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OTTAWA–Canada is safe from recession, even if the U.S. Congress rejects a bailout package and global credit dries up further, but the economy may take enough of a beating to force the Bank of Canada to cut interest rates.

Credit is harder to come by for Canadian businesses, curtailing their investments. U.S. consumer purchases of made-in-Canada goods is wilting and commodity prices are slamming into reverse from record highs.

That toxic mix has sent economists back to their models to churn out lower growth forecasts for both 2008 and 2009, raising the likelihood that the central bank will have to consider easing borrowing conditions.

"If the U.S. government can’t put something through, that clearly increases the risk to Canada through the end of the year and into next year," said Ryan Brecht, economist at Action Economics.

The export sector, heavy reliant on the U.S. market, is getting clobbered and 70,000 factory jobs have been lost in the past year. But commodity prices are still higher than a year ago, padding household and corporate income.

"At this point we don’t really see negative growth for Canada, even in the worst-case scenario. We still look at them as being able to eke out a little bit of growth because they’ve been so resilient thus far," he said.

Last month after holding rates steady at 3 per cent, the Bank of Canada flagged a worsening U.S. outlook as one key risk that could prompt it to change its mind on rates. In a Sept. 25 speech Governor Mark Carney said this risk had become "more probable."

Markets on Thursday had priced in a 96 per cent probability of a rate cut on Oct. 21 due to the financial market meltdown, up from 51 per cent on Sept. 23.

Some economists are gradually coming around to that view as well.

"Even if the rescue package is passed, I’m still assuming that there is about a 60 percent chance the bank will cut in October," said Dale Orr, chief economist on Canada at Global Insight.

Prime Minister Stephen Harper and Finance Minister Jim Flaherty have used words like "resilience" and "island of stability" to describe Canada’s economy and banking system since the financial crisis escalated, triggered by the collapse of U.S online payday advance. investment banks and other financial pillars.

Both men are vying for votes in an Oct. 14 election on a platform of prudent economic stewardship. So Canadians could be forgiven for wondering if their word is too good to be true.

"We are not upbeat on the real economy. … We’ve had to pull our forecast down with each successive round (of the crisis). I think growth of under 1 percent this year is now the most likely outcome," said Glen Hodgson, senior vice-president and chief economist at the Conference Board of Canada.

Flaherty this week predicted economic growth of 1 per cent this year, almost double what some economists now expect. Dale Orr, for example, revised down his growth outlook to about 0.6 per cent this year and 1.4 per cent next year.

Still, politicians and economists alike agree that the Canadian banking system is sturdier than in the United States or Europe because of conservative regulations. "We are probably as insulated as anybody in the world, given what’s happening next door," Hodgson said.

As the U.S. House of Representatives prepares to vote on Friday on a proposed $700 billion rescue package for financial institutions and European leaders scramble to cobble together a plan of their own, such a move is still unfathomable in Canada.

"I would be astonished if we needed the kind of credit backup that the Treasury and Fed are putting together in the United States," said Hodgson.

But the liquidity problems in Canada have been serious enough to prod the central bank to offer to inject $10 billion into money markets by the end of October.

If all else fails to calm global markets, Carney is seen as fully committed to joining in any coordinated action by the world’s major central banks.

"You hate to think about it but to be realistic, if those politicians don’t get their act together and they disappoint everybody, something has got to move in very quickly to instill confidence and I would guess this is certainly one way of doing it," said Orr.

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The lights in Feld Chevrolet Co.’s Bridgeton showroom were on Thursday morning. Flags with the Chevrolet symbol waved outside in the air, and music blasted through outside stereos across the parking lot.

But the dealership’s lot and showroom floor were empty.

Feld Chevrolet, a longtime name in the St. Louis area, has closed its doors and faces legal action from GMAC LLC, the financing company allied with General Motors Corp. It’s uncertain why the dealership closed, and its president, Andrew S. Wolfson, could not be reached.

