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St. Louis bankers are aghast, consumer advocates are delighted and retailers have their fingers crossed.

That’s the situation as the U.S. Senate and House get ready to iron out the differences in their banking reform packages this month.

Meanwhile, debate goes on over whether the bills will accomplish their biggest goal — preventing a repeat of the bacchanal of brainless lending that nearly collapsed the financial system in 2008 and plunged America into recession.

In St. Louis, the howls are particularly loud from area bankers who fear they will be forced to cut the fees they charge merchants for debit card transactions, while being stuck with higher costs for complying with new consumer protection rules.

The bills contain "several very alarming things," says David Kemper, CEO at Commerce Bank, the largest bank based in St. Louis. He says the bills could cut 5 to 8 percent from pre-tax earnings. "We’re all for consumer protection, but at what cost?"

Consumer groups are hailing a rare victory over the bankers. "It’s amazing. The bill could be stronger, but given how much political muscle the industry has, this is really good," said Kathleen Day of the Center for Responsible Lending.

The House and Senate bills have their differences, but they are similar enough so that a probable outline of the final bill is emerging. Here’s a review:

A new consumer protection agency and new rules for banks — Both bills would establish a new agency with broad authority to set rules for consumer lending. The rules would cover banks, payday lenders, finance companies and the like. However, the agency couldn’t set a limit on interest rates, and it probably wouldn’t have authority over auto loans made through car dealers.

The House excluded auto dealers. The Senate didn’t, but the Senate later told its negotiators to exempt the dealers. Auto dealers arrange 79 percent of all car loans, according to the Senate Finance Committee, and dealers often add their own profit to the price. Banks and credit unions complain that they will be subject to consumer protection rules on car loans whereas the dealers won’t.

The bills also contain new rules on mortgages, requiring lenders to assure that borrowers prove they have enough income to make their payments.

Bankers complain that they will be stuck with the cost of paying for the consumer agency, and the government examiners who will troop through banks making sure the rules are obeyed. Such costs get passed on to customers, bankers say.

The consumer rules might limit innovation in credit cards, home improvement loans, mortgages and the like, banks say. That, in turn, might prompt them to stick to plain-vanilla lending rather than risk running afoul of the consumer agency, leaving less choice for borrowers.

Max Cook, president of the Missouri Bankers Association, thinks the consumer agency will become a tool of consumer advocacy groups. "Our greatest fear is that this is their platform," he said.

Giant financial institutions will have to raise more capital — Financial institutions deemed "systemically important" would be put under the thumb of the Federal Reserve under the Senate version. The Fed’s reach would go beyond commercial banks into big investment banks and other financial companies whose failure might threaten the system.

One of the most expensive failures of 2008 was the insurance conglomerate AIG, which was hardly regulated at all. Taxpayers have paid more than $170 billion so far to prevent its collapse.

Financial giants are linked to each other through a web of obligations. The failure of a single giant player can weaken others, potentially leading to more failures. Fear of that domino effect helped set off the panic of 2008, which nearly froze the credit system, and brought on a $700 billion taxpayer bailout.

To head off a repeat, the Fed could force big players to reduce risk and raise capital — a cushion of shareholders’ money that can absorb losses and prevent failure.

Controlling how big banks would fail — Institutions thought to be "too big to fail" might be allowed to fail under the new bills, but they would do so in an orderly fashion. Both bills would let the FDIC seize big financial institutions — banks and other players — and wind down their operations in a way least likely to cause systemic shock.

That might mean paying off some creditors, while stiffing others.

The bills require that failing companies be liquidated, not rescued. Shareholders’ investment would be wiped out, while unsecured creditors would take a haircut.

Right now, institutions that lend money to a too-big-to-fail bank think they’re taking little risk. That’s already changing as credit rating agencies threaten to trim their ratings on the nation’s too-big-too-fail banks. Big banks will have to pay more for financing, and that could trim their profits and perhaps restrict their lending.

No bank based in St. Louis would be considered too big to fail, but several such banks operate here, including Bank of America, U.S. Bank and PNC Bank. Citigroup has no branches here, but it owns a large mortgage operation in St. Charles, and Wells Fargo’s retail brokerage is based in downtown St. Louis.

Disallowing proprietary trading for banks — Big players, and some small ones, are howling over a Senate plan to ban banks from risking their own capital by playing the stock, bond, commodities and derivatives markets. They would be able to handle such trades for others, but not bet the bank’s own money.

Wall Street banks have made a lot of money playing the markets. Ron Kruszewski, CEO of investment firm Stifel Financial in St. Louis, warns that such a ban could reduce "liquidity." Banning the banks will mean fewer players buying and selling, raising the price of transactions for all sides, including small investors.

