Finance Blog number 1

Former Federal Reserve Chairman Alan Greenspan said he’s worried that lawmakers will hamper U.S. central bank efforts to rein in its monetary stimulus, and that inflation might “swamp” the bond market.

“It’s the politics in the United States that worries me, whether the Congress will basically feel comfortable” with the Fed withdrawing its stimulus, Greenspan said in a broadcast to Tokyo clients of Deutsche Bank Securities Inc. today. He later said that “if inflation rears its head, it will swamp long-term markets,” referring to bonds.

With U.S. unemployment running at a quarter-century high, the Fed may face resistance from lawmakers as it tries to promote price stability by raising its benchmark interest rate from near zero. The jobless rate reached 9.7 percent last month and employers have cut almost 7 million jobs, the biggest drop in any recession since World War II.

The former Fed chief, who counts Deutsche Bank among his clients, also warned that the U.S. must rein in its “very dangerous” level of debt, citing the threat of increased issuance of Treasuries undermining the dollar.

Greenspan, speaking via videoconference from Washington, indicated that successor Ben S. Bernanke and his fellow Fed policy makers have until next year before inflation will present a danger.

Inflation Outlook

“We’ve got worldwide disinflation in train and it will continue for a short while,” he said. “Our model says that by the early months of next year the rate of inflation will fall below 1 percent on an annual rate” before increasing.

American consumer prices fell 1.7 percent in August from a year earlier, according to the median forecast in a Bloomberg News survey of economists before the Labor Department reports the figure today. Prices fell 2.1 percent in July, the most since Harry S. Truman was president in 1950. Investors use the figures to gauge inflation, which erodes bonds’ fixed returns.

Benchmark 10-year Treasury notes yielded 3.44 percent as of 12:21 p.m. in Tokyo, according to data compiled by Bloomberg. They averaged 3.15 percent so far in 2009, compared with 4.16 percent the past five years. The dollar was at $1.4673 per euro, compared with its record low of $1.6038 reached in July 2008.

Greenspan said that if there were a significant issuance of Treasury securities that increased the national debt, “there would be of necessity downward pressure on the dollar.” At the same time, he said, “you can’t say that without saying what the counterparty currency would be.”

‘Very Dangerous’

Greenspan said one threat to Treasuries is the “very dangerous” level of U.S. national debt. “We’ve got to confront that issue immediately,” he said.

The nonpartisan Congressional Budget Office said last month that deficits between 2010 and 2019 will total $7.1 trillion. Those shortfalls, which are financed with borrowed money that’s tacked onto the national debt, would drive the debt up to 68 percent of the nation’s economy by 2019, from the current 54 percent, CBO said.

“The next six months seem reasonably easy to anticipate: no inflation, good economic growth,” Greenspan said. “Things are turning and it looks good for the near term.”

Greenspan said last month the U.S. economy could resume growth with a 2.5 percent expansion in the current quarter, while adding there was still a risk of a “second wave down.”

Growth Outlook

Economists surveyed by Bloomberg News this month put the odds of a double-dip recession in the next 12 months at 25 percent, up from 20 percent in August. The economy will expand at a 2.9 percent annual rate in July through September, according to the median of 61 estimates in the survey taken Sept. 3 to Sept. 10.

“This recession will not be over until home prices stabilize at a minimum,” Greenspan said. “The evidence suggests that we’re getting there, finally.”

Home prices in 20 U.S. cities fell in June at a slower pace than forecast, a sign that the real-estate crisis is dissipating. The S&P/Case-Shiller home-price index advanced 2.9 percent in the second quarter from the previous three months, the first increase since 2006 and the biggest in almost four years, according to an Aug. 25 report.

Bernanke yesterday said the worst U.S. recession since the 1930s has probably ended. At the same time, he warned that growth may not be strong enough to immediately reduce the unemployment rate.

Bernanke’s Call

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said at the Brookings Institution in Washington, responding to questions after a speech.

