Not to long ago I clicked on an ad for a free investor’s kit from Goldline International. I was skeptical at first entering my phone number and address to a web form for a company I knew very little about. I was afraid of being spammed not only with unwanted emails, but advertisements in real life or even worse phone calls from telemarketers.

Despite these risks I took a chance and filled out the forms. The current climate here in the US has given me some serious concerns about the safety of the U.S. Dollar and my investments in the stock market. I felt like I needed to protect my savings with something I could physically put my hands on like gold or silver.

Within 2 weeks I received my Investors Kit along with only one or two emails, one confirming my sign-up and another monthly newsletter.

I was blown away by the quality of the Free Investor’s Kit. It came in a large envelope packed full of papers and information. Inside was a folder with several high quality full color pages printed on High Gloss paper and several brochures and documents with all the information that YOU NEED TO KNOW.

What Comes In The Goldline Free Investors Pack?

1. Precious Metals and Rare Coins Investors Guide

Tables of Contents:
I: Introduction to Precious Metals
II: Advantages of Owning Gold & Silver
III: Most Popular Coins & Products
IV: Why Investors & Collectors Choose Goldline
V: How To Acquire Precious Metals & Rare Coins

2. Coin Facts For Investors and Collectors to Consider

Facts, risks, and policies collectors should know:
Diversification, Holding Period, IRA Accounts, Buy Back Policy, Delivery, Storage, Risks In Precious Metal Investing, Pricing, Bullion Purchases, Exchange Transactions, Refund Policy

3. Account and Storage Agreement Information

Any and everything you need to know about Goldline International’s Terms and Conditions.

4. One-Time Special Offer Coupon for Free Shipping on my order.

5. Complimentary Issue of The American Advisor Newsletter
Goldline’s newsletter, American Advisor, provides timely news and information about our economy, precious metals and rare coins. The Investor’s Kit also included an offer for 1 Year Free subscription to the American Advisor.

Listen to the American Advisor Radio Podcast Here.

6. Pre-Paid FedEX Air Mail Envelope

7. Vintage Copy of 1933 Executive Order Gold Confiscation Act.

Under Executive Order Of The President issued April 5, 1933 all persons are required to deliver on or before May 1, 1933 all GOLD COINS, GOLD BULLION, AND GOLD CERTIFICATES now owned by them to a Federal Reserve Bank, brand or agency, or to any member bank of the Federal Reserve System.

8. Personalized Letter written to me from my Goldline Account Executive.

How was the customer service at Goldline?

About a week after receiving my Goldline Investors Kit I got the first phone call. Normally I don’t pick-up unknown phone numbers so I let it go to voicemail. It was from the same acount executive that left his business card in my free investors kit.

He was polite and basically said:

Hi John, we’ve got your phone number here because you requested some information online. I’d love to get a chance to talk with you about how we can help you with your investments at Goldline. Give me call back at this number…

It was a short message and not too pushy. I actually did not call them back right away, but my account executive called me two more times in the span of about 2 weeks and left a message each time. After that I did not hear back from him again.

Overall I would say that they were very professional and courteous. I was afraid to give out my ‘real’ phone number, but you can trust not to have problems with Goldline.

How Can I Get A Free Goldline Investors Pack?

1. Call Goldline at 1-800-827-4653 to speak with a Account Exec.

2. Sign up in the Gold investment section

3. Follow the links in the side bar.

A highly amusing exchange occurred earlier on CNBC when guest Damon Vickers of Nine Points Capital had an unexpected moment of truthiness and turned some heads when he said that

Joe Kernan said “Your basic tenant here is that we havent really fixed anything….for what caused the problems during the crisis and we’re going to see it rear its ugly head again here soon?”

Vickers later replied: “Unless the plunge protection team comes in over the next couple of days, the markets are looking very dicey here.”

When a disgusted Joe Kernan asks if Vickers was making a joke about the PPT, the response is “absolutely not – it’s common knowledge that the government steps in and does things to step on the gas and buy stock here and there.” To which Byron Wien has a strong retort: “I don’t believe it.” All that and much more in the clip below. In the meantime, the market is sure having a field day with stocks as once again bad news are discarded and the smallest glimmer of positivity serves as a springboard for yet another ramping short covering spree.

By Mary Childs and Chris Fournier

(Bloomberg) Canada’s dollar was worth more than the U.S. currency for the first time since July 2008 on the back of the rising price of crude oil and the prospect of higher interest rates.

Canada’s dollar, dubbed the loonie for the aquatic bird on the C$1 coin, last traded through parity with the greenback on July 22, 2008, 11 days after crude, the country’s biggest export, reached a record $147.27 a barrel. Oil rose to a 17- month high today.

“As we trade around it and move through it, the parity level becomes much less of a target and more of an accepted norm,” said Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia, Canada’s third-largest bank. “Everything continues to be in line for Canadian dollar strength.”

The currency gained as much as 0.3 percent to C$99.88 per U.S. cents, and traded at C$1.0012 at 4:12 p.m. in Toronto, compared with from C$1.0022 yesterday. One Canadian dollar buys 99.88 U.S. cents.

The loonie traded on a one-for-one basis with the U.S. currency in September 2007 for the first time in three decades, capping a five-year run on the back of booming demand for the nation’s commodities.

Canada, the largest trading partner of the U.S., has benefited from rising demand for copper, gold, wheat and oil from the U.S. and emerging economies such as India and China. The country is the world’s largest producer of uranium, the second-biggest exporter of natural gas, and sits on the largest pool of oil reserves outside the Middle East. Canada is also the world’s second-largest exporter of wheat.

Cheaper Imports

The strengthening Canadian currency makes it cheaper to import materials priced in U.S. dollars, according to Duncan Reith, senior vice president of merchandising in Toronto at Canadian Tire Retail, the nation’s largest auto parts and sporting goods retailer. “It’s helping us provide better value to our customers because we buy a lot of our product in U.S. dollars from the Pacific Rim,” Reith said.

The advancing Canadian dollar also risks penalizing manufacturers and service companies such as Fredericton, New Brunswick-based ADI Systems Inc., a provider of technology used in industrial water treatment systems. Privately held ADI, which has about 25 employees, generates 90 percent of sales in U.S. dollars, said President Graham Brown.

“We have to accept we’re making less money when converting our U.S.-dollar profit back into Canadian dollars,” Brown said in a phone interview. “In a very competitive market, we’re really not in a position to bump up our prices to compensate.”

Interest Rate Expectations

The Standard & Poor’s/TSX Composite Index slipped 29.64 points, or 0.2 percent, to 12,156.71, led by energy companies and railroads.

Crude oil for May delivery rose 22 cents, or 0.3 percent, to $86.84 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 8, 2008. Prices are up 9.4 percent this year.

The central bank will boost its target overnight rate by 2 percentage points to 2.25 percent by the middle of next year, according to the weighted average of eight economists in a Bloomberg News survey of economists.

Matthew Strauss, senior currency strategist in Toronto at Royal Bank of Canada, expects the central bank to raise rates by the middle of this year.

“Once they start hiking, we think it’s going to be a pretty aggressive process with probably around 100 basis points worth of hikes in the second half of this year, followed by an even more aggressive campaign into 2011” Strauss said in a Bloomberg Television interview.

Deficit Projection

The six-month overnight index swap rate, a measure of the average overnight rate expected by traders during that time, rose to 0.5250 percent, the highest intraday level in more than a year. The central bank next meets on April 20 to determine monetary policy.