The ban, called the "Volker Rule," isn’t in the House bill, but House Financial Services Committee Chairman Barney Frank has said he would go along with it.

Debate brewing on debit card fees — A proposed change in debit card rules may spark a fight when Senate and House negotiators meet. Sen. Dick Durbin, D-Ill., sponsored an amendment that would let the Fed set "interchange" fees paid by merchants when customers use debit cards. The fees, about 1 to 2 percent of the purchase price, are big sources of income for banks and a major complaint of retailers. There’s no such thing in the House bill.

The Senate amendment also would let merchants offer discounts for customers who pay with cash or checks rather than credit or debit cards. Banks warn that the loss of fees could cause them to stop offering rewards, such as airline miles or cash back, to customers who use debit cards.

Some small banks may boost fees for checking accounts, Cook said. "All those banners that say ‘free checking’ are being taken down," he said.

Merchants say they will be able to lower prices, although it would also raise store profits.

New way to sell derivatives — Derivatives helped push some institutions over the brink during the credit crisis. The bills would force derivatives to be sold through clearing houses, which would make sure the companies issuing derivatives have the money to back them up. Most derivatives would also have to be traded on exchanges, which makes prices clearer.

Derivatives can be used to hedge risk, or to take risk on. AIG failed largely because it issued credit default swaps — the equivalent of insurance — on mortgage bonds. When the bonds began to weaken, AIG couldn’t pay up.

So, would these changes prevent the next big financial mess?

Dave Rolfe, chief investment officer at Wedgewood Partners in Ladue, has his doubts. Regulation doesn’t prevent catastrophe if the regulators aren’t sharp, and can’t fend off political pressure from the industry.

"Look at Fannie Mae and Freddie Mac. They failed miserably," said Rolfe, noting that the mortgage giants had a special federal regulator.

Stifel’s Kruszewski, who runs a brokerage and investment firm, says the bill fails to completely control "weapons of mass financial destruction," such as credit default swaps and synthetic collateralized debt obligations. Such derivatives allow speculators to make massive bets in the credit markets, raising the risk level in the system.

Kemper, of Commerce Bank, says the bills would put too much cost on small and mid-sized commercial banks, which had nothing to do the subprime mortgages and speculation that caused the crash.

"You don’t want to turn the banking system into the domestic airline business."

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The Obama administration is turning up the heat on tanning salons across the country with the passage of its new health care bill.

To help fund the $940 billion health care overhaul, a 10% tax on individuals receiving indoor tanning services was tacked on, and the initiative is expected to generate $2.7 billion over ten years.

As a result, many salon goers and owners are outraged by the so-called "tanning tax" and think they’re being unfairly targeted by the bill.

"It’s terrible," said Jan Meshon, owner of City Sun Tanning in New York City. "You know how they say that passing a bill is a bit like making sausage? Well this was the weirdest, ugliest piece of sausage to get stuffed into the bill."

City Sun Tanning customers are shocked and disappointed by the tax as well, and Meshon said he expects the tax to hurt business.

"We’ll do everything to keep our customers, but they are very upset by this," he said. "When they first hear about the tax, their reaction is, ‘What? How did that get in there? Why are they attacking me?’"

Meshon said the average customer spends about $15 to $20 per visit, and a typical tanning session lasts about 10 minutes, which is roughly the equivalent of thirty minutes in natural sunlight.

"An extra 10% on top of that is definitely not helpful," he said. "All of our customers would like to spend less already."

Adrienne Zarisky, a regular tanner, said she has used tanning salons several times a week for the last two years in order to maintain sufficient levels of Vitamin D.

"I use it not so much for the cosmetic effect as I do for my health," she said. "But of course, in the dead of winter it just feels so good."

Zarisky said she probably won’t change her tanning habits because it’s still "cheaper than having to take sunny vacations three times a year," but she is sure the tax will cause financially-strapped tanners to give up bronzing, and in turn, will seriously hurt the salons.

"I really fear for the salon owners," she said. "The place I go has really been a fixture in my neighborhood. I got to know some of the people that work there and they’re lovely people — I would just really hate to see people like that lose their jobs."

Jobs on the line

The tanning tax will go into effect July 1 and will apply to electronic products designed for tanning that use one or more ultraviolet lamps with wavelengths between 200 and 400 nanometers. Other sunless tanning options such as spray tans and tanning lotions are not included in the tax.