The remarks were the Fed chief’s most explicit yet that the contraction that began in December 2007 is over. They echoed comments this week by San Francisco Fed President Janet Yellen and followed a report yesterday showing retail sales rose last month by the most in three years, adding to evidence of a recovery.

Greenspan also weighed in on the debate over a regulator of risks across the financial system as Congress prepares the biggest overhaul of U.S. financial regulations since the 1930s, when the Fed was reorganized. The U.S. Treasury has proposed giving the Fed greater authority over the capital, liquidity, and risk-management standards of the largest financial firms.

Congressional leaders haven’t supported that proposal and are considering giving broader authority to a council of regulators.

“I’m not in favor of a systemic-risk regulator because I don’t think it’s feasible,” Greenspan said. “I think we have to recognize that there are limits to what we can do.”

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President Barack Obama said recent data suggest the U.S. economy is returning to growth and the administration must avoid removing stimulus programs prematurely.

“All the indicators would tend to suggest that we’re starting to see growth,” Obama said today in a Bloomberg Television interview. “What we have to be careful of is taking the crutches away from the patient too early.”

The White House last week said it expects the $787 billion stimulus to add as many as 3 percentage points to growth in July through September, and it credited the initiative with creating or saving as many as 1.1 million jobs. Obama signed the fiscal spending package into law in February.

“We want to get out of some of these extraordinary interventions as quickly as possible but not so soon that the recovery doesn’t take place,” Obama said. “We have to make sure that we avoid” a second recession, he said.

Economists put the odds of a double-dip recession in the next 12 months at 25 percent, according to the median estimate in a monthly Bloomberg News survey taken from Sept. 3 to Sept. 10. The previous forecast called for a 20 percent chance of the economy backsliding after it expands.

The U.S. economy will grow at a 2.9 percent annual rate in July through September, the Bloomberg survey showed. Growth is projected to slow to a 2.2 percent pace during the last three months of the year as consumer spending weakens during the holiday shopping season, when many stores expect to reap half of their annual revenue.

Economic Contraction

The world’s largest economy contracted 1 percent from April through June, according to the Commerce Department. The drop was the fourth in a row, making it the longest contraction since quarterly records began in 1947.

The unemployment rate last month jumped to 9.7 percent, a 26-year high, from 9.4 percent in July, the Labor Department said. Economists surveyed by Bloomberg this month forecast the jobless rate will reach 10 percent by the end of the year.

“We’ve seen steady declines in the number of people who are losing their jobs each month,” Obama said. “We’re seeing a bottoming out and potentially we could start seeing some positive job growth.”

Since the recession began in December 2007, the U.S. has lost 6.9 million jobs. Payroll cuts peaked at 741,000 in January and have since subsided, with 216,000 job losses in August, according to the Labor Department.

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Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview yesterday in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.

Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.

G-20 Steps

“We aren’t doing anything significant so far, and the banks are pushing back,” said Stiglitz, a Columbia University professor. “The leaders of the G-20 will make some small steps forward, given the power of the banks” and “any step forward is a move in the right direction.”

G-20 leaders gather Sept. 24-25 in Pittsburgh and will consider ways of improving regulation of financial markets and in particular how to set tighter limits on remuneration for market operators. Under pressure from France and Germany, G-20 finance ministers earlier this month reached a preliminary accord that included proposals to reduce bonuses and linking compensation more closely to long-term performance.

“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary free 3-in-1 credit report. Yes they’ll do something, the question is: Will they do as much as required?”

Global Economy

Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.

“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.

“The question then is who is going to finance the U.S. government,” Stiglitz said.

Stiglitz gave the interview before presenting a report to French President Nicolas Sarkozy that urged world leaders to drop an obsession for focusing on gross domestic product in favor of broader measures of prosperity.

GDP’s Shortcomings

“GDP has increasingly become used as a measure of societal well being and changes in the structure of the economy and our society have made it increasingly poor one,” Stiglitz said.