Canadian employers added 25,000 jobs in February, the third straight monthly gain, according to the median of 21 forecasts in a Bloomberg survey. Statistics Canada releases the report on April 9 at 7 a.m. in Ottawa.

Canada is on course to be the first Group of Seven nation to erase its budget gap after the global financial crisis. Finance Minister Jim Flaherty presented on March 4 a budget that forecasts the budget deficit narrowing to C$1.8 billion in 2014 from a record C$53.8 billion last year.

“It’s a perfect storm for the Canadian dollar,” Jonathan Gencher, director of foreign exchange sales at Bank of Montreal in Toronto. “Canadian rates are higher and Canada will be moving before the Fed. Oil is higher. The fundamentals suggest we’ll hang around here for a while.”

by Andrew Leonard

(Silver Bear Cafehttp://www.silverbearcafe.com/private/03.10/medallion.html) A bill to allow citizens to pay their taxes with silver medallions gains support. Goldbugs are watching closely.

With only one state representative dissenting, the Idaho House State Affairs committee voted on Monday to endorse HB 633, a bill that would allow Idaho citizens to pay their state taxes with an official state silver medallion.

The news comes just a month after a South Carolina legislator introduced a bill seeking to ban Federal currency altogether, and replace the upstart greenback with gold or silver coins. A half-dozen other states have considered similar legislation, reports the Tenth Amendment Center. But there’s a key difference between the Idaho plan and the bills proposed in other states, most of which fall somewhere on a spectrum ranging from Tea Party rage to Ron Paul goldbug-ism. (The South Carolina bill, for example, claims that “the State is experiencing an economic crisis of severe magnitude caused in large part by the unconstitutional substitution of Federal Reserve Notes for silver and gold coin as legal tender in this State.”)

In contrast, the sponsor of the Idaho bill, Republican Phil Hart, seems to be marshalling wide support by crafting legislation that is straight out industrial policy aimed at boosting Idaho’s silver industry. The text of the bill is quite clear.

The intent of this act is to use the abundant silver resources of the state of Idaho to create a means whereby the people of Idaho can pay their taxes to the state using silver mined from the ground of Idaho, processed in Idaho and finally minted into a medallion in Idaho. It is the intent of the Legislature to create mining jobs in Idaho while giving the people of Idaho a means to store their wealth in a precious metal that is immune from the effects of inflation while complying with the mandates of our federal Constitution.

The Idaho bill therefore incorporates tax incentives for silver processors located in Idaho.

From The Idaho Reporter:

That, Hart believes, could bring hundreds, if not thousands of jobs to the state. In conjunction with the creation of the medallion, Hart’s bill would also try to lure silver processing companies to Idaho, and in particular, north Idaho, which, according to Hart, was once called “the silver capital of the world.” The bill would give companies that come to Idaho to process silver for the medallion a 10-year exemption from income taxes, as well as property taxes. The exemption would be open for 20 years and would sunset after that period of time.

Hart believes one of the advantages of silver is that it would resist inflationary pressure better than paper money. But since states aren’t allowed to mint their own money, the value of the silver medallion will have to fluctuate according to market forces. In just the last ten years, the value of an ounce of silver has zig-zagged between four and twenty dollars.

(Washington Times) President Obama’s fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation’s economic output by 2020, the Congressional Budget Office reported Thursday.

In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president’s budget would generate a combined $9.75 trillion in deficits over the next decade.

“An additional $1.2 trillion in debt dumped on [GDP] to our children makes a huge difference,” said Brian Riedl, a budget analyst at the conservative Heritage Foundation. “That represents an additional debt of $10,000 per household above and beyond the federal debt they are already carrying.”

The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it’s headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO’s deficit estimates.

That figure would equal 90 percent of the estimated gross domestic product in 2020, up from 40 percent at the end of fiscal 2008. By comparison, America’s debt-to-GDP ratio peaked at 109 percent at the end of World War II, while the ratio for economically troubled Greece hit 115 percent last year.

“That level of debt is extremely problematic, particularly given the upward debt path beyond the 10-year budget window,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.

For countries with debt-to-GDP ratios “above 90 percent, median growth rates fall by 1 percent, and average growth falls considerably more,” according to a recent research paper by economists Kenneth S. Rogoff of Harvard and Carmen M. Reinhart of the University of Maryland.

CBO projected the 2011 deficit will be $1.34 trillion, not much different from the administration’s estimate of $1.27 trillion. However, CBO’s estimate of the 2020 deficit at $1.25 trillion significantly exceeds the administration’s $1 trillion estimate.

Read More: Washington Times

(The Economic Collapse) The U.S. money supply has been expanding at an absolutely unprecedented rate. So why are we not experiencing rampant inflation? Why is the U.S. dollar not falling through the floor? Well, the truth is that all of this new money has gotten into the U.S. financial system but it is not getting into the hands of U.S. businesses and consumers. In fact, even though the money supply is exploding, U.S. banks have dramatically decreased lending. This has brought us to a very bizarre financial situation as a nation.

What we have seen is the U.S. government shovel massive amounts of cash into the U.S. financial system and then watch as the big banks sit on that cash and refuse to lend it. The biggest banks in the U.S. reduced their collective small business lending balance by another 1 billion dollars in November 2009. That drop was the seventh monthly decline in a row. In fact, in 2009 as a whole U.S. banks posted their sharpest decline in lending since 1942.

So all of this money that the U.S. government pumped into the financial system has been doing American businesses and consumers very little good. That is why we can have a vastly increased money supply (as you can see from the chart below) and very little inflation.

So if the banks are not lending the money to the American people, what are they doing with it? One of the things they are doing with it is buying U.S. government debt. As you can see from the chart below, U.S. banks have cut business lending by approximately 350 billion dollars since early 2009 and they have purchased approximately 300 billion dollars worth of U.S. Treasury securities.

So instead of loaning money to American businesses and consumers who desperately need it, a ton of this new money is being used to pump up yet another bubble. This time the bubble is in U.S. Treasuries. Asia Times recently described how this trillion-dollar carry trade in U.S. government securities works….

Remarkably, the most aggressive buyers of US government debt during the past several months have been global banks domiciled in London and the Cayman Islands. They borrow at 20 basis points (a fifth of a percentage point) and buy Treasury securities paying 1% to 3%, depending on maturity.

This is the famous “carry trade”, by which banks or hedge funds borrow short-term at a very low rate and lend medium- or long-term at a higher rate. This works as long as short-tem rates remain extremely low. The moment that borrowing costs begin to rise, the trillion-dollar carry trade in US government securities will collapse.

So what happens when this bubble collapses?

Nobody knows for sure. But anyone who has dealt with carry trades in the past knows that when carry trades unwind they can do so very, very quickly and the results can be nightmarish.

The truth is that the U.S. financial system is a house of cards that could fall at any time. A lot of economic pain is on the horizon – it is only a matter of when it comes and how bad it is going to get. Trends forecaster Gerald Celente is predicting that it could be as soon as this year….

(Yahoo News) Your next credit card statement is going to contain an ugly truth: how much that card really costs to use.

Now, thanks to a long-awaited law that goes into effect Monday, you’ll know that if you pay the minimum on a $3,000 balance with a 14 percent interest rate, it could take you 10 years to pay off.