"This is going to close tanning salons," said Joseph Levy, vice president of the International Smart Tan Network, which has 3,000 member salons. "You can’t just pass on a tax like this to customers and not have it hurt your bottom line."

Levy estimates that about 9,000 jobs are in jeopardy and more than 1,000 salons are at risk of being forced to close their doors. The tax also targets middle-class and female business owners, with about two-thirds of tanning salons in the U.S. owned by women, he said.

In addition to putting thousands of employees out of work, Levy predicts the tax will ultimately generate 40% to 50% less than the projected $2 fast payday loan no faxing.7 billion.

"There was no due diligence done on how much money this will raise, and it’s going to be nowhere near what they are expecting," he said. "After taxing female entrepreneurs and primarily female customers, this is the other part of what’s so repulsive about this tax."

The health care reform bill is returning to the Senate for revisions, and Levy is rallying support to nix the tax from the measure before it’s too late.

"We have more than 200,000 signed letters to Congress between our businesses and customers," he said. "We’re hopeful that the Senate and Senators we’ve talked to will come through and get this ridiculous tax out of the bill."

As another last ditch attempt to remove the tax, the Indoor Tanning Association has started a Web site, Stopthetantax.com, where tanning salon owners and customers can send personalized letters of opposition directly to state representatives and senators.

Cutting out the ‘Botax’

The 10% tanning tax has replaced the 5% tax on cosmetic surgery that was originally included in the bill.

That tax, nicknamed the "Botax," would have included Botox injections and breast implants among other elective surgeries, but was cut out of the bill last year after heavy lobbying from the medical and dermatology industries.

Because the Botax was expected to generate $5.8 billion, more than double the amount the tanning tax is projected to raise, many tanning industry professionals are furious about the switch, arguing that while the tanning tax targets middle-class, women-owned businesses, the Botax would mainly impact wealthier Americans who would be more able to handle higher prices.

The American Academy of Dermatology, which strongly opposed the Botax, applauded the inclusion of the tanning tax as a replacement because of the significant health risks associated with indoor tanning.

According to the Academy, indoor tanning before the age of 35 is linked to a 75% increase in the risk of melanoma, the deadliest form of skin cancer, which has also become more common in young females. Meanwhile, nearly 30 million Americans hit the tanning beds each year and about 2.3 million of these people are teenagers.

An indoor tanning tax will therefore "serve as a signal from the federal government to young people that indoor tanning is dangerous and should be avoided," said Dr. William James, president of the academy.

In addition, because the United States currently spends about $1.8 billion on treating skin cancers each year and $300 million on melanoma alone, the tax will significantly reduce the future costs of treating skin cancers, Dr. James said.

Meshon and Levy, however, said many of the health concerns over indoor tanning are unjustified and exaggerated.

"It’s at least as good for you as it is bad for you," said Meshon. "There’s a lot of misinformation out there and scare tactics trying to make indoor tanning sound like the scariest thing in the world, and while there are risks to tanning like almost anything else you do, the risks in tanning are relatively low." 

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European Union finance ministers are uniting to oppose President Barack Obama’s proposal to limit banks’ size and risk-taking, saying his plan may run counter to EU policy, according to a draft document.

Their position, which they will ratify at a two-day meeting starting today, comes after Obama last month urged the adoption of the so-called “Volcker rule,” named for former Federal Reserve Chairman Paul Volcker. The plan would bar commercial banks from owning hedge funds and limit how much they can trade for their own account.

The finance officials gathering in Brussels will express “their concern that the application of the ‘Volcker’ rule in the EU may not be consistent with the current principles of the internal market and universal banking,” the document obtained by Bloomberg News said. “Any policy choice should avoid pushing risks to other parts of the financial system.”

The resistance underscores political divisions over how to overhaul banking regulations to prevent a repeat of the crisis that forced taxpayers to prop up the financial system. While leaders have called for a Group of 20 initiative, the U.S., Britain, and France are forging their own policies to limit compensation and risks.

At a meeting this month in Canada, Group of Seven finance ministers signaled they are rallying around a plan to introduce a levy on banks if it can be applied worldwide business cards design.

The Feb. 10 draft, entitled “Issues note on the most recent proposals of the U.S. administration in respect of Systemically Important Financial Institutions and the introduction of a financial crisis responsibility fee,” was prepared by a committee of officials from finance ministries, the European Central Bank and the European Commission.

EU Proposals

The three-page memo also considered proposals including levying a stability fee on banks and creating national or pan- European funds for future bailouts.