Assessing government’s contribution to economic output, which ranges from 39 percent in the U.S. to 48 percent in France, is one of the shortcomings of the GDP model, as is its difficulty in estimating improvements in quality of products such as cars instead of just quantity, Stiglitz said.

Similarly, increased household debt may drive up output numbers, even though that doesn’t amount to a real increase in wealth, he added.

While Stiglitz doesn’t recommend dropping GDP altogether, he wants governments to consider such matters, along with issues of environmental sustainability, in policy making.

“Most governments make a fetish out of it. If you take one message out of our report, make it avoid GDP fetishism,” he said. “The message is to encourage political leaders away from that.”

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U.K. Chancellor of the Exchequer Alistair Darling said he is planning measures to give small companies direct access to capital markets as banks curb lending to boost their balance sheets.

Darling plans to announce steps in his annual Pre-Budget Report, due in the next months. Some of the programs may be running by the start of 2010. The plan will allow institutional investors to raise capital or package loans for small companies.

“In the same way that big companies can access funding directly from capital markets, by issuing bonds or commercial paper, I want to start creating a different financial model in the future, in which small companies get funding from sources other than banks,” Darling writes in the Observer newspaper today. “Our goal is to make finance the servant, not the master, of the real economy.”

The plan marks the latest effort by the government to channel money to companies and households after orchestrating a rescue package for banks last year including Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc worth 1.4 trillion pounds ($2.4 trillion). Small companies complain that, despite the bailout, banks are still holding back loans.

About 92 percent of finance to small and medium-sized companies is provided by Britain’s four biggest banks. Such companies tend to use those banks for all their financial services from accounting to foreign exchange, according to the U.K. Treasury.

Funding Reliance

“If there is one lesson to be learnt from this crisis, it is credit must never be allowed to dry up because of reliance on a small number of banks,” Darling wrote.

The British Bankers’ Association said loans to small companies increased by 23 percent in June compared with the monthly average for the year. The Federation of Small Businesses says this isn’t enough and in August expressed concern that merged banks will have too tight a grip on its members.

The small company lobby group in August also said that small firms are still finding it tough to get loans and overdrafts from banks.

Darling has previously said he plans to make the banking industry more competitive by lowering barriers facing new lenders. The Treasury is considering plans to reduce the two- year period it takes for an institution to be granted a banking license.

Lending Rates

About 52 percent of companies with sales below 1 million pounds paid more than 6 percent above the Bank of England interest rate in March compared with 35 percent in the same month in 2007, the Treasury said in July. Just over a third paid more than 9 percent above the central bank rate in March compared with 2 percent in 2007.

The Treasury took majority stakes in Royal Bank of Scotland and Lloyds in addition to nationalizing Northern Rock Plc and Bradford & Bingley Plc after financial turmoil brought the industry near collapse in 2007 and 2008.

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An overhaul of U.S. financial regulations remains a priority for President Barack Obama and can be achieved this year along with a plan to fix the health- care system, White House economic adviser Lawrence Summers said.

Summers, director of the National Economic Council, said new rules are needed to prevent future financial crises that “have been too large a feature on our economic landscape.”

“This is the year, after what has happened, to overhaul the system of financial regulation,” Summers told reporters today in Washington.

One year after the collapse of Lehman Brothers Holdings Inc. paralyzed credit markets and contributed to the worst recession in more than 70 years, the Obama administration is stepping up efforts to sell a plan sent to Congress in June that rewrite the rules governing the financial system.

Obama will travel Sept. 14 to Wall Street in New York, where he will again make the case for tougher financial supervision, Summers said.

“He did not come here only to respond to crises or to repair that which had recently broken,” Summers said. “He came to address much longer standing economic issues.”

Obama has proposed new regulations overseeing the systemic risk posed by large financial institutions to the financial system, the creation of new government powers to dismantle failed companies and a new agency to oversee consumer financial products.

