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An Associated Press investigation found that over the past five years, the money the military spends on winning hearts and minds at home and abroad has grown by 63 percent, to at least $4.7 billion this year, according to Department of Defense budgets and other documents. That’s almost as much as it spent on body armor for troops in Iraq and Afghanistan between 2004 and 2006.

The Labor Department’s report, released Friday, showed the terrible toll the drawn-out recession is having on workers and companies. It also puts even more pressure on President Barack Obama to revive the economy.

The latest net total of job losses was far worse than the 524,000 that economists expected. Job reductions in November and December also were deeper than previously reported.

With cost-cutting employers in no mood to hire, the unemployment rate bolted to 7.6 percent in January, the highest since September 1992. The increase in the jobless rate from 7.2 percent in December also was worse than the 7.5 percent rate economists expected.

Schiff scoffs at the notion the economic decline is starting to level off and concedes no government action means a “terrible” recession. But the path of increased government intervention will lead to “unmitigated disaster,” says Schiff, who gained notoriety in 2007-08 for his prescient calls on the housing bubble and U.S. stocks.

The problem, he says, is the government is trying to perpetuate a “phony economy” based on borrowing and spending. With the U.S. consumer tapped out, the government is “now taking on the mantle” of consumer of last resort, he continues, predicting the bond bubble will soon burst – if it hasn’t already – ultimately leading to a collapse of the dollar and an “inflationary depression worse than anything any of us have ever seen.”

The Riverside County Board of Supervisors has authorized staff to file a lawsuit, while elected officials in Colusa County decided to impose a 30-day delay on sending any taxes and fees it collects to the state after the state controller announced a delay in refunds to taxpayers, money for college tuition-assistance programs and payments to state vendors starting Feb. 1.

Schwarzenegger has proposed delaying the payments by as long as seven months, which Jim Wiltshire, deputy director of the California State Association of Counties, said could result in $3.5 billion in deferment to the state’s 58 counties.

“I just think we need to look at all our options,” said Don Knabe, a supervisor of Los Angeles County, which is also considering payment delays. “When they say deferred payments, they don’t say you can defer the services.”

The rift between state and county government comes amid growing frustration over the inability of Schwarzenegger and state lawmakers to reach a midyear budget agreement. The state is facing a budget deficit of $42 billion by June 2010, and the governor is battling state lawmakers who oppose possible tax hikes and labor leaders who have sued over imposed state worker furloughs in efforts to save money.

In December, Toyota predicted it would make a full year operating loss of 150bn yen ($1.65bn; £1.13bn).

The Japanese car giant has now tripled that figure and expects to make a 450bn yen operating loss, the first annual loss at the firm in 70 years.

Although it has not suffered as badly as its US rivals, Toyota has still been hit by falling demand in the downturn.

The strengthening yen has also hit its profitability, by depreciating its overseas earnings.

In expanding its loss prediction for the year, Toyota also said it made a loss of 164.7bn yen in the three months from October to December.

Production cut

Toyota has also lowered its forecast for vehicle sales for the whole group for the 2008/09 financial year to 7.32 million from 7.54 million.

It had sold 8.913 million vehicles in the year to the end of March 2008.

In December, Toyota boss Katsuaki Watanabe said the current downturn was of a size that comes only: “once in a hundred years”.

Toyota is cutting work to a single shift on 17 production lines lines out of its 75 around the world at different times in January and February.

Nearly half of China’s winter crop – some 10m hectares (24m acres) of wheat and rape seed – are also under threat.

President Hu Jintao and Premier Wen Jiabao ordered all-out efforts to fight the drought, allocating 400m yuan ($58m, £40m) in relief assistance.

China’s drought relief office called it an event “rarely seen in history”.

China faces droughts and floods annually but has seen a recent increase in extreme weather conditions.

The Chinese authorities say the current drought is expected to continue as no rain has been forecast in the affected areas for at least 10 days.

‘Red alert’

The Chinese leaders’ decision was announced at a State Council meeting, according to the Xinhua news agency.

Government efforts should be directed at stabilising grain production, increasing farmers’ income and ensuring agricultural production, the Council said.

The agriculture ministry says it is on red alert.

Eight wheat-growing regions – Hebei, Shanxi, Anhui, Jiangsu, Henan, Shandong, Shaanxi and Gansu – are under threat, Xinhua reported.

The official China Daily newspaper, citing meteorological authorities, said Henan had recorded its worst drought 1951, going 105 consecutive days without rain.

Much of China’s farming still relies on rainfall as many of its farming communities have a poor irrigation system.

The BBC’s China analyst Shirong Chen says the prolonged drought has added to the misery in rural areas where millions of migrant workers have lost their jobs as a result of the global economic downturn.

The failures took place at F.E. Warren Air Force Base in Wyoming from Dec. 2 to Dec. 17 and Malmstrom Air Force Base, Mont., from Oct. 26 to Nov. 10, according to the report.

Air Force Space Command spokeswoman Jennifer Thibault told the Times that the failed nuclear surety inspections involved “administrative and paperwork issues.” In all, three Air Force nuclear-missile units and two strategic-bomber units failed such inspections in 2008.

Despite the problems, the Air Force said it is making progress addressing issues with the security and handling of nuclear-tipped missiles that came to light after embarrassing episodes in 2006 and 2007 prompted a widespread review and management changes, including the resignations of Air Force Secretary Michael W. Wynne and Chief of Staff Gen. T. Michael Moseley.

Air Force officials said the 90th Wing at F.E. Warren was given failing grades by inspectors from the Space Command and the Defense Technology Security Administration for not properly documenting tests on missiles, which require strict monitoring. The Times did not report details of the issues at Malmstrom.