Swedish Finance Minister Anders Borg last month presented a plan to create a fund for future banking crises. In contrast, the Netherlands’ Wouter Bos last month wrote a letter to his counterparts welcoming Obama’s proposals and calling for a “serious debate” on the U.S. plan at the meeting in Brussels.

Jean-Claude Juncker, who heads the group of euro-area finance ministers, last month voiced concern about a common approach on bank levies given that taxes are a matter dealt with at the national level of the 27-member bloc.

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Japan’s economy probably grew at the fastest pace since the first quarter of 2008 as a global trade revival fueled demand for the nation’s exports.

Gross domestic product rose an annualized 3.6 percent in the three months ended Dec. 31, following a 1.3 percent expansion in the third quarter, according to the median forecast of 23 economists surveyed by Bloomberg News. The Cabinet Office report is due on Feb. 15 at 8:50 a.m. in Tokyo.

Nissan Motor Co. and Canon Inc. are among companies benefitting from stronger global demand as countries poured more than $2 trillion into their economies to spur growth. Those gains have failed to reach consumers at home, where wages are tumbling and household outlays have been propped up by government incentives that are starting to wear off.

“Japan may be able to stave off a double-dip recession given exports have done better than expected,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. “Still, it’s questionable whether a recovery in domestic demand without the stimulus is possible and the economy is still highly dependent on overseas demand, underscoring the fragility of the recovery.”

Gains in the Nikkei 225 Stock Average stalled this year after a 19 percent advance in 2009, a reflection of concerns about the strength of the global recovery. The yen is the only currency that has gained against the dollar since Dec. 31 among 10 major currencies tracked by Bloomberg, threatening exporters’ profits.

Asia spearheaded Japan’s revival at the end of 2009. Shipments to the region surged 31 percent in December, the fastest pace in almost a decade, helping China overtake the U.S. as Japan’s largest foreign customer on an annual basis. Demand from the U.S. is also improving after the nation’s GDP expanded the most in six years last quarter.

‘More Resilient’

“The Asian economy is growing at a fast pace while the U.S. economy is picking up, a sign the global recovery is becoming more resilient,” said Yoshiki Shinke, senior economist at Dai- Ichi Life Research Institute in Tokyo.

Nissan, Japan’s third-largest carmaker, this week forecast a return to profit for the year ending March 31, citing government incentives that boosted sales in China and Japan. Canon, the world’s largest camera maker, is predicting its biggest annual profit increase in a decade amid revived global demand.

Japan’s economy expanded 0.9 percent from the previous quarter, the survey showed. Overseas shipments increased 5.3 percent in the fourth quarter from the previous three months, analysts surveyed said ay day loans. Net exports, or shipments minus imports, added 0.5 percentage point to growth.

Calculation Change

The Cabinet Office said last week that it will change the way it calculates exports and imports on a seasonally adjusted basis to account for the anomaly created by the financial crisis in 2008. The announcement prompted economists to cut their annualized GDP forecasts by about 1 percentage point.

The faster growth may not be enough to convince Prime Minister Yukio Hatoyama that the recovery is sustainable. The premier, facing upper house elections in July, is implementing a 7.2 trillion yen ($80 billion) stimulus package that his administration estimates can boost growth by about 0.7 percentage point next fiscal year.

Even if GDP is strong, “Hatoyama may compile an additional stimulus as he wants to lure voters ahead of the election, especially when his popularity is sliding,” said Susumu Kato, chief economist for Japan at Calyon Securities in Tokyo.

‘Long Way’

Central bankers aren’t confident that growth is durable. Kazuo Momma, the Bank of Japan’s top economist, this month said “there is still a long way to go” before the expansion becomes sustainable. Governor Masaaki Shirakawa and his policy board will hold a rate-setting meeting two days after the GDP report is released.

Japan’s wages slumped at a near-record pace in December, when household sentiment fell to a six-month low. In a sign that stimulus measures are fading, retail sales fell 1.2 percent in December on a seasonally adjusted basis, the largest drop a year, as customers purchased fewer cars and appliances.

Nevertheless, consumer spending probably contributed to the growth in the fourth quarter. The 0.3 percent increase predicted by economists would be a third of the pace of the previous quarter. Capital investment may rise 1.5 percent, the first positive reading in seven quarters.

Economists including Calyon’s Kato said the business investment figure may be revised down when the government updates the GDP report next month to reflect additional data.

“The domestic economy remains fundamentally weak as the positive cyclical loop between income and expenditure has yet to kick in,” said Ryutaro Kono, chief economist at BNP Paribas in Tokyo. “Although we believe the worst is over for corporate earnings, the return on capital remains so low that companies will continue to restrain labor costs for some time.”