The financial regulatory proposal has been overshadowed on Capitol Hill by efforts to overhaul the U.S. health-care industry, which have dominated the attention of congressional leaders for much of the past few months.

Health-Care Debate

Summers said it’s possible for Congress to continue work on financial regulations during the health-care debate.

“The president famously said during the campaign that to be president you have to be able to do more than one thing at once,” Summers said. “I think that same idea applies to the 535 members of the Congress.”

The House Financial Services Committee is planning hearings over the next two months on financial regulations followed by committee consideration of legislation later this year free instant credit reports. The Senate Banking Committee has held a series of hearings on the issue and its staff is in the process of drafting legislation.

“It is very important to pass financial regulatory reform this year,” Summers said.

Obama has proposed giving more power to the Federal Reserve to oversee large financial institutions, something that faces opposition from lawmakers who blame the central bank for failing to anticipate last year’s financial crisis.

Fed’s Authority

Summers said there are discussions about how much more power to give the Fed without saying how it may interact with other regulators.

“There’s a huge amount of detail in the working-out of legislation of this kind,” Summers said. “We’ve seen the Fed as the natural place for systemic regulation.”

“Proposals are never enacted as they are first submitted,” he added.

Summers said the unemployment rate of 9.7 percent, the highest in 26 years, is “unacceptably high” and “will on all forecasts remain unacceptably high for a number of years.”

Stimulus Effects

A White House report released Sept. 10 said the $787 billion economic stimulus program has created or saved 1.1 million jobs since its implementation in February. Since the slump began in December 2008, the U.S. has lost 6.9 million jobs.

Summers said the improving economy is helping the government recoup some of the investments it has made through the Troubled Assets Relief Program, with some individual transactions yielding a profit for taxpayers.

Even so, Summers said, “on the overall uses of the TARP I don’t think it would be reasonable to expect profits, in part because some of them are directed at objectives where repayment really isn’t the objective, such as the subsidies to homeowners to avoid foreclosure.”

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The U.S. trade deficit widened in July and imports gained by a record 4.7 percent, signaling a revival of commerce as the global recession eased.

The gap between imports and exports grew 16 percent, the most in more than a decade, to $32 billion from a revised $27.5 billion in June that was larger than previously estimated, the Commerce Department said today in Washington. In another sign the U.S. slump may be ending, a Labor Department report showed jobless claims last week fell to the lowest level since July.

Imports outpaced a 2.2 percent gain in exports as businesses replenished stockpiles of goods including pharmaceuticals, toys and televisions in anticipation of rising consumer demand, while automakers boosted purchases of parts and machinery. The export gain reflected renewed demand for U.S.- made goods among trade partners such as Mexico and Japan.

“We’ve also seen a pretty solid pickup in export growth and that should continue as we see evidence the global economy is picking up steam,” said Brian Bethune, chief financial economist at IHS Global Insight Inc. in Lexington, Massachusetts. Referring to the government’s auto trade-in program, he said “even before cash-for-clunkers got into its sweet spot, automakers were already in the process of ramping up production.”

The trade gap was projected to widen to $27.3 billion, from an initially reported $27 billion in June, according to the median forecast in a Bloomberg News survey of 74 economists. Deficit projections ranged from $25 billion to $30.3 billion.

Oil Prices

Imports rose to $159.6 billion after also increasing the prior month. The import figures reflected a rise in crude oil prices and demand for cars, automotive parts, goods such as computers and televisions and industrial supplies.

The number of Americans filing first-time claims for jobless benefits dropped by 26,000 to 550,000 in the week ended Sept. 5, lower than economists forecast, from a revised 576,000 the week before, Labor Department data showed.

Stocks rose after the reports. The Standard & Poor’s 500 Index closed up 1 percent at 1,044.14 in New York, while the Dow Jones Industrial Average ended the day up 0.8 percent at 9,627.48.

Imports of petroleum products increased to $22.4 billion, the highest since December, as crude oil prices rose to an average $62.48 a barrel in July from $59.17 in June, according to Commerce Department data.