“Not only poor people should experience this,” Gates told the audience before assuring them that the insects were malaria-free.

The insect release, which was first reported on Twitter by Facebook’s Dave Morin, was initially characterized in some reports as a swarm, but some in the audience reported seeing just a few.

TED curator Chris Anderson reportedly quipped that the video of the talk posted at TED.com will be headlined “Gates releases more bugs into the world.”

The rules, created in response to growing public anger about the record bonuses the financial industry doled out last year, will apply only to top executives at companies that need “exceptional” assistance in the future. The limits aren’t retroactive, meaning firms that have already taken government money won’t be subject to the restrictions unless they have to come back for more.

The new guidelines are the first salvo in a broader financial-rescue plan Obama plans to announce next week. The president and Congress have had to defend billions in aid to banks that continue to provide generous bonuses and luxury perks while posting record losses. Pay caps may provide the political cover the administration needs to deliver additional infusions of capital into the financial sector that may be necessary.

Some analysts said the new rules wouldn’t have much effect.

Obama, 47, “is not proposing to go back and get that $18.4 billion in bonuses back,” Laura Thatcher, head of law firm Alston & Bird’s executive compensation practice in Atlanta, said of the cash bonuses New York banks paid last year, the sixth- biggest haul in history. “Right now, we have not clamped down” on pay at banks.

Huge Paydays

In addition, some executives may be compensated for the potential reduced salaries with restricted stock grants, which may result in huge paydays after the bank repays the government assistance with interest.

“They’re just allowing companies to defer compensation,” said Graef Crystal, a former compensation consultant and author of “The Crystal Report on Executive Compensation.”

The reaction came after President Barack Obama announced that executives of finance firms receiving government bailouts would have their annual salaries limited to 500,000 dollars, a move aimed at protecting taxpayer interests.

The salary limit is “still a hefty sum to be sure, and the spirit of the order certainly has popular appeal, but it’s a slippery slope when the government puts restrictions on how much an individual can earn in the private sector,” said Patrick O’Hare of the independent research firm Briefing.com.

“Also, the order itself strikes us as a disincentive for financial firms to reach out for aid, which will just prolong the recovery for the sector and the economy.”

Douglas McIntyre at the financial website 24/7 Wall Street said the limits could make it more difficult for troubled banks to retain their best executives.

“Wall Street may keep most of its bankers if they face pay cuts, but it is the top five or 10 percent who make these companies really profitable, and they will soon be on their way to greener pastures if this measure is enacted,” McIntyre said.

Don Lindner, a compensation specialist with the human resources association WorldatWork, said the new restrictions could mean a “huge cut in pay” for many top executives.

“They might leave to find jobs where they are paid more, that’s my concern, that the restrictions are so deep that the leadership won’t stay,” Lindner told AFP.

Still, Lindner said the matter is “a complex issue” and that “just like any other investor, I think the federal government has every reason and responsibility to protect its investment.”

But he argued that the move “may have some consequences,” such as “not being able to get the kind of leadership the organizations need to recover quickly.”

The US Treasury said the measures “are designed to ensure that public funds are directed only toward the public interest in strengthening our economy by stabilizing our financial system and not toward inappropriate private gain.”

The Treasury guidelines “seek to strike the correct balance between the need for strict monitoring and accountability on executive pay and the need for financial institutions to fully function and attract the talent pool that will maximize the chances of financial recovery and taxpayers being paid back on their investments,” the statement added.

The guidelines come as the administration revamps guidelines on a massive 700-billion-dollar rescue plan under the Troubled Asset Relief Program, aimed at stabilizing the financial sector to spark a recovery from deep recession and a credit crunch.

US Chamber of Commerce spokesman Tom Quaadman said that “there should be accountability for the expenditure of taxpayer dollars” but that “policies should not be put in place that harm the ability of companies to turn themselves around.”

“As we see it there is intense competition for talent, and if draconian rules are put into place that talent will go elsewhere, and that will deprive companies of experienced executives at the precise moment they need them,” Quaadman added.

John Wilson, an equity analyst at the brokerage Morgan Keegan, said that despite the protests, Obama’s step is “the logical political move” after the government stepped in to rescue major banks.

Harry Markopolos also assailed the Securities and Exchange Commission in his first appearance before lawmakers. The SEC failed to act despite receiving credible allegations of fraud from Markopolos about Madoff’s operations over a decade.

Because of the agency’s inaction, “I became fearful for the safety of my family,” Markopolos said at the hearing of a House Financial Services subcommittee.

“The SEC is … captive to the industry it regulates and is afraid” to bring big cases against prominent individuals, Markopolos asserted. The agency “roars like a lion and bites like a flea” and “is busy protecting the big financial predators from investors,” he said.

While the SEC is incompetent, the securities industry’s self-policing organization, the Financial Industry Regulatory Authority, is “very corrupt,” Markopolos charged. That organization was headed until December by Mary Schapiro, President Obama’s new SEC chief.

The SEC has been sustaining volleys of criticism from lawmakers and investor advocates over its failure to discover Madoff’s alleged $50 billion fraud, which could be the biggest Ponzi scheme ever, despite the credible allegations brought to it over years. Amid a financial crisis, the SEC is being accused of further eroding investor confidence, and lawmakers of both parties are calling for a shake-up of the agency.

Madoff, a prominent Wall Street figure, was arrested in December after allegedly confessing to bilking investors in what the authorities say was a giant Ponzi scheme, possibly the largest ever. Markopolos’ repeated warnings to SEC staff that Madoff was running a massive pyramid scheme have cast Markopolos as an unheeded prophet in the scandal.

“The SEC was never capable of catching Mr. Madoff. He could have gone to $100 billion” without being discovered, Markopolos testified. “It took me about five minutes to figure out he was a fraud.”