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With unemployment high and personal wealth diminished, how was it that strapped consumers were paying down their credit card debt last year?

It turns out they probably weren’t. The bulk of 2009’s drop in credit card debt instead came because banks were forced to write off loans consumers failed to pay, according to an analysis of Federal Reserve data instant credit report.

Loans are typically charged off by banks once they’re 180 days past due, under the assumption that the debt won’t be repaid.

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German Finance Minister Wolfgang Schaeuble said the Greek crisis shows the euro region should consider creating an organization with powers similar to the International Monetary Fund.

“For the internal stability of the euro zone, we need an institution that has the powers and know-how of the IMF,” he said in an interview with Welt am Sonntag published today. “We shouldn’t rule anything out, including the creation of a European Monetary Fund.”

The financial turmoil sparked by Greece’s budget shortfall has highlighted the absence of a single euro-region finance ministry that could tackle the default of a member state or force a country to cut its deficit before it got out of hand. Former Federal Reserve Chairman Paul Volcker said in an interview yesterday that the lack of political union to back up the European Central Bank is a “structural crack.”

Billionaire investor George Soros said Feb. 22 the common currency could disintegrate if the European Union doesn’t act.

“I support a stronger coordination of economic policy in the EU and the euro region,” said Schaeuble, who will publish his own proposals “soon.” He doesn’t support any IMF rescue package for Greece because that “would be an admission that the euro region can’t solve its own problems by itself.”

Euro ‘Football’

Schaeuble, who also said the euro shouldn’t become a “football” for speculators, said that any new organization wouldn’t compete with the IMF. His comments were confirmed by Finance Ministry spokesman Michael Offer.

The comments come after proposals for a European Monetary Fund were put forward last month by Deutsche Bank AG Chief Economist Thomas Mayer and Daniel Gros, director of the Centre for European Policy Studies in Brussels. Countries could draw on funds equivalent to the money deposited at the EMF and exceed that amount if they agreed to a “tailor-made adjustment program” supervised by the European Commission and governments, they said.

The EMF could also ease the disruption caused by the default of a member state by offering investors new EMF bonds in exchange for the defaulted bonds, they said. Bond holders would be required to take a “haircut.”

“Setting up a European Monetary Fund is superior to the option of either calling in the IMF or muddling through on the basis of ad hoc interventions,” Mayer and Gros wrote in an article in the Economist.

The lack of a unified fiscal policy has sparked a divergence of bond yields across the euro region as Greece’s crisis worsened. The extra yield investors demand to hold Greek 10-year debt instead of German equivalents jumped to 396 basis points in January, the highest since 1998. The average gap over the past decade was 34 basis points. The Spanish and Portuguese spreads are about five times their respective 10-year averages.

Greece managed to sell 5 billion euros ($6.8 billion) in government bonds this past week after announcing a new round of austerity measures.

“I have no doubt that Greece will execute its announced measures,” Schaeuble said. “Their current efforts deserve big respect.”

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The rate hikes are coming! The rate hikes are coming! Eventually.

Days after the Federal Reserve seemed to sound the alarm that the era of near-zero interest rates is ending, Chairman Ben Bernanke tempered those expectations a bit this week. Just because the Fed boosted the rate it charges banks, he told Congress, doesn’t mean it will move any time soon to boost broader interest rates too.

Nonetheless, it behooves investors to be ready, regardless whether rate hikes come in the second half of 2010 or next year.

Despite what some may think, moving toward higher rates will be good news in many ways. It’s an endorsement of the economy’s potential to stand on its own. It means yields from CDs as well as savings and money-market accounts at banks won’t be minuscule much longer. It could even bode well for certain types of stocks.

But higher rates are bad for bonds and may make some other holdings less appealing too. So investors should take a close look at what they own.

"It’s a wakeup call," says Larry Glazer, partner at Mayflower Advisors in Boston quick cash.

Here’s how rate hikes could affect you:

Bonds — Bonds are in line to experience the biggest fallout, because they generally move inversely to rates. When rates exceed the rate on a previously issued bond, the bond’s value on the open market drops.

Stocks — Overall market returns may be harder to come when the Fed determines it needs to raise rates to try to keep the economy from growing too fast. But stocks should still climb. Tread carefully, though. Some sectors — notably utilities, financials and materials — have been big laggards when rates rise.

Saving and borrowing — Long-suffering savers can look forward to their money growing at a decent clip again while sitting in the bank. At the same time, rising rates will make mortgages and other loans more expensive. If you’re thinking about buying a house or refinancing a current mortgage, it might be time to consider locking in those low-low rates.