Industrial Supplies

Imports of industrial supplies, which include crude oil, rose to $38.4 billion from $37 billion. Demand for consumer goods from abroad rose to $35.4 billion from $33.7 billion the prior month. Demand for capital goods rose to $30.2 billion from $28.9 billion, led by an increase in demand for cars and auto parts to $13.5 billion from $11.1 billion.

Purchases of auto parts and industrial supplies by companies such as General Motors Co. and Hyundai Motor Corp. got a boost from the “cash-for-clunkers” program and the annual retooling of plants.

The gain in auto imports was probably even bigger in August when the trade-in program spurred car sales to 14.1 million units on an annual basis, the most since May 2008.

Exports gained to $127.6 billion, led by sales of capital goods including cars, civilian aircraft and computers, as well as stronger demand for industrial supplies and consumer goods.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit widened to $38.8 billion from $35.8 billion.

Growth Forecast

Economists surveyed by Bloomberg last month forecast the economy will grow at an average 2.1 percent pace in the second half of 2009.

Exports are likely to keep expanding as the global recession eases. The economy in China, the U.S.’s second- largest trading partner, may grow 9.5 percent next year after an 8.3 percent increase this year, according to a Bloomberg survey of 22 economists conducted the week ending Aug. 28.

The trade gap with China increased to $20.4 billion from $18.4 billion in the prior month.

At the same time, Alcoa Inc., the largest U.S. aluminum producer, is among companies profiting from rising demand in China for commodities. Alcoa last week raised its 2009 forecast for global aluminum consumption because of demand triggered by China’s 4 trillion yuan ($586 billion) in stimulus spending.

China Stimulus

Chief Executive Officer Klaus Kleinfeld said in an interview that he expects China’s consumption of the metal to rise 4 percent this year, compared with an earlier prediction of zero growth.

“China is back,” Kleinfeld said in an interview. “They had a lot of shovel-ready projects” planned for 2011 that are being started now as part of the country’s stimulus efforts, he said.

The U.S. trade gap with the European Union almost doubled to $8 billion from $4.5 billion, while the gap with Canada rose to $2.2 billion from $1.5 billion and the deficit with Mexico narrowed.

Former Federal Reserve Chairman Alan Greenspan yesterday said the U.S. economy will start to recover by yearend, helped by “remarkable growth” in productivity. In a speech in New York, he predicted “a fairly pronounced recovery, not only in the U.S.,” but globally.

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European Central Bank council member Axel Weber said price pressures will remain subdued as the euro- region economy struggles to recover from its worst recession since World War II.

There is little risk that the ECB’s policy of flooding banks with cash will stoke inflation and it will take some time before the economy is growing fast enough to push up prices, Weber said in a speech in Frankfurt today. “All in all, inflation fears, understandable as they may be, are unfounded.”

The ECB last week left its benchmark interest rate at a record low of 1 percent and said it will continue to lend banks as much money as they want at that rate for up to 12 months. It remains wary of nipping the euro-region recovery in the bud by tightening policy too soon as rising unemployment and the expiry of government rescue packages threaten to damp expansion next year.

Weber, who heads Germany’s Bundesbank, said the economic recovery will be “protracted” and interest rates are “appropriate” for the inflation outlook. “It’s too early” to withdraw the monetary stimulus, he said, adding a “timely exit” is nevertheless vital.

ECB President Jean-Claude Trichet said last week that, when the time comes, many of the bank’s stimulus measures will “naturally unwind” as existing loans mature and demand for additional cash wanes paydayloans. The ECB can also use fine-tuning operations to absorb excess liquidity if needed, he added.

Long-Term Loans

Weber said lending should be scaled back “gradually,” and while the ECB will probably reduce the number of its long-term refinancing operations, it’s unlikely to reduce them to pre- crisis levels.

Weber said the timing of the ECB’s exit should be guided by signals from money-supply and credit data, which he said are currently not pointing to any inflation risks.