“Jaws will drop,” said David Robertson, publisher of The Nilson Report, a newsletter that tracks the industry. “I don’t doubt for a nanosecond that it’s going to give a lot of people a sinking feeling in their stomachs.”

That’s not all that will make them queasy.

During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines. They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.

It wasn’t supposed to be this way. The law that President Barack Obama signed last May shields card users from sudden interest rate hikes, excessive fees and other gimmicks that card companies have used to drive up profits. Consumers will save at least $10 billion a year from curbs on interest rate increases alone, according to the Pew Charitable Trust, which tracks credit card issues.

But there was a catch. Card companies had nine months to prepare while certain rules were clarified by the Federal Reserve. They used that time to take actions that ended up hurting the same customers who were supposed to be helped.

Consumer advocates say the law still offers important protections for the users of some 1.4 billion credit cards.

“We expected some rate increases; we expected some annual fees,” said Ed Mierzwinski of the U.S. Public Interest Research Group, an advocacy organization that lobbied for the law.

To be sure, the law takes effect while credit card companies are still reeling from the recession.

In 2007, the top 12 card issuers earned a combined $19 billion from credit cards, according to The Nilson Report. A year later, amid the financial meltdown, profits for those companies fell more than 65 percent to $6.32 billion. The plunge was largely because defaults ballooned as unemployment soared.

Profit figures for 2009 aren’t yet available. But banks wrote off about $35 billion in credit card debt last year, as the unemployment rate topped 10 percent. Analysts predict the default rate will remain at least twice as high as normal through this year, and longer if unemployment stays high.

At the same time, the law is expected to cut into future profits. FICO Inc., the company best known for its credit scores, projects the average card will generate less than $100 a month in revenue within three years, down from $200 a month before the law.

That helps explain why the industry reacted so aggressively to the legislation. Among the moves it made:

• Resurrected annual fees.

Annual fees, common until about 10 years ago, have made a comeback. During the final three months of last year, 43 percent of new offers for credit cards contained annual fees, versus 25 percent in the same period a year earlier, according to Mintel International, which tracks marketing data. Several banks also added these fees to existing accounts. One example: Many Citigroup customers will start paying a $60 annual fee on April 1.

• Created new fees and raised old ones.

These include a $1 processing fee for paper statements for cards issued by stores such as Victoria’s Secret and Ann Taylor. Another example is a $19 inactivity fee Fifth Third Bank now charges customers who haven’t used their card for twelve months.

Other banks increased existing fees. JPMorgan Chase, for instance raised the cost of balance transfers from one card to another to 5 percent of the transfer from 3 percent.

• Raised interest rates.

The average rate offered for a new card climbed to 13.6 percent last week, from 10.7 percent during the same week a year ago — meaning cardholders had to pay almost 30 percent more in interest, according to Bankrate.com.

For millions of other accounts, variable interest rates that can rise with the market replaced fixed rates. The Fed is expected to start raising its benchmark interest rates later this year, which would likely trigger an increase on those cards.

Besides making credit more expensive, banks also made it harder to get and keep credit cards. One big reason: Since the financial meltdown, many credit card issuers have been trying to reduce risk.

The number of Visa, MasterCard and American Express cards in circulation dropped 15 percent in 2009, for example. Rarely used cards were among the first cut off. Some cards linked to rewards programs for purchases like gasoline were likewise shut down.

Card companies also slashed credit limits for millions of accounts that remain open. About 40 percent of banks cut credit lines on existing accounts, according to the consultant TowerGroup, which estimated that such moves eliminated about $1 trillion in available credit. Much of that was unused.

Credit lines were frequently cut in regions most affected by the housing crisis and high unemployment, such as Florida and California, said Curt Beaudouin, a senior analyst at Moody’s Investors Service. “They’re not doing it willy nilly, they’re doing it systematically,” he said.

Companies are also making fewer solicitations. Mailed offers for new cards increased in the final three months of 2009 for the first time in two years, but there were only about 575 million. That’s about a third of the average number of quarterly offers from 2000 through 2008, according to Mintel.

Because the law makes credit cards less profitable, some subprime borrowers may not be able to get cards at all, at least for the next few years. There’s no fixed definition, but subprime borrowers generally have a FICO score below 660. For a good portion of this group, options may be limited to alternatives like PayPal and other electronic payment services, prepaid cards and payday lenders.

“Not everyone either deserves or should have an open-ended credit card,” said Roger C. Hochschild, chief operating officer of Discover Financial Services.

Joining those who won’t easily get cards: college students and others under age 21. The law strictly limits card marketing on campuses, ending giveaways like T-shirts and pizza Cards can only be granted to applicants who show they have the means to repay, or those who have a co-signer who can pay.

“Some of the more vulnerable parts of the population are a little bit more protected,” said Georgetown University finance professor James Angel. But he predicts card companies will find ways around most of the new restrictions. And once the economy recovers, he expects the lending spigot to open again.

In the meantime, there is one group of consumers that banks will chase after — those who carry a balance from month to month for at least part of the year, and pay their bills on time. They’re the most profitable and least risky group for banks.

Also a target customer: anyone willing to do more business with the bank that issues their card, say opening a checking or savings account or taking out a mortgage.

“What we want is a deeper relationship with our customers,” said Andy Rowe, an executive vice president with Bank of America’s card business. Customers willing to stick with a single bank may even be able to get annual fees waived or get a better interest rate, he said. “That’s where the competition will be.”

(Financial Times) Walmart, the world’s largest retailer, said comparable sales at its US stores fell 2 per cent during its fourth quarter against last year, and warned of a “more challenging” first quarter in the US, compared with last year’s strong growth.

Net US sales fell 0.5 per cent to $70.9bn, believed to be Walmart’s first US sales decline.

Its Sam’s Club chain reported a 0.7 per cent rise in comparable sales, excluding fuel.

Walmart attributed the fall to factors including deflation in the price of groceries – which account for more than 40 per cent of US store sales – and electronics such as flat-screen televisions.

But Tom Schoewe, chief financial officer, said customer traffic had also fallen, with performance affected by store remodelling related to Walmart’s Project Impact initiative, which involves reducing the stock item inventories and simplifying store layouts.

“Clearly Project Impact had a bit more impact on our traffic and our results than we had expected,” he said.

The retailer reported adjusted earnings of $4.5bn, or $1.17 per diluted share, excluding a 4 cent charge from a recent restructuring, and a 10 cent benefit from tax credits related to the repatriation of non-US earnings. Wall Street had been expecting earnings of about $1.12 a share.

Sales increased 4.6 per cent to $112.8bn against the same period last year.

Walmart reported full-year sales of $405bn, up 1 per cent on last year, with its international sales surpassing $100bn for the first time. On a constant currency basis, sales would have hit $414.8bn, up 3.4 per cent.

Mike Duke, chief executive, said Walmart earnings for the fourth quarter had exceeded its expectations, reflecting “the ongoing underlying strength of our business” and its focus on “delivering growth, leveraging expenses and improving returns”.

It ended the year with inventory down 7.8 per cent against the same period last year, as it continues its store profitability drive and benefited from deflation.

Mr Duke said the retailer expected continued strong international growth in the current year.

“US sales will be more challenging in the first quarter, as Walmart US cycles through strong year-over-year comparisons and deflation,” he said.

The company expects diluted earnings per share for its current fiscal year to be between $3.90 and $4.00, with first-quarter earnings per share in the range $0.81 to $0.85.