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Finance Minister Hirohisa Fujii’s health deterioration threatens his four-month tenure, exposing a lack of experience in a government that’s struggling to contain Japan’s debt and sustain an economic recovery.

Prime Minister Yukio Hatoyama said yesterday that no decision has been made on whether Fujii, 77, will remain in his job as the government awaits judgment on his medical condition. Fujii told reporters in Tokyo that health issues may prevent him from attending the next session of parliament this month. He is likely to resign, Kyodo News reported today, citing an unnamed ruling party lawmaker.

A Fujii resignation would elevate focus on the two vice- finance chiefs, Yoshihiko Noda and Naoki Minezaki, as well as Deputy Prime Minister Naoto Kan, who heads economic policy, and Yoshito Sengoku, the minister for administrative reform. Investors would examine any successor’s credentials on fiscal matters after Fujii championed avoiding an increase in new bond sales, said Susumu Kato at Calyon Securities in Tokyo

“Hatoyama needs someone who is heavyweight and has expertise, but the DPJ lacks experienced personnel,” said Kato, Calyon’s chief economist for Japan. “Fujii gave a sense of security in a relatively young Cabinet as he’s veteran politician who has already been finance minister.”

Retirement Postponed

Hatoyama asked Fujii last year to postpone retirement and run in the August election that brought his Democratic Party of Japan to power for the first time. Fujii previously headed the Finance Ministry in 1993, and is a former budget examiner at the agency, giving him a deeper background in the area than other lawmakers in the party.

Financial markets indicated little immediate concern over doubts about Fujii’s future, with Japanese government bonds little changed and the Nikkei 225 Stock Average closing at the highest level since October 2008. Yields on benchmark 10-year notes were at 1.325 percent. The yen rose 0.6 percent to 91.92 as of 6 p.m. in Tokyo yesterday.

The Diet is scheduled to convene later this month, when the finance minister would typically face lawmakers’ questions over the proposed record 92.3 trillion yen ($1 trillion) budget.

While the DPJ-led coalition’s majority in the Diet means Hatoyama’s 2010 budget is likely to be little affected by a Fujii departure, it could complicate any effort to compile an additional fiscal stimulus, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.

Stimulus Weighed

“There’s a chance that the government may have an additional stimulus” package to submit before elections for the upper house of the Diet in July, Muto said. “If that happens, the government will be in trouble unless it chooses a person who has strong political leadership as a next finance minister.”

The latest warning on the durability of Japan’s recovery from its deepest postwar recession came yesterday from Sony Corp business card templates. Vice Chairman Ryoji Chubachi. He said “there’s a risk of a double-dip recession,” citing the damage of deflation to companies’ earnings. Chubachi spoke at a New Year’s party attended by government officials and business leaders in Tokyo.

Kato at Calyon Securities said a Fujii departure may have an impact on debt markets, depending on the dedication of any successor to avoiding an increase in government bond issuance.

Spending Restraint

In the course of compiling the 2010 budget, Fujii urged ministers to restrain outlays after their requests amounted to an unprecedented 95 trillion yen. He said the government must keep its promise of holding bond sales around 44 trillion yen to contain the world’s largest public debt burden — even after Hatoyama indicated he wouldn’t strictly adhere to the cap should more spending be necessary.

“There’s no finance-ministry type other than Fujii” within the DPJ, said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. “If Fujii steps down, fiscal discipline may loosen regardless of who takes over the post.”

Fujii, Japan’s fifth finance minister since August 2008, was admitted to hospital on Dec. 28 for high blood pressure and exhaustion, three days after the budget release. “My examination is continuing, and I’ll respect my doctor’s judgment,” he said. He canceled his regular Wednesday press briefing for today.

For Hatoyama, losing his finance chief would come as his public support tumbles. The Cabinet had an approval rating of 50 percent in a Dec. 25-27 poll by Nikkei Inc. and TV Tokyo Corp., down from 75 percent backing in mid-September.

Currency Stance

Some analysts said Fujii wouldn’t necessarily be missed by investors after he indicated he supported a stronger yen, only to later say that the government is prepared to step into the currency market to stem its gains. As finance minister, Fujii is responsible for overseeing Japan’s exchange-rate policy.

The yen climbed to a 14-year high of 84.83 per dollar on Nov. 27, hurting exporters by eroding their profits earned abroad. The currency has since retreated about 8 percent.

“Investor estimation of Fujii’s steadiness isn’t that high because of his currency gaffes,” Hirokata Kusaba, a senior economist at Mizuho Research Institute in Tokyo. “The budget has been already drafted and the government bill will pass because the ruling coalition controls both chambers,” meaning the impact of his departure “will be limited.”

