1. From negative infinity to a healthy account with giddy laughter and rosy cheeks, all in a matter of weeks. Who said your money isn't well spent?
   
2. Striking to see that the TARP and other funny money than banks receive doen't count as borrowed. What is it, a gift? Wasn't it a loan? Henry?
   
3. At least the fact that it's sitting at the Fed doing nothing is proof positive that they're not lending it out, as they are supposedly supposed to do.

Slowing tax revenues and a historic bailout of the U.S. financial system will send the budget deficit soaring toward $1 trillion this year, President-elect Barack Obama said yesterday, and the red ink stands to get substantially deeper if Obama wins approval of a massive economic stimulus plan. Even if the package of spending and tax cuts helps restore the nation's immediate economic health, Obama said, the government is likely to be left with "trillion-dollar deficits for years to come" unless policymakers "make a change in the way that Washington does business." "We're going to have to stop talking about budget reform. We're going to have to totally embrace it. It's an absolute necessity," the president-elect told reporters a day before the Congressional Budget Office is set to release its outlook for the coming year.

Obama faces the twin challenges of managing the deficit, the annual gap between tax revenues and spending, and the swelling national debt, the amount of money that the government has borrowed to finance years of deficits. His task is made all the more difficult because new spending is widely viewed as the best way to pull the nation out of the recession. While Obama has declined to say how he intends to deal with such challenges, an economic adviser said yesterday that the president-elect plans to unveil "major initiatives" designed to eventually bring the deficit under control as part of his first budget proposal, which he will submit to Congress next month. Obama also has scheduled a news conference for today to make a "personnel announcement" related to budget reform, aides said.

In the meantime, Obama said he will incorporate a trio of provisions in the nearly $800 billion stimulus package under review by Congress -- dubbed the American Recovery and Reinvestment Act -- to ensure that the money is not wasted. The provisions include establishing a special panel to monitor use of the money; a Web site that will allow taxpayers to monitor use of the money; and a ban on lawmakers' pet projects, known as earmarks. "We're going to be investing an extraordinary amount of money to jump-start our economy, save or create 3 million new jobs, mostly in the private sector, and lay a solid foundation for future growth. But we're not going to be able to expect the American people to support this critical effort unless we take extraordinary steps to ensure that the investments are made wisely and managed well," Obama said after an hour-long meeting with his economic team.

Today's CBO report will provide the first official estimate of how Washington's various economic salvage operations have affected the nation's finances. One of the primary participants in yesterday's meeting was Peter Orszag, who stepped down as CBO director in November to serve as Obama's budget chief. Orszag should be intimately familiar with the forthcoming CBO report; Obama said Orszag advised him of the grim deficit forecast. In announcing the news a day early, Obama cast himself as the unfortunate heir to President Bush's fiscal "irresponsibility," saying Bush's policies have doubled the national debt over the past eight years and delivered "the worst economic crisis that we've seen since the Great Depression."

Though Obama plans to keep some of Bush's most expensive policies -- including many of the tax cuts enacted during Bush's first term in office -- Obama has vowed to scour the budget for wasteful spending. "We are going to bring a long-overdue sense of responsibility and accountability to Washington," Obama said. "We are going to stop talking about government reform, and we're actually going to start executing." Bush's tax cuts helped eliminate the surpluses of the Clinton years and helped drive the annual budget deficit to a record $413 billion in 2004. The deficit later plummeted to $162 billion in 2007 but soared to $455 billion in the fiscal year that ended in September, largely because of a small stimulus package enacted last February, slowing tax revenues and rising expenses in Iraq and Afghanistan.

Initial projections suggested that the deficit for the fiscal year that began Oct. 1 would be about $550 billion. But since then, the budget outlook has only gotten bleaker. As the economy has weakened, tax collections have slowed, and spending on food stamps and unemployment benefits have increased. Meanwhile, Congress approved a $700 billion bailout to stabilize fragile financial markets by purchasing the stock and assets of banks, insurance companies and other institutions. Though much of that money is invested in assets that eventually will be sold, returning at least some of the money to the government, the bailout is likely to add another $200 billion to the deficit this year, according to a letter CBO analysts sent last month to House Majority Leader Steny H. Hoyer (D-Md.).

Those developments alone are pushing this year's deficit toward $1 trillion, said an Obama economic adviser. If approved, Obama's stimulus package would clearly add hundreds of billions of dollars to the deficit in 2009, the adviser said. Even if only half the stimulus money is spent this year, the deficit could easily top $1.4 trillion, or nearly 10 percent of the economy -- a budget hole not seen since the end of World War II. Many Wall Street analysts expect the deficit to go higher, however; a recent Treasury survey found that major bond dealers expect the nation to borrow as much as $2 trillion by the end of September.

The mounting debt has raised an alarm on Capitol Hill, where some Republicans and moderate Democrats are pressing Obama to tackle the looming challenge of skyrocketing Medicare and Social Security spending, and to adopt tough new budget rules to prevent future deficits from ballooning. Congressional aides said one possibility would be a return to the stringent budget rules of the late-1980s, when overspending automatically triggered across-the-board cuts to federal programs, a process known as "sequestering." Hoyer, a champion of fiscally conservative Democrats in the House, acknowledged that sequestering is an option. But it's "not something lawmakers are eager to approve," he said, because it would take control over federal spending out of the hands of Congress.

The U.S. economy is likely to deteriorate further this year and unemployment will rise into 2010, according to the latest forecasts from the staff of the Federal Reserve. This bleak forecast was presented to Fed policymakers when they met last month and lowered interest rates to near zero. Low interest rates are one key tool the central bank uses to try to spur economic activity. According to the minutes from that meeting, the central bank is now predicting that gross domestic product, the broadest measure of economic activity, will fall in 2009.

"I think that the Fed is really very scared right now -- like everybody else -- and they want to pull out all the stops," said David Wyss, chief economist for Standard & Poor's. The Fed indicated that most members at its meeting expected a slow recovery to begin in the second half of the year, but that unemployment would still rise "significantly" into 2010. Employers cut 1.9 million jobs over the first 11 months of 2008, which took the unemployment rate up to 6.7%. The December report will be released by the Labor Department Friday and economists surveyed by Briefing.com expect a loss of 475,000 jobs and that the unemployment rate will rise to 7%, which would mark a 15-year high.

The Fed cited a multitude of problems dragging down the economy besides rising unemployment, including stock market declines, low consumer confidence, weakened household balance sheets and tight credit conditions. It said business spending is also likely to fall due to weak retail sales and the credit crunch. In addition, some members of the Fed expressed concerns that the economy could worsen even more than currently expected. "Meeting participants generally agreed that the uncertainty surrounding the outlook was considerable and that downside risks to even this weak trajectory for economic activity were a serious concern," the Fed said in the minutes.

If the current recession, which began in December 2007, lasts throughout 2009, that would make it the longest U.S. economic downturn since the Great Depression. Wyss said he thinks there is now little debate among policymakers about the problems in the economy and the need to take unprecedented action. "They're already jumping, they're just asking how high," said Wyss. The minutes also showed that some Fed members are now more worried about the threat posed by deflation, or falling prices, than they are about inflation. Deflation can slow economic activity dramatically since it could lead to businesses to cut their production plans in the wake of lower prices.

The Fed also revealed more details about other moves it plans to make to boost the economy now that it has lowered rates as far as it can. According to the minutes, the Fed anticipates completing previously announced purchases of $600 billion in debt and mortgage backed securities from firms such as Fannie Mae and Freddie Mac by the end of June 2009. The plan to buy back these securities has already helped to lower mortgage rates in recent weeks. 

Wall Street stocks could struggle on Wednesday to cling to a two-month high after a dire labour market survey heightened concerns over the depth of the recession. A report by ADP Employer Services showed US companies cut an estimated 693,000 jobs last month. The decline was much worse than Wall Street’s expectations of 495,000 and was the largest since the measure began in 2001. The glum reading also sparked fears that Friday’s closely-watched non-farm payrolls report would be worse than already low expectations. Last month, Labor Department figures showed employers slashed payrolls by 533,000 in November, the deepest contraction since December 1974 and much worse than expected. Less than an hour before the opening bell, S&P 500 futures were down 13.3 points at 917.20, Nasdaq 100 futures were down 20 points at 1,251, while futures for the Dow Jones Industrial Average were down 104 points at 8,846. However, futures were above ‘fair value’, which takes into account interest rates, dividends and time to expiration on the contract.

A strong performance by technology shares helped the benchmark S&P 500 in the previous session reach its highest level since November and some in the market remain optimistic that stocks will rally at the start of the year. Bulls have argued the market is no longer surprised when economic data are even worse than already low forecasts, since stocks had already priced in bleak news. Yet the media sector could come under pressure on Wednesday after Time Warner warned it expected to suffer a non-cash impairment charge of about $25bn in the fourth quarter, sending the shares down 6.7 per cent to $10.25 in pre-market trade. The group said it would make a net loss in 2008 as a result, rather than a profit from continuing operations as previously forecast, and cited "goodwill and identifiable intangible assets at the Cable, Publishing and AOL segments”. Also weighing on sentiment on Wednesday was the admission from the chairman of Satyam Computer Services, the Indian outsourcing firm whose shares are listed in the US, that he had fixed the books for years.

India’s first major fraud case to emerge following the global financial crisis pushed the country’s stock market down by more than 5 per cent in spite of a wider rally in Asian equity markets. US-listed shares in Satyam sank 80.8 per cent to $1.80 ahead of the open on Wall Street. Meanwhile, Alcoa became the latest company to unveil plans for sweeping job cuts, with the intention to cut about 15,000 positions. The shares fell 6.5 per cent to $11.33 in pre-market trade after the materials group also disclosed its third cut in production in as many months. Elsewhere in the sector, Rohm & Haas lost 2.5 per cent to $60 after the Financial Times reported on Wednesday that Dow Chemical was prepared to miss next week’s deadline to seal the $15bn takeover of its rival.