WASHINGTON (Reuters) – The Obama administration is satisfied with a plan by Toyota Motor Corp to address a massive recall by fixing or replacing defective accelerator pedals, the U.S. Transportation Department said on Monday.

The National Highway Traffic Safety Administration (NHTSA) reviewed the automaker’s plan to install new parts in existing accelerator systems or replace them entirely.

Sales of new models on the list of 2.3 million vehicles recalled in January have been suspended until the remedy is in place. Toyota said it started shipping parts to dealers on Monday. Production of new vehicles is set to resume February 8.

Owners who opt for a repair now at dealers may later receive a new pedal when it is available, NHTSA said in a consumer advisory.

NHTSA is not required to approve Toyota’s approach but can object if it does not believe the solution is adequate.

“Toyota has announced its remedy and based on its current knowledge, NHTSA has no reason to challenge this remedy,” the agency said in a statement.

“Owners of affected Toyota vehicles should contact their local dealer immediately and exercise caution until repairs can be made,” NHTSA said.

The January 21 recall of Toyota vehicles, including certain Camry and Corolla sedans, centered on accelerator pedals that would not spring back properly or become stuck when depressed.

No deaths or injuries are suspected in cases of sticking pedals, the government said.

NHTSA has launched a separate investigation of CTS Corp, the supplier of the faulty pedal assemblies to Toyota, to determine if “proper and timely notice” has been given to its customers.

Regulators also want to see if additional defect notices and possible recalls are required by other manufacturers who may have installed defective CTS accelerator pedals, NHTSA said.

Toyota’s January recall followed a massive recall in late 2009 of certain Toyota and Lexus sedans and pickups for loose floor mats that can jam the accelerator pedal.

The floor mat problem is suspected in crashes that have killed five people, according to complaints received by the government.

(Reporting by John Crawley; Editing by Tim Dobbyn)

DETROIT (Reuters) – Toyota Motor Corp’s crippling sales shutdown of eight models due to a U.S. safety recall will continue until at least mid-February, sources briefed on the matter said on Friday.

Competitors moved to profit from rising consumer frustration as models that represented more than half of Toyota’s 2009 U.S. sales are not for purchase because of accelerator pedals that may stick.

The sales resumption assumes a smooth and swift rollout of a remedy to fix faulty accelerators in vehicles already sold or at dealerships, said the sources, who wished to remain anonymous because Toyota’s plans are still developing.

“The third week of February is very optimistic,” said one of the sources.

Toyota said this week that it was stopping sales of the eight models covered by the recall involving the sticking accelerator pedals until a fix was in place.

Toyota on Friday was close to announcing details of a repair for the safety risk that has been reviewed by U.S. safety regulators, an official with the National Highway Traffic Safety Administration said.

Also on Friday, Toyota said it would recall as many as 1.8 million vehicles in Europe. This increases the global recalls of Toyota cars and trucks to about 7.5 million vehicles, almost as many as it sold worldwide in 2009. The total includes a recall for a separate issue involving floor mats becoming stuck under accelerator pedals.

With Toyota potentially unable to sell some of its most popular models including the Camry for a month or more, rivals readied new plans to poach sales from the world’s largest automaker and the top-selling brand in the United States.

“Everybody’s going to pile on now,” said Jim Ziegler, a dealer consultant in Atlanta. “Toyota just fumbled the ball in the red zone.”

Ford Motor Co, Hyundai Motor Co and Chrysler Group LLC said they were rolling out incentives targeting Toyota customers. Volkswagen, jockeying with Toyota for the title as global sales leader, also is considering incentives to convert Toyota owners in the United States.

The companies are following the lead of General Motors Co, which on Wednesday began offering Toyota customers payouts of up to $1,000 or zero-percent financing for up to five years if they trade in a Toyota for a GM vehicle.

GM Chief Executive Ed Whitacre said the program was the first example of a “new, more aggressive’ GM and said the reaction from its dealers has been good.

“We will react quicker than GM is used to reacting, so we’ll do something first, and get out there first,” Whitacre told reporters in San Antonio.

“The reaction (from the dealers), was good,” Whitacre said. “They said, ‘we can’t believe this is GM,’ so that’s good.”

In a blow to Toyota’s reputation for quality, Consumer Reports said it was suspending its recommendations for the Toyota models at the center of the accelerator pedal recall.

The nonprofit magazine is an influential guide to car purchases and its endorsement of Toyota vehicles over the years was one important factor in the automaker’s rise to 17 percent U.S. market share, just behind GM.

“We are taking this action because the vehicles have been identified as potentially unsafe without a fix yet being available to consumers, and in general our position is that you shouldn’t compromise on safety,” said Jim Guest, president of Consumers Union, the publisher of Consumer Reports.

Separately, a second congressional committee launched an investigation into the Toyota recalls.

The House Oversight and Government Reform Committee has requested that Transportation Secretary Ray LaHood testify at a February 4 hearing.

“There appears to be growing public confusion regarding which vehicles may be affected and how people should respond,” said Representative Edolphus Towns, chairman of the oversight committee chairman.

“In short, the public is unsure as to what exactly the problem is, whether it is safe to drive their cars, or what they should do about it,” Towns said.

RIVALS GAIN GROUND

Autoconomy.com analyst Erich Merkle said the recalls could cost Toyota a full percentage point in U.S. market share this year.

Barclays Capital analyst Brian Johnson said he expected that Toyota’s sales suspension would temporarily bump up the market share of key rivals led by GM.

“Toyota’s market share will likely suffer somewhat and we expect the manufacturer’s January sales to be down year-on-year,” Johnson said.

Assuming that buyers of the eight Toyota models involved in the recall move to competitors with similar vehicles, Barclays sees a short-term market share gain by GM of 2.4 percent, Honda 2.1 percent, Ford 1.6 percent, Nissan 1.1 percent and Hyundai 0.7 percent.

Toyota shares have lost 15 percent since the recall was announced on January 21. Shares were down less than 1 percent in trading in New York on Friday at $77.

ALG, a forecasting firm that sets resale values used in writing vehicle leases, on Friday warned that unless Toyota moved quickly to address safety issues, residual values of its vehicles could drop by 4 percentage points.

That would make it more expensive for Toyota to lease cars and light trucks.

The remedy being readied by Toyota and its accelerator supplier CTS Corp involves a shim, also called a spacer, that will be placed in the accelerator to keep it from sticking, sources have said.

Toyota expects to finalize this remedy with U.S. safety regulators early next week.

A NHTSA official said on Friday that Toyota had consulted with the agency on its “planned approach” to the fix, adding that Toyota would announce its repair plans “very soon.”

Analysts have estimated that the sales halt announced by Toyota this week could cost the automaker at least $550 million in operating profit a month.

In addition, Toyota’s cost to repair each vehicle with a “shim” or “spacer” at a U.S. dealership should be less than $100, people briefed on the preliminary discussions have said.

That would mean a total warranty cost of the recall of nearly $230 million.

Toyota in addition to repairing accelerators is likely to fully replace accelerators in some vehicles, using a new design it has worked out with CTS. That will cost the automaker more than repairing the accelerators.

PRODUCTION SHUTTING MONDAY

In addition to suspending sales, Toyota has said it will shut production of the eight recalled models at six U.S. and Canadian factories for at least February 1-5.