Kusaba said Sengoku or Noda would be the most likely candidates to replace Fujii.

Kiuchi at Nomura said the yen may weaken no matter who succeeds Fujii because he “is labeled as tolerating a stronger yen and opposing intervention.”

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European industrial output fell for the first time in six months in October, led by a slump in demand for consumer goods. Employment declined in the third quarter.

Production in the economy of the 16 euro nations dropped 0.6 percent from September, when it gained 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists forecast a decline of 0.7 percent, the median of 30 estimates in a Bloomberg survey showed. Euro-region employment fell 0.5 percent in the third quarter from the previous three months, according to a separate report by the office.

The euro-region economy may struggle to gather strength after emerging from the worst recession in more than six decades in the third quarter as a stronger euro hurts exports just as rising unemployment erodes consumer spending. In Germany, Europe’s largest economy, investor confidence dropped in November.

“Today’s figures confirm the previous picture of an economy that is staggering, rather than bounding, back toward health,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London. “Further job losses are likely in the months ahead.”

European payrolls fell 2.1 percent in the third quarter from the year-earlier period, today’s data showed. October output dropped 11.1 percent from a year earlier after declining 12.8 percent in September.

Benchmark Bond

The euro fell against the dollar after the data and traded at $1.4648 at 10:35 a.m. in London, up 0.2 percent on the day, after reaching $1.4685 earlier. The yield on the German 10-year benchmark bond dropped 0.2 basis point to 3.18 percent.

European companies may keep spending plans on hold as the euro’s ascent makes their goods less competitive abroad. The single currency has gained 18 percent against the dollar since mid-February. Europe’s jobless rate has risen to 9.8 percent, the highest since December 1998.

“There are increasing signs that demand is weakening a little bit after an initial surge,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “It’s a recovery with a foot on the brake one hour payday loan. Indicators will continue to point upward, but we’ll see a phase of disillusionment.”

European output of non-durable consumer goods dropped 1.6 percent in the month after rising 0.7 percent in September, today’s report showed. Production of durable consumer goods fell 1.4 percent, while energy output slipped 0.3 percent. Production of capital goods such as factory machinery was unchanged.

‘On Probation’

“I should like to warn against overly great optimism,” Martin Winterkorn, chief executive officer of Volkswagen AG, Europe’s largest carmaker, said earlier this month. “It would be premature now to call the end of the crisis. The recovery that’s emerging right now is a recovery on probation.”

The global economy is gathering strength after central banks cut interest rates to near zero and governments pledged $2 trillion in stimulus measures. The European Central Bank said on Dec. 3 it expects the euro region to expand about 0.8 percent in 2010 instead of a previously forecast 0.2 percent. In 2011, the economy may grow 1.2 percent, the bank said.

Daimler AG, the world’s second-largest maker of luxury cars, said on Dec. 7 that the Mercedes-Benz cars unit’s fourth- quarter sales will rise “significantly.” Alstom SA, which makes high-speed trains and energy-generation equipment, sees “some businesses doing better and they will eventually rebound,” CEO Patrick Kron said on Dec. 2.

Emergency Financing

ECB President Jean-Claude Trichet said on Dec. 3 that the bank will scale back its emergency financing operations next year after the economy emerged from the recession. The recovery will “likely be uneven,” he said that day.

“It’s very clear that there won’t be any easy and rapid recovery in the world economy,” ECB council member Erkki Liikanen told Bloomberg News in an interview on Dec. 11. The recovery is “slow and shaky.”

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Nordstrom Inc. marked Black Friday with an announcement that it will open an Nordstrom Rack at Arrowhead Crossing shopping center in Peoria.

The 36,000-square-foot store is expected to open next fall and will be the third in the Phoenix area, the retailer (NYSE:JWN) said. Nordstrom Rack is the Seattle firm’s off-price retail division and carries merchandise from Nordstrom department stores and Nordstrom payday loan no fax no credit check.com at steep discounts.

Other retailers at Arrowhead Crossing that include DSW, TJ Maxx, Barnes & Noble and ULTA. Developers Diversified Realty (NYSE:DDR) owns and manages Arrowhead Crossing.

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Federal Reserve officials said on Thursday that while the recession-battered economy is on the mend, it will be weak for a while and the Fed is likely to keep its extensive support policies in place for a while.

The presidents of the Cleveland and the Atlanta Federal Reserve banks, in separate remarks, highlighted the economy’s continued reliance on government stimulus programs in citing its fragile state.