A delay could allow Dow raise enough cash to complete the deal without taking on too much debt, but failure to meet next Monday’s deadline would result in penalties as the original agreement signed in July requires the group to pay about $100m more for every further month. Shares in Dow dipped 0.6 per cent to $15.96. European stocks were lower ahead of the open on Wall Street, snapping a six session winning streak. The FTSE Eurofirst 300 index fell 0.7 per cent to 883.41. Bond yields were higher. The yield on the two-year Treasury note was 5 basis points higher at 0.811 per cent while the 10-year Treasury note was 4 basis points higher at 2.482 per cent. The dollar was lower against major currencies early in New York, a sign its recent rally may be running out of steam. The dollar fell 0.4 per cent to $1.3583, lost 0.5 per cent to Y93.21 against the yen and dropped 0.9 per cent to SFr1.1030 against the Swiss franc. Gold was trading $2.20 lower at $865 per troy ounce. Oil prices edged higher early in New York. US crude prices were up $0.38 at $48.96 a barrel.

German unemployment rose for the first time in almost three years in December as the labor market caught up with an economy that shrank during most of 2008. The number of people out of work, adjusted for seasonal swings, rose 18,000 last month, the Nuremberg-based Federal Labor Agency said today. Economists expected an increase of 10,000, according to the median of 30 estimates in a Bloomberg News survey. The adjusted unemployment rate rose to 7.6 percent from 7.5 percent. The increase "is a trend change," Volker Treier, chief economist at the DIHK business association that represents 3.6 million companies, said in an interview. "The only question is how sharp we’re going in the other direction."

Companies such as Siemens AG are cutting factory production and jobs as evidence mounts that the global financial crisis is pushing Europe’s largest economy deeper into recession. Cooling growth and rising unemployment increase pressure on the European Central Bank to continue cutting interest rates and may harm Chancellor Angela Merkel’s chances of securing a second term in September’s national election. Germany’s export-driven economy is in a so-called technical recession after shrinking in the second and third quarters of 2008. The economy may have contracted by up to 1.75 percent in the final three months of the year, the Frankfurter Allgemeine Zeitung reported Dec. 15, citing an Economy Ministry forecast.

Business confidence dropped to the lowest in more than a quarter century in December and exports, industrial output and manufacturing orders all declined in October. Economists are divided over how much unemployment will increase this year. The Kiel-based IfW economic institute, predicting an economic contraction of 2.7 percent, said the number of job seekers will rise by 400,000 on average from 2008. The Berlin-based DIW institute sees an increase of 200,000. "Up until now, the labor market has been spared from recession," said DIW economist Christian Dreger, who forecasts the economy will shrink around 1 percent this year. "That suggests that most companies assume they’re facing only a temporary crisis." Bad news from the labor market and the broader economy may dominate the campaigns in elections this year that culminate in a federal ballot in September.

Merkel’s government has already taken measures to help keep staff on payrolls even amid slumping business. In its first economic stimulus package, which went into effect on Jan. 1, it extended labor agency aid to workers affected by shortened shifts to 18 months from six months. Merkel proposed a second set of measures that include the government paying half of employers’ social insurance contributions for short-shift workers. The package -- as much as 50 billion euros ($68 billion) over two years -- was agreed in principle by leaders of Merkel’s coalition on Jan. 5. Still, slumping orders abroad and at home for German cars and machinery are sending ripples through the economy. Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, on Jan. 5 said U.S. sales fell 36 percent last month from a year earlier.

Daimler AG said U.S. sales at its Mercedes-Benz Cars unit fell 24 percent from a year earlier. While Germany’s biggest companies have pledged a "voluntary no-firing policy" after a meeting with Merkel on Dec. 15, associations representing smaller businesses have said they can’t guarantee that jobs will be saved. A drop in oil prices from a record in July is cooling inflation across the euro area, giving the ECB leeway to reduce borrowing costs. Investors indicate they expect the ECB to cut its key interest rate by at least 50 basis points at its Jan. 15 meeting, according to Eonia forward contracts. The central bank has already lowered the rate by 175 basis points to 2.5 percent since early October. According to the latest comparable data from the Organization for Economic Cooperation and Development, Germany’s jobless rate was 7.1 percent in October, compared with 8.2 percent in France and 6.5 percent in the U.S. In the euro region, unemployment probably rose to 7.8 percent in November from 7.7 percent in October, economists’ forecast. The EU statistics office in Luxembourg will publish that data tomorrow at 11 a.m. In western Germany, the number of people out of work rose by a seasonally adjusted 19,000 in December, while the number in eastern Germany fell by 1,000, today’s report showed.

Investors shunned one of the most liquid and safest assets in the world on Wednesday as a German bond auction failed in a warning for governments seeking to raise record amounts of debt to stimulate their slowing economies. It is the first eurozone bond auction of the year and an ominous sign of potential trouble ahead for governments around the world, with an estimated $3,000bn expected to be issued in sovereign debt this year – three times more than in 2008. The auction of 10-year bonds failed to attract enough bids to reach the €6bn the government wanted to raise. Although a number of German bond auctions failed last year, it was almost unheard of before the credit crisis.

Meyrick Chapman, a fixed-income strategist at UBS, said: "When a German bond auction fails, then that does suggest there is trouble ahead for governments wanting to raise money in the debt markets. There was certainly a supply/demand imbalance because of the large amount of issuance in the last quarter of 2008 and the large amount due in the coming months. Before the financial crisis, German bond auctions just did not fail.” Although government bond yields are trading at historically low levels, because of fears of deflation and investor demand for safe government paper in an uncertain climate, the failed German auction is a sign that appetite for these bonds is starting to diminish.

A number of countries, including the UK, Italy, Spain, Austria, Belgium and the Netherlands, have either struggled to sell bonds or been forced to cancel debt offerings because of a lack of demand. The UK successfully sold £2bn in gilts due to mature in 2038 on Wednesday. However, Robert Stheeman, chief executive of the UK Debt Management Office, warned last month that the K government could also struggle to sell bonds because of the vast amount of bond issuance in the pipeline. The UK is planning to raise £146bn in bonds this financial year – three times more than last year.

Britain may overwhelm bond investors with a record number of quarterly debt sales, risking the first failed auctions since 2002 as the economy sinks into the worst recession since World War II. "I’m not predicting that we will have failed auctions, but I can’t rule that out," Robert Stheeman, chief executive officer of the U.K. Debt Management Office, or DMO, said in an interview last month. "It’s a big amount of debt to be sold. We are in a very different world than we were six months or a year ago. But I believe it’s a challenge that both we as an organization and the market will be able to meet."

The DMO, which oversees auctions of so-called gilts for the Treasury, today held the first of 20 sales earmarked for January through March, selling 2 billion pounds ($2.98 billion) of 4.75 percent bonds due 2038. The U.K. said it plans an unprecedented 146.4 billion pounds of debt sales in the fiscal year ending March 31 as Prime Minister Gordon Brown’s government seeks to finance bank bailouts and revive the shrinking economy amid a decline in tax revenue. The U.K. had two failed auctions in the past 10 years, the most recent in September 2002 when the DMO received bids for 95 percent of the 900 million pounds of 30-year inflation-protected bonds offered, according to the agency’s Web site. The other failure came in 1999, when it tried to sell 500 million pounds of inflation-protected bonds maturing in 2030.

The London-based DMO held nine auctions in the first three months of last year and the first quarter average in the past five years was eight. A failed, or uncovered, auction, is "nothing more than a market event" that would show supply isn’t balanced against demand on the day of a sale, Stheeman, 49, who joined the DMO from Frankfurt-based Deutsche Bank AG in 2003, said Dec. 5. "What’s slightly different is if you have a series of failed auctions," said Stheeman, whose first job as an 18-year- old apprentice at Vereins-und Westbank in Hamburg involved cutting the coupons off bond certificates so that interest payments could be cashed. "That means the program we have announced may need to be changed and we wouldn’t want that to happen. At a time like this, we have to have our ears very close to the market."

The 2038 gilts sold today attracted bids 1.7 times the securities offered, the DMO said. The so-called yield tail, or the difference between the yield at the lowest accepted price minus the average price, was less than a basis point, indicating dealers generally bid at higher prices. The sale "met with a strong response," Charles Diebel, head of European interest-rate strategy in London at Nomura, said in an e-mailed note today. "While the merits of this issue were clear, we have 10-year supply next week and with 51 billion pounds to get away in the first quarter, we are not convinced that consequent issues will fare as well." Yields on 30-year gilts, which rose for a fourth day yesterday, fell one basis point to 3.97 percent after the auction. The price of the 4.75 percent security due in December 2038 climbed 0.22, or 2.2 pounds per 1,000-pound face amount, to 113.62. The U.K. issued 58.4 billion pounds of securities last year and 62.5 billion pounds the previous year. It has sold 94.67 billion pounds this fiscal year, leaving 51.73 billion pounds left to be issued, which would be a record for one quarter.

The DMO is selling a record amount of debt as governments around the world increase borrowing. The U.S. may sell as much as $2 trillion this fiscal year ending Sept. 30, Treasury Assistant Secretary Karthik Ramanathan said Dec. 10, citing analysts’ estimates. Germany’s Federal Finance Agency will issue a record 323 billion euros ($434 billion) of debt including 149 billion euros in bonds, it said Dec. 18. Japan’s Ministry of Finance said Dec. 20 it will offer 113.3 trillion yen ($1.2 trillion) of bonds in the 12 months starting April 1, up from 106.3 trillion this fiscal year. Britain’s economy will probably contract 2.9 percent this year, the most since 1946, driving 32,300 companies out of business and doubling the number of people receiving jobless benefits to 2 million, the Centre for Economics and Business Research, a London-based study group, said on Jan. 1. The median of 13 forecasts compiled by Bloomberg is for gross domestic product to fall 1.4 percent in 2009, from 0.8 percent growth in 2008 and 3 percent expansion in 2007.