This will permit CTS to stockpile newly-designed accelerators that will be placed in vehicles yet to be produced and for cars and trucks already sold.

A separate recall targets floor mats becoming stuck under accelerators in a wider range of Toyota and Lexus vehicles. In total, Toyota has recalled about 5.6 million vehicles in the United States.

(Additional reporting by Soyoung Kim in Detroit; John Crawley in Washington; Chang-Rang Kim and Taiga Uranaka in Tokyo; Christiaan Hertzner in Frankfurt; Rhys Jones in London; and Helen Massy-Beresford in Paris; editing by Carol Bishopric)

NEW YORK (Reuters) – President Barack Obama on Monday proposed a host of new measures designed to assist struggling middle-class individuals and families. Among other things, his proposals would expand existing tax credits for child care and retirement savings, and provide financial relief for families caring for children and the elderly.

Here’s a closer look at some of the administration’s new proposals, gleaned from a White House factsheet, and other legislative plans that are under consideration in the House and Senate:

- Boost Safety-Net Workplace IRAs: One proposal would require companies that don’t offer retirement-savings plans to automatically enroll their workers in tax-deferred retirement accounts, or “workplace IRAs.” (Employees would have the option to join or not.) After enrollment, a certain percentage of a worker’s income would automatically be directly deposited into the retirement account. The account would allow employees to choose how to invest their own savings, but a default investment — typically a bond or money-market mutual fund — would be chosen for participants who fail to choose an investment option. The government would provide a tax credit for companies to help offset the costs of setting up the new IRAs, but certain small businesses would be exempt.

- Expand the “Saver’s Credit”: This proposal would encourage saving for retirement by expanding the “Saver’s Credit” to families earning up to $85,000 (formerly, it was limited to income of $53,000 for married couples filing jointly). Eligible taxpayers now can take a credit of up to $1,000 (or $2,000 for joint filers) for contributions to a qualified IRA, 401(k) and certain other retirement plans. The administration also plans to match 50 percent of the first $1,000 of contributions for families with income of $65,000 or less. The tax credit is on top of other tax benefits available for retirement contributions, such as the deduction for contributions to a qualified IRA.

- Enhance 401(k) Transparency: The administration hopes to make employees more aware of retirement-plan fees and investment performance by requiring that plan documents be made clearer and easier to understand. One proposal would require that plan documents report all fees charged against a worker’s 401(k) — administrative, investment management, transaction and other fees — in a prominent place on quarterly statements. The proposals would require that plan participants receive clear information on risk, return and investment objectives before they contribute to a plan. Finally, the administration will promote the availability of annuities and other forms of guaranteed-income investments in 401(k)s, reducing the risks that retirees will outlive their savings.

- Bigger Tax Break for Families, Expand the “Child and Dependent Care Tax Credit”: The proposal would nearly double the child tax credit rate to 35 percent of qualifying expenses, from the current 20 percent for families earning less than $85,000 a year. Families making up to $115,000 would be eligible for a larger portion of the tax credit as well. The administration also proposes to increase child-care funding by $1.6 billion next year. Finally, another $102.5 million would be allocated to elder-care programs.

- Cap on Student Loan Repayments: College grads would get a break from onerous student-loan repayment schedules by capping monthly payments to 10 percent of a “basic living allowance.” The cap is now 15 percent. A student with $20,000 in loans, and an income of up to $30,000, would have a monthly payment of $115, almost half the $228 a month under a standard 10-year repayment plan, according to the White House factsheet.

HONG KONG (Reuters) – It was fitting that Richard Duncan sequestered himself in Bangkok to write his latest book “The Corruption of Capitalism,” a post-mortem of the credit bubble that crippled the world’s financial system.

Duncan learned first hand from working in Thailand for most of the 1990s in the run-up to the Asian financial crisis that rapid credit growth causes excess capacity and leads to busts. Then governments have to finance rescue plans — very similar to what is now taking place around the world.

After predicting in his 2003 book “The Dollar Crisis” that the US property bubble would trigger a global recession, Duncan’s new book argues that governments will have to keep stimulating their economies because US demand for cheap goods will not return to the halcyon days of the 2003 to 2007 boom.

Talk of an exit from the easy money policies in 2010 is entirely premature since investors will most likely see more US stimulus spending next year to prop up demand.

“This current round of stimulus will begin to wear out and everything will start to weaken again, and that will require another round of stimulus, not just from the US but from China as well,” Duncan told Reuters.

“If this stimulus is delayed or withdrawn, we will get significant drops in asset prices and go back into recession.”

Duncan is part of a group of economists like Marc Faber, Nouriel Roubini and James Grant, who believe the financial crisis is a symptom of something structurally wrong with the United States economy that will not be solved by the end of recession.

The institution of capitalism has been so corrupted by binges of borrowing financed with money printed on demand that governments now indefinitely have to take the reins of economies, Duncan argues in his book.

“We can’t describe this economic system as capitalism, I describe it as statism,”

Think again about China’s prospects

For many investors, emerging markets such as China are the wave of the future. However, Duncan, a partner at Blackhorse Asset Management, a hedge fund in Singapore, said investors were too optimistic about China, which he said is certainly headed for bubble trouble.

He is doubtful the fiscal stimulus and new loan growth amounting to about 40 percent of gross domestic product will lead to structural change in the export-dependent economy.

“That will just lead to more excess capacity with no one to sell it to, which means product prices will be extremely depressed, companies won’t profitable and banks won’t be repaid.”

The real antidote to the cycle of credit-fueled bubble and bust, in Duncan’s view, is for the US government to spend an additional USD3 trillion in the next 10 years to reindustrialize.

Stop making things that can be bought cheaply somewhere else and develop solar, biotechnology and nanotechnology products of the future. That will over the very long term shrink the US trade deficit and provide sustainable growth, Duncan said.

Among his more austere prescriptions, Duncan would fix exchange rates, apply credit controls and only allow money supply to grow in line with population growth. He would also dissolve the Federal Reserve.

Duncan believes these radical steps are the only way to put the US economy back on a path toward fiscal prudence and sound money, or what he calls economic orthodoxy. “They are radical,” he said. “Radically orthodox.”

(NYTIMES) Every day, millions of Americans stand at store checkout counters and make a seemingly random decision: after swiping their debit card, they choose whether to punch in a code, or to sign their name.

It is a pointless distinction to most consumers, since the price is the same either way. But behind the scenes, billions of dollars are at stake.

When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.

The difference is so large that Costco will not allow you to sign for your debit purchase in its checkout lines. Wal-Mart and Home Depot steer customers to use a PIN, the debit card norm outside the United States.

Despite all this, signature debit cards dominate debit use in this country, accounting for 61 percent of all such transactions, even though PIN debit cards are less expensive and less vulnerable to fraud.

How this came to be is largely a result of a successful if controversial strategy hatched decades ago by Visa, the dominant payment network for credit and debit cards. It is an approach that has benefited Visa and the nation’s banks at the expense of merchants and, some argue, consumers.

Competition, of course, usually forces prices lower. But for payment networks like Visa and MasterCard, competition in the card business is more about winning over banks that actually issue the cards than consumers who use them. Visa and MasterCard set the fees that merchants must pay the cardholder’s bank. And higher fees mean higher profits for banks, even if it means that merchants shift the cost to consumers.