“As soon as upside risks to price stability in the medium term become visible, it is time to make monetary policy more restrictive,” he said.

Weber also restated his view that it might be wise to tighten policy before any threats to price stability emerge in order to prevent future crises. That could present policy makers with a communications challenge, particularly if unemployment is rising at the time, he said.

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The dollar’s role in international trade should be reduced by establishing a new currency to protect emerging markets from the “confidence game” of financial speculation, the United Nations said.

UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.

China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world’s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund’s special drawing rights, or SDRs, may add stability.

“There’s a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management,” Heiner Flassbeck, co-author of the report and a UNCTAD director, said in an interview from Geneva. “An initiative equivalent to Bretton Woods or the European Monetary System is needed.”

The 1944 Bretton Woods agreement created the modern global economic system and institutions including the IMF and World Bank.

Enhanced SDRs

While it would be desirable to strengthen SDRs, a unit of account based on a basket of currencies, it wouldn’t be enough to aid emerging markets most in need of liquidity, said Flassbeck, a former German deputy finance minister who worked in 1997-1998 with then U.S. Deputy Treasury Secretary Lawrence Summers to contain the Asian financial crisis.

Emerging-market countries are underrepresented at the IMF, hindering the effectiveness of enhanced SDR allocations, the UN said. An organization should be created to manage real exchange rates between countries measured by purchasing power and adjusted to inflation differentials and development levels, it said.

“The most important lesson of the global crisis is that financial markets don’t get prices right,” Flassbeck said. “Governments are being tempted by the resulting confidence game catering to financial-market participants who have shown they’re inept at assessing risk.”

The 45-year-old UN group, run by former World Trade Organization chief Supachai Panitchpakdi, “promotes integration of developing countries in the world economy,” according to its Web site. Emerging-market nations should consider restricting capital mobility until a new system is in place, the group said.

The world body began issuing warnings in 2006 about financial imbalances leading to a global recession.

The UN Trade and Development report is being held for release via print media until 6 p.m. London time.

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Financial markets are likely to remain buffeted by uncertainty over government policy despite an unprecedented pledge by the world’s top finance officials to cooperate as the global economy emerges from recession.

At a meeting in London at the weekend, finance ministers and central bankers from the Group of 20 nations said fiscal and monetary policy would stay expansionary as long as needed to ensure recovery.

That assurance could support fresh risk-taking in the markets this week, providing a moderate boost to global equities and prompting sales of the U.S. dollar in favor of higher-yielding currencies such as the Australian dollar.

For the first time, the G20 officials said there should be some coordination of policies to avoid destabilizing economies when governments eventually start winding down costly stimulus schemes launched during the crisis.

This was important for long-term investors, who fear volatility in the currency and interest rate markets if some cash-strapped countries cut back fiscal spending and hike interest rates much sooner than others.

But the G20 did not explicitly address big issues blamed for imbalances in the global economy, such as the value of China’s yuan. That raised questions over how much political will the group can really muster to coordinate policies.

And in some ways, the G20 seemed less united than it did when it met at the height of the crisis in April. While the April meeting produced a broad consensus on reform to financial regulation, the latest meeting bickered inconclusively over issues such as curbing excessive pay packages for bankers.

If the G20 has trouble setting common rules to regulate the finance industry, it may find it impossible to agree on sharing the fiscal burden of engineering a sustained economic recovery cash advance payday loan.

“The spirit of coordination is confidence-boosting, but in reality withdrawing fiscal stimulus will be difficult to coordinate,” said Lena Komileva, head of market economics for major developed economies at money broker Tullett Prebon.

“Investors still fear an uncoordinated exit could create stealth competition and contribute to increased volatility in government bond yields. It may be the fiscal equivalent of competitive currency devaluation.”

GROWTH

As the G20 met, there were fresh signs of improvement in the economic outlook. Documents obtained by Reuters showed the International Monetary Fund had revised up its forecast for the world economy this year and next.