Brown, who took over as prime minister from Tony Blair in June 2007, unveiled a 50 billion-pound program in October to bolster the finances of three of the U.K.’s biggest banks as credit dried up amid $1 trillion of writedowns and losses worldwide by financial companies since the start of 2007. In November, he announced a 25.6 billion-pound package of tax cuts and spending increases. "It isn’t obvious to everybody the spending package will translate into an enormous size of debt issuance," said Jason Simpson, a fixed-income strategist in London at Royal Bank of Scotland Group Plc, one of the 15 primary dealers that bid at government debt auctions. "Ultimately, that will have to be paid back. The DMO has been successful so far, but it’s conceivable an auction isn’t fully covered at some point."

The government was forced to increase its annual gilt- issuance plan twice as the nation’s budget deficit ballooned to 56.1 billion pounds in the first eight months of the year, the most since at least 1993 and double the 29.2 billion pounds a year earlier. In March, it expected to sell 80 billion pounds of debt. In October, it estimated 110 billion pounds of issuance. Gilt sales are unlikely to drop below 100 billion pounds anytime soon, according to Deutsche Bank, another primary dealer. Issuance will be 130 billion pounds next fiscal year and 140 billion pounds the year after, George Buckley, chief U.K. economist in London at Deutsche Bank, said Nov. 24, the day the government published its pre-budget report. "I don’t think anybody could have foreseen the overall quantum of financing that we have to raise," said Stheeman. "In a strange way, the whole world has been thrown upside down" by the credit crisis, he said.

Sales will be skewed toward securities maturing within seven years, the DMO said in November. Short-dated notes will account for 62.8 billion pounds, or 43 percent, of the issuance, medium-dated notes 23 percent and long-dated bonds 21 percent. Fourteen percent of the issuance will be inflation-protected bonds. Soaring demand for the safety of government bonds pushed down yields on two-year gilts about 330 basis points, or 3.30 percentage points, last year, the biggest annual decline since at least 1993. The DMO sold bonds due in 2011 at a yield of 2.57 percent on Dec. 18, the lowest level in almost 60 years. "Yields are so low that short-dated gilts offer no value at all," said John Anderson, head of interest-rate investments in London at Rensburg Fund Management, which has about $3 billion of sterling-denominated assets. "There will only be huge appetite for bonds at these yield levels if you think the world is coming to an end."

The incoming Administration may be looking beyond infrastructure spending to business and personal tax cuts to pump nearly $1 trillion into the economy. As the economy heads deeper into a recessionary abyss, business tax cut ideas that seemed to be nonstarters just a few short months ago are suddenly back on the table. Take the incoming Obama Administration's embrace of a measure that would lengthen the period for money-losing companies to write off net operating losses against profits from the current two years to four or five years. The proposal, floated on Dec. 5 following a meeting between Obama and congressional leaders, was originally discussed last spring when the Bush Administration assembled a stimulus package. (The idea was modeled after a similar measure enacted after the September 11 terrorist attacks.) But the provision was viewed as a giant giveaway to banks and money-losing homebuilders and it was scrapped from the package.

Now, with the incoming Administration looking to pump something close to $1 trillion into the economy, business and personal tax cuts of as much as $300 billion—with perhaps $100 billion aimed at business—are seen as quick ways to inject money. While infrastructure spending is getting a lot of attention, business groups note that this stimulus can go only so far. Aric Newhouse, senior vice-president for policy and government relations for the National Association of Manufacturers (NAM), said that he has heard projections of stimulus spending reaching $1.3 trillion over two years. "The idea of spending $1.3 trillion—it's hard to think about how you would spend that all on infrastructure alone," he says. "The last highway bill was about $270 billion for all highway projects, for five years total." The business tax cuts would get strong political and business support—in particular, the net operating loss provision is favored by Max Baucus (D-Mont.), chairman of the Senate Finance Committee.

Other business tax cuts Obama is considering would extend so-called bonus depreciation, which allows profitable companies to write off investments more quickly, and give companies that hire new workers a one-year tax credit at a total cost of $40 billion to $50 billion over two years. But many around Washington are dubious about whether a new jobs tax credit would produce a lot of hiring that wouldn't take place otherwise. "I don't think a $2,000 or $3,000 credit will create a job," said John Engler, president of the NAM. "You need a business reason first. A job credit by itself is not a business reason." The Obama team has not fixed a dollar figure on the net operating loss provision. When Congress considered the same idea last year, carrying back losses to offset profits in the previous five years would have provided businesses an estimated $25.5 billion in refunds.

"Extending bonus depreciation and extending net operating loss will help get Republicans on board," says Dan Clifton, head of policy research for Strategas Research Partners. "There's no question a stimulus bill will pass. The question is whether it looks bipartisan or not." Clifton, in a report on the net operating loss provision, says it would be a "net positive" for homebuilders, regional banks, automakers, and other companies that made money in recent years but are now facing losses. Among companies Clifton thinks could potentially benefit from the stimulus provision are Sprint Nextel; General Motors; Citigroup; CBS; Ford; MBIA; Coca-Cola Enterprises and D.R. Horton. "The government is just pouring money into these companies," Clifton says. "It remains to be seen if it will be enough to get them investing again—or it just stops further destruction of their financial position."

America is slipping away from the free trade church. The new wave of radical Democrats sweeping into Capitol Hill are insisting on a "Buy American" clause in the $750bn (£503bn) fiscal package being prepared by President-Elect Barack Obama. The $17bn bail-out of General Motors and Chrysler last month was already a step across the Rubicon towards a protectionist industrial policy, even if that was not the motive. The EU is exploring a World Trade Organisation complaint over "illegal state aid." But the latest Buy American move is much more explicit.

"This is quite dangerous," said Peter Sutherland, chairman of Goldman Sachs International and a former director-general of the General Agreement on Tariffs and Trade (GATT). "The US is the key to keeping a one-world trading system, but there is always the tendency to go for protectionism in a recession, and this is the worst one I've ever seen." Hans Redeker, currency chief at BNP Paribas, says the US risks setting off a collapse in discipline across the world. "The US has a leading role so this could set off a huge response in other countries," he said. "There is already talk of a €100bn (£91bn) fund in Germany to save its industry from being sold off cheap."

French president Nicolas Sarkozy has proposed a "strategic investment fund" to fend off "predators" – a euphemism for sovereign wealth funds from Asia and Russia – hoping to snap up France's crown jewels. "We will intervene massively whenever a strategic enterprise needs our money," he said. Nationalist measures are becoming ever more brazen in emerging markets. Indonesia is resorting to special "licences" to choke off imports. Russia has reacted to the collapse in oil prices by imposing tariffs of 30pc on cars and 15pc on farm machinery. India and Vietnam have imposed duties on steel. Pascal Lamy, the WTO chief, is so worried he has taken to displaying portraits of Willis C. Hawley and Reed Smoot at his Green Room in Geneva, evoking the arch-villains of the Smoot-Hawley Tariff Act that set off the trade wars of the Great Depression. The Act was forced upon a disgusted President Herbert Hoover in June 1930. This is the pattern in democracies. Lawmakers – with a constituency base – are the first to push for protection.

The question today is whether Mr Obama will try to stop it. His top advisers – Larry Summers, Tim Geithner, Peter Orszag – are free-traders with a global outlook. But Mr Obama himself dabbled in protectionism during the campaign. It is not clear how much political capital he will risk by threatening a trade veto within days of taking office. So far his team has been evasive, saying it is "reviewing the Buy American proposal". "In the mind of Congress, almost anything that targets China is now considered fair game," said Professor Gary Hufbauer, from Washington's Institute of International Economics. Mr Obama shares the irritation with Beijing. "China must change its currency practices. Because it pegs its currency at an artificially low rate, China is running massive current account surpluses. This is not good for US firms and workers, not good for the world," he said in October.

China's actions since then seem designed to test his mettle. Beijing is holding down the yuan again, even though China now has a surplus of $40bn a month. "My guess is that there is a fierce debate within the Obama team," said Prof Hufbauer. "This could be very serious. The US can do what it wants under government procurement rules. Unfortunately the rest of the world is going to notice: they'll get their own lawyers to find ways of doing the same thing," he said. "I am hopeful this move to protectionism will be slower to take hold than in the 1930s,but it is a race against time. If the sun doesn't start to come up on the economy and we're still grinding along in mid-2010, then I'll be worried," he said. For the great exporters –China, Japan, Germany – a trade war would be a crippling blow to industry. For the great importers – the US, UK, Southern Europe – it could set off a bond meltdown as capital flows from Asia dry up. The two sides are bound together by imbalances. It is hard to see who can "win" if discipline breaks down.

This weekend, Barron’s declared the existence of a Treasury bubble, encouraging its readers to consider high yield municipal and corporate bonds as an alternative. Everywhere I turn, I find another market pundit suggesting the equity market has bottomed, or the commodity bust is over. And -- for a short-term trade -- I don’t necessarily disagree. But for one to believe we have truly bottomed at this point, you have to believe in a V-shaped recovery. Put simply, I don’t. In fact, I am somewhere between a U-  and an L-shaped recovery - certainly nowhere near a "V." But rather than beat old drums,, let me offer a new thought. The following is a list of the world’s 25 largest financial institutions as of the end of 2007:


I hope it's immediately clear that every one of these firms has been adversely affected by the current crisis - some enormously so. By my count, 4 have been fully nationalized; all the rest have received what I consider to be "controlling" interests by their home governments. More importantly, these firms -- along with maybe another 10 or 15 financial-services firms (all of whom have been similarly affected), dominate the global credit markets and represent somewhere between 60% and 75% of the world’s total lending capacity. So, to put things very simply: Credit = government, at least until further notice.