Seizing on this odd twist, Visa enticed banks to embrace signature debit — the higher-priced method of handling debit cards — and turned over the fees to banks as an incentive to issue more Visa cards. At least initially, MasterCard and other rivals promoted PIN debit instead.

As debit cards became the preferred plastic in American wallets, Visa has turned its attention to PIN debit too and increased its market share even more. And it has succeeded — not by lowering the fees that merchants pay, but often by pushing them up, making its bank customers happier.

In an effort to catch up, MasterCard and other rivals eventually raised fees on debit cards too, sometimes higher than Visa, to try to woo bank customers back.

“What we witnessed was truly a perverse form of competition,” said Ronald Congemi, the former chief executive of Star Systems, one of the regional PIN-based networks that has struggled to compete with Visa. “They competed on the basis of raising prices. What other industry do you know that gets away with that?”

Visa has managed to dominate the debit landscape despite more than a decade of litigation and antitrust investigations into high fees and anticompetitive behavior, including a settlement in 2003 in which Visa paid $2 billion that some predicted would inject more competition into the debit industry.

Yet today, Visa has a commanding lead in signature debit in the United States, with a 73 percent share. Its share of the domestic PIN debit market is smaller but growing, at 42 percent, making Visa the biggest PIN network, according to The Nilson Report, an industry newsletter.

The Risk of Refusing

Critics complain that Visa does not fight fair, and that it used its market power to force merchants to accept higher costs for debit cards. Merchants say they cannot refuse Visa cards because it would result in lower sales.

“A dollar is no longer a dollar in this country,” said Mallory Duncan, senior vice president of the National Retail Federation, a trade association. “It’s a Visa dollar. It’s only worth 99 cents because they take a piece of every one.”

Visa officials say its critics are griping about debit products that have transformed the nation’s payment system, adding convenience for consumers and higher sales for merchants, while cutting the hassle and expense of dealing with cash and checks. In recent years, New York cabbies and McDonald’s restaurants are among those reporting higher sales as a result of accepting plastic.

“At times we have a perspective problem,” said William M. Sheedy, Visa’s president for the Americas. “Debit has become so mainstream, some of the people who have benefited have lost sight of what their business model was, what their cost structure was.”

Visa officials said the costs of debit for merchants had not gone down because the cards now provided greater value than they did five or 10 years ago. The costs must not be too onerous, they say, because merchant acceptance has doubled in the last decade.

The fees are “not a cost-based calculation, but a value-based calculation,” said Elizabeth Buse, Visa’s global head of product.

As for Visa’s market share, company officials maintain that it is rather small when considered within the larger context of all payments, where, for now at least, cash remains king.

While Visa may be among the best-known brands in the world, how it operates is a mystery to many consumers.

Visa does not distribute credit or debit cards, nor does it provide credit so consumers can buy flat-screen televisions or a Starbucks latte. Those tasks are left to the banks, which owned Visa until it went public in 2008.

read the rest at: The New York Times

New Charges Seek to Get Ahead of New Federal Rules Limiting Increases in Interest Rates

The nation’s banks will be bombarding customers with new fees and products in 2010 as they try to replace more than $50 billion in revenue wiped out by new rules that clamp down on certain business practices.

So far, the changes are mostly concentrated in checking accounts and credit cards. In addition to attaching new fees to old products, banks are introducing new types of accounts that they hope will reel in new customers and reduce their funding costs.

For plastic, the new rules go into effect in February as part of the Credit Card Act of 2009. The rules will limit some interest-rate increases, require more disclosure to customers and prohibit banks from raising interest rates on current balances unless a customer is at least 60 days behind in a payment.

Credit-card issuers collected $22.9 billion in penalty fees—such as those assessed for late payments—in 2009, up from $19 billion in 2008, said Robert Hammer, who runs a credit-card consulting firm in Thousand Oaks, Calif.

Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.

“One requirement of the Credit Card Act of 2009 is that monthly billing statements will now have to include significantly more information pertaining to the cardholder’s terms and conditions, thus increasing the amount of paper, production and postal expenses as well as having a greater environmental impact,” the company said in a written statement.

The loss in revenue and increased cost to the banks will be passed directly to the customers and business owners in the way of higher premiums and transaction fees. Which will ultimately lead to higher prices.

Read More: Wall Street Journal

WASHINGTON (Reuters) – The U.S. is injecting another $3.8 billion into GMAC Financial Services to help cover mortgage losses, in a bailout that makes the government the majority owner of the auto and home finance company.

GMAC said after the capital infusion it does not expect to record more major losses from its mortgage lending unit, which should help stabilize results.

The company is one of the largest car loan makers in the United States, and earning profit will give it more capacity to make loans and eventually pay back the government.

Many analysts see GMAC’s mortgage assets, which make up about a third of the company’s $178.2 billion balance sheet, as the main obstacle to the lender reaching profitability.

Those assets have already forced GMAC to seek new funds. Before Wednesday’s capital infusion, GMAC had already received $12.5 billion of aid from the United States.

A government test of the company’s capital in May, known as the stress test, found that GMAC needed $11.5 billion of equity. About $9.1 billion of that equity had to be new capital, while the rest could come from converting existing capital into new instruments such as common equity.

GMAC has raised about $7.3 billion of that $9.1 billion of new capital from the United States. The government decided that the company has raised enough because the bankruptcy of General Motors , which once owned all of GMAC, had less of an impact on the finance company than previously expected.

NOT OUT OF THE WOODS YET

Questions still remain for GMAC, though. The extent of future losses from its mortgage assets is not yet clear, a bondholder said.

He added that the best route for GMAC to follow now would be to sell off GMAC’s mortgage servicing business, which collects payments from borrowers and is worth more than $3 billion on the company’s books.

The bondholder, who requested anonymity because he is not authorized to speak to the media, said the company could continue to make new home loans through its Ally Bank unit.

GMAC’s remaining mortgage loans could be used to pay off coming debt obligations linked to its Residential Capital unit, the investor added. If the assets don’t perform well enough, that unit could go into bankruptcy, he added.

GMAC said in its statement that its board of directors reviewed Residential Capital’s options and decided unanimously to take the steps announced on Wednesday.

GM sold a 51 percent stake in GMAC to private equity firm Cerberus in 2006, but held onto 49 percent of the company. Over time, GM’s stake has been whittled down to 16.6 percent, including a trust managed for GM’s benefit. Cerberus’ stake is now 14.9 percent. The U.S. now holds 56.3 percent, with the rest of the company being held by Cerberus investors.

The government previously held about 35 percent of the company’s common stock.

GMAC’s mortgage business lost nearly $600 million in the third quarter, but its auto finance operations were profitable, earning about $164 million after taxes.

In November, GMAC Chief Executive Al de Molina resigned and was replaced by Michael Carpenter, a board member and former Citigroup executive.

On news reports of the planned capital infusion, the cost to insure GMAC’s debt against default in the credit derivatives market fell to around 4.4 percentage points, or $440,000 a year for five years, from 4.66 percentage points at Tuesday’s close, according to market data company Markit.

(Additional reporting by Corbett B. Daly and Tim Ahmann in Washington, and Dan Wilchins and Karen Brettell in New York; Editing by Derek Caney, Dave Zimmerman and Steve Orlofsky)

LONDON — Never before has Europe’s monetary union seemed so fragile.

Day by day, fears are growing that Greece or another weak country may default on its sovereign debt obligations, forcing the richer countries in Europe to ride to the rescue or risk having one or more of its most vulnerable members leave the 16-nation euro zone.