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A $10 million project to build 40 town homes along a once-desolate stretch of Delmar Boulevard is headed toward foreclosure.

Consider the Delmar Place town home project a casualty of the housing slide that began in 2008, said Stephen Acree, chief executive of the Regional Housing and Community Development Alliance. The foreclosure, initiated by Truman Bank, is scheduled for next Thursday.

Acree’s organization and another nonprofit, West End Community Conference, had formed Delmar Place Land Development LLC to assist the project on what had been city-owned land in the 5300 and 5400 blocks of Delmar, just west of Union Boulevard.

Town & Country Homes Inc. began construction in late 2003, but built only 24 of the planned town homes before the project stalled in 2009. A company representative declined to discuss the project or the foreclosure.

Acree said Thursday that Truman, still owed about $180,000 on a loan guaranteed by Town & Country in 2006, will try to sell the foreclosed property, perhaps to another builder fast cash. Town & Country is going out of business, Acree said.

The foreclosure affects only the 20 Delmar Place lots that remain vacant. The 24 lots on which Town & Country built homes are unaffected. Acree had helped Town & Country structure the project’s financing.

"It was a hard one to make work because of the extra infrastructure cost involved and the unproven market for that kind of residential development on DeImar west of Union," he said.

Delmar Place was designed for two rows of town homes, one facing Delmar and the second behind the first. The project stalled after Town & Country built the row of homes closest to the street. Acree said if there is a "silver lining" to the project’s failure it’s the improvement to Delmar’s streetscape.

Previously on the site were derelict apartment buildings.

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Arizona stock performance looks pretty good for the past quarter and since the start of 2009, but looking back to the start of the recession in late 2007 paints a gloomier picture.

Thirteen of the state’s billion-dollar public companies saw stock prices move up during the fourth quarter and 15 posted gains for the year as the market rallied following a recession low for stock indexes in March.

But for the period from Dec. 31, 2007, to Dec. 18, 2009, only four of the 21 companies posted gains, according to a Phoenix Business Journal analysis.

P.F. Chang’s China Bistro (Nasdaq:PFCB) outdistanced the other winners with a 69 percent gain despite the recession’s impact on many retail and restaurant chains.

Also posting gains since December 2007 were: Meritage Homes Corp. (NYSE:MTH), 19 percent; PetsMart Inc. (Nasdaq:PETM), 17 percent; and Tucson’s UniSource Energy Corp. (NYSE:UNS), 6.6 percent.

The recession’s impact has been very industry-specific said Chip Fisher, managing director and head of the Arizona office for Green Holcomb & Fisher. The pet industry has done well, but many in the restaurant industry have had a tough time.

P.F. Chang’s is among winners in the restaurant sector remaining profitable through the third quarter, although seeing profits shrink. The Asian restaurant chain chain has tightened its belt and closed underperforming locations while continuing modest growth, including new sites in the Middle East. In August, the Scottsdale chain announced a deal with consumer products giant Unilever to brand a line of frozen entrees.

Analysts expect to see its earnings per share hit $1.74 for 2009 and rise to $1.90 in 2010, compared with $1.45 in 2008.

But Barry Ziskin, president of Z Seven Fund in Mesa, says those earnings are significantly higher than the more conservative number reported to the IRS. And with the number of closures offsetting growth, the stock price may be ahead of itself.

He also cautions that PetsMart is feeling pressure from online retailers such as Petmed Express as well as veterinarians.

While Meritage Home Corp. stock moved up 19 percent since the end of 2007, it remains a long way from its peak during the housing boom, when it neared $100 a share in summer 2005 payday loans for bad credit.

The Scottsdale homebuilder continues to feel the sting of the industry implosion, with January-September revenue down from $1.1 billion in 2008 to $683 million this year. Net loss for the nine-month period, however, has tightened to $3.52 per share from $7.37 in 2008. Analysts see that number moving down to just 16 cents for all of 2010.

Leading the list on the negative side for the two-year period as well as for the past quarter and all of 2009 was Mesa Air Group Inc. (Nasdaq:MESA). The Phoenix-based short-hop airline’s stock ended 2007 at $3.09 per share but slipped to the penny-stock range a few months later and has not recovered, trading at just 11 cents as of Dec. 18. In 2006, shares had traded at more than $10.

Mesa has faced not only the recession’s tepid travel, but also a prolonged legal push from Delta Air Lines to sever ties and paid $52.5 million in 2008 to settle a dispute with Hawaiian Airlines.

