the source of funds after it slashed rates to 1pc at the end of the dotcom bubble, and held them there until June 2004.

The US Federal Reserve has since raised rates 14 times to 4.5pc in a belated effort to restore monetary discipline, with at least two more rises priced into the markets.

It is an open question whether the yen, euro, Swiss franc and Swedish krona carry trades have occurred on such a scale that they have led to over-investment in Latin America and beyond, and compressed US yields, fuelling the American housing boom in 2005 despite Fed tightening.

There are other big forces at work: huge purchases of US Treasuries by Asian central banks, and petrodollar surpluses coming back to the US credit markets. Stephen Roach, chief economist at Morgan Stanley, warns that the carry trade is itself, in all its forms, a major cause of dangerous speculative excess. \"The lure of the carry trade is so compelling, it creates artificial demand for \'carryable\' assets that has the potential to turn normal asset price appreciation into bubble-like proportions,\" he said.

\"History tells us that carry trades end when central bank tightening cycles begin,\" he said. Ominously, almost every bank other than the Bank of England is now tightening in unison.