However, according to two lawsuits filed this week by GMAC in St. Louis County Circuit Court, problems surfaced after Wolfson shuttered the operations about a week ago. Feld was at 11200 St. Charles Rock Road.

Under security agreements between Feld Chevrolet and GMAC, the dealership can’t sell, transfer or dispose of vehicles and parts "other than in the ordinary course" of business. In a petition filed Monday, GMAC said Feld Chevrolet has closed its business and is selling the vehicles in ways that violate the agreements. GMAC said it has the right to the vehicles, which it valued at $8 million.

The filing listed 188 new vehicles — including many 2008 Chevy Equinox crossovers and 2008 Chevy Silverado pickups — as belonging to GMAC. It also said its owns 111 used vehicles that were on the dealership’s lot as of last Friday.

On Tuesday, GMAC received permission from the court to take possession of those vehicles. The lending arm’s attorney, Nelson Mitten of Clayton-based Riezman Berger P.C., would not say how many vehicles GMAC took back.

Mitten wouldn’t comment on the petition filed Monday, nor on a second lawsuit the GMAC filed Wednesday.

The second lawsuit against Feld Chevrolet also names as co-defendants Feld Investment Group L.C., Robert Tieman and Tieman’s South County Auto Center, 5745 Westwood Drive in Weldon Spring.

According to the petition, Feld Chevrolet sold 53 vehicles to Tieman or his dealership and did not give GMAC the money from the deals.

The filing also alleged that GMAC asked Tieman to surrender the vehicles, worth about $532,000, but that Tieman and his dealership "refused to comply with the demands."

Tieman did not return calls seeking comment.

GMAC spokesman Mike Stoller said the lending arm does not comment on dealer operations.

The Better Business Bureau of eastern Missouri and southern Illinois said on its website that the dealership’s membership was suspended last Friday because "the company appears to be out of business."

The Feld brand is well-known in the St freecreditreport. Louis business community.

Bridgeton Mayor Conrad Bowers said Feld Chevrolet has been "a great commercial citizen of Bridgeton" and has been up-to-date with its business-license fees and sales taxes. He could not say how much the dealership pays in sales taxes but said Feld Chevrolet’s business license fee is $50,000 per year — the maximum a business in the city can pay.

"We hate to see a business leave but, again, I would just assume the oversupply of cars" caused the closure, Bowers said. He said that, to his knowledge, Feld Chevrolet had not notified the city about the closure.

Last month the dealership laid off 20 mechanics, a representative of the union for those employees — the International Association of Machinists District 9 — told the Post-Dispatch on Aug. 15.

A month later, the dealership’s lot sits empty and padlocked. Calls made this week to the sales, parts and service phone numbers listed on Feld Chevrolet’s website were not answered.

Chuck Robinson went to Feld Chevrolet on Thursday to collect gum ball machines he owns and operates at the dealership, only to find the machines were locked inside the building. Robinson said his candy machines fund Heart 2 Heart Inc., a St. Louis nonprofit he runs.

When he collected money from the machines last week, "nobody said anything" about an imminent closing, he said.

atablac@post-dispatch.com | 314-340-8140

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Lehman Brothers staff in Asia remain in the dark about the fate of their business, with the clock ticking on any deal with a potential buyer.

The more time that goes by, the more likely Lehman is to lose bankers and advisory mandates to rivals.

But rival investment bankers in Hong Kong on Thursday said they expected British bank Barclays to buy all or part of Lehman’s Asia business, after it agreed on Wednesday to pay $1.75 billion to rescue Lehman’s core U.S. business.

Lehman is hoping to sell its Asian operations as one entity to maximize value and secure as many jobs as possible, but it may have to divide the business up into different geographic groups, said a source with direct knowledge of the sale, who asked not to be identified because the information is not public.

The source said Lehman was interviewing four candidates to advise it on the sale, including Goldman Sachs, Rothschild and Lazard Ltd.

“Interest for Lehman is very high,” said the source.

In terms of mergers and acquisition advisory and equity capital markets, Barclays is not a major player in Asia, while Lehman has aggressively built its investment banking presence in the region.