Fisher said 2009 was a difficult year for most public companies, especially those with a limited stockholder base and analyst coverage.

The new year should bring more money into stock markets and improve values for small-cap as well as larger companies, he said, but not to 2007 levels.

“It’s going to be a long time until we return to those values,” said Fisher. A lot of small companies shouldn’t even be public, he said, adding his company has helped a number of those go private or delist from stock markets over the past year.

Green Holcomb has added staff in Phoenix, he said. “We expect the mergers and acquisitions market to be very active in 2010 and beyond.”

The two-year period saw the Dow Jones Industrial Average plummet from 13,265 to a March 2009 pit of 6,440 before starting a comeback to hit 10,329 Dec. 18. The Nasdaq Composite remains down nearly 17 percent for the two-year period closing at 2,212 Dec. 18.

As for the market in general, opinions vary from the nine-month rally topping off to a continued rise before a crash later in the year and worries about the impact of a major event somewhere in the world.

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Wall Street is in for a quiet three and a half days of trading this week with many market participants on vacation and traders mostly focused on defending this year’s gains.

"There are a lot of lights out in investment management offices," said Lawrence Creatura, a portfolio manager with Federated Clover Investment Advisors. "It’s likely to be a quiet week."

The stock exchange will close early Thursday and will remain dark Friday for the Christmas Holiday. Many traders will take the entire week off.

And with the major indexes on track to post double-digit percentage gains for the year, those money managers who are on the clock next week will probably not be making any aggressive plays.

"Investors will have a very limited focus," said Doug Roberts, chief investment strategist for Channel Capital Research. "For the most part, people are trying to protect gains."

Still, traders will have to contend with a number of economic reports this week, including the final revision to third-quarter gross domestic product, data on personal income and spending, as well as weekly jobless claims numbers.

What’s more, the lack of participation means trading volumes could be low, which tends to amplify small moves and cause market volatility.

Meanwhile, investors continue to focus on the economic outlook for next year.

The Federal Reserve said last week that economic conditions continue to pick up, even as the central bank held interest rates at historic lows. It also noted that conditions in the financial markets have improved, and that it will allow most of its asset purchase programs, launched during the height of the financial crisis, to wind down on schedule.

"The consensus is for stepwise improvement in the economy in 2010," Creatura said. "Any deviation from that script will have pronounced effect on the market."

The market may also look to the dollar for direction. The greenback regained ground against the euro last week as concerns about the economic health of some major European economies weighed on the shared currency.

Greece’s credit rating was downgraded by Standard & Poors last week, and investors will be on the lookout for red flags from other euro zone economies.

"If we see further talk that S&P and Moody’s are going to look closer at Spain, another major economy, stocks here could take a hit," said Charlie Smith, an analyst at Fort Pitt Capital Group.

On the docket

Monday: Nothing scheduled

Tuesday: The Commerce Department will release its final revision of third-quarter Gross Domestic Product before the opening bell.

Economists surveyed by Briefing.com expect GDP, the broadest measure of economic activity, to have risen at an annual rate of 2.7% in the three months ending in September.

While that would be below the 3.5% growth rate the government projected in October, it still marks a substantial improvement over the previous four quarters, in which economic activity shrank.

Shortly after the market opens, the National Association of Realtors will release a report on existing home sales in November.

Wednesday: Government figures on personal income and spending in November come out in the morning.

Economists forecast a 0.5% increase in personal incomes, while spending is expected to be unchanged from the month before.

Reports on consumer confidence and new home sales are due out shortly after the opening bell.

The weekly crude oil inventories report is also due in the morning.

Thursday: A report on durable goods orders comes out before the start of trading.

Economists believe new orders for long-lasting manufactured goods rose 0.4% in November after a decline of 0.6% the month before. Excluding transportation, durable goods orders are expected to rise 1.0%.

The government’s weekly jobless claims report is also due in the morning, but no estimates were available yet.

The stock exchange will close at 1 p.m. ET and will remain dark Friday.  

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Builders in November probably broke ground on more U.S. homes, and gains in consumer prices were within the Federal Reserve’s long-term forecasts, economists said reports today may show.

Housing starts rose 8.5 percent to an annual rate of 574,000, according to the median forecast of 78 economists surveyed by Bloomberg News. A Labor Department report may show the cost of living climbed 0.4 percent last month.

Government tax credits, lower home prices and borrowing costs near record lows may stabilize sales and construction into the new year. A lack of inflation means Fed Chairman Ben S. Bernanke and his colleagues today will probably reiterate a pledge to keep the benchmark interest rate low for “an extended period” to ensure the economic recovery is sustained.