Many European economists discount such a fracture as a remote possibility. But that doesn’t mean Europe has safely emerged from crisis.

Instead, it faces a longer-term challenge to restore the fiscal credibility of at least half the countries that use the euro. The true test for the world’s largest common currency zone, analysts say, will be whether it can withstand the economic, political and social strains once the European Central Bank begins to raise interest rates in response to economic improvements in Germany, France and other Northern European countries.

At that point, the laggards on the union’s fringe — Portugal, Ireland, Italy, Greece and Spain (the so-called Piigs) — will face even tougher choices to cope with what looks like several more years of stagnant economies, high unemployment and gaping budget deficits.

“If inflation picks up in France and Germany, the smaller economies will be left behind in stagnation and deflation,” said Jordi Galí, a Spanish economist recognized for his work on business cycles who heads the Center for Research in International Economics in Barcelona. “Such an asymmetric recovery is pretty likely, and if the E.C.B. raises rates, it could get very ugly.”

Mr. Gali, like a number of other European experts, takes the view that the euro zone’s resilience has been underestimated. He says the recent convulsions are more the result of trigger-happy ratings agencies that have downgraded the sovereign debt of Greece and others in atonement for having failed to foresee the subprime mortgage crisis.

Still, he says, there is no escaping this emerging growth divide, and he points out that the mandate of the European Central Bank is to ensure broad price stability in the union, not to look out for the interests of individual nations.

France and Germany have already emerged from the recession. Business confidence in Germany, Europe’s largest economy, has hit a 17-month high.

Yet on the periphery, the hangover from more than five years of a credit-infused boom shows little sign of diminishing.

Ireland, the first economy to stumble, has taken the most severe fiscal action, cutting public wages sharply. A new Greek government, punished by the rough treatment of bond investors no longer willing to countenance soft promises of reform, is just now promising steep spending cuts. But it is not clear whether the political system in Greece will accept them.

Meanwhile, Spain, to the frustration of many major lenders, seems to be putting off difficult fiscal questions in the hope that its economy will soon recover.

Critics of the euro zone contend that weak governments in the peripheral economies, facing high unemployment and restive voters, will not have the stomach to hold down wages, pensions and public expenditures.

“Are these people serious about reform, or are they just telling people what they want to hear?” asked Edward Hugh, a British-trained macroeconomist who lives in Barcelona and has been critical of Spain’s unwillingness to take difficult economic decisions.

Paradoxically, the very dysfunction of a struggling two-tier Europe may represent the best chance for recovery if it leads to devaluation of the euro against the dollar, which many see as long overdue.

Already, in the last month, the euro has lost more than 5 percent of its value against the dollar. Many economists predict that the currency will weaken more as the growth gap between the core and peripheral states creates further disharmony.

Then, it will be the type of export-led recovery that has helped the United States and is likely to soon help Britain that could bring Europe’s economies closer to convergence.

“If there are fears now that a breakup of the euro zone will lead to weakening of the euro, then that is good news,” said Paul De Grauwe, an economist based in Brussels who advises the president of the European Commission, José Manuel Barroso. “So we should congratulate Greece for getting us out of this anomaly of having a euro that is too overvalued.”

Any such recovery will not be rapid, however. In Ireland, where prices are falling by 5 percent, reordering the economy from its deep reliance on construction and property will take years. And an already unpopular Irish government, along with others on Europe’s periphery, will have a difficult time explaining to recession-bruised voters why they must accept an central bank’s decision to raise interest rates — a move that may protect German and French savers from inflation but that does little for the many millions of citizens out of work.

Yet the painful, historic steps taken by Ireland offer a ray of hope, says Philip Lane, a professor of international macroeconomics at Trinity College Dublin who oversees the widely read Irish Economy blog.

He points to signs of wage compression in the hard-hit service, property and government sectors as proof that there is a recognition that recovery, distant as it may seem, must occur inside the euro zone, not outside.

“It takes a crisis to learn a lesson,” Mr. Lane said. “Could it be that by getting countries to change their behavior you might get improved cooperation within the euro zone?

“What does not kill you,” he added, “often makes you stronger.”

via: NY Times

By Steve Eder

NEW YORK, Dec 21 (Reuters) – U.S. banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday.

Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan’s Ross School of Business.

Banks with headquarters in the district of a U.S. House of Representatives member who serves on a committee or subcommittee relating to TARP also received more funds.

Political influence was most helpful for poorly performing banks, the study found.

“Political connections play an important role in a firm’s access to capital,” Sosyura, a University of Michigan assistant professor of finance, said in a statement.

Banks with an executive who sat on the board of a Federal Reserve Bank were 31 percent more likely to get bailouts through TARP’s Capital Purchase Program, the study showed. Banks with ties to a finance committee member were 26 percent more likely to get capital purchase program funds.

As of late September, nearly 700 financial institutions had received bailouts of $205 billion under the capital purchase program, the study said.

The banking industry has long been criticized for using political influence to obtain bailouts.

Scott Talbott, a senior vice president with industry lobbying group The Financial Services Roundtable, said the study was skewed because it did not exclude nine of the largest banks that were “strongly asked” by the government to take bailouts.

Those banks included Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N), and Morgan Stanley (MS.N) — all of which repaid their bailouts in June.

Bank of America Co (BAC.N) and Citigroup Inc (C.N) more recently announced plans to pay back taxpayers.

Talbott also noted that $116 billion has been repaid with interest.

“This demonstrates the banks were excellent stewards of the taxpayer’s money,” Talbott said.

But a watchdog for the government’s bailout, the special inspector general for TARP, said last month that the broader $700 billion bailout program “almost certainly” will result in an overall loss for taxpayers.

President Obama said in October that despite the bailout, there was still too little credit flowing to small businesses. (Reporting by Steve Eder; Editing by Gary Hill)

NEW YORK (Reuters) – Talk of deflation isn’t thick among investors but deflationary pressures pose a big worry and major hurdle for the Federal Reserve and other central bankers, guests at the Reuters Investment Outlook 2010 Summit said this week.

Fear of the abyss that gripped financial markets a year ago has dissipated and many investors see improving economic data from around the world as reason to believe the economic rebound that is now under way will only blossom further.

Yet some investors caution that high U.S. unemployment and a lack of credit to drive investment and spending are major impediments to a full recovery.

Chances that growth will remain anemic are strong. As a result, the Fed is likely to keep interest rates — now close to zero — pat through much of next year, spurred by the fear of deflation, these investors say.

“We are at risk of getting into a deflationary environment for the first time since the 1930s, a serious risk. I’m very concerned about that risk,” said Aaron Gurwitz, in charge of investment strategy at Barclays Wealth, which has $221 billion in assets under management.

“Central bankers are very concerned about that risk, and for that reason we expect rates could be kept low for a very long time,” Gurwitz told the Summit. “We expect some central bank action in the fourth quarter of next year, but just a token move.”

JAPAN MISTAKES

Fed Chairman Ben Bernanke is faced with the difficult task of deciding when to scale back the enormous monetary stimulus the Fed has injected to revive the crippled U.S. economy. A move too soon could squash the economy and cause further pain, such as occurred in Japan a decade ago.

Gurwitz said the Bank of Japan tightened too quickly in 2000, choking off growth and pushing the economy back into deflation, which is when prices decline and further hobble growth. The Fed will err on keeping liquidity available, he said.