It now forecasts a contraction of 1.3 percent in 2009, a bit better than its April forecast of a 1.4 percent shrinkage, and growth of 2.9 percent in 2010, revised up from 2.5 percent previously.

But the strengthening outlook carries its own risks; facing less pressure to cooperate urgently to avoid a global economic collapse, G20 nations may focus more on narrow national interests as they plot “exit strategies” from stimulus steps.

That may explain why G20 policymakers said almost nothing specific at the weekend about the “cooperative and coordinated exit strategies” which they promised. Instead, they merely said they would work with the International Monetary Fund and the Financial Stability Board, an international forum, to develop such strategies. 

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Employers kept Americans’ working hours near a record low in August, signaling that economic growth is poised to reward companies with added profits while postponing any recovery in the job market.

The average workweek held at 33.1 hours, six minutes from the 33 hours in June that was the lowest since records began in 1964, the Labor Department said yesterday. The report also showed that while payrolls fell by the least since August 2008, the unemployment rate rose to a 26-year high of 9.7 percent.

The preconditions for gains in payrolls, including giving the army of part-timers longer hours and taking on additional temporary employees, weren’t met last month. At the same time, with economic growth forecast to resume this quarter, the figures set the stage for a surge in worker productivity and drop in labor costs that will stoke corporate profits.

“It’s disappointing and it tells us that we are not quite there yet,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York who used to work at the Federal Reserve. “It’s great for business and terrible for households” for coming months, Feroli said.

There were almost 9.1 million Americans working part-time last month who would rather have a full-time job, up 278,000 from July, yesterday’s report showed. It almost matched May’s reading, when it reached the highest level since records began in 1955.

Total Hours

The index of total hours worked, which takes into account changes in payrolls and the workweek, fell 0.3 percent last month to the lowest level since 2003.

“It tells us payrolls aren’t turning positive any time soon,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said on a conference call yesterday, referring to the workweek figures. “This wasn’t a friendly report.”

A measure of unemployment, which includes the part-time workers who would prefer a full-time position and people who want work but have given up looking, reached 16.8 percent last month, the highest level in data going back to 1994.

The workweek for factory employees, which held at 39.8 hours last month, leads total payrolls by about three months, LaVorgna said auto loan. Once it reaches at least 41 hours and once payrolls for temporary workers stabilize, then an increase in total employment can be expected months later, he said.

Payrolls for temporary workers started turning down in January 2007, 11 months before the recession began. They dropped by another 6,500 workers in August, the government’s report showed yesterday.

On the Mend

At the same time, the report did underscore that the economy is on the mend and pulling out of the deepest recession since the 1930s. The drop in payrolls slowed for the sixth time in seven months, to 216,000 in August. Declines in temporary jobs have also slowed in recent months. Companies cut 90,400 temporary staff in November of last year.

It’s a step in the right direction, Tig Gilliam, chief executive officer of Adecco Group North America, said in an interview. “That has to happen first,” he said. “That is a pre-indicator for improvement in the overall market.” Adecco SA, based in Glattbrugg, Switzerland, is the world’s largest supplier of temporary workers.

Gilliam projects the U.S. economy will not start adding jobs until early 2010 and that unemployment will reach at least 10 percent next year. The jobless rate climbed to 9.7 percent last month, the highest level since 1983, from 9.4 percent in July, yesterday’s report showed.

Total Hours

Total hours worked are down at a 2.8 percent annual pace so far this quarter, according to calculations by Ian Morris, chief U.S. economist at HSBC Securities USA Inc. in New York.

Morris, who projects the economy will expand at a 4 percent to 6 percent pace this quarter, says that means worker productivity may exceed the second quarter’s 6.6 percent jump, which was the biggest gain in almost six years.

“This is set to flow straight into the corporate bottom line,” he said in an e-mail to clients. That indicates the “strong” earnings for companies in the Standard & Poor’s 500 Index in the three months to June will continue this quarter, he said.

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