While I will leave it to others to debate whether this outcome is a just reward for management negligence, at best -- or malfeasance, at worst -- like it or not, strategic decisions for these firms and their ilk aren't going to be made by private-sector capitalists on Wall Street or in Canary Wharf. Instead, they'll be made by the public servants of the largest governments around the world. And here's where the rubber meets the road - or doesn’t, as the case may be. In watching the behavior of governments worldwide, it appears their general operating principle right now comes from A Field of Dreams: "If we build it, they will come." That is, if banks would just make money available, people would borrow anew, and the global economy would quickly recover. But the bubble that just burst was a credit bubble, and more credit isn't going to make everything better.

Banks need to recognize their losses and rebuild capital, so that they will ultimately be in a position to lend when asset prices finish falling. In the hands of government, however, I highly doubt this will happen anytime soon - particularly as loss recognition calls the adequacy of government oversight into question. Instead, under government influence, we will do whatever we can to postpone our losses. Having spent a considerable amount of time in Japan during the early 1990s, I watched this happen firsthand and in real time: Bankers and bureaucrats both unwilling to face reality for fear of losing face. It was immensely frustrating, but it gave me great insight into how governments handle large-scale crises. So, to all those declaring a market bottom: You are putting your fate in the hands of government. As for me, with history as my guide, I will gladly sit this one out - and watch "V" become "U," and, if we aren’t careful, "L."

Asian economic growth, after slowing this year, will probably rebound in 2010 as government spending and interest rate cuts spur demand, BNP Paribas SA said today Asia, excluding Japan and China, will grow 4.3 percent next year after a 1.4 percent expansion in 2009, Richard Iley, an economist at the bank, wrote in a report. Public spending in China, Taiwan and South Korea, combined with increasingly loose monetary policy, should help to drive a "reasonably vibrant" recovery, he said. Asian governments are planning more measures to boost growth as a slump in global demand hurts exports, deepening the region's economic slowdown. South Korea has pledged about $30 billion in extra spending and tax cuts since September. China may follow a 4 trillion yuan ($585 billion) spending package announced November with a second plan as early as this month.

"The scale of the global policy response -- monetary and fiscal -- should ensure the recovery is more V than U-shaped," Iley said. "In many instances, economies will experience a 6 to 7 percentage point swing in growth rates." The MSCI AC Asia Pacific Index rose 1.9 percent at 1:43 p.m. in Tokyo today, taking its gain since reaching a five-year low in October to 23 percent. Iley's report, titled "Asia: Apocalypse Now," said that before improving, Asia's economic growth would deteriorate in 2009. "Global industrial production appears to have collapsed at a 30-40 percent annualized rate since September," he said, referring to the "biggest demand shock since the 1930s." As a result of the drop in output, BNP Paribas cut its 2008 forecast for Asian economic growth to 1.4 percent from a November prediction of 3.9 percent. The region comprises Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand, according to BNP Paribas.

Iley said China will grow about 7.7 percent in 2009, helped by the November fiscal package "worth an eye-popping" 14 percent of gross domestic product over two years. The economy probably expanded 9.3 percent in 2008, slowing from 11.9 percent the year before. He predicted 8.1 percent growth in 2010. Hong Kong will grow 3.5 percent in 2010 after shrinking 3.4 percent this year, the bank predicted. Taiwan will expand 3.9 percent after contracting 3.3 percent; Singapore will grow 4.4 percent after declining 2.8 percent this year. South Korea will expand 3.2 percent, rebounding from a 2.4 percent contraction.

Taiwan’s exports slumped by a record 41.9 percent in December on weaker demand from the U.S. and China for laptops, mobile phones and computer chips. Shipments fell for a fourth month, extending the longest losing streak in almost seven years, the Ministry of Finance said in Taipei today. The drop was more than the median estimate of a 30 percent decline in a Bloomberg survey of 13 economists. The central bank slashed its benchmark interest rate today to the lowest level since 2004 after plunging exports added to signs the economy is in a recession. The global economic slowdown has reduced orders for companies including Taiwan Semiconductor Manufacturing Co. and AU Optronics Co., prompting some to shut factories, freeze wages and pare employment.

"Exports are likely to remain in the doldrums in the first quarter," said Cheng Cheng-mount, an economist at Citigroup Inc. in Taipei. "Taiwan exports are mostly tech-related and demand has fallen as consumers stop buying because they aren’t confident of what’s ahead." The central bank cut its key rate to 1.5 percent from 2 percent, the sixth reduction since late September. The economy shrank 1 percent in the third quarter from a year earlier, the first contraction since 2003. Taiwan’s export decline is being mirrored in economies across Asia. The World Bank forecasts international trade will shrink in 2009 for the first time in more than 25 years. Malaysia’s shipments fell 4.9 percent in November, the second straight drop, its trade ministry said today. South Korea’s overseas sales plunged 17.4 percent last month, a Jan. 2 report showed.

Taiwan’s exports fell to $13.6 billion last month, compared with $16.8 billion in November. Imports declined 44.6 percent to $11.8 billion, resulting in a trade surplus of $1.86 billion. The report was released after the close of trading on the stock exchange. The Taiex stock index rose 1.3 percent to 4,789.84. Taiwan’s dollar gained 0.2 percent to NT$32.957 against the U.S. dollar. "Slower exports will weaken domestic demand by generating less income for households and businesses," Sean Yokota, an economist at UBS AG in Hong Kong, wrote in a report today. "We expect the economy to fall into a recession." Shipments to China decreased 57.1 percent because of weaker demand for electronic components used in products assembled by the mainland for export. Shipments to the U.S. declined 23.5 percent from a year earlier. Exports to Europe fell 29.5 percent.

China and the U.S. are Taiwan’s two biggest markets. Exports are equivalent to about 70 percent of the island’s gross domestic product. "Exports in the first half are likely to remain weak, before picking up in the second half," Lin Lee-Jen, director of the statistics department at the Ministry of Finance, told reporters. Taiwan Semiconductor, the world’s largest producer of chips designed by other companies, on Dec. 1 cut estimates for fourth- quarter sales and profits after shipments fell. The chipmaker asked employees to take unpaid leave, extending cost-cutting moves. Global semiconductor sales will drop 16 percent as consumer spending declines, researcher Gartner Inc. said last month. Taiwan’s exports of electronic products dropped 43.4 percent last month, after falling 25.3 percent in November. Sales of electronics by companies including AU Optronics, the island’s largest flat-panel maker, were worth $3.2 billion.

It looks like President-elect Obama is picking up President Clinton's promise to end welfare as we know it. Back in those pre-welfare reform days, welfare checks went to poor families. Welfare as we know it now seems to involve giving taxpayer dollars to Citigroup and other banks. The media seem to have largely overlooked the Citigroup tax credit in their discussion of the latest items in President Obama's stimulus proposal. According to the Washington Post, the proposal will allow companies to write off current losses against taxes paid over the last 4-5 years, not just 2 years, as in current law.

There are relatively few companies that could benefit from this tax break since most companies will not have losses so large that they would need more than two years of tax payments to balance them against. But, really big losers, like Robert Rubin's Citigroup, and other badly failing financial institutions, are losing much more money in 2008 and 2009 than they earned in 2006 and 2007. Did the political connections of Robert Rubin and others in the financial industry have anything to do with the decision of Obama's economic team to be so generous to them? I don't have an answer to that question, but the media should be asking it.

President-elect Barack Obama arrived on Capitol Hill yesterday and immediately set to work reassuring skeptical Republicans about his massive economic stimulus package -- part of a campaign that earned him praise for seeking their input but questions from those averse to hundreds of billions of dollars in new spending. Pitching a plan that is expected to include $300 billion in tax cuts, Obama pledged to consult Republican leaders, who until yesterday had been left out of negotiations between the president-elect's advisers and congressional Democratic staff. "The monopoly on good ideas does not belong to a single party. If it's a good idea, we will consider it," Obama told House and Senate leaders at an hour-long closed-door meeting, according to one attendee.

Obama, making his pitch two weeks before taking office, won generally favorable reviews from GOP leaders, particularly because of his decision to increase the tax-cut ratio to 40 percent of the overall package. Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader John A. Boehner (R-Ohio) told reporters they were convinced that Obama was sincere in his invitation to let Republicans help craft the nearly $800 billion package to create jobs and lift the nation out of recession. But they also expressed concerns about the size of the package, as well as particular elements under discussion between Obama and Democratic lawmakers. "I remain concerned about wasteful spending that might be attached to the tax relief. Simply put, we should not bury future generations under mountains of debt," Boehner said.

Boehner suggested the legislation would likely be signed into law by mid-February, but the president-elect said yesterday that he would like the House and Senate to present him with a bill by the end of January or beginning of February. "The economy is very sick," Obama said. "The situation is getting worse. . . . We have to act and act now to break the momentum of this recession." As described by his advisers, Obama is proposing a package of tax cuts to benefit families and businesses. Like the overall spending proposal, the tax cuts would be designed to put cash in people's pockets over the next two years and kick-start the economy. Working families would be eligible for a tax credit worth up to $1,000. Individuals would be eligible for a $500 credit. Businesses would get an extension of expired tax breaks from the 2008 stimulus package signed by President Bush, including a "bonus depreciation" break that allows businesses to write off more of their purchases more quickly and an increase in small-business expensing limits.