“I would be surprised if Barclays did not buy the Asia business,” said an investment banker at a competing bank who did not want to be identified pay day loans. “It’s not going to cost them much.” 

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Global markets plummeted on Monday after investment bank Lehman Brothers filed for bankruptcy protection, rival Merrill Lynch agreed to be taken over and the Federal Reserve threw a life line to the battered financial industry.

As a deepening crisis took new, bigger victims, the U.S. Federal Reserve said for the first time it would accept stocks in exchange for cash loans and 10 of the world’s top banks agreed to establish a $70 billion emergency fund, with any one of them able to tap up to a third of that.

On a black Sunday for Wall Street, frantic attempts to find a rescuer for Lehman failed, and troubled insurer American International Group asked the Fed for a lifeline, according to news reports.

The events signal a seismic shift in Wall Street’s power structure with big name investment banks biting the dust and major banks like Bank of America and JPMorgan Chase becoming the survivors.

“It’s a return to pure capitalism, the survival of the fittest — the government can’t and won’t bail everybody out,” said Justin Urquhart Stewart, investment director at 7 Investment Management in London.

“Investors will now retreat to the trustworthy banks, though that’s not a phrase that trips off the tongue easily nowadays.”

Bank of America agreed to buy Merrill Lynch in an all-stock deal worth $50 billion, seeking a bargain as the world’s largest retail brokerage sought refuge from fears it could be the next victim.

“It’s just shockingly fast how it happened,” an employee for Merrill in Asia said faxless payday loan. “It’s hard to believe there will be no more Merrill Lynch,” he said of his firm, known as The Thundering Herd. 

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Hurricane Gustav has shut down nearly all crude oil production and 82% of natural gas production in the Gulf region, according to a Department of Energy report issued Monday.

The department offered a fresh look at the hit the storm delivered to the U.S. oil industry - chronicling an extensive stoppage in refinery output, crude delivery, and production of oil and natural gas.

According to the report, 96.2% of crude oil production has been shut down in the Gulf of Mexico, equal to 1.25 million barrels per day - or 25% of U.S. daily output.

Three oil delivery pipelines in the Gulf have been shut down, totaling 2.6 million barrels of daily capacity.

One expert predicted the industry will be able to absorb the hit to production as long as the storm did not significantly harm the infrastructure.

It’s not yet known the extent of the damage to the energy infrastructure that, if any, Gustav has caused. Exxon Mobil (XOM, Fortune 500), BP (BP), Shell (RDSA) and other oil companies said they will begin to assess the damage as soon as it is safe to return to the offshore rigs. Shell predicted Tuesday would be the earliest it could send crews back to its Gulf operations.

"The question is what the damage will be," said Esa Ramasamy, director of market reporting for energy analysis group Platts. "If there’s no damage, then you’ll see production to come back sooner than expected."

Of 32 Gulf Coast refineries, which process crude oil into usable gasoline, 12 have completely shut down and 10 have reduced activity 1500 payday loans. The reduction in refinery operations resulted in 5.5 million barrels less daily capacity.

That will mean less gasoline on the market for consumers. But with slumping U.S. demand for fuel, the market may be able to weather the storm.

"Demand has been declining for several months because of high oil prices," said Ramasamy. "Supplies may be a bit tighter because of lower refinery output, but there’s still plenty of gasoline on the market to meet demand."

Natural gas production in the Gulf was also severely affected by the storm, 82.2% of which has been shut down, according to the survey. That’s equal to 6.1 million cubic feet per day of reduced activity.

Of the 22 natural gas pipelines in the gulf, 19 have stopped operating.

"The problem is that the logistics of delivering the oil has been shut too," said Ramasamy. "If the inspectors find damage, shipments may not even start up this week, which would result in more production loss." 

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European Central Bank council member Axel Weber said there's no scope for interest-rate cuts and policy makers may need to raise borrowing costs once the economy emerges from its slump.