“The construction market is starting to come back,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “Residential construction is going to contribute to growth going forward.”

The Commerce Department’s housing report is due at 8:30 a.m. in Washington. Survey estimates ranged from 540,000 to 620,000.

Also at 8:30 a.m., the Labor Department’s report may show consumer prices compared with the same time last year rose 1.8 percent, according to the survey median.

Excluding food and energy costs, the so-called core index rose 0.1 percent after climbing 0.2 percent in October, according to the survey median. The gauge was probably up 1.8 percent in the 12 months to November, the survey showed.

Inflation Measure

Fed policy makers’ long-term forecast for their preferred measure of inflation, the Commerce Department index tied to consumer spending and excluding food and fuel, calls for gains in a range of 1.8 percent to 2 percent. That gauge, which is typically lower than the CPI, was up 1.4 percent in the 12 months to October guaranteed payday loans.

The housing report may also show building permits, a sign of future construction, increased 3.4 percent to a 570,000 annual pace, according to the survey.

Favorable weather probably also played a role in boosting construction last month, according to IHS Global Insight’s Newport. November was the third warmest in 115 years of record keeping, according to the National Climatic Data Center, giving builders an opportunity to keep working. By contrast, October was the wettest in the past century, contributing to the 11 percent drop in starts that month.

President Barack Obama’s extension last month of a first- time homebuyers’ tax credit of as much as $8,000 until April 30 will also give builders reason to speed up projects over the next couple of months.

Toll Brothers

Some companies are already seeing a turn. Toll Brothers Inc., the largest U.S. luxury homebuilder that reported a 42 percent surge in fiscal fourth-quarter orders, is anticipating a gradual recovery in the market, Chief Executive Officer Robert Toll said during a Bloomberg Television interview on Dec. 11.

“There is a pretty good reservoir of pent-up demand,” he said in New York City. “We don’t know how fast we’re coming back, but we do know we’re coming back.”

The Standard & Poor’s Homebuilder Supercomposite Index has gained 53 percent since March 9, compared with a 64 percent increase in the S&P 500 Index from a 12-year low reached that day.

Any sustained recovery will require gains in employment, economists said. The economy has lost 7.2 million jobs since the recession began, and economists surveyed by Bloomberg early this month forecast joblessness will average 10 percent next year.

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The city of Denver anticipates saving at least $11 million a year because 322 employees accepted a retirement incentive offer, Mayor John Hickenlooper announced Tuesday.

But the city also plans to fill about half of the positions left vacant by the retirements "to avoid interruption of vital services to the community," a statement from the mayor's office said.

Hickenlooper proposed the voluntary retirement incentive program for senior Denver workers in August as a way to cut the cash-strapped city’s payroll costs.

The offer was for workers covered by the Denver Employees Retirement Plan. Eligible employees needed to be either at least 65 years old, or at least 55 years old with their age and years of city service adding up to 75 or more.

Hickenlooper offered those workers $500 a month for 30 months after their retirement.

There were 932 employees eligible for the retirement incentive program, and 322 took the offer.

"The retirement incentive program was a win-win for the city and for employees who chose to accept the offer," Hickenlooper said in the statement. "… We are grateful for the service these employees provided to our community and wish them well in the next chapter of their lives."

The retirements also will help the city reduce the number of workers it intends to lay off to trim the budget, officials said.

When the proposed city budget was released in September, officials anticipated 176 layoffs. Now, they expect fewer than 80 workers to be let go.

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DUBAI–The "Dubai vision," which has suffered a crushing blow from the freewheeling Gulf emirate’s sudden debt crisis, is the creation of one man who failed to apply the rules of open governance.

The city state’s rapid growth revolved around the ruler Sheikh Mohammed bin Rashid Maktoum, who outlined his ideas in a book, My Vision, where he suggested other Arab countries could replicate Dubai’s success. Now the model – always controversial among Gulf Arabs since it involved building shining cities in the desert at breakneck speed through the import of foreign residents, finance and labour – is on the ropes.

Questions will surface over what went wrong.

This week Dubai said it wanted to delay payment on billions of dollars of its total $80 billion (U.S.) debt, sending global markets plummeting as investors feared defaults could hit the global economy just as it was recovering from the financial crisis.

"Where next for the ruling family in Dubai?" said British historian Christopher Davidson. "The massive loss of legitimacy that the ruler is now facing, the massive loss of legitimacy that his son and crown prince face after lying to the World Economic Forum last week – where do these guys go from here?"