Pressure on wages and the inability of companies to increase prices are signs of deflation that suggest growth rates and inflation will remain low, said Bob Doll, who oversees about $390 billion in assets as global chief investment officer of equities at BlackRock Inc (BLK.N).

“How many industries do you know that are raising prices? How many industries do you know where there’s a constant sale going on? These are all reminders that deflation is with us, and deflation means low nominal growth,” Doll said.

The human spirit is to overcome diversity and move forward, but the number of hurdles the United States and other countries face makes chances of stumbling much higher than normal, said Max Darnell, chief investment officer at First Quadrant LP, where he oversees just under $18 billion.

The U.S. economy may be headed for a “double-dip” recession if broad access to credit remains impaired, he said.

“It’s very hard to formulate well thought-out expectations for growth,” Darnell said. “This is one of the reasons why you find so many people that are very objectively oriented, being more pessimistic.”

Darnell cited the lack of credit as a major impediment to a return to solid growth.

Bill Gross, who runs influential bond management firm Pacific Investment Management Co, told the Summit Pimco expects the United States and other parts of the developed world to experience subpar growth.

While Gross said Pimco does not expect a return to zero or negative growth, and it expects positive, albeit limited job creation for the next three to six months, there is evidence of continued deflationary pressures.

Gross cited the property scare in Dubai last month and a downgrade in the credit worthiness of Greece as examples that, if not handled properly, could be downward tipping points.

Jonathan Xiong, a senior portfolio manager at Mellon Capital Management where he helps manage $18 billion in assets, said the United States must avoid replicating Japan’s woes.

Since a property bubble burst in Japan 20 years ago the country has struggled to overcome deflationary bouts despite rounds of government stimulus spending.

“One very bad scenario is that we could end like Japan,” Xiong said, adding that too many investors foresee the return of higher inflation, which is mistaken.

“The skew and the size of returns between a deflation and an inflation environment is enormous. The downside in a deflation environment could be horrendous,” he said.

“You should let a little bit of inflation pick up before you take the liquidity away from the market because the deflationary story as we see it in Japan could be very detrimental,” Xiong said.

(Additional reporting by Manuela Badawy; Editing by Andrew Hay and Leslie Adler)

Reuters — Gold prices are currently high and markets should be careful of a potential asset bubble forming, a senior official at China’s central bank said on Wednesday, as prices for the precious metal hit a record high.

“We must keep in mind the long-term effects when considering what to use as our reserves,” Hu Xiaolian, a vice-governor at the People’s Bank of China, told reporters in Taipei, when asked if China had plans to increase its gold holding in its foreign exchange reserves.

“We must watch out for bubbles forming on certain assets, and be careful in those areas.”

Gold hit record highs at US$1,216.75 an ounce in Europe on Wednesday as investors bet on higher prices.

China’s more than US$2-trillion in foreign exchange reserves are mostly parked in U.S. treasuries, despite calls from some in China to invest the reserves in oil and other natural resources that the fast-growing Chinese economy will need in future.

Before gold prices hit record highs, however, China said last month that it is working to improve the allocation of assets in its foreign exchange reserves, when asked whether it would buy any of the gold that the International Monetary Fund is seeking to sell.

by Alice Schroeder

(Bloomberg) — “I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

I called Goldman Sachs spokesman Lucas van Praag to ask whether it’s true that Goldman partners feel they need handguns to protect themselves from the angry proletariat. He didn’t call me back. The New York Police Department has told me that “as a preliminary matter” it believes some of the bankers I inquired about do have pistol permits. The NYPD also said it will be a while before it can name names.

While we wait, Goldman has wrapped itself in the flag of Warren Buffett, with whom it will jointly donate $500 million, part of an effort to burnish its image — and gain new Goldman clients. Goldman Sachs Chief Executive Officer Lloyd Blankfein also reversed himself after having previously called Goldman’s greed “God’s work” and apologized earlier this month for having participated in things that were “clearly wrong.”

Has it really come to this? Imagine what emotions must be billowing through the halls of Goldman Sachs to provoke the firm into an apology. Talk that Goldman bankers might have armed themselves in self-defense would sound ludicrous, were it not so apt a metaphor for the way that the most successful people on Wall Street have become a target for public rage.

Pistol Ready

Common sense tells you a handgun is probably not even all that useful. Suppose an intruder sneaks past the doorman or jumps the security fence at night. By the time you pull the pistol out of your wife’s jewelry safe, find the ammunition, and load your weapon, Fifi the Pomeranian has already been taken hostage and the gun won’t do you any good. As for carrying a loaded pistol when you venture outside, dream on. Concealed gun permits are almost impossible for ordinary citizens to obtain in New York or nearby states.

In other words, a little humility and contrition are probably the better route.

Until a couple of weeks ago, that was obvious to everyone but Goldman, a firm famous for both prescience and arrogance. In a display of both, Blankfein began to raise his personal- security threat level early in the financial crisis. He keeps a summer home near the Hamptons, where unrestricted public access would put him at risk if the angry mobs rose up and marched to the East End of Long Island.

To the Barricades

He tried to buy a house elsewhere without attracting attention as the financial crisis unfolded in 2007, a move that was foiled by the New York Post. Then, Blankfein got permission from the local authorities to install a security gate at his house two months before Bear Stearns Cos. collapsed.

This is the kind of foresight that Goldman Sachs is justly famous for. Blankfein somehow anticipated the persecution complex his fellow bankers would soon suffer. Surely, though, this man who can afford to surround himself with a private army of security guards isn’t sleeping with the key to a gun safe under his pillow. The thought is just too bizarre to be true.

So maybe other senior people at Goldman Sachs have gone out and bought guns, and they know something. But what?

Henry Paulson, U.S. Treasury secretary during the bailout and a former Goldman Sachs CEO, let it slip during testimony to Congress last summer when he explained why it was so critical to bail out Goldman Sachs, and — oh yes — the other banks. People “were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.”

Torn Curtain

There you have it. The bailout was meant to keep the curtain drawn on the way the rich make money, not from the free market, but from the lack of one. Goldman Sachs blew its cover when the firm’s revenue from trading reached a record $27 billion in the first nine months of this year, and a public that was writhing in financial agony caught on that the profits earned on taxpayer capital were going to pay employee bonuses.

This slip-up let the other bailed-out banks happily hand off public blame to Goldman, which is unpopular among its peers because it always seems to win at everyone’s expense.

Plenty of Wall Streeters worry about the big discrepancies in wealth, and think the rise of a financial industry-led plutocracy is unjust. That doesn’t mean any of them plan to move into a double-wide mobile home as a show of solidarity with the little people, though.

Cool Hand Lloyd

No, talk of Goldman and guns plays right into the way Wall- Streeters like to think of themselves. Even those who were bailed out believe they are tough, macho Clint Eastwoods of the financial frontier, protecting the fistful of dollars in one hand with the Glock in the other. The last thing they want is to be so reasonably paid that the peasants have no interest in lynching them.

And if the proles really do appear brandishing pitchforks at the doors of Park Avenue and the gates of Round Hill Road, you can be sure that the Goldman guys and their families will be holed up in their safe rooms with their firearms. If nothing else, that pistol permit might go part way toward explaining why they won’t be standing outside with the rest of the crowd, broke and humiliated, saying, “Damn, I was on the wrong side of a trade with Goldman again.”

Bloomberg