Businesses could apply current losses to taxes paid back as far as five years ago, reaping an immediate cash windfall. And they would receive a $3,000 tax credit for every job they create or preserve. Key details of the stimulus proposal remain unresolved. For instance, upper-income individuals would not be eligible for the income tax credit, but the income threshold for phasing out the benefit has not been set. Obama officials said it would likely be about $200,000 a year, the range set during the campaign. Obama officials said they tried to keep the package ideologically neutral, rejecting an option supported by many progressives to make people who are not working eligible for a "refundable" tax credit. And they passed up conservative provisions such as estate tax relief and capital gains tax cuts that disproportionately benefit wealthier individuals.

After a lunchtime session with his economic advisers, Obama rejected suggestions that the tax cuts were designed to win over GOP votes. "The notion that me wanting to include relief for working families in this plan is somehow a political ploy, when this was a centerpiece of my plan for the last two years doesn't make too much sense," he told reporters. Some prominent Republicans expressed reservations about the tax proposals' specifics. Jon Kyl (Ariz.), a member of the Senate Republican leadership team, said he hadn't studied the list of proposed cuts, but that he favored reducing corporate and capital gains taxes, and providing more generous small-business incentives. And, he said, "These changes should be permanent, rather than just temporary." Sen. Charles E. Grassley (Iowa), the senior Republican on the tax-writing Senate Finance Committee, said he would prefer a tax package that is "inclusive rather than exclusive" and that offers relief to "as many as taxpayers as possible." One option, according to a senior Grassley aide, would be to include a $75 billion provision to prevent the alternative minimum tax from applying to millions of additional families.

It is also not clear that tax cuts are the most effective way to win GOP votes. Two key Republican moderates in the Senate -- Susan Collins and Olympia J. Snowe, both of Maine -- have not focused on tax breaks as the best solution to the economic crisis. In a letter to Obama last month, Collins outlined her stimulus priorities as transportation construction projects, energy-efficiency investments and a temporary increase in Medicaid assistance to states. In conversations with Obama and his Treasury secretary-designate Timothy F. Geithner, Snowe has urged the inclusion of unemployment assistance, mortgage relief for strapped homeowners and programs to ease the credit crunch facing small businesses. "With more than 10.3 million people currently out of work, Congress must swiftly enact economic recovery legislation that will create jobs, assist the unemployed and reduce the devastating rate of home foreclosures," Snowe said.

Obama bounced across the Capitol yesterday to take part in three meetings, beginning with a one-on-one meeting with House Speaker Nancy Pelosi (D-Calif.) in the morning and a sit-down in the early afternoon with Senate Majority Leader Harry M. Reid (D-Nev.). The final meeting was with the bipartisan leadership from both chambers. Democrats described the atmosphere as markedly different than the confrontational tone of recent battles with the Bush White House, in part because the new administration is run by former senators. "They understand the Senate, they understand the Capitol. It wasn't as if someone new was coming to town," Sen. Richard J. Durbin (D-Ill.), the majority whip and close Obama ally, said afterward. Some Republicans, while saying they were pleased by Obama's attempt to open dialogue, questioned whether the spending side of the plan would be transparent enough. Rahm Emanuel, Obama's chief of staff, pledged to put details of the spending plan online, including the creation of a monitoring system for the progress on some of the projects, according to one attendee.

Some independent analysts joined GOP aides in questioning Obama's tax credit for job creation, saying it's unclear how such a provision would be crafted. "When somebody lays off 10,000 people but hires back 1,000, should they get a tax credit? That doesn't really seem fair," said Leonard Burman, a director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution. "The problem with these things is defining what qualifies." Meanwhile, some Republicans and moderate Democrats are pushing Obama to commit to addressing the nation's long-term budget problems even as his stimulus package pushes the government deeper into debt. With congressional budget analysts expected to announce later this week that this year's deficit is likely to soar well over $1 trillion, a commitment to reducing future deficits is critical, said Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee. "At some point here, you have to pivot and face up to these long-term problems," said Conrad, who along with Sen. Judd Gregg (R-N.H.) is proposing a commission to re-examine the expensive entitlement programs Social Security, Medicare and Medicaid.

Orders placed with U.S. factories in November fell twice as much as forecast, signaling businesses are cutting back on investments as the recession deepens. Demand fell 4.6 percent after a revised 6 percent decrease in October that was larger than previously estimated, the Commerce Department said today in Washington. The back-to-back decline was the biggest since records began in 1992. Companies are likely to pare spending further as access to credit dries up and global demand slows. President-elect Barack Obama has proposed a two-year economic stimulus package, costing as much as $850 billion, with an emphasis on infrastructure projects that may give manufacturing a boost.

"Consumer-durable spending is way down as credit is more difficult to get," said Douglas Smith, chief economist for the Americas at Standard Chartered Bank in New York, said in an interview with Bloomberg Television. "With weakness overseas, you’re also seeing fewer orders for U.S. manufactured goods." Factory orders were forecast to fall 2.3 percent, after a previously reported 5.1 percent drop the prior month, according to the median estimate of 60 economists surveyed by Bloomberg News. Projections ranged from declines of 0.4 percent to 6.5 percent. Factory sales plunged 5.3 percent in November, the biggest drop on record. Orders for durable goods, which are those meant to last at least three years and make up just less than half of total factory demand, dropped 1.5 percent. Commerce estimated the decline at 1 percent in a Dec. 24 report.

Boeing Co., the world’s second-biggest commercial-airplane maker, said it received 7 orders for aircraft in November, down from 14 the previous month. The Chicago-based company resolved an 8-week strike on Nov. 1 by 27,000 machinists that may have weighed on that month’s orders.
Bookings for autos and parts declined 0.1 percent. U.S. automakers remain in a slump. Automakers sold 10.3 million light vehicles at an annual rate in December, capping the worst year for the industry since 1982, according to industry figures released yesterday. Excluding transportation gear, bookings dropped for a fourth consecutive month. Demand for capital goods excluding aircraft and military equipment, a measure of future business investment, increased 3.9 percent, less than Commerce estimated in last month’s durable goods report. Shipments of those goods, used to calculate gross domestic product, dropped 0.2 percent, wiping out the previously estimated gain.

Orders for non-durable goods plunged 7.4 percent, paced by declining demand for petroleum, chemicals and plastics that partly reflecting falling commodity costs. Orders for petroleum and coal products fell 21 percent. The bad news probably continued last month. Factory activity contracted in December at the fastest pace since 1980, the Tempe, Arizona-based Institute for Supply Management said last week. The group’s measure for new orders reached its lowest level since record-keeping began in 1948, and prices slid the most since 1949. Worthington Industries Inc., the largest U.S. maker of steel frames for cars and buildings, on Dec. 18 reported a second- quarter loss of $159.5 million compared with a $14.7 million profit a year earlier as the global recession sapped demand for automobiles and buildings.

The U.S. economy contracted at a 0.5 percent annual rate in the third quarter, the Commerce Department said Dec. 23. The economy probably shrank at a 4.3 percent annual rate in the last three months of 2008, the biggest contraction since 1982, according to the median estimate of 51 economists surveyed last month by Bloomberg. Factory inventories decreased 0.3 percent, and manufacturers had enough goods on hand to last 1.41 months at the current sales pace, up from 1.33 months in October. The jump in the inventory-to-sales ratio "indicates excess inventories that will need to be worked off," Steven Wood, president of Insight Economics LLC in Danville, California, wrote in a note to clients. "The manufacturing sector is mired in a deep recession that is unlikely to be quickly resolved."

General Motors Corp will receive a second $5.4 billion installment of its government loan on Jan. 16, the U.S. Treasury said on Monday. In a transaction report for its bailout fund, the Treasury said it has approved the release of a total of $9.4 billion for GM, including $4 billion disbursed on Dec. 31 and $5.4 billion to be funded on Jan. 16. The Treasury has agreed to lend GM another $4 billion, but those funds would come from a second $350 billion tranche of the $700 billion Troubled Asset Relief Program, which Congress could block.

GM on Monday reported a 31 percent decline in U.S. sales in December compared with a year earlier, capping a 23 percent decline for all of 2008. The Treasury report also confirmed disbursement of $20 billion to Citigroup and $15 billion to seven U.S. banks, including $7.58 billion to PNC Financial Services Group and $3.41 billion to Fifth Third Bancorp. Other banks receiving TARP funds included: commercial finance firm CIT Group Inc; SunTrust Banks; Hampton Roads Bankshares; First Banks Inc and West Bancorp.

To date, the Treasury has released nearly $257 billion for payment from the TARP fund, including a $4 billion loan for Chrysler LLC that closed on Friday. However, the Treasury has allocated in excess of the TARP's first tranche of $350 billion. If it must make good on all of its pledges and Congress denies or delays the release of a second tranche, some institutions could face a reduction in requested funds. The outlays so far include $177.54 billion in capital injections into banks, excluding $10 billion pledged, but not paid to Merrill Lynch, now owned by Bank of America.

Under the Capital Purchase Program, allocated at $250 billion, the Treasury purchases preferred stock and warrants from participating institutions. Including the Chrysler loan, it has disbursed $19.4 billion under its Automotive Industry Financing Program. This program also includes the GM loans, $6 billion of support for finance firm GMAC LLC. The Treasury said it has also provided $40 billion to American International Group and $20 billion for Citigroup under separate programs.

General Motors Corp. has enough government loans to cover the worst-case scenario it described last month and says it won’t need more if the economy holds up. The U.S. Treasury has pledged as much as $13.4 billion in aid to help GM pay its bills and $6 billion to prop up lender GMAC LLC, which GM relies on for auto loans and dealer support. President George W. Bush agreed to the rescue after the biggest U.S. automaker said it wouldn’t have enough money to pay bills in December. "The U.S. Treasury’s $13.4 billion bridge loan to GM, coupled with the separate transaction for GMAC, meets our liquidity needs under the scenarios outlined in our December plan to Congress," GM spokesman Greg Martin said yesterday.