Cleveland Fed President Sandra Pianalto said she expects a gradual and bumpy recovery from the recession and is not worried that the Fed’s extensive efforts to pump money into the economy risk igniting inflation.

“I believe there is enough slack in the economy to keep inflation subdued for some time. In this environment, I believe that maintaining the current accommodative policy stance helps to foster both the continued recovery of our weakened economy and the stabilization of inflation rates at levels consistent with price stability,” she told a conference sponsored by Market News International.

Both Pianalto and Dennis Lockhart, president of the Atlanta Federal Reserve, said they expected already-high unemployment rates to continue to climb.

The Fed at its policy-setting meeting last week moved toward phasing out some of its massive support for the economy, but pledged to keep interest rates exceptionally low for an extended period to support the fragile recovery.

In Washington, the debate continued over how to reform financial regulation in order to prevent the occurrence of another financial crisis in the future; some have faulted the Fed, saying it should have been more aggressive in spotting or preventing the deep crisis of the last year.

Fed Chairman Ben Bernanke gave his clearest endorsement yet on Thursday of giving authority to a council of regulators headed by the Treasury Department to oversee the health of the broad financial system.

SIGNS OF A REBOUND

There are early signs from credit and housing markets that the economy is rebounding from the downturn, said Pianalto, who will be a voter on the Fed’s policy-making body next year, when many economists expect the central bank to begin raising rates.

“I would not be surprised to find that when we look back a year from now, we will see that mid-summer marked the end of this recession,” she said.

The Atlanta Fed’s Lockhart said unemployment is likely to persist despite evidence the economy could grow by an annual rate of between 2.5 percent and 3 percent in the July-September period.

“To bring people back to work, it’s going to take a while,” said Lockhart in response to questions after a speech at the Georgia State College School of Business in Macon.

“Unemployment’s going to be frustratingly high for some period of time,” said Lockhart, who is currently a voter on the policy-setting Federal Open Market Committee.

Asked by reporters how fast the Fed would remove its ultra-low rates and shrink its huge balance sheet, Lockhart said, “I doubt we’re going to go for years without the need to raise rates,” but added that the U.S. economy would likely have to adapt to slower rates of growth than before the financial crisis. 

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American Express Co said on Wednesday it is getting rid of monthly fees on all its gift cards, attempting to appease holiday shoppers who may worry that their cards will lose value if not used quickly.

American Express said the elimination of monthly fees is effective immediately and includes cards in stores, those yet to be purchased and ones that have already been bought.

The move could be a welcome boost for gift card sales, after a weak showing for the once-popular gift cards in the 2008 holiday shopping season.

Sales of gift cards were forecast to fall nearly 6 percent in last year’s holiday period by the National Retail Federation as shoppers were expected to pick discounted merchandise as holiday presents over gift cards.

NRF said it only issues forecasts for gift card spending.

The 2008 holiday season was one of the worst in nearly 40 years by some measures — turning the spotlight on how things will transpire this year.

Early forecasts for the 2009 holiday season call for sales to be anywhere from up 2 percent to down 1 percent. Consumers are still expected to seek out discounts, putting pressure on retailers to take fresh steps to bolster their revenue.

American Express also said that it will be the primary provider of gift cards for Simon Property Group’s malls and outlet centers.

American Express gift cards are available at more than 70,000 stores, the card issuer said in a statement.

(Reporting by Aarthi Sivaraman in Seattle)

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It follows as night the day that the unquestionably finite nature of fossil fuels inevitably will cause significant changes in the global economy and our way of life.

But the continued lack of absolute certainty – which will continue for many years – about the timing and severity of the crisis offers room for diehard "denialists" to continue with their arguments that a world without oil that can be extracted viably is a myth.

With the final week of August marking the 150th anniversary of commercial oil development, peak-oil deniers have become even more forceful in their arguments.

They have launched spirited attacks on the "alarmists" in recent weeks, stoutly maintaining that there remains a frontier of undiscovered mammoth oil discoveries, and that extraction technology is advancing at such a rapid pace of increased sophistication that even the most challenging deep-sea deposits and complex geological formations can be tapped.

Michael Lynch is at the forefront of the peak-oil deniers. He is former director for Asian energy and security at the Center for International Studies at the Massachusetts Institute of Technology. In a late August op-ed in The New York Times, Lynch wrote that "Oil remains abundant, and the price will likely come down closer to the historical level of $30 (U.S.) a barrel as new supplies come forward. But that may not keep the Chicken Littles from convincing policy-makers in Washington and elsewhere that oil, being finite, must increase in price."