“Monetary policy at the moment is roughly where it should be and I think the discussion about declining rates in Europe is premature,'' Weber, 51, said in an interview in his office in Frankfurt yesterday. “If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we'll have to see if action is necessary.''

Europe's economy contracted in the second quarter and may not recover in the third, raising the risk of the region's first recession since the euro was introduced in 1999. Weber said the ECB, which increased its benchmark rate by a quarter point to 4.25 percent in July, remains focused on fighting inflation. Bond yields and the euro jumped.

“I don't expect inflation to come down necessarily just with weaker growth,'' Weber said. “Inflation is still the No. 1 worry for central bankers in the euro region.''

“Weber wants to keep the option open to raise rates next year,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. “He wants to choke any rate-cut debate.''

Rate-Cut Bets

This morning, Eonia forward contracts showed investors had fully priced in a cut in the ECB's benchmark rate to 4 percent by May. The yield on the May contract rose 9 basis points to 4.09 percent after Weber's remarks were published. The euro gained half a cent to $1.4773 and yields on two-year government bonds increased 4 basis points to 4.03 percent.

Weber said while current rates are “roughly adequate'' for “the imminent period of cyclical weakness,'' they are “still more on the accommodative side than being neutral.''

Inflation at 4 percent is running at twice the ECB's definition of price stability of just less than 2 percent.

Inflation will remain in breach of the ECB's price-stability goal next year and “we're not even sure that inflation on average will be below 2 percent in 2010,'' Weber said faxless online payday advances.

“If inflation risks further materialize and if we come to the conclusion that the inflation outlook has deteriorated, we'll have to re-examine our monetary-policy stance,'' he said. “At the moment, this isn't an issue.''

Recession Concern

Business confidence in Germany plunged to a three-year low this month, heightening concern that Europe's largest economy is slipping into a recession.

While oil prices have receded from a record $147.27 a barrel, they're still up 60 percent over the past year, crimping companies' spending power just as the euro's appreciation and the U.S. housing slump weigh on exports.

In June, ECB staff projected growth would slow to about 1.8 percent this year and 1.5 percent in 2009 from 2.7 percent in 2007. The bank will publish new growth and inflation forecasts on Sept. 4, when it announces its next rate decision.

Weber said he expects “a slight downward correction'' of the growth estimates for this year and next. “The European economy, in my opinion, will be robust once we're through this dry spell,'' he said.

Inflation forecasts may be revised “slightly higher'' from the current 3.4 percent and 2.4 percent for this year and next. The ECB is concerned that long-term inflation expectations are above 2 percent, Weber said.

The long-term inflation expectation, defined as through 2013, rose to 2.03 percent in August, according to the ECB's quarterly survey of forecasters published Aug. 14. That's the highest since the survey started in 1999 and up from 1.95 percent three months ago. Expectations measured by the breakeven rate on French five- year inflation-indexed bonds were at 2.19 percent today.

“We observe with concern that the majority of market watchers don't expect us to meet our stability norm at the 6 to 10-year horizon,'' he said. “For a central bank this puts in question its credibility and this can't be tolerated.''

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The film "Crazy Heart" will shoot in New Mexico this summer, says Gov. Bill Richardson’s office. It stars Jeff Bridges, Maggie Gyllenhaal and Robert Duvall.

The music-based drama is based on the novel, "Crazy Heart," by Thomas Cobb, about a down-and-out alcoholic country singer who gets his life and career back on track through his relationship and experiences with a woman reporter.

The film will be produced by Duvall and Robert Carliner of Butcher’s Run Films, and by Informant Media’s Judy Cairo, Scott Cooper and T Bone Burnett. Bridges also will serve as executive producer along with Michael A. Simpson and Eric Brenner of Informant, and Jeff Yapp of CMT films. Cooper is the writer and director http://abc-cashadvance.com.

The production will be shot in and around Santa Fe from August through September.

Since 2003, more than 100 major film and television projects have been shot in the state, bringing about $1.8 billion in economic impact to New Mexico.