GM is trying to win concessions from its biggest union, cut its debt level in half, and trim brands and dealerships as part of a restructuring plan to show it will be able to repay the money. A progress report is due Feb. 17 to the Treasury Department, and a final report is due March 31. If the plan doesn’t pass government scrutiny, GM has to repay the loans. "It all depends on a lot of difficult-to-forecast factors, like the size of the market," said John Casesa, a former Merrill Lynch auto analyst who’s now a partner at consulting firm Casesa Shapiro Group in New York. GM’s market share, the health of the economy and action by competitors are all unknowns, he said.

The Detroit automaker said Dec. 2 that its worst-case scenario for 2009 U.S. auto sales is 10.5 million vehicles. GM reiterated Jan. 5 that U.S. sales will range from 10.5 million to 12 million this year, based on the current economic expectation. GM received the first $4 billion Dec. 31 from the Troubled Asset Relief Program administered by Treasury. GM is spending that money to pay bills, mostly to its 3,000 suppliers, said spokeswoman Renee Rashid-Merem. The automaker is due to receive an additional $5.4 billion this month. Should Congress agree to release a second $350 billion in TARP funds, GM will get $4 billion more in February. The Treasury Department also gave Chrysler LLC $4 billion Jan. 2 to help it stay in business and said Dec. 31 it has drafted broad guidelines for aid to the auto industry that would let officials provide funds to any company they deem important to making or financing cars.

With both companies saying they were only weeks away from insolvency, the White House stepped in after a compromise plan backed by Bush and House Democrats stalled in the Senate, raising the prospect of a collapse that would have weakened a U.S. economy already in recession. U.S. automakers are struggling to cut costs after U.S. sales last year fell to 13.2 million units, the lowest level since 1992, as a global credit crunch hurt buyers’ ability to get loans and the slowing economy sapped demand. Chrysler, the No. 3 U.S. automaker, said Dec. 2 it would run out of cash early this year without the loans. Auburn Hills, Michigan-based Chrysler finished the third quarter with $6.1 billion and needs at least $3 billion to operate, Chief Executive Officer Robert Nardelli told Congress Nov. 18.

GM’s losses have amounted to almost $73 billion since 2004. Chrysler says its first-half loss, the most recent information available, totaled $1.08 billion. Chrysler is 80.1 percent owned by Cerberus Capital Management LP, which also owns 51 percent of GMAC. Because it’s closely held, Chrysler isn’t required to release financial results and Chrysler said yesterday it still doesn’t plan to release financial information to the public after getting $4 billion in U.S. loans last month. The terms of the loans require it to release that information to the Treasury department. If GM or Chrysler is unable to develop a viable business plan, the U.S. loan terms also allow the funds to be used as so- called debtor in possession funding to keep operating in bankruptcy. Both automakers have said bankruptcy would result in their liquidation because they wouldn’t be able to get such loans from private banks.

Job cuts announced by U.S. employers almost quadrupled in December from a year earlier, paced by declines at financial firms, chemical makers and retailers as the recession rippled through the economy. Firing announcements rose 275 percent last month from December 2007, to 166,348, Chicago-based Challenger. Gray & Christmas Inc. said today. For all of 2008, employers announced 1.22 million job cuts, the most in five years. The economy is caught in a self-perpetuating cycle of rising job losses and declines in consumer spending that threatens to extend and deepen the economic slump this year. President-elect Barack Obama has said his top priority after taking office will be to pass a stimulus package that will save or create 3 million jobs.

"Unfortunately, heavy job-cutting could continue through at least the first half of 2009," John A. Challenger, chief executive officer of the placement company, said in a statement. "Nearly every industry experienced higher job cuts in 2008, as fallout from the collapse of the housing and financial markets spread throughout the economy." The U.S. economy probably lost 500,000 jobs in December, according to the median projection of economists surveyed by Bloomberg News ahead of the Labor Department’s Jan. 9 employment report. That would bring the total decline for last year to 2.4 million, the most since 1945. The number of planned job cuts decreased 8.4 percent last month from November’s almost seven-year high of 181,671, Challenger said. The figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of monthly numbers.

Financial companies led industries in announced cutbacks, with 39,604 last month, and also had the most announcements for the year at 260,110. It was the third-biggest industry annual total since records began in 1999, Challenger said. Chemical companies and retailers had the next greatest number of job cut announcements in December, with 17,968 and 17,783, according to today’s report. The Christmas holiday shopping season may have been the worst since at least 1970, with same-store sales dropping 1.5 percent to 2 percent in November and December, according to a forecast by the International Council of Shopping Centers. Best Buy Co., the largest U.S. electronics retailer, said Dec. 16 it will offer voluntary severance packages to almost all its corporate employees and will slash spending on new equipment in an effort to cut costs.

If not enough employees participate, some may be fired, the company said. The Challenger report doesn’t always correlate with figures on first-time jobless claims or employment as reported by the government. Many job cuts are carried out through attrition or early retirement. Some employees whose jobs are eliminated find work elsewhere in their companies, and some announced staff reductions never take place because business improves. Challenger’s totals also include foreign affiliates.

International Business Machines Corp., the biggest technology employer, may cut thousands of jobs this month amid the global economic slowdown, according to the employee group Alliance for IBM. Employees have been hearing that layoffs will take place in late January, said Lee Conrad, national coordinator of the Alliance, an organization seeking union recognition at Armonk, New York-based IBM. The size of the reduction may be larger than those in the past few years, he said today in an interview. "Generally they go in batches of a couple hundred here and a couple hundred there," Conrad said.

A post on the Alliance’s Web site said the company may cut 16,000 jobs, which would top the 15,600 eliminated by Chief Executive Officer Sam Palmisano in 2002. The worldwide slump has tightened companies’ technology budgets and IBM may report a 1.6 percent drop in sales last quarter to $28.4 billion, based on the average analyst estimate. "There’s likely to be production cutbacks at IBM," said Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in Bedford Hills, New York. "There will be job cuts. For now, reducing the workforce to benefit the viability and competitiveness of the company makes sense." Solaris, which oversees $2 billion, held 29,000 shares of IBM as of Sept. 30.

IBM has frequently pruned its staff over the past few years. The company had two waves of job cuts in 2007, totaling more than 2,000 positions. IBM had $318 million in job-reduction costs that year, compared with $272 million in 2006. "We constantly rebalance our workforce and continue to invest in growth areas," said Ian Colley, a company spokesman. He declined to comment further when asked about the Alliance posting. IBM had 386,558 employees at the end of 2007. Palo Alto, California-based Hewlett-Packard Co., the world’s largest personal-computer maker, had 321,000 as of Oct. 31, and Panasonic Corp., based in Osaka, Japan, had 313,594 as of Sept. 30.

Alcoa Inc. announced the elimination of about 15,000 jobs, more plant closures, plans to sell assets and a 50% cut in capital expenditures to contend with the sustained recession. The moves raise the question of whether other companies that have cut costs also will feel the need to dig deeper. Alcoa, the world's largest aluminum producer, announced a round of cost cutting in October when demand for commodities and the availability of credit began to fall. The combined restructuring will result in a fourth-quarter charge of $900 million to $950 million, or $1.13 to $1.19 a share. The company expects to report fourth-quarter earnings next week. Alcoa earned $632 million, or 75 cents a share, in the fourth quarter of 2007.

"Many of these things are painful and many of these things are drastic," Alcoa Chief Executive Klaus Kleinfeld said in an interview Tuesday. "We will continue to monitor the dynamic market situation to ensure that we adjust capacity to meet any future changes in demand and seize new opportunities." Alcoa lost much of its luster in the recent commodity boom, failing to match the profit rise of other mining and metals companies, including rivals Rio Tinto Aluminum and UC Rusal. Both of those companies have also announced major cuts, shutting operations and selling businesses such as operations in China. Alcoa expects its new moves to generate savings of about $450 million a year. About 15% of the company's employees and contractors will lose their jobs. Alcoa also is freezing salaries and hiring.

The 50% cut in capital spending for this year amounts to about $1.8 billion. The company is shutting down an additional 135,000 tons of smelting capacity, on top of the 615,000-ton shutdown announced in October. The total of 750,000 tons represents about 18% of the company's production. Alcoa also plans to sell its foil, electric-systems, automotive-wheels and European transportation-products businesses. While the company said it had "at least one strong candidate" to buy each of the four operations, no timetable was given. Indeed, in light of the tight credit market and global economic weakness, there is no guarantee Alcoa will be able to sell those assets quickly. The company said those four businesses posted a combined loss of about $105 million last year on revenue of $1.8 billion.

Proceeds of the sales are expected to reach about $100 million. Aluminum prices have fallen by half since hitting a record high in July, with prices now hovering about $1,580 a metric ton. Consumption continues to wane and stockpiles in China and Europe continue to grow. Aluminum consumption has been especially hard hit in the automotive and consumer-foil sectors. Alcoa's latest moves represent an attempt to retool and position itself both to weather the recession and emerge stronger financially when demand returns. In recent weeks, Alcoa has tried to move more quickly than its competitors in response to the downturn, idling smelting capacity and reducing downstream, or consumer-related, businesses. Alcoa announced its measures after the close of regular stock trading. The company's shares were down 53 cents after hours, after rising 26 cents to $12.12 in 4 p.m. composite trading on the New York Stock Exchange.