Lynch’s core message is that scarce social resources are being misallocated in too-determined a quest for alternatives to fossil fuels.

"This is not to say," Lynch continued, "that we shouldn’t keep looking for other cost-effective, low-pollution energy sources – why not broaden our options? But we can’t let the false threat of disappearing oil lead the government to throw money away on hare-brained renewable energy schemes or impose unnecessary and expensive conservation measures on a public already struggling through tough economic times."

By coincidence for such denialists, major oil discoveries subsequently were announced off the Brazilian coast, in the Gulf of Mexico and, earlier this week, offshore Sierra Leone. But a closer look at each dims the initial euphoria.

Petrobras, the Brazilian state oil producer, is notoriously laggard at making the necessary heavy investments in bringing oil supplies to market promptly. The Gulf of Mexico petroleum "structure" is so geologically complex that the extraction costs will be exorbitant. Sierra Leone, like Nigeria, Sudan and other African production regions, is conflict-ridden.

Just the same, the surge of "denialist" noise, which has undeniable influence on certain lawmakers in the United States and Canada, seemed to merit a corrective from the peak-oil theorists. Their premise, roughly speaking, is that we have depleted half or more of the world’s oil supply and run out of easily accessible reserves.

Matthew Simmons, long the most prominent peak-oil theorist, offered a reminder in Foreign Policy this month that data from agencies as varied as the IEA and the U.S. Department of Energy continue to show alarming oil-depletion rates worldwide.

"The world will never `run out of oil’," Simmons writes, "but its flow is in decline. There may still be ample oil reserves for half of today’s use. But these remaining reserves are all very low-quality heavy oil, which is difficult to produce and hard to refine into usable petroleum products."

That’s a shot across the bow of the Athabasca tarsands, of course, the world’s only major heavy-oil production centre payday loans online. (Venezuela is a potential rival in size for heavy oil production, but its quixotic political regime has yet to allow oilsands development.)

Which gets us to where the so-called "alarmists" tip the balance in their favour. The world’s remaining oil reserves overwhelmingly are in politically hostile regimes or in remote locations where extraction is either enormously costly or technologically impossible.

Touted "rapid advances in oilfield technology," writes Simmons, are "the greatest myth of all."

Technology allowing us to tap oil several kilometres below sea level or in previously inaccessible pools on land by means of horizontal drilling are "now quite mature," says Simmons, who earlier in his career helped raise funds to develop those technologies. "Sadly, there are few new ideas in the oilfield pipeline."

An unhappy coincidence for "denialists" is a report this week by the top oil analyst for Australia’s Macquarie Bank, a long-respected merchant bank with investments worldwide. Iain Reid, head of that firm’s European oil and gas research unit, endorsed the peak-oil view, asserting that oil supply will peak this year.

The recent economic crisis that deniers point to as a helpful development in easing demand has in fact been a disaster, Reid says.

It caused major oil firms to postpone needed investment in new supply sources.

We saw that in our own oilpatch, where a planned $100-billion plus in heavy oil investments came to an abrupt halt.

Those developments will, of course, resume post-recession. Some Alberta megaprojects already are gradually coming back to life. The problem is that the delay will cause a severe "supply gap."

New oil sources will fail to come on-stream soon enough to satisfy skyrocketing demand in China, India and elsewhere in the developing world, to say nothing of a return to normal demand levels in industrial nations.

That, finally, might bring an end to our addiction to oil. Reid believes we soon will turn this debate on its head. We will stop talking about peak oil or peak supply, instead concerning ourselves with "peak demand."

Reid, who spent 16 years with Royal Dutch Shell and Amerada Hess sees demand eclipsing supply very soon, with a huge gap opening by 2015. That’s a good thing, he argues. It will drive up pump prices to unsustainable levels.

Oil currently trades at about $72 a barrel.

"Oil near $150 a barrel would very soon create another set of global economic drivers which would spell much lower demand in the future," says Reid. "In the very long term, we can see demand for oil falling quite substantially."

Reid’s presumption, of course, is that much more determined energy conservation will kick in as we approach that price level.

We did see it on a small scale during the recession, as motorists switched to public transit and smaller cars – and, Reid presumes, the acceleration of alternative-energy development.

For prominent peak-oil believers like Chris Nelder, the deniers would set us up for long lines at filling stations and cold houses in winter.

"If we let outlier critics like Lynch lull us into a false sense of security about future oil supply," Nelder wrote in The Business Insider this month, "we won’t begin soon enough on the decades-long effort to leave oil before it leaves us. And we will pay for it dearly."

dolive@thestar.ca

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