Sheikh Mohammed, whose face and words grace posters all over town, told the forum this month that the worst had passed for Dubai, which was well-placed to pursue its development plans.

The news that investment vehicle Dubai World could not pay a $3.5 billion bond was released just before the Muslim Eid holiday and U.A.E. national day next Wednesday. Local media have almost entirely avoided comment on the debacle.

"Dubai could not be more transparent and open about the challenges it is facing due to the global economic downturn as it has been," the English-language Gulf News said. The Arabic daily al-Khaleej praised the U.A.E.’s investment climate.

There is uncertainty about what assets are owned personally by the ruling family, directly by the government or simply sponsored either by the ruler or the government.

Dubai was the envy of other Gulf states such as Saudi Arabia and Qatar, who sought to ape some of Dubai’s ideas, such as business free zones, financial centres, advanced infrastructure and welcoming Western capital and expertise.

Aside from its more eye-catching projects seen by many as white elephants, such as palm-shaped man-made islands and the world’s tallest tower, Dubai developed health services, universities, sports facilities and model urban communities.

Ayman Ali, a London-based Arabic press commentator, said the Dubai model, based on Hong Kong and Singapore, forgot it was dealing with a country and not a corporation in becoming a place where many in the Arab world dreamed of living. "In the beginning it was aimed at getting rid of bureaucracy and red tape. It worked fine but if you are building a country you shouldn’t go on running it like a company," he said.

Dubai ran to catch up with business transparency practices in Singapore and Hong Kong, and never even pretended to expand political participation beyond a small group around the ruler.

In an interview this year that epitomized the progressive image Dubai has tried to present, Sheikh Mohammed rejected the suggestion he was a "Superman" running a freewheeling emirate alone.

"The Superman phenomenon you are talking about does not exist in our organizations and institutions," he told the questioner – before going on to discuss how his poetry and horse-racing fit into his 24-hour-a-day schedule.

Despite its financial troubles, many still regard Dubai as a pioneer among its neighbours.

"There was a lack of transparency, yes, but Dubai did something whose model was full liberalism. They made mistakes and lacked a lot of things but they are in transition," said Dubai-based Ibrahim Khayat, a Lebanese strategic business analyst. "Singapore has corruption too."

Martin Hvidt, a Danish Middle East Studies professor who focuses on Gulf economies, said the concentration of power in the hands of Sheikh Mohammed and a few advisers meant Dubai could take quick action to rectify mistakes.

"It’s too early to write Dubai’s obituary," he said.

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Italian business confidence rose to the highest in more than a year in November on expectations that exports will help the recovery gather pace after the worst recession in six decades.

The Isae Institute’s manufacturing sentiment index climbed to 78.8 from a revised 77.4 in October, the Rome-based research center Isae said today. The reading compared with a median forecast of 78 in a Bloomberg News survey of 16 economists.

“The data confirms a positive trend for the output, a further sign that the worst is over,” said Silvio Peruzzo, an economist at Royal Bank of Scotland in London. “However, manufacturers need to rely on exports while domestic demand remains weak due to the growing unemployment.”

Italy emerged from the recession in the third quarter as the global recovery helped exports increase 6.6 percent in September from the previous month. The country posted a trade surplus in October compared with a deficit from a year earlier, national statistics institute Istat said today. After previously forecasting 0.7 percent growth for 2010, Finance Minister Giulio Tremonti said on Nov. 24 the economy may expand by “more than 1 percent” next year.

“Greater confidence is due to an improved outlook for orders, especially from abroad, and rising expectations on short-term production,” Isae said in today’s report. “Inventories remain below levels considered normal.”

Stimulus Spending

Government stimulus measures across Europe helped auto sales recover from a global decline caused by the recession. In Italy, they benefited the country’s biggest manufacturer, Fiat SpA. Sales of the Turin-based automaker rose 15 percent for the month of October.

Incentives to trade in old cars for newer models are due to be phased out and unemployment is still rising, which may weigh on consumer spending. Italy’s jobless rate climbed in the second quarter to a seasonally adjusted 7.4 percent, and will rise to 8.5 percent next year and 8.7 percent in 2011, the Organization for Economic Cooperation and Development said on Nov. 19.

Consumer confidence unexpectedly rose in November as optimism on economic growth outweighed concerns on the outlook for the labor market, Isae said yesterday. Manufacturers were more pessimistic about the job market than consumers, today’s report showed. A sub-index measuring expectations on employment fell to minus 17 in November from minus 16.

Isae conducted its latest survey of 4,000 companies between Nov. 2 and Nov. 18. The research center revised its October reading from an initial 77.1.

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