China faces surging protests and riots in 2009 as rising unemployment stokes discontent, a state-run magazine said in a blunt warning of the hazards to Communist Party control from a sharp economic downturn. The unusually stark report in this week’s Outlook (Liaowang) Magazine, issued by the official Xinhua news agency, said faltering growth could spark anger among millions of migrant workers and university graduates left jobless. "Without doubt, now we’re entering a peak period for mass incidents,” a senior Xinhua reporter, Huang Huo, told the magazine, using the official euphemism for riots and protests. "In 2009, Chinese society may face even more conflicts and clashes that will test even more the governing abilities of all levels of the Party and government.”

President Hu Jintao has vowed to make China a "harmonious society”, but his promise is being tested by rising tension over shrinking jobs and incomes, as well as long-standing anger over corruption and land seizures. China also faces a year of politically tense anniversaries, especially the 20th year since the June 1989 crackdown on pro-democracy protesters in Tiananmen Square. That date has already galvanised the "Charter 08” campaign by dissidents and advocates demanding deep democratic reforms. While foreign commentary about risks to China’s recipe of fast economic growth and one-party control are common, the nation’s leaders are usually reticent about such threats. This report and other recent open warnings may be intended to help snap officials to attention, said one Chinese expert. "The candour about these problems reflects the severity of the unemployment problem. It’s meant to attract the attention of all levels of government,” said Mao Shoulong, a professor of public policy at Renmin University in Beijing. "The government wants to show that stability is at the top of its agenda.”

The biggest threats to China’s social fabric will come from graduating university students, facing a shrinking job market and diminished incomes, and from a tide of migrant labourers who have lost their jobs as export-driven factories have shut. Factory closures, sackings and difficulties paying social security had already unleashed a surge of protests, the report said. Officials in provinces that have provided tens of millions of low-paid workers for coastal factories have reported a leap in the number returning to their farm homes without work. State statistical authorities estimated that close to 10 million rural migrant workers had lost their jobs, the magazine said, without specifying when the sackings happened.

Including students who graduated in 2008 and had not found work, there would be more than 7 million university and college graduates hunting for jobs this year, Huang calculated. The government’s goal of annual GDP growth for 2009 of 8 percent would generate only 8 million new jobs for the whole country, he added. In 1989, discontented students formed the core of the pro-democracy protests. "If in 2009 there is a large number of unemployed rural migrant labourers who cannot find work for half a year or longer, milling around in cities with no income, the problem will be even more serious,” said Huang. Huang is Xinhua’s bureau chief in the southwest city of Chongqing, which has long been a cauldron of unrest. Other parts of China have also seen intense but brief and localised protests over police abuses, corruption and factory closures.

The euro rose against the dollar and the yen on speculation the European Central Bank will cut interest rates at a slower pace than its major counterparts. The euro also gained against the British pound and the Swedish krona. Derivatives trading showed the ECB will lower borrowing costs by at least 25 basis points at Jan. 15, leaving its benchmark rate higher than the zero-to-0.25 percent in the U.S. and 2 percent in Britain. The dollar held near its strongest level in three weeks against the euro earlier on speculation U.S. President-elect Barack Obama’s $775 billion package of tax cuts and government spending will help the economy recover from a recession.

"The euro sell-off against the dollar in recent days seems to be running its course," said David Powell, a currency strategist in London at Bank of American Corp. "The ECB’s less aggressive easing will continue to support the euro in the near term. We expect the central bank to cut by 50 basis points next week. But if you put that in contrast to the Fed, the ECB is much more restrained." The euro rose to $1.3624 before trading $1.3600 as of 10:11 a.m. in London. The single currency fell to $1.3313 against the dollar yesterday, the lowest since Dec. 12. It rose to 127.36 yen and traded little changed at 126.66 from 126.75 yesterday. Against the pound, the euro strengthened to 91.62 pence from 90.69 pence. The greenback appreciated to 59.72 cents per New Zealand dollar from 59.88 yesterday in New York. The South Korean won strengthened to 1,292.70 per dollar from 1,312.70 as overseas investors added to their holdings of the nation’s stocks.

Powell, who predicts the euro will rise above $1.40 by the end of this quarter, said the Federal Reserve is likely to keep its fed funds rate near zero into early 2010. Economists in a Bloomberg survey forecast the ECB will cut interest rates to 1.50 percent by June, and refrain from reducing borrowing costs beyond that. The ECB cut interest rates by 1.75 percentage points since early October to 2.5 percent as the region entered a recession. Policy makers will lower the main rate by at least a quarter of a percentage point at the next meeting on Jan. 15, according to a Credit Suisse Group AG gauge of probability, based on overnight index-swap rates. The euro also rose against the dollar after Fed policy makers said in the minutes of the Dec. 15-16 meeting that they saw "substantial" risks to the slumping economy last month as they cut the benchmark interest rate to a record low and pledged to expand emergency loans if necessary.

"What is clear from the rise in the euro-dollar from yesterday’s intraday low of 1.3313 is that market participants remain concerned over the scale of easing being undertaken by the Federal Reserve," said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mistsubishi Ltd. in London.
Further declines in the dollar many be limited in the near term after the U.S. Treasury pledged as much as $13.4 billion in aid to help GM pay its bills and $6 billion to prop up lender GMAC LLC, which GM relies on for auto loans and dealer support.

All gas supplies to Europe via Ukraine were shut down Wednesday as the pricing dispute between Russia and Ukraine escalated. The Ukrainian gas company Naftogaz on Wednesday accused Gazprom, the Russian gas monopoly, of halting all transshipments at 7:44 a.m. But in Berlin, Aleksandr Medvedev, Gazprom's deputy chief executive, told journalists that it was Naftogaz, the Ukrainian company, that had closed a fourth pipeline. "Unfortunately, the situation is continuing to deteriorate," Reuters quoted Medvedev as saying. "Yesterday night, Ukraine completely shut down all export pipelines to Europe via Ukraine."

The shutdown left Slovakia, the Czech Republic, Austria and Romania with no Russian gas supplies amid a bitter cold snap. European Union countries have access to some other sources of gas ? including Russian gas from other pipelines, and gas produced in Britain, Norway and the Netherlands ? but the loss of the Ukrainian pipeline puts the EU under pressure to push for a solution. The cutoff of European gas supplies began Tuesday, causing shortages from France to Turkey. Gazprom said Ukraine was siphoning off for itself supplies meant for Europe, and that it was reducing shipments by an equivalent amount. Russia had already halted all supplies to Ukraine for its own use, saying its western neighbor was not paying enough for the fuel.

Gazprom is seeking to raise the price Ukraine pays for gas to $450 per 1,000 cubic meters from $179.50 last year. It also wants to collect what it says are fines for late payments on previous shipments. In Vienna, the Austrian gas company OMV said Wednesday it was no longer receiving any Russian gas, after its deliveries fell 90 percent Tuesday. Viktor Yuschenko, the Ukrainian president, called for immediate talks in Moscow to restart the flow. The European Commission said Tuesday that the situation was "completely unacceptable" and called for the immediate restoration of the gas supply. Europe depends on Russia for 40 percent of its imported fuel. While each side blamed the other for the scope of the latest drop in gas shipments, Russia's prime minister, Vladimir Putin, had personally announced Monday evening on state television that he was ordering a sharp reduction in gas flows, saying Ukraine was siphoning gas from the pipelines without paying.

For Putin, the escalation comes at a perilous time, as slumping energy prices threaten the fiscal health and political stability that have underpinned his popularity at home. Some analysts of Russian politics had expected Putin to become more conciliatory as energy prices fell. Instead, he has taken a hard line in seeking to raise gas prices in Ukraine and perhaps create panic-buying on the international market, where prices of natural gas and oil, Russia's leading exports, have fallen sharply in recent months. "They're still playing hardball, when they have to realize the rules have changed," Marshall Goldman, a senior scholar in Russian studies at Harvard and the author of the recent book "Petrostate: Putin, Power and the New Russia," said in a telephone interview. "It happened so quickly that I don't think they've had time to realize the implications."

With temperatures plunging, European leaders expressed mounting concern. Some countries announced rationing for industrial customers to reserve enough heating for residential buildings. A spokesman for the European Commission said that the cut had come "without prior warning and in clear contradiction of the reassurances given by the highest Russian and Ukrainian authorities," adding, "This situation is completely unacceptable." The cutoff appears to have multiple aims. Ukraine has angered Russia by seeking membership in the North Atlantic Treaty Organization, as has Georgia, a country Russia fought a brief war against last summer. Putin is also under heavy pressure domestically. Oil and gas exports provide about 60 percent of the Russian budget; oil prices, meanwhile, have fallen by about two-thirds since their peak last summer.

The effects are rippling through the economy. The ruble is being devalued, Russian companies are facing bankruptcy and the government's huge budget surplus will turn into a deficit next year if prices do not rebound, analysts say. At the same time, Russia's relations with the West slumped to post-cold-war lows after Russia sent troops into Georgia in August. Even as Russia will need foreign investment to offset dwindling energy export revenues, options are dwindling for attracting investors to a country that even in the best of times had a poor track record of property rights. "The Russian elite mind-set right now is a residue of petro-confidence slamming into the financial crisis," said Cliff Kupchan, a director at the Eurasia Group, a global risk-consulting firm based in New York. "So in my view, they're confused about whether to seek help from the international financial system to solve their problems that way or continue a bare-knuckled approach to the world."

Gazprom is seeking to raise the price Ukraine pays for gas to $450 per 1,000 cubic meters, from $179.50 last year. It also wants to collect what it says are fines for late payments on previous shipments. Ukraine has in turn demanded that Gazprom pay more to transship gas to Europe. Executives of Gazprom blamed Ukraine. In an announcement on Monday, Putin and Gazprom's chief executive, Aleksei Miller, said they would cut 65.3 million cubic meters of gas supplies for Europe. In fact, the reduction totaled about 240 million cubic meters, according to Gazprom. Company officials said that they had intended to ship more fuel on Tuesday, but that Ukraine had blocked export pipelines. Ukrainian energy officials denied this. "We are shocked that we're not in the position to bring gas to the border of Ukraine because they shut down the pipelines," Medvedev, a deputy chief executive of Gazprom, said at a news conference in London on Tuesday. "There is no reason to blame Russia or Gazprom."

Oleh Dubyna, the director of Ukraine's national energy company, Naftogaz, said he would fly to Moscow on Thursday to resume negotiations. Gazprom's spokesman, Sergei Kupriyanov, said the company was "ready to begin negotiations at any moment." A compromise may be harder to find this year, Thane Gustafson, an expert on Russian energy at Cambridge Energy Research Associates of Massachusetts, said in a telephone interview from Washington. "We're talking about two sides that are under extreme constraint," he said. Among the pipeline routes that were affected the most was the so-called Western Balkan route, affecting supplies to Romania, Bulgaria, Macedonia, Greece and Turkey, said Ferran Tarradellas, a spokesman for the European Union energy commissioner, Andris Piebalgs.

Substantial cuts could also affect Slovakia, Hungary, Slovenia, Italy and Austria, Tarradellas said. In Turkey, flows of gas through a pipeline that runs from Ukraine stopped completely on Tuesday morning, said the country's energy minister, Hilmi Guler. The pipeline is a major source of gas for Turkey, which imports nearly all its energy. Several other sources, including the Blue Stream pipeline, which carries gas to Turkey from Russia under the Black Sea, were unaffected, however.

Outside, the temperature plummeted to minus 12. Inside, the gas stopped flowing to homes in some of Europe's eastern cities in the dead of night and stayed off all day while the thermometer stayed below zero. Tens of thousands living on the shores of the Black Sea were the first to feel the bitter impact of Russia's dispute with Ukraine over gas payments on the coldest day of the year. With even icier conditions forecast for this week, the gas flow from Russia dried up during the day to nine countries, leading Bulgaria and Slovakia to consider declaring states of emergency and others to warn that just a few days' reserves remained.

In Britain there were increasing concerns that families could be forced to pay more than expected for their gas and electricity. The "big six" energy suppliers — British Gas, ScottishPower, Scottish and Southern Energy, EDF Energy, npower and E.ON — had been widely expected to cut their retail gas and electricity prices over the next few weeks by about 10 per cent, reflecting a marked drop in the wholesale price of gas last autumn. British wholesale prices leapt sharply yesterday, though, as Russia's decision to withhold gas from Ukraine over unpaid bills and an unsigned contract for 2009 grew into dire shortages farther down the pipelines that take 36 hours to pump gas across the vast former Soviet country.

Italy reported a 90 per cent cut in its Russian gas, France a reduction of 70per cent and two importers in Germany said that they had serious shortfalls. Most countries have stockpiled several weeks' supplies after two mild winters and experience of a similar dispute between Moscow and Kiev in 2006. That row lasted three days but the latest disagreement, which started on New Year's Day, seems to be far from over. There was one glimmer of hope when the head of Ukraine's gas company agreed to go to Moscow for talks tomorrow with Gazprom, the Russian state-controlled monopoly gas supplier.

With the Russian gas supply cut entirely yesterday to Bosnia, Bulgaria, Croatia, Greece, Hungary, Macedonia, Romania, Serbia and Turkey, the EU broke from its diplomatic approach to demand a resolution to the crisis. "Without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities to the European Union, gas supplies to some EU member states have been substantially cut," the EU said. "This is completely unacceptable. The Czech EU presidency and the European Commission demand that gas supplies be immediately restored to the EU and that the two parties [Russia and Ukraine] resume at once negotiations with a view to a definitive settlement of their bilateral commercial dispute."

Around Europe, both Russia and Ukraine are being blamed for the worsening situation. In Bulgaria, which relies almost completely on Russia for gas and where households in the cities of Varna and Dobrich are already without gas, the Prime Minister said that there was only one week's supply left in reserves and appealed for industry to cut usage. The President even proposed that an ancient nuclear power plant, closed as a condition of Bulgaria joining the EU because it was deemed too dangerous, should be switched back on.

Turkey was seeking gas from Iran and Croatia introduced rations for industrial users to maintain domestic supplies. Austria, which lost 90 per cent of its normal supplies, said that it had three months' reserves but called an emergency meeting at its Economy Ministry. Slovakia, which is entirely dependent on Russia for gas, was considering a state of emergency after deliveries fell by 70 per cent. Russia and Ukraine continued to blame each other for Europe's shortfalls, with no independent verification possible. Ukraine turned off three pipelines because it said that Russian supplies had halved, while Russia said that it was withholding the amount that Kiev was allegedly stealing.

Gazprom has demanded a large price increase for 2009 and says that payment for November and December has not been fully received. It said that it supplied 65 million cubic metres (mcm) to Europe yesterday through Ukraine, a fall of 78 per cent from the 300 mcm that it had been supplying since the dispute started. The Department for Energy and Climate Change at Whitehall called for Moscow and Kiev to urgently work to resolve the dispute. "We back the European Union's call for gas supplies to be restored immediately and that both parties restart negotiations with a view to a speedy resolution of this commercial dispute," a statement said.

The department said that less than 2per cent of gas was imported from Russia and that it did not expect British supplies to be affected. Around 40 per cent of the gas used in Britain will be imported this year, up from 27 per cent in 2007. That proportion is expected to rise to 75 per cent by 2015. Most of these imports come via pipelines from Norway and Holland. Britain is also able to import liquefied natural gas via ships to terminals at the Isle of Grain in Kent and Milford Haven in Wales.

Slovakia, Hungary and Bulgaria were among European countries to restrict natural-gas supplies to consumers as Russian exports to Europe via Ukraine halted. Slovensky Plynarensky Priemysel AS, Slovakia’s dominant gas company, said it would curb deliveries to the largest industrial users. Affected companies include refiner Slovnaft AS, which consumes more than 1 million cubic meters of gas a day, spokeswoman Kristina Felova said by telephone. Households aren’t affected, according to Slovensky. Hungary also instructed industrial users to switch to other fuels, according to Janos Zsuga, head of the gas-transmission unit of refiner Mol Nyrt. The order affects companies that use more than 500 cubic meters of gas an hour, Zsuga said today in an e-mailed statement.

OAO Gazprom, Russia’s gas-export monopoly, halted all shipments to Europe via Ukraine at 7:44 a.m. Kiev time today, said Valentyn Zemlyanskiy, a spokesman for Ukraine’s state-run energy company NAK Naftogaz Ukrainy. The exporter had threatened late yesterday to cut supplies if Ukraine held up fuel meant for customers in central and western Europe. Hungary and Slovakia are most exposed to the stoppage because they depend more on the fuel for energy than other European nations, according to UniCredit SpA. Investors should buy protection on debt issued by Slovakia through the market for credit-default swaps, Gyula Toth, an analyst at UniCredit in Vienna, wrote in a research note today.

Bulgaria will also limit supplies, cutting daily gas use to 5.7 million cubic meters from 8 a.m. local time tomorrow, Economy and Energy Minister Petar Dimitrov told a news briefing today. The country will seek compensation for economic losses arising from the disruption, he said. Gazprom Deputy Chief Executive Officer Alexander Medvedev said today that Ukraine shut off a fourth pipeline to Europe after closing three others yesterday. Russia and Ukraine have blamed each other for the supply cuts, which come as the two countries continue to dispute gas pricing and transit fees. Austria, the Czech Republic and Germany were among European countries that pledged to meet domestic demand for gas. OMV AG, Austria’s largest oil and gas producer, said it’s able to meet demand by tapping stockpiles, sourcing imports from elsewhere and using its own output, the Vienna-based company said in an e-mailed statement.

The Czech Republic’s RWE Transgas is using supplies from Norway and underground storage, the gas trader said today in an e-mailed statement. It has also secured extra gas in cooperation with parent company RWE AG, which is arriving via the northern route along with the Norwegian imports, "fully compensating" the situation. RWE, Germany’s second-largest utility, said its gas clients won’t experience any disruption in supply. The company sources about 80 percent of its gas from and through other countries and storage is "well-filled," spokeswoman Annett Urbaczka said by telephone today. Distrigas SA, the biggest gas supplier in neighboring Belgium, said it doesn’t buy Russian gas and isn’t affected by the halt. Fluxys SA, owner of the country’s gas grid, said there’s no shortage of the fuel, according to spokeswoman Berenice Crabs.

French Finance Minister Christine Lagarde said today the country it isn’t "overly concerned" about the impact of the cutoff because utility GDF Suez gets only 15 percent of its supplies from Russia. Swiss gas supply has also "functioned without any constraints," said Daniel Baechtold, a spokesman for industry association Swissgas. "We don’t expect a decrease," he added. Russian gas comes to Switzerland through contracts with other European gas companies, including German utility E.ON Ruhrgas AG. E.ON Ruhrgas didn’t return calls from Bloomberg News. Eni SpA, Italy’s biggest energy provider, has registered a "substantial" interruption in gas supplies from the TAG pipeline beginning at 1 a.m. local time, the company said in a statement.

Romania, which borders Ukraine, was forced to close the second of two gas-import stations today and tap reserves to meet demand after shutting the Isaccea 2 entry point yesterday, the Economy Ministry said in an e-mail. Poland, also a neighbor of Ukraine, is receiving no gas from Russia via the country, Malgorzata Polskowska, a spokeswoman for national pipeline operator Gaz-System SA, said by telephone from Warsaw today. Finland is still receiving gas through a Russian pipeline that doesn’t flow through Ukraine, Minna Ojala, a spokeswoman for utility Gasum Oy, said today.